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Case Law Details

Case Name : Sheikh &
Appeal Number : Mahajan LLP Vs Commissioner of Customs (Preventive) (CESTAT Delhi)
Date of Judgement/Order : Customs Appeal No. 52368 of 2019
Related Assessment Year : 03/12/2021

Sheikh & Mahajan LLP Vs Commissioner of Customs (Preventive) (CESTAT Delhi)

Facts- The appellant imported the goods which were alleged to be mis-declared. The appellant accepted that due to mistake of the Chinese supplier the same was mis-declared in terms of value and quantity. On suggestion of the appellant, a joint market survey was conducted along with the appellant and based on the market value the assessable value was determined through deductive method. The appeal was filed on following grounds-

  • Goods of the brands not registered with customs are not prohibited and hence seizure, confiscation, penalty and duty are illegal,
  • Confiscation of goods u/s 111(d) & (m) illegal as there is no mis-declaration,
  • Rejection of value u/s 14 is illegal,
  • Re-determination of AV u/s 14(1) is illegal,
  • Confiscation of goods on higher assessed value is illegal,
  • Absolute confiscation of goods having men mark; horse mark and three strips is illegal,
  • Imposition of redemption fine and penalty u/s 114A illegal,
  • Imposition of penalty u/s 112 illegal,
  • Impugned OIO and OIA liable to be set aside since the time-limit prescribed in IPR rules not followed.

Conclusion- As far as the goods infringing the IPR (counterfeit goods) are concerned, once they are found to have violated the Rights of the rights holder, as per Rule 6, they become prohibited goods under section 11 of the Customs Act, 1962. Section 111(d) squarely applies to prohibited goods which are imported. As confirmed by assessee, since the goods were not even ordered by them and were sent by mistake, confiscation of goods u/s 111(l) is correct and proper.

So long as the IPR of another person are violated, it does not matter even if they contain some unregistered trade marks. We find in favour of the Revenue on this count.

Imposition of penalty under both the section 112 and 114 not sustainable. Penalty imposed u/s 114A set aside.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal is filed by the appellant assailing the order-in-appeal 1 dated June 14, 2019 passed by the Commissioner of Customs (Appeals), New Delhi rejecting the appellan’s appeal and upholding the order-in-original dated June 14, 2018 passed by the Additional Commissioner of Customs (Preventive), New Delhi.

2. The appellant filed Bill of Entry No. 4927337 dated 24.01.2018 through its Custom House Agent2 M/s Ananya Exim. Receiving information about mis-declaration of the goods in terms of quantity and value in this consignment, the goods were examined and then seized by the Customs officers on 7.2.2018. The Panchnama states that “as the goods were found to be mis-declared in terms of quantity and value, imported goods were seized under Section 110 of the Customs Act, 1962” vide seizure Memo dated 7.2.2018 on reasonable belief the same were liable for confiscation under provisions of the Customs Act, 1962. The consignment was handed over to the Central Warehousing Corporation3 Patparganj which was the custodian of the imported goods. On 12.2.2018, the appellant requested that the goods may be warehoused which was permitted by the Department and thereafter re-examined in detail. As recorded in the Panchnama drawn on 27.2.2018, during examination of the goods, it was also noticed that the imported goods had mentioned brands such as AIR, MAX, logo of Adidas, Puma, Nike, etc. The details of the shoes found as recorded in the Panchnama are as follows:

Sl. No. Carton No. Description of goods Brand Name/logo
1. 1 Men’s shoes AIR on shoes and Nike on Shoe Flap
2. 6 Men’s shoes Unbranded Shoes
3. 13 Men’s shoe Unbranded Shoes, along with Adidas logo found separately
4. 216 Men’s shoes Logo of horse on the shoes
5. 227 Men’s shoes Logo of horse on the shoes and Puma mentioned on Shoe Flap
6. 255 Men’s shoes Max mentioned on Shoes
7. Carton No. Description of goods Brand Name/logo
8. 1 Men’s shoes AIR on shoes and Nike on Shoe Flap

3. Summons were issued to the importer and Shri Asif Farooque, Director of the appellant firm responded and gave a statement on 28.2.2018 in which he, inter alia, said that he had imported the goods on credit of 90 days and has yet to pay his Chinese supplier; regarding the mis-declaration of men’s shoes as boy’s shoes, he said that there was no difference in the tariff head between boys and men’s shoes and they had imported declaring them as boys shoes; the maximum retail price4 was not embossed properly on some shoes but he said that he would get the same embossed. He also said that he was ready to pay the differential duty, if any. With regard to the difference in quantity of shoes covered by Invoice No. KM-1059 dated 29.11.2017 he said that he would discuss it with their Chinese counterpart and explain later. Regarding the shoes bearing marks such as AIR, Max, logo of Men printed on shoes and branded NIKE shoes he explained that he was only a trader of unbranded shoes and would clarify after consulting the Chinese counterpart. He also asserted that the shoes bearing brand names like NIKE and Puma on the flaps do not belong to the appellant as it had never ordered the same. After discovering that these names were on the flaps, he contacted his Chinese counterparts who said that due to mistake of their labour, they dispatched those shoes which were actually not meant for him. He asserted that such shoes were accidentally mixed with their goods and they do not belong to him. He agreed that the goods were mis-declared in terms of description as well as value as the same have been wrongly sent by the supplier. Regarding the valuation of the goods (since the goods which were imported were not tallying with the invoice), he suggested that a joint market enquiry be conducted to ascertain the actual price of the goods. Accordingly, a joint enquiry was conducted in which Shri Asif Farooque also participated along with the officers. Based on the survey, the prices declared by the appellant in the Bill of Entry were rejected and the price was arrived at by deductive method from the market price of the goods after deducting the retailer’s margin and importer’s margin, post import expenses and duty.

4. The goods in question were, therefore, not as per the declarations made both in terms of quantity and quality. On the suggestion of the appellant, a joint market survey was conducted along with the appellant and based on the market price, the assessable value was determined through deductive method. There were also brand names of Nike, Puma and Adidas and the appellant’s clarification was that those goods were sent by mistake to them by the supplier.

