Case Law Details

Case Name : Classic Marble Company Pvt. Ltd. Vs Commissioner of Customs (CESTAT Mumbai)
Appeal Number : Customs Appeal No. 87484 of 2018
Date of Judgement/Order : 11/09/2020
Related Assessment Year :
Courts : All CESTAT (1010) CESTAT Mumbai (196)

Classic Marble Company Vs Commissioner of Customs (CESTAT Mumbai)

In this case The learned adjudicating authority has rejected the declared value in respect of the subject Bills of Entry under Section 14(1) ibid read with Rule 12 ibid and re-determined the assessable value under Section 14(1) ibid read with Rule 3(1) ibid, holding that sufficient evidence exists to show that actual invoice values were hidden from the Indian Customs authorities and manipulated invoices were presented for assessment purposes.

We find that in support of such contentions, no credible evidences were produced by the department. Further, we also find that the procedures laid down under Rule 12 ibid have not been succinctly followed for rejection of the declared value.

As per the statutory provisions, the proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods and for that purpose, he must ask the importer of such goods further information which may include documents or evidence; and on receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists.

When the doubt persists, then sub-rule (1) to Rule 3 will not be applicable and transaction value has to be determined by sequentially proceeding through Rules 4 to 9 of the Valuation Rules, 2007.

The Hon’ble Supreme Court in the case of Century Metal Recycling (supra) has held that the procedures provided for rejection of the declared value under Rule 12 ibid was mandatory in nature and such statutory provisions are required to be strictly adhered to by the proper officer.

In this case, it is an admitted fact on record that the mandates of Rule 12ibid read with Rules 4 to 9 ibid have not been complied with by the department. Thus, rejection of declared value is contrary to the statutory provisions and accordingly, re­determination of the alleged transaction value cannot stand for judicial scrutiny.

FULL TEXT OF THE CESTAT JUDGEMENT

Brief facts of the case, leading to this appeal are as under:

2.1 The appellant herein is engaged inter alia, in the business of import and trading of marble blocks and slabs. During the disputed period, the appellant had imported such goods from the Italian suppliers and filed the Bills of Entry for assessment before the jurisdictional Customs authorities. Initially, the Bills of Entry were provisionally assessed and thereafter the same were finally assessed by the Department. After clearance of the goods from the port of import, the officers of DRI searched the premises of the appellant on the basis of some information in the form of Note-Verbale received by them from the Embassy of Italy, located at New Delhi. The said Note-Verbale indicated that criminal proceedings were lunched in the Court in Italy against four Italian persons in connection with money laundering, tax frauds and illegal financial activities. The said communication indicated that investigations were carried out by the Italian authorities which, inter alia revealed that in several cases of sale of marble (in blocks and slabs) by Italian companies to Indian companies, large scale under-invoicing had taken place, resulting in tax frauds in Italy and also loss of revenue to the Indian exchequer. During the course of search carried out at the appellant’s premises, the DRI officers seized certain documents and a hard disk under a Panchnama dated 21.09.2016. The DRI officers also recorded statement of Mr. K.M. Swamy, Director of the appellant on 23.09.2016. During the course of investigation, the appellant had deposited an amount of Rs. 69,34,310/- into the Government exchequer.

2.2 Based on detailed investigation into thematter, the Customs Department issued the show cause notice dated 15.12.2016, alleging inter alia,that the appellant had presented undervalued invoices to the Customs for assessment of goods and that the amounts indicated in the undervalued invoices were remitted through banking channels and that portion of the value which was excluded from the invoices, was paid in cash or wire transfer. For arriving at such conclusion, the Department had mainly referred to the submissions made by Mr. Swamy in his statement dated 23.09.2016 recorded under summon in terms of Section 108 of the Customs Act, 1962.

2.3 The matter arising out of the show cause notice dated 15.12.2016 was adjudicated vide Order-in Original No.136/2017-18/COMMR./NS-II/JNCH dated 26.03.2018 (for short, referred to as the “impugned order”), wherein the Commissioner of Customs has rejected the declared value in respect of the disputed Bills of Entry and re-determined the value at Rs. 7,88,29,134/-; confirmed duty demand of Rs. 69,34,310/- along with interest and imposed penalties under Section 114A and 114AA of the Customs Act, 1962 on the appellant.

