2025 (6) TMI 1440 - AT - Customs

Non imposing penalty against the Respondent under Section 114 AA of the Custom Act 1962 - violation of principles of natural justice - HELD THAT - There are no reasonable opportunity of being heard has been afforded by the Adjudicating Authority to the Respondent. Therefore the impugned order is in violation of principle of Natural Justice which required to be set aside. Therefore the impugned order is set aside. The Adjudicating Authority is directed to re-adjucate the matter after affording reasonable opportunity to the Respondent after supply of the required documents to the Respondent and thereafter follow the judicial discipline and then adjudicate the matter within 90 days of receipt of this order. Appeal as well as Cross Objection are disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal and cross-objection are:

- Whether the Adjudicating Authority violated the principles of Natural Justice by passing an ex parte order without affording the Respondent a reasonable opportunity of being heard.

- Whether penalty under Section 114AA of the Customs Act, 1962 was rightly not imposed by the Adjudicating Authority.

- Whether the valuation and assessment procedures followed under the Customs Act, including invocation of Rule 12 and Rule 7 of the Customs Valuation Rules, 2007, were legally valid and properly applied.

- Whether the Show Cause Notice issued under Section 28 of the Customs Act, invoking Rule 9 read with Rule 12, was legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of the Principle of Natural Justice

Relevant legal framework and precedents: The principle of Natural Justice mandates that no order should be passed without affording a reasonable opportunity to the affected party to present their case. This includes the right to be heard and to receive relevant documents and evidence relied upon by the authority.

Court's interpretation and reasoning: The Tribunal found that the Adjudicating Authority did not provide the Respondent a reasonable opportunity to be heard. The Respondent's submissions, including requests for copies of documents such as RUDs (Relevant Undisclosed Documents), were either delayed or inadequately addressed. The Tribunal noted that the impugned order was passed without proper adherence to the principles of Natural Justice.

Key evidence and findings: The Tribunal referred to the impugned order's paragraphs 73 and 74, which showed that the Respondent had appeared for personal hearing, made submissions, requested documents, and filed supplementary replies. Despite these efforts, the Respondent contended that the opportunity to effectively present their case was denied.

Application of law to facts: The Tribunal held that since the Respondent was not given adequate access to documents and a fair hearing, the impugned order was rendered invalid due to violation of Natural Justice.

Treatment of competing arguments: The Revenue contended that the Adjudicating Authority had considered all aspects on merits and that the order was passed accordingly. However, the Tribunal found this argument unpersuasive in light of the procedural deficiencies and the Respondent's unaddressed requests for documents and evidence.

Conclusion: The impugned order was set aside on the ground of violation of Natural Justice, and the matter was remanded for de novo adjudication after affording reasonable opportunity to the Respondent.

Issue 2: Imposition of Penalty under Section 114AA of the Customs Act, 1962

Relevant legal framework: Section 114AA empowers the Customs authorities to impose penalty for certain contraventions related to customs valuation and misdeclaration.

Court's interpretation and reasoning: The Adjudicating Authority did not impose penalty under Section 114AA, and the Revenue filed the appeal against this non-imposition. However, since the impugned order was set aside for violation of Natural Justice, the question of penalty was not finally decided and was left open for re-adjudication.

Key evidence and findings: No detailed findings on penalty were recorded since the order was quashed on procedural grounds.

Application of law to facts: The Tribunal's direction to re-adjudicate includes reconsideration of penalty after proper hearing.

Treatment of competing arguments: The Respondent opposed the penalty imposition, arguing procedural irregularities and incorrect valuation methods. The Tribunal did not address these substantive contentions due to procedural infirmities.

Conclusion: The penalty issue is deferred to the Adjudicating Authority for fresh consideration after affording proper opportunity.

Issue 3: Validity of Valuation and Assessment Procedures under Customs Act and Customs Valuation Rules

Relevant legal framework: Customs Valuation Rules, 2007, particularly Rule 7 (transaction value method), Rule 9 (residual method), and Rule 12 (power of proper officer for assessment) govern valuation of imported goods.

Court's interpretation and reasoning: The Respondent contended that the valuation was incorrectly rejected under Rule 7 and that the invocation of Rule 12 by the DRI officers was improper as they were not the proper officers under the Customs Act. The Respondent also argued that the Show Cause Notice under Section 28 invoking Rule 9 read with Rule 12 was legally untenable.

Key evidence and findings: The Respondent submitted that Slack Wax and Residue Wax are raw materials for Paraffin Wax and justified the declared value by reference to market prices and export declarations from other countries (though copies were not submitted). They also requested examination of witnesses and evidence to establish the correctness of declared values.

Application of law to facts: The Tribunal did not delve into the substantive valuation issues due to the procedural defect but acknowledged the Respondent's contentions regarding the valuation methodology and the authority of officers invoking Rule 12.

Treatment of competing arguments: The Revenue's position on valuation was not elaborated in the order. The Tribunal's focus remained on procedural fairness rather than substantive valuation disputes.

Conclusion: The valuation and assessment issues are to be re-examined during re-adjudication after affording proper opportunity and supply of documents to the Respondent.

3. SIGNIFICANT HOLDINGS

- "We find that no reasonable opportunity of being heard has been afforded by the Adjudicating Authority to the Respondent. Therefore, the impugned order is in violation of principle of Natural Justice which required to be set aside."

- The Tribunal established the core principle that adherence to the principle of Natural Justice is mandatory in customs adjudication proceedings and failure to do so vitiates the order.

- The Tribunal directed the Adjudicating Authority to re-adjudicate the matter afresh, after providing the Respondent with all relevant documents and a reasonable opportunity to present their case, and to complete the adjudication within 90 days.

- The penalty under Section 114AA and valuation issues were left open for reconsideration during the re-adjudication, emphasizing procedural fairness before substantive determination.