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PETITIONER: COLLECTOR OF CUSTOMS

       Vs.

RESPONDENT: M/S.TELEVISION & COMPONENTS LTD.  AND ORS.

DATE OF JUDGMENT:       24/02/2000

BENCH: S.P.Bharucha, Ruma Pal

JUDGMENT:

     RUMA PAL, J.

     (1)  The  issues  in these appeals arise  out  of  the import  of  Tape  Deck Mechanisms (TDMs) by  the  respondent No.1.   According  to the appellant, not only were the  TDMs imported  at  a gross under-value which resulted in  a  non- payment  of the appropriate customs duty but they were  also imported contrary to the provisions of the Import and Export (Control)  Act, 1947 and the Import Control Order 1955.  (2) The  TDMs  had been imported by the respondent No.1 at  S  $ 250.00  per set from Yamato Industrial Co.  Ltd.   (referred to  hereafter as ’Yamato).  Acting on intelligence that  the imported  TDMs were fraudulently under-invoiced and that the provisions  of  the  Import  Control Order,  1955  had  been violated, the consignment was intercepted by the Directorate of    Revenue   Intelligence    (DRI)    at   Kandla   Port. Investigations  were started by the DRI.  The respondent No. 1  challenged the investigation under Article 226 before the High Court at Gujarat.  The writ petition was disposed of by directing  the  DRI to complete the investigation and  issue the  show  cause notice within two months.  (3)  Raids  were conducted  at office and factory premises of the  respondent No.   1  by  the  DRI   and  several  documents   recovered. Statements  of  the  Managing  Director,  the  Director  and Assistant  Manager  as  well as the clearing  agent  of  the respondent  No.   1 were recorded under Section 108  of  the Customs  Act, 1962 (referred to as the ’Act’).  (4) The TDMs were  seized.   The respondent No.1 appears to have filed  a Second  Writ  Application  in  the  High  Court  at  Gujarat challenging  the  seizure  of  the  TDMs.   The  High  Court directed  the  provisional  release  of  the  TDMs   against security.   The  goods  were accordingly  released  but  the investigation  continued.  (5) On the basis of the documents recovered  and statements under Section 108, a detailed show cause notice was issued to the respondents on 15th June 1990 alleging  inter alia that the respondent No.1 was liable  to pay the difference of duty in respect of the TDMs calculated at  the rate of S $ 343.45 per set instead of S $ 250.00  as well  as alleging contravention of the Import Control Order. The  respondent  No.1 replied to the Notice.  The  Collector gave  the  respondents a hearing.  (6) The  Collector  after considering  the evidence found that there was a  deliberate mis-declaration of value, manipulation of documents, attempt to  evade  payment  of  full customs  duty  and  attempt  to circumvent  the Import Control Regulations by the Respondent No.   1 and its Directors.  According to the Collector,  the TDMs  imported by the respondent No.1 at S $ 250.00 per  set

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were  of  the value of Singapore Dollar 343.45 per  set  and that  the respondent No.1 should have declared the value  of the  TDMs at Rs.88,34,698/- as against the declared value of Rs.64,30,847/-.    He,   therefore,   concluded   that   the respondent  No.1  had sought to evade duty to the extent  of Rs.32,03,594.00  and that the entire consignment was  liable to  confiscation  under  Section  111(m) of  the  Act.   The Collector also held that the TDMs required an import licence and  since  no import licence had been produced,  the  goods were  liable  for confiscation under section 111(d)  of  the Customs  Act read with Section 3(2) of the Import and Export (Control)  Act,  1947  and Clause 3 of  the  Import  Control Order, 1955.  (7) Having regard to his findings and the fact that  the  goods  had already been released pursuant  to  an order  of the High Court, he directed the respondent No.1 to pay  the  differential duty of Rs.32,03,594.00  and  imposed penalty  of Rs.40 Lakh on the respondent No.1 under  section 112(a)  of  the Act ( as the redeemable value of the  goods) and  Rs.5 Lakh each on the Managing Director and Director of the  respondent  No.1.   (8)  The respondent  No.1  and  its Directors  preferred  an  appeal before two Members  of  the Tribunal.  (9) During the pendency of the appeal the Gujarat High  Court  on a Writ Application filed by  the  respondent No.1  passed  an order on 26th June, 1992 to  the  following effect:

     "Notice.   Mr.B.B.   Naik,   learned  counsel,  waives service of notice.

