2019 (6) TMI 576 - AT - Customs

Imposition of penalties u/s 112 and section 114AA of Customs Act 1962 - fraudulent import of drawings ostensibly for modernization and expansion of their shipyard and also for construction of vessels - Allegation that the ploy was hatched solely to enable the illegal transaction in money. - HELD THAT - There can be no doubt that arguments have been advanced on behalf of the appellants that were not before the adjudicating authority or did find a place in the grounds as preferred at the time of filing of the appeal. The submissions that are now put forth arise from questions of law that have been settled subsequently and which was not available when the impugned order was issued. Moreover there is a substantial difference between raising fresh grounds of law and fresh grounds of fact at the appellate stage; as the latter must needs be verified before being accepted and such verification is not normally feasible for an appellate authority to undertake fresh factual grounds are not admitted for settlement of disputes at the appellate stage. In the present dispute we find that the discharge of onus to establish mis-declaration is only peripheral as a presumed relationship between the exporter and the importer was held to suffice for indulging in re-valuation. Though such has not been argued before us we are of the opinion that even this relationship between the two has not been tested against the touchstone of rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules 2007 and has instead relied upon certain presumptions derived from the enunciation in the report of the investigation agency. The argument of Revenue in defence of the order herein was that detrimental consequence of overvaluation and creation of a purported cross-border transaction could be visited upon importers with the penal provisions in section 112 of Customs Act 1962 and section 114AA of Customs Act 1962. It was posited that section 111(m) of Customs Act 1962 was specifically endowed with the provision pertaining to value in order to check overvaluation. We have no doubt that this was so. However the Tribunal did not find it justifiable for that provision to be invoked when the allegation of overvaluation flows from a fictional assumption of incorrect declaration incorporated in the valuation mechanism for the limited purpose of levy of duty. Undoubtedly overvaluation when established with sufficient evidence of money flow to beneficiaries other than the seller would justify the invoking of section 111 (m) of Customs Act 1962 as enacted by the sovereign legislature of the Union. Any other circumstantial evidence which may justify the invoking of the Rules flowing from section 14 of Customs Act 1962 will not suffice for the purpose. The allegation that the drawings were manufactured in India and exported is based on certain premises and inferences; while we forbear from venturing into the legality and propriety of such conclusion in the absence of an appeal with appropriate locus the legal consequences of such an assumption cannot go unnoticed. Under section 20 of Customs Act 1962 goods that have originated in India are on subsequent import to be given the same treatment as any other imported goods. There is a privilege that flows from such origin and that privilege is the abatement of certain duties to be claimed by the importer with reference to the exemption notification issued under section 25 of Customs Act 1962. There is no doubt that this privilege has not been sought for and the declining of this privilege cannot be construed as an offence or be held against any person. In the absence of a claim for such privilege the appropriate rule in Customs Valuation (Determination of Value of Imported Goods) Rules 2007 must needs to be invoked for ascertaining the assessable value. That has not been carried out in the impugned order - There can be no offence in re-import of validly exported goods. Though facts have been collated to consider the impugned goods as re-imported there is no evidence on record of exports having taken place. It would be reasonable to presume that re-import must be evidenced by the factum of export or in the absence of such by allegation of wrongful export. In the clear absence of record of export no credence can be given to this assumption without invoking the consequence of illicit export and which has then gone on to attribute responsibility for such to the appellants herein. The penalties must fail on that flimsiness too. Whether on a claim for exemption under notification no. 12/2012-Cus dated 17 March 2012 (or the predecessor exemption) or the exemption governing goods of Indian origin there is no duty implication. The declaration acceptable or otherwise in the bill of entry is therefore of no consequence. In these circumstances the scope for imposition of penalty under section 112 of Customs Act 1962 does not arise. Penalties set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legality of penalties imposed under section 112 and section 114AA of the Customs Act, 1962.
2. Competence of the Tribunal to review confiscation of imported goods.
3. Validity of the revaluation of imported goods at 'nil' value.
4. Alleged fraudulent import of 'drawings' and their use for illegal money transfer.
5. Applicability of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
6. Jurisdictional competence to impose penalties when duty is not leviable.
7. Procedural fairness and adherence to principles of natural justice.

