Ruchika International vs Commissioner of Customs, Pune

This appeal is directed against an order of the Customs, Excise and Service Tax Appellate Tribunal on an application for waiver of pre-deposit u/s 129E of the Customs Act, 1962. The Commissioner, after adjudicating upon a notice to show cause, ordered : (i) The imposition of a penalty of Rs. 3.50 crores on the First Appellant u/s 114; (ii) A personal penalty of Rs. 2 crores on V.K. Agarwal, an active partner of the partnership firm and penalties in the like amount on two other partners, who were held to be major beneficiaries of fraudulent exports; and (iii) A penalty on two officers of Customs, namely, the Assistant Commissioner and Superintendent.

This appeal is by the firm and by its partner, V.K. Agarwal.

The appeal is admitted on the following substantial questions of law :

(i) Whether in the facts and circumstances of the case, the Tribunal was correct in law in directing the Appellants to pre-deposit a sum of Rs. 1 crore and Rs. 25 lakhs u/s 129E of the Customs Act, 1962;

(ii) Whether the decision of the Tribunal is inconsistent with the law laid down by the Supreme Court in Siddachalam Exports Private Ltd. Vs. Commissioner of Central Excise, Delhi-III,

With the consent of Counsel appearing on behalf of the Appellants and the Respondent, the appeal is taken up for hearing and final disposal.

The First Appellant, which is a partnership firm, is alleged to have filed fifty shipping bills between January and July 2006, claiming the benefit of a DEPB Scheme, at the I.C.D. Miraj, which fell within the jurisdiction of the Commissioner of Customs, Pune. The shipping bills covered consignments inter alia of fabrics of a total FOB value of Rs. 19.89 crores computed at the rate of Rs. 284/- per sq.mtr. The declared present market value was Rs. 312/- per sq.mtr. The last three of the fifty consignments came to be intercepted and samples were drawn. The samples were sent for testing to the Bombay Textile Research Association (BTRA) which by its report dated 31 July 2006, certified the composition of each sample to be a blend of man made filament yarn and man made spun yarn. The report opined that the cost of the material contained in the sample would be in the range of Rs. 73/- to Rs. 84/- per sq. mtr. By adding 30% towards the margin of profit, the present market value was worked out by the Department at Rs. 96/- per sq. mtr. According to the Department, the exporter had obtained a DEPB benefit of Rs. 5.54 lakhs on three shipping bills. The First Appellant was found to have also obtained benefit in respect of the previous consignments.

An application for waiver of pre-deposit was moved before the Tribunal. The Tribunal by its order dated 29 April 2011 allowed the application in part and directed the First Appellant to deposit an amount of Rs. 1 crore within a period of four weeks. The Second Appellant was called upon to deposit an amount of Rs. 25 lakhs. An order of waiver of deposit was passed as against the other two partners of the firm on the ground that they had not played an active role in the transaction. However, in so far as the Second Appellant is concerned, the Tribunal did not order of complete waiver. The Tribunal rejected the contention of the Second Appellant that once a penalty has been imposed on the firm, no penalty can be separately imposed on its partners.

Counsel appearing on behalf of the Appellants has sought a waiver of pre-deposit on the ground that a prima facie case was made out. Before this Court, no submission has been urged on the ground of financial hardship. The submissions on merits are : (i) The judgment of the Supreme Court in Siddhachalam Exports Pvt. Ltd. v. Commissioner of Central Excise (supra) was cited before the Tribunal and submissions on the basis thereof were recorded in paragraph 4 of the order of the Tribunal. However, while assigning its reasons, the Tribunal has not considered the judgment; (ii) The material in relation to the alleged market enquiries in Dubai was not furnished to the Appellants and hence, there was a violation of the principles of natural justice; (iii) The Bombay Textile Research Association was not competent to conduct a valuation which has been acknowledged by the Customs Department in respect of a query under the Right to Information Act, 2005; (iv) Though the notice to show cause adverts to the provisions of Section 114A, the order of the Commissioner imposing a penalty has been passed u/s 114; and (v) The Appellants have adduced additional material before the Tribunal in support of their plea that the remittance of foreign exchange was duly received. Though this material was not produced before the Commissioner, now that the material has been produced before the Tribunal that ought to have been taken into consideration, particularly since an application for adducing additional documentary evidence has been allowed.

On the other hand, it has been urged on behalf of the Respondent by Counsel that each of these submissions, which arises in relation to the merits of the case, has been duly considered by the Tribunal and that no interference of this Court would be warranted and a substantial question of law could not arise. Counsel submitted that the judgment of the Supreme Court in Siddhachalam was placed before the Tribunal in support of an order of remand and that has been considered by the Tribunal in paragraph 14. The Tribunal declined to order a remand at this stage for valid reasons. Moreover, it has been submitted that at the prima facie stage, after evaluating the merits of the contentions, the Tribunal reduced the requirement of pre-deposit by calling upon the First Appellant to deposit Rs. 1 crore which order was just and appropriate.

