2025 (12) TMI 837 - HC - Customs

Confiscation and penalties upheld on undervalued imports; design charges includible in machinery value u/s 111(m), 112

HC upheld the confiscation of the imported goods under Section 111(m) CA, 1962, as the importer admitted multiple errors in the declared assessable value ... Invocation of provisions of Section 111 and in particular Section 111(m) and the consequential provisions of Section 112(a) of CA, 1962 - confiscating imported goods merely on account of non-declaration of the value of a portion of the imported goods which otherwise are in conformity with the tariff entries specified in Schedule I of the Customs Act, 1962 - imposition of redemption fine and penalty as a condition precedent for redeeming the goods whose importation was permissible under the Import Trade Control Statutes - imposition of redemption fine and penalty in the imported goods on the undeclared portion of the value of the goods imported and not the entire consignment value - principle of proportionality. HELD THAT:- The records clearly indicate the series of errors committed by the assessee in arriving at the proper assessable value. The value reflected in the bill of entry had been incorrect, and when confronted, the appellant conceded to the error. Subsequent investigations revealed further errors in the valuation of the consignment that also the appellant acceded to. Ultimately the valuation in the ‘Bill of Entry’ had been rejected and the proper assessable value determined by the authorities and accepted by the appellant. There is no going back as far as this aspect of the matter is concerned. The import of the above Notifications are to the effect that the rate of duty as far as ‘plan, drawings and designs’ are concerned, was Nil. That rate is in relation to a separate assessable commodity being ‘plans, drawings and designs’, and cannot be interpolated to mean design charges in respect of the Dryers, Heater and Cooler imported by the assessee, that constitute a distinct, separate assessable commodity - In fact, it is too late in the day for the assessee to take that stand, as, before the authorities it had acceded to the position that design charges ought to have been included as part of the assessable value of the imported commodity under Rule 12 of the Rules. Reference to and reliance on the aforesaid Notifications, thus does not advance the case of the appellant in the least. Section 111 deals with the confiscation of improperly imported goods and clause (m) thereof, provides for the confiscation of ‘[any goods which do not correspond in respect of value or in any other particular] with the entry made under this Act or in the case of baggage with the declaration made under section 77 - In this particular case, it is only concerned with the first limb of clause (m), relating to valuation. Since the assessee has itself accepted the errors in valuation and has paid the duty per the enhanced value determined by the Department, it is very clear that Section 111(m) stands attracted to this case on all fours. The question of confiscation hence has been correctly dealt with by the Tribunal and we see no necessity to intervene. Levy of penalty - HELD THAT:- Section 112 provides for penalty for improper importation of goods, in the case of an assessee who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act. In such an event, the assessee shall be liable to a penalty not exceeding ten per cent of the duty sought to be evaded or five thousand rupees, whichever is higher - The Supreme Court, in the case of Akbar Badrudin Jiwani v Collector of Customs, Bombay [1990 (2) TMI 50 - SUPREME COURT] had occasion to consider the imposition of penalty under Section 112 of the Act and in the context of a difference of opinion relating to the classification of the goods, held that some discretion may be employed by the assessing officer in this regard. Otherwise, there is little discretion that is available under Section 112. The questions of law are answered in favour of the revenue and against the assessee. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether undervaluation of imported goods, admitted by the importer and corrected in assessment, attracts confiscation under Section 111(m) and consequential penalty under Section 112(a) of the Customs Act, 1962. 1.2 Whether exemption notifications granting 'Nil' rate of duty to 'plans, drawings and designs' preclude inclusion of design charges in the assessable value of imported machinery or negate confiscation and penalty. 1.3 Whether, in the facts of admitted undervaluation, the confiscation and penalty could be avoided or reduced by invoking any discretionary or proportionality principle under Section 111(m) and Section 112(a). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Section 111(m) and Section 112(a) on admitted undervaluation Legal framework (as discussed) 2.1 Section 111(m) authorises confiscation of 'any goods which do not correspond in respect of value or in any other particular with the entry made under this Act'. 2.2 Section 112 provides for penalty for improper importation of goods by any act or omission rendering goods liable to confiscation under Section 111, prescribing a penalty not exceeding ten per cent of the duty sought to be evaded or five thousand rupees, whichever is higher. Interpretation and reasoning 2.3 The Court records that the importer accepted that the value declared in the Bill of Entry (AUD 4,16,520 C&F) was not the true transaction value and that the correct value was AUD 10,13,720 C&F, after including design charges as required under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 2.4 The Order-in-Original showed a clear and substantial discrepancy between the declared and actual value, discovered through investigation and corroborated by the importer's voluntary statement and conduct during personal hearing, including readiness to pay duty on the enhanced value. 