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TMI Blog2022 (6) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1962 prescribes the imposition of fine and option to pay fine in lieu of confiscation - The provisions speaks clearly that whenever confiscation of the goods is authorized by the Customs Act, the Custom Authority/Officer Adjudgingis empowered to give an option to the owner of the goods [or, where such owner is not known, the person from whose possession or custody such goods have been seized] to pay in lieu of confiscation such fine as the said officer thinks fit. From the order passed by the Custom Authority it is clear that the said authority while exercising powers entrusted u/s 125 of the Act, imposed the FINE under challenge to redeem the goods and therefore, the said fine amounts to compensatory in nature and is an allowable expenditure u/s 37(1) of the Act, as also held by the Hon ble Delhi High Court in the case of Usha Micro Process Control Ltd (supra) and Hon ble Madras high Court in the case of CIT Vs. Parthasmarathy (supra) in the identical facts. Consequently the FINE paid by the Assessee is allowed as expenditure u/s 37(1) of the Act and resultantly the addition made and sustained on account of fine paid by the Assessee to the Custom Authorities, stands d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otices have been issued by the AO u/s 143(2) of the Act, in response to which the Assessee participated in the assessment proceedings from time to time and filed the relevant documents and other supporting material. The AO after examining the same made anaddition of Rs. 65,61,700/- (Rs. 48,42,900/- paid by the Assessee as fine and Rs. 17,18,800/- as penalty) by observing that the Assessee has claimed custom duty expenses of Rs. 97,18,996/- for Assessment Year under consideration, on which the Assessee was asked to furnish the details of the same. In response the Assessee submitted bifurcation of custom duty expenses which was examined and found by the AO that actual custom duty paid was only Rs. 31,57,296/- (including additional duty) out of Rs. 97,18,996/- and rest custom duty of Rs. 65,61,700/- pertains to the fine/penalty levied by the Custom Authority. It was further observed by the AO that the Assessee has imported used digital multifunction print and copying machine (photocopier) without obtaining license from Directorate General of Foreign Trade (in short DGFT ) wherein it was a pre-condition for import. The Assessee also undervalued the good imported which resulted into le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad taken place not only for under valuation and for import without DGFT license required under foreign Trade Policy (2009-14) but also for import without permission under Environment Protection Act, 1986 in which the importer is required a separate permission from Ministry of Environment and Forests as mentioned in Schedule III part B Item B1110 of Hazardous Waste Management Handling and Trans Movement Rules 2008. 3.3 It was also claimed by the Assessee before the ld. Commissioner that the payment made on account of penalty/duty was in fact compensatory in nature,but the Ld. Commissioner did not get impressed by the said claim on the ground that the payment for violation of restriction imposed under Environment Protection Act can never be a compensating nature. The said violation is different from import with DGFT License as well which is issued under the Foreign Trade Policy (2009-14). The Ld. Commissioner also observed that the Environmental Protection Act has been enacted to prevent and regulate entry of hazards waste into the country. If Assessee s explanation is accepted people may violate environment laws, enacted as a matter of public policy and claim corresponding penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4276/2014-15. Consequently, the goods were liable for confiscation u/s 111 (m) of the Customs Act, 1962 as well, which deals with confiscation of goods whose values declared is lower than the correct value. For release of confiscated goads u/s 111 (d) and 111 (m) of the Customs Act a fine of Rs. 2.15,000/ was imposed u/s 125(1) of the Custom? Act 1962, which gives an option to the importer to pay the fine in lieu of such confiscation. This fine is in addition to the duty payable on the import of goods including-additional duty payable on account of valuation difference. The total such fine for all the 16 import consignments comes.jo Rs. 48,42,900/-. In addition, vide above a penalty of Rs. 68,000/- were also imposed u/s 112(a), which is again a penalty payable for any act which makes the goods liable for confiscation u/s 111. The total of such penalty comes to Rs. 17,18,800/- for 16 consignments. It cannot be out of place to reiterate here that this fine and penalty is an addition to the additional duty payable on account of correct valuation of the goods imported. At the outset, the consignment had taken place not only for under valuation and for import without DGFT license r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different context. The Assessee in that case was manufacturing and selling heat treatment plants and heat treatment salts. He was granted a license for importing permissible spare parts for construction machinery and spares of machines tools. Due to misunderstanding, related to provisions, he imports sodium cyanide from Hungary. The goods were confiscated as the license did not permit the import