2019 (11) TMI 194 - AT - Customs

Valuation of imported goods - pharmaceutical gelatin (capsule grade) - addition of 20% of the FOB value as adjusted freight component in terms of Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - redemption fine - penalty - HELD THAT - Out of the quantity of 10 MT of subject goods, the overseas supplier had supplied 9 MT by sea on 17.08.2012 and since was not complied with the requirement of the purchaser order was not complied with, it had sent the remaining 1 MT by air and the freight was also paid by the supplier. In context with the valuation of imported goods, the proviso clause appended to Section 14 ibid mandates that the transaction value in the case of imported goods shall include inter alia, cost of transportation to the place of importation. The said statutory provision nowhere provides that only the freight paid by the importer should be included in the transaction value. Thus, in absence of any specific mention about the person required to pay the freight component, such amount paid by the overseas supplier should also be considered as part of transaction value for the purpose of determination of duty liability. The rejection of the declared value and re-determination of the same in terms of Rule 10(2) ibid by the original authority is in conformity with the statutory provisions - However, considering the fact that the appellant had entertained the reasonable belief regarding non-inclusion of the element of freight in the transaction value, we are of the view that the redemption fine imposed on it can be reduced in the interest of justice - the impugned order is modified to the extent of reducing the redemption fine of ₹ 1,35,000/- to ₹ 50,000/-. Imposition of penalty on appellant - HELD THAT - Both the appellant as well as the overseas supplier have communicated to the Department regarding delayed supply of the part quantity through air and that the freight amount was also paid by the overseas supplier. Thus, under such circumstances, the provisions of Section 112(a)(iii) cannot be invoked for imposition of penalty on the appellant - Penalty set aside. Appeal allowed in part.

Issues:
1. Declaration of CIF value under DEEC scheme for imported pharmaceutical gelatin.
2. Discrepancy in declared CIF value and prepaid freight amount.
3. Re-determination of CIF value by adding adjusted freight component.
4. Confiscation of imported goods and redemption fine.
5. Imposition of penalties under Section 112(a)(iii) of the Customs Act, 1962.
6. Appeal against the impugned order before the Tribunal.

Analysis:

1. The appellant had imported pharmaceutical gelatin under the DEEC scheme and declared a CIF value of USD 8,000. However, the Department noted a significant discrepancy as the prepaid freight amount was only USD 3,821.51, prompting an explanation from the appellant regarding the difference.

2. The appellant explained that due to a shipment delay, the shipper had agreed to bear the freight charges, and they were only required to pay the invoice value. Despite this explanation, the Department initiated show cause proceedings leading to an adjudication order re-determining the CIF value by adding 20% of the FOB value as the adjusted freight component.

3. The adjudication order not only re-determined the CIF value but also confiscated the imported goods with an option for redemption on payment of a fine. Penalties were imposed on both the appellant and the Customs House Agent (CHA) under Section 112(a)(iii) of the Customs Act, 1962.

4. The appellant appealed against the adjudication order, which was rejected by the Commissioner (Appeals), leading to the present appeal before the Tribunal challenging the impugned order.

5. The Tribunal considered the proviso to Section 14 of the Customs Act, which mandates that the transaction value of imported goods includes the cost of transportation to the place of importation. It was concluded that the freight paid by the overseas supplier should also be considered in the transaction value for duty liability determination.

6. While upholding the re-determination of the CIF value, the Tribunal acknowledged the appellant's reasonable belief regarding the freight inclusion issue and reduced the redemption fine from ?1,35,000 to ?50,000 in the interest of justice.

7. Regarding the penalty imposition under Section 112(a)(iii), it was noted that both the appellant and the overseas supplier had communicated the delayed supply and freight payment to the Department. Therefore, the penalty on the appellant was set aside, and the appeal was allowed on this ground.

8. Ultimately, the Tribunal modified the impugned order by reducing the redemption fine and setting aside the penalty imposed on the appellant, disposing of the appeal in favor of the appellant on these specific issues.

This comprehensive analysis covers the issues related to the declaration of CIF value, discrepancy in freight amount, re-determination of value, confiscation of goods, penalties, and the final appeal outcome before the Tribunal.

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