Custom, Excise & Service Tax Tribunal
Hazel Mercantile Ltd vs Commissioner Of Customs (Ex) Mumbai on 3 April, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.1
C/Stay/94991, 94992, 94993 & 94994 & APPEAL NO. C/86763, 86764, 86765 & 86766/13-Mum
(Arising out of Order-in- Original No.08/2013/CAC/CC(E)/YG/GR.VII dtd.29.01.2013 passed by the Commissioner of Customs, Mumbai )
For approval and signature:
Honble Mr S.S.Kang, Vice President
Honble Mr.P.K.Jain, Member(Technical)
============================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
=============================================================
Hazel Mercantile Ltd.
Sanman Trade Impex Pvt.Ltd.
Nitin Kumar
Rajeev Verma
:
Appellant 1
Appellant 2
Appellant 3
Appellant 4
VS
Commissioner of Customs (Ex) Mumbai
Respondent
Appearance
Shri S.N. Kantawala, Advoate for Appellants
Shri P.M.Saleem, Commr.(A.R.)for Respondent
CORAM:
Mr. S. S. Kang, Vice President
Mr.P.K.Jain, Member(Technical)
Date of hearing: 13/03/2014
Date of decision 03/04/2014
ORDER NO.
Per : P.K.Jain
In this order we deal with 4 stay applications along with 4 appeals. After hearing on the stay applications for sometime, it was decided that both the stay applications and appeals will be heard together. Accordingly both the stay applications as also the appeals are being taken up together.
2. Brief facts of the case are that the appellant (1) and (2) are exporting Porcelain Mugs after procuring these from various manufactures in India mainly M/s. JCPL, Mudrika Ceramic, Oasis, Ceramics. Porcelain Mugs are exported to M/s. Ransat Services Ltd. UK The dispute in the case is relating to the valuation of Porcelain Mugs. Appellants were exporting the said mugs under DEPB scheme which entitles them to claim DEPB benefit at the specified rates which are related to the FOB value of the goods exported. While processing 3 shipping bills, it was realized that there was huge difference between the ARE-1 value (i.e. ex-factory value) declared by the manufacturers of Porcelain Mugs and FOB value (i.e. export price) declared by the appellants. The FOB value was 4 to 5 times the ARE-1 value. In view of such huge difference, investigations were taken up. Searches were conducted at the office premise of the appellant (1) and (2). During the search, large number of incriminating documents were recovered which indicated ARE-1 value of various consignments exported in past as also FOB value, documents recovered also indicated price negotiations between the appellants and the importer in U.K. It was revealed that the appellants have accepted to add .08 pounds per pc of mug on the ARE-1 value and export at that price. It was also revealed that some of the manufacturers from whom the appellants were procuring the Porcelain mugs were also supplying the same directly to the buyer in U.K. During searches, duplicate set of invoices indicating the same number were recovered while one set of documents indicated the price which was based upon ARE-1 plus .08 pounds per pc , the other set of invoices indicating very high value ranging 400 to 500% of the other invoice value. Details given in these documents such as manufacturers invoice, ARE-1 and appellants export invoice, packing list, container number etc. were all tallied. It was also found that in the export documents presented to the Customs, invoices which represents 400 to 500% value comparing to the ARE-1 were presented to the customs. Statements of various persons including Shri Nitin Kumar Didwania, Director of the appellant (1) and (2), officials of Appellant (1) and (2), as well as officials of the manufacturing units were recorded. Based upon the investigation, show-cause notices were issued to the appellant (1) and (2) proposing re-determination of the value of the goods based upon the ARE-1 value plus .08 pounds per pc. of Percelain mugs instead of the declared value in the export documents.
