Customs, Excise and Gold Tribunal - Delhi
Galani Infin Pvt. Ltd. vs Commissioner Of Customs on 26 August, 1999
Equivalent citations: 2000ECR74(TRI.-DELHI), 2000(118)ELT360(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. M/s. Galani Infin Pvt. Ltd. filed three Shipping Bills Nos. 05775 dated 23-1-1996, 05773 also of the same date and 06358 dated 25-1-1996 for export of 7125 pieces of musical greeting cards. Total FOB value of the cards was shown as Rs. 13,37,902.00. The goods were to be exported to Moscow. Shipping Bills declared that they were registered with an RBI Code No. BG-003177 and with Directorate General of Foreign Trade as per No. 0394030281. On examination of the goods by the customs authorities, it was noticed that the real value of these musical cards was approximately Rs. 40.00 per piece, while export invoice showed its value at Rs. 190.00 per piece CIF. Customs authorities thereupon questioned Shri Damodar S. Bulani, Working Director of M/s. Galani Infin Pvt. Ltd. His statement was recorded under Section 108 of the Customs Act, 1962. For a proper understanding of the circumstances under which these musical greeting cards are exported with an inflated value, we read the deposition as quoted in the impugned order :-
"The musical greeting cards exported by them would not be more than Rs. 45/- to Rs. 50/- per card and the same were supplied to them by one Shri Patnayak of M/s. Swagtika International 14/C/4 Brindavan Society Thane and they had over invoiced the export value more than 4 times to generate more money and to escape from income tax liability and that in the export of enamel paint, they had similarly generated profits to the extent of Rs. 33,00,000.00 and they had made part payment of Rs. 3,60,000.00 to M/s. Swagatika International towards supply of 20025 Nos. of greeting cards, that they did not have any written agreement with the purchasing firm at Moscow, that they had authorised M/s. Syndicate Cargo Service to handle their consignment for export, that he had not signed any shipping bills, that he had no knowledge about the Custom House Agent for their export consignments and that they had given the fake address of their office as 612 Somdutt Chambers Stage II Bhikaji Cama Place, New Delhi in their shipping bills, so that their export consignments could be cleared speedily, that the Russian buyer and the Indian suppliers were the same person and to his knowledge M/s. Galani Infin Pvt. Ltd. and their owners had firma in Dubai and Vienna and as per his informations Galani's had been transferring money from Dubai and Vienna to Russia and from there, they had been sending the same to India in the garb of export proceeds by inflating the price of export products. This arrangement helped the Indian Company to get benefit of Income Tax as well as higher transaction to establish credibility in the market. In response to as to what prompted Galanis to Channelise money into India through Russia on remittance from Dubai, he stated that in Russia the Indian currency was auctioned at about 25% discount for exchange in terms of hard currency and a person could get one crore of Indian Rupees on about U.S. dollars worth Rs. 75,00,000/- at the time of auction and the money so obtained was sent to India in the form of L/C proceeds by Govt. of Russia."
The customs authorities questioned and recorded the statements of other persons connected with the export of these musical greeting cards. From these statements they prima facie came to the conclusion that export was attempted in violation of the provisions contained in Foreign Exchange Regulation Act and those in the Customs Act, 1962. A notice was issued to M/s. Galani Infin Pvt. Ltd. to show cause why the 7125 pieces of musical greeting cards valued at Rs. 13,53,750.00 should not be confiscated under Section 113(d) of the Customs Act, 1962 and why penalty under Section 114(i) of the Customs Act, 1962 be not imposed. Detailed objections were filed by the appellant company. They were afforded an opportunity to represent their case as well. After considering the entire contentions raised by the exporter, the Commissioner of Customs, Air Cargo, New Custom House, New Delhi by his order dated 29-10-1997 directed confiscation of the 7125 pieces of musical greeting cards valued at Rs. 13,53,750.00 under Section 113(d) of the Act. The exporter was given an option to redeem the musical greeting cards on payment of a fine of Rs. 1 lakh under Section 125 of the Act. A penalty of Rs. 50,000.00 was also imposed on the exporter under Section 114(i) of the Act. This order of the Commissioner is under challenge.
