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CASE NO.: Appeal (civil)  5415-5417 of 2002

PETITIONER: Commissioner of Customs Kolkata

RESPONDENT: M/s. Peerless Consultancy Services Pvt. Ltd.

DATE OF JUDGMENT: 24/05/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1.      Challenge in these appeals is to the orders passed by the  Customs Excise and Gold (Control) Appellate Tribunal, EZB  Kolkata (in short the ’CEGAT’) allowing the appeals filed by the  respondent holding that the guidelines contained in circular  No.69/97-CUS dated 8.12.1997 issued by the Government of  India, Ministry of Finance, Department of Revenue, New   Delhi,  as it has not succeeded in making out a case against  respondent as the Present Market Value (in short the  ’PMV’)declared is not more than 150% of the AR 4  value.   Accordingly the order passed by the Commissioner of Customs  (Post) Kolkatta was set aside.

2.      Background facts in a nutshell are as follows:

3.      The Respondent Company which is engaged in the  business of computerized printing exported for the first time  consignments of steel balls of a total declared value at  Rs.14.63 crores to one M/s. Ria Multiple Enterprises of  Malaysia under Duty Entitlement Pass Book (in short the  ’DEPB’) Scheme. Incidentally, the consignee is also a dealer of  computer and information technology based products who  also acts as General Insurance Agent. Exports were made  under DEPB scheme and a claim of Rs.3.20 crores was made. 4.      In the light of information received by DRI of gross over-  invoicing of the goods to avail higher DEPB credit, it  conducted investigation which revealed inter-alia that:

(i) the declared P.M.V. varies between 98.35% to 124% of  the declared Export Price (described as ’FOB’). (ii) the shipments were effected between 11.06.99 and  25.08.99 as per Bill of Lading date and as per the contract, the  terms of payments is DA 60 days’. (iii) Till 31.5.2000, the assessee received payment for 3  consignments only and further till 11 .10.2000 they received  payment of only 5 consignments out of 16. (iv) the declared FOB value for different size Steel Balls  comes as under: Steel Balls 3.17mm size Rs.0.70per pc.  Steel Balls 6.35mm size Rs.l.30 per pc. (v) it has been claimed that the PMV was declared on the  basis of price quoted by the local suppliers and the variation

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in the declared PMV is due rejection on quality check. (vi) The FOB value of the consignment was fixed on the  basis of price agreed upon by the foreign buyer. (vii) The FOB value declared is highly inflated only to  avail greater amount of DEPB Credit. (viii) The explanation offered to substantiate highly  declared FOB vis-‘-vis the PMV has no basis in as much the  agreement of precision quality, quality control checking by an  expert, are all after thought having no consistency and no  evidence whatsoever could be produced in this regard. (ix) Neither the export nor the foreign buyer or even the  local suppliers are regular dealers of Steel balls in as much  neither the exporter nor the local suppliers could produce any  piece of evidence of sale of such Steel Balls to any other party  in India or abroad excepting the production of evidence of sale  by M/s. S.F. Forging to one M/s. Arlun Automobile, that too  for the purpose of export under DEPB scheme. (x)     Surprisingly the suppliers had received only about  1/4th or 1/3rd of the so called sale value amount but did not  receive huge sum of money which was due as balance of  payment towards supply of goods for over an year. (xi) Based on the aforesaid revelation, the declared PMV  as well as the FOB value seems to be very high compared to  the actual market value of the goods. (xii) It appears that the entire deal had taken place in a  manner which is not consistence with normal trade practice  and the declared FOB value as well as the PMV had been  highly inflated with intent to wrongly avail export benefit  under DEPB Scheme.  

