http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

CASE NO.: Appeal (civil)  1372 of 2006

PETITIONER: Commissioner of Central Excise & Customs, A.P.

RESPONDENT: Suresh Jhunjhunwala & Ors

DATE OF JUDGMENT: 19/10/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T

S.B. SINHA,  J:

       M/s Ganesh Yarntex Export Private Limited filed six shipping bills  under the Duty Entitlement Pass Book Scheme  (DEPB Scheme) bearing  Nos. 136 to 141 dated 06.01.2001.  M/s Aadee Exports & Imports,  Secunderabad filed five shipping bills bearing Nos. 142 to 147 dated  06.01.200.  They declared their address as ’c/o  ABC, II Floor, YMCA  Complex, Sardar Patel Road, Secunderabad.  All the said shipping bills were  filed for post export benefit under the DEPB Scheme claiming credit rate @  15% vide Sl. No.20(iii) of the DEPB Credit List, Product Group No.89 read  with EXIM Policy.  The goods were declared as "Dyed Printed Night Wears  (Maxis)" in various sizes/colours.  The value of the goods was claimed to be  Rs.41 lakhs @ US$ 6.40 per piece.  The total FOB value of the consignment  was declared to be US$ 5,84,064/- (Rs.2.72 crores) approximately. The  consignment was made in the name of M/s Reemj Al Maha Trading Est.,  Dubai, UAE.   

It was allegedly  found that cheap garments were being exported by  grossly mis-declaring the description and heavily over-invoicing the value  under the said Scheme by the aforementioned two firms.  The goods were  intercepted at Chennai.  Upon examination, it was found that all the goods  were ladies nightwear shaped garments and were found to be small, uneven  and unshaped which could not be worn by any person of any age including  children.  The goods were purchased from Bombay and sent to Hyderabad to  be loaded in a vessel at Chennai for export to Dubai.  They were seized.

       A show cause notice was issued on 18.07.2001 directing Respondents  to show as to why :

"i)     the goods sought to be exported in the name of   M/s Ganesh Yarntex Exports (P) Ltd. and M/s  Aadee Exports (P) Limited and M/s Aadee Exports  & Imports vide shipping bill nos. 136 to 146 all  dated 6.1.2001 through ICD Hyderbad with a  declared FOB value of Rs.2.72 crores should not  be denied to be exported under DEPB Scheme and  the DEPB credit totally amounting to  Rs.41,06,700/- should not be denied;

ii)     The declared value of US$ 6.40 per piece in the  above said shipping bills should not be rejected;

iii)    The goods covered under the said Shipping Bills  seized at Chennai port on 24.1.2001 should not be  confiscated under section 113(d), 113(h) & 113(i)  of the Customs Act, 1962;            

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

iv)     The goods seized vide panchnama dt. 24.2.2001 at  Plot No. 18, Paigah Colony, S.P. Road,  Secunderabad should not be confiscated under  Section 113(d) of the Customs Act ibid; and

v)      A penalty should not be imposed on each of them  under section 114(i) of the Customs Act, 1962."                  The Commissioner of Customs and Central Excise, in its order dated  31.03.2004 opined :

"1.     The impugned goods sought to be exported vide  S.B. nos.136 to 146 all dated 6.1.2001 with a  declared value of Rs.2.7 crores is denied to be  exported under DEPB scheme and DEPB credit  amounting to Rs.41,06,700/- is denied as the  declared value of US $ 6.4 per piece is also  rejected.

2.      The impugned goods as mentioned above are  confiscated under section 113(d), (h) & (i) of the  Customs Act, 1962 and in terms of Section 125  ibid they are ordered to be released on payment of  Redemption fine of Rs.5,00,000/- (Five lakhs  only).  The option to redeem the goods should be  exercised within one month from the date of  receipt of this order.