5. Imported goods which are suspected to have violated Intellectual Property Rights 5 have to be dealt with as per the Intellectual Property Rights (Imported Goods) Enforcement Rules, 20076 framed under the Customs Act. The right holder i.e., the one who has the IPR has to issue a notice under Rule 3 to the Principal Commissioner, or Commissioner of Customs along with fees. The Commissioner of Customs has to take a decision within 30 working days and notify the applicant Rights holder whether the notice has been registered or rejected and also the validity period of the registration (Rule 4). Registration under Rule 4 is subject to execution of a bond under Rule 5(a) and indemnity bond under Rule 5(b). Once the right holder applies for (Rule 3) and is registered (Rule 4) with the Commissioner of Customs, import of infringing goods into India shall be deemed to be prohibited (Rule 6) within the meaning of Section 11 of the Customs Act, 1962. Thereafter, in terms of Rule 7(1)(a) if the Deputy Commissioner or Assistant Commissioner of Customs has reason to believe that any goods are infringing the IPR, he shall suspend their clearance and inform both the importer and the right holder of the suspension of goods and the reasons therefor. The right holder has the right (Rule 8) to examine suspended goods and take samples, test and analyse to assist in determining whether the goods are pirated, counterfeit or otherwise infringe an intellectual property right. Rules 9 and 10 require the Assistant Commissioner, Deputy Commissioner to supply information to the right holder and the importer respectively.

6. Even if the Right Holder does not issue a notice under Rule 3 and no registration is granted to the right holder under Rule 4, the Deputy Commissioner or Assistant Commissioner may, under Rule 7(1)(b), on his own initiative, suspend the clearance of goods in respect of which he has prima facie evidence that they are infringing IPR. In such a case, the right holder has to fulfill the obligations of issuing a notice under Rule 3 and fulfill the condition under Rule 5 for registration within five days from the date of suspension of clearance; else, the goods should be released. Rule 7 also requires the right holder to join the proceedings within 10 working days from the date of suspension of clearance of the goods which limit can be extended by the Commissioner for another 10 days.

7. In this case, when a reference was made by the officer, the Deputy Commissioner (IPR Cell), has, on 22.2.2018, informed that NIKE, Puma, Adidas are registered with them as right holders under the IPR Rules, 2007. Accordingly, letters dated 5.3.2018 were issued to M/s Nike, Adidas and letter dated 6.3.2018 to Puma asking them to join the proceedings in terms of rules and they did so and after examining the goods, reported as follows:

Report of Adidas and conclusion:

i. The right holder is the owner of the trademark “adidas” (word) and logos “Three Stripes”, “Trefoil”, “Three Bars” and entitled to use the trademark “adidas” and logos “Three Stripes”, “Trefoil” and “three bars” under the Trademarks Act in India.

ii. The 3-stripes mark is the quintessential adidas symbol.

iii. M/s Sheikh & Mahajan LLP has imported consignment consisting of goods which bear either the trademark “adidas” and/or logos Three stripes, Trefoil and three bars and/or marks deceptively and confusing similarly to trademark “adidas” and logos “Three Stripes”, “Trefoil” and “three bars” and shall cause confusion and deception amongst the purchasing public and trade,

iv. The counterfeit goods imported by M/s Sheikh & Mahajan LLP, wherein trademark “adidas” and logos Three stripes and three bars have been used in deceptively and confusingly manner are deceptively and confusingly similar to the three bars logo of the Right Holder.

v. On a close scrutiny of the infringing products following similarly and dissimilarity, the differences between a genuine “adidas” and sample of “adidas” shoes handed over to him are as follows:

Sl.No. Original Product Counterfeit Products
1. The label fixed on the tongue is heat sealed The quality of label is poor and is not properly sealed
2. Every label should contain a security code. A security code
is made up of 13 digit numbers and English Alphabets. Every security code is unique
The unique security code existing on the tongue is incorrect, which means that the sample product is a
fake product.
3. Information on the tongue label should set out in the order The information on the tongue are incorrect, incomplete and in an incorrect order. The label in totality renders the sample product a fake product
4. The label contains complete information of every product individually. The information contained are:

The country of origin Size Adidas article code Factory code Unique security code Adidas purchase order no.

Production date Two dimensional bar code

The label attached to the sample product does not contain the correct information which every genuine product must contain. The sample product does not contain the correct place of manufacture, factory code, production date, adidas article code, unique security code is missing, adidas purchase order no.

and bar code is fictious, incorrect coding and numbering of the above
mentioned salient features in the sample product
handed over to us proves that it is a fake product.

Absence of the above
mention salient features in the sample product over handed that it is a fake
product.

5. The raw material and the technology used in the manufacturing of a genuine
product is of a very good quality and standards and thus the overall finish and the quality of a genuine product is very superior
The raw material and the technology used in the manufacturing of the sample products handed
over to us is of poor quality and the product as a whole is poorly finished with poor pasting and stitching which is evident on comparison with a genuine product.
Thus the poor quality and finish of the product handed over is a fake product.
6. The trademark (i.e. word marks and/or logo) are in a fixed
proportion.
The trademarks have been applied shabbily and also
are not in proportion which proves that the sample of shoes as fake product.
7. On the genuine adidas handed over have three parallel equispaced strips at a forward slant of the upper and/or a trefoil with three stripes. Also, the goods are packed in good quality boxes. In the samples handed over to us, the said three stripes is not properly fixed and paced. Also, the shoes were packed in polythene bags.
8. Embroidery/stitching work on the original product is of
superior quality
Embroidery/stitching & pasting done samples
collected is of poor quality which renders the sample product a fake product.
9. Detailed information in compliance of Legal Metrology
Act, 2009 about every product is set out in adidas/Mrp Label attached to the box of every product. The information contained are:Product Quantity Size MRP Date of Manufacturing Name and address of Manufacturer/ Customer Care Cell Email TWO DIMENSIONAL BAR CODE Article No.
As the shoes were found to be packed in polythene
bags, Mrp, Label is missing on the packaging of the
shoes.
10. The security label fixed on the shoes contains adidas logo
along with a printed bar code, which is unique for every individual product. The Care label attached to the shoes contain reasonable care to be taken for maintaining the product which is unique for every individual product.
There is no Security label fixed on the shoes. The Care label is also missing on the security label attached to the shoes.