2.5 The Court notes that the declared assessable value and duty were significantly lower than the redetermined assessable value and duty, resulting in evasion of duty, and that the importer never challenged the revaluation before the Tribunal or the Court. 2.6 On these facts, the Court holds that the goods, whose value in the Bill of Entry did not correspond to the proper valuation, squarely fall within Section 111(m), as the case concerns the 'first limb' of clause (m) relating to value. 2.7 Once liability to confiscation under Section 111(m) is established, Section 112 applies when the importer, by act or omission, renders the goods liable to such confiscation. The admitted undervaluation and resultant duty evasion constitute such an act/omission. 2.8 The Tribunal's refusal to interfere with confiscation and penalty on the ground that valuation had attained finality was approved, the Court affirming that challenge to confiscation/penalty alone cannot survive where undervaluation is admitted and unassailed. Conclusions 2.9 Admitted undervaluation and acceptance of the enhanced assessable value attract Section 111(m); confiscation ordered by the adjudicating authority and upheld by the Tribunal is legally valid. 2.10 The conditions for imposing penalty under Section 112(a) are satisfied, as the importer's conduct rendered the goods liable to confiscation under Section 111; imposition of penalty is therefore justified. Issue 2: Effect of exemption notifications relating to 'plans, drawings and designs' on assessable value and confiscation/penalty Legal framework (as discussed) 2.11 The importer relied on Notification No. 21/2002-Customs and Notification No. 12/2012-Customs, specifically entries granting 'Nil' rate of duty to the commodity described as 'plans, drawings and designs'. Interpretation and reasoning 2.12 The Court holds that these notifications concern a distinct assessable commodity, namely 'plans, drawings and designs' as goods in themselves, on which the rate of customs duty is Nil. 2.13 The Court rejects the attempt to transpose those entries so as to treat 'design charges' embedded in the value of imported Dryers, Heater and Cooler as exempt, observing that such charges form part of the transaction value of the machinery and are to be included in its assessable value under the Valuation Rules. 2.14 It is specifically noted that the importer, before the authorities, had already accepted that design charges should be included in the assessable value under Rule 12 read with Rule 3(1) and Rule 10(b)(iv) of the Valuation Rules; it is 'too late in the day' to contend otherwise by invoking the notifications. 2.15 Because the notifications are inapplicable to design charges forming part of the value of the imported capital goods, they cannot be used to negate undervaluation, to challenge confiscation under Section 111(m), or to avoid penalty under Section 112(a). Conclusions 2.16 Exemption entries prescribing Nil duty for 'plans, drawings and designs' apply only to such items as separate imported goods and do not exclude 'design charges' from the assessable value of machinery. 2.17 The said notifications do not assist the importer in contesting inclusion of design charges in the assessable value and do not affect the legality of confiscation or penalty in this case. Issue 3: Scope for discretion, proportionality or limitation of confiscation/penalty to undeclared portion Legal framework (as discussed) 2.18 The Court refers to Section 112, noting that it prescribes a penalty 'not exceeding' ten per cent of the duty sought to be evaded or five thousand rupees, implying a statutory range and limited discretion. 2.19 Reference is made to a Supreme Court decision indicating that some discretion in penalty may arise where the dispute is on classification or similar bona fide issues, but that such scope is narrow. Interpretation and reasoning 2.20 The Court distinguishes the cited context of classification disputes from the present case, emphasising that here the undervaluation and consequent duty evasion are unequivocally admitted by the importer. 2.21 On these facts, the Court holds that the limited discretion under Section 112, as recognised in case law, does not arise; admitted undervaluation leaves 'no scope for discretion' in avoiding penalty. 2.22 As to the contention that confiscation and penalty, if at all, should be confined only to the undeclared portion of value and not the entire consignment, the Court does not accept this premise. Once the goods are found undervalued and the Bill of Entry value does not correspond with the correct value, the goods as imported are rendered liable to confiscation under Section 111(m). 2.23 The Court affirms that both confiscation under Section 111(m) and penalty under Section 112(a), as imposed and upheld by the Tribunal, are within the statutory framework and do not warrant interference on proportionality or equity grounds. Conclusions 2.24 In a case of admitted undervaluation and duty evasion, there is no basis to avoid confiscation or to restrict it only to the undeclared portion of value; the whole consignment is liable under Section 111(m). 2.25 The limited discretion under Section 112 does not assist the importer in the present factual scenario; the penalty imposed and sustained is legally proper and not disproportionate.