ORDER
U.L. Bhat, J. (President)
1. Order-in-Original No.55/97, dated 28-8-97 passed by the Commissioner of Customs, New Delhi absolutely confiscating 1,627 wrist watches and 3000 pieces of watch movements seized from the premises of M/s. Rahul Watches Pvt. Ltd. (appellant in appeal C/324/97-A) under Section 111(d) of the Customs Act, 1962 (for short, the Act), imposing penalty of Rs. 5,00,000/- on the concern and penalty of Rs. 1,00,000/- on each of the directors, Veena Wadhawa and Neeti Wadhawa, wife and daughter respectively of H.B. Wadhawa and of Rs. 1,00,000/- on H.B. Wadhawa, Attorney Holder of the concern under Section 112(a) of the Act, is challenged by the concern, directors and attorney holder.
2. On the basis of information received by the Customs officers that incriminating documents relating to import of dry cell batteries by the concern M/s. Rahul Watches Pvt. Ltd., New Delhi might be concealed in the premises of the concern, search was conducted in the premises between 5.30 P.M. on 1-7-1996 and 1.30 A.M on 2-7-1996 by the officers of Special Intelligence and Investigation Branch (SIIB) of Delhi Customs Commissionerate on the strength of search warrant issued by SIIB. Search was conducted in the presence of the mother and the daughter but in the absence of H.B. Wadhawa. There were 4 old cardboard cartons in the premises, three of which contained 1,627 wrist watches of “Tressa Swiss” make with chains and one contained 3,000 pieces of watch movements in six packets. The goods were of foreign origin. The two ladies were unable to answer any questions or explain the presence of the goods of foreign origin and stated that H.B. Wadhawa was looking after the affairs of the concern. In the “reasonable belief” that these goods had been smuggled into India, they were seized. Also seized were loose documents Nos. 1 to 52.
3. It appears, later in the day on 2-7-1996, Veena Wadhawa informed the officers in a telephonic talk with her, her husband told her that the wrist watches and watch movements seized had been imported legally as components and assembled in the premises of the concerns, that appellant is a registered central excise licence and central excise duty, had already been paid-
4. On 16-7-1996, H.B. Wadhawa sent a letter to the Customs Department stating that 1,627 watches seized from the premises of the concern had been purchased from M/s. Rama Watch Industries, Rajkot in the month of March 1996, there was central excise authenticated invoice, that the original invoice and a letter for ‘C’ Form were among the seized documents and the matter can be verified from the Excise Department at Rajkot and from the seller. The letter also stated that watch movements were of the same make and intended for assembling Tressa Swiss watches. The concern had imported 14335 pieces of watch movements and cleared the same on payment of duty as per Bill of Entry No. 010862, dated 20-2-1996. Subsequently, the statement of H.B. Wadhawa was recorded. He stated that the concern was assembling watches in a small part of the residential premises using screw diver technology, that testing machine had been sent for servicing, that the concern imported two consignments of watch components from Hong Kong and 6,000 sets of dials etc. and cleared the same on payment of duty. The concern had just started assembly of wrist watches in 1996 which are sold to wholesalers, that suppliers of components had allowed the concern to use the trade mark “Tressa Swiss” and the supplier had sent a fax message for the same.
5. Monthly RT 12 Returns (Excise), had been filed by the concern during the period from December 1995 to May 1996 which showed production, clearance and stock of watches as ‘nil’. RG 1 register also showed ‘nil’ production and clearance.
6. In the above circumstances, show cause notice was issued referring to the facts discovered and stating that the seized goods had been smuggled into India contrary to law and without payment of duty and proposing absolute confiscation of the goods and imposition of penalty on the concern, directors and the attorney holder. Learned Counsel for these persons sent reply to the show cause notice controverting the material averments in the show cause notice and stating that the seized watch movements were part of consignment validly imported under Bill of Entry referred to earlier, 1,500 pieces of watches had been purchased from M/s. Rama Watch Industries, Rajkot and 127 pieces had been assembled by the concern in the premises and all records had been shown to the seizing officers. Appellants denied justification for confiscation and imposition of penalty. The Commissioner overruled these contentions and passed the impugned order.
7. At the outset, learned Counsel for the appellant submitted that seizure of the watches and watch movements was illegal inasmuch as the seizing officers at the time of seizure could not have entertained “reasonable belief” that the goods were smuggled. Learned Counsel placed reliance on the decision of the High Court of Delhi in Shanti Lal Mehta -1983 (14), E.L.T. 1715 (Del. H.C.). Shri K. Srivastava, SDR rebutted this contention and placed reliance on the decision in Indru Ramachand Bharvani -1992 (59) E.L.T. 201 (S.C.)