Report of M/s Puma and conclusions

8.1 Sample analysis findings:

i. The appearance/design/style of the shoes does not match with PUMA design.

ii. The fulfillment of the product sample is of inferior quality.

iii. The material used to manufacture the product is of inferior quality, not matching the standards of original PUMA product.

iv. The packaging of the product does not match the standards of original PUMA products.

v. The size of the PUMA leaping Cat device on the shoes does not match with the standards of original PUMA product.

vi. The finishing of the product is not matching with the standards of original PUMA product.

vii. The form strip shown in the images is stated as counterfeit in the below image.

viii. The images mentioned are stated as counterfeit and should not be released under any circumstances.

ix. The side strip used in the design of the shoe is also counterfeit.

x. The shoe flap are the essential part of the shoe bearing the brand name of PUMA imported by Sheikh and are counterfeit product and can’t be released if any circumstances.

8. Although Nike also submitted its report, it has not subsequently submitted the required bond and bank guarantees with respect to this consignment and hence in the impugned order, the rights of Nike were not enforced.

9. It, therefore, appeared that all the goods imported by the appellant except those with „Max’ mentioned on them were counterfeit goods. The details of the various types of goods imported by the appellant in terms of the IPR violations were as follows:

Sl. No . Description of
Shoes (Brand)
Total Cartons Total Quantity (in Pairs) Remarks
1. AIR (Mentioned on Shoes) 97 2302 The said product was checked by the authorized representative of NIKE and after examination of the same, they informed that the said product pertain to NIKE brand. The authorized representative vide their letter dated 14.0.3.2018 has informed that the goods are counterfeit products.
2. Unbranded Shoes 83 1986 The products was checked by the authorized representative of
ADIDAS and after examination of the same, they informed that the said product pertain to ADIDAS
brand. The authorized
representative vide their letter dated 14.03.2018 has informed that the goods are counterfeit product.
3. Max (Mentioned on Shoes) 50 1200 There was no IPR on the brand name Max.
4. Logo of Horse on Shoes 60 1420 The DC (IPR) has informed that the said product is not registered with Customs. However, the products was checked by the authorized
representative of PUMA and
after examination of the
same, they informed that the said product pertain to Puma
brand. The authorized representative vide their letter dated 14.03.2018 has informed that the goods are counterfeit products.
5. Logo of Man printed 144 3456 The DC (IPR) has informed that the said product is not registered with Customs. However, the products was checked by the authorized
representative of PUMA and
after examination of the
same, they informed that the said product pertain to Puma
brand. The authorized representative vide their letter dated 14.03.2018 has informed that the goods are counterfeit products.
6. Logo of Nike Presto, BRS 100, Duralon, AIR (Printed on Shoes) 30 720 The DC (IPR) has informed that the NIKE brand is registered with Customs. Also the said product
was checked by the authorized representative of NIKE and after examination of the same, they informed that the said product pertain to NIKE brand. The authorized representative vide
their letter dated 14.03.2018 has informed that the goods are
counterfeit products.
Total 464 11084

10. As suggested by Shri Farooq in his statement, the prices of the goods were ascertained through a joint market enquiry conducted along with the appellant. From the market price the margin of profit of dealer @ 15% and importer @ 15% were deducted. After deducting these two elements another 5% was deducted as post-importation costs of importer. The price arrived at after making these deductions was taken as the cum-duty price and the assessable value was calculated backwards. On this assessable value, the duty was determined. Before the original authority, the appellant has accepted that the goods were mis-declared in terms of value and description and undertook to pay the differential duty fine and penalty, if any imposed by the Department. It also categorically mentioned that it did not want any show cause notice or an opportunity of personal hearing as all details relevant to the case have already been explained to them and understood. They requested to dispose of the matter early.

11. After examining the facts of the case, the original authority, viz., the Additional Commissioner has passed the following order:

“(i) I reject the declared assessable value of Rs. 16,04,404/- for the goods imported vide Bill of Entry No. 4927337 dated 24.01.2018 in terms of Section 14 of the Customs Act, 1962 read with Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

(ii) I re-determined the assessable value as Rs. 14,25,462/- for the goods other than counterfeit goods (i.e. Unbranded Shoes as per Panchnama dated 27.02.2018 (which are identified as shoes of adidas brand on the basis of three strips vide technical report dated 14.03.2018 submitted by authorized representative of M/s Adidas ad on the basis of which they claimed their IPR), Logo of Horse on shoes and Man Printed on Shoes (regarding which M/s Pume Se has claimed its IPR through its authorized representative vide its technical report dated 21.03.2018) imported vide Bill of entry No. 4927337 dated 24.01.2018, under Section 14(1) of the Customs Act, 1962 read with Rule 5 & Rule 7 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

(iii) I order for confiscation of the goods other than counterfeit goods (i.e. Unbranded Shoes as per Panchnama dated 27.02.2018 (which are identified as shoes of adidas brand on the basis of three strips vide technical report dated 14.03.2018 submitted by authorized representative of M/s Adidas and on the basis of which they claimed their IPR), Logo of Horse on shoes and Man Printed on Shoes (regarding which M/s Puma Se has claimed its IPR through its authroised representative vide its technical report dated 21.03.2018) valued at Rs. 14,25,462/- covered under Bill of Entry No. 4927337 dated 24.01.2018 under Section 111(l) & (m) of the Customs Act, 1962. However, I give an option to the importer to redeem the said goods i.e. Shoes Max (Mentioned on Shoes), Shoes “Mark AIR” , Shoes (Logo of “Nike Presto”) on payment of redemption fine of Rs. 15000/- under Section 125(1) of the Customs Act, 1962.

