[Order per : T.K. Jayaraman, Member (T) (For the Bench)]. - The following appeals have been filed against the orders-in-original Nos. 54/2005, dated 30-11-2005 and 51/2005, dated 30-11-2005 passed by the Commissioner of Customs, Cochin :

(i)      Appeal No. C/51/06 - M/s. Olympic Overseas v. CCE, Cochin;

(ii)    Appeal No. C/57/06 - M/s. Chartered Creations v. CCE, Cochin.

2. Since the issues involved in both the appeals are one and the same, we are taking up the matter for issue of common order.

3. The first appellant filed three shipping bills dated 21-2-2003 for export of goods declared as 100% poly and poly fabrics. The declared values C&F in terms of the US $ are 1.19 per metre (Rs. 57 per metre). These exports were done under the DEPB Scheme by which the exporters are entitled for the duty credit which can be used for paying duty on imported goods. Initially the goods were allowed on a provisional basis for export under the scheme. As there was doubt about the values declared by the appellants, samples were taken and subjected to chemical test. In order to find the correct market value of the goods, the samples were taken for market inquiries and verification. It is seen that, the appellants have declared a very high value for the goods which will help them in getting more credit. The value declared was about Rs. 57/- per metre, whereas on market inquiries the values ranged from Rs. 7 to Rs. 13. Further, it was found that the goods were of very poor quality and they had damaged the appearance. Some samples were forwarded to Textile Committee, Kannur, who reported that the goods were made of polyester of a weight per linear metre ranging from Rs. 21 to Rs. 27 metre. Since the value declared by the appellants was very high, Revenue proceeded against them by issue of show cause notice. After examining the issue, the Commissioner assessed the goods at Rs. 16 per metre for DEPB purposes. As it is conclusively proved through investigations, that the FOB value of the impugned goods had been artificially inflated in order to avail higher DEPB benefits. The Commissioner held that the appellants were liable for penalty under Section 114(i)(iii) of the Customs Act, 1962.

4. The second appellant also filed three shipping bills dated 20th February, 2003, 28th February, 2003, and 10th March, 2003. In all these cases, the goods were declared to be poly dyed and/or PTD fabrics. In these cases, the declared values were 1.2 $, 1.2 and .95 respectively. In these cases also, Revenue allowed the export provisionally under the DEPB Scheme. Thereafter, samples were taken for test and market inquiries. As in the case of the first appellant, the investigation revealed over-valuation of the goods varying from Rs. 7 to Rs. 13 per metre. On the basis of the market inquiries, the Commissioner proceeded against the appellants and fixed the value of the impugned goods at Rs. 16 per metre for the DEPB purpose. He held that, the impugned goods are liable for confiscation under Sections 113(d) and 113(i) of the Customs Act, 1962 read with Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992. As the goods were not available, they were not actually confiscated. In view of the mis-declaration of the value for getting higher DEPB credit, it was held that the appellants were liable for penalty. In the case of the first appellant, a penalty of Rs. 2,70,000/- was imposed under Section 114(i) and (iii) of the Customs Act, 1962. As regards the second appellant, a penalty of Rs. 5,00,000/- was imposed under the same provisions.

5. Both the appellants challenged the impugned order. It was urged by the exporter that the Commissioner was not justified in fixing the value of the impugned goods of Rs. 16 per metre and also in imposing penalties on them. It was stated that, the assessment was provisional and therefore, there was no justification for penalty in terms of the decision in the case of S. Patnayak, (Tri.).

6. It was urged that the appellants received full remittance of the export proceeds as stated in the shipping bills from their buyer and fully eligible for foreign exchange. No loss of Revenue was caused to the State by their export covered under the DEPB shipping bills. On the contrary, the State was enriched in terms of the foreign exchange earned.

7. The Commissioner was wrong in mentioning that the quality, quantity and value of the impugned goods had been mis-declared. As regards the quality, they declared that the goods are 100% poly and poly dyed/PTD Fabrics. The test results by the Textile Committee, Kannur, indicated the same type of fabrics. The export of the fabric cover was based on measurement in terms of length and not based upon measurement in terms of weight.

