Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Dimple Overseas Ltd. on 22 December, 1994
Equivalent citations: 1995(76)ELT48(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. This appeal has been filed by the Collector of Customs, Kandla under Section 129D(4) of the Customs Act, 1962 pursuant to an order dated 12-5-1994 passed under Section 129D(1) of the Customs Act, 1962 by the Central Board of Excise & Customs seeking review of the Order-in-Original dated 15-3-1994 passed by the Collector of Customs, Kandla. The facts and the issues, as brought out by the Department, are as follows:
2. That based on the intelligence that M/s. Dimple Overseas Ltd. (hereinafter referred to as "the exporter") were attempting to export plastic Newar/straps under DEEC Scheme by mis-declaring its description and actual value and that the export products declared as made from HDPE granules were in fact manufactured out of re-cycled plastic scrap/waste and were purchased for the purpose of export under DEEC Scheme, the officers of Directorate of Revenue Intelligence intercepted and detained a consignment of 60 M. Tonnes of Polyethylene Newar Straps which was being exported by the exporter. The officers also recovered shipping bills and documents which accompanied these export consignments.
3. Scrutiny of the documents relating to this consignment revealed that the exporter have filed 10 shipping bills under 5 different DEEC books for export of 60 M. Tonnes of Polyethylene Newar/Strap declared to be made out of HDPE granules /powders for export to a Dubai based party M/s. International Textile Company, Dubai. The investigation has further revealed that the exporter has declared the total value of the consignments contained in the said 10 shipping bills as US $ 30,00,000/- i.e. an exhorbitantly over-invoiced rate with the sole intention to enable themselves to avail disproportionately higher entitlement for import of prime quality HDPE granules upto a value of US $ 18,57,000/- completely exempted from Customs duty.
4. The exporter filed a Writ Petition in Delhi High Court challenging the seizure of the said export consignment and vide interim order dated 1-3-1993, the Hon'ble Court directed the Collector of Customs, Kandla to allow export of the consignment and directed the DRI to ascertain the correct quality and value of the export consignments. While allowing export of the said consignment, the Hon'ble High Court stayed endorsement on the DEEC Books regarding completion of the export obligation and the post export benefits to the exporters. On 4th March, 1993 the consignment was allowed to be exported after taking representative samples from the said consignments.
5. Representative samples drawn from the export consignments were got tested by the Dy. Chief Chemist, Bombay and IIT, Bombay, wherein it was revealed that the export consignment happened to be a blend of copolymers having varying specific gravities, thereby meaning that the goods are made out of hetrogenous plastic material. Statements of the concerned persons, who supplied the said material to M/s. Associated Plastic Industries, Bhavnagar, corroborated this view and it was established that the exporter/supporting manufacturer had intentionally procured low quality plastic material for a lower value.
6. Detailed scrutiny of the documents taken over during the course of investigation revealed that the exporter had misrepresented the facts relating to the nature, quality and value of the goods in their application to the licencing authorities while acquiring the said 5 advance licences. Further, the exporter had declared M/s. Associated Plastic Industries, Bhavnagar, as their supporting manufacturer in their application before the licensing authorities though the said supporting manufacturer does not possess the requisite facilities for manufacture of Polyethylene Newar/Strap as prescribed under the above-referred advance licence/DEEC Books. The investigations conducted in this regard revealed that M/s. Associated Plastic Industries are having a non-functional monofilament yarn making machine in their factory premises and they have never undertaken manufacture of Plastic/Newar Straps. Detailed investigations revealed that 60 M.T. of inferior quality plastic straps were procured from the local market at Bhavnagar by M/s. Associated Plastic Industries and supplied to the exporter for a price of Rs. 45 lakhs, which M/s. Dimple Overseas were attempting to export by declaring the FOB value as US $ 30 lakhs equivalent to Indian Rs. 8.59 crores.
7. A show cause notice was, therefore, issued to the exporter by the Collector of Customs, Kandla on 10-1-1994 proposing confiscation of the said export goods under Section 113(d) as the said exporter knowingly made false declaration with respect to the description, nature and value of the goods before the licensing authorities as well as in the export documents in contravention of Clause 3(3) of Export (Control) Order (1 of 1988), dated 30-3-1988. It was also proposed to impose penalty on M/s. Dimple Overseas and its Managing Director under Section 114 of the Customs Act, 1962. Further, it was proposed to penalise the supporting manufacturer for his wilful and intentional collusion with M/s Dimple Overseas and for aiding and abetting in the export of the said prohibited goods.
8. In adjudication proceedings, Collector of Customs, Kandla vide impugned order in original dropped the charges levelled against the party in said Show Cause Notice. He held as follows :
(a) The Collector of Customs held that the Senior Intelligence Officer and Director, Directorate of Revenue Intelligence, Bombay who investigated the case by detaining the consignment at Kandla do not have the statutory jurisdiction over Kandla Customs House, in terms of Notification No. 19/90 (N.T.), dated 26-4-1990. He accordingly held that the proceedings can be dropped on this point alone.
