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TMI Blog2022 (12) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... lso not disputed that if the Circulars structure the power under Section 18(1), it has to be exercised within the parameters of the Circulars issued under the Act. There is a difference between the position pending the investigation by SVB and the position after the investigative findings are reached and supplied to the assessing officer. Once the investigative findings are received, the assessing officer will have to proceed to issue a show-cause notice and take necessary steps as per Section 18(1) of the Act. Therefore, we find no merit in the contention of the Petitioner that the position envisaged in Circular No.5/2016 regarding furnishing of an only bond, without any EDD and security, will continue even after the investigative findings are received and show-cause notice is issued. The position after submission of the investigation report by SVB is not covered by Circular No.5/2016, and the contingency is covered under Section 18(1) of the Act and also by sub-clause-6(b)(1) of Clause-3 of Circular No.38/2016. Sub-clause- 6(b)(1) of Clause-3 of Circular No.38/2016 speaks of a 100% of bank guarantee. No position is shown to us that after the SVB submits an investigation report, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n buyer from a foreign supplier, who is related, there is a possibility that the goods are imported at a lower value than the market price, thus causing a loss in customs duty levied on the value of the imported goods as per the provisions of the Customs Act. For that purpose, a specialized branch is set by the Customs known as Special Valuation Branch (SVB). Its function is to investigate the valuation of such imported goods from related parties. SVB investigates the impact of the such relationship on the invoice value of the imported goods. 5. The Petitioner has been importing concentrates of alcoholic beverages from M/s. Chivas Brothers Limited, United Kingdom since 1994. There has been litigation regarding these import activities in the past, which is not directly relevant for the present discussion to describe it in detail. On 28 February 2012, the Petitioner filed an annexure along with documents for the proposed import of concentrates of alcoholic beverages in view of the Supply Agreement dated 11 January 2012. On 17 October 2014, the Directorate of Revenue Intelligence (DRI), New Delhi, initiated an investigation that the Petitioner has been importing concentrates from Chi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Container Deport, Dadri, regarding bills of entry Nos. 8596233 and 8596820. The Petitioner was asked to give consent and to submit for either assessing the bills of entry with recommended loading or for assessing the bills of entry provisionally on submission of bond and bank guarantee for the differential duty. The Petitioner submitted bank guarantees on 27 May 2022 at Nhava Sheva Port and on 31 May 202 at Inland Container Deport, Dadri for the provisional assessment of import consignments The Petitioner submitted bank guarantees to the tune of Rs.2,08,18,000/- on 27 May 2022 and for Rs.1,30,16,000/- on 31 May 2022. Thereafter, for several bills of entry, the Petitioner submitted bank guarantees for a total amount of Rs.213,79,76,000/-. According to the Petitioner, since the Petitioner was facing commercial exigencies, it had no option but to furnish bank guarantees and did so under protest. 8. Pursuant to the SVB and DRI reports, show-cause notice was issued to the Petitioner on 27 June 2022. After referring to the report of DRI and SVB, the show-cause-notice called upon the Petitioner to show cause as to why the declared invoice values should not be rejected under Rule 12 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Singh, Additional Solicitor General for the Respondents. 12. The core issue before us is the direction to furnish the bank guarantees for differential duty on imports of the Petitioner's products by loading a specified percentage of the invoice value. There is no dispute that the power to direct furnishing security exists under Section 18 of the Customs Act. According to the Petitioner, this power is structured by Circulars No.5/2016 dated 9 February 2016 and Circular No. 38/2016 issued by the Central Board of Excise and Customs. According to the Petitioner, in the facts of the Petitioner's case, these Circulars, which are binding on the Respondents, prohibit the Respondents from demanding bank guarantees for the differential value and the imports pending further proceedings will have to be cleared only on a personal bond. According to the Respondents, Circular No.5/2016 does not apply to the facts of the case, and Circular No. 38/2016 supports the Respondents' case. According to the Respondents, there is no absence of power for demanding security as sought to be argued by the Petitioner. The arguments of the learned Counsel have centered around these two Circulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Section 18(1)(c) states that where the importer has produced all the documents and furnished complete information, however, if the Proper Officer deems it necessary to make further enquiry, the Proper Officer may direct that the duty leviable on such goods be assessed provisionally, if the importer furnishes such security as the Proper Officer may deem fit for payment of the deficiency, if any, between the duty as may be finally assessed or re-assessed as the case may be and the duty provisionally assessed. 