2018 (12) TMI 173 - AT - Customs

Demand of differential duty - HR plates - confiscation of goods found in excess than the goods declared in the relevant Bills of Entry - appellant contended that the steel plates in international trade are traded with reference to their length width and thickness. The weight of such plates is never the basis or criteria for trading in such goods. The weight of such steel plates is never determined by actually weighing them on a weigh scale but is always computed with reference to a scientifically approved universal formula which is 7.85kg/dm3. Held that - The demand for the differential duty is not sustainable both on facts and as well as in law. It is not in dispute that the transaction value as determined in terms of Section 14 of the Act is required to be taken as the basis for computing the assessable value on which the duty is to be assessed. It is nobody s case that the importer has paid anything over and above the declared value for the goods in question. It is also nobody s case that any of the exceptions provided for in proviso to Rule 3(2) of the Customs Valuation (Determination of Value of Imported goods) Rules 2007 are attracted to the facts of the instant case thereby warranting rejection of the transaction value. It is settled law laid down by the Hon ble Apex Court in the case of Eicher Tractors Ltd vs Commissioner of Customs 2000 (11) TMI 139 - SUPREME COURT OF INDIA that it is only when the transaction value is liable to be rejected based on the exceptions provided for in Rule 3(ii) of the erstwhile Customs Valuation Rules 1988 could the assessable value be determined in terms of the valuation provisions - The ratio laid down in the aforesaid judgement applies in all fours even under the amended Section 14 and the Customs Valuation Rules 2007. In the instant case the adjudicating authority has not come to a conclusion that the transaction value as adjusted in accordance with the provisions of Rule 10 was incorrect or mis-declared and was required to be rejected and the assessable value re-computed under the valuation rules. The adjudicating authority has in a completely ad-hoc and arbitrary manner without any reference to any provisions of the law and as also without following the provisions of the Valuation Rules which lay down a codified manner of re-computing the value arrived at an assessable value which has no legal basis or sanctity. It appears from the Public Notice No.17/2010 dated 29.6.2010 and Public Notice No.10 dated 17.6.2013 that the weight variation upto 1% is to be accepted and ignored irrespective of the nature and type of the commodity - this proposition cannot be accepted - there cannot be a thumb rule in such cases. The extent of permissible variation between the declared and actual weight has to be with reference to the type of commodity qua which the said difference is being evaluated. Undisputedly when steel plates are globally traded based on their theoretical weight as has been contended by the appellant which also appears to be the position as is evident from the Indian Standard specification as also the Japanese Standard specification the weight tolerance envisaged in the trade notice referred to by the Respondent in the impugned order qua such steel plates has to be taken at 5% / -2.5% and not at 1% as has been adopted by the Respondent - it is not in dispute that the difference between the theoretical weight that has been declared on the bill of entry vis-a-vis the weight that has been physically computed worked out to 3.57% and is well within the 5% tolerance provided for in the Indian Standard specifications. Also the manner of computing the physical weight was not the most scientific one inasmuch as the physical weight was arrived at by first arriving at the tare weight of the truck trailer and thereafter arriving at the weight of the truck trailer with the steel plates loaded on it. Further the allegation of suppression arrived at by the Respondent on the premise that the difference between the declared and the actual weight being more than 1% would not have come to the notice had physical weighment had not been done is completely untenable. Appeal allowed - decided in favor of appellant.

Summary

The core legal questions considered by the Tribunal in this appeal are:

(i) Whether the department was justified in demanding differential customs duty by re-computing the assessable value on the basis of alleged undeclared excess weight of 2605.480 metric tonnes of HR steel plates imported by the appellant;

(ii) Whether the alleged undeclared excess quantity of HR steel plates was liable to confiscation under various provisions of Section 111 of the Customs Act, 1962, and whether the appellant was liable to penalties consequent thereto.

Issue-wise detailed analysis:

1. Demand for differential customs duty based on alleged excess weight

The relevant legal framework includes Section 14 of the Customs Act, 1962, which mandates that the transaction value, i.e., the price actually paid or payable for the goods when sold for export to India, is the basis for customs valuation. The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, particularly Rule 3(2) and Rule 10, prescribe the manner of valuation and adjustments thereto. Precedents cited include the Apex Court judgment in Eicher Tractors Ltd. v. Commissioner of Customs, which clarifies that the transaction value must be accepted unless exceptions under Rule 3(2) apply, and that alternate valuation methods under Rules 5 to 8 can only be invoked sequentially if the transaction value is rejected.

The Tribunal noted that the adjudicating authority did not find any mis-declaration or rejection of the transaction value declared by the appellant. The department's demand for differential duty was based solely on a physical weighment that showed excess weight compared to the declared theoretical weight. The Tribunal held this approach to be arbitrary and without legal basis, as the valuation rules require adherence to prescribed procedures and do not permit ad-hoc enhancement of assessable value.

