2005 (98) ECC 494 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

New Delhi -- Bench-NB(A)

Hon'ble Justice Smt. K.K. Usha, President and Shri C.N.B. Nair, Member (T)

CC, Mumbai & Ors.

Versus

Abdull Habib Khan & Vice-versa

Appeals No. C/190/95-A, C/643/94-A, C/295/94-A, C/751/94-A, C/777/93-A, C/247/94-A, C/778/93-A, C/248/94-A, C/1800/93-A, C/1817/93-A, C/672/93-A, C/284/94-A, C/673/93-A, C/424/93-A, C/574/93-A, C/161/95-A, C/632/94-A, C/478/94-A, C/675/93-A, C/487/94-A, C/1801/93-A, C/670/93-A, C/573/93-A, C/296/94-A, C/676/93-A, C/575/93-A, C/206/95-A, C/656/94-A, C/603/94-A, C/195/95-A, C/604/94-A, C/430/94-A, C/1835/94-A, C/805/93-A, C/249/94-A, C/1122/93-A, C/916/93-A, C/330/94-A, C/804/93-A, C/346/94-A, C/915/93-A,

C/162/94-A, C/443/93-A, C/252/94-A, C/671/93-A, C/250/94-A, C/763/93-A, C/331/94-A, C/576/93-A, C/338/94-A, C/674/93-A, C/283/94-A, C/571/93-A, C/337/94-A, C/803/93-A, C/208/94-A, C/125/93-A, C/505/93-A-NB(A)

[Arising out of Order-in-Original No. CAO No. 99/94-CAC dt. 10.1.94, CAO 64/93 CAC dt. 20.3.93, CAO No. 69/93-CAC dt. 16.3.93, CAO No. 17/93-CAC dt. 14.3.93, CAO No. 18/93 dt. 30.3.93, CAO No. 24/93-CAC dt. 30.3.93, CAO No. 97/94-CAC dt. 16.1.94, CAO No. 67/93-CAC dt. 30.3.93, CAO No. 33/93-CAC dt. 17.4.93, CAO No. 63/93-CAC dt. 17.3.93, CAO No. 95/4-CAC dt. 6.1.94, CAO No. 94/94CAC dt. 6.1.94, CAO No. 9/93-CAC dt. 30.3.93, CAO No. 68/93-CAC dt. 17.3.93, CAO No. 70/93-CAC dt. 30.3.93, CAO No. 73/93-CAC dt. 2.4.93, CAO No. 10/93-CAC dt. 29.1.93, CAO No. 97/93-CAC dt. 14.3.93, CAO No. 64/93-CAC dt. 20.3.93, CAO No. 16/93-CAC dt. 21.3.93, CAO No. 15/93-CAC dt. 11.5.93, CAO No. 71/93-CAC dt. 20.3.93, CAO No. 23/93-CAC dt. 19.3.93, CAO No. 11/93-CAC dt. 9.2.93 passed by CC, (Mumbai)]

Final Order No. 678-735/2004-NB(A), dt. 2.7.2004, Certified on 13.7.2004

Demand (Customs)

Differential duty -- Whether differential duty is liable to be paid in those cases by the persons in whose names the import took place or by the person from whom the cars were seized. Sec.125(2) of the Customs Act states that the persons redeeming confiscated goods shall pay the duty leviable.

Penalty

Import -- Mis-declaration -- Whether the appeals of the revenue have to be rejected, and penalties imposed on other parties vacated in those cases of imports where owners of the cars have settled the cases against them under Kar Vivad Samadhan Scheme (No). The penalties on Shri Futehally and importers would not be affected by the said settlements under Kar Vivad Samadhan Scheme as offences of Shri Futehally and Importers are different from the offence of the buyers. Revenue's appeals are protected by the proviso to Section 92 of Finance Act, 1998.

PRESENT :

S/Shri V. Sridharan, A. Hidayatullah, M.P. Maxi, Keyur Shah, M. Thakore, V.S. Nankani, H. Jagtiani, W. Christian, Advocates for the assessees.

Dr. Hitesh Shah, SDR & Shri R.K. Pardesi, JDR for the department.

