2004 (97) ECC 297 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Shri S.K. Sekhon, Member (T) and Shri T. Anjaneyulu, Member (J)

Polynova Chemical Industries & Ors

Versus

Commissioner of Customs, Mumbai

Application in Appeals No. C/624, 643 & 644/2000

[Arising out of Order-in-Appeal CAO No. 195/2000/CAC/CC/R.S dated 31.5.2000 passed by the Commissioner of Customs (E.P.), New Custom House, Mumbai]

Order No. A-1068-70/WZB/2004/C-III, dtd. 10.9.2004,
Certified on 13.9.2004

Evidence

Quotations are not acceptable evidence for transaction values to be dismissed -- Reliance on a sale invoice, which is solitary & suspected to be covering the very same goods cannot be permitted.

[Para 2]

Jurisdiction

Provision in Para 7.36 of the Hand Book of Procedures on Exim Policy 1997-2002 -- Jurisdiction of Customs Authorities to determine the DEPB -- Held, no orders on DEPB eligibility could be made by the Commissioner.

[Para 2]

Confiscation

Penalty -- Once goods are not found to be liable for confiscation -- Penalty and Redemption fine cannot be sustained, set aside -- Customs Act, 1962, Section 114(i).

[Para 2]

PRESENT :

Shri J.C. Patel, Advocate and Shri Ravindra Jain, Consultant for the appellants.

Shri Bidhan Chandra, JDR for the respondent.

Cases Cited :

1. Atari (India) Electronics, 1990 (25) ECC 135 (T)............................................... [Para 2]

2. Hindustan Ferodo Ltd v. CCE, 1997 (89) ELT 16 (SC)....................................... [Para 2]

3. JG Exports v. CC, 1999 (105) ELT 258............................................................ [Para 2]

4. M.K. Fisheries v. Commissioner of Customs, 2002 (150) ELT 998..................... [Para 2]

5. Om Prakash Bhatia v. CC, 2001 (73) ECC 724 (LB).......................................... [Para 2]

6. Om Prakash Bhatia v. CC, 2003 (88) ECC 457 (SC)......................................... [Para 2]

7. S. Chandra Sekharan v. CC, 2001 (132) ELT 751............................................. [Para 2]

8. Shilpi Exports v. CC, 1996 (83) ELT 302.......................................................... [Para 2]

9. Sir Kasturchand P. Ltd versus CC, 2001 (131) ELT 269.................................... [Para 2]

Per: S.S. Sekhon

Spectacles frames at a declared value of Rs. 72,06,386 were entered for export by M/s Polynova Chemical Industries on an average price of Rs. 602 per frame, as declared. The valuation on market enquiries were determined to be between Rs. 24 to Rs. 55 per frame. On the ground that excessive valuation was entered for recovery extra DEPB benefit of over Rs. 10 lakhs, show cause notice was issued to the appellants herein, i.e. the exporter & the supplier of the frames and the authorised signatory of the suppliers. The goods were provisionally released and exported. Full realisation of the amount, as per the declared values, has been received and evidence to the effect was shown to the adjudicator. The adjudicator however confirmed the charge of over invoicing & ordered the limiting of DEPB to Rs. 3,28,900 as against Rs. 12,25,088 claimed. A penalty of Rs. 5 Lakhs was imposed on the Exporters proprietor Shri Milan Shah, Rs. 2 on Shri Rajesh Poojari proprietor of M/s SR Enterprises the supplier, & Rs. 1 Lakh on M/s. Sujata Poojari who is alleged to be the authorised signatory of M/s SR Enterprises. Hence, these appeals.

2. After hearing both sides and considering the issues and the material it is found: --

(a) The shipping Bill was filed on 3rd November 1998 whereas the Show Cause Notice was issued on 22nd November 1999 which is beyond the period of 90 days stipulated by Circular No. 69/97-Customs dated 8th December 1997 as modified by Circular No. 23/99-Customs dated 22nd October 1998. The said circulars are binding on the department held in the case of JG Exports v. CC, 1999 (105) ELT 258. The Circular No. 23/99-Customs dated 11 May 99 relied upon by the Commissioner and which empowers the Commissioner to extend the said period of 90 days for reasons to be recorded in writing came into force after the period of 90 days in the present case as prescribed had already expired in Feb. 1999. In any case no order recording in writing reasons for extending the period had been passed in the present case nor any notice was issued to the Appellants proposing extension of the time period to issue the notice.

