2025 (3) TMI 1148 - AT - Customs

Challenge to validity of the addendum to the show-cause notice alleging that relevant documents relied upon in the issuance of the addendum was not given to them - Redetermination of the assessable value of the imported dredger as declared by the appellant - classification of the additional length of cutter head ladder and jet pump set is under CTH 89051000 or under respective heading? - admissibility of benefit of N/N.01/2011-CE dated 01.03.2011 - Penalty - Confiscation. Challenge to validity of the addendum to the show-cause notice alleging that relevant documents relied upon in the issuance of the addendum was not given to them - HELD THAT - The addendum to the show-cause notice was communicated to the appellant and appellant has submitted a detailed reply rebutting each and every allegation both in response to the initial show-cause notice as well as in the addendum to the show-cause notice. In these circumstances there is no violation of principles of natural justice and the addendum is valid and issued within the frame of law laid down under various judgments referred by the learned Commissioner. Redetermination of the assessable value of the imported dredger - HELD THAT - The Managing Director has never retracted the statement nor disputed to the acceptance of appointment of independent Chartered Engineer to ascertain the correct value nor contested this at any point of time. Also while rejecting the said discount the learned Commissioner has recorded that no discount was given by the overseas party to the appellant in its previous imports vide Bill of Entry No.4898940 dated 12.10.2011 which clearly indicates that the discount was not ordinarily given by the overseas supplier to the appellant but was given to the appellant only as a favoured buyer. There are no discrepancy in the Commissioner s observation that the transaction value declared by the appellant is liable to be rejected under Rule 12(2) of the Customs Valuation Rules 2007. Classification of additional length of cutter head ladder and jet pump system - to be classified under Chapter sub-heading 89051000 or under 84314990 and 84137097 respectively? - HELD THAT - The learned Commissioner referring to the dictionary meaning of the parts held that part means an element of a sub-assembly or assembly not normally useful by itself and not amenable to further disassembly for maintenance purposes; also referring to various judgments on the scope of parts and accessories he has observed that these are two different things and not the same. In this backdrop analysing the facts of the case and requirement of the additional length of cutter head ladder and also the jet pump system - Further negating the argument of the appellant that since the dredger imported being huge item could not be imported in its complete form and imported in CKD condition of the item and all the parts imported are integral parts of the dredger learned Commissioner has held that because the dredger was dispatched in 48 pieces in CKD condition it cannot be itself make all the parts as integral parts of the dredger. Analysing the observation of the learned Commissioner in arriving at the classification of the additional length of cutter head ladder under CTH 84314990 and jet pump system under CTH 84137097 there are no apparent error in the reasoning of the Commissioner; hence the observation relating to classification of the said products are upheld. Admissibility of N/N.01/2011-CE dated 01/03/2011 - HELD THAT - The learned Commissioner has held that the benefit of 1% Excise duty without cenvat credit facility cannot be extended to them. This issue is no more res integra and covered by the judgment of the Hon ble Madras High Court in the case of CC(Exports) Chennai Vs. Prashray Overseas Pvt. Ltd. 2016 (5) TMI 1106 - MADRAS HIGH COURT - there are no error in the order of the learned Commissioner in denying the benefit of N/N.01/2011-CE dated 01.03.2011 to the appellant. Penalty - Confiscation - HELD THAT - The appellant had misdeclared the value and suppressed their relationship with the overseas seller the initial survey report from the knowledge of the Department which has been candidly admitted by the Managing Director of the appellant company resulting to short payment of duty of Rs.54 67 041/-. Hence confirmation of demand under Section 28(4) of the Customs Act 1962 is justified and upheld. Consequently imposition of penalty under Section 114A on the appellant company and penalty on the Managing Director under Section 114AA is justified. However in calculating the penalty amount under Section 114A of the Customs Act 1962 against the appellant company the learned Commissioner has added interest amount to the differential duty which is erroneous in view of series of judgments of this Tribunal. Therefore the penalty imposed be restricted only to the extent of differential duty confirmed. Since the imposition of penalty under Section 114AA on the Managing Director is upheld further penalty under Section 112(a) of the Customs Act in the circumstances is not warranted and accordingly set aside. Conclusion - i) The transaction value declared by the appellant is liable to be rejected under Rule 12(2) of the Customs Valuation Rules 2007. ii) Classification of the additional length of cutter head ladder under CTH 84314990 and jet pump system under CTH 84137097 upheld. iii) The denial of the exemption under N/N.01/2011-CE. upheld. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include: (i) whether the declared value of the imported dredger is correct; (ii) whether the classification of the additional length of cutter head ladder and jet pump system should be under CTH 89051000 or under their respective headings; and (iii) whether the benefit of Notification No.01/2011-CE dated 01.03.2011 is admissible.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Declared Value of Imported Dredger