3.      The goods seized vide panchnama dt. 24.2.2001 at  Plot No.18, Paigah Colony, Secunderabad are  confiscated under Section 113(d) of the Customs  Act, 1962 and in terms of Section 125 ibid I order  release of the same on payment of redemption fine  of Rs.5,00,000/- (Rs. Five lakhs only).  The option  to redeem the goods should be exercised within  one month from the date of receipt of this order.

4.      In terms of Section 114(i) of the Customs Act,  1962, I impose penalties on Noticees as follows :

a)      Mr. Suresh Jhunjhunwala Rs.40,00,000/-  (Rs. Forty lakhs only);

b)      Mr. Deepak Jhunjhunwala Rs.30,00,000/-  (Rs.Thirty lakhs only);

c)      Mr. Sachin Jhunjhunwala Rs.25,00,000/-  (Rs. Twenty five lakhs only)

e)      C. Satyyapal Reddy Rs.5,00,000/- (Rs. Five  lakhs only);"

       While arriving at the said findings, the Commissioner relied upon the  statements of various witnesses and other documents.  The materials relied  upon by him to determine acquisition, financial dealings , the low quality of  the garments and the intent to obtain undue benefit of DEPB Credit Facility  fraudulently were said to be based on physical examination of goods,  statements of suppliers, customs house agents, staff employed by  Respondents and Respondents themselves.  It was found that Respondents  have committed a fraud.   

He, therefore, directed confiscation of the goods in terms of Section  113 of the Customs Act.         An appeal thereagainst was preferred by  Respondents before the Customs, Excise & Service Tax Appellate Tribunal.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

By reason of the impugned judgment and order dated 17.09.2004, the  Tribunal concluded that the goods  being not prohibited ones were not liable  to be confiscated under the said provision.  It was further held that over- valuation had not been established as no expert evidence was led and no  cross-examination of the witnesses had been permitted.                    Mr. K. Swami, learned counsel appearing on behalf of Appellants,  would contend that the Tribunal committed a serious error in relying upon  the decision of this Court in Commissioner of Customs (EP), Mumbai v.  Prayag Exporters Pvt. Ltd.  [2003 (155) ELT 4 (SC)], although the matter is  squarely covered by another decision of this Court in Om Prakash Bhatia v.  Commissioner of Customs, Delhi [2003  (155) ELT 423 = (2003) 6 SCC  161].

       Mr. M. Chandrasekharan, learned Senior Counsel appearing on behalf  of Respondents, on the other hand, would submit that the decision of this  Court in Om Prakash Bhatia (supra) was rendered in a case involving  drawback, whereas in the instant case involves a case of DEPB Scheme and,  thus, the decision in Prayag Exporters (supra) is applicable to the facts of the  present case.

It is stated at the bar that a review application was filed in Prayag  Exporters (supra) drawing the court’s attention to the subsequent decision of  this Court in Om Prakash Bhatia (supra), but the same had been dismissed,   as would appear from [2004  (163) ELT 113].

       Drawing our attention to a decision of this Court in Union of India  and Others v. M/s Rai Bahadur Shreeram Durga Prasad (P) Ltd. and Others  [(1969) 1 SCC 91, learned counsel would contend that in view of the fact  that such export was permissible in terms of contract and Respondents had  received the amount in question, the provisions of any law far less the  provisions of the Foreign Exchange Regulation Act and the rules framed  thereunder were not required to be followed.

       "Prohibited goods" have been defined in Section 2(33) of the Customs  Act (for short "the Act") to mean :

""Prohibited goods" means any goods the import or  export of which is subject to any prohibition under this  Act or any other law for the time being in force but does  not include any such goods in respect of which the  conditions subject to which the goods are permitted to be  imported or exported have been complied with."

       Section 50 of the Act provides for entry of goods in the following  terms :

"50.  Entry of goods for exportation.(1)  The exporter of  any goods shall make entry thereof by presenting to the  proper officer in the case of goods to be exported in a  vessel or aircraft, a shipping bill, and in the case of goods  to be exported by land, a bill of export in the prescribed  form.