2.4 Feeling aggrieved with the impugned order, the appellant has preferred this appeal before the Tribunal.

3. Shri Vipin Jain, the learned Advocate for the appellant submitted that the act of making pre-deposit does not amount to admission of guilt. In this context, he submitted that willingness to make a deposit by itself cannot be construed as an admission of undervaluation of goods by the appellant and to prove such facts, the department had to adduce sufficient material evidence, which are lacking in this case. He has relied upon the judgment of Hon’ble Supreme Court in the case of A. Tajudeen vs. Union of India, 2005 (317) ELT 177 (S.C.), to strengthen such stand. The learned Advocate further submitted that the Note-Varbale received by the department from the Italian authorities cannot be considered as ‘document’ for the purpose of Section 139(ii) of the Customs Act, 1962. The learned Advocate also submitted that the provisions of Section 139 ibid are applicable to the departmental adjudication proceedings and it is open to an adjudicating authority to draw statutory presumption. In this context, he has placed reliance on the decision of this Tribunal in the case of Truwoods Private Limited vs. Commissioner of Customs, Visakhapatnam, 2006 (204) ELT 288 (Tri.-Bang.), affirmed by Hon’ble Supreme Court, reported in 2016 (331) ELT 15 (S.C.). With regard to rejection of the declared value and re-determination of the transaction value, the learned Advocate submitted that the department had not followed the procedures laid down under Rule 12 of the CVR and thus, the provisions contained in Rule 9 ibid cannot be invoked for re-determination of the value of  subject goods. He has relied upon the judgment of Hon’ble Supreme Court in the case of Century Metal Recycling vs. Union of India – 2019 (367) ELT 3 (S.C.) and Commissioner of Customs vs. South India Television (P) Ltd. – 2007 (214) ELT 3 (S.C.) to justify the above stand.

4. On the other hand, Shri K.K. Srivastava, the learned AR appearing for the Revenue reiterated the findings recorded in the impugned order. He further submitted that since on the basis of accounting records, the appellant had paid the differential duty amount in respect of the imported goods at the time of investigation, the allegation of undervaluation is proved and accordingly, confirmation of the adjudged demands in the impugned order is proper and justified.

5. Heard Shri Vipin Jain, the learned Advocate for the appellant and Shri K.K. Srivastava, learned Authorized Representative for the respondent-Revenue and perused the case records.

6. On careful examination of the case records, we find that the learned adjudicating authority in the impugned order at paragraph 12 has held that even though the show cause notice has referred to the recovery of documents during the search operation, but the subsequent investigation did not throw any light on such documents and the entire case was made out only on the basis of 12 Bills of Entry. Further, it has also been noted in para 15 thereof, that the Note-Verbale, which formed the bedrock of the present proceedings, indicated only commencement of criminal proceedings against the indenting agents and that the Deputy Director, DRI was unable to provide information regarding the finality of the proceedings against such persons on the ground that the investigation was under the competency of the Public Prosecutor’s office of the Italian Republic at the Tribunal of Massa Carra. Furthermore, the learned adjudicating authority in para 16 thereof, has noted that in the present case, the modus operandi of undervaluation mentioned in the Note-Verbale was not followed – (a) intelligence regarding generic descriptions being used without revealing the actual variety of marble, did not stand scrutiny; (b) intelligence regarding price being in the range of 230-240 euros per tonne also did not stand and (c) the investigation did not produce any evidence of financial flowback through non-banking channels in low tax countries.

7. On perusal of the impugned order, it reveals that inspite of noting the above observations that there were no direct or substantial evidence of under valuation of the impugned imported goods, but the learned adjudicating authority has recorded the following observations vide paragraphs 14, 17, 18 and 19 in the impugned order, to conclude that the charges of undervaluation of goods are substantiated and accordingly, the appellant is liable to pay the adjudged demands:

(a) that though Mr. Swamy had categorically denied that intermediaries were involved in the imports under dispute and that payments were made only of the actual values through banking channels, however, he had agreed to make the payments of differential duty after checking the records;

