2019 (5) TMI 1034 - AT - Customs

Concessional rate of customs duty - Original Equipment (OE) parts - Notification No. 222/87-Cus dated 01.03.1987 146/92-Cus dated 26.03.1992 and 72/93 dated 28.02.1993 - benefit of notification in respect of those parts which the appellant after import diverted to their spare parts division. HELD THAT - Having imported the parts for the specified end-use assessee has thereafter diverted them for some other use. Clearly such diversions are not covered by the exemption notification. There is no scope for such diversion or even of loaning of the goods for some other purpose with the understanding that a corresponding quantity of the goods will be returned after some time. Therefore as far as the exemption notification is concerned they are NOT entitled to the benefit of exemption notification on such quantity of the goods as were diverted from OE to their spare parts division. The appellant s contention that they were not the manufacturers during the relevant period who had imported the goods but had taken over the firm subsequently also does not carry their case any further. Once they have taken over the unit from the previous owners they necessarily take on all the assets and liabilities including contingent liabilities of the unit. Therefore they are fully liable to pay differential duty. Demand u/s 28B - HELD THAT - The demand is based on the presumption that the appellant has collected some amount as representing customs duty by incorporating such amount in their cost calculations. Clearly there is no evidence that the customer was charged some amount as representing customs duty. Section 28B does not provide for recovery of any amount included in the cost calculation as element of Customs Duty. Therefore the demand on this count is not sustainable. Confiscation - redemption fine - penalty - HELD THAT - A small quantity of the goods valued at Rs. 2, 10, 000/- were confiscated by the impugned order under Sec.111(o) of the Customs Act for violation of the conditions of the customs notification. An option to redeem the same has been given under Sec.125 by paying redemption fine of Rs. 25, 000/- only. There is no reason to interfere with either confiscation or the reasonable amount of fine imposed for redemption of the goods on this count. In the impugned order a penalty of Rs. 40 lakhs has been imposed under Sec.112 (a) (b) of the Customs Act upon the appellant for noncompliance of the conditions of the customs notification and clandestine clearance of OE parts to their spare parts division - penalty imposed on the appellant under Sec.112 (a) (b) for non-compliance of the customs notification and clandestine removal of parts reduced. Appeal allowed in part.

Summary

Issues:
1. Interpretation of exemption notification for customs duty on imported parts.
2. Liability of successor firm for duty on diverted goods.
3. Application of penalties for non-compliance with customs regulations.

Issue 1: Interpretation of exemption notification for customs duty on imported parts:
The case involved a company engaged in manufacturing and marketing of motor vehicles, importing parts under concessional rates of customs duty for Original Equipment (OE) parts. The dispute arose when the company diverted some imported OE parts to their spare parts division, which attracted higher customs duty rates meant for spare parts. The central issue was whether the concessional duty for OE parts could be extended to diverted parts. The tribunal held that exemption notifications must be strictly construed against the claimant, and any doubt should favor revenue. As the diverted parts were not used for the specified end-use, they were not entitled to the exemption. The diversion, even if for loan purposes, was not covered by the exemption notification.

Issue 2: Liability of successor firm for duty on diverted goods:
The appellant, as a successor firm, argued against the duty liability for diverted goods, claiming they had taken over the previous firm's assets and liabilities. However, the tribunal held that upon acquisition, the successor firm assumes all liabilities, including contingent ones. Therefore, the appellant was deemed fully liable for the duty on diverted goods, irrespective of the proportion diverted.

Issue 3: Application of penalties for non-compliance with customs regulations:
Penalties were imposed for non-compliance with customs regulations, including clandestine diversion of OE parts. The tribunal upheld the penalties but reduced the amount imposed on the appellant and set aside personal penalties on certain individuals. The demand under Sec.28B for customs duty representation in cost calculations was deemed unsustainable due to lack of evidence of customer charges. Confiscation of goods and imposition of fines for violation of customs conditions were upheld.

In conclusion, the tribunal partly allowed the appeal by modifying the impugned order, setting aside certain demands and penalties, and reducing the penalty imposed on the appellant. The judgment clarified the strict interpretation of exemption notifications, successor firm liabilities, and penalties for customs duty non-compliance, providing a comprehensive analysis of each issue raised in the case.