     We  heard  Mr.  S.I.Nanavati, learned counsel for  the petitioners  and Mr.  H.M.  Mehta, senior Central Government standing counsel, for the respondents.

     We have been informed that as against the adjudication order,  dated  26th  February, 1992,  the  petitioners  have already  preferred  an appeal.  The only grievance  is  that respondent No.2 is not permitting the petitioners to produce the  import licence.  His grievance could be ameliorated  by directing  respondent  No.2  to accept  the  import  licence within  two  weeks  from  today and  respondent  No.2  shall proceed  with  the  matter  in accordance  with  law.   This petition  is  disposed  of in the above  terms.   Notice  is discharged.  No costs."

     (10)  As  far  as the appeal before the  Tribunal  was concerned,  on  a  difference  of opinion  between  the  two members  as to whether the order of the Collector should  be upheld  or  not, the matter was referred to a third  Member. The  third Member concurred with the view that the order  of the Collector in so far as it assessed the value of the TDMs at  Singapore  Dollar 343.45 was wrong.   Consequently,  the imposition  of  differential  duty was set  aside.   On  the question  of the violation of the Import Control Order,  the Tribunal  acted on the basis of the High Court order and the concession of the departmental representative that the issue was  one  which the "original authority" would have to  look into  and  decide  and  remanded  the  matter  back  to  the Collector with liberty granted to the parties to produce any fresh  evidence  before the adjudicating authority  in  this connection.   In view of this order, the penalty imposed  by the  Collector on the respondents was also set aside.  (11). These  appeals  were thereafter preferred.  No  stay  having been  granted,  the  order of the Tribunal directing  a  re- adjudication  of  the licensing aspect was taken up  by  the Commissioner of Customs on 27th September, 1995.  Before the

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Commissioner,  additional  licences  were  produced  by  the respondent  No.  1.  It was noted that since it was  already found by the Collector that the licence covered the goods in question, and that the issue had not been pursued before the Tribunal,  the licences should be accepted.  The order, some what ambiguously, concludes with the sentence:  "However, if the  Department  now decides not to accept the licences  the party  may  be given another hearing to argue the merits  of the case from the ITC angle."

     (12).   The  first  question raised before us  by  the appellant  relates to the finding of mis-declaration of  the value  and the evasion of customs duty.  In our opinion, the finding  of the Collector that the TDMs imported from Yamato should  be  valued at S $ 343.45 instead of S $  250.00  was justified  in  fact  and was in keeping  with  the  relevant statutory  provisions on the subject.  As for the finding on facts,  the  relevant and admitted facts are required to  be set  out chronologically.  (13).  The respondent No.  1  had placed  several  orders  in  July,  September,  October  and December  1988 on M/s Mohan Impex for supply of TDMs.   None of  the orders mentioned the model or the make of the  TDMs. Each  of  the  earlier  consignments had  been  obtained  by respondent  No.  1 from M/s Mohan Impex @ S$ 343.45 per set. (14).   As far as the consignment in question is  concerned, the  DRI  recovered two identical proforma invoices  bearing the same number, both dated 29.12.98 for supply of 3000 sets of  TDMs.   Both  were invoices of M/s Mohan Impex  but  the price quoted in one was S $ 343.45 per set and the other for S  $ 250.00 per set.  The respondents have not been able  to explain this duplication of invoices.  (15).  The respondent No.   1 then placed an order on M/s Mohan Impex being  Order No.TC-89-004  dated 5th January 1989 for supply of 3000 sets of  TDMs  at  S$  343.45  per set.   The  DRI  recovered  an identical  order bearing the same number and date placed  by respondent  No.  1 on Yamato but @ S $ 250.00 per set.   The respondent No.  1’s Director admitted in his statement under Section 108 that no order was placed on Yamato on 5.1.89 and this  was  a fabricated document.  (16.) A letter of  credit was  established  by respondent No.  1 through the  Bank  of India   in  favour  of  M/s   Mohan  Impex  for  supply   of "Electronics components for VCRs, viz.  Tape Deck Mechanisms as  per  order No.TC-80-004 dated 5th January 1989".   (17). It  is  not in dispute that till 21st March 1989, TDMs  were covered  by Open General Licences (OGL) under the Import and Export Policy of April 1988 to March 1991.  By public notice dated  21st  March  1989 the Import and  Export  Policy  was amended  by removing TDMs from the list of items covered  by OGL.   Therefore,  the import of TDMs after 21st March  1989 required  a licence in terms of clause 3 (1) of the  Control Order.   The public notice, however, allowed certain imports of  TDMs  without  licence  subject  to  the  fulfilment  of conditions  detailed in paragraph 4 of the notice, as under: "  In  respect of raw materials, components and  consumables taken  out  of Open General Licence in terms of this  Public Notice  import  under  Open   General  Licence  by  eligible importer  shall  not  be permitted except to the  extent  of irrevocable letters of credit already opened and established before  the  date of this Public Notice for which  shipments are  made within a period of ninety (90) days from the  date of this Public Notice."

