TMI Blog2018 (6) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... hould remain in custody without being cleared for home consumption. Goods that are cleared for home consumption carry with them the presumption of duty liability having been discharged in full and the goods are not prohibited for import under any law. It is only these two aspects of the goods that can deny clearance for home consumption. Once the goods have been cleared, they cease to be imported goods within the meaning assigned in section 2 of Customs Act, 1962 thus ending jurisdiction over the goods under Customs Act, 1962. Revival of the jurisdiction is contingent upon establishing that duty has not been paid in full or that the goods are prohibited for import. Assessment of duty is empowered under section 17 as final, or as provisional for subsequent finalization, under section 18 of Customs Act, 1962. The impugned goods had been provisionally assessed to duty under section 18 of Customs Act, 1962 which, upon subsequent finalization, rendering a closure to the assessment and implied freezing of duty liability. It is not the case of Revenue that duty has been short-levied thus foreclosing the invoking of section 28 of Customs Act, 1962 - the goods have been cleared for home ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 per metric ton and, in the event of being off spec , the consideration was to be limited to inland freight and value of coal computed at Re 1 per metric ton. The corresponding supply contract with M/s Spring Traders Ltd, Hongkong for supply of coal priced at US$ 53.50 per metric ton prescribed total moisture content (on as received basis) of 26% and gross calorific value (on as received basis) of 4600 kcal/kg. Details of the contract with M/s Rescom Mineral Trading Ltd, Hongkong are not available on record. 2. The allegations leading to the impugned order-in-original no. 05/KVSS(05)ADG (ADJ)/ DRI/MUMBAI/2016-17 dated 23 rd December 2016 are no less simple: a parallel transaction on the same goods operated entirely outside the country between M/s IMR Metallurgical Resources AG and the Singapore-based subsidiary of the appellant-importer, M/s Knowledge International Strategy Systems Pte Limited, involved procurement from mines of coal that did not meet the threshold specifications and for consideration far less than that declared at the time of import. 3. The proceedings leading to this appeal and the rival arguments during the hearing have discarded all pretensions t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l too often natation and escalading are susceptible to repelling. Fifth columns may destroy in war but are of little use in the world of law; the success of the Trojan horse was not its acceptance by the enemy but the subsequent access to the besiegers from within. That appeared to be the dilemma before the investigation. 6. Notwithstanding the manifest disconnect with the two principal causes of cavil, the statutory requirement under section 46 of Customs Act, 1962 to declare the correct value of imported goods was invoked in the show cause notice to claim jurisdiction and overvaluation of the imported goods was confirmed in the impugned order-in-original of Additional Director General (Adjudication), Mumbai for which the importer was subject to penalties under section 112 and section 114AA of Customs Act, 1944 attendant upon liability to confiscation of the imported cool under section 111 (m) of Customs Act, 1962 and for submission of false documents respectively along with penalties imposed under section 112 on Shri Rahul Bhandari and on Shri Vipin Mahajan. 7. The investigations and subsequent proceedings hinged substantially on the quality of coal that was imported. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly obliged to furnish. All of these, according to the show cause notice and the impugned order, sufficed to connect the parallel transactions. 10. The adjudicating authority is convinced that the coal involved in the Swiss-Singapore transaction is the same as the coal presented for assessment in the Hongkong-India transaction and adopted the consideration in the former for coal of unacceptable quality, established by deduction of the adjudicating authority from the report of the Deputy Chief Chemist, Central Revenue Control Laboratory, as the benchmark values. According to him, the corroborative evidence are the similarity of quantities contracted for and the vessels that carried the coal; the red flags are the foregoing of duty exemption to obviate the production of certificate of origin, assumption of responsibility for marine insurance coverage despite the supplier being obligated to, the intrusion of suppliers from Hongkong instead of the Singapore subsidiary of the importer and mismatch of load-port analysis furnished by the Swiss entity and by the importer; the culpability is evinced by the readiness to transact directly, on a separate occasion, with the Swiss supplier wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderance of probability and circumstantial evidence in quasi-judicial proceedings. The assailing of the documents obtained by the investigators, the black hole transaction of the Singapore subsidiary and the challenge of conformance of quality in the tests carried out after landing were all sought to be overcome with the authority of this decision. 