The interpretation of 'new' under the exemption notification and the acceptance of undervaluation by the respondent were key legal principles in the judgment.

(Dr. D.Y. Chandrachud, J.)

These proceedings arise from a decision of the Settlement Commission under the provisions of Section 127C(5) of the Customs Act 1962.

2. The Respondent imported a Ferrari under a bill of entry dated 14 February 2008 at Nhava Sheva. He claimed the benefit of an exemption notification 21/2002-CUS dated 1 March 2002 on the basis that it was a brand new vehicle. The DRI commenced an investigation on intelligence information which it received that the vehicle was second hand and was registered with the Driver and Vehicle Licensing Agency (DVLA) in the United Kingdom prior to its importation. The benefit of the exemption notification was alleged to be wrongly claimed on that basis. A notice to show cause was issued to the Respondent on 21 December 2009 by the Additional Director General in the DRI. The Respondent made an application before the Settlement Commission on 18 August 2010, by which he accepted a further duty liability of Rs.61.32 lacs over and above the duty paid in the amount of Rs.72.61 lacs at the time of import. Interest thereon was also paid. Before the Settlement Commission, the contention of the jurisdictional commissioner was that the vehicle was registered in the United Kingdom and that in order to suppress the fact that the vehicle was already registered and was being shipped from United Kingdom, instead of Italy which was the country of manufacture, the Respondent had produced a fake invoice dated 24 December 2007 to hide the identity of the U.K. Ferrari dealer.

3. The Settlement Commission has in its order noted that notification 21/2002-CUS dated 1 March 2002 uses the words "new , which have not been registered anywhere prior to importation". In the U.K. registration of motor vehicles bought for export is a requirement mandated under law. The Central Board of Excise and Customs issued a circular on 11 January 2005, circular 1/2005 to deal with this situation by which field formations were directed "to verify whether the registration is a formality or not and to compare the date of dispatch of the car with the date of registration and that such temporary registration was not interfering with the Notification benefit".

4. The Settlement Commission noted that the purpose and intent of the exemption under the notification as brought out in a budget speech of the Finance Minister and a budget explanation note of 200102 is to discourage the import of second hand cars by fixing a higher rate of duty. The CBEC circular, however, clarifies that a mere documentary registration for enabling transit and shipment of a vehicle will not disqualify the motor vehicle from exemption. In this background, the Settlement Commission observed that unless the exemption notification were to be given a workable meaning so as to exclude registration for transit, the notification would become unworkable for import of motor vehicles from such countries where temporary registration is mandatory before exportation of the vehicle. Insofar as the facts are concerned, the Settlement Commission has noted that the car was imported by the U.K. dealer of Ferrari, Italy and sold to M/s. Hyperformance Cars Ltd., U.K. on 18 December 2007. The car was entered for export to India at the relevant port on 20 December 2007 and the consignment left for India on 30 December 2007 under a bill of lading. There is a finding of fact that the car was not used in the U.K. and was registered in the U.K. on 11 January 2008 only to meet the transit requirement from Italy to India through the U.K.

5. On these facts as found by the Settlement Commission, the finding that the benefit of the exemption under notification 21CUS/ 02 dated 1 March 2002 was admissible cannot be faulted. On the issue of undervaluation the Settlement Commission has noted that the redetermined assessable value of the car is Rs.1.18 Crores. The Respondent admitted the allegation of undervaluation by accepting the redetermined value of Rs.1.18 Crores. The diff