14. The subject matter of this petition relates to the reference to the Special Valuation Branch. As stated earlier, SVB was created as a specialized agency to, inter alia, investigate transactions involving special relationships between buyer-seller which have a bearing on the assessable value. The Circulars Nos.1/98-Customs, dated 1 January 1998 and 11/2001-Customs, dated 23 February 2001, prescribed the procedure to be observed by the Customs Houses for referring cases to SVB and timelines to be followed for finalizing such cases. Trade and industry made representations regarding delays in the finalization of SVB investigations, continued uncertainty due to provisional as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... importer complies. Upon the importer, complying with the requisition for documents and information, Circular 11/2001 - Cus dated 23.2.2001 provides that EDD shall be discontinued, while imports will continue to be assessed provisionally till the completion of investigations. In other words, the imports were continued to be assessed provisionally on the basis of a PD Bond but without any EDD. It has also been noted that many importers have represented on delays in dispensing of EDD, even though they have provided the required information and a period of 4 months has passed without the case having been decided. Therefore, the Board has decided that while reference to SVB requires the assessments to be provisional, for the sake of reducing transaction cost and bringing uniformity across Customs Houses, no security in the form of EDD shall be obtained from the importers. However, if the importer fails to provide documents and information required for SVB inquiries, within 60 days of such requisition, security deposit at a rate of 5% of the declared assessable value shall be imposed by the Commissioner for a period not exceeding the next three months. Simultaneously, the importer shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r time of sixty days to comply with the documents. If the importers fail to submit documents within the prescribed period, the SVB would consider for obtaining information. The security deposit was to be within three months. Clause-3.2 of Circular No.5/2016 refers to Circular No.11/2001, which had provided and makes a specific reference to imports to continue to assess provisionally till the completion of the investigation. Clause 3.3 of Circular No.5/2016 states that it has been decided that SVB will not issue an appealable order, instead, the SVB shall convey its investigative findings by way of an investigation report to the referring customs formation for finalizing the provisional assessment. 16. The procedure for making reference to SVB is laid down in Clause 5 of Circular No.5/2016. The Circular recognizes that scrutiny of transactions between related persons can pose complex issues and may delay clearance. The importers are advised that if their transaction falls in such a category, they should, so far as possible, file a prior bill of entry, preferably 15 days before the import. The importers are also advised to provide information as prescribed in Annexure-A to the Circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l assessments, without security deposit or bank guarantee, continue till the finalization of the investigation. (emphasis supplied) Further procedure in the SVB is laid down in Clause-8, which reads thus: "8. Upon receipt of all related records from the referring customs formation, the SVB shall forthwith assign a case number and update the Central Registry Database (CRD) maintained by DGoV, The SVB shall also inform the RMD of the details of the importer, his IEC code, and details of seller for inserting suitable instructions for assessing officers at all Customs Houses so as to ensure provisional assessments during the currency of SVB inquiries. 8.1 Upon receipt of information from the importer as per Annexure B, SVB shall commence inquiries, during the course of which the Deputy Commissioner / Asst. Commissioner (SVB) may call for further documents or information as required. The importer shall also be given suitable opportunity to submit evidence in support of the declared value. 8.2. The SVBs shall, as far as possible, complete the investigations and issue its findings within two months from the date of receipt of information in Annexure B. In cases where investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Board for the purpose of passing order for finalization of the provisional assessments." This, in short, is the scheme of Circular No.5/2016.Thus by issuing Circular No.5/2016, the Board reviewed the practice of levying Extra Duty Deposit (EDD) and security in cases where the SVB has undertaken investigations. It is necessary to note at this stage that the underlined and emphasized portion from the clauses reproduced above refers to Investigation. This aspect will be elaborated later. 18. The learned Counsel for the parties have advanced detailed arguments on the implications of Circular 5 of 2016 on the respondents' power to demand the impugned bank guarantees. 19. Mr. Dil Jit Ahluwalia, learned counsel for the Petitioner, submitted as follows. Section 18(1) of the Customs Act, 1962 deals with the provisional assessment of duties and in case of the contingency where the case has been referred to SVB, and the subsequent assessment pursuant thereto is covered under Circular No.5/2016 dated 9 February 2016. This Circular covers the contingencies up to the finalization of the assessment and therefore the power under section 18(1) of the Customs Act conferred upon the Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of conditions regarding furnishing security, Circular No.5/2016 will have to be restricted till the submission of the report by SVB. This aspect has been made very clear in Clause 6.3 of Circular No.5/2016; wherein there is a reference to the continuation of provisional assessment without a security deposit or bank guarantee only till the finalization of the investigation. Even Clauses 8.2 and 8.3 of the said Circular make the position very clear. After the investigation report has been received, which is referred to in Clauses 9, 9.1 and 9.2, a show-cause notice is to be issued within fifteen days. This show-cause-notice has been issued and; therefore, as far as security deposit and bank guarantee is concerned, Circular No.5/2016 does not govern the position after the report is received from SVB as in the present case. Therefore, after the investigation findings from SVB are received, the power of the Proper Officer flows from Section 18(1) of the Act, where discretion is conferred upon the Proper Officer and it is rightly exercised. 