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Customs, Excise and Gold Tribunal – Tamil Nadu
S. Chandra Sekharan vs Commr. Of Cus. And C. Ex. on 24 October, 2000
Equivalent citations: 2001 (132) ELT 751 Tri Chennai


ORDER

S.S. Sekhon, Member (T)

1. The Appellants M/s. Sujana Industries Ltd., entered into a contract with M/s. Techno Import and Export, Dubai under purchase order dated 13-6-1995 for supply of 1000 mtrs. of M.S. Sections @ US $ 1065/MT. Total CIF cost is Rs. 10,65,000 US $. Consequently they started procuring the raw material locally from M/s. Sujana Steel Ltd., their sister concern, who had the material. The goods were processed by M/s. Ganga Industrial Corporation Ltd. After the processing of goods finished, they filed 10 S/Bs at ICD (Exports), Hyderabad for export. The goods declared as M.S. Sections were stuffed into the containers under the supervision of the Jurisdiction Excise Authorities. These shipping bills were examined by the Customs Authorities and allowed to be exported. A let export order was passed on each shipping bill. The exports were made to meet the export obligations cast on the exporter under value Advance Licence No. 329/5071.101/20/1, dated 16-5-1995 for the FOB value of Rs. 13,15,10,7577- (US $ 10,07,699.30). The SSIB of Custom House, Bombay stopped the shipment and examined the goods under 3 mahazars and they came to the conclusion that the value declared was high and the description of the material given in the shipping bills “M.S. Section” was not correct. Hence, they detained the goods. The seized goods were got examined by experts viz. (1) Metallurgical expert of Customs, (2) Mr. Saboo of SAIL, (3) Shri M.P. Dixit of IIT and they gave opinions which led to the belief that the description of the goods and declarations made on the Customs Export documents did not tally. The Commissioner of Customs, Mumbai allowed provisional release of the goods and all the goods covered by 10 shipping bills have been allowed to be exported. Thereafter, a show cause notice dated 30-4-1997 was issued mainly stating that the goods were overvalued and the description was not correct and why the goods should not be confiscated under Sections 113(d) and 113(1) of the Customs Act and penalties not imposed on the appellants under Section 114 of the Customs Act, 1962. According to the department, M/s. Sujana Industries had declared the export price of 1000 MTs of M.S. Sections to Dubai, at US $ 1065 MT but the goods are actually cut pieces of ingots and other than M.S. Sections as declared whose value will not exceed US $ 100 per M.T. thus misdeclaring the description and value.

2. A reply was given by the appellant, the Directors and the employees on various dates. Thereafter an order was passed by the Commissioner of Customs, Hyderabad on 29-1-1998 confiscating goods of declared FOB value of Rs. 3,05,98,387/- under Section 113(d) and 113(1) of the Customs Act, 1962 read with para 3(3) of Export (Control) Order, 1988 read with Sections 4 and 11(5) of the Foreign Trade (Development and Regulation) Act, 1992 read with Rule 11 of the Foreign Trade Regulation Act, 1993 and Sections 18 and 67 of the Foreign Exchange Regulation Act, 1973 read with No. F1/67/EC/73A, dated 1-1-1974 read with Sections 11 and 50(2) of the Customs Act, 1962. As the goods were not available having been allowed to export provisionally under Bond and Security Deposit, the security amount of Rs. 5.00 lacs was appropriated towards redemption fine and penalty under Section 114 of the Customs Act was levied as follows :-

(a)      Rs. 1,00,00,000/- on M/s. SIL
 

(b)      Rs. 50,00,000/- on Mr. Y.S. Choudhary, Managing Director of the company
 

(c)      Rs. 25,00,000/- on Mr. A.B. Satyavan Reddy
 

(d)      Rs. 50,00,000/- on Mr. Jawahar Babu
 

(e)      Rs. 10,00,000/- on Mr. S. Chandrasekharan
 

It is against this order that the appeals have now been filed.
 