(b) As regards the value of the export goods for the purposes of the Customs Act, 1962 it is held --

(i) It is clearly laid down by the Larger Bench of the Honourable Tribunal in the case of Om Prakash Bhatia v. CC, 2001 (73) ECC 724 (LB) : 2001 (127) ELT 81 that the value of the export goods for the purpose of Section 50 of the Customs Act, 1962 means, that value as determined under Section 14 (1) of said Act, accordingly it is only when the declared FOB value is found not to be in accordance with Section 14(1) then the question of confiscation of the goods under Section 113 (d) and consequent imposition of penalty under section 114 could arise. As per Section 14(1) the value is deemed to be the price at which such goods or like goods are ordinarily sold or offered for sale for delivery at the time and place of export in the course of international trade. Thus, the export value, has to be the price at which the goods are exported in the course of international trade full foreign exchange payment for the exports have been recovered. In the present case the department has not produced any evidence whatsoever to impugne the export price of goods as exported in the course of international trade full foreign exchange payments for the exports have been recovered. What the department had disputed is the "local market value" by producing evidence of a quotation and a cash memo for a local sale in India and not of a sale for export of goods in international trade. The judgment of the Tribunal in case of Om Prakash has been upheld by the Supreme Court as reported in 2003 (88) ECC 457 (SC) : 2003 (155) ELT 423 in which the Supreme Court clearly held that the value of the export goods has to determined under Section 14 (1). Export value cannot be caused to be upset by & on "Local Market value" evidence. There is no reason to arrive at mis-declaration of export value & draw any adverse consequences thereto.

(ii) Apart from the fact that the department has not produced any evidence of contemporary exports at lower higher or different price, the full declared export FOB value has been received by the Appellants and the Bank Realisation Certificates have been duly submitted, therefore the declared FOB value is demonstrated & proved by the Appellants to be the true sale consideration between the Appellants and the Foreign Buyers. The Supreme Court has in paragraph 21 of the judgment in the case of Om Prakash Bhatia observed that the exporter in that case did not lead any evidence to show that the declared export value represented the true sale consideration. In the present case the Appellants have submitted evidence of realization of the entire declared export value which shows that the same was the true sale consideration. Therefore, the Ld. DR reliance on Om Bhatia case cannot help the Revenue.

(iii) In the following cases, it is laid down that where evidence is led by exporter to show full realization of the export value and there is no evidence led by the department to prove money laundering, it cannot be said that there was overinvoicing of the export value under Section 14(1):

Shilpi Exports v. CC, 1996 (83) ELT 302 upheld by the Supreme Court in 2000 (115) ELT A 219

S. Chandra Sekharan v. CC, 2001 (132) ELT 751 upheld by Supreme Court in 2003 (154) E.L.T. 353.

(c) No satisfactory evidence led by the department to even establish that the present local market value was less than declared is found as follows:

(i) As the goods in the present case were examined by the Examining Officer, Mr. Himani who gave his report that the same type of goods are available with two Opticians whose names and addresses were mentioned in the report and the prices ascertained by the Examiner were far higher than those determined in the impugned order, this report was withheld in the show cause notice. It leads, to, a conclusion, exhibition of Departmental bias to somehow make out a case by suppresso versi. The Commissioner in paragraph 21 of his order admits that there was such a report, by the examiner, but chooses to disregard the same on the ground that it is based on oral inquiry. No inquiries or efforts were made by the investigating officers with the said two opticians to question or prove as incorrect the report of the examiner, or it can be concluded that they have been made and found to be not incorrect & therefore not relied, on such a plea made.

(ii) On the other hand the Commissioner has relied upon a quotation obtained through oral enquiry and a cash memo which gave no details of the goods to which they relate. The goods covered by the said quotation and cash memo as also sample or the goods sought to be exported by the Appellants were never shown to any experts or person dealing in those goods to arrive at a conclusion that goods quoted & on sale memo and export consignment were of same quality/standard. The Commissioner has merely gone by his subjective satisfaction that the Appellants' goods are similar to those goods, as in the quotations & the invoice. Such an approach has been held to be not maintainable by the Tribunal in its decision in Sir Kasturchand P. Ltd versus CC, 2001 (131) ELT 269, and by the Supreme Court in Hindustan Ferodo Ltd v. CCE, 1997 (89) ELT 16 (SC). Moreover it is well settled & trite law to say that quotation are not acceptable evidence for transaction values to be dismissed. Reliance on a sale invoice, which is solitary & suspected to be covering the very same goods cannot be permitted.

