(Per: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. In this appeal under section 130 of the Customs Act, 1962 (hereinafter referred to as “the Act”) the appellant has challenged order dated 31.7.2006 passed by the Customs, Excise & Service Tax Appellate Tribunal (hereinafter referred to as “the Tribunal”).
2. The respondent-M/s Llyods Steel Industries Limited (hereinafter referred to as “the importer”) filed a bill of entry dated 24.12.2004 declaring its cargo as Heavy Melting Scrap of iron and steel weighing 301.480 metric tons valued at Rs.32,30,977/-. The consignment covered under the said bill of entry came to be examined by the Customs authorities whereupon it was revealed that the same consisted of re-rollable scrap, totally weighing 120.592 metric tons which did not meet with the description of Heavy Melting Scrap in terms of the Section Note of Chapter 72 of the Customs Tariff Act, 1975. The remaining quantity of 180.888 metric tons out of the total declared quantity fell within the definition of Heavy Melting Scrap. The department was of the view that the importer had mis- declared the quantity and other relevant aspects in the bill of entry such as value, duty applicable etc., and thereby contravened of the provisions of section 46(4) of the Act, which calls for declaration by the importer as to the truth of the contents of the bill of entry, which made the goods liable for confiscation under the provisions of section 111(m) of the Act rendering the importer liable to penal action under the provisions of section 112 of the Act. Vide a letter dated 04.04.2005, the importer requested for waiver of show cause notice and personal hearing.
3. The Adjudicating Authority after considering the record of the case, by its order dated 15.7.2005 ordered confiscation of re-rollable scrap totally weighing 120.592 metric tons (hereinafter referred to as the “subject goods”) covered under the above-referred bill of entry under section 111(m) of the Act. He, however, gave an option to the importer to redeem the same on payment of redemption fine of Rs.1,40,000/- in addition to payment of appropriate duties and also imposed penalty of Rs.70,000/- under the provisions of section 112 of the Act.
4. The importer challenged the order of the adjudicating authority before the Commissioner (Appeals) contending that it was the actual user and had purchased the subject goods from M/s. Subhakarn & Sons under High Seas Sale contract. It was going to use the said goods for manufacture of goods falling under Chapter-72 of the Central Excise Tariff Act, 1975 and that it had bought the goods as Heavy Melting Scrap and not as re-rollable scrap. The importer also relied upon the decisions of the Tribunal in the case of A.P. Steel Re-rolling Mills v. Commissioner of Customs, 2004 (175) ELT 580, and in the case of Commissioner of Central Excise, Kanpur v. Rimjhim Ispat, 2005 (183) ELT 283. The Commissioner (Appeals) upon appreciation of the material on record found that the importer had not denied that a substantial portion of the imported goods declared as Heavy Melting Scrap was in fact re-rollable scrap; therefore, mis- declaration of the goods in the bill of entry was evident. He also took note of the fact that the importer had tried to clear the whole consignment at a concessional rate. Before the Commissioner (Appeals), the importer had also pleaded that insofar as they were concerned it made no difference whether the goods were heavy melting scrap and re-rollable scrap as they were to use the same for melting purpose and that in any case they had no knowledge about the existence of re- rollable scrap in the consignment. The Commissioner (Appeals) did not agree with the say of the importer that there was no difference between heavy melting scrap and re-rollable scrap inasmuch as heavy melting scrap and re-rollable scrap are covered under different entries and chargeable to duty at different rates. He also found that the decision of the Tribunal on which reliance had been placed by the importer, was not applicable to the facts of the present case. The Commissioner (Appeals) was also of the view that mens rea is not a condition precedent for confiscation under section 111(m) of the Act and as such the consignment was liable to be confiscated and penalty imposed under section 112 of the Act was also sustainable. He, however, was of the opinion that considering the fact that the importer was the actual user and likely to use the goods for melting purpose, the quantum of fine and penalty was required to be reduced and accordingly reduced the redemption fine to Rs.1,00,000/- and penalty to Rs.40,000/-.
5. The importer carried the matter in further appeal before the Tribunal and succeeded. The Tribunal, in the impugned order, held thus:
“3(a) Since in para 12 of the impugned order the Appellate Commissioner gave a categorical finding that the appellant is likely to use the re-rollable scrap for the purpose of melting, if there is no doubt about the fact that the scrap imported by the appellant was to be used for melting in the factory of the appellant, whatever be the category of scrap, it would be specie of Heavy Melting Scrap used in a factory of melting and hence there is no mens rea on the part of the importer or mis- declaration on part of the appellant. This finding of the respondent proves that for the appellant the imported item was nothing but Heavy Melting Scrap.
(b) This Tribunal in the following cases has held that scrap by its nature would contain various types of goods, but that does not mean that goods are usable as such and not as scrap.
(a) A.P. Steel Re-rolling Mills v. CC -2004 (175) ELT 580.