8. In the first case Gold ornaments and diamonds were seized from the premises of the petitioner in that case under the ‘reasonable belief that they were smuggled goods. Existence of “reasonable belief” was challenged by the petitioner. That was because under Section 123, if where goods to which this section applied, are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be on the person from whose possession the goods are seized and if any person, other than the person from whose possession the goods are seized claimed to be the owner thereof, also on such other person. The seizing officer either by his own evidence or other materials placed before the adjudicating authority, has to prove to its satisfaction that there was ground for him to reasonably believe that the goods were smuggled goods, and if Section 123 of the Act was wrongly applied by raising presumption without the condition precedent, the adjudication and the order would be vitiated. In that case, the seizing officer gave two reasons in support of reasonable belief, namely, that he had received some information and the goods had not been accounted for. It was observed that the nature of information was not disclosed to the petitioner or to the adjudicating authority and the words “information received” are vague words from which nothing could be inferred. Out of the 20 items seized in that case, a few were released before the show cause notice and a few after the show cause notice and only 7 items consisting of two packets of diamonds and ornaments had been confiscated. The diamonds and ornaments had no foreign markings or label. The search list described the goods as “appearing to be diamonds”. The ornaments were ordinary ornaments as are worn in this country and had nothing peculiar about them. In these circumstances it was held that no reasonable belief could have been entertained either on the vague information or on the unaccounted nature of the goods and therefore presumption under Section 123 would not apply.
9. In Indru Ramchand Bharvani – 1992 (59) E.L.T. 201 (S.C.) rough diamonds as well as cut and polished diamonds were found in large quantities in possession of the petitioner though only a small amount of cut and polished diamond had been shown in the account books. Evidence of legal acquisition was not produced at the time of search. Accordingly goods were seized in the “reasonable belief” that they were smuggled goods. Prior to the seizure the petitioner stated that goods had been purchased locally through brokers and 50% price was paid in cash but this payment was not supported by any entry in the cash book. Petitioner also refused to disclose the names of the brokers. In these circumstances Supreme Court held that there was nexus between the materials and the formation of the belief that the goods were liable for confiscation. Referring to the other materials produced by the petitioner, the Court observed that these materials came into the picture only much later. It was held that there was adequate material to form reasonable belief that goods were smuggled goods and therefore, Section 123 of the Act was applicable.
10. Let us examine the circumstances present in the present case before the seizing officers immediately before the seizure. Information they had did not relate to watches or watch movements but related to dry cell batteries. Apparently dry cell batteries were not found. The officers found 1,627 Tressa Swiss watches and 3,000 watch movements of the same brand. They found a large number of documents and realised that there were no documents showing payment of customs duty on these goods. They questioned Veena Wadhawa but she pleaded ignorance and stated that her husband has been managing the affairs of the concern. Her husband was not available for seeking clarification. It is contended by the appellant that among the seized records was invoice dated 4-3-1996 issued by Rama Watch Industries, Rajkot to the concern involved in this case. We will assume for the purpose of this controversy that copy of the invoice was one of the documents seized from the premises. It referred to sale of 1,500 Tressa Quartz watches by M/s. Rama Watch Industries, Rajkot to M/s. Rahul Watches Pvt. Ltd. New Delhi, date of removal being shown as 4-3-1996. It also showed that excise duty had been paid. It referred to a debit entry of duty in RG 23A Part II Account No. 184, dated 4-3-1996 made by the seller. Sale price was shown as Rs. 150/- per unit. The Invoice also referred to L/R No. as “By Angidia”, date as “M. Ramesh” and Vehicle No. as “14998”. According to the learned Counsel for the appellants goods had been despatched by the seller by courier who travelled by train. According to him, M. Ramesh was the name of the courier and the number given was L/R Number.
11. The question arising for consideration is whether in the circumstances referred to in the preceding paragraph and which were present at the time of search, it can be said that the officers had materials to entertain reasonable belief that watches were smuggled watches. Panchnama showed that the goods were of foreign origin. There were no material before the seizing officer to show that these goods could have been manufactured by Rama Watch Industries or even by the concern under consideration. At a later stage, H.B. Wadhawa stated that the supplier of watch movements permitted him to assemble watches using watch movements permitted him to assemble watches using watch movements and other parts supplied by the supplier and this was conveyed by a fax message. Appellant has no case that fax message was one of the documents available in the premises. Appellant has also no case that there were any records in the premises other than Invoice which showed 1,500 Tressa Swiss watches had been received from Rajkot. Copy of Lorry Receipt was not available in the premises. Two directors of the concern who were present were unable to give any explanation, possibly on account of their ignorance. The only person who could have explained was not present. The trading records of the concern also did not refer to the consignment of 1,500 watches. These material circumstances could lead to the”reasonable belief” that the goods were of smuggled nature. Hence invocation of Section 123 of the Act casting the burden of proof on the appellant was proper.