(iii) The confessional statement of the Appellants proprietor dated 25th August 99 was retracted by letter dated 26 August and is clearly contrary to his two earlier statements dated 6th April 99 and 30th June which were exculpatory. Therefore, it is to be held that the present local market values as alleged & found by the Adjudicator cannot be accepted.

(iv) The Ld. Advocate for the appellants have argued on the provision in para 7.36 A of the hand book of procedures on Exim Policy 1997-2002 & questioned the jurisdiction of the Customs Authorities to determine the DEPB wherein they have held as follows:

After hearing both sides and considering the material it is found --

(a) The provisions regarding DEPB Scheme are contained in Paras 7.14 to 7.17 of Import-Export Policy, 1997-2002 (April, 2000 Edition). The procedure regarding applying for DEPB and obtaining credit are contained in Paras 7.38 to 7.53 of the Handbook of Procedures, Vol. 1. During the period in question, DEPB on post-export basis alone was to be granted. The provisions regarding grant of DEPB credit on pre-export basis have been deleted during the periods in question. Perusal of the relevant policy paras reveal that when the exporter, exports the goods under cover of DEPB Shipping Bills. At the time of export, the Customs Department will examine the goods vis-a-vis the description given on the shipping bill to ensure that the goods described on the shipping bill alone are actually exported. The Customs Department would also verify the FOB value declared by the exporter with regard to Present Market Value (PMV), and hand over the Export Promotion Copy of Shipping Bill to the Exporter.

(b) The exporter after realising the export sale proceeds, will apply to the prescribed authority in the office of the Director General Foreign Trade Ministry of Commerce (herein after refer to a DGFT) in the form prescribed in Appendix 11C of the Handbook of Procedures, alongwith prescribed documents, such as Export Promotion Copy of Shipping Bills, export realisation certificate. The applicant also indicates the product description and the rate of credit available to the said goods as per the rate prescribed by the DGFT in the DEPB Schedule. The DGFT issue Duty Entitlement Pass Book licence and a Pass Book after scrutiny of the application form in Appendix 11C. The DGFT grants the DEPB rates, as claimed, on the export goods, which had been verified by the Customs Department. The credit given in the Passbook can be utilized for payment of duty on the imported goods. At the time of payment of duty on the imported goods debit the Passbook, the Customs once again verify the DEPB Licence.

(c) The Central Board of Excise and Customs vide Circular dated 17.4.97 has described the procedure to be followed under DEPB Scheme. In its circular dated 3.6.1997 in paras 1 and 2 the Board has directed as under.

"Attention is invited to Circular No. 10/97-Cus. dated 17.4.97 whereby detailed guidelines for operation of duty entitlement passbook scheme were issued. The said circular provides for the exporters to declare in the shipping bill the serial number of the export products in the public notice issued by the DGFT and the rate claimed. It was further provided that correctness of this declaration should be verified by processing the shipping bill and also at the time of examination of the goods.

This matter has been re-examined. It has been decided that the role of customs authorities should be confined to verification of correctness of exporter's declaration regarding description, quantity and FOB value of the export product. It will be for the licensing authorities granting credit to ensure that credit is permitted by them at the correct rate as notified by the DGFT."

(d) The CEGAT in the case of M.K. Fisheries v. Commissioner of Customs, 2002 (150) ELT 998 has held in Para 5 as under:

"........Therefore we find that while the Customs cannot sit in Judgment over any decision regarding quantum of DEPB to be credited in the passbook, yet in all fairness justice require that if the Customs find any variation between the description of the goods as declared on the shipping bill and as declared in terms of public notice issued by the Customs House for the same consignment they would be entitled to bring such discrepancy to the notice of the DGFT and await for further orders on the quantum of credit to be given under DEPB from DGFT."

Similar view was taken by the Calcutta High Court in the case of Kanhaiya Exports v. Commissioner of Customs, 2001 (133) ELT 280 with regard to verification of the documents. This decision of the Calcutta High Court has been confirmed by the Division Bench of High Court as reported in 2001 (133) E.L.T. 537.

