Commissioner Of Customs (Preventive) @Hash Bushrah Export House

Sl. No.,"SB No. & Date Inv. No. and

date",DBK Involved,ROSL Involved,

01,---,1286368,1946030,

02,---,1671268,2161187,

02,-,Boys Bermuda,75288,68645850/-

,,Kids Skirt Top,,

,,Kids Check Nikker,,

,,Mens 67 Bermuda,,

,,"Mens Round Neck

Tshirt",,

Total,,,138336,115868802/-

section 124 of the Customs Act before the goods are confiscated. In the instant case, before such an exercise could be undertaken, the Respondent",,,,

filed an Appeal before the Commissioner (Appeals) on June 08, 2020, which Appeal was allowed on June 10, 2020, without even giving any",,,,

opportunity to the Department;,,,,

(v) The goods became prohibited goods as a wrong declaration was made by the Respondent. In support of this contention, reliance has been placed",,,,

upon the decision of the Supreme Court in Om Prakash Bhatia vs Commissioner of Customs, Delhi, 2003 (155) ELT 423 (SC); and",,,,

(vi) The Commissioner (Appeals) completely misdirected himself in examining, at the stage of seizure, whether the value of the export goods would be",,,,

the transaction value and whether the provisions of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, the Export",,,,

Valuation Rules were required to be followed.,,,,

Shri Vishwajit Singh, learned Counsel appearing for the Respondent supported the order passed by the Commissioner (Appeals) and made the",,,,

following submissions :,,,,

(i) The exercise of power under section 110(1) of the Customs Act was not justified in the present case as the Customs Officers have not been able,,,,

to prima facie establish that the proper officer had reason to believe that the goods were liable to confiscation under the Customs Act. “Reason to,,,,

believe†has to be based on the material available on record and cannot be arbitrary, capricious or whimsical. In support of this submission, reliance",,,,

has been placed on certain decisions, to which reference shall be made at the appropriate stage;",,,,

(ii) The allegation that the consignment appeared to be grossly over-valued, rendering the goods liable to confiscation is not correct. The Respondent",,,,

had purchased the goods through proper GST invoice, where the declared price of the goods is between Rs. 620/- to Rs. 950/- and the declared price",,,,

in the shipping bill is between Rs. 700/- to Rs. 1150/-. It cannot, therefore, be said that the consignment was grossly over-valued. The Customs",,,,

officers have not challenged the transaction value of the goods nor made any effort to verify the GST invoices;,,,,

(iii) The Customs Officers should have accepted the value of the export goods as the transaction value of such goods, as is contemplated under",,,,

section 14(1) of the Customs Act and the value declared by the Respondent could not have been rejected, except in accordance with the procedure",,,,

prescribed under section 14 of the Customs Act and the Export Valuation Rules;,,,,

(iv) In any view of the matter, the determination of the transaction value through a local market survey could have been adopted only as a last resort",,,,

when the value of the export goods could not be determined under rules 4 and 5 of the Export Valuation Rules;,,,,

(v) The decision of the Supreme Court in Om Prakash Bhatia would not be applicable as it was in connection with the interpretation of section 14 of,,,,

the Customs Act as it stood prior to its amendment on October 10, 2007; and",,,,

(vi) Initially, the Department came out with a case that one carton of the export goods was missing, but later on they came out with a case that 1872",,,,

items were missing. Actually, there was no shortage of any items and even assuming without admitting that there was a minor shortage of 1.6%, the",,,,

exporter could have amended the shipping bills and the remaining items could have been cleared.,,,,

The submissions advanced by the learned Authorized Representative of the Department and the learned Counsel appearing for the Respondent,,,,

have been considered.,,,,

The seizure memo dated June 03, 2020 mentions that in respect of one consignment the goods are deficient by 1872 pieces and that both the",,,,

consignments appear to be grossly overvalued. The two shipping bills had been filed claiming the benefit of drawback, RoSL and MEIS, which are",,,,

entirely dependent on the market price of the goods. It is for this reason that the seizure mentions that the goods have been seized under section,,,,

110(1) of the Customs Act as they were liable to confiscation under section 113(i) of the Customs Act for contravention of sections 50(2) and 75 of,,,,

the Customs Act read with rule 3 of the Customs and Central Excise Duties Drawback Rules, 2017, Drawback Rules and section 14 of the Customs",,,,

Act.,,,,

Section 110 of the Customs Act deals with seizure of goods, documents and things. Sub-sections (1) and (2) of section 110, which are relevant for",,,,

the purposes of this appeal, are reproduced below :",,,,

“110. Seizure of goods, documents and things â€"",,,,

(1) If the proper officer has reason to believe that any goods are liable to confiscation under this Act, he may seize such goods :",,,,