3. The matter was heard when Shri Habibullah Badsha, Sr. Advocate and Shri Sudhakar, Advocate appeared for the appellants and submitted that gross denial of natural justice had occurred as the three experts whose examination opinion was relied upon by the Commissioner was not allowed for cross-examination and they sought a remand of the proceedings. This was strongly objected to by the learned Additional Solicitor General Shri V.T. Gopalan, who appeared for Revenue, along with Shri S. Udaya Kumar, who submitted that the Tribunal should decide the matter on merits. The parties were thereafter heard on merits and after considering the submissions and material on record we find –

(a) The exports were being made in compliance to the value based Advance Licence No. 3291507, dated 16-5-1995 which had been issued to the appellants after due verification of the declared values, costs, sales agreements, etc., by the DGFT authorities on an application filed by the appellant company. The value addition norms as worked out vide the formula prescribed in relevant page 7.24 of the EXIM Policy was not found fault by the DGFT authorities. This policy in Chapter VII covers the Policy as “Duty Exemption Scheme” para prescribes that the licence shall be issued as per the policy and we do not find any reason to find that the Customs authorities can impinge on the authority and jurisdiction of the DGFT authorities and sit on a judgment over the licence issued by the competent authority, by relying on Bombay Chemicals Ltd. – 1982 (10) E.L.T. 171 (Bom.) read with para 8g; C.L. Jain Woollen Mills Ltd. as reported in 1995 (79) E.L.T. 197 (Del.) as this question has been left open by the Hon’ble Supreme Court by dismissing the SLP filed by Union of India in the case, where they only agreed with the petitioner that High Court should not have interfered at Writ stage as reported in 1996 (84) E.L.T. 17 (S.C.) and 1983 (13) E.L.T. 1342 (S.C.) (East India Commercial) and 1992 (58) E.L.T. 163 (S.C.) Sampath Raj Duggar, AIR 1966 SC 197 M.G. Akbar v. Shantilal & Co. When we find that licence is not issued contrary to the policy and since it is not cancelled or rendered void ab inito otherwise, therefore, we cannot find any reason to agree with the following findings of the Commissioner :-

“The thrust of the changes against the said company are that SIL filed 10 shipping bills for export of M.S. Section for a total quantity of 953.750 MTs valued at Rs. 3,06,01,532/- which is an exorbitant value, considering the facts and circumstances of the case, the export was done towards the fulfilment of export obligations against VBAL LICENCE No. 3291507, dated 16-1-1995 and DEEC book No. 152678 in an order to get an import licence for a CIF value of 6,94,965 USD. The contention of the notice is that the CIF value shown by him in the application is only a backward calculation and need not be the inherent value of the imported goods, this contention is highly imaginary. The CIF value is the price at which the imported goods are bought, it would be the normal international value prevailing at the time of importation. The backward calculation prescribed under the EXIM policy is only to arrive at the maximum limit but at no cost the import value can be manipulated. In the present case, the import value of the raw material was only 190 USD to 200 USD PMT whereas the CIF value quoted by the noticee was 694 USD PMT, to this extent the import value has been misdeclared in the application for licence.”

(b) We also cannot appreciate the reasoning of the Commissioner as arrived at that Export value of 1065 USD PMT should be doubted on the basis of lack of costs built up working from the alleged processing carried out or suspected to be not carried out, since export values are not dependent on processing costs, they are independent of the same. Domestic costs cannot be the sole factor to determine FOB or export valuation. Elementary Book on Marketing Management by Philip Kotler 9th Edition at page 419 stipulates
“When companies sell their goods abroad, they face a price escalation problem. A Gucci hand bag may sell for $ 120 in Italy and $ 240 in United States. Why? Gucci has to add the cost of transportation tariffs importer margin, wholesaler margin to its factory price. Depending on these added costs as well as the currency fluctuation risk, the product might have to sell for two to five times as much in another country to make the same profit.”

The very same Marketing Guru in Chapter “Selecting a Pricing Method” prescribes ‘Mark up Pricing’ as a most elementary method for fixing prices of the goods to be sold and lays down at page 503 of the 9th Edition of his treatise-

“Mark ups very considerably among different goods. Mark ups are generally higher on seasonal items (to cover the risk of not selling), speciality items, shower moving items, items with high storage and handling costs and demand in elastic items”

(Emphasis supplied)

In the present case the goods are admittedly not conventional goods or M.S. Sections but Heavy specially made to order goods and will not have any market and buyers other than the present buyer for his specific end-use, who has sent the drawings. Therefore, the excessive mark up would be normal elementary marketing strategy and nothing much should be read into the same as is being done by the Commissioner, when proof that bank remittance equivalent to declared FOB values have been received without demur has been placed on record. Therefore, FOB values have to be accepted to be genuine until the export contract is found fault with and material evidence is brought on record that the FOB prices were manipulated, for purposes of money laundering. The FOB values cannot be doubted or/and questioned otherwise. No such material exist to doubt the same. Therefore, we do not concur with the findings of the Commissioner who did not have these Bank realisation certificates before him and therefore, concluded that export value has not been realised in this case and that export goods have been overvalued with any mal intention or malafide motive in this case.

