Case Law Details

Case Name : J S Steel Traders Vs Commissioner of Customs (CESTAT Chandigarh)
Appeal Number : Customs Appeal No. 60037 of 2021
Date of Judgement/Order : 24/05/2021
Related Assessment Year :

Redemption fine & penalty imposed by Revenue Department without final assessment is not permissible

The Hon’ble CESTAT Chandigarh in matter of M/s J.S. Steel Traders v. the Commissioner of Customs, Ludhiana [Custom Appeal No. 60037 of 2021, Final Order No. 60840/2021 dated May 24, 2021] set aside the order passed by the Revenue Department, imposing redemption fine and penalties on the assessee. Held that, without finalization of the assessment, re-assessment of the bill of entry and duty paid by the assessee under Section 18(2) of the Customs Act cannot be adjusted and the duty, interest, 15% penalty in terms of Section 28(5) of the Customs Act, 1962 (“the Customs Act”) paid by the assessee is sufficient.

Facts:

M/s J.S. Steel Traders (“the Appellant”) imported consignment of heavy metal scrap. On physical verification consignment found to be of secondary and defected MS Sheets. The Appellant sought provisional release of the goods under Section 110 A of the Customs Act and the goods were allowed to be released provisionally. At the time of taking possession of the goods, the Appellant paid entire amount of the differential duty along with interest thereon and 15% duty as penalty in terms of Section 28(5) of the Customs Act.

Subsequently a Show Cause Notice (“SCN”) was issued by the Commissioner of Customs, Ludhiana (“the Respondent”) to the Appellant alleging that the duty has been paid by the Appellant under Section 18(2) of the Customs Act, therefore the interest is to be demanded under Section 28 AA of the Customs Act and the redemption fine of INR  1,00,000/- and penalties of INR 1,75,000/- is to be imposed under Section 112 and Section 114 AA of the Customs Act respectively.

The SCN was adjudicated, wherein, an order (“the Impugned Order”) was passed imposing the redemption fine and penalties on the Appellant. Being aggrieved, the Appellant has filed this appeal.

Issue:

  • Whether the duty, interest and 15% penalty paid by the Appellant in terms of Section 28(5) of the Customs Act is sufficient or not?

Held:

The Chandigarh CESTAT in Custom Appeal No. 60037 of 2021, Final Order No. 60840/2021 dated May 24, 2021 held as under:

  • Analysed Section 18(2) of the Customs Act and observed that, no final assessment order has been placed by the Respondent, which means the provisional release of the goods has been treated as final and the duty paid by the Appellant has been adjusted under Section 18(2) of the Customs Act.
  • Opined that, without finalization of the assessment, re-assessment of the bill of entry and duty paid by the Appellant under Section 18(2) of the Customs Act cannot be adjusted. Interest can’t be demanded and penalty also can’t be imposed on the Appellant.
  • Noted that, provision of Section 28(1) of the Customs Act are applicable in case of demanding differential duty from the importer. But the Respondent didn’t follow the due process of law to refrain to give benefit of the provisions of the Section 28(5) of the Customs Act to the Appellant. Stated that, the Respondent is bound to follow the due process of law and only the implementing authority in true spirits, therefore, without demanding duty under Section 28(1) of the Customs Act, it cannot be adjusted under Section 18(2) of the Customs Act.
  • Further noted that, the demand of differential duty is also not sustainable in the circumstances till finalization of the assessment, as the Appellant has not contested the payment of duty and sought conclusion of the matter under Section 28(5) of the Customs Act. Moreover, when the Respondent has demanded interest under Section 28AA of the Customs Act, the provisions of Section 28(5) of the Customs Act would have been attracted.
  • Set aside the Impugned Order.
  • Held that, the duty, interest and penalty paid by the Appellant at the time of provisional clearance of the goods shall amounts to be concluded under Section 28(5) of the Customs Act and the duty, interest, and 15% penalty in terms of Section 28(5) of the Customs Act paid by the Appellant is sufficient.

Relevant Provisions:

Section 112 of the Customs Act:

“Penalty for improper importation of goods, etc. – Any person, –

(a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act, or

(b) who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable, –

(i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding the value of the goods or five thousand rupees, whichever is the greater;

(ii) in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent. of the duty sought to be evaded or five thousand rupees, whichever is higher:

Provided that where such duty as determined under sub-section (8) of section 28 and the interest payable thereon under section 28AA is paid within thirty days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty five per cent. of the penalty so determined;

(iii) in the case of goods in respect of which the value stated in the entry made under this Act or in the case of baggage, in the declaration made under section 77 (in either case hereafter in this section referred to as the declared value) is higher than the value thereof, to a penalty not exceeding the difference between the declared value and the value thereof or five thousand rupees, whichever is the greater;

(iv) in the case of goods falling both under clauses (i) and (iii), to a penalty not exceeding the value of the goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest;

(v) in the case of goods falling both under clauses (ii) and (iii), to a penalty not exceeding the duty sought to be evaded on such goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest.”

