2025 (5) TMI 1033 - AT - Customs

Misdeclaration of old car as new car - Confiscation of the imported second-hand car - seeking release of the car - re-determination of its Value and Customs Duty - fraudulent importers of high-end cars - Willingness to pay the differential duty along with interest - term liable and its meaningful expression as made use of in Section 125(2) - HELD THAT - It is on record that the vehicle was declared as new at the time of import while during investigations it was found to be old and used having been registered with DLA in UK. Also the investigations conducted led the authorities to realise that the value of the imported vehicle was also misdeclared and the appellants along with Rajesh Jethani (operating out of Dubai UAE) had arranged for finance for the payment of customs duty as well as other incidental expenses besides the remunerations of the CHA firm. The appellant in proceedings before us has also held himself out to be a bonafide purchaser of the said imported vehicle and hence the owner thereof. The vehicle is registered in the appellant s name with the RTO Surat. The appellant by virtue of himself holding out to be a bonafide purchaser of the imported vehicle has thereby admitted and ascribed to himself the ownership rights of the vehicle. The adjudicating authority in para 8.8 of the order-in-original has held that the present appellant is a bonafide purchaser. However the same is alluded to be based as per the appellant s contentions and in the context of the show cause notice not attributing to the appellant s role. A clear look at the entire context would reveal that such an observation was the initial prologue to the evaluation of evidence and was certainly not made as a categorical assertion/finding going by the initial statements and submissions as made by the appellant. But were it to be so the automatic liability for payment of differential duty on the appellant under Section 125(2) of the Act ibid is inescapable and a foregone conclusion both on account of his claim to be the owner of the said vehicle as well as the redemenor thereof. In nutshell the ownership rights can be construed upon a person who has the right to possess use and enjoy the thing owned and a right to consume destroy or alienate it which may be indeterminate in duration and residuary in character. Viewed within the perimeter of the term owner / ownership of the imported vehicle and the factual assertions as presented in the matter there is no doubt that the appellant is the owner of the said vehicle both de jure as well as de facto amply demonstrated among others by the fact of registration of the vehicle in his name with RTO Surat. A reading of sub-sections (1) and (2) of Section 125 together makes it clear that liability to pay duty arises under sub-section (2) in addition to the fine under sub-section (1). Therefore where an order is passed for imposition of fine in lieu of confiscation of goods the payment of Customs duty shall only be referable to sub-section (2) of Section 125 of the Customs Act. It would not attract Section 28(1) of the Customs Act which covers the cases of duty not levied short levied or erroneously refunded etc. The requirement for payment of duty under Section 125(2) would be an integral part of proceedings relating to confiscation and consequential orders thereon. In view of what is thus stated it is obvious that law on this issue is well settled if the option to redeem the goods is not exercised the duty in addition to the fine so payable as per provisions of Section 125 cannot be demanded since on confiscation the property in the goods if not redeemed would continue to vest with the Government. However having exercised the option of Section 125 there obviously is no excape from payment of duty and charges as applicable. It thus clearly flows that there is no discretion vested with the owner having availed redemption for not to pay duty and charges as due in terms of section 125 (2) in itself. Payment of duty under the circumstances has no bearing with the provisions of Section 28 of the Customs Act that would ordinarily seek to recover duties not levied/not paid/short levied or short paid etc. It also be noted that the word used in the statute is shall making the factum of need to pay duty evidently binding and leaving no scope to read shall as may and thereby derive a leeway for the owner/redemnor of goods. The apex court in the case of Union of India vs. Umesh Dhaimode 1997 (2) TMI 140 - SC ORDER had categorically held that the appellate authority was vested with powers of remand as remand necessarily entailed annulling the decision under appeal. Therefore we hold no legal infirmity in the impugned order passed by Commissioner(Appeals) which remands the case back to the original authority for a de novo adjudication in the matter. The order of Commissioner(Appeals) is therefore required to be upheld and maintained. We thus disallow and dismiss the appeal filed by the appellant.

