Case Law Details
Nitin Khandelwal Vs Principal Commissioner (CESTAT Delhi)
Conclusion: CESTAT ordered revised customs duty assessment in a case of customs duty evasion involving the undervaluation of imported goods through the use of fake invoices. The values found in the excel sheet must be considered as a CIF values instead of FOB values in the absence of any evidence to support that they were FOB values. Consequently, the assessable value and duty must be redetermined. The goods were correctly held to be liable for confiscation under section 111(m) but were not actually confiscated nor any redemption fine was imposed.
Held: KLM was a partnership firm of which Nitin and Anshul were partners. It imported goods which appeared to the department to have been undervalued on the basis of the pieces of evidence unearthed during another investigation against M/s Wide Impex, New Delhi. M/s Wide Impex was the partnership firm of Mayank and Nitin. During investigation against M/s Wide Impex, Nitin explained that he used to visit China to place orders for goods on behalf of Wide Impex which were then sold to three persons, he would undervalue the goods by submitting fake invoices for the sake of customs clearance and the amount shown in these invoices would be remitted through bank. The remaining amount (difference between the actual price and the under-invoiced value) would be paid by the buyers Prateek, Rajnish and Piyush directly to the exporter. Summons were issued to Anshul and he submitted that the day-today business of KLM was looked after by Nitin. After completing the investigation, the show cause notice was issued to KLM, Nitin and Anshul proposing to reject the transaction value in 19 Bills of Entry filed by KLM under Rule 12 of Customs Valuation and re-determine the values as shown in tables 1 and 2 of the SCN. It was also proposed to recover the differential duty under section 28(4) along with interest, hold the imported goods liable for confiscation and impose penalties on KLM, Nitin and Anshul. As sufficient opportunity was granted, the Commissioner proceeded to decide the matter. KLM Overseas was ordered to pay Rs. 1.16 crore in differential duty, along with interest, and penalties under Sections 114A and 114AA of the Customs Act for knowingly submitting false declarations. Nitin Khandelwal was personally fined Rs. 9 lakh under Section 112(a)(ii) of the Customs Act and Rs. 20 lakh under Section 114AA of the same statute for his role in the scheme. Anshul Khandelwal, another partner, was fined Rs. 2 lakh under Section 112 and Rs. 5 lakh under Section 114AA of the Customs Act. Aggrieved, assessee appeared before the CESTAT contesting the aforementioned decision. It was held that transaction both in FOB and CIF were common in international transactions. When the value was being redetermined based on excel sheet, the benefit of doubt should go to the importer and these values should be taken as CIF values. Therefore, the addition of 20% towards freight and 1.125% insurance by the Commissioner under Valuation Rule 10(2) could not be sustained and it need to be set aside. The rejection of the declared transaction value in the 19 Bills of Entry under rule 12 of the Customs Valuation Rules was upheld. The goods were correctly held to be liable for confiscation under section 111(m) but were not actually confiscated nor any redemption fine was imposed. The differential duty need to be re-calculated as per redetermination of value as per (b) above and it was recoverable under section 28(4) along with interest. The penalties imposed on KLM under section 114AA was upheld. Penalty under Section 114A should be recalculated as per the differential duty. The penalty of Rs. 9 lakhs imposed under section 112 of Nitin was upheld and the penalty of Rs. 20 lakhs imposed on him under section 114AA was set aside. Penalty of Rs. 2 lakhs imposed on Anshul under section 112 was upheld and the penalty of Rs. 5 lakhs imposed on Anshul under section 114AA was set aside. The matter was remanded to the Commissioner only for the purpose of re-computing of amount of duty, interest and penalty under Section 114A.
FULL TEXT OF THE CESTAT DELHI ORDER
1. These three appeals have been filed to assail the order in original dated 31.01.20221 passed by the Principal Commissioner of Customs(Import), ICD TKD.
2. Customs Appeal No. 51225 of 2022 is filed by M/s KLM overseas, Karol Bagh, New Delhi2 to assail the rejection of its declared transaction value and redetermination of the value of the goods imported by it and consequential confirmation of demand under section 28 (4) of the Customs Act, 19623 along with interest under section 28AA. It also assails the imposition of penalty under section 114A and 114AA.
3. Customs Appeal No. 51198 of 2022 is filed by Shri Nitin Khandelwal4, Partner of KLM overseas to assail the penalties under section 112 (a)(ii) and Section 114AA imposed on him.
4. Customs Appeal No. 51199 of 2022 is filed by Anshul Khandelwal5, the partner of M/s KLM to assail the penalty imposed upon him under Section 112(a)(ii) and Section 114 AA imposed on him. The operative part of this order is reproduced as under:
ORDER
“(i) I hereby reject the declared transaction value of Rs. 1,81,89,778/-(One Crore Eighty-One Lakhs Eighty-Nine Thousand Seven Hundred Seventy Eight only) of goods entered and declared in the Bills of Entry, as detailed in Table-1 & II of the Show Cause Notice, under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 read with Section 14 of the Customs Act, 1962.
