Custom, Excise & Service Tax Tribunal
M.S. Jeph vs Mumbai on 17 December, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: C/754, 765, 865, 866, 867, 868 & 875/2006
[Arising out of Order-in-Original No: 72/2006/CAC/CC/NRN dated 07/04/2006 passed by the Commissioner of Customs (Export Promotion), Mumbai.]
For approval and signature:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Anil Choudhary, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
R.A. Zaidi
Sanjay Agarwal
Shubham Impex
Rakesh Naik
Anil Arya
Pawan Kumar Sharma
M.S. Jeph
Appellants
Vs
Commissioner of Customs (Export)
Mumbai
Respondent
Appearance:
Shri Sanjay Kalra, Shri R.B. Pardeshi, Shri Naresh Thacker, Shri S.N. Kantawala, Advocates for the appellants Shri V.C. Kohle, Dy. Commissioner (AR) for the respondent CORAM:
Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) Date of hearing: 17/12/2012 Date of decision: 16/01/2013 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
There are six appeals filed against Order-in-Original No: 72/2006/CAC/CC/NRN dated 07/04/2006 passed by the Commissioner of Customs (Export Promotion), New Custom House, Mumbai. As all the appeals arise out of the impugned order, they are taken up together for consideration and disposal.
2. The main appellant, M/s. Shubham Impex, Vapi, Gujarat filed two shipping bills vide shipping bill numbers 5293818 and 5293819 both dated 21/08/2003 and declared an FOB value of ` 97,13,316 and present market value (PMV) of ` 93,98,400/- and also claiming DEPB credit amounting to ` 14,57,004/- for export of ladies garments. The goods in this case were factory stuffed in container No. BAXU-2587707 under examination and supervision of Central Excise Range I, Division I, Vapi. Based on intelligence that the goods under export were inferior in quality and the values were highly inflated to get undue DEPB benefit, the container was detained and the goods were examined in the presence of the CHA and the authorised representative of the exporter, Shri Pawan Kumar Sharma of M/s. Shubham Impex. The packages were found in intact condition. On examination, it was found that contents of 11 packages with the numbers 6, 27, 34, 42, 55, 68, 73, 79, 89, 91 & 100 consisted of ladies night dresses of slightly better quality and were made of uniform/single fabric. All the remaining goods in 99 packages appear to have been made of old and used clothes which were found to be unwearable and unworthy for exports and in some clothes the stitching was also unfinished.
2.1. Statements of Shri Pawan Kumar Sharma, authorized representative of M/s. Shubham Impex, was recorded under Section 108 of the Customs Act, 1962on 27/08/2003 wherein he admitted that he was working for Shri Anil Arya on a monthly wage of ` 3,180/- and the said Shri Arya had one company by name Shubham Impex at Vapi, Valsad and this company was established only 1= months back. He had signed export documents such as invoice, packing list, AR1, etc. on instructions of Shri Anil Arya and he did not know from where the goods had come and it was different from the goods manufactured in the factory. Statement of Shri Rakesh Naik, proprietor of M/s. Shubham Impex was recorded on 02/09/2003 wherein he submitted that he was the proprietor of the company and P.K. Sharma was the authorised signatory. He knew Anil Arya for the last 13 years as he was working for him and he opened M/s. Shubham Impex about two months back. He admitted that the goods under export were of poor quality and not fit for use and the goods were of nil value. He further admitted that he did not know who the consignee was and the whole transaction was arranged by Shri Anil Arya who knew the consignee in Dubai. Shri Anil Arya had arranged for the purchase of the fabrics and dealt with all the matters and Shubham Impex was actually of Shri Anil Arya.
