Whether Customs can hold back the containers for want of testing reports of the variety identification of the Rice?

Case:- SHRI SANTOSH CHAWLA, M/s CHAWLA TRADING COMPANY Vs COMMISSIONER OF CUSTOMS (EXPORT), NHAVA, SHEVA

Citation:- 2014 - TIOL – 288 – CESTAT-MUM

Brief facts:-The present appeals have been filed by the exporter M/s Chawla Trading Company and its Manager Shri Santosh Chawla arising out of Order-in-Appeal No. 286 & 287 (Adjn-Exp)/2013(JNCH)/EXP-65 & 66 dated 25.3.2013 passed by the Commissioner of Customs (Appeals), Mumbai-II, wherein an order of confiscation of goods admitted to be exported was upheld. However, redemption fine was reduced from Rs. 50 lakhs and penalty imposed of Rs.50 lakhs on M/s. Chawla Trading Company under Section 114 (i) and 114AA of the Customs Act, 1962 was reduced to Rs.5 lakhs and penalty imposed of Rs.10 lakhs on Shri Santosh Chawla, Manager of the Trading firm was reduced to Rs.2 lakhs and bank guarantee of Rs.21,25,000/- and Rs.7,30,000/- executed was directed to be enforced and appropriated for payment of fine and penalty. Whereas the appellant Mukesh D. Thakkar has filed appeal against Order-in-Appeal No. 695 (Adjn-Exp)/2013(JNCH)/EXP-179 dated 30.7.2013 passed by the Commissioner of Customs (Appeals), Mumbai-II, who is a CHA of the aforementioned appellants and penalty imposed upon him by the Commissioner vide Order-in-Original dated 31.3.2012 of Rs.20 lakhs under Section 114(i) was reduced to Rs.4 lakhs. Being aggrieved, the appellants have preferred the appeal before this Tribunal.

The facts in brief are that the appellant M/s Chawla Trading Company, proprietor Shri Daulatram Chawla is engaged in trading of rice and exporting of the same and the appellant Shri Santosh Chawla is Manager of the appellant export house and the appellant Shri Mukesh D. Thakkar is a CHA engaged by the said exporters. The facts and charges as per the show-cause notice are that the appellant had filed 4 shipping bills dated 30.7.2009, 4.8.2009, 1.8.2009 and 6.8.2009 for export of Basmati Rice duly permitted by Agricultural and Processed Food Products Export Development Authority (APEDA), the licensing authority under the Foreign Trade Policy. Suspecting the rice to be non-basmati, the officers of Customs, Mumbai withdrew the samples from the goods lying for export under the 4 shipping bills, which were drawn on 1.8.2009. As per the instruction available in the shipping bill, sample drawn in respect of shipping bill No. 7857073 and the same were sent for testing to the authorized laboratory of AGMARK as authorized by Circular No. 33/2008 dated 30.8.2008 issued by the DGFT. Within a few days, the DRI, Mumbai also on some information that the appellant exporter is illegally exporting non-basmati rice by mis-declaring the same as Basmati rice inspected the consignment lying in Dock and also withdrawn sample on 11.8.2009 and 12.8.2009. The DRI authority inspected the goods lying at NSICT Port, Nhava Sheva under the shipping bill no. 7557073 and the goods lying at Navkar Warehousing Corporation, Nhava Sheva under other three shipping bills no. 7571506, 7563198 and 7575681 and the goods were put on hold by issuing directions dated 7.8.2009. Thereafter, a team of DRI examined in presence of Panchas and Shri Mukesh D. Thakkar, the proprietor of CHA firm on 11.8.2009 and recorded the following findings. The goods covered by the shipping bill no. 7563198 was found packed in the sacks and these sacks had a paper affixed on it with the details - "Navkar Corporation Ltd., S/B. - 7563198, quantity 2128, Shipper - Chawla Trading, CHA - M.K. Shipping, Cargo - Basmati Rice". In addition to the above, it was also found printed on the
sack "Khusbu - Old Basmati Rice - Net weight 35 kg." After examination, three different sacks were selected at random for drawing the samples and 3 samples in duplicate were drawn and sealed for further necessary action. Similar finding was recorded in the case of other two shipping bills namely 7575681 and 7571506 by another team of the Revenue officials, who inspected the goods in shipping bill 7557073, which was examined in the presence of Panchas and Shri Mukesh Thakkar, CHA. All the goods were loaded in three different containers was found to contain stacked sacks having print as ‘Indian Pusa 1121 Basmati Rice - net weight 35 kgs. Thereafter, total of 6 samples in duplicate (2 samples from each container in duplicate) were drawn. During the investigation, regarding purchase invoices issued by traders based in Delhi, Officers of DRI, Delhi were requested to conduct the necessary investigation at the Delhi. The premises of supplier M/s V.K. Food Traders was searched and statement of exporter Mr. Daulatram Chawla, proprietor of M/s Chawla Trading Company was recorded on 11.8.2009, wherein it was stated that rice has been procured from Delhi and Haryana. It was further stated that he has been in regular business of export of Basmati rice to Dubai, where he had around 10 buyers and he had not exported non basmati rice after the prohibition was imposed by the Government. The statement of Shri Daulatram was recorded on 19.8.2009 at the DRI office in Mumbai. It was deposed by him that he had also been purchasing non-Basmati rice and exporting the same by mis-declaring as basmati rice. Further he is holding the IEC No. 0306004736 in the name M/s Chawla Trading Company and that he was the proprietor of the said firm and his nephew Shri Santosh Chawla was associated in running his business. Further, he has exported 40 containers of non-Basmati rice to Dubai from ICD, Nagpur, JNPT, Nhava Sheva etc. by mis-declaring Non-Basmati rice as Basmati rice. It was further stated by him that in the month of March, 2009, 11 containers contained non-Basmati rice mis-declared as Basmati rice were examined by SIIB, Nhava Sheva and case of illegal export was booked by them. It is also pleaded that out of 11 containers inspected in March, 2009, Let Export Order (LEO) for 3 assessments were permitted and remaining 8 containers were provisionally released back to town but the said containers were stored in the warehouse of M/s. Rishi Ice & Cold Storage (P) Ltd., Turbhe and the same rice was admitted to be exported in shipping bill no.
7557073.

