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CaseIQ

Ajay Apparels v. Commissioner of Customs (Port), Kolkata

CESTAT

Jul 10, 2006

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Tribunal Order (per S.S. Sekhon, Member (T))

Factual and Procedural Background

The appellants are manufacturers and exporters of readymade garments (Girls' frock, Men's jeans and Boys' jeans) operating from Kolkata and exporting regularly to buyers in Dubai (notably M/s. Adam Eid Trading and M/s. Galaxy Star Trading) and Singapore. Between 25-8-2000 and 4-2-2002 the appellants exported 127 consignments under claims for duty drawback at all-industry drawback rates, declaring price as the FOB value on the shipping bills supported by sale invoices and samples.

Following inquiries (including verification of procurement invoices and factory manufacturing details), the appellants received a show-cause notice dated 24-9-2003 alleging that the appellants had declared inflated FOB values. The allegation arose after Dubai Customs declarations for six shipping bills showed lower invoice values, and five of those lower-value invoices were said to have been issued by the appellants while higher-value invoices were shown in Kolkata/Haldia for export.

The show-cause notice proposed (i) demand of duty drawback of Rs. 55,97,463 under Rule 16 of the Customs and Central Excise Duty Drawback Rules, 1995, (ii) confiscation of exported goods valued at Rs. 3,31,11,662.68 under Section 113(d) read with 113(i) of the Customs Act, 1962, and (iii) imposition of penalties under Section 114(iii) on the exporters and proprietor Shri Ajay Khemka.

The Commissioner adjudicated on these allegations and reached findings (discussed below). The appellants challenged the Commissioner's order by way of appeal to the Tribunal. The Tribunal (per S.S. Sekhon, Member (T)) issued the present order disposing of the appeal after waiving pre-deposit.

Legal Issues Presented

Whether the FOB values declared on the shipping bills (for exports to M/s. Adam Eid Trading and others) were correct and could be interfered with on the basis of lower-value invoices said to have been presented to Dubai Customs.
Whether the drawback claims at the all-industry rates were hit by the bar in Section 76 of the Customs Act, 1962 (i.e., whether the drawback claimed exceeded the Present Market Value (PMV) and hence rendered the claims ineligible).
Whether recovery of drawback paid (demand under Rule 16/16A) could be ordered in the circumstances.
Whether the exported goods were liable to confiscation under Section 113(i)/(d) of the Customs Act, 1962 on account of alleged misdeclaration.
Whether penalties under Section 114(iii) of the Customs Act, 1962 could be imposed on the exporter and proprietor.

Arguments of the Parties

Appellants' Arguments

The FOB values declared on shipping bills correspond to sale invoices and were the sole basis of price; samples were taken and procurement invoices from woollen mills supported manufacture on imported machines at their Kolkata factory.
The Present Market Value (PMV) determinations relied upon in the notice were not supported by material in the notice, and procurement/retail/wholesale prices (as explained by the appellants) were much higher than the PMV determined by the Commissioner.
Similar goods were exported to other buyers (e.g., M/s. Galaxy Star Trading and Alloy International Agency of Dubai) at similar FOB prices in the same period; those exports were not impugned by the Revenue and therefore the declared FOB prices should be accepted by comparison (comparables rule).
The photocopies of Dubai invoices relied on by Revenue were not the originals and were not produced before Indian Customs; photocopy-based handwriting expert opinion is not conclusive. Appellants also produced documents showing Dubai Customs themselves had not accepted the alleged lower values and had contested/raised values and duty demands (which were discharged by the importer in Dubai).
The appellants stated that bank realization for the amount of the declared FOB values had been received, which they relied on in opposing recovery of drawback.

Revenue's Allegations/Arguments (as reflected in the notice)

On the basis of declarations made to Dubai Customs by the buyer in Dubai for six shipping bills, the FOB values declared in Kolkata were alleged to be highly inflated and thus ineligible for drawback.
For five consignments, the invoices produced to Dubai Customs indicating lower values were allegedly issued by the appellants, while higher-value invoices were shown to Kolkata Customs, suggesting misdeclaration at export.
The declared unit prices (e.g., USD 48 for girls' frock, USD 104 and USD 80 for boys' jeans) were much higher than the PMVs determined by the Commissioner (USD 10, USD 22 and USD 17 respectively), indicating wrongful claims.
Handwriting analysis on photocopies suggested that Shri Ajay Khemka had signed both versions of invoices; documents pertaining to the foreign buyer were found in the exporter’s Kolkata office, supporting Revenue's inference of misdeclaration.
On this basis Revenue proposed re-fixation of valuation, recovery of drawback, confiscation of goods, and penalties against the exporters and proprietor.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded by examining the factual findings and legal consequences recorded by the Commissioner and by considering the material placed before the Tribunal:

