In a recent case, the New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal, held that in the absence of recourse to section 28 of Customs Act, 1962, ingredients for invoking section 114A against the importer do not exist. It was viewed that here being no misdeclaration of value, confiscation under section 111 of Customs Act, 1962 does not survive and with it the penalties under section 112 of Customs Act, 1962 lack sustenance.
M/s Exclusive Motors Pvt Ltd, the appellant challenged the order of Commissioner of Customs, Inland Container Depot ( ICD ), Patparganj, New Delhi has fastened differential duty of ₹ 71,74,00,000 under section 28 of Customs Act, 1962, along with applicable interest under section 28AA of Customs Act, 1962, for having been short-paid on import of cars between August 2018 and July 2023 besides imposing penalty of like amount under section 114A of Customs Act, 1962.
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Shri SP Bagla is aggrieved by imposition of penalties of ₹ 5,00,00,000 under section 112 and ₹ 4,00,00,000 under section 114AA of Customs Act, 1962 in the same order while Shri Sanket Anand, with no reason for cavil that proposal to invoke 114AA of Customs Act, 1962 did not find favour with the adjudicating authority, is aggrieved that penalty of ₹ 10,00,000 has been imposed on him under section 112 of Customs Act, 1962.
The appellants claimed that these detriments have been erected on shaky foundations of fact and law which, according to them, suffices to assail insinuation that the price at ‘port of loading’ and price at ‘port of destination’ are the same in all the impugned consignments while demonstrating incorrect appreciation of both section 14 of Customs Act, 1962 and Customs Valuation ( Determination of Value of Imported Goods ) Rules, 2007.
M/s Exclusive Motors Pvt Ltd is authorized dealer of M/s Bentley Motors Ltd, United Kingdom (UK) in India and, in accordance with industry practice, buys cars for sale in India. While the norm is for transport by sea as cargo, it is not unknown for customers to insist on immediate fulfilment of order which is catered to by supplier shipping by air. And it is on this particular twist of consumer preference that the conformity, or otherwise, of ‘declared value’ of all imports – irrespective of mode of transport – during the period in dispute with the stipulative description of transaction value’ in section 14 of Customs Act, 1962 has been called in question in the notice issued to appellants herein.
The case in the notice is that the price declared on the bills of entry filed in each instance, though claiming to be CIP/DAP as per INCOTERMS , were the same as that declared to HMRC at load point by freight forwarder of exporter, M/s Bentley Motors Ltd and, hence, warranted additions as prescribed in rule 3(1) of Customs Valuation Rules, 2007.
The appellants contended that this sweeping inference is without any factual support as scrutiny of documents of M/s Exclusive Motors Pvt Ltd by investigators had not elicited any record of separate payment of freight which surely would not have been foregone in the price charged by M/s Bentley Motors Ltd and that the demand has been confirmed on flimsy findings drawn from unsubstantiated hearsay evidence transposed on persons available in India and privy only to communication received over email from individuals purportedly concerned with declarations at the overseas end.
The price clause in the contract as well shipping documentation have adopted INCOTERMS notified by the International Chamber of Commerce ( ICC ) and have been categorized as four, including CIF/FOB , corresponding to the liability rules for sea and inland waterways and as seven, including CIP/DAP, corresponding to liability rules for any mode of transport.
The adjudicating authority drew upon a comparison of the pro forma invoice and final invoice of such transactions pertaining to which correspondence for revision of transport mode was available – five such in the ‘case study’ of Authorized Representative– to conclude that, irrespective of the mode of transport, the transaction price remained unchanged for inferring therefrom that the ‘supplementary invoices’ reflected actual freight for air mode lacking the ‘grace’ of being differential freight.
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Counsel for appellants submitted that the demand of differential duty and imposition of penalties does not stand test of law or sustenance on facts. According to him, there were no facts that the notice could boast of and that circular reasoning in the impugned order was arithmetically established only by obfuscation of mathematical principles. He contended that ‘statistical value’ in some unrelated return filed in the country of supplier was used to reject the declared value but the same declared value was then used to load additions towards freight and insurance when it should have fallen to the persons concerned in the country of export to have deducted the actual freight and insurance from the invoice value for any declaration at that end.
It was viewed that to affirm that, on tenuous suggestion of wrong-doing, the onus stands shifted to the importer would be tantamount to transplanting the valuation scheme in the Customs Valuation Rules, 1963 to the present day. Thus, the finding for concluding that the declared price should be loaded by 21.125% to render it to be ‘transaction value’ in 119 imports by sea or air is without any basis in law.
The Tribunal found that as far as supplementary invoices are concerned, there is nothing on record to suggest that these were issued to the buyers before or after the despatch of 51 cars by air. The scrutiny of records of importer-appellant had not yielded those. To conjecture so, and lend credence to documents reflecting transactions not envisaged in the contract, payment would have to be evidenced.
Other than an inference of adjustment in some account purportedly held by M/s Bentley Motors Ltd, which, as set out supra, has only unreliable statements in support, no evidence has been led in the show cause notice. There is no evidence of remittance either through banking channels or, as Counsel put it, through ‘hawala’ route. Indeed, it would surprise that two corporate entities operating in jurisdictions that criminalize such payments that could also carry loss of liability cover would opt for such compensatory payments.
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A two member bench of Justice Dilip Gupta, President and C J Mathew, Member (Technical) observed that the declared price is, by default, not only the transaction value but also, unless established to the contrary, the price for delivery at the time and place of importation. With the law thus enacted, the onus for establishing the contrary rests with the adjudicating authority. On the evidence available and reliably acceptable, that onus has not been discharged. The declared price remains unimpeached to negate the enhancement and recovery of differential duty.
It was held that in the absence of recourse to section 28 of Customs Act, 1962, ingredients for invoking section 114A against the importer do not exist. There being no misdeclaration of value, confiscation under section 111 of Customs Act, 1962 does not survive and with it the penalties under section 112 of Customs Act, 1962 lack sustenance.The CESTAT set aside the impugned order and allowed the appeals.
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