ORDER
T.K. Jayaraman, Member (T)
1. These appeals have been filed against OIO 29/98, dated 31st December, 98 passed by the Commissioner of Customs Visak.
2. The brief facts of the case are as follows:
M/s. Hillari Computers Pvt. Ltd., Visak (hereinafter known as the M/s. HCEPL) is a unit in Visak Export Processing Zone engaged in the manufacture and export of computer systems availing exemption under Customs Notification 133/94-Cus., dated 22-6-94. As per the notification, the goods imported are duty free, provided they are used to manufacture computer systems which are ultimately exported. The Development Commissioner can permit certain percentage of the manufactured goods for DTA Sales. Under the Notification there is an obligation of value addition. The Revenue conducted investigations against the appellants and found certain irregularities. It appeared that the appellants were over invoicing exports, under invoicing imports diverting imported spares and components in the domestic market illegally and selling assembled computers in the home market and failing to repatriate foreign exchange. During the searches, certain goods and documents were seized. Under Mahazar, follow up action was taken in the premises of the dealers of computers in Visak. On the basis of the investigations, show cause notice dated 13-5-97 was issued to M/s. HCEPL on the following persons.
(1) Shri Anil Narra Managing Director of M/s. HCEPL
(2) Shri M. Sreekiran, Director of M/s. HCEPL
(3) Shri A. Srinivas Director of M/s. HCEPL
(4) Shri R. Phanindra, Director of M/s. HCEPL
(5) M/s Shashi Bhushan & Co No. 10. Tyagaraja Street, North Usman Road, T Nagar, Chennai
The adjudicating authority held that the charges against the appellant except Shri R. Phanindra have been established. Therefore, the adjudicating authority issued the following Orders:
(a) “The value of imported 1.2 MB FDDs, 1.44 FDDs and motherboards be enhanced to US $ 36.2 C&F, US $ 26.3 C&F, US $ 50 FOB, US $ 42 FOB respectively (as detailed in Table-1 at Annexure-A to this order) and value of the remaining imported components be enhanced by 25% of the declared value as detailed in Table-II at Annexure-B to this order.
(b) As the entire goods valued Rs. 1,54,86,748/- (assessable value) imported by M/s. HCEPL under Notification 133/94, dated 22-6-94 which are liable for confiscation under Sections 111(d), (1), (m) & (o) of Customs Act, 1962 are not available, I confiscate the available goods valued Rs. 33,11,105/- lying in the bonded warehouse of the unit under Sections 111(d), (1), (m) & (o) of Customs Act, 1962. M/s. HCEPL is however given the option to redeem the same for bonding and further use in manufacture of export goods on payment of a fine of Rs. 5 lakhs (Rupees five lakhs).
(c) As the export goods valued Rs. 1,28,76,751/- though liable under Section 113(d) of Customs Act, 1962, are not available for confiscation, the same are not confiscated.
(d) The goods seized on 27-11-96 from the premises of M/s. Shashi Bhushan &: Co., Chennai, premises of M/s, HCEPL at Vijayawada and Hyderabad and M/s. Image Systems, Guntur are ordered to be released.
(e) Proceedings in regard to the duty demand of Rs. 18,28,632/- on goods lying in the bonded warehouse of M/s. HCEPL are hereby dropped.
(f) The duty demand of Rs. 1,21,36,304/- (Rupees one crores, twenty-one lakhs, thirty-six thousand three-hundred and four) as detailed in Annexure-C to this order) under Section 28(1) of the Customs Act 1962 read with proviso thereto is confirmed.
(g) I impose on M/s. HCEPL a penalty of Rs. 25 lakhs (Rupees twenty-five lakhs) under Section 112(a) of the Customs Act, 1962 and Rs. 10 lakhs (Rupees Ten lakhs) under Section 114(i) of the Customs Act, 1962.
I impose on Shri Anil Narra, Managing Director of M/s. HCEPL, a penalty of Rs. 15 lakhs (Rupees fifteen lakhs) under Section 112(a) of the Customs Act, 1962 and Rs. 6 lakhs under Section 114(i) of the Customs Act, 1962. I impose on Shri M. Sreekiran, Director of M/s. HCEPL, a penalty of Rs. 10 lakhs (Rupees ten lakhs) under Section 112(a) of the Customs Act, 1962 and Rs. 4 lakhs (Rupees four lakhs) under Section 114(i) of the Customs Act, 1962.
