Customs, Excise and Gold Tribunal - Bangalore
Flora Wall Coverings Ltd. And Ors. vs Commissioner Of Customs on 23 May, 2003
Equivalent citations: 2003(89)ECC677, 2003(160)ELT334(TRI-BANG)
ORDER S.S. Sekhon, Member (T)
1. These appeals are being disposed of by this common order as they are against the same impugned Order-in-Original No. 24/2002-Commr/Cus/Adjn dtd. 30.4.2002 and related O-I-O No. 26/2002-Commr/Cus/Adjn dtd. 30.4.2002. M/s. Flora Wall Coverings Ltd (hereinafter referred to as FWC) were a 100% EOU operating in Bangalore, engaged in the production of Textiles (Silk) Wall Coverings as per the approval granted to them by the Secretariat of Industrial Approvals. They were permitted to import duty free, all types of goods including capital goods required for the manufacturer, production and processing under Customs Notfn. No. 13/81 dtd. 9.2.81 as amended.
2. Based on specific information that the said unit have indulged in large scale diversion of duty free imported raw material viz., mulberry raw silk yarn without following the customs procedures, the Directorate of Revenue Intelligence visited their licensed premises on 26.11.97, undertook a search and conducted an inquiry, On verification, it was found that the godown, situated on the right side of the main entrance to the EOU factory, contained cotton bags and gunny bags stored in a haphazard manner without any proper stacking. On examination of the bags by the expert witnesses from the Central Silk Board, it was revealed that the said bags contained only by-products of silk and waste contained in cotton/gunny bags was incapable of being used in the process of manufacture and had no commercial value. The said 521 bags/bales found on physical examination revealed that except two bags/bales (which are also found to have been opened) contained mulberry silk, while the other 519 bags/bales were containing the waste material like jala waste, sliver waste, pneumofil waste, hard waste, waste paper, card droppings etc. All these 521 bags/bales were seized in the belief that the importers had substituted waste and junk material for the imported mulberry raw silk procured by him duty-free. From the Godown Chart card on the Bank of Madura and a packing list of mulberry raw silk available in the said godown which were seized and verification of the contents of the two rooms available inside the factory premises and examination thereof indicated that the bags of cotton and gunny were strewn around and stored in a haphazard manner, amounting to 341 bags, which were found to contain waste and junk material as mentioned above. The Silk Board experts opined that the said waste contained in the said bags are waste by-products which emerge in the course of manufacture of silk and are incapable of being used in any process of manufacture and have no commercial value. These 341 bags were also seized on the reasonable belief that the mulberry silk imported duty free has been substituted with the aforesaid waste material. Statements of various persons viz., Shri M.S.A. Aleem, Chairman of Flora Group of Companies, Smt. Anuradha, Managing Director of M/s Flora Wall Covering Ltd., Shri K. Lakshmanan, Branch Manager, Bank of Madura, Shri A.V. Vaiyapuri, Ex-Branch Manager, Bank of Madura, Shri S. Immanuel, Vice President (Commercial) of Flora Group of Companies, Shri Umesh Dhawan, Proprietor of Umesh Silk House, Shri Radheyshyam Rander of Mahalakshmi Silk Trading Company, Bangalore, Shri Nandalal, Proprietor of Mahalakshmi Silk Trading Company, Shri Gourishankar Sarda, Partner of Karnataka Silk Emporium, Shri B.H. Mohan, Works Manager, M/s Flora Silks Ltd. were recorded. From the investigations conducted, it appeared that M/s Flora Wall Covering Ltd. had:
(i) Indulged in clandestine removal of bonded imported raw silk.
(ii) Substituted waste material having no commercial value in the bags originally containing imported raw silk,
(iii) Non-utilized the imported raw silk in the manufacture of declared final product,
(iv) Diverted imported raw silk for domestic sale,
(v) Attempted to export/removal of bags and bales containing waste material outside the bonded premises.
Therefore, a Show Cause Notice was issued as to why:
(i) Customs duty amounting to Rs. 2,30,72,878, which was forgone vide Bills of entry mentioned in the Annexure to the show cause notice, should not be demanded from them under the proviso to Section 28(1), for violation of the provisions of Customs Notification 13/81 dtd. 9.2.81 and provisions of Section 65 of the Customs Act, 1962;
(ii) The duty of Rs. 4,30,300 paid by them under TR6 challan d td. 2.12.97 should not be appropriated towards the duty demanded in sub-para (i) above;
(iii) The 1,02,963.98 legs, of raw silk, valued at Rs. 6,09,03,414 should not be confiscated under Section 111 (d), 111 (j) and 111 (o) of the Customs Act, 1962;
(iv) The 54.10 kgs. of raw silk, valued at Rs. 53,672 (value computation indicated in the said worksheet) seized under Mahazar dtd. 28.11.97, should not be confiscated under Section 111(j) of the customs Act, 1962;
(v) The permission granted to them for in-bond manufacturing under Section 65 of the Manufacture and Other Operations in Warehouse Regulations, 1966 should not be cancelled under Regulation 14 of the said regulations;
(vi) The interest on the duty as at (i) as applicable should not be demanded under Section 28AB of the Customs Act, 1962; and
(vii) Penalty should not be imposed on them under Section 114A of the Customs Act, 1962 or alternatively under Section 112(a) of the Customs Act, 1962.
As Shri M.S.A. Aleem, Director, M/s Flora Wall Coverings Ltd. and Chairman, Flora Group of Companies, appeared to have master-minded the entire scheme of import of raw silk and its subsequent clandestine sale in the local market and was called upon to show cause to the Commissioner of Customs, P.B. No, 5400, Queen's Road, Bangalore as to why penalty should not be imposed on him under Section 112(b)(i) of the Customs Act, 1962. Shri S. Immanuel, B.H. Mohan, Amanulla Khan, Umesh Dhawan, Radheyshyam Rander, Nandalal Rander, Gourishankar Sarda, Vaiyapuri, K. Lakshmanan and Mrs. Anuradha were also required to show cause to the Commissioner of Customs, P.B. No. 5400, Queen's Road, Bangalore as to why a penalty should .not be imposed on each of them under Section 112(b)(i) of the Customs Act, 1962. The parties mentioned in the show cause notice filed their replies to the notice except Shri Amanulla Khan. The Commissioner, on receipt of replies adjudicated the matter. Aggrieved by this order, appeal was preferred before the Tribunal, who vide their Order Nos. 55-66/2001 dtd. 12.1.2001, without expressing opinion on the merits of the case, remanded the matter back.