(c) We find that para 69A of the EXIM Policy under Chapter VII     Duty Exemption Scheme reads as -
 "Compliance   with            69A. Exports against Export Policy licence
 Export Policy                issued under the scheme shall be subject to 
                              provision 5 of Chapter XI of the Policy and
                              Chapter XI of the Handbook of Procedures
                             (Vol. 1)"

 

A perusal of the above Chapter XI does not indicate the goods under export as given in the examination reports of the Customs Department experts to be prohibited goods, nor has the order given a finding as to how the goods under export are prohibited goods under the EXIM policy and the procedure of Chapter XI. Therefore, we cannot find the goods under export to be prohibited goods. Section 113(d) therefore cannot be invoked for the goods under export when read with the provision of EXIM Law & Policy.

(d) The Commissioner has ordered the confiscation of the goods under seizure under Sections 113(d) and 113(1) of the Customs Act, 1962 read with para 3(3) of the Export (Control) Order, 1988. This Export (Control) Order, 1988 was issued in exercise of the provisions under Section 3 of the Imports and Exports (Control) Act, 1947. The said Act was repealed vide Section 20 of the Foreign Trade (Development and Regulation) Act, 1992 (No. 22 of 1992) with effect from 7-8-1992 and vide S.0.1056 (E), dated 31-12-1993, in exercise of the powers under Section 3, read with Section 4 of the Foreign Trade (Development and Regulation) Act, 1992 and in supersession of the Imports (Control) Order, 1955 and Exports (Control) Order, 1988 another order viz. Foreign Trade (Exemption Application of Rules and Certificate) Order, 1993 was made. This order dated 31-12-1993 does not have paras analogues to para 3(3) of the Export (Control) Order, 1988. Therefore, we cannot find reason to uphold the confiscation as ordered by the Commissioner under Sections 113(d) and 113(1) read with para 3(3) of the Export (Control) Order, 1988 which stands repealed and superseded.

(e) We have considered the provisions of Sections 18 and 67 of the Foreign Exchange Regulation Act and also whether the goods would become prohibited goods under the provisions of that Act read with the Customs Act for the so-called “overvaluation” of the Export goods. We find that this matter is now well-settled by the decision of the Larger Bench of the Tribunal in the case of J.G. Exports and Ors. v. CCE, New Delhi Final Order Nos. 777 to 780/2000 [2000 (121) E.L.T. 754 (Tri. – LB)] wherein it has been held as follows :-

“26. Even if it be assumed that the exporters misdeclared the PMV at a high value or over-invoiced the export goods, would it make them liable for penal action under the Customs Act? On this question, conflicting decisions were cited before us. In the case of Pankaj V. Sheth (supra), the question which arose before the High Court was whether misdeclaration of value by exporter amounted to violation of restrictions deemed to have been imposed under Section 11 of the Customs Act, 1962, which was punishable under Section 113 of the Act. The writ petitioner in that case had argued that the jurisdiction of Customs authorities to determine the value of the goods was limited to those cases where duty was leviable, and in this connection, had relied on two decisions of the Tribunal namely Shilpi Exports (supra) and Dimple Overseas (supra). The Bench rejected the writ petitioner’s arguments in the light of the fact that the Tribunal’s decisions in Shilpi Exports (supra) and Dimple Overseas (supra) were subject to stay orders of the Supreme Court in the appeals filed against such decisions. We note that the appeals filed against the Tribunal’s decisions in Shilpi Exports (supra) and Dimple Overseas (supra) were later on dismissed by the Supreme Court vide [2000 (115) E.L.T. A219 and 1996 (86) E.L.T. A167]. The Tribunal’s decisions in Shilpi Exports (supra) and Dimple Overseas (supra) having so merged with the appellate judgments of the Supreme Court, we find that the Tribunal’s decisions in Shilpi Exports (supra) and Dimple Overseas (supra) still hold the field and the Calcutta High Court’s decision on the aforesaid point has ceased to have precedent value.

