2019 (7) TMI 108 - AT - Customs

Benefit of exemption from payment of Custom Duties - violation of post import conditions - Sl No 230 of Notification No 21/2002-Cus 01.03.2002 - import of Paver Finisher - alleged evasion of customs duty diverting the imported goods to other entities much before the completion of five years from the date of import and not using the goods in terms of the conditions of the notifications and thereby not adhering to end use conditions. HELD THAT - It is admitted that Appellants had claimed the exemption in respect of the said pavers by producing the documents in respect of projects namely Major Maintenance works of State High way No 47 portion between Meerut and Bijnore of 65 kms under UP state Road Project and construction of rehabilitation of State Highway 47 of portion between Bijnore to Nazirabad of 53 kms length. The paver was permitted clearance under exemption 21/2002-Cus which allowed clearance under complete exemption subject to the condition that the goods were actually used by the importer himself in the projects for which said goods are cleared. Undisputedly these pavers were never used by Appellant 1 in any of the above two referred projects thereby contravening the conditions prescribed by the exemption notification. On the contra these were transferred by the Appellant 1 in first instance for use in Delhi Gurgaon Project of Jaypee DSC Infrastructure. It is now settled position in law that exemption notification needs to be construed strictly and it is for the person claiming the exemption to satisfy that all the conditions prescribed by the notification are fulfilled. Thus by transferring the imported goods cleared for use in particular projects to some other project Appellant 1 had at that instance itself contravened the conditions of exemption granted subject to actual user condition. For the contraventions done by transferring these pavers to Delhi Gurgaon Project with using them in the projects for which the goods have been cleared the goods had become liable for confiscation under Section 111(o). In view of the fact that Appellants had given an undertaking to use the goods cleared under exemption according to prescribed post importation conditions in our view demand of duty made under Section 12 of the Customs Act 1962 cannot be faulted with - It is also worthwhile to point Section 28 is a machinery provision for determination of the duty short paid/ not paid or erroneously refunded. When there is no such determination needed and duty as determined at time of assessment but for the exemption allowed subject to certain post importation conditions the quantum of duty short paid/ not paid is not to be determined again and Appellant 1 should have in terms of undertaking given deposited the duty amount immediately in case of violation of any post importation conditions. Requirement of demand notice - Appellants have contended that for demanding the duty under 125(2) a notice under Section 125 is a must - HELD THAT - When the duty has been demanded in terms of the undertaking given by the appellant 1 that they will in case of violation of post import conditions pay back the duty determined in respect of the said goods but for exemption the duty demand has to be made from them only in terms of their undertaking. It is fact that notice proposing confiscation of goods should also have been issued to owner of the goods/ person from whose possession the goods have been seized. But once seized and power to seize such goods can be shown to exist the notice will have to be issued to the person who had contravened the provisions of law which have made the goods liable for confiscation. It is settled law that without any notice no adverse order can be passed against the owner/ possessor of the goods from whose custody the goods have been seized. The goods become liable for confiscation on account of violations as prescribed by Section 111 of the Customs Act 1962. Once the goods are held liable for confiscation the physical availability of the goods or their presence is not mandatory for proceeding under section 125 or Section 112 and 114 of the Customs Act 1962 - In the present case Appellant 1 has by way of undertaking agreed to comply with the post import conditions in case of non compliance with the same he could have been proceeded against even in absence of the goods. Confiscation upheld - quantum of redemption fine reduced - penalties are rightly imposable on them in terms of Section 112 (1) of the Customs Act 1962. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment include:

• Whether the Customs duty exemption under Notification No. 21/2002-Cus was rightfully denied to the appellant.
• Whether the imported Paver Finisher was liable for confiscation under Section 111(o) of the Customs Act, 1962, due to violation of post-import conditions.
• Whether the duty demand under Section 12 read with Section 125(2) of the Customs Act, 1962, was validly imposed.
• Whether penalties under Section 112 of the Customs Act, 1962, were justifiably imposed on the appellants.
• Whether the redemption fine and duty liability were correctly adjudicated.

