Custom, Excise & Service Tax Tribunal
) M/S Flemingo(Dfs)Pvt Ltd vs Commissioner Of Customs on 6 November, 2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH REGIONAL BENCH AT HYDERABAD BENCH - DB COURT - I Appeal(s) Involved: C/142/2012-DB C/143/2012-DB C/246/2012-DB (Arising out of Order-in-original No. 17/2011 dated 30/11/2011 passed by Commissioner of Customs, Visakhapatnam) 1) M/s Flemingo(DFS)Pvt Ltd 2) Mr. Ajay Thoria 3) Mr. V. Prasad Rao Appellant(s) Versus Commissioner of Customs, Visakhapatnam Respondent(s) Appearance: Mr. Sujay Kantawala Adv, for the Appellants. Mr A. Srinivas, A.R. for the Respondent. CORAM: HON'BLE Mr. M.V.RAVINDRAN, MEMBER (JUDICIAL) HON'BLE Mr. MADHU MOHAN DAMODHAR, MEMBER (TECHNICAL) Date of Hearing: 14/09/2017 Date of Decision: 06/11/2017 Final Order No. A/ 31754-31756 / 2017 [Order per: M.V.RAVINDRAN] .
The Appellant Company is part of the largest private duty-free operator in India, which carries on the business of operating duty free shops (DFS) at various international airports and seaports in India and is part of a group which has operations in 30 countries spread across Australia, Indian Subcontinent, Middle East, Africa, Europe and USA.
2. These appeals relate to their DFS in the seaport situated at Vishakhapatnam Port, Vishakhapatnam which was being operated by the Appellant Company from 19.10.2005 under a private bonded warehouse license bearing License No. 29/2005 dated 10.9.2005 issued under Section 58 (1) of the Customs Act, 1962 by the Assistant Commissioner of Customs (Bonds), Vishakhapatnam.
3. A Show Cause Notice dated 21.7.08 was issued to the Appellant and others for seizure of goods which were allegedly found outside the bonded lockers of the vessels. The demand was for Rs. 26,931/-. A reply dated 18.10.2008 was filed.
4. Thereafter another Show Cause Notice dated 19.1.2009 was issued proposing demand of Rs.2,09,45,632 towards duty under various heads for the period October 2005 to 20.7.2008. The duty demand was proposed for the following allegations-
S. NO ALLEGATION IN THE SCN DUTY DEMAND IN SCN (In Rs.) 1 Sales not covered by sale voucher but debited in stock and sale register 6,646 2 Bonded goods not carried forward from one stock & sale register to next 28,490 3 Bonded goods diverted to local market by forging additional entries in duplicate & triplicate sale vouchers 9,031 4 Sales allegedly made to crew members of vessels in coastal run 3,86,141 5 Sales allegedly made to crew members of vessels not arrived or already sailed on the date of sale voucher 6,18,650 6 Sales allegedly made to crew members of non-existing vessels 1,53,301 7 Excess sale in one transaction 2,36,0410 8 Repeat sales allegedly made within one week of initial purchase 6,57,614 9 Excess sales allegedly made to crew members of the vessel proceeding to a coastal port 15,43,918 10 Sales allegedly made without quantitative restrictions on a date preceding to the date of sailing 32,66,481 11 Sales allegedly made to crew members while sign on or in transit without preventive escort 1,19,14,950 TOTAL (Rs.) 2,09,45,632
5. The Appellant sent a detailed reply dated 8.10.09 answering the various allegations. A personal hearing was granted on 7.4.2010 by the then Commissioner of Customs, Vizag. The Appellants appeared along with their counsel and made detailed oral submissions and detailed written submissions. At the end of the hearing it was pointed out by the adjudicating authority that the details/documents provided by the advocate from the port authorities need to be re-verified and one more opportunity required to be given for making their comments. Thereafter there was a change in the adjudicating authority as it appeared the adjudicating authority who heard the case was transferred. A fresh notice of hearing dated 9.7.2010 was issued to the Appellant. Since the Senior Advocate engaged to argue the case was not well, a request was made to adjourn the hearing. However, without considering the requests made, the Respondent proceeded to pass the Order-in-Original dated 30.9.2010 and confirmed total demand of Rs. 1,78,53,938/- as against the proposed demand of Rs.2,09,45,632/- and also imposed penalty on the company and the individuals.
6. In appeal thereagainst, this Tribunal by order dated 18.4.2011 was pleased to set aside the said Order-in-Original dated 30.09.2010 and remanded the case back to the Original authority to consider the issue afresh after following the Principles of Natural Justice. The Appeal was accordingly allowed by way of remand for de-novo adjudication.
7. An appeal was also filed by the Department against the said Order dated 30.09.2010 mainly on the ground that the adjudicating authority ought to have confirmed the entire demand, even on the ground of not ensuring that the goods sold to individual crew members was also to be taken to ship under customs preventive escort. However, since the said Order-in-Original dated 30.09.2010 was set aside and the matter remanded for de-novo adjudication, the said Appeal C/66 of 2011 has admittedly been rendered infructuous. The same is accordingly being dismissed as infructuous.