13. Some sidelined aspects must be brought to the fore here. The penal consequence of off spec supply did not appear to concern both sides during the hearing. The consignments imported for supply to M/s Mahagenco Ltd were cleared, initially on provisional assessment in accordance with the practice then prevailing arising from a long- standing dispute on the classification of coal as bituminous or steam - that classification clearly without any bearing on the present dispute between 4th November 2013 and 26th May 2014, and finalized under section 18 of Customs Act, 1962 before the imports came under the scanner of Directorate of Revenue Intelligence. It is those tests carried out for the finalization of assessment that were considered to be of consequence in the adjudication order. Of the many consignments that had been impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with these legal aspects before taking up evaluation of the facts. However, of necessity, we must record certain preliminaries that require clarification first. 17. It is on record that the Hon ble High Court of Bombay, on application of the appellants here, had directed an early disposal of the matter. Accordingly, their application for early hearing having been allowed, the matter was placed before a regular bench and reserved for orders after arguments for the rival sides were heard at length. Before the order could be pronounced, the superannuation of one of the constituents of the erstwhile bench intervened to preclude that consummation. The detailed submissions made then are on record as notes of proceedings; both sides were at liberty to take copies and acquiescence deemed to be acceptance of veracity of the contents. It would appear that this opportunity had not been availed of by both sides though, on a subsequent occasion, Mr. Mukul Rohtagi, Learned Senior Counsel, did highlight a few discrepancies in the record and stated that a detailed submission of incongruities therein would be filed. 18. Thus the appeal came to be listed before this bench. Regretfully, the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarify its objections to the locus standii of the respondent in making submissions to the Tribunal, the refusal of which was asserted by him to be nothing short of disregard of the principles of natural justice. It was clarified to him that, while a named respondent, as a creation of the appeal, is competent to make pleadings, Shri KVSS Singh had not been, either by name or by designation, so designated and his attempt to insinuate, without provocation and bereft of post-adjudication existence, was gross impropriety. Though the statute enables jurisdiction to adjudicate, the genesis of, and vestment to, exercise that jurisdiction in a particular proceeding lies in the show cause notice and the jurisdiction stands alienated with concluding of the adjudication order. Had he been directed to appeal against his own order by the competent review authority, it is as an executive subordinate and not as independent adjudicating authority. It is the appellant who creates a respondent and we have not come across any approved alteration of cause title to entail even a mistaken foray by the adjudicating authority in the present proceedings. 20. Mr Ramanan then chose to ask for the recusal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been undertaken at the behest of Indian Customs at the port of import and of the multiple samples drawn by independent agencies for M/s Mahagenco Ltd, are in congruity. He challenged the documents, relied upon in the show cause notice and impugned order, for the lack of authenticity, their questionable provenance, and absence of any linkage to the contracted supply. It is also his contention that the quantity involved in the dispute was but a very negligible portion of that contracted thus belying the projection by the Directorate of Revenue Intelligence of a deep-rooted conspiracy to supply inferior coal in the guise of coal of a superior quality. 22. According to Mr. Rohatgi, the documents had been obtained through a suspect channel and that the process of summons under section 108 of Customs Act, 1962, issued to M/s IMR Metallurgical Resources India, had been contrived to lend credence to documents that were covertly secured by the investigators without the stamp of internationally accepted covenants that spoke for its provenance. 23. Mr Rohatgi asserts that the allegation of parallel transactions is but a chimera to claim credibility for the unsubstantiated allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned order of the cover in which these were delivered. He argued that the legality of the process by which the documents had been secured was secondary to the greater good of unravelling of the conspiracy to defraud and the deployment of these documents to bring the offenders to book. Decrying the attempt to trivialize the scale of the conspiracy, he asserted that the investigation leading to the present proceedings was but a tip of the iceberg and that clean bill of health cannot be assumed to have been accorded to the other consignments imported in fulfillment of the contract. 