TaxTMI 
TaxTMI 
2018 (6) TMI 1164
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.... Bhusaval plant at Mumbai port and for the Chandrapur facility through Kakinada port. The contracts stipulated that the coal, totaling 11,48,000 metric tons and 9,56,500 metric tons, conform to agreed-upon specifications, including 'gross calorific value' (on 'as received' basis) of over 4000 kcal/kg and total moisture (on 'as received' basis) of less than 30% at an agreed upon price of US$ 70.20 and US$ 65.55 per metric ton and, in the event of being 'off spec', the consideration was to be limited to inland freight and value of coal computed at Re 1 per metric ton. The corresponding supply contract with M/s Spring Traders Ltd, Hongkong for supply of coal priced at US$ 53.50 per metric ton prescribed total moisture content (on 'as received basis) of 26% and 'gross calorific value' (on 'as received' basis) of 4600 kcal/kg. Details of the contract with M/s Rescom Mineral Trading Ltd, Hongkong are not available on record. 2. The allegations leading to the impugned order-in-original no. 05/KVSS(05)ADG (ADJ)/ DRI/MUMBAI/2016-17 dated 23^rd December 2016 are no less simple: a parallel transaction on the same goods operated entirely outside the country between M/s IMR Metallurgical Res....
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....own external transactions. The rules for valuation notified under section 14 of Customs Act, 1962 are designed to offer acceptable substitutes - legal fiction, as it were - for the recorded value. Here, most of such potential substitutes may not have been of avail to Revenue, and indeed were not, rendering the last resort to be the first and only option. Once the portcullis is down and the drawbridge up, all too often natation and escalading are susceptible to repelling. Fifth columns may destroy in war but are of little use in the world of law; the success of the Trojan horse was not its acceptance by the enemy but the subsequent access to the besiegers from within. That appeared to be the dilemma before the investigation. 6. Notwithstanding the manifest disconnect with the two principal causes of cavil, the statutory requirement under section 46 of Customs Act, 1962 to declare the correct value of imported goods was invoked in the show cause notice to claim jurisdiction and overvaluation of the imported goods was confirmed in the impugned order-in-original of Additional Director General (Adjudication), Mumbai for which the importer was subject to penalties under section 112 an....
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....rty', matched that contracted for supply to M/s Mahagenco Ltd by the importer-appellant. With this as the fulcrum, the investigators obtained copies of contract of M/s IMR Metallurgical Resource AG, that revealed the buyer as the Singapore subsidiary of importer-appellant, the pertinent invoices and the 'certificates of sampling and analysis' and the 'certificates of origin' that the supplier was contractually obliged to furnish. All of these, according to the show cause notice and the impugned order, sufficed to connect the parallel transactions. 10. The adjudicating authority is convinced that the coal involved in the Swiss-Singapore transaction is the same as the coal presented for assessment in the Hongkong-India transaction and adopted the consideration in the former for coal of unacceptable quality, established by deduction of the adjudicating authority from the report of the Deputy Chief Chemist, Central Revenue Control Laboratory, as the benchmark values. According to him, the corroborative evidence are the similarity of quantities contracted for and the vessels that carried the coal; the red flags are the foregoing of duty exemption to obviate the production of certific....
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....f Customs Act, 1962 with attendant penalties under section 112 and separately under section 114AA of Customs Act, 1962. 12. The conviction on the part of the adjudicating authority that this constructed jigsaw is complete has drawn sustenance from the decision of the Tribunal in Samsung India Electronics Ltd v. Commissioner of Customs, New Delhi [2014 (307) ELT 160 (Tri- Del)] on the sufficiency of preponderance of probability and circumstantial evidence in quasi-judicial proceedings. The assailing of the documents obtained by the investigators, the 'black hole' transaction of the Singapore subsidiary and the challenge of conformance of quality in the tests carried out after landing were all sought to be overcome with the authority of this decision. 13. Some sidelined aspects must be brought to the fore here. The penal consequence of 'off spec' supply did not appear to concern both sides during the hearing. The consignments imported for supply to M/s Mahagenco Ltd were cleared, initially on provisional assessment in accordance with the practice then prevailing arising from a long- standing dispute on the classification of coal as 'bituminous' or 'steam' - that classification ....
