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CASE NO.: Appeal (civil)  4060 of 2001

PETITIONER: M/s Om Prakash Bhatia                                    

RESPONDENT: Vs. Commissioner of Customs, New Delhi               

DATE OF JUDGMENT: 07/07/2003

BENCH: M.B. SHAH & ARUN KUMAR

JUDGMENT:

J U D G M E N T

Shah, J.

       Questions requiring consideration in this appeal are:â\200\224  

(A)     Whether over-invoicing of the goods for export would  mean attempt to export ’prohibited goods’? and

(B)     Whether, while exporting the goods, exporter has to give  value of the goods as provided under Section 14 of the  Customs Act, 1962 (hereinafter referred to as ’the Act’)  or the value of goods which he expects to receive on sale  of goods in the overseas market?

The facts in brief are:â\200\224

       It is stated that the appellant is engaged in the export of  garments.  Appellant received an order from an overseas buyer i.e.  from Dubai, for supply of ladies’ skirts, the contracted price for which  was said to be approximately $10.25 per piece.  Appellant filed 4  shipping bills in 1998 for export of 28000 pieces of ladies skirts @  $10.25 per piece (Rs.434 per piece) amounting to Rs.1,21,54,447/-.   On checking, the actual quantity of the skirts was found to be 21184  pieces.  On enquiry, the market price of the skirts was ascertained to  be Rs.45/- per piece, according to which total value of the goods  comes to Rs.9,53,280/-.  The exporters had claimed a draw back of  Rs.21,87,800/- on the consignment @ Rs.78/- per piece.  For shortage  of goods, vide letter dated 4.2.1999, the exporters pleaded that it was  an unintentional mistake which had happened on the part of the  fabricators and suppliers. During the course of hearing, on 6.2.1999,  for the drawback, it was admitted by the exporters that the market  price of Rs.45/- per piece was acceptable to them and that their claim  for drawback be not granted.  The Commissioner of Customs noted  that this was the second such case belonging to the same exporters and  that there was an organized racket to claim fraudulent drawback by  deliberately over-invoicing the readymade garments. The  Commissioner of Customs imposed a redemption fine of  Rs.10,00,000/- and levied a penalty of Rs.20,00,000/-.  It was held  that no drawback was admissible even if the party exported the goods  in terms of Section 76 of the Act as the market value of the goods was

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less than the amount of drawback claimed.   

       Being aggrieved by the said order, the appellant filed appeal  before the Customs, Excise and Gold (Control) Appellate Tribunal,  New Delhi (hereinafter referred to as ’the Tribunal’).  The Tribunal  also dismissed the appeal and held that the over-invoicing of the  goods for exportation was an offence under the Act.  Hence, this  appeal.

       At the time of hearing of this appeal, learned senior counsel Mr.  Adhyaru for the appellant submitted that the appellant is not claiming  any drawback and, therefore, that question is not required to be dealt  with.  However, his contention is â\200\223 Section 113(d) is not applicable to  the facts of the present case as the goods are not prohibited goods.  He  further stated that exporter is not required to declare the market value  of the goods which he would fetch in the market in India. He is  required to declare the value of the goods which he is expected to  receive from the overseas purchaser and that is the scheme of the  Customs Act as well as of the allied Acts.

Learned Additional Solicitor General Mr. Raju Ramchandran,  on the other hand, contended that over-invoicing is not permitted  under the Act as it is in violation of statutory provisions.  He further  submitted that at the time of export, the exporter has to give correct  value of the goods and that correct value of the goods would be the  value of goods which he would fetch in market in India or which he is  likely to fetch from overseas purchaser.

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.

       Next â\200\224 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: â\200\224 "113.   Confiscation of goods attempted to be  improperly exported etc.â\200\224 The following export goods  shall be liable to confiscation:â\200\224

(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."

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.

Further, Section 2(33) of the Act defines "prohibited goods" as  under:â\200\224  "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

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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."

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 Others [(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:â\200\224 "â\200¦ 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 continues."  

The next question is â\200\224 Is there any prohibition imposed under  other law which is for the time being in force?

For this purpose, reliance is placed upon Section 18 of the  Foreign Exchange Regulation Act, 1973, relevant part of which reads  thus:â\200\224 18.     Payment for exported goods.â\200\224 (1)(a) The  Central Government may, by notification in the Official  Gazette, prohibit the taking or sending out by land, sea  or air (hereafter in this section referred to as export) of all  goods or of any goods or class of goods specified in the  notification from India directly or indirectly to any place  so specified unless the exporter furnishes to the

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prescribed authority a declaration in the prescribed  form supported by such evidence as may be prescribed  or so specified and true in all material particulars  which, among others, shall include the amount  representing:â\200\224

(i)     the full export value of the goods; or

(ii)    if the full export value of the goods is not  ascertainable at the time of export the value  which the exporter, having regard to the  prevailing market conditions, expects to  receive on the sale of the goods in the  overseas market,

and affirms in the said declaration that the full export  value of the goods (whether ascertainable at the time of  export or not) has been, or will within the prescribed  period be, paid in the prescribed manner.

This Section contemplates that exporter is required to furnish to  the prescribed authority in prescribed form declaration of true material  particulars which include:â\200\224 (a)     the amount representing the full market export value of  the goods; or in the alternative,  (b)     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, and (c)     the exporter has to affirm that full export value of goods  will be received.