8. The impugned Order-in-Original dated 30.11.2011 is passed in de-novo adjudication confirming all the proposals in the two show cause notices and the adjudicating authority has:
(i) confirmed the confiscation and demands proposed vide first show cause notice dated 21.7.2008;
(ii) confirmed total demand of Rs.2,09,45,632/- under various heads under second show cause notice dated 19.01.2009, and
(iii) cancelled the Private Bonded Warehouse License dated 10.9.2005 issued to the Appellant Company as proposed in second show cause notice dated 19.01.2009.
9. Aggrieved thereby Appellant Company filed the Appeal No. C/142 of 2012. Since penalties were imposed under Section 112(a) and 114 of the Act, on Mr Ajay Thoria, Operational Manager and Mr V Prasad Rao, Location Manager, of the Appellant Company, they have preferred Appeal Nos. C/143 of 2012 and C/246 of 2012.
10.1 The Ld. Advocate appearing for the Appellant Company and individuals relied upon the written submissions dated 06.08.2012 and the replies filed, and took us through the SCNs, impugned Order-in-Original and the grounds of appeal.
10.2 He submitted that the Impugned Order stands vitiated due to unfairness, non-consideration of vital facts, and being beyond the scope of the show cause notice. The Adjudicating Authority in the de-novo proceedings records concurrence with his view in the earlier Order-in-Original dated 30.09.2010. This according to him clearly discloses predetermined approach which has resulted in gross miscarriage of justice. He submits that the principles of fair play in the sacred adjudication process clearly stands violated as is clearly visible in the Impugned Order. He submitted that instead of appreciating the arguments advanced on behalf of the Appellant Company afresh, the Respondent has mainly adopted the reasons given is his earlier order, also travelled beyond the Show Cause Notice. He submitted that since the adjudicating authority proceeded with a pre-determined approach, the entire proceedings are vitiated. To buttress his arguments, he relies on the following judgments-
(i) Oryx Fisheries Private Limited versus Union of India, 2011 (266) E.L.T. 422 (S.C.),
(ii) SBQ Steels Ltd. versus Commissioner of Customs, Central Excise and Service Tax, 2014 (300) E.L.T. 185 (A.P.), 10.3 As regards the confiscation and demand raised under the first SCN Notice dated 21.7.2008, he submitted that the same deserves to be set aside in entirety. The Respondent ordered for absolute confiscation of the amount of USD 7142 and INR 18,100, by erroneously and mechanically holding the same as sales proceeds of duty free goods allegedly diverted in the local market by invoking Section 121 of the Customs Act, 1962. He failed to consider the averments made in this regard, especially that the amount of USD 7142 was collected over a period of time by the staff which they regularly received in the form of small tips and purpose of safe keeping the money is kept safely in the shop. It was also contended that the part of this foreign currency was on account of sales and as is normally the case in every shop, some amount was kept to tender change when crew members dont have the exact change. It is submitted that Section 121 of the Customs Act, 1962 applies where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods. The Impugned Order thus fails on this count because the goods were not smuggled and as a natural consequence only if smuggled goods are sold, which onus to establish the initial smuggled nature having not being discharged and the goods being legally imported and stored in the DFS, Section 121 of the Customs Act, 1962 read with provision of FEMA, 1999 vitiates the order due to non-application of mind and the confiscation of amount USD 7142 and INR 18,100 allegedly being sale proceeds of duty free goods diverted allegedly into the local market is an unsustainable finding on surmises which deserves to be set aside. The mandatory condition of invocation and sustainability of Section 121 of the Customs Act, 1962 is not evident from the Impugned Order as there is no evidence brought on record to show any seizure and evidence of sale in the local market and thus the finding that the currency is allegedly sale proceeds of smuggled goods is not established beyond reasonable doubt. He relies upon the judgment of Ramchandra versus Collector of Customs reported in 1992 (60) E.L.T. 277 (T).
10.4 As far as the confiscation of goods valued at INR 6,042/- which were found in excess of the balance as per the bond register and the bill book under the provision of Section 111 (j) and (o) of the Customs Act, 1962 are concerned, he submitted that the confiscation is clearly bad in law as the Respondent has failed to consider and rebut with necessary observation and findings the explanation that the crew members sometimes leave the bottles/goods as they are regularly coming on repeated voyages and for safe keeping from fellow crew members and once purchased having being made on earlier occasion, the goods are more safe to keep in the DFS. If the value of the goods which are few bottles is seen (INR 6,042/-) vis-`-vis the turnover of DFS, the same are incomparable. In any event the goods have expired due to passage of time and are therefore rendered useless as on date. The confiscation thus under the Section 111 (j) and (o) which even otherwise are not applicable, the goods having not left the DFS deserves to be set aside.