PMV versus Drawback — The Tribunal noted that on the admitted facts the drawback claimed at unit prices of USD 48, USD 104 and USD 80 (at the all-industry rate of 16.90%) did not exceed the Present Market Value (PMV) as found by the Commissioner (USD 10, USD 22 and USD 17 respectively). On this basis the Tribunal concluded that the bar contained in Section 76 of the Customs Act, 1962 was not attracted to the drawback claims (paragraph 3.1).
Comparable Exports — The Tribunal accepted the appellants' specific plea that similar goods had been exported to other buyers abroad at prices similar to those declared for the impugned exports (e.g., to M/s. Galaxy Star Trading and Alloy International Agency). The Commissioner had not disputed this factual matrix. Relying on the principle of valuation by comparison, the Tribunal held that when FOB values declared for comparable goods exported by the same exporters at about the same time are not questioned, the FOB valuation declared at the port of export (Ex-Kolkata/Haldia) cannot be abandoned merely on doubts; consequently the declared FOB values should stand (paragraph 3.2).
Reliability of Dubai Invoices and Handwriting Expert Opinion — The Tribunal addressed the Revenue’s reliance on photocopies of lower-value invoices obtained from Dubai Customs and a private handwriting expert's opinion purportedly linking signatures on those photocopies to Shri Ajay Khemka. The Tribunal found reliance on photocopies and handwriting opinion (without production of originals) inconclusive for proceedings under the Indian Customs Act. It observed that the alleged lower-value invoices were never produced before any Indian Customs authority, and therefore could not be relied upon in Indian proceedings (paragraph 3.3).
Role of Dubai Customs Conduct — The Tribunal noted the appellants produced material indicating Dubai Customs did not accept the alleged lower values; Dubai Customs had raised values and duty demands which were discharged by the importer at Dubai. The Tribunal rejected the proposition that declarations to foreign Customs authorities, standing alone, should automatically lead to interference with Indian export valuations (paragraph 3.3).
Conclusion on FOB Valuation — Based on the above (comparables, lack of originals for Dubai invoices, the non-conclusive nature of photocopy-based handwriting evidence and Dubai Customs' own actions), the Tribunal concluded that the FOB values declared at the port of export could not be found incorrect or interfered with (paragraph 3.3).
Consequences for Drawback Recovery, Confiscation and Penalty — The Tribunal addressed consequences flowing from the acceptance of declared FOB values and non-attraction of Section 76: (a) it reasoned that if FOB values are correct and PMV exceeds the drawback claimed then the drawback claim is not erroneous and recovery under Rule 16A would not be justified; (b) there would be no basis to uphold confiscation liability under Section 113(i) of the Customs Act, 1962; and (c) there would be no basis to uphold penalties under Section 114(iii) of the Customs Act, 1962. These points are developed across paragraphs 4, 5 and 6 of the opinion.
Final Disposition — Summarizing the foregoing analysis, the Tribunal stated it found no reason to sustain the Commissioner's order. Accordingly, after waiver of pre-deposit, the Tribunal disposed of the appeal (paragraph 7).

Note: The Tribunal's reasoning rests on the admission regarding unit drawback claim vis-à-vis PMV, the application of the comparables principle for valuation, the limited probative value of photocopy invoices and related handwriting opinion for Indian proceedings, and the fact that Dubai Customs did not accept the lower values in practice.

Holding and Implications

Core Ruling: The Tribunal found no reason to sustain the Commissioner's order and, after waiver of pre-deposit, disposed of the appeal accordingly (paragraph 7).

Direct implications for the parties:

The Tribunal accepted that the FOB values declared at the port of export could not be found incorrect on the material before it.
Because the declared FOB values were accepted and the PMV exceeded the drawback claimed, the Tribunal concluded there was no basis to:(ul>
uphold a demand/recovery of drawback in the circumstances;
uphold confiscation of the exported goods under Section 113(i)/113(d);
impose penalties under Section 114(iii) on the exporter and proprietor.

The appeal was disposed of in favor of the appellants after waiver of pre-deposit.

