Pre-deposit – DEPB benefit claimed on the basis of fraudulent exports

PJ/Case Laws/2011-12/1444

Pre-deposit – DEPB benefit claimed on the basis of fraudulent exports – BRCs found to be forged

Case: RUCHIKA INTERNATIONAL & ANR v/s COMMISSIONER OF CUSTOMS, PUNE

Citation: 2011-TIOL-415-HC-MUM-CUS

Issue:- Pre-deposit – DEPB benefit claimed on the basis of fraudulent exports – BRCs found to be forged – no prima facie case for waiver of pre-deposit made out – Tribunal’s order upheld.

Waver of pre-deposit of penalty imposed on partner allowed on the ground that firm is nothing but a compendious expression for its partners – issue not yet determined by Supreme Court.

Brief Facts:- First Appellant is a partnership firm. It is alleged against him that they have filed fifty shipping bills between January and July 2006, claiming benefit of a DEPB Scheme at ICD Miraj falling within the jurisdiction of the Commissioner of Customs, Pune. The shipping bills covered consignments inter alia of fabrics of a total FOB value of Rs. 19.89 crores computed at the rate of Rs. 284/- per sq. mtr. The declared present market value was Rs. 312/- per sq. mtr. The last three of the fifty consignments came to be intercepted and samples were drawn. The samples were sent for testing to the Bombay Textile Research Association (BTRA) which by its report dated 31 July 2006, certified the composition of each sample to be a blend of man made filament yarn and man made spun yarn. The report opined that the cost of the material contained in the sample would be in the range of Rs. 73/- to Rs. 84/- per sq. mtr.

By adding 30% towards the margin of profit, the present market value was worked out by the Department at Rs. 96/- per sq. mtr. According to the Department, the exporter had obtained a DEPB benefit of Rs. 5.54 lakhs on three shipping bills. The First Appellant was found to have also obtained benefit in respect of the previous consignments.

The Commissioner imposed penalty of Rs. 3.50 crores on First Appellant under Section 114 of the Customs Act, 1962. Personal penalty of Rs. 2 crores was imposed on active partner of the appellant-firm and penalties were imposed on other two partners also who were major beneficiaries of fraudulent exports. Penalty was also imposed on 2 officers of the Customs involved in the case.

Against the impugned order, appellant filed appeal before the Tribunal. Application for stay and waiver of pre-deposit was also filed. The Tribunal by its order directed First appellant to pre-deposit a sum of Rs. 1 crore and to the Second Appellant to deposit Rs. 25 lakhs under Section 129E of the Customs Act, 1962. The Tribunal rejected the contention of the Second appellant that once a penalty has been imposed on the firm, no penalty can be separately imposed on its partner.

Appellant filed appeal before the High Court against the order of pre-deposit passed by the Tribunal.

Appellant’s Contention:- Appellant submitted that the judgment of the Supreme Court in Siddhachalam Exports Pvt. Ltd. v. Commissioner of Central Excise [2011-TIOL-38-SC-CUS] which was cited before the Tribunal was not considered by the Tribunal. The material in relation to the alleged market enquiries in Dubai was not furnished to the Appellants and hence, there was a violation of the principles of natural justice;

That the Bombay Textile Research Association was not competent to conduct a valuation which has been acknowledged by the Customs Department in respect of a query under the Right to Information Act, 2005;

That though the notice to show cause adverts to the provisions of Section 114A, the order of the Commissioner imposing a penalty has been passed under Section 114;

That the Appellants have adduced additional material before the Tribunal in support of their plea that the remittance of foreign exchange was duly received. Though this material was not produced before the Commissioner, now that the material has been produced before the Tribunal that ought to have been taken into consideration, particularly since an application for adducing additional documentary evidence has been allowed.

With regard to waiver of penalty imposed on Second appellant, reliance was sought to be placed by the Tribunal on the judgment of the Supreme Court in Prakash Metal Works v. Collector of C. Ex. Ahmedabad [2007 (216) E.L.T. 660 (S.C.)] by which the order of the Tribunal imposing the penalty both on the firm and its partners came to be upheld. Appellants submitted that the judgment of the Supreme Court does not decide the question as to whether a penalty can be imposed on a partner of the firm when a penalty has already been imposed on the firm. Submission was that the firm is nothing but a compendious expression for its partners and the issue is not determined by the Supreme Court.

Respondent’s Contention:- Revenue urged that each of these submissions raised on the merits of the case was duly considered by the Tribunal and that no interference of this Court was warranted and a substantial question of law did not arise. It was submitted that the judgment of the Supreme Court in Siddhachalam case was placed before the Tribunal in support of an order of remand and that has been considered by the Tribunal. The Tribunal declined to order a remand at this stage for valid reasons. Moreover, it has been submitted that at the prima facie stage, after evaluating the merits of the contentions, the Tribunal reduced the requirement of pre-deposit by calling upon the First Appellant to deposit Rs. 1 crore which order was just and appropriate.

