2025 (8) TMI 1663 - AT - Customs

Customs duty confirmed, redemption fine and penalty reduced for lack of natural justice and market-based valuation evidence

M/s Mahesh Steel Traders Versus Commissioner of Customs, Ludhiana

CESTAT held appellant liable for customs duty but found the redemption fine and penalty were imposed without proper application of natural justice, market ... Levy of redemption fine - quantum of penalty - Violation of principles of natural justice - impugned order passed without properly appreciating the facts and law and without considering the relevant provisions for import - import of restricted item without license - HELD THAT:- As far as customs duty is concerned the appellant is liable to pay the same but as regards the imposition of redemption fine and penalty, it is found that the same has been imposed without considering the margin of profit and without doing the market survey. Further, it is found that in the case of M/s H.K. Enterprises [2018 (9) TMI 50 - CESTAT ALLAHABAD], the Tribunal has held that 'As nothing has been brought on record, how the examination was done by the Chartered Engineer to find out how much is the quantity of Tread'. 'Taste' and Troma/Trump' are not scrap. In that circumstances the findings of the Chartered Engineer with regard to the valuation of the goods is not acceptable in the absence of any market survey. Therefore, we hold that redemption fine and penalty is not imposable upon the appellant. As valuation aspect has not been disputed by the appellant on technical grounds, the demand of duty is confirmed.' Considering the totality of the facts and circumstances and the law laid down by various Benches of the Tribunal, it is opined that the imposition of the redemption fine and penalties are on the higher side and therefore, the same is reduced to the extent of Rs. 1 lakh as redemption fine and 50,000 as penalty. The present appeal is partly allowed. 1. ISSUES PRESENTED AND CONSIDERED - Whether the adjudicating authority correctly rejected the declared transaction value and classification on the basis of the chartered engineer's report and thereby correctly computed enhanced customs duty. - Whether the imposition and quantum of redemption fine under Section 125 and penalty under Section 112 (and related provisions) were legally sustainable in the absence of market survey, consideration of margin of profit and proper determination of market price. - Whether import of restricted items (gas cylinders, e-waste) without requisite permissions/license constitutes mis-declaration under Sections 46(4)/46(4A) of the Customs Act justifying detention/seizure and consequent demands. - Whether relief previously granted by the Commissioner (Appeals) in part (waiver of certain fines/demands) was justified and whether further reduction of redemption fine and penalty was warranted by the Tribunal. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of rejection of transaction value and re-classification based on chartered engineer's report - Legal framework: Transaction value under the Customs Act and valuation provisions require that rejection of declared value be supported by credible evidence; classification is governed by the Customs Tariff and chapter/section notes. - Precedent treatment: The record includes Tribunal and Supreme Court authority (as relied in the order) holding that valuation adjustments based solely on an expert report without market enquiry or contemporaneous market data are open to challenge. - Interpretation and reasoning: The Court observed that while the chartered engineer reported divergence between declared description and actual goods, the engineer's report did not demonstrate adequate market nexus or methodology (e.g., no market survey, no explanation of valuation basis or technical quantification). The adjudicating authority confirmed duty where valuation was not disputed on technical grounds, but the Court emphasized that rejection of transaction value/classification cannot rest exclusively on an unexplained engineer's finding when market data or survey is absent. - Ratio vs. Obiter: Ratio - A valuation or classification adjustment must be supported by proper evidentiary foundation (market survey/clear methodology) where an expert report is relied upon; absent that, demand of differential duty may still stand if not technically disputed. Obiter - Observations on the specific professional qualifications (metallurgical vs chartered engineer) of the expert and their impact on classification are contextual guidance rather than absolute rule. - Conclusion: The Tribunal accepted that the appellant remained liable for customs duty where valuation was not technically disputed, but flagged infirmity in using the chartered engineer's report alone to determine market price/value or to justify punitive measures without additional market enquiry. Issue 2 - Legality and quantum of redemption fine and penalty in absence of market survey and margin of profit consideration - Legal framework: