Customs, Excise and Gold Tribunal - Tamil Nadu
Bank Of Madura Ltd. And Ors. vs Collector Of Customs And Ors. on 7 January, 1986
Equivalent citations: 1987(28)ELT396(TRI-CHENNAI)
ORDER
S. Kalyanam, Member J.
1. Since the issues arising for determination in the above appeals are common and are inter-connected, the above appeals are consolidated together and disposed of by a common order. The Bank of Madura, appellants in appeal No. 304 and 305/84, have preferred the appeals respectively against the order of the Collector of Customs, Madras, imposing a fine of Rs. 3 lakhs and Rs. 4 lakhs under Section 125 of the Customs Act, 1962, hereinafter referred to as the Act. The Collector of Customs, Madras, is the appellant in the rest of the appeals preferred before the Tribunal in pursuance of the statutory direction of the Central Board of Excise and Customs under Section 129D(1) of the Act for enhancement of the quantum of fine imposed on the Bank of Madura under the impugned order and for imposition of penalty on responded Vinod Kumar in appeal No. 254/85.
2. M/s. : A.M. Ahmed & Company, Custom House Agents, Madras, filed Bill of Entry No. 3085 dated 25.3.1982 for clearance of a consignment of 750.18 M-Ts. of hot rolled mild steel channels, joints and angles valued at Rs. 19,94,466/- c.i.f. imported in the name of M/s. Kanna Industries, respondents in appeal No. 253/85, from Romania. On 8.4.1982, M/s. A.M. Ahmed & Company also filed another Bill of Entry No. 843 for clearance of 516.140 M.Ts of hot relied mild steel plates, valued at Rs. 14,29,555/- c.i.f., imported in the name of M/s. Hanson Enterprises, Patel Marg, Ghaziabad. The imported goods were sought to be cleared under O.G.L. Appendix 10 item 2 of the Import Trade Control Policy for 1981-82 on the strength of S.S.I. certificates issued in the name of the respective parties. The Customs Department received intelligence that the goods were actually imported by Vinod Kumar, Respondent in Appeal No. 254/85 by making use of a printed letter-head of M/s. Kanna Industries, Madras and by forging the signatures of the proprietor of that firm, V.K. Marimuthu. Actual varification of M/s. Kanna Industries revealed that it was a very small factory having only one sheet rolling machine, one gas cylinder and some tools, for which import of a huge quantity of mild steel joints, channels and angles would be of no use. V.K. Marimuthu, proprietor of M/s. Kanna Industries, in his statement dated 11.8.82 recorded by the Income-tax authorities, confessed to the fact that he had a S.S.I. certificate No. 18/07/31245/PMT/SSI and his industry was a small one doing job work and as he was in need of money, at the instance of respondent Vinod Kumar, he made over his SSI certificate of Kanna Industries alongwith some letter heads of his firm signed in blank to Vinod Kumar for a consideration of Rs. 3000/- to enable Vinod Kumar to make use of the letterheads and import the goods in question for his use. Marimuthu further admitted that he did not import any steel items nor did he have the financial capacity for importing such a huge quantity of steel items and that he never opened any current account at all in the name of M/s. Kanna Industries, Madras, with Bank of Madura. He also disowned the signatures in the Bill of Entry and other related documents. Marimuthu corroborated this version in his statement dated 10.9.1982 recorded by the Customs Officers. It was also found that the Bank of Madura in their letter No. FO/KI/553/82 addressed to M/s. A.M. Ahmed and Co., while forwarding the documents pertaining to the consignment in question had stated that the documents were forwarded through one Ashok of the importing firm. A scrutiny of the ledger accounts of the Clearing agents, A.M. Ahmed & Co., revealed that M/s. Kishore, Mautu and Ashok are the persons who used to come on behalf of respondent Vinod Kumar. During enquiries it was ascertained by the Department that the said persons, viz. Kishore, Muthu and Ashok were employees of respondent Vinod Kumar and that Vinod Kumar, Proprietor of M/s. Vinod Kumar and Co., 19, Sembudass Street, Madras, was actually financing and arranging the import of the steel items. Enquiries with the Bank of Madura revealed that the Bank had issued a letter of Credit No. 121 dated 29.10.1981 for Rs. 22,44,000/- in favour of M/s. Kanna Industries against which the goods were imported and that the current