(ii) I determine the collective amount of Rs. 5,47,66,445/-(Rupees Five Crores Forty Seven Lakhs Sixty Six Thousand Four Hundred Forty Five only), which include adjustment of freight, insurance and handling charges, as actual transaction value in respect of goods covered under Bills of Entry, as detailed in Table 1 & II to the Show Cause Notice, under Rule 3 & 9 of Customs Valuation (Determination of Value of Import Goods) Rules, 2007 read with Rule 10(2) of the Customs Valuation (Determination Value of Imported Goods) Rules, 2007 and Section 14(1) of the Customs Act, 1962.
(iii) I hold the Goods having re-determined value of Rs. 5,47,66,445/-(Rupees Five Crores Forty Seven Lakhs Sixty Six Thousand Four Hundred Forty Five only), as detailed in Table I & II to the Show Cause Notice, liable to confiscation under Section 111 (m) of the Customs Act, 1962. However, I refrain from imposing any redemption fine as the impugned imported goods are not available for confiscation and cannot be redeemed.
(iv) I hold that total duty amounting to Rs. 1,62,11,227/-(Rupees One Crore Sixty Two Lakhs Eleven Thousand Two Hundred Twenty Seven only) should be charged under section 12 of the Customs Act, 1962 read with Section 2 &3 of the Customs Tariff Act, 1975 in respect of goods covered under the Bills of Entry, as detailed in Table – I & II of the Show Cause Notice, and confirm the demand of differential duty of Rs. 1,16,44,412/- (Rupees One Crore Sixteen Lakhs Forty Four Thousand Four Hundred Twelve only)under Section 28(4) of the Customs Act, 1962, along with interest under Section 28AA of Customs Act 1962.
(v) I impose a penalty of Rs. 1,16,44,412/-(Rupees One Crore Sixteen’ Lakhs Forty Four Thousand Four Hundred Twelve only) under Section 114A of Customs Act, 1962 upon M/s KLM Overseas. Accordingly, no penalty under Section 112 of Customs Act, 1962 is imposed on them.
(vi) I impose a penalty of Rs. 30,00,000/- (Rupees Thirty Lakhs only) under Section 114AA of the Customs Act, 1962 on M/s KLM Overseas.
(vii) I impose a penalty of Rs.9,00,000/- (Rupees Nine Lakhs Only) under section 112(a)(ii) of Customs Act, 1962 and a penalty of Rs. 20,00,000/- (Rupees Twenty Lacs Only) under Section 114AA of the Customs Act, 1962 upon Shri Nitin Khandelwal, Partner of M/s KLM Overseas.
(viii) I impose a penalty of Rs. 2,00,000/- (Rupees Two Lakhs only) under Section 112(a)(ii) of Customs Act, 1962 and a penalty of Rs. 50,00,000/- (Rupees Five Lakhs only) under Section 114AA of Customs Act, 1962 upon Sh. Anshul Khandelwal, Partner of M/s KLM Overseas.”
5. KLM is a partnership firm of which Nitin and Anshul are partners. It imported goods which appeared to the department to have been undervalued on the basis of the pieces of evidence unearthed during another investigation against M/s Wide Impex, New Delhi. M/s Wide Impex is the partnership firm of Shri Mayank Khandelwal and Nitin. Another SCN was issued to the proprietor of another firm called M/s Royal Blanket. Shri Mayank Khandelwal, brother of Nitin is the proprietor of Royal Blanket and he had appointed Nitin as a manager who was a fully competent and authorized to represent the firm. During investigation against M/s Wide Impex, Nitin gave a statement on 09.01.2018 on the strength of the authorization letter dated 08.01.2018 given by Shri Mayank Khandelwal, the owner of Wide Impex, who could not join to the investigation as he was ill. In this statement, Nitin explained that he used to visit China to place orders for goods on behalf of Wide Impex which were then sold to three persons in which Shri Prateek Jain, Rajnish Maurya and Shri Piyush; he would undervalue the goods by submitting fake invoices for the sake of customs clearance and the amount shown in these invoices would be remitted through bank. The remaining amount (difference between the actual price and the under-invoiced value) would be paid by the buyers Prateek Jain, Rajnish Maurya and Shri Piyush directly to the exporter.
6. Further, he explained that Shri Anuj Gupta co-ordinates the export of goods from China and two invoices would be issued for each consignment-a genuine invoice showing the value of goods in RMB and a fake invoice showing the value of goods in USD. He would use the fake invoices for customs clearance. Nitin further said that he had three email accounts in which he would get the invoices viz,[email protected],[email protected] and [email protected]. Invoices would be sent from three email id’s viz, [email protected], [email protected] and [email protected].