10.5 As far as the confiscation of goods is concerned, which allegedly have been smuggled into the local market and which were not available physically, the imposition of fine of INR 2,500/- in absentia on this ground alone deserves to be set aside. It is submitted that goods cannot be confiscated in absentia has been confirmed in the judgment passed by Honble Bombay High Court in the case of Commissioner of Customs (Import), Mumbai v. Finesse Creation Inc reported in 2009 (248) ELT 122 (Bom) confirmed by the Honble Supreme Court reported in 2010 (255) E.L.T. A120 (S.C.). He submitted that the demand confirmed is unsustainable and deserves to be set aside.
10.6 He submitted that even though the Department has chosen not to examine the deponents of the statements, though mandatory under Section 138B of the Customs Act, 1962, the adjudicating authority erroneously relied upon the same. He relies upon the judgment of the Honble Punjab and Haryana High Court in G-Tech Industries versus Union of India reported in 2016 (339) E.L.T. 209 (P & H). He submits that therefore all the statements lose their relevance for imposing any penal liabilities including that of Mr. G.V.S. Kondal Rao. He also pointed out that right to cross examine him and others was reserved by the Appellant, but neither he or any other person was examined by the department before the adjudicating authority in compliance with Section 138B, nor was thus cross-examination offered before adjudication of the case. Mr. V Prasad Rao has subsequently stated on record that the statement of admission were taken under threat and coercion.
10.7 He also relied upon the judgment of Honble Supreme Court in Hari Charan Kurmi, AIR 1964 SC 1184, to argue that even otherwise the statement of a co-accused can only be considered for corroboration of any tangible evidence.
10.8. He submitted that statements of various Customs officers were before the adjudicating authority. The Bond Officers admitted that they did not escort goods sold from DFS to individuals crew members as it was physically impossible. Apparently being satisfied that such escort was not required, these officers were not made co-noticees. However, the Respondent conveniently ignored the same. He submitted that even assuming for sake of arguments, that in this case, there is contributory default on part of both, as to how and on what basis only DFS and its officers were singled out to be made Noticees and not a single officer, which conveniently escaped the attention of the Respondent. He relied upon the judgment of the Honble Bombay High Court in the case of C.C. (General) versus S.S. Clearing & Forwarding Agency P. Ltd. reported in 2011 (263) E.L.T. 353 (Bom.).
10.9. He submitted that the Department could not provide a single case of seizure / confiscation of goods from the local market. Not a single buyer from local market has also been identified during the investigation. Thus, the onus to prove the allegation that goods were diverted in local market fails.
10.10 In view of the aforesaid, the confiscation and demand raised under the SCN Notice dated 21.7.2008 deserves to be set aside in entirety.
10.11 As regards the proceeding initiated with respect to sales made for the period October 2005-July 2008, he relied upon a detailed point wise written submission dated 6.8.2012 which contains detailed submissions of the Appellant against each allegations made in the Impugned Order / SCN.
10.12. He submitted that while confirming demand of INR 2,09,45,632/-, the major duty of Rs. 1,67,03,863/- (Rs. 1,19,14,950 + Rs. 47,88,913) is erroneously confirmed on the ground that goods were sold from duty free shop (DFS) to crew members / international passengers, who proceeded thereafter without any preventive customs escort, despite clear statements of the customs preventive officers deputed at the DFS.
10.13 He invited our attention to the various findings recorded in the impugned order to exhibit a severe prejudice in mind and predetermined approach of the adjudicating authority. He submitted that the impugned Order was harsh and not sustainable even on preponderance of probability. He prayed to allow the appeals and set aside the impugned Order.
10.14 The Ld. Departmental Representative reiterated the findings recorded by the adjudicating authority and submitted that the impugned order is well reasoned order. He submitted that there is no merit in the allegation of bias and proceeding with the pre-determined mind. He submitted that the impugned order was legal and proper and required no interference. He therefore prayed that the Appeals of the Company and the individuals were liable to be dismissed.
11. We have heard both sides at length and have carefully perused the records and written submissions.
12. It is seen that the Appellant Company commenced business as DFS at Vizag Port from 19.10.2005. The bond officers of the Customs department were posted at the Appellant's duty-free shops at all times and were aware of the transactions in the shop. The invoices would show that the concerned officers had signed and affixed their seal. The Department was thus fully aware of the functioning of the DFS and their transactions.
