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Case Law Details

Case Name : Vinayaga Traders Vs Commissioner of Customs (Seaport) (CESTAT Chennai)
Appeal Number : Customs Appeal No. 42077 of 2014
Date of Judgement/Order : 03/01/2024
Related Assessment Year :

Vinayaga Traders Vs Commissioner of Customs (Seaport) (CESTAT Chennai)

In a landmark decision, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai has delivered a judgment in the case of Vinayaga Traders vs Commissioner of Customs (Seaport), addressing the contentious issue of redemption fines imposed on the import of jute bags. This ruling underscores the legal principle that a redemption fine cannot exceed the market value of the imported product, marking a significant moment for importers and the customs regulatory landscape in India. The case, which emerged from disputes over the valuation and import restrictions of used jute bags, brings to light the complexities involved in customs valuation and the importance of adhering to fair trade practices.

The appeal by Vinayaga Traders against the Order-in-Appeal passed by the Commissioner of Customs (Appeals), Chennai, challenges the imposition of a hefty redemption fine and penalty on the import of used jute bags, deemed contrary to the Foreign Trade Policy (FTP). The tribunal meticulously dissected the facts of the case, alongside the appellant’s acceptance of the re-determined value and the subsequent adjudication without a Show Cause Notice or personal hearing. The pivotal issue revolved around the legality and proportionality of the redemption fine and penalty levied under Section 125 of the Customs Act, 1962.

The tribunal’s analysis revealed that the adjudicating authority had not conducted an exercise to ascertain the actual market value of the goods, leading to an imposition of a redemption fine without legal authority. Citing the principle that the redemption fine should not surpass the market value of the goods minus the duty payable, the CESTAT found the original imposition disproportionate and arbitrary.

Redemption Fine cannot Exceed Product's Market Value Minus Duty CESTAT

Moreover, the decision to reduce the quantum of the redemption fine and penalty by the first appellate authority, albeit unchallenged by the Revenue, was further scrutinized. The tribunal emphasized the necessity of adhering to the guidelines for the levy of redemption fines and opted for a judicious approach by significantly reducing the redemption fine to align with the principles of justice and fair valuation.

The CESTAT Chennai’s ruling in Vinayaga Traders vs Commissioner of Customs (Seaport) sets a precedent in the realm of customs law, particularly concerning the imposition of redemption fines. This judgment reinforces the legal tenet that redemption fines must be commensurate with the market value of the imported goods and highlights the tribunal’s role in ensuring equitable justice in customs disputes. By addressing the nuances of valuation and import restrictions, the tribunal not only resolves the immediate dispute but also charts a path for future cases, ensuring that the principles of fairness and proportionality are upheld in the customs adjudication process.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed against the Order-in-Appeal C.Cus. No. 1321/2014 dated 30.07.2014 passed by the Commissioner of Customs (Appeals), Chennai.

2. Heard Shri M. Harri Viswanaath, Ld. Advocate for the appellant and Shri Harendra Singh Pal, Ld. Assistant Commissioner for the Revenue.

3.1   Facts that are relevant for our consideration are that the appellant filed a Bill-of-Entry No. 4558159 dated 05.02.2014 for goods declared as 4,12,400 pieces of used jute bags weighing about 75 kgs., at USD 0.07/- per piece, for which the declared assessable value was Rs.18,33,947/- and self-assessed duty was Rs.5,29,128/-.

3.2 The impugned goods were subjected to first check and based upon the examination by the Shed Officers, the Revenue entertained a doubt that the declared value of the goods was liable to be rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and thus, re-determined the value under Rule 9 ibid. considering the contemporaneous imports of similar goods as per NIDB. It has also been alleged that the used jute bags were restricted for import in terms of Paragraph 2.17 of the Foreign Trade Policy and that the impugned import was contrary to the provisions of Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992, thus rendering the goods liable for confiscation under Section 111(d) of the Customs Act, 1962.

4. The appellant-importer vide letter dated 26.02.2014 appears to have accepted the proposed re-determination as well as the value and requested for adjudication of the case without issuance of Show Cause Notice and personal hearing.

5. Accordingly, the original authority has passed the Order-in-Original No. 24330/2014 dated 11.03.2014, rejecting the declared transaction value of the impugned goods and re-determining the same at Rs.11.59/kg. [as per paragraph 12(a) of the Order-in-Original] in terms of Rule 9 of the Customs Valuation Rules, 2007. He has also ordered confiscation of the goods under Section 111(d) of the Customs Act, 1962 while giving an option to redeem the same upon payment of redemption fine of Rs.12,00,000/- under Section 125 , apart from imposing a penalty of Rs.3,00,000/- under Section 112(a) ibid.

6. Aggrieved by the above order, the appellant preferred an appeal before the Commissioner of Customs (Appeals), Chennai, who vide Order-in-Appeal C.Cus. No. 1321/2014 dated 30.07.2014 has rejected the appeal, however, reducing the quantum of redemption fine and penalty to Rs.8,00,000/- and Rs.1,00,000/- respectively.

7. It is against this order that the present appeal has been filed before this forum. Both the Ld. Representatives concede that the Revenue has not challenged the order of the first appellate authority.