7. Nitin also opened his email account [email protected] on the computer installed in SIIB room voluntarily and took a print out of the original invoices in excel form which were received from [email protected] and put his signature certifying it. The data contained in the email and the excel sheets were collected by SIIB officers. His further statement was recorded on 17.07.2018 in which he re-affirmed that he had opened his email id while giving his statement on 19.01.2018 and took prints of the excel sheets which he had signed. He stated that the prices therein were on CIF basis.
8. During investigation, it emerged that apart from imports by Wide Impex there were also invoices pertaining to consignments imported by KLM in the email of [email protected]. This led to the investigation against KLM. Summons were issued on 15.03.2018 to Shri Rajeev Gupta another partner of KLM. In response, his advocate submitted that he was undergoing alcohol de-addiction and submitted a medical certificate and requested to waive his appearance.
9. Summons dated 02.04.2018 were issued to Shri Anshul Khandelwal and he submitted that the day-today business of KLM was looked after by Nitin. After completing the investigation, the show cause notice dated 20.06.2019 was issued to KLM, Nitin and Anshul proposing to reject the transaction value in 19 Bills of Entry filed by KLM under Rule 12 of Customs Valuation (Determination of value of imported goods) Rules, 20076 and re-determine the values as shown in tables 1 and 2 of the SCN. It was also proposed to recover the differential duty under section 28(4) along with interest, hold the imported goods liable for confiscation and impose penalties on KLM, Nitin and Anshul. The show cause notice sought reply within 30 days but no reply was sent by any of the three noticees even after six months. The Principal Commissioner fixed personal hearing on 07.11.2019, 27.11.2019, 07.12.2019 and 07.01.2020 but nobody appeared. In all cases, letters were sent from the counsel of KLM, Nitin and Anshul that he was out of station. As sufficient opportunity was granted, the Commissioner proceeded to decide the matter. He framed the following four questions for decision:
(i) Whether the allegation that importer has undervalued the goods imported vide impugned Bills of entries filed is sustainable; and if so, whether re-determination of the transaction value based on the evidences in the show cause notice is legal and correct?
(ii) Whether the differential duty is liable to be recovered from the importer on account of alleged undervaluation under section 28(4) of the Customs Act, 1962 along with interest under Section 28AA of the Act ibid?
(iii) Whether the impugned order imported goods are liable to confiscation under section 111 (m) of the Customs Act, 1962;
(iv) Whether the importer and the partner are liable to penal action as proposed in the SCN?”
10. He recorded that the invoices in the form of excel sheets were found in respect of three bills of entry listed in table 1 annexed to the show cause notice. He recorded that in these Bills of Entry the actual transaction values which were found in the excel sheets taken out by Nitin from his email id while in the office of SIIB were the correct values and calculated duty accordingly. The difference between the duty actually paid and the duty payable in respect of these three Bills of Entry was calculated as Rs. 33,31,052/-.
11. In respect of another 16 Bills of Entry listed in table 2 of the SCN, the Commissioner recorded that no invoices were recovered but on comparison of the goods imported in these Bills of Entry and the value of the goods found in the excel sheet in respect to the goods imported in other Bills of Entry, it was evident that the same modus operandi was adopted.
12. Therefore, the Commissioner found that the declared consignment value in respect of the Bills of Entry was liable to rejection and he rejected the transaction value under Valuation Rule 12. He then proceeded sequentially from Valuation Rules 4 to 9 to determine the value. Valuation Rule 4 requires the valuation to be done on the basis of value of identical goods. Since the goods were assorted and different items were sourced from different sellers, the Commissioner found that they cannot compared and, therefore, Valuation Rule 4 could not be applied. For the same reason, he also found that Valuation Rule 5 (value of similar goods) also could not be applied. Valuation Rule 6 only provides that Valuation Rule 8 can be applied before the Valuation Rule 7 if the importer so desires. Thus, it is not an actual method of determining the value. The Commissioner found that Valuation Rule 7 (deductive method) could not be applied in the case because there was no one-to-one co-relation between the goods found in the market and the goods importer by KLM. He also found Valuation Rule 8 deals with computed value calculated on the basis of cost of production manufacturing etc., which also could not be applied. Therefore, he determined the value as per Valuation Rule 9 which provides for determination of value using reasonable means consistent with the principles and general provisions of these rules.
13. In order to determine the value under this Valuation Rule, he adopted the values of similar goods imported from the same supplier through parallel invoices recovered in the form of excel sheets in respect of 3 Bills of Entry. In other words, parallel invoices were found in 3 cases and in respect of these 16 Bills of Entry he adopted the same valuation as was found in the parallel invoices in respect of the remaining three Bills of Entry.