2.2. Statements of Shri Anil Arya was recorded under Section 108 wherein he admitted that he knew Mr. Rakesh Naik for the last 20 years and P.K. Sharma and Rakesh Naik were also working for him. In June 2003, Shri Naik had left the job and Shri Naik approached him to set up a business for which he gave financial assistance of ` 50,000/-. He was not connected with M/s. Shubham Impex and never visited factory of Shubham Impex at Vapi. He had only helped Shri Rakesh Naik. He also admitted that the goods under export were of poor quality and stitching was also improper and in his view the value of the goods would be ` 50/- per piece in the wholesale market. A market survey was conducted by the customs officers in the presence of Shri Rakesh Naik and Shri Sanjay Agarwal, proprietor of CHA firm and as per the market survey the PMV of 3300 pieces contained in 11 cartons was ascertained at ` 50 per piece and the total PMV of these pieces comes to ` 1,65,000/- as against the declared FOB value of ` 9,70,200/- and declared PMV of ` 9,37,200/-. Shri Rakesh Naik accepted the said value of ` 50/- per piece for 3,300 pieces and for the balance 29,700 pieces packed in 99 cartons, the present market value was ascertained as nil and the said value was also confirmed by Shri Rakesh Naik as against the declared PMV of ` 84,34,800. The goods were seized under the provisions of Customs Act, 1962. On the basis of National Import Data Bank, the value was taken at ` 21/- per kg. in respect of 29700 pieces and the value was determined at ` 77,752/-. The market value of the remaining 3300 pieces was ascertained at ` 1,65,000/-. These values were accepted by Shri Rakesh Naik and Shri Anil Arya. The total value of the goods under export was determined at ` 2,42,742/-. The goods were provisionally released on payment of bond for the full value of the goods and a cash security of ` 9 lakhs.
2.3. Statements of Shri R.A. Zaidi, Inspector of Central Excise, Range I, Vapi was recorded under Section 108 of the Customs Act. He confirmed that the examination of the goods had been done by him before stuffing into the container and he had selected 11 cartons on random basis. He had seen the input invoices for the fabrics showing the value at ` 55/- per meter and the stitching bills were produced before him and after discussing the matter with the Superintendent, the declared value appeared to be correct. Accordingly, they had forwarded the representative sealed sample to the customs. As per the factory stuffing permission letter from the Customs, 10% of total cartons were to be examined and the same were selected, opened and examined by him and the Superintendent and he did not know how the goods in all the other 99 cartons were found to be chindies/old and used clothes.
2.4. Statement of Shri M.S. Jeph, Superintendent of Central Excise, Range I, Division I, Vapi was also recorded and the Superintendent confirmed that the export documents bear his signature. He also stated that the declared value appeared to be correct on the basis of input invoices of fabrics wherein the value was given at ` 55/- per meter and the stitching bill of ` 23 per piece. He had gone to the other factory premises to supervise export work of two other inspectors. However, the container was sealed in his presence and he also did not know how the goods in 11 cartons which were opened were of new fabrics and in all other 99 cartons were chindies/old and used clothes. He further submitted that cartons numbers to be examined were selected by the Inspector and the value was not certified in the examination report by oversight. Statements of Shri Sanjay Agarwal, proprietor of M/s. International Cargo Clearing, CHA, was recorded on 27/08/2003 wherein he submitted that M/s. Shubham Impex had authorized him to function as CHA. He had done the IEC code registration, DEPB registration and the factory stuffing permission for M/s. Shubham Impex and he had booked the container for the exporter and had sent the same to Vapi factory for stuffing purposes and he was not present during the examination and stuffing. He was given the export documents such as invoices packing list, etc. by Shri Rakesh Naik, proprietor of the exporting firm and two representative sealed samples were given to him by the Central Excise department.
2.5. On conclusion of investigation, it appeared that Shri Anil Arya was the main person behind the attempt to smuggling of the impugned goods and Shri Rakesh Naik proprietor of Shubham Impex, Shri P.K. Sharma, his employee and others colluded with Shri Anil Arya with a view to defraud the exchequer by making a false claim for ineligible DEPB credit. It also appeared that the CHA, Shri Sanjay Agarwal acted negligently in not conducting proper enquiries into the past and financial ability of Shri Rakesh Naik, thereby abetting in the preparation and attempt of smuggling of the impugned goods for exports. R.A. Zaidi, Inspector of Central Excise, did not exercise due diligence in performing his duties in inspection, selection of cartons for examination of the goods and valuation thereof. From the evidence it appeared that the Inspector did not choose the cartons on his own but examined the cartons already kept aside specially for examination. Shri M.S. Jeph, Superintendent also did not exercise supervision effectively and did not issue proper guidance to the Inspector in the selection process for the examination.