account of M/s. Kanna Industries, Madras, had been opened with the Bank on the basis of an introduction of one Ram Kishore, proprietor of M/s. Hansons Enterprises, Patel Marg, Ghaziabad, who in turn had been introduced to the Bank by respondent Vinod Kumar. As stated earlier V.K. Marimuthu, Proprietor of M/s. Kanna Industries, in his statement referred to supra, denied having ever opened any current account in the Bank of Madura, much; less knowing any one by name Ram Kishore, proprietor of M/s. Hansons Enterprises, Ghaziabad. A letter of the Bank dated 24.10.1981 to the effect that M/s. Kanna Industries Madras, is an allied concern of M/s. Vinod Kumar and Co., was also recovered and letter of credits were found to have been issued by the Bank in favour of M/s. Kanna Industries on the basis of a letter of guarantee executed by Vinod Kumar for Rs. 46,20,000/- without charging any margin. Enquiries also revealed that M/s. Hansons Enterprises as well as Ram Kishore, the alleged proprietor for whom the consignment covered by Bill of Entry No. 843 viz. 516.140 MTs of hot rolled mild steel plates was imported, were found to be bogus, fictitious and non-existent parties. Investigation also revealed that Vinod Kumar had introduced the non-existent fictitious Ram Kishore of non-existent Hansons Enterprises to the Bank of Madura and the Bank had opened a current account in the name of the fictitious firm M/s. Hansons Enterprises on the footing of the introduction of Vinod Kumar. It was also fount that Vinod Kumar, one of the respondents herein, had master minded the entire operation and had imported the goods in question on the footing of fabricated and manipulated SSI certificates under OGL. It is in these circumstances after further investigation and detailed enquiries and verification and scrutiny of various records, proceedings were instituted against the Bank of Madura and all other persons concerned which ultimately resulted in the impugned orders now appealed against.
3. Dealing with the adjudication in respect of the consignment covered by Bill of Entry No. 3085 dated 25.3.1982 for clearance of a consignment of 750.18 M.Ts. of hot rolled mild steel channels, joints and angles imported in the name of M/s. Kanna Industries, Madras, the Collector of Customs, Madras, by his order dated 28.7.84, ordered confiscation of the same under Section 111(d) of the Customs Act, 1962, read with Section 3(2) of the Imports and Exports (Control) Act, 1947, as amended, but, however, permitted the Bank of Madura to exercise an option of redemption of the same on payment of a fine of Rs. 4 lakhs under Section 125 of the Act, holding the Bank a joint holder of licence possessing title to the goods. The Collector also imposed as penalty of Rs. 10,000/- on Marimuthu of M/s. Kanna Industries, under Section 112 of the Act and exonerated Vinod Kumar of the charge under Section 112 of the Act. Likewise, the Collector of Customs, Madras, by the impugned order dated 28.7.84 referred to supra, imposed a fine of Rs. 3 lakhs on the Bank of Madura giving them an option to redeem the confiscated consignment of 516.140 M.Ts. of hot rolled steel plates and exonerated Vinod Kumar. The Board by exercising jurisdiction under Section 129D(1) of the Act, after examining the legality, correctness and propriety of the order of the Collector of Customs, Madras, referred to supra, directed the collector of Customs to file appeals for enhancement of the fine imposed on the Bank of Madura and imposition of penalty on the Bank of Madura as well as on Vinod Kumar and others. The Bank of Madura, as stated above, have filed independent appeals questioning the legality of the levy of fine on them by the Collector of Customs, Madras, under the impugned orders.
4. The main question that would arise for consideration in the instant case is whether the imported goods under confiscation are entitled to be cleared under Open General Licence by the Bank of Madura as joint holder of licence on payment of duty alone and whether the goods imported are liable to confiscation under law and if so, the quantum of fine in lieu of confiscation imposed under the impugned orders on the Bank of Madura is just proper or woule call for further enhancement. It may be noted in this context that excepting the Bank of Madura, the other respondents in the appeal preferred by the Collector of Customs, Madras, remained ex parte.