(iv) I confirm the consequential Customs Duty amounting to Rs. 3,93,133/- in respect of the goods other than counterfeit goods (shoes bearing the brand name “Adidas and Puma) imported vide Bill of Entry No. 4927337 dated 24.01.2018 (as discussed above against the importer, M/s Sheikh & Mahajan LLP 786, ground Floor, Gali No. 6A, Zakir Nagar, Okhla, New Delhi (IEC-ADJFS8130M) under Section 28(1) of the Customs Act, 1962. I order for recovery of confirmed Customs duty of Rs. 3,93,133/- in respect of the goods other than counterfeit goods (Shoes bearing the brand name “Adidas & Puma) under Section 28 of the Customs Act, 1962 from the importer.

(v) I impose a penalty of Rs. 3,93,133/- on M/s Sheikh & Mahajan LLP 786, ground Floor, Gali No. 6A, Zakir Nagar, Okhla, New Delhi (IEC-ADJFS8130M), the importer under section 114(A) of the Customs Act, 1962 with an option that the importer shall be eligible for reduced penalty as prescribed under Section 114A, subject to compliance therein.

(vi) I order for absolute confiscation of the counterfeit goods (i.e. unbranded Shoes as per Panchnama dated 27.02.2018 (which are identified as shoes of adidas brand on the basis of three strips vide technical report dated 14.03.2018 submitted by authorized representative of M/s Adidas and on the basis of which they claimed their IPR), Logo of Horse on shoes and Man Printed on Shoes (regarding which M/s Puma Se has claimed its IPR through its authorized representative vide its technical report dated 21.03.2018) collectively valued at Rs. 72,29,117/- covered under Bill of Entry No. 4927337 dated 24.01.2018, under Section 111(d) & (l) of the Customs Act, 1962 read with IPR (Imported Goods) enforcement Rules, 2007.

(vii) I impose a penalty of Rs. 220000/- on M/s Sheikh & Mahajan LLP 786, ground Floor, Gali No. 6A, Zakir Nagar, Okhla, New Delhi (IEC-ADJFS8130M), the importer under section 112 of the Customs Act, 1962 however the importer shall be eligible for reduced penalty as prescribed under Section 112, subject to compliance therein.”

12. On appeal, the Commissioner (Appeals) passed the impugned order upholding the above order of the Additional Commissioner. The appellant has filed this appeal assailing the impugned order on the following nine grounds:

(i) None of the goods imported by the appellant under subject bill of entry are prohibited, in terms of Section 11 of the Customs Act, 1962 read with Rule 6 of IPR Rules ibid, which provides that for being deemed prohibited under section 11 of Customs Act, 1962, the right holder needs to obtain registration from the Commissioner and after registration, if on examination, it is found that alleged goods are infringing the right of right holder, the goods shall be deemed as prohibited. In the instant case, it is evident from the report of Assistant Commissioner, which has been quoted by the learned Original Authority at page No. 8 of the order in original (which is placed at page No. 185 of the paper book), wherein in the chart at serial No. 4 & 5, it is mentioned that logo of Horse on shoes and logo of men printed is not registered with customs. Since the goods of these two brands are not registered with the Customs, in terms of Rule 6 of IPR Rules read with Rule 11 of Customs Act, 1962, the goods are not prohibited and, thus, the seizure, confiscation, imposition of penalty upon the goods and demand of duty is illegal and liable to be set aside.

(ii) The confiscation of goods under section 111(d) & (m) of the Customs Act, 1962 is illegal, as there is no mis-declaration of either description of goods, brand and value.

(iii) The rejection of value of the impugned goods under section 14 of the Customs Act, 1962 is illegal as value can be rejected only in exceptional circumstances, as defined under Section 14 such as when the buyer and seller are related, price is not the sole consideration and there is no sale. In the instant case, none of the factors exists.

(iv) Re-determination of assessable value under section 14(1) of the Customs Act, 1962 is arbitrary and illegal, as in accordance with section 14, the assessable value with the transactional value and the appellant has declared the transactional value paid by him, as mentioned in the invoice issued by the shipper/overseas supplier and the officers of preventive did not produce any document justifying that the appellant has paid any amount over and above the transaction value to the shipper/supplier of the subject goods, onus to prove under valuation is upon the revenues, which is a settled law.

(v) The confiscation of goods cleared on higher assessed value (upon which the duty has been paid by the appellant at enhanced rate, as the goods would have been destroyed and decayed, which is the case with the balance goods which are absolutely confiscated by the learned Original Authority, as per the inspection done by the appellant of the goods at Warehouse, where the goods have been warehoused pending clearance) is illegal, arbitrary, contrary to the provisions of section 111(d) & (m) of the Customs Act, 1962.

(vi) The absolute confiscation of goods having men mark, horse mark and three strips is illegal, as these two marks are not registered with the customs, as per the report of D.C. Customs and are not prohibited, in terms of Rule 6 of IPR Rules read with section 11 of Customs Act and similarly the three stripped mark is a free mark, not the mark of Adidas. The Adidas mark contains word “Adidas” (word) and logos, three stripes and “Trefoil”.

(vii) Imposition of redemption fine of Rs. 15,000/- under section 125(1) and penalty of Rs. 3,93,133/- upon the goods under section 114A of the Customs Act, 1962 is illegal and arbitrary, as there is no violation of IPR and Section 14 of Customs Act, 1962 and Valuation Rules, by the appellant.

(viii) Without prejudice to the contentions and rights of the appellant, imposition of penalty under section 112 of the Customs Act, 1962 is contrary to the provisions of proviso 5 of Section 114A of the Customs Act, 1962, which itself provides that where any penalty has been levied under section 114A, no penalty shall be levied under Section 112 or 114.

(ix) The impugned order in original and order in appeal are liable to be set aside, in terms of order passed by this Tribunal (Mumbai Bench) in case of SRK Enterprises Vs. Commissioner of Customs (Imports) Nhava Sheva, 2012 (280) ELT 264 (Tri.-Mum.), wherein this Tribunal observed that “since the timeline prescribed in IPR Rules has not been followed (relying upon judgment of Landom Distributors Pvt. Ltd. (Madras High Court), provisions of IPR Act and Rules inapplicable).”

