Case Law Details
Sri Velavan Logistics Services Private Limited Vs Commissioner of Customs (CESTAT Chennai)
In the case of M/s. Sri Velavan Logistics Services Private Limited v. The Commissioner of Customs [Customs Appeal No. 40352 of 2022 dated December 21, 2022], the CESTAT, Chennai, ruled that customs brokers cannot be held liable for the undervaluation of goods. The court held that the valuation of goods is determined by the contract between the exporter and importer, and customs brokers do not have any influence in this matter. Consequently, the penalty imposed on the customs broker under Section 114 of the Customs Act was deemed unlawful and was set aside.
Background:
M/s. Sri Velavan Logistics Services Private Limited, the appellant in this case, is a customs broker. They received a Show Cause Notice on August 3, 2019, alleging their involvement in exporting undervalued goods. The market survey indicated that similar products were sold at INR 59/- per piece, including GST, while the actual value of the exported goods, as determined under Rule 6 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, was INR 119/- per piece. The importer had accepted this value. The appellant was held accountable under Regulations 11(n) and 11(d) of the Customs Broker Licensing Regulations, 2013, and faced a penalty under Section 114 of the Customs Act, 1962.
The Adjudicating Authority, in their Order-in-Original dated March 8, 2021, rejected the Free on Board value under Rule 8(1) read with Rule 7 of the CV Rules and imposed a penalty of INR 10,00,000/- on the appellant. The appellant then appealed to the first Appellate Authority, but their appeal was rejected based on a violation of Regulation 11(n) of the CBLR, as stated in the Order-in-Appeal dated May 10, 2022. Dissatisfied with this decision, the appellant filed the present appeal.
Issue:
The main question was whether it was justified for the Revenue to impose a penalty under Section 114 of the Customs Act on the appellant for an alleged violation of Regulations 11(n) and 11(d) of the CBLR.
Court’s Decision:
In Customs Appeal No. 40352 of 2022, the CESTAT, Chennai, reached the following conclusions:
- The only allegation against the appellant was the undervaluation of goods, which could lead to confiscation under Section 113(i) and 113(ia) of the Customs Act.
- The valuation of goods does not fall under the jurisdiction of customs brokers, as it is determined by the contract between the exporter and importer, in which customs brokers have no involvement.
- The Order-in-Original and Order-in-Appeal did not establish the role of the appellant in setting the value during the contract or declaration process.
- Therefore, the penalty imposed on the appellant under Section 114 of the Customs Act was deemed unlawful and needed to be overturned.
Relevant Provisions:
Section 113 of the Customs Act:
“Confiscation of goods attempted to be improperly exported, etc. – The following export goods shall be liable to confiscation:-
(a) any goods attempted to be exported by sea or air from any place other than a customs port or a customs airport appointed for the loading of such goods;
(b) any goods attempted to be exported by land or inland water through any route other than a route specified in a notification issued under clause (c) of section 7 for the export of such goods;
(c) any goods brought near the land frontier or the coast of India or near any bay, gulf, creek or tidal river for the purpose of being exported from a place other than a land customs station or a customs port appointed for the loading of such goods;
(d) any goods attempted to be exported or brought within the limits of any customs area for the purpose of being exported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force;
(e) any goods found concealed in a package which is brought within the limits of a customs area for the purpose of exportation;
(f) any goods which are loaded or attempted to be loaded in contravention of the provisions of section 33 or section 34;
(g) any goods loaded or attempted to be loaded on any conveyance, or water-borne, or attempted to be water-borne for being loaded on any vessel, the eventual destination of which is a place outside India, without the permission of the proper officer;
(h) any goods which are not included or are in excess of those included in the entry made under this Act, or in the case of baggage in the declaration made under section 77;
(i) any goods entered for exportation which do not correspond in respect of value or in any material particular with the entry made under this Act or in the case of baggage with the declaration made under section 77;
(ii) any goods entered for exportation under claim for drawback which do not correspond in any material particular with any information furnished by the exporter or manufacturer under this Act in relation to the fixation of rate of drawback under section 75;
(j) any goods on which import duty has not been paid and which are entered for exportation under a claim for drawback under section 74;
(ja) any goods entered for exportation under claim of remission or refund of any duty or tax or levy to make a wrongful claim in contravention of the provisions of this Act or any other law for the time being in force;
(k) any goods cleared for exportation which are not loaded for exportation on account of any wilful act, negligence or default of the exporter, his agent or employee, or which after having been loaded for exportation are unloaded without the permission of the proper officer;
(l) any specified goods in relation to which any provisions of Chapter IVB or of any rule made under this Act for carrying out the purposes of that Chapter have been contravened”
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by the Customs Broker against the imposition of penalty under Section 114 of the Customs Act, 1962 by the Adjudicating Authority, as sustained by the First Appellate Authority vide impugned Order-in-Appeal Seaport C.Cus. II No. 250/2022 dated 10.05.2022.
