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TMI Blog2019 (6) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... eds 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 perta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... aring - to await the convenience, or even the contingency, of appeal by the importer. Understandably, we shall not be ruling on the confiscation itself and intend to restrict ourselves to the role of the present appellants in relation to the import of the goods that came to be confiscated in order-in-original no. 13/KVSS(13)ADG(ADJ)/DRI, MUMBAI/2016-17 dated 27th February 2017 of Additional Director General (Adjudication), Directorate of Revenue Intelligence, Mumbai. Not unnaturally, we may, in the course of disposal of these appeals against penalties, which are inextricably linked to the confiscability of the goods, refer to the legal and procedural aspects of import that may well throw light on the manner in which the imported goods should have been dealt with. 3. A brief narration of the facts may not be out of place. It would appear that M/s ABG Shipyard Ltd had imported consignments of 'drawing for ship/yard' along with the invoices, and other documents, issued by M/s Norcrane & Winch Holdings Pte Ltd, Singapore for a value of US $ 104.62 million claiming classification under heading no. 49119990 of the First Schedule to the Customs Tariff Act, 1975. Of these, 12 were routed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrative structure and, at times, legislated into statute books. In the unreported decision of the Tribunal in Knowledge Infrastructure Systems Private Limited & others v. Additional Director General, Directorate of Revenue Intelligence, Mumbai [order no. A/86617-86619/2018 dated 31st May 2018 in appeal no. C/85234 to 85236/2017], while considering the submission on behalf of Revenue for perpetual, and overarching, authority was conferred, it was held that '43. Learned Special Counsel for Revenue was at pains to submit that section 111(m) of Customs Act, 1962 had been amended to overcome the impediment in the expression 'dutiable or prohibited' to proceed against overvalued goods that did not entail recovery of duty and, not coincidentally, with the enactment of Foreign Exchange Regulation Act, 1973. Judicial interpretation does not support this proposition; in Rib Tapes (India) Pvt Ltd v. Union of India & others [1986 AIR 2014], the Hon'ble Supreme Court examined the original and amended versions of section 111 (m) of Customs Act, 1962 before holding that misdeclaration of value was not intended to be visited with the confiscation envisaged in section 111(m) prior to its amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as we merely intend to caution that the superimposition of moral outrage and sanctimonious adjurements that may appeal to recipients of bundled governance over fragile logic is, nonetheless, not an embargo on exposing the situation to the proper law for testing the propriety of enforcement. 5. It would appear from this narration '1.12.2 Facts revealed during investigation the syndicated that M/s Norcrane were neither in the business of nor are known to be offering to design Vessels, Rigs & plant machinery and supply drawings for their construction/ installation. It appeared that the impugned drawings & designs were not supplied by Norcrane group directly, but the same name sounding firm, namely NWHPL, was floated for the purpose (maybe with or without the knowledge and approval of Norcrane group) to affect those sham imports for siphoning money abroad. In order to ascertain the Association of NWHPL with Norcrane, this office mailed a letter dated 19.0 6.20152 Norcrane group on their email address [email protected] requesting further response with regard to their association with NWHPL. Subsequent reminders were also sent on 26. 0 6.2015 & 14.0 7.2015 but they did not reply to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four consignments invoiced at ₹67,28,73,615, as yet pending clearance at Nhava Sheva were also held to be of no use to the importer. The ten consignments, pertaining to 'panel production line', invoiced at ₹55,04,50,000, yet to be claimed for clearance against bills of entry were also similarly found to be related to work that was either being undertaken or had been completed by resort to expertise provided by other entities. On these bases, it was concluded by the adjudicating authority that the imports of ₹582.18 crores '1.15.4.... had no commercial or functional utility for ABG. The import of these drawings was a sham-a mere cover for enabling to fraudulently obtain Letters of Credit from their banks and thereby fraudulently remit forex overseas in the guise of such imports.' 