(b) So far as the nature and quality of the goods are concerned, the Collector has held that the party has not misdeclared the description, nature and quality of the goods. He has relied upon the test reports of Dy. Chief Chemist and the evidence of Professor of HT, while coming to this conclusion. Based on the facts that came to light during the cross-examination, the adjudicating authority has held that due to predominant presence of HDPE in the sample and as the specific gravity of the sample is found to be more than 0.94 in the Test Report of the Dy. Chief Chemist, Bombay, the adjudicating authority has held that the export goods qualified to be described as polyethelene newar made out of HDPE granules" as declared by the exporter in the shipping bills.
(c) So far as the declaration with respect to supporting manufacturer is concerned, the Collector has held that the advance licences in this case have been issued to the party during December 1992 to January, 1993 and hence provisions of the Import Export Policy, 1992-97 apply to the said consignment. It is also held that the mandatory requirement of furnishing the details of the supporting manufacturer by the merchant exporter has been introduced in the Import Export Policy only with effect from 1-4-1993 by way of incorporating para 189-A in the Import Export Policy AM 1992-97. Thus, the Collector has held that at the time when the consignment was being exported, there was no statutory requirement for furnishing details of the supporting manufacturer by a merchant exporter, more so, when the party chose to effect prior export, as is true in this case. The Collector has accepted the contention of the party that there was no bar for them to procure the material from the open market as per the provisions of the prevailing Import Export Policy at the material time.
9. The appeal has been filed for the Tribunal to determine the points -
(i) whether after taking into consideration the facts and circumstances, as cited above, the said order of the Collector is correct and proper;
(ii) whether by an order passed under Section 129D of the Act, the Tribunal should set aside the said order and should order for confiscation of the goods and confiscation of the sale proceeds realised from the goods in the absence of the goods which have since been exported and hence not physically available for confiscation; and
(iii) whether a penalty should be imposed on the exporters and their Managing Director, Shri V.K. Gandhi and Shri Pankaj Valia, partner of the supporting manufacturer M/s. Associated Plastic Industries, or pass such other order as deemed fit and proper.
10. Arguing for the appellant Collector, Id. S.D.R., Shri B.K. Singh, appearing alongwith Id. Counsel, Shri Satish Agarwal, contended that the Collector erred in holding that the Assistant Director, DRI and Senior Intelligence Officer, DRI, Bombay Zonal Officer of DRI, had no jurisdiction for issuing summons, recording statements, and seizing of goods and documents in Gujarat under the relevant provisions of the Customs Act, 1962. This is because the Additional Director General, DRI, Bombay has been duly appointed as Collector of Customs for the whole of Gujarat. As Collector, the Additional Director General can assign any function to be performed under the Act to a proper officer of customs. The definition of the term 'proper officer' in Section 2(34) of the Customs Act, 1962, which says proper officer in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or Collector of Customs. Officers of DRI have been appointed officers of Customs. It should be noted that the definition refers to the assigning of function to the proper officer by Collector/Board, not appointment. So, the Additional Director General, DRI, Bombay, being appointed Collector of Customs for the whole of Gujarat can assign functions arising out of investigation of a case in his jurisdiction to the proper officer in his office. Moreover, under Section 108 of the Act power to summon persons to give evidence and produce documents is vested in any Gazetted Officer of Customs without reference to jurisdictional limitation. Section 110 of the Act relating to seizure of goods, documents and things also empowers proper officer in this regard. Both the Assistant Director and Senior I.O. of DRI in this case being gazetted officers conducting an inquiry can lawfully act as proper officer under Section 108 and also under Section 110 of the Act. Moreover, it is well-settled that even if search and seizure were illegal, such infirmity will not affect the validity of the evidence and will not affect the subsequent adjudication proceedings. The test to be applied in considering evidence is whether it is relevant to the matter in issue irrespective of how it was obtained. The following case law was cited and relied upon in this regard:
State of Maharashtra v. Natwarlal Damodardas Soni - AIR 1980 SC 593 Radha Kishan v. State ofU.P. - AIR 1963 SC 822 Innovations v. C.B.E.C. -1984 (15) E.L.T. 91 (A.P.) C.C.E. v. Veerbhadreswara Wvg. Factory -1983 (14) E.L.T. 1758 (Kar.) (Privy Council) -1955 AC 197
11. Continuing his arguments, on merits, Id. S.D.R., Shri B.K. Singh urged that the Collector went wrong in his interpretation of Clause 3(3) of Export Trade (Control) Order (1/88 ETC) at para 35 of his order and has missed to note that what is to be ensured thereunder is that the value, sort, specification, quality and description of the goods to be exported should be in conformity with the export contract only, which is not correct. The Collector cannot also be guided by the spirit of freedom as he has found in the relevant Advance licensing policy, ignoring the letter of the law. The Calcutta High Court decision in the case of H.C.L. v. Collector of Customs -1990 (59) E.L.T. 507 was cited in support. As regards the quality and composition of the material, the Id. S.D.R. referred to the Test Reports on the samples drawn from the exported consignment by the Customs House Chemical Examiner and by Prof. Pandya of I.I.T. and their deposition during cross-examination. It will be seen, therefrom, argued the Id. S.D.R., that the newar exported was not made of H.D.P.E., but was out of a material consisting of a blend of polyethelene and polypropelene with pigments. In three of the samples the specific gravity was less than 0.94 showing clearly that these goods were not H.D.P.E. even going by the Chapter Notes to Chapter 39 CTA, 1975 relied upon by the respondents. The question is whether the goods are as per description in the import licence. Duty-free import entitlement is for H.D.P.E. and for which it should be shown that the export product is made out of H.D.P.E. only. There is no room to invoke the concept of predominance and to hold, as the Collector has done, that since H.D.P.E. predominates in the material, the respondents are eligible for the benefit of duty-free import of H.D.P.E. granules/powder against the present export. This has, further, to be seen in the light of the description of the material in the application for licence and in all the export documents as Polyethelene Straps made out of H.D.P.E. granules/powder and hence presence of polypropelene in the material is not in accordance with the above description of the goods in the relevant documents. That the goods were not made out of H.D.P.E. only is brought in the statements of suppliers of the goods - Hindustan Synthetics; and Shreeji Polypropelene Industries. Though, there was retraction, therefrom, these were belated retractions occurring only during personal hearing and cross-examination and hence can be discarded as afterthought for the following case law was cited :
1990 (45) E.L.T. 307 (Tri.) - Yashpal Chaudhury v. Collector of Customs;
1985 (21) E.L.T. 525 (Tribunal) - K. Thangaswamy v. Collector of Customs.