Summary

Issues Presented and Considered

The core legal questions considered by the Tribunal include:

• Whether the imported Audi Q7 vehicle was correctly classified as a new car or a second-hand/used vehicle for customs valuation and duty purposes.
• Whether the appellant, who purchased the vehicle post-import, is liable to pay the differential customs duty and interest under Section 28 of the Customs Act, 1962, or whether this liability rests solely with the importer.
• The applicability and interpretation of Section 125(1) and (2) of the Customs Act concerning redemption of confiscated goods and liability for payment of customs duty and charges by the owner or person in possession of the goods.
• Whether the appellant was a bona fide purchaser or a joint owner involved in the import transaction, affecting his liability for customs duty and penalties.
• The validity and scope of the Commissioner (Appeals)'s remand order directing de novo adjudication with instructions to recover duty under Section 28 or Section 125(2) of the Customs Act.
• Whether penalties under Sections 112(a), 112(b), 114A, and 114AA of the Customs Act were rightly imposed on the appellant.
• The effect of the appellant's partial payments, indemnity bond, and bank guarantee on his liability for customs duty and redemption fine.

Issue-wise Detailed Analysis

1. Classification of the Vehicle as New or Second-Hand and Customs Valuation

The vehicle was declared as new at import, attracting customs duty at 113%. However, investigations revealed that the vehicle was manufactured in July 2006, registered in the UK in August 2006, and had covered approximately 2000 km at delivery in India, indicating it was a second-hand vehicle. The vehicle's invoice, Bill of Lading, and Customs Duty paid challan were submitted, but the department found evidence of misdeclaration and fraudulent import practices, including forged documents and tampering with chassis numbers and odometers.

Relevant legal provisions include Section 14(1) of the Customs Act, 1962 and Customs Valuation Rules, 1988, which empower re-determination of value in cases of misdeclaration. The Adjudicating Authority rejected the declared value and re-determined the assessable value at Rs. 30,29,100/- CIF, holding the vehicle as second-hand and liable to duty at 165%.

The Court accepted the factual findings that the vehicle was used and misdeclared as new, rejecting appellant's contentions and presumption that the vehicle was new based on the invoice. The appellant's failure to produce original documents and the temporary registration in India were held as indicative of prior use abroad. The authorities' reliance on OEM Audi India's letter and investigation reports strengthened the conclusion of misdeclaration.

2. Liability for Payment of Differential Customs Duty and Interest

The appellant contended he was not the importer and thus not liable to pay the differential customs duty under Section 28 of the Customs Act, which mandates recovery from the importer. He claimed to be a bona fide purchaser and relied on case laws shielding post-import buyers from duty liability.

The Adjudicating Authority and Commissioner (Appeals) found the appellant to be the owner and co-owner of the vehicle, noting the vehicle's registration in his name and his knowledge of the import's fraudulent nature. The appellant's partial payments and indemnity bond evidenced acceptance of liability. The adjudicating authority rejected the appellant's argument that the importer alone was liable, holding that the appellant's possession and ownership made him liable for duty and penalties.

Section 28(1) provides for recovery of duty from the person chargeable, which includes the importer or any person liable for duty. The Tribunal emphasized that customs duty is an indirect tax on goods, not a personal tax on the importer alone, and can be recovered from any person chargeable with the duty.

3. Interpretation and Application of Section 125 of the Customs Act

Section 125(1) grants the adjudicating authority discretion to impose a fine in lieu of confiscation and allows the owner or person in possession of seized goods to redeem them by paying the fine. Section 125(2) mandates that the owner or person in possession who redeems the goods shall also be liable to pay any duty and charges payable in respect of such goods.

The Court clarified that the redemption option is available to the owner or, if the owner is unknown, to the person from whose possession the goods were seized. The appellant, having claimed ownership and exercised the redemption option, is mandatorily liable to pay the differential duty and charges under Section 125(2), regardless of whether he was the importer.

It was held that the provisions of Section 125(2) operate independently and are not contingent upon Section 28. Hence, the appellant's plea that duty liability arises only under Section 28 was rejected. The Tribunal cited authoritative precedents, including the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Jagdish Cancer & Research Centre, which confirmed that duty payable on redemption is governed by Section 125(2) and not Section 28.

The Tribunal also noted that the adjudicating authority's order need not explicitly mention Section 125(2) for its application to arise, as Section 125(1) and (2) operate conjointly and mandatorily.

