Fortune Impex v. Commissioner of Customs, Calcutta

[Order per : V.K. Agrawal, Member (T)]. - In these nine appeals, arising out of a common Order No. 133/97. Commr., dated 12-12-1997, passed by the Commissioner of Customs, Calcutta, the issues involved are whether the goods presented for export out of the country are liable for confiscation under Customs Act read with Foreign Exchange Regulation Act and whether the penalty is imposable on all of them under the Customs Act.

2.1 Briefly stated the facts are that a consignment of two hundred cartons of QTM of clocks containing one lakh p ieces of QTM valued at Rs. 29,88,500/- was presented at Air Cargo Complex for export under shipping Bill No. ASF 2063, dated 21-7-1995 by M/s. Fortune Impex. The consignment was examined by the officers of the Directorate of Revenue Intelligence on 31-7-1995. On examination of the goods, 16 cartons were found to be containing 8000 pieces of vary old/used/repaired/working O.T.M. of clocks valued at Rs. 80,000/- and 104 cartons were found to contain 92,000 pieces of very old/used/broken/non-working Q.T.M. of clock having no commercial value. The goods were being exported under DEEC Scheme. The duplicate/triplicate copies of the shipping bills covering the goods was not available with the Customs House Agent M/s. India Mercantile Agency and Freight Forwarding Agent M/s. Burlington Air Express (India) Pvt. Ltd. After investigation, show cause notice dated 27-1-1996 was issued to 12 noticees (including Appraiser and Examiner of Customs House) for confiscation of the goods under the provisions of Customs Act read with Foreign Exchange Regulation Act (FERA) and for imposition of penalty.

2.2  The Commissioner of Customs, under the impugned Order, confiscated the impugned goods under Section 113(d) and (i) of the Customs Act read with Sections 18(1) and 67 of the FERA with an option to redeem the same on payment of fine of Rs. 80,000/-. The Commissioner also imposed following penalty :-

(i)	M/s. Fortune Impex	Rs. 4,00,000/-
(ii)	M/s. Chawla Enterprises Pvt. Ltd.	Rs. 4,00,000/-
(iii)	Shri H.S. Chawla	Rs. 4,00,000/-
(iv)	Shri Y.K. Gandhi	Rs. 1,00,000/-
(v)	Shri Kamal Kohli	Rs. 1,00,000/-
(vi)	Shri Kishan Daga	Rs. 4,00,000/-
(vii)	Shri Aurobindo Ghosh	Rs. 1,00,000/-
(viii)	Shri T.K. Dey	Rs. 1,00,000/-
(ix)	Shri V. Paul	Rs. 1,00,000/-
(x)	Shri S. Das	Rs. 1,00,000/-

2.3 The Commissioner, however, exonerated Shri A.K. Kothari, Appraiser and Shri P.S. Upadhyay, Examiner.

3. Shri A.S. Sunderrajan, learned Advocate, along with Shri K.S. Venkataramani, learned Consultant, appeared for Appellants No. 1 to 3. The learned Advocate submitted that M/s. Fortune Impex, Appellant No. 1, obtained an order for export of Q.T.M. from M/s. J.N. Exports Hongkong; that they placed an order for manufacture and supply for export of 1 lakh pieces of O.T.M. with M/s. Chawla Enterprises Pvt. Ltd., Appellant No. 2; that there has been some mix up of the goods lying in the warehouse and that instead of sending the goods meant for export, Appellant No. 2 had despatched damaged/unserviceable/returned goods which were returned from customers and lying in the factory; that as soon as this was deducted the same was intimated to the proper officer of Central Excise incharge of M/s. Chawla Enterprises; that on or about 10-11-1995, M/s. Chawla Enterprises filed a declaration in form D-3 in respect of excisable goods. He, further, submitted that after examination of the goods the Customs Officers passed the Let Export Order; that they had presumably recorded an examination report on the reverse of Shipping Bill to the effect that the goods were found to be in accordance with the declaration contained on the S/B; that the impugned shipping bill has not been produced to them or the adjudicating authority; that non-production of the Shipping Bill amounts to denial of principles of natural justice. He also mentioned that as per impugned Order, both Appraiser and Examiner had contended that the show cause notice did not spell out any cause of action against them nor disclose any involvement on their part in the attempted exportation of the fake material; that the Adjudicating Authority, relying on the report of the Assistant Commissioner Export and observing that the officers cancelled the endorsement made on the Shipping Bill after the first examination on 29-7-1995 on the same day itself, exonerated them of the charges; that as Shipping Bills in question was not available to the Adjudicating Authority how she could have come to the conclusion that the said officers detected the mistake immediately on the same day and asked for detailed examination; that as such the entire proceedings are void ab initio and non-submissions of officers reply to the Appellants was a clear case of denial of principles of natural justice.

