Umang Overseas vs Commissioner of Customs, Tuticorin

V. Dhanapalan, J.—A partnership firm, who is in the business of export, has prayed for a mandamus directing the respondent to grant provisional release of the goods, covered under Shipping Bill Nos. 2302618, 2302619, 2302623 all dated 21-1-2011 and Shipping Bill Nos. 2401710, 2401712, 2401737 all dated 2-2-2011 in terms of provision of Section 18 read with Section 110A of the Customs Act and in accordance with Customs (Provisional Duty Assessment) Regulations, 1963.

According to the petitioner, they are in the business of exporting goods, namely, Polyester fabric out of India in terms of provision of Section 51 of the Customs Act, 1962 (hereinafter referred to as ''the Act'') vide Shipping Bill Nos. 2302618, 2302619, 2302623 all dated 21-1-2011 (Container No. BLJU 4050374), which were exported to Afghanistan on the order of M/s. Right Choice Trading Ltd., 52A, TWR 2, Caribbean Coast, Hong Kong and M/s. Salman Tarabar Toor Transport Co. Ltd. The quantity, value and the DEPB incentive claimed by the petitioner on the said goods are as under :

Container No. BLJU4050374

Shipping Bill No./Date

Qty. in yards FOB Value in Rs.

DEPB amount in Rs.

2302618/21-1-2011

54750.00

73,24,095.00

6,00,575.81

2302619/21-1-2011

90751.21

1,21,51,857.26

9,96,452.31

2302623/21-1-2011

82501.01

1,10,45,505.44

9,05,731.33

Total

228002.22

3,05,21,457.70

25,02,759.56

The value of fabric was declared as Rs. 134.10 per yard for the export purpose and the present Indian Market value was declared as Rs. 147.51 per yard. The said goods were allowed to be exported after proper verification/assessment by the customs authorities after verifying all the declaration/description of the goods.

2.1. Despite the fact that the assessment have been carried out and completed and let export order has been given and the goods left the territorial water of India, the investigation agency, namely, Department of Revenue Investigation (in short ''DRI'') under their alleged investigation sought to stop the goods on the ground that the exporter had overvalued the goods with the intention to avail higher incentive, which is not available to the extent claimed by the petitioner. Accordingly, they recalled the goods back to Tuticorin for examination. Besides that the petitioner''s other consignments, which was about to be exported from Tuticorin Port was stopped and brought back for examination on the same allegation of overvaluation of goods.

2.2. The details of the said consignments are as follows :

Container No. BSIU9153055

Shipping Bill No./Date

Qty. in yards FOB Value in Rs.

DEPB amount in Rs.

2401712/2-2-2011

76500.00

1,03,27,712.50

8,46,872.44

2401710/2-2-2011

75750.00

1,02,26,350.00

8,38,560.69

2401737/2-2-2011

76500.00

1,03,27,712.50

8,46,872.44

Total

228750.00

3,08,81,775.00

25,32,305.57

In this shipment, the value of the fabric was declared as Rs. 135.15 per yard for the export purpose and the present Indian market value was declared as Rs. 148.66 per yard.

2.3. While so, the value, which has been declared and assessed in the terms of Section 14 of the Act is the value at which the petitioner''s buyer had agreed to purchase the materials from the petitioner in the course of international trade and business, where the petitioner is not related to the buyer and price is the sole consideration between the parties for which the goods are sought to be exported out of India. However, the Revenue Authority sought to challenge the declared/assessed value, although no tangible evidence including the market value has been placed on record to substantiate their claim that the value declared by the petitioner is on a higher side or is not correct or the same is not the transaction value. On the basis of the alleged investigation, both sets of goods, which were already exported and the goods which were about to be exported were on 1-3-2011 and 2-3-2011 respectively, were stopped. It has been alleged by the Department that the goods were of inferior quality and the petitioner made an attempt to avail undue ineligible DEPB benefit and both the consignments were seized, vide Mahazar, dated 1-3-2011 and 2-3-2011 respectively. The value declared by the petitioner has been decreased by the respondent on the basis of the alleged investigation as under :

Container No. BLJU4050374 (S/B no. 2306218, 2306219, 2302623 all dated 21-1-2011.