PROVIDED that where it is not practicable to seize any such goods, the proper officer may serve on the owner of the goods an order that",,,,

he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer.",,,,

(1A) xxx xxx xxx,,,,

(1B) xxx xxx xxx,,,,

(2) Where any goods are seized under sub-section (1) and no notice in respect thereof is given under clause (a) of section 124 within six,,,,

months of the seizure of the goods, the goods shall be returned to the person from whose possession they were seized:",,,,

PROVIDED that the Principal Commissioner of Customs or Commissioner of Customs may, for reasons to be recorded in writing, extend",,,,

such period to a further period not exceeding six months and inform the person from whom such goods were seized before the expiry of the,,,,

period so specified:,,,,

PROVIDED FURTHER that where any order for provisional release of the seized goods has been passed under section 110A, the specified",,,,

period of six months shall not apply.â€​,,,,

A perusal of sub-section (1) of section 110 of the Customs Act reveals that if the proper officer has reason to believe that any goods are liable,,,,

to confiscation under the Customs Act, he may seize such goods. 16. Section 113 of the Customs Act deals with confiscation of goods attempted to be",,,,

improperly exported. Section 113(i), which is relevant, is reproduced below :",,,,

“113. Confiscation of goods attempted to be improperly exported, etc:",,,,

The following export goods shall be liable to confiscation:,,,,

(a) to (h) xxxx xxxx xxxx,,,,

(i) any goods entered for exportation which do not correspond in respect of value or in any material particular with the entry made under,,,,

this Act or in the case of baggage with the declaration made under section 77;â€​,,,,

The clearance of exported goods is dealt with in sections 50 and 51 of the Customs Act and the relevant portions are reproduced below :,,,,

“50. Entry of goods for exportation â€",,,,

(1) The exporter of any goods shall make entry thereof by presenting electronically on the customs automated system to the proper officer in,,,,

the case of goods to be exported in a vessel or aircraft, a shipping bill, and in the case of goods to be exported by land, a bill of export in",,,,

such form and manner as may be prescribed:,,,,

PROVIDED that the Principal Commissioner of Customs or Commissioner of Customs may, in cases where it is not feasible to make entry by",,,,

presenting electronically on the customs automated system, allow an entry to be presented in any other manner.",,,,

(2) The exporter of any goods, while presenting a shipping bill or bill of export, shall make and subscribe to a declaration as to the truth of",,,,

its contents.,,,,

(3) The exporter who presents a shipping bill or bill of export under this section shall ensure the following, namely:â€"",,,,

(a) the accuracy and completeness of the information given therein;,,,,

(b) the authenticity and validity of any document supporting it; and,,,,

(c) compliance with the restriction or prohibition, if any, relating to the goods under this Act or under any other law for the time being in",,,,

force.,,,,

Clearance of goods for exportationâ€",,,,

(1) Where the proper officer is satisfied that any goods goods entered for export are not prohibited goods and the exporter has paid the,,,,

duty, if any, assessed thereon and any charges payable under this Act in respect of the same, the proper officer may make an order",,,,

permitting clearance and loading of the goods for exportation:â€​,,,,

Provided xxx xxxx xxx,,,,

Provided further xxxx xxx,,,,

(2) xxx xxxx xxx “,,,,

It would, therefore, be seen from the aforesaid provisions of the Customs Act that the exporter of any goods shall make entry thereof by",,,,

presenting electronically on the customs automated system to the proper officer a shipping bill and while presenting the shipping bill, the exporter has",,,,

to make and subscribe to a declaration as to the truth of its contents. The exporter has also to ensure that the information given therein is accurate and,,,,

complete. The exporter has also to ensure about the authenticity and validity of any document supporting it and compliance with the restriction or,,,,

prohibition, if any, relating to the goods under the Customs Act or under any other law for the time being in force. It is only where the proper officer is",,,,

satisfied that the goods entered for export are not prohibited goods and the exporter has paid duty, that the proper officer may make an order",,,,

permitting clearance and loading of the goods for exportation. Section 110(1) of the Customs Act provides that if the proper officer has reason to,,,,

believe that any goods are liable to confiscation under the Customs Act, he may seize such goods. It is section 113 of the Customs Act that deals with",,,,

confiscation of goods attempted to be improperly exported. Amongst others, it provides that any goods entered for exportation which do not",,,,

correspond in respect of value or in any material particular with the entry made under the Customs Act, shall be liable to confiscation.",,,,