4. The learned Advocate, further, mentioned that indisputably the value of the goods is Rs. 80,000/- and as such the matter falls within the competence of the Assistant Commissioner of Customs for adjudication; that accordingly the notice was without jurisdiction; that the adjudication by the Commissioner would prejudice the interests of the Appellants as in the normal course they would have the remedy of one appeal before the Commissioner (Appeals) and the other before the Tribunal. He also contended that Shri H.S. Chawla, Partner and Director of Appellants No. 1 and 2 respectively, had clearly admitted that there was a mix up and mistake was committed by the despatch clerk and wrong goods had been despatched and this fact was corroborated by the availability of the material meant for export in the factory; that it was alleged by the Revenue that the defective goods were found to be fake inasmuch as the buyers named in the challans were either non-existent or no such goods were returned by them; that the show cause notice referred to the deposition of 26 persons including that of Customs officers who appraised/examined the goods; that they had specifically pleaded that the 26 persons whose statement had been relied upon should be produced for cross-examination; that the Commissioner had not allowed the same by giving her findings that cross-examination of the persons would not vitiate the findings and asking for cross-examination would only delay the adjudication proceedings; that this finding is devoid of merits inasmuch as the urgency for adjudication had not been spelt out; that it is settled law that cross-examination of the deponents is a must; that the Supreme Court, in Kalra Glue Factory v. Sales Tax Tribunal, 1987 (167) ITR 498, has observed “We allow this appeal solely on the ground that the statement of Banke Lal which was not tested by cross-examination was used in order to reach the conclusion that the transaction was an interstate sale.” Reliance was also placed on the decision of the Calcutta High Court in Windero Glass Ltd. v. Superintendent, Central Excise, (Cal.) wherein it was held that the Order was a nullity inasmuch as the same was passed in violation of principles of natural justice. He also relied upon the decision of the Tribunal in Indo Plast v. C.C., (T) and Khusal Confectionary and Pharma Ltd. v. CCE, Chandigarh, (T). The learned Advocate emphasised that the Adjudicating Authority granted personal hearing only to the Appellants on Lakshmi Pooja day when the entire city of Calcutta was observing a holiday, except the Central Government Office; that no other noticee was present and no attempt was made to summon any person for cross-examination.