of said item. Therefore, it was only because of misunderstanding as to whether the said item was included in the said license or not which led to imposition of penalty. At best these can be equated with the import without DGFT license. However, by no stretch of imagination, it can be equated with the import without the permission of Ministry of Environment and Forests, in contravention with the Environment Protection Act, which is an act which falls in the domain of public policy and not just a taxing statute like Customs Act or a Licensing statue like )DGFT License) Under Foreign Trade Policy 2009 to 14. The Environment Protection Act has been enacted to prevent and regulate entry of hazards waste into the country. If Assessee s explanation is accepted people may violate environmental la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/26-MISC-3584/2014-15 Gr.-V S/10-ADJ-226/2014-15 Gr. V Date of Order: 13.03.2015 Date of issue: 14.03.2015 Passed By : Shri N. N. Shelka Joint Commissioner of Customs, NhavaSheva-I Order No. 4276/2014-15 Name of the Party/ Notice: M/s. Asian Copiers Order in Original 1 . 2 . 3. I have carefully gone through the records of the case, since the importer has requested for waiver of SCN PH, the case is put up to me for adjudication on the basis of records / facts available. I find that the import of old and used photocopier is restricted for import in terms of Para 2.17 of the Foreign Trade Policy 2009-14 read with Para 2.33 of Handbook of Procedure Vol. I (2009-14). As the goods under import are old and used Multifunction Device Copying Machine (Photocopying Machine), the importer was required to produce specific license issued by DGFT in terms of Foreign Trade Policy 2009-14 read with ITC (HS) classification of Import Export items, but they failed to produce the same. I find that Importer did not produce any license from DGFT, hence 1 hold that the goods are liable for confiscated under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Customs Valuation (Determination of Value of the imported goods) Rules, 2007. The value cannot be re-determined by following Rules 4/5 of CVR 2007 as import data of identical goods/similar goods is not available. The Rule 7 8 too cannot be applied for re-determination for want of sufficient data. The value is therefore required to be determined under Rule 9 of CVR, 2007. Asper Hon ble Supreme Court decision in the case of Gajra Bevel Gears [2000 (115) ELT 612 (S.C.), in case transaction value is rejected under Rule 3 of CVR 2007, valuation of second-hand goods can be done under Rule 9 of CVR 2007, on the basis of value of new machine, as certified by the Chartered Engineer, and scaled down by the allowing depreciation commensurate with the period of usage. The value suggested by the Chartered Engineer should be the value for assessment under Rule 9 of Customs Valuation (Determined of Value of Imported Goods) Rules, 2007. The importer has waived SCN and PH. The Importer accepts the value suggested by the Charter Engineer. Therefore, I find that the assessable value of the goods imported vide Bill of entry No. 8554297 DT 10/03/2015 be re-determined as Rs. 1348479/- (Rs. THIRTEEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Adjudication Cell, NhavaSheva I 4. M/s. MDS Logistics Pvt Ltd.(ll/218) 5. Guard file 6 The Assessee claimed the expenditure of Rs. 65,61,700/- which includes Rs. 48,42,900/- as fine u/s 125(1) and Rs. 17,18,800/- on account of penalty u/s 112(a) of the Customs Act 1962. The Assessee contended that fine and penalty referred above are in compensatory in nature and for the purpose of getting the goods released from Custom Authorities and thus, liable to be allowed as expenditure u/s 37(1) of the Act. Whereas the revenue has claimed that the said fine and penalty levied upon the Assessee are penal in nature and are levied for the violation of law, therefore, the same areinadmissible expenditure as per Explanation 1 to section 37(1) of the Act. 7 On the rival claims of the parties, the question emerge as to whether the Assessee as per Explanation 1 to section 37(1) of the Act, is entitled to claim expenditure incurred in respect of fine and penalty as imposed u/s 125(1) and 112(a) of the Customs Act 1962 respectively. 8 At the outset it was claimed by the Assessee that the Ld. Commissioner wrongly held that the Assessee do not have any permission under Environment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to re-export the software after making some declarations. The customs authorities were of the opinion that the appellant's action was not legal and directed it to pay differential duties. In addition its Managing Director was made personally liable to penalty. The goods were sought to be confiscated. The matter was carried in appeal. Eventually the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) decided the matter on 30.5.1999. The Tribunal directed the deletion of personal penalty but proceeded to uphold the order in so far as the fine in lieu of confiscation is concerned--to Rs. 4,00,000/-; the original amount was Rs. 10,00,000/-. 4 5 .. 6 . 7 .. 8 . 