2025 (10) TMI 1281 - AT - Customs

Appeal allowed in part: Section 125 redemption fine reduced to Rs.26,50,000; Section 114A penalty set aside; valuation and confiscation unchanged

M/s. Angel Starch & Foods Pvt Ltd., Versus Commissioner of Customs, Chennai

CESTAT CHENNAI - AT allowed the appeal in part: the rejection of the declared invoice value, re-determination of assessable value, duty assessment and ... Quantum of redemption fine and penalty imposed - rejection of declared assessable value of the goods imported - re-detrmination of the value - submission is that there was no reason for the appellant to have deliberately suppressed the nature of the goods - denial of benefit of EPCG scheme to the Appellant on the used imported goods - liability of the goods to confiscation - Imposition of penalty under Section 114A. HELD THAT:- It is noticed that in this case the appellant has, while averring that their invoice value declared reflects the correct transaction value, nevertheless submitted that they are not contesting the valuation, given that the matter was then pending for more than three months and the goods were incurring huge detention charges. It was also pointed out that the appellant had incurred huge storage and liner charges and a copy of their detention advice was also produced. They have stated that it is for these reasons that they were prepared to pay the duty on the value fixed by the chartered engineer. The mere fact that the appellant in such circumstances were prepared to pay the duty in itself does not mean that they have not declared the true value of the imported goods thereby inviting penal consequences. Equally, it is also noticed that the impugned order in original is bereft of any reasons as to the basis for having arrived at the conclusion that the value declared by the appellant in the said invoices are incorrect and are to be rejected. Only a mere ipse dixit that the importer is found to have mis-declared the value of the goods is seen stated. While even as per the chartered engineer the imported goods were a mixture of new and second hand goods, the appellant had paid duty on the enhanced assessable value of Rs.2,65,38,299/-. Moreover, the machines imported are not for sale but for the actual use in manufacture of starch by the appellant which is meant for export. In such circumstances, the reliance placed by the appellant on the decision in Jain Exports Private Limited, Vs Union of India [1990 (1) TMI 73 - SUPREME COURT] is appropriate, wherein it was observed that the Tribunal committed apparent error in refusing to take into account the extenuating circumstances leading to the import of the disputed goods for purposes of determining the quantum of redemption fine. Imposition of penalty under Section 114A - HELD THAT:- It is already found that the appellant’s explanation of bonafide belief in importing these goods under the EPCG Scheme is not implausible and absent any finding of manipulation of fraud in the invoices under which the goods were imported, we are unable to concur with the adjudicating authority’s finding that the appellant had wilfully suppressed or mis-declared the goods. That apart, it is found that the appellant is right in its submission that the claim for assessment under EPCG Scheme having been rejected and goods assessed to duty before their clearance and when duty as assessed was paid, absent a demand of duty that has been determined under subsection (8) of Section 28 of the Customs Act, 1962, imposition of penalty under Section 114A is untenable. On leaving the rejection of declared value and its consequent redetermination along with duty determined as well the confiscation of goods under Section 111(d) & (m) of the Customs Act, 1962 as made in the impugned order in original undisturbed, the redemption fine imposed in lieu of confiscation under Section 125 of the said Act reduced to Rs.26,50,000/- and the penalty imposed u/s 114A set aside. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether second-hand capital goods imported are eligible for benefit under the EPCG scheme in view of the Foreign Trade Policy amendment prohibiting import of second-hand capital goods under EPCG. 2. Whether the adjudicating authority legitimately rejected the declared transaction value and redetermined assessable value without adequate reasons, and whether payment of duty on the redetermined value bars penal consequences. 3. Whether the imported goods were properly declared as new or whether there was wilful suppression/mis-declaration justifying confiscation under Section 111(d) and 111(m) of the Customs Act. 4. Whether the quantum of redemption fine imposed in lieu of confiscation under Section 125 is excessive and requires reduction in light of the importer's bona fide conduct and extenuating circumstances. 5. Whether penalty under Section 114A of the Customs Act can be imposed where duty is assessed and paid before clearance and absent a demand determined under Section 28(8)/(2). ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility of second-hand capital goods under EPCG Legal framework: The Foreign Trade Policy (FTP) was amended to stipulate that second-hand capital goods shall not be permitted under the EPCG scheme (DGFT Notification dated 18-04-2013; condition sheet of EPCG authorisation reflecting prohibition). Precedent treatment: The Court accepted the plain effect of the FTP amendment and the authorisation condition sheet as determinative of entitlement. Interpretation and reasoning: The Tribunal held that, as a matter of policy and authorisation terms, second-hand capital goods are disentitled from EPCG benefits. The existence of an EPCG authorisation that, by its condition sheet, disallowed second-hand imports reinforces the prohibition. Where the FTP and the authorisation are clear, entitlement cannot be read to include second-hand goods. Ratio vs. Obiter: Ratio - The prohibition in the FTP and the authorisation conclusively precludes EPCG benefit for second-hand capital goods. Conclusion: EPCG benefit was not available for the imported second-hand machines; entitlement under EPCG is correctly denied. Issue 2: Validity of rejection of declared transaction value and redetermination of assessable value Legal framework: Customs valuation principles require reasoned rejection of declared transaction value before redetermination; adjudicating authority must record cogent reasons for rejecting invoices. Precedent treatment: The Tribunal stressed requirement of reasons for rejecting declared values; absence of manipulation or invoice fraud weakens findings of deliberate mis-valuation. Interpretation and reasoning: The impugned order rejected declared invoice value on an ipse dixit basis without articulating reasons. The appellant, though accepting redetermined value for pragmatic reasons (detention/demurrage), had maintained that invoice reflected transaction value and produced