13. Adjudicating Authority has not appreciated the conditions and procedures contemplated in the licence as Annexure A and Annexure B in the proper perspective. The Adjudicating Authority has made reference to Para 14 and 15 of the Annexure A. A perusal of conditions 14 and 15 of Annexure A and condition 4.3 of Condition B clearly shows that the licencee cannot enter the items bought by the outgoing crew member in the store list of the vessel and place it in the board under preventive escort. Similarly, as per condition No.15 of Annexure A once again duty is cast on the Master of the vessel to keep the items mentioned therein in the bonded locker of the vessel. These are undoubtedly the duty of the Master of the Vessel. Even if there was any lapse of the aforesaid conditions, the Appellant cannot be held in anyway responsible and in any event this cannot be shown as violation on the part of the Appellant to subject him to penalty or duty demand. In the licence with the annexures, wherever the licensee has to fulfill the obligations, the words licensee/ DFS/ Firm are used to show that it would be his responsibility. This is clear from condition Nos.5, 6, 7, 8, 10 and 13. As far as condition No.14 & 15 are concerned as no words such as licencee/ DFS/ Firm has been used, hence even if there are any lapses by any other person, the Appellant cannot be held in any way responsible or liable for such alleged lapses even as per the terms of the licence. Thus, in our view the Appellant has not committed any breach of condition No.14 & 15 of Annexure A of the licence. DFS can sell duty free goods to individual crew members/ passengers by following the conditions stipulated in Para 4.1 and 4.2 of Annexure B which stipulates that payment for the goods sold shall be received in approved foreign currency, under sale voucher in triplicate, taking full signature which shall be countersigned by the bond officer in charge of the DFS. Further as per Para 4.2 of Annexure B, DFS shall inform every passenger/ crew member who disembarks or signs off, regarding their entitlement and also the applicability of Customs Act and Exim Policy if the goods purchased are beyond the permitted limit. In our view, there was no duty cast on the DFS to ensure that every sales made to individual crew members/ passengers is placed on board the ship under customs preventive escort. The adjudicating authority erred in taking a contrary view. Moreover, all such sales by DFS are considered as deemed exports. Thus, the question of imposing any duty on the Appellant does not arise.
14. Adjudicating Authority presumed that some items which figured in duplicate copy of the bills but not in the original, have been sold in the open market. We find no clear evidence or any seizure of DFS goods from the local market. The Bond Officer has not given any statement against the Appellant. All invoices were signed by the Customs Officers. As regards recovery of USD 7,889/- and cash of Rs.18,100/- it has been clearly explained in the reply dated 18.10.2008 that a sum of USD 6,103/- for the period of 16.1.2008 to 21.1.2008 was kept to be deposited and USD 100/- was kept to tender change. As regards the balance of USD 1,668/- it was mentioned that since the DFS provides free pick up and drop facility for crew members / passengers from their respective ships to the shop and back, the staff was given tips of small denomination. As regards the sum of Rs.18,100/- the same was kept for meeting the expenses. In support of this it was also pointed out that the Appellant had issued a cheque for Rs.25,000/- to the local Manager on 27.12.2007 which was cleared on 3.1.2008. However, the Adjudicating Authority without taking into consideration the reply in this regard, erroneously proceeded to presume that goods were diverted to local market. Neither the Show Cause Notice nor the adjudication order gives details of goods alleged diverted to the local market. The burden is on the department to clearly prove that the goods were diverted to the local market, which the department has failed to prove. Further the finding at Para 42.6 also imputes that there was recovery of USD 7,889/- and Rs.18,100/- when searches were conducted in the DFS and the residential premises of the local manager and the staff. However, the said amounts were not seized from the residence of the staff. The finding arrived is only based on conjectures and surmises and is not sustainable in law. Hence the order of confiscation of USD 7,142/- along with Rs.18,100/-, and demand of duty of Rs.26,931/- under section 28(1) r/w section 72(1)(a) & 72(1)(b)(b) of the Customs Act along with interest, are unsustainable and therefore set aside.
15. Further, all the sales of the DFS was under supervision of the Customs/bond officer. All sales have been attested by the bond officers. It cannot be presumed that no prior clearance of export of bonded goods was taken or that counter signature of the bond officer on the sale vouchers were obtained by the staff of DFS after the alleged sales were effected. As per section 114(e) of the Evidence Act, there is a legal presumption that official acts have been regularly performed. Even if the countersignatures of the bond officers on the sale vouchers were put after effecting the sales, it amounts to ratifying the sale and does not make the sale illegal. All such sales were deemed exports. Further the DFS can in no way be responsible for any alleged lapse on the part of the bond officer(s). in any event, no such culpable lapse of Bond Officers was found, and thus the Revenue has not made any of them a noticee in the two Show Cause Notices. In Para 42.17 the Adjudicating Authority has referred to an investigating report, which according to him shows that bonded goods were sold to signing in crew members without the supervision of the Customs officers. There is no dispute on the fact that no such investigation report was either disclosed in the Show Cause Notice or a copy of thereof was provided to the Appellant. No such report can be relied upon against the Appellant. Hence the demand confirmed on the erroneous assumption that sale of bonded goods were made without supervision of the Customs officer in contravention of provisions of section 69 read with 72(1)(a) and 72(1)(b) of the Act is unsustainable and there cannot be any liability of confiscation goods under section 111(j), (o), and 113(d) & k of the Customs Act.
