2016 (3) TMI 294 - AT - Customs

Classification - Amezcua Chi Pendant - Whether goods imported is classifiable under Chapter Heading 71179090 as Imitation Jewellery or under Chapter Heading 70189090 as Articles of Glass - Held that - the imported goods is a circular glass piece fitted with stainless steel bezel. It is an advanced mineral-based round glass made from high temperature Nano-Engineered Glass and it has positive energy field. By wearing this, it makes it a person balanced and harmonized and it neutralizes the negative effects of Electrosmog which is the result of Electromagnetic fields created by cell phones, microwave ovens etc. Also the primary function of the imported goods is not as artificial jewellery but sold to only through multi-level marketing on one-to-one basis. As, the Chi Pendant is not an artificial jewellery worn by any person of any age. Therefore, the imported goods cannot be classified under Chapter 71 as Imitation Jewellery/Articles of Jewellery and differential duty of demanded on account of change of classification and rate of duty is upheld. Valuation - Rejection of transaction value declared and enhanced the same - Redetermination under Rule 9 of CVR, 2007 - Held that - the imported goods is specialized articles of glass and cannot be compared with high value imported watches. The Product Launch Proposal Form (PLPF) of watches of the supplier is only intended for how the pricing should be done in the subsequent retail sale through multi-level marketing pattern but in the absence of PLPF for Amezcua Chi Pendant , the PLPF of Quranos watches and Retrograde watches cannot be adopted for determining the value under Rule 9. By relying on the decision of Hon ble Supreme Court in Eicher Tractors Ltd. Vs CC 2000 (11) TMI 139 - SUPREME COURT OF INDIA and CC Vs Ferodo India Pvt. Ltd 2008 (2) TMI 12 - Supreme Court , it is not the case of inclusion of royalty and knowhow but the enhancement of value under Rule 9 of CVR and the L.A has loaded the price by adopting the PLPF cost sheets of Quranos watches and La Retrograde watches. Therefore, declared value is accepted as transaction value and should not be enhanced under Rule 9 ibid. Also demand of differential duty on enhanced value is set aside. Confiscation - Misclassification of goods - Redemption fine - Held that - imported goods required to be confiscated to the extent of misclassification of goods. Redemption fine to be reduced from ₹ 60,00,000/- to ₹ 5,00,000/- (Rupees Five lakhs only). Imposition of penalty - Held that - penalty imposed on the appellant-company under Section 112(a) reduced from ₹ 30 lakhs to ₹ 7,00,000/- (Rupees Seven lakhs only). Penalty imposed on Shri Suresh Thimiri, CEO-Director reduced from ₹ 30 lakhs to ₹ 3,00,000/- (Rupees Three lakhs only). Penalty imposed under Section 114AA on both the appellants are set aside. - Decided partly in favour of appellant

Summary

Issues Involved:
1. Classification of imported goods.
2. Relationship between importer and supplier.
3. Rejection and re-determination of transaction value.
4. Alleged misdeclaration of country of origin.
5. Confiscation of goods and imposition of penalties.

Detailed Analysis:

1. Classification of Imported Goods:
The main issue was whether the imported goods "Amezcua Chi Pendant" should be classified under Chapter Heading 71179090 as "Imitation Jewellery" or under Chapter Heading 70189090 as "Articles of Glass". The Tribunal analyzed the product description, noting that the pendant was a glass piece with a stainless steel bezel, marketed for its purported positive energy field rather than as an ornamental piece. The Tribunal concluded that the primary function of the pendant was not as artificial jewellery but rather as a specialized glass article. Therefore, the goods were correctly classified under Chapter Heading 70189090.

2. Relationship Between Importer and Supplier:
The adjudicating authority found that the importer and the supplier were related parties based on various agreements, including a Master Franchisee agreement and a Product Supply and Distribution Agreement. The Tribunal upheld this finding but noted that the adjudicating authority did not propose loading any royalty on the value of the imported goods. The Tribunal emphasized that the relationship between the parties did not justify rejecting the transaction value without proper examination as per the Customs Valuation Rules.

3. Rejection and Re-determination of Transaction Value:
The adjudicating authority rejected the declared transaction value and re-determined it under Rule 9 of the Customs Valuation Rules (CVR), using the cost sheet of unrelated products (watches) to enhance the value. The Tribunal found this approach inappropriate, as the watches' post-importation retail prices were not comparable to the imported pendants. The Tribunal held that the declared value should be accepted as the transaction value, citing the Supreme Court's decisions in Eicher Tractors Ltd. and Ferodo India Pvt. Ltd., which emphasized that royalty and technical know-how fees should not be included unless they are a condition of sale.

4. Alleged Misdeclaration of Country of Origin:
The adjudicating authority claimed that the goods were of German origin, while the importer declared them as Malaysian origin. The Tribunal found that the pendants were made in Germany but underwent testing in Malaysia before being shipped. Therefore, there was no misdeclaration of the country of origin, as the goods were shipped from Malaysia.

5. Confiscation of Goods and Imposition of Penalties:
The adjudicating authority ordered the confiscation of the goods under Section 111(m) of the Customs Act for misdeclaration and imposed penalties. The Tribunal upheld the confiscation but reduced the redemption fine from Rs. 60 lakhs to Rs. 5 lakhs. The penalties on the appellant-company and its CEO-Director were also reduced, and the penalty under Section 114AA was set aside.

Conclusion:
1. The product "Amezcua Chi Pendant" is classifiable under Chapter Heading 70189090.
2. The differential duty of Rs. 31,28,253/- due to the change in classification is upheld.
3. The rejection of the transaction value and its re-determination under Rule 9 of the CVR is set aside, and the declared value of Rs. 4,47,45,092/- is accepted.
4. The order of confiscation is upheld, but the redemption fine is reduced to Rs. 5 lakhs.
5. The penalty on the appellant-company is reduced to Rs. 7 lakhs, and the penalty on the CEO-Director is reduced to Rs. 3 lakhs. The penalty under Section 114AA is set aside.

The appeals are partly allowed in these terms.