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....iction to take recourse to Customs Act, 1962 to redetermine the value and to penalize was challenged. 16. Learned Special Counsel for Revenue did defend the inferences drawn from the documents relied upon; he was more categorical in laying out the legal framework that mandated action by customs authorities for overvaluation of imported goods even in the absence of any duty implication. We propose to deal with these legal aspects before taking up evaluation of the facts. However, of necessity, we must record certain preliminaries that require clarification first. 17. It is on record that the Hon'ble High Court of Bombay, on application of the appellants here, had directed an early disposal of the matter. Accordingly, their application for early hearing having been allowed, the matter was placed before a regular bench and reserved for orders after arguments for the rival sides were heard at length. Before the order could be pronounced, the superannuation of one of the constituents of the erstwhile bench intervened to preclude that consummation. The detailed submissions made then are on record as notes of proceedings; both sides were at liberty to take copies and acquiescence de....
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....he Hon'ble Supreme Court was held by us to be tantamount to defiance of those directions; more particularly, in the absence of any recorded advice on the part of the Additional Solicitor General of India which was claimed to be the prompting for this plea to defer. Revenue was, in consequence, adjured to continue the proceedings without further adjournment. At that stage, Mr. Ramanan requested the bench to clarify its objections to the locus standii of the respondent in making submissions to the Tribunal, the refusal of which was asserted by him to be nothing short of disregard of the principles of natural justice. It was clarified to him that, while a named respondent, as a creation of the appeal, is competent to make pleadings, Shri KVSS Singh had not been, either by name or by designation, so designated and his attempt to insinuate, without provocation and bereft of post-adjudication existence, was gross impropriety. Though the statute enables jurisdiction to adjudicate, the genesis of, and vestment to, exercise that jurisdiction in a particular proceeding lies in the show cause notice and the jurisdiction stands alienated with concluding of the adjudication order. Had he been d....
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....ohatgi, Senior Counsel appearing for appellant-importer, contends that the coal that was imported for supply to M/s Mahagenco Ltd, sourced from Indonesia through entities in Hongkong, was in conformity with the specifications in the contract. According to him, the 'certificate of sampling analysis' at load port issued by M/s Pt Artha Buana Inspecktindo and M/s Proteknika Jasapratama, as well as that which had been undertaken at the behest of Indian Customs at the port of import and of the multiple samples drawn by independent agencies for M/s Mahagenco Ltd, are in congruity. He challenged the documents, relied upon in the show cause notice and impugned order, for the lack of authenticity, their questionable provenance, and absence of any linkage to the contracted supply. It is also his contention that the quantity involved in the dispute was but a very negligible portion of that contracted thus belying the projection by the Directorate of Revenue Intelligence of a deep-rooted conspiracy to supply inferior coal in the guise of coal of a superior quality. 22. According to Mr. Rohatgi, the documents had been obtained through a suspect channel and that the process of summons under s....
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....y evincing the procurement of coal from the mines in Indonesia by M/s IMR Metallurgical Resources AG, had been received in response to a request made to their Indian arm for information pertaining to coal procured for dispatch to India and that no flaw could be ascribed to such communication sought under a legal process. No further certificate of authenticity was required, according to him, than the imprint in the impugned order of the cover in which these were delivered. He argued that the legality of the process by which the documents had been secured was secondary to the greater good of unravelling of the conspiracy to defraud and the deployment of these documents to bring the offenders to book. Decrying the attempt to trivialize the scale of the conspiracy, he asserted that the investigation leading to the present proceedings was but a tip of the iceberg and that clean bill of health cannot be assumed to have been accorded to the other consignments imported in fulfillment of the contract. 26. Enumerating the transactions, as unearthed by the Directorate of Revenue Intelligence, Mr Ramanan contends that M/s Spring Traders Ltd and M/s Rescom Mineral Trading Ltd, both based in ....