Detailed Analysis:

1. Legality of Penalties Imposed under Section 112 and Section 114AA of the Customs Act, 1962:
The appellants, full-time employees of M/s ABG Shipyard Ltd, sought to quash penalties imposed under sections 112 and 114AA of the Customs Act, 1962. The Tribunal found that the penalties were imposed based on the confiscation of goods due to alleged misdeclaration of value. The Tribunal noted that penalties under section 112 are linked to the confiscation of goods, which itself was questionable due to procedural and jurisdictional issues. The penalties under section 114AA were also deemed inappropriate as the documents in question were not required to be furnished with the bills of entry and were first called for during the investigations.

2. Competence of the Tribunal to Review Confiscation of Imported Goods:
The Tribunal acknowledged that the confiscation of the imported goods was not directly appealable by the appellants since the importer had not sought appellate remedies. However, the Tribunal decided to address the legality of the penalties, which are linked to the confiscation, thereby indirectly reviewing the confiscation's validity. The Tribunal emphasized that it would not rule on the confiscation itself but would consider the role of the appellants in relation to the import of the confiscated goods.

3. Validity of the Revaluation of Imported Goods at 'Nil' Value:
The adjudicating authority had revalued the imported 'drawings' at 'nil' value, considering them superfluous to the importer's operations. The Tribunal found this approach to be philosophically flawed and inconsistent with section 14 of the Customs Act, 1962, which specifies parameters for accepting declared prices and determining substitute values. The Tribunal highlighted that the revaluation should be based on commercial principles and not on the importer's utility of the goods.

4. Alleged Fraudulent Import of 'Drawings' and Their Use for Illegal Money Transfer:
The investigation alleged that the imported 'drawings' were a ploy to facilitate illegal money transfers by dispatching already possessed drawings to a supplier in Singapore. The Tribunal found that the adjudicating authority's conclusion was based on presumptions and inferences without concrete evidence. The Tribunal emphasized that the adjudicating authority should have provided an opportunity for the appellants to defend against these allegations.

5. Applicability of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:
The Tribunal noted that the adjudicating authority had relied on the Customs Valuation Rules to reject the declared value and infer a substitute value. The Tribunal found this approach to be inconsistent with the legal framework governing valuation, which requires evidence of misdeclaration and an opportunity for the importer to defend the declared value. The Tribunal emphasized that mere application of the Rules for enhancement of value does not imply misdeclaration.

6. Jurisdictional Competence to Impose Penalties When Duty is Not Leviable:
The Tribunal referred to previous decisions, including Lalitpur Power Generation Co. Ltd v. Commissioner of Customs, which held that penalties cannot be imposed when no duty is leviable. The Tribunal found that the imported 'drawings' were exempt from duty under notification no. 12/2012-Cus, and therefore, the charge of overvaluation could not be sustained. The Tribunal concluded that neither confiscation nor penalties were justified in the absence of duty liability.

7. Procedural Fairness and Adherence to Principles of Natural Justice:
The Tribunal noted that the adjudicating authority had not provided the appellants with an opportunity to counter the evidence and conclusions drawn during the investigation. The Tribunal emphasized the importance of procedural fairness and adherence to principles of natural justice, highlighting that the appellants should have been given a chance to defend against the allegations and evidence presented.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals, and concluded that the penalties imposed under sections 112 and 114AA of the Customs Act, 1962, were not sustainable in law due to procedural, jurisdictional, and evidentiary deficiencies. The Tribunal emphasized the need for adherence to legal principles and proper valuation procedures, underscoring the importance of procedural fairness and natural justice in adjudication processes.