     (18).   The  respondents  sought  to  avail  of   this exemption.   To  this end, on 26th May 1989, the  respondent No.   1 wrote to the Reserve Bank of India through the  Bank

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of  India  stating  that it had been informed by  M/s  Mohan Impex  that  the  material ’will not be ready  for  shipment before July 1989.  Since we are urgently in need of the Tape Deck  Mechanism to ensure smooth production, we advised  the beneficiary to arrange for immediate shipment.  Accordingly, our beneficiary could find out a Japanese supplier who is in a  position to give immediate delivery’.  It was also stated that the supplier, Yamato had written stating that they were ’holding  the  goods ready’ and that L/C should  be  amended accordingly.   The implication of this letter is that Yamato was to supply the same material for which the order had been placed  on M/s Mohan Impex and that Yamato was the agent  of M/s.   Mohan Impex.  (19).  Incidentally, the respondent No. 1’s Director subsequently admitted that the amendment of the L/C  had  been obtained on a mis-representation that  Yamato had  been  introduced to the respondent No.  1 by M/s  Mohan Impex  in May 1995.  In fact, the respondent No.  1 and  its Directors  were personally known to Yamato and its  partners for  several years and Yamato was wholly independent of M/s. Mohan  Impex.  (19-A) The Collector held that the consent of the Bank of India and Reserve Bank of India to the amendment of  the Letter of Credit by substituting Yamato in place  of M/s.   Mohan  Impex  and change in the Port of  shipment  in place  of origin of the TDMs was obtained by suppression and mis-representation  of  essential facts.  It was  also  held that  the letter of credit which was operated for payment of M/s.   Yamato  was  in  fact  a new  letter  of  credit  and therefore the import of the TDMs from Yamato was not covered by  clause  4 of the Public Notice dated 21st  March,  1989. Before the Tribunal the advocate for the respondents did not press for the validity of the letter of credit from January, 1989  and conceded that it may be deemed as if the letter of credit  was  opened  in May 1989 as held by  the  Collector. (19-B)  In  view  of this, the entire  consignment  of  TDMs required  an  import licence under clause (2) of the  Import and  Export  (Control) Act, 1947 and clause 3 of the  Import Control  Order, 1955 prior to the import.  (20).   Returning to  the  narration  of  facts   relevant  to  the  issue  of valuation.   After the issuance of the Public Notice,  there was  a purported fall in the declared value of TDMs from S $ 343.50 to S $ 250.00 per set.  Yamato is a Japanese concern. Yet  on  17.5.1989 Yamato is alleged to have given  a  fresh proforma invoice to the respondent No.1 quoting the price in Singapore  Dollars  per set instead of quoting the price  in yen.   As  said by the Collector "Due to the change  in  the Import  Policy,  the  importers had a  special  interest  in ensuring  that  the unit price was brought down so that  the quantity  of import could be increased." That this  dramatic "fall"  in value of the TDMs did not reflect the real  value of  the  TDMs is borne out by the evidence both  documentary and  oral..   (20-A) At the outset it is clear that  if  the shipment  by  Yamato  was pursuant to the  fabricated  order dated  5th January 1989 placed on it, the value declared  by it  cannot  be  accepted  as  genuine.   [See  Collector  of Customs,  Calcutta V.  Sanjay Chandiram (1995 (4) SCC 222).] Therefore  the value of the TDMs would have to be determined according  to the law applicable.  (20 B).  Section 14(1) of the  Act  provides  for valuation of goods for  purposes  of assessment  by reference to the price at which "such or like goods"  are  ordinarily  sold  at  the  time  and  place  of importation  in  the cause of international  trade.   (20-C) Much  of  the  arguments  of   the  respondents  before  the Collector,  the Tribunal as well as this Court proceeded  on the basis as if it were established that the TDMs which were to  have  been supplied by M/s.  Mohan Impex were  different