In the present case, the proper officer seized the goods as he had reason to believe that the goods were liable to confiscation under the provisions",,,,

of the Customs Act for the reason that the goods entered for exportation did not correspond with what was mentioned in the shipping bills. These,,,,

facts have been stated in the seizure memo dated June 3, 2020. The case of the Department is that the goods had been over- valued as the two",,,,

shipping bills had been filed claiming the benefit of drawback, ROSL and MEIS. The drawback involved in the two shipping bills, as is clear from the",,,,

panchnama dated June 3, 2016, is Rs. 29,57,636/- while ROSL involved in the two shipping bills is to the extent of Rs. 41,07,217/-. Further, according",,,,

to the Department, the goods were deficient in quantity by 1872 pieces and both the consignments appeared to have been grossly overvalued because",,,,

the value declared by the appellant was in the range of Rs. 749 to Rs.1123 per piece, while the average price arrived at on the basis of opinion of the",,,,

local dealers ranged from Rs. 32 to Rs. 87 per piece.,,,,

The Commissioner (Appeals) has set aside the seizure memo dated June 3, 2020 for the following reasons:",,,,

i. The alleged shortage of 1872 pieces is questionable and even if the said shortage is accepted, “the quantum of shortage is so meagre’",,,,

(1.33%) that it would be ridiculous to believe that the same was intentionally done by the Appellantâ€​;,,,,

ii. As regards the allegation of overvaluation, the declared price was straightway compared with the local trade opinion, which is contrary to the",,,,

provisions of section 14(1) of the Customs Act and rule 3(1) of the Export Valuation Rules;,,,,

iii. The transaction value can only be challenged in terms of the Export Valuation Rules. The Department has disregarded the price of the goods,,,,

purchased under proper GST invoice; and,,,,

iv. The facts and circumstances of the case indicate that ‘reasonable belief is not formable’.,,,,

The contention of learned Authorized Representative of the Department appearing for the appellant is that the facts and circumstances of the case,,,,

clearly demonstrate that the proper officer had reason to believe that the goods were liable to confiscation and, therefore, the goods were seized.",,,,

Elaborating this contention learned counsel pointed out that the goods could be confiscated under section 113(i) of the Customs Act as the export,,,,

goods did not correspond in respect of the value or number with the entry made in the shipping bills. The phrase ‘reason to believe’ does not,,,,

mean that confiscation would definitely result under section 113(i) of the Customs Act for that would be determined only when proceedings are,,,,

initiated under section 124 of the Customs Act after issuance of a show cause notice and a proper opportunity is given to the exporter of making a,,,,

representation in writing and of being heard in the matter, but the Commissioner (Appeals) completely misunderstood the provisions of section 110(1)",,,,

of the Customs Act and proceeded to examine the seizure as if it was an order of confiscation under section 113(i) of the Customs Act.,,,,

Learned Counsel appearing for the respondent, however, submitted that the Department has not shown that a prima facie case existed for",,,,

exercise of powers under section 110(1) of the Customs Act. The phrase ‘reason to believe’ means that even though formation of opinion may,,,,

be subjective, but it must be based on materials on record and it cannot be arbitrary, capricious or whimsical. Learned Counsel also submitted that the",,,,

Supreme Court has time and again explained the meaning of the phrase “reason to believeâ€​.,,,,

In Sheo Nath Singh v/s CIT, (1972) 3 SCC 234, the Supreme Court observed that the belief must be that of an honest and reasonable person",,,,

based upon reasonable grounds and the officer should act on direct or circumstantial evidence and not on mere suspicion, gossip or rumour. The",,,,

relevant paragraph is reproduced below â€",,,,

“10…. There can be no manner of doubt that the words ‘reason to believe’ suggest that the belief must be that of an honest and,,,,

reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on,,,,

mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the",,,,

conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this,,,,

aspect though the declaration of sufficiency of the reasons for the belief cannot be investigated by the Court.â€​,,,,

(emphasis supplied),,,,

In Tata Chemicals Ltd. v/s Commissioner of Customs (Preventive), Jamnagar, (2015) 11 SCC 628, the Supreme Court observed as follows:-",,,,

“15. Statutes often use expressions such as “deems it necessaryâ€, reason to believeâ€, etc. Suffice it to say that these expressions",,,,

have been held not to mean the subjective satisfaction of the officer concerned. Such power given to the officer concerned is not an,,,,

arbitrary power and has to be exercised in accordance with the restraints imposed by law. “,,,,

In Worldline Tradex Pvt. Ltd v/s The Commissioner of Customs (Imports) & others, (2016) 340 ELT 174 (Delhi High Court), the Delhi High",,,,