I impose on Shri A. Srinivas, Director of M/s. HCEPL, a penalty of Rs. 10 lakhs (Rupees ten lakhs) under Section 112(a) of the Customs Act, 1962 and Rs. 4 lakhs (Rupees four lakhs) under Section 114(i) of the Customs Act, 1962.
Penal proceedings against Shri R. Phanindra, Director of M/s. HCEPL are dropped.
(h) The proceedings to demand interest under Section 28AB are dropped.
3. Shri Sashidharan Senior Advocate and Shri M.S. Rajappa learned Consultant appeared for the appellants. Shri R.N. Viswanath learned SDR appeared for the Revenue. The learned Advocate advanced the following arguments:
(1) The appellants and M/s. Technosys Pacific Pvt. Ltd., Singapore entered into an agreement dated 10-5-94. As per the agreement, M/s. Technosys would supply required computer components except I/O chords, casings and power supply units which would be procured locally. M/s. Technosys would buy back 85% of the finished computer systems and the appellants can sell the rest 15% in the DTA. It was also agreed that the prices of computer components and finished computer systems would be fixed as per the prevailing international market prices from time to time. The appellants and the Singapore Company were not related at all.
(2) The goods were imported between November, 94 and April, 96 and the show cause notice has been issued on 19-5-97 when the goods were imported and bonded, the Customs Authorities have checked the value contents etc. They never questioned the transaction value of the imported goods or any clandestine or concealed importation. The show cause notice is clearly time barred.
(3) The law settled by the Supreme Court in the case of UOI v. Jain Shudh Vanaspathi is that the order passed under Section 47 of the Customs Act cannot be reopened unless there is fraud or mis-statement with regard to imported goods. In this case, there is no dispute that the imported goods are not correctly described or there was fraud in regard to the import of goods.
(4) There can be no concealment for the simple reason that the entire VEPZ (Visak Export Processing Zone) is a bonded warehouse and the customs department have followed all the procedures laid down for bonding of goods.
(5) The duty on concealed and smuggled components has been computed at Rs. 33,89,636/- and was in fact demanded due to enhancement of the assessable value. The enhancement of assessable value on the basis of some contemporaneous imports of about three months ago and that too by traders who had imported smaller quantities of stock is not correct. The same cannot be compared with the actual import of the appellant who are actual users and who imported any higher quantities. It is to constitute different class of buyers under Section 14 of the Customs Act. On this ground alone enhancement of assessable value is not correct.
(6) The buyer and the seller are not related and no evidence has been brought forth by the Department even after scrutiny of buy back agreement. The department has also not produced any incriminating evidence to indicate any flow back of finance.
(7) Relying on Shri Anil Narrah’s statement, the imported values have been enhanced at a valuation rate of 25% across the board without going into the reasons as to how such value enhancement could be applicable to so many different items, as contained in table II of OIO. The statement cannot form the basis for rejecting transaction value. The department has not furnished any cogent reasons for discarding the transaction value.
(8) The Commissioner never discussed the various judicial pronouncements cited in defence by the appellants.
(9) Out of the 29 consignments imported, 24 consignments were imported by sea and the comparison of values is made with goods imported by air. It is incorrect on the part of the Commissioner to adopt Rule 6 of Customs Valuation Rules, 1988 especially when there are no cogent reasons for discarding the transaction value in terms of Rule 4.
(10) The following case laws are relied on –
(1) Time Masters v. Commissioners of Customs 2004 (64) RLT 312 (CESTAT-Mumbai) wherein it has been held that loading of value of imported goods on the basis of unsustainable admission and value of contemporaneous imports which took place after six months after the present import is not sustainable.
(2) Munna Gift Centre v. Commissioner of Customs, Chennai 2004 (64) RLT 488 (CESTAT – Ban.) wherein it has been held that transaction value cannot be rejected without clear evidence in regard to same goods, quantity, quality and country of origin and place and time of import.
