2023 (8) TMI 1328 - AT - Customs

Tribunal Upholds Redemption Fine & Penalty on Imported Clothing

The Tribunal upheld the redemption fine and penalty imposed on imported old and used worn clothing, reducing the amounts to 10% and 5% respectively. The ... Valuation of imported goods - old and used worn clothing, completely fumigated - restricted item or not - classifiable under Tariff Item No.63090000 of the First Schedule of the Act - enhancement of value - confiscation - redemption fine - penalty - HELD THAT:- This issue came up before this Tribunal in the case of VENUS TRADERS, RAINBOW INTERNATIONAL, AL-YASEEN ENTERPRISES, GLOBE INTERNATIONAL, KRISHNA EXPORT CORPORATION, PRECISION IMPEX, BMC SPINNERS PVT. LTD., SHIVAM TRADERS, LEELA WOOLEN MILLS, M.U. TEXTILES VERSUS COMMISSIONER OF CUSTOMS (IMPORTS) MUMBAI [2018 (11) TMI 625 - CESTAT MUMBAI], wherein this Tribunal has held that failure of the original authority to comply with the direction in remand to disclose the margin of profit that prompted the fine and penalty, the matter would normally have to be remitted back by another remand order. There is a failure of the original authority to comply with the direction in remand to disclose the margin of profit that prompted the fine and penalty, the matter would normally have to be remitted back by another remand order - the confiscation of the goods under Section 111(d) of Customs Act, 1962 upheld - the ends of justice would be served by reducing the redemption fine to 10% of the ascertained value and penalty to 5% - appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether confiscation and imposition of redemption fine and penalty are sustainable where imported old and used worn clothing are classifiable under a restricted Tariff Item and imported without a specific licence under the Foreign Trade Policy. 2. Whether Section 111(m) of the Customs Act can be invoked to confiscate goods where proceedings commenced before filing of the bill of entry and no declaration in the bill of entry exists corresponding to the goods. 3. Validity of enhancement of declared value (value ascertainment) by the authorities by market survey and use of margin of profit for computation of redemption fine and penalty, including the requirement to disclose margin of profit to affected importers on remand. 4. Proper quantum of redemption fine under Section 125 and penalty where confiscation is upheld for import without licence, and whether the fines imposed by the adjudicating authority comport with the ends of justice. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Confiscation and import restriction/licence requirement Legal framework: Import of items listed under a restricted Tariff Item is permitted only against a valid specific licence as per the Foreign Trade Policy; confiscation is authorized under Section 111(d) of the Customs Act where import contravenes regulatory prohibition or restriction. Precedent Treatment: The Tribunal followed prior authority applying Section 111(d) to imports of old and serviceable garments brought without the required licence under Chapter 2 of the Foreign Trade Policy. Interpretation and reasoning: The imported goods were admitted to be old and used worn clothing classifiable under the restricted Tariff Item. Want of the specific import licence was not disputed. Under those undisputed facts, confiscation under Section 111(d) is legally permissible because import without a required licence constitutes contravention of statutory/regulatory requirements. Ratio vs. Obiter: Ratio - Confiscation under Section 111(d) is sustainable where import of restricted goods occurs without the statutorily prescribed licence. Conclusion: Confiscation of the goods is upheld as lawful given the admitted lack of licence for importing restricted items. Issue 2 - Applicability of Section 111(m) where no declaration/bill of entry corresponds Legal framework: Section 111(m) applies to goods that 'do not correspond in respect of value or in any other particular with the entry made under this Act' - the operative declaration being the bill of entry for imported goods. Precedent Treatment: The Tribunal distinguished or rejected the invocation of Section 111(m) in circumstances where proceedings were initiated before bill of entry filing and hence no declaration existed to which Section 111(m) could validly attach. Interpretation and reasoning: Confiscation under Section 111(m) presupposes an existing, incorrect or incomplete declaration in the bill of entry. Where proceedings commence prior to filing of the bill of entry, there is no declaration to ground Section 111(m); therefore