2020 (2) TMI 480 - AT - Customs

Tribunal overturns penalties for undervaluation of imported goods due to lack of evidence.

The Tribunal set aside the impugned order in a case involving alleged undervaluation of imported Zinc and Aluminium scrap by M/s Sunland Alloys. The ... Valuation of imported goods - undervaluation of Zinc and aluminium scrap imported - rejection of declared value - re-determination of the value of scrap items based on the fact that the import price of the said items were much lower than the prevailing prices contained in the bulletin published by the London Metal Exchange (LME) - admissibility of evidence - imposition of penalty u/s 112(a) of CA. HELD THAT:- In the case in hand, the appellant M/s Sunland Alloys had entered into contract with the overseas suppliers for importation of the scrap items in question. Pursuant to the contractual norms, the goods were supplied by the overseas entities under the cover of commercial invoices, bearing the reference of description of goods, quantity, price etc. On the basis of the import documents, the appellant had filed the Bills of Entry before the jurisdictional Customs Authorities for duty assessment and for clearance of the imported consignments for home consumption. It is not the case of Revenue that over and above the contractual amount, the appellant had paid any other amount either to the overseas supplier or any other person in context with importation of the subject goods. Further, Revenue has also not alleged that the appellant had any interest in the business of the overseas suppliers and vice-versa. The assessment has to be made under Section 14 ibid read with Rule 4(1) of the Customs Valuation Rules, 1988 and the provisions of Rule 3(ii) ibid should not be applicable for re-determination of the declared value. In this context, the Hon’ble Supreme Court in the case of EICHER TRACTORS LTD. VERSUS COMMISSIONER OF CUSTOMS, MUMBAI [2000 (11) TMI 139 - SUPREME COURT] have held that when the transaction value under Rule 4 is rejected, then under Rule 3(ii), the value shall be determined by proceeding sequentially through Rule 5 to 8 of the Rules; conversely, if the transaction value can be determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), then there is no question of determining the value under the subsequent rules - the department has not made any valid case for rejection of the declared transaction value. Admissibility of evidence - HELD THAT:- The learned counsel for the appellants has challenged the validity of the printouts taken from the Laptop of Shri Jhingon on the point that mandatory provisions and conditions of Section 138C of Customs Act, 1962 have not been complied with. We find that the Panchnama dated 25/04/2006 simply mentions that the DRI officers also searched one Laptop of Shri Tarun Jhingon and one CPU for further investigation. Details of seized documents and laptop and CPU were given in the Annexure to Panchnama. It is evident from the Panchnama that the seizure of the Laptop was not in terms of Section 138C ibid. Moreover, we find that such evidence was declared to be not admissible On perusal of the relevant contents of the certificate dated 29.10.2008, it transpires that ISRI has not prescribed any specific discount band on the price fixed by the LME for consideration of transaction value of the scrap items in question. Further, the impugned order has also relied upon the Alert Circular No. 14/2005 dated 16.12.2005 issued by Director General of Valuation for re-determination and enhancing the declared value. The said circular only provides for average price difference between the price of prime metal and different grades of scrap as determined on the basis of study of difference in prices of scrap and prime metal. The circular only requires the department staff to check possible under valuation, after ensuring all relevant specifications. However, the said circular cannot have over riding effect on the valuation provisions contained in the customs statute and as such, the transaction/declared value cannot be rejected merely on the basis of specifications provided in the DGOV Circular dated 16.12.2005. Revenue has concluded on the basis of stray third party evidences as above have alleged undervaluation on the basis of the statements of the concerned persons alone, which are not corroborated by any documentary evidence and therefore, their reliability, is not free from doubt. The allegation of undervaluation is not sustained. Consequentially, the seizure, demand of differential duty, fine and penalty on M/s. Sunland Alloys do not survive - the seizure and duty demand are not sustainable and as a corollary, the penalties also are liable to be set aside. Appeal allowed - decided in favor of appellant. Issues Involved:1. Alleged undervaluation of imported Zinc and Aluminium scrap.2. Re-determination of the value based on LME prices and DGOV Circular.3. Admissibility of evidence, including emails and reports.4. Imposition of penalties under Section 112(a) and 114A of the Customs Act, 1962.5. Applicability of CVD on Aluminium and Zinc scrap.Detailed Analysis:1. Alleged Undervaluation of Imported Zinc and Aluminium Scrap:The Customs department alleged that M/s Sunland Alloys manipulated the actual value of imported Zinc and Aluminium scrap to evade customs duty by colluding with overseas suppliers and using Hawala transactions for differential payments. The investigation revealed discrepancies in the declared value of the imports and the actual transaction value.2. Re-determination of Value Based on LME Prices and DGOV Circular:The department re-determined the value of the imported scrap using LME prices minus a discount band, as per DGOV Alert Circular No. 14/2005. However, the Tribunal noted that the LME prices cannot be adopted as the basis to enhance the declared price without contemporaneous value evidence. The ISRI and LME do not prescribe any specific discount bands for scrap prices, and the DGOV Circular cannot override the statutory valuation provisions.3. Admissibility of Evidence, Including Emails and Reports:The Tribunal found that the evidence, including emails retrieved from the laptop of Shri Tarun Jhingon and reports from the High Commission of India, U.K., did not comply with Section 138C of the Customs Act, making them inadmissible. The Tribunal emphasized that computer printouts and reconstructed data are not admissible as evidence. The reports from the High Commission were not authenticated by the respective Customs authorities and could not be considered conclusive proof of undervaluation.4. Imposition of Penalties Under Section 112(a) and 114A of the Customs Act, 1962:The Tribunal held that the penalties imposed on M/s Sunland Alloys and other appellants under Sections 112(a) and 114A were not sustainable as the main allegation of undervaluation was not proven. The Tribunal noted that the statements of various individuals were not corroborated by tangible evidence, and the investigation relied heavily on inadmissible documents.5. Applicability of CVD on Aluminium and Zinc Scrap:The Tribunal found that the applicability of CVD depends on whether the imported goods are liable to pay Central Excise duty as per the Central Excise Tariff Act. The Tribunal did not delve into the specifics of CVD applicability due to the overall finding that the impugned order was not maintainable.Conclusion:The Tribunal set aside the impugned order, finding that the department failed to provide credible evidence to support the allegations of undervaluation. The appeals were allowed, and the penalties and demands were quashed. The Tribunal emphasized the need for cogent reasons and tangible evidence to reject declared transaction values and impose penalties.