Whether imported car is liable to confiscation if importer violated the provisions of Transfer of Residence Rules?

PJ/CASE LAW/2014-15/2492

Case:-ARMITY S PATEL Vs COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI

Citation:-2015-TIOL-76-CESTAT-MUM

Brief Facts:- The appeal is directed against Order in Appeal No. 301/NCH/ADC/Gr. VB/2012 dated 26/06/2012 passed by Commissioner of Customs (Appeals),Mumbai. Vide the impugned order, the learned lower appellate authority has confirmed the differential duty demand of Rs.20,81,411/- under Section 125 (2) of the Customs Act, 1962 along with interest of Rs.9,50,316/- under Section 28AB of the Customs Act, 1962. Further the goods have been confiscated under the provisions of Sections 111 (d), 111(m) and 111 (o) of the Customs Act, with an option to redeem the same on payment of fine of Rs.10 lakhs. A penalty of Rs.30,31,727/- has been imposed on the appellant under Section 114A of the Customs Act, 1962. Aggrieved of the same, the appellant is before Tribunal.

The facts relevant to the case are as follows:

Smr. Armaity S. Patel imported a second hand car vide Bill of Entry No. 403455 dated 27/10/2003 claiming the year of manufacture as 2001 and availing the benefit of Transfer of Residence Rules. The vehicle was assessed at value of Rs. 9,69,532/- after giving depreciation considering the year of manufacture as 2001 and allowed to be cleared on payment of Customs duty of Rs. 16,16,855/-. Since the appellant was resident of Bangalore, investigations were conducted through the Customs department at Bangalore and it was found that Smt. Armaity S Patel is no longer residing at the address at Bangalore and had gone back to Dubai in 2004 itself.

The vehicle was found to be lying with Shri Behram Engineer, brother of Smr. Armaity S. Patel and Shri Engineer confirmed that Smt. Armaity S. Patel had gone back to Dubai, somewhere in October/November 2004 and the vehicle was lying with him. The vehicle which is a Toyota Land Cruiser was seized vide seizure Memo dated 28/06/2006 and was handed over to Shri Engineer for safe custody. The statement of Smt. Armaity S Patel could be recorded on 01/11/2006 wherein she confirmed that she had gone back to Dubai since her husband got extension to continue his service and, therefore, she handed over the car for safe custody to her brother. In order to ascertain the correct year of manufacture of the vehicle, the department wrote to M/s. Toyota Kirloskar Motors for providing chassis and engine number of the vehicle and seeking other details of the vehicles and the said Toyota Kirloskar Motors vide letter dated 30/10/2006 confirmed that date of manufacture of said vehicle to be 29/05/2003 and the list price in the year of manufacture was 5.588 million Japanese yen. In the light of the investigation carried out by the department, Smt. Armaity S Patel deposited an amount of Rs. 21,72,615/- and requested for provisional release of the seized vehicle which was released to her on 20/04/2007 on execution of provisional duty bond of 20 lakhs and a bank guarantee of Rs. 4.00 lakhs. Subsequently, a show cause notice dated 23 rd February 2009 was issued to Smt. Armaity S Patel proposing to revise the value of the imported car at Rs. 22,17,638/- and demanding a differential duty of Rs. 20,81,411/- under Section 125 (2) of the Customs Act. Interest of Rs. 9,50,316/- was also proposed to be demanded under Section 28AB of the Customs Act. It was also proposed to confiscate the car under the provisions of Sections 111(d), 111(m) and 111(o) of the Customs Act. There was also proposal for imposition of penalty on Smt. Armaity S Patel under Sections 112(a)/114A of the Customs Act and also on various others. The said notice was adjudicated vide order dated 17/03/2011 by the Additional Commissioner of Customs who confirmed the duty demands along with interest thereon. The vehicle was also confiscated with an option to redeem the same on payment of fine of Rs. 10 lakhs. A penalty of Rs. 30,31,727/- (equal to duty plus interest) was imposed on Smt. Armaity S Patel under Section 114A of the Customs Act apart from penalties on various others. This order was upheld in appeal by the lower appellate authority against which an appeal has been made before Tribunal.

Appellant contentions:-The learned Counsel for the appellant submits that when the vehicle was imported in 2003, Smt. Armaity S Patel was under the bona fide belief that she will not be required to return to Dubai. However, in view of the extension of service given to her husband on work contract, she was forced to go back to Dubai in 2004. As regards the year of manufacture the appellant had made the correct declaration based on the documents supplied by the dealer and therefore, there was no question of any deliberate misdeclaration in respect of the date of manufacture with an intent to evade the correct payment of duty. It is also contended that the provisions of Section 111(d) of the Customs Act, is not attracted as the goods are freely importable. Since there was no deliberate misdeclaration, provisions of Section 111(m) and 111(o) are also not attracted and therefore, the confiscation of the impugned car is incorrect in law. The learned Counsel further submits that the duty demand has been confirmed under Section 125 (2) of the Customs Act. Therefore, the question of demanding interest under Section 28AB or imposition of penalty under Section 114A of the Customs Act is not in accordance with law. The lower appellate authority has ignored the contention of the appellant that in a case where conditions of a notification has been violated, the question of invoking provisions of Section 125 would not apply. The said provisions would apply only in a case where the details regarding bills of entry are not known or the goods are smuggled into India without filing any import documents. Alternatively, he contends that differential duty has been worked out without granting of benefit of 15% trade discount on manufacturers list price and the interest has been worked out contrary to the provisions of Notification No.78/2003Cus dated 12/09/2003 which prescribes a fixed rate of interest @13% per annum. If this trade discount is granted, the differential liability would be only Rs. 14,52,227/- and the interest liability would be Rs. 5,97,624/-. Accordingly, he pleads for setting aside the impugned order and allowing the appeal.

