ORDER
S.S. Sekhon, Member (T)
1. Pursuant to an intelligence developed, that M/s. BBS Pens (India) Pvt. Ltd. (herein after referred to as BBS) operating under the DEEC scheme had obtained several ‘VABAL’ -Value Based Advance Licence and have imported components and packing material, of Ball Point Pens, assembled the same and exported the pens by describing them as ‘Writing Instrument’ as at SI. No. 15 of the Chapter ‘Plastics’ in the Handbook of Procedures (Vol. 2) in the applications made to the licencing authorities at Bangalore and the other documents. That the value addition norm of 65% was being met by them by under-invoicing the duty free imported components from M/s. IGI Ltd., UAE and over-invoicing the export of ‘pens’ to M/s. Anker International, UK on account of M/s. IGI, UAE. That the export & imports were related transactions, but for the mis-declarations on import and export invoices, they would not have met the value addition norms, to qualify for benefit of Customs Duty under DEEC scheme as per 51 of EXIM Policy 1992-97.
2. Enquiries were caused by DRI Officers of Bangalore Zonal Unit and a show cause notice issued on the enquiries made alleged, that :-
(i) BBS was incorporated & registered as a Private Ltd. Company with Directors being NRIs and an Italian national was Managing Director, who was also the Managing Director of IGI-UAE. The other Directors were Directors of IGI-UAE while one Director of BBS was a Manager in IGI-UAE. (ii) Purchase orders were recovered, amongst the documents which appears to have been made, after goods were stuffed in the containers at UAE. The Bills raised on BBS were at prices indicated by Manager of IGI-UAE. The invoices produced to Customs, were showing lower values, than invoice recovered during the search. It was also alleged that invoice produced to Customs were prepared at Bangalore showing such lower values. (iii) As regards goods exported to M/s. Anker International (UK) by BBS the invoice Bills, raised on IGI-UAE, were at higher values, than the corresponding invoice Bills of IGI-UAE on M/s. Anker, UK for shipment made. For shipments of December, bills were yet to be raised. (iv) Confessions were obtained from the deponents. (v) Out of 7 Advance Licences obtained, only 5 Licences, viz. No. 2020996; 3290250; 3540222; 2040343; 2053508; were fully utilized for Imports; Exports of all the pens utilised the imported components. 3. The Commissioner found :-
(a) BBS imported all parts of ‘plastic body ball pens’ together with packing material bearing the brand name “ALBA” and logo of IGI Ltd. and operated under VABAL system of DEEC Scheme. The export product, finds a place at Entry No. 192 of standard input-output and value addition norms of the EXIM policy 1992-97. Since imports of ready to assemble finished parts components and packing material could not be made under that entry. Therefore, BBS christened the export product as ‘writing instrument’ to comply with the import requirements of Ball Pen components permissible for import under Item No. 15 of the said EXIM norms. They opted for this route, by making application to JDGFT, Bangalore by describing export product as ‘writing instruments’ instead of ‘Plastic Body Ball Points’. To achieve this design, they got registered with the Export Promotion Council of Engineering by describing the export product as ‘Plastic Engineering Moulds.” They did not have RGMC for ‘Plastic’ as was required under Para 219 of the Handbook of EXIM Policy. The import licences were obtained by describing their product ‘Plastic Body Ball Point Pens’ as ‘Writing Instruments’ a generic term. They imported parts of plastic body ball point pens described as ‘writing instruments’ on 5 out of 7 import licences, so obtained and effected exports. The CIF value of imports comes to US$ 101040.98 while exports F.O.B. value come to US$ 389818.00, as seen from the documents. This declared C.I.F. and F.O.B. value, which was found to be within 75% to 150% value addition as required under policy.
(b) However, he found, since they had no manufacturing facility, whatsoever the DRI visited the premises of BBS and searched and found that Purchase Order dtd. 6-4-94 on IGI-UAE and a fax message addressed to MD of BBS which indicated that goods
were already stuffed into containers, which were to set sail on -4-94 i.e., even before the purchase order had been received by IGI-UAE. The purchase order dtd. 6-9-94, was therefore a mere formality. From the two invoices recovered viz. IGI 2276-94 and 2275-94 both dtd. 26-4-94 of IGI on BBS, he found that the goods stuffed in the containers were the same as declared on these invoices, out of which no IGI 2276-94 was produced before Bangalore Customs, on which the value were different, to the extent of US$ 15635.16. He found the lower value invoice to be prepared at Bangalore office of BBS, since Blank invoices/stamps etc. of IGI-UAE were found by the DRI during the search at the premises of BBS. Thereafter, he concludes that all imports made by BBS had been made in that fashion and were undervalued to the same extent.