       (2)  The exporter of any goods, while presenting a  shipping bill or bill of export, shall at the foot thereof  make and subscribe to a declaration as to the truth of its  contents."

       Section 113 of the Act refers to confiscation of goods in certain  circumstances, clause (d) whereof reads as under :

"(d)    any goods attempted to be exported or brought

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

within the limits of any customs area for the purpose of  being exported, contrary to any prohibition imposed by  or under this Act or any other law for the time being in  force;"

       The definition of prohibited goods is a broad one.  The said provision  not only brings within its sweep an import or export of goods which is  subject to any prohibition under the said Act; but also any other law for the  time being in force.   

       The Tribunal does not appear to have considered the matter from this  angle.  Power to confiscate, thus, would arise under both the situations.  

       In Prayag Exporters Pvt. Ltd. v. Commissioner of Customs, Mumbai,  [2000 (121) ELT 819] the Tribunal proceeded on the basis that clause (d) of  Section 113 of the  Customs Act would not apply to cases where the export  of goods is prohibited.  The Tribunal in arriving at the said conclusion  referred to two of its earlier decision in Badriprasad Pvt. Ltd. v. CCE [1995  (80) ELT 624] and Shilp Export v. CCE  [1996 (83) ELT 302].

       This Court in Prayag Exporters (supra), dismissed the appeal of the  Commissioner of Customs, stating :             

       "This appeal is filed against the judgment and  order dated 18th August, 2000 passed by the Customs,  Excise & Gold (Control) Appellate Tribunal, Western  Zonal Bench at Mumbai in Appeal No.C/195/V/2000- Bom., whereby the Tribunal has arrived at the conclusion  that it has taken consistent view that Clause (d) of  Section 113 of the Customs Act would apply in cases of  prohibited goods and would not apply to the facts of the  present case.  Admittedly, goods in question are not  prohibited for export and no export duty is leviable on  the said goods.  In this view of the matter, no interference  is called for with the impugned judgment and order.   Hence, this appeal is dismissed."   

        However, it appears,  the same Bench considered the matter at some  length in Om Prakash Bhatia (supra) and opined that the exporters were  obliged to declare the value of the goods.  In a detailed judgment, this Court  not only took into consideration the provisions of the Customs Act, but also  the provisions of Section 15 of the Foreign Exchange Regulation Act and the  rules framed thereunder, as also the notifications issued by the Central  Government from time to time.  The Court opined that for determining the  export value of the goods, it is necessary to refer to the meaning of the word  "value" as defined in Section 2(41) of the Act, and the same must be  determined in accordance with the provision of  sub-section (1) of Section  14, stating :

"\005Section 14 specifically provides that in case of  assessing the value for the purpose of export, value is to  be determined at the price at which such or like goods are  ordinarily sold or offered for sale at the place of  exportation in the course of international trade, where the  seller and the buyer have no interest in the business of  each other and the price is the sole consideration for sale.  No doubt, Section 14 would be applicable for  determining the value of the goods for the purpose of  tariff or duty of customs chargeable on the goods. In  addition, by reference it is to be resorted to and applied  for determining the export value of the goods as provided  under sub-section (41) of Section 2. This is independent  of any question of assessability of the goods sought to be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

exported to duty. Hence, for finding out whether the  export value is truly stated in the shipping bill, even if no  duty is leviable, it can be referred to for determining the  true export value of the goods sought to be exported."

       The ingredients of the aforementioned provision read with  Section 18  of  the Foreign Exchange Regulation Act were analyzed and the law was laid  down stating:           "(a) The exporter has to declare the full export  value of the goods (sale consideration for the goods  exported).

(b) The exporter has to affirm that the full export  value of the goods will be received in the prescribed  manner.

(c) If the full export value of the goods is not  ascertainable, the value which the exporter expects to  receive on the sale of the goods in the overseas market.

