2013 (5) TMI 69 - AT - Customs

Tribunal Overturns Customs Penalties, Emphasizes Industry Practices

DR. REDDY’S LABORATORIES LTD. Versus COMMISSIONER OF CUS., HYDERABAD

The Tribunal set aside the impugned order, allowing all appeals with consequential relief. Customs authorities were found to lack justification in ... Rejection of FOB value - Incorrect ‘FOB’ value - confiscation. - The dispute relates to arriving at the ‘FOB value’ from the ‘CIF’/CIP’ value for the purpose of claiming DEPB credit. - Demand of differential duty U/s 28(1) of the Customs Act, 1962 along with interest U/s 28AB of the Customs Act - Penalties on the assessee-company and its three officials - Held that:- As clarified by the Board in 1998 itself, the FOB value will not include the cost of international transportation beyond the Indian port. (The clarification issued in the context of export made through Indian Land Customs Station shall be applicable to export by sea and air also). The terms like FOB, CIF, CIP are well known “Incoterms” (International commercial terms) as duly noted by the Commissioner in his order The demand appears to be on goods so imported using such DEPB scrips. However, nowhere any evidence relating to import of any goods, relevant bills of entry, value of the goods imported, the duty short levied on such goods, etc., are relied upon. -If the scrips have been shown to have been used to clear duty free the imported goods, then duty to the said extent short levied shall be recoverable under Section 28(1) of the Customs Act subject to fulfilment of conditions mentioned therein. The FOB value declared by the assessee-company in the shipping bills were not correctly declared inasmuch as amounts paid under heads of FSC, SCC, etc., were not deducted from CIF prices. However, this appears to be on the basis of industry practice as duly noted by the Commissioner. The Customs authorities are competent to issue show-cause notice without challenging the assessment in the shipping bills by issue of show-cause notice as provided under the law - However, the Customs authorities cannot unilaterally alter the amount of DEPB benefit given by DGFT authorities based on export documents relating to exports already made. Such a modification can be done only by referring the matter to the DGFT authorities either to cancel or modify the DEPB scrips - Only when DEPB scrips have been utilised for duty free clearance of imported goods, the Customs authorities can demand under Section 28(1) of the Act, duty short levied/non-levied on such imported goods giving reference to such imports - In the facts and circumstances of the case, there is no justification of imposition of penalties on any of the appellants - the impugned order is set aside and all the appeals are allowed with consequential relief as per law. Issues Involved:1. Demand of differential duty and interest from the assessee-company.2. Imposition of penalties on the assessee-company's officials.3. Imposition of penalties on freight forwarders and CHAs.4. Correctness of declared FOB value in shipping bills.5. Authority of Customs to revise DEPB credits issued by DGFT.6. Validity of penalties imposed on the appellants.Issue-wise Detailed Analysis:1. Demand of Differential Duty and Interest from the Assessee-Company:The Commissioner demanded differential duty of Rs. 1,10,09,602/- along with interest from the assessee-company, M/s. DRL, for allegedly overvaluing export goods to obtain higher DEPB credit. The assessee-company argued that there is no clear definition of freight charges in Customs Law or Foreign Trade Policy and that they followed industry practice, which was acknowledged by the Commissioner. The Tribunal noted that the Customs authorities can issue a show-cause notice under Section 28(1) of the Customs Act but found no evidence of imported goods or short-levied duty to support the demand. Thus, the demand was not justified.2. Imposition of Penalties on the Assessee-Company's Officials:Penalties of Rs. 10 lakhs each were imposed on three officials of the assessee-company under Section 114 of the Customs Act. The Tribunal found that the officials followed industry practice and there was no intentional suppression of facts. Consequently, the imposition of penalties on the officials was deemed unjustified.3. Imposition of Penalties on Freight Forwarders and CHAs:Penalties of Rs. 5 lakhs each were imposed on three freight forwarders and CHAs. The Tribunal concluded that the penalties were unjustified as the freight forwarders and CHAs were following the prevalent industry practice and there was no evidence of mala fide intent.4. Correctness of Declared FOB Value in Shipping Bills:The Tribunal noted that the assessee-company declared FOB values based on CIF/CIP contracts, deducting only basic freight charges. The Commissioner held that charges like FSC and SCC should have been deducted to arrive at the correct FOB value. The Tribunal acknowledged the industry practice but emphasized that such practice must align with legal requirements. However, the Tribunal found no intentional suppression of facts by the assessee-company.5. Authority of Customs to Revise DEPB Credits Issued by DGFT:The Tribunal held that while Customs authorities can question the valuation in shipping bills, they cannot unilaterally alter DEPB credits issued by DGFT without referring the matter to DGFT for modification or cancellation. The Tribunal found that the Customs authorities did not follow this procedure, rendering their actions improper.6. Validity of Penalties Imposed on the Appellants:Given the industry practice and lack of intentional suppression of facts, the Tribunal found no justification for imposing penalties on any of the appellants. The penalties were set aside.Conclusion:The impugned order was set aside, and all appeals were allowed with consequential relief as per law. The Tribunal emphasized that Customs authorities must follow proper procedures and cannot unilaterally alter DEPB credits without DGFT's involvement. The penalties imposed on the appellants were deemed unjustified due to the adherence to industry practice and lack of mala fide intent.