Relevant Legal Framework and Precedents: The Customs Valuation Rules, 2007, particularly Rule 12(2) concerning the rejection of transaction value, and the principles established in relevant case laws.

Court's Interpretation and Reasoning: The Tribunal found that the special discount provided by the overseas seller was not in line with the standard practice, and the appellant's relationship as an authorized sales representative of the supplier was not disclosed. This relationship influenced the transaction value, leading to its rejection under Rule 12(2).

Key Evidence and Findings: The Tribunal relied on the statement of the Managing Director of the appellant company and the survey report indicating a higher market value than declared. The appellant's failure to disclose the survey report and their relationship with the supplier were crucial factors.

Application of Law to Facts: The Tribunal applied the Customs Valuation Rules to reject the declared value and redetermine the assessable value using the report of a Chartered Engineer, as the goods were tailor-made and lacked identical or similar goods for comparison.

Treatment of Competing Arguments: The appellant's argument regarding the validity of the addendum to the show-cause notice was dismissed, as the Tribunal found no violation of natural justice principles.

Conclusions: The transaction value was rejected, and the assessable value was redetermined based on the Chartered Engineer's report.

Issue 2: Classification of Additional Equipment

Relevant Legal Framework and Precedents: Customs Tariff Act, 1985, and relevant case laws concerning the classification of parts and accessories.

Court's Interpretation and Reasoning: The Tribunal distinguished between parts and accessories, emphasizing that accessories enhance the effectiveness of equipment without altering its basic function.

Key Evidence and Findings: The additional length of the cutter head ladder and jet pump system was not standard equipment but enhanced the dredger's performance, qualifying them as accessories.

Application of Law to Facts: The Tribunal upheld the classification of the additional length of the cutter head ladder under CTH 84314990 and the jet pump system under CTH 84137097, rejecting the appellant's classification under CTH 89051000.

Treatment of Competing Arguments: The appellant's claim that the equipment was integral to the dredger was refuted, as the Tribunal found that the equipment was dispatched in pieces and not essential to the dredger's basic function.

Conclusions: The Tribunal upheld the classification of the additional equipment under their respective headings as accessories.

Issue 3: Admissibility of Notification No.01/2011-CE

Relevant Legal Framework and Precedents: Notification No.01/2011-CE and relevant case laws interpreting the conditions for availing exemption.

Court's Interpretation and Reasoning: The Tribunal referred to the Madras High Court's judgment, which clarified that the exemption is not available to importers who cannot satisfy the condition of having paid duty on inputs used in manufacture.

Key Evidence and Findings: The Tribunal found that the appellant could not satisfy the conditions for availing the exemption, as they did not pay duty on the inputs.

Application of Law to Facts: The Tribunal applied the legal principles established in prior judgments to deny the exemption to the appellant.

Treatment of Competing Arguments: The appellant's arguments for exemption were dismissed as they did not meet the necessary conditions.

Conclusions: The Tribunal upheld the denial of the exemption under Notification No.01/2011-CE.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The transaction value declared by the appellant is liable to be rejected under Rule 12(2) of the Customs Valuation Rules, 2007."

Core Principles Established: The judgment reinforces the principle that transaction values influenced by undisclosed relationships and non-standard discounts are subject to rejection. It also clarifies the distinction between parts and accessories for classification purposes.

Final Determinations on Each Issue: The Tribunal confirmed the redetermination of the assessable value, upheld the classification of additional equipment as accessories, and denied the exemption under Notification No.01/2011-CE.