2007 (11) TMI 185 - HC - Customs

Penalty on short landed goods (phosphoric acid) Dt. Collector confirmed penalty rejecting Ullage report & holding that only an allowance of 2% could be accepted by way of ocean loss. He however noticed the peculiar nature of the goods & the tendency of sludge formation during long voyage - ullage report is a method of measuring short landed goods for purpose of penalty u/s 116 penalty imposed by rejecting ullage report mere by reason that it was not signed by custom officer, isn t justified

Summary

Issues Involved:
1. Validity of the penalty imposed under Section 116 of the Customs Act, 1962.
2. Consideration of the Ullage Report for determining short landed goods.
3. Applicability of concessional rate of duty for calculating penalty.

Detailed Analysis:

1. Validity of the penalty imposed under Section 116 of the Customs Act, 1962:
The petitioner was penalized Rs. 4,30,000 for short landed goods under Section 116 of the Customs Act, 1962. The appellate authority reversed this decision, considering the peculiar characteristics of phosphoric acid, which tends to form sludge during long voyages. The appellate authority found that the sludge formation was an inherent characteristic and allowed the quantity of sludge to be considered over and above the ocean loss allowance of 2%. The revisional authority, however, reinstated the original penalty, asserting that sludge formation beyond the 2% ocean allowance was not permissible.

2. Consideration of the Ullage Report for determining short landed goods:
The Ullage Report indicated a discrepancy between the quantity of phosphoric acid declared and the quantity actually pumped into shore tanks. The appellate authority accepted the Ullage Report, noting that it was conducted in the presence of relevant officers and reflected the inherent sludge formation. The revisional authority did not dispute the Ullage Report's validity but rejected its findings based on the 2% ocean allowance limit. The court highlighted the importance of Ullage Reports, citing judgments from the Bombay High Court, which affirmed that Ullage Reports are a scientific method for determining quantities and should be considered for assessing short landed goods.

3. Applicability of concessional rate of duty for calculating penalty:
The appellate authority noted that the penalty under Section 116 should be calculated based on the concessional rate of duty applicable at the time of importation, which was 15%, not the higher tariff rate used by the adjudicating authority. The revisional authority disagreed, stating that the short landed quantities were not utilized for the prescribed end-use, thus the concessional rate could not be applied. The court, however, found this reasoning flawed, emphasizing that the rate of duty for penalty calculation should reflect the actual duty paid at importation.

Conclusion:
The court quashed the revisional authority's order, reinstating the appellate authority's findings. The court agreed with the appellate authority's detailed consideration of the peculiar characteristics of phosphoric acid and the acceptance of the Ullage Report. The court also upheld the application of the concessional rate of duty for penalty calculation. Consequently, the respondents were directed to refund the penalty amount to the petitioner within ten weeks.

Final Judgment:
The petition succeeded, and the impugned order of the Central Government dated 20.8.1993 was quashed. The respondents were ordered to refund the penalty amount deposited by the petitioner within ten weeks.