Custom, Excise & Service Tax Tribunal
Jindal Poly Films Ltd vs Commissioner Of Customs (Import) on 11 June, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPEAL NO. C/905/2009 Mum
Arising out of Order-in-Original CAO No.96/2009/CC/(1)SHH/ Gr.VA dated 08.06.2009 passed by the Commissioner of Customs (Import), New Custom House, Mumbai.
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Shri. P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
Jindal Poly Films Ltd.
Appellant
Versus
Commissioner of Customs (Import),
Mumbai
Respondent
Appearance Shri L.P. Asthana, Advocate for appellant Shri S. Dewalvar, Addl. Commissioner (A.R.) for respondent CORAM:
Shri Ashok Jindal, Member (Judicial) Shri. P.R. Chandrasekharan, Member (Technical) Date of Hearing : 11.06.2012 Date of Decision : 11.06.2012 ORDER NO.
Per : P.R. Chandrasekharan This appeal is directed against order-in-original CAO No.96/2009/CC/(1)SHH/Gr.VA dated 08.06.2009 passed by the Commissioner of Customs (Import), New Custom House, Mumbai.
2. The appellant M/s. Jindal Poly Films Ltd., New Delhi, had imported one unit of second hand old and used Nylon/Polyester Filament Yarn Plant of German origin from USA in December, 2002 and filed two Bills of Entry bearing No. 318236 and 318237 both dated 13.12.2002 and declared the value of goods as Rs.9,14,05,204/-. The goods were examined on 1st check basis and were found to be consisting of 18 lines; 15 lines of 96 ends with 24 positions each for 4 ends and 3 lines of 144 ends with 24 positions each for 6 ends. The machinery was of Barmag Germany make and was imported on as is where is basis and was not reconditioned. The plate markings found on the goods indicated the year of manufacture as 1994. The goods were examined by a team of experts comprising of Appraiser/Machinery Expert and Appraiser/Automobile Expert in the presence of the Deputy Commissioner of Customs, the Import Manager and Manager (Mechanical) of the importing firm. The Expert Group was of the view that the fair value of whole plant covered under the two Bills of Entry mentioned above could be around Rs.18 Crore @ Rs.1 Crore per line. The Deputy Commissioner-in-Charge of assessment wanted to know the basis of arriving at the value of Rs.1 Crore per line in the Examination Report dated 20.12.2002 submitted by the panel of Expert Appraisers. The said Expert Group in the report dated 07.01.2003 clarified the issue on the basis of imports made by M/s. Hindustan Pipe Udyog in 1991 for a similar plant, which was also of Barmag make. On the basis of the values declared in that case, the value per line of the plant worked out to Rs.1,50,82,650/- for one line of 144 ends and Rs.1,00,55,100/- in respect of one line with 96 ends. The total value in respect of the impugned goods worked out to Rs.19,60,74,500/- on the basis of clarification received. The goods were assessed provisionally at a value of Rs.18 Crore and allowed to be cleared on execution of a bond for the full value of the goods to cover up the differential duty, if any.
2.1 Thereafter, the Special Intelligence and Investigation Wing of the Custom House took up the matter to ascertain the value of the goods imported. They wrote to M/s Saurer India Pvt. Ltd., agent of the manufacturer M/s. Barmag, Germany and requested them to give value of the goods in question. However, M/s Saurer India Pvt. Ltd., could not give the values of used imported machines for the reason that they were not dealing in old machines and they did not possess the price data of old machine of M/s. Barmag make. However, on the insistence of the department, the M/s. Saurer India Pvt. Ltd., gave, without obligation, few indicative prices for some components of the plant prevalent in the year 1994, viz., Control Panel SE-46, Winding machines SW-46 and Extruder SW-46. The total value of these three items worked out to 30,60,00,000/- DEM. After allowing 70% depreciation, fair value of the said parts for import in 2002 was arrived at DEM 9,18,00,000/- which worked out to Rs.16,75,35,000/- at a conversion rate of 1 DEM = Rs.18.25. The department also made efforts with M/s. Garden Silk Mills, Surat, who imported old high speed spinning mills from Germany and China from M/s. Barmag AG, Germany in December 2003 to April, 2004 under four Bills of Entry wherein the value per line worked out to Rs.1 Crore per line on an average.
