Advance Ruling, Settlement Commission, Demand, Search & Seizure, Refunds, Appellate Procedure, Offences And Penalties – Advanced Tax Laws and Practice Important Questions
Question 1.
Yash an importer, imported certain goods on 10th April 2020 and paid custom duty by understating the value of goods imported. A show-cause notice was issued on Yash by the proper officer on 9th August 2020 demanding duty along with interest and penalty on the value of goods understated. The said notice was received by Yash on 14th August 2020. Yash deposited the amount of duty and interest along with the penalty that should be payable as per provisions of the law on 11th September 2020. Reference to section 28AA of the Customs Act, 1962 explains the provisions for imposition of interest and penalty if any. Also, give reasons for your answer.
Answer:
Where a notice under section 28(1 )(a) of the Customs Act, 1962 has been served for short/non-levy or erroneous refund of duty or interest, for reason other than the reasons of collusion or any wilful misstatement or suppression of facts, the penalty will not be imposed. If the proper officer is of the opinion that the amount of duty along with interest leviable under section 28AA or the amount of interest, as the case may be, as specified in the notice, has been paid in full within 30 days from the date of receipt of the notice. The proceedings in respect of such person or other persons to whom the notice is served will be deemed to be concluded.
Further, if the notice is served in respect of collusion, any misstatement or suppression of facts for duty or interest which has not been so levied, or short levied or short paid or to whom refund has erroneously been made and the person make payment is full and penalty equal to 15% of the duty specified in the notice within thirty days of the receipt of notice and inform the proper officer, then the proceedings in respect of such person shall be deemed to be conclusive as to the matter stated therein.
In the given case, show cause notice was received by Mr. Yash on 14.08.2020 and he paid the duty, interest and applicable penalty on 11.09.2020, which is within 30 days of the receipt of the notice, therefore, if Mr. Yash has understated the value of imported goods with a fraudulent intention and has informed the proper officer of the payment made by him, in writing, in view of the above-mentioned provisions, penalty leviable on Mr. Yash will be 15% of the duty specified in the notice. However, if Mr. Yash has understated the value of imported goods on account of bona fide reasons, no penalty will be imposable on him.
Question 2.
Importer BOPPA Ltd. imported two consignments of ethyl alcohol which were allowed to be cleared for home consumption on the execution of a bond undertaking to produce license within a month. Since BOPPA Ltd. failed to fulfill the obligation, proceedings were initiated which culminated in confiscation of the goods under Section 111(d) of the Customs Act,1962 and imposition of penalty on the importer under section 112(a) of the Customs Act, 1962. Examine the correctness of the decision in terms of statutory provisions.
Answer:
The given case is similar to the case of Hira Lai Hari Bhagwati v. CBI (2003) 155 ELT 433 (SC). The Supreme Court of India had held that no penalty can be imposed if the goods are imported with bona fide belief that they are entitled to exemption, later on, they could not fulfill conditions of exemptions but paid the duty. Further, it was held that for establishing the offense of cheating, the complainant (i.e. importer) is required to show dishonest intention at the time of making a promise or presentation. Thereby there is no penalty under section 112(a) of the Customs Act, 1962.
With regard to confiscation of the goods under section 111(d) of Customs Act, 1962, the Supreme Court in the case of Sachinanda Banerji. Sitaram Agarwala 110 ELT 292 (SC), held that goods imported against restrictions under section 11 of the Customs Act, 1962 (section 11 deals with power to prohibit importation or exportation of goods) are liable to confiscation. Therefore, the action of the department to confiscate the goods u/s 111(d) of the Customs Act, 1962 is valid.
Question 3.
Briefly explain the power to search suspected persons entering or leaving India under Section 100 of the Customs Act, 1962.
Answer:
Power to search under customs law Under section 100 of the Customs Act, 1962 where the proper officer of the customs has reason to believe that the following categories of persons have secreted any goods, liable to confiscation or any documents thereto, he may search such persons.
The categories of such persons referred to in this section are as follows:
- Any person who has landed from or is about to board or is on board any vessel within the Indian Customs waters;
- Any person who has landed from or is about to board or is on board of foreign-going aircraft;
- Any person who got out of, or is about to get into, or is in the vehicle, which has arrived from, or is to proceed to any place outside India;
- Any person not included in clause (a), (b), or (c) who has entered or is about to leave India;
- Any person in the customs area.
Question 4.
State the conditions to be satisfied for a refund of export duty paid, as per the provisions of the Customs Act, 1962.
