2012 (9) TMI 712 - AT - Customs

Undervaluation of imported consignments - department seeking enhancement of penalty imposed u/s 114A equivalent to the duty demanded plus the corresponding interest accrued u/s 28AB - assessee contested against ADG DRI s power having no jurisdiction to issue the impugned show-cause notices - Held that - The ADG DRI was competent to issue the impugned show-cause notices as ADG DRI has been appointed as Collector by Notification No. 19/90-Cus (NT) dated 26.4.90. We also note that the ADG DRI has been specifically empowered by the Board vide Circular No. 4/99-Cus dated 15.2.1999 to issue show-cause notices in respect of cases investigated by them. This circular has not been shown to have been rescinded. Further, subsequently, by Notification No 44/2011-Cus (NT) dated 6-7-2011 issued in exercise of powers conferred by Section 2(34), DRI officers including ADG DRI were appointed as proper officers for the purposes of Section 17 and Section 28. The appellants had entered into 3 contracts which all had bearing on the value of the goods imported by them. At the time of filing declaration for the purpose of claiming the benefit of project import regulation scheme, they had mentioned only about the supply Agreement and not about the other Agreements relating to Basic Engineering Design undertaken by the licensor and Extended Basic Engineering Design undertaken by FEC who were also the suppliers. It is not the case of the assessee that the department knew the fact of the appellant having made payments under the other two Agreements. There was no justification for the appellant to entertain a belief that the payments under the two Agreements with the Licensor and FEC were towards buyers assist. As already noted, the notice inviting tender was dated 25.6.97 and the specifications for procuring equipments must have been known before inviting tender. Even otherwise we have held that the amounts paid under these two agreements are too high to be considered as towards buyers assist. As all the Bills of Entry except three were provisionally assessed as required under Project Import Regulations and the same were finalized/directed to be finalized by the impugned order. In view of the above, it is to be held that the invocation of extended period of limitation and imposition of penalties on the assessee are justified. As the show-cause notices specifically indicated only amounts of duty proposed to be demanded but did not indicate the quantum of interest proposed to be demanded. Apparently, the duty demand itself was to be determined subject to the outer limit of amounts mentioned in the show-cause notices. The interest payable depends not only on the duty so determined but also the actual date of payment of the duty so determined. Only then, the actual interest payable will be ascertainable. Obviously, in the present cases, the Commissioner at the time of adjudication of the case could not have determined the actual amounts of interest to be included in penalties under Section 114A. Further Section 114A envisages penalty on the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section 8 of Section 28 . The Commissioner was not in a position to determine the interest amount at the time of passing the impugned order. Therefore, his imposing penalties equal to the duty determined is in order. Since misdeclaration of the value of the imported goods has been upheld, the goods are held liable for confiscation. However, in view of the clear finding of the Commissioner that the said goods are not available for confiscation, imposition of fine under Section 125 is not justified.

Issues Involved:
1. Jurisdiction of ADG, DRI to issue show-cause notices.
2. Necessity of basic design package and extended basic design for production of imported goods.
3. Inclusion of costs incurred for basic and extended design in the value of imported goods.
4. Rejection of transaction value versus adjustment under Rule 9.
5. Suppression of facts justifying extended time limit for demand of duty and penalties.
6. Imposition of fine under Section 125 when goods are not available for confiscation.
7. Enhancement of penalties under Section 114A.

Issue-wise Detailed Analysis:

1. Jurisdiction of ADG, DRI to Issue Show-Cause Notices:
The tribunal held that ADG, DRI was competent to issue the show-cause notices. The ADG, DRI was appointed as Collector by Notification No. 19/90-Cus (NT) dated 26.4.90 and specifically empowered by the Board vide Circular No. 4/99-Cus dated 15.2.1999 to issue show-cause notices in respect of cases investigated by them. The amendment to Section 28 of the Customs Act through sub-section (11) validated the actions of officers of Customs, including DRI officers, retrospectively.

2. Necessity of Basic Design Package and Extended Basic Design for Production of Imported Goods:
The tribunal found that the Agreements between MRPL and UOP-IA and the consortium of three companies were closely interlinked and formed a unified package for sophisticated technology. The basic design package and extended basic design were essential for the manufacture of the equipment, and not merely buyers' assist. The consortium's role included ensuring secrecy of the information/data received and the designs necessary for manufacturing the equipment were undertaken in three stages, all of which were necessary for the production of the imported goods.

3. Inclusion of Costs Incurred for Basic and Extended Design in the Value of Imported Goods:
The tribunal upheld the inclusion of costs towards Basic Engineering Design and Extended Basic Engineering Design in the value of the imported equipment under Rule 9 (1)(b)(iv) of the Customs Valuation Rules, 1988. The costs were not in the nature of buyers' assist but were essential for the manufacture of the equipment, whether manufactured by FEC or procured from other vendors by FEC and supplied to MRPL.

4. Rejection of Transaction Value versus Adjustment under Rule 9:
The tribunal clarified that the adjustment made under Rule 9 to include the costs of basic and extended design did not involve the rejection of the transaction value declared by the assessee, thus not warranting the invocation of the procedure prescribed under Rule 10A of the Customs Valuation Rules, 1988.

5. Suppression of Facts Justifying Extended Time Limit for Demand of Duty and Penalties:
The tribunal found that MRPL had deliberately suppressed the fact of payments made under the agreements with UOP-IA and FEC, which were integrally connected to the procurement of off-shore equipment. This justified the invocation of the extended time limit for demand of duty and the imposition of penalties.

6. Imposition of Fine under Section 125 when Goods are Not Available for Confiscation:
The tribunal set aside the redemption fines imposed under Section 125 of the Customs Act, as the Commissioner had found that the imported goods were not available for confiscation. The provision for grant of option of redemption under Section 125 would be rendered meaningless if the goods were not available.

7. Enhancement of Penalties under Section 114A:
The tribunal rejected the department's appeal for enhancement of penalties under Section 114A to include interest accrued under Section 28AB. The penalties were imposed equal to the duty determined, which was found to be in order as the Commissioner could not have determined the actual amounts of interest at the time of adjudication.

Conclusion:
The appeal by MRPL was disposed of by upholding the enhancement of assessable value, confirmation of differential duty demand along with interest, and finalization of assessments by enhancing the assessable value. The redemption fines were set aside, but the penalties under Section 114A and Section 112 (a) were upheld. The department's appeal for enhancement of penalty under Section 114A was rejected.

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