Court observed as follows:-,,,,

“23. The power of seizure under Section 110 of the Act has to obviously be exercised for valid reasons. The proper officer has to record,,,,

his reasons to believe that the goods that he proposes to seize are liable to confiscation. The said reasons for exercise of the power have to,,,,

be recorded prior to the seizure. In the present case, as already noticed, apart from the panchnama, there is no separate order passed under",,,,

Section 110(1) of the Act by the proper officer recording the reasons to believe that the goods are liable for confiscation. Since till date no,,,,

other order exists and no such order has been communicated to the Petitioner, it is not possible to accept the plea of Mr. Agarwala, learned",,,,

counsel for the DRI, that the ‘detention’ of the goods by the DRI was with the authority of law and in any event should be treated as a",,,,

seizure in terms of Section 110(1) of the Act.â€​,,,,

(emphasis supplied),,,,

The Delhi High Court, in the above mentioned decision, referred to the decision of the Punjab and Haryana High Court rendered in M/s Om",,,,

Udyog v/s Union of India and Others, 2010 (254) ELT 547 (Punjab and Haryana High Court). The Punjab and Haryana High Court observed as",,,,

follows:-,,,,

“10. We called upon learned counsel for the respondents to show the provision of law under which the goods were detained. It is not the,,,,

case of the respondents in the reply or otherwise that power of seizure had been invoked as formation of satisfaction under Section 110 of the,,,,

Act, which is condition precedent for exercise of such power, has not been shown. As held in Mapsa Tapes, exercise of power of seizure",,,,

requires recording of reasons before exercise of such power. Only question is whether detention could be justified pending clearance,,,,

under Chapter VII of the Act. Section 47 of the Act provides for clearance of goods on payment of duty, unless goods are prohibited goods.",,,,

It is not the case of the respondents that goods are prohibited goods. It is also not their case that duty assessed under section 17 or 18 has,,,,

not been paid. In such a situation, non clearance of goods may be justified for minimum period required for assessment. In no case, non",,,,

clearance of gods for months can be justified. Non clearance seriously affects rights of lawful importer and fair procedure being,,,,

constitutional mandate, no authority can plead unlimited power of non clearance for its own incompetence as a justification beyond",,,,

reasonable period. Learned counsel for the respondents submitted that the petitioners could get the goods released on furnishing requisite,,,,

bond under Section 110A of the Act. This contention is misconceived as Section 110A applies only when seizure is effected under Section,,,,

110.,,,,

We are of the view that while officers of Custom Department may have justification to verify whether goods were prohibited or were,,,,

otherwise liable to confiscation or to assess and recover duty, they are not immune from accountability against abuse of power by detaining",,,,

goods for indefinite period on the ground that they were in the process of checking the value or nature of goods. They are under legal,,,,

obligation to do so promptly and if by reason of their incompetence they are unable to do so, detention of goods beyond reasonable time",,,,

cannot be allowed.â€​,,,,

(emphasis supplied),,,,

None of these decisions, which have been relied upon by the learned counsel for the Respondent, advance the case of the Respondent.",,,,

The power of seizure, as was held in Tata Chemicals, has to be exercised in accordance with the restraints imposed by the law and as held in",,,,

Sheo Nath Singh, it can be exercised on the basis of direct or circumstantial evidence and not on mere suspicion. In Worldline Trade, the Delhi High",,,,

Court found that apart from the panchnama there was no separate order passed under section 110(1) of the Customs Act by the proper officer,,,,

recording a reason that the goods were liable to confiscation. The contention of the Department that mere ‘detention’ of goods should be,,,,

treated as the seizure in terms of 110(1) of the Customs Act was not accepted by the High Court. In Om Udyog, the Punjab and Haryana High Court",,,,

found that it was not the case of the Department that the goods were prohibited goods and so non-clearance of the goods may be justified for a,,,,

minimum period required for assessment. The High Court, therefore, held that while the officers of the Customs Department may be justified in",,,,

verifying whether goods were prohibited or not or were otherwise liable to confiscation, but they are not immune from accountability against abuse of",,,,

powers by detaining the goods for an indefinite period on the ground that they were in the process of checking the value or nature of the goods.,,,,

