Whether declaration of goods as Prime Metals instead of defectives renders goods liable for confiscation?

PJ/CASE LAW/2015-16/2880

Case:- METAL ORE VERSUS COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI

Citation :- 2015 (321) E.L.T. 526 (Tri. - Mumbai)

Brief facts:-The appeal arises from Order-in-Original No. 98/2010/CAC/CC(I)/SHH/Gr.IV, dated 25-11-2011 passed by Commissioner of Customs (Import), Mumbai.
The appellant, M/s. Metal Ore, Mumbai, filed a bill of entry No. 857358, dated 23-8-2008 declaring the products as “Hot Rolled Non Alloy Steel Cut Steel Sheets/Plates” weighing 551.27 MT and valued at Rs. 2,42,31,965/-. The goods were supplied by M/s. Burwill Resources Ltd., Hong Kong at US $ 1022 per MT. The appellant classified the goods under CTH 7208 and claimed the benefit of Notification No. 21/2002-Customs, dated 1-3-2002 (Sl. No. 190C) which provided for nil basic customs duty on goods (other than seconds and defectives). The consignment was inspected and during the course of inspection, it was noticed that the goods were not as per the order/sales contract made with the foreign supplier. The goods covered under the bill of entry was examined by the docks staff and it was observed that out of declared 71 bundles of Hot Rolled Non Alloy Steel Sheets, only 6-7 bundles had the metal labels affixed on them giving details of description, steel grade, specification, coil number, weight, size, date, etc. The total number of plates were found to be 202 as against the declared quantity of 209 plates. The goods were found to be heavily rusted and improperly bundled. The subject goods, from a visual inspection, were found to be seconds and not of prime metal.
Statement of Shri Bijal Shah, Partner of the appellant firm was recorded under Section 108 of the Customs Act and he admitted that after inspecting the goods they found the goods under importation to be heavily rusted without proper packing and the goods were not as per the contract i.e. “Prime Hot Rolled Cut Steel Sheets” but were secondary Hot Rolled Non Alloy Steel Plates. He also submitted that these facts came to their notice only after the inspection of the goods on its arrival in Mumbai and the entire contract formalities including opening of letter of credit, etc. have already been completed. He also admitted that the imported goods were not prime hot rolled cut steel sheets and therefore they are not eligible for the benefit of Notification No. 21/2002 and they would discharge the differential duty liability. Shri Shah also stated that they had no mala fide intention to evade any Customs duty and pleaded for a lenient view.
The goods were surveyed by M/s. Gondalia Associates, Mumbai, and the surveyor observed that the plates were in a very much rusty condition and no metal marks were noticed on them. The subject consignment of the plates did not comply with the buyers specifications and the total number of pieces were 202 against the invoiced quantity of 209 pieces. The appellant paid the duty of Rs. 74,25,264/- including the differential duty liability of Rs. 28,70,641/- due to the non-availability of exemption under Notification No. 21/2002 and sought provisional release of the goods which was allowed on execution of bond and bank guarantee. Thereafter, a notice was issued to the appellant proposing to deny the benefit of Notification No. 21/2002, dated 1-3-2002 by treating the goods under importation as defective/seconds and demanding differential duty of Rs. 28,70,641/-. It was also proposed to confiscate the goods under the provisions of Section 111(m) of the Customs Act, 1962 and also to impose penalties on the appellant under Sections 114A/112(a) and on the Partner of the appellant firm, Shri Bijal Shah, under Section 112(a). The notice was adjudicated vide impugned order and the duty demands were confirmed. The goods were confiscated under Section 111(m) and a redemption fine of Rs. 45 lakhs was imposed under Section 125. A penalty of Rs. 74,25,264/- was imposed on the appellant firm under Section 114A. Hence, the appellant is before tribunal.

Appellant’s contention:-The ld. Counsel for the appellant makes the following submissions.
The statement recorded by the department from the Partner of the appellant firm on 1-9-2008 was not voluntary. The examination report is contrary to the allegations in the notice and the visual examination and the survey reports are at variance with each other. The goods were sold in the market as prime or not as seconds/defective. Since there was no mis-declaration, the goods are not liable to confiscation under Section 111(m) and penalty is not imposable on the appellant under Section 114A as there was no suppression or wilful misstatement of facts with an intent to evade payment of duty. Subsequent to the release, the appellant has sold the goods at below the cost of importation which reveals that no profits have been made by the appellant but loss has been incurred in the transaction and therefore, imposition of redemption fine was not warranted at all. The appellant had also submitted copies of sales invoices in support of the above claim. Inasmuch as there was no suppression of facts or wilful misstatement on the part of the appellant and the appellant came to know about the defective nature of the goods only after its importation in India, penalty under Section 114A is not sustainable in law. Accordingly, he pleads for allowing the appeal.

Respondent’s contention:- The ld. Addl. Commissioner (AR) appearing for the Revenue reiterates the findings of the adjudicating authority.