invoking Section 111(m) is inconsistent with the statutory scheme. The Tribunal thus limited the scope of Section 111(m) to cases where a declaration exists and is shown to be incorrect. Ratio vs. Obiter: Ratio - Section 111(m) cannot be validly invoked in the absence of a bill of entry or corresponding declaration; invocation prior to filing is not in conformity with law. Conclusion: Section 111(m) is not a proper basis for confiscation in the present circumstances where no relevant declaration/bill of entry existed at the time proceedings commenced. Issue 3 - Value enhancement, market survey, margin of profit and disclosure on remand Legal framework: Valuation and enhancement for customs purposes may be determined by authorities; redemption fine (Section 125) and related penalty computations may use ascertained market value or margin of profit, but principles of fair procedure require disclosure of basis for such ascertainment especially when remand directions exist. Precedent Treatment: The Tribunal relied on an earlier decision which accepted that a market survey and margin of profit may be used to determine ascertained value, but criticized post hoc surveys carried out long after import and remand where the original authority had failed to disclose the margin of profit as directed. Interpretation and reasoning: The Tribunal noted deficiencies: the original authority failed to disclose the margin of profit as required by a prior remand, and conducting a survey more than a decade after import and after remand is improper and inconsistent with the remand directions. Nevertheless, where paucity of evidence and negligible scope for further ascertainment exist, the Tribunal may decline a further remand. The Tribunal observed that while the methodology for ascertaining value can be acceptable, procedural fairness requires that the margin/method be made known to the importer when remand orders require disclosure. Ratio vs. Obiter: Mixed. Ratio - Authorities must disclose the margin of profit and the basis of market surveys when remand directions require such disclosure; late ex post facto surveys undermining remand compliance are impermissible. Obiter - Observations on practical impossibility of exact ascertainment years later and related factual findings about mixed/mutilated lots. Conclusion: While validity of market survey/margin-of-profit methods is not per se rejected, failure to comply with remand disclosure obligations is a serious lapse; however, given evidentiary paucity, further remand was not ordered in the cited authority and the Tribunal proceeded on available ascertained values. Issue 4 - Quantum of redemption fine and penalty and the ends of justice Legal framework: Section 125 permits imposition of a redemption fine in lieu of confiscation, subject to statutory limits (not exceeding the market price of the goods). The quantification must be reasonable and informed by ascertained value. Precedent Treatment: In the applied precedent the Tribunal, while upholding confiscation, reduced the redemption fine and penalty (to 10% and 5% of ascertained value respectively) in view of procedural defects and paucity of evidence, holding that such reduction better served the ends of justice. Interpretation and reasoning: The present Tribunal followed that precedent and concluded the redemption fine and penalty imposed by the adjudicating authority were sufficient to meet the ends of justice. The Tribunal observed that confirmed duties, penalties and redemption fine were not appealed by the respondents, and in light of the earlier Tribunal reasoning (including concerns about belated market surveys and failure to disclose margin of profit), the quantum imposed by the adjudicating authority was acceptable and need not be enhanced by the Revenue. Ratio vs. Obiter: Ratio - Where confiscation under Section 111(d) is upheld but procedural irregularities or evidentiary limitations exist, the Tribunal may moderate the quantum of redemption fine and penalty to serve the ends of justice; however, if the adjudicating authority's quantum is reasonable and unchallenged by the importer, it may be sustained. Conclusion: The redemption fine and penalty as imposed by the adjudicating authority were upheld as adequate; there was no infirmity warranting enhancement, and the Revenue's appeals on quantum were dismissed. Cross-reference See Issue 2 for the limitation on invoking Section 111(m) in absence of a bill of entry declaration; see Issue 3 for constraints on valuation procedures and procedural disclosure obligations that inform the Tribunal's approach to quantum in Issue 4.