5. The learned Counsel, further, submitted that the goods tendered for examination were as per description viz., QTMs; that it is immaterial that the same were not in working condition; that mere fact that the goods were old/used/repaired/working QTM would by itself not render them liable to confiscation when the goods were not exported and the buyer had not refused to accept the same. He also mentioned that the fact remains that the goods were not shipped and the G.R. Form was not negotiated and accordingly provisions of Section 113(d) of the Customs Act are not invokable (though not specified in the show cause notice); that the question of invoking Section 18(1) of FERA (again not invoked in the notice) would not arise inasmuch as the G.R. Form was not negotiated and there is no shortfall or non-realisation of the foreign exchange. He contended that the Adjudicating Authority was not competent to invoke the provisions of Section 113(d) of the Customs Act and Section 8(1) of the FERA when the same were not specifically referred to and dealt with in the show cause notice and there was no notice to the appellant in this regard; that the show cause notice itself was not sustainable in view of the fact that it was vague and did not specify the provisions of the Customs Act and the FERA. He relied upon the Article written by him and reported in 1996 (87) E.L.T. A16 in the context of the decision in Dimple Overseas Ltd., (S.C.). He also relied upon the decision of the Larger Bench of the Tribunal in the case of J.G. Exports v. C.C., (T-LB) = 2000 (40) RLT 755 wherein it was held that over-valuation of export consignment in shipping bill was not violative of Section 18(1)(a) of FERA and could not be brought under the provisions of Section 11 of the Customs Act; that the Tribunal in this case upheld the decision in Shilpi Export v. C.C., (T) = 1996 (13) RLT 39; that this was the position as on the date of the last hearing on 10-11-2000 and, accordingly, following the decision of the Larger Bench, the appeal ought to have been allowed even on merits; that, thereafter, on 1-12-2000 a still Larger Bench of the Tribunal in Om Prakash Bhatia v. C.C., has overruled the decision in J.G. Exports by distinguishing the decision of Shilpi Exports (approved by the Supreme Court). The learned Advocate mentioned that the decision in Om Prakash Bhatia is not binding overlooking the decisions in J.G. Exports, Shilpi Exports and Dimple Overseas Ltd. He also contended that numerical strength of a Bench cannot decide its authority when the statute does not provide for overruling the judgment merely on the basis of the numerical strength of the Benches constituted for disposal of the cases. He placed reliance on the decision in Javed Ahmed Abdul Hamid Pawala v. State of Maharashtra, 1985 (2) SCR 8 wherein the Supreme Court observed as follows :-

“The case also raises the further question whether a Division Bench of three judges can purport to overrule the judgment of Division Bench of two judges merely because three is larger than two. The Court sits in Divisions of two and three judges for the sake of convenience and it may be inappropriate for a Division Bench of three judges to purport to overrule the decision of a Division bench of two judges. It may be otherwise where a Full Bench or a Constitution Bench does so”.

6. He also relied upon the decision in the case of Srinivasan Metal Industries v. CCE, (T) (para 30). He also mentioned that the Customs Act does not contemplate an appellate machinery within CEGAT; that though the Supreme Court has approved constitution of a Larger Bench for resolving conflicts there is no provision for constituting a still Larger Bench to overrule a Larger Bench’s decision. He continued his arguments by submitting that the only authoritative decision in the matter is that of the Tribunal in the case of Dimple Overseas Ltd. which has been specifically approved by the Supreme Court, though with a rider that the question of applicability of Section 14(1) of the Customs Act in regard to the valuation of export goods has been left open; that the Tribunal in Para 16 of the decision has referred to the Minutes of the Collector’s Conference held on 21/22-7-1994 and held that the rigours of Section 14 of the Customs Act are not in terms applicable to a case of exports which are not liable to export duty; that accordingly it is not proper or legal for the Tribunal to vary its decision from time to time and disturb the settled law. Finally the learned Advocate submitted that it was alleged in the show cause notice that 16 selected cartons containing working Q.T.Ms along were produced for examination by the Customs Officers; that the cartons were selected by the Customs Officers for detailed examination; that even these 16 cartons were found to contain 8000 pieces very old/used/repaired working Q.T.Ms, of clocks; that had their intention been to hoodwink the Customs, they would have packed these 16 cartons with good working Q.T.Ms; that the fact that all the cartons contained old/used materials clearly establishes their bona fides. He, therefore, contended that both on merits of the case as well as on the ground of denial of principles of natural justice the impugned Order is not sustainable, goods are not liable for confiscation and no penalty is imposable.