3. Consequent to the remand, the Commissioner re-adjudicated the matter and ordered vide his impugned Order No. 24/2002 Commr/Cus, Adjn dtd. 30.4.2002:
(a) I demand Customs duty of Rs. 2,30,72,878.00 from M/s Flora Wall Coverings Ltd., Bangalore being the duty foregone in respect of 1,03,018.08 kgs. of imported duty free mulberry raw silk and spun silk, cleared clandestinely vide Bill of Entry mentioned in Annexure A enclosed to this order.
(b) I appropriate Rs. 4,30,000 paid by M/s Flora Wall Covering Ltd. vide TR6 Challan dtd. 4.12.97
(c) 1,02,963.98 kgs. of mulberry raw silk and spun silk valued at Rs. 6,09,03,414 is liable for confiscation under Section 111(d), 111 (j) and 111(o) of the Customs Act, 1962. However, since the goods are not available for confiscation they are liable for penal action under Section 112(a) of the Customs Act, 1962.
(d) 54.10 kgs. of raw silk valued at Rs. 53,672 seized under Mahazar dtd. 28.11.97 is confiscated under Section 111(j) of the Customs Act, 1962. However, I allow the confiscated goods to be redeemed on payment of fine of Rs. 20,000 in lieu of confiscation under Section 125 of the Customs Act, 1962. the Customs duty at the appropriate rates has also to be paid at the time of exercising the option to redeem the said goods.
(e) I cancel forthwith the permission granted for in-bond manufacture, under Section 65 of the Customs Act, 1962 read with the manufacture and other operations in warehouse regulations.
(f) M/s Flora Wall Coverings Ltd. are also liable to pay interest of the duty as mentioned at para (a) above at the rate applicable, under Section 28AB of the Customs Act, 1962.
(g) I impose a penalty of Rs. 2,30,72,878 on M/s Flora Wall Covering Ltd. under Section 114A and Section 112(a) of the Customs Act.
(h) I impose a penalty of Rs. 50,00,000 on Mr. M.S. A. Aleem, Director of M/s Flora Wall Covering Ltd. and Chairman of Flora Group of Companies under Section 112 (b)(i) of the Customs Act, 1962.
(i) I impose a penalty of Rs. 10,00,000 on Shri immanuel, under Section 112 (b)(i) of the Customs Act, 1962.
(j) I impose a penalty of Rs. 1,00,000 on Smt. Anuradha, under Section 112 (b)(i) of the Customs Act, 1962.
(k) I impose a penalty of Rs. 2,00,000 on each Shri B.H. Mohan, Shri Amanulla Khan, Shri Umesh Dhawan, Shri Gourishankar Sarda, Shri Radheyshyam Rander, Shri Nandalal Rander under Section 112 (b)(i) of the Customs Act, 1962
(l) I impose a penalty of Rs. 5,00,000 on Shri Vaiyapuri, under Section 112 (b)(i) of the Customs Act, 1962.
(m) The proposal to impose penalty on Shri K. Lakshmanan is dropped.
(n) The option to redeem the goods should be exercised by M/s Flora Wall Covering Ltd. within three months from the date of receipt of this order.
4. Appeals filed against Order-in-Original No. 26/2002 Commr/Cus/Adjn dtd. 30.4.2002 in the case of M/s Flora Wall Covering Ltd., Bangalore, which was consequent to notice issued after enquiries initiated against this 100% EOU revealed that they have misused the concession of duty free imports of capital goods also and the capital goods, consequently found lying in the factory, were seized under a Mahazar on 24.7.98 valued at Rs. 10,37,36,516 and the duty foregone on these goods was Rs. 4,95,83,037. In these proceedings, Show Cause Notices were issued as to why:
(a) the machinery valued at Rs. 10,37,36,516 seized under Mahazar dtd. 24.7.98 should not be confiscated under Section 111(o) of the Customs Act, 1962, for violation of the provisions of Notification. No. 13/81-Cus;
(b) the Customs duty amounting to Rs. 4,95,83,037 should not be demanded from them by invoking the extended period available under proviso to Section 28(1) of the Customs Act, 1962;
(c) the sewing machine valued at Rs. 36,754 imported under Bill of Entry No, 022770 dtd. 13.7.94 and bonded on 18.7.94 under Bond No. 01/94, cleared clandestinely should not be confiscated under Section 111(o) read with Section 111(j) of the Customs Act, 1962;
(d) why customs duty amounting to Rs. 29,955 details as per the bond register, should not be demanded from them under the extended period available under the proviso to Section 28(1) of the Customs Act, 1962;
(e) why penalty should not be imposed on them under Section 114A of the Customs Act, 1962; and
(f) why interest, as leviable for the time being, on the duty foregone should not be demanded from them under Section 28AB of the Customs Act, 1962 from the date of original import till the date of payment of duty and the aforesaid Shri M.S.Aleem and Smt Anuradha were also called upon to Show cause as to why penalty should not be imposed on each of them under Section 112(b)(ii) of the Customs Act, 1962. M/s Indian Bank, Singapore Branch, Bank of Madura, NR Road Branch, Bangalore and M/s SREI International Finance Ltd., Bangalore were also called upon to show cause why the machineries seized at the premises of M/s FWCL and detailed in the Mahazar dtd. 24.7.98 should not be confiscated under Section 111(o) of the Customs Act, 1962.
5. The Commissioner in these remand proceedings, after considering the material on record, found:
"79. M/s SREI have even after repeated request by DRI failed to forward copies of machineries installation/verification report normally drawn in cases of transaction under hire purchase agreement. M/s SREI have failed to produce any evidence in the form of installation/verification report and as a result have failed to establish, that the seized machinery are covered under hire purchase agreement in the premises of M/s FWCL.
80. As regards the inventory report dtd. 18.1.97 drawn by Shri Y.N. Vidya Anand, agent of Court Receiver, it is stated that the investigatons against M/s FWCL were initiated by this Directorate only during November 1997. It is pertinent to point out that the inventory drawn up on 18.1.97 does not reveal the exact location of the machinery in the factory premises of M/s FWCL. Pursuant to the unearthing of massive misuse of 100% EOU Scheme by the party, the factory premises was sealed to prevent either any further misuse or tampering of any evidence by the party or his agents. M/s SREI have not indicated as to what steps they had taken between the periods from 18.7.91 to 10/97 to ensure that their interests were properly secured.