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....ed or short-levied at the time of clearance of goods; the empowerment to confiscate and, according to him, the legislative intent in amending of section 111(m) of Customs Act, 1962 by Act no. 36 of 1973, could be made operable only by such an interpretation of 'value' in section 2 (41) of Customs Act, 1962. He went on to argue that the adjudicating authority, even without resort to the various sequentially applicable alternatives in Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, would have been justified in rejecting the declared value as unrepresentative of the transaction value and substituting with a more credible transaction value. We do not have to subject this far-fetched proposition on behalf Revenue to the test of legislative intent as the impugned order did resort to sequential application of the rules which we are bound to scrutinize. 28. While the several decisions adduced on behalf of Revenue and of the three appellants shall, to the extent of relevancy, be examined in the course of our findings on the issues to be determined in this proceeding, Mr Ramanan has given us cause to pause and consider this novel proposition of his that traverses....
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....ties exhibited by it, but must leave the decision to the legal organ who, according to the legal order, is authorised to apply the law". According to the author if law is to be applied by a legal organ, he must determine the meaning of the norms to be applied: he must ''interpret' those norms (p. 348). Interpretation therefore is an intellectual activity which accompanies the process of law application in its advance from a higher level to a lower level. According to him, the law to be applied is a frame. "There are cases of intended or unintended indefiniteness at the lower level and several possibilities are open to the application of law".....In all these cases, the law to be applied constitutes only a frame within which several applications are possible, whereby every act is legal that stays within the frame". Again in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, held that it is not the function of the court to supply the supposed omission, which can only be done by Parliament. In our opinion, legislative surgery is not a judicial option, nor a compulsion, whilst interpreting an Act or a provision in the Act.' 29. From this,....
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....few years after the Constitution of India came into force, the vires of legislative acts of states to tax sales even where actual sale was outside the state concerned was regularly disputed before the Hon'ble Supreme Court; while nexus with the expressions in Article 286 was considered sine qua non, the degree thereof was cause of discord in the decisions. That judicial interpretation of degree of nexus, premised on the constitutional intent not to restrict, had to be rectified by the Sixth Amendment. We are, therefore, inclined to extract from the judgement delivered by Hon'ble Justice Vivian Bose, who, in his inimitable penchant for linguistic artistry, while recording his dissent in the matter of The Tata Iron & Steel Co Ltd v. The State of Bihar [1958 AIR 452] before the Hon'ble Supreme Court, observed- 'My point is simple. If you are allowed to tax a dog it must be within the territorial limits of your taxable jurisdiction. You cannot tax it if it is born elsewhere and remains there simply because its mother was with you at some point of time during the period of gestation. Equally after birth, you cannot tax it simply because its tail is cut off (as is often done in ....
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.... that the arrival of goods, by any means of conveyance, pass the narrow neck of customs control and monitoring. It is the breach of these machinery provisions that, having impacted levies or veiled the prohibitions from oversight, invite liability to confiscate. To the extent that goods are not available and hence is beyond vestment prescribed in section 126 of Customs Act, 1962 the confiscation remains an unenforceable outcome. 32. Having thus sketched the mandate of law, we now take up the proposition that goods brought into India can, at least for section 111(m) of Customs Act, 1962, be held liable for confiscation for enabling imposition of penalties under section 112 of Customs Act, 1962, sans nexus with collection of duty and enforcement of prohibitions or without breach of the machinery provisions for safeguard of revenue and prevention of smuggling. There is, as yet, no judicial approval of this proposition and the adjudicating authority has, to his credit, not articulated his claim to such empowerment. It is a justification pleaded on behalf of Revenue to assail the challenge mounted on behalf the appellants. Hence, at this stage, this, in the Kelsen categorization, ....