Reasoning of judgment:- They have perused the statement given by the Partner of the appellant firm during the investigation, wherein the appellant had after examination of the goods agreed that the goods were not prime metal but heavily rusted and defective. The appellant had also admitted that he would pay differential duty without claiming the benefit of Notification No. 21/2002 and accordingly he had discharged the differential duty liability also without any protest. The appellant had not filed any retraction letter with respect to the statement given before the Customs authorities under Section 108 of the Act. It is a settled legal position that admissions made before a Custom Officer under Section 108 of the Customs Act is an admissible evidence in the proceedings undertaken under the Customs Act. Hon’ble Apex Court’s decision in the case of Ramesh Chandra Mehtav. State of West Bengal [1999 (110)E.L.T.324 (S.C.)]and Badaku Joti Savantv. State of Mysore [1966 (3) SCR 698 = 1978 (2)E.L.T.(J323) (S.C.)] refer. Therefore, having admitted that the goods under importation were defective and also having paid the duty without any protest, the appellant cannot turn around now and say that the goods are prime and not defective. The survey report of the surveyor also indicates that the goods were heavily rusted and they were not a prime quality. In the light of these facts, the denial of exemption Notification No. 21/2002 and demand of duty by treating the products as second/defective is valid in law and accordingly, they uphold the confirmation of duty demand.
Coming to the confiscation of the goods under Section 111(m) of the Customs Act, the said Section provides for confiscation if there is a difference in the value or other material particulars as declared in the bill of entry and as obtaining on physical examination of the goods. In the present case the goods were declared in the bill of entry as prime metal whereas on examination, they were found to be seconds/defective. Therefore the provisions of Section 111(m) are clearly attracted and the confiscation of the goods is upheld.
Coming to the redemption fine of Rs. 45 lakhs imposed on the appellant under Section 125 of the Customs Act, redemption fine is imposed to wipe out the profit margin which the appellant would have made in case the appellant had been able to clear the goods on the basis of declaration. In the present case, from the documentary evidence submitted before the adjudicating authority as well as before them, it is seen that the appellant had sold the goods at below cost. In other words, the appellant has not made any profit in the transaction. Even otherwise when the goods supplied are seconds/defective against a purchase contract for prime metal, the question of earning any profit from the transaction would not arise. In these circumstances, they do not find any justification for imposition of redemption fine in the instant case and accordingly, they set aside the same.
As regards the penalty imposed on the appellant, the same has been imposed under Section 114A of the Customs Act equal to the total duty chargeable on the consignment. Even if it is argued that the appellant sought to evade duty, the duty sought to be evaded would be only the differential duty and not the duty on the entire value of the consignment. In the present case the appellant had claimed the benefit of exemption which was not available since the goods were defective. Thus, even if the penalties were required to be imposed on the appellant under Section 114A, it could have been only on the short levy of duty which is about Rs. 28 lakhs, whereas the ld. Commissioner has imposed a penalty on the entire duty amount of Rs. 74.25 lakhs. Thus, the imposition of penalty is incorrect. For imposition of penalty under Section 114A, there should be collusion or any wilful misstatement or suppression of facts on the part of the importer. The Revenue has not led any evidence to show that any of these elements are present in the present transaction even in the statement recorded under Section 108 it is seen that the appellant had noticed the defective nature of goods only when the goods arrived in Mumbai. He had filed the bill of entry based on the documents supplied by the foreign supplier without realizing that the goods imported was not in conformity with the purchase order placed by him. There is no admission of any suppression or wilful misstatement of facts in the statement given by the Partner of the appellant firm. Therefore, they hold that the charge of collusion, wilful misstatement or suppression of facts is not established. Therefore, the provisions of Section 114A are not attracted and accordingly, they set aside the penalty imposed on the appellant under Section 114A of the Customs Act, 1962.
In sum, they uphold the confirmation of duty demand and denial of Notification No. 21/2002, dated 1-3-2002. They set aside the redemption fine of Rs. 45 lakhs and the penalty of Rs. 74,26,264/- imposed on the appellant under Section 114A.
The appeal is disposed of in the above terms.

Decision:- Appeal partly allowed.

Comment:- In the present case, the assessee has claimed the benefit of Notification No. 21/2002-Customs which provided for nil basic customs duty on goods (other than seconds and defectives). At the time of checking of goods, the goods are found defective. Therefore, as the goods declared in Bills of Entry as prime metal were actually second/defective metal, it was concluded that there was misdeclaration of goods that rendered the said goods liable for confiscation. Consequently, the claim for benefit of exemption was also rejected.
However, as far as imposition of redemption fine was concerned, it was held that since there were documentary evidence that goods were sold at below cost and no profit was made in transaction, it would not be fair to impose redemption fine. Furthermore, as there was no admission of any suppression or wilful misstatement of facts in statement of partner of assessee’s firm, charge of collusion, wilful misstatement or suppression of facts could not be established. Hence, penalty imposed under section 114A was also set aside.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2880

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