8. The Commissioner is not justified in stating that the value has been mis-declared by the exporter with an intention to avail excess DEPB credit. It was argued in the grounds of appeal that the amount of DEPB claimed by the appellants does not exceed 50% of the present market value (PMV). Even if they had declared the PMV as low as stated in the order passed by the Commissioner, they would have been entitled for the same amount of DEPB credit. Therefore, it cannot be said that the appellants mis-declared the PMV for the purposes of availing excess DEPB credit.

9. They had submitted all relevant documents like purchase bills, delivery challans, excise clearance invoice, and form ARE-I duly endorsed by the excise authorities, payment proofs, copies of bank statements etc. to the Customs Authorities. Hence, the Commissioner is not justified in rejecting the valuation as declared in the shipping bills.

10. In terms of the Exim Policy Para 4.31, the DEPB is allowable on FOB value of exports made on freely convertible currency. As the appellants had received the full remittance of the FOB value, as reflected in the shipping bills, as freely convertible currency, there is no mis-declaration of the value of the goods exported.

11. The fabrics covered under the shipping bills are not a regular and running item in the Indian market. A type of fabric sold in Bhiwandi District is actually grey fabric. The opinion of Bhiwandi or even Thane based manufacturer of the grey fabric was not taken by the Customs Authorities. In Surat only processing of the grey, was done on job work basis. Therefore, the statement as recorded by the excise authorities may be just the personal opinions of the Surat based traders who might have never dealt with the kind of fabrics covered under the said shipping bills.

12. The Commissioner has just considered the GSM/Density as the only basis for ascertainment of the values which is clearly wrong. The GSM is not always the sole criteria for deciding the value of the textile fabrics.

13. The appellants produced certain details gathered from other Customs stations to show that in respect of similar goods, similar valuation was accepted. Samples have not drawn properly since in para 25 of the impugned order, it is mentioned that the sample is of irregular cut piece of coloured fabrics having damaged appearance. The Commissioner while fixing the value has just considered the direct overhead only. In the case of foreign trade, there are many other overheads, like the samples, upcountry brand image upcountry cost of travelling and staying expenses price differences, probably rejections and holding costs, order cancellation, commission payable for procurement of orders etc. which are to be applied and loaded on the costs. The costs of textile fabric are also variable day-by-day. The materials procured by the appellants were during the commencement of 2002, but the market survey by the Customs was done during mid of 2003. In such a long gap of period, there will be substantial changes in the price. The Commissioner has not taken into account various expenses incurred in fixing the value. He has just added Rs. 3 per metre towards profit as well as transportation cost and other incidental charges.

14. The learned Departmental Representative stated that the appellants who are from Gujarat have come to the Cochin Port all the way from there in order to export the goods and claim undue benefit under the DEPB Scheme. He stated that, the goods on test were found to be of inferior quality. The market inquiry was done only from traders/manufacturers/processors dealing with these types of goods in Surat. There is also mis-declaration of the net weight of the impugned goods. In any case, the value declared by them for DEPB purposes comes to Rs. 57/- per metre. As the DEPB rate is dependent on the FOB value declared, a higher value will ensure that the appellants gained higher DEPB. Therefore, there is absolutely no merit in the various contentions raised by the appellants.

15. None appeared on behalf of the appellants in the course of the personal hearing before this Bench.

16. We have gone through the records of the case and the submissions urged by the appellants in their memo of appeal and the Revenue. The DEPB Scheme was instituted for promotion of exports. In terms of this scheme, when goods are exported, the exporter is entitled for credit at certain percentages on the FOB value of the goods exported. The rate of DEPB is specified in the DEPB schedule. The DEPB credit can be utilized for payment of duty on imported goods. The said credit is also transferable under the policy. The Government of India noticed that the Scheme was being utilized by unscrupulous exporters by resorting to artificial inflation of the FOB values to avail unintended DEPB benefits.