(d) The exporter has to declare the true or correct  export value of the goods, that is to say, the correct sale  consideration of the goods. Criterion under Section 14 of  the Act is the price at which such or other goods are  ordinarily sold or offered for sale in the course of  international trade where the seller and the buyer have no  interest in the business of each other and the price is the  sole consideration for sale or offer for sale."

       This Court did not stop there, but also took into consideration the  provision of  Rule 11 of  the Foreign Trade (Development and Regulation)  Rules, 1993, holding :

"Hence, in cases where the export value is not  correctly stated, but there is an intentional overinvoicing  for some other purpose, that is to say, not mentioning the  true sale consideration of the goods, then it would  amount to violation of the conditions for import/export of  the goods. The purpose may be money-laundering or  some other purpose, but it would certainly amount to  illegal/unauthorised money transaction. In any case,  overinvoicing of the export goods would result in  illegal/irregular transactions in foreign currency."

       It may be true that the said decision related to a matter concerning a  drawback scheme, but a decision of this Court interpreting a different  section by itself cannot, in our opinion, be brushed aside, only on the ground  that the decision of the same bench in Prayag Exporters (supra)  is applicable  being related to DEPB Scheme.  The question, in our opinion, has to be  considered having regard to the provisions of the definition of the  ’prohibited goods’, ’entry of goods’ together with the provisions of the  Foreign Exchange Regulation Act.   

       In Rai Bahadur Shreeram Durga Prasad (supra) relied upon by Mr.  Chandrasekharan, the question which  came up for consideration was as to  whether Respondents therein could be said to have made any false  declaration in contravention of Section 12(1) of the Foreign Exchange  Regulation Act, as he had declared the full export value, although he did not  furnish all the particulars.  Hegde, J, speaking for the majority opined :

"The contravention of the above provisions is  punishable under Section 23. Hence the respondents’  failure to repatriate any part of the foreign exchange  earned by them by the sale of the manganese ore  exported can be penalised by imposing on them a penalty

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

not exceeding three times the value of the foreign  exchange in respect of which the contravention had taken  place or Rs 5000 \027 whichever is more as may be  adjudged by the Director of Enforcement in the manner  provided in the Act. Hence it is open to the Director of  Enforcement to levy on such of the respondents as have  contravened Section 12(2), penalty not exceeding three  times the value of the foreign exchange not repatriated  which in the present case can be about nine crores of  rupees. They may also be punished under Section  23(1)(b). This position is conceded by the counsel  appearing for the appellants. But it is urged on behalf of  the appellants that for the offences committed by the  respondents they are not only liable to be punished under  Section 23 but also under Section 23(A). The Appellate  Bench of the Madras High Court negatived that  contention. Section 23(A) as it stood at the relevant time  provided that \027  "without prejudice to the provisions of Section  23 or any other provision contained in this Act, the  restrictions imposed by... sub-section (1) of  Section 12 ... shall be deemed to have been  imposed under Section 19 of the Sea Customs Act,  1878, and all provisions of that Act shall have  effect accordingly, except that Section 183 thereof  shall have effect as if for the word ’shall’ therein  the word ’may’ were substituted""

We may, however, notice that Sikri J. in his minority opinion stated :

"Coming now to the construction of Section 12(1), it  seems to me that what it requires is a declaration of some  actual figure which according to the declarant represents  "the full export value". Otherwise there is no point in  requiring support of such evidence as may be prescribed.  Further it is clear that some actual figure has to be  mentioned when the exporter declares that he has  received the amount representing the full export value. I  apprehend that the same applies in the case where the  amount has not yet been received. The rules make this  clear. Rule 5(2)(ii) which requires the invoice value  stated in the declaration to be the full export value of  goods, is referrable to Section 12(1) of the Exchange Act  and may be taken to indicate that an actual figure has to  be mentioned. It may be an estimate if the goods have not  been sold before the export, but a figure must be  indicated. 27. Coming to the crux of the problem, does Section  12(1) by itself require absolutely correct particulars? It is  said that Section 12(1) does not require it for Section 22  requires the exporter only to make a declaration "which  he knows or has reasonable cause to be false or not true  in any material particulars." How could it be that if  Section 12(1) itself requires absolutely correct  particulars. Section 22 limits the requirement? It seems to  me that there is force in this contention but only to a  limited extent. Section 12(1) and the notification, dated  August 4, 1947, made under it, impose a conditional  prohibition. The section confers a power on an exporter  to lift the bar by a unilateral declaration. When such a  power is conferred on an exporter by a statute, good faith  on his part must at least be implied and be a condition  pre-requisite. This construction is necessary in order to  prevent abuse of the power given by the Act. (See  Maxwell on Interpretation of Statutes, 11th Edn., p. 116).

