REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3871   OF 2006

M/s Carpenter Classic Exim P. Ltd.  ..Appellant

Versus

Commnr. Of Customs (Imports) and Anr. ..Respondents

(With Civil Appeal No. 3872 of 2006)

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Challenge in these appeals is to the judgment of Customs, Excise and

Service  Tax  Appellate  Tribunal,  South  Zone,  Bangalore  (in  short  the

‘CESTAT’).  The  orders  in  original  passed  by  the  Commissioner  of

Customs, Bangalore and Commissioner of Customs, Chennai were affirmed

subject to certain modifications.

2. Seven appeals  were filed  against  the  Order-in-Original  No.27/2004

dated  27.7.2004  by Commissioner  of  Customs,  Bangalore  and  Order-in-

Original   No.2724/2004 dated 30.9.2004 passed by the Commissioner of

Customs, Chennai. The details of the orders challenged before the CESTAT

and the quantum involved are as follows:

Appeal No. Appellant Differential Duty

Redemption Fine

Penalty

C/428/04 M/s Carpenter Classic Exim (P) Ltd.

Rs.59,12,619/ -

Rs.15,00,000/ -

Rs.55,44,396/ -

C/429/04 Ravi Karumbaiah, MD, CCEPL

- - Rs.10,00,000/ -

C/433/04 Sanjeev Kabubur

- - Rs.1,00,000/-

Appeal No. Appellant Differential Duty

Redemption Fine

Penalty

C/436/04 M/s Carpenter Classic Exim (P) Ltd.

Rs.36,96,201/ -

- Rs.9,61,506/-

C/437/04 Ravi Karumbaiah, MD CCEPL

- - Rs.9,00,000/-

C/13/05 Thomas Mathew

- - Rs.5,00,000/-

C/06/05 Sanjeev Kabbur

- - Rs.7,00,000/-

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3. Background facts as noted by the CESTAT are as follows:

The DRI Officers received intelligence regarding the under-valuation

of  imported  goods  by  the  appellants.  The  business  premises  and  the

residential  premises  of  the  concerned  persons  were  searched  and

incriminating  documents  were  seized.  Statements  of  S/Shri  Ravi

Karumbaiah, Managing Director of M/s. Carpenter Classic Exim Pvt. Ltd.,

V.S.  Chandan,  CADD Operator  were recorded under  Section 108  of  the

Customs  Act  1962  (in  short  the  Act).  The  residential  premises  of  Shri

Sanjeev Kabbur, Ex-Marketing Manager of the company were searched and

some documents were seized. Statement of Sanjeev Kabbur was also taken.

Ms.  Jagruthy  Sevak  was  the  Executive  of  the  appellant  company,  her

statement  was  also  recorded.  The  investigations  conducted  revealed  that

Shri  R.  Karumbaiah,  his  wife,  Shri  Thomas  Mathew  and  his  wife  as

Directors  started  M/s.  Carpenter  Classics  Exim  Pvt.  Limited  (in  short

‘CCEPL’)  as  a  private  limited  company in  the  year  1995.  The company

decided to  import  their  requirements  of  kitchens  from Veneta  Cucine  of

Italy who are reputed manufacturers. Shri Karumbaiah and Thomas Mathew

hatched a conspiracy to undervalue their imports for increasing their profits

in the local market. For this purpose, they had prepared the invoices of the

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foreign  supplier  and sent  them to  Italy.  Thomas  Mathew floated  a  front

company in the name of Proma SRL, the manipulated invoices were raised

in the name of the above front company. These invoices were filed by the

appellant before the Customs officials for assessment. They made their first

import  in  the  year  1995  through  ICD,  Bangalore.  The  foreign  suppliers

invoice and packing list had been signed by Shri Thomas Mathew on behalf

of M/s. Proma SRL. CCEPL communicated their requirements along with

the drawing to Proma SRL with a copy to Veneta Cucine. Sometimes the

orders were communicated directly to Veneta Cucine. Proma SRL prepared

the  bill  showing  the  actual  price  in  Lira  and  forwarded  the  drawings  to

Veneta Cucine. Veneta Cucine in turn forwarded the confirmation order to

Proma SRL and CCEPL. These orders of confirmation indicated the actual

price of the products ordered in Liras. Veneta Cucine at the time of loading

of containers and shipment  prepared their  own packing lists  showing the

order numbers of CCEPL and the destination as CCEPL. CCEPL arranged

for their representatives to be present at the time of loading of the containers

at the factory premises of Veneta Cucine to ensure not only proper loading

but  also to relabel  the packages to  make it  appear that  the  shipment had

been affected by Proma SRL. CCEPL presented the invoices prepared in the

name  of  Proma  SRL  along  with  the  Bills  of  Entry  which  showed

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substantially lower prices than what was actually charged by Veneta Cucine.