These two clauses of Section 18 leave no doubt that exporter is  not concerned with the prevailing market price in India of the goods  sought to be exported, but he is required to disclose true export value  of goods.  That is to say, exporter has to disclose full and true sale  consideration â\200\223 export value of the goods.  The notification issued in  exercise of the power under Section 18 also inter alia provides that  Central Government prohibits the export of all goods unless exporter  furnishes to the prescribed authority a declaration in the prescribed  form of material particulars including the full export value of the  goods or in the alternative the value of the goods which he expects to  receive on their sale in overseas market.  Hence, importance is given  to the value of goods which exporter is to receive.  It also provides  that the exporter shall affirm in the declaration that full export value  of the goods has been or will within prescribed period be paid in the  prescribed manner.  Further, the learned Additional Solicitor General  referred to the notification issued under the said Section, relevant part  of which reads thus:â\200\224 "GSR.78â\200\224In exercise of the powers conferred by  sub-section (1) of Section 18 of the Foreign Exchange  Regulation Act, 1973 (46 of 1973), and in supersession  of the notification of the Government of India in the  Ministry of Finance (Department of Economic Affairs)  No.GSR 2641, dated the 14th November, 1969, the  Central Government hereby prohibits the export,  otherwise than by post, of all goods, either directly or  indirectly, to any place outside India, other than Nepal  and Bhutan, unless the exporter furnishes to the  prescribed authority a declaration in the prescribed  form supported by such evidence as may be prescribed  or so specified and true in all material particulars  which, among others, shall include the amount  representing:â\200\224

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(i)     the full export value of the goods, or

(ii)    if the full export value of the goods is not  ascertainable at the time of export, the value  which the exporter, having regard to the  prevailing market conditions, expects to  receive on the sale of the goods in the  overseas market,

and affirms in the said declaration that the full export  value of the goods (whether ascertainable at the time of  export or not) has been, or will within the prescribed  period be, paid in the prescribed manner."

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:â\200\224 "S. 2 (41) â\200\224 "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:â\200\224 "14.    Valuation of goods for purposes of  assessment. â\200\224 (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 beâ\200\224

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)     â\200¦. "

The aforesaid Section would be applicable for determining the  value of goods for the purposes of assessment of tariff under the Act

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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  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 down 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 provided 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.

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 state "Value â\200\223 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.

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:â\200\224 (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 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.          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

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import policy for the time being in force.  Rule 11 reads thus:â\200\224 "11.    Declaration as to value and quality of  imported goods.â\200\224On 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."

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.          Learned senior counsel Mr. Dave submitted that in some cases,  exporter may get much higher value of the goods than the market  price prevailing in the country and, therefore, merely because higher  export value is mentioned, it cannot be inferred that it is not the true  sale consideration.  In some cases, this hypothetical contention may be  right.  However this would depend upon facts and circumstances as  well as evidence on record in each case.  If the goods are easily  available in the market, then it would be difficult to arrive at the  conclusion that a foreign buyer â\200\223 a prudent businessman would pay  ten times more than the prevailing market price of readymade clothes,  particularly, in the days where information is easily available through  internet or various other sources.  In any case, when margin of profit  appears, on the face of it, unreasonable, it is for the exporter to  establish that it was a true export value stated in the shipping bill.   Section 14 itself contemplates that the price at which such or like  goods are ordinarily sold or offered for sale in the course of  international trade would be the value of the goods.                    In Toolsidass Jewraj v. Additional Collector of Customs &  Others [(1991) 2 SCC 443], full export value of the goods was not  correctly stated in the shipping bills along with G.R. I forms and it  was a case of under-valuation in respect of full export value of goods.   In that set of circumstances, the Court upheld the order passed by the  authorities that there was violation of Section 12(1) of the Foreign  Exchange Regulation Act, 1947.

In the present case, as found by the authorities, 28,000 pieces of  ladies skirts at the rate of $10.25 per piece, export value of which was  mentioned as Rs.1,21,54,447/-, were sought to be exported.  The  market price of such skirts was ascertained to be Rs.45/- per piece and  on that basis total value of the goods came to be Rs.9,53,280/-.  The  exporter claimed a drawback of Rs.21,87,800/- on the consignment on  the basis that value of each skirt was Rs.78/- per piece.  No doubt,  during the enquiry exporter admitted that the market price of Rs.45/-  per piece was acceptable to him and the claim for drawback was  withdrawn.  Thereafter, the exporter has not led any evidence that  export value mentioned in the shipping bill was the true sale

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consideration for the goods sought to be exported.          Considering the aforesaid facts and also the fact that this was  the second case belonging to the same exporter, the authorities arrived  at the conclusion that it was an organized racket to claim fraudulent  drawback or an act of deliberate over-invoicing the readymade  garments.  Hence, the authority imposed redemption fine as well as  levied penalty.  In our view, this finding arrived at by the authorities  below cannot be said to be, in any way, unreasonable which would  call for interference by this Court in this appeal.                    In the result, the appeal is dismissed.  There shall be no order as  to costs.

I.A. No.3 OF 2002  

       We had heard learned counsel for the intervenor on the question  of law involved in this appeal.  I. A. stands disposed of accordingly.