In this set of goods as against the value of the petitioner i.e. 134.10 per yard the department decreased the same to Rs. 20 per yard (total 228002.22 yards) thereby decreasing the value of the same from 3,05,21,458, to Rs. 45.60 lakhs.

Correspondingly the DEPB (8.20%) claimed by the petitioner of Rs. 25,02,759.56 has been sought to be decreased to Rs. 3,73,920/-.

Container No. BSIU9153055 (S/B no. 2401710, 2401712, 2401737 all dated 2-2-2011.

In this set of goods as against the value of the petitioner i.e. 135.15 per yard (total 228750 yards) (sic) thereby decreasing the value of the same from 3,08,81,775 to Rs. 45.75 lakh.

Correspondingly the DEPB (8.20%) claimed by the petitioner of Rs. 25,32,305.57 has been decreased to Rs. 3,75,150/-.

2.4. Though the petitioner has requested in its letters, dated 3-3-2011, 4-3-2011, 23-2-2011 and 21-3-2011 for provisional release of goods, no response was received by them. Therefore, the action of the Department, seeking to decrease the value as against the declared value of the petitioner is without basis and the value declared by the petitioner is correct, at which value the buyer has agreed to purchase the goods and there is no justification for decreasing the same and the petitioner has already received the money against the export from the buyer in advance and therefore, whole exercise to decrease the value and correspondingly the incentive is full of mala fide and arbitrary attitude is totally unsustainable.

2.5. The goods in question had been exported on the order of the buyers and against which the remittance have been received and the inability on the part of the petitioner to send the goods to the buyer on account of investigation by the respondent is in violation of the terms and conditions of the contract entered into between the buyer and seller, which can lead to serious repercussion. On the above basis of allegations, already a show cause notice Bearing No. VIII/48/08 & 10/2011 DRI TTN, dated 24-8-2011 has been issued by the DRI, wherein the petitioner has already filed an interim reply and also took part in the personal hearing held on 1-12-2011. In the said hearing, the petitioner requested for cross-examination of the officers of Customs and CHA. The petitioner also made a request for provisional release of the goods. Further, the petitioner has also sent a communication, dated 5-12-2011, wherein, the petitioner again made a request for allowing the provision of Section 110A of the Act as the goods are incurring heavy demurrage and detention charges, for which, there is no response received for the provisional release of goods.

2.6. The petitioner contended that the allegation of the department regarding the quality of the goods is based on no evidence, as no market inquiry of the goods have been conducted so far and the figure arrived at by the department are based on conjectures and surmises, whereas, the petitioner has got proof to show that the value declared by them is the correct transaction value. When the goods were assessed by the proper officer and only thereafter the export orders were given by the concerned officials, hence taking such drastic steps were not only the goods, which were about to be exported after getting the necessary let export order, has been held up, but the DRI went to the extent that it recalled the goods, which had already crossed the territorial waters. If at all there was any problem in the said assessment then the correct steps would have been said to challenge the said assessment, instead the DRI has chosen to stop the consignments. Therefore, there is a statutory obligation on the part of the respondent to allow the goods to be released on a provisional basis for export, as these goods are freely exportable and are chargeable to duty and no prohibition is involved in the same.

2.7. The petitioner also undertakes not to avail any incentive against the goods in question pending adjudication proceedings and the petitioner is filing the present petition in order to save the detention and demurrage charges and if the goods are not allowed to be released on provisional basis for export, the petitioner may lose the order and it would be a complete loss not only to the petitioner but also to the Government as any export from India brings the valuable foreign exchange into the country and the petitioner is ready to furnish necessary bank guarantee of 20% of the disputed DEPB claim and bond for the whole value of the goods for the purpose of release on provisional basis for export in terms of provision under Section 18 read with Section 110A of the Act in accordance with Customs (Provisional Duty Assessment) Regulations, 1963 (hereinafter referred to as ''the Regulations''). As there is no reply from the respondent, till date, about the provisional release of the goods for the purpose of export and the goods are incurring huge loss, the petitioner is before this Court for the above relief.

