JJR Associates Vs Commissioner of Customs (Port) (CESTAT Kolkata)
The appeal arose against Order-in-Original No. Kol/Cus/Commissioner/Port/13/2019 dated 08.05.2019, under which the Commissioner of Customs (Port), Kolkata rejected the declared assessable value of goods imported under 41 Bills of Entry under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determined the value under Rule 5. The Customs Authority alleged that goods declared as “machinery oil”/“machinery lubricant oil” were actually “base oil”, relying principally on reports from CRCL, Kolkata and CRCL, New Delhi. CRCL, Kolkata stated that no reference/specification of machinery oil medium grade was available and suggested that its trade identity/sales grade be ascertained, while CRCL, New Delhi opined that the samples “may be base oils of various grades”. Based on the absence of ash content and an observation of CSIR, IIP, Dehradun concerning a separate case, the goods were treated as base oil. The authority also relied upon alleged supplies of base oil to M/s Balmer Lawrie & Co. Ltd. from imported stock.
Consequently, the goods were ordered to be confiscated under Section 111(m) of the Customs Act, 1962, with redemption fine of Rs.50 lakhs under Section 125. Reclassification from CTH 27101950/27101980 to 27101960 resulted in a differential duty demand of Rs.2,32,95,676/-. Penalties of Rs.20 lakhs under Section 112(a)(ii) and Rs.50 lakhs under Section 114AA were imposed, and Rs.95 lakhs deposited during investigation was ordered to be appropriated towards duty.
The appellant submitted that assessments relating to the 41 Bills of Entry, covering July 2012 to October 2014, had not been finalised under Section 18(2) of the Customs Act and therefore the differential duty demand was not maintainable before finalisation. Reliance was placed on Jaju Petro Chemicals Pvt. Ltd., Vs. Commissioner of Customs (Port), [2017 (354) ELT 614 (Cal)]. The matter had earlier been remanded by the Calcutta High Court by order dated 18.11.2022 in CUSTA/20/2022, directing the Tribunal to decide the matter on merits on the available materials, particularly the test reports.
The Tribunal observed that the CRCL reports did not establish that the imported goods were base oil. According to the Tribunal, the expression “may be base oils” did not establish that the goods were base oil and the Customs Authority’s reliance on an observation concerning a separate case could not support the reclassification. The Tribunal therefore found that the change in classification was not supported or corroborated by the CRCL reports.
The Tribunal also considered the finding concerning supplies to M/s Balmer Lawrie & Co. Ltd. The appellant produced statements, Central Excise invoices and certification from the Central Tax authorities showing separate purchases of base oil during the relevant period for supplies to M/s Balmer Lawrie & Co. Ltd. and M/s CAL (India), while the imported machinery oil consignments were sold to different customers. The Tribunal found the allegation that base oil supplied to Balmer Lawrie was from the imported consignments to be erroneous. The Tribunal also noted the appellant’s submission that statements of Sri Rahul Jhajharia recorded during investigation had been retracted through affidavits immediately thereafter.
Regarding valuation, the appellant argued that rejection of transaction value under Rule 12 and re-determination under Rule 5 were unsustainable because there was no finding or material showing that the import invoices were fabricated or fake, or that any relationship existed between importer and exporter. Reliance was placed on Commissioner of Customs, Mumbai Vs. Mahalaxmi Gems [2008(231) ELT 198 (S.C.)] and Commissioner of Customs, Mumbai Vs. J.D. Orgo Chem Ltd. [2008(226)ELT 9 (S.C.)]. The Tribunal held that, since the attempted reclassification itself was unsupported, the consequential re-valuation and differential duty demand could not stand. It also found the facts covered by Golden Enterprises Vs. Commissioner of Central Excise & S. Tax, Ludhiana [2016 (341) ELT 293 (Tri.-Chan)].
The CESTAT Kolkata concluded that there was no merit in the impugned order and set it aside. The appeals filed by the appellants were allowed with consequential relief, as per law.
Cases Discussed
- Commissioner of Customs (Port), V. Sri Rahul Jhajharia, Prop. Of M/s JJR Associates (Calcutta High Court), CUSTA/20/2022
- Jaju Petro Chemicals Pvt. Ltd., Vs. Commissioner of Customs (Port), [2017 (354) ELT 614 (Cal)]
- Golden Enterprises Vs. Commissioner of Central Excise & S. Tax, Ludhiana [2016 (341) ELT 293 (Tri.-Chan)]
- Commissioner of Customs, Mumbai Vs. Mahalaxmi Gems [2008(231) ELT 198 (S.C.)]
- Commissioner of Customs, Mumbai Vs. J.D. Orgo Chem Ltd., [2008(226)ELT 9 (S.C.)]
Five Alternative SEO Titles
CESTAT Quashes Customs Reclassification of Machinery Oil as Base Oil
CESTAT Sets Aside Base Oil Classification for Imported Machinery Oil
CESTAT Deletes Duty Demand After Rejecting Base Oil Reclassification
CESTAT Allows Appeal Against Customs Revaluation of Machinery Oil Imports
CESTAT Sets Aside Confiscation and Penalties in Machinery Oil Case
Source: supplied CESTAT Kolkata order.