12. The retraction again was only on the part of Shri Jagdish Sonpal of Shreeji Polypropelene. There also a reading of his letter to DRI with all its enclosures, would show that whole thing could not have been extracted under pressure from Shri Sonpal. There was, the Id. S.D.R. pointed out, no such retraction from the other supplier, Hindustan Synthetics. It was, further, submitted that the respondents had applied for the licence naming Associated Plastics Industries as supporting manufacturer and had also submitted their consent though they had no equipment to manufacture the newars. The claim that they had got the newars made from the other parties on job work basis is also not borne out because of their own statement of payment made to the other parties for the purchase of the material. It was contended by the Id. S.D.R. that once the supporting manufacturer's name is incorporated in the Duty Exemption Entitlement Certificate (DEEC), it has to be shown that the export obligation is fulfilled on those terms only. Even if the requirement is of a procedural nature, it should be adhered to especially in situations where otherwise there will be scope for fraud. The Supreme Court decision in the case Indian Aluminium v. Thane Municipality -1991 (55) E.L.T. 404 was relied upon in this regard. Ld. S.D.R., thereafter, submitted that the Collector erred in holding that provisions of Section 14 of Customs Act, 1962, relating to valuation will not apply to export goods. Export goods are governed by Foreign Trade (Development & Regulations) Act, 1992 and the Rules laid down under Exports (Control) Order, 1988. Rule 2(h) of Export (Control) Order defines value as having the same meaning as in Section 14(1) of the Customs Act, 1962. Therefore, it follows that the value of goods in export transactions has to conform to the provisions of Section 14(1) Customs Act, 1962, whether the goods are dutiable or not. Any declaration which does not give value in terms of Section 14(1) would, therefore, contravene Section 3 of Foreign Trade (Development & Regulation) Act, 1992. Ld. S.D.R. urged that value in relation to any goods under the Act has been defined under Section 2(41) of Customs Act as value thereof determined in accordance with provisions of Section 14(1). Relying on the Calcutta High Court judgment in the case of Bird & Co. v. Kalyan Kumar Sen Gupta -1988 (37) E.L.T. 70, it was urged that what has to be taken as the basis of valuation, is the price at which such or like goods are ordinarily sold at the time and place of exportation and not the contract price of the seller in question as in the present case. It was, therefore, pleaded that the impugned order of the Collector is bad in law and should be set aside.
13. Shri A.K. Ganguli, ld. Sr. Counsel alongwith ld. Counsel Shri G. Umapathy appeared for the respondents and submitted as follows :
Giving the scope of the Import Export Policy from 1990-93 period, the ld. Sr. Counsel traced the various facts thereof and submitted that in the relevant period 1992-93, the policy aimed at the removal of bottlenecks in the exports and imports to maximise foreign exchange earnings. It provide for two types of licences - value-based and quantity-based. These were made subject to Actual User condition only until the export obligation was discharged. Thereafter, the exporter was free to import the duty-free goods permitted by such licences, or to sell the advance licence itself. The mandatory requirement in the previous policy of providing supporting manufacturer in the case of merchant importer was removed. If the exporter was to opt for export first, the supporting manufacturer would, therefore, have no role to play since the policy placed no restriction on such exporter to procure the export product locally and to export it. There was, however, a further change in the 1993-94 policy wherein under para 109A, it was again made mandatory for merchant exporter to specify the supporting manufacturer. But in 1994-95 policy, this requirement was not prescribed. It was contended by the Id. Sr. Counsel that it was not for the Customs Authorities to question the rationale of the policy who were on the other hand only to implement the prevalent policy. It was urged that the Department cannot seek to apply the provisions of para 109A of 1993-94 policy to an Advance Licence issued under 1992-93 policy when there was no stipulation for the merchant manufacturer to specify the supporting manufacturer. In their application for licence, they had enclosed the export order which was for the export product described as "Polyethelene Newar/Straps Export quality made out of H.D.P.E. in rolls in various colours. The material to be imported was "HDPE Granules/powder." However, while issuing the licence, the licensing authority by mistake indicated the resultant product in the licence as made out of "imported" HDPE granules/powder. The mistake was reflected in all the export documents including the Shipping Bills. However, on the mistake being pointed out by an application made by the respondents to the licensing authority, the licence description of the resultant product was amended deleting the word "imported" therefrom. Similar amendments were also carried out in the Shipping Bills. The Id. Sr. Counsel urged that there was no stipulation in the export contract or in the import licence that the resultant product must be made from prime quality raw-material. But the Customs Authorities in this case have presumed that it should be so. Even so assuming, the Id. Sr. Counsel pointed out, the test results given by the Departmental Chemical Examiner, as also that given by an I.I.T. Professor do not