The respondent has filed their counter and inter alia stated that the petitioner had filed Shipping Bill Nos. 2302618, 2302619 and 2302623, dated 21-1-2011 for the export of 228002.22 yards of polyester fabrics to Afghanistan, declared FOB value of Rs. 3,05,21,457.00 and claimed the benefit of Rs. 25,02,759.56 under DEPB scheme. He has also filed Shipping Bill Nos. 2401710, 2401712 and 2401737 all dated 2-2-2011 for the export of 228750.00 yards of polyester fabrics to Afghanistan declaring the FOB value as Rs. 3,08,81,775.00 claiming the benefit of Rs. 25,32,305.57 under DEPB scheme. The goods were examined and let export order was given initially, on further examination by DRI (Directorate of Revenue Intelligence), Tuticorin, the export goods were found to be of inferior quality and the value of the export goods was determined as Rs. 45,60,000/- and Rs. 45,75,000/- and the corresponding DEPB benefit available to the exporter for the two consignments under the above stated shipping bills as Rs. 3,73,920.00 and Rs. 3,75,150.00 respectively.

3.1. At the time of investigation by the DRI, Tuticorin, the petitioner was unable to furnish the purchase invoice/bill evidencing the purchase of the said fabrics to arrive at FOB value declared in the Shipping Bills based on which the petitioner would get the benefit under DEPB scheme and on physical examination of the fabrics by DRI, Tuticorin, it was found that the fabrics were of inferior quality. In the absence of proper documents/evidences for the FOB value arrived at and declared by the petitioner is liable for rejection under Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (hereinafter referred to as ''the Rules''). The value of the fabrics was ascertained by DRI, Tuticorin in the local market from two merchants engaged in the business of fabrics viz., M/s. KMS Textiles, Tuticorin and M/s. AMDS Collections, Tuticorin and as such the value determined by the officials for the polyester fabrics after physical examination and market study is Rs. 45,60,000/- and Rs. 45,75,000/- respectively under Rule 6 of the Rules, which was taken as the true transaction value for the purpose of assessment.

3.2. While that being so, the petitioner now attempted to commit fraud by overvaluing the export goods, namely, polyester fabrics with a view to avail undue benefit under DEPB scheme and the petitioner also requested in reply to the show cause notice to them vide letter, dated 24-8-2011 for the release of the goods for the purpose of domestic use without any export incentives. On the one hand, the petitioner requested for the purpose of release of the domestic use without any export incentives. On the other hand, the petitioner is before this Court for the release of the impugned goods for the purpose of export stating that it would bring valuable foreign exchange into the country. It is not the case of normal export but one of claiming undue DEPB benefit by fraudulently overvaluing the export goods. It is further contended in the counter affidavit that the petitioner has appeared before the adjudicating authority for personal hearing on 1-12-2011 and at that time, the petitioner has informed that he will produce the past one year records of exports and realization of BRC within a period of one week. But no such records have been produced till date and passing of the adjudication order is pending for want of the same. Instead of producing the records as assured by him at the time of personal hearing to facilitate the completion of adjudication process, misled this Court by suppressing the facts and made plea for the provisional release of the goods. The respondent also relied on a decision of the Supreme Court in the case of UOI v. Lexus Exports Pvt. Ltd., reported in 1994 (71) E.L.T. 348 (S.C.), wherein it was held that "the proceedings of seizure and confiscation are proceedings in rem. Until the culmination of the adjudication, it is difficult to envisage any right on the part of respondent from whom they are seized to export them on the basis of future title they expect to acquire by payment of fine ... but sanctity of legal proceedings cannot be whittled down on grounds of such expediency". On the background pleadings and the decision cited by them, they prayed for the dismissal of the writ petition.