27. In the case of Galani Infin (supra) cited by ld. DR, the Tribunal was following the Calcutta High Court’s decision in the case of Pankaj V. Sheth (supra) in its finding that the power to assess the value of goods under Section 14(1) of Customs Act was independent of any question of assessability of the goods to duty, which were sought to be exported. This decision in Galani Infin (supra) cannot be accepted as good law inasmuch as the ruling of the Calcutta High Court in Pankaj V. Sheth (supra) was rendered nugatory by the Supreme Court’s decision upholding the Tribunal’s decision in Shilpi Exports (supra). For the same reason, the decision of the Tribunal in the case of Amit Batra (supra), which was rendered by following the decision in Galani Infin, also cannot be successfully relied on by the Revenue. We, therefore, hold that, since the goods in question were not assessable to duty, it was not open to the Customs authorities to determine the PMV of the goods by having recourse to the provisions of Section 14 of the Customs Act, which were not applicable to cases like this one as rightly held in Shilpi Exports (supra). Ld. Commissioner’s reliance on the Calcutta High Court’s decision in Pankaj V. Sheth (supra) with reference to the provisions of Section 14 of the Customs Act is totally inapposite to the facts of the case.

28. It was also argued by Counsel that, even if over-invoicing and incorrect description of the goods in question could be found in the instant case, the same did not amount to violation of Section 18(1)(a) of the FERA, 1973 and, for that matter, any violation of Section 11 of the Customs Act, 1962. Reliance was placed on the Calcutta High Court’s decision in the case of Lexus Exports (supra). That was a case involving export of steel rods by the writ-petitioner under two contracts with a US-based company. Stainless steel rods had to be exported under one of these contracts and non-stainless steel rods under the other contract. The exporters, by an inadvertent mistake, mentioned the goods under the second contract as stainless steel rods in the export documents filed with the Customs authorities. The Customs authorities, upon testing samples of the goods, found the same to be of non-stainless steel. They, therefore, assessed the consignment, conducted random raids at the exporter’s office, factory and residential premises, seized records, froze bank accounts, etc. These proceedings were challenged before the High Court by the exporters. The Customs authorities argued before the Court that the writ petitioner had, by over-invoicing, violated Section 18(1)(a) of the FERA, 1973 and, therefore, by virtue of Section 67 of the FERA, there was a deemed violation of Section 11 of the Customs Act and, consequently, the goods were liable to be confiscated under Section 113(d) of the Customs Act. The Division Bench of the Court elaborately considered the relevant provisions of the FERA, 1973 and the Customs Act, 1962 and held that FERA, 1973, which was enacted for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interest of the economy of the country, was concerned only with under-invoicing of export goods and not with over-invoicing. The Bench, therefore, held that over-invoicing of the goods in the export documents did not amount to violation of Section 18(1)(a) of the FERA and, for that matter, there was no violation of Section 11 of the Customs Act, 1962. This decision was followed by the Tribunal in MVT International (supra). The Calcutta High Court (Single Bench) decision in Tosh & Sons (supra) relied on by ld. DR is not good law after the Division Bench decision in Lexus Exports (supra) and the same has been correctly distinguished by the Tribunal in MVT International (supra). We would follow the High Court’s ruling in Lexus Exports (supra), which was rightly relied on by the Tribunal in MVT International (supra), to hold, in the instant case, that any overvaluation by the exporters in their shipping bill did not violate Section 18(1 )(a) of the FERA, 1973 and, therefore, there was no deemed violation of Section 11 of the Customs Act, 1962. Section 67 of the FERA, 1973 did not have any operation in the instant case.

29. We have also noted that the Calcutta High Court in Lexus Exports (supra) considered the applicability of Section 113(d) of the Customs Act, 1962 to the facts of that case and held that the writ petitioner had not contravened the said Section since the export of the goods was not prohibited and the goods were not dutiable. The facts of the instant case are also similar. It has not been shown to us that Quartz analog watch fitted with gold straps/bracelets was in the negative list of export items. The adjudicating authority has not recorded any finding to the effect that the said goods were prohibited for export or that the goods were dutiable. Therefore, the goods were not liable to confiscation under Section 113(d) of the Customs Act and, in the result, there was no question of imposition of penalty on the exporters under Section 114 of the Act. Moreover, neither in the show cause notice nor in the order of the adjudicating authority is there any material to show that the partners of the exporting firm were personally liable for any penal action under Section 114 of the Act.”