Redemption fine under Section 125 and penalties under Sections 112/114A/other relevant provisions are to be imposed following the statutory scheme, which contemplates determination of market price/market value and ordinarily considers margin of profit for fixation of quantum. - Precedent treatment: The Court relied on prior Tribunal and higher court authority (as cited in the record) establishing that imposition/quantum of redemption fine must be linked to market price determined by enquiry and that margin of profit is a relevant factor in fixing redemption fine and penalties; imposition without market enquiry is unsustainable. - Interpretation and reasoning: Applying those precedents, the Tribunal found that the original authorities imposed redemption fine and penalty without conducting market survey and without considering margin of profit. The absence of a proper market valuation made the quantum arbitrary and excessive. The Tribunal noted prior decisions where fines/penalties were reduced when differential duty was modest and where margin of profit was not considered. - Ratio vs. Obiter: Ratio - Redemption fine and penalty require a legally defensible market valuation and consideration of margin of profit; absence of such procedure renders the quantum liable to reduction. Obiter - The specific numerical reduction adopted by the Tribunal (to Rs. 1,00,000 as redemption fine and Rs. 50,000 as penalty) is an exercise of discretion based on precedents and facts of this case and serves as guidance rather than binding rule for different facts. - Conclusion: The Tribunal concluded that redemption fine and penalties were excessive and reduced them to a specified lower amount, and confirmed that duty liability may remain but punitive financial sanctions must reflect market valuation and profit margin considerations. Issue 3 - Effect of import of restricted items without licence and mis-declaration under Sections 46(4)/46(4A) - Legal framework: Import of restricted items without required licences or violation of domestic regulatory regimes (Gas Cylinder Rules, E-Waste Rules) can constitute mis-declaration and justify detention/seizure under Section 110 and denial of benefits under the Customs Act. - Precedent treatment: The record reflects departmental reliance on statute and expert report to treat the consignment as containing restricted items; prior authorities recognize regulatory non-compliance as aggravating factor but still require correct quantification/valuation for imposition of fines. - Interpretation and reasoning: The Tribunal accepted that restricted items were present and that filing incorrect Bill of Entry contravened Sections 46(4)/46(4A). However, the Tribunal separated the issue of mis-declaration/illegality from the separate procedural and substantive requirements for fixing monetary sanctions - i.e., regulatory breach justifies detention and demands but does not obviate the need for proper market valuation before imposing redemption fine/penalty. - Ratio vs. Obiter: Ratio - Regulatory non-compliance supports seizure/demand but does not dispense with statutory procedural prerequisites for computing redemption fine/penalty. Obiter - Comments on the interplay between specific regulatory licences and customs classification are contextual observations. - Conclusion: Mis-declaration and import without licences were recognized as violations supporting departmental action; nevertheless, penalties and fines had to be determined in accordance with valuation principles and hence were reduced. Issue 4 - Scope of appellate interference and discretionary reduction of fines/penalties - Legal framework: Appellate bodies may reduce or modify monetary sanctions where the original authority has not followed statutory procedure or has imposed manifestly excessive quantum; precedents allow appellate interference when market valuation or profit margin considerations are absent. - Precedent treatment: The Tribunal relied on earlier decisions where redemption fines and penalties were reduced for lack of market enquiry or where differential duty was small. - Interpretation and reasoning: The Tribunal, considering totality of facts and cited decisions, exercised appellate discretion to reduce redemption fine and penalty to specified amounts, while leaving duty demand intact to the extent sustainable. The Tribunal treated previous reductions in similar cases as persuasive and relevant to quantum determination here. - Ratio vs. Obiter: Ratio - Appellate authority can legitimately moderate excessive financial sanctions where statutory procedure for valuation has not been followed. Obiter - The precise amounts fixed in this case reflect case-specific exercise of discretion and should not be read as universally applicable figures. - Conclusion: The appeal was partly allowed; duty liability was maintained where appropriate, but redemption fine and penalties were reduced by the Tribunal as a matter of discretionary relief grounded in precedent and lack of required market enquiry.