2023 (10) TMI 1516 - AT - Customs

Evasion of Customs Duty - entering into sham agreements with a view to split the consideration for supply of imported equipments under FOB Agreement into designs drawings and other post importation activities so as to evade customs duty - EPCG Licenses do not carry the H Blast as the location - Spares have been imported under EPCG which are required only subsequent to the installation of the capital goods - Extended period of limitation - confiscation - penalties. EPCG Licenses do not carry the H Blast as the location - HELD THAT - It is observed from the documentary evidence placed before us the appellants have sought necessary amendment for the EPCG License to include the name of H Blast therein. These requests were entertained by the DGFT and on examination of the amendment letters issued by them it clear this issue has been properly addressed by the appellant. Therefore the confirmed demand on this account does not survive and the same is set aside. In respect of the spares imported by them under EPCG the imported assemblies sub-assemblies components sub-components are held as allowed as spares under the Foreign Trade Policy. Apart from this Paragraph 6 of 5.1 of FTP which defines the capital goods to include spares meaning that the spares can be imported for pre-production purposes also. In order to obtain the Discharge Certificate for the EPCG License issued by the DGFT the appellants have provided the details of spares imported by them and DGFT is satisfied with the imports made. Therefore when the FTP allows such imports under the EPCG the Customs Dept. cannot question the same and in fact have no authority to do so. Thus the confirmed demand on this account is required to be set aside. Contract divided into several sham contracts - HELD THAT - It is clear that right from the beginning even at the stage of pre-first Offer dated 15.01.2003 the clear demarcation of service purchase scope of work was available at all stages. This was the case with all the other intervening Offer letters till the Final Offer dated 29.7.2005. Thus it shows that proper planning was made for this project clearly demarcating the import of goods purchase of indigenous goods involvement of service works etc. The Final Six Agreements dated 1.8.2005 are the result of the detailed discussions and planning undertaken during the period 15.1.2003 till 1.8.2005. The Revenue has built the present case purely on presumptions and assumptions basis without actually verifying the documentary evidence placed before them. The Adjudicating authority has failed to appreciate these documentary evidence and has confirmed the demand by simply relying the assumptions made during the issue of the SCN. Hence the confirmed demand of Rs. 32, 76, 67, 821 is legally not sustainable. Extended period of limitation - demand being issued for the period which is beyond even the extended period of five years - HELD THAT - In the present case the appellants have placed all the documents before the Appraising Officer and the goods have been cleared in the normal course. There is nothing to suggest from the present proceedings that the goods were provisionally assessed. Further as all the transactions have been carried out with clear records for all the pre-offers and subsequent Four Offers in a transparent manner we do not see any suppression coming out in the entire transaction. At the most it would amount a proper taxplanning keeping in view the best interest of the appellant company. Nothing with any substance has been brought on record that the appellant has indulged in any suppression so as to invoke the extended period demand. Hence the confirmed demand for the extended period is legally not sustainable on account of limitation also. Hence the Appeal is allowed even on account of Limitation. Confiscation - penalties - HELD THAT - The confirmed demands do not sustain both on merits as well as on account of limitation against the main appellant TISCO. Hence the confiscation ordered and penalties imposed on them also do not survive. Conclusion - i) The confirmed demands against TISCO do not survive both on account of merit as well as on account of limitation. ii) The confiscation order stands set aside. iii) The penalties imposed against TISCO and all the other appellants stands set aside. The impugned order set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the agreements entered into by the appellant, purportedly to split the consideration for supply of imported equipment and services, were sham agreements designed to evade customs duty.
• Whether the denial of the EPCG scheme benefits for certain imports was justified, particularly in relation to the location of the 'H Blast' furnace and the nature of imported goods as spares.
• Whether the confirmed demands for differential customs duty and confiscation under the Customs Act were sustainable on merits and within the limitation period.
• Whether penalties imposed on the appellants under various sections of the Customs Act were legally sustainable.

ISSUE-WISE DETAILED ANALYSIS

1. Alleged Sham Agreements and Customs Duty Evasion

• Relevant Legal Framework and Precedents: The Customs Valuation Rules, 1998, and interpretative notes for Rule 4(1) were central to determining whether the agreements were sham and whether the consideration should be added to the value of imported goods.
• Court's Interpretation and Reasoning: The Tribunal found that the agreements were not sham. The detailed offers and agreements from the pre-first offer to the final offer demonstrated a clear demarcation of services and goods, negating the claim of a single lump-sum contract later bifurcated to evade duty.
• Key Evidence and Findings: The Tribunal noted the chronological documentation of offers and agreements, which consistently separated imported goods and services. The Tribunal also considered the payment of service tax on designs and drawings, which the revenue accepted.
• Application of Law to Facts: The Tribunal applied Rule 4(1) of the Customs Valuation Rules and found that the agreements were genuine and not designed to evade customs duty.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the agreements were fraudulent by highlighting the detailed planning and execution of contracts.
• Conclusions: The Tribunal concluded that the confirmed demand of Rs. 32,76,67,821 was not sustainable on merits.

2. Denial of EPCG Scheme Benefits

• Relevant Legal Framework and Precedents: The Foreign Trade Policy and the EPCG scheme under Notification No. 97/2004-Cus were relevant. The Tribunal also referenced the Bombay High Court decision in Bhilwara Spinners Ltd. regarding the power of licensing authorities.
• Court's Interpretation and Reasoning: The Tribunal held that the amendments made by the DGFT to include 'H Blast' in the EPCG license were valid, and the customs authorities had no power to challenge these amendments.
• Key Evidence and Findings: The Tribunal found that the DGFT had approved the amendments to the EPCG license, and the imported goods were permissible as spares under the Foreign Trade Policy.
• Application of Law to Facts: The Tribunal applied the relevant provisions of the Foreign Trade Policy and the Customs Act, concluding that the denial of EPCG benefits was unjustified.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments regarding the improper use of the EPCG scheme, emphasizing the DGFT's authority and the appellant's compliance with the policy.
• Conclusions: The Tribunal set aside the confirmed demand of Rs. 9,76,71,819 related to the EPCG scheme.

3. Limitation and Penalties

• Relevant Legal Framework and Precedents: Sections 111(m), 111(o), 114A, and 114AA of the Customs Act, 1962, were relevant for confiscation and penalties. The limitation period for issuing demands was also considered.
• Court's Interpretation and Reasoning: The Tribunal found that the demand was issued beyond the permissible period and that there was no suppression of facts by the appellant to justify the extended period.
• Key Evidence and Findings: The Tribunal noted that all transactions were documented and transparent, and the appellant fulfilled export obligations under the EPCG scheme.
• Application of Law to Facts: The Tribunal applied the relevant sections of the Customs Act and found the demand and penalties unsustainable due to the lack of suppression and the limitation period.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's claim of suppression, emphasizing the appellant's compliance with procedural requirements.
• Conclusions: The Tribunal set aside the confiscation order and penalties, finding them unsustainable both on merits and due to limitation.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Revenue has built the present case purely on presumptions and assumptions basis, without actually verifying the documentary evidence placed before them."
• Core Principles Established: The Tribunal established that detailed and documented contractual arrangements, when transparent and compliant with legal frameworks, cannot be dismissed as sham for customs duty evasion without substantive evidence.
• Final Determinations on Each Issue: The Tribunal set aside the confirmed demands and penalties, allowing the appeals of all appellants, including the main appellant TISCO, on both merits and limitation grounds.