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2025 (7) TMI 649 - AT - CustomsConfiscation - old and used goods - import of second-hand goods was restricted in terms of N/N. 35 (RE-2012)/2009-2014 dated 28.02.2023 issued by DGFT read with para 2.31 of Foreign Trade Policy - failure to make declaration - HELD THAT - It finds that the decision of M/s. Kay Bee Tax Spin Ltd. of Hon ble Gujarat High Court 2017 (1) TMI 1223 - GUJARAT HIGH COURT dealt with case where goods were clandestinely removed to open market from warehouse other decisions too are also on factually different matrix. It is found that in the instant case the goods were imported in the SEZ unit which were meant for re-export the export has been carried out with the same description in the shipping bill which was impugned by the Department to be incorrect while importing the goods. The basis of the Department s case was the computer parts were old used and not declared as such though they had certain scratches and marks on them. It is also Department s case that not all bills of entry indicated that the goods were meant for re-export and therefore being used and second-hand goods import of same was restricted as per para 2.17 of the Foreign Trade Policy of the year 2009-2014. This Court finds that the goods were old and used and same was in knowledge of appellants is pre-requisite for imposing the penalty and for the same there no evidence is coming on record. Further this Court finds that unit being an SEZ unit which pre-dominantly exports the goods and clears the goods in domestic tariff area only on payment of duty. Therefore it may not serve any useful purpose to deliberately bring old and used goods. Since the transaction value of the goods on which they are cleared in DTA at the time of clearance of product determines the duty. Therefore by bringing old goods by declaring them new due to some scratches etc. would have only brought down value at the time of clearance in DTA thus resulting in loss to the appellants and exporting same goods too could not have been beneficial to the appellant. The goods were exported after due process and checking by customs officer therefore on one side at the time of import Department is stating that the goods were old and used but at the time of export of the same goods the description without addendum of the phrase old and used has been accepted. Impugned order is therefore set aside - Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
- Whether the goods imported into the SEZ unit, described as new but found to be old and used, could be confiscated under Sections 111(d) and 111(m) of the Customs Act, 1962, given the import restrictions on second-hand goods under the Foreign Trade Policy and DGFT notifications. - Whether the appellant, being only a service provider filing warehousing bills of entry without knowledge of the goods' old and used nature, could be held liable for confiscation, fine, and penalty. - Whether the failure to declare the goods as old and used in all bills of entry, when some declarations indicated re-export intent, constituted a fatal error justifying confiscation. - Whether the provisions of the Foreign Trade (Exemption) from Application of Rules in Certain Cases Order, 1993, and the Foreign Trade Policy exempted the goods from restrictions and penalties since they were imported for warehousing and re-export. - Whether redemption fine and penalty could be imposed on the appellant when permission for re-export was granted, in light of judicial precedents and statutory provisions. - The applicability and interpretation of Sections 111, 112, and 125 of the Customs Act, 1962, regarding confiscation, penalty, and redemption fine in the context of goods imported into SEZ for re-export. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Confiscation of goods described as new but found to be old and used under Sections 111(d) and 111(m) of Customs Act, 1962 The relevant legal framework includes Section 111(d) and (m) of the Customs Act, which authorize confiscation of goods if they are imported in contravention of restrictions or misdeclared. The Foreign Trade Policy and DGFT Notification No. 35 (RE-2012)/2009-2014 restrict import of second-hand goods. The appellant's goods bore dust and scratches, and an opinion from M/s. HP India Sales Pvt. Ltd. classified them as used or second-hand. The Court noted that the Department's case was premised on the goods being old and used and not properly declared as such, which restricted their import. However, the Court found no evidence that the appellant had knowledge of the goods' second-hand nature at the time of import. The appellant's role was limited to providing warehousing services and filing bills of entry on instructions from the client. The Court also observed that the goods were imported into a Special Economic Zone (SEZ) unit, which primarily exports goods and clears goods into the Domestic Tariff Area (DTA) only after payment of duty based on transaction value. It reasoned that deliberately importing old goods under the guise of new goods