26. Enumerating the transactions, as unearthed by the Directorate of Revenue Intelligence, Mr Ramanan contends that M/s Spring Traders Ltd and M/s Rescom Mineral Trading Ltd, both based in Hongkong and suppliers on record of the impugned consignments, were merely ornamental intermediaries for obscuring the actual transaction in which M/s IMR Metallurgical Resources AG and M/s Knowledge International Strategy Systems Pte Ltd, the Singapore- based subsidiary of the importer-appellant, are the seller and buyer of coal of unacceptable calorific value with M/s Mahagenco Ltd having to foot the infl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable alternatives in Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, would have been justified in rejecting the declared value as unrepresentative of the transaction value and substituting with a more credible transaction value. We do not have to subject this far-fetched proposition on behalf Revenue to the test of legislative intent as the impugned order did resort to sequential application of the rules which we are bound to scrutinize. 28. While the several decisions adduced on behalf of Revenue and of the three appellants shall, to the extent of relevancy, be examined in the course of our findings on the issues to be determined in this proceeding, Mr Ramanan has given us cause to pause and consider this novel proposition of his that traverses unchartered waters, markedly lacking illuminating comfort of judicial precedents - the beacons that guide navigation in the watery wastes outside the main. More than five and a half decades have lapsed since the enactment of Customs Act, 1962 and about four and a half decades since the inclusion of value in section 111 (m) of Customs Act, 1962; that this proposition, novel even now and untried therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in its advance from a higher level to a lower level. According to him, the law to be applied is a frame. There are cases of intended or unintended indefiniteness at the lower level and several possibilities are open to the application of law ..In all these cases, the law to be applied constitutes only a frame within which several applications are possible, whereby every act is legal that stays within the frame . Again in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, held that it is not the function of the court to supply the supposed omission, which can only be done by Parliament. In our opinion, legislative surgery is not a judicial option, nor a compulsion, whilst interpreting an Act or a provision in the Act. 29. From this, it is clear that when the court is called upon to interpret, and definitions in particular, it should be in accord with accepted doctrines and such interpretation should not fill gaps in law that the tax authority may like to direct in a manner most suited to it. The acceptability of the proposition of Mr Ramanan, canvassed as justification for resort to confiscation in the adjudication order though the adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the constitutional intent not to restrict, had to be rectified by the Sixth Amendment. We are, therefore, inclined to extract from the judgement delivered by Hon ble Justice Vivian Bose, who, in his inimitable penchant for linguistic artistry, while recording his dissent in the matter of The Tata Iron Steel Co Ltd v. The State of Bihar [1958 AIR 452] before the Hon ble Supreme Court, observed- My point is simple. If you are allowed to tax a dog it must be within the territorial limits of your taxable jurisdiction. You cannot tax it if it is born elsewhere and remains there simply because its mother was with you at some point of time during the period of gestation. Equally after birth, you cannot tax it simply because its tail is cut off (as is often done in the case of certain breeds) and sent back to the fond owner, who lives in your jurisdiction, in a bottle of spirits, or clippings of its hair. There is a nexus of sorts in both cases but the fallacy lies in thinking that the entity is with you just because a part that is quite different from the whole was once there. So with a sale of a motor car started and concluded exclusively in New York or London or Timbuctoo. Yo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceable outcome. 32. Having thus sketched the mandate of law, we now take up the proposition that goods brought into India can, at least for section 111(m) of Customs Act, 1962, be held liable for confiscation for enabling imposition of penalties under section 112 of Customs Act, 1962, sans nexus with collection of duty and enforcement of prohibitions or without breach of the machinery provisions for safeguard of revenue and prevention of smuggling. There is, as yet, no judicial approval of this proposition and the adjudicating authority has, to his credit, not articulated his claim to such empowerment. It is a justification pleaded on behalf of Revenue to assail the challenge mounted on behalf the appellants. Hence, at this stage, this, in the Kelsen categorization, is jurisprudential interpretation. 