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....s that can deny clearance for home consumption. Once the goods have been cleared, they cease to be imported goods within the meaning assigned in section 2 of Customs Act, 1962 thus ending jurisdiction over the goods under Customs Act, 1962. Revival of the jurisdiction is contingent upon establishing that duty has not been paid in full or that the goods are prohibited foe import. Assessment of duty is empowered under section 17 as final, or as provisional for subsequent finalization, under section 18 of Customs Act, 1962. To the extent that that the assessment has not realized the duty that is leviable by law the provisions of section 28 of Customs Act, 1962 can be invoked for recovery of duties. The entitlement of goods on which duties have been short-levied or not levied on clearance for home consumption for clearance for home consumption stands jeopardized ab initio and, if available, can be subject to confiscation. Goods cleared for home consumption by concealment, physical or otherwise, of being prohibited by law, have their clearance for home consumption jeopardized similarly. 35. In Bussa Overseas and Properties Pvt Ltd v. CL Mahar, Asst Collector of Customs [2004 (163) EL....
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....o be available, or be obliged to be surrendered as per conditions of bond for release, and clearance for home consumption under section 47 of Customs Act, 1962 should have been withheld, either in the first instance or by subsequent deemed revocation, for the liability under section 111 to be invoked with consequent resort to penalties in section 112 of Customs Act, 1962. For this conclusion, we draw sustenance from the act of the sovereign legislature in supplying the remedy, for the impediment of the absence of such imported goods on which duty liability is recoverable after clearance, with the incorporation of section 114A of Customs Act, 1962. Any remedy for perceived gaps in the enforcement of the penal provisions should be, and is always, supplied by legislative enactment. The intent of the legislature in preserving rigour in resorting to section 111 and section 112 of Customs Act, 1962 as a bulwark against executive excess is thus abundantly clear and we cannot allow ourselves to tamper with that integrity. 36. The impugned goods had been provisionally assessed to duty under section 18 of Customs Act, 1962 which, upon subsequent finalization, rendering a closure to the as....
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.... Rule 3(i) and Rule 4 (1) together, it is clear that a mandate has been cast on the authorities to accept the price actually paid or payable for the goods in respect of the goods under assessment as the transaction value. But the mandate is not invariable and is subject to certain exceptions specified in Rule 4(2) ****** 9. These exceptions are in expansion and explicatory of the special circumstances in Section 14 (1) quoted earlier. It follows that unless the price actually paid for the particular transaction falls within the exceptions, the customs authorities are bound to assess the duty on the transaction value. 10. The respondent's submission is that the phrase "the transaction value" read in conjunction with the word "payable" in Rule 4(1) allows determination of the ordinary international value of the goods to be ascertained on the basis of data other than the price actually paid for the goods. This, according to the respondent, would be in keeping with the overriding effect of Section 14(1). We cannot agree. 11. It is true that the Rules are framed under Section 14(1A) and are subject to the conditions in Section 14(1). Rule 4 is in fact....
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....n value can be determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), there is no question of determining the value under the subsequent Rules.' is the foundation of that structure. Though section 14 of Customs Act, 1962 has undergone a change since then, as has the relevant rules framed thereunder, the principle remains with the added rigour that the price paid or payable is itself the transaction value instead of being the deemed assessable value. The scope for additions to this value is enumerated in rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the empowerment to reject is in rule 12 of the said Rules. Rule 3 limits any adaptation to the extent specified and rule 12 must, as evident from the Explanation therein, be followed by re-determination of value in the manner and sequence prescribed. The commercial consideration, declared under section 46 of Customs Act, 1962, is tested for conformity with the qualification prescribed in section 14 of Customs Act, 1962 and the relevant provision of the valuation rules in vogue. Should that declaration be rejected, the sequential application of the other rules is....