2. The main argument advanced by the learned counsel representing the appellant is that musical greeting cards are not prohibited goods. They are not liable to any duty either. The Shipping Bills produced by the appellant correctly showed the full value of the goods sought to be exported. When the goods sought to be exported are not prohibited goods and are not liable to duty, customs authorities cannot take any action in relation to such goods when full value of the goods sought to be exported is given in the Shipping Bill. The value given in the Shipping Bill in relation to the musical greeting cards was the value agreed upon between the exporter and the foreign buyer. That contract was a genuine one and letter of credit was opened by the buyer for the entire amount. Exporter was not trying to get any tax concession under any law in force in India. Nor was the exporter trying to take advantage of the value realised by this export for getting foreign goods imported into India. In these circumstances, it was argued that the action taken by the Commissioner in the impugned order is totally unwarranted and illegal.
3. Learned counsel representing the appellant further argued that Section 14(1) of the Customs Act, 1962 relating to valuation of goods for assessment purpose could not have been pressed into service for assessing the value of the musical greeting cards covered by the Shipping Bills. As per Section 14(1) of the Act, according to learned counsel, value of any goods can be assessed only if those goods are chargeable to customs duty under Customs Tariff Act, 1975 or any other law for the time being in force. The Commissioner in his impugned order has nowhere stated that the musical greeting cards sought to be exported were chargeable to any duty. In this situation, the goods covered by the Shipping Bills could not have been valued. "Value" of any particular goods as defined in the Act under Section 2(41) relates to goods chargeable to duty under the Customs Tariff Act or any other law for the time being in force. In other words, it is contended that the goods which are not chargeable to duty under the Customs Tariff Act or any other law for the time being in force has no "value".
4. Section 18(1)(a) of the Foreign Exchange Regulation Act provides that the Central Government may prohibit sending out of all goods from India to any place unless the exporter furnishes all details to the prescribed authority a declaration in the prescribed form which, among other things, shall include the amount representing the full export value of the goods. Under this Section, the obligation of the exporter is only to furnish the full export value of the goods. If the exporter furnishes the full export value of the goods and the goods are not prohibited goods, the customs authorities cannot interfere with the export, it was argued by learned counsel.
5. We are not in a position to agree with the counsel when he stated that in the case of goods which are not prohibited and where its full export value is given in the Shipping Bill, their export is not to be interfered with by the customs authorities. Full export value should be the value shown in the Shipping Bill and that should be taken as the price agreed to between the exporter and the foreign buyer. Musical greeting cards costing about Rs. 50.00 per piece were being exported to Russia at the rate of Rs. 190.00 per piece. Value of the goods is inflated and money is brought into India. From the statement of Bulain recorded under Section 108 of the Customs Act, 1962 it is crystal clear that the exporter was bringing into India amounts which are not legally due in a clandestine manner. This method resorted to by the exporter will certainly go to affect the economy of the country. How the Courts are to approach such issues was considered by a Constitution Bench of the Supreme Court in McDowell & Co. Ltd. v. Commercial Tax Officer, 1997 (69) ECR 29 (SC). After an exhaustive survey of decisions on the point, Justice Chinnappa Reddy expressed the view : -
"The evil consequences of tax avoidance are manifold. First, there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next, there is the serious disturbance caused to the economy of the country by the piling up of mountains of blackmoney, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Sheatcroft in 18 Modern Law Review 209) by some of the best brains in the country being involved in the perpetual war waged between the tax-avoided and his expert team of advisers, lawyers and accountants on the one side and the tax-gatherer and his perhaps not skilful advisers on the other side. Then again there" is the "sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it." Last, but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the "artificial dodgers. "
Lastly, his Lordship came to the conclusion "In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it." This observation of the learned Judge was agreed to by all the other Judges constituting the Constitution Bench. In the light of this pronouncement, we are to examine whether we must uphold the transaction entered into between the appellant and the Russian buyer.
