ORDER
P.C. Jain, Member (T)
1. A common order is being passed because both these matters arise out of a common impugned order.
2. Brief facts of the case are as follows :–
2.1 The appellant concern whose proprietor is the second appellant herein imported two second-hand machines, namely, (i) one Heidelberg Speed-master 72 VP, 4 Colour offset printing machine Model, 1983 with declared GIF value at £ 49,000; and (ii) one Stall, K-66/4 Ktl 3 Paper folding machine Model, 1983 with declared GIF value at £ 3,000.00. As per the practice and procedure certificates from Chartered Engineers giving the estimate of the prices as declared aforesaid were also enclosed Chartered Engineers in the present case are M/s. Arcadia Printing and Graphic Machinery (T. Thomas) in respect of both the machines.
2.2 Both the machines were examined on 1-6-1990 by the officers of the Customs under SIB supervision when they were found to be second-hand as declared. Later on, it appears that on the basis of a complaint the said machines were re-examined on 10-7-1990. On the basis of the said re-examination and further enquiry from M/s. MSL Graphics, New Delhi, the local agents of the manufacturers of the two machines, a show cause notice dated 3-7-1990 was issued by the Assistant Collector of Customs, SIB, alleging that the value declared by the appellants was not acceptable and that the value proposed to be enhanced, as indicated in the said show cause notice. On 20-7-1990 the Assistant Collector issued an addendum to the said show cause notice wherein the value of the said two machines was sought to be revised. On the basis of the allegation made therein, it was alleged that the total assessable value of both the machines worked out to Rs. 24,53,428.40 after giving the permissible depreciation as against the total declared value of Rs. 14,50,027.00. It was, therefore alleged that there was under-valuation to the extent of Rs. 10,03,400/- and attempt to evade duty to the extent of Rs. 8,02,721/-. It was further alleged that the goods worth Rs. 20,48,213/- were rendered liable to confiscation under Section 111(d) of the Customs Act, 1962 for the alleged breach of the provisions of Para 30 of AM 1988-91 ITC Policy inasmuch as the said offset printing machine was older than 7 years which alone was permitted under OGL. Hence the importation was alleged to be against the ITC Policy. Basis of the allegation of under-valuation, as spelt out in the show cause notice and upheld in the impugned order is that the local agents M/s. MSL Graphics of the manufacturers indicated the current prices of the machines as follows :–
(1) DM 926500 GIF equivalent to £ 3,37,709 GIF in the case of offset printing machine.
(2) DM 86,790 FOB equivalent to £ 31,635 FOB or £ 38,317.9 GIF in respect of paper folding machine.
However, the Chartered engineers’ certificates indicated the current prices at £ 2,00,000.00 GIF and at £ 10,000 GIF respectively. Thus, the Chartered engineers’ certificate has been discarded by the adjudicating authority. It has been further found that in the year 1983 Chartered engineers’ certificate showed the approximate price of the said printing machine at £ 1,05,000 GIF whereas the price of 982 Model of the said offset printing machine was quoted at £ 1,95,000 in a commercial magazine.
2.3 As regards the paper folding machine from the current price the 1983 price has been deduced on the basis of assumption of linear inflation as has taken place in the case of offset printing machine. Thereafter, a depreciation of 70% was given in respect of the offset printing machine and depreciation of 65% was given in respect of paper folding machine to arrive at the aforesaid under-valuation. On adjudication, after considering the reply of the appellants herein and their submissions at the time of personal hearing, the adjudicating authority has confiscated both the machines under Section 111(m) of the Customs Act and the offset printing machine under Section 111(d) as well. The appellants were, however, given the option to redeem the said machines on payment of Rs. 10 lakhs in case of offset printing machine and Rs. 1 lakh in the case of folding machine. A penalty of Rs. 4 lakhs each was imposed on the first appellant and on the proprietor thereof, the second appellant herein. Valuation, as alleged in the addendum to the show cause notice was also upheld for the purposes of assessment to duty.