Mr. Pradeep Jain, learned senior counsel for the petitioner, in his submissions, has strenuously contended that there is no justification to hold the consignment indefinitely from February, 2011 to till date, when admittedly goods in question i.e. polyester dyed fabric are neither prohibited nor restricted item, but on the contrary are freely exportable items and are not subject to payment of any customs duty. He would further contend that there is no provision under which these goods in question can be absolutely confiscated as clear from the provision of Section 125 of the Act. Therefore, the action of the respondent is arbitrary, illegal in not granting the provisional release of the goods. It is his contention that the Commissioner of Customs was bound by the Board''s circular referred dated 2-8-2005 and 4-1-2011, which clearly provide that in case of recording the value for the goods meant for export, the adjudicating authority should immediately permit provisional release of the goods for the purpose of export on terms and conditions in accordance with law. Therefore, there is a legal obligation to allow the release of the goods. Lastly, he would contend that the alleged difference of the incentive claimed by the petitioner, even if the allegations is taken to be true, the petitioner has offered to furnish the sureties in the form of bond for the value of the goods and furnish bank guarantee of 30% of the alleged difference in the excess DEPB benefit as claimed by the petitioner in terms of the order passed by the Supreme Court in the case of Commissioner v. Navasakthi Inds. Private Ltd. [2011 (269) E.L.T. A146 (S.C.)] in appeal against the judgment of Division Bench of Delhi High Court in Navasakthi Inds. Private Ltd. v. Commissioner reported in 2011 (267) E.L.T. 483 (Del.). In support of his contention, he has also relied on a decision of M/s. Austin Engineering Company Ltd. v. Commissioner of Customs reported in 2010 (1) MLJ 1273.

Per Contra, the learned counsel for the respondent would contend that the goods imported found to be of inferior quality. The petitioner had overvalued the goods with an intention to avail undue benefit, which otherwise not available to the extent claimed by the petitioner. He would further contend that at the time of investigation by the Revenue individuals, the petitioner was unable to furnish the purchase invoice bill evidencing the purchase of the said fabrics to arrive at FOB value declared in the shipping bills based on which the petitioner would get the benefit under the DEPB scheme. Therefore, in the absence of proper documents, the value declared by the petitioner is liable for rejection under Rule 8 and the value determined by the officials under Rule 6 was taken as the true transaction value for the purpose of assessment based on the local market value. He contended that the petitioner requested for the release of the goods for the purpose of domestic use without any export incentives. On the other hand, the petitioner has pleaded before this Court to release the provisional goods for the purpose of export stating that it would bring valuable foreign exchange into the country. Lastly, the learned counsel pointed out that during the personal hearing, the petitioner inter alia informed that he will produce past one year''s records of export and realization of BRC within a week, but no such records have been produced till date and passing of the adjudication order is pending for want of the same.

Heard the learned counsel for the petitioner and the learned counsel for the respondents and perused the material documents annexed in the typed set of papers.

Considering the facts of the case, it is relevant to consider the provisions of the Act, the Regulations and the relevant Rules.

Section 18. "Provisional assessment of duty. - (1) Notwithstanding anything contained in this Act but without prejudice to the provisions contained in Section 46 -

(a) where the proper officer is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as the case may be; or

(b) where the proper officer deems it necessary to subject any imported goods or export goods to any chemical or other test for the purpose of assessment of duty thereon; or

(c) where the importer or the exporter has produced all the necessary documents and furnished full information for the assessment of duty but the proper officer deems it necessary to make further enquiry for assessing the duty, the proper officer may direct that the duty leviable on such goods may, pending the production of such documents or furnishing of such information or completion of such test or enquiry, be assessed provisionally if the importer or the exporter, as the case may be, furnishes such security as the proper officer deems fit for the payment of the deficiency, if any, between the duty finally assessed and the duty provisionally assessed." .......

Section 14. "Valuation of goods. - (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf :...."

Section 110A. "Provisional release of goods, documents and things seized pending adjudication. - Any goods, documents or things seized under Section 100, may, pending the order of the adjudicating officer, be released to the owner on taking a bond from him in the proper form with such security and conditions as the Commissioner of Customs may require."

Section 51. "Clearance of goods for exportation. - Where the proper officer is satisfied that any 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."