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

If the exporter makes a deliberately false declaration he  contravenes Section 12(1) because he has not made the  statutory declaration in good faith. It is not necessary to  say that the declaration becomes a nullity because the  breach of good faith, a condition prerequisite, is itself a  contravention of the conditional prohibition or restriction,  within Section 167(8) of the Sea Customs Act, read with  Section 23-A and Section 12(1) of the Exchange Act.  Clerical mistakes and mistakes made bona fide even in  respect of material particulars are not within the mischief  of Section 12(1), but a deliberate falsehood and a  deliberate evasion of the provisions of Section 12(1)  come within Section 12(1). Otherwise the ambit of  Section 12(1), read with Section 23-A, would be  narrowed to the point of extinction. An exporter and  persons concerned in the export could with impunity give  a deliberately false declaration but in apparent  compliance with Section 12(1), and deprive this country  of foreign exchange. I cannot give an interpretation  which will make a mockery of the section. But it is said  that other sections of the Exchange Act will take care of  such an exporter. He can be prosecuted under Section  23(1-A), read with Section 22. He can be sentenced to  imprisonment which may extend to two years. He can  also be fined to an unlimited extent. The Foreign  Exchange lost can be retrieved by a court acting under  Section 23(1-B). This may be true that the exporter is  liable as stated above. But what about persons concerned  in the illegal export? It is the persons concerned in the  export which in most cases enable the exporter to  successfully evade the provisions of the Exchange Act.  These persons are taken care of only under the Customs  Act. If they are covered by Section 167(8), there is no  reason to exclude the exporter himself. It is not unusual  to make persons liable both to penalties under the Sea  Customs Act and the Exchange Act. It is indeed  conceded that if no declaration is given under Section  12(1) and the goods are exported, the exporter and the  persons concerned in the export would be liable to be  proceeded both under Section 167(8) of the Sea Customs  Act and the Exchange Control Act. I can draw no  distinction between such an exporter and an exporter who  gives a deliberately false declaration for the purpose of  the applicability of Section 167 (8) of the Sea Customs  Act."

       It is interesting to note that in The Collector of Customs, Madras v.  Nathella Sampathu Chetty and Another [1962 (3) SCR 786], this Court  opined : "\005We hold therefore that when a notification issued  under s.8(1) of the Foreign Exchange Regulation Act is  deemed for all purposes to be a notification issued under  s. 19 of the Sea Customs Act, the contravention of the  notification attracts to it each and every provision of the  Sea Customs Act which is in force at the date of the  notification."   

       In view of the order proposed to be passed by us, we do not intend to  enter into the factual controversy of this matter any further.  The Tribunal, in  our opinion, should have considered the matter from another angle, namely,  as to whether Respondents have violated the provisions of the Foreign  Exchange Regulation or not.  As regards, the finding arrived at by the  Tribunal that Respondents had not over-valued the goods, inter alia, on the  ground that no expert opinion regarding the value of the export goods had  been adduced, the Tribunal did not advert to the materials which had been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

brought on records during investigation, whereupon the Commissioner relied  upon.   

We are, therefore, of the opinion that the impugned judgment cannot  be sustained, which is set aside accordingly.  The appeal is allowed.  The  matter is remitted to the Tribunal for consideration thereof afresh.  No costs.