16. In the impugned Order, under different heads demand is erroneously confirmed as follows-
17.1 Serial No.1 sales not covered by sale voucher but debited in stock and sale register - Duty proposed and confirmed - Rs.6,646/-:
We are inclined to accept that this small amount of Rs.6,646/- can be a clerical mistake considering the voluminous transactions. It cannot be presumed to be willful. The goods were sold to out bound foreign passengers and therefore these are deemed exports. Hence the question of demanding duty does not arise, in absence of any intention to remove them for sale in domestic market, and any positive evidence of their clandestine removal beyond the customs barriers.
17.2 Serial No.2 bonded goods not carried forward from one stock and sale register to next - Duty proposed and confirmed: Rs.28,490/- :
This allegation is not substantiated in the Show Cause Notice. In any event, there would be no question of paying any import duty unless it is proved by the Customs Department that the goods have been removed outside the bonded warehouse. The Show Cause Notice refers to a DLink Camera under this category. However, the Appellant demonstrated before the Department that the said camera was still lying in the shop, which fact was also verified by the officers at that point of time. Further, as stated in the grounds of Appeal, this fact was again pointed out at the time of personal hearing on 29-08-2011. There is no denial even at this stage. But the adjudicating authority mechanically confirmed the demand based on the earlier order without any application of mind. Technical/ accounting error if any, which was not noticed even by the audit department which necessarily audits the sales registers as per the procedure set out in Annexure B of the licence, cannot lead to any adverse inference or duty demand without clandestine removal of goods.
17.3 Serial No.3 bonded goods diverted to local market by forging additional entries in duplicate and triplicate sale vouchers duty proposed and confirmed -Rs. 9,031/-:
Barring a statement of Mr. G.V.S. Kondala Rao, the requisite details to substantiate this allegation are not in the adjudication order or the show cause notice. Revenue has chosen not to examine any person including Mr. G.V.S. Kondala Rao. Sales vouchers have been necessarily attested by the Customs (bond) officers. It is settled law as held in G-Tech Industries versus Union of India reported in 2016 (339) E.L.T. 209 (P & H) in light of Section 9D of Central Excise Act, 1944 or pari materia Section 138B of the Customs Act, 1962 that, if Revenue chose not to examine any person in the adjudication proceedings, it amounts to giving up that witness and such statement cannot be considered relevant. In their reply the Appellant had reserved its right to cross examine Shri. G.V.S Kondala Rao. However, since he was not examined in adjudication proceedings, there was no occasion for adjudicating authority to offer him for cross-examination. In such undisputed fact situation his statement could not have been considered relevant against the Appellants. Thus, even this demand of Rs. 9,031/- solely based on such statement, not admitted in evidence after his examination, is not sustainable. Moreover, Honble Supreme Court in Hari Charan Kurmi, AIR 1964 SC 1184, held that even otherwise the statement of a co-accused can only be considered for corroboration of any tangible evidence, and in the instant case there is no tangible evidence to only seek corroboration from statement of a co-accused.
17.4 SI.no.4 - sales allegedly made to crew members of vessel in coastal run Duty proposed : Rs. 3,86,141, Duty confirmed - Rs. 3,61,047/-:
The allegation was made without providing details of the ships' final destination. It is only the ships' final destination which would determine their status. The annexure relied upon merely gave the next port and not the final destination of the ship. The department gave copies of IGM and EGM register, but gave incomplete details in so far as it did not reflect the port of final destination or origin of the port for the voyage. Hence, in the absence of material particulars the allegation is not proved. On the other hand the Appellant in their reply dated 18.10.2009 has demonstrated that the ship's final destination was a foreign port and accordingly categorized so by the port authorities. Annexure I & X of the Show Cause Notice were reconciled with the data provided by the port trust and a concise chart was prepared and the same was filed. The Board's Circular No.15/2002 dated 25.02.2002 clarified the status of the foreign going vessel as defined in section 2(21) of the Customs Act 1962. Similarly the Board vide letter No 55 (16-Cus. 1/54 dated 11.10.1954) also clarified that what was to be seen was the final destination and if the final destination was a foreign port then it is irrelevant if the vessels touch Indian port's on the way to final destination. The condition attached to the license only stipulates that duty free goods are to be sold only to eligible crew members /Passengers. However, it never casts a duty on the Appellant to investigate any subsequent conversion of the inbound foreign vessel to the costal converted vessel. It also pertinent to point out that the Respondent admits that all sales made by the Appellant were attested by the bond officer. When this is the position and if the bond officer has certified such sale, no liability could be fastened on the Appellant. The officers of Customs in their statements categorically stated that there was no proper mechanism to find out the status of vessels whether it is costal or foreign. Standing order No. 7347 dated 20-01-1998 and 7484 dated 27-10-1999 regarding the' procedure for conversion of vessels from foreign trade to costal trade have been filed by the Appellant along with the Appeal which would show that the onus of following the procedure contemplated therein was clearly on the steamer agent who has to make an application in triplicate to the Assistant Commissioner of Customs, Export department and obtain permission for conversion and also service of a preventive officer for carrying out an inventory of the ship stores and personal property of crew members on board the vessel. The Appellant / DFS Is neither put on notice nor have any check over this conversion of the status of vessel. On the other hand it is the Customs department which is fully involved in this process and which is the authority to grant such permission. Thus proposal to saddle the liability under this category on the Appellant was erroneous. If only the Department had cautioned the Appellant or informed the Appellant about the status of such conversion from foreign run to coastal run, Appellant could not have made any sales to the crew / Passenger of those vessels. Having failed in their duty the Department cannot throw the blame on the Appellant who been established that it had no knowledge about this conversion in respect of any vessel. Hence the demand of Rs. 3,61,047/- is liable to be set aside. The Adjudicating Authority found the contention of the Appellant regarding the status of the vessel to be correct, however disallowed the benefit of Rs. 25,094/- on the grounds that the said goods were not properly escorted, which was not even the ground to propose this demand in the Show Cause Notice. The Adjudicating Authority clearly erred in making out a new case in the adjudication proceedings and proceeding beyond the scope of the show cause notice. This basis is not only beyond the scope of the show cause notice, but it also ignores the statements of the bond officers that the requirement to place on board under preventive escort will not apply to individual sales. It is settled law that the order of adjudication cannot travel beyond the Show Cause Notice and the order is liable to be set aside on this ground also, as held in:
(i) (1998) 1 SCC 198 M.A. Jackson vs Collector of Customs.
