2023 (9) TMI 1553 - AT - Customs

Interest on the delayed payment of CVD, SAD - order of confiscation of the goods - redemption fine imposed in lieu of confiscation - penalties - Classification and valuation of imported laptops - Department was of the view that as the appellants have undertaken the activity of loading of software on the laptops which amounts to manufacture they are liable to discharge duty on the goods on transaction value and not on RSP basis. HELD THAT - Sub-section (8) of Section 3 does not speak that the provisions of Customs Act, 1962 relating to interest on belated payment of duty as applicable to the CVD and SAD levied under the Customs Tariff Act. Section 28AA deals with payment of interest on Basic Customs duty i.e, the duty levied under Customs Act, 1962. Unless there is substantive provision to levy interest, the same cannot be collected. The Hon ble High Court of Bombay in the case of Mahindra Mahindra Ltd. 2022 (10) TMI 212 - BOMBAY HIGH COURT analysed the very same issue as to the demand of interest and penalty in relation to amounts payable as duty other than Basic Customs Duty. The Hon ble High Court held ' Respondent No. 2 certainly cannot pass an order beyond the provisions of the Customs Act, 1962. The provisions relating to interest contained in Section 28AB of the Customs Act, 1962 are not borrowed in the legislation imposing levy of surcharge or CVD or SAD. Respondent No. 2 cannot include interest in the settlement arrived at by it on the ground that petitioner has derived financial benefits by not paying the correct rate of duty when it was due. Deriving financial benefits itself cannot be a ground to order payment of interest in the absence of any statutory provisions for payment of interest.' The above judgment of the Hon ble High Court was affirmed by the Hon ble Apex Court in UNION OF INDIA ORS. VERSUS MAHINDRA AND MAHINDRA LTD. 2023 (8) TMI 135 - SC ORDER . Applying the ratio laid in the above judgment, we are of the considered view that the demand of interest (on the total differential duty of Rs. 4,81,74,877/-) cannot sustain and requires to be set aside. For the same reason, the confiscation of the goods and the imposition of redemption fine are set aside. Penalty u/s 114A of the Customs Act, 1962 - HELD THAT - The penalty u/s 114A is levied in cases of short levy or non-levy. Subsection (8) of Section 3 of CTA, 1975 has borrowed the provisions with regard to collection of duty (CVD SAD). However, there is no express mention of borrowing the provisions for imposing penalty in regard to these duties. Be that as it may, though the SCN is issued alleging willful suppression of facts with intent to evade payment of duty, it has to be noted that the appellant would be eligible to avail credit of the duties paid. The entire situation is revenue-neutral. The Larger Bench in the case of Jay Yushin Ltd. CCE, New Delhi 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI-LB held that the demand cannot be sustained on account of revenue neutrality - the penalty imposed requires to be set aside. The impugned order is modified to the extent of setting aside, the demand of interest, the order of confiscation of goods, the imposition of Redemption fine, penalties imposed and the appropriation of interest paid by the appellant without disturbing the confirmation of duty. Appeal allowed in part.

Summary

Issues Involved:
1. Classification and valuation of imported laptops.
2. Demand of differential duty and interest on CVD and SAD.
3. Confiscation of goods and imposition of redemption fine.
4. Imposition of penalties under Section 114A of the Customs Act, 1962.

Detailed Analysis:

1. Classification and Valuation of Imported Laptops:
The appellant classified the imported laptops under Customs Tariff Item 84713010, declared the value as USD 277.48 per piece, and claimed exemption from Basic Customs Duty (BCD) under Notification No. 24/2005-Cus. They paid CVD on the retail sale price (RSP) of Rs. 14,999/- and availed exemption from SAD under Notification No. 21/2012-Cus. The department contended that the activity of loading software and repacking amounted to 'manufacture' under Section 2(f) of the Central Excise Act, 1944, and thus the goods should be assessed on transaction value rather than RSP.

2. Demand of Differential Duty and Interest on CVD and SAD:
The original authority confirmed the differential duty of Rs. 4,81,74,877/- along with interest. The appellant argued that there is no substantive provision for levying interest on delayed payment of CVD and SAD under Section 3(8) of the Customs Tariff Act, 1975. The Tribunal found merit in this argument, referring to the High Court of Bombay's decision in Mahindra & Mahindra Ltd. Vs Union of India, which held that in the absence of specific provisions for levy of interest or penalty, such charges cannot be imposed. Consequently, the demand for interest on CVD and SAD was set aside.

3. Confiscation of Goods and Imposition of Redemption Fine:
The original authority ordered the confiscation of 25,512 laptops under Section 111(m) of the Customs Act, 1962, and imposed a redemption fine of Rs. 1,50,00,000/-. The appellant contended that there was no misdeclaration or suppression of facts, and the entire situation was revenue-neutral as they were eligible for CENVAT credit on the additional duty paid. The Tribunal agreed and set aside the order of confiscation and the imposition of redemption fine, citing the revenue-neutrality principle and the absence of substantive provisions for such penalties under the Customs Tariff Act.

4. Imposition of Penalties under Section 114A of the Customs Act, 1962:
The original authority imposed a penalty of Rs. 5,85,04,608/- under Section 114A. The appellant argued that there was no willful misstatement or suppression of facts, and the situation was revenue-neutral. The Tribunal noted that the penalty under Section 114A is applicable in cases of short-levy or non-levy due to willful misstatement or suppression of facts. However, given the revenue-neutral situation and the lack of substantive provisions for penalties under the Customs Tariff Act, the Tribunal set aside the penalty.

Conclusion:
The Tribunal modified the impugned order by setting aside the demand for interest, the order of confiscation, the imposition of redemption fine, and the penalties imposed, while upholding the confirmation of the differential duty. The appeal was partly allowed in these terms.