2. ISSUE-WISE DETAILED ANALYSIS

Customs Duty Exemption Denial:

• Legal Framework and Precedents: The exemption under Notification No. 21/2002-Cus required compliance with specific conditions, including the use of imported goods in designated projects for a period of five years.
• Court's Interpretation and Reasoning: The Tribunal found that the appellant failed to use the imported Paver Finisher in the specified projects, violating the conditions of the exemption notification.
• Key Evidence and Findings: The appellant had claimed exemption by presenting contracts for projects in Uttar Pradesh but used the machinery in a different project, violating the exemption conditions.
• Application of Law to Facts: The Tribunal applied the principle of strict interpretation of exemption notifications, as established in Dilip Kumar & Co, to conclude that the appellant did not meet the exemption criteria.
• Treatment of Competing Arguments: The appellant argued that the sale of the machinery was due to an accident and subsequent insurance claim, but the Tribunal found that this did not absolve them of the exemption conditions.
• Conclusions: The denial of exemption was upheld due to non-compliance with the notification's conditions.

Confiscation of Imported Goods:

• Legal Framework and Precedents: Section 111(o) of the Customs Act provides for confiscation of goods if conditions of an exemption notification are violated.
• Court's Interpretation and Reasoning: The Tribunal determined that the sale of the Paver Finisher within five years constituted a breach of the exemption conditions, making the goods liable for confiscation.
• Key Evidence and Findings: The Tribunal noted that the machinery was sold to another company before the completion of the five-year period, violating the exemption conditions.
• Application of Law to Facts: The Tribunal relied on precedents such as Rajhoo Barot to affirm the confiscation under Section 111(o).
• Treatment of Competing Arguments: The appellant's argument that the sale was a result of an insurance claim was rejected as irrelevant to the exemption conditions.
• Conclusions: The Tribunal upheld the confiscation of the goods due to the breach of exemption conditions.

Duty Demand and Redemption Fine:

• Legal Framework and Precedents: Section 12 and Section 125(2) of the Customs Act allow for duty recovery and redemption fines when goods are liable for confiscation.
• Court's Interpretation and Reasoning: The Tribunal found that the duty demand was justified as the appellant had violated the conditions of the exemption notification.
• Key Evidence and Findings: The Tribunal noted that the appellant had given an undertaking to pay the duty if the conditions were violated.
• Application of Law to Facts: The Tribunal referenced the Bombay Hospital Trust case to support the duty demand without a time limitation.
• Treatment of Competing Arguments: The appellant's contention that the duty should be paid by the buyer was dismissed, as the undertaking was binding on the appellant.
• Conclusions: The duty demand was upheld, but the redemption fine was reduced from 21 lakhs to 2.5 lakhs.

Penalties Imposed:

• Legal Framework and Precedents: Section 112 of the Customs Act penalizes acts leading to confiscation of goods.
• Court's Interpretation and Reasoning: The Tribunal found that the appellants' actions, including the directors, contributed to the breach of conditions, justifying penalties.
• Key Evidence and Findings: The Tribunal cited the roles and responsibilities of each appellant in the violation of the exemption conditions.
• Application of Law to Facts: The Tribunal applied precedents to affirm the penalties based on the appellants' involvement in the contraventions.
• Treatment of Competing Arguments: The appellants' defenses were rejected, as their roles were integral to the violations.
• Conclusions: The penalties on all appellants were upheld.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification."
• Core Principles Established: The judgment reinforced the principle of strict interpretation of exemption notifications and the binding nature of undertakings given for duty exemptions.
• Final Determinations on Each Issue: The Tribunal upheld the denial of the duty exemption, the confiscation of the goods, the duty demand, and the penalties imposed, while reducing the redemption fine.