2026 (2) TMI 566 - AT - Customs

Admissibility of test reports and Fe content determination in export duty disputes; appeal dismissed, deposit refundable with interest

Admissibility of scientific test reports and the correct measure of Fe content determined liability for export duty; departmental CRCL test reports were ... Admissibility of departmental CRCL test reports over private laboratory reports - self-assessment and transaction value in export duty assessment - artificial splitting of consignments and proof of modus operandi - weight of confessional statements in departmental adjudication - relevance of discharge-port test reports in FOB contracts for assessment - refund of deposit where demand is dropped - HELD THAT:- We find that the Revenue is of the view that the overall Fe content in the combined cargo being more than 58%, export duty @ 30% ad valorem was liable to be paid by the exporter. Thus, we observe that the main issue involved in this appeal is the percentage of ‘Fe’ content in the goods exported. It is seen that samples were drawn by the officer of the Customs in the presence of the Respondent and send to CRCL for test, as per the mandate of the Customs Act, 1962. However, Revenue has not relied upon this Test Report and relied upon some test conducted at Private labs. We observe that the Ld. AA found that in respect of shipping bills no. 5384026 (MV Prabhu Mihikaa) and no. 8320143 (MV Menalon), the sales proceeds as per BRC matches with the value declared in the final Invoice raised by the exporter M/s KPSPL. The minor variation attributes to the bank/regulatory charges. In respect of the shipping bills no. 8387522 & 8472055 (MV Ithomi), the sales proceeds as per BRC matches to value declared in the shipping bills. The AA found that there is no suppression / mis-declaration of Fe content on the part of M/s KPSPL. The AA further observed that in respect of the shipping bills no. 4801526 & 4801523 (MV Fortune Wing), the sales proceeds have not yet been received by the exporter. The Ld. AA in paragraph 7.3.3.7 concluded that the value of iron ore fines considered in the SCN for the purpose of computation of differential Customs duty is not sustainable. We do not find any infirmity in the finding of the Ld. AA. Accordingly, we uphold the findings of the Ld. AA and hold that there is no merit in the appeal filed by the Revenue on this score. As regards the allegation in paragraph 10.5 of the SCN that “M/s KPSPL negotiated with M/s Global Minore Pte Ltd., Singapore for sale/export of 53,860 WMT of iron ore fines but subsequently very cleverly and mischievously entered into two separate contracts with M/s Global Minore Pte Ltd. One contract having No. IOP/KP/003-A dated 10.03.2017 pertained to export of 30,910 WMT (28,548.476 DMT) of iron ore fines having 57.94% ‘Fe’ content @ USD 49.00 PDMT and another contract having No. IOP/KP/003 dated 10.03.2017 pertained to export of 22,950 WMT (21,217.275 DMT) iron ore fines having 63.92% ‘Fe’ content @ USD 64.00 PDMT”, from a perusal of the impugned order, it is seen that the Ld. AA has found that it is fact on record that there are two separate Contracts, signed between the exporter M/s KPSPL and the overseas buyer M/s Global Minore on 10.03.2017, the genuineness of which is not disputed. On 16.03.2017, M/s KPSPL issued letters to the testing agency M/s SGSIPL (RUD page no. 209 and 210 of the SCN refers) to carry out sampling of two consignments of cargo, one of 57% Fe and another of 62% Fe. Further, two sets of shipping bills were filed on 17.03.2017. This chronology indicates that M/s KPSPL has supplied two different consignments of cargo to their overseas buyer. We find that the Ld. AA has opined that the aforesaid allegation levelled in the SCN fails due to lack of substantial evidence. We do not find any infirmity in the findings of the Ld. AA and accordingly, uphold the same. As regards the allegation in paragraph 10.5 of the SCN that “the manipulation by M/s KPSPL is exposed by the email dated 27.03.2017 from Shri Mansoor Ali of M/s KPSPL to M/s SGSIPL to split the cargo and issue two separate quality certificates instead of one that too after the sailing of the vessel” the Ld. AA found this allegation levelled in the SCN to be incorrect in view of the fact that there were two contracts, two advices to the testing agency for sampling and two shipping bills, one for below 58% Fe iron ore fine and another above 58%. AA has opined that there is no bar to load two different consignments of same cargo into a vessel, even if the buyer is one person. We agree with the above observations of the Ld. AA in the impugned order. In this regard, we find it pertinent to