support the Department's case. These reports are clear that goods are made out of prime H.D.P.E. specific gravity of the material is found to be 0.94 which is prescribed under sub-heading 3901.20 Customs Tariff Act, 1975. The presence of about 3 to 5% inorganic compound for colouring is negligible. It was also submitted that the presence of small traces of polypropylene only confirms the use of the colouring material (master batch) with polypropelene base. Hence, it was pleaded that the charge of mis-declaration as regards quality is not well-founded. Continuing the Id. Sr. Counsel submitted that in this case the respondents first effected the exports as per the policy, and the export being according to the respondents in conformity with the Advance Licence, the declaration in the Shipping Bill, and the export contract, the respondents earned the right to utilise the imported items as per the relevant policy. It was urged that the question of getting the export goods manufactured by a supporting manufacturer did not arise at all because the policy did not so require. All that was required was that the export should be of a particular policy of providing supporting manufacturer in the case of merchant importer was removed. If the exporter was to opt for export first, the supporting manufacturer would, therefore, have no role to play since the policy placed no restriction on such exporter to procure the export product locally and to export it. There was, however, a further change in the 1993-94 policy wherein under para 109A, it was again made mandatory for merchant exporter to specify the supporting manufacturer. But in 1994-95 policy, this requirement was not prescribed. It was contended by the Id. Sr. Counsel that it was not for the Customs Authorities to question the rationale of the policy who were on the other hand only to implement the prevalent policy. It was urged that the Department cannot seek to apply the provisions of para 109A of 1993-94 policy to an Advance Licence issued under 1992-93 policy when there was no stipulation for the merchant manufacturer to specify the supporting manufacturer. In their application for licence, they had enclosed the export order which was for the export product described as "Polyethelene Newar/Straps Export quality made out of H.D.P.E. in rolls in various colours. The material to be imported was "HDPE Granules/powder." However, while issuing the licence, the licensing authority by mistake indicated the resultant product in the licence as made out of "imported" HDPE granules/powder. The mistake was reflected in all the export documents including the Shipping Bills. However, on the mistake being pointed out by an application made by the respondents to the licensing authority, the licence description of the resultant product was amended deleting the word "imported" therefrom. Similar amendments were also carried out in the Shipping Bills. The Id. Sr. Counsel urged that there was no stipulation in the export contract or in the import licence that the resultant product must be made from prime quality raw-material. But the Customs Authorities in this case have presumed that it should be so. Even so assuming, the Id. Sr. Counsel pointed out, the test results given by the Departmental Chemical Examiner, as also that given by an I.I.T. Professor do not support the Department's case. These reports are clear that goods are made out of prime H.D.P.E. specific gravity of the material is found to be 0.94 which is prescribed under sub-heading 3901.20 Customs Tariff Act, 1975. The presence of about 3 to 5% inorganic compound for colouring is negligible. It was also submitted that the presence of small traces of polypropylene only confirms the use of the colouring material (master batch) with polypropelene base. Hence, it was pleaded that the charge of mis-declaration as regards quality is not well-founded. Continuing the Id. Sr. Counsel submitted that in this case the respondents first effected the exports as per the policy, and the export being according to the respondents in conformity with the Advance Licence, the declaration in the Shipping Bill, and the export contract, the respondents earned the right to utilise the imported items as per the relevant policy. It was urged that the question of getting the export goods manufactured by a supporting manufacturer did not arise at all because the policy did not so require. All that was required was that the export should be of a particular product mentioned in the licence, of particular quality and of F.O.B. value mentioned in the contract. It was argued that all these requirements were fulfilled by the respondents and that hence the question of mis-declaration regarding the supporting manufacturer does not arise at all. Even assuming that such a declaration is required, the supporting manufacture here holds SSI registration as informed by him to the licensing authority with capacity to manufacture monofilament yarn. He had got the weaving done on job work basis and this would be in conformity with the prevailing policy, say the respondents. In any event, contended the Id. Sr. Counsel, it is not open to the Customs Authorities to question the decision of the licensing authority who have granted the licence after being satisfied about the various conditions. The following case law was cited and relied upon:
Union of India v. Tarachand Gupta & Bros. - AIR 1971 S.C. 1558 Lokash Chemical Works v. M.S. Mehta, Collector of Customs (Preventive) - 1981 (8) E.L.T. 235 Overseas Cycle Co. v. Collector of Customs - 1992 (58) E.L.T. 248 (Tribunal) Bussa Overseas and Properties (Private) Ltd. v. Union of India - AIR 1991 Bombay 273.