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....and when, proceedings are initiated against them as they would be, according to the adjudicating authority. 40. This casual dismissal of application of rule 5 and 6 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 is contrary to the provisions of law. The adjudicating authority is not in compliance with the mechanism prescribed in law, and as approved by the Hon'ble Supreme Court in re Eicher Tractors Ltd, for arriving at an alternative valuation. He probably is oblivious to the irony of refusing to acknowledge the veracity of transactions by the coal industry while accepting the purported average profit of 3.5% said to have been gleaned from the same industry for application of a subsequent rule. The adjudicating authority appears disinclined to explain the conclusion that this is all that befits addition for determination of misdeclaration. Clairvoyance, as a talent, is not acknowledged in adjudication proceedings. The impugned order has relied upon his rejection of the documentation furnished with import declaration and upon the relationship between the importer and its overseas subsidiary to discard the declared value under rule 12 of Customs Valua....
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....llenge to the finding on facts in the impugned order. 42. This, then, is the context in which the transitive logic has been applied and the appropraiteness claiming legitimacy from the definition of 'value' in section 2 of Customs Act, 1962. The scope of interpretation of definitions has been unequivocally placed in the context of the law by the Hon'ble Supreme Court in Reserve Bank of India v. Peerless General Finance [[1987] 2 SCR 1] thus 'Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the....
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.... its amendment section. It would, therefore, appear that the sovereign legislature was sufficiently concerned with misdeclaration of value itself, and not overvaluation, per se, as to warrant the detriment incorporated in 1973. We have no doubt that overvaluation is also a breach that leads to confiscation after the amendment. For the record, despite the pre-amended section 111 '(m) any dutiable or prohibited goods which do not correspond in any material particular with the entry made under this Act or in the case of baggage with the declaration made under section 77' and the notes on clauses of the bill for enactment of Act 36 of 1973 explicitly referring to over-invoiced imports, their Lordships did not forbear to decide that 'It is not in dispute that a penal provision has to be strictly construed and reading Sec. 111 (m) before the amendment it is not possible to draw an inference that any difference in material particulars may be referable to 'value'. This argument therefore can not be accepted. The scheme of Sec. 111 (m) as it stood then nowhere referred to the difference in value as one of the ingredients which may attract this provision. In such a situa....
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....tems Pte Ltd and of M/s Spring Traders Ltd with the importer pivoting around the bill of lading submitted at the time of import in conjunction with opting to pay duty despite being eligible for exemption and the assumption of responsibility for insurance coverage that was to be borne by M/s International Metallurgical Resource AG sufficed as circumstances to render the finding. The adjudicating authority has, unabashedly, placed a premium on the integrity, reliability and reputation of M/s International Metallurgical Resource AG; however, no background narrative has been offered for this encomium - other than the furnishing of the documents relied so heavily upon to the investigation agency. The final nail, according to the impugned order, was the conformity of the test results conducted by the Deputy Chief Chemist on the samples drawn at the time of import with the 'certificate of sampling and analysis' obtained from M/s IMR Metallurgical Resource AG once the conversion factor elicited from the internet had been utilized. Constituting, as it did, the fulcrum of the detrimental consequence, Learned Special Counsel for Revenue defended the conversion factor, notwithstanding its sour....
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....soning - the premise of inferior coal having been supplied can be evinced with test results and the only unquestioned test is that of the Deputy Chief Chemist which required conversion to 'as received basis' but could not in the absence of two values which were providentially made available in the very 'certificate of sampling and analysis' that was the basis of the premise. The conversion is faulty and the conclusion flawed. 47. We also note that the 'gross calorific value' in the 'certificate of sampling and analysis' obtained by the investigators and the one derived by the adjudicating authority differ by about 10-12%. That is no conformity. The adjudicating authority was content with the derived value being below the 'off spec' threshold without any thought to the discredit that it brings to the reputation of M/s IMR Metallurgical Resources AG which is, time and again, reiterated in the impugned order. From the derived 'gross calorific value', it would appear that the internationally renowned supplier, whose integrity is beyond question, overcharged the Singapore entity by about 10 to 12% thereby rendering the voluntarily furnished information to be suspect. That would be to....