evidence consistent with invoices (e.g., year of manufacture matching authorisation list). The chartered engineer's evaluation indicated a mixture of new and second-hand items; duty was paid on the enhanced value. The Tribunal held that willingness to pay assessed duty to expedite clearance does not establish deliberate mis-declaration; however, if valuation procedures for redetermination are followed and duty paid, the valuation determination itself remains undisturbed absent procedural infirmity demonstrated. Ratio vs. Obiter: Ratio - Rejection of declared value must be supported by reasons; mere willingness to pay enhanced duty is not proof of mis-declaration. Obiter - Payment of duty does not automatically negate possibility of prior incorrect declaration but is a relevant mitigating circumstance for penalties/redeemable fines. Conclusion: The Tribunal left the redetermined assessable value and duty intact but found the adjudicating order lacked adequate reasoning for rejecting declared value; this influenced mitigation of penal consequences. Issue 3: Confiscation under Section 111(d) & 111(m) and the question of wilful suppression/mis-declaration Legal framework: Confiscation under Section 111(d) and (m) arises where goods are liable due to prohibited import or mis-declaration; determination requires finding of prohibited nature or culpable concealment. Precedent treatment: The Tribunal respected the authority's power to confiscate prohibited goods but required clear findings of wilful suppression to sustain penalty-type consequences beyond confiscation. Interpretation and reasoning: The Tribunal accepted the legal proposition that second-hand machines were not importable under EPCG and therefore the goods were liable to be confiscated. However, it distinguished between legal liability to confiscation (driven by policy disallowing EPCG claim for second-hand goods) and a factual finding of wilful suppression of material facts. The adjudicating authority did not establish manipulation or fraud in invoices; moreover, the authorisation itself listed one machine with a 1992 manufacture year, supporting the importer's bona fide belief. Thus, while confiscation stands as a consequence of policy breach, wilful suppression was not proved to the standard required for additional punitive measures beyond confiscation (e.g., penalty under Section 114A). Ratio vs. Obiter: Ratio - Confiscation can be sustained where policy prohibits import under the benefit scheme even if wilful suppression is not proved. Obiter - Absence of explicit findings of invoice manipulation undermines imposition of punitive penalties. Conclusion: Confiscation under Sections 111(d) and (m) remains upheld; however, the finding of wilful suppression supporting additional penalties was not sustained. Issue 4: Quantum of redemption fine under Section 125 and consideration of bona fide circumstances Legal framework: Section 125 enables redemption of confiscated goods on payment of fine; quantum must consider relevant circumstances including bona fide conduct, extenuating factors, and proportionality. Precedent treatment: Reliance on precedent emphasising consideration of extenuating facts and bona fide behaviour when fixing redemption fines (principles endorsed by higher judicial authority and tribunal decisions). Interpretation and reasoning: The Tribunal reviewed the importer's explanations: first-time import of capital goods to set up manufacturing, authorisation list indicating year of manufacture for one machine, absence of evidence of invoice manipulation, and substantial detention/demurrage/liner charges incurred. These factors supported a bona fide belief in entitlement. Applying the rule that quantum of redemption fine must account for bona fide circumstances, the Tribunal found the originally imposed redemption fine disproportionate. Using the mitigating circumstances and relevant precedents, the fine was reduced to a specific reasonable figure (reduction to Rs.26,50,000/- as a proportional remedy to reflect culpability but also the extenuating circumstances). Ratio vs. Obiter: Ratio - Redemption fine must be calibrated by factual matrix including bona fide belief and consequential losses; disproportionate fines should be reduced. Obiter - Exact quantification of a reduced fine is fact-sensitive and within tribunal's discretionary assessment. Conclusion: Redemption fine reduced to a proportionate amount in light of bona fide conduct and extenuating factors; original quantum set aside as disproportionate. Issue 5: Validity of penalty under Section 114A where duty assessed and paid prior to clearance and no demand under Section 28(8)/(2) Legal framework: Section 114A permits penalty where goods are rendered liable to confiscation by actions such as mis-declaration; however, coordinate judicial authority and tribunal precedent require that penalty under Section 114A be imposed only where duty is determined under Section 28(2) (i.e., after demand/determination) and not where assessment and payment occurred before clearance absent proper demand. Precedent treatment: The Tribunal followed consistent holdings of coordinate benches and prior decisions that Section 114A penalty is unsustainable where the order does not make a determination of duty under Section 28(2) and duty had been assessed/paid before clearance. Interpretation and reasoning: The Tribunal found no finding of wilful suppression and observed that duty as assessed was paid to effect clearance; there was no demand under Section 28(8)/(2). In these circumstances, imposition of penalty under Section 114A was held to be legally untenable. Judicial discipline and adherence to precedent reinforced setting aside the penalty. Ratio vs. Obiter: Ratio - Penalty under Section 114A cannot be sustained where the adjudicating order does not determine duty under Section 28(2) and duty has been assessed/paid before clearance; absence of demand precludes Section 114A penalty. Obiter - A different factual matrix (clear finding of wilful suppression plus a Section 28 determination) may warrant Section 114A penalty. Conclusion: Penalty under Section 114A set aside as unsustainable in the factual and legal circumstances of the case. Cross-references and Final Disposition Cross-reference: Issues 2 and 3 overlap - lack of reasoned valuation rejection (Issue 2) impacts finding of wilful suppression (Issue 3) and thereby affects imposition of penalty (Issue 5) and quantum of redemption fine (Issue 4). Overall conclusions drawn from the Court's reasoning: EPCG entitlement for second-hand capital goods is barred by FTP and authorisation conditions (confiscation for prohibited import sustained); adjudicating authority failed to give adequate reasons for rejecting declared value and did not establish wilful suppression; redemption fine was disproportionate and reduced; penalty under Section 114A was unsustainable and set aside.