14. The prices indicated in the excel sheets were taken by the Commissioner as FOB prices and not as CIF prices. Since the actual cost of freight and transit insurance were not available he added 20 % of FOB as a freight and 1.125 % of FOB as the transit insurance under Valuation Rule 10(2)(b). Thus, the Commissioner confirmed demand of differential customs duty of Rs. 1,16,44,412/-
15. Since the goods were found to not correspond in value, the Commissioner held them liable for confiscation under section 111(m) but refrained from imposing any redemption fine because the goods were not available for confiscation. In other words, he held that the goods were liable for confiscation but had not actually confiscated them nor has he imposed any redemption fine.
16. The Commissioner imposed the penalty equal to the differential duty on KLM under section 114A which provides for penalty in case of non-payment or short payment of duty, by reason of collusion or willful mis-statement or suppression of facts. He also imposed penalty of Rs. 30,00,000/- under section 114AA on KLM for knowingly or intentionally making false or incorrect declarations.
17. The Commissioner imposed a penalty of Rs. 9,00,000/- under section 112(a)(ii) and Rs. 20,00,000/- under section 114AA on Nitin.
18. He also imposed penalty of Rs. 2,00,000/- under section 112 (a)(ii) and Rs. 5,00,000/- under section 114AA on Anshul.
19. Learned counsel for the appellant made the following submissions:
(a) The show cause notice and the impugned order were issued with total non-application of mind;
(b) No documentary evidence has been produced by the department to show how they recovered the excel sheets which they named as parallel invoice;
(c) The demand was raised in respect of 16 Bills of Entry based on evidence in the form of excel sheets where values were recovered in respect of three Bills of Entry. This evidence is a statement of Nitin recorded on 09.01.2018 and during the course of recording his submission in the case of Wide Impex;
(d) The demand of differential duty in respect of 16 Bills of Entry was confirmed only on the basis of presumption. The impugned order incorrectly recorded that the statement dated 09.10.2018 was not retracted by Nitin when it was actually retracted on 21.02.2018 when he was produced before the learned CMM after his arrest;
(e) In his retraction, he stated that the statement was recorded on 20.02.2018 and was backdated as 09.01.2018 and there were several other blank documents;
(f) The statements given by Nitin on 10.04.2018 and 11.04.2018 were ignored by the Commissioner.
(g) The excel sheet did not have the word “RMB” and the excel sheet does not amount parallel commercial invoice;
(h) There is no independent investigation and the entire case is based on the investigation into Wide Impex and the statement recorded on 09.01.2018;
(i) The excel sheets were relied upon by the department without following the procedure prescribed in Customs Act, 1962. In subsequent statements dated 10.04.2018 and 11.04.2018 Nitin stated that their agent used to issue invoices in US dollars in their name and the payment was made through banking channels. Even when the Proprietor requested to send invoices with inflated value he used to refuse;
(j) The demand made on basis of excel sheets is untenable. The enhancement of value is contrary to the Valuation Rules and, therefore, needs to be set aside. The excel sheets were not found in electronic device of the proprietor firm or during investigation conducted with regard to KLM and, therefore, it cannot be relied upon to re-calculate the value;
(k) The Commissioner presumed in paragraph 39 with the values in the excel sheets were FOB values without any basis and, therefore, added freight of 20% and insurance of 1.125%. There is neither any documentary evidence or statement what so ever on record to support this contention. In table 1 where duties were calculated with respect to principal invoice, the dates of the invoices were wrongly mentioned including dates which have not yet come such as 02.08.2033 and 12.07.2038;
(l) Of the 476 items which were imported against the Bills of Entry, Commissioner accepted declared value in respect of 373 items which is 78.36%. Since the Commissioner accepted the value in majority of the cases, the extended period of limitation under section 28 (4) and the penal provisions of Section 114A could not have been invoked;
(m) In respect of remaining 103 items the method adopted to determine the value was incorrect as it relied on the excel sheets recovered from the email account in connection with investigation into Wide Impex. The demand itself is not sustainable and, therefore, penalties against KLM, Nitin and Anshul is also not sustainable;
(n) Penalty under section 114AA cannot be invoked because it is meant to cover only mis-declaration in the case of exports as is evident from the 27th Report of the Standing Committee on Finance;
(o) Since KLM is a partnership firm and is not a separate entity, penalty could not have been imposed on it because it is not a person and also could not have had any intention.