2. I have heard Shri S. Murugappan, Learned Advocate, appearing for the appellant and Smt. Anandalakshmi Ganeshram, Learned Superintendent, appearing for the Revenue.
3. The only issue to be decided by me is: whether the Revenue was justified in imposing penalty under Section 114 of the Customs Act, 1962 on the Customs Broker for an alleged violation of Regulations 11(n) and 11(d) of the Customs Brokers Licensing Regulations, 2013?
4. I have considered the rival contentions, have perused the written submissions and have also gone through the judgements referred to during the course of arguments.
5. The Show Cause Notice dated 03.08.2019 was issued on four co-noticees, including the appellant before this forum, and the crux of the Show Cause Notice, inter alia, is that there was an attempt to export goods which were undervalued; that the market survey carried out on a single day, i.e. on 15.02.2019, revealed that an exactly similar looking product to the one which was attempted to be exported costed Rs.59/- (M.R.P.) per piece including G.S.T.; that therefore, the value of the goods in question was computed at Rs.115/- per piece in terms of Rule 6 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 and that the same was accepted by the authorized representative of the importer. In the said Show Cause Notice, at paragraph 16, the Customs Broker was alleged to have rendered themselves liable for action under the Customs Broker Licensing Regulations (CBLR), 2013 for contravening the provisions of Regulations 11(n) and 11(d) ibid. and thereafter, it was proposed in the Show Cause Notice as to the imposition of penalty under Section 114 of the Customs Act, 1962. It appears that none of the co-noticees having replied, except this appellant, to the Show Cause Notice, the Adjudicating Authority vide Order-in-Original No. 80744/2021 dated 08.03.2021 rejected the FOB in terms of Rule 8(1) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 read with Rule 7 ibid. and inter alia also imposed a penalty of Rs.10,00,000/- (Rupees Ten Lakh only) on this appellant under Section 114 ibid. Being aggrieved by the above imposition of penalty, the appellant preferred an appeal before the First Appellate Authority, who vide impugned Order-in-Appeal Seaport C.Cus. II No. 250/2022 dated 10.05.2022 accepted the violation to Regulation 10(n) of the CBLR and having rejected the appeal, the present appeal has been filed before this forum.
6.1 The very foundation of this case appears to be very shaky since there is an allegation as to the violation of Regulations 11(n) and 11(d) of the CBLR against which the proposal issued was to penalize the appellant / Customs Broker under the provisions of the Customs Act. It is not as though the consequences of violation of the CBLR are not provided under the CBLR, 2013. Further, Section 114 of the Customs Act, 1962 prescribes imposition of penalty on any person who, in relation to any goods, does or omits to do any act, which act or omission would render such goods liable for confiscation under Section 113, or abets the doing or omission of such an act. Unfortunately, in the case on hand, the only allegation is undervaluation of the goods for which the same were held liable for confiscation under Section 113(i) and 113(ia) of the Customs Act.
6.2 Here, in the case on hand, in the guise of redetermination of value of goods, the Adjudicating Authority has not given any justifiable reasons except adopting the valuation in terms of Rule 6 ibid. after rejecting the FOB value in terms of Rule 8(1) ibid. Rule 8 authorizes the proper officer to reject the declared value when he has the reason to doubt the truth or accuracy of the same and from a reading of the Adjudication Order, I do not see any reasons brought on record as to the doubts about the truth or accuracy of the value declared in relation to the export of goods.
6.3 In any case, the valuation of any goods could never be the domain of a Customs Broker as the same depends upon the contract between the exporter and the importer wherein no Customs Broker would have any say. Further, nowhere in the Order-in-Original or even in the impugned Order-in-Appeal has the respective authority revealed the role of the Customs Broker in either fixing the value at the time of entering into the contract by the exporter with the importer or at the time of declaring the same.
7. Hence, the Customs Broker, in the facts of this case as discussed above, cannot be fastened with a liability under the Customs Act, more so having alleged a different violation altogether.
8. The Hon’ble High Court of Delhi in the case of M/s. Kunal Travels (Cargo) v. C.C. (I&G), IGI Airport, New Delhi reported in 2017 (354) E.L.T. 447 (Del.) has exhaustively dealt with the issue, which also supports my above view. The other judgements relied upon are also in support of my above view. In view of the above, the order of the co-ordinate Bench of the CESTAT is not considered as the decision of the Hon’ble High Court would prevail.
9. Consequently, I am of the view that the imposition of penalty on the appellant / Customs Broker is bad in law. For the above reasons, the impugned order is set aside and the appeal is allowed.
(Order pronounced in the open court on 21.12.2022)
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