2022 (6) TMI 626 - AT - Customs

Tribunal overturns Revenue's appeal, emphasizing legal standards over moral considerations.

The tribunal allowed the appeals of M/s Arigato and Obligado Merchandise Pvt Ltd, Mr. Devendra Ahuja, and Mr. Ramesh Mehta, while dismissing the appeal of ... Import of TV in CKD (unassembled) in parts - rejection of declared value - classification of branded assemblies - Recovery of Customs Duty - recovery under section 18 of Customs Act, 1962 or under section 28 of Customs Act, 1962 along with interest as applicable under setion 28AB of Customs Act, 1962? - enhancement of the assessable value solely on the ground that the imported goods aggregate as the finished goods and by adjusting the list price of the manufacturers of these goods at Singapore - confiscation - penalties - HELD THAT:- The impugned order has discarded the declared value for being associated with description of goods that did not find merit with the adjudicating authority; there is no allegation that the ‘parts’, of themselves, were undervalued. It is the finding that ‘parts’ declared in the relevant bills of entry, taken together, are, in reality, branded assemblies classifiable against a tariff item in the First Schedule to Customs Tariff Act, 1975 other than that sought for in the relevant bills of entry that has prompted the finding of irreconcilability with invoice and, therefore, have the value therein rejected for assessment. There is, however, no finding that, physically and as presented, the goods are not ‘parts’ even if they add up to finished goods upon assembly. The determination of the price itself is fraught with contradictions and presumptions. The adjudicating authority has relied upon appraisal of an interested party, viz., the domestic entities dealing with the brands that, allegedly, had been procured by the importers at Singapore - The computation, under the authority of ‘best judgement’ in the impugned order, does not bear any resemblance to the framework within which such valuation should be re-determined. Consequently, the revised valuation is set aside. The critical aspect for ‘clubbing’ rests entirely upon the establishment of fraud and deliberate subterfuge for, admittedly, nefarious purpose; the inculpatory statements of the parties to those transaction was found to suffice for holding that the decision of the Tribunal setting aside the ‘clubbing’ had erred in placing reliance on an earlier decision of the Tribunal which, while finding affirmation by the Hon’ble Supreme Court by distinguishment from the judgement in COMMISSIONER OF CUSTOMS, NEW DELHI VERSUS PHOENIX INTERNATIONAL LTD. [2007 (9) TMI 275 - SUPREME COURT], did not apply to the facts of the dispute. Such evidence is sorely lacking in the records before us and the finding of the adjudicatory authority is a summation of several disjointed facts culminating in conjecture. None of the cited decisions permit detriment on the basis of such foray. In re Phoenix International Ltd, the subterfuge adopted to bypass the prohibition, vide paragraph 156 (A) of the EXIM Policy 1992-97 placing consumer goods in the negative list, was brought on record for setting aside the order of the Tribunal disapproving the clubbing of imported ‘synthetic shoe uppers’ and ‘soles and insoles’ from the same supplier at Bangkok. It is those very facts that distinguished the judgement therein from the facts in appeal before the Hon’ble Supreme Court in COMMISSIONER OF CUSTOMS, NEW DELHI VERSUS SONY INDIA LTD. [2008 (9) TMI 19 - SUPREME COURT]. Customs Act, 1962 is not a law of morality; nor is it a law of property. It is intended to provide a framework and procedure for asserting the constitutional jurisdiction assigned for levy of duty on imported goods. The consistent thread in the several decisions cited by both sides is the applicability of the framework for assessment and permitting reconstructed depiction solely on evidence of attempted subterfuge. A motive must clearly be proved. The motive should also display disproportionate windfall from such subterfuge. Neither is on record here. The goods have been imported, and presented, separately and independently; no evidence, other than conjecture about the conspiracy to disassemble branded products, is on record. Appeal dismissed - decided against Revenue. Issues Involved:1. Recovery of duty under Section 18 vs. Section 28 of the Customs Act, 1962.2. Confirmation of differential duty, fines, and penalties.3. Allegations of misdeclaration and undervaluation of imported goods.4. Classification and valuation of imported goods.5. Applicability of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.6. Determination of assessable value and the use of best judgment method.7. Examination of evidence and establishment of fraud or subterfuge.8. Clubbing of clearances and related judicial precedents.Detailed Analysis:1. Recovery of Duty under Section 18 vs. Section 28 of the Customs Act, 1962:The appeal by the Commissioner of Customs (Import), Mumbai sought confirmation of recovery under Section 28 instead of Section 18 of the Customs Act, 1962, along with interest under Section 28AB. The tribunal found that the impugned order redetermined the assessable value and confirmed the recovery of differential duty under Section 18(2), which was to be paid jointly and severally by the importers.2. Confirmation of Differential Duty, Fines, and Penalties:The adjudication order confirmed the differential duty of Rs. 22,76,475, a fine of Rs. 12,50,000 under Section 125 in lieu of confiscation under Section 111(m), and penalties of Rs. 2,00,000 each on the sole proprietor and the company, and Rs. 1,00,000 on the Director of the company. The tribunal scrutinized the computation of the differential duty and found it substantially impacted by the use of Rule 8 of the Customs Valuation Rules for enhancing the assessable value.3. Allegations of Misdeclaration and Undervaluation of Imported Goods:The show cause notice alleged that the importers declared electronic components/parts which, when assembled, would form complete units of television sets, VCD players, and music systems. The investigation revealed that the goods were imported in disassembled form to evade customs duty, and the declared value was significantly lower than the actual value. The tribunal noted that there was no evidence that the parts themselves were undervalued, and the declared value was rejected based on the description of goods.4. Classification and Valuation of Imported Goods:The adjudicating authority classified the goods as complete units under the appropriate tariff headings, invoking Rule 2(a) of the General Rules for Interpretation of the Customs Schedule. The tribunal found that the assessment should be based on the actual state of the goods as presented and not on the deemed state of finished products.5. Applicability of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988:The tribunal scrutinized the use of Rule 8 for valuation and found that the adjudicating authority's reliance on the list price of manufacturers in Singapore and the MRP in India was flawed. The tribunal emphasized that valuation should be consistent with Rule 3 of the Customs Valuation Rules and set aside the revised valuation.6. Determination of Assessable Value and the Use of Best Judgment Method:The tribunal found that the adjudicating authority's determination of the assessable value using the best judgment method was inconsistent with the framework of the Customs Valuation Rules. The computation did not align with the proper valuation methods and was therefore set aside.7. Examination of Evidence and Establishment of Fraud or Subterfuge:The tribunal noted that there was no concrete evidence of fraud or deliberate subterfuge. The findings of the adjudicating authority were based on conjecture and coincidences rather than solid evidence. The tribunal emphasized that the motive for evasion must be clearly proven, which was lacking in this case.8. Clubbing of Clearances and Related Judicial Precedents:The tribunal examined various judicial precedents cited by both parties. It distinguished the present case from those involving clear evidence of fraud and subterfuge. The tribunal found that the cited decisions did not support the contrived combining of separate imports without evidence of an admitted conspiracy.Conclusion:The tribunal concluded that the impugned order failed the test of law. The appeals of M/s Arigato and Obligado Merchandise Pvt Ltd, Mr. Devendra Ahuja, and Mr. Ramesh Mehta were allowed, and the appeal of Revenue was dismissed. The tribunal emphasized that Customs Act, 1962, is not a law of morality but a framework for asserting constitutional jurisdiction for levy of duty on imported goods. The order was pronounced in the open court on 09/06/2022.