2020 (2) TMI 644 - AT - Customs

Undervaluation of goods - various types of Aluminium scrap imported - allegation raised against M/s AMA, in the said SCN was that they had imported various consignments of Aluminium scrap from various overseas suppliers either directly or through their indenter or purchased the same from various high seas sellers at a grossly undervalued price - HELD THAT - The demand in the present case has been confirmed under Rule 4 of the Customs Valuation Rules, 1988 by applying price band to LME prices as per Alert circular No. 14/2005 dated 16.12.2005 issued by the Director General of Valuation. Apart from the above, the demand has been confirmed by relying upon the statements of co-appellants viz, the partners of AMA, indenting agents, etc., 3 insurance policies and Brussel Report in relation to one import consignment. The adjudicating authority has proceeded to redetermine the value of imported aluminium scrap on the basis of the DGOV circular without considering and overlooking the contemporaneous data available before it on record. It is a settled law that if the declared value is to be rejected in that case the CVR, 2008 has to be applied sequentially i.e. Rule 5 and 6 is to be applied. If the value of contemporaneous goods are available, the same shall be basis for redetermination of value, as held by Apex Court in the case of COMMISSIONER OF CUSTOMS, CALCUTTA VERSUS SOUTH INDIA TELEVISION (P) LTD. 2007 (7) TMI 9 - SUPREME COURT . The adjudicating authority in the present case has confirmed the demand on the basis of the LME price as stated in the DGOV circular - the Tribunal in the case of M/s Sunland Metal 2019 (10) TMI 113 - CESTAT AHMEDABAD after considering the various case laws and communication/clarification given by the then CBEC/ISRI has held that LME price cannot be the basis for redetermination of value of scrap. Liability of additional duty of Customs in respect of scrap - HELD THAT - The Appellant herein is entitled for all reliefs/ exemption associated with the assessment. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Undervaluation of imported Aluminium scrap.
2. Confirmation of differential customs duty demand.
3. Imposition of penalties under Sections 112 and 114A of the Customs Act, 1962.
4. Reliance on LME prices for valuation.
5. Validity of retracted statements as evidence.
6. Cross-examination of witnesses.
7. Use of insurance policies for valuation.
8. Relevance of Brussels Report.
9. Finality of assessed Bills of Entry.
10. Additional duty of customs on Aluminium scrap.
11. Limitation period for issuing Show Cause Notice (SCN).

Issue-wise Detailed Analysis:

1. Undervaluation of Imported Aluminium Scrap:
The primary issue is whether M/s Agarwal Metals & Alloys (M/s AMA) undervalued various types of Aluminium scrap imported from Europe, the Middle East, and the USA. The Directorate of Revenue Intelligence (DRI) investigated and issued a Show Cause Notice (SCN) alleging undervaluation to evade customs duty, supported by evidence such as statements, insurance policies, and third-party correspondences.

2. Confirmation of Differential Customs Duty Demand:
The SCN sought to recover differential customs duty amounting to ?4,91,64,242, ?30,31,121, and ?16,59,309 for imports at Nhava Sheva, Kandla, and ICD Tughlakabad, respectively. The differential duty demand was confirmed, except for 20 Bills of Entry, which were provisionally assessed.

3. Imposition of Penalties under Sections 112 and 114A:
Penalties were imposed on M/s AMA under Section 114A and on co-appellants under Section 112(b) of the Customs Act, 1962. The penalties were challenged based on the argument that the duty demand itself was not sustainable.

4. Reliance on LME Prices for Valuation:
The valuation of the imported Aluminium scrap was based on LME prices for virgin material, applying a discount band as per DGOV circular. The Tribunal held that LME prices for virgin metal cannot be applied for the valuation of scrap, as supported by precedents like the case of Pushpak Metal Corporation and Sunland Metal Recycling Industries.

5. Validity of Retracted Statements as Evidence:
The statements of M/s AMA's partners, which were retracted immediately, were relied upon by the adjudicating authority. The Tribunal noted that retracted statements, especially when recorded under duress, cannot be the sole basis for confirming the demand. The retractions were sent by registered post and presumed served unless rebutted by the Department, which did not happen.

6. Cross-Examination of Witnesses:
The Tribunal emphasized the importance of cross-examination, as mandated by Section 138B of the Customs Act, 1962. The failure of witnesses to appear for cross-examination rendered their statements unreliable. The Tribunal cited precedents like Andaman Timber Industries and Vasudev Garg to support this view.

7. Use of Insurance Policies for Valuation:
The reliance on three insurance policies to support the charge of undervaluation was deemed improper. The Tribunal held that insurance values, which could be inflated for higher compensation, cannot be a ground for enhancing the value of imported goods, as supported by cases like M/s Anand Mahindra and Nina Chaka Pvt. Ltd.

8. Relevance of Brussels Report:
The report obtained from the First Secretary (Trade), Embassy of India, Brussels, was found irrelevant as it pertained to a transaction between two different parties, not involving M/s AMA. The Tribunal noted that the proforma invoice in the report was unauthenticated and could not be relied upon.

9. Finality of Assessed Bills of Entry:
The Tribunal held that reassessment of values for Bills of Entry that had already attained finality without being appealed or reviewed was not permissible. This view was supported by judgments in cases like CC vs. Lord Shiva Overseas and Malhotra Impex.

10. Additional Duty of Customs on Aluminium Scrap:
The Tribunal reiterated that no additional duty of customs (CVD) is payable on Aluminium scrap as it is not a manufactured product. This view was supported by the Supreme Court's decision in Hyderabad Industries Ltd v. UOI.

11. Limitation Period for Issuing SCN:
The Tribunal did not address the issue of limitation explicitly, as the appeals were decided on merit, leaving the question of whether the SCN issued on 28.03.2008 for goods cleared between 2003-04 and 2006-07 was barred by limitation open.

Conclusion:
The Tribunal set aside the impugned order, holding that the demands confirmed against M/s AMA, confiscation of goods, and penalties imposed were not sustainable. The appeals were allowed with consequential reliefs to the appellants, emphasizing the importance of contemporaneous import data over LME prices, the unreliability of retracted statements without cross-examination, and the impropriety of using insurance values for valuation.

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