FULL TEXT OF THE CESTAT KOLKATA ORDER
That the Appellant preferred the appeal against Order-in-Original No. Kol/Cus/Commissioner/Port/13/2019 dated 08.05.2019 passed by the Commissioner of Customs (Port), Kolkata whereby declared assessable value of imported consignments under 41 Bills of Entry have been rejected under Rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (hereinafter referred to as ‘Customs Valuation Rules, 2007) and have been redetermined under Rule 5 of the Customs Valuation Rules, 2007 upon the allegation that the goods imported as ‘machinery oil’ /machinery lubricant oil’ by the Appellant was actually ‘base oil’. The said allegation has been made on the basis of test reports allegedly obtained from CRCL, Kolkata and CRCL, New Delhi where CRCL, Kolkata reported that ‘No reference/specification of machinery oil medium grade is available here. Hence, its trade identity sales grade of the sample u/r may be ascertained at your end’ and CRCL, New Delhi opined that the sample tested by them ‘may be base oils of various grades’. The report of CRCL, Kolkata reflected that the Ash contained is ‘nil’ in the samples. Considering such parameter and comparing the same with an ‘observation’ of CSIR, IIP, Dehradun w.r.t some separate case, it has been held that in absence of any Ash content, the samples are to be considered as ‘base oil’. Further, it was held that the Appellant supplied ‘base oil’ to M/s Balmer Lawrie & Co. Ltd., out of imported stock which reflects that the imported goods were nothing but ‘base oil’. Accordingly, the imported goods have been ordered to be confiscated u/s 111 (m) of the Customs Act, 1962 and allowed to be redeemed on payment of redemption fine of Rs.50 Lakhs u/s 125 of the Customs Act, 1962. Consequent to the change of classification of the goods from CTH:27101950/27101980 to 27101960, differential duty amounting to Rs.2,32,95,676/- has been demanded. Penalty of Rs.20 lakhs u/s 112 (a) (ii) of the Customs Act, 1962 and Rs.50 lakhs u/s 114AA of the Customs Act, 1962 has been imposed upon the appellant and its erstwhile proprietor. Amount of Rs.95 lakhs deposited during investigation has been ordered to be appropriated towards the demand of duty.
2. It is submitted that from Show Cause Notice dated 21.02.2018 it would be evident that none of the assessments on the said 41 Bills of Entry pertaining to the period from July, 2012 to October, 2014, were finalized u/s 18(2) of the Customs Act, 1962 and as such, demand of any differential duty prior to finalization of the assessments is bad in law. The Show Cause Notice issued u/s 18(2) read with Section 17 & Section 124 of the Customs Act, 1962 is not maintainable in law. Reliance is placed in the decision of the Hon’ble High Court of Calcutta in the case of Jaju Petro Chemicals Pvt. Ltd., Vs. Commissioner of Customs (Port),[2017 (354) ELT 614 (Cal)].
3. The Hon’ble High Court, Calcutta while remanding the present matter before this Tribunal vide Order dated 18.11.2022 in CUSTA/20/2022 [Commissioner of Customs (Port), V. Sri Rahul Jhajharia, Prop. Of M/s JJR Associates] has observed that ‘Thus the Tribunal is left with only one task that is to examine the experts’ report and then come to a conclusion as to the case as projected by the respondent/importer was acceptable and justifiable. Since the learned Tribunal is last fact finding authority it is fully empowered to re-appreciate the evidence which is on record and this is required to be done by the learned Tribunal which was the issue before it with regard to classification of the products so imported. Therefore, we are of the view that the question of examination of the experts does not arise and is impermissible and the learned Tribunal should decide the matter on merits with the available materials i.e. test reports; Further, it was held that ‘The matter is remanded back to the learned Tribunal for fresh consideration to give a decision on merits and in accordance with law on the available materials.
However, it is placed on records this Court has not made any observation with regard to the merits of the matter and it would be opened to both parties to canvass all points and the learned Tribunal shall take a decision uninfluenced by any observation made in this order.’
4. Heard both sides and perused the appeal records and the written submissions.
5. That the Test Reports from CRCL, Kolkata and CRCL, New Delhi with respect to the samples from the imported consignment of the Appellant clearly states that it was not possible for the experts to classify the imported goods as ‘base oil’. The Customs Authority tried to classify the imported goods as ‘base oil’ upon the purported observation of CSIR, IIR, Dehradun with respect to some other case, which is absurd and not maintainable in law. In other words, the change of classification of imported goods in the present case by the respondent Customs Authority is not supported or corroborated by the test report from CRCL, Kolkata and / or CRCL, New Delhi. The suggestion of CRCL, in the said test reports provides that the samples ‘may be’ of base oil, which means it ‘may not be’ of base oil. Such test reports cannot be basis of conclusion that the goods imported were mis-declared and hence, such change of classification is seriously bad in law and liable to be quashed.
