2025 (6) TMI 1977 - AT - Customs

Levy of redemption fine and penalty - attempt to export unfinished leather - mis-declaration of goods - test report of CLRI established that the appellant has attempted to export unfinished leather by mis-declaring the goods as finished leather to evade duty and also attempted to claim drawback - HELD THAT - Admittedly the lower authorities have relied solely on the test report to conclude that the appellant had attempted to export unfinished leather and had mis-declared the goods as finished leather. Thus when the public notice itself states that any new type of finished leather not covered shall be permitted to be exported subject to testing and certification by Central Leather Research Institute (CLRI) it was incumbent for the testing authority to have stated whether the leather sample tested was finished leather or not. Absent such a finding in the test report there are force in the submissions of the learned counsel that lower authorities have erred in their conclusion that the appellant attempted to export unfinished leather by mis-declaring the goods as finished leather. No mens-rea to deliberately evade payment of duty is evidenced. Establishing mes-rea is a prerequisite to attribute attempt. In fact there is no evidence or any statement relied upon to indicate any contumacious conduct on the part of the appellant. It is seen that in similar circumstances in the decision of this Tribunal in Vijalakshmi Leathers v Commissioner of Customs Chennai 2000 (1) TMI 90 - CEGAT CHENNAI it has been held that There was also no delibe rate attempt to conceal the deficiencies or to mis-declare the goods. The whole dispute has arisen only because of variations inaccuracies in mechanical operations or the difference between experts and traders with regard to grades. There was no effort to export prohibited goods. The Appellants have already incurred considerable financial loss on account of taking the goods back for reprocessing and the delay in carrying out their exports and realization of the export value. Thus it is held that in the facts and circumstances of the appellant s case herein confiscation of the goods was neither warranted nor justified. Consequently the redemption fine imposed as well as the penalty imposed also do not sustain. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

- Whether the appellant had attempted to export unfinished leather by mis-declaring it as finished leather, thereby evading duty and wrongfully claiming drawback under the Customs Act, 1962.

- Whether the test report issued by the Central Leather Research Institute (CLRI) sufficiently established that the goods were unfinished leather and not finished leather as declared.

- Whether the imposition of confiscation of goods, redemption fine under Section 125, and penalty under Section 114(ii) of the Customs Act, 1962 was justified and sustainable.

- Whether mens rea (intent) to evade duty was established against the appellant to attract penalties and confiscation.

- The applicability and interpretation of Public Notice No.21/2009-14 dated 01.12.2009 issued by DGFT, which prescribes norms for finished leather and requires CLRI certification for types not enumerated.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the appellant mis-declared the goods as finished leather when they were unfinished leather, thereby attempting to evade duty and claim wrongful drawback

Relevant legal framework and precedents:

The Customs Act, 1962, Sections 114(ii) and 125 provide for penalties and confiscation where goods are misdeclared or attempts are made to evade duty. The DGFT Public Notice No.21/2009-14 sets out norms for finished leather exports and requires CLRI certification for types outside the enumerated categories.

Precedent decisions of this Tribunal such as Vijalakshmi Leathers v Commissioner of Customs, Chennai, 2000 (119) ELT 656 and others have addressed similar issues regarding the classification and export of leather goods and the threshold for misdeclaration and confiscation.

Court's interpretation and reasoning:

The Tribunal observed that the lower authorities relied solely on the CLRI test report which stated that the leather did not meet certain parameters (thickness less than 3mm and apparent density less than 0.9gm/cc) as per the Public Notice norms. However, the test report did not explicitly certify that the goods were unfinished leather or not finished leather. The Public Notice itself permits export of new types of finished leather subject to CLRI certification.

The Tribunal held that the absence of a clear finding by CLRI that the leather was unfinished or not finished leather was a critical lacuna. Without such certification, the conclusion that the appellant attempted to export unfinished leather by misdeclaration was unsubstantiated.

Key evidence and findings:

- The CLRI report only noted non-compliance with thickness and density norms but did not classify the leather as unfinished.

- The appellant declared the goods as "Buff Sole Leather," which is a recognized category.

- There was no evidence or finding of deliberate misdeclaration or intent to evade duty.

Application of law to facts:

The Tribunal applied the principle that mens rea or intent is essential to impose penalties and confiscation under the Customs Act. Mere non-compliance with technical parameters, without clear evidence of misdeclaration or intent, does not justify confiscation or penalties.

