TaxTMI 
TaxTMI 
2022 (6) TMI 122
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.... the Assessee was selected for limited scrutiny under CASS for two reasons, firstly with regard to mismatch of custom duty paid asshown in the ITR with the duty paid as per Export Import data (CBEC tab of ITS) and secondly with regard to the purchases shown in the ITR is less than the invoice value of imports shown in the Export Import Data. 2.1 Statutory notices have been issued by the AO u/s 143(2) of the Act, in response to which the Assessee participated in the assessment proceedings from time to time and filed the relevant documents and other supporting material. The AO after examining the same made anaddition of Rs. 65,61,700/- (Rs. 48,42,900/- paid by the Assessee as fine and Rs. 17,18,800/- as penalty) by observing that the Assessee has claimed custom duty expenses of Rs. 97,18,996/- for Assessment Year under consideration, on which the Assessee was asked to furnish the details of the same. In response the Assessee submitted bifurcation of custom duty expenses which was examined and found by the AO that actual custom duty paid was only Rs. 31,57,296/- (including additional duty) out of Rs. 97,18,996/- and rest custom duty of Rs. 65,61,700/- pertains to the fine/penalty l....
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....d Forests. The Ld. Commissioner further observed that there was difference in the invoice value of the good and custom valuation and therefore, fine has been imposed in addition to the duty payable on the import of the goods including additional duty payable on account of valuation difference. 3.2 The Ld. Commissioner also observed that the confiscation had taken place not only for under valuation and for import without DGFT license required under foreign Trade Policy (2009-14) but also for import without permission under Environment Protection Act, 1986 in which the importer is required a separate permission from Ministry of Environment and Forests as mentioned in Schedule III part B Item B1110 of Hazardous Waste Management Handling and Trans Movement Rules 2008. 3.3 It was also claimed by the Assessee before the ld. Commissioner that the payment made on account of penalty/duty was in fact compensatory in nature,but the Ld. Commissioner did not get impressed by the said claim on the ground that the payment for violation of restriction imposed under Environment Protection Act can never be a compensating nature. The said violation is different from import with DGFT License as ....
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.... in the valuation of goods as per invoice and Customs's valuation, i.e. if was a case of under valuation. Therefore assessable value of goods tor customs duty purpose was determent by the chartered engineer as the assesses failed to submit contract, purchase order, dismantling cost details, and payments details, as mentioned in Para 5 of the above referred order No. 4276/2014-15. Consequently, the goods were liable for confiscation u/s 111 (m) of the Customs Act, 1962 as well, which deals with confiscation of goods whose values declared is lower than the correct value. For release of confiscated goads u/s 111 (d) and 111 (m) of the Customs Act a fine of Rs. 2.15,000/ was imposed u/s 125(1) of the Custom? Act 1962, which gives an option to the importer to pay the fine in lieu of such confiscation. This fine is in addition to the duty payable on the import of goods including-additional duty payable on account of valuation difference. The total such fine for all the 16 import consignments comes.jo Rs. 48,42,900/-. In addition, vide above a penalty of Rs. 68,000/- were also imposed u/s 112(a), which is again a penalty payable for any act which makes the goods liable for confiscation u/....
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....of Hon'ble Madras High Court deals with section 125 of Custom Act. None of the decisions deal with section 112 of the Custom Act. Moreover, even in the case of the aforesaid decision of Hon'ble Madras High Court, the payment has been held to be compensatory of nature considering the nature of violation as the confiscation in that case was u/s 111(d) of Customs Act, 1962 but in a different context. The Assessee in that case was manufacturing and selling heat treatment plants and heat treatment salts. He was granted a license for importing permissible spare parts for construction machinery and spares of machines tools. Due to misunderstanding, related to provisions, he imports sodium cyanide from Hungary. The goods were confiscated as the license did not permit the import of said item. Therefore, it was only because of misunderstanding as to whether the said item was included in the said license or not which led to imposition of penalty. At best these can be equated with the import without DGFT license. However, by no stretch of imagination, it can be equated with the import without the permission of Ministry of Environment and Forests, in contravention with the Environment Protectio....
