2024 (11) TMI 882 - AT - Customs

Short-payment of Custom duty on import of cars - differential duty demand u/s 28 of Customs Act, 1962, along with applicable interest u/s 28AA of Customs Act, 1962 -stipulative description of transaction value in section 14 of Customs Act, 1962 - HELD THAT - The adjudicating authority has referred to adjustment of the amounts in credit balance held by M/s Bentley Motors Ltd but neither is any authentication of such account available nor its source established. It is also improbable that such purported outstandings are adjusted against an account which is not of M/s Exclusive Motors Pvt Ltd and, more so, in a contractual engagement bedrocked on prior payment. There is no record of any payment made through banking channels to the supplier either towards dues arising from the supplementary invoices or as transfers to the alleged adjustment account. There is also no evidence of such dues having been made through unofficial route, commonly known as hawala, to M/s Bentley Motors Ltd. The illegality of these would surely have precluded M/s Bentley Motors Ltd from indulging in such transfers; the lack of any proceedings against them is sure evidence of the contrary. It appears improbable that invoices are raised and recorded without any payment insisted upon. The certification in terms of section 138C of Customs Act, 1962 would also make it appear that the documents were sourced from the electronic records of M/s Bentley Motors Ltd and, though said to have been raised on M/s Exclusive Motors Pvt Ltd, was absent in the electronic records of the buyer. The contention of appellants that intensive scrutiny of physical and electronic records of M/s Exclusive Motors Pvt Ltd had not yielded such invoices has not been disputed. It is also surprising that such supplementary invoices, on which, along with the finding that the original invoices are on FOB terms, has the enhancement of value of 51 cars despatched as air freight been justified, are not available for cars despatched by sea transport which were also held to be liable for enhancement owing to the original invoices being on FOB terms. This is quite a leap of logic that may reasonably cast doubts on adjudicatory acknowledgement of the supplementary invoices. It is no less surprising that the correlation of 51 of the 63 supplementary invoices was rendered possible but not so for the remaining 12 and that there were another 12 cars despatched by air for which supplementary invoices were not available with the same source. That does not speak much about the record keeping by M/s Bentley Motors Ltd which the adjudicating authority has set such store by as to accept these documents without question merely owing to certification prescribed in section 138C of Customs Act, 1962. In the light of these discrepancies, we cannot permit ourselves the luxury that the adjudicating authority has of venturing to speculate on the cause and consequence of these supplementary invoices. Much of the outcomes in the impugned order rest on interpretation of the contractual arrangement between buyer and seller as being on FOB terms and this mutation from CIP/ DAP terms stems from the purported export declaration filed with HMRC. These, undisputably, have been executed by the freight forwarders but there is scarcely a whisper about the representation rights of these entities to declare price of goods exported by M/s Bentley Motors Ltd. A perusal of these declarations make it abundantly clear that these are not export declarations but a document intended for data amassing. Though AR did fall back on the information pertaining to such documentation from the website of HMRC, it appears that undeserving sanctity has been accorded to them. Apply known law to established facts for evaluating the correctness of the outcomes in the impugned order stemming from alleged non-inclusion of freight and insurance in the declared value which was allegedly only on FOB terms - It is clear that the contract for payment on CIP/DAP terms between M/s Bentley Motors Ltd and M/s Exclusive Motors Pvt Ltd squarely placed the risk liability till import into India on the former. No evidence is available that these terms of contract underwent change. There is no provision in the contract for price revision or issue of supplementary invoices; indeed, it could not be as the contract mandates payment in advance. The payment terms would alter to FOB only upon shifting of risk liability to M/s Exclusive Motors Pvt Ltd which would be attended upon by the importer engaging transport and procuring insurance which, uncontestedly, has not happened. The only feasible alternative is for the buyer to place reliance on seller s arrangement which not only varies the contract terms but brings in collusion between the two which is not the substance of the allegation in the notice or the findings in the impugned order. Mere declaration, and inconsequential too, in document meant for statistical reporting without risk of penal consequence does not suffice to hold that contract terms were altered to transfer the liability. The fiscal consequences of such far-reaching alteration in contract for supply of high-end motor vehicles would be enough of disincentive to suggest that risk liability stood altered and unless risk liability was altered, the reading down of invoice as excluding freight and insurance on the basis of unreliable statements does not stand the test for recourse to rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Nor do they discharge the onus of customs authorities, not having recourse to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, to establish that freight and insurance were not only excluded but also, as in large portion of this dispute, not ascertainable. To affirm that, on tenuous suggestion of wrong-doing, the onus stands shifted to the importer would be tantamount to transplanting the valuation scheme in the Customs Valuation Rules, 1963 to the present day. Thus, the finding for concluding that the declared price should be loaded by 21.125% to render it to be transaction value in 119 imports by sea or air is without any basis in law. As far as supplementary invoices are concerned, there is nothing on record to suggest that these were issued to the buyers before or after the despatch of 51 cars by air. The scrutiny of records of importer-appellant had not yielded those. To conjecture so, and lend credence to documents reflecting transactions not envisaged in the contract, payment would have to be evidenced. Other than an inference of adjustment in some account purportedly held by M/s Bentley Motors Ltd, which, as set out supra, has only unreliable statements in support, no evidence has been led in the show cause notice. There is no evidence of remittance either through banking channels or, as Learned Counsel put it, through hawala route. Indeed, it would surprise that two corporate entities operating in jurisdictions that criminalize such payments that could also carry loss of liability cover would opt for such compensatory payments. Furthermore, that it could be brought to fruition by one of the parties to the contract does not sit well logically or commercially. That such supplementary payments, insinuated in the finding on shipment by sea, were held as having occurred even without the supplementary invoices brings the available documentation, too, within the penumbra of non-acceptability. The declared price is, by default, not only the transaction value but also, unless established to the contrary, the price for delivery at the time and place of importation. With the law thus enacted, the onus for establishing the contrary rests with the adjudicating authority. On the evidence available and reliably acceptable, that onus has not been discharged. The declared price remains unimpeached to negate the enhancement and recovery of differential duty. In the absence of recourse to section 28 of Customs Act, 1962, ingredients for invoking section 114A against the importer do not exist. There being no misdeclaration of value, confiscation under section 111 of Customs Act, 1962 does not survive and with it the penalties under section 112 of Customs Act, 1962 lack sustenance. In the factual circumstances of this dispute, the impugned order is set aside to allow the appeals.