Treatment of competing arguments:

The appellant argued that minor deviations in leather processing do not convert finished leather into unfinished leather and that the process of finishing leather is complex with multiple steps. They also contended that this was a first-time occurrence and they had taken steps to reprocess the goods.

The respondent relied on the CLRI report and the Public Notice norms to assert misdeclaration and evasion.

The Tribunal found the appellant's arguments persuasive, especially given the absence of explicit CLRI certification against finished leather status and lack of mens rea.

Conclusions:

The Tribunal concluded that the appellant did not misdeclare the goods as finished leather and did not attempt to export unfinished leather. Therefore, the confiscation and penalties were not justified.

Issue 2: Justification and sustainability of confiscation, redemption fine, and penalty imposed under the Customs Act

Relevant legal framework and precedents:

Section 125 of the Customs Act authorizes confiscation of goods and imposition of redemption fine where goods are liable to confiscation. Section 114(ii) provides for penalty for misdeclaration or attempt to evade duty.

Precedents such as Vijalakshmi Leathers (supra), CC Chennai v Avanthi Leathers Ltd, Krishna International v CC, and M/s. Khaja Moideen Leather Company v CC (Air Cargo) have held that penalties and confiscation require clear evidence of deliberate misdeclaration or evasion.

Court's interpretation and reasoning:

The Tribunal noted that confiscation and penalties are severe measures requiring clear proof of wrongful intent or misdeclaration. In the absence of such proof, and given the appellant's explanation and conduct, imposing such sanctions was not warranted.

Key evidence and findings:

- No finding of deliberate misdeclaration or mens rea.

- Appellant's efforts to reprocess the goods and incur expenses demonstrated absence of contumacious conduct.

Application of law to facts:

The Tribunal applied the principle that confiscation and penalties are punitive and should not be imposed where non-compliance is due to inadvertence or technical variations without intent.

Treatment of competing arguments:

The appellant emphasized the lack of intent and the complexity of leather finishing processes. The respondent relied on the test report and Public Notice norms to justify penalties.

The Tribunal found the appellant's position more consistent with the evidence and legal standards.

Conclusions:

The confiscation of goods, redemption fine of Rs.25,000, and penalty of Rs.5,000 were set aside as unjustified and unsustainable.

Issue 3: Interpretation and application of DGFT Public Notice No.21/2009-14 regarding finished leather export norms

Relevant legal framework:

The Public Notice enumerates 13 types of finished leather with prescribed norms and states that other types may be exported subject to CLRI certification.

Court's interpretation and reasoning:

The Tribunal emphasized that the Public Notice contemplates certification by CLRI for new types of finished leather and that certification must clearly state whether the goods qualify as finished leather.

Key findings:

The CLRI report failed to explicitly certify the goods as unfinished leather, only noting non-compliance with certain parameters.

Application of law to facts:

In absence of explicit certification against finished leather status, the appellant's declaration as Buff Sole Leather could not be disregarded.

Conclusions:

The Public Notice norms did not support the conclusion that the appellant exported unfinished leather, given the lack of clear certification to that effect.

3. SIGNIFICANT HOLDINGS

- "When the public notice itself states that any new type of finished leather not covered shall be permitted to be exported, subject to testing and certification by Central Leather Research Institute (CLRI), it was incumbent for the testing authority to have stated whether the leather sample tested was finished leather or not. Absent such a finding in the test report, I find force in the submissions of the learned counsel that lower authorities have erred in their conclusion that the appellant attempted to export unfinished leather by mis-declaring the goods as finished leather."

- "Neither the appellate authority nor the adjudicating authority has stated as to what is the deliberate act of misdeclaration that shows that the goods entered for exportation under claim for drawback did not correspond in any material particular with the information furnished by the appellant, so as to attract the liability to confiscation. No mens-rea to deliberately evade payment of duty is evidenced. Establishing mens-rea is a prerequisite to attribute attempt."

- The Tribunal, following the ratio of Vijalakshmi Leathers (supra), held that minor deficiencies or variations in leather processing do not amount to export of prohibited goods or misdeclaration, especially in absence of deliberate intent.

- The Tribunal set aside the confiscation order, redemption fine, and penalty imposed, holding them unjustified in the facts and circumstances.