Ld. Sr. Counsel, further argued that there was no violation of Section 3(3) of the Foreign Trade (Development & Regulation) Act, 1992 in this case as the application had been made before the licensing authority with the export contract giving the value and quantity of the export goods and the same value and quantity had been declared in the Shipping Bills. Ld. Sr. Counsel pleaded that Section 14 of Customs Act, 1962 has no relevance in this situation. Section 14 of the Act through a fictional 'deemed value' determines the 'value' of an item which is either imported or exported when a duty of customs is to be levied on such item on its import or export based on its 'value'. It was contended that the value which is the measure of the levy is not at all attracted when the goods are not subjected to any levy of duty. If the goods are otherwise dutiable but for an exemption by way of notification the situation would be different, and, the ld. Sr. Counsel pointed out, it is such a situation which was dealt with by the Hon'ble Calcutta High Court in Bird & Co. case cited by the ld. S.D.R. since value of goods in this case is not relevant for assessment of duty, the only value that is relevant is that in the export contract. Ld. Sr. Counsel in this context cited the conclusion on these lines as to the applicability of Section 14 to duty-free export goods at a Collectors' Conference held on 21st & 22nd July, 1994. As regards jurisdiction of DRI Officers of Bombay DRI Zonal Office in this case, the ld. Sr. Counsel urged that although the Collector held that they had no jurisdiction, yet the Collector had not given any relief on that ground but had given detailed consideration to the evidence led by the DRI officers. Since both the parties have addressed arguments on merits, the ld. Sr. Counsel pleaded that this question has become largely academic and the Tribunal need not pronounce upon it.
14. The submissions made by both the sides have been carefully considered. Taking up the first point decided by the Collector in para 43 of his order relating to the quality description vis-a-vis the contract, it is found that the Collector has relied upon the evidence of experts, namely, Prof. Pandya of I.I.T. and the Chemical Examiner of the Bombay Customs House with regard to their report and also their deposition during the cross-examination to conclude that the export samples, in question, were made out of H.D.P.E. in primary form. Shri Pandya, IIT Professor has confirmed that the presence of 3 to 5% of inorganic compound was on account of master batch used in the colouring of the polythylene newar. The Collector has also relied upon the expert opinion to hold that H.D.P.E. is the predominant quantity and that it may be, therefore, held to be H.D.P.E. article. Examining the rival contentions in relation to the Collector's conclusion, it is seen that the acceptance by the foreign buyer in UAE was for import of polythelene newar /straps export quality made out of H.D.P.E. in rolls in various colours. The application for value-based Advance Licence made by the appellants dated 14-12-1992, was also indicating the resultant product as polythelene newar/straps made out of H.D.P.E. and the required item is given as H.D.P.E. granules/powder. In the same application for licence, the purpose of requirement is indicated as 'contained in final product.' The Shipping Bill and invoices filed by the appellants also described the goods as polythelene newar/straps made out of H.D.P.E. granules/powder wherein the word 'imported' was originally declared, but subsequently, deleted. Representative samples of the product covered by the Shipping Bill and the invoice have been drawn and sent for test. The samples were tested by the Deputy Chief Chemist of Customs House, Bombay. The test result given in the report dated 23-3-1993 stated that plastic material is composed of polyethylene and polypropylene in which polyethelene predominates. The samples were also sent to the IIT and were tested by Prof. Pandya of Polymer Science and Technology & Laboratory, Department of Chemistry, I.I.T., Bombay vide his letter dated 22-6-1993. He submitted the report giving the particulars of the density as follows :
________________________________________________________________________ Sample No. Density Differential Thermal Melt Ash (g/cc) Transition Analysis Flow Content (%) (g/10 Min)
1. 0.958 130 156 1.51 3.2
2. 0.955 140 165 1.56 4.7
3. 0.932 130 170 2.32 4.7
4. 0.945 135 165 1.28 4.5
5. 0.945 135 160 1.85 4.6
6. 0.949 130 160 1.52 4.4
7. 0.933 130 155 1.54 4.6
8. 0.916 130 160 2.05 4.4
9. 0.962 125 155 1.29 4.4
10. 0.949 125 160 2.27 5.2 ________________________________________________________________________ The inferences drawn from the above table and the inferred (IR) spectra of each sample (attached alongwith) are as follows:
(a) All the materials are found to be of prime type as there are no peaks in IR Spectra at 1700 -1750 cm-1, corresponding to C-0, which if present, is a pointer to recycled or used material.
(b) The material is not a homopolymer, but it is either a blend or a copolymer as indicated by two transition temperature observed in DTA analysis.
(c) The IR Spectra indicates that all the samples are blends or copolymers of polyethelene with polypropylene as there is peak at 1380 cm-1 representing polypropylene.
(d) The polyethelene component in the polymer is likely to be HDPE as per the transition temperature and the density rate.
(e) All the materials are found to contain approximately 3-5% of inorganic compound as indicated by ash content values, which can be attributed to the pigments and stabilizers added to the material during processing."