Broader implications: The opinion does not purport to lay down a novel legal principle beyond the application of existing valuation rules (comparables and PMV considerations) and the limited probative value of foreign photocopied invoices in Indian proceedings. The decision’s effect is limited to the facts and materials before the Tribunal; the opinion does not state that it sets a new precedent.

(Dictated and pronounced in open court.)

Show all summary ...

[Order per : S.S. Sekhon, Member (T)].- The appellant are manufacturer and exporter of readymade garments such as Girls’ Frock, Men’s Jeans and Boys’ Jeans. They export the goods to Dubai, UAE and Singapore regularly. M/s. Adam Eid Trading and M/s. Galaxy Star Trading both of Dubai are their regular buyers, to whom the exports are made.

1.2. Between 25-8-2000 and 4-2-2002 they exported 127 consignments in usual course of business under claim for drawback based on all industry drawback rates. Price was the sole consideration for these exports and was declared as FOB value on the shipping bills as per the sale invoices, samples were taken. Inquiries made including the verification of the procurement invoices for the raw-material from woolen mills of having supplied them fabrics from which such garments were fabricated at their factory in Kolkata on imported machines. They are also specially to be selling some part of similar garments and the showroom prices for these garments range from Rs. 270/- to 460/- per piece in wholesale and Rs. 555/- to 690/- in retail.

2.1 In this background they received a notice dated 24-9-03 alleging that the drawback they had been claiming is not ineligible since they were found to be declaring highly inflated FOB values of the garments exported. This allegation was found on the basis of certain inquiries made pursuant to the declaration of the import price in the case of six Shipping Bills on which exports were made by the appellants to the buyer M/s. Adam Eid Trading by a declaration of lower values for these six consignments made by the buyer at Dubai to the Dubai Customs authorities. Inquiries further made reveal that in case of 05 such consignments the invoices produced to the Dubai Customs authorities indicating a lower value were issued by the appellants and in these cases a higher value invoice was shown to the Customs authorities at Kolkata/Haldia port for the purpose of effecting the said exports. Based on these inquiries made the notice proposed to re-fix the valuation and redetermine the drawback eligibility by considering that the total value declared by M/s. Adam Eid Traders for the exports made by the appellant M/s. Adam Eid Trader, Dubai for the year 2000-2001 and 2001-2002 which were Rs. 2,27,17,034.16 and Rs. l,03,94,628.52 total Rs. 3,31,11,662.68 to the Indian Customs at Kolkata and a drawback availed on this FOB value was Rs. 55,97,463/- while the correct value as per the invoices presented by the importer to Dubai to Dubai Customs would entitle them to a drawback of only Rs. 11,75,133.00. This was done by the Investigating officer, as it appears from the show cause notice, by extrapolating the declared value for the six consignments to Dubai Customs to all exports made to M/s. Adam & Eid Trader, Dubai, during the years 2000-2001 and 2001-2002.

2.2 The notice also alleged that while the unit price declared for each variety of garments was at USA Dollars 48, USD 104 and USD 80 for girls frock, boys’ jeans. The PMV of these goods were found to be only USD 10, USD 22 and USD 17 respectively.

2.3 It was also found by the investigators and alleged in the notice that Shri Ajay Khemka of the exporting firm had signed both versions of the invoices i.e. the one signed and declared to the Customs at Kolkata and the five other obtained from the declaration made before the Dubai Customs. It was also alleged that documents pertaining to the foreign buyer were found in the Kolkata office of the exporter.

2.4. Therefore the notice proposed :-

(i) Duty drawback of Rs. 55,97,463.00 fraudulently obtained was required to be demanded under Rule 16 of the Customs and Central Excise Duty Drawback Rule, 1995.

(ii) The subject goods, already exported, valued at Rs. 3,31,11,662.68 should be held as liable to confiscation under Section 113 (d) read with 113(i) of the Customs Act, 1962.

(iii) Penalties under Section 114 (iii) not be imposed on the exporters and the proprietor Shri Ajay Khemka.

3.1 Since it is found is admitted position that drawback has been claimed on unit price declared as USD 48, 104, 80 at the rate of 16.90 per cent working out the claim of drawback per unit garment would not exceed the PMV (Present Market Value) as found and determined by the ld. Commissioner at USD 10, 22 and 17 respectively. Therefore the claim of drawback is not hit by the bar of Section 76 of the Customs Act, 1962 as per the findings of the Ld. Commissioner itself. The plea of the appellant before us that the procurement price and the retail and wholesale price be much higher than the PMV determined and that PMV determination does not flow from any material relied in the notice will only buttress the finding that the bar of Section 76 of the Customs Act, 1962 is not attracted as per the declared FOB values.