3. After receiving the reply from the appellants and hearing the appellants, the impugned order has been passed, wherein the Commissioner has rejected the export value declared for the impugned goods exported by the appellant (1) and (2) and re-determined the same on the basis of ARE-1 plus .08 pounds per pc. Further, due to mis-declaration in the value, the goods exported became liable to confiscation under Sec. 113(d) & 113(i) of the Customs Act but since the goods have already been exported and are not available for confiscation, no order for redemption of the goods was issued. However, penalty equivalent to re-determined value was imposed on the appellant (1) & (2) under Sec.114(i) of the Customs Act. Similarly, equal amount of penalty was imposed on Shri Nitin Kumar , Director in Appellant (1) & (2). Penalty of Rs. 50 lakhs was also imposed on Shri Rajeev Verma erstwhile Export Manager of Appellant (1) & (2) under Sec.114(i). Being aggrieved by the said order, the appellants are before us.
4. Heard the ld.Counsel for the appellants. The main contention of the appellants was that the goods exported by them had the brand name of the importer in U.K. and were of very high quality and therefore, the prices were high. According to the ld.counsel, the value of branded and copyright goods is always higher compared to the value of the similar non branded goods. The adjudicating authority had erred in ignoring this vital aspect. The ld.Counsel also argued that even the drawback rate which is applicable to All Industry and that of branded goods are different. This itself shows that Government recognizes higher value of branded goods. The other contention of the ld.counsel was that initially 14 consignments were provisionally released which were finalized on the basis of market enquiries. Once the matter was finalized based on the market enquiry, there is no question of re-establishing or making enquiry for valuation of the same goods and the approach of the department is perverted. Another contention of the ld.advocate was that the Honble Supreme Court in the case of M/s. Vishal Exports Overseas Ltd. reported in 2007(209) ELT 331 (SC) has accepted the value which was 4 to 5 times the local market value in respect of Porcelain Mugs and in view of the said decision of the Honble Supreme Court, there is no reason for the department even to start the investigation. Ld.Counsel also stated that the ratio of the decision of the Honble Supreme Court in the case of Om Prakash Bhatia reported in 2003(155) E.L.T. 423(S.C.) is not applicable to the present case as the said case was relating to the drawback and not DEPB. The main emphasis of the ld.counsel was on the Honble Supreme Courts decision in the case of M/s. Vishal Exports Overseas Ltd. (supra).
5. Ld.A.R. for the department argued that in respect of the 14 Bills of Entry, the appellants did not produce ARE-1 or procurement invoices and had produced certain invoices of different departmental stores indicating retail price of the particular range. Based upon these documents and the fact that the department did not have any evidence to the contrary, the value was accepted. However, subsequently, in respect of 3 shipping bills, realizing that the FOB value is 4 to 5 times more than the ARE-1 value, investigations were carried out. Searches were conducted at the appellants premises and case is booked based upon the incriminating documents recovered from the appellants own office. Ld. A.R. also clarified that the case is not based upon the statements but based upon the documents recovered from the appellants own office. Statements have been recorded only to explain the documents or to support what is written in the documents. The ld.A.R,. has contended that it is fact that the importer in U.K. had already dealt in past with the manufacturer of Porcelain mugs from whom the appellants were procuring the same and obviously no business man will pay 4 to 5 times the price to the appellants. Even, the documents recovered indicated that the appellants were to add .08 pounds per pc. of mugs as the value addition on their account which appears to be reasonable. Ld.A.R. stated that there was no reason to keep two sets of invoices and there is no explanation whatsoever from the appellants why there are two sets of invoices, one indicating the value based on ARE-1 plus .08 pounds per pc, and the other indicating 400 to 500% value. Ld. A.R, also stated that both during adjudication as also before this Tribunal appellants have not questioned any of the documents or commented on any of the documents. The appellants are only contending that the goods were branded and tailor-made on behalf of the importer and would fetch higher prices. Ld. A.R. contended that it may be true that the branded goods fetch higher price in retail market but that is not so when such brand owner gets them manufactured or import. Here the difference in price is between ex-factory price and FOB value of the so called tailor made/branded goods. In any case, there is no evidence brought forward by the appellants to indicate that the goods were tailor-made and had very special designs. Even if such goods were to have special designs or any such features, the manufacturer himself would increase the price and therefore, ARE-1 value would be higher. Therefore, this argument is totally baseless and misleading. Ld. A.R, also explained that the Jt. DGFT has not accepted the value but