9. It would thus appear that the conclusion of 'nil' commercial value was not a reflection of the utility of the 'drawings' themselves to a builder of ships but of superfluity in the present operations of the importer. This undeniably philosophical approach to valuation, however, has no place in section 14 of Customs Act, 1962 which specifies the parameters for acceptance of a declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n knowingly or intentionally makes, signs or uses, or causes to be made, sign or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of the goods.' for imposition of separate penalty of ₹ 5,00,000 each on S/Shri Dhananjay Datar, S Muthusamy, DN Mathur and NR Jayanth. The latter, doubtlessly, stands on its own and is applicable to documentation utilised for the business of transacting in relation to customs law. The former, however, cannot be separated from the provisions for confiscating of imported goods. 14. The facts narrated supra are a summation of the submissions made by Mr JC Patel and Mr Vipin Kumar Jain with Mr Krishnakumar, Mr Akshit Malhotra and Mr Ramnath Prabhu, appearing for the appellants, and Ms P Vinitha Sekhar, appearing for Revenue, on various days on which the hearings were held and concluded. The observations therein are our own flagpoles to guide us through the slalom run that this adjudication order is. We have recorded only such of both as, in our opinion, are essential to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Agreement, which assigns the description 'the value of goods for the purposes of levying ad valorem duties of customs on imported goods;' to 'customs value of imported goods', for sustaining the cavil against resort to the valuation provisions for confiscating goods that are not liable to duty. 18. The competence to impose penalty when duty is not leviable is assailed by relying upon the decision of the Tribunal in Lalitpur Power Generation Co. Ltd v. Commissioner of Customs, New Delhi [2017 (356) ELT 82 (Tri-Del)] which discountenanced confiscation and penalty thus '45. We further note that admittedly the imported drawings and designs is exempted in terms of Notification No. 12/2012-Cus., dated 17-3-2012 and no Customs duty is required to be paid on the same even if the said import is treated to be import of goods. The Tribunal in the case of Sahil Diamonds Pvt. Ltd. v. CC [2010 (250) E.L.T. 310] has held that inasmuch as the import of rough diamond were exempted from payment of duty, no penalty can be imposed upon the importer in terms of the provisions of Section 112 of the Customs Act. The said decision of the Tribunal stand confirmed by the Hon'ble Supreme Court repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) Ltd. v. CC (Airport) Mumbai, 2008 (227) ELT 471 (Tribunal) = 2008 (86) RLT 400 wherein Tribunal by taking note of the precedent decisions in case of M/s. Nalakath Spices Trading Co., 2007 (213) ELT 283 (Tribunal) = 2007 (80) RLT 797 (CESTAT-Bang.), Shree Subhadra Industries v. CCE Chennai, 2001 (137) ELT 1405 (Tri.-Chennai) and M/s. Jay AR Enterprises, 2007 (210) ELT 459 (Tribunal) = 2007 (79) RLT 291 (CESTAT-Chennai) has held that inasmuch as import of rough diamonds were exempted from payment of duty and were not dutiable, no penalty can be imposed under the provisions of Section 112 of the Customs Act, 1962. By following the above decision of the Tribunal, we hold that no penalty is imposable upon any of the appellant. In any case, having held that the value as declared by the appellant was correct value, imposition of penalties upon them is not justified. The same is, accordingly, set aside.' 20. On behalf of the appellants, it is further contended that the rules of valuation of imported goods may not be available for invoking as a remedy for suspected overvaluation as it would appear from the declaratory element in rule 12 of Customs Valuation (Determination of Value of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng argued now before the Tribunal as the adjudicating authority did not have an opportunity to render a finding on those for which reliance is placed upon the decision of the Hon'ble Supreme Court in Commissioner of Customs & Central Excise, Goa v. Dempo Engineering Works Ltd [2015 (319) ELT 359 (SC)]. It is further contended that grounds that were not embodied in the appeal could also not be raised during the oral arguments and relied upon the decision in re Dempo Engineering Works Ltd for remand of the matter back the adjudicating authority even if confiscation was held to be untenable. 23. According to her, the decision in re Lalitpur Power Generating Co Ltd had placed reliance upon the decision of the Tribunal in re Sahil Diamonds Pvt Ltd whereas, in Parkash Sancheti v. Commissioner of Customs, Ahmedabad [2013 (292) ELT 273 (Tri-Ahmd)], the Tribunal, dealing with overvaluation of 'rough diamonds', upheld the confiscation and imposition of penalty. This, not having been placed before the Tribunal during the disposal of the appeal, should, she opines, exclude the application of the decision in re Knowledge Infrastructure Systems Private Limited as precedent binding in any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We, therefore, do not think that the decision in re Dempo Engineering Works Ltd, which was concerned with the controversy of marketability impacting classification, a question of fact, and, that too, without assigning reasons, requires us to refer any aspect of the fresh grounds, entirely on law, back to the adjudicating authority. 