2.2 On the basis of these evidences, a show-cause notice dated 2.1.2009, was issued to the appellant proposing finalization of the provisional assessment of the imported plant adopting the value of Rs.19,60,74,500/- under Rule 8 of the Customs Valuation Rules, 1988, and demanding differential duty of Rs.81,66,248/- under the provisions of Section 28(1) read with Section 18(3) of the Customs Act, 1962 along with interest thereon under Section 28AB ibid. It was also proposed to confiscate the goods under Section 111(m) of the Customs Act, 1962, on the ground that the appellant importer did not declare the correct value of the goods under importation, thereby making the goods liable to confiscation. The case was adjudicated vide the impugned order and the differential duty demand was confirmed. The goods were confiscated with an option to redeem the same on payment of fine of Rs.2 Crore and a penalty equal to duty i.e. Rs.5,46,71,434/- was imposed on the appellant under Section 114A of the Customs Act, 1962. Hence the appellants are before us.
3. The learned Advocate for the appellant makes the following submissions.
3.1. In the import documents filed by them at the time of importation they had given a correct description of the goods and also the values as reflected in the invoices given by the foreign supplier. They had also got the goods inspected by M/s Alex Stewart (Assayers) Inc. and the said inspection agency had issued a pre-shipment inspection certificate dated 24.10.20002 and had certified that the price of a new plant, if purchased on the date of inspection, was US $ 40,00,000/- FOB plus freight and insurance at actuals. Taking into account the fact that the year of manufacture is 1994, they certified that the purchase price of the plant at US $ 16,92,000 FOB plus freight and insurance at actuals is fair and reasonable. He further submitted that they had negotiated the purchase price with the foreign supplier and as per proforma invoice dated 24.06.2002 the foreign supplier had indicated a price of US $ 18,00,000 FOB for a plant which has a residual life of 8 to 10 years. Accordingly, they had placed purchase order vide letter dated 12.07.2002 showing the total price as US $ 18,00,000 and also opened Letter of Credit for the said amount from the State Bank of Patiala. These import documents very clearly establish that the transaction value of the goods was as per the declaration given Bills of Entry at the time of provisional assessment. When the goods were originally examined by the Customs in house Expert Group, the Expert Group vide letter dated 21.12.2002 mentioned that the value of the plant may be taken as Rs.18 Crore @ Rs.1 Crore per line. However, the Expert Group advised that the values shall be verified with contemporaneous imports and a final decision be taken and this was based on imports made by M/s. Akai Impex Ltd., Bombay vide Bills of Entry No. 11592 dated 24.10.1994 and 4114 dated 31.01.1996 in respect of POY Spinning Plant of Barmag make and the year of manufacture in the said case was 1974/1989. Thereafter, the Deputy Commissioner in-Charge of the Group took into account the imports made by M/s. Hindustan Pipe Udyog vide Bills of Entry dated June, July and September, 1991 wherein the total value has shown as US $ 3,34,000. The said Bills of Entry did not indicate the number of lines supplied and ends per each line. However, the importers Engineer orally indicated that the aforesaid import covered two lines. Accordingly, the value per line worked out to Rs.80 lakhs. Thereafter, on the strength of the proforma invoice produced by the importer in respect of the imports made by Hindustan Pipe Udyog, the cost of one line of 128 ends was arrived at US $ 2,77,000. For one line of 96 ends, the value arrived at on pro rata basis worked out to Rs.1,00,55,100/- and Rs.1,50,82,650/- for one line of 144 ends. In those cases, the year of making of the machinery could not be ascertained and it was assumed that the goods could not have been manufactured before 1984. It was on this basis, the assessment was resorted to in respect of the goods under importation. The Expert Group also recommended that the value of contemporaneous imports should be ascertained for assessment purposes. Thereafter, the department conducted various investigations and could not get any reliable evidence worth the name even after a lapse of a period of almost 10 years and a show-cause notice was issued vide Notice dated 02.01.2009 for finalization of the provisional assessment based on the report of the Expert Group which was given at the time of importation of the goods in 2002 itself. The department has not adduced any evidence in the show-cause notice showing that the appellant has under-valued the goods. Even though the imports made by Hindustan Pipe Udyog was adopted as the basis for finalization of the assessment, the department has not invoked Rule 5 or Rule 6 of the Customs Valuation Rules which provides for determination of transaction value on the basis of the contemporaneous imports of identical or similar goods and the assessment has been made under Rule 8 which is the Residual Rule to confirm the duty demands. In the absence of any evidence of the values of identical or similar goods contemporaneous to the present imports, the department could not have rejected the transaction value under Rule 4(2) of the Customs Valuation Rules. The learned Advocate also relied on the Judgment of the honble apex court in the case of Eicher Tractors Ltd. vs. Commissioner of Customs, Mumbai 2000 (122) ELT 321 (S.C.).
