Valuation of export goods for drawback

Case: Siddachalam Exports Pvt. Ltd. Vs Commissioner of C. Ex, Delhi-III

Citation: 2011 (267) E.L.T. 3 (SC)

Issue:- The valuation of export goods for drawback should be done on the basis of contemporaneous exports of identical goods rather than resorting to a market enquiry.

Brief Facts:- Appellant was engaged in the exports of ready-made garments, engineering goods, handicrafts, woollen garments, leather goods, etc. Appellant filed seven shipping Bills for export of goods declared as `ladies tops' valued at Rs. 390/- per piece and `denim shirts' valued at Rs. 417/- per piece consigned to Russia at a total FOB value of Rs. 4,14,63,360/-. The exporter claimed a duty drawback of Rs. 49,75,536/-.

On information received that the afore-mentioned goods had been over-valued with the intention of claiming undue draw-back amounts, the Customs Authorities carried out 100% examination of the consignment, drew samples and forwarded the same to one another company for their opinion regarding their market value. Appellant was also examined and in his statement under Section 108 he stated that the goods covered by the shipping bills were not manufactured by his company, but were supplied by one Mr. Gupta. That the payments to Mr. Gupta in respect of the goods were made through cheques. He, however, did not remember the address or contact number of Mr. Gupta. The appellant also stated that the goods covered by the seven shipping bills were purchased @ Rs. 150/- to Rs. 350/- per piece, however, he had not seen the invoices for the same.

Department requested for a market inquiry from another company “M/s Skipper International” for giving their opinion about their market value. They submitted their valuation letter, opining that samples of `ladies tops' and `denim shirts' were export surplus and export rejected garments having poor quality of fabric and stitching, and the market value of the said goods ranged between Rs 40/- to Rs. 70/- per piece.

Based on the said report, the Customs Authorities formed the opinion that the total value of the consignments was Rs. 56,04,000/- as against the declared FOB value of Rs. 4,14,63,360/- and the admissible drawback should be Rs. 3,56,328/- as against the claim of Rs. 49,57,536/-. The consignments in question were seized under Section 110 of the Act. However, subsequently the goods were released provisionally on execution of bond and bank guarantee by the exporter.

Thereafter, show cause notice to the appellant, inter-alia, alleging that the FOB value of the goods covered under the seven shipping bills had been grossly mis-declared by artificially inflating it, thereby rendering them liable for confiscation under Sections 113(d) and/or (i) of the Act. The reduction of draw back on goods covered under shipping Bills was sought and penalty under Section 114 of the Act was also proposed to be imposed on the appellant.

Thereafter, “M/s Skipper International” which had been appointed by Customs for giving their opinion regarding their market value submitted another letter to the Commissioner (Adjudication Bench) stating that their earlier letter should not be relied upon for any purpose in as much as the same was prepared by the Customs Authorities, and they were merely asked to transcribe the signature on the same. It was further stated that he was neither shown any goods nor any documents.

Appellant replied to the show cause notice denying all the allegations contained therein. The appellant also questioned the authenticity of the report submitted by another company.

The Adjudicating Authority relying on the decisions of the CESTAT, wherein the market enquiries conducted by the Revenue in the absence of and without notice to the exporter had been held to be invalid, the Commissioner dropped the proceedings against the appellant, and allowed the draw back as claimed by the appellant.

Being aggrieved, Revenue preferred an appeal before the Tribunal. The Tribunal allowed the appeal filed by the Revenue and confirmed the reduction of draw back claim in case of consignments covered by Shipping Bill to Rs. 3,26,328/- and denial of rest of the draw back claimed in relation to other consignments as contemplated in the show cause notice. The Tribunal also levied a penalty of Rs. 5 lakhs each on the exporter and it’s Director, respectively. It was held by the Tribunal that the appellant has instead of contesting the factual position attacked the opinion giver who was competent enough to give the opinion. It was further held that explanation regarding the valuation of goods impugned given by the appellant was vague.

Aggrieved by the same, appellant have filed appeal before the Supreme Court.

Appellant’s Contention:- Appellant submitted that Revenue has failed to discharge the onus placed on it in as much as it has failed to establish that the exporter had mis-declared the value of the export goods as was held in Nanya Imports & Exports Enterprises Vs. Commissioner of Customs, Chennai [2006 (197) ELT 154 (SC)]. Appellant contended that the show cause notice was vitiated as it was based solely on the opinion of the said another company, who had not even examined the goods in question. Appellant asserted that the procedure for determining value of goods has to be in terms of Sections 2(41) and 14 of the Act, read with Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988.

Relying onVarsha Plastics Private Limited & Anr v/s Union of India [2009 (235) ELT 193 (SC)] it was also argued that the 1988 Rules having been framed to maintain uniformity and certainty in the matter of valuation of goods, which is a matter of procedure, these Rules have to be adhered to strictly. It was also contended that the Tribunal has erred in law in levying penalty on Director of appellant who was not even made a party to the appeal filed by the Revenue.