Cases Cited :

1. Jagdish Cancer Institute, 2001 (77) ECC 12 (SC)............................................ [Para 16]

2. Union of India v. Onkar S. Kanwar & Ors., 2002 (83) ECC 731 (SC)................. [Para 17]

3. Yogesh Korani v. Union of India, 2003 (159) ELT 3 (Bom)................................ [Para 17]

Per : C.N.B. Nair

All these appeals arise out of cases relating to import of Audi 80 Cars from M/s Volkswagon Germany. The imports were made during 1987-89. The cars were assessed and customs cleared after accepting the invoice prices as assessable value. Further, partial exemption as applicable to automobiles of less than 1600 CC under Notification No. 83 of 1977 was also allowed.

2. These imports were subsequently taken up for investigation by the Directorate of Revenue Intelligence in November 1989. Very briefly stated, the investigation indicated that the cars were actually of higher CC, the prices declared in the invoices were misdeclared lower values than the actual purchase prices/commercial prices, the imports has been basically organized and managed by Shri Sadiq A. Futehally, proprietor of Ashiya Motors. The main evidence thrown up by the investigation was that, when most of the imported cars were subjected to test at IIT, Bombay and other institutions, actual cubic capacity of the engines were found to be 1800 etc., (when the declared CC was 1595); Codes (regarding features of the cars) affixed in the boots of the cars confirmed the test findings/showed the real C.C.; Service records kept by M/s Ashiya Motors for individual cars in question also showed that these cars were at higher engine capacity than 1600 and this was also confirmed by Shri Futehally and his service engineer. With regard to import policy, the main evidence was that, though under the import Policy, import of the cars was permissible only to NRIs who had paid for the cars in question from their earnings abroad, in respect of most of the imports, there was no evidence to prove the fact of such payment from foreign earnings, Further, many stated that they had not made any payment but had only signed papers so as to facilitate the obtaining of CCP and making imports. It was the burden of their statements that the Futehally of M/s Ashiya Motors had paid some commissioner (about Rs. 70000 to one lakh) for permitting their names to be used; but, the entire import and sales were carried out by Futehally. On the issue of payments for the cars, a startling revelation came up that M/s Futehally Ltd., Osaka, Japan was making payments for these imports to Volkswagen, Germany through L.Cs and that Mr. Futehally had 20% share holding in the Osaka Co.; that there was no correlation between the invoice prices and the amounts paid by the so-called importers and that the invoice prices varied vastly from the prices quoted by Shri Futehally. Based on the evidence so collected, Show-cause Notices were issued proposing re-assessment of the cars based on their correct value as well as the correct rate of duty applicable to cars exceeding 1600 cc. Confiscation of the cars, imposition of penalties on Shri Futehally and persons in whose names the imports were made and the owners of the cars were also proposed. These Notices were adjudicated under the impugned orders.

3. The impugned orders upheld the charges. Commissioners held that the declared values could not be the basis for assessment and that concessional rate of duty was not to be allowed. The charges of misdeclaration of value, and CC were upheld. The charges against Shri Futehally were also confirmed. Resultantly, the cars were confiscated and fines imposed. Penalty on Shri Futehally as well the persons in whose names the cars were imported were also imposed. The orders held that the cars were required to be valued treating the export prices (to India) of the manufacturer namely, Volkswagen as the basis.

4. Revenue is mainly aggrieved by the decision regarding valuation. They contend that the Export Price Lists of Volkswagen cannot constitute the correct value of the cars at all. It is being pointed out that the cars should be valued either at their transaction value (the prices paid to Volkswagen) or according to the Tourist price Lists of the manufacturer and duty as payable on those values demanded. It is further pleaded that since the actual duty evasion was higher than the amounts determined in adjudication, the penalties were also required to be enhanced on the importers as well as Mr. Futehally. Shri Futehally is in appeal contending that he was only an agent of foreign supplier and had nothing to do with the offences in relation to the cars, since he had only facilitated the import and helped the importers and buyers with regard to sale, maintenance etc. The persons in whose names the imports were made are in appeal praying for setting aside the penalties imposed on them. Purchasers of the cars are in appeal contending that they had no connection with the alleged offences and as bona fide purchasers of the cars, they should not have been deprived of the cars or made to pay the evaded duty.