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from  the  TDMs in fact supplied by Yamato.  It  was  argued that  M/s.  Mohan Impex was to supply TDMs of National Model whereas  M/s.   Yamato had supplied VCRs of NEC  model.   To this  end, several documents in connection with the price of NEC  model  TDMs were also sought to be relied upon  by  the respondents.    The   basis  of   the  argument  was   never established  and  was  contrary  to  the  evidence.    (21). Firstly, the respondent No.  1 utilised the letter of credit to import 500 sets of TDMs from M/s Mohan Impex @ S$ 260 per set  and  3000 sets of TDMs at S$ 250 from Yamato.  The  500 sets  from  M/s Mohan Impex arrived at Bombay and  the  3000 sets from Yamato arrived at Kandla.  No change, however, had in  fact been effected in the Letter of Credit in respect of the  nature of the goods for which the letter of credit  was initially  opened, namely, "electronics components,  namely, Tape  Deck  Mechanisms, as per order No.  TC-89-004 5189"  . In  other  words,  the type and rate of TDMs of S  $  343.45 remained the same.  In availing of the letter of credit, the parties  thereto must be taken to have done so in fulfilment of  the  original order placed on the Mohan Impex where  the rate  mentioned  was S $ 343.45 per set.   (22).   Secondly, Yamato’s   invoice   which  was   filed  with  the   Customs authorities   also  described  the   TDMs   as   ’electronic components  for VCRs viz.  Tape Deck Mechanisms as per order No.   TC/89/004  dated  5.1.89’.  As already noted,  it  was admitted  by  the  respondent  No.    1’s  Director  in  his statement  under Section 108, that in fact no order had been placed  on  Yamato on 5th January 1989 and the only  genuine order was the one placed on M/s Mohan Impex.  Since Yamato’s supply  of the 3000 sets of TDMs was as per Mohan  Impex’s order,  it must be taken to have supplied the same goods  at the  rate  of S $ 343.45 per set.  (23).  Thirdly, that  the TDMs  which  were supplied by Yamato were the same as  those for  which  the order had been placed on M/s Mohan Impex  is further  supported by the statements recorded under  Section 108  of  the  Act.   [See in this connection  :   Naresh  J. Sukhawani  V.  Union of India (1996 (83) ELT 258 (SC).]  The respondent No.  1’s Director and Assistant Manager confirmed before  the DRI in their statements under Section 108 of the Act that the TDMs which were sent by Yamato were the same as those  for which the orders were placed on M/s Mohan  Impex. The  Assistant Manager of the respondent No.  1 stated  that the   order   with   M/s   Mohan  Impex   was   subsequently transferred  to  Yamato  and not that a  fresh  order  was placed.  Even the Managing Director of respondent No.  1 had this  to say:  "I also state that whatever item was  entered into  contract with M/s Mohan Impex for the L/C opened  with them  in January ’89 remained same (but for the make) - even in  our fresh contract with Yamato Japan.  Thus, there is no material  change  in  our fresh contract with  M/s  Yamato." (24).   Now, the TDMs supplied by Yamato bore no marking and the  order  on  M/s Mohan Impex did not mention  the  model. Interestingly,  the clearing agent of the respondent No.   1 in  his statement under Section 108 said:  "On the basis  of common  experience,  it  is stated that it is  a  fact  that though  importer had been telling the customs at Kandla port that  these T.D.M.’s are not of national G-30, there  cannot be  any  proof of these as it is undisputed that  TDM  (Tape Deck  Mechanism)  of National G-30 is 100% identical to  the ones  being now cleared by the importer.  I can only say  on the basis of my experience of exclusively handling this item (V.C.R./T.V.   and their components) for some importers  and other  sister  concerns that as per sample drawn  and  being submitted to D.R.I.  today, it is 100% same and identical to National  G-30 but for only G-30 Marking not being shown  on