In the statement of Shri Santosh Chawla recorded on 19.8.2009, it has been stated that they used to export non-basmati rice as basmati rice. Order for procurement of non-basmati rice was given telephonically through agents Asim for Basmati rice. Further, non-basmati rice used to be purchased from Shri Rajendra Goyal and bills were raised for basmati rice with a higher rate and similarly non-basmati rice was procured from other supplier. It is further mentioned in the show cause notice that Shri Santosh Chawla was brought under warrant to DRI office on 27.8.2009 and his further statement was recorded under Section 108 of the Act, wherein he has confirmed the earlier statement. Prior to examination on 27.8.2009, Shri Santosh Chawla on 20.8.2009 gave the statement of retraction before the Additional Chief Metropolitan Magistrate. Copy of the statement is available in the appeal filed and the statement reads as under:-

(i) I have been arrested by the officers of DRI and produced before the Court today
i.e. 20.8.2009

(ii) That the officers of DRI recorded my statement

(iii) That the said statement has been recorded under duress and by applying pressure
and force.

(iv) That the said statement is not my true and voluntary statement.

(v) That the statements made in the said statement should not be used against me in
any future proceedings.

(vi) That I am retracting my said statement and I pray that the said statement may
be taken on record.

(vii) That I will be filing my detailed retraction."

Shri Santosh Chawla was again produced before the Court of the Additional Chief Metropolitan Magistrate and was remanded to judicial custody on the same date. Further statement of CHA Shri Mukesh D Thakkar was recorded on 19.8.2009 wherein he has stated that Shri Vijay Mange, owner of M/s. Shree Guru Kripa Agencies and his employee Shri Bharat Gore had approached him and enquired whether he was interested in clearing consignments of some companies, which is to be factory stuffed and an amount of Rs.300/- per container was agreed by him and that about 400-500 containers were to be exported, that he had allowed Shri Vijay Mange to use his CHA licence for monetary consideration and the said consignment belongs to various exporters including M/s Chawla Trading Company, one of the appellant herein.

The appellant M/s Santosh Chawla retracted his statement by a detailed submission and retraction dated 14.10.2009 filed before the ADG, DRI, Mumbai wherein he has said that he retracts all the statements given before the Intelligence Officer on 19.8.2009 and 20.8.2009 as the same had been taken under coercion and pressure. It is further stated that 11 containers of rice weighing 275 MTs were inspected but there were only 3 containers at the Port ready for export to Dubai and these 3 containers ready for export weighing only 75 MTs were detained by the DRI. The rice weighting 200 MT has been lying at the Navkar CFS, Panvel, Mumbai. It was further stated that they exported only genuine basmati rice and have not been engaged in clandestine activity or mis-declaration. It was also stated that Revenue Investigating Officer have sent 18 samples for laboratory test to confirm whether the rice under export is basmati or non basmati rice. Out of 18, 15 test reports from the laboratory confirm the average length of grain of rice as 7mm, but the said laboratory unaware of the required length of grain of 7mm mentioned in the report that the required length is 8 mm and has termed his rice under export as non-basmati, which is wrong. Further, as the length of the rice reportedly found 7 mm as per the test report of the laboratory, it is proved beyond doubt that the average length of the grains of rice is more than 7 mm i.e. basmati rice only as required by Notification of the Govt.