The above facts indicate that the export product was to be made out of H.D.P.E. granules/powder. It may be useful in this context to know the chemical properties and usages of H.D.P.E. In the Materials Handbook - An Encyclopedia for Managers, Technical Professionals, Purchasing and Production Managers, Technicians, Supervisors, and Foremen by George S. Brady & Henry R. Clauser under the heading Polyethylenes, following has been stated :
"POLYETHYLENES - A group of polyolefin polymers derived from ethylene by polymerization by heat and pressure. Polyethylene plastics are one of the lowest cost and one of the most widely used plastics. As a group, they are noted for toughness, excellent dielectric strength, and chemical resistance. Another outstanding characteristic is their low water absorption and permeability, which is the reason for their wide use in sheet form as moisture barriers. They are white in thick sections, but otherwise the range varies from translucent to opaque. They feel waxy. The many available types, ranging from flexible to rigid materials, are classified by the density (specific gravity) into three major groups : low density : 0.910 to 0.925; medium density : 0.926 to 0.940; high density: 0.941 to 0.959. The variations in properties among these three groups are directly related to density. As density increases, polymer cross-bonding or branching and crystallinity increase. Thus stiffness, tensile strength, hardness and heat and chemical resistance increase with density in polyethylenes. Low-density polyethylenes are flexible, tough, and less translucent than high-density grades. High-density grades, often called linear polyethylene grades, are stronger, more rigid, and have high creep resistance under load, but they have lower impact resistance. Typical uses of low-density polyethylenes include blow-molded bottles and containers, gaskets, paintbrush handles, and flexible-film packaging. High-density grades are used for wire insulation, beverage cases, dishpans, toys, and the film used for boil-in-bag packaging. In general, polyethylenes are not used in load-bearing applications because of their tendency to creep. However, a special type, high-molecular-weight polyethylene, is used for machine parts, bearings, bushing, and gears.
Polyethylenes can be blended or combined with other monomers-propylene, ethyl acrylate, and vinyl acetate - to produce copolymers to improve such properties as stress-crack resistance and clarity and to increase flexibility."
15. Therefore, when a resultant product is to be made out of H.D.P.E., the product should not exhibit characteristics of copolymer and the presence of other monomers like propylene would indicate a blending to create a copolymer. In fact, this property, has come out in the test report of the samples drawn from the export consignment given by both the Chemical Examiner in the Customs House as well as the LIT. Prof. Pandya. The presence of pigment is no doubt understandable because the newars of various colours, but the product cannot be blend of copolymer when it is contracted to be supplied as being made out of H.D.P.E. granules/powder which is a homopolymer. In this context, the reliance placed by the Collector that there was no difference in quality of the products entered for export because of the predominance of the H.D.P.E. is also not well-founded. The test results of the presence of polypropylene in the product is further supported by the letter dated 3-2-1993 of one of the suppliers, M/s. Shreeji Polypropylene Industries (supra) though retracted wherein they have stated that majority of the materials were of inferior quality manufacture out of re-cycled polypropylene. Hindustan Synthetics letter of 3-2-1993 to DRI says that they had supplied newars out of H.D.P.E. scrap. Another factual aspect is the test result given by Prof. Pandya of LIT., Bombay indicating the density found in these samples wherein the density in the case of three samples was below 0.941, which is below the density exhibited by H.D.P.E. Both the experts, who are cross-examined, have also not asserted that the products were made only out of H.D.P.E., but have stated that it is a blend of copolymers in which H.D.P.E. predominates. However, we have already found that when the product is declared to be made out of H.D.P.E. granules, the presence of polypropylene therein would not be in accordance with such declaration. Coming next to the issue as regards declaration of Associated Plastic Industries as supporting manufacturer, the respondents have argued that the licences were granted to them during the period December 1992 and January, 1993 and that during this period, there was no requirement of declaring supporting manufacturer. This requirement has been incorporated subsequently w.e.f. 1-4-1993 by way of para 109-A in the Export & Import Policy 1992-97. The Collector has also held the same view. However, it is seen that all the licences issued to them bear the endorsement on the face of the licences themselves to the effect "supporting manufacturers - M/s. Associated Plastic Industries, Bhavnagar." It is also found that the respondents' claim that Associated Plastic Industries had fanned out the work of manufacture of the newars as between Hindustan Synthetics and Shreeji Polypropylene Industries on job work basis is belied by their own statement before DRI that they had purchased the newars from these parties. There is no evidence regarding supply of raw-material by them to the job workers and the return of the finished product from the job workers Associated Plastics, nor any indication that the payments made were only towards job work. It is also significant that the licences issued in this case indicate the class of importer as "AU (RE)" which is in accord with the existing endorsement on the licence and the DEEC of the supporting manufacturer's name. The Duty Exemption Entitlement Certificate (DEEC), which is also a part of the value-based Advance Licence, gives the name of Associated Plastic Industries, Bhavnagar in Part A under column name and address of the factory where resulted products for export are manufactured. It is significant that this endorsement has been maintained and has not been cancelled by the Licensing Authority at any stage, although the respondents had got an amendment to the licence to delete the word "imported" from condition 4 of the licence which originally read to the effect that newars were to be made out of imported H.D.P.E. granules/powder.