13. Learned Departmental Representative supports the impugned order. On the first and sixth arguments of the appellant, learned Departmental Representative submits that the shoes in question not only had the logos of the horse and the man but also included with device mark “FORM strip” and Trefoil besides Puma on the flap of the shoes and thereby infringed the IPR of Puma and Adidas and were counterfeit goods. They violated the IPR of the right holder and Puma. He submitted that the Delhi High Court has, in the case of Puma Se & Anr Vs. Footwear (Klick) India Pvt. Ltd. & Ors. in CS (OS) 2518/2015 dated 24.8.2012 held that the device mark Form strip Puma, and marks are registered marks of Puma besides catalog and the word Puma. Further, in PUMA SE & ANR Vs. Dashmesh Footwear & Ors CS (COMM) 43/2015 dated 17.12.2015 also the High Court of Delhi concluded that the form strip logo of Puma is registered in India and the right holders of the same. It is, therefore, his submission that merely because the shoes also had the men face and horse on them it does not make a difference as long as they are violating/infringing some right of trade mark holder which they did. Therefore, the goods were prohibited goods in terms of Section 11 of the Customs Act read with Rule 6 of the IPR Rules. Similarly, he submits that the three strips are the trademark of Adidas and the right holders had registered trademark Adidas and logos three stripes, trefoil and three bars has belonging to it with the Customs under the IPR Rules. He relies on the judgment of High Court of Delhi in CS(COMM) 1269/2018 and IA 16629/2018 dated 14th May 2019. Learned counsel for the appellant relies on the Judgment of the General Court of the European Union Press Release no. 76/19 in case T-307/17 adidas AG vs EUIPO in which it was held that „ adidas does not prove that the mark has acquired, throughout the territory of the EU, distinctive character following the user which had made if three parallel equidistant stripes of identical width, applied on the product in any direction‟. For this reason also the goods which were confiscated were deemed to be prohibited goods under Section 11 of the Customs Act. With respect to the second submission, that the confiscation under Section 111(b) & (m) of the Customs Act is illegal and that there is no mis-declaration of either description of the goods brand or value, learned Departmental Representative submits that the mis-declaration was evident and was admitted to by the appellant themselves. Initially when the discrepancies were noticed, summons were issued to Shri Asif Farooque, the Director of the appellant firm who, in his statement before the Customs officers, explained that the shoes with the flap bearing brand names Nike and Puma and logo Adidas do not belong to him at all. He further said that he had contacted his Chinese supplier and confirmed that the labour has dispatched the wrong shoes accidently and they do not belong to him. In fact, he said that he is trader in unbranded shoes. The Bill of Entry mentions “non- popular brands”. At no point of time has he asserted that he has declared the goods which were imported. What has declared in the Bill of Entry was clearly different from what was imported. Shri Farooque also agreed that the MRP was not properly embossed and said the same would be got done on the shoes. Since the description of the goods was different from those that of imported, Shri Farooque suggested that a joint market survey to ascertain the price of the goods. This was the statement by Shri Farooque, Director of the appellant. Another Director of the appellant, Shri Rajeev Kumar Jaiswal also accepted that the goods were mis-declared in terms of value and description and undertook to pay the differential duty fine and penalty voluntarily, if any, imposed by the Department. He also waived requirement of show cause notice as also the opportunity of personal hearing as in this case as “all relevant details have already been explained to them and he understood the same” and requested to dispose of the case. These statements have not been retracted. What has been admitted need not be proved although in this case it has also been proved through the reports of the right holders. The appellant has not taken the stand that there was no mis-declaration before the original authority and has on the contrary admitted to the same during the adjudication proceedings. Therefore, the assertion of the learned Counsel that there was no mis-declaration in terms of section 111(d) & (m) is without any force.

14. With respect to the third and fourth ground of the appeal that the transaction value should be accepted and the assessable value of the goods should not have been re-determined, learned Departmental Representative points to the fact that the goods declared in the invoice and the Bill of Entry were different from the goods which were imported. The nature, quantity and description of goods were different. The appellant has agreed that they were different. There is nothing on record to show that this statement was made under any threat or coercion. In fact, the appellant has sought clarification from its supplier from China and confirmed that wrong goods have been sent to them. Therefore, a question arose as to how to value the goods which were actually imported. The appellant himself has suggested that a joint market survey should be conducted to ascertain the market price of the goods which accepted and the assessable value may be deduced from it. Thereafter, the appellant participated in the market survey along with officers and the market prices of the goods were determined. From the market prices the retailer‟s margin @ 15% and then the importers margin @ 15% was deducted. A further 5% was deducted as post importation expenses importer would have been incurred. After these deductions what was left was taken the cum-customs duty price of the imported goods and the assessable value was worked backward it. The entire valuation was a joint exercise by the Department and the importer appellant. The appellant did not contest the valuation at the time of adjudication also. Therefore, the argument that the transaction value should be accepted as the assessable value has no force whatsoever especially when the assessee has accepted that what was imported were different from what were declared and further clarified from its overseas supplier and confirmed that wrong goods were imported which they had not ordered due to some supplier’s end. On the fifth ground that the confiscation of the goods cleared on higher assessable value is illegal, arbitrary and contrary to the provisions, learned Departmental Representative submits that Section 111(d) provides for confiscation of any goods imported contrary to any provisions imposed by or under Customs Act or any other law for the time being for in force. Section 111(m) provides for confiscation of goods which do not correspond in value or in any other particular with the entry made under Customs Act. The entry in question is the Bill of Entry filed by the appellant. Admittedly, the goods do not confirm to the description. As per the report of the right holders given after examination of the imported goods, the goods infringe the Intellectual Property Rights of the right holders. Therefore, as per Rule 6 of the IPR Rules read with Section 11 of the Customs Act they are prohibited goods. Therefore, confiscation both under Section 111(d) and 111(m) is valid and proper. With respect to the seventh ground that imposition of redemption fine and penalty under the Customs Act is illegal and arbitrary, learned Departmental Representative submits this submission has no force because not only did the goods not correspond in description but also in value. Therefore, the confiscation under Section 111 is correct and as also the option of allowing redemption of the goods non-IPR violating goods under Section 125(1). He also supports the imposition of penalty under Section 114A of the Act. Learned Departmental representative conceded on the eighth ground that simultaneous penalty cannot be imposed under Section 112 and 114A. On ninth ground that the right holders had not joined the proceedings in time i.e., within ten days of the detention of the goods and, therefore, the entire process is vitiated, learned Departmental Representative submits that the records demonstrate that the goods were initially seized under a Panchnama on information regarding mis-declaration. Thereafter on the appellant’s request, the goods were allowed to be warehoused and they were re-examined. On re-examination it found that the goods had marks which may lead to infringement of IPR of the right holders. A reference was made to the Deputy Commissioner (IPR Cell) and he confirmed that Nike, Puma and Adidas were already registered with the Customs Department and therefore, they held registrations under Rule 4 of the IPR Rules. When letters were written to three right holders they responded immediately and joined the proceedings. The argument of the learned Counsel that the right holders should have immediately filed a bond in respect of this consignment is not correct because the rule nowhere requires that a bond should be executed within ten days. It only requires the right holder to join the proceedings within 10 days and they did. This assertion of the learned Counsel is not supported by the rule. The argument of the learned Counsel with respect to the proceedings was that clearance of the imported goods was suspended by the Deputy Commissioner on his own initiative and therefore, this case is covered by Rule 7 (1)(b) is not correct. A plain reading of the Rule 7 says that Rule 7(1)(a) deals with cases where the right holder is already registered. Rule 7(1)(b) deals with cases where the right holders are not registered. In this case, the right holders have already been registered. If they were not registered, they would have had to fulfill the obligations under Rule 3 and Rule 5 and get registered under Rule 4 and these obligations would have to be fulfilled within five days of suspension of the clearance of the goods. The present case is not covered by these provisions because right holders were already registered. Therefore, he submits that there is no force in the submissions of the learned Counsel and his appeal may be rejected.