9. In Prakash Cotton Mills Pvt. Ltd.'s case (supra), the Supreme Court pertinently observed that whenever an authority has to decide whether to grant or refuse deduction under section 37(1) of the Income Tax Act, the governing test would be whether the amount payable is compensatory in nature. In N.M. Parthasarathy's case (supra), the identical situation where redemption fine under the Customs Act was in issue, the Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensatory and therefore, fell outside the mischief of explanation of Section 37(1) of the Income Tax Act . { Highlighted by us } 12 The Hon ble Madras High Court in the case of CITVs. Parthasmarathy (1995) 212 ITRT 0105 (Mad HC) also dealt with issue related to imposition of fine and held as under:- 5. Coming to the facts of the case on hand, the goods belonging to the assessee had been confiscated under s. 111 (d) of the Customs Act, 1962, r/w s. 3 of the Imports and Exports (Control) Act, 1947. However, under s. 125 of the Customs Act, 1962, an option had been given to the owner-assessee to pay, in lieu of such confiscation, a fine of Rs. 1,84,000 which had been reduced on appeal to Rs. 84,000 and the goods had been cleared exercising the option. If the seized goods, without the exercise of option, had been confiscated once and for all, it goes without saying that the property in the goods shall vest in the Government, in the sense of the Government becoming the absolute owner thereof. The fine amount, whatever be its quantification, that is to say, whether it is equivalent to or below the value of the goods seized, cannot at all, in such a situation, be stated to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine the Scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal, in nature. The authority has to allow deduction under Section 37(1) of the I.T. Act, whereever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature. 13.1 The Hon ble Apex Court in the case of Prakash Cotton Mills Pvt. Ltd (Supra) has clearly held that when an amount paid as interest or damages or penalty as would regard as compensatory (reparatory in character), the Assessee would entitled to claim it as an allowable expenses u/s 37(1) of the Act . Therefore, whenever any statutory impost paid by an Assessee by way of damages or penalty or interest, is claimed as an allowable expenditure u/s 37(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso to sub-section (2) of section 28 or under clause (i) of sub-section (6) of that section in respect of the goods which are not prohibited or restricted, the provisions of this section shall not apply: Provided further that], without prejudice to the provisions of the proviso to sub-section (2) of section 115, such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon. (2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1), shall, in addition, be liable to any duty and charges payable in respect of such goods. (3) Where the fine imposed under sub-section (1) is not paid within a period of one hundred and twenty days from the date of option given thereunder, such option shall become void, unless an appeal against such order is pending. Explanation.-For removal of doubts, it is hereby declared that in cases where an order under sub-section (1) has been passed before the date on which the Finance Bill, 2018 receives the assent of the President and no appeal is pending against such ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowances shall be made in respect of such expenses . From the Explanation 1 of the section 37(1) of the Act, it is clear the embargo has been placed for claiming the deduction of expenditure which is an offence or which is prohibited by law. 18 We have given thoughtful to the consideration to the term of Penalty . The Penalty is a punishment for doing something that is against a law. In simple word penalty is an amount of money that someone is forced to pay for failing to obey the law and its impositions. Further the penalty is an imposition to safeguard the laws and not to contravene the provisions of law and also not to act in derogation of law. 18.1 Purpose for prescribing punishment by way of fine is justified by its deterrence of criminal behavior and by its other beneficial consequences for individuals as well as for society. Under the law, punishment is provided to cease the wrongdoer from committing the crime again. Punishment is a consequence or result of a wrong committed by a person. Deterrence prevents future cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom being confiscated and lost to it. The penalty paid by it could, therefore, be regarded as part of the cost of the goods to it. It can also be regarded as an amount expended by it wholly and exclusively for the purposes of the business, because unless the said amount was expended, the goods could not have been saved from confiscation. It may be pointed out that, in cases where the penalty has to be incurred be incurred because of the fault of the assessee himself, as for instance, for the reason of his having carried on his business in an unlawful manner or in contravention of certain rules and regulation, the penalty paid by the assessee for such conduct thereof, could not be regarded as wholly laid out for the purpose of the business, because but by the conduct of the assessee in trying to carry out the business in an unlawful manner (see Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax). In the present case, however, on the finding of the Tribunal the penalty has been imposed not for the fault of the assessee but he had to bear the same for the purpose of getting his goods released from the customs authorities . In the present case, therefore, the expenses inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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