5.      Accordingly, alleging gross misdeclaration of material  facts and the value of the steel balls and willful misstatement  and suppression and violation of Section 113(d) of Customs  Act, 1962 (in short the ’Act’) read with Rule 11 of Foreign  Trade (Regulation) Rules 1993 (in short the ’Foreign Trade  Rules’) and for penal action under Section 114 of the Customs  Act, a Show Cause Notice was issued asking to show cause as  to why \027

(i) the PMV and FOB value should not be taken as  Rs.2,80,52,027/- and Rs.2,73,60,806/- respectively. (ii) The permissible DEPB credit against the goods  exported should not be taken as Rs.60,19,377/-. (iii) The goods exported cover 16 Nos. of Shipping bills  having total declared FOB value of Rs.14,91,89,854.00 shall  not be held liable for confiscation under 113(d) of the Act. (iv) Penal action shall not be taken against the exporter  and its Director Sri Parasmal Lodha and Sri N.R. Bachhawat  authorized signatory under Section 114 of the Act.

6.      In support of the appeal learned counsel for the appellant  submitted that Sri Parasmal Lodha who was the Director of  the respondent\026Company had clearly admitted about the  following aspects:

(i) The Company’s main line of business is computerized  printing. (ii) The benefit of DEPB scheme attracted to venture into  steel balls export and also took the risk of exporting to the  party on credit which is a big risk (iii) The payment was to be made within 60 days and the  payments were delayed by over 6-18 months. (iv) 90% of the payment was already received and the  balance was to be cleared by 15.4.01 i.e. after the enquiry  started in the year 2000.

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(v) He does not have any idea about the international  price of steel balls.  (vi) He received major payments from buyer only after  September 2000 and he cleared the claimed outstandings of  local suppliers. (vii) He was aware of the process or method used for  checking the quality of the steel balls. But he had engaged an  expert.

7.      On the basis of the aforesaid materials the Commissioner  recorded the following findings:

"(1) Background facts clearly indicate that the whole  exercise was not done in the usual course of business and  there was definitely something wrong. (2) The exporter does not know the international price of  his exported products, cannot produce any evidence regarding  the quality of his goods, can submit quotations of only those  companies from whom he purchased the goods and above all,  exports goods worth Rs.14.91 crore were without the cover of  any letter of credit and it sat tight when remittance of  Rs.14.91 crores did not come within the stipulated time.  

8.      All these clearly show that the shipping bills and the  export invoices do not reflect the correct transaction value. He  was therefore, inclined to hold that the subject goods were  over invoiced with an intent to wrongly avail higher DEPB  credit and the PMV indicated on the shipping bills was also  inflated. He rejected the FOB value as well as the declared  PMV. He held that the FOB value and the PMV of the subject  goods need to be ascertained on the basis of the findings of the  market enquiry.

9.      With regard to PMV, the Commissioner held as under: "I find that the guidelines for verification of the PMV and  the FOB Value have been suitably followed by DRI. Nowhere in  the above mentioned 3 circulars issued by the Board, it is  stated that the PMV would be challenged/rejected/modified on  the basis of evidence of contemporaneous export. It is to be  done on the basis of the findings of the market enquiry only. I,  therefore, accept the proposal of ascertaining the PMV and the  FOB value as given in the show cause notice."  

10.     The Commissioner accordingly inter alia held as follows:

"The subject goods exported under claim of DEPB credit  did not correspond to the declaration made regarding the  same on the shipping bills in respect of the value and DEPB  benefit, since it was declared on the shipping bills that the  benefit under the DEPB scheme would not exceed 50% of the  present market value. The same should be deemed to be  prohibited in terms of Rule 11 and 14 of the Foreign Trade  (Regulation) Rules, 1993 read with Section 3(3) of the Foreign  Trade (Development & Regulation) Act, 1992 and Section 11 of  the Customs Act, 1962 and, therefore, should be held liable  for confiscation under Section 113(d) of The Customs Act."  