From the above discussions it becomes evident that:
(a) the DRI has not seized any of the machinery covered under the hire purchase agreement entered into between M/s SREI and M/s FWCL.
(b) The department has not proposed for confiscation of any machinery which are the subject matter of the said hire purchase agreement.
(c) The DRI has not violated the orders of either the Hon'ble High Court of Karnataka or the Hon'ble High Court of Calcutta.
(d) The officers of DRI have not prevented M/s SRHI from taking possession of the machinery legally belonging to them in terms of the hire purchase agreement and the subsequent order of the Hon'ble High .Court of Calcutta,
(e) In view of the position as existing in the factory on 24.7.98 as enumerated in the Mahazar dtd. 24.7.98, during which a representative of M/s SREI ought to have taken immediate steps in consultation with DRI to ascertain the present location of the machinery given out on hire to M/s FWCL.
(f) All the capital goods seized under Mahazar dtd. 24.7.95 are non-duty paid.
(g) The identification of the machinery was done in the presence of the representative of M/s SREI who has not disputed the fact that all the identified imported machinery were lying in bond and were non-duty paid;
And passed the following order:
(1) The machinery valued at Rs. 10,37,36,516 seized under Mahazar dtd. 24.7.98 is confiscated under Section 111(o) of the Customs Act, 1962 for violation of the provisions of Notfn. No, 13/81-Cus. However, I allow M/s FWCL to redeem the goods on payment of fine of Rs. 3,00,00,000 in lieu of confiscation under Section 125 of the Customs Act, 1962;
(2) I demand Customs duty amounting to Rs. 4,95,83,037 under proviso to Section 28(1);
(3) The Sewing machine valued at Rs. 36,764 imported vide Bill of Entry No. 022770 dtd. 13.7.94 and bonded on 18.7.94 under Bond No. 01/94 is confiscated under Section 111(o) read with Section 1110 of the Customs Act, 1962;
(4) 1 demand Customs duty of Rs. 29,955 in respect of the said seqing machine under proviso to Section 28(1) of the Customs Act, 1962;
(5) I impose a penalty of Rs. 4,96,12,922 on M/s FWCL under Section 114A of the Customs Act, 1962;
(6) M/s FWCL are also liable to pay the interest on the duty foregone under Section 28AB of the Customs Act, 1962, from the date of original import till the date or payment of duty;
(7) I impose a penalty of Rs. 1,00,00,000 on Shri M.S.A. Aleem under Section 112 (b)(ii) of the Customs Act, 1962;
(8) I impose a penalty of Rs. 50,00,000 on Smt. Anuradha under Section 112 (b)(ii) of the Customs Act, 1962.
Hence the set of appeals, which are being disposed of by this common order.
6. After considering the submissions and the material on record, it is found;
(i) As regards M/s Flora Wall Covering Ltd:
(a) They are a 100% EOU and the charge is that they imported duty free, large quantities of mulberry silk and spun silk for the manufacture of wall coverings, which were found to have been clandestinely removed from the duty free Bonded Warehouse in the factory and the bags/bales substituted with waste material. A demand of Rs. 2,30,72,878 for violation of Customs Notfn. No. 13/81 has been fastened on them. From the impugned Order, especially Para 114 and thereafter, it is found that the Commissioner in his impugned Order No. 24/02-Commr/Cus/Adjn. Has come to a logical conclusion after examining the material placed before him, as regards the charge of sale of silk imported concluded that the following facts emerge:
"122. From the above evidences and statements of various persons associated with the import and sale of Mulberry Raw Silk Yarn the following facts emerge:
(i) As per the quarterly report for the quarter ending July '97 to September '97 submitted to CEPZ, Bangalore, 70MTs of Mulberry Raw Silk Yarn valued at Rs. 3.85 crores was available in the factory of M/s FWC for the quarter ending Sep '97. However, on verification only 54 kgs of Mulberry Raw Silk Yarn was actually available. If M/s FWC imported a total quantity of 1.03,008.08 kgs of Mulberry Raw Silk Yarn and manufactured and exported 1,64,000 MTs of Silk Wall Coverings 70 MTs of imported Mulberry Raw Silk Yarn would not have been available as per records, after giving an allowance of 30-40% as wastage. If 70 MTs of Mulberry Raw Silk Yarn valued at Rs. 3.85 crores was available as on 30,9.97, how is it possible that they have manufactured 1,64,000 MTs of Silk Wall Coverings out of approximately 60MTs of imported Mulberry Raw Silk Yarn. This itself shows the absurdity of the argument of M/s FWC. This argument was not advanced before the investigating officers. On the contrary Shri M.S.A. Aleem admitted in all the three statements that he has clandestinely sold to Mulberry Raw Silk Yarn and replaced it with silk waste.
(ii) There are the statements of Shri Umesh Dhawan, Radheyshyam Rander, Gourishankar Sarda to the effect that they have purchased imported Mulberry Raw Silk yarn and sold to local weavers.
(iii) The 'personal books' seized from the office premises of the Flora Group of Companies at Wilson Gardens bearing Sl. Nos. 237, 236, 222, 225, 224 and 223 shows cash transactions of the groups on a daily basis and receipts of amounts from Shri Umesh Dhawan and Mohan on various dates.
(iv) The unaccounted for purchase of viscose yarn from M/s Sujatha Textiles Mills, Mysore was used for the manufacture of Wall Coverings instead of using the imported Mulberry Raw Silk Yarn.
(v) The seizure of 519 and 341 bags/bales of jala waste silver waste, pneumofil waste, hard waste, waste paper, card droppings etc, from the godowns of M/s FWC. These bags should have contained 70 MTs of imported Mulberry Raw Silk Yarn as per the statement given to CEPZ, Bangalore.
(vi) The representative sample was also sent to CSTKI, Bangalore. They have opined that the test conducted by them confirms the opinion of the expert witnesses to the Mahazars and also that the textile material used in the manufacture of wall covering, was viscose yarn.
From the above discussions and averments, detailed supra it becomes evident that what was exported was not silk wall coverings, but viscose wall coverings. The submissions now made is only an after thought.
