2025 (2) TMI 568 - AT - Customs

Valuation of imported goods - Black Pepper - rejection of declared value - re-determination of transaction value - prohibited goods or not - Confiscation - penalty u/s 112 114AA of CA 1962 - whether the importer had contravened the MIP price fixed by the DGFT N/N. 21/2015 20 dated 25.07.2018 or not? - HELD THAT - There is no dispute that in terms of Explanation (1) (i) to Rule 12 ibid when the proper officer has reason to doubt the declared value and where the declared value is rejected the value shall be determined by proceeding sequentially in accordance with rules 4 to 9 . Is the goods imported a prohibited goods in India? - HELD THAT - The answer is no since firstly the DGFT Notification No. 21/2015-2020 though prohibits the import as a policy however the policy condition is not absolute. The same is subject to the condition that import is free if CIF is above Rs. 500/- per Kg. So the subject goods is made prohibited once again in a grave defiance of the condition of a guiding Rule/Circular issued in this regard by ignoring that the prohibition is only a conditional one and not an absolute one. References were made to clause (d)/para 2 of Article III Article 5 of the SAFTA apart from Article III of GATT to highlight that Free Trade Agreements are part of International Law accordingly the Govt. of India had granted concessional rate of Basic Customs Duty (BCD) for the impugned goods but unfortunately the Commissioner is only enforcing non-tariff restriction in the guise of MIP by treating the goods in question as prohibited . Conclusion - The declared assessable value of the impugned goods did not warrant any interference much less any re-determination as done by the proper officer in the impugned order and hence the impugned order cannot sustain. Consequently there cannot be any room also to impose any penalties under Sections 112 114AA of the Customs Act 1962 on the Appellants. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment are:

(1) Whether the Commissioner was justified in rejecting the declared assessable value of the imported Black Pepper, categorizing it as 'prohibited', and consequently re-determining the transaction value.

(2) Whether the penalties imposed under Sections 112 and 114AA of the Customs Act, 1962, on the appellants were valid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rejection of Declared Value and Classification as 'Prohibited'

Relevant Legal Framework and Precedents: The legal framework involves the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, particularly Rule 3(1) and Rule 9, alongside Section 14 of the Customs Act, 1962. The DGFT Notification No. 21/2015-20 sets a Minimum Import Price (MIP) for Black Pepper, deeming imports below 500 per Kg as 'Prohibited'.

Court's Interpretation and Reasoning: The Tribunal scrutinized the Commissioner's application of Rule 9, which is a residual method used when the value cannot be determined under preceding rules. The Tribunal found that the Commissioner's rejection of the declared value was based on an incorrect application of the rules, as the prohibition under the DGFT Notification was conditional and not absolute.

Key Evidence and Findings: The investigation revealed that the importer declared a higher value for Black Pepper than the actual transaction price. However, this overvaluation was argued to circumvent the MIP condition, not to defraud the exchequer. The Tribunal noted that the import was from a related entity, but this relationship alone was insufficient to reject the transaction value.

Application of Law to Facts: The Tribunal emphasized that the DGFT Notification's prohibition was conditional, allowing imports if the CIF value exceeded 500 per Kg. Since the imports were declared above this threshold and duties were paid, the goods should not be classified as 'prohibited'.

Treatment of Competing Arguments: The appellants argued that the declared value was consistent with Section 14 of the Customs Act and the Customs Valuation Rules. They contended that the overvaluation led to higher duty payments, benefiting the exchequer, thus negating any loss or fraud. The Tribunal found these arguments persuasive.

Conclusions: The Tribunal concluded that the Commissioner's rejection of the declared value and classification of the goods as 'prohibited' was unjustified. The declared value should not have been interfered with, and the goods should not be deemed 'prohibited' under the conditional DGFT Notification.

Issue 2: Imposition of Penalties

Relevant Legal Framework and Precedents: The penalties were imposed under Sections 112 and 114AA of the Customs Act, which pertain to improper importation and misdeclaration, respectively.

Court's Interpretation and Reasoning: The Tribunal assessed whether the penalties were warranted given the circumstances. It noted that penalties under Section 112 require a clear violation of customs provisions, which was not established in this case.

Key Evidence and Findings: The Tribunal found no evidence of loss to the exchequer or fraudulent intent, as the appellants had paid the appropriate duties and taxes. The imposition of penalties appeared to lack a legal basis, as no specific contravention was identified.

Application of Law to Facts: The Tribunal applied the legal standards for imposing penalties and found that the conditions for invoking Sections 112 and 114AA were not met. The appellants' actions did not constitute a misdeclaration or improper importation under the Customs Act.

Treatment of Competing Arguments: The appellants argued that the penalties were based on an incorrect interpretation of the law, as there was no misdeclaration or violation of the MIP policy. The Tribunal agreed, noting the absence of any loss to the exchequer or fraudulent conduct.

Conclusions: The Tribunal concluded that the penalties imposed under Sections 112 and 114AA were unwarranted. The absence of any contravention of customs provisions rendered the penalties legally unsustainable.

3. SIGNIFICANT HOLDINGS

The Tribunal set aside the Commissioner's order in its entirety, including the re-determination of transaction value and the imposition of penalties. The Tribunal emphasized the conditional nature of the DGFT Notification, stating: "The prohibition is only a conditional one and not an absolute one." This underscores the principle that conditional prohibitions must be interpreted in light of their specific conditions.

The Tribunal also highlighted the importance of adhering to legal standards for imposing penalties, stating: "No notice per se can be issued even for imposition of penalty" without a clear contravention of customs provisions.

In conclusion, the Tribunal allowed the appeals, setting aside the penalties and re-determined values, and granted consequential benefits as per law. The judgment reinforces the necessity of precise legal grounds for rejecting declared values and imposing penalties under customs law.

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