Section 114AA of the Customs Act:

Penalty for use of false and incorrect material. – 

If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.”

Section 28(1) and 28(5) of the Customs Act:

28. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded-

(1) Where any duty has not been levied or not paid or has been short-levied or short- paid] or erroneously refunded, or  any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than  the reasons of collusion or any wilful mis-statement or suppression of facts,-

(a) the proper officer shall, within 9[two years] from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied 10[or paid] or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

Provided that before issuing notice, the proper officer shall hold pre-notice consultation with the person chargeable with duty or interest in such manner as may be prescribed;

(b) the person chargeable with the duty or interest, may pay before service of notice under clause (a) on the basis of,-

(i) his own ascertainment of such duty; or

(ii) the duty ascertained by the proper officer, the amount of duty along with the interest payable thereon under section 28AA or the amount of interest which has not been so paid or part-paid.

 Provided that the proper officer shall not serve such show cause notice, where the amount involved is less than rupees one hundred.”

…………………..

“(5) Where any duty has not been levied or not paid or has been short-levied or short-paid or the interest has not been charged 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 by the importer or the exporter or the agent or the employee of the importer or the exporter, to whom a notice has been served under sub-section (4) by the proper officer, such person may pay the duty in full or in part, as may be accepted by him, and the interest payable thereon under section 28AA and the penalty equal to fifteen per cent. of the duty specified in the notice or the duty so accepted by that  person, within thirty days of the receipt of the notice and inform the proper officer of such payment in writing.”

Section 110A of the Customs Act:

“Provisional release of goods, documents and things seized or bank account provisionally attached pending adjudication. –

Any goods, documents or things seized or bank account provisionally attached under section 110, may, pending the order of the adjudicating authority, be released to the owner or the bank account holder on taking a bond from him in the proper form with such security and conditions as the adjudicating authority may require.”

Section 18(2) of the Customs Act:

18. Provisional assessment of duty-

(2) When the duty leviable on such goods is assessed finally or re-assessed by the proper officer in accordance with the provisions of this Act, then-

(a) in the case of goods cleared for home consumption or exportation, the amount paid shall be adjusted against the duty finally assessed or re-assessed, as the case may be and if the amount so paid falls short of, or is in excess of the duty finally assessed or re-assessed, as the case may be, the importer or the exporter of the goods shall pay the deficiency or be entitled to a refund, as the case may be;

(b) in the case of warehoused goods, the proper officer may, where the duty finally assessed or re-assessed, as the case may be is in excess of the duty provisionally assessed, require the importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty.”

Section 28AA of the Customs Act:

“28AA. Interest on delayed payment of duty.

(1) Notwithstanding anything contained in any judgment, decree, order or direction of any  court, Appellate Tribunal or any authority or in any other provision of this Act or the rules made  thereunder, the person, who is liable to pay duty in accordance with the provisions of section 28, shall, in addition to such duty, be liable to pay  interest, if any, at the rate fixed under sub-section (2), whether such payment is made voluntarily or after determination of the duty under that section.

(2) Interest at such rate not below ten per cent. and not exceeding thirty-six per cent. per annum, as the Central Government may, by notification in the Official Gazette, fix, shall be paid by the person liable to pay duty in terms of section 28 and such interest shall be calculated from the first day of the month succeeding the month in which the duty ought to have been paid or from the date of such erroneous refund, as the case may be, up to the date of payment of such duty.

(3) Notwithstanding anything contained in sub-section (1), no interest shall be payable where,-

(a) the duty becomes payable consequent to the issue of an order, instruction or direction by the Board under section 151A; and

(b) such amount of duty is voluntarily paid in full, within forty-five days from the date of issue of such order, instruction or direction, without reserving any right to appeal against the said payment at any subsequent stage of such payment.”

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FULL TEXT OF THE CESTAT CHANDIGARH ORDER

The appellant is in appeal against the impugned order wherein redemption fine of Rs. 1,00,000/- and penalties of Rs. 25,000/- and Rs. 1,50,000/- have been imposed on them under Section 112 and Section 114 AA of the Customs Act, 1962 respectively.