6. Section 14(1) of the Customs Act prescribes a method for determination of the value of the goods. Such determination of the value of the goods has no correlation with the liability of those goods to duty. According to us, whether the goods are chargeable to duty or otherwise, the officials of the customs department can determine the value. Other enactments also define "value" as having the same meaning as in Section 14(1) of the Customs Act. Under the Foreign Exchange Regulation Act as also under the Foreign Trade Regulation Rules, the customs authorities are empowered to deal with the transactions and they are to determine the value. It is the customs authorities who are to determine the value of goods under Section 14(1). Depending on the value they can prohibit the export of the goods. So, the power to assess the value under Section 14(1) of the Customs Act is independent of any question of assessability of the goods to duty which are sought to be exported.
7. Section 18(1) of the Foreign Exchange Regulation Act, inter alia, requires an exporter to give all material particulars regarding the goods. These material particulars and the full export value of the goods are to be furnished before the prescribed authority. The authority prescribed under the Foreign Exchange Regulation Act is the customs authorities. As per the provision contained in Section 67 of the Foreign Exchange Regulation Act, restriction imposed by Section 18 shall also be deemed to have been imposed under Section 11 of the Customs Act and the provisions of the Customs Act shall have effect. By virtue of this provision, we are of the view that the correctness of the declaration made by the exporter in the prescribed form can be investigated into by the customs authorities. In this view of the matter, the customs authorities are legally entitled to have recourse to the provisions contained in Section 14(1) of the Customs Act for ascertaining the value of the goods.
8. In accordance with the provisions contained in Section 18(1) of the Foreign Exchange Regulation Act, Central Government in the Ministry of Finance issued notification dated 31-12-1993. As per that notification, Central Government may prohibit export of all goods to any place outside India unless the exporter furnishes to the prescribed authority a declaration in the prescribed form supported by such evidence true in all material particulars which may, among others shall include the amount representing the full export value of the goods, etc. As per this notification, the exporter is to furnish a declaration giving all material particulars about the goods sought to be exported.
9. Evidence in the case clearly goes to show that the appellant resorted to the practice of over-valuing the musical greeting cards only to bring in money in a clandestine manner. In such a situation, as observed by Justice Chinnappa Reddy in the decision referred to earlier, it is up to this Tribunal to take stock to determine the nature of the new and sophisticated legal device and consider whether the situation created by the devices could be related to the existing legislation with the aid of emerging techniques of interpretation to expose the devices for what they really are and to refuse to give judicial benediction.
10. Since the authority has come to the conclusion that the export of the musical greeting cards was not a genuine one they rightly ordered confiscation of the goods and imposed penalty.
11. Learned counsel representing the appellant brought to our notice a Division Bench decision of the Calcutta High Court in Collector of Customs v. Lexus Exports Pvt. Ltd., 1994 (69) ELT 228 (Cal.) and the decision of this Tribunal in Shilpi Exports v. Collector of Customs, Calcutta, 1996 (83) ELT 302 (T) in support of his contention that when the exporter gives the full export value of the goods, customs authorities have no jurisdiction to confiscate the goods under Section 113(d) of the Act or to impose penalty under Section 114(1). The decision of the Calcutta High Court cannot now be pressed into service in view of a subsequent Division Bench decision of the same High Court in Collector of Customs v. Pankaj V. Sheth, 1997 (90) ELT 31 (Cal.) where a contrary view was taken. The later decision appears to be in consonance with the observations made by their Lordships of the Supreme Court in McDowell & Co. Ltd. In the decision of the Tribunal reported in Shilpi Exports reported in 1996 (83) E.L.T. 302 (Tribunal), none of the above aspects were considered. Therefore, we feel that the decision relied on by the learned counsel is not of any assistance to him.
12. We find no ground to interfere with the decision of the Commissioner impugned in this appeal. We confirm the order of the Commissioner and dismiss this appeal.