5. As the issues are common and evidence and appeals are interconnected, we heard all these cases together, extensively between 2nd June to 4th June 2004 and 21st June to 22nd June, 2004 when an elaborate presentation of the evidence and legal submissions were made on behalf of Shri Futehally by the learned Senior Counsel Shri Hidyatulla. The revenue's case was also presented in great detail by the SDRs Shri Hitesh Shah and Shri Pardeshi. We have also heard the other appellants and respondents.

I. Cubic Capacity of the imported cars

6. The finding with regard to the correct cubic capacity of the cars is unassailable. Many of the cars were tested by leading institution like IIT, Bombay and Anna University, Madras. Those test results (details available in the annexed statement) have revealed that the cubic capacities were well above the declared cubic capacity of 1595. Also these Test results remain confirmed by the other materials on record. The supporting evidence is comprehensive, are from all corners and cover all aspects of the cars manufacture, trade and maintenance. The coded stickers affixed on the cars (relating to each cars engine and other details), the records recovered from Ashiya Motors about maintenance, the engine details mentioned in the Tourist Price Lists of Volkswagen, all go to show only one thing, that the cubic capacities were higher than declared to the Customs. The defence being put up by Mr. Futehally, with the assistance of Volkswagen, is that they had produced a tropicalised version of Audi cars for India and that such cars were below 1600 cc except for a short period in 1989 when those cars were supplied with 1800 cc engines though also at the same price. This story was presented by Volkswagen's officer who was a witness during the adjudication proceedings. Confirmatory letter from Volkswagen stating to this effect was also produced during adjudication.

7. The Commissioner rightly rejected the submissions and held that test and other evidence clearly showed that the cars in question were above 1600 cc and, therefore, they were not eligible for concessional rate of duty. We have very carefully considered the submissions made by both sides. We do not consider it necessary to state the evidence in detail, inasmuch the adjudication orders have considered the materials very carefully and given the finding. We may only say that we are in full agreement with the adjudicating authorities on this issue.

II. VALUATION

8. The really contentious issue in this proceeding is what should be the assessable value of the cars. It is submitted on behalf of the importers and Shri Futehally that even if the value declared in the invoices are rejected, the correct value to be taken is the Export Prices to India as disclosed by the German manufacturer in their price lists sent to C.C., Bombay. It is being pointed out that the foreign supplier had developed a fully tropicalised version of Audi cars for India and that car was less than 1600 cc. The price of the car was also indicated in the Export Price Lists. Learned Senior Counsel for the appellants has emphasised that such a price list of the manufacturer cannot be rejected, at all, and even if the invoice price is rejected, the Export Price Lists should form the correct basis for valuation. It is also pointed out that adjudication orders accepted those prices after considering the entire material on record and the testimony of the officer of Volkswagen during adjudication. With regard to Tourist Prices, the explanation is that these prices are for persons who took delivery of the cars from the manufacturers' outlets in Europe and for that reason these are domestic sale prices and not export prices. It is being pointed out that Customs Valuation Rules prohibit the use of domestic prices for the assessment of exported goods.

9. As against this submission, the contention of the revenue is that the invoices and export prices made available by the foreign manufacturer are not reliable at all and that the acceptance of such prices is contrary to the finding that cubic capacity and other features have been misdeclared. Learned SDR has emphasised that these documents are required to be rejected outright for the reason that they have been issued without giving the correct particulars of the products under transaction. With reference to the invoices, the learned SDR has pointed out that invoices do not show the engine capacity and the detailed particulars (features) of the cars in question. Therefore, those invoices can be treated only as misleading documents issued to facilitate market entry. With regard to the Export Price Lists, the SDR's submission is that this document also does not provide full particulars of the cars under transaction, alongwith full features of each car under sale and cost of each. The learned SDR has emphasised that these particulars are very significant in the pricing of the cars and this is made clear by the Tourist Price Lists which indicate prices for each model and each sub-model.