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....03.2015(we are quoting for reference only) and consequently the Assessee was given an option to redeem the goods on payment of fine of Rs. 2,15,000/-. Further, the Joint Commissioner of Customs also imposed penalty of Rs. 68,000/-. For ready reference the relevant part of the order is reproduced herein below:- NHAVA-SHEVA-I TALUKA-URAN,DISTRICT-RAIGAH, MAHARASHTRA 400 007 F. NO. s/26-MISC-3584/2014-15 Gr.-V S/10-ADJ-226/2014-15 Gr. V Date of Order: 13.03.2015 Date of issue: 14.03.2015 Passed By : Shri N. N. Shelka Joint Commissioner of Customs, NhavaSheva-I Order No. 4276/2014-15 Name of the Party/ Notice: M/s. Asian Copiers Order in Original 1.................................. 2..................................... 3. I have carefully gone through the records of the case, since the importer has requested for waiver of SCN & PH, the case is put up to me for adjudication on the basis of records / facts available. I find that the import of old and used photocopier is restricted for import in terms of Para 2.17 of the Foreign Trade Policy 2009-14 read with Para ....
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....tocopying machine and actual value was higher than the declared value. The importers have also failed to submit contract, purchase order, dismantling cost details and payment details. The value declared thus, cannot be accepted as transaction value, under Section 14 of the Customs Act, 1962 for charging duty. The value declared is liable to be rejected under Rule 12 of the Customs Valuation (Determination of Value of the imported goods) Rules, 2007. The value required to be re-determined under Rule 3 of the Customs Valuation (Determination of Value of the imported goods) Rules, 2007. The value cannot be re-determined by following Rules 4/5 of CVR 2007 as import data of identical goods/similar goods is not available. The Rule 7 & 8 too cannot be applied for re-determination for want of sufficient data. The value is therefore required to be determined under Rule 9 of CVR, 2007. Asper Hon'ble Supreme Court decision in the case of Gajra Bevel Gears [2000 (115) ELT 612 (S.C.), in case transaction value is rejected under Rule 3 of CVR 2007, valuation of second-hand goods can be done under Rule 9 of CVR 2007, on the basis of value of new machine, as certified by the Chartered Engineer, an....
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....ds in question and/or against the persons concerned or any other person, if found involved under the provisions of the Customs Act, 1962, and/or other law for the time being in force in the Republic of India. (NILKANTH N SHELKE) Jt. Commissioner of Customs, Group-V, NhavaSheva I To, M/s. Asican Copiers, BG-6/54A, PaschimVihar, New Delhi-110063 Copy to:- 1. Commissioner of Customs, NhavaSheva 1. 2. The DC/Review Cell NhavaSheva I). 3. The Dy. Commissioner of Customs, Adjudication Cell, NhavaSheva I 4. M/s. MDS Logistics Pvt Ltd.(ll/218) 5. Guard file 6 The Assessee claimed the expenditure of Rs. 65,61,700/- which includes Rs. 48,42,900/- as fine u/s 125(1) and Rs. 17,18,800/- on account of penalty u/s 112(a) of the Customs Act 1962. The Assessee contended that fine and penalty referred above are in compensatory in nature and for the purpose of getting the goods released from Custom Authorities and thus, liable to be allowed as expenditure u/s 37(1) of the Act. Whereas the revenue has claimed that the said fine and penalty levied upon the Assessee are penal in nature and are....
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....1) of the Customs Act 1962 and held as under:- 1. ....................... 2. This Court had by order dated 09.1.2001 framed the following question of law: "Whether Tribunal was justified in holding that the levy of Rs. 4 lakhs in respect of redemption fine and personal penalty was in the nature of fine and penalty and are not to be allowed as deductible business expenditure while computing total income of the assessee?" 3. Briefly, the facts are that the petitioner had imported some software during the relevant Assessment Year i.e. 1985-86. It had sought to re-export the software after making some declarations. The customs authorities were of the opinion that the appellant's action was not legal and directed it to pay differential duties. In addition its Managing Director was made personally liable to penalty. The goods were sought to be confiscated. The matter was carried in appeal. Eventually the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) decided the matter on 30.5.1999. The Tribunal directed the deletion of personal penalty but proceeded to uphold the order in so far as the fine in lieu of confiscation is concerned--to R....