Answer:
Under section 26 of the Customs Act 1962, any export duty paid on goods exported will be refunded if the following conditions are satisfied:
- Goods are re-imported within one year from the date of export,
- These goods are returned otherwise than by way of resale, and
- A refund claim is lodged within six months from the date when the proper officer made an order for clearance of goods for re-importation.
Question 5.
Briefly explain the provisions of section 122 of the Customs Act, 1962 relating to the adjudication of confiscations and penalties.
Answer:
Section 122 read with Notification No. 50/2018-Cus. (N.T.), dated 8-6¬2018 provides that in every case in which anything is liable to confiscation or any person is liable to a penalty, such confiscation or penalty may be adjudged by the following adjudicating authorities:
| Customs officer | Value of goods liable for Confiscation |
| By a Principal Commissioner of Customs or Commissioner of Customs or a Joint Commissioner of Customs | Without limit |
| By Assistant Commissioner of Customs or Deputy Commissioner of Customs | Above ₹ 1 lakh but not exceeding ₹ 10 lakhs |
| By a Gazetted Officer of Customs lower in rank than an Assistant Commissioner of Customs or Deputy Commissioner of Customs | Not exceeding ₹ 1 lakh |
Question 6.
When can an appeal be filed to the Appellate Tribunal under the Customs Act, 1962 as per section 129A? State also matters for which the Appellate Tribunal does not hold jurisdiction.
Answer:
Appeal to Appellate Tribunal under the Customs Act, 1962 Person aggrieved by any of the following orders as per section 129A of the Customs Act may appeal to the Appellate Tribunal against: –
- a decision or order passed by the Principal Commissioner of Customs or Commissioner of Customs as an adjudicating authority;
- an order passed by the Commissioner (Appeals) under section 128A;
- an order passed by the Board or the Appellate Commissioner of Customs under section 128;
- an order passed by the Board or the Principal Commissioner of Customs or Commissioner of Customs under section 130:
Provided that no appeal shall lie to the Appellate Tribunal and the Appellate Tribunal shall not have jurisdiction to decide any appeal in respect of any order referred to in clause (b) if such order relates to:
- any goods imported or exported as baggage;
- any goods loaded in a conveyance for importation into India, but which are not unloaded at their place of destination in India, or so much of the number of such goods as has not been unloaded at any such destination if goods unloaded at such destination is short of the quantity required to be unloaded at that destination;
- payment of drawback as provided in Chapter- X, and the rules made thereunder.
Question 7.
KRY Logistics Ltd., a steamer agent authored Import General Manifest and acted on behalf of the master of the vessel (the person-in-charge) before Customs Authorities to conduct all affairs in compliance with the Customs Act, 1962. The Steamer agent filed Import General Manifest, affixed the seal on the containers, and took charge of the sealed containers. It also dealt with the Customs Department for appropriate orders that had to be passed in terms of section 42 of the Customs Act, 1962. Penalty under section 116 of the Customs Act, 1962 was imposed by the Department on the steamer agent for the short landing of goods. Examine with the help of decided case law, if any, whether the Department is justified in imposing a penalty on the steamer agent?
Answer:
The issue in the given case is that whether a penalty for the short landing of goods under section 116(a) of the Customs Act, 1962 which is imposable on the person-in-charge of the conveyance, can be imposed on the steamer agent:
The High Court in the case of Caravel Logistics Pvt. Ltd. v. Joint Secretary (RA) [2013] 293 ELT 342 (Mad.) has observed that when the as- assessee affixed seal on containers and took their charge, he stepped into shoes of/acted on behalf of master of the vessel (the person-in-Charge). It held that conjoint reading of the relevant provisions of the Customs Act makes it clear that penalty imposable on person-in-charge in case of short-landing of the goods can also be imposed on the agent appointed by him. Hence, in view of the aforesaid position of law, Department is justified in levying a penalty for short-landing of goods on steamer agents.
Question 8.
Refund of import duty is available to an importer under section 26A of the Customs Act, 1962, if the goods are found to be defective and an application for refund of duty is made before the expiry of six months from the relevant date. What does the term ‘relevant date’ mean for the purposes of section 26A of the Customs Act, 1962?
Answer:
For the purpose of section 26A of the Customs Act, “Relevant date” means, –
- in cases where the goods are exported out of India, the date on which the proper officer makes an order permitting clearance and loading of goods for exportation under section 51.
- in cases where the title to the goods is relinquished, the date of such relinquishment.
- in cases where the goods are destroyed or rendered commercially valueless, the date of such destruction or rendering of goods commercially valueless.