(ii) (2005) 7 SCC 159 SACI Allied Product Ltd. U.P vs Commissioner of Central Excise, Meerut.
Hence, even this demand is not sustainable.
17.5 Sl. No.5 - sales allegedly made to crew members of vessel not arrived or already sailed Duty proposed -Rs. 6,18,650/-, Duty confirmed Rs. 55,130/-.
The allegations made are vague without giving details of the ships. In most of the cases the invoice has been raised on the same day of the sailing of ship and hence it cannot be said the goods have been sold to ships which have not arrived. Annexure II & XI of the Show Cause Notice were reconciled with the data provided by the port trust and a concise chart was prepared and the same was filed. It cannot be ascertained as to on what basis the adjudicating authority has arrived at a finding that the Appellant was liable to pay duty of Rs.55,130/- under this category. No duty liability can be fastened on the Appellant in such vague manner. The adjudicating authority found merit in the contentions of the Appellant under this head, however refused to extend the benefit of Rs. 5,63,520/- on the ground that the goods were not placed on board the vessel under preventive escort. This again was beyond the scope of Show Cause Notice. Hence, in our view this demand is also not sustainable.
17.6 Sl.No.6 - sales allegedly made to crew members of non existing vessels duty demand- Rs. 1,53,301/-, Duty confirmed- Nil The Respondent accepted the contention of the Appellant that on verification with relevant registers no duty was required to be paid by the Appellant on the allegation of sales made to crew members of non-existing vessels. However, the adjudicating authority denied the benefit of Rs. 1,53,301/- and held that they were not escorted by the bond officer and not deposited in the bonded locker of the vessel, and hence duty was liable to be paid. This basis is not only beyond the scope of the show cause notice, but it also ignores the statements of the bond officers that the requirement to place on board under preventive escort will not apply to individual sales. It is settled law that the order of adjudication cannot travel beyond the Show Cause Notice. Hence, this demand is also not sustainable.
17.7 Serial No.7 - excess sales in one transaction- duty demand-Rs.23,60,410/-, Duty confirmed- Rs 14,38,823/-:
In Para 8(b) of the Show Cause Notice it is alleged to the effect that the Appellant made sales more than the permissible limits to a single individual crew member/passenger more than once within the week of his initial purchase which was also in excess of the permissible allowance. Show Cause Notice however does not set out the details of the alleged violation. Undisputedly, the invoice which is also deemed as the shipping bill for DFS is attested by the bond officer. The clarification issued by the Customs Department in the communication dated 30.11.2005 is not considered by the adjudicating authority. There is no provision in the Customs Act to claim duty from the Appellant on alleged excess sales. If any crew member / passenger has bought the goods in excess he has to pay the duty. Neither under Section 28 nor under Section 72, the alleged demand is sustainable. Section 28 will be applicable only when the duty is not levied, short levied or short paid in respect of imported goods. As far as Section 72 is concerned, none of the provisions of Section 72 are attracted. Section 72 (a) deals with goods improperly removed from warehouse in contravention of section 71. Section 71 only says that the goods should not be taken out of warehouse except on clearance for home consumption or re exportation or for removal to another warehouse. Though Section 72 has been invoked it has not been stated which clause of 72 is violated. Section 72(b)& (c) are not applicable and clause (d) refers to goods for which bond is executed under section 59 and which have not been cleared for home consumption or exportation or not duly accounted for to the satisfaction of the proper officer. Section 72 (d) is not applicable as the goods have been cleared for export. There is no dispute that the alleged excess sales are only for exportation. Once the goods pass into the custody of crew member / passenger he becomes the owner and only he is liable to pay duty, if he takes the goods beyond the customs barriers. Further no penalty can be levied under section 112, in respect of exports. A concise chart was prepared reconciling the details shown in Annexure IV and XIII of the Show Cause Notice which was filed by the Appellant. Even though the Adjudicating Authority has accepted that the data submitted by the Appellant was verified with relevant registers and found to be in order in respect of some vessels, but has given a finding that the remaining sales ought to be considered as illegal sales and appropriate duty was to be collected, and worked out the same to Rs.14,38,823. Here again the adjudicating authority has not furnished the particulars regarding the liability in respect of the alleged remaining sales. Even on the ground of absence of the details of such remaining sales and quantification of duty on the basis of material particulars, the duty demanded under this category is unsustainable. The adjudicating authority has not given any benefit and confirmed the balance amount of Rs. 9,21,587/- on the ground of not escorting the goods to vessel, which is again beyond the scope of the show cause notice, and even this demand is therefore unsustainable.