These findings of facts, are being assaulted, on behalf of the EOU company, on the ground that they have exported certain materials and that exports have been made by them, based on records supplied by Customs were accepted by the Development Commissioner towards export performance of the EOU. Be that as it may, the fact that certain quantities of wall coverings have been exported would not lead to a conclusion that the consignments of mulberry silk imported in two lots, somewhere in April '95 and July-August, 95, whose first clearances were permitted in October '95 under the supervision of the Bank officers to have been accounted for satisfactorily to have been used in the goods exported. On the other hand/there is enough material on record and on that, conclusions have been logically arrived at, by the Commissioner in the impugned Order, that the said imported goods had been removed in an unauthorized manner from the bonded premises and disposed of by Shri Aleem and others, for a valuable consideration. In fact, when the matter was heard, the Ld. Advocate for Shri Radheyshyam & Others, the alleged buyers of this unauthorisedly removed silk, averred and maintained that his clients had in the bona fides belief paid for and purchased such material from Shri Aleem and his persons in the belief that Shri Aleem could legally operate the sale thereof. This induces to a Confirmation that sales of imported mulberry silk yarn have been effected. This fact that the circumstances in which the sales were being effected from the Guest house of M/s FWC situated at Madiwala far away from the factory, as narrated in the material on record and the finding of the bales/bags in the duty free bonded warehouse found, stuffed with waste material, would lead to the only conclusion that the imported duty free silk kept in the bonded warehouses were unauthorisedly removed without payment of duty thereon. This duty was required to be paid. Since no material exists to prove the utilization of the same in the goods exported which view is reinforced by the finding as arrived at by the Commissioner at para 122 of the impugned Order extracted supra. It is therefore to be held that the duty of Rs. 2,30,72,878 is correctly determined under the provisions of Customs Act, 1962 and is required to be paid by M/s FWC, Bangalore on the imported silk found in the bonded warehouse.
(b) It is found that the Ld. Advocate for M/s FWC has stressed upon the statement of export shipments made and have submitted that the quantity of raw silk required for manufacture of such export goods and exported by them, cannot be quantified since there was no technical literature or authoritative text reliable to substantiate the write-up produced for the consumption of the mulberry silk. In this view of the matter, we cannot accept that the argument being made that the imported raw silk was used up/consumed in the goods, which have been admittedly exported. What was used in the goods which are admittedly exported, is not the issue before us. The issue is to determine the duty liability on the quantity of 1,03,018.08 kgs. of mulberry raw silk determined by the Commissioner to be unauthorisedly removed from duty free bonded warehouse. These goods have been imported ostensibly to be used in the goods manufactured. The Commissioner has found that from the reports being submitted by M/s FWC, these goods could not have been used in the exported products, and it is found that the Commissioner's finding regarding its unauthorized removal from the bonded warehouse cannot be found fault with. Therefore, the arguments being made that the imported goods were used in the wall coverings exported is rejected. It is not the case before use to determine as to where the raw material for those goods that were exported came from. It is on record that the appellants have procured other types of yarn though not in sufficient quantities. This would indicate that they had other sources for procuring the raw material i.e. yarn of different types to manufacture wall coverings. The entire operations being conducted by the persons in charge of the EOU Company were in a manner, that leads to a conclusion that they could have procured other raw material and have exported the goods made from such other raw material procured. Since that is not the issue before us, we refrain from going into the details as to how that raw material would have been procured.
(c) Since we find that the duty of Rs. 2,30,72,878 on 1,03,018.08 kgs, has been correctly demanded, we find no reason to upset the appropriation order as regards Rs. 4,30,000 paid by M/s FWC vide TR6 Challan dtd. 4.12.97 against this demand.
(d) Since, 1,02,963.98 kgs. of mulberry silk which was imported, duty free, for use in goods to be exported by an 100% EOU and the same were unauthorisedly removed and disposed of and substituted with waste goods, we uphold the liability of confiscation on those goods arrived at under Sections 111(b), 111(j) and 111(o) of the Customs Act. However, since the goods are not available for confiscation, we would uphold the penalty liability under Section 112(a) of the Customs Act, 1962 as arrived at by the Commissioner.
(e) A quantity of 54.10 kgs. of raw silk valued at Rs. 52,672 has been seized on 28.11.97 and is proposed to be confiscated under Section 111(j) of the Customs Act, 1962. Since these goods have been seized in the 100% EOU, which was in the bonded premises, we do not uphold the liability for confiscation of this quantity of mulberry silk as arrived at by the Commissioner and we set aside the confiscation thereof and the Redemption Fine of Rs. 20,000 imposed.
(f) The penalty under Section 114A and Section 112(a) of the Customs Act amounting to Rs. 2,30,72,878 as imposed, cannot be upheld since Section 114A itself provides 'Provided further that where no penalty has been levied under this Section, no penalty can be levied under 112 or 114.' In the facts of this case, since the Commissioner has imposed a joint penalty under Section 114A and Section 112(a) of the Customs Act on M/s FWC, we would therefore, set aside this penalty and remit the matter back to the Commissioner, to determine the penalties as applicable under law. Since a plea was made before us that penalty under Section 114A could not be imposed as the duty demand is for period prior to its incorporation in the Act, the date of duty liability is therefore to be re-determined before the penalty liability is arrived at. Interest liability under Section 28AB would therefore need to be re-determined.
(g) As regards the cancellation of the permission granted for the in-bond manufacture under Section 65 of the Customs Act, 1962 read with manufacture and other operations in warehouse regulations, we find no reasons for cancellation of the same, since the 100% EOU has manufactured wall coverings and exported the same. Based on the reports of such exports made, sent to Development Commissioner, the Development Commissioner's or derbased on such reports has been produced before us. The cancellation withdrawal of Section 65 permission would be effective only after EOU status is withdrawn.
(h) As regards the confiscation of plant and machinery i.e. capital goods of the 100% EOU ordered vide Commissioner's Order No. 26/02 dtd. 30.4.2002, since the 100% EOU has exported certain goods which the Customs authorities are accepting and based on those exports the Development Commissioner is considering that as past export performance of this EOU as per his Order No. 1/16/93:EOU:CEPZ/8845 dtd. 24.10.2001. Therefore, when EOU capital goods have been used for manufacture of export goods, then the ordering of confiscation of the capital goods for diversion of the raw material i.e. mulberry silk on which duty and penalty under the Customs Act is being upheld separately cannot be upheld. Therefore, the confiscation on machinery valued at Rs. 10,37,36,516 under Section 111(o) of the Customs Act and Redemption Fine thereon is required to be set aside.
