2023 (7) TMI 1249 - AT - Customs

Customs tribunal rules in favor of importer in undervaluation case, dismissing appeal by Revenue.

The Commissioner of Customs held that the declaration as 'old and used' was a technical irregularity, finding no duty liability for undervaluation of ... Undervaluation of goods - import of a barge, Aqua Float 300, towed by tug, Fordeco 61 - enhancement of value - value of other equipment on board the barge was required to be added separately or not - Confiscation - redemption fine - penalty - HELD THAT:- It is found that the two individuals who were not imposed with penalties in the impugned order are not notices and, to that extent, the appeal proceedings is limited to the importer. For asserting that the equipment on board the barge should be charged, independent of the barge, to duty separately, the appellant- Commissioner has relied upon an unauthenticated and untenable source for claiming that these were not integral to the barge. We find no evidence on record that these were not on board the barge when acquired by the importer and, in such circumstances, these cannot be disaggregated from the barge for separate determination of assessable value. There is no allegation in the show cause notice that the cost, in CIF terms, is in question and rejection of declared value was proposed, under rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988, only owing to the purchase price, and declared value, not being inclusive of freight. Non-inclusion of freight is to be proceeded with under rule 9(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 whereas rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 is limited to recourse to rule 5 to rule 8 of the said Rules. The appeal of Revenue appears to have ignored this fundamental and crucial difference between adjustment of transaction value for cost and services and alternatives to declared price upon rejection under rule 10A of Customs Valuation (Determination of Value of Imported Goods) Rules, 1988. The determination by the adjudicating authority cannot, therefore, be displaced on the grounds preferred in the appeal. Penalties - HELD THAT:- As no misdeclaration has been found insofar as the import is concerned, there is no reason to consider imposition of penalties, too, on the individuals. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether equipment allegedly on board an imported barge (winch sets and generator) can be disaggregated from the barge and assessed separately to customs duty. 2. Whether the declared value of an imported tug (Fordeco 61) can be rejected and substituted under rule 8 and/or rule 10A of the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 on the basis that the tug was new or on valuations obtained from manufacturers/statutory bodies. 3. Whether non-inclusion of freight in the declared transaction value requires rejection under rule 10A or adjustment under rule 9(2) of the Customs Valuation Rules. 4. Whether confiscation and penalties (including imposition of penalties on individuals) are warranted where no misdeclaration of value/material facts is found. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Disaggregation of on-board equipment from the imported barge for separate assessment Legal framework: Customs liability arises on assessable value of imported goods. Determination of what constitutes the imported goods for valuation depends on whether items are integral to the imported unit or separate goods that must be valued independently. Precedent treatment: The adjudicating authority treated the on-board items as part of the barge and did not separately assess them; Revenue relied on external sources to claim they were not integral. Interpretation and reasoning: The Tribunal found no admissible evidence that the equipment was not on board when acquired by the importer or that the equipment was separate at the time of import. The Revenue relied on an unauthenticated and untenable source to assert separability. In absence of evidence demonstrating non-integrality or separate acquisition, disaggregation for separate valuation is not justified. Ratio vs. Obiter: Ratio - where goods and items are acquired and imported as an integral unit and no evidence shows separability at acquisition/import, those items cannot be disaggregated for independent assessment. Obiter - reliance on unauthenticated sources is impermissible for such a finding. Conclusion: Equipment on board the barge could not be disaggregated or assessed separately; the adjudicating authority correctly declined separate valuation. Issue 2 - Validity of rejecting declared value of the tug under rule 8 and/or rule 10A Legal framework: Rules 5-8 and rules 9-10A of the Customs Valuation Rules govern transaction value, permissible adjustments (e.g., for freight), and alternatives to declared price where transaction value is rejected. Rule 8 concerns valuation