2023 (9) TMI 143 - AT - Customs

Appeal granted due to lack of CLRI report, overturning confiscation, penalties, and duty demand.

M/s. Benign International Versus Commissioner of Customs

The Tribunal allowed the appeal, setting aside the confiscation, penalties, and duty demand due to the absence of the CLRI report provided to the ... Confiscation - redemption fine - penalty - cow crumbled upper finished leather-off-white - goods did not conform to the criteria of finished leather as per the Public Notice dated 27.05.1992 - HELD THAT:- The Bench directed the Department to furnish the copy of the report. Though several adjournments were given, the Department could not furnish the CLRI report. It has to be seen that part of the consignment has been exported and only one item had been denied the benefit of duty exemption. When the Department is relying upon the report of an expert to hold that the goods do not conform to the standard of Public Notice, they ought to have extracted the relevant portion as part of the order - both the authorities below have not placed the discussions or tests made in the report or the method of testing done by CLRI as part of the report. In the Order-in-Original as well as the Order-in-Appeal it is merely stated that CLRI reported that the goods do not conform to the criteria of Public Notice. If the report was available it would have been possible to check the type of test done and as to how the testing authority has arrived at the conclusion that there is no protective coating. The CLRI report is a very crucial document in deciding the issue as to whether the impugned goods are finished leather or not. The Department has failed to supply the copy of the report to the appellant and also furnish copy before the Tribunal - the confiscation of goods, imposition of redemption fine, penalty and the demand of duty therefore cannot sustain and requires to be set aside. The impugned order is set aside. The appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the departmental reliance on an expert test report (CLRI) that was not placed on record or furnished to the exporter satisfies the requirements of natural justice and evidentiary adequacy to sustain confiscation, duty demand, redemption fine and penalty under the Customs law. 2. Whether the appellate authority, in entertaining an appeal by the exporter, could enhance the penalty imposed by the original authority without issuing prior notice or affording an opportunity to the appellant to meet the proposed enhancement. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reliance on an expert report not supplied to the affected party Legal framework: Administrative action imposing duty, confiscation, redemption fine and penalty under Customs law must be based on evidence that is disclosed to the affected party; principles of natural justice require disclosure of material evidence relied upon and an opportunity to meet it. Expert reports relied upon by revenue form part of the evidentiary foundation for such consequential orders. Precedent Treatment: No specific judicial precedents are cited or applied by the Court in the judgment; the Court proceeds on established principles of natural justice and evidentiary fairness rather than on distinguishing or following a particular case. Interpretation and reasoning: The Tribunal found the CLRI report to be a crucial document bearing directly on whether the exported material met the Public Notice criteria for finished leather. Both the original adjudicating authority and the appellate authority recorded that CLRI had reported absence of a protective coat and, on that basis, classified the goods as not conforming. However, the CLRI report itself was neither annexed to the orders nor furnished to the exporter despite specific requests and repeated adjournments; the Department failed to produce the report before the Tribunal even after directions. The Tribunal held that where the Department relies upon an expert report to deny status under a statutory/public notice standard, it must place the report on record and disclose its relevant portions so the importer/exporter can contest the testing methodology, findings, and conclusions. Merely stating the conclusion in the order without extracting or furnishing the tests, methods or observations of the expert is inadequate to support severe consequences like confiscation, duty demand and penalty. Ratio vs. Obiter: Ratio - It is a binding conclusion of law in this judgment that confiscation, duty/penalty and redemption fines based solely on an undisclosed expert report are unsustainable for non-compliance with natural justice and evidentiary adequacy. Obiter - Observations emphasizing that the protective coat is only one of many processes relevant to finished leather and that transit-protection function alone does not determine finished status are explanatory but ancillary to the core holding about disclosure and record. Conclusion: The orders of confiscation, demand of duty, imposition of redemption fine and penalty could not be sustained because the crucial CLRI report was not produced or supplied to the exporter and the reasons/facts from the report were not reflected in the impugned orders; the Tribunal set aside those measures. Issue 2 - Enhancement of penalty by appellate authority without notice Legal framework: The powers of an appellate authority include the power to confirm, modify or set aside the orders below subject to statutory limits and principles of natural justice. A party appealing against an order is entitled to notice and an opportunity to meet all material propositions and any enhancement of punitive measures proposed by the appellate authority; principle of audi alteram partem requires that enhancement of penalty not be effected without prior intimation to the affected party so they can be heard. Precedent Treatment: The judgment does not cite or apply specific precedents but applies the general principle that an enhancement of a penalty in appeal requires notice to the party so they can respond; the Court characterizes the appellate enhancement without notice as procedurally improper. Interpretation and reasoning: The Tribunal noted that the appellant had filed the appeal and the Commissioner (Appeals) enhanced the penalty from the amount levied by the original authority to a higher amount equal to the duty demand. The appellate forum did so without issuing any intimation or notice to the appellant proposing an enhanced penalty and without giving an opportunity to reply on that specific point. The Tribunal reasoned that enhancement in an appeal filed by the same party (i.e., appellant) must still respect the requirement of providing opportunity to meet the increased punitive exposure; absence of such notice violates natural justice. Ratio vs. Obiter: Ratio - Enhancement of penalty by an appellate authority in an appeal must be preceded by notice and opportunity to the affected party; failure to do so renders the enhancement unsustainable. Obiter - The Court's observation that the Department did not appeal the original penalty is explanatory of procedural posture but not essential to the holding. Conclusion: The appellate enhancement of penalty without prior notice or opportunity to the appellant was procedurally infirm; insofar as the Tribunal has set aside the underlying measures for reasons stated under Issue 1, the procedural infirmity further supports setting aside the enhanced penalty. Cross-references and overall disposition Where the core evidentiary basis for adverse consequential orders (an expert testing report) is not placed on record or supplied to the affected party, and the appellate forum enhances punitive consequences without giving notice to the appellant, the combined procedural and evidentiary defects require setting aside confiscation, duty demand, redemption fine and penalties; consequently the impugned orders were set aside and the appeal allowed with consequential relief, if any.