(i) Since the Development Commissioner has accepted the export performance of the subject EOU, the duty liability of Rs. 4,95,83,037 under Section 28(1) of the Customs Act determined vide Commissioner's Order No. 26/02 is not upheld. The duty liability on capital goods and raw material etc, if any, would arise only when the EOU status is withdrawn by the competent authority and it is de-bonded as held by the Apex Court in the case of Siv Industries Ltd., 2000 (68) ECC 531 (SC) : 2000 (117) ELT 281 (SC).
(j) Since the confiscation of the capital goods, machinery is not being upheld. Consequent penalty imposed under Section 114A of the Customs Act and interest liability under Section 28AB cannot be upheld.
(ii) As regards Smt. Anuradha, Managing Director of M/s FWC:
(a) It is found that the appellant was admittedly Managing Director of M/s FWC and has been imposed a penalty of Rs. 1 lakh, vide Order No. 24/02 dtd. 30.4.2002 for the duty demands and liability for confiscation of the same are being determined, on unauthorized removal of imported mulberry silk yarn from the bonded warehouse of this 100% EOU and by Order No. 26/02 dtd. 30.4.2002, Rs. 50 lakhs in the case of the liability for confiscation of plant and machinery, capital goods of the EOU.
(b) Since the confiscation and duty liability of the capital goods, plant and machinery is not being upheld, the penalty of Rs. 50 lakhs imposed on the Managing Director, vide Order No. 26/02 under Section 112 (b)(ii) of the Customs Act, 1962 cannot be upheld.
(c) As regards the penalty of Rs. 1 lakh imposed, for the role found in the unauthorized duty free removal of goods from bonded warehouse, the Managing Director has submitted that she had resigned as early as April '96 and she was unaware of the clandestine activities of the Chairman, Shri Aleem and Shri Immanuel, Manager, Imports & Exports. She was only involved in the administrative and financial work of the Company. She had no role to play in the import or the disposal of the raw mulberry silk and the finding arrived at by the Commissioner that she was guilty of aiding and abetting in the acts of omissions and commissions of the Company by the said Shri Aleem are not called for. It is found that no resolution under the Company's Act of the Managing Director having resigned from a particular date has been placed before us. A Managing Director as defined in the Companies Act means a Director who is entrusted with substantial powers of management, which may be conferred upon him by virtue of an agreement with the Company or a resolution of the company or its Board or by virtue of a memorandum or its articles. Such powers conferred may be revoked or reduced or otherwise altered. A Managing Director being an agent of the Board of Directors cannot exercise any power over and above the Board and can exercise such powers as has been delegated to him. He is entitled to compensation if the appointment is prematurely terminated and the requirement of good faith or appropriate performance can be read even into the exercise of the powers by a Managing Director. Once appointed, the Managing Director cannot be absolved of the liabilities. Section 140 of the Customs Act provides that 'if the person committing an offence under Chapter XVI is a company, every person who, at the time of offence was committed, was responsible to the Government for the conduct of business of the Company as well as the Company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished and it is for such person to prove that the offence was committed without the knowledge.' In this view of the liability of a Managing Director under the Companies Act and Customs Act and in the facts of this case, we cannot come to a conclusion that this Managing Director was unaware of the unauthorized removal of such large quantities of mulberry silk from the bonded premises of the 100% EOU company. We find that she is negligent in the performance of her duties as a Managing Director of a Company and she has been correctly found by the Commissioner to be liable for penalty. The penalty of Rs. 1 lakh imposed under Section 112 (b)(i) in the order No. 24/02 is required to be upheld.
(iii) As regards Shri M.S.A. Aleem, Director of M/s FWC and Chairman of Flora Group of Companies:
(a) Shri M.S. A. Aleem, has been penalized Rs. 1 crore under Section 112 (b)(ii) of the Customs Act, 1962 in the Order No. 26/02. This penalty cannot be upheld since we are not upholding the confiscation of the plant and machinery of the 100% EOU.
(b) As regards penalty of Rs. 50 lakhs imposed under Section 112 (b)(i) in the Order No. 24/02, we find that he has played an important role in not only locating the buyers for the imported goods but also in keeping accounts and in selling of the said goods along with an active role in bringing the Bank Manager for opening the godowns when the unauthorized removals of the dutiable mulberry silk was being effected. He has taken the plea that as Chairman of Board of Directors, he was not responsible for the day to day business transactions of the Company which was vested with the Managing Director and her team and he was travelling abroad for procuring export orders and there is no statement given by him or defence put up which in light of the findings arrived at by the Ld. Commissioner on the material available that the Managing Director had accompanied Shri Aleem during his foreign trips and it was Shri Aleem who in his statement had given a vivid detail of the manner in which the duty concessions given to EOU had been grossly misused and that his statements stand corroborated and that his confession to have master minded the entire operation for diverting the imported duty free goods and substituted them with waste material has rendered himself liable for penalty. We find that the defence being advanced on the grounds taken in appeal are pleas made, without any substance for us to re-consider the finding of his involvement as arrived at by the Ld. Commissioner. Being a Director of M/s FWC and Chairman of M/s Flora Group of Companies, we find that he has not only actively involved in the unauthorized removal of goods from the warehouse and its sale, but also has caused the liability for this huge demand of Rs. 2,30,72,878 being arrived at on M/s FWC. The penalty of Rs. 50 lakhs imposed on him under Section 112 (b)(i) of the Customs Act, 1962 is therefore upheld,
(iv) A penalty of Rs. 10 lakhs has been imposed on Shri S. Immanuel under Section 112 (b)(i) of the Customs Act, 1962 in Order No. 24/02. The Commissioner has found that:
"130. The next point for consideration is regarding imposition of penalty on Shri S. Immanuel. Shri Immanuel has filed his reply vide his letter dtd. 25.6.98. Shri Immanuel appeared for personal hearing and reiterated the submissions made earlier. He has stated that he had carried out his duties as an employee and under the instruction of his superiors and therefore has requested, that his case may be viewed sympathetically. Shri S. Immanuel was the Vice President (Commercial) of Flora Group of Companies. In his statement dtd 4.12.97 he has stated that he placed substantial orders for supply of viscose on M/s Sujatha Textile Mills, Mysore. He has also indicated the party played by the Bank Manager Shri A.V. Vaiyapuri, Mr. B.H. Mohan, Mr. Amanulla Khan and above all Shri M.S.A. Aleem. He has narrated as to how the mulberry raw silk used to be removed from the factory and how the empty bags were refilled by waste material and how a false position was displayed in the returns submitted by the company. He has also stated that he has resigned from the company and is yet to get his dues, settled. I have given due considerations to all these submissions. In his reply dtd. 25.6.98, Shri S. Immanuel has stated that he is a graduate in Management. In his statement, recorded under Section 108 of the Customs Act, 1962, he has admitted about the removal of imported duty free silk from the factory premises as per the instructions of Mr. M.S.A. Aleem. This confession is duly collaborated by the statements of Mr. M.S.A. Aleem, Smt Anuradha, Mr. B.H. Mohan and Mr. Amanulla Khan. Shri. S. Immanuel has also admitted to have received the sale proceeds from various customers, as is evident from the entries made in the "Personal Books" seized from the company premises. Shri Umesh Dhawan in his statement, had also involved Shri S. Immanuel in the disposal of imported silk. Added to all this Shri S. Immanuel was responsible for the maintenance of all the statutory books of accounts. He was also an authorized signatory for customs purposes. Therefore, I have no hesitation in holding that Shri S. Immanuel had concerned himself in committing the offences specified under Section 112(b) and is therefore liable to penalty."