12. We now turn to the finding of the adjudicating authority that 1,627 watches were smuggled watches. Learned Counsel submitted that there are adequate materials to show that 1,500 out of 1,627 watches had been manufactured by M/s. Rama Watch Industries, Rajkot and purchased by M/s. Rahul Watches Pvt. Ltd. We have already adverted to the copy of the invoice and absence of any materials to show transportation from Rajkot to New Delhi and also of any trading records maintained by the concern. These circumstances have to be taken into consideration along with the nature of contentions raised by the concern and the persons connected with the concern at various stages. Two directors, at the time of search, offered no explanation. It may be, as suggested, they were ignorant. Sometime after the termination of the search on 2-7-1996, Veena Wadhawa informed the officers that her husband told her over telephone that watches had been assembled by M/s. Rahul Watches Pvt. Ltd. in their premises and excise duty had already been paid. This was the earliest stand taken by the persons connected with the concern. The case that 1,500 out of 1,627 watches had been purchased from Rama Watch Industries, Rajkot was not even in the contemplation of the parties on 2-7-1996. However, on 16-7-1996, H.B. Wadhawa informed the authorities that 1,627 watches had been purchased from Rama Watch Industries, Rajkot in the middle of March, 1996 and the original invoice had been seized by the customs officers. This stand directly and totally contradicted the stand taken on 2-7-1996. It is significant to note that in the letter dated 16-7-1996 H.B. Wadhawa did not say that any of these watches had been assembled by him in the premises. That case was propounded later on in reply to the show cause notice. Not even affidavit of anybody connected with M/s. Rama Watch Industries, Rajkot was produced. We have already pointed out that no documentary evidence in support of transport of goods from Rajkot to New Delhi had been produced. All the circumstances indicated above clearly show that different explanations attempted by the appellant at various stages are contradictory and not true. The goods which, ex facie, are goods of foreign origin must have been smuggled into India. This is the necessary conclusion which may be drawn from the host of circumstances referred to above.
13. However, the same cannot be said about 3,000 watch movements seized from the premises. Even on 16-7-1996, H.B. Wadhawa gave definite information that 3,000 watch movements were part of the consignment of 14335 watch movements imported from Hong Kong and cleared vide Bill of Entry No. 010862, dated 20-2-1996. There can be no dispute about the Bill of Entry, a copy of which is seen in the paper book. Contents of the Bill of Entry support the case of the appellant. Copy of Airway Bill and delivery challan for this consignment are also seen in the paper book. Seizure of 3,000 watch movements was made on 2-7-1996. It is true that none of the records referred to receipt, utilisation or stock of the watch movements. The import of 14335 watch movements from Hong Kong by the appellant and the existence of the stock of 3,000 watch movements in the premises about 4 months later are undeniable. RG 23A Part I Account referred to the imported consignment and Modvat was allowed by the Superintendent. In the absence of anything more, the circumstances clearly lead to the conclusion that 3,000 watch movements found in the premises must have been part of the validly imported consignment. It must necessarily follow that confiscation of watch movements and imposition of any penalty on that account would not be justified.
14. Appellants are also aggrieved by the value of Tressa Quartz determined by the adjudicating authority. The value was determined as Rs. 1,500/-per unit based solely on market enquiry in Delhi. Ruling market price in Delhi, even assuming it to be Rs. 1,500/- per unit cannot straightaway be regarded as c.i.f. value of the watches. Appellant seriously challenged the result of market enquiry. At page 56 is a copy of ‘Evening Times’ (a sister publication of Times of India Group) containing an advertisement by Rahul Watches Pvt. Ltd. to the effect that Tressa Swiss Quartz Watches with chain in 50 models were available at the price of Rs. 500/- onwards. Advertisement solicited distributors enquiry. These documents were produced before the Commissioner along with the reply to the show cause notice but he did not deal with the same. In these circumstances, value determined by the Commissioner cannot be accepted as correct. Assessable value has to be determined on the basis that the wholesale price of these watches in India would be around Rs. 500/- per unit. According to the appellant, the Commissioner was not justified in confiscating the goods absolutely. We have already found against the finding that watch movements were smuggled goods. Therefore the controversy survives regarding absolute confiscation of wrist watches. The number of wrist watches seized is no doubt substantial but the value of the watches would be no where near the value suggested by the Commissioner. Having regard to these circumstances we are of opinion that there was no justification for confiscating the watches absolutely. The Commissioner should have allowed redemption directing the appellant to pay redemption fine, quantifying the fine on a reasonable basis. In these circumstances, penalties imposed also require to be determined afresh. In regard to the penalty imposed on the directors, it would be relevant to take into consideration the fact that H.B. Wadhawa was the person in charge of the concern and the two ladies were ignorant of any of the transactions.
15. For the reasons indicated above, we set aside the order in regard to watch movements wholly, set aside the confiscation of wrist watches and penalties imposed on the appellants and remand the case to the jurisdictional adjudicating authority for passing a fresh order confiscating wrist watches but allowing redemption on payment of fine which is required to be quantified afresh and also for quantifying afresh the penalties to be imposed on the appellants. Naturally, CIF value of the wrist watches also has to be determined afresh and appellant will be given an opportunity of personal hearing before the fresh order is passed.
16. Appeals are allowed in this manner.