10. Learned SDR has taken us through the price lists and pointed out that a mere comparison of the so-called Export Price List with the Tourist Price Lists would show how unreliable and misleading the Export Price Lists are inasmuch as the Tourist Price List gives detailed particulars of all models and prices while, the so-called export price list mentions only a few models, that too, without details about additional costs of features. It does not give the prices for the cars under import. It only exports the prices indicated in the import invoices. According to the SDR, the Export Price List has been sent by the manufacturer only to assist Shri Futehally to project that what is being supplied to India was a tropicalised standard version of 1600 cc. Ld. SDR has contended that such sponsored correspondence can have no value when the examination of the cars has shown that they vary vastly in regard to features from the so-called standard version. The actual payments for the cars also show that the prices mentioned in the Export Price List are no more reliable than the individual invoices issued for each car. With regard to the contention that Tourist Price list is for domestic sales, the Ld. SDR has pointed out that such a contention is contrary to Volkswagen's own version that these prices are for sales to foreign visitors who visit their outlets, buy these cars and take them back to their countries and that such sales are under Export Division and that such sales are made even to Australia.

11. The detailed examination of the evidence on record and the submissions leave us in no doubt that the invoices and Export Prices are not at all representing the correct prices of the cars in question. The invoices completely lack in particulars about the models in question, the features which are incorporated and their costs. Instead, they vaguely described the cars as particular models with airconditioning. It is unbelievable that an item like car which is always priced and sold with regard to features would be so vaguely described by a company in the manner it has been done in the invoices. Same is true of the Export Price also. Tests and examination of these imported cars have shown that the cars in question do not have any resemblance to a standard tropicalised version. The mention of full features in the coded stickers reveals that the sale invoices and Export Price Lists were only for customs consumption and real transactions are revealed by other documents. Unaccounted payments made from Osaka by Mr. Futehally also give the lie to the claim of the appellants that invoices or Export Price List stated the transaction value. That Tourist Price List reflected the commercial price is further made clear by the financial transaction in regard to the import under B/E No. 8144 dated 19.8.88 in the name of Shri Bhaskar N. Shetty. In this case, payment for the car is seen to be made under L.C. No. OSK/LC/39/101 dated 4.3.88 by M/s Futehally Ltd., Osaka. The amount was DM 21000 and the payment was for only one car under import. As against this, invoice price was DM 16679.08 and the Export Price was DM 15861, while Tourist Price List shows a price of 20824.56 as basic price. Thus, the Tourist Price List gives a price very close to the amount paid. In these circumstances, we are clearly of the opinion that invoices and export prices cannot constitute the basis for valuation. These documents do not at all incorporate the correct prices of the cars. Therefore, an alternate basis has to be found for the valuation. The Customs authorities are seeking the valuation of the cars after adding the additional payments made from Osaka. However, this course of valuation is difficult inasmuch as the payment from Osaka is not, in most cases for individual imports of a single car, but a combined payment is made in regard to several cars. This makes allocation to individual cars difficult. In these circumstances, a more reliable method would be to go by the Tourist Price List which, as noted already, gives full particulars about each model and sub-category and price for each. In fact, till 1987, the Customs were assessing all cars based on Tourist Price Lists.

12. The main objection raised by Shri Futehally and the importers against the adoption of Tourist Price List was that Tourist Price List was only for Europe when cars are sold to persons from European countries who visit the manufacturer's outlets, and take direct delivery of the cars. The appellants are seeking to show that, for this reason, these prices are domestic prices for Europe. We are not able to agree with this contention. It has come on record during testimony of the Volkswagen's representative that cars are sold even to buyers from Australia under this scheme. It is also his testimony that these sales are also treated in the company as exports. We have also seen, as a matter of fact, in the case of Bhaskar N. Shetty that the payment made from Osaka came close to the price mentioned in the Tourist Price List. In these circumstances, we feel that the Tourist Prices are export prices and they could form the basis for assessment of the goods. Further, these prices cannot be an incorrect basis for valuation in view of the testimony of the representative of Volkswagen during adjudication that Government of Germany does not permit sales at a lower price for export than the domestic sale price. In view of these, we accept the revenue's appeals as far as the valuation of the cars is concerned. We hold that revaluation of the cars should be done on the Tourist Prices List and differential duty computed accordingly and payment model. The basic tourist price for the model in question plus the cost of additional features should form the FOB value of a car. To this may be added the elements towards freight, insurance etc. to make it the price for supply at the place of import. The differential duty payable in each case upon such re-computation is indicated in the chart annexed to this order.

