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CASE NO.: Appeal (civil)  4559-4561 of 2002

PETITIONER: Commissioner of Custom, New Delhi

RESPONDENT: M/s Brooks International & Ors.

DATE OF JUDGMENT: 24/05/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT:

J U D G M E N T [With C.A. Nos. 140-143 of 2004]  

Dr. ARIJIT PASAYAT, J.

1.      Since all these appeals relate to identical question, they  are taken up for disposal by this common judgment.

2.      The basic issue is when the market value of goods under  export is much less than the amount of drawback claimed,  whether such goods can be confiscated for violation of the  provisions of the Customs Act, 1962 (in short the ’Act’).  In the  matters relating to CA No.4559-4561 of 2002, the respondent  had sent a consignment to the export shed of ICD, TKD, New  Delhi for exporting the same under claim for duty drawback.   On the basis of intelligence, Directorate of Revenue,  Intelligence (in short ’DRI’) detained the consignment.  It was,  prima facie, noted that the goods did not appear as per  description, quantity and value disclosed in the bills.  The  consignments of the respondents were examined on different  dates by DRI.

3.      Consignment of R1 was examined by DRI on 7.1.1999 &  12.1.1999, Consignment of R2 was examined by DRI on  18.1.1999 & 25.1.1999, Consignment of R3 was examined by  DRI on 14.1.1999 & 08.02.1999.

4.      The Commissioner of Customs directed confiscation of all  the goods under Section 113(d) and (i) of the Act and allowed  to redeem of the same on payment of fine of Rs.10,00,000/-,  disallowed the export of readymade garments and claim of  drawback.  No penal action was invoked as DRI contemplated  to seek separate adjudication in respect of the penal clause  provided under the Act.  Appeals were preferred before the  Customs, Excise and Gold (Control) Appellate Tribunal (in  short ’CEGAT’) which allowed the appeals holding that there  was no power of confiscation and there was no material placed  to record to suggest that the goods did not correspond to any  material entry made in the bills and the correctness of the  FOB and description of the goods specified in the bills had not  been disputed.   

5.      In support of the appeal learned counsel for the appellant  submitted that Section 113(1) (d) and & (c) apply as they deal

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with three types of goods i.e. excisable goods, prohibited goods  and goods entered for exportation. Respondents attempted to  export old and used readymade garments etc which is not  permissible under Rule 3 of the Drawback Rules.  The market  value was less than duty drawback which was not admissible  under Section 76(1)(b) of the Act.  CEGAT has erroneously  interpreted the provisions of Section 113(d) and (c) of the Act.                     The contents of the show-cause notice were not properly  analysed.

6.      Learned counsel for the respondent on the other hand  supported the order of the CEGAT.

7.      It is to be noted that in view of the divergence of opinion  between the several benches of the CEGAT, matter was  referred to a larger bench and the larger bench decision was  assailed by the assessee in the concerned case. Before this  Court in Om Prakash Bhati v. Commissioner of Customs,  Delhi (2003 (6) SCC 161) it was, inter alia, observed as follows:

"6. At the outset, we would state that the  learned counsel for the appellant has not  pressed for the drawback in view of specific  provision of Section 76 which inter alia  provides that no drawback shall be allowed "(b)  in respect of any goods the market-price of  which is less than the amount of drawback  due thereon". Therefore, for the purpose of  getting drawback, relevant consideration is the  market price of the goods prevailing in the  country and not the price of the goods which  the exporter expects to receive from the  overseas purchaser. 7. Next -- as the order for confiscation of goods  is passed by referring to Section 113(d) of the  Act, we would refer to the same. It reads as  under:-- "113. Confiscation of goods attempted  to be improperly exported etc.-- The  following export goods shall be liable to  confiscation:-- (d) any goods attempted to be exported or  brought 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." 8. The aforesaid Section empowers the  authority to confiscate any goods attempted to  be exported contrary to any ’prohibition’  imposed by or under the Act or any other law  for the time being in force. Hence, for  application of the said provision, it is required  to be established that attempt to export the  goods was contrary to any prohibition imposed  under any law for the time being in force. 9.      Further, Section 2(33) of the Act defines  "prohibited goods" as under:-- "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