3. The appellants’ learned advocate has assailed the impugned order on several counts. His first plea is that there is a certificate of experts who have examined and inspected the machines and have given the certificate of reasonableness of the price of the two machines. These certificates support the transaction value which has passed between the supplier and the appellant concern. Prima facie there is nothing to doubt these transaction values. On the other hand, he has submitted that the adjudicating authority has merely gone on surmises and conjectures and on the basis of practice regarding depreciation which has no sanction behind it of the law. He has submitted that no evidence of the import of new machines at the prices which have been taken as the basis of the allegation either in 1976 or 1983 has been adduced by the department. Merely on the basis of a letter from the local agents the prices of the two machines in the years of their manufacture cannot be assumed in the absence of contemporaneous imports. He has further submitted that prices of capital goods generally include hefty commission to the local agent payable by the manufacturers to their local agents for taking care of the after-sale service in respect of the machines sold in India. The adjudicating authority has not given the benefit of any such commission despite his specific plea having been taken, since in the present case the machines imported are second-hand and no warranty or condition of after-sale service is attached to the supply of these goods to the appellants. He has also attempted to fortify his case on the basis of acceptance of values in respect of almost identical goods by the Collector of Customs, Bombay in the case of India House, New Delhi vide Order No. S/0-101/90-V(A), dated 5-7-1990 in so far as the offset printing machine is concerned. An evidence has also been adduced in the case of paper folding machine where the CIF value of £ 3,000 has been accepted in the case of Bhawan Printers vide Bill of Entry No. 005852, dated 14-9-1989. The similar type of certificate from another Chartered Engineers from M/s. Global Print Ltd. was attached to the said Bill of Entry. The learned advocate has further submitted that it is the department’s burden to make a correct valuation of the goods under Section 14 of the Customs Act. This burden is heavier in respect of the second-hand machines. In this connection he relies on Tribunal’s decision in the case of Rakesh Press, New Delhi v. CC, Bombay 1985 (21) E.L.T. 140 and Tarn Art Printery v. CC Bombay 1985 (20) E.L.T. 358 (Tri.). According to him this burden has not been adequately discharged by the department, so far as the correct valuation of the goods is concerned. A ceiling on depreciation has been imposed by the adjudicating authority on the basis of some old circular without disclosing that circular and without going into the condition of the second-hand machine. This is totally an arbitrary and whimsical approach in valuation of the goods for the purposes of assessment to duty.
3.1 As regards the confiscation of the goods, the learned advocate has submitted that the bona fides of the appellants emerge from the correspondence between the suppliers and the appellants before placing the order for the two machines. Initially there was an offer by the supplier himself for the price of the said two machines at £ 64,000 GIF (£ 60,000 + £ 4,000). The appellants thereafter made a counter offer of £ 52,000 for both the machines which was accepted by the suppliers by their letter dated 16-3-1990 splitting the offer at £ 49,000 + £ 3,000 for the offset printing machine and paper folding machine respectively. It is also apparent from the correspondence and the Chartered engineers that the appellants had placed the order with the suppliers for 1983 model of the offset printing machine. No mala fides can, therefore, be attributed to the appellants for importing the offset printing machine of an older model i.e. 1976 and thus contravened Para 30 of the 1988-91 ITC Policy. In the overall facts and circumstances, it has, therefore, been submitted by the appellants’ learned advocate that there is no cause for confiscation of the machines either under Section 111(m) or of the offset printing machine under Section 111(d) of the Customs Act. Consequently there is no case for imposing any penalty at all on the appellants.
3.2 The learned advocate has further submitted that the impugned order in any case suffers from an illegality inasmuch as it imposes a penalty both on the proprietary concern and on the proprietor herself. There is unity of interest between the proprietary concern and the proprietor and both cannot be subjected to the penalty at the same time for the same cause of action. In this connection he relies upon Tribunal’s decision in the case of V.K. Thampi v. CC & CE, Cochin 1988 (33) E.L.T. 424 (Trib.) (Para 12). In sum and substance he submits that the appeal be allowed.