note that unless the alleged modus operandi is substantially proved, it cannot be held that there is contravention. Accordingly, we hold that there is no merit in the issue raised by the Revenue on this count. As regards allegation that “Shri Debabrata Behera, Managing Director of M/s KPSPL, in his statements given before DRI, Goa, has admitted that he was aware about the misdeclaration of ‘Fe’ content of iron ore fines exported by M/s KPSPL”, it is a settled issue that adjudication proceedings under Customs Act, 1962 cannot solely be based on inculpatory statements of witnesses and noticee alone. The Department is bound to prove case based on balance of probabilities as per well-recognized principle of law in case of departmental adjudications. Regarding the allegation that “analysis of ‘Fe’ content of cargo at the discharge port (in China), done by CIQ (China Entry Exit Inspection and Quarantine Bureau) also indicate that the ‘Fe’ content was more than 58%”. In this regard, we are of the view that as per the contracts entered into between M/s KPSPL and the overseas buyers, the sale was on FOB basis and “The buyer shall pay to the seller 100% as payment on CAD basis of the value as per load port, weight, Fe and moisture basis analyzed at the load port.” Essentially it means that the exporter i.e. M/s KPSPL would receive 100% payment for the said shipment based on load port test results. Thus, we observe that analysis of ‘Fe’ content of cargo at the discharge port (in China), done by CIQ doesn’t have any bearing for the purpose of assessment of customs duty of the impugned exported goods. Thus, we do not find any merit in the appeal filed by Revenue and hence we reject the same. The appeal filed by the Revenue is rejected. - The amount deposited by the Respondent during the course of investigation is liable to be refunded to them, along with interest at the applicable rate. Issues: (i) Whether the Revenue's demand for differential export duty based on higher 'Fe' percentages reported by private/disparate testing agencies and DRI for certain shipping bills is sustainable when departmental samples tested by CRCL (drawn in presence of Customs) show lower 'Fe' percentages.Analysis: The appeal centers on admissibility and weight of competing test reports and the correct basis for export duty assessment. Relevant legal framework includes statutory self-assessment by exporters under Section 17 of the Customs Act, 1962, the role of load-port testing and valuation rules under Section 14 of the Customs Act, 1962 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, and guidance in CBIC Circular No.12/2014 regarding consideration of load-port and discharge-port test reports where variations affect price. The adjudicating authority recorded that samples drawn by Customs officers in the presence of exporter representatives were sent to CRCL Kolkata and produced test results; private testing agencies had not drawn samples in presence of Customs and their procedures and chain of custody were unexplained. The Tribunal relied on controlling precedents establishing that departmental laboratory reports based on samples drawn as per statutory procedure supersede private laboratory reports where the latter were based on samples not drawn in presence of departmental officers. The Adjudicating Authority also compared invoiced values, BRCs and bank realization entries and found no reliable evidence of higher transaction value as alleged in the SCN; minor variations were attributable to routine charges. The AA further noted that, under the contracts (FOB), payment received was based on load-port test results, reducing the relevance of discharge-port CIQ results for customs assessment. The cumulative findings-prima facie credibility of CRCL reports, lack of proper chain of custody for private lab reports, matching of invoiced value and BRCs, and absence of convincing evidence of artificial splitting or higher transaction value-were affirmed on appeal.Conclusion: The appeal filed by the Revenue is rejected; the findings of the Adjudicating Authority dropping the SCN and holding the departmental demand unsustainable are upheld. The deposit made by the respondent during investigation is ordered to be refunded with applicable interest.Ratio Decidendi: Where samples are drawn by Customs officers in presence of exporter representatives and tested by the recognized departmental laboratory (CRCL), those test results carry primacy over private laboratory reports based on samples not drawn in the presence of departmental officers; competing private reports lacking established chain of custody cannot sustain a departmental demand for differential export duty.