2.6. Based on the above, a show cause notice dated 23/02/2004 was issued proposing to determine the present market value of goods at ` 2,42,742/-; to confiscate the impugned goods under Section 113(d) and 113(i) of the Customs Act; to deny DEPB credit claim of ` 14,57,004/- and to impose penalties under Section 114 on Shri Anil Arya, Shri Rakesh Naik, M/s. Shubham Impex, Shri P.K. Sharma, Shri Sanjay Agarwal, Shri R.A. Zaidi and Shri M.S. Jeph. The notice was adjudicated and vide the impugned order the goods were confiscated under Section 125 of the Customs Act, 1962. The goods were allowed to be redeemed on payment of fine of ` 2,42,742/-. Penalty of ` 14 lakhs each was imposed was on Shri M/s. Shubham Impex and Shri Anil Arya, de-facto proprietor of M/s. Shubham Impex. Shri Rakesh Naik, de-jure proprietor of M/s. Shubham Impex. A penalty of ` 5 lakhs was imposed on Shri Pawan Kumar Sharma, authorized signatory of M/s. Shubham Impex and a penalty of ` 1 lakh was imposed on Shri Sanjay Agarwal, proprietor of International Cargo Clearing, the CHA; a penalty of ` 50,000/- each was imposed on Shri R.A. Zaidi, Inspector of Central Excise and Shri M.S. Jeph, Superintendent of Central Excise. It is against these orders, the appellants are before us.
3. The learned counsel for the appellant M/s. Shubham Impex, Shri Anil Arya, Shri Rakesh Naik and Shri P.K. Sharma made the following submissions.
3.1. In the instant case the value of the goods under export should have been determined as per the provisions of Customs Valuation Rules, 1988 and not on the basis of market survey and, therefore, procedure adopted for determination of export value of the goods is incorrect and this determination of value has to be held as unsustainable in law. He relies on the decisions in the case of Siddachalam Exports Pvt. Ltd vs. CCE [2011 (267) ELT 3 (SC)]; Ankit International vs. Commissioner of Customs, Mumbai [2005 (187) ELT 472]; Galaxy Fun World Pvt. Ltd. [2007 (220) ELT 232], in support of his above contention. He further submits that compared to the ascertained value of ` 2,4,742/- a penalty of ` 14 lakhs each has been imposed on M/s. Shubham Impex, its proprietor, Rakesh Naik and Shri Anil Arya and penalty of ` 5 lakhs on Shri P.K. Sharma, the authorized signatory of M/s. Shubham Impex. Compared to the value of goods involved and the DEPB credit of ` 14,57,004/- allegedly attempted to be wrongly taken, the penalties imposed are huge and, therefore, they are not sustainable in law.
3.2. The counsel for Shri M.S. Jeph, Superintendent submitted that selection of cartons for examination and the examination of the impugned goods was done by Shri R.A. Zaidi, Inspector of Central Excise and he was away to supervise the work of his other Inspectors in another factory. He signed the export documents based on the representative samples drawn and the purchase documents in respect of the goods produced by the exporter. Thus, though he might have been negligent in accepting the declarations without verification, he cannot be alleged to have acted in connivance with the exporter. At best his action can be considered only as dereliction of duty and for dereliction of duty no penalty is imposable, as has been held by this Tribunal in the case of Commissioner of Customs vs. M. Naushad reported in [2007 (210) ELT 464 (Tri.-Bang.)]; Brajesh Y. Tiwari vs. Commissioner of Customs (Import), Mumbai [2012 (283) ELT 295]. He also relied on the decision of the Tribunal in the case of Commissioner of Customs, New Delhi vs. M.I. Khan 2000 (120) ELT 542 (Tribunal) wherein dropping of penalty proceedings under the Customs Act against officers in performance of the duties have been upheld.
3.3. The counsel appearing for R.A. Zaidi submits that the Inspector has carried out the duties as per the examination norms prescribed by the Customs. As far as the value is concerned, the responsibility was that of the Superintendent. Therefore, he cannot be held responsible for declaration of wrong value. As per the norms prescribed, he has selected 10% of the cartons for examination and accordingly he has examined 11 cartons, out of total 110 cartons and in respect of the 11 cartons goods were found to be as per declaration. Even if there is an error committed in the selection of packages that cannot be construed as abetting in the crime of wrong availment of DEPB credit and, therefore, no penalty is imposable. He also relies on the decision of the Tribunal in the case of Commissioner of Customs vs. M. Naushad; Brajesh Y. Tiwari vs. Commissioner of Customs (Import), Mumbai (supra).
3.4. The learned counsel for Shri Sanjay Agarwal, CHA submits that his client was not present at the time of examination by the excise authorities and the entire stuffing of the goods were done in the factory in the presence of Central Excise officers. He was performing the work of CHA by filing the shipping bill as per the documents given by the exporter. There is no responsibility cast on the CHA to verify the antecedence of his clients. So long as the exporter holds a valid IEC code and submits all the documents for the export of the goods, the CHA cannot be blamed for any mis-declaration made by the exporter and, therefore, he is not liable for any penalty.