Further, the appellant's counsel submitted that the steel plates are internationally traded based on theoretical weight computed by a universally accepted scientific formula (density of steel at 7.85 kg/dm^3 multiplied by volume). This method is recognized in Indian Standard IS 1730:1989, Japanese Industrial Standards, and ASTM standards. The physical weighment done by the customs custodian was crude, based on weighing trucks with loaded steel plates and subtracting tare weight, without producing weigh slips or verifying calibration and methodology. The Tribunal agreed that such weighment lacked scientific rigor and credibility.

The appellant also highlighted that purchase orders allowed for a tolerance of up to +2% in weight, and Indian Standard IS 1852:1985 prescribes rolling and cutting tolerances for steel plates, including a permissible consignment weight variation of +5% / -2.5% from theoretical weight. The difference in this case was 3.57%, well within the prescribed tolerance.

The Tribunal emphasized that the department's reliance on Public Notice No. 17/2010, which allowed a 1% deviation rule for weight variation, was inapplicable in this context. The Tribunal reasoned that the permissible weight variation must be commodity-specific and that for HR steel plates, the Indian Standard tolerance of +5%/-2.5% applies rather than a rigid 1% rule. The Tribunal found the department's application of a 1% threshold to be unreasonable and inconsistent with the standards governing steel plates.

Regarding transaction value, the Tribunal noted that the invoice price and transaction value declared were undisputed and no exceptions to acceptance under Rule 3(2) were attracted. The appellant had paid for the declared quantity, and there was no evidence of suppression or misstatement with intent to evade duty.

Consequently, the Tribunal concluded that the demand for differential customs duty based on alleged excess physical weight was unsustainable in law and fact.

2. Confiscation and penalties on alleged undeclared excess quantity

The department invoked various clauses of Section 111 of the Customs Act, 1962, to order confiscation of the alleged excess quantity of steel plates. Penalties were imposed under Sections 114A and 114AA. The department argued that no mens rea is required for confiscation under Section 111 and relied on the Supreme Court's decision in Mangalore Refinery & Petrochemicals Ltd. v. Commissioner of Customs.

The appellant contended that since the declared weight was based on internationally accepted scientific standards and the physical weighment was unreliable, no suppression or misdeclaration was established. Further, all consignments were cleared against advance licenses with sufficient balance, and any difference in weight could be debited against the license without attracting duty or penalty. The appellant also cited Public Notice No. 17/2010 and circulars which require acceptance of Mill Test Certificates issued by manufacturers, which were submitted and not disputed.

The Tribunal found merit in the appellant's submissions and noted that the physical weighment was not a reliable basis for confiscation. The variation in weight was within the permissible tolerance under Indian Standards, and the transaction value was not disputed. The Tribunal further held that the allegation of suppression was untenable given the declared theoretical weight and supporting documents. It also observed that the adjudicating authority failed to examine whether the weighment procedure was flawed and improperly drew adverse inferences.

Therefore, confiscation and penalties based on the alleged excess weight were not justified.

3. Limitation and invocation of extended period for duty demand

The appellant argued that extended period of limitation for duty demand could only be invoked upon evidence of deliberate suppression or misstatement with intent to evade duty, which was absent here. The Tribunal agreed, noting no such evidence was produced. The declared weight was based on supplier documents and accepted standards, negating any claim of suppression.

Significant holdings and core principles established:

"It is settled law laid down by the Hon'ble Apex Court in the case of Eicher Tractors Ltd. that it is only when the transaction value is liable to be rejected, based on the exceptions provided for in Rule 3(ii) of the erstwhile Customs Valuation Rules, could the assessable value be determined in terms of the valuation provisions."

"The department cannot enhance the value on an arbitrary basis without reference to the statutory provisions of Section 14 and the Customs Valuation Rules, 2007."

"The weight tolerance envisaged in the trade notice qua such steel plates has to be taken at +5% / -2.5% as per Indian Standard specifications and not at 1% as adopted by the department."

"The physical weighment method adopted by the customs custodian was crude and unscientific and cannot be relied upon to draw adverse inference against the importer."

"There is no evidence of suppression or misstatement with intent to evade duty, hence invocation of extended period of limitation is not justified."

"Confiscation under Section 111 requires no mens rea, but in the facts of this case, where the declared weight was based on accepted international standards and no misdeclaration was established, confiscation and penalties are not warranted."

Final determinations:

The Tribunal set aside the order-in-original, quashing the demand for differential customs duty, confiscation of goods, and penalties imposed. It held that the declared theoretical weight based on scientific formula and recognized standards must be accepted, and the physical weighment showing minor variation within permissible tolerance cannot form the basis for adverse action. The appeal was allowed with consequential reliefs in accordance with law.