20. Learned authorized representative appearing for the department has made the following submissions:
(a) During investigation into Wide Impex, it was found that KLM overseas had also undervalued the goods. Nitin was the person behind both these cases. The modus operandi as explained by Nitin in his statement dated 09.01.2018 is that two invoices were issued for every consignment one in RMB which declared the correct price and another in USD which is undervalued invoice prepared for getting the good cleared through customs;
(b) During investigation, Nitin also explained how he would receive the invoices on his email i.d’s and from whom. Further, Nitin opened his email using his password in the office of SIIB and from that produced copies of invoices and also excel sheets showing the correct values and the undervalued prices. He took a print of excel sheets when his statement was recorded and signed on it. This excel sheet formed the basis for further investigation;
(c) Nitin explained during investigation that one, Anuj Gupta, from China would co-ordinate with him and provide both genuine and fake invoices. He also gave the email id of the Anuj Gupta. The excel sheet was taken out of email sent from Anuj’s email to Nitin’s. During investigation it was found that Nitin was also involved in imports of other firms in the name of Royal Blanket (proprietor Nitin) and KLM (partner firm) of which Nitin and Anshul were partners;
(d) Therefore, the show cause notice was issued to KLM to recover the differential duty and impose penalties on KLM, Nitin and Anshul which culminated in the impugned order;
(e) The Commissioner was correct in confirming demand and imposing penalties that order required no interference.
21. We have considered the submissions on both sides and perused the records.
22. The issues to be decided by us are:
(i) Whether the Commissioner was correct in rejecting the transaction value under rule 12 of Valuation Rules and redetermining it under Rule 3 and 9 read with rule 10(2) of the Valuation Rules and confirming recovery of differential duty;
(ii) Whether the Commissioner was correct in holding the allegedly undervalued goods was liable for confiscation under section 111(m) but refraining from imposing any redemption fine.
(iii) Whether the Commissioner was correct in imposing penalty on KLM under section 114A and 114AA.
(iv) Whether the Commissioner was correct in imposing penalties under section 112 (a)(ii) and section 114AA on the Nitin and Anshul.
23. Investigation in this case is an offshoot of the investigation in Wide Impex and Nitin is the main operator in both. When Nitin was summoned in connection with the investigation to Wide Impex, he gave a statement on 09.01.2018 explaining his modus operandi in undervaluation of the goods. According to him, person in China, Shri Anuj Gupta, who would supply him the goods and also two sets of invoices. The correct invoice in which value shown in RMB and a fake invoice showing a much lower value in US dollars. He also gave details of his email accounts and email accounts of Anuj Gupta. He further confirmed that he would received invoices on those email from Anuj Gupta and, therefore, he opened his email account in the office of SIIB took prints of the documents and put a signature certified them. The details of the actual prices of each good was present in the form of excel sheet in his email account. Nitin also took print of excel the sheet, signed and produced it before the investigating officer. These excel sheets on the basis of were investigation of re-determination of value in the case of Wide Impex.
24. Further this excel sheet also contained three entries with respect to imports made by KLM. These three entries formed the basis of redetermination of value in respect of three Bills of Entry in the present case listed in Table 1 with the show cause notice. There were another 16 Bills of Entry where values declared were very similar to those in Table 1 and Commissioner rejected the transaction value of the goods under Valuation Rule 12 and re-determined it under Valuation Rule 9.
25. Rule 12 of the Valuation Rules reads as follows:
“12. Rejection of declared value. –
(1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, he may ask the importer of such goods to furnish further information including documents or other evidence and if, after receiving such further information, or in the absence of a response of such importer, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the transaction value of such imported goods cannot be determined under the provisions of sub-rule (1) of rule 3. (2) At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1). Explanation.-
(1) For the removal of doubts, it is hereby declared that:- (i) This rule by itself does not provide a method for determination of value, it provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value; where the declared value is rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to 9.
(ii) The declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after the said enquiry in consultation with the importers.
(iii) The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain reasons which may include –
(a) the significantly higher value at which identical or similar goods imported at or about the same time in comparable quantities in a comparable commercial transaction were assessed;
(b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;
(c) the sale involves special discounts limited to exclusive agents;
(d) the misdeclaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production;
(e) the non declaration of parameters such as brand, grade, specifications that have relevance to value;
(f) the fraudulent or manipulated documents.”
26. Goods have to be valued under the Customs Act as per the transaction value as per section 14 but a provision has been made for the proper officer to reject the transaction value under Valuation Rule 12 if he has reasonable doubt regarding a truth and accuracy of the transaction value. In this case, we find that the statement of Nitin was recorded during the course of investigation into Wide Impex and the documents produced by Nitin by printing from his email account showed a much higher value. He clarified in his statement that he would get two sets of invoices of which a lower value was meant for customs and the original invoice with higher value was the actual price. In our considered opinion, the Commissioner had reasonable doubt to reject the transaction value under Valuation Rules 12.
27. Once the transaction value is rejected under Valuation Rule 12 in terms of Valuation Rule 3 it should be re-determined sequentially from Valuation Rules 4 to 9.
28. Valuation Rule 4 requires the value to be determined as per the value of identical goods imported on or about the same time. The Commissioner recorded that there were no identical goods because there were miscellaneous goods.