(e) In this view of the policy, procedure instructions and the law, in the matter of DEPB, we cannot uphold the decision arrived at by the Commissioner to have impugned the exports and come to a finding that the exports made in this case were not entitled to DEPB under serial No. 86 of the Product Code 83 of the DEPB Schedule. Since all that was required, in the case was for the Commissioner to have reported the matter to the DGFT authorities and not sit in judgments over the grant and or determine entitlement of DEPB which were not within the jurisdiction of the Customs to do so. The order of determination of the eligibility or otherwise of DEPB as made in this case cannot be upheld.

(f) The DEPB Schedule describe PC Boards' without any qualification or restrictions. Relying on the case of Atari (India) Electronics, 1990 (25) ECC 135 (T) : 1990 (45) ELT 321 it could be held that both kinds of Circuit Boards i.e. plain or unpopulated or printed and populated could be covered as PC Boards. The Commissioner has come to a finding `In fact the items imported was fully assembled item to be used as an add on card for computer' is a finding arrived without any material or expert agencies reports on record. Para 1 of the impugned order reads as-

".........Examination of the goods by the customs officers showed that goods were misdeclared. The item being exported was not a PC board as claimed, but was a Populated Printed Circuit Board containing various components and was infact a fully assembled component of computer system. The goods were infact thus found to be Populated PCB. `Mercury multimedia KOB N 620, Graphic Processor with 32 MB memory size optimized for Pentium III SSB and AMD-3D NOW'. The item is also described as Graphic Accelerator. The packing list also showed that the goods were described by the exporter as `Graphic Accelerator Multimedia for graphic processing and video acceleration purposes for enhanced screen resolution, colour depths and refresh rate'. This description was not appearing either in the invoice or in the Shipping Bill. It, therefore, appeared that the goods were misdeclared with an attempt to claim DEPB that was not available........."

These charges, as made and how the goods constitute to be an add on card and why add on card cannot be a PCB, have not been clearly and conclusively established by giving reasons in the findings. The declaration in the Shipping Bills need not always be in technical details explaining the functions. It is not brought out in the order that the packing list was suppressed or kept away from the Customs Officers. In fact the declaration made on the Shipping Bill, as seen from para 1 of the impugned order was `Printed Circuit Board Double Sided (AGP Card TNT2/M84)'; which would indicate that the `Card nature' with technical specification was indeed declared. The charge of misdeclaration therefore cannot be upheld.

(g) The finding of the Commissioner that Rule 14 of the Foreign Trade (Regulation) Rules, 1993 especially sub-rule (2) thereof read with Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 the goods should be deemed to render the export goods, prohibited goods and therefore liable for confiscation under Section 113(d) and 113(i) of the Customs Act, 1962 on consideration is found to be not correct interpretation of law. Even if the alleged misdeclaration finding is to be upheld. It is found that Foreign Trade (Regulation) Rules, 1993 issued vide Ministry of Commerce Notification No. GBR 791(E), dated 30.12.1993 have been issued under the powers confirmed by Section 19 of the Foreign Trade (Development and Regulation) Act, 1992 by the Central Government and not under the powers which would be exercised by the Central Govt. to issue an order under Section 3(2) of the Foreign Trade (Development and Regulation) Act, 1992, which would vide sub-section (3), would then deem then to be a prohibition under Section 11 of the Customs Act, 1962. Besides of Rule 14(1) and 14(2) of Foreign Trade (Regulation) Rules, 1993 on a plain reading, would cover declaration for obtaining a licence and import any goods and DEPB's would not be covered by the word `Licence' as defined in the Foreign Trade (Development and Regulation) Act, 1992. A claim for DEPB export would not be a declaration for import. In this view of the matter, the liability for confiscation of the goods, being prohibited goods, under Section 113(d) and/or 113(i), as brought out by the Commissioner cannot be upheld. Confiscation arrived at under Section 113(d) or/and 113(i) cannot be upheld.

(h) Ones goods are not found to be liable for confiscation, penalty under Section 114(i) of the Customs Act, 1962 cannot be sustained. The penalty imposed is required to be set aside.

In view of the forgoing, herein, the order is set aside and appeal allowed.

(v) Nothing contrary, has been shown to the above view. No orders on DEPB eligibility could be made by the Commissioner.

(vi) The penalty and redemption fine imposed in this case cannot be up held.

3. Consequent to the findings herein the order is required to be set aside and appeals allowed. Ordered accordingly.

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