2025 (5) TMI 84 - AT - Customs

Replacement goods provided free of charge cannot have customs value re-determined when original defective goods were properly cleared

M/s. Wipro Ltd. Versus Commissioner of Customs, Bangalore

M/s. Wipro Ltd. Versus Commissioner of Customs, Bangalore - TMI 1. ISSUES PRESENTED and CONSIDERED- Whether the re-determination of the customs value of the imported replacement goods was justified, given the declared value and prior acceptance of the original consignment's value by the department.- Whether the confiscation of the impugned goods and imposition of penalty and redemption fine were legally sustainable, considering the nature of the goods as replacement parts supplied free of charge.- Whether the auction and disposal of the confiscated goods by the Customs Department during the pendency of the appeal before the Tribunal, without prior intimation or permission, was lawful.- Whether the appellant is entitled to restitution of the sale value of the goods auctioned clandestinely during the pendency of the appeal.- The applicability and interpretation of relevant statutory provisions, including Sections 111(m), 112(a), 125, 23(2), and 150 of the Customs Act, 1962, in the context of confiscation, penalty, redemption, and sale of goods.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Re-determination of Customs ValueThe appellant declared the value of the imported replacement consignment as USD 26,400, which was significantly lower than the value of similar goods imported by another entity (USD 50,600). The Original Authority rejected this declared value and re-determined it at USD 1,10,000 based on the supplier's list price, disregarding the appellant's claim of a 76% discount substantiated by a certification from the supplier, Cisco Systems.The Court noted that the original consignment was accepted and assessed at USD 29,150, and the replacement goods were supplied free of charge as a replacement for defective items. The appellant's claim of discount was not disputed by the Revenue in the original import, and the certification was not adequately challenged with documentary evidence showing that such discounts were not generally available. Furthermore, the fact that a similar consignment was imported by another party at USD 50,600 without any certification weakened the Revenue's reliance on list price for re-determination.The Tribunal held that re-determination of value based solely on list price without sufficient reasons or documentary evidence could not be sustained. The principle applied was that valuation must be fair and based on actual transaction value, not arbitrary list prices, especially when the goods were replacements supplied free of charge.Issue 2: Legality of Confiscation, Penalty, and Redemption FineThe goods were confiscated under Section 111(m) of the Customs Act, 1962, and a penalty under Section 112(a) was imposed, along with a redemption fine under Section 125. The appellant contended that since the goods were replacements of defective items and the original import was accepted at declared value, there was no mis-declaration warranting confiscation or penalty.The Tribunal observed that the goods were allowed for re-export by the Commissioner (Appeals), indicating acknowledgment that the goods were replacements. Consequently, the imposition of redemption fine and penalty was not appropriate as the goods were not liable for confiscation or penalty due to mis-declaration. This aligns with the principle that penalty and fine are not leviable where there is no fault or mis-declaration by the importer.Issue 3: Auction of Goods during Pendency of AppealThe impugned goods were auctioned by the Revenue without prior intimation to the appellant and while the appeal was pending before the Tribunal. The Revenue relied on letters sent prior to adjudication to establish notice, but these were issued before the confiscation order and hence insufficient.The Tribunal extensively relied on authoritative precedents, particularly the decision of the Hon'ble High Court of Delhi in Shilp Impex vs. Union of India, which held that auctioning confiscated goods during pendency of appeal without prior permission of the appellate authority and without notice to the owner is illegal and amounts to a serious lapse. The principle is that once an appeal is filed, the goods cannot be disposed of without the appellate court's permission.Sections 23(2) and 150 of the Customs Act were analyzed. Section 23(2) pertains to relinquishment of title by the owner, which was not the case here. Section 150 mandates notice to the owner before sale of goods not confiscated. Neither provision justified the auction without notice or permission.Further, the Tribunal noted that the auction was conducted clandestinely and the appellant was deprived of the opportunity to redeem or contest the disposal. The Tribunal emphasized the settled legal position that the department cannot take advantage of its own wrong by auctioning goods during pendency of proceedings and must refund the value of the goods to the appellant.Issue 4: Entitlement to Restitution of Sale ValueGiven the illegal auction, the appellant claimed entitlement to restitution of the sale value of the goods. The Tribunal relied on multiple precedents, including:Shilp Impex vs. Union of India: The Supreme Court held that where goods are auctioned during pendency of appeal without permission, the owner is entitled to the value of the goods as fixed by the department, along with refund of duty, redemption fine, and penalty paid.M/s. Intersales vs. Commissioner of Central Excise: The Tribunal held that goods auctioned without notice and permission during appeal pendency entitle the appellant to restitution of value, and the department must pay interest on the amount.Md. Yaseen vs. Commissioner of Customs: The Tribunal condemned the department's disposal of goods without notice during appeal, holding it an irresponsible act and ordering refund of value and penalty.The Tribunal applied these principles, concluding that the appellant was entitled to the full sale value (mahazar value) of the goods, interest at 12% per annum from the date of auction, and refund of penalty paid. Since the goods were not released as per the appellate order, no duty or penalty was chargeable on the appellant.Issue 5: Application of Legal Framework and PrecedentsThe Tribunal extensively analyzed statutory provisions and case law to uphold the principles of natural justice and procedural fairness. It emphasized that:Confiscation and penalty require valid grounds and cannot be imposed arbitrarily.Valuation must be based on actual transaction value, not arbitrary list prices.Goods cannot be auctioned during pendency of appeal without prior permission and notice.Where illegal auction occurs, the owner is entitled to restitution of value and refund of penalty.The Tribunal's reasoning was consistent with the principles established by the Supreme Court and various High Courts, reinforcing the protection of importer's rights during appellate proceedings.3. SIGNIFICANT HOLDINGS'Re-determination of value based on the supplier's list price without any sufficient reasons cannot be sustained.''Since the appellant had requested for re-export, the question of payment of redemption fine and penalty does not arise since the goods were replacement of the defective goods which is not in dispute.''The goods have been auctioned without any intimation to the appellant by the Revenue that too when an appeal is pending before this Tribunal... the auction took place in a clandestine manner... the action taken by the department is not justified.''Once the goods are seized or confiscated and the proceedings against the same are pending before the authority / Court then the only option available to the department is to obtain necessary permission from the court before whom the proceedings are pending and also to issue notice to the assessee from whose possession goods have been seized before auctioning the goods.''The appellant is entitled for the full mahazar value of the car... Since the goods were not released to the appellant as per the order in appeal neither the duty nor the penalty is chargeable from the appellant, as the goods have disappeared for no fault of the Appellant.''The impugned order is set aside and appeal allowed on the above terms.'Core principles established include:Proper valuation of imported goods must be based on bona fide transaction value, not arbitrary list prices.Confiscation and penalties require valid justification and cannot be imposed where goods are replacements supplied free of charge.Departmental disposal of confiscated goods during pendency of appeal without notice and permission is illegal and violative of natural justice.Appellants are entitled to restitution of the value of goods auctioned clandestinely, along with refund of penalties and interest.Statutory provisions such as Sections 23(2) and 150 of the Customs Act cannot be invoked to justify auction without notice or permission where no relinquishment has occurred.The Tribunal's final determinations were to set aside the impugned order, allow the appeal, direct restoration of the sale value of the impugned goods to the appellant, and order refund of penalty and interest, thereby vindicating the appellant's rights and condemning the Revenue's procedural lapses.