Summary

Issues Involved:

1. Imposition of differential duty and penalties under the Customs Act, 1962.
2. Determination of 'transaction value' under section 14 of the Customs Act, 1962 and Customs Valuation Rules, 2007.
3. Validity of supplementary invoices and their impact on assessable value.
4. Interpretation of contractual terms (CIP/DAP vs. FOB) and their implications on customs valuation.
5. Evidentiary value of statements and documents relied upon by the adjudicating authority.
6. Allegations of fraud and their impact on the proceedings.

Issue-wise Detailed Analysis:

1. Imposition of Differential Duty and Penalties:
The adjudicating authority imposed a differential duty of Rs. 71,74,00,000 on M/s Exclusive Motors Pvt Ltd under section 28 of the Customs Act, 1962, along with applicable interest under section 28AA, due to alleged short-payment on import of cars. Penalties were also imposed under sections 114A, 112, and 114AA of the Customs Act, 1962. The appellants challenged these impositions, arguing that the foundational facts and legal interpretations were flawed, leading to incorrect conclusions about the price at 'port of loading' and 'port of destination'.

2. Determination of 'Transaction Value':
The core issue revolved around whether the declared value of imports conformed to the 'transaction value' as per section 14 of the Customs Act, 1962. The appellants contended that the declared value included all costs as per CIP/DAP terms, while the adjudicating authority argued that the value was merely the cost at manufacture, necessitating additions for freight and insurance as per rule 3(1) of the Customs Valuation Rules, 2007. The tribunal found that the declared price should be accepted unless proven otherwise, and the burden of proof lay with the customs authorities.

3. Validity of Supplementary Invoices:
The tribunal scrutinized the supplementary invoices purportedly issued by M/s Bentley Motors Ltd, which were used to justify the addition of air freight costs to the declared value. It was found that these invoices lacked authentication and were not corroborated by any payment records or adjustments in accounts. The tribunal concluded that these invoices did not hold evidentiary value and could not be relied upon to enhance the assessable value.

4. Interpretation of Contractual Terms:
The tribunal examined the contractual terms between M/s Bentley Motors Ltd and M/s Exclusive Motors Pvt Ltd, which were based on CIP/DAP terms, indicating that the risk and cost of delivery were borne by the supplier until the goods reached India. The adjudicating authority's interpretation of these terms as FOB, based on export declarations, was found to be unfounded. The tribunal emphasized that the contract terms did not change, and there was no evidence to suggest otherwise.

5. Evidentiary Value of Statements and Documents:
The tribunal evaluated the statements from freight forwarders and documents such as export declarations, which were used to support the adjudicating authority's conclusions. It found that these statements were not recorded under the authority of section 108 of the Customs Act, 1962, and lacked credibility. The export declarations were also deemed to be statistical reports without legal authority, thus lacking the rigor required for customs valuation purposes.

6. Allegations of Fraud:
The tribunal acknowledged the principle that fraud vitiates all proceedings but highlighted the need for concrete evidence to substantiate such claims. The adjudicating authority's reliance on allegations of fraud without credible evidence was insufficient to justify the imposition of penalties and differential duty. The tribunal concluded that the evidence presented did not support the allegations of fraud or misdeclaration of value.

Conclusion:
The tribunal set aside the impugned order, allowing the appeals, as the evidence did not substantiate the allegations of undervaluation or fraud. The declared price was deemed to be the transaction value, and the imposition of differential duty and penalties was found to lack legal basis.