As against this finding of his involvement the grounds taken in appeal before us that he had no authority to decide about policy matters and his role was restricted just like an ordinary employee acting on the instruction of the Chairman preparing reports at the instance of the Managing Director, will not lead to a consideration that Shri Immanuel has not acted beyond the terms of his employment. On the contrary, the facts found establish that he, knowingly fully well that he was aiding and abetting and assisting, dealt with the goods, which were non-duty paid goods liable for confiscation. The finding on his liability of penalty has been correctly arrived at by the Commissioner. However, there is force in the plea put up by Shri Immanuel that a penalty of Rs. 10 lakhs has been put on him while a penalty of Rs. 1 lakh has been imposed on Smt Anuradha, the Managing Director. From the role of the Managing Director as arrived at by the Ld. Commissioner and the role of Shri Immanuel, who was a paid employee of the Company, we cannot find any reasons in the order, of the Commissioner to call for a penalty of Rs. 10 lakhs on this employee, which is higher than that on the Managing Director of the same Company. We would therefore, accept the plea of the penalty imposed being excessive and order that the same be reduced to Rs. 75,000 only.
(v) As regards the penalty on Shri Radheyshyam Rander, Shri Umesh Dhawan, Shri Gourisankar Sarda and Shri Nandalal Rander, Rs. 2 lakhs has been imposed on each under Section 112 (b)(i) of the Customs Act, 1962. We find that the Commissioner has found the following role in Order No. 24/02.
"135. The next proposal is regarding imposition of penalty on Shri Radheyshyam Rander and Shri Nandalal Rander, Proprietor of Mahalakshmi Silk Trading Company, Bangalore. Shri Radheyshyam Rander in his reply dtd. 3.12.2001 and Shri Nandalal Rander in his reply dtd. 6.2.2001 submitted that no Show Cause Notice has been issued to him after the case was remanded for adjudication by the Hon'ble CEGAT; that his statement is only a corroborative piece of evidence and could not be made the sole basis for levy of penalty; that no one has implicated him in the clandestine purchase of the imported Mulberry Raw Silk Yarn; that in his statement Shri Umesh Dhawan has never stated that he was aware that there was any prohibition in selling the imported Mulberry Raw Silk Yarn or that he had consciously dealt or indulged in the offence; that no penalty can be imposed on him as the requisite mens rea was absent; that in his statement dtd. 10.12.97 there was no reference to the fact that Shri M.S.A. Aleem had consciously dealt with the imported material knowing that there was restriction on the same; and that the burden of proving such conscious violation of law is on the department, which it has not been able to prove. 136. I have considered these submissions. With regard to issue of a fresh notice neither the Tribunal has directed this authority to issue any fresh Show Cause Notice nor the Show Cause Notice has been quashed by the Tribunal and therefore there is no necessity to issue a fresh Show Cause Notice. With regard to his submission that he was not aware of the tainted nature of the Mulberry Raw Silk Yarn, I have considered this submissions and I find that Shri Radheyshyam Rander and Shri Nandalal Rander have purchased the Mulberry Raw Silk Yarn without any bills or vouchers. For taking delivery of the Mulberry Raw Silk Yarn they have gone to the guest house of M/s FWC which is not the usual place to trade in commercial goods. Since the raw silk yarn was in commercial quantity an invoice/bill is a must for transportation of goods from one place to another. The very fact that the goods were imported and they were sold from a guest house, that too without any bills/vouchers goes to prove that Shri Radheyshyam Rander and Shri Nandalal Rander were aware of the tainted nature of the imported goods. The penal provision under the Customs Act, 1962 do not contain any reference to criminal intention or knowledge. The function of the adjudicating authority is not to carry out criminal prosecution but is to adjudicate upon statutory prohibition enacted in the interest of revenue. The Hon'ble Supreme Court, in the case of 'Gyjamt Travancore Agency v. Commissioner, 1989 (42) ELT 350, held that in the absence of any indication in the language of the statute of the need to establish mens rea, the default in complying with the requirements of the statute is sufficient for imposition of penalty because penalty is the civil obligation and coercive measure to check the loss of revenue. Thus mens rea is not a necessary ingredient for imposition of penalty. Regarding the second submission, regarding conscious attempt or involvement, put forth by the advocate, it is relevant to state that Shri Radheyshyam Rander had admitted in his statement dtd. 10.12.97 that he had not maintained any account of the transactions pertaining to purchase of silk because he was aware that such dealing in imported mulberry raw silk yarn, imported by a 100% EOU like FWC, is illegal. This very admission goes to establish that the conduct of the said parties was not only dishonest but also that they had acted in conscious disregard of complying with the requirements of the statute. Therefore, I hold that penalty is imposable on both Shri Radheyshyam Rander and Shri Nandalal Rander. It is also relevant to mention that Shri Radheyshyam Rander on 10.12.97 has stated that the statement given by his son, is not only correct but also to be taken as a part of his own statement. He also claims full responsibility for the transactions described in the statement of his son. Hence, they are liable for penal action."