3.2 The learned Counsel further argued that the goods were examined by an Expert Panel which consisted of only departmental officers and no outside experts were co-opted in the exercise. In the absence of an independent agency to assess the value of the goods, reliance cannot be placed on the report of in-house expert panel. On the contrary, they had produced a Chartered Engineers certificate dated 24.10.2002 wherein their purchase price from the foreign supplier was certified as fair and reasonable. As regards the reliance placed by the department on a letter given by M/s. Saurer India Pvt. Ltd., agent of the manufacturer, M/s. Barmag Germany, the said letter stated that the price of the goods given therein were only an indicative price and did not pertain to a full plant/ machinery but only components of the plant/machinery.
3.3 The learned Advocate further pointed out that valuation of the imported goods has to be made under Rule 4 of the Customs Valuation Rules because transaction value was available in the instant case and there is no evidence to reject the same and jump directly to Rule 8. He also relied on the judgments of the honble apex court in the case of Commissioner of Customs, Calcutta vs. South India Television (P) Ltd. 2007 (214) ELT 3 (SC) and Venus Insulators 2003 (153) ELT A172 (SC). The findings of mis-declaration on the part of appellant is based on three pieces of evidence i.e. (1) price of plant imported in the year 1991 by M/s. Hindustan Pipe Udyog; (2) the letter of M/s. Saurer India Pvt. Ltd.; and (3) imports made by M/s. Garden Silk Mills from December, 2003 to April, 2004. No reliance can be placed on the price declaration in the Bills of Entry of M/s. Hindustan Pipe Udyog where the make or the year of the manufacture of the machine was not known and, therefore, the comparison cannot be made between two un-comparable goods. The letter of M/s. Saurer India Pvt. Ltd., cannot be relied upon for the reason that it refers to price of components and not price of the plant/machinery. Further, the prices vary considerably depending upon the year of manufacture, advancement in technology, make, model, the condition of the machinery and other factors. As regards the Bills of entry filed by M/s Garden Silk Mills, those consignments have been imported from China and those were also provisionally assessed and there is no evidence that the said bills were finally assessed and if so, on what basis.
3.4 It is also pointed out that the demand under Section 28 of the Customs Act, is ab initio not sustainable as the demand under the said Section can be made only when there is non-levy or short levy in the final order of assessment. In the instant case, the goods were not finally assessed and, therefore, the question of demanding duty under Section 28 does not arise at all. He also relied on the judgment of the honble apex court in the case of Commissioner of Central Excise & Customs vs. ITC Mumbai 2006 (203) ELT 532 (SC) wherein the apex court held that the proceedings under Section 11A can be invoked only when duty has not been levied or paid or has been short-levied or short-paid and where the goods are provisionally assessed under the Act or the Rules made thereunder, the date of adjustment of duty after the final assessment thereof. The proceedings under Section 11A cannot be initiated without completing the assessment proceedings. The ratio of this judgment will apply to the facts of their case also. Accordingly, the demand under Section 28 is not sustainable in law. It is their contention that they have not mis-declared/under-valued the goods and consequently the goods are not liable to confiscation. If the goods are not liable to confiscation, the question of imposing penalty under Section 114A does not arise. Accordingly, the appellant prays for setting aside the impugned order and allowing their appeal.
4. The learned A.R. appearing for the Revenue on the other hand reiterated the findings of the adjudicating authority. He submits that when the value has been mis-declared, the transaction value can be rejected and the department can determine the value by any means consistent with Section 14 of the Customs Act. As regards the practice of ascertaining the value of second hand machinery from the value of the new machinery giving depreciation, it is an established practice as held by this Tribunal in the case of Rajasthan Textile Mills vs. Commissioner of Customs Mumbai 2004 (168) ELT 127 (Tri. Mum.) and Preto Industries vs. Commissioner of Customs Bombay 1996 (81) ELT 506 (Tri.). He also relies on the judgment of the honble apex court in the case of South India Television (P) Ltd. (supra) and submits that once there is evidence of under-valuation, the department can proceed under Rules 5 and 6 of the Customs Valuation Rules onwards and determine the value for the purpose of levy of duty. In the light of these decisions, the learned A.R prays for upholding the findings of the adjudicating authority.