Therefore, when the Licensing Authority has issued the licence with such specific endorsement relating to supporting manufacturer, the Customs Authorities, in our view, were not precluded from verifying this aspect of the production of the export product. The Departmental enquiries have disclosed that M/s. Associated Plastic Industries did not have the facility to manufacture the export product, but they were procuring newars from Hindustan Synthetics and Shreeji Polypropylene. In this context, it may be relevant to refer the decision by the Karnataka High Court in the case of Pooja Exporters v. Assistant Director, D.R.I. - 1989 (41) E.L.T. 21 (Kar.). In this judgment, the Karnataka High Court also considered the Supreme Court decision in the case of Union of India v. Tarachand Gupta - AIR 1971 SC 1558 as well as the decision of the Bombay High Court in the case of Lokash Chemical Works v. Shri M.S. Mehta, Collector of Customs (Preventive) - 1981 (8) E.L.T. 235 (Bom.), that was a case where the material imported against Advance Licence was removed after clearance to Bangalore. In that case the DEEC mentioned only Phagwara as a place of manufacture. The High Court held that in that case Advance Licence mentioned only manufacturing place at Phagwara. Even in part B of the Certificate, the very name was mentioned. The Court held that being so, it was not at all open to the petitioner to transport 100 per cent mulberry raw-silk bales, in question, from Bombay to Bangalore even after fulfilling the export obligation. The Court, further held that goods, in question, are imported against Advance Licence issued under the Import Control order does not in any way affect the authority or jurisdiction of the Customs Authorities to pursue the imported material and as such the High Court held that the seizure of the goods at "Bangalore by the DRI was in accordance with the provisions of the Customs Act, 1962. Similarly, the observations of the Supreme Court in the case of Jacsons Thevara v. Collector of Customs & Central Excise -1992 (61) E.L.T. 343 (S.C.) will also be germane to this aspect of the case. There, the importer concerned clears certain goods under the concessional rate of duty as project import and after clearance did not install the machinery for the expansion of its existing unit, but transferred it to another company after the goods were cleared from the customs. The Customs House issued notice for recovery of duty short levied because of this breach of the condition. The Supreme Court held that action taken by the Customs Authorities against the appellants, therein, for obtaining clearance of the goods by paying concessional rate of duty by suppression and wilful mis-statement was correct, and the Supreme Court held that in such a context, the office of the Deputy Chief Controller of Imports had no role in the matter of levy of customs duty and, therefore, the Supreme Court held that the appellants, therein, informing the Licensing Authority of the formation of a company was of no relevance. Another aspect in this case to be seen is that the grant of the Advance Licence is subject to the condition and is linked to the exemption Notification 203/92. It will also be relevant to bear in mind that the issue also involves interpretation of an exemption Notification 203/92, and in doing so, strict adherence is required to the language used therein. When the exemption is given to H.D.P.E. granules/powder which is dependent on export of resultant product made from such H.D.P.E. granules and powder, and when it is found that the resultant export product was not made of H.D.P.E., then the exemption cannot be extended by holding that although the export product is not made wholly from H.D.P.E., it is predominantly so made. In this context, it is observed that polyethelene is chemically different from polypropelene and as per respondents in trade the two are priced differently. Prof. Pandya of LIT. has said during cross-examination that the material is not a homopolymer but is either a blend or a copolymer and that further all the samples are blends or copolymers of polyethelene with polypropelene. Therefore, when the exemption is for the import of high density polyethelene, it cannot be earned by export of resultant product made out of a copolymer of polyethelene with polypropelene. So, when the goods as a copolymer of polyethelene and polypropelene does not fall within the ambit of the exemption meant for high density polyethelene, the question of giving a liberal interpretation and to extend the exemption on ground of predominance will not arise. This notification exempts materials imported against value-based Advance Licence issued in terms of para 49 of the Export & Import Policy - April, 1992 to March, 1997 from the whole of the customs duty and additional duty subject to condition that the materials imported are covered by the value-based Duty Exemption Entitlement Certificate issued by the Licensing Authority. It also stated that the material shall be utilised and no part thereof shall be disposed in any other manner before export obligation has been discharged in full.
The notification contained certain explanations which, inter alia, defines the term 'materials' for the purpose of notification as meaning raw-materials, components, intermediates, consumables, computer, software and parts required for manufacture of export product. From the above, it will be clear that those raw-materials are allowed to be imported duty-free which are used in the manufacture of export product. Therefore, when in this case it is seen on the test of the export product that it was not made out of H.D.P.E. granules/powder but made out of a,blended copolymers H.D.P.E. and polypropylene it cannot be said that the respondents should be entitled to import H.D.P.E. granules/powder for which Advance Licence has been granted to them against the export of the goods as in the present case covered by the impugned licence. The Circular No. 4, dated 4-3-1993 of the Directorate of Drawback, Ministry of Finance has been relied upon by the Collector as reflecting contemporaneous thinking on the issue by the Department. But it may be seen that the very same circular does indicate that though it will not be necessary for the Customs Authorities to obtain a declaration from the customer in respect of each shipment giving full details of quantity specifically of inputs used, a simple declaration that the export product has been manufactured out of inputs identical to those sought to be imported for which Advance Licence is issued will be sufficient. As we have seen above, the export product in this case made out of a copolymer blend of H.D.P.E. polypropylene cannot be said to be manufactured out of inputs identical to H.D.P.E. granules /powder for which the Advance Licence has been granted.