15. We have considered the submissions on both sides. The issues to be decided in this case are:

i) Were the goods which were confiscated absolutely prohibited goods under Section 11 of the Customs Act read with Rule 6?

ii) Were the goods seized by the Deputy Commissioner on his own initiative under Rule 7(1)(b) or on the basis of a registered right holder under Rule 7(1) (a)?

iii) Have the Right Holders joined the proceedings within the time frame set out in the Rules or not and consequently are the proceedings vitiated as asserted by the appellant?

iv) Was the rejection of the declared value of the impugned goods under section 14 of the Customs Act, 1962 correct?

v) Was the re-determination of assessable value under section 14(1) of the Customs Act, 1962 correct?

vi) Was the confiscation of goods under section 111(d) & (m) of the Customs Act, 1962 correct?

vii) Was the absolute confiscation of goods having men mark, horse mark and three stripes is illegal, as these two marks were not registered with the customs but which also had the three stripes and “Trefoil” mark?

viii) Was imposition of redemption fine of Rs. 15,000/- under section 125(1) and penalty of Rs. 3,93,133/- upon the goods under section 114A of the Customs Act, 1962 correct?

ix) Was the simultaneous imposition of penalty under section 112 and 114 valid?

16. On the first question, the assertion of the learned counsel is that the import of the impugned goods were not prohibited in terms of Section 11 read with Rule 6 because as per the Report of the Deputy Commissioner (IPR Cell) itself, the „Man‟ and „Horse‟ logos used on the shoes were not registered with the customs. When the logos themselves were not registered, there cannot be an IPR with respect to these two logos. According to Rule 6, once the IPR is registered, import of goods which infringe the IPR is deemed to be prohibited under Section 11. Learned Departmental Representative submits that the goods have not been confiscated for having the logos of „Horse‟ and „Man‟ but because they also had the logos of “FORM strip” besides Puma on the flap of the shoes. Once the IPR of Puma is violated, it does not matter if the shoes also have some other marks such as Horse and Man. We find that Rule 6 of the IPR reads as follows:

6. Prohibition for import of goods infringing intellectual property rights.- After the grant of the registration of the notice by the Commissioner on due examination, the import of allegedly infringing goods into India shall be deemed as prohibited within the meaning of Section 11 of the Customs Act, 1962.

17. What is to be examined is whether or not any registered IPR have been infringed and if so, the import of the goods is prohibited and not otherwise. The goods have some non-registered logos and trademarks and also have certain registered IPR on them. A plain reading of Rule 6 shows that import of goods is prohibited if the registered IPR is violated and it does not make any exception to goods which also have some other logos. It is immaterial how many logos are on the goods. If they violate any IPR, their import is prohibited, and not otherwise. In this case, the shoes with Man and Horse logos also had device mark “FORM strip” besides Puma on the flap of the shoes. The Delhi High Court has in the case of Puma Se held that the device mark Form strip Puma, and marks are registered marks of Puma besides catalog and the word Puma. Further in PUMA SE also the High Court of Delhi concluded that the form striped logo of Puma is registered in India and the right holders of the same. We find that the impugned goods have, therefore, violated the IPR and the import of these goods was, therefore, prohibited under Rule 6 read with Section 11.

18. Learned counsel for the appellant also argued that the goods were detained by the Deputy Commissioner on his own initiative and therefore, the proceedings fall under Rule 7(1) (b) and the Right holders should have fulfill their obligations within five days and since they have not, the goods should have been released. Rule 7 reads as follows:

7. Suspension of clearance of imported goods.-

(1)(a) Where the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, based on the notice given by the right holder has a reason to believe that the imported goods are suspected to be goods infringing intellectual property rights, he shall suspend the clearance of the goods.

(b) The Deputy Commissioner of Customs or Assistant Commissioner of Customs , as the case may be, may, on his own initiative, suspend the clearance of goods , in respect of which he has prima-facie evidence or reasonable grounds to believe that the imported goods are goods infringing intellectual property rights.