(b) CCEx. v. Rimjhim Ispat, 2005 (183) ELT 283.
This seems to be a Trade practice to get such material.
(c) In this view of the matter, the appeal is allowed setting aside the order of Confiscation & penalty appeal allowed.”
6. While admitting the appeal, this court had by order dated 5.3.2007, formulated the following substantial question of law:
“Whether or not user of goods could be a basis for classification of goods for the levy and collection of payment duty or is it the description of goods or otherwise, which is relevant for the purpose?”
7. Ms. Amee Yagnik, learned Senior Standing Counsel for the appellant vehemently assailed the impugned order submitting that the Tribunal had erred in law in holding that whatever be the category of scrap, it would be a specie of Heavy Melting Scrap used in the factory for melting. It was submitted that the Tribunal has failed to appreciate that re-rollable scrap and heavy melting scrap are covered under different entries and attract different rates of duties. According to the learned counsel the Tribunal had placed undue emphasis on the observations made by the Commissioner(Appeals) in paragraph 12 of his order, wherein he had observed that since the importer is the actual user and is likely to use the goods for melting purpose, the quantum of fine and penalty is required to be reduced. The learned counsel also contended that the question of mens rea does not arise for the purpose of ordering confiscation under section 111(m) of the Act and, accordingly, urged that the Tribunal was not justified in setting aside the order of confiscation and penalty.
8. Vehemently opposing the appeal, Mr. Hardik Modh, learned counsel for the respondent supported the impugned order by submitting that the importer had imported heavy melting scrap and was not aware that the consignment contained re-rollable scrap. Under the circumstances, there was no mens rea on part of the importer to evade payment of duty. This aspect is also fortified by the fact that the moment the Customs authorities found that the consignment also consisted of re- rollable scrap, the importer immediately paid the entire amount of duty. It was submitted that in the absence of any mens rea on part of the importer, the Commissioner (Appeals) was not justified in upholding the order of the adjudicating authority and that the Tribunal was justified in setting aside the confiscation as well as penalty. In support of his submission, learned counsel placed reliance upon decision of the Calcutta High Court in the case of Extrusion v. Collector of Customs, Calcutta, 1994 (70) E.L.T. 52(Cal.), wherein it has been held that in the matter of imposition of redemption fine and/or penalty, mens rea and/or conduct and/or attending extenuating circumstances are material and relevant. The attention of the court was also invited to the decisions of the Tribunal in the case of A.P. Steel Re-rolling Mills (supra) and in the case of Rimjhim Ispat (supra), on which reliance had been placed by the importer in the proceedings before the Commissioner (Appeals) as well as before the Tribunal, to submit that under similar circumstances, the Tribunal had set aside the orders of confiscation of goods and imposition of penalty and that, therefore, the Tribunal was justified in placing reliance upon the same.
9. From the facts and contentions noted hereinabove, it is apparent that the importer had filed a bill of entry declaring its cargo to be heavy melting scrap of iron and steel weighing 301.480 Metric tons. Upon examination by the Customs authorities, the said imported consignment was found to be consisting of 120.592 metric tons of re-rollable scrap and the remaining portion was heavy melting scrap as defined under the Section Note of Chapter-72 of the Tariff Act. In this regard, it may be noted that it is not the case of the importer that part of the consignment as aforesaid was not re-rollable scrap.
Undisputedly, the entire consignment had been shown to be heavy melting scrap in the bill of entry filed by the importer. According to the importer, it was not aware that the consignment also comprised of re-rollable scrap as it had bought the goods as heavy melting scrap and not re-rollable scrap, therefore, there was no mens rea on its part to evade payment of duty so as to entail confiscation of the goods and levy of penalty. In this regard, reference may be made to the provisions of sub-section(4) of section 46 of the Act which inter-alia postulates that the importer while presenting the bill of entry, is at the foot thereof, required to make and subscribe to a declaration as to the truth of the contents of such bill of entry. Section 111(m) of the Act, inter-alia, provides that any goods which do not correspond in respect of value or in any other particular with the entry made under the Act shall be liable to confiscation. Evidently, therefore, the re-rollable scrap imported by the importer was liable to confiscation inasmuch as the entire consignment had been declared to consist of heavy melting scrap, though substantial portion thereof comprised of re-rollable scrap. The Adjudicating Authority was, therefore, justified in resorting to the provisions of section 111(m) of the Act and ordering confiscation of the subject goods, viz., 120.592 metric tons of re-rollable scrap.