5. We have carefully considered the rival submissions.
5.1 The basis for re-determination of value is the value of similar goods imported by M/s Hindustan Pipe Udyog vide four Bills of Entry filed in December, 1990 to June, 1991. In that case the total value of goods was US $ 5,54,000 and the import consisted of two lines of 128 ends each. Therefore, the cost of one line of 128 ends worked out to US $ 2,77,000/- and on that basis cost of one line of 96 ends worked out to (on pro rata basis) US $ 2,07,750/- and cost of one line of 144 ends worked out to US $ 3,11,625/-. Adopting the exchange rate of Rs.48.4 per Dollar, value in Indian Rupees amounted to Rs.1,00,55,100/- for one line of 96 ends and Rs.1,50,82,650/- for one line of 144 ends. It is on this basis the learned adjudicating authority has re-determined the value. There is no indication what-so-ever in the said report of the Expert Group as to the make and model of the goods imported by Hindustan Pipe Udyog, the year of manufacture, the residual life of the plant etc. First of all, the machinery chosen for comparison should be of contemporaneous imports. In the case of Hindustan Pipe Udyog, the importation was during 1991, whereas in the instant case the importation was in 2002, after a lapse of more than a decade. Therefore, the case chosen for comparison is not contemporaneous at all. Secondly, the condition of the machinery imported is very relevant in determining the value of the machine. When the machine is imported on as is where is basis and was not reconditioned the comparison has to be made with a machinery in a similar condition. It is also a well known fact that the value of the machinery will depend upon its make, model, year of manufacture and its residual life. In the instant case, these particulars are not available in respect of the plant and machinery imported by M/s. Hindustan Pipe Udyog Pvt. Ltd. Therefore, the comparison of the value of the goods under importation with that of M/s. Hindustan Pipe Udyog Pvt. Ltd., is like comparing chalk with cheese. If imports made by M/s. Hindustan Pipe Udyog Pvt. Ltd., is taken as the value of comparable goods, then the determination of value should have been done under Rule 6 of the Valuation Rules after making necessary adjustments in the price. However, the adjudicating authority has invoked Rule 8 of the Valuation Rules on the ground that Rules 5 to 7 are not applicable. In other words, the adjudicating authority seems to be sailing in two boats at the same time which is not permissible.
5.2 The Expert Panel constituted by the Commissioner is an in-house panel and did not include any outside independent expert. Therefore, the reliance that could be placed on such a report does not inspire confidence. On the other hand, the appellant herein, had produced a Chartered Engineers certificate at the time of importation itself which certified that the value declared by the appellant was fair and reasonable. When a certificate is available from an independent source, the same cannot be rejected without a valid reason and assessment cannot be made placing reliance on departments in house Expert Group. The appellant has produced all the import documents at the time of importation such as purchase order placed, the invoices issued by the foreign supplier, the Letter of Credit opened through the bank and the Inspection Certificate of an independent Chartered Engineer. The genuineness of these documents have not been disproved at all. Therefore, the department has not made out any case for rejecting the transaction value under Rule 3(2)/4(2) of the Custom Valuation Rules, 1988.