29. Valuation Rule 5 requires the value to be determined as per value of similar goods. The Commissioner recorded that there were no imports of similar goods also. We find no evidence adduced by either side which suggests that there were import of various identical or similar goods. Therefore, the matter of fact recorded by the Commissioner that there were no imports of identical or similar goods whose value could be relied upon must be accepted.
30. Valuation Rule 6 provides that if value cannot be determined as per Valuation Rules 4 and 5 they should be determined as per Valuation Rules 7 or 8 and at the request of the importer Valuation Rule 8 could be adopted before following rule 7.
31. Valuation Rule 7 provides for deductive method of determining the value i.e., the value of identical or similar goods which are sold in India in the greatest aggregate quantity must be reckoned and from it, deduction should be made on account of commissions, margins, transport insurance customs duties and other taxes payable in India. In other words, we should reckon the domestic price of the goods in India and work backwards allowing deductions to determine the value for customs purposes.
32. Valuation Rule 8 provides for determination of the value on the basis of the cost of manufacture, reasonable profit, expenses etc.
33. Valuation Rule 9 provides that if the value cannot be determined under any of the provisions, rules there shall be determined using reasonable means consistent with the general principles of general provisions and on the basis of data available in India.
34. The Commissioner has followed Valuation Rule 9 after recording that the deductive method under Valuation Rule 7 or the computed value under Valuation Rule 8 were not feasible in the case of these goods. Consistent with the principles laid down in these rules, the Commissioner adopted the actual value of goods found in the excel sheet produced by Nitin in respect of three Bills of Entry.
35. He further recorded that in respect of 16 Bills of Entry no values were found in the excel sheets but the goods which were imported were similar to the goods which were found in the three Bills of Entry in respect of which the excel sheets were found.
36. In all, 476 items were imported through these 19 Bills of Entry of which, the Commissioner accepted the declared value in respect of 373 items and only re-determined the value in respect of 103 items where there was a discrepancy and evidence of under valuation.
37. Considering all the above, we find that the Commissioner was not only correct in adopting the Valuation Rule 9 after examining and excluding the applicability of Valuation Rules 4 to 8 but he has also accepted the declared value in majority of the items and only enhanced the value in such cases where it was warranted.
38. One of the contentions of the learned counsel for the appellant is that the excel sheet nowhere indicated that the values were on FOB basis. There was no ground for the Commissioner to have presumed that they were FOB values and add 20% towards the cost of transport and another 1.125% towards the cost of transit insurance. We find that the statement of Nitin recorded in paragraph 11 of the impugned order shows that he had not agreed to the contentions that the values in the excel sheets were FOB values.
39. In the absence of any evidence either in the excel sheet or in the statements that values in the excel sheet were on FOB basis, it cannot be concluded that they were FOB values and freight and insurance have to be added as per Valuation Rule 10(2). In his statement, Nitin had stated that they were CIF values. Transaction both in FOB and CIF are common in international transactions. When the value is being redetermined based on excel sheet, the benefit of doubt should go to the importer and these values should be taken as CIF values. We, therefore, find that the addition of 20% towards freight and 1.125% insurance by the Commissioner under Valuation Rule 10(2) cannot be sustained and it needs to be set aside.
40. Learned counsel argued that it is not clear as to how the department obtained the excel sheets. We find no force in this submission. It is a matter of record that excel sheet was taken out by Nitin from his email account during investigation and he also signed and submitted it. Learned counsel also submitted that the email was taken out during another investigation which covered only In the absence of any evidence either in the excel sheet or in the statements that values in the excel sheet were on FOB basis, it cannot be concluded that they were FOB values and freight and insurance have to be added as per Valuation Rule 10(2). In his statement, Nitin had stated that they were CIF values. Transaction both in FOB and CIF are common in international transactions. When the value is being redetermined based on excel sheet, the benefit of doubt should go to the importer and these values should be taken as CIF values. We, therefore, find that the addition of 20% towards freight and 1.125% insurance by the Commissioner under Valuation Rule 10(2) cannot be sustained and it needs to be set aside. three Bills of Entry pertaining to KLM and the remaining 16 Bills of Entry were reassessed based on presumption. As we have already recorded, the Commissioner was correct in rejecting the transaction value under Valuation Rule 12 because he had reasonable doubt about the truth and accuracy of the declared values. Duty has been re-assessed as per Valuation Rule 9 and in majority of the cases (373 out of 476), the declared value has been accepted by the Commissioner and only where there is evidence of a parallel invoice and values, did he re-determine the value.