Further, show-cause notice dated 10.12.2010 was issued on allegation of mis-declaration of export of non-basmati rice in the name of basmati rice and the appellant was directed to show cause as to why –
(i)            the non-basmati rice weighing 289.76 MTs valued at Rs.1,41,57,194/- seized at Navkar CFS & NSICT released provisionally should not be confiscated under Section 113(d) and 113(i) of the Customs Act, 1962, the bank guarantees furnished should not be appropriated in lieu of confiscation.

(ii)           the non-basmati rice weighing 162.03 MTs valued at Rs.48,60,900/- seized at the warehouse of M/s Rishi Ice & Cold Storage (P) Ltd., Turbhe, Navi Mumbai should not be confiscated under Section 113(d) and 113(i) of the Customs Act, 1962.

(iii)          penalty under Section 114(i) of the Customs Act, 1962 should not be imposed upon them for the commission and omission of the acts mentioned above,

(iv)          penalty under Section 114AA of the Customs At, 1962 should not be imposed upon them for the commission and omission of the acts.

The learned Counsel for the appellants mentions that in the show-cause notice, there is no mention of sample of rice tested by authorized laboratory, as per law. The test reports (relied upon documents) and the reports relied upon in the show-cause notice are received from one Intertek India Pvt. Ltd. (testing laboratory) and such report cannot be relied upon and further, the report from Basmati Export Development Foundation is also not reliable as the said authority was authorized w.e.f. 1.10.2010. Thus they were not the authorized laboratory for testing of the samples during the period in investigation, regarding the export shipment in question.

The appellants appeared and contested the show-cause notice and by a common Order-in- Original only on the basis of the retracted statements, the findings were recorded that M/s Chawla Trading Company had purchased plain rice in the name of basmati rice and the said non basmati rice was being exported by mis-declaring as basmati rice. They further reiterated that the samples tested by 3 different laboratory and the test results of all 3 laboratories are at variance with each other. While one laboratory categorically says that the said rice to be non-basmati rice. Further, report of Basmati Export Development Foundation (BEDF), Meerut described them as a mix of basmati and non-basmati rice with plain rice being markedly of higher percentage than that occurred naturally. It is further recorded that the Agmark Laboratory and BEDF laboratory are government recognized and accordingly, reliance was placed on the report of BEDF, Meerut. Accordingly, it was held that non-basmati rice weighing 289.76 MTs valued at Rs.1,41,57,194/- is in contravention of the Notification No. 55 (RE-2008)/2004-09 dated 5.11.2008 read with Section 50(2) of the Customs Act, 1962 and is liable to confiscation under Section 113(d) and 113(i) of the Customs Act. With regards to the non-basmati rice weighing 162.03 MTs valued at Rs.48.6 lakhs seized from warehouse of Rishi Ice & Cold Storage (P) Ltd., Turbhe and was recorded that as they were lying and were part of goods that were sent back on account of SIIB(X) rejecting the same as non-basmati rice, it was found that the investigation has not established any action on the part of exporter that would constitute that an attempt was being made to export these goods in contravention to rules and accordingly, the same was not liable to be confiscated. The goods under export were held to be liable to confiscation under the provisions of Section 113(d) and 113 (i) of the Customs Act and since the goods have been released provisionally at the request of the exporter, redemption fine of Rs.50 lakhs under Section 25 of the Act was imposed. Further, penalty of Rs.50 lakhs was imposed on Chawla Trading Company under Section 114(i) read with Section 114AA of the Act. Penalty of Rs.10 lakhs under Section 114(i) read with 114AA was also imposed on Shri Santosh Chawla and a penalty of Rs.20 lakhs was imposed on Shri Mukesh D Thakkar, CHA under Section 114(i) read with 114AA of the Customs Act. The penalties are also imposed on the other suppliers of rice to the exporter firm namely M/s V.K. Food Traders, Shri Ramesh Kumar Mittal, proprietor of M/s Ramesh Kumar Pawan Kumar, on Shri Ashok Kumar of M/s Sriram Traders and on Shri Rajendra Goyal of M/s R.K.Sales Corporation for mis-declaration in export. Aggrieved of the same, the appellants herein preferred the appeal before the Commissioner (Appeals), wherein the Commissioner (Appeals) was pleased to record the finding in para 9 of the order as under:-

"I find that in the instant case, samples were sent to three different laboratories and the test results of all three are at variance with each other. While M/s Intertek India (p) Ltd. categorically says the rice to be non-basmati rice, Regional Agmark Laboratory describes it as "raw milled basmati rice" and the report from the Basmati Export Development Foundation, Meerut describes them to be a mix of basmati and non-basmati rice with plain rice being in markedly higher percentage (ranging from 41.50% to 91.30) than that would occur naturally. I find that both the Agmark Laboratory and Basmati Export Development Foundation, Meerut are govt. recognized."