(c) Similarly from the seized note sheets, he concluded that BBS exports to UK firm on account of IGI-UAE were overvalued, since the invoice values of BBS raised on IGI-UAE were higher than the invoices raised by IGI-UAE on UK firm for the same goods. That all such differences in export values, were debited to BBS accounts. Since he found BBS to have received more sale proceeds from IGI-UAE, than that which IGI-UAE got from UK firm, he concluded BBS has over-invoiced the export goods in all cases.
(d) He concluded, that this over-invoicing of export and under-invoicing of imports was resorted to reach the norm of value addition, as per EXIM policy para 48 and was possible since BBS was closely related to IGI-UAE. (e) He thereafter concluded, that the value additions, could be redetermined, by using the revised values of imports and exports by applying the under and over valuations as arrived by him, in this case by applying it uniformly to all the imports and exports made by BBS. He found that when such amended values are so applied, the value addition norms are not met.
(f) He found, since value addition norms was a condition under Import Trade (Control) Order 17/55, dtd. 7-12-55, issued under Import and Exports (Control) Act, 1947. It was deemed to be issued under Section 11 of Customs Act, 1962 by of Section 3(2) of Imports and Exports (Control) Act, 1947. The goods were therefore, deemed to be imported in violation of the provision of Section 11 of the Customs Act, 1962 which were therefore, liable for confiscation under Section 11(d) of the Customs Act, 1962. The imported goods were also found liable for confiscation under Section 111(m), for misdeclaration of value and the benefit of Notfn. 203/92 was not available. Duty of Rs. 41,01,588/- was determined under Section 28(1) of the Customs Act, 1962.
(g) BBS were found liable for penalty under Section 112(a) along with Shri Steffan Brocea, Managing Director who signed the invoices. Shri V. Ranganathan, the Manager of IGI and Director of BBS was aware of the lower value declared was found to be li-
able for penalty under Section 112{a).
(h) As all the exports had taken place at Chennai, the violation on the export side and consequent penalty, if any, was not to be looked into by this Commission at Bangalore.
(i) No action under Sections 28AB and 114(a) of the Customs Act, 1962 was contemplated in view of the date of introduction of these sections and the date of offence.
4. We have heard both sides, considered the material and the submissions made and find :-
(a) In the EXIM Policy 1992-97, the Handbook of Procedures, Vol.-I Chapter VII, provides for the procedures for grant of an Import Licence under the DEEC scheme. A perusal of the same indicates, that to obtain a VABAL licence, a photocopy of valid RCMC inter alia, is a document required to be submitted, along with the export orders. The input/out norms given as standard, can be varied by DGFT authorities. LUT/BGs have to be executed with the DGFT authorities to fulfill the exports. No material has been brought on record as to what were the declarations and documents as made and submitted to the DGFT authorities, show cause notice in Para 4.4.2 records -
“4.4.2 When shown their SSI Certificates No. BUSIC/PMT/94-95, dated 20-4-94, wherein the manufacturing activities had been indicated as Engineering Moulds and Writing instruments such as ball pens etc., and the RCMC Certificate dated 13-4-94 wherein the description of the moulds and requested to explain the terminologies Engineering Moulds & Plastic Engineering Moulds………”
The Registration Certificate, No. EPC/SROB/REG(MFR)/006/94-95, photocopy available in the paper books (Page 131/133), shows the RCMC Certificate issued vide letter EPC/SROB/REG/0267, dtd. 27-4-94, under the Columns ‘Description of the goods for which Registered in Part II of the Certificate required to be filled in by the Registering Authority the words are “ENGINEERING MOULDS AND WRITING INSTRUMENTS”. The attempt in the notice in Para 4.4.2 as extracted herein above and the findings by the Commissioner in Paras 12(ac) & 12(ad), to reach a finding of a sinister design in obtaining the said import licences by the importer, are therefore clear cut case of a closed mind, extending to Supresso Veri. They appear to be arrived at only to meet and allege the charge of a ‘Deliberate Design’ behind declarations of “Writing Instruments”. We, therefore, do not share the findings as arrived at, regarding a design to obtain the Licences by misdeclaration of any purported programme to adopt a particular route.
(b) The findings arrived at in Para 12(ai) of the order-in-original to the effect “Since they had no manufacturing facility whatsoever,……” also confirms the exhibition of a closed mind, a partisan attitude. Since we do not find any reasons to come to such a conclusion, when show cause notice itself, admits in Para 4.4.2 to a SSI registration to be on record. No other material is available to allege or to hold that the same is obtained fraudulently for a non-existent factory.