17.8 Sl.8 - repeat sales allegedly made within one week of initial purchase duty demanded Rs. 6,57,614/-, Duty confirmed- Rs. 3,51,037/-:
There is no evidence forthcoming regarding the alleged repeat sales, and even the dates of the alleged 1st sale are not given. Para 8(b) and Annexure V do not indicate as to how many such repeat sales were made to same crew member. The allegation is arbitrary. The Appellant has filed EXHIBIT-5 along with the reply dated 8.10.09 to disprove these allegations. Further Annexure V & XIV of the Show Cause Notice have been reconciled with the data provided by the port trust and a concise chart was prepared and filed. A perusal of the finding on this category shows that the Adjudicating Authority has not specified the invoices/sale vouchers which cannot be termed as repeat sales, and those which according to him were repeat sales, and arbitrarily confirmed duty to the tune of Rs.3,51,037/-. The duty demand is therefore erroneous and not sustainable. In any event, even if there were any repeat sales, since there is no dispute that all sales were under the signature of bond officer and the said goods were exported, the demand of duty from the Appellant would even otherwise is unsustainable. The adjudicating authority has not given any benefit and confirmed even the balance amount of Rs. 3,06,577/- on the ground of not escorting the goods to vessel, which is again beyond the scope of the show cause notice, and even this demand is therefore unsustainable.
17.9. Sl.9 - excess sales allegedly made to crew members of the vessel proceeding to a coastal port Duty demanded Rs. 15,43,918/-, Duty confirmed- Rs. Nil:
Show Cause Notice alleged that the ship were not foreign going ship, without ascertaining what the ultimate destination is. The Appellant has produced a letter from Port Trust authority showing the details of each ship, which describes them as foreign run vessel, which is as per Section 2(21) of the Customs Act which defines foreign going vessel as follows:
foreign going vessel or air craft ,means any vessel or aircraft for the time being engaged in the carriage of goods or passenger between any port or airport in India and any port or airport outside India, whether touching any intermediate port or airport in India or not and includes,
(i) Any naval vessel of a foreign government taking part in any naval exercises;
(ii) Any vessel engaged in fishing or any other operations outside the territorial waters of India
(iii) Any vessel or aircraft proceeding to a place outside India for any purpose whatsoever"
Thus, even if the ship touches any intermediate port in India, if its destination is outside India, it is not a coastal vessel but only foreign vessel. The letter of Port Trust filed with the Reply dated 8.10.09 clearly establishes that the vessels set out in Exhibit VI & XV of the Show Cause Notice were only foreign going vessels. The adjudicating authority has categorically stated after accepting the contentions raised that sales made to such vessels were not to be considered as excess sales. However, he has not given any benefit of Rs. 15,42,918/- on the ground that those goods were not placed on board the vessel under preventive escort, which is beyond the scope of the Show cause Notice, and thus not sustainable.
17.10 SI.no.10 - sales allegedly made without quantitative restrictions on a date preceding the date of sailing- duty demanded - Rs. 32,66,481/-, Duty confirmed- Rs. 19,91,565/-:
A Letter dated 30.11.2005 of the Commissioner of Customs, Vizag is relied upon by the Appellant which clearly records that - "regarding sale of liquor and cigarettes sale to individual seller while the vessel was in port may continue as it is. While the ship sails out they may be permitted as much quantity of liquor and cigarettes as required by them. There would be no restriction as other spares and ship stores". The DFS is opened from 10 a.m to 9 p.m only. There is absolutely no rationale for disallowing sale to the ships which sailed after 6 a.m. The very purpose of the letter dated 30.11.2005 has been defeated by erroneous interpretation/ presumption of the authority. It is submitted that even where the adjudicating authority held that issues made to the vessels which has sailed before 6 a.m on the next day of the sale date of the cash memo are to be considered as proper, he failed to extend the benefit of Rs. 12,74,916/- solely on the ground that goods were not placed on board with preventive escort, which is again beyond the scope of Show Cause Notice. The demand is therefore unsustainable.