(3) Pioneer Impex v. CC (Port) Kolkatta 2004 (64) RLT 616 CESTAT) wherein it has been held that in the absence of contemporaneous evidence of similar quantity nature of goods and same type declared, value of imported goods cannot be rejected.
(4) Shah and Shantibhai v. CC, Calcutta 2004 (175) E.L.T. 718 (Tri.-Del.) wherein it has been held that prices, however high may be in similar import cannot be compared with that of present invoice value unless mutual interests or passing of extra consideration to supplier is proved.
(11) The allegation of smuggling of computer components at the time of imports is also not correct. It is based on the statement of Managing Director Anil Narrah. As VEPZ is a bonded warehouse, it was the bounden duty of the department to check the contents of the imports as well as export consignments subject to 100% check.
(12) In view of the difference in gross weights in certain bills of entry, the Commissioner has come to the conclusion of smuggling of components inside by concealment. There may be various reasons for difference in weights between different consignments. This cannot be the reason for coming to the conclusion that the appellants had concealed and smuggled computer components.
(13) The value addition option is monitored by the Development Commissioner. If the Development Commissioner is not satisfied with the export performance of the appellants, there are provisions under which he can take action against the appellants.
(14) There is no question of demand of duty on goods where sale proceeds have not been repatriated because it is outside the purview of Customs Act, 1962 and only the Director of enforcement can adjudicate this issue. In Chinku Exports v. CC, Calcutta 1999 (33) RLT 395, it has been held that Customs Officer is not competent to adjudicate the case of non-realization of export proceeds as it is governed by Section 18(2) and not Section 18(1) of FERA.
(15) It is incorrect to demand any duty on imported components in ineligible DTA sales. The question of under-valuation of imported components has already been pointed out. The appellant has explained that they have complied with the Development Commissioner’s DTA approval letters.
(16) The duty on computer components diverted/substituted from VEPZ is Rs. 58.167/-. No material was substituted by old and used ones as stated. Some components pertain to earlier consignments and got rusted surfaces due to sea weather. It is because of the rust or dust on the surface, the department cannot come to a conclusion that material is being substituted. The learned advocate referred to the findings of the Commissioner in the OIO and stated that there is lot of contradiction in the finding of the learned adjudicating authority with regard to the valuation of the imported items. He said on this count alone, the adjudication order is liable to be set aside.
4. The learned SDR reiterated the points in the adjudication order. He said that each allegation has been elaborately dealt with by the Commissioner. He pointed out to the statement of Shri Anil Narrah. In the said statement, he has accepted that there was an understanding between him and the foreign supplier with regard to the under-valuation of the imported consignments by 20%. He said that the other directors have also given non-incriminating statements with regard to the transaction by the appellant unit. Hence he requested the bench to confirm the O-I-O.
5. We have gone through the records of the case carefully. The entire case against the appellants has been made on the basis of the intelligence received by the departmental officers. The Govt. of India is bringing out very many schemes for promotion of exports. Export processing zones have been developed in various places in the country. Visak Export Processing Zone came up a little later. It is true that the export processing zone is a bonded area because free goods are kept there for manufacture of goods which are ultimately to be exported. The appellants’ contention that there cannot be any concealment in the imported consignment because of the bonded nature of the premise of the Export Processing Zone cannot be accepted. Whatever may be the checks by the customs, we find instances of concealment and fraud. In any case, this is not the place for discussing the lapses of the customs officers. If investigations reveal concealment and smuggling of goods, then law will take its own course. As far as the present case is concerned, the Managing Director Shri Anil Narrah has given certain inculpatory statements. The other directors have also given inculpatory statements. The following are the allegations against M/s. HCEPL.
(1) Diversion of imported components and substitution of the same by old and used ones.
(2) Under-valuation of the goods at the time of import.
(3) Smuggling of computer components into India by concealing the same inside the cabinets and suppressing these facts from the customs.
(4) Exporting incomplete systems and clearing them as complete systems and therefore over-invoicing the exports.
