ORDER
Gowri Shankar, Member (T)
1. Appeal is taken up for disposal after granting waiver of deposit with consent of parties.
2. The appellant before us tendered for export three consignments of men’s and women’s shirts, claiming the benefit of the Duty Entitlement Passbook (DEPB) scheme. The f.o.b. value of these shirts was declared to be Rs. 2.40 crores. The total present market value was declared to be slightly in excess of Rs. 2.64 crores. This was on the basis of the f.o.b. value of Rs. 455/- for a man’s shirts and Rs. 325/- for woman’s shirt, with corresponding market value of Rs. 500/- and Rs. 325/- respectively.
3. Under the DEPB scheme, the exporter of any goods earns as credit a percentage of the f.o.b. value of the goods exported, to be set off against duty payable on goods that may be imported. The rate of credit specified for garments at the relevant time was 18% of the f.o.b. value. Paragraph 7.36A of the handbook set a ceiling or limit on the availability of DEPB. It said that in respect of the products where the rate of credit entitlement under of DEPB scheme comes to 15% or more, credit of such products should not exceed 50% of the present market value of the exported product. It provides for the exporter to make a declaration at the time of export of the present market value. The invention behind this appears to be to discourage the export of goods which is not commercially viable, solely in order to avail of the DEPB scheme. This for example, a person may export garments which are worthless and claim DEPB credit at 15% of the value that he declares. Although the scheme contains a condition that credit will not be given until the proceeds of the export are realised in fully convertible currency, that is really no deterrent; a dishonest exporter can always arrange to buy the amount of currency that he needs and arrange to have it remitted from abroad.
4. On examination of the shirts and enquiries as to their quality, the department concluded that the present market value was inflated. According to the department, the present market value of a man’s shirt would be Rs. 50/- and that the women’s shirts, Rs. 100/- per kg. Notice was issued to the exporter proposing to determine the DEPB credit on the basis of these values and proposing confiscation of the shirts under clause (d) of Section 113 of the Act. After hearing the exporter, the Commissioner passed the order impugned in this appeal. In that order he has confirmed the value to be as stated in the notice and ordered grant of credit accordingly. He has ordered confiscation of the three consignments and allowed their redemption for clearance into town on payment of fine of Rs. 15 lakhs. He has also imposed penalty of Rs. 2.5 lakhs on the exporter.
5. We shall first consider the liability to confiscation of the goods. Clause (d) of Section 113 of the Act provides for liability to confiscation of any goods attempted to be exported or brought into a customs area for being exported, contrary to any prohibition imposed by or under the Act or any other law for the time being in force. Counsel for the appellant contends that there is no prohibition on the export of the goods. They do not fall in any list of goods the export of which is prohibited or requires a licence. the provisions of clause (d) of Sec. 113 will hence not apply. The departmental representative answer that since the value of the quantity of the goods was misdeclared, Rule 11 of the Foreign Trade Regulation Rules 1993 is contravened. The export of such goods is deemed to be restricted under Section 11 of the Act of the Foreign Exchange Trade (Development and Regulation) Act, 1992.
6. Sub-section (1) of Section 11 of the Foreign Trade (Development and Regulation) Act, 1992 provides that no export or import may by any person except in accordance with the provisions of the act and rules and orders made thereunder and the export and import policy for the time being in force. Rule 11 of the Foreign Trade Rules provides inter alia that the exporter of the goods shall state of value, quantity and description to the best of his knowledge by subscribing a declaration to this effect. The Departmental Representative’s argument is that if the value of the export goods is misdeclared, there is contravention of Rule 11. The export is hence in contravention of the provisions of Sec. 11 of the 1992 Act, and is therefore prohibited. We are unable to accept this reasoning. We do not find that the requirement in Rule 11 of the Foreign Exchange Trade Development Rules relating to the declaration of value amounts either to a prohibition or restriction. Rule 17 of these rules, which is prescribes the circumstances in which goods can be confiscated does not provide for confiscation of goods on account of an incorrect declaration of value. We must also note that, We are therefore unable to sustain the confiscation order of the goods and consequent fine and penalty it suffered.
7. We now turn to the value of the goods. The department relies upon a statement of Krishna Sharma, of Krishna Apparel, a trader of garments. After seeing a sample of the goods tendered for export, Krishna Sharma gave an estimate of their value. In the cross-examination to which he was subjected in the adjudication proceedings before the Commissioner, he stood by the value that he had estimated. The result of the cross-examination is, nevertheless, not satisfactory. Sharma agrees that he did not put any identification on the sample of the shirt on which he given his opinion; yet he was able to recognise it, during cross-examination which ensued months after he last saw the garment. He further says that he concluded that two of the five samples that he considered to be stock lot on the basis of smell. He says, “By smelling the garment I thought it was stock lot”. Perhaps he meant to say that he concluded the shirt to be stock lot on its general appearance and attributes. If so, however, that should have been made clear by him. As it stands, we cannot take his statement to mean anything other than what it says, that he determined the value on how the shirt smelt. Surely, no one can deny that this is by no means a fair or reasonable method of estimating the value of a garment.
8. At the same time, Dinesh Saraff, who supplied the fabrics to the appellant, has taken a stand in the cross-examination contrary to what he first deposed. He had said initially that the shirts which were tendered for export by the appellant were made from the fabrics that he had supplied. During the cross-examination, he has gone back on his stand, now disowning the fabric. To that extent, the department’s reliance on the sale price of the fabric for deriving the value of the shirts is affected. The appellant had also tendered a cost statement for the shirts before the Commissioner. This statement is not certified by a chartered accountant, and is entirely unsupported by any other documents on which reliance can be placed Counsel for the appellant says that he would be able to submit material in support of this statement. In these circumstances, we are of the opinion that the value of the fabrics requires fresh and detailed examination at the hands of the Commissioner, after considering the evidence that the appellant may produce, as also the department.
9. We therefore allow this appeal, set aside the confiscation of the shirts and the penalty imposed upon the appellant and remand to the Commissioner for adjudication the determination of the DEPB credit available to the appellant, consequent on determination of the present market value of the shirts, on their exportation.
10. Counsel for the appellant says that the shirts were tendered for export in July, 1999 and are still lying in the docks. the Commissioner in his order confiscated the goods but ordered them to be taken back to town. Now the confiscation of the shirts has been set aside, we do not see what objection there should be for their export. That export, as we have noted, is not prohibited or restricted. The only issue that would now have a bearing is the value and the DEPB credit.
11. Counsel for the appellant agrees that his client will accept the correctness of the representative samples of these consignment that the Commissioner shall draw, and will not, at any stage, question that they represent, for all purposes, the entire consignment. We do not see that any purpose will be served by holding up the export. The only result delay in repatriation of the foreign exchange.
12. We therefore direct that representative samples of these consignments be drawn in the presence of the representative of the appellant. On the appellant furnishing a declaration undertaking that the samples represent the consignment for all purposes relating to laws relating to export and not to resile from this undertaking at any time in future, we order that the export of the goods, may be permitted if not otherwise objectionable.