7. Shri D.K. Saha, learned Consultant appearing for Shri Kishan Daga, submitted that the appellant is engaged in the business of diverse merchandise, imports diverse items and he has to tour extensively; that during his visit to Delhi, his friend Shri Subhash Asari requested him to extend friendly assistance with regard to the export of O.T.Ms from Calcutta to Hongkong on behalf of Asari’s friend; that he received the documents for export from Asari and handed over the same to M/s. Burlington Air Express India Pvt. Ltd., forwarding agent, and did not charge anything; that said Asari had sent the consignment of Q.T.Ms in the name of “Fortune Impex” on 27-7-1995 by Sahara India Airlines whom he paid Rs. 28,850/- towards Air freight charges; that he handed over consignment to Shri A.K. Ghosh of Burlington Air Express. The learned Consultant, further, submitted that Shri Kishan Daga never met Appraiser any time with regard to the examination of the consignment nor was he present at the time of examination of the impugned goods; that he did not give any specific instruction to Shri Das or anybody of Burlington Air Express with regard to shipment of the consignment; that there is no substance in the allegation that he gave number of the selected 16 cartons to the representative of the Clearing/Freight Forwarding Agent for the purpose of examination; that it is apparent from the statement of Shri Ghosh that Kishan Daga never gave him the numbers of 16 cartons as he (Ghosh) had deposed on 7-8-1995 that Daga had made the arrangement by directly talking to the Appraiser; that again on 9-8-1995 Ghosh deposed that Shri Subhendu Das, Import Consolidation Manager, gave him certain numbers which were given to him by Daga; that said Appraiser had deposed in his statement that he was not approached by any-body or guided by anybody to examine the goods and that Kishan Daga did not approach him for consignment. He finally submitted that making arrangement for a clearing agent and handing over the documents to the clearing agent on receipt from the exporter does not constitute any offence under Customs Act, 1962.

8. Shri B.N. Chattopadhyay, learned Consultant, appeared for S/Shri Aurobindo Ghosh, T.K. Dey, Vikram Paul and Subhendu Das and submitted that all these four appellants are employees of the clearing agents; that the charge against them is that they were aware that only 16 specific packages of the consignment contained correct materials; that even those 16 cartons were found to contain very old/used/repaired Q.T.M. of clocks and as such there is no base in the allegation; that there is no evidence to show that they knew about the goods being old/used, etc.; that the examination of the contents of the package is the work of the customs officers; that the Appraiser only examined 10 packages instead of 20 and for this no blame can be apportioned on them; that it is not possible for them to keep the packages opened for examination by the officers; that the packets cannot be opened without the permission of the Customs Officers. The learned Consultant, further, submitted that they had no part to play in the matter of examination of the export materials; that when the goods are to be examined by the Customs Officers and none of the packages contained the proper materials, the question of abetting the exporter in the clearance of the goods cannot arise.

9. No one appeared on behalf of Shri Y.K. Gandhi, a senior executive and authorised signatory of M/s. Fortune Impex.

10. Countering the arguments, Shri V.K. Chaturvedi, learned SDR, reiterated the findings of the Adjudicating Authority as contained in the impugned Order and emphasised that the goods were being exported under DEEC Scheme and instead of proper goods, very old/junk/non-working Q.T.Ms were being exported; that had the matter not been detected the very old/used/junk goods would have been exported out of the country and the Appellants would have availed of duty free benefit in respect of importation of the inputs; that the Commissioner was competent to adjudicate the matter as the value of the impugned goods declared by them was Rs. 29.88 lakhs; that as the Appellants have admitted that the impugned goods were not prime goods, non-allowance of cross-examination has not caused any prejudice to the Appellants and as such there was no violation of principles of natural justice.

11. We have considered the submissions of all the sides. The facts which are not in dispute are that M/s. Fortune Impex had filed a Shipping Bill No. AEF 2063 dated 27-1-1993 for export of one lakh pieces of Quartz Timing Movement, packed in 200 cartons, valued at Rs. 29,88,500/-, under DEEC Scheme; that the impugned goods were detained by the officers of the Directorate of Revenue Intelligence and examination of the goods revealed that

(i)         Sixteen cartons contained 8000 pieces very old/used/ repaired/working QTM of clocks. Estimated Market value Rs. 80,000/-.

(ii)        184 Cartons contained 92000 pieces very old/used/broken/ non-working/junk Quartz Timing Movement of Clocks having no commercial value.

