2004 (96) ECC 586 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(B)

Shri V.K. Agrawal, Member (T) and Shri P.G. Chacko, Member (J)

H.M.T. Limited & Ors.

Versus

CCE, Meerut

Appeals No. C/411, 412, 415, 469, 261/95-B

[Arising out of Order-in-Original No. 35/Collector/95 dated 18.4.95 passed by the Collector of Central Excise & Customs, Meerut]

Final Order No. 267-271/04B, dated 23.3.2004, Certified on 29.3.2004

Customs Act, 1962

Sections 111, 118 & 119 read with Section 125(1) -- Smuggling IB cases, dials etc. -- Confiscation of seized goods [integrated bracelet (IB) cases, finished watches, semi-finished watches, under-repair watches and watches received for re-work] including packing material -- Redemption on payment of fine of Rs. 75 lakhs -- Collector of Customs Order (No. 35/95 dated 18.4.95) is vitiated by the twin infirmities viz. denial of natural justice and consideration of irrelevant materials. For these reasons the impugned order is set aside and the case is remanded for fresh adjudication -- The adjudicating authority shall have to give the parties concerned an opportunity of cross-examining Nagin Kothari and Sunil Kothari if the authority wants to look into their role in the case. The jurisdictional Commissioner is directed to adjudicate the case afresh in accordance with law and the principles of natural justice as well as in terms of this order.

Appeals are allowed by way of remand

PRESENT :

Shri M. Chandrasekharan, Sr. Advocate and Shri K. Kumar, Advs. for the appellants.

Shri O.P. Arora, SDR for the respondent.

Cases Cited :

1. Biplab Rakshit v. Commissioner of Customs, NER, Shillong, 2002 (51) RLT 743 (T) [Para 3]

2. Commissioner of Customs (P), Ahmedabad v. K.D. Hirani, 2001 (45) RLT 964 (T) [Para 3]

3. Commissioner of Customs (P), Mumbai v. Agarwal Traders & Anr., 2000 (93) ECR 451 (T) [Para 3]

4. Commissioner of Customs, Calcutta v. Chandiram Lilaram, 2000 (124) ELT 652 (T) [Para 3]

5. Kulbhushan Jain v. Commissioner of Customs, Delhi, 1999 (85) ECR 955 (T) .... [Para 3]

6. Union of India v. Ram Narain Biswanath, 1997 (96) ELT 224 (SC)...................... [Para 3]

Per : P.G. Chacko

These appeals are against Order No. 35/95 dated 18.4.95 passed by the Collector of Customs, Meerut, in adjudication of show-cause notice No. VI (15) Seiz/Cust/Adj/47/91 dated 7.1.1992 issued by the Additional Collector of Customs, Meerut. The operative part of the impugned order is as below:

"ORDER

1. I order confiscation of the seized goods including the packing material such as card-board boxes used to keep/conceal the said goods under Section 111, Section 118 and Section 119 of the Customs Act, 1962 as applicable to such goods. I, however, give an option to HMT-WFR to redeem the confiscated goods on payment of Rs. 75,00,000 (Rupees seventy five lakhs only) as redemption fine which amount is being determined for the purpose of sub-section (1) of Section 125 ibid. The option to redeem the said goods on payment of the aforesaid fine will be open to them for 90 days for the receipt of this order.

2. It is further ordered that at the time of release of the goods, the aforesaid Noticees shall be required to pay the duty of Customs at the rates and the valuation as may be determined by the Assistant Collector of Customs, Rampur in terms of Section 15(1)(c) ibid.

3. The detained goods namely 12460 dials, 16222 Nos. handsets valued at Rs. 6,23,000 and Rs. 1,62,220 respectively are also ordered to be released.

4. I, also impose penalties under Section 112 ibid on the following Noticees for the amounts indicated against each:

"(a) Shri K.S. Gergan Rs. 25,000

(b) Shri M. Jagannath Rs. 30,000

(c) Shri H.V. Lalitha Kumar Rs. 25,000

(d) Shri M. Srinivas Rs. 1,00,000

(e) ...................... .........

(f) ....................... .........

(g) ....................... .........

(h) ....................... .........

(i) ....................... .........

(j) ...................... ........."

Appeal No. 411 of M/s H.M.T. Limited challenges paragraphs (1) and (2) of the above order while appeals Nos. 261, 412, 415 and 469 are against the penalties at (c), (a), (b) and (d) respectively of the paragraph (4) of the order.