In the instant case, as noted above, the shipping bills are dated May 23, 2020. The panchnama recovery memo dated June 3, 2020 refers to the",,,,

earlier panchnama proceedings June 1, 2020, wherein a shortage of 1872 pieces was detected and samples of the export product were also taken for",,,,

conducting a market enquiry and obtaining opinion of traders/ dealers of such type of garments. There is no illegality in conducting a local market,,,,

survey to gather the valuation of the goods for the purpose of exercising power under section 110(1) of the Customs Act. The panchnama,,,,

proceedings dated June 3, 2020 record that there was a shortage of 1872 pieces and the export goods were also grossly overvalued. The value",,,,

declared and the average price arrived at on the basis of the opinion of the three dealers were also indicated in the panchnama. There is on record a,,,,

separate inventory cum seizure memo dated June 3, 2020 bearing case number 01/2020-21, which contains the inventory of the goods seized and also",,,,

gives reasons for seizure of the goods.,,,,

Once the officer had detected shortage of export goods and the market survey revealed that the goods were grossly overvalued, it cannot be said",,,,

that the proper officer did not have ‘reason to believe’ that the goods were liable to confiscation under the provisions of section 113(i) of the,,,,

Customs Act. Whether they are actually confiscated or not is a matter that can be determined only in accordance with the procedure prescribed under,,,,

section 124 of the Customs Act by issuing a show cause notice to the exporter and also giving him a reasonable opportunity of making a,,,,

representation in writing. All that was required to be considered for exercising power under section 110 (1) of the Customs Act was whether there,,,,

was a reason to believe that the goods are liable to confiscation.,,,,

Learned counsel for the Respondent submitted that the allegation in the seizure memo about overvaluation of the goods in the shipping bills is not,,,,

correct. In this connection learned counsel referred to the provisions of section 14 of the Customs Act as also the Export Valuation Rules. According,,,,

to the learned counsel, the value of the exports goods should have been treated as the transaction value since the export price is negotiated",,,,

/determined in the course of international trade and the same cannot be compared with the local trade opinion of the market. Learned Counsel pointed,,,,

out that the seizure memo records that the consignment appeared to be grossly overvalued but this is merely on the basis of the market value of the,,,,

goods in the local market. This inference is not correct, more particularly when the goods were purchased by the exporter under proper GST invoice.",,,,

In this connection, the provisions of rule 3(1) of the Export Valuation Rules have also been referred to.",,,,

The Commissioner (Appeals) had also concluded that the proper officer straightway compared the declared price with the local trade opinion,",,,,

which was illegal. The Commissioner (Appeals) also observed that the transaction value can be challenged only in accordance with the Export,,,,

Valuation Rules but the procedure prescribed therein had not been followed.,,,,

The issue that arises for consideration is at what stage the provisions of section 14 of the Customs Act and the provisions of rule 3 of the Export,,,,

Valuation Rules have to be applied. Section 110(1) of the Customs Act empowers the proper officer to seize the goods if he has reason to believe that,,,,

goods are liable to confiscation. As noticed above, the goods attempted to be improperly exported are confiscated under section 113 of the Customs",,,,

Act after providing an opportunity as contemplated under section 124 of the Customs Act. It is at that stage that it is determined whether the goods,,,,

entered for exportation actually correspond in respect of value or in any material particular with the entry made in the shipping bill. The Commissioner,,,,

(Appeals) completely failed to appreciate the provisions of section 110(1) of the Customs Act and proceeded to examine the matter as if he was,,,,

examining an order of confiscation under section 113(i) of the Customs Act and not an order of seizure of goods under section 110(1) of the Customs,,,,

Act, where the proper officer should only have reason to believe that the goods are liable to confiscation.",,,,

Thus, for both the issues relating to the valuation of the goods or shortage of 1872 pieces mentioned in the seizure memo, the exporter will get",,,,

ample opportunity to put forth his case when proceedings are initiated under section 124 of the Customs Act and it is neither possible nor permissible,,,,

at the stage of seizure to determine this issue.,,,,

The Commissioner (Appeals) therefore, committed an error in setting aside the seizure memo as a result of which the Appeal filed by the exporter",,,,

was allowed.,,,,

It also needs to be noticed that the Appeal was filed by the exporter before the Commissioner (Appeals) on June 08, 2010 and the Appeal was",,,,

allowed by the Commissioner (Appeals) on June 10, 2010. The issue as to whether the Department was required to be heard when an Appeal is filed",,,,

by any person aggrieved by any decision or order passed under the Customs Act by an officer of Customs lower in rank than a Principal,,,,

Commissioner or Commissioner of Customs has not been addressed in this decision for the reason that both the parties made elaborate arguments on,,,,

merits. The issue as to whether an Appeal could have been filed under section 128 of the Customs Act when there was a remedy available to the,,,,

exporter for provisional release of goods under 110(A) of the Customs Act has also not been examined.,,,,

Thus, for all the reasons stated above, the order dated June 10, 2020 passed by the Commissioner (Appeals) is set aside and the Appeal is",,,,

allowed.,,,,

[Order pronounced on November 10, 2020]",,,,