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these  sets.  Anyone in this trade can also know the same as it  is  a trade information of such and such  manufacturer." (25).  Again the clearing agent stated that the price of the TDM  as  shown by respondent No.  1 was unusually  low.   He said:   "I am very well aware that in past consignments, the same  was  never  so  low at S $ 250  per  set.   Tape  Deck Mechanism  has never been passed by me for any importer  for any  model.  I had told the importer that this value was too low  but they stated that they would manage by showing  that these  goods were different.  The party also said they would produce  some  engineer  to show that these  were  different while  I on the basis of my experience told them that  these goods  did not look different from what I have been clearing on their behalf.  But they said they would try to bring some engineer."  (26).   The respondents sought to rely  upon  an invoice  dated  10th March 1989 passed by NEC to Yamato  for which  the price was shown at approximately @ 237.00 S $ per set.  The invoice further showed that the shipment was to be made to India.  The significance of the date was not lost on the  Collector  who  noted that it could not relate  to  the shipment  in question as admittedly the contract for  supply of  TDMs  was placed on Yamato by respondent No.  1 only  in May  1995.   The Collector also discounted  the  evidentiary value  of  two  other invoices produced  by  respondents  in respect of NEC model of TDMs on the ground that they related to imports of 8 to 10 months after the date of import of the consignment  in question.  (27).  The Collector on the other hand  relied upon earlier invoices showing the value of TDMs S $ 343.45 per set.  There is nothing on record to show that the  earlier  invoices  did not refer to TDMs  of  the  type supplied by M/s Yamato.  The Assistant Manager of respondent No.  1 had admitted that respondent No.  1 had effected many shipments of the same TDM (4 to 5 shipments) earlier.  (28). The  Collector,  in  the circumstances  narrated,  correctly determined  the  value of the TDMs supplied by Yamato to  be "such  or like" the goods for which the order was placed  on M/s  Mohan Impex within the meaning of S.14 (1) of the  Act. (29)  .   The finding of the Collector is  also  justifiable under  Section 14 (1A) of the Act.  Section 14(1A)  provides for  the determination of the price in accordance with rules made in this behalf subject to the provisions of sub-section (1).   The  rules which have been framed in this  connection are  the  Customs  Valuation   (Determination  of  Price  of Imported  Goods) Rules 1988 (hereinafter referred to as  the Valuation  Rules).   (30).   Rule 3 of the  Valuation  Rules provides  for the determination the method of valuation  and states  that:   "For  the purpose of these rules:-  (i)  the value of imported goods shall be the transaction value;

     (ii)  If  the  value cannot be  determined  under  the provisions  of  clause  (i)  above,   the  value  shall   be determined  by proceeding sequentially through Rules 5 to  8 of these rules."

     (31).    Rule  4  sub-rule   (2)  provides  that   the transaction  value of imported goods shall be accepted.  The transaction value has been defined in sub-rule (1) of Rule 4 as  the  price actually paid or payable for the  goods  when sold for export to India subject to certain adjustments with which  we  are not concerned.  ( 32).  Yamato  supplied  the TDMs  "as  per Order No.  TC/89/004 dated 5.1.89" which  was the  order placed on M/s Mohan Impex for supply of TDMs at S $  343.45  per  set.   The "price  payable"  for  the  goods remained  S $ 343.45 per set.  The transaction in this  case even  at the time of import referred to the order placed  on