Thus finding in the records, two reports of the Govt. laboratories support the contention of the appellants that there is no case of mis-declaration. It was held that benefit of doubt must go to the appellant and accordingly, taken a lenient view and relief has been given as follows:-

(i)            The order of confiscation of goods was upheld but redemption fine was reduced from Rs.50 lakhs to Rs.5 lakhs. Further, the penalty imposed on the appellant firm M/s Chawla Trading Company was reduced from Rs.50 lakhs to Rs.5 lakhs and further penalty imposed on Shri Santosh Chawla of Rs.10 lakhs was reduced to Rs.2 lakhs.

(ii)           In a separate appeal, order passed by the same Commissioner (Appeals) in case of other appellant Shri Mukesh D Thakkar, CHA, it was held that he is giving the benefit of doubt as mentioned in para 8 of the order. In absence of any corroborative evidence, the penalty imposed of Rs.20 lakhs is reduced to Rs.4 lakhs. Thus, allowed the appeal in part."

Being aggrieved, the appellants have carried the matter before this Tribunal.

Appellant’s contention:-The appellants have referred to the Circular No. 33/2008 dated 30.9.2008 issued by the Dy. Director, DGFT, wherein it is mentioned that the Customs may withdraw samples for testing, to as certain variety for identification and send the samples to Agmark Testing Centre and Customs shall not hold back the export consignment for want of test reports and export may be allowed after drawing the samples. Inspite of clear mandate of law that report of Agmark Testing Centre is only relevant and acceptable, other reports cannot be relied upon. Further, the reports of another Govt. laboratory have also certified that the rice samples contain mix of basmati and non-basmati rice. In this view of the matter, the appellant strongly contest the sustenance of penalties and order of confiscation by the Commissioner (Appeals). Further, the appellant also refers to the order of this Tribunal in Appeal No. C/760/11 being Final Order No. A/386/12/CSTB/C-I dated 29.5.2012, = (2012-TIOL-860-CESTAT-MUM) which was filed by the CHA M/s M.K. Shipping Services challenging the order of Commissioner of Customs (General) wherein CHA's licence was revoked. In the aforementioned facts and circumstances, the Division Bench of this Tribunal after considering the facts and circumstances has found that from a copy of the report obtained by the appellant from the Revenue under RTI Act, it is evident that the export was made of ‘rice-milled basmati rice'. Further, test report was not considered either by the enquiry authority or by the adjudicating authority. Further, since the goods under export having been proved to be basmati rice, the charges of mis-declaration of goods under export, which was the basis for investigation is vitiated and accordingly, it is held that there is no case of mis-declaration made out. Further, the impugned order of the Commissioner in the case of CHA does not stand the test of legal scrutiny and is bad in law. Thus, the clear finding has already been recorded by this Tribunal that no mis-declaration has been made out.

Respondent’s contention:-The respondent relied on the Order-in-Appeal further states that the earlier order of this Tribunal in the case of such CHA has been challenged by the Revenue in the Hon'ble High Court of Bombay being Customs Appeal No. 88 of 2012, but no stay has been granted by the Hon'ble High Court so far.

Reasoning of judgment:-Having considered the rival contentions, in view of the finding already arrived at by this Tribunal that there is no case of mis-declaration made out, to which Tribunal agreed on appreciating the facts. It is just and proper that these appeals have to be allowed in favour of the appellants and accordingly, the order of confiscation is set aside as well as the penalty imposed on the appellant firm and penalty imposed on Shri Santosh Chawla, Manager of the Exporting firm as well as the penalty imposed on CHA Shri Mukesh D Thakkar are set aside. Thus, the appeals are allowed with consequential relief, if any. The stay applications are also disposed of in the above terms.

Decision:- Appeal allowed.

Comment:- The essence of the case is that according to Circular No. 33/2008-2004-09 , if custom authorities suspect of the mis-declaration of the goods then they may draw random samples for testing, to ascertain variety identification and send these samples for analysis to AGMARK testing centres. However, Customs cannot hold back export consignments / containers for want of test reports, and export will be allowed after drawing samples, wherever required. If test reports of samples are found at variance with the export declaration, Customs will report the matter to the nearest Zonal Joint DGFT (with copy to DGFT at HQs New Delhi) for necessary action and remedial measures to be taken regarding the defaulting exporter. In the present case, as there was variance in the test reports obtained by different laboratories, the benefit of doubt was extended to the assessee and the appeal was allowed.

Prepared by: Kushal Shah

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PJ/CASE LAW/2014-15/2422

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