2025 (7) TMI 226 - AT - Customs

Valuation - Scope of SCN - Absolute confiscation - imported intra ocular lens - mis-declaration of goods - contravention of licence requirements - short payment of duty - section 28 of Customs Act 1962 - HELD THAT - The appellant had applied for renewal of licence and imports were effected between then and receipt of renewed licence. As at the time of adjudication licence was available seizure on that ground should have been vacated. Insofar as earlier imports are concerned the adjudicating authority has tied itself up in knots. On the one hand it is enunciated that absolute confiscation was warranted while on the other additional resource mobilization for the exchequer was accepted as adequate fiscal restitution. Thus prohibitions by that logic are amenable to fiscal deprivation for overcoming even legislated bar. Leaving that aside the authority has been drawn from Drugs Cosmetics Act 1940; while the impugned goods may be covered by lens and as established by the notification was indeed so the enforcement jurisdiction is restricted to the place of import. Any breach detected thereafter is breach of law in municipal jurisdiction and for authorities under the relevant statute to handle. Further by insisting on licence from Central Drugs Standard Control Organisation (CDSCO) as condition for permitting clearance of lens upon import it is implicitly acknowledged that not only is there an appropriate regulatory body and non-intervention by such regulatory body in further marketing of the impugned product but also that the goods are not lacking in quality that is prescribed for transacting locally. It is thus stated that goods once cleared for home consumption may be proceeded against insofar as restrictions imposed by statute or policy connected with agencies other than trade licencing authorities is concerned only at the time of clearance for home consumption under section 47 of Customs Act 1962. The value adopted for assessment is that of the same appellant and undertaken through Air Cargo Complex (ACC) Mumbai at a time before the impugned goods had been imported. There is a substantial distinction between imports effected of goods and that of post parcels both by description and process. There is no declaration of value by recipient of post parcels; such declaration under section 46 of Customs Act 1962 for goods places the onus on the importer as buyer and fully cognizant with the transaction entered into by them with seller to declare the correct price for deployment as assessable value - the goods used for comparison were entered for assessment by the appellant herein from the terms of the contract negotiated by them with the suppliers. Those may have been subjected to the test of rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules 2007 and in accordance with the scheme of valuation resting on declaration of price by the importer. In the case of the impugned goods the price is the price charged from the recipient of the goods and which is declared by the supplier. There is no allegation let alone evidence of any collusive arrangement between the supplier and the appellant. Patently the provisions of Customs Valuation (Determination of Value of Imported Goods) Rules 2007 were not intended to operate for assessment of post parcels and unless specifically adapted for circumstances as set in the Rules for adjustments the adoption of value of goods imported through Air Cargo Complex (ACC) is not acceptable. Both the pillars for confiscation penalties and differential duty viz. lack of licence and comparison with imports at Air Cargo Complex (ACC) the consequences of adjudication is without authority of law. The impugned order is set aside to allow the appeal - Appeal of Revenue dismissed.

The core legal questions considered in the judgment revolve around the following issues:

1. Whether the confiscation and penalty imposed on the imported intraocular lenses were legally sustainable, particularly in light of alleged misdeclaration of value and licence requirements under the Customs Act, 1962 and related statutes.

2. The applicability and correctness of valuation methodology adopted by the Customs authorities, specifically the use of surrogate values from Air Cargo Complex imports for assessing postal parcel imports.

3. The competence of Customs authorities to adjudicate on licence-related contraventions concerning medical devices, especially when licence renewal applications were pending or granted post-import.

4. The legality of disposal orders made under the Customs Act, 1962 and the authority of Customs officers to act as arbiters of public health and safety in the context of confiscated goods.

5. Whether the adjudicating authority exceeded its jurisdiction by going beyond the scope of the show cause notice and by imposing penalties and confiscations without proper legal basis.

Issue-wise Detailed Analysis

1. Confiscation and Penalties under Customs Act, 1962

The adjudication involved two categories of imports: (a) those with misdeclared values but otherwise eligible for clearance upon payment of duty, and (b) those found to contravene licence requirements and thus liable to confiscation without redemption. The adjudicating authority imposed absolute confiscation on certain consignments under section 111(d) and 111(m) of the Customs Act, 1962, along with penalties under sections 114A, 114AA, and 112.

The Court examined the statutory framework, particularly sections 28, 47, 111, 112, 114A, 114AA, and 125 of the Customs Act, 1962. It emphasized that confiscation is a consequence of contravention at the time of import and that the Customs authority acts as a custodian of confiscated goods under section 126. The adjudicating authority's order for disposal of confiscated goods under the Disposal Manual, 2019, was held to be beyond its legal authority, as the Disposal Manual does not derive from the Customs Act.

The Court also noted that confiscation without offering redemption is the most stringent remedy under the Act and that disposal decisions rest solely with the Central Government, not the adjudicating authority. The order's reference to public health and safety as a basis for confiscation and disposal was regarded as an extra-legal exercise beyond Customs jurisdiction.