33. Undoubtedly, for the purposes of Customs Act, 1962, value in section 2(41) in relation to any goods, means the value thereof determined in accordance with the provisions of sub- section (1) of section 14 and section 111. Confiscation of improperly exported goods, etc. The following goods brought from a place outside India shall be liable to confiscation:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal for subsequent finalization, under section 18 of Customs Act, 1962. To the extent that that the assessment has not realized the duty that is leviable by law the provisions of section 28 of Customs Act, 1962 can be invoked for recovery of duties. The entitlement of goods on which duties have been short-levied or not levied on clearance for home consumption for clearance for home consumption stands jeopardized ab initio and, if available, can be subject to confiscation. Goods cleared for home consumption by concealment, physical or otherwise, of being prohibited by law, have their clearance for home consumption jeopardized similarly. 35. In Bussa Overseas and Properties Pvt Ltd v. CL Mahar, Asst Collector of Customs [2004 (163) ELT 304 (Bom)], the decision of Hon ble High Court of Bombay that The first submission of the learned counsel is that the goods imported under 45 consignments were cleared for home consumption on the petitioners executing ITC bonds as required under Sub-section (1) of Section 143 of the Act. The learned counsel urged that once the goods are cleared for home consumption, then the goods covered by the consignments cease to be imported goods in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n supplying the remedy, for the impediment of the absence of such imported goods on which duty liability is recoverable after clearance, with the incorporation of section 114A of Customs Act, 1962. Any remedy for perceived gaps in the enforcement of the penal provisions should be, and is always, supplied by legislative enactment. The intent of the legislature in preserving rigour in resorting to section 111 and section 112 of Customs Act, 1962 as a bulwark against executive excess is thus abundantly clear and we cannot allow ourselves to tamper with that integrity. 36. The impugned goods had been provisionally assessed to duty under section 18 of Customs Act, 1962 which, upon subsequent finalization, rendering a closure to the assessment and implied freezing of duty liability. It is not the case of Revenue that duty has been short-levied thus foreclosing the invoking of section 28 of Customs Act, 1962. Mr Ramanan concedes that in his pleadings. Indeed, it is the submission of Mr Rohatgi, Mr Nanda and Mr Nankani that the case of Revenue has been founded on the non-availment of exemption from duties which should, therefore, be consummated by refund of the duties paid. Neither is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t unless the price actually paid for the particular transaction falls within the exceptions, the customs authorities are bound to assess the duty on the transaction value. 10. The respondent s submission is that the phrase the transaction value read in conjunction with the word payable in Rule 4(1) allows determination of the ordinary international value of the goods to be ascertained on the basis of data other than the price actually paid for the goods. This, according to the respondent, would be in keeping with the overriding effect of Section 14(1). We cannot agree. 11. It is true that the Rules are framed under Section 14(1A) and are subject to the conditions in Section 14(1). Rule 4 is in fact directly relatable to Section 14(1). Both Sections 14(1) and Rule 4 provide that the price paid by an importer to the vendor in the ordinary course of commerce shall be taken to be the value in the absence of any of the special circumstances indicated in Section 14(1) and particularized in rule 4(2). 12. Rule 4 (1) speaks of the transaction value. Utilization of the definite article indicates that what should be accepted as the value for the purpose of assessment to cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scope for additions to this value is enumerated in rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the empowerment to reject is in rule 12 of the said Rules. Rule 3 limits any adaptation to the extent specified and rule 12 must, as evident from the Explanation therein, be followed by re-determination of value in the manner and sequence prescribed. The commercial consideration, declared under section 46 of Customs Act, 1962, is tested for conformity with the qualification prescribed in section 14 of Customs Act, 1962 and the relevant provision of the valuation rules in vogue. Should that declaration be rejected, the sequential application of the other rules is mandated. That which is privy only to the parties in a commercial transaction and evidenced by their agreed upon documentation cannot be substituted by a public authority save with explicit sanction of law. Neither section 14 nor the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 affords such sanction to an assessing officer or an adjudicating authority. This is a natural