5. The learned counsel Shri Sunder, appearing for the Bank of Madura submitted that in terms of paragraph 349 of the Hand Book of Import-Export Procedures, 1981-82, when an importer opens and irrevocable letter of credit through a bank and later fails to honour his bills, the bank concerned could be considered as a joint holder of licence to the extent of the goods covered by the credit so as to enable the bank to honour its commitment with foreign supplier. The learned counsel also drew our attention to Appendix 27 of the relevant Hand Book and contended that if the licence holder on arrival of the goods does not honour the bills drawn against letter of credit and produce the licence for clearance of the goods, the bank which has opened the letter of credit would nevertheless be entitled to clear the same through the Customs and remit the foreign exchange to the foreign supplier. In respect of the goods under confiscation, it was contended that they could be imported by actual users (industrial) in terms of Appendix 10 item 2 of the Policy 1981-82. It was further submitted that the Bank being satisfied about the eligibility of the persons viz. M/s. Kanna Industries and M/s. Hansons Enterprises, on whose behalf the SSI certificates as per the regulations were/produced before the Bank, that they were entitled to import the goods under OGL Appendix 10 item 2 referred to supra, opened a letter of credit. In such a situation, the Bank being in the position of a joint holder of licence by operation of paragraph 349 of Hand Book 1981-82 would be entitled to clear the consignments under OGL on payment of duty arid would not be liable to be proceeded against for contravention of either the provisions of Customs Act or Imports and Exports (Control) Act, 1947. It was further contended that the goods would not be confiscable at the hands of the Bank who would be entitled to clear the same, though subject to a condition that the goods are distributed to actual users in accordance with the ITC Policy. Even if grave irregularities or improprieties were committed by the Bank either in the matter of opening a current account or a letter of credit and even if the Bank had not bestowed adequate and proper care in scrutinising the correctness of the SSI Certificates and verifying the credit worthiness of the parties and their capacity and eligibility to import the item of goods in question as actual users, it was contended, the Bank could only be proceeded against for infraction of the financial discipline or the code of conduct imposed by the Reserve Bank of India under various Rules and regulations and that would not empower the Collector of Customs to initiate proceedings under the provisioins of the Customs Act so far as the Bank is concerned. Finally, it was urged that in any event the quantum of fine imposed in lieu of confiscation is too heavy.
6. Shri Narasimhan, Senior Central Government Standing Counsel, appearing for the Department urged that the evidence on record clearly bears out that it is only with the active assistance of Bank of Madura, Madras, Vinod Kumar, one of the respondents herein, has manoeuvred to open a current account in the name M/s. Kanna Industries, Madras, as well as in the name of M/s. Hansons Enterprises, Patel Marg, Ghaziabad. It was further urged that the letters of credit in favour of the aforesaid parties have been opened by the Bank only on the basis of a letter of guarantee furnished by Vinod Kumar. The learned counsel drew our attention to the Bank Office notes respectively dated 24.10.1981 and 29.10.1981 put up to their Chief Officer in connection with the issue of letters of credit respectively in favour of M/s. Kanna Industries and M/s. Hansons Enterprises showing them as allied concerns of M/s. Vinod Kumar & Co., owned by Vinod Kumar. It was further contended that as per the Bank's records current account of M/s. Hansons Enterprises was opened on introduction of one Ram Kishore by Vinod Kumar and it is Ram Kishore who introduced V.K. Marimuthu, proprietor of Kanna Industries to the Bank. Evidence on record clearly proves that both M/s. Hansons Enterprises and its proprietor Ram Kishore are fictitious and non-existent and V.K. Marimuthu, Proprietor of Kanna Industries has denied knowing Ram Kishore much less opening any current account in the name of his firm Kanna Industries with the Bank of Madura. The learned counsel also placed reliance on the peculiar conduct of the Bank in opening letters of credit for a huge sum of Rs. 46,20,000/- and Rs. 67,37,500/- respectively in favour of M/s. Kanna Industries and M/s. Hansons Enterprises on 29.10.1981 merely on the basis of a letter of guarantee furnished by respondent Vinod Kumar, without charging any margin. The learned counsel further submitted that the evidence bears out that the SSI certificate in the name of Hansons Enterprises is also a bogus document and the circumstances clinchingly establish that the Bank of Madura did not even venture to make any enquiries at all as a prudent man about the financial status and solvency of the parties in whose favour letters of credit were opened nor attempted to find out whether the goods that were sought to be imported were meant for actual use as per law. The Bank in parting with such a huge amount has fragrantly violated all the financial norms, conditions, disciplines and regulations of the Reserve Bank of India and being fully aware that the alleged concerns, whether existent or non-existent on whose behalf the imports have been made are allied concerns of Vinod Kumar and Co., have been privy to the act of illegal importation rendering themselves liable for penal consequences under the provisions of the Customs Act and Imports arid Exports (Control) Act, 1947. It was contended that huge quantity of steel items has been fradulently imported under OGL by Vinod Kumar, a dealer in steel items in the name of M/s. Kanna Industries and M/s. Hansons Enterprises with the active connivance of the Bank of Madura in utter disregard of the ITC regulations. The learned counsel further submitted that the Bank would be entitled to clear the goods in terms of Appendix 27 of the Hand Book of Procedure 1981-82 only if the import in question is covered by a valid import licence. The learned counsel submitted that in terms of Section 112(a) of the Act. the Bank of Madura being guilty of acts of. commission and commission would be liable for penalty. The learned counsel further urged that the Central Board of Excise and Customs has issued a statutory direction to the Collector of Customs, Madras, in terms of Section 129D(1) to prefer an appeal before this Tribunal praying for enhancement of fine and imposition of penalty so far as the Bank of Madura is concerned and for penalty so far as the respondent Vinod Kumar and others are concerned.