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imported or exported have been complied  with." 10. From the aforesaid definition, it can be  stated that (a) if there is any prohibition of  import or export of goods under the Act or any  other law for the time being in force, it would  be considered to be prohibited goods; and (b)  this would not include any such goods in  respect of which the conditions, subject to  which the goods are imported or exported,  have been complied with. This would mean  that if the conditions prescribed for import or  export of goods are not complied with, it would  be considered to be prohibited goods. This  would also be clear from Section 11 which  empowers the Central Government to prohibit  either ’absolutely’ or ’subject to such  conditions’ to be fulfilled before or after  clearance, as may be specified in the  notification, the import or export of the goods  of any specified description. The notification  can be issued for the purposes specified in  Sub-section (2). Hence, prohibition of  importation or exportation could be subject to  certain prescribed conditions to be fulfilled  before or after clearance of goods. If conditions  are not fulfilled, it may amount to prohibited  goods. This is also made clear by this Court in  Sheikh Mohd. Omer v. Collector of  Customs, Calcutta and Ors.  (1970 (2) SCC  728) wherein it was contended that the  expression ’prohibition’ used in Section 111 (d)  must be considered as a total prohibition and  that the expression does not bring within its  fold the restrictions imposed by Clause (3) of  the Import Control Order, 1955. The Court  negatived the said contention and held thus:-- "...What Clause (d) of Section 111 says is  that any goods which are imported or  attempted to be imported contrary to  "Any prohibition imposed by any law for  the time being in force in this country" is  liable to be confiscated. "Any prohibition"  referred to in that section applies to every  type of "prohibition". That prohibition  may be complete or partial. Any  restriction on import or export is to  an extent a prohibition. The expression  "any prohibition" in Section 111(d) of the  Customs Act, 1962 includes restrictions.  Merely because Section 3 of the Imports  and Exports (Control) Act, 1947, uses  three different expressions "prohibiting",  "restricting" or "otherwise controlling",  we cannot cut down the amplitude of the  word "any prohibition" in Section 111(d)  of the Act. "Any prohibition" means  every prohibition. In other words all  types of prohibitions. Restriction is one  type of prohibition. From item (I) of  Schedule I, Part IV to Import Control  Order, 1955, it is clear that import of  living animals of all sorts is prohibited.  But certain exceptions are provided for.  But nonetheless the prohibition

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continues."

xxx 15.     Apart from the aforesaid provision, for  finding out the true export value of the goods,  Section 14 of the Act provides relevant  procedure. Section 14 is to be read along with  Section 2(41), which defines the word ’value’.  Section 2(41) reads as under:-- "Section 2(41) -- "value", in relation to  any goods, means the value thereof  determined in accordance with the  provisions of Sub-section (1) of Section  14." Thereafter, relevant part of Section 14 reads  thus:-- "14. Valuation of goods for purposes of  assessment. -- (1) For the purposes of  the Customs Tariff Act, 1975 (51 of 1975)  or any other law for the time being in  force whereunder a duty of customs is  chargeable on any goods by reference to  their value, the value of such goods shall  be deemed to be-- the price at which such or like goods  are ordinarily sold, or offered for sale,  for delivery at the time and place of  importation or exportation, as the case  may be, in the course of international  trade, where the seller and the buyer  have no interest in the business of  each other and price is the sole  consideration for the sale or offer for  sale: Provided that such price shall be  calculated with reference to the rate of  exchange as in force on the date on which  a bill of entry is presented under Section  46, or a shipping bill or bill of export, as  the case may be, is presented under  Section 50; (1A) Subject to the provisions of Sub- section (1), the price referred to in that  sub-section in respect of imported goods  shall be determined in accordance with  the rules made in this behalf. (2) Notwithstanding anything contained  in Sub-section (1) or Sub-section (1A) if  the Central Government is satisfied that  it is necessary or expedient so to do, it  may, by notification in the Official  Gazette, fix tariff values for any class of  imported goods or export goods, having  regard to the trend of value of such or  like goods, and where any such tariff  values are fixed, the duty shall be  chargeable with reference to such tariff  value. (3) ..." 16. The aforesaid Section would be applicable  for determining the value of goods for the  purpose of assessment of tariff under the Act  or any other law for the time being in force  whereunder a duty of customs is chargeable  on any goods by reference to their value. In the