17.11 Sl. No. 11 - sales allegedly made to crew member while sign on or in transit without preventive escort Duty demanded Rs. 1,19,14,950/-, Duty confirmed- Rs. 1,67,03,863/- [Rs. 1,19,14,950/- + Rs. 47,88,913/- (duty befit denied for Sr. No. 4,5,6,7,8,9 and 10):
Show Cause Notice did not substantiate with particulars as to how the proposed demand of duty amounting to Rs.1,19,14,950/- was arrived at. The Appellant denied that duty was leviable on this ground. It is admitted that the sale is permissible to crew members who are embarking. There is no reason to deny direct sales to the crew members who are in transit. Sale of non-duty paid bonded goods from DFS is permissible to individual crew members who are embarking or disembarking. Placing them on ship with preventive escort is not necessary. If the passengers /crew are disembarking there is no question of the goods being taken on ship under preventive escort and placing them on board the ship. The show cause notice does not state as to how many crew members had disembarked or embarked. It is neither possible not practical that every individual sale of goods is to be taken on ship under preventive escort. According to the practice followed and as admitted by the Customs officers in their statements it is only when the Master places an order, the goods are to be placed on board the ship under preventive escort. Condition 14 of the license only refers to items for which orders have been placed on behalf of the crew members by the Master. Only when the Master places an order with the Appellant that the goods are to be placed on board the vessel under preventive escort. As per condition 4.2 of Annexure B of the licence, the only duty cast on the Appellant is to inform every passenger /crew member who disembarks or signs off as the case may be at the Port and who purchases the goods from the Appellant that such purchase shall be regarded as import into the country and all the provisions of the Customs Act and EXIM Policy would be applicable to these goods as they apply to regular unaccompanied baggage of passengers / crew members. Hence as far as disembarking passengers are concerned it is clear both from the conditions of the license Annexure-A & Annexure-B as well as the allegations made that as far as disembarkation of passengers is concerned the question of placing the goods on board the ship under preventive escort is not applicable. The allegations made do not show whether the crew member / passengers were disembarking crew members or embarking passengers. The adjudicating authority ignored that even the Custom officers have stated that there is no need for any customs escort in respect of purchases made by individual crew member. Statements of Custom officers Mr. G.V.V.S. Prasad, Mr. V. Badri Narayana, Mr. T. Ramkumar, Mr. N. Satyanaryana, Mr. N. Ravindra Kumar, and Mr. M. Seetharam were on record in the relied upon documents. It is admitted in the para 18 of the Show Cause Notice that Customs officers have said so. Therefore, the question of master's permission / indent for supply for liquor and cigarette and placing them on board the vessel even in respect of sales to individual member does not arise. Undisputedly, all sales were under Customs supervision, which was necessary to see that only bona fide crew members/Passengers purchase the goods. All the cash memos were attested by the bond officers. All such sales were made to crew members / Passengers who boarded a foreign bound vessel. Hence all these sales would be exports. No duty would thus be leviable. The adjudicating authority performing a quasi-judicial function, ought to have given reasons for not accepting the reply and meritorious contentions raised therein. However, the contentions were brushed aside by the adjudicating authority without any sustainable findings to the contrary. We have given our view in the earlier paragraphs on the erroneous and impractical view taken by the adjudicating authority in mechanically holding that DFS was liable to ensure that every sale even to individual crew member was to be taken to ship under customs preventive escort. Hence, the entire demand on this count fails.
18. In the result we find that the revenue has failed to discharge the requisite burden to saddle the Appellants with liability to confiscation and penalty. Import Duty is payable only when goods are imported into the customs barriers of India. There is no tangible evidence that goods have been improperly imported into the customs barriers of India. No tangible evidence is produced to show that the goods were removed for home consumption and crossed the customs barriers of India. There is also no tangible evidence produced to show that the goods were sold in domestic market. Further there is no liability to pay duty on goods which were sold at DFS after being cleared by the Customs and exported thereafter. Hence, on these facts the demand of duty is even otherwise erroneous.
19. Based on above unsubstantiated allegations, which are not sustainable even on the test of preponderance of probability, the adjudicating authority issued an order cancelling the license. Therefore, this harsh action is also set aside.
20. In the result, the Appeal filed by the Revenue against the earlier Order-in-Original dated 30.09.2010 is dismissed as infructuous. All three appeals of the Appellant Company and its representatives against the de-novo Order-in-Original dated 30.11.2011 are allowed with consequential reliefs.
21. The license of the Appellant Company shall be restored within a period of one month from the date of receipt of this Order.
(Order pronounced in open court on 06/11/2017) MADHU MOHAN DAMODHAR MEMBER (TECHNICAL) M.V.RAVINDRAN MEMBER (JUDICIAL) Neela Reddy 29