7. In reply to the submissions of the Central Government Standing Counsel, the learned counsel for Bank of Madura submitted that in the appeal preferred by the Collector in pursuance of the statutory direction of the Board there is no prayer for imposition of penalty and therefore, the Department as appellant must be deemed to bave waived and given up their plea relating to imposition of penalty. In such a situation, this Tribunal, it was contended, would not have jurisdiction to impose penalty neither pleaded nor prayed for in the appeal before it.
8. We have carefully considered the submissions of the parties herein. The goods concerned in this case can be imported under OGL in terms of Appendix 10 of the Policy 1981-82 only subject to actual users condition. So far as Kanna Industries is concerned, the proprietor Marimuthu has in categorical unambiguous terms confessed to the fact by his statements before the authorities referred to supra that though he was in possession of a SSI certificate, his unit was not doing well and he was in need of money and in such a situation at the instance of the respondent, Vinod Kumar, he obliged him with copies of SSI certificates alongwith some letter-heads of his firm duly signed by him or illegal consideration of Rs. 3,000/- and did not know anything at all about the import of steel items. He has further admitted the fact that he never opened a current account in the name of M/s. Kanna Industries with the Bank of Madura nor know any one by name Ram Kishore, proprietor of M/s. Hansons Enterprises. He also disowned his signature in the Bill of Entry and other related documents. It is seen from the records that Marimuthu has neither resiled nor retracted from the statement given before the authorities nor even sent a reply to the show cause notice. This piece of evidence remains almost unrebutted. Vinod Kumar, who according to the Department was the person who master minded the entire operation, and manoeuvred and manipulated to import the items in question by exploiting the financial weakness of Marimuthu, proprietor of Kanna Industries and by creating forged SSI certificate in the name of fictitious non-existent M/s. Hansons Enterprises and its proprietor Ram Kishore, has remained ex parte before us. It is not disputed by the Bank that the office notes dated 24.10.1981 and 29.10.1981 put up to their Chief Officer in connection with the issue of letter of credit in favour of M/s. Kanna Industries and M/s. Hansons Enterprises, respectively mentions that Kanna Industries and Hansons Enterprises are allied concerns of M/s. Vinod Kumar and Company, owned by respondent Vinod Kumar. We are indeed surprised at the extreme casual-ness and light hearted way in which the Bank of Madura has chosen to open letters of credit for such huge and substantial amounts without any margin, without being aware of the financial solvency of the parties concerned, without taking elementary care to find out as to whether the imported items were capable of being utilised by the respective parties and more so, on the basis of a mere letter of guarantee furnished by Vinod Kumar. It is most surprising that Ram Kishore, alleged to be the proprietor of M/s. Hansons Enterprises of Ghaziabad, chose to introduce to Bank of Madura, Marimuthu of Madras, proprietor of Kanna Industries for opening a current account and immediately on opening of such a current account, the Bank should have thought it prudent to open a letter of credit for such a huge amount in respect of the steel imports subject to actual users condition. This attitude of the Bank in staking its financial security on the basis of a letter of guarantee given by respondent Vinod Kumar has to be viewed and adjudged in the context of the established fact that Vinod Kumar himself was not even an income-tax assessee. We are satisfied that the Bank of Madura has been clearly privy to the illegal import of the items master-minded by Vinod Kumar on the basis of forged documents in contravention of law. The plea of the Bank of Madura that as a joint holder of licence in terms of Para 349 of the Hand Book of Procedure 1981-82 they would be entitled to the release of the goods without imposition of fine is not legally tenable. As we have already indicated, the goods in question are permitted to be imported under OGL only subject to actual users conditions. But of the two persons, who, according to the Bank, imported the goods under seizure, Marimuthu, proprietor of M/s. Kanna Industries has completely disowned any connection with the import or with the opening of letter of credit or the signature on the Bill of Entry. So far as the other importer, viz. Hansons Enterprises, is concerned, it is established by clear evidence that concern as well as its alleged proprietor are fictitious non-existing entities. Respondent Vinod Kumar, who is the guarantor in respect of the amounts advance by the Bank under the letter of credit has remained ex parte. The Bank of Madura on its part, either at the time of adjudication or before the Tribunal, has not even endeavoured to substantiate that the import in question was really meant for the concerned importers for actual use as per law. In such a situation the plea of the Bank that by reason of opening irrevocable letter of credit and having committed for the payment of exchange to the foreign suppliers, the Bank as a joint holder of the licence to the extent of the goods covered by the credit would be entitled