2015 (12) TMI 241 - AT - Customs

Validity of notice for demanding of differential duty - Finalization of provisional assessment - Penalty u/s 18(2) - Undervaluation of goods - Held that - As revealed from letter dated 13.10.2015 the assessment of two Shipping Bills in each cases, were finalised at the time of exportation of the goods. So, the proposal of finalisation of provisional assessment and consequent demand of duty alongwith interest in the show cause notices and confirmation of demand of duty and imposition of penalty by the adjudicating authority cannot be sustained. In the present case the issuance of show cause notice is prescribed by the law as a condition precedent to the commencement of proceedings and it must be addressed correctly, otherwise it will be treated as an invalid one. In Commissioner of Income Tax, Gujarat vs. Kurban Hussain Ibrahimji Mithiborwala 1971 (9) TMI 9 - SUPREME Court , a notice under Section 34 of the Indian Income Tax Act, 1922 was found by the Supreme Court to be invalid as referring to a wrong year and the entire proceedings were held to be void for want of jurisdiction. It is significant to note that the statutory notice is notice made by legislative enactment. Valuation - Demand of duty on additional amount of US 10 PDMT as commission to their overseas agents cannot be levied mainly on the basis of statement, without examining documents. In our considered view, the appellant should be given an opportunity to place the documents before the adjudicating authority in respect of actual freight and commission on their agents, in the interest of justice. However, the demand of FOB price as cum-duty price for determination of export duty, as held by the Tribunal in the case of Sesa Goa Limited (2014 (4) TMI 658 - CESTAT KOLKATA), is liable to be upheld. - issue of FOB price treating as cum-duty price was decided by the Tribunal and the appeal is pending before the Hon ble Supreme Court. The appellant Company is entitled to the benefit of actual freight. Further, the part of the demand of duty alongwith interest and penalty cannot be sustained. In such situation, imposition of penalty on the Director of the appellant Companies is not justified. - Appeal disposed of.

Summary

Issues:
1. Finalization of assessment and demand of duty on shipping bills for export of Iron Ore Fines under Customs Act, 1962.
2. Imposition of penalties on companies and personal penalty on director.
3. Validity of show cause notices and demand of duty on undervaluation of export goods.

Analysis:

Issue 1: Finalization of assessment and demand of duty on shipping bills
The appeal involved two companies, M/s. Terapanth Foods Limited and M/s. The Kutch Salt & Allied Industries Limited, facing demands of differential duty, interest, and penalties on various shipping bills for exporting Iron Ore Fines. The adjudicating authority confirmed the demands and penalties, leading to appeals by both companies. The main argument raised was that the assessments were finalized before the issuance of show cause notices, which proposed finalization of assessment under Section 18(2) of the Customs Act, 1962. However, the authority confirmed the demands by invoking a provision not mentioned in the show cause notices. The Tribunal found that the assessments were finalized at the time of exportation, rendering the demand and penalties unsustainable due to procedural irregularities.

Issue 2: Imposition of penalties on companies and director
The adjudicating authority had imposed penalties on both companies and the director, Shri Babulal Singhvi. However, the Tribunal observed that the show cause notices were not properly addressed, making them invalid. Referring to a Supreme Court case, it emphasized the importance of correct statutory notices for valid proceedings. As the demands of duty and penalties were unsustainable due to procedural flaws, the imposition of penalties on the director was deemed unjustified.

Issue 3: Validity of demand on undervaluation of export goods
Another issue raised was the undervaluation of export goods in the shipping bills. The companies argued that the addition of a specific amount on the price lacked proper consideration of documents, such as actual freight. They contended that the FOB value should be treated as cum-duty FOB price. The Tribunal acknowledged the need for a fair assessment based on actual documents and granted the companies an opportunity to present evidence regarding actual freight and commission. However, it upheld the demand of duty based on the FOB price as cum-duty price, citing a previous Tribunal decision. The penalties imposed on the director were deemed unjustified in light of the pending appeal and the companies' entitlement to the benefit of actual freight.

In conclusion, the Tribunal set aside the demands of duty, interest, and penalties on specific shipping bills, directing the adjudicating authority to re-quantify the demands based on the observations made. It emphasized providing a proper opportunity for hearing before passing any new orders. The appeals by the companies were disposed of accordingly, with the appeals by Shri Babulal Singhvi allowed.