2. The facts of the case, to be briefly stated, are the Central Excise Officers in July 1991 seized goods [integrated bracelet (IB) cases, finished watches, semi-finished watches, under-repair watches and watches received for re-work] for French and Hong Kong origin from M/s HMT Limited's Watch Factory at Ranibagh (HMT-WFR, for short) on the basis of the belief that the goods were smuggled into India; that the officers, in the next month, seized dials and hand-sets of wrist watches, of French and Hong Kong origin, from the same factory on the basis of similar belief; that all the seized goods pertained to "Elegance" brand of wrist watches; that 36240 "Elegance" watches valued at Rs. 7.93 crores were found to have already been cleared from the factory; that the Central Excise officers also found that a team of HMT officers had met wrist watch manufacturers in Hong Kong, Taiwan, Japan, Switzerland and France in 1988 and 1989, scouting for new models of wrist watches; that the Central Excise officers also found that, on the recommendations of the said team, HMT-WFR had placed purchase orders on M/s. Munnier Frers S.A. (France) and M/s Sunciti Manufacturers Ltd. (Hong Kong) for various models of watch cases in February 1989; that it was further found that, as the first consignment of "Munnier" watch cases imported in May/June 1989 was denied the benefit of Notification No. 65/87-Cus and had to be cleared on payment of customs duty at the full rate of 160%, HMT-WFR found the scheme economically unviable and hence decided to procure "Munnier" and "Sunciti" IB watch cases through Indian watch manufacturers [Karnataka Horologicals Ltd. (KHL), Falken Watch Industry Pvt. Ltd. (FWIL), and Indo-French Time Industries Ltd. (IFTIL)] by placing parallel orders on them; that it appeared to the Central Excise officers that the said Indian companies had neither the know-how nor the machinery to manufacture such IB cases; that, in follow-up to the aforesaid seizures of goods, the Central Excise officers searched the office premises of Shri M. Jagannath, General Manager (Marketing), HMT Ltd., Bangalore and seized certain documents; that they also seized documents from other premises including the office premises, in Bangalore and New Delhi, of Shri S.S. Gupta, local representative of the Franch company; that statements of some senior executives (serving/retired) of HMT Ltd. and also of certain senior functionaries of the three other Indian companies viz. KHL, FWIL and IFTIL were recorded under Section 108 of the Customs Act; that, from all the evidentiary materials gathered by the investigating officers, it appeared to the department that M/s HMT Ltd. had colluded, planned, organized, encouraged and managed to smuggle foreign watch cases, watch dials and other components into India through indigenous watch makers with intent to evade payment of customs duty; that it further appeared to the department that the Indian companies viz. KHL, FWIL and IFTIL had aided and abetted the evasion of duty, by providing their manufacturing facilities to M/s HMT Ltd. and falsifying records; that, therefore, the Department issued the show-cause notice to M/s HMT Ltd. and others proposing, inter alia, to confiscate the seized goods and to impose penalties on the noticees; that the proposals were contested; that two persons namely M.R. Sahdev and Lakshman Raju, who had given statements under Section 108 of the Customs Act, were cross-examined before the adjudicating authority; and that, after personal hearing, the said authority ultimately passed the impugned order.

3. We have heard Senior Advocate, Shri M. Chandrasekharan, for the appellants and SDR, Shri O.P. Arora for the respondent. Learned Senior Advocate submitted that the Collector of Customs & Central Excise, Meerut, had no jurisdiction to pass the order as neither the import of the goods nor any other part of the cause of action had taken place within his territorial jurisdiction. Relying on the Supreme Court's judgment in Union of India v. Ram Narain Biswanath, 1997 (96) ELT 224 (SC), learned Counsel submitted that only the Collector of Customs within whose territorial jurisdiction the goods had been imported had the authority to adjudicate the case. Touching the case on merits, learned Counsel submitted that the IB cases seized by the department were not `watch cases'. Not being notified goods, the seized goods did not attract Sections 11-B and 123 of the Customs Act. The burden to prove that the goods had been smuggled into India by M/s HMT Ltd. was on the Department, particularly when the goods bore no markings of foreign origin. The burden of proof was wrongly placed on HMT-WFR by the investigators and the adjudicating authority. Learned Counsel, in this connection, relied on the following decisions of the Tribunal:

2000 (93) ECR 451 (T) -- Commissioner of Customs (P), Mumbai v. Agarwal Traders & Anr.