(c) We have considered the findings in paras 12(aj) and 12(ak) of the order-in-original. There exist evidence of 2 invoices both dated 26-4-94 with number IGI-2275-94 and IGI-2276-94. There is no evidence, to reject the Transaction Value. Nor is there any reason to adopt the ‘higher value’ as shown in the other invoice, especially as regards the imports made on the other 13 Bills of Entry, subsequently over a period of time. No evidence of flow back from BBS to Supplier of goods exist. The finding of creation of the invoice at Bangalore, is a presumption. There cannot be any reason to mis-declare import values, since goods were duty free in any case and appellants have adequate licences to cover the imports, infact 2 licences have not been utilised. Even, if undervaluation is established, that itself, would be only for one invoice and one Bill of Entry and will not cover the thirteen other imports. Applying value of one bill of Entry to other imports would be a presumption. Since no contemporary imports at the higher price have been noticed, we do not accept the mis-declaration of value on this one Bill of Entry for the purpose of confiscation under Section 111(m) the goods imported on that Bill of Entry. No confiscation under Section lll(m) is therefore called for all the imports made in the facts of this case.
(d) The overvaluation of the goods exported has been worked out in Para 12(al) of the order-in-original, based on some accounting sheets, showing a payment as per invoices, made to BBS by IGI-UAE which are more than what has been billed by IGI-UAE to M/s. Anker International UK. This para records a finding that the amounts as per BBS invoice have been received. Except for a consignment sent in last week of December. This would, not justify to be a case of overvaluation of exports from India by BBS. There could be any number of reasons, why IGI-UAE has billed the UK firm at a lower rate, including a desire to misdeclare to UK Customs. No evidence exist, whether the invoice of IGI-UAE on UK firm has been accepted or otherwise by UK Customs. Be that as it may. The receipt of the total sale proceeds by BBS, will not induce us to conclude that all exports made by BBS to other parries, are also over-valued, on basis of this evidence. There is no evidence to that effect.
(e) The Commissioner appears to have laboured upon certain calculations to arrive at a general overall overvaluation on all exports by 32%. He, thereafter has taken the export values as arrived by him to determine the value addition norms. Simultaneously, he finds that he is not taking any action under the law for penalties/offences as alleged in the show cause notice as regards exports, since all exports have been made through Chennai Port. He has left action on this aspect if deemed necessary to be taken up by the concerned Custom House. (Para 12BA of finding refers). No material has been shown to us that the Shipping Bills, as filed, with the value declarations thereon in the Chennai Custom House have been questioned by the Proper Officer under
the Custom Act, 1962 at the Chennai Custom House. Therefore when the Adjudicator, himself has left the question of overvaluation of exports to be determined by Proper Officer of Chennai, he thereafter had no jurisdiction to redetermine the ‘Export Valuations’ for the purposes of input/out norms, which in any case is in the domain of DGFT. Snipping Bills would be Public Documents as per Section 74 of the Indian Evidence Act, 1872 and as per Section 79, the values thereon as certified by the Chennai Customs Proper Officer, shall be presumed to be correct, till they are amended by that Proper Officer at Chennai. We have therefore, no alternative, but not to accept the overvaluation arrived at by Commissioner Bangalore, who himself admits, was not the ‘Proper Officer’ as regards determinations/re-determination of these valuations, accepted and not questioned by the ‘Proper Officer’ on the Shipping bills at Chennai. We cannot accept a situation, that one export value, for the purposes of value-addition to be arrived by Commissioner, Bangalore, and another export value, for repatriation of Sale proceeds in Foreign Exchange and other purposes in law, as declared and accepted on Shipping bills by the Proper Officer and not questioned, can exist. We therefore, do not approver or and share the calculations as arrived at by Commissioner, Bangalore to come to a finding that value addition norms are not met.
(f) While examining the eligibility of “Value addition” due to change in import policy during the pendency of an application for an Advance Licence the Apex Court in the case of S.B. International Ltd. [1996 (82) E.L.T. 164 (S.C)] had observed :-
“9. It should be noticed that grant of licence is neither a mechanical exercise nor a formality. On receipt of the application, the authorities have to satisfy themselves about the correctness of the contents of the application. They also have to satisfy themselves that the application satisfies all the requirements of the scheme and the other applicable provisions of law, if any. In a country like ours, where abuse of such facilities is rampant, reasonable time has to be afforded to the authorities to process the application [what is reasonable time, of course, depends on the facts of each case. No hard and fast limit can be prescribed]. It is only after appropriate verification that the licence is granted.”