5.3 The Honble Apex Court in the case of South India Television Pvt. Ltd. (cited supra) held as follows:-
However, before rejecting the invoice price the Department has to give cogent reasons for such rejection. This is because the invoice price forms the basis of the transaction value. Therefore, before rejecting the transaction value as incorrect or unacceptable, the Department has to find out whether there are any imports of identical goods or similar goods at a higher price at around the same time. Unless the evidence is gathered in that regard, the question of importing Section 14(1A) does not arise. In the absence of such evidence, invoice price has to be accepted as the transaction value. Invoice is the evidence of value. Casting suspicion on invoice produced by the importer is not sufficient to reject it as evidence of value of imported goods. Under-valuation has to be proved. If the charge of under-valuation cannot be supported either by evidence or information about comparable imports, the benefit of doubt must go to the importer. If the Department wants to allege under-valuation, it must make detailed inquiries, collect material and also adequate evidence. When under-valuation is alleged, the Department has to prove it by evidence or information about comparable imports. For proving under-valuation, if the Department relies on declaration made in the exporting country, it has to show how such declaration was procured. We may clarify that strict rules of evidence do not apply to adjudication proceedings. They apply strictly to the courts proceedings. However, even in adjudication proceedings, the AO has to examine the probative value of the documents on which reliance is placed by the department in support of its allegation of under-valuation. Once the Department discharges the burden of proof to the above extent by producing evidence of contemporaneous imports at higher price, the onus shifts to the importer to establish that the invoice relied on by him is valid. Therefore, the charge of under-invoicing ahs to be supported by evidence of prices of contemporaneous imports of like goods. Section 14(1) speaks of deemed value therefore, invoice price can be disputed. However, it is for the Department to prove that the invoice price is incorrect. When there is no evidence of contemporaneous imports at a higher price, the invoice price is liable to be accepted. The value in the export declaration may be relied upon for ascertainment of the assessable value under the Customs Valuation Rules and not for determining the price at which goods are ordinarily sold at the time and place of importation. This is where the conceptual difference between value and price comes into discussion.
5.4 As per the guidelines issued by the CBEC vide Circular No.4/2008-Cus dated 12.02.2008, the assessing officer is required to follow the following procedure while assessing the second hand machinery.
8. Guidelines in respect of some other issues related to valuation of second hand machinery are as follows:
(a) For valuation of second hand machinery/capital goods, the assessing officers must insist on importers submitting a certificate issued by an independent Chartered Engineer or any equivalent in the country of supply. The Certificate should indicate inter alia:
(i) Price of new machinery as in the year of its manufacture,
(ii) Current CIF value of new machinery if purchased now,
(iii) Year of the manufacture of machinery,
(iv) Sale price of the supplier,
(v) Present condition of machinery,
(vi) Nature of reconditioning or repairs carried out, if any, and the cost (including the dismantling cost, if any) thereof,
(vii) Expected life span.
(b) There is no need to specify the agencies whose certificates alone, issued at the port of loading, would be accepted. The number of such agencies should not be limited.
(c) In the absence of proper Load Port Certificate, a local Chartered Engineers Certificate may be accepted. Each Custom House may consider issuing Public Notices giving names and addresses of Chartered Engineers, whom the trade can contact for issuance of CE Certificate.
(d) It is not essential to have the examination of the second hand machinery by a panel of officers, since in many Customs formations no machinery expert is posted. The routine examination of second hand machinery being done by the Docks staff shall continue. 5.5 In the instant case, we find that the appellant importer had satisfied all the guidelines prescribed. If that is so, we do not understand how the department can reject the transaction value declared by the appellant. In the case of Eicher Tractors Ltd. (supra) the honble apex court held that only in those special circumstances particularized in Rule 4 (2) of the Custom Valuation Rule, 1988, valuation needs to be done under the Customs Valuation Rules. If these special circumstances are absent, it is mandatory for the Customs to accept the price actually paid or payable for the goods in the particular transaction; conversely, if the transaction value can be determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), there is no question of determining the value under the subsequent Rules. The exceptions specified in Rule 4(2) are reproduced below:-
(a) there are no restrictions as to the disposition or use of the goods by the buyer other than restriction which -
(i) are imposed or required by law or by the public authorities in India; or
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
(b) the sale or price is not subject to same condition or consideration for which a value cannot be determined in respect of the goods being valued;
(c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in accordance with the provisions of Rule 9 of these rules; and
(d) the buyer and seller are not related, or where the buyer and seller are related, that transaction value is acceptable for customs purposes under the provisions of sub-rule (3). It is not the case of the department in the instant case, the circumstances specified in sub-rule (2) of the Rule 4 existed. In the absence of these circumstances, the question of re-determination of value under Rules 5 to 8 of the Customs Valuation Rules did not arise at all.
8. In the light of the foregoing, we are of the view that the impugned order re-determining the value of the machinery under importation is not sustainable in law. Consequently the confiscation of the goods and imposition of fine and penalty are also not sustainable in law. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Pronounced in open Court) (Ashok Jindal) Member (Judicial (P.R. Chandrasekharan) Member (Technical) nsk 19