2000 (124) ELT 652 (T) -- Commissioner of Customs, Calcutta v. Chandiram Lilaram

1999 (85) ECR 955 (T) -- Kulbhushan Jain v. Commissioner of Customs, Delhi

2001 (45) RLT 964 (T) -- Commissioner of Customs (P), Ahmedabad v. K.D. Hirani

2002 (51) RLT 743 (T) -- Biplab Rakshit v. Commissioner of Customs, NER, Shillong

Learned Counsel relied on Public Notice No. 34/1989 dated 31.1.89 of Madras Customs Collectorate to show that the adjudicating authority's finding that IB case was not an item other than watch case was not correct. He also relied on Order-in-Original No. 16/93 dated 16/23.9.93 (C.N. VIII/10/21/93 Cus. Adjn.) passed by the Collector of Customs, Bangalore in adjudication of show-cause notice No. 2/SIB/91 dated 25.10.91 issued to M/s HMT Limited's Watch Factory at Tumkur [HMT-WFT, for short] and others. The said Order-in-Original held that the goods seized in that case, which were similar to the seized goods in the instant case, were only watch case parts and could not be considered as watch cases (notified goods) attracting Sections 11-B and 123. It held the goods not liable to confiscation and dropped all proceedings against HMT-WFT and co-noticees. Learned Counsel further pointed out that no appeal had been filed by the department against the said Order-in-Original. He submitted that, though it had been specifically pleaded that some of the seized goods in the instant case had been imported by IFTIL and FWIL and that the back-covers of the wrist watches had been manufactured by KHL out of parts procured from the local market, the adjudicating authority dismissed the plea as not proved, regardless of the Bills of Entry and other evidence adduced by HMT-WFR. The Collector also recorded a finding of falsification of Central Excise records but could not say as to which particular documents had been falsified. He relied on the statements of Nagin Kothari and Sunil Kothari but rejected the plea for cross-examination of those persons as irrelevant. Though cross-examination of Nikunj Shah of IFTIL and Irfan Sheriff of FWIL was allowed, neither of them was available for being cross-examined. Counsel argued that their statements could not have been relied on by the adjudicating authority. Learned Counsel also sought to discredit certain findings of the adjudicating authority on the strength of the corresponding findings of Shri M.V. Reddy, Collector of Customs, Bangalore contained in Order-in-Original No. 16/93 ibid. Whereas the Bangalore Customs Collector held, on the basis of documentary evidence, that the subject goods in that case had been manufactured by M/s KHL, the adjudicating authority in the instant case found that M/s KHL or any of the other Indian Companies (M/s FWIL and M/s IFTIL) did not have the know-how or machinery to manufacture IB cases. Whereas the Bangalore Collector of Customs, relying on one Shri Ranjit Kanunga's statement, recognized the role of Shri Chandulal in the transactions relating to the goods procured by M/s KHL, the adjudicating authority in the instant case held that Chandulal was non-existent. Ld. Sr. Advocate argued that, as the above findings of the Bangalore Collector of Customs had become final and binding on the Revenue, the contra findings of the adjudicating authority in the instant case were not sustainable. Regarding the valuation of the goods in question, the learned Counsel submitted that the assessable value of the goods had been worked out by the Collector of Customs on the basis of the market value of `Elegance' wrist watches and not on the basis of the value of the watch components allegedly smuggled into India. There was no evidence to show that the goods allegedly smuggled into India were complete wrist watches.

4. The SDR reiterated the findings of the adjudicating authority. With regard to order No. 16/93 passed by the Collector of Customs, Bangalore, the SDR submitted that, in all likelihood, the department must have filed appeal against that order. He would verify and report on this aspect.

5. SDR has not so far reported anything on the above aspect. Queries from our side have received responses from the registries of the Tribunal's South Zonal Benches at Chennai and Bangalore. The Assistant Registrar at Chennai has reported that as per his office records relating to the years 1993, 1994, 1995 and 1996 no appeal was filed against Order-in-Original No. 16/93 dated 16/23.9.93 of the Collector of Customs, Bangalore. The Assistant Registrar at Bangalore has also reported that no such appeal was received by that office.

6. We have carefully considered the submissions. The learned Senior Advocate has heavily relied on Order No. 16/93 passed by the Collector of Customs, Bangalore, whereby goods similar to the seized goods involved in the instant case were held to be items other than watch cases and not liable to confiscation. That order was passed in respect of another watch factory of M/s HMT Ltd. We have found that the Revenue has accepted that order and the findings contained therein have become final and binding on both sides. One of the findings of the Bangalore Customs Collector is that M/s KHL had procured certain parts from the local market and manufactured watch cases. Another finding is that Shri Chandulal was actually involved in the transaction relating to procurement of watch cases by M/s KHL. In the instant case, the adjudicating authority has arrived at contrary findings. It has held that KHL had no capability to manufacture watch cases and that Chandulal was non-existent. It is on the basis of these and other findings that the adjudicating authority has come to the conclusion that HMT-WFR smuggled watch cases of foreign origin into India through KHL and others. The appellants are challenging these findings. Their counsel has argued that the Revenue cannot resist the challenge against the above findings of the adjudicating authority in relation to M/s. KHL and Shri Chandulal inasmuch as the contra findings recorded by the Bangalore Customs Collector on the same questions of facts were accepted by the Department. There is much force in this argument. However, we are not inclined to take the cue from this argument and head for further findings as we have at once come across a conspicuous element of violation of natural justice in the impugned order. The request of M/s HMT Ltd. to cross-examine Nagin Kothari and Suni Kothari was rejected as irrelevant by the adjudicating authority. However, their "relevance" was noted by the Collector of Customs in the impugned order vide para (47.2) thereof. Para (47.2) reads:

"Shri M. Srinivas, Managing Director, KHL was alleged that he, at the time of HMT officers' visit was present at Munnier S.A., France (Munnier in short). He offered to HMT, Ranibagh (WFR in short), vide his quotation No. KHL/HMT/89-90/05-18, referred to in HMT's Purchase Order No. I-3594 dated 10.6.89, to supply the models manufactured by the aforesaid French company knowing that his unit did not have the know-how nor the technology to manufacture such IB cases. He, in the month of July 1989 alongwith Shri Nagin Khothari again visited Munnier and finalized the mode of procurement and shipment of the said quantities and models of IB cases manufactured by the said French firm. In all prohability, he availed the help and assistance of Shri Nagin Kothari and Sunil Kothari of Bombay in Managing to smuggle the said IB cases, dials and hands, in batches into India from Munnier. There was no doubt whatsoever that the IB cases supplied by Shri M. Srinivas were the very goods manufactured by the said French Company which had become amply clear from the various telexes exchange between the officers of HMT, Munnier Shri S.S. Gupta, the local representative of Munnier and the visit of the representative of the said French Company during 1990 to discuss various defects and shortcomings in the supplies defected pertaining to various models when, in fact, the only models supplied by Munnier were 2000 Nos. each models 1000/130 and 100/30 directory to HMT. To raise money for the supplies effected to WFR, Shri M. Srinivas with the help. and connivance of Ranjit Kanunga, Devi Chand and Suresh Shah, floated 8 fictitious/front firms from where a sum of Rs. 6,54,33,546.79 was siphoned out of KHL. The stand of Shri M. Srinivas and Ranjit Kanunga that supplies were effected by on Shri Chandulal of Bombay was a figment of their imagination. No such person by the name of Chandulal existed and only to cover-up the illicit procurement of IB cases supplied, Chandulal was created. In fact, it appeared more likely that the recipient of the funds was Nagin Kothari and/or Sunil Kothari who, on more than one occasion, visited Munnier alongwith M. Srinivas. It was preposterous to say that M. Srinivas had met the said Chandulal, if any, only on one occasion when he had procured goods worth over Rs. 4.5 crores and did not even know the address nor the capacity in which Chandulal represented the four firms (fictitious) from which IB cases were reportedly purchased. Further, the claim of Shri C.N. Anand of KHL did not stand to reason that blanks could be imported and finishing was done in India. In case this was true, which did not appear possible, as none of the supplier firms were in existence and KHL would have definitely received the goods under Central Excise gate passes keeping in mind that the transactions with each firm were almost/over Rs. 1 crore." (Emphasis supplied)

It is apparent that, in the context of examining the penal liability of Shri M. Srinivas (one of the appellants before us), the Collector of Customs found the two Kotharis to be relevant. He noted that their assistance was availed by M. Srinivas for smuggling IB cases, dials etc. into India from "Munnier". Having rejected the request for cross-examining Nagin Kothari and Sunil Kothari, the Collector should not have examined their conduct for penalizing M. Srinivas and his company, KHL. What was adjudged irrelevant should have been kept out of reckoning. It appears to us from para (47.2) ibid that the Collector's order is vitiated by the twin infirmities viz. denial of natural justice and consideration of irrelevant materials. Nothing more is required to set aside the order and remand the case for fresh adjudication. The adjudicating authority shall have to give the parties concerned an opportunity of cross-examining Nagin Kothari and Sunil Kothari if the authority wants to look into their role in the case.

7. It is also noted that, though the appellants' request to cross-examine Nikunj Shah and Irfan Sheriff was allowed by the Collector, neither of them turned up for being cross-examined. The statements of both these persons have been heavily relied on in the impugned order. Now that the case is being remanded, we are of the view that a further opportunity to cross-examine the two persons must be given to the party.

For the reasons we have recorded, the impugned order is set aside and these appeals are allowed by way of remand. The jurisdictional Commissioner is directed to adjudicate the case afresh in accordance with law and the principles of natural justice as well as in terms of this order. It is made clear that we have not expressed any view on the substantive issues involved in the case and that all such issues are left open to be decided upon by the adjudicating authority.

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