4. The learned Dy. Commissioner (AR) appearing for the Revenue, on the other hand, strongly contends that there is active involvement of all the people in the attempt to illegally export materials of no value under the guise of ladies garments and claiming ineligible drawback. Therefore he pleads for upholding the impugned order.
5. We have carefully considered the submissions made by both the sides.
5.1. As regards the valuation done by the Customs by resorting to market survey in respect of the impugned goods under export and not following the procedure prescribed under Customs Valuation Rules, 1988, our findings are as below:
5.2. The market survey has been done only in respect of 3300 pieces and in respect of the balance 29700 pieces the value has been taken on the basis of National Import Data bank which is ` 21/- per kg. In respect of 3300 pieces the value is obtained by market survey has been accepted by the appellants, namely, Shri Rakesh Naik, proprietor of Shubham Impex, the exporter and Shri P.K. Sharma, authorized signatory and Shri Anil Anya. Having admitted the valuation done by the Customs, the appellants cannot turn around and say that proper procedure was not followed. Secondly, the export is under claim for DEPB. In respect of export under DEPB scheme, the entitlement of credit is capped by the present market value of goods and the DEPB credit entitlement shall not exceed 50% of the present market value of the goods as per circular No. 37/99-Cus dated 24/06/199 issued by the Department of Revenue, Ministry of Finance, Delhi. Thus, PMV is a relevant factor and needs to be determined in respect of exports under DEPB scheme. Therefore, the contention of the appellant that the valuation was not proper and was based only on market survey is without any merit and is dismissed accordingly. The reliance placed in this regard on the various case laws by the appellants is of no avail as the value has been agreed to and accepted by the appellants.
5.3. Coming to the next issue with respect to imposition of huge amounts of penalty under Section 114, there is merit in this argument. In the case of a proprietary firm it is an accepted position that both the firm and the proprietor need not be penalized and penalizing any one of them would be sufficient. Therefore, imposing penalty both on M/s. Shubham Impex and Shri Rakesh Naik, the proprietor of the firm is not sustainable in law. It is an admitted position that Shri Rakesh Naik undertook the export transactions without following any of the normal business practices such as purchasing the input fabrics from proper source, getting it stitched into readymade garments, packaging properly, etc. He cannot wash off his hands by saying that it was Shri Anil Arya who undertook all these activities and he merely lent his money for the purpose of transaction. Inasmuch as it is his firm who is the exporter as declared in the export documents, he is responsible for the actions undertaken by his firm and if there is any default, he is liable to penalty. In the instant case the goods have been overvalued with an intention to claim ineligible amount of DEPB credit and, therefore, the goods are liable to confiscation under the provisions of Section 113(i) of the Customs Act, 1962. For such contravention, penalty is also liable to be imposed under Section 114(i) of the Customs Act. As regards the quantum of penalty, the penalty that can be imposed is limited to the value of the goods as declared by the exporter or the value as determined under this Act whichever is greater. The value as determined in the instant case is only ` 2,42,742/-. Considering the value of the goods involved, penalty is reduced from ` 14 lakhs to ` 2,42,742/- on Shri Rakesh Naik, proprietor of M/s. Shubham Impex. Inasmuch as penalty is being imposed on the proprietor, there is no need to impose a separate penalty on the firm and accordingly penalty on the firm M/s. Shubham Impex is set aside. As regards the penalty imposed on Shri Anil Arya, from the statements of the persons involved in the transaction, it is clear that he was the main person or brain behind the fraudulent transaction and, therefore, penalty is imposable on him to the same extent as the exporter himself. It is also worth nothing that Shri P.K. Sharma, the authorised signatory of the exporting firm, was an employee of Shri Anil Arya, which clearly evidences involvement of Shri Anil Arya in the entire transaction. However, considering the value of the goods exported penalty on Shri Anil Arya is reduced from ` 14 lakhs to ` 2,42,742/- which is the value determined for the goods under export. As regards the fine of ` 2,42,742/- imposed in lieu of confiscation, the same cannot be said to be excessive for the reason that in respect of readymade garments, the trade margin are very high and some times exceeds the cost of manufacture of goods. Accordingly, we uphold the imposition of redemption fine.
5.4. As regards Shri P.K. Sharma the authorised signatory of the firm, he has signed all the export documents and he was also aware of the fraudulent nature of the transactions. Thus, he has abetted in the committing of the offence. However, since he did not stand to gain personally from the transactions, penalty of ` 5 lakhs imposed on him is very much on the higher side and the same is reduced to ` 50,000/-.