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present case, on export of goods in question,  no duty was payable under the Act. It was,  therefore, contended that there is no scope of  application of Section 14 for determining the  value of goods by applying the criteria laid in  the said Section. In our view, this submission  cannot be accepted. For determining the  export value of the goods, we have to refer to  the meaning of the word ’value’ given in  Section 2(41) of the Act, which specifically  provides that value in relation to any goods  means the value thereof determined in  accordance with the provisions of Sub-section  (1) of Section 14. Therefore, if the export value  of the goods is to be determined, then even if  no duty is leviable, the method (mode) for  determining the value of the goods provided  under Section 14 is required to be followed.  Section 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 provide under Sub-section (41) of Section 2.  This is independent of any question of  assessability of the goods sought to be  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. 17. It is true that Section 50 of the Act inter  alia provides that before exporting the goods  the exporter shall make entry thereof by  presenting to the proper officer in the case of  goods to be exported, a shipping bill and a bill  of export in prescribed form. The Shipping Bill  & Bill of Export (Form) Regulations, 1991 inter  alia prescribes the said form. After that form is  amended w.e.f. 15.6.2001, it is stated that  exporter shall stated "Value - FOB/PMV where  applicable". We are not required to deal with  this aspect in this appeal as the goods were  sought to be exported in the year 1998. 18. From the aforesaid provisions, mainly,  Section 2(41) read with Section 14 of the Act  and Section 18 of the Foreign Exchange  Regulation Act, 1973, it is crystal clear that:-- (a) Exporter has to declare full export  value of the goods (sale consideration for  the goods exported). (b) 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

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exporter expects to receive on the sale of  the goods in the overseas market. (d) Exporter has to declare true or correct  export value of the goods, that is to say,  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 buyer have no interest in  the business of each other and the price  is the sole consideration for sale or offer  for sale. 19. To the same effect, Rule 11 of the Foreign  Trade (Development and Regulation) Rules,  1993 provides. This Rule is to be read along  with Section 11(1) of the Foreign Trade  (Development & Regulation) Act, 1992, which  inter alia provides that no export or import  shall be made by any person except in  accordance with the provisions of this act, the  rules and the orders made thereunder and the  export and import policy for the time being in  force. Rule 11 reads thus:-- "11. Declaration as to value and  quality of imported goods.--On the  importation into, or exportation out of,  any customs ports of any goods, whether  liable to duty or not, the owner of such  goods shall in the bill of entry or the  shipping bill or any other documents  prescribed under the Customs Act, 1962  (52 of 1962), state the value, quality and  description of such goods to the best of  his knowledge and belief and in case of  exportation of goods, certify that the  quality and specification of the goods  as stated in those documents are in  accordance with the terms of the  export contract entered into with the  buyer or consignee in pursuance of which  the goods are being exported and shall  subscribe to a declaration of the truth of  such statement at the foot of such bill of  entry or shipping bill or any other  documents." 20. Hence, in cases where the export value is  not correctly stated, but there is intentional  over-invoicing for some other purpose, that is  to say, not mentioning 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, over-invoicing of the  export goods would result in illegal/irregular  transactions in foreign currency."

8.      It would be appropriate for the CEGAT which had not  considered the effect of the larger bench judgment, which had  approval of this Court in Om Parkash case (supra) to rehear  the appeals.  We, therefore, set aside the order of the CEGAT  and remit the matter to it for fresh consideration keeping in  view the principles set out in the  Om Parkash case (supra).

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9.      The appeals are allowed to the aforesaid extent.

C.A. Nos. 140-143 of 2004

10.     The factual position is almost identical to those involved in  C.A. Nos. 4559-4561 OF 2002 except that in the instant case  the appellant had filed an application for review which was  rejected.   

11.     Following the view expressed in the connected civil appeals  we allow these appeals and remit the matter to CEGAT for fresh  consideration.   It is to be noted that CEGAT is presently known  as Customs, Excise and Service Tax Appellate Tribunal.

12.     Appeals are allowed.