Respondent Contentions:- The learned Deputy Commissioner (AR) appearing for the Revenue on the other hand reiterates the findings of the adjudicating authority. He submits that the appellant clearly violated the provisions of Transfer of Residence Rules, and went back to Dubai without completing the required period of stay in India. As regards the computation of duty, he relies on the decision of this Tribunal in the case of Channa Kranti Kumar Vs. CC Hyderabad – 2012 (279) ELT 385 (Tri Bang) where in a similar situation, involving alleged under valuation of a car imported under Transfer of Residence, the valuation based on the manufacturer's price after granting discount and depreciation were permitted and therefore, it is contended that the impugned order is sustainable in law and merits to be upheld.

Reasoning of Judgment:- The Honorable Judge have carefully considered the submission made by both the sides.

It is not in dispute that the appellant had violated the provisions of Transfer of Residence Rules by returning to Dubai before completing the required period of stay in India. It is also not in dispute that the year of manufacture is May 2003 as the same has been certified by the manufacturer of the car on the basis of the chassis and engine number. Therefore, violation of Transfer of Residence Rules, and misdeclaration of material particulars, that is, the year of manufacture is clearly established. These facts have not been disputed by the appellant. The only contention is that the appellant declared the particulars based on the invoice given by the dealer and there was no attempt to misdeclaration with an intention to evade payment of Customs duty. Since the year of manufacture is May 2003 and as per the manufacturer's list price the value of the car is 5.588 million Japanese Yen, the assessable value will have to be worked out and the period and amount of depreciation also will come down substantially.

As regards the 15% trade discount on the list price, there is no evidence led by the appellant that the said discount is available uniformly to all purchasers. Since the cars are sold through the dealers, it is the dealer who gets the discount and not the retail purchaser and therefore, adopting the list price for determination of the assessable value cannot be said to be incorrect. Therefore, the determination of value of Rs. 22,17,638/- adopting the list price and after giving depreciation for the two quarters cannot be said to be incorrect and consequently differential duty demand of Rs. 20,81,411/- cannot be disputed.

As regards the contention that Section 125(2) will not apply, this contention is misplaced. There is a condition in respect of cars imported under Transfer of Residence Rules, that the importer will stay in India at least for a period of two years. This condition has been clearly violated and therefore, the provisions of Section 111 (o) comes into picture. Similarly, there is a misdeclaration with respect to the year of manufacture and hence, misdeclaration of material particulars attracting the provisions of Section 111(m) is also established. Therefore, the impugned car imported under Transfer of Residence is clearly liable to confiscation. Once the goods are seized and found liable to confiscation, the provisions of Section 125 would come into picture. There is no time limit specified for demand of duty under Section 125. The said section clearly provides that when the goods are seized and allowed to be redeemed, the owner or the person from whom the goods are seized, shall be given an option to redeem the same on payment of a fine and while undertaking redemption, the concerned persons shall pay the duties and other charges leviable on the goods. Therefore, in the present case since the goods have been seized and confiscated under the provisions of under Section 111 (m) and 111 (o), liability to differential duty would automatically arise. In view of the said position, the liability to pay differential duty as demanded in the impugned order is clearly sustainable in law.

As regards the imposition of a fine of Rs. 10 lakhs for redemption, it has to be noted that the appellant had not intended to sell the car and the car is still in the custody of the of the appellant and therefore, considering the total cum duty value of about Rs. 59 lakhs, the redemption fine of Rs. 10 lakhs appears to be much on the higher side. Accordingly, the redemption fine was reduced to Rs. 5 lakhs from Rs. 10 lakhs as confirmed in the impugned order.

As regards the demand of interest of Rs. 9,50,316/-, Section 125(2) does not provide for payment of interest. Further in the present case, interest has been demanded under the provisions of Section 28AB; the said Section 28AB will come into picture only when the duty demand is confirmed under Section 28 of the Customs Act and therefore, the provisions of Section 28AB has no role to play in the present case. Similarly, we notice that penalty has been imposed under Section 114A; the said Section applies only when duty demand is confirmed under Section 28A (1) of the Customs Act. In the present case the duty demand has been confirmed under Section 125 and therefore, the question of invoking Section 114A for imposition of penalty on the appellant is clearly unsustainable in law. Accordingly, we set aside the same.

In sum, we uphold the differential duty demand of Rs. 20,81,411/-. We also uphold the imposition of redemption fine, but reduce the same from Rs. 10 lakhs to Rs. 5 lakhs. We set aside the demand towards interest under Section 28AB and imposition of penalty under 114A of the Customs Act, as unsustainable in law. The appeal is disposed of in the above terms.

Decision:-Appeal disposed off.

Comment:- The gist of the case is that in respect of cars imported there is a condition under Transfer of Residence Rules, that the importer will stay in India at least for a period of two years & on violation of this condition, provisions for confiscation of goods and duty demand will be applicable. However, one important analogy drawn from this case is that the provisions for interest under section 28AB will come into play only when customs duty demand has been raised under section 28 of the Customs Act. Similarly, penalty under section 114A applies only when duty demand has been confirmed under section 28A(1) of the Customs Act.

Prepared By: Meet Jain

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PJ/CASE LAW/2014-15/2492

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