5.5. Coming to the role of Shri R.A. Zaidi, Inspector and Shri M.S. Jeph, Superintendent, the examination of the goods had been done by them and they supervised the factory stuffing. Though they claim that the cartons examined by them were found to contain good quality goods, this examination conducted by them is not as per the proper procedure. The total number of packages were 110 and as per the procedure, they were required to examine 10% of the packages and accordingly they examined 11 packages. It is also a fact on record that only 11 packages contained goods of better quality whereas 99 packages were found to contain chindies/old and used clothes. It is inconceivable that in a random selection process, the packages chosen for examination contained goods as per declaration whereas all the remaining packages contained old and used clothes. It is thus evident that the packages were not selected randomly at all but the exporter had selected the packages in advance containing good quality garments so as to mislead and misguide. This cannot happen without the active connivance of the officer examining the goods. Therefore, collusion and abetment on the part of the officers is clearly evident. This is not a case of mere negligence on the part of the officer in doing his job. It is a case of active collusion on the part of the inspector. It will also be relevant to note here that in respect of exports made to sensitive destinations, namely, Dubai, Sharjah, Singapore, Hong Kong, if the DEPB claim is more than ` 1 lakh, examination norm was 50% of the total number of packages (and not 10%) in terms of Circular No. 6/2002 dated 23/01/2002. Therefore, the examination done by the officer was not in accordance with the norms prescribed by the Central Board of Excise & Customs. In view of the above position the reliance placed by these two appellants on various case laws does not help their case. The case laws cited by the appellants deals with a situation where there was negligence on the part of the officers and not active collusion/involvement. In the present case, as we have discussed, the collusion is evident and, therefore, imposition of penalty is justified. However, considering the fact that the value of the goods under export is ` 2,42,742/-, penalty of ` 50,000/- imposed on the Inspector is high. Accordingly, we reduce the penalty from ` 50,000/- to ` 10,000/-. As regards the penalty imposed on the Superintendent, the observation made in respect of the Inspector Shri R.A. Zaidi applies equally. He cannot take the plea that he had work elsewhere and, therefore, did not supervise the work of the Inspector. He cannot also take the plea that he simply accepted the samples already drawn without seeing the total quantity of the goods from which samples were drawn. Therefore, he is also liable to penalty for the same reasons as in the case of Inspector. However, considering the fact that the value of the goods under export is only ` 2,42,742/-, we reduce the penalty on the Superintendent from ` 50,000/- to ` 10,000/-.
5.6. The next issue for consideration is penalty imposed on the CHA. From the statements recorded from the CHA and the documents available on record, the CHA was never present at the time of examination. The examination was done at the factory by the Central Excise officers and the containers were sealed. The samples drawn were sent to the CHA for handing over to the Customs. The export documents were also filed by the CHA on the basis of documents given to him by the exporter. Therefore, there is no involvement of the CHA in the fraudulent claim of DEPB credit by the exporter either by way of any action or omission on his part. Neither the Customs Act nor the CHALR envisages that the CHA should verify the antecedence of the exporter. So long as the identity of the exporter is established based on the IEC code and export documents are prepared on the basis of documents given by the exporter, his action cannot be faulted. If there is any wrong declaration of the value of exports, the responsibility for the same cannot be fastened on to the CHA and the exporter is solely responsible. Thus, we find that there is no evidence on record that the CHA was involved in the fraudulent transaction. Accordingly, we set aside the penalty of ` 1 lakh imposed on Shri Sanjay Agarwal, proprietor of the CHA firm, M/s. International Cargo Clearing.
6. To sum up, we uphold the determination of the value of the impugned goods at ` 2,42,742/-, confiscation under Section 113(d) and 113(i) of the Customs Act and imposition of redemption fine in lieu of confiscation under Section 125 of the Customs Act. We reduce the penalty on Shri Rakesh Naik and Shri Anil Arya to Rs. 2,42,742/- each and set aside the penalty on the proprietorship firm M/s. Shubham Impex. We reduce the penalty on Shri P.K. Sharma from ` 5 lakhs to ` 50,000/-. We also reduce penalty on Shri R. A. Zaidi, Inspector and Shri M.S. Jeph, Superintendent from ` 50,000/- each to ` 10,000/- each. We set aside the penalty imposed on Shri Sanjay Agarwal, proprietor of M/s. International Cargo Clearing.
7. The appeals are disposed of in the above terms.
(Pronounced in Court on 16/01/2013) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 19