(b) that though the statement of MrSwamy showed that there was no undervaluation involved, but he agreed to pay the differential duty after checking the correctness of the records; that in the communications accompanying the payments, it has been stated that the payments are pre-deposit towards differential duty liability in respect of rough marble blocks from Italy as contended by officers of DRI; thus, it was clear that the actual invoice values which were shown to Mr. Swamy at the time of recording of his statement were checked for correctness and payment of differential duty has been made after recording of his statement;

(c) that there was no hint of any demur or protest in the communications accompanying the payments and that there was no argument that the payments were not voluntary; hence, it could therefore be concluded that intelligence received from Italian authorities had considerable merit, especially when the appellant has checked amount of duty evaded by way of under-invoicing and have paid the same voluntarily and have not raised any dispute regarding such voluntary payment; therefore, the fact of voluntary payment creates a body of inculpatory evidence that cannot be discarded;

(d) that Note-Verbaledo not have admissible evidence inasmuch as the rigors of Section 139 of the Act were only applicable to proceedings before a court of law and not to quasi-judicial proceedings;

(e) that since differential duty has been paid voluntarily and corroboration was available from the Note-Verbale, there was no requirement of additional independent evidence in support of confirmation of the adjudged demands;

(f) that since the demand was based on entirely new evidence which was suppressed from the customs authorities, the argument that demand could not be raised without challenging the final assessment in terms of the judgment of Hon’ble Supreme Court delivered in the case of Flock India and Priya Blue, was liable to be rejected;

(g) that since actual invoice values were hidden from the customs, the argument regarding following the procedure for rejection of declared value under Rule 12 of the Customs Valuation (Determination of Valuation of Imported Goods) Rules, 2007 (hereinafter, referred to as ‘CVR’) and subsequent sequential re-determination was also liable to be rejected; that when actual invoice values are available, then there was no infirmity in placing reliance on such actual invoice values for arriving at the transaction value;

(h) that since evidence was suppressed, extended period of limitation can be invoked and imposition of penalty is also proper and that since false records were used, penalty of Rs.10 lakhs was also imposable under Section 114AA of the Act.

8. The learned adjudicating authority in this case, has solely based his findings for substantiating the charges of undervaluation of imported goods on the ground that the Director of the appellant company had voluntarily made payments of the duty amount without any protest and as such, there was no requirement of consideration of additional evidence to establish such charges. Further, it has also been held in the impugned order that the fact of voluntary payment and corroboration from the Note-Verbale were sufficient evidence to establish the charge of undervaluation. We find that the appellant vide its letters dated 22.09.2016, 23.09.2016 and 16.12.2016 addressed to the Assistant Director of DRI, Mumbai Zonal Unit had stated that the payments made by it in connection with enquiry into the matter of import of the subject goods were towards ‘pre-deposit’. Further, we also find from the certificate dated 14.06.2018 issued by M/s V.C. Shah & Co., Chartered Accountants that the appellant had reflected the pre-deposited amount as “Receivables from Customs Department” under the accounting head of “Current Assets”in the Balance Sheet prepared for the year ending 31.03.2017. Such documentary evidences prove the fact, beyond any shadow of doubt that the pre-deposited amount cannot be considered as voluntary payment and that the appellant was desirous in getting back such amount either at the adjudication or the appellate stage. Thus, it cannot be said that the appellant had deposited the duty amount out of its own volition and there was no hint of any demur or protest. Further, it is not the case of Revenue that the appellant at point of time had stated that the amount in question was paid as an admission of under valuation of goods. Even assuming that the appellant had expressed its willingness to make a deposit of the differential duty amount, but such willingness cannot be construed as an admission of undervaluation inasmuch as admission, if any, has to be backed by documentary evidence, since tax related issues are a matter of law, rather than a matter of willingness. In the case in hand, the department has not adduced any additional independent evidence to establish the charges of undervaluation of goods and had mainly relied upon the intelligence received from the Italian authorities in the form of Note-Verbale. It is a settled position of law that in a case of undervaluation, corroboration of a document/statement is required by independent evidence obtained through independent sources. We find that the department has not brought on any iota of evidence to prove the charges of undervaluation of goods. In this context, the law is well settled in the case of Union of India vs. Ashok Kumar & Ors., (2005) 8 SCC 760 that burden of establishing malafides is very heavy on the person who alleges it; that the allegations of malafides are often more easily made than proved and the very seriousness of such allegations demand proof of a high order of credibility.