And in the case of East India Commercial Co. Ltd., Calcutta [1983 (13) E.L.T. 1342] a full Bench of the Apex Court held :-
“35. Nor is there any legal basis for the contention that licence obtained by misrepresentation makes the licence nonest, with the result that the goods should be deemed to be imported without licence in contravention of order issued under Section 3 of the Act so as to bring the case within Clause (8) of Section 167 of the Sea Customs Act. Assuming that the principles of law of contract apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable : it is good till avoided in the manner prescribed by law…………”
We therefore, cannot find the Commissioner’s justifying to short-circuiting of the ‘procedure prescribed by law’ to be followed. The licences issued in this case, should have been got avoided by the DGFT authorities and thereafter action initiated under Section 111(o), which would be applicable for the infringement of conditions of licence and orders issued under the Import Trade Control laws. There is no other way for determining otherwise the waiver of these conditions as Section 143AG Customs Act has yet to be notified. Since Value addition norms, as per policy, can be varied by the D.G. Foreign Trade authorities only; the Commissioner is not the Proper Officer to determine the value addition norms or variance, from standard norms, as per the policy. The power to initiate action and recover duty is with the Customs authorities, but that power has to be utilized ‘in the manner prescribed by law’, i.e. get the licence condition infringements established by the DGFT authorities first as envisaged under Section lll(o) which reads as-
“(o) any goods exempted, subject to any conditions, from any prohibition in respect of the import thereof under this Act, or any other law, for the time being in force, in respect which condition is not observed unless the non-observance of the condition was sanctioned by the Proper Officer.”
Therefore, it was for the ‘Proper Officer of the DGFT’ to take cognizance of the observance or non-observance of the conditions of the Standard input/output norms of a Licence. Depending on what the DGFT authorities determine, the consequences under Section 111(o) could/would not arise. Invoking the contravention and liability of confiscation under Section lll(d) arrived at by invoking the violation of Import Trade Control Order, 1955, as in this case, is not the route available. S.O. 1056(E) of Ministry of Commerce, Director General of Foreign Trade order dated 31-12-1993 states –
“S.O. 1056(E) – In exercise of the powers conferred by Section 3, read with Section 4, of the Foreign Trade (Development & Regulation) Act, 1992 (22 of 1992) and in suppression of the Imports (Control) order 1955 and the Exports (Control) order 1988, except respects things done or omitted to done before such supersession, the Central Government hereby makes the following order.”
We, therefore, accept the appellants plea made in this regard and find no reasons to hold the confiscation under Section 111(d) for violation of Import (Control) Order 1955, which has been superseded on
31-12-1993.
(g) Once we cannot agree to the findings arrived as regards value of imports and exports, as is being made and or question the value additions, we find no cause to uphold the denial of benefit of Notfn. 203/92 on the imported goods or find any liability for confiscations of goods under Sections 111(d) and 111(m) as arrived. Therefore, we, find no liability for penalty under Section 112 on any person.
(h) There is no allegation or any finding of any imported components/parts to have been diverted, for any other purpose than export. Quantity-wise, the exports of all the imported goods have been effected. Two licences out of seven granted have not been utilised. There is no allegation of the export proceeds not been remitted as per shipping bills filed. It is difficult to conclude as arrived at in the impugned order, that the BBS had any ulterior motive to misdeclare values at Import and thereafter at Export threshold. (i) When we look at the overall scheme of DEEC, which is meant to provide for imports of material required for manufacture duty free, for eventual export promotion and the decision of Apex Court in a case of DEEC imports, where Section 111(d) and penalty under Section 112 on the importers for the imported entities were upheld, yet the Apex Court therein directed as :- (ref : Rattan Exports Ltd. v. CC, Calcutta - 1987 (31) E.L.T. 66 (S.C.) Para 6 at 68)
“6..-…-… Counsel for the appellant has made a solemn statement before us that the entire imported goods would be utilized for export under the existing contract. In case the undertaking really works out then the appellant should be entitled to exemption from duty under the scheme. In case the appellant works in terms of the undertaking, he would not be liable to duty in regard to the import made otherwise duty as leviable under the Act shall be payable. The appeals are disposed off with the aforesaid directions. No costs………..”
When we find no liability of confiscation under Sections 111(d) and 111(m), no penalty liability under Section 112 of the Customs Act, 1962 and no sinister design in the operations of imports/exports considered. Therefore, following the directives and the ratio of Rattan Exports case (supra), no liability for duty, could be raised in any case on the goods imported on the five advance licences.
5. In view of our findings, the order is set aside and appeals allowed.