has kept the matter pending till the finalization of the value by the Customs and it is in pursuance of such order that the copy of the impugned order has been marked to Jt.DGFT. As far as Honble Supreme Courts decision in the case of M/s. Vishal Export Overseas is concerned, ld.A.R. explained that in the said case, Tribunal also accepted the declared FOB value and Supreme Court only upheld the order of the Tribunal. In the said case, FOB value was accepted by the Tribunal due to lack of evidence and department had fixed the export value based upon a hypothetical basis. It was in view of the lack of evidence that the FOB value was accepted and hypothetical value arrived by Customs was rejected and this was upheld by the Supreme Court. In the present case, the case of the department is based upon the incriminating documents recovered from the appellants premises only. The said documents are not questioned by the appellants and the basis of re-determination was those documents alone. In view of the said position, the decision of the Honble Supreme Court cannot be applied in the facts and circumstances of the present case. On the contrary, the Honble Supreme Courts decision in the case of Om Prakash Bhatia (supra) is applicable as both in that case as also in the present case, the issue involved is valuation of export goods. The fact that in one case the goods were being exported under drawback claim and in the present case under DEPB makes no difference. Ld. A.R. also stated that during arguments, ld.counsel for appellants has talked about not granting cross-examination to one Shri L.Jajodia of JCPL. Ld. A.R. stated that even in the appeal memorandum the appellants have not taken up this point and this shows that they were not serious about the cross-examination. What is stated by Commissioner in the impugned order is correct. In any case, all that Shri Jajodia has stated in his statement was about the goods exported by him to the same buyer M/s. Ransat, U.K. Some variation in the quality or pattern of the goods may cause some variation in the export price but not to the extent of 400 to 500% value. It is not in dispute that M/s. JCPL exported Porcelain Mugs to the same buyer in U.K. directly as also through the appellant (1) and (2). Ld. A.R contended that in view of the said position, the impugned order should be upheld and appeals should be dismissed.
6. We have considered the rival submissions. The main contention of the appellants is that the goods exported by them are branded and tailor-made as per the requirement of the buyer in U.K. and obviously such goods would fetch higher price and therefore, the declared values are correct. We are not impressed with the said contention. If the goods are tailor made the value may be higher but the question is which value. In our opinion, the ARE-1 value itself will become higher. This reasoning will not increase the FOB value to 400 500 per cent of ARE-1 value. This factor is irrelevant to explain increase in FOB value from ARE-1 value. As far as the branded goods are concerned, it may not increase the ARE-1 value. By branding, the retail price of the goods may increase but would not affect the purchase price of the buyer from the manufacturer as the brand is that of buyer and not that of manufacture. We also note that no evidence whatsoever has been produced by the appellants to support their contention that the goods were tailor made and were made of special designs and no such correspondence was produced to support their contention. These arguments appear to being advanced in order to justify the misdeed. Here the comparison is between the ARE-1 price and the FOB value. In the said comparison the factor mentioned by the appellants are not relevant. In view of these facts, we reject the appellants contention. Factors mentioned by the appellant may be relevant for retail market and not to the transaction covered.
7. The other contention of the appellants is that the Jt.Commissioner had accepted the value based upon the market enquiry and therefore, the department cannot now say that the FOB price declared by them is on the higher side. We have gone through the note sheets relating to such acceptance. At that point of time, the ARE-1 were not produced by the appellants. They did not produce the purchase documents of the goods but produced certain retail invoices of high end departmental stores relating to Porcelain mugs to support that the declared value is correct. Since the Revenue had no documents or any other evidence to contrary, the same was accepted. However, the Revenue is now questioning the value declared based upon the incriminating documents recovered from the appellants which includes the parallel set of invoices, purchase invoice, correspondence between the buyer in UK and the appellants, packing list and other invoices. The authenticity of the documents had never been questioned by the appellants. In view of this position, the fact that earlier, based upon the market enquiry, the declared value was accepted is of no consequence. In fact, the appellants should have produced these documents to the customs authorities before finalization of those 14 shipping bills. It is a case of concealment of vital documents from Customs authorities and producing some other documents that the value was accepted, the appellants cannot be allowed to take benefit of their wrong deeds. We, therefore, reject the appellants contention.
