2024 (12) TMI 177 - AT - Customs

CESTAT sets aside penalties for IPR infringement and misdeclaration, citing procedural violations under Intellectual Property Rights Rules 2007

Divya Novelty, Bharat Patel, Kishore Bhanushali Proprietor of Om Logistics, Mahesh Issariya Versus Commissioner of Customs, Mundra

CESTAT Ahmedabad set aside penalties under Sections 112(a) and 114AA of Customs Act, 1962 for alleged IPR infringement and misdeclaration. The tribunal ... Absolute Confiscation - levy of penalties under Section 112(a) and 114AA of CA, 1962 - misdeclaration and alleged infringement of Intellectual Property Rights (IPR) - Valuation of counterfeit goods. HELD THAT:- From the Intellectual Property Rights Rules, 2007, it is mandatory on the part of the right holder i.e. brand name owners to follow the procedure as prescribed in the above Rules and only thereafter the goods can be held as prohibited goods. However, as per Rule 7 (3) of the Rules, it is provided that if the right holder or his authorised representative does not join the proceedings within a period of ten working days from the date of suspension of clearance leading to a decision on the merits of the case, the goods shall be released provided that all the other conditions of import of such goods under the Customs Act, 1962 have been complied with. In the present case, admittedly none of the condition of above Rules was followed such as giving notice, execution of bond etc. Thus, the right holder has not participated in the proceeding as prescribed in the Rules. In absence of compliance of the above Rules, the goods cannot be held prohibited goods and consequently the same cannot be absolutely confiscated. Therefore, since the right holder have not effectively participated in the proceeding inasmuch as not followed any procedure laid down in the above Rules, the goods cannot be held liable for absolute confiscation being not prohibited goods. As regards the enhancement of valuation of the goods, it is found that Revenue has adopted the price of the similar brand available on E.Commerce site which means the price of the original branded goods and not the price of counterfeit goods were taken and the deducting method was adopted - In the present case, the department’s case is that the goods are counterfeit which is not disputed by either side, therefore the price of the original branded goods cannot be comparable to value the counterfeit goods. Therefore, the entire basis of the Revenue to take the price of the original branded goods from the E.Commerce site is absolutely illegal and arbitrarily and not sustainable. Therefore, on this ground the valuation adopted by the Revenue is incorrect and the same cannot be accepted. Since it is not established that the goods are prohibited for the reason that Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 are admittedly not followed, the absolute confiscation of the goods was not warranted. However, the appellant are not interested to get the goods released. Since the goods are not liable for absolute confiscation and enhancement of value by the department was not acceptable, the entire penalties imposed against all the appellants are not sustainable and the penalties are set-aside. Appeal allowed. Issues Involved:1. Confiscation of imported counterfeit goods under the Customs Act, 1962.2. Misdeclaration of goods and violation of Intellectual Property Rights (IPR) Rules, 2007.3. Valuation of counterfeit goods and its legality.4. Participation of brand owners in customs proceedings.Issue-wise Detailed Analysis:1. Confiscation of Imported Counterfeit Goods:The primary issue was the absolute confiscation of imported counterfeit goods, specifically shoes bearing trademarks like NIKE, ADIDAS, PUMA, REEBOK, ASICS, and VANS. The Adjudicating Authority ordered the confiscation considering these goods as prohibited under the Customs Act, 1962. The relevant Notification No. 51/2010-Cus (NT) dated 30.06.2010 was cited, which prohibits the import of goods with false trademarks as per the Trade Marks Act, 1999. However, the Tribunal found that the confiscation was not warranted as the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 were not followed, particularly the participation of the right holders in the proceedings.2. Misdeclaration of Goods and Violation of IPR Rules, 2007:The department charged the appellants with misdeclaration, alleging that the goods were counterfeit and violated the Intellectual Property Rights Rules, 2007. The Tribunal noted that for goods to be considered prohibited due to false branding, the brand owners must actively participate in the customs proceedings as prescribed by the IPR Rules. Since the brand owners did not join the proceedings or follow the necessary procedures, the goods could not be legally held as prohibited for absolute confiscation.3. Valuation of Counterfeit Goods:The valuation issue arose from the department's method of enhancing the value of the counterfeit goods by comparing them to the price of original branded goods on E-Commerce sites. The Tribunal found this approach incorrect, as the valuation should not be based on the price of original goods when dealing with counterfeit items. The deductive method used by the department was deemed inappropriate, leading to the conclusion that the valuation adopted by the Revenue was illegal and unsustainable.4. Participation of Brand Owners in Customs Proceedings:A significant point of contention was the absence of brand owners' participation in the customs proceedings. The Tribunal emphasized that the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 require the right holders to follow specific procedures, including giving notice and executing bonds, to classify goods as prohibited. In this case, the lack of compliance with these rules by the brand owners meant that the goods could not be deemed prohibited, thus invalidating the absolute confiscation.Conclusion:The Tribunal concluded that the confiscation of the goods was not justified due to the non-compliance with the IPR Rules by the brand owners. Additionally, the valuation method used by the department was flawed. Consequently, the penalties imposed on the appellants were set aside, and the appeals were allowed with consequential relief. The Tribunal's decision was based on the precedent set in a similar case, highlighting the necessity for procedural compliance under the IPR Rules for confiscation and valuation of counterfeit goods.