8. The present appeal has been filed by the appellant inter alia on the following grounds: –

  • The order of the first appellate authority is contrary to law, the weight of evidence and probabilities of the facts of the case.
  • It was incumbent upon the Assessing Group to have, after due verification in terms of Section 17(2) of the Customs Act, 1962, permitted clearance of the impugned goods in terms of the declaration made by the appellant and verification conducted by the Proper Officer.
  • It is only when on verification the self-assessment made in terms of Section 17(1) of the Customs Act, 1962 is found to be incorrect in any material particular that the “Proper Officer” has the authority to re-assess the Bill in terms of Section 17(4) of the Customs Act, 1962.
  • On verification by the Shed Officers, the self-assessments made in terms of the import documents were found to be order; the question of re-assessing in terms of Section 17(4) ibid. is unsustainable on facts and in law.
  • The goods imported by them were sought to be confiscated as the said goods i.e., used jute bags were restricted for import in terms of Para 2.17 of the Foreign Trade Policy read with Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992, in terms of Section 111(d) of the Customs Act, 1962; a penalty was imposed in terms of Section 112(a) of the Customs Act, 1962. The appellant admittedly furnished a letter dated 26.02.2014 accepting the enhancement of the declared value and requesting the lower authority to adjudicate the case without issuance of Show Cause Notice nor affording any opportunity of personal hearing in the matter. Notwithstanding the fact that the appellant had waived issuance of Show Cause Notice or an opportunity of personal hearing, the adjudicating authority was not correct in by-passing the provisions of law before proceeding to pass the adjudication order.
  • Section 125 of the Customs Act permits imposition of redemption fine for goods imported in violation of either the Customs Act, 1962 or the Rules made thereunder or any provision of any other law for the time being in force. In the instant case, what is being alleged is import of goods which are used in nature and prohibited for imports in terms of the provisions of the Foreign Trade (Development and Regulation) Act, 1992. However, Section 125 ibid. categorically states that the redemption fine imposed under the said Section shall not exceed the market value of the goods, less the duty payable on such goods. The adjudicating authority having not undertaken any such exercise of ascertaining the market value of the goods, the imposition of redemption fine is without the authority of law; the first appellate authority vide impugned order ought to have vacated the redemption fine in toto.

9. Per contra, the Ld. Assistant Commissioner supported the findings of the lower authorities. He has referred to various paragraphs of the impugned Order-in-Appeal dated 30.07.2014 and his submissions are summarized as under: –

(i) Firstly, the goods have been imported in violation of Para 2.17 of the Import-Export Policy.

(ii) Secondly, the goods being used jute bags, the formation of a doubt in the minds of the Assessing Officer regarding the true value of the impugned goods is also acceptable.

(iii) The most important thing which should not be lost sight of is that the importer had voluntarily given a letter dated 26.02.2014 wherein it has stated its no objection to enhancement of value and that it wanted the adjudication to be done without issuing Show Cause Notice and personal hearing.

10. We have heard the rival contentions and perused the documents placed on record. At the outset, we find/record that the appellant has not challenged the findings of the adjudicating authority that its import of used jute bags were contrary to the FTP (Paragraph 2.17) read with Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992.

11.1 Having heard the rival contentions, we deem it appropriate, at the threshold, to deal with the grounds, both verbal and written, urged by the appellant as to the questioning the approach of the adjudicating authority.

11.2 It is an undisputed fact that the appellant chose to accept the enhanced value suggested by the adjudicating authority. Had there been an objection at that point of time, then there was a possibility of the adjudicating authority having gone into the issue by conducting a detailed examination, but that letter dated 26.02.2014 of the appellant estopped any further action by the adjudicating authority. Perhaps a strategic move by the appellant, but that may be a non-issue now.

12. Be that as it may; we shall now deal with the redemption fine and penalty which has been questioned here, by the appellant, through this appeal.

13.1 It is the settled position of law that the imposition of redemption fine cannot be disproportionate or arbitrary and, in any case, the same cannot exceed the market value of the product in question itself less the duty payable. Hence, it is clear that the quantum of levy insofar as redemption fine is concerned is just the discretion.

13.2 Further, when we consider the impugned order, the adjudicating authority’s logic has been clearly defied when the first appellate authority has felt it proper to reduce both the redemption fine and penalty, which is not challenged by the adjudicating authority/Revenue. Having reduced the redemption fine, the first appellate authority should have taken note of the provisions which prescribe the guidelines insofar as the levy of redemption fine is concerned.

13.3 The Order-in-Original is passed in 2014 and hence, we find it unnecessary to remand the matter back, for the reason that there is no challenge to the valuation, rather the challenge is only to redemption fine and penalty. On the peculiar facts of this case, therefore, we are of the view that it would meet the ends of justice if the redemption fine is pegged at Rs.3,00,000/- (Rupees Three Lakhs only) and hence, we modify the impugned order insofar as redemption fine is concerned.

14. Insofar as penalty is concerned, the action of the appellant in shooting the letter dated 26.02.2014 before the adjudicating authority itself is an indication, which prompted the adjudicating authority to pass the Order-in-Original assuming that the import, primarily, was improper. Moreover, as observed by us in paragraph 10 above, the appellant has not specifically challenged the findings as to improper import and hence, the same remains. Hence, there is no case made out for waiving the same, but however, since the Revenue has accepted the reduced penalty amount by the first appellate authority’s order, the same is sustained.

15. In the result, the appeal is partly allowed. The redemption fine alone is reduced, as indicated above.

(Order pronounced in the open court on 03.01.2024)

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