41. Learned counsel also submitted that Nitin had retracted his statement dated 09.01.2018 when he was arrested on 20.02.2018 and produced before the learned CMM on 22.02.2018̣. It is his contention that, therefore, his statement cannot be relied upon. We have gone through the statement recorded on 09.01.2018 and the retraction of 21.02.2018. There are several details in his statement dated 09.01.2018 which can be only within the exclusive knowledge of Nitin such as his personal details, how his business was done, his email accounts, the name of his counterpart Anuj Gupta, email id’s of Anuj Gupta, the email id on which he would receive invoices and other documents, the email ids to Anuj Gupta from which the documents should be sent, etc. None of these were specifically retracted in the retraction dated 21.02.2018. We, therefore, have no hesitation in accepting that the statement dated 09.01.2018 was valid and voluntary. It also needs to be pointed out that during the recording of his statement, Nitin also opened his email account in the office of SIIB it would have been impossible by anybody else because only Nitin would know his password. He explained about the documents in his email id including the excel sheets in question, took prints of the excel sheets under the documents signed them and presented them before the officers. Therefore, we have no manner of doubt about how the excel sheet came into possession of the department or its authenticity. It was given to the officers by Nitin taking a print out from his email account after signing.
42. Learned counsel also pointed out that in Table 1 and 2 enclosed with the show cause notice have a typographical error in the dates which were evidence mentioning of certain dates such as 12.08.2033, 14.07.2038, 20.07.2026. Learned authorized representative also agrees that there were typographical errors in our considered view. We do not think that these would affect the substantive question involved in these appeals.
43. Learned counsel for the appellant further submitted that there was no ground to invoke extended period of limitation in this case. We do not agree. When the demand was raised based on a parallel set of invoices and the true values were available in an excel sheet available in the email of the appellant Nitin which he himself had opened, printed and signed and submitted to the officers during investigation, we hold that there was clear suppression of values. Therefore, demanding duty under section 28(a) invoking extended period of limitation is correct.
44. Another submission of the learned counsel is that section 114AA cannot be invoked to impose penalty in case of mis-declaration in the Bills of Entry and it can be invoked only in case of mis-declaration in the shipping bills. We find section 114AA reads as follows:
“114AA. Penalty for use of false and incorrect material.
If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.”
45. A plain reading of the above shows that the person who knowingly making any false declaration statement or produce a document which is false or incorrect in any material particular in the transaction of any business for the purposes of this Act, shall be liable to a penalty under Section 114AA. Bills of Entry are certainly documents meant for transaction under the Customs Act. There is nothing in the text of section 114AA which shows that it is confined only to export and does not apply to imports. Learned counsel relied on the 27th Report of the Standing Committee of the Finance in support. We have examined it. The Committee had expressed concerns about the introduction of an additional section 114AA as it was considered harsh. In response, the Ministry explained that this has been introduced consequent upon several cases of fraudulent exports for which no goods were being exported or papers being created claiming benefits under the scheme. After the Ministry’s response, the Committee felt that the proposal to introduce Section 114AA was in the right direction but advised the Government to monitor the implementation of this provision with due care. Nothing in this report indicates that it is confined only to cases of export it only states the background in which this provision was made. At any rate, any discussion during the Committee meeting cannoThe law has to be read as it has been enacted by the Parliament. Nothing in the text of section 114AA shows that it applies only to exports and not to imports.t form the law.
46. Learned counsel for the appellant further submitted that the imposition of penalty both on the partnership firm and the partners is not correct.
47. Learned authorized representative for the Revenue submits that penalty can be imposed both on the partnership firm and the partners but he relies on the following case laws:
(a) Décor Rubber Industries vs. Commissioner of Customs7
(b) Martwin Electronics vs. Commissioner of C. Ex., & ST Ahmedabad8
(c) Chandra Impex Pvt Ltd. vs. Commissioner of Customs, New Delhi9
(d) Poonam Plastic Industries vs. Collector of Customs10
(e) Shahid Ali and Others vs. Pr. Commissioner of Customs (Import) New Delhi (ICD TKD)11
(f) M/s Laxmi Enterprises v s. CC (Prev.) New Delhi12
(g) Commissioner of Customs, Kandla vs. ESSAR Oil Ltd.13
(h) Kanungo & Co. vs. Collector of Customs, Calcutta and Others14
(i) Friends Trading Co. vs. Union of India15
(j) Commissioner of Customs (Preventive) vs. Aafloat Textile (I) Pvt Ltd.16
(k) Naresh J Sukhwani vs. Union of India17
(l) Orson Electronics Pvt Ltd. vs. Collector of Customs, Bombay18
48. We now proceed to examine the penalties imposed by the impugned order. Penalty of an amount equal to the differential duty confirmed under section 28(4) was imposed on KLM under section 114A. This section reads as follows:
“114A. Penalty for short-levy or non-levy of duty in certain cases.
-Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (2) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined:
Provided that where such duty or interest, as the case may be, as determined under sub-section (4) of section 28, and the interest payable thereon under section 28-AB, is paid within thirty days from the date of the communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the duty or interest, as the case may be, so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso:
Provided also that where the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, for the purposes of this section, the duty or interest as reduced of increased, as the case may be, shall be taken into account:
Provided also that in a case where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, the benefit of reduced penalty under the first proviso shall be available if the amount of the duty or the interest so increased, alongwith the interest payable thereon under section 28-AB, and twenty-five per cent. of the consequential increase in penalty have also been paid within thirty days of the communication of the order by which such increase in the duty or interest takes effect:
Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.
