2024 (9) TMI 1695 - AT - Customs

Non-imposition of penalties u/s 114A and 114AA of the Customs Act 1962 - evasion of customs duty by mixing two separate consignments/cargos after getting let export orders from the authorities - HELD THAT - While arriving at his findings concerning the determination of the iron percentage content in the export cargo the adjudicating authority has specifically noted that on WMT basis the iron ore content in various consignments of the export cargo stood below 58% both shipping bill wise as well as on the entire/full cargo load basis and therefore the question of demand of differential duty on entire/full cargo loaded on the basis of private test agencies deriving iron content on DMT basis would not hold good. The department s premise in the matter for determination of iron content in the iron ore without considering moisture content i.e. on DMT basis is against the settled law as indicated supra. Multiple pronouncements by various authorities on the subject have reckoned the determination of iron content on WMT basis and the department is bound therewith. On the valuation aspect the Ld.Commissioner has exhaustively discussed the matter in his impugned orders. It is further on record that the BRCs concerned with the shipments establish nothing more than the transaction value as declared by the exporters. An identical issue was considered by the Coordinate Bench of the Tribunal in the case of CC(Prev.) BBSR. V. Chamong Tea Exports Pvt.Ltd. 2024 (8) TMI 1525 - CESTAT MUMBAI whereto the appeal filed by the Revenue was dismissed and the entire consignments were even though held as consolidated consignments the iron content arrived at on WMT basis being less than 58% were held to be not non-dutiable. Consequently liability for payment of duty penalty etc. were all dismissed. Merely on the premise of mixing of the cargo post the issuance of the let export order cannot justify the claim for demand of duty on the entire lot when there is nothing contrary to hold Fe% being more than the dutiable threshold when arrived at on WMT basis - There are no merit in the learned adjudicating authority imposing penalty under Section 114AA on the respondents herein. As for the employee Ajay Gupta the crucial reason for imposition of penalty is that he was found to be in possession of invoices pertaining to export of iron ore fines that were loaded into the vessels. This is no plausible reason and the penalty imposed is liable to be set aside as the said invoices could not be connected to the impugned shipment. Having found commissioning of no wrong we fail to appreciate the logic for imposition of any such penalty on each of the respondents. In view of the findings above there are no reason in the proposal of the Revenue to impose penalty under Section 114A of the Customs Act on the respondents. There is nothing on record intentional or otherwise to establish the usage of such material that has been found to be false or incorrect in any material particular therefore any penalty on that account is certainly not imposable in the matter. Conclusion - i) The determination of Fe content on a WMT basis is crucial for assessing export duty liability. ii) The absence of evidence for intentional evasion or false declarations negates the imposition of penalties under Sections 114A and 114AA of the Customs Act. The Revenue s appeals are liable to be quashed and are therefore dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the mixing of iron ore fines with different iron content levels, after obtaining let export orders, constituted an evasion of export duty under the Customs Act.

2. Whether the adjudicating authority was correct in dropping the demands for export duty and penalties under Section 114A of the Customs Act.

3. Whether the imposition of penalties under Section 114AA of the Customs Act on the respondents was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Evasion of Export Duty through Mixing of Iron Ore Fines

Relevant Legal Framework and Precedents: The Customs Act, along with Notifications No. 27/2011-CUS and 15/2016-CUS, governs the imposition of export duties on iron ore fines based on their iron content. Iron ore fines with Fe content above 58% attract a 30% ad valorem duty, while those below 58% are exempt.

Court's Interpretation and Reasoning: The Court examined the method used by the respondents to export iron ore fines and whether this constituted a deliberate attempt to evade export duty. The Court noted that the department alleged mixing of different grades of iron ore fines to lower the apparent Fe content and evade duty.

Key Evidence and Findings: Evidence included shipping bills, chemical test reports, and declarations made by the respondents. The adjudicating authority found that the Fe content, when calculated on a Wet Metric Ton (WMT) basis, was below 58%, thus not attracting duty.

Application of Law to Facts: The adjudicating authority applied the formula for determining Fe content on a WMT basis, as laid down by the Bombay High Court and the Supreme Court, which supported the respondents' claims.

Treatment of Competing Arguments: The Court considered the department's reliance on local test reports and the respondents' evidence of compliance with the law. The Court favored the respondents' interpretation based on established legal precedents.

Conclusions: The Court concluded that the respondents did not evade export duty as the Fe content on a WMT basis was below the dutiable threshold.

2. Dropping of Demands and Penalties under Section 114A

Relevant Legal Framework and Precedents: Section 114A of the Customs Act deals with penalties for duty evasion. The adjudicating authority's decision to drop demands was based on the absence of evidence for intentional evasion.

Court's Interpretation and Reasoning: The Court agreed with the adjudicating authority that the evidence did not support the imposition of penalties under Section 114A.

Key Evidence and Findings: The Court noted the lack of concrete evidence from the department to prove intentional evasion or false declarations by the respondents.

Application of Law to Facts: The adjudicating authority's findings were based on the application of established legal principles regarding the determination of Fe content and valuation.

Treatment of Competing Arguments: The Court rejected the department's arguments for penalties, citing the absence of any false or incorrect declarations by the respondents.

Conclusions: The Court upheld the adjudicating authority's decision to drop the demands and penalties under Section 114A.

3. Imposition of Penalties under Section 114AA

Relevant Legal Framework and Precedents: Section 114AA of the Customs Act pertains to penalties for making false declarations. The respondents challenged the imposition of penalties under this section.

Court's Interpretation and Reasoning: The Court found no basis for the penalties, as the adjudicating authority did not provide sufficient justification for their imposition.

Key Evidence and Findings: The Court noted that the adjudicating authority failed to establish a connection between the alleged false declarations and the penalties imposed.

Application of Law to Facts: The Court determined that the penalties were not warranted given the lack of evidence for false declarations.

Treatment of Competing Arguments: The Court dismissed the department's arguments for penalties under Section 114AA, citing the absence of any false or incorrect material used by the respondents.

Conclusions: The Court set aside the penalties imposed under Section 114AA, agreeing with the respondents' cross-objections.

SIGNIFICANT HOLDINGS

The Court's significant holdings include:

- The determination of Fe content on a WMT basis is crucial for assessing export duty liability, as established by the Bombay High Court and the Supreme Court.

- The absence of evidence for intentional evasion or false declarations negates the imposition of penalties under Sections 114A and 114AA of the Customs Act.

- The Court emphasized the need for concrete evidence to support claims of duty evasion or false declarations, which the department failed to provide.

- The Court dismissed the Revenue's appeals and set aside the penalties imposed on the respondents, agreeing with the adjudicating authority's findings.