(2) The Deputy Commissioner of Customs or Assistant Commissioner of Customs , as the case may be, shall immediately inform the importer and the right holder or their respective authorised representatives through a letter issued by speed post or through electronic mode of the suspension of clearance of the goods and shall state the reasons for such suspension.

(3) Where clearance of the goods suspected to be infringing intellectual property has been suspended and the right holder or his authorised representative does not join the proceedings within a period of ten working days from the date of suspension of clearance leading to a decision on the merits of the case, the goods shall be released provided that all other conditions of import of such goods under the Customs Act, 1962, have been complied with:

Provided that the above time-limit of ten working days may be extended by another ten days in appropriate cases by the Commissioner or an officer authorized by him in this behalf.

(4) Where the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, has suspended clearance of goods on his own initiative and right holder does not give notice under rule 3 of the Rules or does not fulfill the obligation under Rule 5, within five days from the date of suspension of clearance, the goods shall be released provided that all other conditions of import of such goods under the Customs Act, 1962, have been complied with.

(5) Where the clearance of goods has been suspended, customs may, where it acts on its own initiative, seek from the right holder any information or assistance, including technical expertise and facilities for the purpose of determining whether the suspect goods are counterfeit or pirated or otherwise infringe an intellectual property right.

(6) Where the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, has suspended clearance of goods on his own initiative and right holder has given notice under rule 3 of the Rules and fulfilled the obligations under Rule 5, but , the right holder or his authorised representative does not join the proceedings within a period of ten working days from the date of suspension of clearance leading to a decision on the merits of the case, the goods shall be released provided that all other conditions of their import under the Customs Act, 1962, have been complied with:

Provided that the above time- limit of ten working days may be extended by another ten working days in appropriate cases by the Commissioner or an officer authorized by him in this behalf.

(7) In the case of perishable goods suspected of infringing intellectual property rights, the period of suspension of release shall be three working days which may be extended by another four days subject to the satisfaction of the Commissioner or the officer authorized by him in this behalf that such extension shall not affect the goods.

(8) Notwithstanding anything contained in these Rules, in the case of suspension of clearance of perishable goods on the basis of notice of the right holder or his authorized representative, the right holder or his authorized representative shall join the proceedings as required under these Rules within three working days or the extended period as provided in sub-rule (7) and in case of suspension of clearance of perishable good by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, on his own initiative, the right holder shall give notice, execute a bond and join the proceedings as required under these Rules within three working days or the extended period as provided in sub-rule (7), as the case may be, failing which the goods shall be released.

(9) If within ten working days or the extended period under sub-rule (6), as the case may be, and within three working days or the extended period as provided in sub-rule (7) of this rule in the case of perishable goods, the right-holder or his authorized representative joins the proceedings, the Deputy Commissioner of Customs or Assistant Commissioner of Customs , as the case may be, having reasons to believe that the goods are goods infringing intellectual property rights and liable to confiscation under section 111 (d) of the Customs Act, may seize the same under section 110 of the Customs Act.

19. Rule 7(1) (a) deals with cases where the suspension of clearance where the Deputy Commissioner or Assistant Commissioner has reason to believe that the goods are infringing IPRs and suspends clearance of the goods. Within 10 days of suspension of the clearance, the Right holder has to join the proceedings as per Rule 7(3). These provisions apply to cases there is already a Right Holder who is registered with the Customs.

20. Rule 7(1) (b) empowers the Deputy Commissioner or Assistant Commissioner to suspend clearance on his own initiative; thereafter, Rights holder has to give a notice under Rule 3 and fulfill the obligations under Rule 5 within five days. Rules 3 and 5 deal with the procedure for registration of the IPR of the Rights holder.

21. Thus, Rule 7(1)(b) deals with cases where the IPR has not been registered with the Customs and in such a case, the Rights holder has to give notice and fulfill obligations for registration within five days. On the other hand, Rule 7(1)(a) deals with cases where the Rights have already been registered with the Customs and in cases of suspension of clearance, the Rights holders have to join the proceedings within ten working days. In this case, the clearance of the goods was suspended on receiving information regarding some mis-declaration and on the request of the appellant, the goods were warehoused and thereafter a Panchnama was drawn after detailed examination which revealed that the goods had also logos of popular brands. When the matter was referred to the Deputy Commissioner (IPR cell), he confirmed that the logos were registered with the Customs. Thereafter, the goods were seized. As the seizure of the goods and suspension of the clearance was based on the IPR already registered with the Customs, it is covered under Rule 7(1)(a) and not under Rule 7(1)(b). Therefore, the assertion of the learned counsel that the clearance of the goods was suspended by the Deputy Commissioner on his own initiative is not correct.

22. The next question is whether the Rights Holders have joined the proceedings within the time set out in the Rules or not and consequently have the proceedings been vitiated. On 5.3.2018 officers sent letters to Nike and Adidas and their representative joined the proceedings the same day. On 6.3.2018 officers sent a letter to PUMA and in reply, they sent a letter on 7.3.2018 and joined the proceedings. Learned Counsel‟s submission is that they have not executed a consignment specific bond with the Customs within ten days. We find Rule 7(3) requires the Rights holders to join the proceedings within 10 days. It does not require any bond to be executed within 10 days. Once they join the proceedings, they can examine the goods, take samples for detailed examination and report back as to which of the goods have violate their IPRs and why. The question of execution of a bond comes thereafter. There is no requirement of execution of a consignment specific bond within 10 days in Rule 7(3) and we cannot read into it words which do not exist. We, therefore, find that the Rights Holders have joined the proceedings within the time of ten days and the proceedings are NOT vitiated on this ground.