The principal submission which has been urged before the Court is based on the decision of the Supreme Court in Siddhachalam Exports Pvt. Ltd. In Siddhachalam, the Supreme Court observed that ordinarily the price received by the exporter in the ordinary course of business, shall be taken to be the transaction value for determining value of goods under export, in the absence of any special circumstances indicated in Section 14(1) and Rule 4(2) of the Rules of 1988. The initial burden to establish that the value mentioned by the exporter in the bill of export or the shipping bill is incorrect lies on the revenue. Once the transaction value under Rule 4 is rejected, the value must be determined by sequentially proceeding through Rules 5 to 8 of the Rules of 1988. In the case before the Supreme Court, instead of first determining the value of the goods on the basis of contemporaneous exports of identical goods, the Revenue had resorted to a market enquiry which was held to be erroneous. The Supreme Court held that if the data of contemporaneous exports of identical goods was not available, the procedure laid down in Rules 5 to 8 was required to be followed and a market enquiry could be conducted only as a last resort.

The contention of the Appellants is that though the decision of the Supreme Court was relied upon and was cited in paragraph 4 while recording the submissions of the Appellants, it has not been dealt with in the reasons of the Tribunal. We are inclined, at the present stage, to accept the submission which has been urged on behalf of the Revenue that on a fair reading of the judgment of the Tribunal the decision of the Supreme Court has been considered. After adverting to the submission of the Appellants based on the judgment of the Supreme Court in paragraph 4, the Tribunal noted that Counsel for the Appellants had prayed for remand of the case before the Commissioner. The Tribunal furnished reasons in paragraph 14 as to why it came to the conclusion that it was not inclined to remand the proceedings. The Tribunal noted that against the cancellation of the DEPB licence, an appeal is pending before the Joint Director General of Foreign Trade. The decision of the Appellate Authority would have some bearing on the outcome of the appeal before the Tribunal. The Tribunal found that there was no prima facie case to order a waiver of pre-deposit. In arriving at this conclusion, the Tribunal noted that (i) The SUB had gathered particulars of the clearance at the port of discharge, Dubai of the goods which were exported by the First Appellant from India. These particulars included the bills of entry which were filed at Dubai. Upon a comparison with the export documents of India, it was found that the value declared in the overseas bills of entry was about 1/10th of the FOB value declared by the shipping bills in India. Prima facie, therefore, it appeared that the goods which were exported by the partnership firm under fifty shipping bills were heavily overinvoiced; (ii) The BTRA, which tested the samples was an agency recognized by the Ministry of Science and Technology of the Government of India and has necessary expertise to carry out the test. The appointment of a specific agency was not mandated by any provision of law in regard to the valuation for export of goods; (iii) Though the investigating agency had issued summons to the First Appellant for producing documents such as purchase invoices in support of the declared export value, nothing was produced, nor was any partner willing to cooperate with the investigating agency; (iv) Seventeen DEPB licences were cancelled ab initio on the ground that they had been obtained by the First Appellant by producing forged Bank realization certificates. Most of the BRCs were issued by the Central Bank of India. A Senior Officer of the Bank in his statement u/s 108 stated that the BRCs were forged and fake. The order of the licensing authority cancelling DEPB licences still holds the field. The Tribunal noted that though financial hardship had been pleaded, no evidence in regard to such hardship was forthcoming.

Having considered the rival submissions of the parties, we are of the view that no case has been made out for the grant of a complete waiver of the requirement of pre-deposit. Prima facie, at this stage, it does emerge that the Bank realization certificates on the basis of which the DEPB benefit has been claimed were found to be forged in large measure. The contention of the Appellants is that subsequent to the order passed by the Commissioner and during the pendency of the proceedings before the Appellate Tribunal, they produced the remittance certificates from the Union Bank of India in support of their contention that monies were in fact received. Admittedly, the remittance certificates were not produced before the Commissioner. The authenticity of the certificates is still to be verified and the question as to whether the certificates pertain to the very same transaction would have to be ascertained. The fact remains that at present, the statement of the Bank official recorded u/s 108 is that the Bank realization certificates that were produced were not genuine.

The Tribunal, in our view, has furnished adequate reasons in support of the order of pre-deposit. We are of the view that no case was made out to completely waive the requirement of pre-deposit. The order of the Tribunal requiring the First Appellant to deposit an amount of Rs. 1 crore, therefore, does not warrant interference. At the same time, the Tribunal has called upon the Second Appellant to deposit an amount of Rs. 25 lakhs. In this regard, reliance was sought to be placed by the Tribunal on the judgment of the Supreme Court in Prakash Metal Works v. Collector of C. Ex. Ahmedabad, 2007 (216) E.L.T. 660 (S.C.) by which the order of the Tribunal imposing the penalty both on the firm and its partners came to be upheld. Counsel appearing on behalf of the Appellants submitted that the judgment of the Supreme Court does not decide the question as to whether a penalty can be imposed on a partner of the firm when a penalty has already been imposed on the firm. The submission is that the firm is nothing but a compendious expression for its partners and the issue is not determined by the Supreme Court. In considering the totality of the facts of the case, the ends of justice would be subserved if the order directing the Second Appellant to deposit an amount of Rs. 25 lakhs is modified and the requirement of pre-deposit is waived in so far as the Second Appellant is concerned. We accordingly dispose of this appeal by modifying the order of the Tribunal to the extent to which the Second Appellant has been called upon to deposit an amount of Rs. 25 lakhs. The order of the Tribunal calling upon the First Appellant to deposit Rs. 1 crore shall stand. The time for effecting the deposit is extended by a further period of six weeks from today. The Appeal is disposed of and the questions of law answered as aforesaid. No order as to costs.