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M/s  Mohan  Impex.   The price payable in  respect  of  that transaction  for  the TDMs was S $ 343.45 per set.  It  may, therefore,  be  stated  that the transaction value was  S  $ 343.45 per TDM set within the meaning of Rule 3.  (33).  The reasoning  of the two Members of the Tribunal who set  aside the  order  of  the Collector proceeded  on  the  fallacious premise  that  the Collector could not ’adopt two  different dates,  one from the date of L/C and other from the date  of the  valuation’.  They also relied on the invoice dated 10th March  1989  issued  by  NEC  as well  a  statement  of  the Collector  quoted  out of context to come to the  conclusion that it was evident that the value of TDMs had substantially fallen.   (34).   The two Members misread the order  of  the Collector  completely.   The Collector had referred  to  the date  of  L/C  only  in  connection  with  applicability  of paragraph  4 of the Public Notice and not in connection with the  valuation at all.  They also misconstrued the statement of  the  Collector relating to the fall in prices.  What  he had  said was that the fall in price of TDMs was manipulated because  of  the  change in the import policy by  which  the import  of  TDMs  was restricted  considerably.   (35).   We would,  therefore, uphold the finding of the Collector  that the  unit  price  of the TDMs for S $ 343.45.  as  also  his further order regarding payment of differential duty.  (36). The  second  issue  raised  by the appellant  before  us  is whether  the  question  of  acceptability  of  the  licences covering the import of the TDMs should have been remanded by the  Tribunal.   According to the appellant, the  import  of TDMs  clearly  contravened the Import and  Export  (Control) Act,  1947  and  the  Import  Control  Order  1955.   It  is submitted  that  the  import of the TDMs  having  been  made without  a licence there was no question of submission of  a licence   subsequent  to  the   import.   According  to  the respondents the appellant should not be allowed to raise the issue   because  the  appellant   had  participated  in  the proceedings  before  the Commissioner after the  remand  and that  the  hearing  was proceeding.  (37).   We  accept  the submission of the respondents, not on the ground put forward but  because  the  appellants   representative  before  the Tribunal  had  conceded that the issue should be decided  by the  original  authority in terms of the order of  the  High Court.   Nevertheless, we would like to clarify the scope of the  issue before the adjudicating authority.  (38).  It  is not  clear  on  what basis the High Court was  persuaded  to allow  the  import licence to be produced subsequent to  the importation  of the goods.  However in directing the  matter to  be  proceeded with in accordance with law, it  is  clear that  the  High  Court did not decide  finally  whether  the licences could, at all, be relied upon by the respondent No. 1  for avoiding their liability for contravention of  clause (3)  of the Control Order.  The adjudicating authority will, therefore,  have  to  decide (i) whether in law,  a  licence subsequently  produced in respect of items already  imported is  acceptable  in law, (ii) If so, whether the licences  in fact  covered  the items imported and are  otherwise  valid. (39).   This brings us to the question of penalty.  It is to be  remembered  that the Collector had imposed a penalty  of Rs.   40 lakhs on the respondent No.  1 as being  equivalent to the redemption value of the TDMs which were not available for  confiscation and Rs.  5 lakh each on the respondent No. 1’s Directors.  The penalty was a composite one in the sense that  it  was  imposed both on account of violation  of  the Import Control Order and because of mis-declaration of value and  evasion  of customs duty.  The majority set  aside  the penalty  on the respondent No.  1 because they negatived the

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finding  of under valuation and evasion and also in view  of the  order  of remand.  It is not possible to apportion  the quantum  of  penalty  between   the  contraventions   found. Therefore,  although we have upheld the Collector’s  finding on the issue of mis-declaration and evasion, the question of quantum  of  penalty  will have to be re-determined  by  the Collector  after  determining  the issue  on  the  licensing aspect.   (40).  We make it clear that there was no  finding by  the Tribunal that the penalty imposed was  unreasonable. On  the  other  hand, the dissenting Member who  had  opined against the remand, had held, in our opinion correctly, that in  the circumstances of the case the quantum of the penalty was  justified.   (41).   The appeal is  accordingly  partly allowed.   The  decision of the Tribunal is set aside in  so far  as  it  relates to the finding on  mis-declaration  and evasion.   The  order of the Collector directing payment  of differential  duty  is  affirmed .  On the question  of  the violation  of  the  Import Control Order,  the  adjudicating authority  will  decide  the  matter in  the  light  of  the questions  earlier  framed.  Depending on his  decision  the quantum  of  penalty  will thereafter be determined  by  the Collector  in  the light of the findings in  this  judgment. The  respondents  will pay the costs of the appeals  to  the appellant  assessed  at   Rs.5000/-.