In order  to  camouflage  the  entire  conspiracy of  under-valuation  CCEPL

collected a certain portion of their sales proceeds from certain customers in

cash. The cash so collected was handed over by Shri R. Karumbaiah to Mr.

Thomas Mathew for  settling  the  account  of  Veneta  Cucine.  The  portion

containing the prices in the confirmation order has been cut out in almost all

such  documents  ostensibly  to  hide  the  actual  price  from the  customers.

Thus, CCEPL substantially under-valued their import consignments in order

to evade payment of customs duty. Similar modus operandi was adopted to

import goods through Chennai Port also. On the basis of investigation, show

cause notices were issued to the noticees. After observing the principles of

natural justice, the adjudicating authorities at Bangalore and Chennai passed

orders which were assailed before CESTAT.

Various stands were taken before the CESTAT. The CESTAT noted

the  fact  that  the  Commissioner  has  observed  that  Ravi  Karumbaiah  has

admitted that Proma SRL was a front company set up in order to get the

documents  in  the  name  of  the  said  company  and  to  evade  payment  of

customs  duties.  The  appellants  submitted  that  from  the  extract  of  the

company’s  house  record,  it  is  clear  that  the  Proma  SRL  is  a  genuine

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company which is in existence. Hence, it is clear that there are discrepancies

in the statement recorded from Ravi Karumbaiah and as such it is clear that

the statement was obtained under duress and coercion.  It was submitted that

the oversea suppliers have granted the appellants substantial discount on the

listed  price  and  it  was  for  this  reason  that  the  prices  mentioned  in  the

invoices were deleted. It is a normal trade practice not to reveal the price of

the  product  at  which  they  are  procured  by  the  importer/wholesaler  to  a

customer. This is done basically to prevent the customers from knowing the

margin of profit enjoyed by a wholesaler/importer; otherwise customer will

start bargaining.  

The CESTAT noted that the main charge against the appellants is that

of under valuation of the imported goods using a particular modus operandi.

Many  incriminating  documents  were  seized  from  the  premises  of  the

appellant.  The statements were recorded under Section 108 of the Act from

various  persons.  DRI  investigation  was  taken  up  consequent  to

investigations  made  by  Income  Tax  Department.  It  appears  that  Ravi

Karumbaiah  was  the  Managing  Director  and  the  Chief  Promoter  of  the

company. Shri Sanjeev Kabhur was ex- marketing manager of the company

and Shri Thomas Mathew was the Director of the appellant-company and

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also  a  Director  of  Proma  SRL  who  issued  the  invoices  relating  to  the

imports.   Allegation  was that  with the help  of  Thomas Mathew invoices

were issued by Proma SRL using it as a front. The actual suppliers of the

imported equipment were M/s Veneta Cucine  and other foreign companies.

Investigations established that value of the imported goods as per Veneta

Cucine  was  different  from  those  in  the  invoices  of  Proma  SRL.  The

difference  between  the  two  values  was  settled  by  Thomas  Mathew who

collected differential sale amount during his visit to India and later settled

the same with Veneta Cucine.  This probably was the modus operandi.   The

revenue relied upon the following documents:

• Photocopy of a Fax dated 214.1997, said to have been sent by

Thomas  Mathew  bearing  No.VC/CC/9708  dated  21.4.97

addressed  to  Anchise  Ballestrieri  and  Vittorio  Tollardo  of

Veneta Cucine S.PA. Treviso, Italy.

•  Photocopy  of  a  fax  message  No.CCEPL/TM/089/97  dated

5.4.97, said to have been sent by Carpenter Classics to Thomas

Mathew.

• Photocopy of a fax message dated 8.10.98, said to have been

sent to Thomas Mathew by Ravi Karumbaiah.

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•  Photocopy  of  a  letter  No.CCEL/Proma/1362/97-98  dated

10.1.98 to have been sent by Carpenter Classics to Proma SRL.

• Photocopy of Bill of quantity and Order confirmations of M/s.

Veneta  Cucine  pertaining  to  shipment  called  lndia-13  and

lndia-14

• Photocopy of packing list of M/s. Veneta Cucine pertaining to

shipment called lndia-13 and lndia-14.