3.2 The applicant have taken a specific plea before the adjudicator that besides the exports made to M/s. Adam Eid Trading Agency, Dubai exports at prices similar to the prices for impugned exports have been effected on same goods to other buyers during the material period for example M/s. Galaxy Star Trading and Alloy International Agency of Dubai, this material fact has not been disputed or found to be incorrect by the ld. Commissioner. The exports made to exporters under claim of drawback are not impugned by the Revenue. It has been demonstrated before us from the photocopies of the invoices that the prices for M/s. Adam & Eid Trading and other buyers abroad were same for the same kind of garments exported in the cases impugned before us. Therefore it has to be concluded that the manufacturer exporter had no specific reason to export these goods at any specific value of FOB price to M/s. Adam Eid Trading Agency Dubai. Comparative price, for accepting values to be true and correct, is an accepted rule under Customs valuation. Therefore when FOB declared in case of other buyers abroad are not questioned, especially for same and similar goods, then FOB valuation as declared at the port of delivery Ex-Kolkata/Haldia Port cannot be abandoned on doubts and interfered especially when the Commissioner does not find any errors in the plea made of the similar goods being exported at about the same time to other parties by the same exporters.

3.3 It is found that a presumption has been raised based on five photocopies of invoices, one not being legible obtained from Dubai Customs to indicate a different lower value and that value is the correct FOB value for the goods. When exported from Kolkata is the case made by Revenue, a private handwriting experts opinion has been obtained to arrive at the conclusion that the photocopies of the signatures on the said five Dubai invoices are of Ajay Khemka. Reliance by the handwriting expert on photocopies and non-production of the originals is not conclusive to arrive at the charge that the said invoices are signed by Ajay Khemka. Even if the said invoices are presumed and assumed to be signed by Shri Ajay Khemka, the said invoices were never produced in any proceedings before any Customs authorities in India. The said invoices therefore cannot be relied upon for proceedings under the Indian Customs Act. The cognizance if any, on these invoices has to be taken by Dubai Customs officers. The appellant have shown us documents to indicate that Dubai Customs also were not misled by the said invoices and have not accepted the alleged lower values. They have raised the values and duty demands on differential have been discharged by the importer at Dubai. The tendency of the Department to accept whatever declaration is made to a foreign Customs Department and thereafter make out a case under the Indian Customs Act on the assumption that no misdeclaration could be made before the foreign Customs officers cannot be sustained. Merely because some documents have been produced before the Dubai Customs to cheat import duties to be paid to Dubai Customs will not ipso facto lead to a conclusion that the valuation given under the Indian Custom Act and documents thereunder are incorrect. Valuation has to be determined as per the provisions of the Customs law applicable at the point of export or the import. In the present case the FOB values of comparative goods and the goods impugned under these proceedings is same. Other goods and the FOB values declared for them are not questioned. We cannot abandon the principle of comparable goods values at the point and time of delivery at the port of export, Haldia in this case. In this view of the matter the FOB values as declared cannot be found to be incorrect and cannot be interfered with.

4. Once the FOB values are found to be not correct and are confirmed the question of payment of drawback at the all industry rate as claimed and sanctioned cannot be an erroneous claim under the Customs and Central Excise duties Drawback Rules, 1994 and Rule 16 thereunder. Since it is the appellant’s case that bank realisation for the entire amount of the FOB values as declared has since been received there can be no reason to order the recovery of amounts of drawback sanctioned and paid vide Rule 16A of the Rules ibid. Since no provision of the Rules i.e. Rule 16 or 16A permit the recovery of the drawback sanctioned the orders of the Commissioner of refixing the drawback and order the recovery thereof can be upheld.

5. Once the FOB value is found to be correct and the PMV is more than the drawback claim and the bar of Section 76 is not applicable there is no cause to uphold the confiscation liability of the goods already exported and has arrived at by the Commissioner under Section 113(i) of the Customs Act, 1962.

6. Once the liability to confiscation is not being upheld there is no cause to uphold the penalty under Section 114(iii) of the Customs Act, 1962 on the Appellant exporter firm as ordered by the Commissioner.

7. In view of the above findings herein above, we find no reason to sustain the order. In this view of the matter after waiver of pre-deposit we find that the appeal itself could be disposed. We order accordingly.

(Dictated and Pronounced in the open court.)