Redemption fine and penalty imposed by the Revenue Department without final assessment is not permissible

The Hon'ble CESTAT Chandigarh in matter of M/s J.S. Steel Traders v. the Commissioner of Customs, Ludhiana [Custom Appeal No. 60037 of 2021, Final Order No. 60840/2021 dated May 24, 2021] set aside the order passed by the Revenue Department, imposing redemption fine and penalties on the assessee. Held that, without finalization of the assessment, re-assessment of the bill of entry and duty paid by the assessee under Section 18(2) of the Customs Act cannot be adjusted and the duty, interest, 15% penalty in terms of Section 28(5) of the Customs Act, 1962 ('the Customs Act')paid by the assessee is sufficient.

Facts

M/s J.S. Steel Traders ('the Appellant') imported consignment of heavy metal scrap. On physical verification consignment found to be of secondary and defected MS Sheets. The Appellant sought provisional release of the goods under Section 110 A of the Customs Act and the goods were allowed to be released provisionally. At the time of taking possession of the goods, the Appellant paid entire amount of the differential duty along with interest thereon and 15% duty as penalty in terms of Section 28(5) of the Customs Act.

Subsequently a Show Cause Notice ('SCN')was issued by the Commissioner of Customs, Ludhiana ('the Respondent') to the Appellant alleging that the duty has been paid by the Appellant under Section 18(2) of the Customs Act, therefore the interest is to be demanded under Section 28 AA of the Customs Act and the redemption fine of INR 1,00,000/- and penalties of INR 1,75,000/- is to be imposed under Section 112 and Section 114 AA of the Customs Act respectively.

The SCN was adjudicated, wherein, an order ('the Impugned Order') was passed imposing the redemption fine and penalties on the Appellant. Being aggrieved, the Appellant has filed this appeal.

Issue

• Whether the duty, interest and 15% penalty paid by the Appellant in terms of Section 28(5) of the Customs Act is sufficient or not?

Held

The Chandigarh CESTAT in Custom Appeal No. 60037 of 2021, Final Order No. 60840/2021 dated May 24, 2021held as under:

• Analysed Section 18(2) of the Customs Act and observed that, no final assessment order has been placed by the Respondent, which means the provisional release of the goods has been treated as final and the duty paid by the Appellant has been adjusted under Section 18(2) of the Customs Act.
• Opined that, without finalization of the assessment, re-assessment of the bill of entry and duty paid by the Appellant under Section 18(2) of the Customs Act cannot be adjusted. Interest can't be demanded and penalty also can't be imposed on the Appellant.
• Noted that, provision of Section 28(1) of the Customs Act are applicable in case of demanding differential duty from the importer. But the Respondent didn't follow the due process of law to refrain to give benefit of the provisions of the Section 28(5) of the Customs Act to the Appellant. Stated that, the Respondent is bound to follow the due process of law and only the implementing authority in true spirits, therefore, without demanding duty under Section 28(1) of the Customs Act, it cannot be adjusted under Section 18(2) of the Customs Act.
• Further noted that, the demand of differential duty is also not sustainable in the circumstances till finalization of the assessment, as the Appellant has not contested the payment of duty and sought conclusion of the matter under Section 28(5) of the Customs Act. Moreover, when the Respondent has demanded interest under Section 28AA of the Customs Act, the provisions of Section 28(5) of the Customs Act would have been attracted.
• Set aside the Impugned Order.
• Held that, the duty, interest and penalty paid by the Appellant at the time of provisional clearance of the goods shall amounts to be concluded under Section 28(5) of the Customs Act and the duty, interest, and 15% penalty in terms of Section 28(5) of the Customs Act paid by the Appellant is sufficient.

Relevant Provisions

Section 112 of the Customs Act

'Penalty for improper importation of goods, etc. - Any person, -

• who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act, or
• who acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable, -
• in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding the value of the goods or five thousand rupees, whichever is the greater;
• in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent. of the duty sought to be evaded or five thousand rupees, whichever is higher:

Provided that where such duty as determined under sub-section (8) of section 28 and the interest payable thereon under section 28AA is paid within thirty days from the date of communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty five per cent. of the penalty so determined;

• in the case of goods in respect of which the value stated in the entry made under this Act or in the case of baggage, in the declaration made under section 77 (in either case hereafter in this section referred to as the declared value) is higher than the value thereof, to a penalty not exceeding the difference between the declared value and the value thereof or five thousand rupees, whichever is the greater;
• in the case of goods falling both under clauses (i) and (iii), to a penalty not exceeding the value of the goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest;
• in the case of goods falling both under clauses (ii) and (iii), to a penalty not exceeding the duty sought to be evaded on such goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest.'