The  CESTAT  referred  to  the  statements  given  by  Shri  Ravi

Karumbaiah under Section 108 of the Act.  It held that the conclusions were

supportable  as  the  evidence  on  record  clearly  established  that  there  was

under valuation to the extent of 65% with which Shri Thomas played crucial

role in the nefarious activities. It was held that both Ravi Karumbaiah and

Thomas Mathew were liable to penalty under Section 112(a) of the Act and

the company was also liable to penalty under Section 114A of the Act. The

differential duty was to be paid alongwith interest. The penalty however was

deleted so far as Shri Sanjeev Kabbur is concerned.  

4. The  primary stand  is  that  even  before  the  show cause  notice  was

issued, to prove its bona fide, a sum of Rs.25 lakhs was paid. Reference is

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made by learned counsel for the appellant to the proviso to Section 114A of

the Act. It is submitted that since reduction in the quantum is permissible,

discretion is given in the matter of imposition of penalty.   

5. Learned counsel for the respondents on the other hand supported the

judgment.  

6. Section 112(a) and Section 114A read as follows:

“112(a) Penalty for improper importation of goods, etc. – Any person, -

(a)� who, in relation to any goods, does or omits to do any act which  act  or  omission  would  render  such  goods  liable  to confiscation under section 111, or abets the doing or omission of such an act, or

114A-� Penalty  for  short-levy  or  non-levy  of  duty  in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has [xxx]  been  part  paid  or  the  duty  or  interest  has  been erroneously refunded by reason of collusion or any wilful mis- statement or suppression of facts, the person who is liable to pay the  duty  or  interest,  as  the  case  may be,  as  determined under sub-section (2) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined :

Provided that where such duty or interest, as the case may be, as  determined  under  sub-section  (2)  of  section  28,  and  the interest  payable  thereon  under  section  28AB,  is  paid  within

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thirty days from the date of the communication of the order of the proper officer determining such duty, the amount of penalty liable  to  be  paid  by such  person under  this  section  shall  be twenty-five per cent of the duty or interest, as the case may be, so determined :

Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :

Provided also that where the duty or interest determined to be payable  is  reduced  or  increased  by  the  Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty or interest as reduced or increased, as the case may be, shall be taken into account :

Provided also  that  in  case  where  the  duty  or  interest determined  to  be  payable  is  increased  by  the  Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court,  then,  the  benefit  of  reduced  penalty  under  the  first proviso  shall  be  available  if  the  amount  of  the  duty  or  the interest  so increased,  along with the interest  payable thereon under  section  28AB,  and  twenty-five  per  cent  of  the consequential  increase in penalty have also been paid within thirty days of the communication of the order by which such increase in the duty or interest takes effect :

Provided also  that  where any penalty has been levied under this  section,  no penalty shall  be levied under section 112 or section 114.

Explanation. - For the removal of doubts, it is hereby declared that -

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(i)� the provisions of this section shall also apply to cases in which  the  order  determining  the  duty  or  interest  under  sub- section (2) of section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;

(ii)� any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.”

7. The relevant proviso in Section 114A is applicable only where duty

has been paid. In the instant case the claim that Rs.25 lakhs which is not

whole  of  the  differential  duty  is  claimed  to  have  been  paid  before  the

issuance  of  the  show  cause  notice.  The  same  is  not  a  mitigating

circumstance.  

8. Above being the position, the appeal filed by the company is without

merit  and  is  dismissed.  So  far  as  appeal  filed  by  Ravi  Karumbaiah  is

concerned it is to be seen that the provision of penalty is not mandatory in

the sense since discretion is given. CESTAT has not dealt with the question

whether the quantum of penalty levied under Section 114A is reasonable

and fair.  It appears that Ravi Karumbaiah was the Managing Director and

Chief Promoter  of the appellant company while Thomas Mathew  who was

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the director of the appellant company was also a Director of Proma SRL.

Even  though  there  is  no  elaborate  discussion  regarding  the  quantum of

penalty  yet  considering  the  background  facts  it  cannot  be  said  that  the

quantum of  penalty  imposed suffers  from any infirmity.  Appeal  filed  by

Ravi   Karumbaiah  is  also  dismissed.  Accordingly  both  the  appeals  are

dismissed with no order as to costs.           

………………………………….J. (Dr. ARIJIT PASAYAT)

………………………………….J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, February 12, 2009

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