V.S. PALANISAMY COMPANY Vs. COMMISSIONER OF CUSTOMS

JUDGEMENT

(1.) The appellants are manufacturers of textile yarns and fabrics/garments. They imported Secondhand machines viz. 'Sulzer' Projectile textile looms and sought clearance thereof under Bills of Entry Nos. 322554 and 322553 respectively, both, dated 23 -4 -2003. Ten such machines which were declared to have been manufactured in December 1993 as also to have an assessable value of Rs. 81,85,882/ - were sought to be cleared by M/s. V.S. Palanisamy Company [Appellants in C/115/2004], while seven such machines declared to have been manufactured in December 1993 and to have an assessable value of Rs. 57,30,116.83 were sought to be cleared by M/s. Muthu Corporation [Appellants in C/116/2004]. An overseas Chartered Engineer's certificates were produced by the importers to prove the declared 'year of make' and the declared value of the goods. These certificates certified the goods to have been manufactured in December 1993 and further certified that the prices mentioned in the relevant invoices were reasonable. The department suspected undervaluation of the goods and got them inspected and valued by a domestic Chartered Engineer, one Shri Joseph Jebaraj, who, in his reports, dated 5 -5 -2003, stated that the machines could have been used for a period of more than ten years. In respect of the ten machines imported by M/s. V.S.P. Co., the domestic Chartered Engineer estimated the value of the machines at US 300000 [Rs. 1,43,55,000/ -] @ US 30000 per machine. In the case of the seven machines imported by M/s. Muthu Corporation, the Chartered Engineer estimated the value of the goods at US 210000 [Rs. 1,00,48,500/ -] @ US 30000 per machine. The Department recorded statements from one Shri Durai Palanisamy who had been authorized to give such statements by both M/s. V.S.P. Co. and M/s. Muthu Corporation. Shri Durai Palanisamy in his statements dated 6 -5 -2003 and 14 -5 -2003 accepted the domestic Chartered Engineer's estimates of the value of the goods. The DRI also received faxed letters, dated 4 -5 -2003 from the importers, wherein the year of manufacture of each machine was stated. The faxed letters were followed by letters, dated 5 -5 -2003 sent by the importers to the DRI. These letters also indicated the 'year of make' of each machine. In respect of the imports by M/s. V.S.P. Co./ the year of make was October 1987 for 4 out of 10 machines, 1988 for 2 machines and 1990 for the rest of the machines. According to the letter, dated 5 -5 -2003 sent to the DRI by M/s. Muthu Corporation, the year of make was 1991 for 2 machines and September 1992 for the remaining 5 machines. On the basis of these letters coupled with the statements of Durai Palanisamy and the local Chartered Engineer's reports, the Department came to the Conclusion that the goods had been misdeclared to be of December 1993 make, for the purpose of clearance without specific licence and further that the goods had been undervalued for the purpose of evading customs duty. Accordingly, show -cause notices were issued to the parties proposing to (i) confiscate the goods under Section 111 (d) and (m) of the Customs Act (ii) imposing penalty under Section 112 (a) of the Act (iii) rejecting the declared value of the goods and accepting the values reported by the local Chartered Engineer, in terms of Rule 8 of the Customs Valuation Rules 1988 and (iv) demand differential duty on the enhanced value under Section 28(1) of the Act. These proposals were contested before the Commissioner of Customs. Shri Joseph Jebaraj was cross -examined, by the importers' Counsel before the adjudicating authority. It appeared to the Commissioner that the value of goods reported by the domestic Chartered Engineer on the basis of physical examination of the goods, market enquiries and previous record of inspection of similar machines required to be accepted. The Commissioner also preferred to accept the Chartered Engineer's finding as to the age of the machines. He also observed that Shri Durai Palanisamy had accepted the local Chartered Engineer's findings. It was noted that none of the statements had been retracted by Shri Durai Palanisamy. On the basis of these findings and observations, Id. Commissioner rejected the transaction value, and valued the goods under Rule 8 by accepting the value reported by the local Chartered Engineer. This value in each case was found to be higher than the transaction value and, therefore, the allegation of undervaluation was upheld by the Commissioner. Again, on the basis of the local Chartered Engineer's reports, the Commissioner held that the goods were more than ten years old and hence could be imported only under a valid import license. As no such licence was produced, the adjudicating authority held the goods liable to confiscation under Section 111(d) and (m) of the Customs Act. It also held the importers liable to penalties under Section 112(a) of the Act. Accordingly, the adjudicating authority passed similar orders in the cases of M/s. V.S. Palanisamy Company and M/s. Muthu Corporation. In the case of M/s. V.S.P. Co., a demand of duty of Rs. 13,28,497/ - was raised on the enhanced value of the ten machines, while, in the case of M/s. Muthu Corporation, a demand of duty of Rs. 9,29,948/ - was made on the enhanced value of the seven machines. In both cases, the goods were confiscated as above, but with option for redemption on payment of fine [Rs. 4.00 lakhs in the case of M/s. V.S.P. and Co. and Rs. 3.00 lakhs in the case of M/s. Muthu Corporation]. Penalties of Rs. One lakh and Rs. 50,000/ - were also imposed on M/s. V.S.P. and Co., and M/s. Muthu Corporation respectively. The present appeals are against these orders of the Commissioner.