methods; rule 10A permits recourse to rules 5-8 when transaction value is rejected. Precedent treatment: The adjudicating authority reviewed documentary evidence including vendor certifications and purchase invoices indicating prior sale and consistent purchase price; the appraiser had accepted the declared value. The authority found grounds to reject transaction value for being declared CIF vs. FOB, but no grounds to reject the invoice value as sale value. Interpretation and reasoning: The Tribunal emphasized the clear finding that documentary evidence substantiated the declared purchase price (including a vendor letter certifying an earlier sale at S$18,00,000 and supplier invoice for S$16,75,000). No evidence of special discounts or extraneous considerations was produced to impugn the invoice as not reflecting real sale value. The charge that the tug was new and therefore misdeclared did not survive scrutiny. Consequently, there were no valid grounds to substitute the declared value under rule 8 or to invoke rule 10A to reject the transaction value beyond adjustments required by other rules. Ratio vs. Obiter: Ratio - where documentary evidence supports an invoice/purchase price and no evidence of manipulative discounts or extraneous considerations exists, the declared transaction value should not be rejected under rule 10A or substituted under rule 8. Obiter - findings on the appraiser's acceptance and the specific vendor correspondence are factual aids to the ratio. Conclusion: The proposed re-determination of the tug's base value did not survive; the adjudicating authority correctly retained the declared invoice value. Issue 3 - Treatment of non-inclusion of freight: rule 9(2) v. rule 10A Legal framework: Rule 9(2) provides for adjustments to transaction value to include costs, services and related items such as freight when not included. Rule 10A governs rejection of transaction value and recourse to alternative valuation methods under rules 5-8. Precedent treatment: The show cause notice did not allege that the CIF nature of cost was in question; rather, the alleged omission pertained to non-inclusion of freight in the declared price. Despite this, the Revenue sought to proceed under rule 10A alternatives. Interpretation and reasoning: The Tribunal identified a fundamental distinction: omission of freight is to be corrected by adjustment under rule 9(2), not by rejecting the transaction value under rule 10A. The appeal ignored this crucial difference. Because the show cause did not challenge the transaction value on grounds appropriate to rule 10A, the adjudicating authority's approach (adjusting only freight where necessary) was proper and could not be displaced by Revenue's alternative grounds. Ratio vs. Obiter: Ratio - non-inclusion of freight should be addressed by rule 9(2) adjustments; invoking rule 10A to achieve the same result is improper where the deficiency is confined to costs/services omission. Obiter - the appeal's failure to appreciate the rules' distinct scopes undermines its merit. Conclusion: Adjustment for non-included freight must proceed under rule 9(2); rejection under rule 10A was not warranted on the facts. Issue 4 - Confiscation and imposition of penalties where no misdeclaration is found Legal framework: Sections 111, 114A, 125 and section 28 (duty demands) of the Customs Act provide for confiscation, penalties and demand of differential duty where duty liability arises; penalties on individuals require specific findings of culpability and misdeclaration. Precedent treatment: The adjudicating authority held that declaration as 'old and used' when there was no duty liability was a mere technical irregularity and not warranting confiscation; penalty was limited to duty on freight and tug was allowed to be redeemed on payment of a fine. The Tribunal noted no misdeclaration was found in respect of the import. Interpretation and reasoning: Given the lack of evidence of undervaluation or misdeclaration affecting assessable value (see Issues 1-3), there was no basis to impose confiscation or penalties on individuals. The Tribunal observed that the two individuals whom Revenue sought to penalize were not even issued notices, limiting the scope of the appeal to the importer. Where substantive misdeclaration is not established, punitive measures under confiscation and penalty provisions are unwarranted. Ratio vs. Obiter: Ratio - absent a finding of misdeclaration or undervaluation, confiscation and penalty provisions should not be invoked; penalties on individuals require notice and specific culpability. Obiter - reference to technical irregularity of 'old and used' declaration as insufficient to attract confiscation. Conclusion: No confiscation or penalties on individuals were justified; the adjudicating authority's limited penalty and fine directions were appropriate. The Revenue's appeal was devoid of merit and dismissed.