4. Opposing the submissions of the learned advocate for the appellants, the learned JDR, Shri Prabhat Kumar relies on the findings of the adjudicating authority. He submits that Chartered engineers’ certificates for both the machines have been rightly rejected by the adjudicating authority for unreliability inasmuch as the very basis of the valuation i.e. the current price of the machines as well as the price of the machines in the years of their manufacture were found to be wrong. These parameters for determining the prices of the goods in question i.e. the second-hand machine are very necessary. When the basic parameters are found to be wrong in the certificates these are not worthy of reliance for indicating the prices of the machines at present. He submits that it may be true that the department had not submitted any contemporaneous evidence of import of the machine of the year of their manufacture. Nevertheless, the evidence relied upon by the adjudicating authority on the basis of prices quoted by the local agents which in turn are based on the correspondence by the said local agents with the manufacturer are fully worthy of reliance. He submits that prices obtained from sole selling agent is a good base for valuation, as has been held by the Tribunal in 1990 (48) E.L.T. 421 [Wax & Wax Products]. The adjudicating authority has already given very substantial depreciation in both the cases and from that view the valuation arrived at by the said authority is fair and reasonable. He further submits that the decision of C.C., Bombay relied upon by the learned advocate is in respect of different model and should not be considered appropriate for this case. Similarly, the Bill of Entry relied upon by the learned advocate in the case of Blwwan Printers also pertains to different model so far as the paper folding machine is concerned. As regards the plea of deduction of commission from the price which forms the basis of the department’s case, the learned JDR has submitted that it has not been indicated so in the letter from the local agent. In the absence of such indication no benefit on that account can be given. He, therefore, submits that there is a good case in so far as the enhancement of under-valuation is concerned. As regards the confiscation and penalty, the learned JDR has submitted that these transactions between the supplier and the buyer here in the country took place under cover and it cannot be proved always that there has been an extra payment under hand. This aspect has been recognised by the Tribunal in the case of Mecneill & Magor Ltd. v. C.C., Calcutta 1987 (28) E.L.T. 318 relied upon by the adjudicating authority in the impugned order. He has further submitted that since the Chartered Engineers’ Certificate has been found to be wrong, inference of mala fide of the appellants has been rightly drawn by the adjudicating authority. In short, he submits that there is no substance in the appeal and the impugned order be upheld.
4.1 In his rejoinder, the learned advocate for the appellants has submitted that the citation relied upon by the adjudicating authority and reiterated by the learned JDR in the case of Wax & Wax Products, mentioned supra, refers to price list of new goods. It does not refer to prices regarding second-hand machines. He, therefore, reiterates that the very foundation of the department’s case is wrong and no case of under-valuation can be made.
