CESTAT Orders Revised Duty Assessment for Customs Evasion via Fake Invoices

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.