Question 9.
Clean Power Co., a 100% export-oriented undertaking (100% EOU) imported DG sets and furnace oil duty-free, for setting up captive power plants for its power requirements for export production. They used the power so generated for export production but sold surplus power into the domestic tariff areas (DTA). The Customs Department has demanded duty on DG sets and furnace oil as surplus power has been sold in the domestic tariff area (DTA). Discuss whether the demand of the Customs Department is valid in law by referring to decided case law if any.
Under section 148 of the Customs Act, 1962, agent appointed by the person-in-charge of the conveyance and any person who represents himself to any officer of customs as an agent of any such person-in¬charge is liable for fulfillment of all obligations imposed on such person- in charge under the Customs Act and to penalties and confiscation, if any. As per section 2(31) of the Customs Act, 1962 in the case of a vessel, the master of the vessel is the person in charge.
Answer:
The facts of the given case are similar to the case of Commissioner v. Hanil Era Textiles Ltd. 2005 (180) ELT A44 (SC), wherein the Supreme Court observed that in the absence of a restrictive clause in the notification that imported goods are to be solely or exclusively used for the manufacture of goods for export, there is no violation of any conditions of notification if surplus power generated due to unforeseen exigencies is sold in domestic tariff area.
Therefore, no duty can be demanded from Clean Power Company for selling surplus power in the domestic tariff area for the following reasons:
- They have used the Diesel Generator sets and furnace oil imported duty-free for generation of power;
- Such power generated has been used for manufacturing goods for export; and
- Only the surplus power has been sold, as power cannot be stored.
Question 10.
In a search conducted in the office premises of Zebra Ltd., a large number of rough diamonds was recovered. It was found that these were imported without a license. After adjudication, the penalty was imposed on Zebra Ltd., and goods were confiscated. An option was given to the company to redeem goods on payment of redemption fine and customs duty at the appropriate rate. During the relevant period, there was an exemption notification in respect of these goods. Zebra Ltd. claimed the benefit of the exemption notification for payment of customs duty. Discuss in the light of a decided case, whether Zebra Ltd.’s contention is correct.
Answer:
The facts of the case are similar to that of M. Ambalal & Co. v. Commissioner of Customs (2011) where it was observed that the wording of the exemption notification was clear that the benefit of the exemption envisaged is for those goods that are imported. According to section 2(25) of the Customs Act ‘imported goods’ have been defined to mean “…any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption.”
It is necessary that the above definition is read along with section 11, section 111, and section 112 of the Act, which provides for detection of illegally imported goods and prevention of the disposal thereof, confiscation of the goods and conveyances, and imposition of penalties respectively. Under section 111(d) of the Act, any goods which are imported contrary to any prohibition imposed by or under this Act or any other law for the time being in force shall be liable for confiscation.
In this case, the goods which have been seized cannot be imported into India without a license under the Import Control Act, and therefore goods so imported cannot be treated to be lawfully “imported goods” within the definition of that term in section 2(25) of the Act. Therefore, Zebra Ltd. shall not be entitled to the benefit of the notification. Thus, the contention of Zebra Ltd. is not correct.
Question 11.
Mention the amount which is required to be deposited mandatorily before filing an appeal before the Commissioner (Appeals) and CESTAT under the Customs Act, 1962.
Answer:
As per section 129E of the Customs Act, the Tribunal or the Commis¬sioner (Appeals), as the case may be, shall not entertain any appeal, –
(1) Under section 128(1), unless the appellant has deposited 7.5% of the duty demanded or penalty imposed or both, in pursuance of a decision or an order passed by an officer of customs lower in rank than the Commissioner of Customs;
(2) against the decision or order referred to in section 129A(l)(a), unless the appellant has deposited 7.5% of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against;
(3) against the decision or order referred to in section 129A(1 )(b), unless the appellant has deposited 10% of the duty demanded or penalty imposed or both, in pursuance of the decision or order appealed against:
Provided that the amount required to be deposited under this section shall not exceed rupees ten crores. Further, the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.
Question 12.
A show-cause notice demanding customs duty was issued in case of clearance made by 100% export-oriented undertaking (EOU) to domestic tariff area (DTA). Is the show cause notice defective in law? Explain in brief.
Answer:
Yes, the show-cause notice issued is defective in law as in respect of clearance made by a 100% Export Oriented Undertaking to Domestic Tariff Area the duty to be paid by the 100% EOU is the Duty of Excise (equal to custom duty) and not Custom Duty. Therefore, show cause notice using the word Customs Duty instead of Excise Duty is not maintainable.