(5) They had under-valued imported consignments and over valued exports resulting in inflated and false value addition under the Exim Policy which had resulted in permission being granted for excess DTA sales over and above their actual entitlement.
(6) In respect of 4 export consignments, wherein incomplete systems had been sent, foreign exchange had not been repatriated and consequently the process of export was not complete and the conditions of Notification 133/94, dated 22-6-94 are not satisfied.
6. As regards the first allegation of diversion of imported components, the allegation is based on the statement of Shri Anil Narrah, Managing Director, and the statement is in his own handwriting. In fact, the statement runs to nearly 10 pages with wealth of details right from the early education of Shri Narrah. In our view such wealth of details could not have been the imagination of the departmental officers. Shri Anil Narrah had admitted that on occasions they had removed some mother boards, PSUs etc., out of the VEPZ and sold the same in the local market or assembled into computer systems. He has also stated that the removed components were replaced by some defective parts. The statement of Shri Anil Narrah has been corroborated by Shri Bastian Alexander, Service Engineer of HCEPL; Shri Phani Kumar, Service Engineer of HCEPL; Shri A Srinivas, Director of HCEPL; Shri Sreekiran, another director. All these persons have admitted the removal of imported items from the factory at VEPZ.
7. We do not attach much value to belated retractions. At the time of stock verification on 13-12-96, the departmental officers found some defective computer components in the outhouse. The adjudicating authority has carefully considered the available evidence and come to the conclusion that the allegation of clandestine diversion of imported components and their substitution by old and used ones is clearly established. Hence the conditions of Notification 133/94, dated 22-6-94 has been violated. The goods are liable for confiscation under Section 111(d) and (o) of the Customs Act, 1962. In our view, the first allegation has been established.
8. The second allegation is under-invoicing of the imported components. As regards the under-valuation of the goods at the time of import, the adjudicating authority is mainly relying on certain contemporaneous imports and also the statement of Shri Anil Narrah. Shri Anil Narrah has admitted that as per understanding between him and Mr. Sukhdev Singh, the Managing Director of M/s. Technosys Pacific Ltd., Singapore, who is the supplier of components to him, the prices will be shown at 20% below the international market price and that this was resorted to as the components received at lower value would enhance his DTA entitlement and also reduce the central excise duty liability at DTA clearance. He had admitted that the profit obtained from these clearances was shared between himself and Mr. Sukhdev Singh on 50:50 basis. The adjudicating authority relied on the decision of CEGAT Special Bench in the case of CCE v. SKEFCO India Bearing Co. Ltd. wherein it was held that the lower price charged by foreign supplier to sole indenter is not the assessable value and that the assessable value is the price at which such or like goods are ordinarily sold or offered for sale. The CEGAT in the case of MD International v. Collector of Customs has held that after taking overall evidence and the facts and circumstances of the case, the Collector is right in determining the value of US $ 5 per piece based upon the voluntary statement of the party that it was a negotiated price against the quotation price at US $ 5.75 per piece. US $ 5 per piece is not the declared price, but admitted by the party and the difference in value was substantiated by way of compensatory payments and in the circumstances, the burden shifted to the party to adduce evidence that US $ 5 was not the normal price and the statement given by him with reference to the value was not voluntary. The adjudicating authority has observed that in the present case, the statement by Shri Anil Narrah is voluntary and he had admitted that in an agreement with Shri Sukhdev Singh the supplier in Singapore, it was decided that the invoice price shall be 20% below the international market price and the proceeds arising out of this under-invoice value would be shared at 50:50 basis with him. In view of the above, the adjudicating authority held that the value of the remaining components should be enhanced by 25% of the declared value as indicated in table-2 Annexure B to the adjudication order. We find that in the peculiar circumstances of this case, where the voluntary statement has been made by the Managing Director of the appellant unit, the finding of the adjudicating authority appears to be in order. When there is doubt regarding the bonafides of transaction value on account of the admission of the importer, best judgment requires that such evidence is made use of. In cases, where the contemporaneous import price was available she has adopted those prices. For the remaining items, the enhancement is at 25%, based on the statement of Shri Anil Narrah. We uphold the decision of the adjudicating authority on this point.