6. With respect to the other finding that the Appellant had supplied ‘base oil’ to M/s. Balmer Lawrie & Co. Ltd., as per Supply Contract from the imported consignments and hence, all the imported goods were nothing but ‘base oil’, is an absolute error on-facts inasmuch as from the statements enclosed herewith it would be evident that during the relevant period i.e. from July, 2012 to October, 2014, the Appellant had separate purchase of ‘base oil’ which were supplied /sold to M/s Balmer Lawrie & Co. Ltd., and M/s CAL (India). Such supply of ‘base oil’ to M/s Balmer Lawrie & Co. Ltd., has got no connection with the imported consignments of machine oil/machinery oils under 41 Bills of Entry in question since such imported consignments were sold to various different customers in India of the Appellant. All the purchase and sale of ‘base oil’ were covered under Central Excise invoices since in case of supply to M/s Balmer Lawrie & Co. Ltd., the Appellant had to pass-on the CENVAT Credit as a Dealer under the erstwhile Central Excise Act, 1944 and CENVAT Credit Rules, 2004. The superintendent, Central Tax, Range-I, Shibpur Division, Howrah CGST & Cx, Commissionerate, Kolkata has also duly certified such transaction of purchase/ sale and pass-on of CENVAT Credit by the Appellant to M/s Balmer Lawrie & Co. Ltd., during the relevant point of time.
Copy of the statement of purchase and sale of ‘base oil’, purchase and sale of machine oil; purchase and sale of machinery oil and proof of payment/ pass-on of the duty as certified by Central Tax Authorities have been submitted and collectively marked as Annexure-A.
7. That from the facts of the present case it would be evident that allegation of supply of ‘base oil’ to M/s Balmer Lawrie & Co. Ltd., by the Appellant out of the imported stock, is absolutely erroneous and hence, conclusion on the basis of such erroneous fact that the imported goods of the Appellant were ‘base oil’, is liable to be quashed.
8. It is further submitted that the reliance on the purported statements recorded from Sri Rahul Jhajharia at the time of investigation in this regard, is of no consequence since the same were involuntary and retracted immediately after recording of such statements dated 04.03.2014 and 28.10.2014. retractions were made by way of affidavits dated 05.03.2014 and 29.10.2014, as is available on-record. Fact of retraction was also duly indicated at paragraph 4 (xiv) of the reply dated 07.03.2019 before the Ld. Adjudicating Authority. Moreover, documentary evidence including Central Excise Invoices together with certificate of CENVAT pass-on issued by Central Tax Authority evidences the fact that the Appellant had altogether separate purchase of ‘base oil’ for supply to M/s Balmer Lawrie & Co. Ltd., and hence, purported statement of Rahul Jhajharia that imported goods were supplied to M/s Balmer Lawrie & Co. Ltd., is contrary to fact and cannot be true having any evidentiary value in law.
9. That it is further to submit that when there is no basis of change of classification of the imported goods during finalization of the assessments u/s 18(2) of the Customs Act, 1962, question of confiscation of the imported goods u/s 111(m) of the Customs Act, 1962 and/or imposition of any redemption fine u/s 125 ibid and / or imposition of penalties u/s 112(a)(ii) and /or 114AA of the Customs Act, 1962 cannot arise in the present case.
10. With respect to rejection of declared value under Rule 12 of Customs Valuation Rules, 2007 and/ or re-determination of the same under Rule 5 ibid is seriously bad in law since for rejection of transaction value, the Ld. Commissioner could not allege that the transaction value of the import consignments of the Appellant were fake and/or forged. There is nothing on-record even to suggest that the transaction value of import was not the correct value for the purpose of assessment. It is settled position of law that unless the transaction value could be established to be improper upon the finding that import invoices were either fabricated or fake or that any relationship exists between the importer and the exporter, the transaction value has to be accepted as correct value for assessment under Rule 3 of the Customs Valuation Rules, 2007. Reliance is placed in this regard upon the decisions of the Hon’ble Supreme Court of India in the case of Commissioner of Customs, Mumbai Vs. Mahalaxmi Gems [2008(231) ELT 198 (S.C.)] and in the case of Commissioner of Customs, Mumbai Vs. J.D. Orgo Chem Ltd., [2008(226)ELT 9 (S.C.)].
11. That in the present case, as stated supra, there is nothing on-record to show that the transaction value of imports were not actual value of transaction. The basis of re-valuation by the department is re-classification of goods and when the re-classification is itself not proper, question of re-valuation of imported goods and/ or demand of any differential duty on the same, cannot arise. When the Test Reports of examiner cannot classify the goods specifically as ‘base oil’, rejection of classification and /or re-valuation of imported goods, is not permissible in law. Re-classification cannot even be reason of re-valuation of imported consignment. Moreover, the attempt of the authority to classify the imported goods as ‘base oil’ is bereft of any evidence and hence, not maintainable. We find that the facts of the present case are squarely covered by the decision of the Tribunal in the case of Golden Enterprises Vs. Commissioner of Central Excise & S. Tax, Ludhiana [2016 (341) ELT 293 (Tri.-Chan)].
12. In view of the above discussions, we find that there is no merit in the impugned order and the same is liable to be set aside. The appeals filed by the appellants are allowed with consequential relief, as per law.
(Pronounced in the open court on.3rd May, 2023.)