(2.) Heard both sides. The appellants' Counsel submitted that the Commissioner had not stated any reason for rejecting the overseas Chartered Engineer's certificates. The local Chartered Engineer's reports were not supported by any documentary evidence. The Revenue had no case that the appellants had made any clandestine payments to the foreign supplier, over and above the transaction value mentioned in the relevant invoices. In the circumstances, according to Id. Counsel, there was no reason to reject the transaction value and invoke Rule 8 of the Customs Valuation Rules. Counsel relied on the Hon'ble Supreme Court's decision in M/s. Eicher Tractors Ltd. v. C.C., Mumbai - 2000 (122) E.L.T. 321 (S.C.). It was further argued that, merely on account of the confessional statements given by the appellants through Durai Palanisamy, they were not to be estopped from claiming correct valuation as per law. The letters dated 5 -5 -2003 written by them to the DRI stating the year of make for each machine also did not preclude them from contesting the valuation proposed by the Revenue. Counsel submitted that the statements and letters were given by the appellants only to secure early clearance of the goods. The mere fact that the enhanced value proposed by the department was accepted by them in such statements, did not preclude them from challenging the enhancement. In this connection, Id. Counsel relied on the Tribunal's decision in Laxmi Colour Lab. v. C.C. - 1992 (62) E.L.T. 613 (Tribunal), affirmed by the Hon'ble Supreme Court as reported in 1997 (90) E.L.T. A183. Reliance was also placed on the Tribunal's decision in Marcandy Prasad Radhakrishna Prasad Pvt. Ltd. v. C.C.E. - 1998 (102) E.L.T. 705 (Tribunal), affirmed by the Hon'ble Supreme Court as reported in 1999 (107) E.L.T. A121.

(3.) Ld. Counsel further argued that, if at all Rule 8 of the Valuation Rules were to be applied, it could have been better done by adopting the depreciation method for determining the assessable value of the Second -hand machinery. It was pointed out that, in the case of C.C v. Motor Industries Co. - 2002 (149) E.L.T. 1070 (Tri. - Chennai), this Bench followed the Supreme Court's decision in Gajra Bevel Gears v. CC. - 2000 (115) E.L.T, 612 (S.C.) and held that, where Second -hand machinery, in respect of which the question of contemporaneous import of identical/similar goods would not arise, was imported, the depreciation method of valuation would be the appropriate residual method under Rule 8 of the Customs Valuation Rules which could be invoked to the exclusion of other rules. In this connection, Counsel pointed out that, according to the Board's instructions, the value depreciation admissible to Second -hand machinery was 16% for the first year, 14% in the second year, 12% for the third year, 10% for the fourth year and 8% each for the subsequent years, with the restriction that the total depreciation was not to exceed 75%. According to Counsel, if the original value of the goods [as in December 1993] in any one of the present cases was scaled down in the above manner, the result would be a value approximating to the transaction value declared in the relevant invoice.