9. The third allegation is smuggling of the computer component by selling the same inside the imported cabinets and suppressing these facts from customs. This allegation is also based on the statement of Shri Anil Narrah Managing Director. Further the corroborative evidence has been produced by the investigation. In his statement Shri Anil Narrah has stated that the difference between unit price of US$290 declared in BE No. 5, dated 8-12-94 for 30 units of 486 mother boards and the unit price of US $140 declared in the BE No. 4, dated 21-11-94 for the same quantity of goods is due to the fact that the former price was inclusive of 30 units of CPU chips which had been imported along with 30 mother boards but not declared to the customs. The only explanation on this is that the consignment had been thoroughly checked by the parties at the time of import in 1994 by physically opening each and every carton themselves. As the consignments are not subject to 100% check, the above explanation cannot be accepted.
10. It has also been established that the number of casing imported by the appellant appeared to be abnormal. During the period from April, 95 to December, 95, 2100 casing have been imported by the unit and during April, 95 to February, 96 they have exported 1056 computers systems with these casings, 71 casings were cleared on DTA sales. From the above it would be seen that there was an excess of 973 numbers. The adjudicating authority has also stated that there is further evidence regarding the selling of imported components. In view of the difference in weight shown in two different bills of lading for similar quantities of similar goods, the difference in weight according to the revenue is attributable to the additional materials in the consignments due to concealed components. The adjudicating authority has elaborately discussed this point with lot of details. When importers adopt ingenious methods of smuggling, direct evidence would not be forthcoming. In view of this, the charge of smuggling computer components is proved.
11. As regards the allegation of export of incomplete systems, in our view, the export has already been completed, the goods are not available. Only there are certain documents. Revenue is trying to show that incomplete systems have been exported. In the absence of proper evidence, we hold that this charge cannot be sustained. In view of our finding that the charge of exporting incomplete systems has not been established, we are inclined to drop the charge of over-invoicing of the exports resulting in inflation and false value addition under the Exim policy.
12. As regards non-realization of foreign exchange, we are in agreement with the appellant that customs officer is not competent to adjudicate the case of non-realization of export proceeds in view of the decision of the Tribunal in the case of Chinku Exports v. CC, Calcutta (supra). In view of our above findings, the duty demanded as per Annexure ‘C’ 3(a) & (b) are liable to be set aside. In other words, only the following amounts are recoverable.
(1) The duty on computer components diverted/substituted from VEPZ Rs. 58,167/-.
(2) The duty on concealed/smuggled components Rs. 33,89,636/-.
(3) Duty on imported components consumed in ineligible DTA sales Rs. 4,17,785/-.
The total works out to Rs. 38,65,588/-.
13. Summing up, we hold that the imported goods are liable for confiscation under Section 111(d)(1), (m) and (o) of the Customs Act. We uphold the Commissioner’s order confiscating the goods valued at Rs. 33,11,105/-. However, we reduce the redemption fine from Rupees five lakhs to Rupees Two lakhs only. In view of the discussions above, the total duty demand is restricted to Rs. 38,65,588/- (Rs. 58,167/- + Rs. 33,89,636/- + Rs. 4,17,785/-). The penalty on M/s. HCPL is reduced to Rs. 4,00,000/- from 25,00,000/- under Section 112(a) of the Customs Act, 1962. The penalty under Section 114(i) is set aside. The penalty on Shri Anil Narrah, MD under Section 112(a) is reduced to Rs. 1,00,000/-(Rupees one lakh only). The penalty on Shri Sreekiran, Director and Sri Srinivas, Director is reduced to Rs. 50,000/-. Penalties under Section 114(i) on all the above persons are set aside.
14. As regards the non-achievement of value addition, we would like to observe that, Board in Circular No. 122/95-Cus., dated 28-11-95 has directed that on issues like non-fulfilment of export obligation, action has to be initiated in consultation with the Development Commissioner or Commerce Ministry. Since there is no evidence on record that such consultation process was initiated, we remand the matter to the jurisdictional commissioner, for taking necessary action in accordance with the above mentioned circular. The appeals are disposed of in the above manner.
(Pronounced in open Court on 14-7-2005)