2025 (9) TMI 416 - AT - Customs

Domestic supplier neither importer nor exporter; no penalty under s.114AA; seized cash not presumed proceeds under s.121; FOB revaluation barred

Commissioner of Customs, Inland Container Depot, New Delhi Versus Shri Mukesh Singhania, Proprietor of M/s P.V. Singhania & Co.

Commissioner of Customs, Inland Container Depot, New Delhi Versus Shri Mukesh Singhania, Proprietor of M/s P.V. Singhania & Co. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether section 114AA (penalty for use of false and incorrect material) of the Customs Act applies to a domestic supplier who is neither an importer nor an exporter, for alleged mis-declaration of export FOB value by third-party exporters. 2. Whether cash seized from a domestic supplier can be confiscated as 'sale-proceeds of smuggled goods' under section 121 of the Customs Act where the supplier neither imported nor exported the goods alleged to be smuggled. 3. Whether customs/DRI officers (or adjudicating authorities) have power under the Customs Act or Rules to re-determine the FOB value of exported goods agreed between the Indian exporter and the overseas buyer. ISSUE-WISE DETAILED ANALYSIS - Applicability of section 114AA to a domestic supplier Legal framework: Section 114AA penalises any person who knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, 'in the transaction of any business for the purposes of this Act', with a penalty not exceeding five times the value of goods. Precedent treatment: No judicial precedents were relied upon or considered in the text; analysis is conducted on the statutory language and admitted facts. Interpretation and reasoning: Application of section 114AA requires (i) a false or incorrect declaration in a transaction of business 'for the purposes of this Act' and (ii) the person to be engaged in a transaction within the statutory scheme (import/export) such that the declaration relates to customs processes. The respondent was undisputedly a domestic supplier of yarn who did not import, export, or make any declaration to customs. The supply took place within India and not in the context of customs formalities. Consequently, there was no statutory nexus between the supplier's domestic trading activity and 'transaction of any business for the purposes of this Act'. The revenue's contention that section 114AA could be stretched to cover a non-participant in customs transactions is rejected as contrary to the section's scope and plain text. Ratio vs. Obiter: Ratio - Section 114AA does not apply to a person who has not participated in a customs transaction (import/export) and has made no declaration to customs; the statutory requirement of a transaction 'for the purposes of this Act' is essential. Obiter - Observations on quantum disparity in penalties between exporter and supplier (not binding on the main legal holding). Conclusions: The penalty under section 114AA as imposed on the domestic supplier is not sustainable; the Commissioner (Appeals) was correct to hold section 114AA inapplicable to the supplier who neither imported nor exported nor made customs declarations. ISSUE-WISE DETAILED ANALYSIS - Confiscation under section 121 of sale-proceeds of smuggled goods Legal framework: Section 121 confiscates sale-proceeds where smuggled goods are sold by a person having knowledge or reason to believe they are smuggled goods. 'Smuggling' is defined by reference to acts or omissions that render goods liable to confiscation under the statutory confiscation provisions (Sections 111 or 113). Precedent treatment: No authority was cited; reasoning proceeds from statutory elements. Interpretation and reasoning: Confiscation under section 121 requires proof of three elements: (a) goods were smuggled (i.e., liable to confiscation under the Act); (b) such smuggled goods were sold by the person; and (c) the cash seized constituted the sale-proceeds of those smuggled goods and the seller had knowledge or reason to believe they were smuggled. The respondent did not import or export the goods (nor sell smuggled goods) - the transactions were domestic supplies of yarn. Therefore, the foundational element that the seized cash was sale-proceeds of smuggled goods was not established. On a conjoint reading of section 121 and the definition of 'smuggling', confiscation could not extend to domestic sale proceeds unrelated to goods liable to confiscation under sections 111/113. Ratio vs. Obiter: Ratio - Confiscation under section 121 cannot be sustained unless the revenue establishes that the seized amount is the sale-proceeds of goods that are smuggled (i.e., goods liable to confiscation) and that the seller had requisite knowledge or belief. Obiter - None beyond statutory application. Conclusions: The confiscation of cash from the domestic supplier under section 121 is unsustainable on the facts; the essential elements for section 121 are absent. ISSUE-WISE DETAILED ANALYSIS - Power to re-determine FOB value of export goods Legal framework: The valuation of export goods on the basis of FOB is the price agreed between the Indian exporter and the overseas buyer; valuation for customs purposes implicates statutory valuation provisions and the scope of powers conferred on customs/DRI/adjudicating authorities under the Act and Rules. Precedent treatment: No cases were cited; the Court's analysis rests on statutory interpretation and the admitted facts of the investigation. Interpretation and reasoning: The entire DRI investigation, the show cause notice and consequential orders proceeded on a premise that the officers could re-determine the FOB value of exported goods. The Tribunal observed that nothing in the Customs Act or the Rules empowers a stranger to the sale contract (including customs officers) to interfere with or re-determine the FOB value agreed between exporter and overseas buyer. That conclusion rests on the nature of FOB as the transaction value and on the absence of statutory provision vesting unilateral re-determination power in investigatory or adjudicatory authorities in respect of agreed export contract values. Consequently, proceedings predicated on a re-determination of FOB were infirm to the extent they relied on such re-determination absent statutory jurisdiction. Ratio vs. Obiter: Ratio - Customs/DRI officers lack a statutory power to re-determine the FOB value of export goods agreed between exporter and overseas buyer; actions based on such re-determination cannot form a valid basis for penal or confiscatory measures against parties who did not participate in customs transactions. Obiter - Remarks on the broader investigative scope of DRI are contextual. Conclusions: The investigation and orders premised on re-determination of FOB value were without statutory foundation; this undermines the basis for the penalties and confiscation imposed in the present matter. OVERALL CONCLUSION The penalty under section 114AA and the confiscation under section 121, insofar as they were imposed on a domestic supplier who neither imported nor exported nor made any customs declaration, are unsustainable. Moreover, reliance on a unilateral re-determination of FOB value by customs/DRI lacks statutory support and renders the measures based on such re-determination infirm. The appeal by the revenue is therefore dismissed.