Explanation.-For the removal of doubts, it is hereby declared that-
(i) the provisions of this section shall also apply to cases in which the order determining the duty or interest under sub-section (2) of section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(ii) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.”
49. As can be seen, the penalty section 114A is mandatory and is equal to the amount of duty evaded if the duty is evaded by suppression of facts. However, as we held that the duty needs to be re-computed by considering the figures in the excel sheet as CIF values and not FOB values, the quantum of penalty on KLM also must be recomputed accordingly. Penalty of Rs. 30 lakhs is also imposed in the impugned order on KLM under section 114AA. The value of the goods re-determined as Rs. 5,47,66,445/- which the Commissioner held were liable for confiscation under section 111(m). Penalty under section 114 AA imposed on KLM is Rs. 30,00,000/- which is a little under 10% of the value of the goods. We find this fair and proper and find reason to interfere with it.
50. Penalty of Rs. 9 lakhs is imposed on the Nitin under section 112(a) (ii). This section reads as follows:
“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 under section 111, or abets the doing or omission of such an act, or
(b) who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable,-
(i)…………
(ii) in the case of dutiable goods, other than prohibited goods, to a penalty not exceeding the duty sought to be evaded on such goods or five thousand rupees, whichever is the greater.”
51. The value of the goods liable for confiscation is Rs. 5,47,66,445/-and, therefore, we find that the penalty of Rs. 9 lakhs imposed on Nitin under section 112 is fair and calls for no interference. Penalty of Rs. 20 lakhs was also imposed on Nitin under section 114AA. We find that this penalty needs to be set aside because there was no separate mis-declaration by the Nitin apart from a mis-declaration in the Bills of Entry filed on behalf of KLM and an penalty has already been imposed on KLM for that mis-declaration.
52. Penalty of Rs. 2 lakhs was imposed on Anshul under section 112. It is true that he was the non-active partner of KLM and had limited role in its operations but had nevertheless filed the papers. Considering his limited role penalty of Rs. 2 lakhs imposed on Anshul needs to be upheld. Penalty of Rs. 5 lakhs were imposed under section 114AA on Anshul. Since there was no separate mis-declaration by Anshul other than the mis-declarations in the Bills of Entry for which a penalty under section 114AA was already imposed on KLM, we find that this penalty under section 114AA on Anshul needs to be set aside.
53. In view of above the appeals are partly allowed and the impugned order modified as follows:
(a) The rejection of the declared transaction value in the 19 Bills of Entry under rule 12 of the Customs Valuation Rules is upheld.
(b) Re-determination of the transaction value is upheld partly. The values found in the excel sheet must be considered as a CIF values instead of FOB values in the absence of any evidence to support that they were FOB values. Consequently, the assessable value and duty must be redetermined.
(c) The goods were correctly held to be liable for confiscation under section 111(m) but were not actually confiscated nor any redemption fine is imposed.
(d) The differential duty needs to be re-calculated as per redetermination of value as per (b) above and it is recoverable under section 28(4) along with interest.
(e) The penalties imposed on KLM under section 114AA is upheld. Penalty under Section 114A shall be recalculated as per the differential duty.
(f) The penalty of Rs. 9 lakhs imposed under section 112 of Nitin is upheld and the penalty of Rs. 20 lakhs imposed on him under section 114AA is set aside.
(g) Penalty of Rs. 2 lakhs imposed on Anshul under section 112 is upheld and the penalty of Rs. 5 lakhs imposed on Anshul under section 114AA is set aside.
(h) The appellants would be entitled to consequential relief. The matter is remanded to the Commissioner only for the purpose of re-computing of amount of duty, interest and penalty under Section 114A as above.
(Order pronounced on 13/09/2024)
Notes:
1 impugned order
2 KLM
3 Act
4 Nitin
5 Anshul
6 Valuation rules
7 Final Order No. 51494 of 2023 dated 03.11.2023
8 2016 (331) ELT 85 (Tri.-Ahmd.)
9 2008 (224) ELT 583 (Tri.-Del.)
10 1989 (3) ELT 634 (Tribunal)
11 2021 (6) TMI 171-CESTAT NEW DELHI
12 2018 ((2) TMI 420-CESTAT NEW DELHI
13 2004 (172) ELT 433 (SC)
14 1983 (13) ELT 1486 (SC)
15 2011(267) ELT 33 ( P & H)
16 2009 (235) ELT 587 (SC)
17 1996 (83) ELT 258 (SC)
18 1995 (12) TMI 133-CEGAT NEW DELHI
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