12. We do not agree with the learned Advocate that the Commissioner did not have the jurisdiction to adjudicate the matter. Section 122 of the Customs Act empowers the Commissioner to adjudicate any case, in which anything is liable to confiscation or any person is liable to a penalty, without limit. It is thus evident that the Commissioner is competent to adjudicate the present matters. Moreover, the value of the impugned goods declared in the Shipping Bill is Rs. 29/88,500/- which is beyond the competence of the Assistant Commissioner. Further, the lowering of value, in any case, is only effective after the final order is passed after adjudication proceedings. The learned Advocate has also emphasised that there was violation of the principles of natural justice, as the impugned Shipping Bill has not been produced to the Appellants. We observe that it is clearly mentioned in the show cause notice that the duplicate/triplicate/DEEC copy of the Shipping Bill covering the impugned consignment was not available with the Customs Clearing Agent and/or Freight Forwarding Agent. The Assistant Commissioner of Customs (Export), Air Cargo Complex, Calcutta had provided photocopy of the Original Shipping Bill and invoice for the impugned consignment. Shri Aurobindo Ghosh had also deposed in his statements that he was not in a position to submit the Shipping Bill as the same was lost and F.I.R. was made to the Police. Further, the contents of the cartons given for export had not been disputed by the Appellants. In view of this, it cannot be claimed that there was any violation of the principles of natural justice or the findings reached by the Commissioner was wrong. The learned Advocate has also emphasised that non-allowing of cross-examination of 26 persons sought by him also vitiates the proceedings. The cross-examination of the witness, wherever necessary, has to be allowed in Departmental Proceedings. But it is not required that in each and every case cross-examination should necessarily be allowed. There is no absolute right of cross-examination provided in the Customs Act. This was the view held by the Calcutta High Court in the case of Tapan Kumar Biswas v. UOI, 1996 (63) ECR 546. Cross-examination of witnesses cannot be demanded as of right. The presumption is that unless the noticee makes out a case for cross-examination he will not be granted cross-examination. The Appellate Tribunal in the case of Debu Saha v. Collector of Customs, (T) held that “It is no doubt true that in all cases, cross-examination need not be granted, but it all depends on the circumstances of each case.” The Tribunal also observed in that case that if the Collector comes to the conclusion that the cross-examination is not material then by assigning reasons, he can reject the prayer. We find that the learned Advocate, in his letter dated 9-3-1996 had given a list of 26 persons for cross-examination without indicating the specific reasons for cross-examining them. Some of the persons mentioned therein are co-noticees and some of them are Director/partner/employee of his clients. It has been held by the Tribunal in the case of Calicut Rubber Co. v. CCE, Cochin, (T) that if the Appellants are accused persons the question of calling them for cross-examination does not arise. Again he had mentioned a number of officers by designation without indicating their names and role played by them in the investigation of the matter against his client. We also note that the learned Advocate has not disputed the fact that the cartons contained very old/used/broken QTMs of clocks and the value was only Rs. 80,000/- as against the declared value of Rs. 29,88,500/-. There is also no rebuttal by the learned Advocate that these goods were sent for export through Kishan Daga. In view of these facts and circumstances we are of the view that it cannot be claimed by him that there was violation of principles of natural justice by not allowing the cross-examination of the persons sought by him. The Apex Court in Surjeet Singh Chhabra v. U.O.I., (S.C.) held that “in view of confession made by him, it binds him and, therefore, in the facts and circumstances of this case the failure to give him the opportunity to cross-examine the witness is not violative of principles of natural justice.” In that case the petitioner contended that as he had retracted his statement within 6 days from the confession he is entitled to cross-examine. We also do not find infirmity in granting of personal hearing to the learned Advocate by the Adjudicating Authority on a day when the entire city of Calcutta was observing a holiday, as the Central Government offices, admittedly, were not closed.

13.1 Now we come to the contention of the learned Advocate that the defective goods were sent by mistake since the defective goods were staked with the goods meant for export in the premises of the supporting manufacturer. The Adjudicating Authority has considered the said plea and rejected the same holding that “The said goods were not sent from the factory premises to the exporting firm at one go but part by part over a period of eight days since 17-7-1995. The mistake cannot be committed consecutively on five occasions specially when they are not novices in this business having by their own admission already exported 33 consignments abroad. The longtime lag and despatch of goods part by part consecutively on five occasions belie their claim of bona fide mistake.”