11.     He accordingly confirmed the demand made in the Show  Cause Notice.

12.     Aggrieved by the orders passed by the Commissioner, the  respondent filed appeal before the CEGAT.   

13.     Allowing respondents’ appeals, CEGAT accepted the  stand of the assessee. Its conclusions were essentially as

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follows:

"The PMV, in our view, cannot be challenged by going  into the cost of manufacture. Market enquiry into the prices of  the steel balls of size 6.3mm and 3.17 conforming to AISI:316  Grade should have been ascertained from the market which  has not been done. The burden to prove that PMV is inflated  one is on the Department which has not been discharged. It is  mentioned in the show cause notice itself that the local  suppliers had supplied the exported goods at price ranging  from Re.l to Rs.1.25 per piece of 6.35 mm and Re.0.56p to  Re0.70p per piece of 3.17 mm. There is no allegation in the  show cause notice against the local suppliers nor there is any  mention that the payment made to local suppliers  subsequently flowed back to the Appellants."  

"In view of these guidelines, the Revenue has not  succeeded in making out a case against the Appellants as the  PMV declared is not more than 150% of AR4 value.  Accordingly, we set aside the impugned order and allow all the  appeals".  

14.     According to appellant, the Tribunal has failed to note  that the findings recorded by the Commissioner were based on  the evidence tendered by the company from which it can be  clearly inferred that there has been a mis-declaration and  misstatement only with the object to boost the value to get  higher DEPB benefit. The entire transaction is vitiated by  misstatement, mis-declaration and suppression of material  facts which has not been considered by the Tribunal."

15.     It is pointed out by the learned counsel for the appellant  that absolutely no reason has been indicated by the Tribunal  to set aside the elaborate order passed by the Commissioner.   There were clear findings of over invoicing.  So far as Circular  No.69/97 is concerned, it only delineates the general  principles. The fraudulent transaction was clearly established.   Approach of the Tribunal is relevant from the abrupt  conclusions arrived at.  

16.     In response, learned counsel for the respondent  submitted that the issues involved in the appeal relate to the  DEPB credit allowable to the respondent under the Export   and Import Policy, 1997-2002 (in short the ’EXIM Policy’).   With reference to para 7.25 of the EXIM Policy, DEPB was  allowable as a percentage of FOB value of exports.  In para  7.36 of the Handbook of Procedures, 1997-2002 (in short the  ’Handbook’), if the rate of credit entitlement was 15% or more,  the credit shall not exceed 50% of the PMP of the export  product. 17.     In the present case, the foreign buyer purchased the  goods for agreed FOB and made full payment.  Entire export  proceeds have been realized in foreign currency and copies of  bank remittances/FIRC were filed.  There is no allegation or  finding that the foreign buyer was a related person.  FOB was  fully supported by all export documents such as invoices and  shipping bills and by the documents as regards its realization  such as BRC/FIRC.

18.     It is stated that the expressions "FOB’ and ’PMV’ were not  defined in the EXIM Policy. However, the method of  determination was laid down by the Ministry of Finance in the    Circular No.69/97.

19.     It is submitted in almost identical case in Commissioner

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of Custom, New Custom House, Mumbai v. Vishal Exports  Overseas Ltd.  [2007 9309) E.L.T. 331 (S.C.)], this Court has  dismissed the appeal filed by the Revenue.

19.     We find that the Commissioner had in detail referred to  various aspects to conclude about over-invoicing.  The  applicability of Circular No.69/97 would depend upon the  factual scenario of a particular case.

20.     In the instant case, what the Tribunal appears to have  done is to refer to the arguments of parties and then came to  abrupt conclusions without discussing in detail as to how the  conclusions of the Commissioner were erroneous.  That having  not been done the order is vulnerable. Accordingly, we set  aside the order of the CEGAT and remit the same to it for fresh  adjudication.  It is to be noted that present CEGAT is known  as Customs Excise and Service Tax Appellate Tribunal (in  short ’CEGAT’).

The appeals are allowed to the aforesaid extent.  We  express no opinion on the merits of the case.