4. Bona Fide Purchaser Status and Ownership

The appellant asserted bona fide purchaser status, arguing no liability for duty or penalty. However, the adjudicating authority found that the appellant was aware of the incomplete transaction, non-payment of balance price, and the vehicle's questionable import status. The vehicle was registered in the appellant's name, and he retained possession despite disputes, indicating ownership rights.

The Tribunal examined the legal concept of ownership, citing authoritative definitions and case law, concluding that ownership entails dominion and right to possess, use, enjoy, and alienate the property. Registration in the appellant's name and possession of the vehicle confirmed his ownership both de jure and de facto.

Consequently, the appellant's claim to be a mere purchaser without liability was rejected as a facade to evade customs duty and penalty obligations.

5. Penalties and Confiscation

The adjudicating authority imposed penalties under Sections 112(a), 112(b), 114A, and 114AA of the Customs Act, 1962, and confiscated the vehicle under Section 111(d) and 111(m), read with provisions of the Foreign Trade (Development and Regulation) Act and related rules. The appellant did not contest the confiscation or penalty imposition on the grounds of fraudulent import and misdeclaration.

The Tribunal upheld these penalties and confiscation, noting the appellant's complicity and knowledge of the fraud, and his failure to produce evidence or challenge the allegations effectively.

6. Validity of Commissioner (Appeals)'s Remand Order

The appellant challenged the Commissioner (Appeals)'s remand order as lacking statutory authority, arguing that Section 128A of the Customs Act limits remand powers to specific circumstances not applicable here.

The Tribunal held that Section 128A(3)(a) empowers the Commissioner (Appeals) to pass such order as he thinks just and proper, including remanding the matter for fresh adjudication. The power to modify or annul orders necessarily includes remand for reconsideration. The Tribunal relied on Supreme Court precedent affirming the appellate authority's power to remand for fresh decision.

The remand was justified to clarify the correct legal position regarding duty recovery from the importer under Section 28 or from the owner under Section 125(2), preventing both parties from escaping liability through appellate remedies.

Significant Holdings

"Section 125(2) of the Customs Act mandates that where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person from whose possession such goods have been seized shall, in addition, be liable to any duty and charges payable in respect of such goods."

"The redemption provisions in the statute cannot be read only halfway through to adopt what's beneficial for the appellant and leave out the rest. Sub-clauses (1) and (2) of Section 125 of the Customs Act are inextricably and intricately woven into, to give the provision its completeness of meaning and impact."

"It is settled law that what is obvious, need not be stated. At its worse the reference to Section 28(1) by the adjudicating authority can be considered by way of ex abundanti cautela."

"The appellant having claimed and admitted ownership of the vehicle and having exercised the option of redemption under Section 125, is liable to pay the differential customs duty and charges under Section 125(2), irrespective of whether he was the importer."

"The Commissioner (Appeals) was empowered under Section 128A(3)(a) of the Customs Act to remit the matter to the adjudicating authority for de novo adjudication with directions, and such remand does not lack statutory authority."

"The appellant's plea that he is not liable to pay duty under Section 28 as he is not the importer is extraneous and has no application once redemption is exercised by the owner under Section 125."

"The concept of ownership entails dominion and right to possess, use, enjoy, and alienate the property. Registration of the vehicle in the appellant's name and possession thereof establishes ownership both de jure and de facto."

"The penalties and confiscation imposed under the Customs Act and Foreign Trade laws stand affirmed given the appellant's knowledge of the fraudulent import and his failure to honor the transaction."

Final Determinations

• The vehicle was rightly classified as second-hand and used, attracting higher customs duty, and the declared value was correctly re-determined by the authorities.
• The appellant, as owner and possessor of the vehicle, is liable to pay the differential customs duty and interest under Section 125(2) of the Customs Act upon exercising the redemption option, notwithstanding he was not the original importer.
• The appellant's claim of being a bona fide purchaser without liability was rejected due to evidence of ownership, possession, and knowledge of fraudulent import.
• The penalties and confiscation orders were valid and rightly imposed.
• The Commissioner (Appeals) acted within statutory authority in remanding the matter for de novo adjudication to ensure correct legal application of Sections 28 and 125.
• The appeal filed by the appellant was dismissed, and the impugned order remanding the case for fresh adjudication was upheld.