Regarding penalties, the Court scrutinized whether the imposition was justified given the facts, especially in light of licence renewal status and whether the goods were prohibited at the time of clearance. It was concluded that the Customs authorities lacked jurisdiction to penalize for breaches of licence conditions occurring post-clearance, as such matters fall within the domain of other regulatory bodies.

2. Valuation and Duty Assessment

The valuation issue centered on the use of surrogate values derived from similar goods imported through the Air Cargo Complex (ACC) to reassess the value of intraocular lenses imported via postal parcels. The Customs authorities relied on rule 5 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, applying the highest unit price from ACC imports to postal imports due to lack of proper model-wise import records and alleged misdeclaration.

The Court analyzed the statutory provisions governing valuation, including sections 46 and 47 of the Customs Act, 1962, and the Customs Valuation Rules, 2007. It highlighted the distinct legal framework applicable to postal imports, which differ from conventional imports through cargo complexes, particularly regarding declaration requirements and valuation mechanisms.

The Court found that the valuation rules under the Customs Valuation Rules, 2007, were not intended to apply to postal parcels in the same manner as to cargo imports. The absence of a 'declarant' in the postal import context and the reliance on surrogate values without providing the importer notice or opportunity to furnish information violated the principles of natural justice and statutory valuation scheme.

The Court rejected the use of ACC import values as a benchmark for postal parcel imports, noting the substantial procedural and substantive differences. It also observed that the importer's invoice price should not have been discarded without evidence of collusion or other grounds under rule 12 of the Valuation Rules.

Consequently, the differential duty liability as assessed by Customs was held to be without authority of law.

3. Competence of Customs Authorities Regarding Licence Requirements

The goods imported were intraocular lenses regulated under the Drugs & Cosmetics Act, 1940, requiring import licences issued by the Central Drugs Standard Control Organisation (CDSCO). The appellant had applied for licence renewal prior to the disputed imports, and the licence was eventually granted before adjudication.

The Court examined the scope of Customs jurisdiction vis-`a-vis licence requirements under the Drugs & Cosmetics Act and related notifications. It held that Customs authorities' enforcement jurisdiction is limited to the place and time of import. Once goods are cleared for home consumption with a valid licence, subsequent regulatory compliance issues fall under the purview of municipal or other statutory authorities.

The Court further noted that the adjudicating authority's approach of treating licence non-possession as a ground for confiscation and penalty, despite renewal applications and eventual licence grant, was unsustainable. It emphasized that prohibitory conditions under the Drugs & Cosmetics Act cannot be circumvented by fiscal penalties after clearance.

4. Jurisdiction and Scope of Adjudication

The appellant contended that the impugned order exceeded the scope of the show cause notice and introduced new grounds for confiscation and penalties. The Court referred to binding precedents establishing that adjudication must be confined to the grounds specified in the show cause notice and that any extension beyond that violates principles of natural justice.

The Court found that the adjudicating authority had indeed gone beyond the notice by imposing confiscation and disposal directions not contemplated therein, thereby acting without jurisdiction. This was held to vitiate the order.

5. Treatment of Competing Arguments

The appellant's arguments challenged the valuation methodology, the legality of confiscation and penalties, and the jurisdiction of Customs authorities vis-`a-vis licence issues. The respondent Customs authorities defended their approach based on investigation findings, surrogate valuation under rule 5, and statutory provisions empowering action against unlicensed imports.

The Court carefully weighed these arguments, applying statutory interpretation, valuation principles, and jurisdictional limits. It rejected Customs' reliance on surrogate values for postal imports and their extension of confiscation and penalty powers beyond the statutory framework.

Conclusions

The Court concluded that the impugned order was without authority of law on multiple counts: the valuation methodology was incorrect; the confiscation and penalty imposition were beyond the jurisdiction of Customs authorities given the licence renewal status and timing; and the disposal directions were unauthorized. Accordingly, the impugned order was set aside, the appeals of the importer allowed, and the appeals of the Revenue dismissed.

Significant Holdings

"Confiscation is no authority for disposal in any manner; the Disposal Manual, 2019 has not stemmed from any provision of Customs Act, 1962."

"An adjudicating authority is mere custodian of confiscated goods and what the Central Government may do, in all responsibility and sense of accountability, with goods so confiscated is not within the scope of an adjudication order."

"The authority vested in 'proper officer' by section 47 of Customs Act, 1962, not to permit clearance of 'prohibited goods' may only be invoked at the time of clearance or, post-clearance, on such goods as were prohibited at that time of extinguishment of control over imported goods."

"The provisions of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 were not intended to operate for assessment of post parcels and, unless specifically adapted for circumstances as set in the Rules for adjustments, the adoption of value of goods imported through Air Cargo Complex (ACC) is not acceptable."

"Goods that have already been cleared are beyond the adjudicatory authority of customs officials when acting upon agency entrustments."

"The impugned order is set aside to allow the appeal. Appeals of Revenue are dismissed."

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