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2025 (7) TMI 494 - AT - Customs


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

1. Whether the appellant unit, M/s. Jindal Fibres Pvt. Limited, is the importer liable for differential customs duty, fine, and penalty under the Customs Act, 1962 and SEZ Act, 2005 read with SEZ Rules, 2006, despite the Bill of Entry being filed on behalf of a Domestic Tariff Area (DTA) unit;

2. Whether the mutilation of the imported goods (cotton sweaters) complied with the requirements prescribed under Circular No. 36/2000-Customs dated 08.05.2000 and related instructions, thereby determining the correct classification and liability;

3. Whether the imposition of penalties on the appellant and its authorized signatory under Sections 112(a), 114A, and 114AA of the Customs Act, 1962 was justified.

Issue 1: Liability of the appellant as importer for customs duty and penalties despite Bill of Entry filed on behalf of DTA unit

The relevant legal framework includes Section 2(26) of the Customs Act, 1962, which defines 'importer' as any person who imports goods or holds himself out to be the importer, and Sections 2(m) and 2(o) of the SEZ Act, 2005, defining 'import' and 'export' respectively. Rule 48 of the SEZ Rules, 2006 authorizes SEZ units to file Bills of Entry for and on behalf of DTA buyers for clearance of goods.

The appellants contended that since the Bill of Entry was filed on behalf of M/s. Jindal Woolen Industries (DTA unit), the liability for customs duty and penalties should lie with the DTA unit, not with the SEZ unit (appellant). They relied on precedents including the CESTAT Ahmedabad decision in M/s. Tulip Exim Pvt. Limited, which held that SEZ units cannot be considered importers for goods cleared to DTA units, and the Gujarat High Court decision in M/s. Cleris Life Sciences Limited emphasizing the binding effect of appellate decisions.

The adjudicating authority and Commissioner (Appeals) rejected this contention, reasoning that the SEZ unit (appellant) was the beneficial owner and importer of the goods. The goods were imported into the SEZ by the appellant from outside India, and the Bill of Entry for home consumption into DTA was filed by the appellant on behalf of the DTA unit. The goods remained in the custody of the appellant until seizure. The authorities emphasized that supplying goods to DTA is not 'export' under the SEZ Act, and purchasing goods from SEZ by DTA is not 'import' under the SEZ Act. Therefore, the appellant was liable as importer under the Customs Act. The Commissioner (Appeals) found no merit in the appellant's arguments and upheld the findings of the adjudicating authority.

The Tribunal concurred with the authorities, noting that the facts of the cited Tulip Exim case were distinguishable and not directly applicable. The Tribunal emphasized the combined reading of the definitions under the Customs and SEZ Acts, and the factual matrix that the appellant had custody and control of the goods until clearance and seizure. The Tribunal held that the appellant was the importer liable for customs duty and penalties.

Issue 2: Compliance with mutilation requirements under Circular No. 36/2000-Customs and correct classification of goods

The applicable legal framework is Circular No. 36/2000-Customs dated 08.05.2000 and Instruction No. 1/2011-12 dated 14.07.2011, which prescribe that old and used clothes imported for home consumption must be completely mutilated to render them unserviceable and beyond repair. The circular specifies that garments must have three or more cuts through the entire length in a criss-cross manner, not along the seams, to be classified under tariff heading 63.10 (mutilated rags). Garments that are only old and used but serviceable after repair fall under heading 63.09.

The appellant argued that the garments had sufficient incisions (cuts 7 to 10 inches long on sleeves and back), rendering them unserviceable and irreparable, as also confirmed by the appraiser's report dated 04.02.2013. They contended that the circular's use of the word "can" in the phrase "this can be ensured" allows for alternative methods of mutilation and that the circular itself was weak and did not mandate precise cutting patterns.

The authorities below found that the garments had only three or four cuts, but these were near the seams and not in the criss-cross manner prescribed by the circular. Therefore, the goods were not completely mutilated rags but rather old and used garments capable of being repaired and reused. The Commissioner (Appeals) agreed with this interpretation, emphasizing that the circular's language is clear and unambiguous, and that the mutilation must be in the specified manner to qualify for classification under heading 63.10. The Tribunal concurred, reiterating the circular's provisions and noting that the goods did not meet the criteria for complete mutilation.

