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

CESTAT Ahmedabad set aside penalties under Sections 112(a) and 114AA of Customs Act, 1962 for alleged IPR infringement and misdeclaration. The tribunal held that goods cannot be treated as prohibited without following mandatory procedures under Intellectual Property Rights Rules, 2007, including proper notice to right holders and their participation within ten working days. Since these procedural requirements were not met, absolute confiscation was unwarranted. Additionally, the tribunal rejected Revenue's valuation method using original branded goods' prices from e-commerce sites to value counterfeit goods, finding this approach illegal and arbitrary. All penalties against appellants were set aside and appeal was allowed.

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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.

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