would not benefit the appellant, as the duty payable on clearance to DTA depends on transaction value, which would be lower for old goods. Furthermore, the goods were re-exported with the same description, without any amendment to indicate they were old and used, and Customs accepted the shipping bills at the time of export. This inconsistency undermined the Department's contention that the goods were misdeclared at import. The Court concluded that confiscation under Section 111(d) and (m) was not justified without evidence of appellant's knowledge or intent to misdeclare. Issue 2: Liability of appellant as a service provider unaware of goods' nature and failure to declare old and used status in bills of entry The appellant contended that as a service provider, it lacked knowledge about the goods' condition and that failure to declare the goods as old and used was a technical error. Reference was made to Chapter 7A, para 7A.5 of the Foreign Trade Policy which allows duty-free import of all goods except prohibited goods into Free Trade & Warehousing Zones, and to Regulation (3)(f) of Foreign Trade (Exemption) Order, 1993, which exempts goods imported and bonded for re-export from application of certain rules. The Court noted that one bill of entry did declare the goods were for re-export, and the rest could be considered technical errors. Instruction No. 06/2006 clarified that assessment of goods imported into SEZ is done at the time of clearance into the domestic market, not at import. Thus, any restriction or declaration requirement related to old and used goods would arise only if goods were cleared for home consumption, which was not the case here. The Court held that failure to declare the old and used nature in bills of entry could have been rectified at re-export and did not warrant confiscation or penalty under Section 111(m). The appellant's lack of knowledge and the nature of its role militated against imposing liability. Issue 3: Applicability of redemption fine and penalty when permission for re-export is granted The Department relied on several judicial precedents to support imposition of redemption fine and penalty even when re-export permission is granted. These included a Larger Bench decision holding that Sections 111, 112, and 125 empower imposition of penalty and redemption fine in adjudication proceedings, and that permission for re-export is outside such proceedings. Other decisions cited included a Gujarat High Court ruling that redemption fine is imposable when goods are illicitly diverted or terms of import are breached, and Tribunal decisions affirming the non-reduction of redemption fines and penalties in similar circumstances. The Court distinguished the cited precedents on facts, noting that in the present case, the goods were not diverted or illicitly cleared but re-exported as imported, without alteration in description. The appellant's lack of knowledge and the SEZ context further differentiated the matter. Consequently, the Court found the imposition of redemption fine and penalty unsustainable under the facts. Issue 4: Interpretation of Foreign Trade Policy and related exemptions for goods imported into SEZ for warehousing and re-export The appellant relied on the Foreign Trade Policy provisions that allow duty-free import into Free Trade & Warehousing Zones except prohibited goods, and on the Foreign Trade (Exemption) Order, 1993, which exempts goods imported and bonded for re-export from certain rules. The Court acknowledged that the goods were imported into an SEZ unit, declared for warehousing and re-export, and that the Department did not dispute that the goods were not prohibited. The Court found that the policy framework supports the appellant's position that restrictions applicable to second-hand goods imports for domestic consumption did not apply here. The Court also emphasized that the assessment and declaration requirements for old and used goods would arise only upon clearance into the domestic market, which did not occur here. 3. SIGNIFICANT HOLDINGS "The goods were old and used and same was in knowledge of appellants is pre-requisite for imposing the penalty and for the same there no evidence is coming on record." "The goods were exported after due process and checking by customs officer, therefore, on one side at the time of import Department is stating that the goods were old and used but at the time of export of the same goods, the description without addendum of the phrase old and used has been accepted." "Since the transaction value of the goods on which they are cleared in DTA at the time of clearance of product determines the duty, therefore, by bringing old goods by declaring them new due to some scratches etc. would have only brought down value at the time of clearance in DTA thus resulting in loss to the appellants and exporting same goods too could not have been beneficial to the appellant." "The order as well as proceedings are not sustainable." Core principles established include:
Final determinations:
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