10. The Supreme Court in Union of India and another v. Mustafa & Najibai Trading Co. and others, (1998) 6 SCC 79, has held that mens rea is not essential for invoking the power of confiscation of the goods under section 111 of the Act and, therefore, the intention of the importer has no bearing on the exercise of powers of confiscation of goods under section 111 of the Act. All that has to be seen is whether the conditions precedent under the said provisions are fulfilled so as to justify the confiscation of the goods. Examining the facts of the present case in the light of the aforesaid decision, the question as to whether or not there was any mens rea on the part of the importer in mis-declaring the subject goods pales into insignificance and has no bearing on the exercise of power of confiscation of goods under section 111(m) of the Act. It may be recalled that section 111(m) of the Act provides that goods which do not correspond in respect of value or in any other particular with the entry made under the Act are liable to confiscation. Admittedly, the subject goods did not correspond in respect of description with the bill of entry submitted by the importer. Thus, the provisions of section 111(m) are clearly applicable to the facts of the present case, thereby entailing confiscation of the subject goods.
11. As can be seen from the impugned order, the Tribunal has observed that whatever be the category of scrap, it would be specie of heavy melting scrap used in a factory for melting and hence there is no mens rea on the part of the importer for mis-declaration. Referring to the finding recorded by the Commissioner (Appeals) in paragraph 12 of his order, the Tribunal observed that the said finding proves that for the importer the imported item was nothing but heavy melting scrap. In paragraph 12 of his order all that the Commissioner (Appeals) has observed is that “Considering the fact that the appellant is an actual user and is likely to use the goods for melting purpose, the quantum of fine and penalty needs to be reduced”. Nothing is stated therein to deduce that according to him for the importer the imported item was nothing but scrap. Besides while considering the applicability of section 111(m) of the Act, what is required to be seen is as to whether or not the goods correspond to the description in the bill of entry and not as to what the same means to the importer. If the goods do not meet with the description in terms of value or any other particulars section 111(m) is attracted. Moreover, as can be seen from the order of Commissioner (Appeals), in notification No.21/2002-Cus dated 01.03.2002 Entry No.200 covers Melting Scrap of Iron and Steel whereas Entry No.201 covers Re-rollable Scrap. Thus, melting scrap and re-rollable scrap fall under different entries and also attract different rates of duty, which the Tribunal has clearly failed to consider. Besides, in the light of the fact that the importer had never disputed the fact that the consignment in question comprised of 120.592 metric tons of re-rollable scrap and the remaining portion comprised of heavy melting scrap, there was no occasion for the Tribunal to hold that re-rollable scrap was specie of heavy melting scrap. The Tribunal while placing undue emphasis on the observations made by the Commissioner (Appeals) in paragraph 12 of his order has clearly disregarded the findings recorded in earlier part of the order.
12. Reliance placed by the learned counsel for the respondent on the decision of the Calcutta High Court in the case of Extrusion v. Collector of Customs, Calcutta, (supra) is misconceived in the light of the decision of the Supreme Court in the case of Union of India and another v. Mustafa & Naibai Trading Co. and others (supra), wherein it has been held that mens rea is not essential for invoking power of confiscation of goods under section 111 of the Act.
13. As noticed earlier, the Tribunal has also placed reliance upon two of its earlier decisions in the case of A.P. Steel Re-rolling Mills (supra) and in the case of Rimjhim Ispat (supra). In this regard it may be pertinent to note that in the case of Rimjhim Ispat (supra), only a small portion of the consignment was doubtful in nature. It is in these circumstances that the Tribunal had held that the allegation of mis- declaration of goods was not well founded.
Whereas, in the present case, the proportion of re-rollable scrap is approximately 40% of the cargo and as such the Tribunal was not justified in relying upon the said decision. In the case of A.P. Steel Re-rolling Mills (supra), the importer had imported a consignment of Heavy Melting Steel Scrap. The case of the department was that part of the consignment comprised of usable items like MS rods, MS sheets, etc. Even in the orders impugned before the Tribunal it was accepted that the goods in question were not new items. It was the case of the department that since part of the consignment was reusable, the same could not be said to be scrap. The Tribunal found as a matter of fact that the consignment was clearly assorted iron scrap in different forms and shapes. It is in aforesaid circumstances, that the Tribunal held that there was no mis-declaration of the goods. In the present case, at the cost of repetition it may be stated that the importer has not disputed that a substantial part of the consignment consisted of re-rollable scrap and it is in these circumstance that the adjudicating authority as well as the appellate Commissioner held that respondent had mis-declared the goods.
14. Another aspect of the matter is that the Tribunal has considered the classification of the goods on the basis of the end use thereof, namely that scrap imported by the importer was to be used for melting in its factory. In this regard it cannot be gainsaid that for the purpose of the Act, goods have to be classified in accordance with the entries under which they fall at the time when the bill of entry is filed and not on the basis of the end use of such goods.
15. For the foregoing reasons the appeal succeeds and is accordingly allowed. The question is answered in favour of the revenue and against the importer. The impugned order passed by the Tribunal is hereby quashed and set aside.
(Akil Kureshi,J.)
(Harsha Devani,J.)
(raghu)