23. The next question is whether the rejection of the declared value of the impugned goods under section 14 and its re­determination was correct. After examining the goods, the Customs officers summoned the appellant. Shri Farooque, Director of the appellant appeared and gave a statement accepting that the goods which were imported do not match with the description in the documents. He also contacted his Chinese supplier and confirmed that the goods were sent by mistake of labour at the suppliers’ end. Since the goods which were imported were different from those which were declared in the Bill of Entry and in the invoice, the question arose as to how to assess the value of the goods. Shri Farooque suggested that a joint market survey be conducted to determine the market price and the assessable value can be deduced from it. On his suggestion, a joint market survey was conducted by the Customs officers and Shri Farooque and the market price of the imported goods was determined. From this market price, 15% was deducted as the Retailer’s margin and a further 15% was deducted as the importer’s margin. Another 5% was deducted towards the post-importation costs which the importer would have to incur. The price after these deductions was reckoned as the cum-duty price and the assessable value was calculated therefrom. We find no force in the argument of the learned counsel that the transaction value should have been accepted because:

a) According to the Director of the appellant Shri Farooque, the goods which were imported were not the same as were declared in the documents and they were sent by mistake. Evidently, if the goods are different, the value should be different too.

b) Shri Farooque himself suggested that the value can be determined through a joint market survey and the department accepted the suggestion and thereafter he participated in the survey.

c) Deductions have been made on account of retailer’s margin, importer’s margin, post-importation costs from the market price and what was left after these deductions was taken as cum-duty price and the value calculated backwards.

d) There is nothing on record to show that Shri Farooque gave the statement under duress.

e) After the entire exercise, another Director of the appellant firm, Shri Rajeev Jaiswal gave in writing that he fully understood the case and waived the requirement of SCN and personal hearing and asked for an order.

f) Having accepted that the imported goods were different from those in the documents and having confirmed from its overseas supplier and clarified that the goods were sent by mistake and having suggested that value may be determined through a joint market survey and having participated in such a survey and having never contested the value at the time of adjudication, the appellant cannot now turn back and fault the Revenue for accepting the appellant’s own suggestion and thereafter determining the assessable value of the goods through a joint survey along with the appellant.

24. We, therefore, find no force in the submission of the counsel that the invoice value should have been accepted as the assessable value without re-determining through the deductive method.

Confiscation of goods under section 111(d), (l) & (m) of the Customs Act

25. In the order of the original authority upheld by the impugned order, goods other than the counterfeit goods were confiscated under section 111(l) and (m) and the counterfeit goods were confiscated under section 111(d) and (l) of the Act. This section reads as follows:

SECTION 111. Confiscation of improperly imported goods, etc. – The following goods brought from a place outside India shall be liable to confiscation: –

……………

(d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force;

…..

(l) any dutiable or prohibited 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;

….

(m) any goods which do not correspond in respect of value or in any other particular with the entry made under this Act or in the case of baggage with the declaration made under section 77 in respect thereof, or in the case of goods under transhipment, with the declaration for transhipment referred to in the proviso to sub-section (1) of section 54;

26. As far as the goods infringing the IPR (counterfeit goods) are concerned, once they are found to have violated the Rights of the rights holder, as per Rule 6, they become prohibited goods under section 11 of the Customs Act, 1962. Section 111(d) squarely applies to prohibited goods which are imported. It was also evident that these goods were not included in the entry made in the Bill of Entry. In fact, Shri Farooque, Director of the appellant firm has, after checking with his overseas Chinese supplier, confirmed that the goods were not even ordered by them and were sent by mistake of the labourers. Therefore, confiscation of these goods under section 111(l) in the order of the original authority affirmed in the impugned order is correct and proper.

27. As regards the goods which were not found to infringe any IPR, the same were found to be of not the value which was declared. Their value was reassessed as per the suggestion of Shri Farooque, Director of the appellant firm through a joint market survey. Therefore, these goods were correctly confiscated under section 111(l) and (m).

Was the absolute confiscation of goods having men mark, horse mark and three strips is illegal, as these two marks were not registered with the customs but which also had the three stripes and “Trefoil” mark?

28. We find that the goods were not seized for having marks of Man and Horse but were confiscated for also having other marks such as Trefoil and three stripes and Puma written on the flaps. Learned Departmental Representative relied on the judgments of Delhi High Court in PUMA SE (supra) to assert that the Form Strip is the registered trade mark of PUMA. He relies on the judgment of Delhi High Court in the case of Adidas (supra) to assert that trefoil is the registered trade mark of Adidas. Learned counsel relies on the judgment of the General Court of EU to assert that three parallel lines in any direction are not the registered trade mark of Adidas. It is his assertion that unless the shoes also have Adidas written on them, they have not violated the IPR. We find that the ratio of the judgment of the jurisdictional Delhi High Court is binding on this bench and the judgment of the General Court of EU is, at best, persuasive. We also find that under consideration in the judgment of the General Court of EU were, three vertical parallel lines as indicated in the judgment and under consideration was whether three equidistant parallel lines in any direction are the registered trade mark of Adidas. In the photographs of the shoes produced by parties before us, the three lines are not vertical lines but are at an angle as is well-known on the Adidas shoes. For these reasons, we are convinced that the judgment of the General Court of EU will apply to this case. So long as the IPR of another person are violated, it does not matter even if they contain some unregistered trade marks. We find in favour of the Revenue on this count.

Was imposition of redemption fine of Rs. 15,000/- under section 125(1) and penalty of Rs. 3,93,133/- upon the goods under section 114A of the Customs Act, 1962 correct?

29. The impugned order has upheld the order of the original authority whereby he confiscated goods (other than counterfeit goods) valued at Rs. 14,25,462/- under section 111(l) and (m) of the Customs Act and allowed their redemption on payment of a fine of Rs. 15,000/- which is about 1% of the value. Given the facts and circumstances of the case, we find this reasonable and find no reason to interfere with this redemption fine.

30. Penalty of Rs. 3,93,133/- has also been imposed under section 114A of the Customs Act and penalty of Rs.2,20,000/- has been imposed under section 112. We find that these two sections are mutually exclusive by virtue of the fifth proviso to Section 114A which reads as follows:

SECTION 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 (8) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined:

……………….

Provided also that where any penalty has been levied under this section, no penalty shall belevied under section 112 or section 114. 

31. Thus, imposition of both penalties is not sustainable. We, therefore, set aside the penalty imposed under section 114A of the Customs Act.

32. In view of the above, the appeal is partly allowed setting aside the penalty imposed under section 114A and upholding the remaining part of the impugned order.

(Order pronounced in court on 03/12/2021).

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