The mere fact that these appellants have been found to be liable for penalty because they have purchased mulberry raw silk yarn without any bills or vouchers and for taking delivery of these goods, they had gone to the guest house of M/s FWC, which was not the usual place for commercial deals in the goods, will not ipso facto bring out that they were aware of the tainted nature of the goods being procured by them. It is an established fact, that in Bangalore, where the Company is situated, imported mulberry silk is being transacted, having been imported under various schemes, which is in many cases, freely tradable after imports. Therefore, we find force in the arguments of their Advocate Shri Laxminarayana that his clients have purchased the goods and have paid, though the deal was not with the prior or post knowledge that the said goods have been unauthorisedly removed from the bonded warehouse without discharging the duty thereon. The fact that these appellants admitted to have purchased the goods will not ipso facto lead to a conclusion that they knowingly dealt with the goods and that knowledge existed to believe that the said goods would be liable for confiscation. When one considers the market for imported raw mulberry silk in Banagalore, wherein mulberry silk was being freely traded. The very fact that they have not gone to the EOU to buy and take delivery of the goods, but have gone to Certain House, far away in the suburbs of Bangalore i.e. Madiwala, which is the Guest-house of M/s FWC, would lead us to believe, that these purchasers could not have had knowledge that the goods were removed from a bonded warehouse unauthorisedly and without discharging duty thereon. We therefore do not find them liable for a penalty under Section 112 (b)(i) as arrived at by the Ld. Commissioner. A penalty of Rs. 2 lakhs imposed on each of them is therefore required to be set aside,
(vi) As regards Shri Vaiyapuri, the Commissioner has found as follows:
"139. Coming to the last proposal, relating to the imposition of penalty on Shri Vaiyapuri, Manager, Bank of Madura, it is seen, that Shri Vaiyapuri filed his reply dtd. 15.7.99 wherein he had sought to cross-examine certain persons named between Sl. Nos. 2 to 10 in the Show cause notice and also the investigation officer. In his further reply dtd. 14.8.99, he submits that he is innocent in the matter and is in no way concerned/connected with the removal of the goods as alleged in the show cause notice. He has neither replied to the denovo adjudication proceedings nor appeared for personal hearing. Therefore, I proceed to adjudicate the case based on records available on file. In the earlier reply, he contends that the allegations against him cannot be sustained through the statement of co-noticees as there is no other corroborative or independent evidence to show his involvement in the alleged offence. He has claimed that the register maintained in the godown shows that the stock was always found to be in order. He has pleaded for directing the Bank to provide documents, which are in their possession and also requested for perusal of Bills of Entry and summons to be issued to Shri Amanulla Khan and four others for cross-examination. As far as his request for issuing directions to the Bank for providing documents, the same cannot be considered as it is beyond the scope of the present proceedings. The adjudication authority cannot travel beyond the scope and the terms of show cause notice. The primary purpose of the proceedings is to put the affected party on notice, on the basis of facts and on record all ingredients of the charge so as to enable him to effectively defend the charges. The request of Shri Vaiyapuri to summon Shri Amanulla Khan and others was also accepted. Shri R. Raghavan and Shri T.S. Balasubramanium, the Ld. Advocates, have cross-examined the parties on 29.11.99. The Ld. Advocate had requested 10 days time to file the final reply. The final reply was received on 20.12.99 in which the Ld. Advocate has submitted that only 58,600 kgs. out of 1,03,018.08 kgs. of mulberry silk yarn was the subject matter of proceedings, having provided key loan; that balance was freely available to M/s FWC, that the goods be under key loan was of Russian origin whereas the buyers had received silk of Chinese Origin; that the co-noticees were not involved in the removal of goods without payment of duty and therefore the proceeding against his client be dropped. I have considered the submissions made on behalf of Shri Vaiyapuri. Shri Vaiyapuri has admitted that the keys of the godowns of M/s FWC were kept in the bank safe custody. He has stated that he is unaware of the possibility of substitution of waste material in place of duty free imported silk because he had never made any attempt to examine the bundles. However, the statements of the other co-noticees actually indicate the contrary. Shri Aleem in his statement dtd. 1.12.97 has stated that he used to pay Rs. 20,000 to Rs. 25,000 to the Bank Manager Mr. Vaiyapuri who would be present each time he took delivery of the imported raw silk from the storeroom and for substitution of the bags with waste material. Shri Immanuel, Vice President (Commercial) of Flora Group of Companies has clearly indicated in his statement dtd. 4.12.97 that Mr. Vaiyapuri, would make himself available, alongwith the keys to the godown, for removal of the required quantity, of duty free mulberry raw silk yarn. Shri Amanulla Khan, Works Manager of Flora Silk Ltd, has stated in his statement dtd. 27.3.98 that Mr. Aleem used to bring the Branch Manager of Bank of Madura, Mr. Vaiyapuri who used to provide the keys to the godown where raw silk was stored and thereafter the required quantity of raw silk was removed from the godown and the bags would be filled with silk waste and kept back in the godown. Infact, Shri Amanulla Khan during the course of cross-examination on 26.11.99 has categorically stated in response to a question that Mr. Vaiyapuri, Manager of Bank of Madura, was present when the goods were removed from the godown. From the foregoing, it becomes clear that the plea of innocence, put forth by Shri Vaiyapuri cannot be considered in the face of, sufficient, oral and corroborative evidence, available on record. Further, the statements which are considered in these proceedings are treated as true and voluntary because it contains credible information which cannot be fabricated by the persons concerned. Thus, in the circumstances and on the basis of facts discussed above, I am convinced that Mr. Vaiyapuri is liable for penal action because the statements recorded by the co-noticees duly support the deep involvement of Shri Vaiyapuri in the commission of the offence of removal of duty free imported raw silk and conniving with management for substitution of the imported material by waste material of no commercial value. Therefore, I hold that Shri Vaiyapuri is liable for penal action. The conduct of Shri Vaiyapuri has enabled M/s FWC, represented by Mr. Aleem, to evade large amounts of Customs duty, hence liable to penalty under the provisions of the Customs Act, 1962."