Being bound by this order of the Larger Bench and respectively following the same, we cannot uphold the findings of liability for confiscation under Sections 113(d) and 113(1) for the purposes of valuation and for the purposes of reading with Sections 18 and 67 of FERA as is being read by the learned Commissioner.

(f) Now, we consider whether the liability of confiscation under Section 113(1) of Customs Act, 1962 as arrived at by the Commissioner as regards declaration of goods made in the Shipping Bills could be sustained. We find that Commissioner has found as follows :-

“Further it has been amply proved on record that the subject export goods have been misclassified. The various experts who examined the goods viz. the metallurgical expert Mr. M. Sahoo, Manager, SAIL, Dr. M.P. Dixit, Professor and Head of the Department of Metallurgical Engineering, IIT Bombay, clearly opined that the declaration of the subject goods as M.S. Section was not proper. The contention of the noticee that the experts were not unanimous in their observation, is of little consequence, to the present circumstances of the case. It may be noted that all the 3 experts opined that they are not M.S. sections, and to this extent they are unanimous. This proves that the goods are misclassified. Mr. Chandrasekar, the Chartered Engineer clearly went back on his original certificate in his statement given before the Bombay Customs. He has explained elaborately that he is not a Metallurgical Engineer. His later retraction of this statement is not to be accepted as it is prompted by legal experts. He had clearly admitted that the goods do not conform to the definition of section/structural in ISI book 1956 Part III -1975.

The definition of angles, sections, etc., under chapter notes of 72 which is meant for primary sections. The subject goods are nothing but scrap. In this case, the imported scrap was segregated and subjected to some minor processes, and it would not make them sections.

In view of the above, it is proved beyond all doubt that the subject export goods have been misclassified by M/s. SIL as M.S. Section and overvalued by manipulating heavy value addition only on paper, so as to make themselves eligible for a heavy value import licence. In view of this, I hold that the required export obligation has not been fulfilled. If at all the noticee would be entitled for an import licence calculated at the rate of 300 to 375 USD PMT (FOB) which is the prevalent market price of the goods in question. The request of the noticee for cross-examination of the witnesses is not acceptable as no valid reasons have been cited in this regard and therefore the same is rejected.”

The words ‘Export Obligation’ has been defined in the EXIM Policy para 7(18) as follows:

’18. “Export Obligation” means the obligation to export the products covered by the licence or permission in terms of quantity value or both as may be prescribed or specified by the licencing or competent authority.’

Therefore, one has to look at what was required to be exported. Looking at the photocopy of the application for the said licence, it is seen that the goods to be exported can be either or all of –

“Non-Alloy Steel, Bars & Rods (including Rounds; Flats; Hexagons, Octogens, Wire Rods, cold twisted Bars, Techno Machinery treated Re-inforced bars, angles, Shapes & Sections (including beams, joints, channels, special profiles, etc.”

(Emphasis supplied).

which is also as per the Import-Export norms. The licence issued stipulates that the firm shall export 1000 MT of Non-alloy steel shapes and sections and special profiles, etc. There is no finding by the Commissioner how the goods under export are not conforming to these goods stipulated in the application and or the licence. The goods which can be exported or intended to be exported are > varied and have been called as “M.S. Section”. That in itself will not lead one to conclude that export description of the goods did not correspond in any material particulars with the entry made to invoke the liability under Section 113(i). From the reports of the experts who have examined the goods, it appears that the goods are special shaped profiles, flats, slabs, etc., which we do find are listed in the items permissible to be exported against the obligation. As the goods as examined by various experts appear to be covered by the list of goods permitted to be exported and they are not prohibited or/and dutiable. We cannot find any reason to apply chapter notes of Customs Tariff for export goods to deter them being ‘M.S. Section’ as is being alleged in this case. Therefore, we cannot find any misdeclaration of the goods under export. Therefore, we find no reason to indict them under the provisions of Section 113 (i).

(g) When we do not find any reason to invoke the provisions of Sections 113(d) and 113(1) to hold the goods liable for confiscation read with the provisions of the Foreign Trade (Development and Regulation) Act and the Rules made thereunder or/and the Foreign Exchange Regulation Act, we find no reason for a need of penalty under Section 114 of the Customs Act, 1962 on the exporter company or anybody else.

4. In view of our findings, the impugned order is set aside and appeals allowed.


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