III. Trading in Licences

13. We have already found that the cars had been imported after misdeclaring their description and value. For these alone, they become liable to confiscation under Section 111 (m) and that Mr. Futehally is the pivotal figure in the import, false transaction, payment from Osaka and sale in India. The NRI importers only assisted in this. In such a situation, the issue of trading in licences is of little significance. We may, all the same, notice that purchase of CCP's on payment of commission remains established. Letter dated 12th December 1988 of Ashiya Motors to Mr. V.C. Varghese is direct evidence in this regard. No communication can be more explicit. We read the relevant portion in the letter:

"Dear Shri Varghese,

Thank you for your letter dated 5th December 1988. Yes, we would be prepared to offer a total of Rs. 1 lakh for your friend's CCP which would include a commission of Rs. 10,000 for you.

Your car has already been cleared. Kindly let us know when you are coming to Bombay. To that we can keep you account ready."

14. This brings us to the question of penalty. From what is stated so far and from the finding recorded in the adjudication orders, it is clear that duty evasion has taken place by suppression and misstatement of facts particularly in regard to the price and cubic capacity of the imported cars. The facts on record also bring out clearly that this has been achieved by the concerted action on the part of Shri Futehally and Volkaswagen, Germany. While Volkswagen was supplying all misleading import documents like invoices with vague and false particulars and prices and presenting a misleading picture to the Customs about the tropicalised version of Audi 80 1595 cc cars, Shri Futehally was going about canvassing and procuring CCPs, issuing proforma invoices with false prices on the one hand and making payment on the sly through LCs opened from Osaka. It is unnecessary to go into the guilt of Volkswagen in these appeals, because the revenue authorities have not brought them among the array of parties and charged them. Suffice it to say, the company was adopting sharp practices to achieve market penetration in India and was doing whatever it took to achieve its objective. Shri Futehally's role has been correctly held by the adjudicating authorities to be dominant and pivotal in bringing about the evasion of duty. Therefore, imposition of penalty on him is amply justified. Taking into account the commonality of the evidence and other features of the case, we are of the opinion that a consolidated penalty would be appropriate. Accordingly, penalty on Shri Futehally is fixed at Rs. 60 lakhs in regard to all the imports covered by this order.

15. With regard to penalty on the importers, we have already found that they were willing parties to fraudulent imports, with the sole aim of earning commission from the deal. They were consciously taking part in the violation of law. Therefore, we find no reason to interfere with penalties imposed. We also do not find it necessary to increase the penalties imposed on them.

16. An issue which has come up during the hearing is as to whether differential duty is liable to be paid in those cases by the persons in whose names the import took place or by the person from whom the cars were seized. The importers have submitted that the position is clear in law. Section 125 (2) of the Customs Act states that the persons redeeming confiscated goods shall pay the duty leviable also. It is the contention of the importers that duty liability cannot continue with them since the imported goods are available for the purpose of recovery of duty in addition to redemption fine. It is also being submitted that this position has been settled by the decision of the Apex Court in the case of Jagdish Cancer Institute, 2001 (77) ECC 12 (SC) : 2000 (132) ELT 257(SC). A perusal of Section 125(2) and the judgment of the Apex Court make it very clear that where imported goods are under confiscation duty payable, if any, is to be made by the person redeeming the confiscated goods. Therefore, we hold that differential duty amounts arising from revaluation of the cars and recomputation of duty amounts would be the liability of the owners of the cars who redeem them after confiscation and not liability of the original importer.