25. As for the contention that the decision in re Knowledge Infrastructure Systems Private Limited is not a binding precedent, for having been passed per ignoratium of the decision in re Prakash Sancheti, we are unable to agree. While the Tribunal, in re Prakash Sancheti, did differ from the earlier decision in re Sahil Diamonds Pvt Ltd, it was limited to the propriety of offering the right to redeem goods that were confiscated in the light of the prescript ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under one of the sequentially applicable methods prescribed in the Rules. The controversy pertained to the alleged attempt by the importer therein to pass off allegedly sub-standard goods as that of prime quality with alleged intent to deceive the ultimate consumer and to whisk away the unearned consideration out of the country. Therein lies the nub in the structured exposition of the scheme of valuation in re Knowledge Infrastructure Systems Private Limited. 28. The Tribunal, in re Knowledge Infrastructure Systems Private Limited placed emphasis on nexus as the vitalitas in the enforcement of tax laws. Drawing upon the dissenting judgement in The Tata Iron & Steel Co Ltd v. The State of Bihar [1958 AIR 452] on nexus that was adopted as the correct constitutional intent of levy of sales tax by the Sixth Amendment, the statutory limitation on jurisdiction was superimposed with the scheme of Customs Act, 1962 as intended to deal with 'imported' and 'export' goods having the especial meaning assigned to them in section 2 of Customs Act, 1962. On reading of section 47 of Customs Act, 1962 with the restricted window for describing goods as 'imported', it was held that, as the cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of duty and enforcement of any prohibition. It is for the State to acknowledge the threats to its existence for establishing the means to survive these. The State does not, without express intention in a statute, expect its various organs to delude themselves into believing that only one law and one agency is necessary, or can, guard the interests of the State. 31. Unlike in that dispute, the investigating agency resorted to the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 to justify the rejection of declared value and to infer a substitute value merely to justify the invoking of the provisions for confiscation. Indeed, at this stage, we would be serving the larger cause of the law by examining the scope for determining the nature, or the existence, of offence when goods are subject to re-valuation. Before the insertion of rule 10A in the erstwhile Customs Valuation (Determination of Valuation of Imported Goods) Rules, 1988 (rule 12 of the present Rules), the judicial decision governing rejection of transaction value was that of the Hon'ble Supreme Court in Mirah Exports Pvt Ltd v. Collector of Customs [civil appeal no. 1030-34/90 decided on 4 Februar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth. The penalties under section 112 of Customs Act, 1962 in this dispute, a consequence of finding of overvaluation that assigns a proximate value after resorting to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 without any record evincing that the importer was the beneficiary of any money flows except by surmises, are deficient in legal sustenance. 32. 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. 33. In these circumstances, it does not behove us to dwell at length on the logic applied by the adjudicating authority. We, instead, reiterate that the decision re Knowledge Infrastructure Systems Private Limited on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 'scrap' in which we find a fundamental contradiction. If the goods are redeemable, for being 'scrap', the nature of the 'scrap' should have been determined with reference to the heading in the First Schedule to the Customs Tariff Act, 1975 as duty liability should inevitably be discharged even on 'scrap'. This leap of 'unreason' is neither consistent with section 12 of Customs Act, 1962 mandating levy of duty on goods nor with section 125 of Customs Act, 1962 mandating discharge of duty liability on redeemed goods. The adoption of 'nil' value for assessment is also discardable as based on 'unreason' for having been determined in terms of utility to the importer which is conceptually repugnant to section 14 of Customs Act, 1962. The quantification of the penalties is, therefore, not sustainable in law. It is also noticed that section 114AA of Customs Act, 1962 has been invoked for the role of the appellants in allegedly fabricating the 'purchase order.' This document was, apparently, not furnished, nor required to be furnished, with the bills of entry. These were first called for, as per the adjudication order, during the investigations. The existence of, and the contents in, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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