Respondent’s Contention:- Revenue submitted that the impugned judgment deserves to be affirmed, and the Tribunal rightly did not consider the effect of retraction by another party who is appointed for giving their opinion regarding market value the same was not dealt with by the Commissioner as well. It was urged that the appellant cannot be allowed to urge this ground at this stage, as the same was not raised by it before the Tribunal. In support of their contention, decision of the Supreme Court in M/s Builders' Association of India Vs. State of Karnataka & Ors [(1993) 1 SCC 409] was relied upon. According to Revenue, since the retraction was tendered after twenty one months of the submission of original report, it had lost its efficacy and, therefore, had no bearing on the authenticity of the report.

Reasoning of Judgment:- The Supreme Court held that it is trite law that the amplitude of an appeal under Section 130E(b) of the Act, in relation to the rate of duty of customs or to the value of goods for the purposes of assessment, is very wide but it is equally well settled that where the Tribunal, a fact finding authority, has arrived at a finding by taking into consideration all material and relevant facts and has applied correct legal principles, this Court would be loathe to interfere with such a finding even when another view might be possible on same set of facts. Nevertheless, if it is shown that the conclusion under challenge is such as could not possibly have been arrived at by a person duly instructed upon the material before him i.e. the conclusion is perverse or that the Tribunal has failed to apply correct principles of law, this Court is competent to substitute its own opinion for that of the Tribunal.

On the facts of the case, the Supreme Court observed that the decisions of both the authorities below are unsustainable. In the opinion of the Supreme Court, neither the Commissioner nor the Tribunal has examined the issue before them in its correct perspective and as per the procedure contemplated in law for determination of the value of the goods for exportation.

It was held that it is settled that the procedure prescribed under Section 14(1) of the Act and particularized in Rule 4 of the 1988 Rules has to be adopted to determine the value of goods entered for exports, irrespective of the fact whether any duty is leviable or not. It is also trite that ordinarily, the price received by the exporter in the ordinary course of business shall be taken to be the transaction value for determination of value of goods under export, in absence of any special circumstances indicated under Section 14(1) of the Act and Rule 4(2) of the 1988 Rules. The initial burden to establish that the value mentioned by the exporter in the bill of export or the shipping bill, as the case may be, is incorrect lies on the Revenue. Therefore, once the transaction value under Rule 4 is rejected, the value must be determined by sequentially proceeding through Rules 5 to 8 of the 1988 Rules. {Commissioner of Customs (Gen), Mumbai Vs. Abdulla Koyloth [2010 (259) ELT 481 (SC)]}

The Supreme Court perused the judgment given in Om Prakash Bhatia Vs. Commissioner of Customs, Delhi [2003 (155) ELT 423 (SC)] which was reiterated by this Court in Bibhishan Vs. State of Maharashtra [(2007) 12 SCC 390] wherein it has been held that the definition of "prohibited goods" in the Act is a broad one and the said provision not only brings within its sweep an import or export of goods which is subject to any prohibition under the Act, but also any of the law for the time being in force.

On the facts of the present case, the Supreme Court held that neither the Adjudicating Authority nor the Tribunal has dealt with the matter as per the procedure prescribed under the Act. At the threshold, instead of first determining the value of the goods on the basis of contemporaneous exports of identical goods, Revenue erroneously resorted to a market enquiry. If for any reason, data of contemporaneous exports of identical goods was not available, the procedure laid down in Rules 5 to 8 of the 1988 Rules was required to be followed and market enquiry could be conducted only as a last resort. It is evident that no such exercise was undertaken by the Commissioner and interestingly he, acting as an appellate authority, proceeded to test the evidentiary value of the report submitted by M/s Skipper International and rejected it on the ground that it does not depict if the identical garments had ever been purchased by the said concern. Observing that in the absence of any other independent evidence relating to market enquiry, there was no other corroborating evidence to support the allegation of inflation in FOB value, he dropped the proceedings initiated vide show cause notice dated 11.09.2003. Similarly, it is manifest from the Tribunal's order that revenue's appeal has been accepted mainly on the ground that report of M/s Skipper International was worthy of credence and the exporter had failed to produce any evidence to establish that export value stated in the shipping bills was the true export value. In the opinion of the Supreme Court, both the Lower Authorities have failed to apply the correct principles of law and therefore, their orders cannot be sustained. Impugned orders set aside. Matter remanded. No opinion expressed on the merits of the opinion rendered by M/s Skipper International or on the conduct of the exporter in not adducing any evidence in support of the export value stated in the shipping bills in question.

Decision:- Appeal allowed by way of remand.

Comment:- It is very landmark judgement wherein it is clearly held that the proper course for determining the valuation on the basis of contemporaneous exports of identical goods. If it is not possible then the department should shift to valuation on the basis of market enquiry as a last resort. Although the Tribunal is last fact finding authority, but it is also required to be considered that whether the proper procedure has been followed or not.

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PJ/Case Laws/2010-11/1165

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