21. We have considered the rival contentions. It is not disputed and cannot be disputed that under Section 18(1) of the Act, the authorities have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation was supplied. To reduce the delay in the investigation before SVB and to bring uniformity and reduce transaction costs, the Board decided, no security in the form of EDD would be obtained from the importers. It is not necessary that Circular No.5/2016 should have prefixed each sentence with "pending investigation". The clauses of the Circular will have to be read meaningfully. Clause-3.3 states that earlier, the findings of SVB were appealable; now, the investigative findings have to be submitted with an investigation report to finalize the provisional assessment. This has to be read along with the mandate of issuing the show-cause notice within fifteen days after receiving the investigation report. 23. The first part of Circular No.5/2016 regarding only personal bond, no EDD and, at the most, security deposit at the rate of 5% till three months, is clearly applicable till the investigation by SVB is complete. There is no indication that the same position would continue even after SVB submits its findings. Though in Clause-9 there is a reference to the finalization of assessment and in Clause-10 to change in the circumstances, the thrust of Circular No.5/2016 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Board decided it to be dispensed with in favour of the importers to reduce transaction costs. Clause 2.7 refers to Section 18 of the Act of 1962 and that uniform guidelines are to be followed by all Customs Stations in respect of security. It would be necessary to reproduce Clauses 2.8, 2.9 and 3 of Circular No.38/2016. They read thus: "2.8 Wherever, duty is to be assessed provisionally, the importer shall: (a) for the purposes of undertaking to pay on demand the deficiency, if any, between the duty as maybe finally assessed and the duty provisionally assessed, execute a bond in the prescribed form (enclosed); and (b) furnish such security for the payment of the duty deficiency, as indicated in para 3 below. x x x x 2.9 The security to be obtained shall be in the form of a bank guarantee or a cash deposit, as convenient to the importer. x x x x 3. The following guidelines shall be followed while obtaining security where provisional assessment under Section 18 of the Customs Act is being undertaken: Sl.No. Class of Importer Amount of Bank Guarantee or Cash deposit to be obtained as as "security" of the differential duty Remarks 1 ---- ---- ---- 2 --- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 38/2016 is clear and widely worded that whenever duty is to be assessed provisionally, a bond is to be executed, and the importer shall furnish security for payment of differential duty. The Respondents' case that even under Clause-3 of Circular No.38/2016, security can be obtained is misplaced as this clause is not applicable. The Respondents never had the power to insist on the security of 100% of the differential duty, and they had power only for the 20% of the differential duty and that too is now taken away. 28. Countering the arguments of the Petitioner on Circular 38/2016, Mr.Anil Singh, the learned ASG, first made a grievance that the entire foundation of the Petitioner's case is only on Circular No.5/2016 and that there are no pleadings regarding the historical background of the dispensation of 20% security based on Circular No.38/2016. He submits, even otherwise, Circular No.38/2016 specifically refers to the cases referred to SVB to be governed by Circular No.5/2016. Clauses 2.8 and 2.9 of Circular No.38/2016 refer to the execution of a bond and furnishing of security in the form of a bank guarantee or cash deposit. It states that security, where provisional a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary to order provisional assessment for causing inquiry. 32. Thus, the position after submission of the investigation report by SVB is not covered by Circular No.5/2016, and the contingency is covered under Section 18(1) of the Act and also by sub-clause-6(b)(1) of Clause-3 of Circular No.38/2016. Sub-clause- 6(b)(1) of Clause-3 of Circular No.38/2016 speaks of a 100% of bank guarantee. No position is shown to us that after the SVB submits an investigation report, estimates the differential duty, and records a finding that there has been undervaluation, the power under Section 18(1) of the Act to demand security for differential duty is taken away. 33. The Petitioner then contended that the impugned action of the Respondents is contrary to their conduct as in the past also there were two DRI investigations and two show-cause-notices were issued for the period between June 1995 and June 2000 and for the period between July 2000 and May 2001, and even though these show-cause notices were issued to the Petitioners on prima facie finding of undervaluation, no security was sought for from the Petitioner even though at that time security up to 20% of differential duty could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dervaluing its import from the related party and differential duty has been estimated at 67.49%, as per the provision of Section 18(1) of the Act read with Circular No.38/2016, bank guarantees to the tune of 100% were correctly insisted upon. There is no error, illegality or lack of power in the Respondents' action in insisting upon the bank guarantee with the loading of 67.49% of the invoice value relying on the investigative findings of SVB. No mandamus can be issued to the Respondents to provisionally assess all future imports of the Petitioner till the adjudication is complete upon only furnishing a bond without insisting on furnishing of the bank guarantee. No direction can be issued to the Respondents to provisionally assess the future imports of the Petitioner in terms of Circular No.5/2016 dated 9 February 2016 after the investigative findings have been received from SVB and show-cause-notice has been issued. Since we find no error nor lack of jurisdiction for insisting on bank guarantees towards the differential duty, no direction can be issued to the Respondents to return the bank guarantee, which the Petitioner has submitted. 37. There is, therefore, no merit in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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