Thus, the Tribunal upheld the classification of the goods under CTH 6309 0000 (old and used garments) rather than 6310 9010 (mutilated rags), making them liable for differential customs duty and penalties.

Issue 3: Justification for imposition of penalties on the appellant and authorized signatory

The penalties were imposed under Sections 112(a), 114A, and 114AA of the Customs Act, 1962. Section 112(a) penalizes unauthorized clearance of goods; Section 114A penalizes collusion, willful misstatement, or suppression of facts resulting in evasion of duty; Section 114AA penalizes knowingly making false or incorrect declarations or documents.

The appellant contended that they had complied with all legal requirements, filed Bills of Entry with necessary documents, and that the goods were properly mutilated as verified by the assessing officer. They argued that no collusion, misstatement, or suppression of facts occurred, and no malafide intention existed. The appellant's authorized signatory, Shri Vikas Mittal, was said to have acted only in official capacity without personal gain or knowledge of any wrongdoing, citing precedents that personal penalties on employees acting within their duties are not justified.

The adjudicating authority and Commissioner (Appeals) found that the appellant was the main importer and key player in the acts of omission and commission, including filing incorrect classification and duty declarations. The penalty under Section 114A was imposed for willful suppression of facts, supported by relevant judicial precedents. The authorized signatory was held liable under Section 114AA for active role and omissions in the import process. The Tribunal agreed with these findings, noting that the authorized signatory had played an active role in the import and was thus liable for penalties. The Tribunal rejected the appellant's arguments that no penalty should be imposed due to lack of malafide or personal gain.

Additional findings and treatment of competing arguments

The appellant's reliance on the circular clarifying that appeals not filed due to litigation policy lack precedent value was rejected by the authorities as an erroneous approach. The Tribunal upheld the binding effect of the Tribunal's decisions within its jurisdiction but distinguished the facts of the present case from those decisions relied upon by the appellant.

The appellant's argument that the DTA unit was the importer and liable for duty was dismissed based on the legal definitions and factual control over the goods. The Tribunal emphasized that the Bill of Entry filed by the appellant on behalf of the DTA unit and possession of goods until seizure established the appellant as importer.

The appellant's contention that the mutilation was sufficient was rejected due to the failure to comply with the specific criss-cross cutting pattern and the proximity of cuts to seams, as required by the circular. The Tribunal gave weight to the circular's clear language and the authorities' consistent interpretation.

Regarding penalties, the Tribunal found sufficient evidence of omission and commission by the appellant and its authorized signatory to justify imposition under the relevant provisions of the Customs Act. The lack of evidence of personal gain or malafide did not absolve liability for penalty under the statutory provisions invoked.

Significant holdings and principles established

The Tribunal held that:

"From the definition of 'importer' as defined under Section 2 (26) of the Customs Act, 1962, it is very clear that the appellant M/s. Jindal Fibres is the importer of the said goods as the same were imported into Kandla Special Economic Zone by them by sea from outside India and also when the goods were cleared into DTA, the said goods were in the custody of the appellant till the seizure of the same."

"The language and spirit of the Circular No. 36/2000-Cus. dated 08.05.2000 is clear, explicit and without any space of ambiguity... the old and used worn clothes must be subjected to three or more cuts through the entire length of the garment, in a criss-cross manner, not along the seams... The goods, cotton sweaters (knitted) were not found completely mutilated rags in accordance with the relevant circular."

"The appellant no. 1 is the main importer and key player of all the acts of omission and commission and is liable for differential Customs duty, fine penalty etc. under Customs Act, 1962 and SEZ Act, 2005 read with SEZ Rules, 2006."

"The appellant no. 2 Shri Vikas Mittal, being authorised signatory of the appellant no.1 (Jindal Fibres) has played an active role in import of the goods in question, hence the Adjudicating Authority held him liable for imposition of penalty under Section 114AA of the Customs Act, 1962 for his acts of omissions and commissions."

The Tribunal confirmed the demand of differential customs duty, interest, fines, and penalties imposed on the appellant and its authorized signatory. It also upheld the classification of the goods under tariff heading 6309 0000, rejecting the appellant's claim of compliance with mutilation norms. The appeals were dismissed as devoid of merit.

 

 

 

 

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