to clear the same on payment of duty without any penal liability is incorrect. When the goods imported are not in accordance with the conditions stipulated in Appendix 10 of the Policy 1981-82 governing their importation under OGL, the goods would become legally liable for confiscation. In such a situation the confiscability of the imported goods cannot be assailed or called in question by the Bank claiming the rights of a joint holder of licence. We, therefore, hold that the goods imported are liable for confiscation under Section 111(d) of the Act read with Section 3(2) of the Imports and Exports (Control) Act, 1947. Once we have found that the goods are liable for confiscation under the Act, released of the same on payment of a fine in terms of Section 125 of the Act is in the exercise of a judicial discretion by quasi-judicial authorities in adjudication. On consideration of the facts and circumstances of this case we find that imposition of fine in lieu of confiscation against the Bank of Madura by the original adjudicting authority under the impugned orders is extremely low, inadequate and is not justifiable on any acceptable legal grounds. Having regard to the gravity of the act, the nature of the goods involved, the high marketability of the same with a large margin of profit and the circumstances under which the letters of credit have been opened by the Bank of Madura for the eventual import of the goods in question, we feel that the quantum of fine imposed on the Bank of Madura calls for an upward revision in the factual background of this case. We accordingly enhance the same to Rs. 20 lakhs (Rupees twenty laks only) for the import relating to M/s. Kanna Industries and to Rs. 15 lakhs (Rupees fifteen lakhs only) in respect of the import relating to M/s. Hansons Enterprises. Regarding the question of imposition of penalty, the relevant consideration under the Act is that only person who in relation to any goods does or omits to do any act which act or omission would render such goods liable for confiscation under Section 111, or abets the doing or omission of such an act, shall be liable for a penalty. In the instant case, notwithstanding the fact that Bank of Madura without exercising proper diligence and reasonable care, acting in a most imprudent way, has acted in flagrant violation and breach of all codes and regulations of financial discipline expected of a scheduled bank, no act or omission of the Bank can be said to have been rendered the imported goods liable for confiscation within the meaning of Section 112 of the Act. The mere opening of letters of credit without margin in respect of a person who is a man of straw and a person who is non-existent, and all on the basis of a mere letter of guarantee by a person who was not even and income-tax assessee and whose credit worthiness also the Bank was blissfully ignorant of, would all be acts of culpable ignorance and reprehensible imprudence on the part of a banking institution but would fall short of an act or omission rendering the goods liable to confiscation within the meaning of Section 112(a). What the Bank has done, to put it no higher is to fritter away its funds in utter disregard of the banking procedures and rules and regulations and that would not ipso facto make it liable for a penalty under Section 112(a) of the Act. In view of our finding on the facts and circumstances of this case that the Bank is not guilty of an offence under Section 112(a) of the Act, we do not feel called upon to consider and pronounce upon the question as to whether the Department would be entitled to urge a plea for imposition of a penalty in the absence of a specific prayer in the memorandum of appeal filed before the Tribunal.
9. Coming to respondent Vinod Kumar, we are satisfied for the reasons indicated above that it is Vinod Kumar who has master-minded the entire fraudulent operation. Excepting an ipse dixit on his part, after a long and continuous evasive tactics to receive the show cause notice that he has nothing to do either with Kanna Industries or Hansons Enterprises, Vinod Kumar has not been able to even probabilise, much less substantiate his plea that he is not associated in any way with any of the parties or with the import. We therefore find him clearly guilty of the offence under Section 112(a) of the Act and impose a penalty of Rs. 10 lakhs (Rupees ten laks only).
10. So far as the appeal of the Department against Kanna Industries is concerned, the Department has not even prayed for any enhancement of penalty imposed on Kanna Industries. Apart from it we find that Marimuthu, proprietor of Kanna Industries, has already suffered a penalty of Rs. 10,000/- under Section 112 of the Act and in the facts and circumstances of this case and having regard to the role played by M/s. Kanna Industries, we do not think that the penalty imposed calls for any upward revision. So Appeal No. C 253/85 against M/s. Kanna Industries is dismissed.
11. In the result appeals No. 304/84 and 305/84 filed by the Bank of Madura are dismissed. Appeal No. 240/85 and 255/85 filed by the Collector of Customs, Madras, against the Bank of Madura are allowed and the fines under Section 125 of the Act imposed on the Bank of Madura are enhanced as indicated above. Appeal No. 254/85 filed by the Collector of Customs, Madras, against respondent Vinod Kumar is also allowed and a penalty as indicated above is imposed on Vinod Kumar under Section 112(a) of the Act.