Reasoning of Judgment:- The High Court perused the decision of the Supreme Court in Siddhachalam Exports Pvt. Ltd wherein the Supreme Court observed that ordinarily the price received by the exporter in the ordinary course of business, shall be taken to be the transaction value for determining value of goods under export, in the absence of any special circumstances indicated in Section 14(1) and Rule 4(2) of the Rules of 1988. The initial burden to establish that the value mentioned by the exporter in the bill of export or the shipping bill is incorrect lies on the revenue. Once the transaction value under Rule 4 is rejected, the value must be determined by sequentially proceeding through Rules 5 to 8 of the Rules of 1988. In the case before the Supreme Court, instead of first determining the value of the goods on the basis of contemporaneous exports of identical goods, the Revenue had resorted to a market enquiry which was held to be erroneous. The Supreme Court held that if the data of contemporaneous exports of identical goods was not available, the procedure laid down in Rules 5 to 8 was required to be followed and a market enquiry could be conducted only as a last resort.

The High Court held that a perusal of the impugned order reveals that the Tribunal had considered the judgment of the Supreme Court. It was noted that the Tribunal had furnished reasons for not remaining the matter. It was noted by the Tribunal that against the cancellation of DEPB licence, an appeal was pending before the Joint Director General of Foreign Trade (DGFT). It was noted that the decision of the Appellate Authority would have some bearing on the outcome of the appeal before the Tribunal.

It was held by the Tribunal that no prima facie case was made out for waiver of pre-deposit. It was noted by the Tribunal that (i) the SIIB had gathered particulars of the clearance at the port of discharge, Dubai of the goods which were exported by the First Appellant from India. These particulars included Bills of entry which were filed at Dubai. A comparison with export documents of India, it was found that the value declared in the overseas bills of entry was about 1/10^th of the FOB value declared by the shipping bills in India. Prima facie it appeared that the goods which were exported by the partnership firm under fifty shipping bills were heavily over-invoiced. (ii) the BTRA which had tested the samples was an agency recognized by the Ministry of Science and Technology of the Govt. of India and had necessary expertise to carry out the test. The appointment of a specific agency was not mandated by any provision of law in regard to the valuation for export of goods; (ii) Though the investigating agency has issued summons to the First Appellant for producing documents such as purchase invoices in support of the declared export value, nothing was produced, nor was any partner willing to cooperate with the investigating agency;(iv) Seventeen DEPB licenses were cancelled ab initio on the ground that they had obtained by the First Appellant by producing forged Bank realization certificates. Most of the BRCs were issued by the Central bank of India. And the Senior Bank official of the Bank stated that the BRCs were forged and fake. The order of the licensing authority canceling DEPB licences still holds the field. It was noted by the Tribunal that though financial hardship had been pleaded but no evidence was produced in this regard.

The High Court was of the view that no case has been made out for the grant of a complete waiver of the requirement of pre-deposit. Prima facie, at this stage, it does emerge that the Bank realization certificates on the basis of which the DEPB benefit has been claimed were found to be forged in large measure. The contention of the Appellants is that subsequent to the order passed by the Commissioner and during the pendency of the proceedings before the Appellate Tribunal, they produced the remittance certificates from the Union Bank of India in support of their contention that monies were in fact received. Admittedly, the remittance certificates were not produced before the Commissioner. The authenticity of the certificates is still to be verified and the question as to whether the certificates pertain to the very same transaction would have to be ascertained. The fact remains that at present, the statement of the Bank official recorded under Section 108 is that the Bank realization certificates that were produced were not genuine.

The High Court held that the Tribunal has given enough reasons in support of their order of pre-deposit. No case was made out to completely waive the requirement of pre-deposit. The order of the Tribunal does not warrant interference.

With regard to waiver of penalty amount imposed on Second Appellant, the High Court considering the totality of the facts of the case, the ends of justice would be observed if the order directing the Second Appellant to deposit an amount is modified and the requirement of pre-deposit is waived in so far as the Second Appellant is concerned. Accordingly, the High Court modified the order of the Tribunal to the extent to which the Second Appellant has been called upon to deposit an amount. The order of the Tribunal calling upon the First Appellant to deposit Rs. 1 crore shall stand. The time for affecting the deposit is extended by a further period of six weeks from today.

Decision:- Appeal disposed off accordingly.

Comments:- The order of the High Court has been upheld by the Apex Court {Ruchika International & Anr v/s Commissioner of Customs, Pune [2011-TIOL-94-SC-CUS]} and the appeal filed by the assessees has been rejected.

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PJ/Case Laws/2011-12/1444

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