17. In order to curb such practices, the Government of India issued Circular No. 77/2002-Cus., dated 27-11-2002 which restricts the DEPB credit and also provides for market verification of the value declared by the exporter. In para 5 of the said Circular, it has been stated “In those cases where it is conclusively proved through the investigations that the FOB value had been artificially inflated/manipulated by the exporter to avail of unintended higher DEPB benefits, the DEPB credit entitlement shall be worked out only on the PMV and not FOB value. The contention of the appellant that they had received the foreign remittances as mentioned in their shipping bills, is not a defence. There are various methods of money laundering and transfer of ill-gotten wealth from foreign countries to India. The export incentives are the mis-utilized by unscrupulous elements for transfer of money. There have been cases where goods which have no value have been exported to get drawback. In those cases also, the exporters received the foreign remittances. Therefore, this cannot be a reason for accepting blindly the value declared by the appellants. In the present cases, in terms of the Circulars issued by the Government of India, the Customs Authorities allowed export of the goods under the DEPB Scheme provisionally after drawing samples. There is clear evidence that the impugned goods are inferior. It is evident not only from the test reports, but also from market inquiries conducted in Surat. In these circumstances, we cannot accept the contention that the Commissioner has fixed the value in an arbitrary fashion. In terms of para 4.41 of Chapter IV of the Foreign Trade Procedure, in respect of products where the rate of credit entitlement under DEPB Scheme comes to 10% or more, the amount of credit against each such export product shall not exceed 50% of the present market value (PMV) of the export product. The Government of India is very much conscious of the mis-use of the scheme and, therefore, the credit has also been restricted as mentioned above. We have also gone through the plethora of case laws furnished by the learned Departmental Representative. The Hon’ble Apex Court in the case of Om Prakash Bhatia v. CC, Delhi, (S.C.), has dealt with the over-invoicing of export goods. It has been held that, when the importation or exportation of the goods are subjected to certain prescribed conditions to be fulfilled either before or after clearance of the goods, and if those conditions are not fulfilled, the said goods would be considered as prohibited goods and Sections 2(23), 11 and 113(d) of the Customs Act, 1962 would come into play and the exporters would be liable for penalty. In the case of Abishek Export v. CC, Cochin, (T-Bang.), the Tribunal considered a case of over-valuation of export goods to get higher DEPB credit. In that case, the confiscation of the impugned goods and penalty were upheld under the relevant provisions of the Customs Act. The Hon’ble Apex Court in the case of CCE v. Suresh Jhunjhunwala, (S.C.), dealt with a case of over-valuation of export goods for claiming higher DEPB. In that case, the Tribunal held that export goods being neither dutiable nor prohibited, confiscation under Section 113(d) was not sustainable, but the Apex Court over-ruled the decision of the Tribunal. It was held that the decision of the Supreme Court in the case of Om Prakash Bhatia (supra) squarely covered the above case. Further, the following cases clearly establish that over-valuation of export goods for getting higher DEPB is covered under Section 113 of the Customs Act for imposition of penalty.

(i) CCE, Gurgaon v. Sidh chalam Exports Pvt. Ltd., (T-Del);

(ii)    Deep International v. CC, New Delhi, (T-Del);

(iii)   Dimension Overseas Pvt. Ltd. v. CC, ICD, New Delhi, (T-Del);

(iv) Rioben International v. CC, Bangalore, (T-Bangalore);

(v) Ramesh Hagde v. CC, Bangalore, (T-Bangalore); and

(vi) CCE, Gurgaon v. Sidhhachalan Export Pvt. Ltd., (T-Del).

In all the above cases, the various Benches of the Tribunal have dealt with over-valuation of export goods under the DEPB Scheme. In these cases, the imposition of penalties under Section 114 of the Customs Act, 1962 has been upheld. In the impugned order, the adjudicating authority has followed the correct procedure in fixing the value for the DEPB purposes. Considering the very high declaration of value for gaining DEPB credit, we do not feel that the penalties imposed are harsh. There is no merit in the appeals. Hence we reject the same and uphold the orders-in-original.

(Dictated and pronounced in the open Court on the 14th day of September, 2007)