2026 (2) TMI 549 - AT - Customs

Customs exemption amendment and CVD liability: voluntary payment and bona fide mistake led to penalties and confiscation being set aside

Imported goods cleared and sold as fertilizers were not used in manufacture as required by the amended exemption entry, and appellants admitted non ... Eligibility to the exemption benefits allowed under Notification No. 4/2006-C.E., dated 01.03.2006 at Sr. No. 63 - interpretation of amendment by Notification No.4/2011-C.E. - imposition of penalty u/s 114A - levy of interest on CVD by invoking machinery - Confiscation of imported goods - voluntary payment and bona fide mistake - non-applicability of Finance (No. 2) Act, 2024 amendment to earlier tax periods - HELD THAT:- It is an admitted fact on record that the impugned goods imported by the appellants were not used for the intended purpose as per the terms of the notification and the same were sold by them in the open market as fertilizers. We find that the appellants have furnished the explanation that the change in the text of Sr. No. 63 of notification dated 01.03.2006 had gone un-noticed by them and that upon detection of such mistake, they had voluntarily deposited the difference in CVD amount along with interest and prayed for closure of the proceedings initiated by the Department. The facts are also not under dispute that the appellants had discharged their liability for payment of CVD and interest amount before issuance of the show cause notice by the Department. Insofar as the liability for payment of CVD along with interest is concerned, the appellants in this appeal are not contesting the same and their grievance is confined only on confiscation of the goods, interest demands and imposition of penalty by invoking the provisions of Section 114A ibid on the appellants. From the wordings of the exemption entry at Sl. No. 63 of the notification dated 01.03.2006, it would be evident that even though the imported goods cleared for direct use as ‘fertilizers’ was exempt earlier to 01.03.2011, subsequent to amendment vide Notification No.04/2011-C.E. it is only those goods that are used in the manufacture of fertilizers and not those directly sold as fertilizers in the open market was eligible to ‘Nil’ rate of duty; however they were provided with 5%/1% concessional duty of CVD depending on the availment of CENVAT credit facility. On reading of the above changes in the notification and the undertaking given at the time of import before the customs authorities, reveal that the non-payment of CVD at 5% appears to be unintentional on the part of the appellants and there is no element of suppression etc., on the part of the appellants in non-payment of the Government Revenue. In fact, during investigation itself, the appellants had paid the entire differential duty along with interest payable thereon. Thus, under such circumstances, we are of the opinion that the provisions of Section 114A ibid cannot be invoked for penalizing the appellants. From the above, it clearly transpires that the above amendment introduced in Finance (No.2) Act, 2024 and that such amended provisions of sub-section (12) of Section 3 of the Customs Tariff Act, 1975 shall come into force w.e.f. 16.08.2024 and shall not be applicable during the disputed period in the present case i.e., 24.03.2011 to 02.12.2011, which is prior to the above said amendment. Therefore, we are of the considered opinion that levy of interest and penalty on the appellants in the present case of demand of CVD is not legally sustainable. Thus, we are of the view, that the impugned order to such an extent that it had upheld the confirmation of interest on duty demands and imposed penalty on the appellants, is liable to be dismissed, as it does not stand the legal scrutiny. Thus, we do not find any merits in the impugned order, insofar as it has upheld the confiscation of the imported goods and had confirmed interest on CVD duty demands and imposed penalty on the appellants under Section 114A ibid. Therefore, the impugned order to this extent is set aside and the appeal to such extent is allowed in favour of the appellants. Issues: Whether the appellants were eligible for exemption under Notification No. 4/2006-C.E. (as amended) in respect of imported fertilizers and whether the confirmation of confiscation, interest and penalty under Section 114A of the Customs Act, 1962 in respect of differential CVD demands is sustainable.Analysis: The Tribunal examined the text of Sr. No. 63 of Notification No. 4/2006-C.E. before and after the amendment by Notification No.4/2011-C.E. dated 01.03.2011 and found that post-amendment the nil rate applied only to goods used in the manufacture of other fertilizers and not to goods sold directly as fertilizers in the open market. The facts showed that the imported goods were sold in the open market and therefore did not meet the post-amendment exemption scope. However, the appellants had furnished end-use declarations at import, paid the differential CVD and interest during the DRI investigation (voluntary compliance), and there was no evidence of collusion or wilful suppression. The Tribunal also reviewed the legal position on the levy of interest and penalty on CVD demands and relied on the principle that prior to the 2024 amendment to Section 3 of the Customs Tariff Act, 1975 the machinery provisions of the Customs Act, 1962 (including provisions for interest and penalty) did not automatically apply to CVD unless specifically borrowed; consequently, interest and penalty could not be sustained for the disputed period (24.03.2011 to 02.12.2011). The subsequent amendment via Finance (No. 2) Act, 2024 (w.e.f. 16.08.2024) making Customs Act machinery applicable is not retrospective and does not affect the disputed period.Conclusion: The Tribunal concluded that (i) the imported goods did not qualify for nil CVD rate under the amended notification for goods sold as fertilizers in the open market, (ii) the appellants' payment of differential CVD and interest during investigation demonstrated absence of collusion or wilful suppression, and (iii) confirmation of confiscation, interest and penalty under Section 114A for the disputed period is not sustainable. Accordingly, the impugned order is set aside to the extent it upheld confiscation, interest and penalty, and the appeal is allowed to that extent in favour of the appellants.