Section 114AA of the Customs Act

'Penalty for use of false and incorrect material. -

If a person knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods.'

Section 28(1) and 28(5) of the Customs Act

'28. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded-

(1) Where any duty has not been levied or not paid or has been short-levied or short- paid] or erroneously refunded, or any interest payable has not been paid, part-paid or erroneously refunded, for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts,-

• the proper officer shall, within ⁹[two years] from the relevant date, serve notice on the person chargeable with the duty or interest which has not been so levied ¹⁰[or paid] or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;

Provided that before issuing notice, the proper officer shall hold pre-notice consultation with the person chargeable with duty or interest in such manner as may be prescribed;

(b) the person chargeable with the duty or interest, may pay before service of notice under clause (a) on the basis of,-

• his own ascertainment of such duty; or
• the duty ascertained by the proper officer, the amount of duty along with the interest payable thereon under section 28AA or the amount of interest which has not been so paid or part-paid.

Provided that the proper officer shall not serve such show cause notice, where the amount involved is less than rupees one hundred.'

…………………..

'(5) Where any duty has not been levied or not paid or has been short-levied or short-paid or the interest has not been charged or has been part-paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or the employee of the importer or the exporter, to whom a notice has been served under sub-section (4) by the proper officer, such person may pay the duty in full or in part, as may be accepted by him, and the interest payable thereon under section 28AA and the penalty equal to fifteen per cent. of the duty specified in the notice or the duty so accepted by that person, within thirty days of the receipt of the notice and inform the proper officer of such payment in writing.'

Section 110A of the Customs Act

'Provisional release of goods, documents and things seized or bank account provisionally attached pending adjudication. -

Any goods, documents or things seized or bank account provisionally attached under section 110, may, pending the order of the adjudicating authority, be released to the owner or the bank account holderon taking a bond from him in the proper form with such security and conditions as the adjudicating authority may require.'

Section 18(2) of the Customs Act

'18. Provisional assessment of duty-

(2) When the duty leviable on such goods is assessed finally or re-assessed by the proper officer in accordance with the provisions of this Act, then-

• in the case of goods cleared for home consumption or exportation, the amount paid shall be adjusted against the duty finally assessed or re-assessed, as the case may be and if the amount so paid falls short of, or is in excess of the duty finally assessed or re-assessed, as the case may be, the importer or the exporter of the goods shall pay the deficiency or be entitled to a refund, as the case may be;
• in the case of warehoused goods, the proper officer may, where the duty finally assessed or re-assessed, as the case may be is in excess of the duty provisionally assessed, require the importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty.'

Section 28AA of the Customs Act

'28AA. Interest on delayed payment of duty

• Notwithstanding anything contained in any judgment, decree, order or direction of any court, Appellate Tribunal or any authority or in any other provision of this Act or the rules made thereunder, the person, who is liable to pay duty in accordance with the provisions of section 28, shall, in addition to such duty, be liable to pay interest, if any, at the rate fixed under sub-section (2), whether such payment is made voluntarily or after determination of the duty under that section.
• Interest at such rate not below ten per cent. and not exceeding thirty-six per cent. per annum, as the Central Government may, by notification in the Official Gazette, fix, shall be paid by the person liable to pay duty in terms of section 28 and such interest shall be calculated from the first day of the month succeeding the month in which the duty ought to have been paid or from the date of such erroneous refund, as the case may be, up to the date of payment of such duty.
• Notwithstanding anything contained in sub-section (1), no interest shall be payable where,-
  • the duty becomes payable consequent to the issue of an order, instruction or direction by the Board under section 151A; and
  • such amount of duty is voluntarily paid in full, within forty-five days from the date of issue of such order, instruction or direction, without reserving any right to appeal against the said payment at any subsequent stage of such payment.'