2024 (1) TMI 193 - AT - Customs

Redemption fine cannot exceed market value minus duty payable under Rule 12 Customs Valuation Rules 2007

CESTAT Chennai ruled on a customs matter involving redemption fine and penalty following rejection of declared value under Rule 12 of Customs Valuation ... Redemption Fine - penalty - rejection of declared value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - HELD THAT:- It is the settled position of law that the imposition of redemption fine cannot be disproportionate or arbitrary and, in any case, the same cannot exceed the market value of the product in question itself less the duty payable. Hence, it is clear that the quantum of levy insofar as redemption fine is concerned is just the discretion. On considering the impugned order, the adjudicating authority’s logic has been clearly defied when the first appellate authority has felt it proper to reduce both the redemption fine and penalty, which is not challenged by the adjudicating authority/Revenue. Having reduced the redemption fine, the first appellate authority should have taken note of the provisions which prescribe the guidelines insofar as the levy of redemption fine is concerned. The Order-in-Original is passed in 2014 and hence, it is found unnecessary to remand the matter back, for the reason that there is no challenge to the valuation, rather the challenge is only to redemption fine and penalty - the ends of justice would be met if the redemption fine is pegged at Rs.3,00,000/-. Penalty - HELD THAT:- The action of the appellant in shooting the letter dated 26.02.2014 before the adjudicating authority itself is an indication, which prompted the adjudicating authority to pass the Order-in-Original assuming that the import, primarily, was improper. The appeal is partly allowed. The redemption fine alone is reduced. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority was justified in rejecting the declared transaction value and re-determining value under Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 after formation of a doubt under Rule 12. 2. Whether the imported goods (used jute bags) were liable to confiscation under Section 111(d) of the Customs Act, 1962 as being restricted/prohibited by Paragraph 2.17 of the Foreign Trade Policy read with Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992. 3. Whether the redemption fine under Section 125 and penalty under Section 112(a) of the Customs Act, 1962 were lawfully imposed and whether their quantum was lawful, having regard to the statutory restriction that redemption fine shall not exceed market value less duty, and in light of the appellant's letter waiving issuance of Show Cause Notice and personal hearing. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Re-determination of Value under Rule 9 after doubt under Rule 12 Legal framework: Customs Valuation Rules, 2007 - Rule 12 permits formation of doubt on declared value; Rule 9 permits determination/re-determination of value having regard to prescribed methods (contemporaneous transactions, NIDB etc.). Section 17 (self-assessment/verification/re-assessment) of the Customs Act governs verification and reassessment by Proper Officer. Precedent Treatment: No prior cases were cited by the Court in the judgment; the Tribunal proceeded on established statutory scheme rather than distinguishing or overruling precedent. Interpretation and reasoning: The Tribunal recorded that the Shed Officers' examination gave rise to a reasonable doubt as to the declared transaction value, and the assessing authority invoked Rule 9 to re-determine value based on contemporaneous imports (NIDB). The appellant accepted the proposed enhancement by an express letter dated 26.02.2014, thereby estopping itself from contesting the re-determination. The Tribunal observed that had the appellant objected at the enhancement stage a fuller adjudication might have followed; the appellant's acceptance curtailed that avenue. Ratio vs. Obiter: Ratio - where a reasonable doubt is formed pursuant to inspection, the authority may re-determine value under Rule 9; acceptance by importer of enhanced value may estop later challenge. Obiter - comments on possible further detailed examination had the importer objected (speculative). Conclusions: The re-determination of value under Rule 9 was sustainable on the facts because a doubt was legitimately formed under Rule 12 and because the importer accepted the enhancement, thus removing a live objection to the valuation exercise. Issue 2 - Confiscation under Section 111(d) for import contrary to FTP and FT(DA&R) Act Legal framework: Paragraph 2.17 of the Foreign Trade Policy (restriction on certain imports); Section 3(3) of the Foreign Trade (Development & Regulation) Act, 1992 (empowering restrictions); Section 111(d) of the Customs Act, 1962 (confiscation where import contravenes any law). Precedent Treatment: No precedential analysis was undertaken in the judgment; the Tribunal accepted the factual finding of impropriety and proceeded to determine penalties/fine. Interpretation and reasoning: The Tribunal expressly recorded that the appellant did not challenge the adjudicating authority's finding that the imported used jute bags were contrary to the FTP and the FTDR Act. That unchallenged factual/legal finding stood and formed the basis for sustaining confiscation and consequent penal consequences. Ratio vs. Obiter: Ratio - where importation contravenes FT/FTP provisions and that finding is unchallenged, confiscation under Section 111(d) may be sustained. Obiter - none of significance beyond application to the facts. Conclusions: Confiscation under Section 111(d) was properly grounded on the finding of prohibited/restricted importation; the Tribunal sustained the result that the import was improper because the appellant did not contest that finding. Issue 3 - Validity and quantum of redemption fine (Section 125) and penalty (Section 112(a)); effect of appellant's waiver of Show Cause Notice and hearing Legal framework: Section 125 - allows redemption of confiscated goods on payment of redemption fine, subject to statutory cap that redemption fine shall not exceed market value of the goods less duty payable; Section 112(a) - power to impose penalty for contraventions; Section 17 (and self-assessment regime) and procedural safeguards (Show Cause Notice, hearing) are relevant to adjudicatory process and to effect of waiver. Precedent Treatment: The Tribunal relied on the 'settled position of law' that redemption fines cannot be disproportionate or exceed market value less duty; no specific case law was cited or distinguished in the text. Interpretation and reasoning: The Tribunal reiterated the statutory ceiling on redemption fines and emphasized that the quantum is within judicial/administrative discretion but bounded by law. It noted that the first appellate authority had already exercised discretion by reducing the redemption fine and penalty (reductions not challenged by Revenue). The Tribunal found no requirement to remit the matter for fresh valuation given absence of challenge to valuation and the passage of time; instead it exercised its appellate discretion to fix a reasonable redemption fine (Rs.3,00,000) on the peculiar facts. Regarding penalty, the Tribunal sustained the reduced penalty imposed by the first appellate authority (accepted by Revenue) because the appellant's conduct (submission of the acceptance letter) supported an inference of impropriety and because the finding of improper import remained unchallenged. Ratio vs. Obiter: Ratio - (a) redemption fine must not be arbitrary or exceed statutory cap (market value less duty); (b) appellate authority may judicially moderate a redemption fine within statutory bounds without remand where valuation is not in dispute; (c) an importer's voluntary acceptance of enhanced value and waiver of show-cause/hearing may be relevant to the assessment of culpability and penalty. Obiter - commentary that the appellant's acceptance may have been a 'strategic move' is descriptive rather than authoritative. Conclusions: The redemption fine originally fixed was excessive and was lawfully reduced by the appellate fora; the Tribunal further moderated the redemption fine to Rs.3,00,000 as a lawful exercise of discretion within statutory limits. The penalty, having been reduced by the first appellate authority and not challenged by Revenue, was sustained. The appellant's letter waiving notice/hearing estopped it from challenging valuation and supported the disciplinary inference for penalty purposes.