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....rected to pay was deleted by the CEGAT. What remained was the confiscation; the appellant was given the choice of redeeming the goods by depositing redemption fine as is evident from combined reading of paragraph Nos. 18 and 19 of CEGAT order. The Tribunal went so far as to say that valuation of goods in question was on the basis of difference of opinion. Nevertheless, that being the rationale for deletion of penalty, the Tribunal felt that the order of confiscation did not require to be upset, instead redemption fine was reduced to Rs. 4,00,000/-. On a proper application of the ruling in M/s. Prakash Cotton Mills Pvt. Ltd.'s case (supra), this Court is of the opinion that the amount of redemption fine in the present case was compensatory and therefore, fell outside the mischief of explanation of Section 37(1) of the Income Tax Act." {Highlighted by us } 12 The Hon'ble Madras High Court in the case of CITVs. Parthasmarathy (1995) 212 ITRT 0105 (Mad HC) also dealt with issue related to imposition of fine and held as under:- 5. Coming to the facts of the case on hand, the goods belonging to the assessee had been confiscated under s. 111 (d) of the Customs Act, 1962....
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.... the AAC, who had, however, considered such a question and rendered a finding in favour of the assessee. Accordingly, this question is answered." 13 The Hon'ble Apex Court in the case of Prakash Cotton Mills Pvt. Ltd. Vs Commissioner of Income Tax (1993) 201 ITR 0684 has held as under:- "When an amount paid by an assessee as interest or damages or penalty could regarded as compensatory (reparatory) in character as would entitle 'such assessee to claim it as an allowable expenditure under Section 37(1) of the I.T. Act. Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest, is claimed as an allowable expenditure under section 37(1) of the I.T. Act, the assessing authority is required to examine the Scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal, in nature. The authority has to allow deduction under Section 37(1) of the I.T. Act, whereever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composit....
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....confiscation. For ready reference the provisions of section 125 of the Custom Act 1962 are reproduced below : 125. Option to pay fine in lieu of confiscation.- (1) Whenever confiscation of any goods is authorized by this Act, the officer adjudging it may, in the case of any goods, the importation or exportation whereof is prohibited under this Act or under any other law for the time being in force, and shall, in the case of any other goods, give to the owner of the goods [or, where such owner is not known, the person from whose possession or custody such goods have been seized,] an option to pay in lieu of confiscation such fine as the said officer thinks fit: [Provided that where the proceedings are deemed to be concluded under the proviso to sub-section (2) of section 28 or under clause (i) of sub-section (6) of that section in respect of the goods which are not prohibited or restricted, the provisions of this section shall not apply: Provided further that], without prejudice to the provisions of the proviso to sub-section (2) of section 115, such fine shall not exceed the market price of the goods confiscated, less in the case of imported good....
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....Custom Act. 17 For ready reference the provisions of section 112 of the Customs Act, 1962 are reproduced herein below: Section 112 Penalty for improper importation of goods, etc. -Any person,- (a) Who in relation to any goods does or omits to do any act which act or omission would render such goods liable to confiscation u/s 111, abates the doing or omission of such an act. (b) .................................... Shall be liable certain fines as prescribed in sub-clause (i) to (v) of section 112 of the Custom Act, 1962. 17.1 For clarity and ready reference, we are again revisiting the Explanation 1 of section 37(1) of the Act, which speaks clearly "For the removal of doubts, it is hereby declared that any expenditure incurred by an Assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowances shall be made in respect of such expenses."From the Explanation 1 of the section 37(1) of the Act, it is clear the embargo has been placed for claiming the deduction of expenditure which is an offence or which is pro....
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....ls of lading purchased in good faith, is a proper deduction under section 10 (1) of the Income-tax Act ?" 2........... 3........... 4. Coming now to the question as framed, we think that it must be answered in the affirmative and in favour of the assessee. Under section 10 (1) of the Indian Income-tax Act, tax is made payable in respect of the profits or gains of business. Profits or gains of business would be the excess of the sale price over the cost price and in determining the profits or gains, therefore, the cost has to be deducted from the proceeds realised on sale of the goods. On the facts and circumstances of the present case, the actual cost of the goods to the assessee was not only what it had paid to the imports, but in addition thereto what it had to pay by way of penalty, in order to save the goods from being confiscated and lost to it. The penalty paid by it could, therefore, be regarded as part of the cost of the goods to it. It can also be regarded as an amount expended by it wholly and exclusively for the purposes of the business, because unless the said amount was expended, the goods could not have been saved from confiscation. It may b....