corollary of the territorial limit of jurisdiction in enactment and by interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly is oblivious to the irony of refusing to acknowledge the veracity of transactions by the coal industry while accepting the purported average profit of 3.5% said to have been gleaned from the same industry for application of a subsequent rule. The adjudicating authority appears disinclined to explain the conclusion that this is all that befits addition for determination of misdeclaration. Clairvoyance, as a talent, is not acknowledged in adjudication proceedings. The impugned order has relied upon his rejection of the documentation furnished with import declaration and upon the relationship between the importer and its overseas subsidiary to discard the declared value under rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 41. The relationship that may, by law, shift the burden of responsibility to the importer is the one between it and the supplier. There is no allegation of any legally recognized relationship between the Hongkong entities and the importer and the passing over of the supplier on record to reach back to a missing link, in a transaction that is yet to be established as having occurred, has not been supported by legal authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statutemaker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the settin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this Act or in the case of baggage with the declaration made under section 77 and the notes on clauses of the bill for enactment of Act 36 of 1973 explicitly referring to over-invoiced imports, their Lordships did not forbear to decide that It is not in dispute that a penal provision has to be strictly construed and reading Sec. 111 (m) before the amendment it is not possible to draw an inference that any difference in material particulars may be referable to value . This argument therefore can not be accepted. The scheme of Sec. 111 (m) as it stood then nowhere referred to the difference in value as one of the ingredients which may attract this provision. In such a situation therefore if it is not the specific intention of the provision, a difference in respect of value therefore could not be said to attract this provision and on that basis no penalty could be imposed. Therefore, section 111(m) of Customs Act, 1962 is not to be considered as a special law to deal with over-invoicing and the amendment enlarged the scope for confiscation in the event of any misdeclaration, including value, and even on goods under transshipment; the obliteration of dutiable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Metallurgical Resource AG; however, no background narrative has been offered for this encomium - other than the furnishing of the documents relied so heavily upon to the investigation agency. The final nail, according to the impugned order, was the conformity of the test results conducted by the Deputy Chief Chemist on the samples drawn at the time of import with the certificate of sampling and analysis obtained from M/s IMR Metallurgical Resource AG once the conversion factor elicited from the internet had been utilized. Constituting, as it did, the fulcrum of the detrimental consequence, Learned Special Counsel for Revenue defended the conversion factor, notwithstanding its source, for the unassailability of its mathematical logic. 46. The adjudicating authority, in his voluminous order, found it convenient thereby to adopt the price purportedly contracted, and paid over with appropriate adjustment, by M/s Knowledge International Strategic Systems Pte Ltd to M/s International Metallurgical Resource AG for the coal said to have been supplied for eventual consumption in India and enhanced by what he considered to be a reasonable return by industry standards. This comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sampling and analysis obtained by the investigators and the one derived by the adjudicating authority differ by about 10-12%. That is no conformity. The adjudicating authority was content with the derived value being below the off spec threshold without any thought to the discredit that it brings to the reputation of M/s IMR Metallurgical Resources AG which is, time and again, reiterated in the impugned order. From the derived gross calorific value , it would appear that the internationally renowned supplier, whose integrity is beyond question, overcharged the Singapore entity by about 10 to 12% thereby rendering the voluntarily furnished information to be suspect. That would be to accept only one side of the picture and to conclude that, as long as the documents of the appellant were shown to be false, the legal consequence shall follow. That would be tantamount to acceptance of the documents produced by investigations, whose provenance being suspect, are also tainted by the lack of credibility in its contents. Credibility is not a matter of degrees: it is absolute. No amount of dissembling can lead to acceptance that this amenable to measurement and a higher measure shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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