5. We have carefully considered the pleas advanced from both sides. While we agree with the appellant’s plea that because of the prices of the new goods having been mentioned wrongly in the Chartered Engineers’ Certificate, it was wrong on the part of the adjudicating authority to discard the certificate completely, we are unable to agree with him that the prices of second-hand machines found to be reasonable in those certificates should also be accepted. We shall be turning away from the realities of life if we divorce the value of the second-hand goods from the value of the corresponding new goods. Market of second-hand goods also fluctuates with the market of new goods. If, therefore, the certificates issued by the Chartered Engineers have given the prices of new goods at a lower level naturally their estimation of the prices of second-hand goods is also likely to be affected. To that extent the department was right in not placing reliance on the Chartered Engineers’ Certificates. The learned advocate has thereafter stressed that allowing of depreciation only to the extent of 70% to 65% respectively for the two machines, namely offset printing machine and paper folding machine on the basis of some old circular without having regard to the condition of the machine and inspection and examination of the machine is wholly arbitrary. This plea of the learned advocate has substantial force. Arbitrariness gets compounded when the old circular is not disclosed and the basis on which a ceiling therein has been imposed. The result, therefore, of our aforesaid finding would prima facie lead to a stalemate. Nevertheless, we have to find a value on the basis of the available evidence because goods do require to be valued for the purposes of assessment to Customs duty. From a perusal of the Chartered Engineers’ Certificates relied upon heavily by the appellants, we observe so far as the offset printing machine is concerned, that it has been certified that the machine was found to be in perfect working condition and it had been well maintained and serviced and that no major repairs/reconditioning were necessary. Expected residual life of the machine is estimated at 10 to 12 years. The undisputed service the machine has already completed is about 14 years i.e. from 1976. It is also certified in the said certificate that the machine utilises the current generation of technology and, therefore, compares with the latest machinery available in the international market. Having regard to the aforesaid comments/ assessments of the Chartered Engineers it is clrear that the machine has still residual expected life of 10 to 12 years over the total life span of 25 to 26 years. Keeping the life span of the machine in view and the expected residual life, as certified by the Chartered Engineers – M/s. Arcadia Printing & Graphic Machinery (T. Thomas) the depreciation of 70% allowed by the adjudicating authority on the price of the new goods in the year of its manufacture, cannot be said to be unreasonable at all. In our view, it is more than reasonable.
5.1 Similar comments and assessment of the said Chartered Engineers have been made in respect of the second-hand machine i.e. paper folding machine. In the case of this machine the year of manufacture admittedly is 1983 i.e the machine had been used at the most for 7 years prior to its inspection and the expected residual life is estimated at 10 to 12 years. Thus for a total span of life of 17 to 19 years of the machine, the residual life of 10 to 12 years and other condition being perfect and good the depreciation of 65% allowed by the adjudicating authority cannot on the same reasons be considered unjust. His deduction of the price of new machine in the year of its manufacture i.e. 1983 under the given facts and circumstances cannot be said to be unreasonable and it is certainly based on some evidence and judgment, as any best judgment assessment is bound to be. We are, therefore, of the view that there has been under-valuation of the machines to the extent upheld in the adjudication order. At this stage it may also be relevant to take into account an incidental but important plea having a bearing on the question of valuation. The plea of the appellants is that when the actual freight and insurance charges from U.K., wherefrom the goods have been imported are available there is no justification for the department to add the notional freight and insurancae charges from Germany, the country of manufacture to India. Since the goods are of West German origin, therefore, the freight and insurance charges are required to be taken from Germany to India. In this particular case, the goods have been imported from U.K. which is farther from India than Germany i.e. freight and insurance charges from Germany are, therefore, likely to be less than those from U.K. Accordingly in the peculiar facts and circumstances of this case, there is no reason as to why the actual freight and insurance charges incurred by the appellants from U.K. should not be taken into account rather than the notional freight and insurance charges from Germany to U.K. If, however, the department can find the actual freight and insurance charges liable to be incurred from Germany to India in respect of such machine, they may take them into account. Benefit in respect of valuation of the goods on account of freight and insurance in the light of the above observations may, therefore, be extended to the appellants.
5.2 As regards the confiscation we are of the view that the appellants had been acting bonafidely both in the matter of declaration of value and in the declaration of the year of manufacture in respect of offset printing machine as apparent from their negotiations with the suppliers mentioned earlier. Therefore, there would not be any justification in confiscating the goods. For the same reason there is no justification for imposing any penalty on them. Hence the fines in view of confiscation on the two machines and the penalties imposed on both the appellants are set aside. 5.3 In view of our aforesaid findings, it is merely of academic interest to deal with the question of individual penalty on the proprietor of the concern. The reliance placed by the learned advocate in the case of V.K. Thampi is very apposite inasmuch as a penalty had been imposed on the first appellant. There was no necessity to impose penalty on the proprietor of the concern. 6. Appeal disposed of in the above terms.