The indepth analysis of the case would reveal that the petitioner is a partnership firm engaged in the business of exporting goods, namely, polyester fabric out of India vide Bill Nos. 2302618, 2302619, 2302623 all dated 21-1-2011, which was exported and stopped by the authority as the goods were of inferior quality and the exporter had overvalued the goods with an intention to avail higher incentives and another Container No. BSIU9153055, for the last three bills 2401710, 2401712, 2401737, dated 2-2-2011, which were about to be exported and for all the three bills, the petitioner claimed that for the export of 228750.00 yards of polyester fabrics to Afghanistan, declared FOB value of Rs. 3,08,81,775.00 and claiming the benefit of Rs. 25,32,305.57 under DEPB scheme and further the goods were examined and let export order was given initially and on further verification, the DRI''s investigation found the goods were of inferior quality and the value of the goods were determined as Rs. 45,60,000/- and Rs. 45,75,000/- respectively.

At the time of investigation, before the DRI, the petitioner was asked to furnish the purchase invoice bill evidencing the purchase of the said fabrics to arrive at FOB value declared in the shipping bills based on which the petitioner would get the benefit under the DEPB scheme. But it was not submitted as on date. Though later on, the petitioner has claimed that it was for a domestic use, now, the sustained plea of the petitioner is that he has to get the provisional release of the goods for export, for which, the respondent after investigation, proceeded to issue the show cause notice vide letter in C. No. VIII/48/08&10/2011-DRI, dated 24-8-2011 for the release of the goods for the purpose of domestic use without any export incentives and to that, the petitioner has submitted his preliminary reply and thereafter a personal hearing was given to the petitioner on 1-12-2011. At the time of personal hearing, the petitioner has informed to the adjudicating authority that they will produce the past one year''s records of the export and realization of the BRC within a week. But the question is whether the BRC bills was produced or not. Though it is the stand of the respondent that it was not produced, it is the stand of the petitioner that the BRC bill has already been submitted and a proof of the same is also enclosed in the typed set of papers in its communication dated 5-12-2011. If it is so, it is for the respondent to proceed further in adjudicating the matter and give a final conclusion for provisional release on perusal of the every documents and analysing the every issue and it is for the adjudicating authority to conclude the proceedings by taking into account the BRC, which is a basic requirement, as they demanded in their personal hearing. The document, which is said to be produced immediately on 5-12-2011, by the petitioner in its letter of communication, dated 5-12-2011 bringing to the attention of the authorities concerned, as per the hearing by the adjudicating authority on 1-12-2011, and the same has been endorsed by the office of the Commissioner of Customs on 12-12-2011, it is for the adjudicating authority to pass the order in conclusion and decide the matter in accordance with law.

The principle of valuation of the goods as contemplated under Section 14 of the Act would make it clear that the value of the imported goods and export goods shall be the transaction value of such goods the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for the delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the Rules. However, the ordained principle as envisaged by the Act for the provisional release of goods contemplates that any goods, documents or things seized under Section 110 may pending the order of the adjudicating officer to release to the owner on taking a bond from him in the proper form with such security and conditions as the Commissioner of Customs may require. In the instant case, it is at the stage of adjudication. The petitioner is now adjudicating the matter by giving necessary documents and the reply to the show cause notice and the only question, which the respondent resisted is the non-production of BRC, which according to the petitioner has already been produced. If such is the case, the above cardinal principle as envisaged by the provisions of the Act would apply to the case then the adjudicating authority would decide finally what would be the outcome of the decision. On such a decision, the petitioner is entitled for the release of the goods and then only, it can be released. Therefore, the claim has to be considered in the light of the above provisions.

Accordingly, the mandamus sought for by the petitioner, to direct the respondent to grant provisional release of goods on adjudication of the matter, is ordered and the respondent is directed to pass appropriate orders in accordance with law and on merits, on the basis of personal hearing, dated 1-12-2011 and the production of BRC, dated 5-12-2011, which was endorsed, and thereafter release the goods. No costs. Consequently, the miscellaneous petition is closed.