2. The facts of the case are that the appellant imported one consignment declaring the same as heavy melting scrap. On physical examination, it was found that it is secondary and defected MS Sheets. The appellant sought provisional release of the goods under Section 110 A of the Customs Act, 1962 and the goods were allowed to be released provisionally and at the time of taking possession of the goods, the appellant paid entire amount of the differential duty along with interest thereon and 15% duty as penalty in terms of Section 28(5) of the Customs Act, 1962. Later on, a show cause notice was issued to the appellant holding that the duty has been paid by the appellant under Section 18(2) of the Customs Act, 1962 therefore the interest is to be demanded under Section 28 AA of the Act and penalties to be imposed under Section 112 and Section 114 AA of the Act. The show cause notice was adjudicated. Redemption fine and penalties were imposed on the appellant. Aggrieved from the said order, the appellant is before me.

3. The ld. Counsel for the appellant submits that in case when differential duty is to be demanded, the same can be demanded under Section 28(1) of the Customs Act, 1962 and interest thereon can be demanded under Section 28 AA of the Customs Act, 1962. As the appellant has paid duty alongwith interest and 15% of the duty as penalty in terms of Section 28(5) of the Customs Act, 1962, the proceedings against the appellant are comes to an end. To support this contention, he relied on the decision of this Tribunal in the case of Mona Steels vs. CC, Amritsar vide Final Order No. A/60130/2017 dt. 19.01.2017.

4. On the other hand, the ld. AR opposes the contention of the ld. Counsel and submits that as the duty has not been demanded under Section 28 of the Act, therefore, provisions of the Section 28 are not applicable to the facts of this case. On being inquired from the ld. AR, if proceedings are not initiated under Section 28 of the Act, then why the interest has been demanded from the appellant under Section 28 AA of the Act. In answer to this query, the ld. AR submitted that interest could not been demanded from the appellant under Section 28AA of the Act.

5. Heard the parties and considered the submissions.

6. On going through the facts of the case which have not been disputed either of the sides, I find that on detection of the goods on being mis-declared by the appellant, the appellant sought provisional release of the goods which was allowed and at that time, the appellant paid differential duty alongwith interest and 15% of duty as penalty in terms of Section 28(5) of the Customs Act, 1962. Later on, the show cause notice has been issued to the appellant to adjust the duty paid by the appellant under Section 18(2) of the Customs Act, 1962.

7. The provision of Section 18(2) speaks that “when the duty leviable on such goods is assessed finally (or re-assessed by the proper officer) in accordance with the provisions of this Act, then the amount paid by the assessee at the time of clearance shall be adjusted.” On going through the records placed before me, there is no final assessment order has been placed which means the provisional release of the goods has been treated as final and the duty paid by the appellant has been adjusted under Section 18(2) of the Act. It is very strange that without finalization of the assessment, re-assessment of the bill of entry, how the duty paid by the appellant has been adjusted under section 18(2) of the Act and demanded the interest and imposed the penalty on the appellant. Moreover, when any differential duty is to be demanded from the importer, the provisions of Section 28 (1) of the Act are required to be attracted. But smartly, the officers avoided to follow the due process of law to avoid to give benefit of the provisions of Section 28(5) of the Act. The officers are bound to follow the due process of law and only the implementing authority in true spirits. Without demanding duty under Section 28(1) of the Act, how can it be adjusted under section 18(2) of the Act. Technically speaking the demand of differential duty is also not sustainable in the circumstances till finalization of the assessment; as the appellant has not contested the payment of duty and sought conclusion of the matter under Section 28(5) of the Act. Moreover, when the demand of interest has been made under Section 28 AA of the Act, naturally or consequentially the provisions of Section 28(5) of the Customs Act, 1962 have been attracted in the facts and circumstances of the case. Therefore, the duty, interest and penalty paid by the appellant at the time of clearance of the goods shall amounts to be concluded under Section 28(5) of the Customs Act, 1962 Instead of doing so, the officers of the Revenue has gone beyond that, which is not permissible in law.

8. In these circumstances, I hold that the duty, interest and 15% penalty in terms of Section 28(5) of the Customs Act, 1962 paid by the appellant is sufficient. Therefore, the impugned order deserves no merit, hence set aside.

9. In result, the appeal is allowed for dropping redemption fine and penalties.

(Dictated and pronounced in the open Court)

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DISCLAIMER: The views expressed are strictly of the author and A2Z Taxcorp LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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