The appellant appeared in person and took us to the order portion of the Commissioner findings wherein it was found that the goods were removed from the bonded warehouse during the period when he was not the Manager in charge. In his appeal memorandum he has submitted that he has not been granted an adjournment and a penalty of Rs. 5 lakhs have been imposed on him even though he had requested the Commissioner for an adjournment vide his letter dtd. 5.4.2002 received by the Commissioner on 15.4-02. Since the matter regarding imposition of penalty under Section 114A and /or 112(a) on M/s FWC is being remitted back for re-adjudication and determination which would involve the determination of the dates of removal to find fact whether Section 114A was applicable in the facts of this case. The duty dates and postings of Shri Vaiyapuri are relevant considerations, to determine whether he was on duty supervising on behalf of Bank of Madura on the dates when the goods were removed and or substituted. His request for adjournment has not been considered. Therefore, the penalty imposed on him is set aside and the matter remitted back to the Commissioner to re-determine the penalty liability, if any, after hearing Shri Vaiyapuri.
(vii) As regards Shri B.H. Mohan, the Commissioner has found as follows:
"131. Now I proceed to consider the proposal to impose penalty on Shri B.H. Mohan. The reply to the show Cause Notice, has been filed on 22.6.98. He has stated that he was technically qualified as a textile engineer and was employed as Works Manager during the period December '93 to July '97 and that he was incharge of production and design development. He states, that he quite the company as there was lot of problems like delay in payment of salaries, etc. He has requested to be excused. Shri B.H. Mohan also appeared for personal hearing and reiterated the submissions and also perused the statement given by Shri B.H. Mohan. Shri B.H. Mohan was a qualified Engineer who was very much aware of the status of the company, as a 100% EOU. In his statement dtd. 17.3.98, Shri B.H. Mohan has admitted that the imported duty free mulberry silk yarn was entirely sold in the local market by Mr. Aleem with the assistance of some employees. He has admitted that he was aware of all such illegal activities. He has also received certain amounts from Mr. Umesh Dhawan, a broker in silk trade which was towards certain quantity of imported duty free raw silk, sold by Mr. Aleem. He has further admitted that he used to procure viscose yarn from M/s Sujatha Textile Mill, which was used as substitute for imported mulberry raw silk. It is therefore evident that Shri B.H. Mohan had taken active part in the illegal transactions and is therefore liable to penalty under the Customs Act, 1962."
He has pleaded that he was only an employee incharge of production and was not concerned with the production or sale and it was only in a solitary case, wherein he acted upon the instructions of the Managing Director and being incharge of production would not constitute him liability for a penalty under Section 112 (b)(i) in the provisions of Customs Act, 1962 and he was not aware of the clandestine disposal of the goods in question. We find force in his argument and also the argument that he has been imposed a penalty of Rs. 2 lakhs as against Rs. 1 lakh on Smt. Anuradha, Managing Director. Considering the role played by him, we would reduce the penalty imposed on him to Rs. 10,000 only.
(viii) As regards Amanulla Khan, the Commissioner has found as follows:
"132. There is a proposal to impose penalty on Shri Amanulla Khan, who was the Works Manager of M/s Flora Silks Ltd. Shri Amanulla Khan has not replied to the Show Cause Notice. The personal hearing intimation was sent to the last known address of Shri Amanullah Khan. It has been returned by the Postal authorities with the remark "Left". In the remand order also there is no mention of his address from where he has filed his appeal. Therefore, I proceed to decide the case on available records. Shri Amanulla Khan has stated in his statement dtd. 27.3.98 that he was the person who was responsible for arranging transport for clearance of raw silk from M/s FWC to BTM Layout Guest House; that no bill or invoice was issued for such removals; that the removals in the present of both Mr. Aleem and Mr. Vaiyapuri. He admits to have supervised the operation of clearance of raw silk from the godowns and substations of the bags with silk waste. He admits that he has committed the mistake of indulging in removal and dispatch of imported raw silk. Shri Amanulla Khan also appeared for cross-examination on 26.11.99. During the cross-examination also Shri Amanulla Khan has categorically admitted to have contravened the provisions of the Customs Act and has stated that every thing which is stated in his statement is true. In view of the position stated above, I hold that Mr. Amanulla Khan is liable for penal action under the Provision of the Customs Act, 1962."
When the matter was called, none appeared for him. From the grounds taken in appeal, it is found that he was a turner by profession who had nothing to do with the activities of M/s FWC and officers of DRI recorded statements by giving some promises of amnesty. Being a servant of M/s Flora Silk Mills, he acted on the instructions of the Chairman and performed the duties of organizing and transporting and taking care of the hospitality of the guests and was unaware of the activities. Being a poor man out of job, he pleaded for mercy and submitted that the remand proceedings determined by the Commissioner have been decided by him ex-parte. Keeping in view the nature of the job and the act ascribed to him viz, of transportation, induces us to conclude that there is no reliable material available to come to a conclusion that his semi-literate employee handled and dealt with the goods i.e., mulberry silk yarn being removed from the warehouses knowing that the same was liable for confiscation. More so when such removals were being effected under the supervision of Shri Aleem, the Chairman, the Bank Manager's presence and the presence of other senior management personnel of the EOU Company, the semi-literate, Amanulla Khan, would only have a reason at that time that certain-goods were being removed with the knowledge of the management and must not have entertained any belief of any contravention in such removals. Therefore, the assistance rendered by him in organizing the transport would not be in the facts of this case construed to be knowingly dealt with goods, which were liable for confiscation. Hence, he is not liable for penalty.
(ix) (a) As regards ICICI Bank, they have filed this appeal against Order No. 26/02 by the Commissioner of Customs, Bangalore. Erstwhile Bank of Madura had merged with the ICICI Bank Ltd. were issued a notice. They have filed this appeal against the order, which does not arrive at any allegations to be confirmed against this appellant. They claim that the interest of the Financial institutions has not been taken into consideration and the orders of Debt Recovery Tribunal and the recovery certificate issued have been ignored by the Ld. Commissioner in passing the order of confiscating' the plant and machinery of the 100% EOU viz, M/s FWC. Therefore, they have filed this appeal.
(b) Shri Sundarajan, the Ld. Advocate for the appellant strongly contested the case. However, without going into any grounds raised by him. Reasons to arrive at findings of the issues raised by him do not exist since the confiscation of the subject plant and machinery as arrived at by the Ld. Commissioner is not being upheld and is being set aside. The duty liability of this plant and machinery is to be considered only on de-bonding in terms of Supreme Court decision in the case of Siv Industries Ltd., 2000 (68) ECC 531 (SC): 2000 (117) ELT 281 (SC). No orders on plea made by M/s ICICI Bank are, therefore being passed.
7. All these appeals are disposed of in the above terms.