9. The presumption as to authenticity of documents for the purpose of consideration as evidence is contained in Section 139 ibid. Clause (ii) of Section 139 ibid provides that a document received from abroad is admissible evidence, provided it has been received from a place outside India and should be in the course of investigations, which are being carried out under the Act of 1962. Firstly, the impugned Note-Verbale in this case cannot be construed as a ‘document’ of the kind contemplated under Section 139 ibid. The term ‘document’ provided under Section 139(ii) ibid cannot cover a mere ‘request letter’/’letter rogatory in the form of a Note-Verbale. The Note-Verbale in the present case is only a request letter, requesting the Indian authorities for international legal assistance in respect of four persons, against whom investigations were initiated in Italy. The word ‘document’ as per the statutory provisions, can only mean such document which in the nature of evidence for the purpose of investigations of any offence alleged to have been committed by a person under the Act. Therefore, a ‘request letter’ cannot be termed as a ‘document’ in the nature of evidence as stipulated under Section 139(ii) ibid, to establish a charge of undervaluation against a person. Secondly, the said Note-Verbale does not pertain to investigations which are carried out under this Act of 1962, but pertain to investigations being carried out under the Italian laws and such report was forwarded to the Indian authorities to provide evidence against the said persons in Italy. Hence, Section 139(ii) does not contemplate or cover a situation like the present case, where investigations were initiated in a place outside India, consequent to which investigations were initiated in India.

10. The learned adjudicating authority in this case has accepted that the Note-Verbale only indicated commencement of criminal proceedings against the indenting agents in Italy and did not conclusively prove the guilt against such persons. In fact, as noted in the impugned order, even the Deputy Director of DRI had also expressed his inability to provide information regarding the final outcome of criminal proceedings against such persons. Since the investigations with regard to alleged fraud committed in exportation of goods in the originating country, has not attained finality, it cannot be hypothetically concluded that the appellant had indulged into the activities of undervaluing the goods. Therefore, in our considered view, the present proceedings initiated against the appellant were premature and cannot be sustained. Further, in the statement recorded under summon, Shri K.M. Swamy, Director of the appellant had denied the fact regarding involvement of the intermediaries/indenting agents in purchases made by the appellants in respect of the disputed goods from the Italian suppliers. Furthermore, the investigations made by DRI did not produce any evidence of financial flow back through non-banking channels in low tax countries. Thus, under such circumstances, the charges of undervaluation cannot be leveled on the appellant.

11. The learned adjudicating authority has rejected the declared value in respect of the subject Bills of Entry under Section 14(1) ibid read with Rule 12 ibid and re-determined the assessable value under Section 14(1) ibid read with Rule 3(1) ibid, holding that sufficient evidence exists to show that actual invoice values were hidden from the Indian Customs authorities and manipulated invoices were presented for assessment purposes. We find that in support of such contentions, no credible evidences were produced by the department. Further, we also find that the procedures laid down under Rule 12 ibid have not been succinctly followed for rejection of the declared value. As per the statutory provisions, the proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods and for that purpose, he must ask the importer of such goods further information which may include documents or evidence; and on receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists. When the doubt persists, then sub-rule (1) to Rule 3 will not be applicable and transaction value has to be determined by sequentially proceeding through Rules 4 to 9 of the Valuation Rules, 2007. The Hon’ble Supreme Court in the case of Century Metal Recycling (supra) has held that the procedures provided for rejection of the declared value under Rule 12 ibid was mandatory in nature and such statutory provisions are required to be strictly adhered to by the proper officer. In this case, it is an admitted fact on record that the mandates of Rule 12ibid read with Rules 4 to 9 ibid have not been complied with by the department. Thus, rejection of declared value is contrary to the statutory provisions and accordingly, re­determination of the alleged transaction value cannot stand for judicial scrutiny.

12. In view of the foregoing discussions and analysis, we do not find any merits in the impugned order dated 26.03.2018 passed by the learned Commissioner of Customs (NS-II), Nhava Sheva. Accordingly, after setting aside the same, we allow the appeal in favour of the appellant.

(Order pronounced in the open court 11.09.2020 )

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