Question 13.
Shyam Ltd. makes an unauthorized import of 3,000 pieces of a product CIF priced at $2 per piece by air from the USA. The consignment is liable to be confiscated. The import is adjudicated. Assistant Commissioner gives to the company an option to pay a fine in lieu of confiscation. It is proposed to impose a fine equal to 50% of the margin of profit. The market price is ₹ 200 per piece.
The rates of duty are as under:
Basic customs duty: 10%
Integrated Tax leviable under section 3(7) of Customs Tariff Act: 12%
Social Welfare Surcharge: 10%
The exchange rate is ₹ 50 per U.S. Dollar.
Compute – (i) the amount of fine; and (ii) the total amount payable by the company to clear the consignment. (Calculations should be made to the nearest rupee).
Answer:
Computation of amount of redemption fine and the amount payable to clear the consignment:
| Particulars | Amount (?) |
| CIF value of imported goods i.e. Assessable Value (3,000 × US$ 2 p.u. × ₹ 50 per US$) | 3,00,000 |
| Add: Basic Customs Duty @ 10% | 30,000 |
| Add: Social Welfare Surcharge at 10% of Basic Customs Duty | 3,000 |
| Value for the purpose of IGST | 3,33,000 |
| Add: IGST @ 12% of ₹ 3,33,000 | 39,960 |
| Total Cost of imported goods | 3,72,960 |
| Market Price of goods (3,000 × ₹ 200 each) | 6,00,000 |
| Profit Margin (₹ 6,00,000 – ₹ 3,72,960) | 2,27,040 |
| Fine u/s 125 (Equal to 50% of Margin of Profit) | 1,13,520 |
| Total amount payable (Duty + Fine i.e. ₹ 30,000 + ₹ 3,000 + ₹ 39,960 + 1,13,520) | 1,86,480 |
Note:
As per section 125 of Customs Act, redemption fine shall not exceed market value of goods excluding import duty. Therefore, in given case, maximum redemption fine leviable would have been ₹ 6,00,000 – (₹ 30,000 + ₹ 3,000 + ₹ 39,960) = ₹ 5,27,040.
Question 14.
A person makes an unauthorized import of goods liable to confiscation. After adjudication, Assistant Commissioner provides an option to the importer to pay a fine in lieu of confiscation. It is proposed to impose a fine (in lieu of confiscation) equal to 50% of the margin of profit.
The following particulars are made available:
- Assessable value: ₹ 15,00,000
- Total duty payable: ₹ 6,00,000
- Market value: ₹ 25,00,000
You are required to narrate the provision and calculate the amount of fine and total payment to be made by the importer to clear the consignment.
Answer:
Computation of amount of redemption fine and total payment to be made by the importer
| Particulars | Amount(₹) |
| Assessable Value | 15,00,000 |
| Add: Customs Duty | 6,00,000 |
| Total Cost of Goods | 21,00,000 |
| Market Value of Goods | 25,00,000 |
| Margin of profit | 4,00,000 |
| The proposed amount of fine (5096 of margin of profit) | 2,00,000 |
| Maximum Fine (As per proviso to (1) of section 125 of Customs Act, redemption fine should not exceed the market price of goods confiscated less the duty chargeable thereon. i.e. Maximum Redemption Fine = Market Price of Goods Confiscated less Duty chargeable = ₹ 25,00,000 – ₹ 6,00,000 | 19,00,000 |
| Since, the proposed amount of fine is less than the maximum amount of fine permissible, the redemption fine payable by the importer | 2,00,000 |
| The total payment to be made by the importer to clear the consignment (₹ 6,00,000 + ₹ 2,00,000 i.e. Customs Duty + Fine) | 8,00,000 |
Advance Ruling, Settlement Commission, Demand, Search & Seizure, Refunds, Appellate Procedure, Offences And Penalties Notes
- Refund of Export duty in certain cases.
- Refund of import duty in certain cases
- Recovery of duties not levied or not paid or short levied or short paid
- Provisional attachment to protect revenue in certain cases
- Assessment of duty
- Provisional assessment and re-assessment
- Demand of Duty
- Transit and Transhipment
- Prohibitions on importation/exportation of certain goods
- Offences
- Criminal liabilities
- Civil liabilities
- Confiscation of goods
- Advance Rulings under Customs
- Settlement Commission under Customs Act
- Appeals and Revision under Customs Act
- Search and Seizure under Customs Act
- Offences and Penalties under Customs.