8. We have also gone through the order passed by the Jt. DGFT. The Jt.DGFT has not accepted the value of Porcelain mugs. On the contrary Jt.DGFT has kept the matter pending in respect of DEPB pass book relating to export of Porcelain mugs and has directed that the value will be reduced based upon the decision of Customs regarding correct value. Another contention of the ld.advocate for the appellants was that the department did not permit cross-examination of Shri Jajodia of JCPL. We note that this point has not been taken up by the appellants even in appeal and we therefore, agree with the ld.A.R that the cross-examination of Shri Jajodia was not pressed by the appellants. Even otherwise, we note that even if the statement of Jajodia is altogether ignored, the conclusion arrived at by the adjudicating authority can not be different. We also note that in the impugned order, various contentions of the appellants have been discussed. However, in the appeals, the appellants have not questioned any of the findings of the Commissioner. The only point made by the ld.counsel was that the Honble Supreme Courts judgement in the case of M/s. Vishal Export Overseas Ltd. (supra) is applicable to the present case. We have gone through the said decision of the Honble Supreme Court. In fact, as pointed out by learned A.R. the said decision only upholds the order of this tribunal. In the said case, the FOB value were 400 to 500% more than the purchase value but were accepted as no evidence to question the FOB value could be produced. The proposed value was totally hypothetic value by customs. In the present case, the correspondences with the buyer and the fact that the prices were to be manufacturers price plus .08 pounds per pc of mugs is not questioned by the appellants and we feel this is very vital evidence to determine the correct FOB value. Moreover, in respect of number of consignments, there were parallel set of invoices, one based upon the earlier mentioned formula and another indicating 400 to 500% more of the said value as indicated in the export document. The invoices had the same number. During arguments, on a query from the Bench, ld.Advocate stated that one of these is proforma invoice and another one is actual invoice. We are not impressed with this explanation. Normally, proforma invoice will indicate a higher value and after negotiation the final price would be less than the proforma invoice, while in the present case Ld.advocate wants us to believe that the final price agreed was 400 to 500% more than the initially agreed price. No business man or any other person will enter into such deal. Such a thing can only be in fraud case. In fact, both sets of invoices bear exactly the same number. The details of these invoices are as under:-
Invoice No. Invoice value in the export documents(in GBP) Actual invoice value as per seized documents (In GBP) HML/RNK/026/02-003 54,952.90 12,009.31 HML/RSP/027/02-3 64,270.08 14,901.26 HML/DPL/004/03-04 HML/DPL/004A/03-04 HML/DPL/044B/03-04 45,299.52 47,557.44 42,336.00 10,543.97 11,161.44 9,936.00
9. In view of the overwhelming evidence found during the search of the appellants premises, we have no doubt that the FOB value declared was not the actual transaction value/FOB value but were highly inflated for claiming DEPB benefits or for bringing in illegally obtained foreign exchange. In view of the above, we find no merit in the contentions of the appellants in the appeals and we reject the appeals filed by appellant (1) and (2).
10. We note that Shri Nitin Kumar Didwania was the main person managing the activities of Appellant (1) and (2) and was instrumental in the fraud. By this act, he is liable to penalty under Sec.114(i). Appeal of Appellant (3) is also dismissed. We also note that one of the appellants Shri Rejeev Verma (i.e. Appellant (4) was the Export Manager/Business Development Manager of two appellants firm was only a salaried employee and was working as per the direction of Shri Nitin Kumar Didwania and we do not find that investigation has brought out any specific role in this episode and in view of the said position, we set aside the penalty in respect of Shri Rajeev Verma. Barring the above modification, the other appeals are dismissed.
11. Stay petitions became infructuous in view of above decision and are therefore dismissed.
(Pronounced in court on 03/04/2014 )
S. S. Kang
Vice President
P.K.Jain
Member(Technical)
pv
14