17. A related question that remains to be considered is whether the appeals of the revenue have to be rejected, and penalties imposed on other parties vacated in those cases of imports where owners of the cars have settled the cases against them under Kar Vivad Samadhan Scheme (in Appeals No. C/337/94-A,C/803/93-A, C/330/94-A, C/804/93-A, C/295, C/777/93-A, C/751/93-A, C/247/94-A and C/778/93-A). The contention of the revenue is that these cases come under the exception contained in proviso to Section 92 of Finance Act, 1998 and as revenue is in appeal pleading for increase of duty liability these settlements would have no effect on the revenue's appeal. Further, in view of the judgment of the Hon'ble Bombay High Court in the case of Yogesh Korani v. Union of India, 2003 (159) ELT 3 (Bom), the penalties on Shri Futehally and importers would not be affected by the said settlements under Kar Vivad Samadhan Scheme as offences of Shri Futehally and importers are different from the offence of the buyers. Shri Futehally has relied upon several decisions to support his plea that appellate proceedings have to fail. We are in agreement with the revenue on this issue. Revenue's appeals are protected by the proviso to Section 92. Shri Futehally and the importers are not entitled to get any relief. This position in made clear by the decision of the Bombay High Court. We read para 20 of that judgment.

"20. Mr. Bulchandani brought to our notice that the above decision of the Kerala High Court was carried in appeal and the Apex Court by its judgment dated 27.9.2002 in Civil Appeal No. 6260-6265 of 2000 [Union of India v. Onkar S. Kanwar & Ors.), 2002 (83) ECC 731 (SC) : 2002 (145) ELT 266 (SC)] has upheld the decision of the Kerala High Court. Relying upon the said decision of the Apex Court, Mr. Bulchandani vehemently add forcefully contended that the case of the Petitioner is squarely covered by the said decision of the Apex Court and the Petitioner is entitled to succeed on the basis of the said decision. In our opinion, as stated above, the decision of the Apex Court is wholly distinguishable on facts because, firstly, in that case, the main noticee had paid fifty percent of the entire tax arrears; whereas in the instant case, the main noticee has not paid tax arrears payable on Clove Bud oil. Thus, in the case before the Apex Court, there was total settlement of tax arrears whereas in the present case, there is only partial settlement. Secondly, in that case the Apex Court after analysing the provisions of K.V.S.S., 1998 and K.V.S.S. (Removal of Difficulties) order, held as follows:

"In our view, a reading of the Kar Vivad Samadhan Scheme (Removal of Difficulties) Order shows that where a declaration had been made in respect of a tax arrear and where in respect of the same matter a show cause notice had also been issued to any other person, then the settlement in favour of the declarant has to be deemed to be full and final in respect of other persons on whom show cause notices had been issued."

From the aforesaid ratio laid down by the Apex Court, it is clear that only when the tax arrear arises from the same matter (emphasis supplied), then the declaration made by the principle noticee will cover all other persons against whom show cause notice has been issued. In the instant case, heavy penalty of Rs. 15,00,000 has been levied upon the Petitioner on account of his involvement in fabricating bogus documents with which the main noticee M/s. Choice Laboratories was not concerned at all. Therefore, when the penalty imposed upon the main noticee and the co-noticee arise from distinct and separate causes of action, merely because a common show cause notice has been issued, it cannot be said that the partial declaration/settlement made by the main noticee will be applicable to the Petitioner. In the light of the aforesaid ratio laid down by the Apex Court, the Petitioner herein cannot succeed because, firstly, there is no total settlement and secondly, the penalty levied upon the main noticee and the Petitioner, do not arise from the same matter but arise from different causes of action. Mr. Bulchandani drew our attention to the ratio laid down by the Apex Court in the above case to the effect that if two views are possible, then the view which is in favour of the assessee must be adopted. In our opinion, in the instant case where there is only partial settlement and the penalty levied upon the main noticee and the Petitioner are based on separate causes of action, the only view that can be taken in the instant case, is that the settlement of the main noticee will not be available to the Petitioner."

18. In the result, the appeals are disposed of by revising the duty demand as indicated in the last column of the Annexure to this order, and fixing a consolidated penalty of Rs. 60 lakhs on Shri Futehally.

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