16. On the aspect of over-valuation of exported goods which is an aspect dealt with in the impugned order, it is seen that there is no specific charge on this count in the Show Cause Notice, but the respondents had inferred it and put forth their defence on this aspect which has been in effect accepted by the Collector, who has held that since goods, herein, are not subject to duty provisions relating to valuation for the purpose of assessment under Section 14 of Customs Act, 1962 and Rules made thereunder which Rules cover only imported goods, will not be applicable to the present goods exported. The Calcutta High Court decision in the case of Bird & Co. (supra) has been relied upon by the Id. S.D.R. The High Court has observed therein in para 27, "The main question of merit with which we are concerned in this appeal is how f .a.s. value of jute specialities...should be determined in order to ascertain whether such goods qualify for exemption from payment of export duty. The mode of valuation prescribed in Section 14 of Customs Act is applicable whenever a duty of customs is chargeable on any goods by reference to their value. Mr. Ginwala rightly pointed out that under the Tariff Act duty is payable on jute manufacturers not by reference to their value but by reference to their weight. Moreover, Section 14 applies in terms for the purpose of levy of duty not for the purpose of exemption from payment of duty....There (in S. 2(41) the term 'value' in relation to any goods is defined to mean the value thereof determined in accordance with the provisions of Sub-section (1) of Section 14. In the absence of any statutory provision for the computation of value in a particular case, the general provision made for determination of value in Sub-section (41) of Section 2 is clearly applicable. In that view of the matter, it must be held that for the purpose of calculating the value of jute specialities in order to determine whether the goods are entitled to the benefit of exemption from payment of duty....The mode of valuation prescribed in Section 14 must apply." This enunciation set out by the Hon'ble High Court also indicates that provisions of Sec. 14 would come into play only when a duty of customs is chargeable on any goods. The contention of the respondents here which has been accepted by the Collector is that Section 14 does not cover export duty free goods. Even if one were to invoke Section 4 of Foreign Trade (Development and Regulation) Act, 1992 read with Rule 2(h) of Exports (Control) Order, 1988 (as has been done in the Departmental appeal) it would still lead one to Section 14 only. Even assuming that Section 14 is applicable, it will be necessary and logical for the Department, as per the principle laid down by the High Court decision cited above, to indicate with evidence the price at which such or like goods are ordinarily sold at the time and place of exportation so as to establish that the value declared by the respondents is at variance with the value as envisaged under Section 14. In the present case, such an exercise has not been undertaken though it has been shown that the goods are qualitatively different not being made wholly of H.D.P.E. leading to substantial windfall to the respondents on export. Another aspect in this regard of relevance is that there has been remittance of foreign exchange to India against the exported goods as confirmed by Enforcement Directorate. Respondents have also placed on record Minutes of Collectors' Conference headed by Board Member on 21st & 22nd July, 1994 as issued by Bombay Customs House Vol. V1 /94 on the aspect of over-valuation of export goods under VABAL Scheme and it had been recognised that there are legal difficulties in their way if the goods are not dutiable and the absence of penal provision in this regard so long as exporter is able to bring the remittance back. Hence, for the abovesaid reasons, the Collector's conclusion that the rigours of Section 14 on valuation are not in terms applicable to the present case where the goods exported are not subject to any levy of duty at all, calls for no interference so far as this aspect of the case is concerned.
17. As regards the question of jurisdiction of DRI officer of Bombay Zonal Unit in this case, Id. S.D.R. has made elaborate submissions thereon justifying the Department's view. However, we are of the view that it is not necessary for us to pronounce upon it in the facts and circumstances of this case, because the Collectors' is the impugned order has not granted any relief based on this question, but on the other hand, has considered and dealt with the very same evidence gathered by the DRI officials. This is so, further, for the reason of the well-settled principle that illegality of search/seizure will not affect the validity of the evidence so gathered and the subsequent adjudication to which our attention was also drawn by the Id. S.D.R.
18. In the result, it is held that the Collector erred in holding that the quality and description, specification of the goods is as per the Advance Licence (and the conditions therein), invoice, and declaration in the Shipping Bill and consequently the order of the Collector dropping the charges in the Show Cause Notice is not sustainable. In this view of the matter, the impugned order is set aside (save and except the finding that provisions of Section 14 of Customs Act, 1962 will not apply) and the case is remanded to the Collector in the light of the findings contained hereinabove. The Collector is directed to adjudicate the matter afresh in the light of the above findings on the various aspects of this case in accordance with law and after giving reasonable opportunity to the Department and respondents, including personal hearing, to put forth their case and lead evidence. In the fresh adjudication, consequent upon in above direction, the questions regarding action under Section 113(d) of Customs Act, 1962, as well as liability to confiscation of sale proceeds, as also liability to penalty of the exporter M/s. Dimple Overseas, their Managing Director, Shri V.K. Gandhi and Shri Pankaj Valia of Associated Plastic Industries, may also be gone into and pronounced upon in the manner aforesaid.
19. The appeal is disposed of in the above terms. Cross Objection dismissed as the impugned order is not adverse to the respondents.