13.2 The Commissioner has also given her findings that their claim that they had given intimation about the mistake to the Central Excise Officer is not sustainable because the goods were detained on 31-7-1995 and the stock was taken on 1-8-1995 i.e. after the goods had been detained. Further, the Challans produced by M/s. Chawla Enterprises Pvt. Ltd. in connection with the receipt of defective goods were found to be fake inasmuch as the buyers as named in the challans were either non-existent or no such goods were returned by them. In view of these findings which have not been rebutted by adducing any evidence by the Appellants. We agree with the Commissioner that despatching of very old/used etc. QTMs was not a bona fide mistake. They have not brought any evidence on record either by way of affidavit or letter from any of their customers who are said to have returned the goods for repair.

14. We find no substance in the plea of the learned Advocate that there was no misdeclaration since the goods were not goods meant for export which is evident from the fact that the value of goods was only Rs. 80,000/- as against Rs. 29,88,500/- declared by them. It is immaterial and irrelevant that the goods were not shipped and G.R. Form was not negotiated. If the contention of the learned Advocate is accepted there cannot be any offence in respect of goods entered for export as in case of violation of any provisions of law, the goods would not be shipped. We find that provisions of Section 18(1) of FERA was specifically mentioned in the show cause notice and non-mention of specific Section of the Customs Act would not vitiate the proceedings as the allegations and charges against all the Appellants have been detailed in the show cause notice in clear terms and it cannot be claimed that they did not have sufficient notice to represent against those allegations. The submissions made by the learned Advocate for not relying upon the decision of the Larger Bench in the case of Om Prakash Bhatia, (T-LB) = 2000 (41) RLT 871 is of no avail as this Bench cannot question the correctness of the decision. Judicial propriety demands that the decision of the Larger Bench should be followed by all the Division/Single Bench of the Appellate Tribunal. The Supreme Court in the case of Bharat Petroleum Corporation v. Mumbai Shramik Sangh, 2001 (3) SCALE 531 has emphasised that "the decision of a Constitution Bench binds a Bench of two judges of this Court and that judicial discipline obliges them to follow it, regardless of their doubts about its correctness." The Larger Bench of the Tribunal, after considering the decisions in Shilpi Exports, held that over-invoicing of goods for exportation was an offence under the Customs Act, 1962. The Larger Bench also distinguished the decision in Shilpi Exports by observing that the charge of over-valuation was not proved, the goods were not under a claim for drawback and the exporter had realised the full export value and the Supreme Court dismissed the appeal without touching the legal issue as the matter was decided on the basis of the facts of that case. Accordingly, we hold that the impugned goods are liable for confiscation and penalty is imposable on the Appellant Nos. 1 to 3. The penalty is also imposable on Shri Y.K. Gandhi as he was the Senior Executive of M/s. Fortune Impex and he was looking after the export of the goods. We are also of the view that redemption fine of Rs. 80,000/- is not on higher side and the penalty imposed on the Appellant Nos. 1 to 3 is also not on the higher side. We, therefore, uphold this part of the impugned order. However, penalty on Shri Y.K. Gandhi, being an employee, is reduced to Rs. 25,000/-.

15. The charge levelled against the remaining Appellants in the show cause notice is that Kishan Daga had given specific numbers of sixteen cartons to the representatives of the Clearing/Freight Forwarding Agent for the purpose of examination by Customs and the said representatives were aware that only 16 specific packages of the impugned consignment contained correct materials. We find force in the submissions of both the learned Consultants who appeared on behalf of these Appellants that this charge loses its sting as these 16 cartons were also, on examination, found to contain very old/used/repaired/working Quartz Timing Movements of clocks and not the prime quality of the goods i.e. correct materials. Accordingly, the penalty imposed on the Appellant Nos. 5 to 9 are set aside.