2011 (2) TMI 689 - AT - Customs

Tribunal Upholds Confiscation and Imposes Fines for Customs Violations

The Tribunal upheld the confiscation of exported goods and imposed fines on the appellants in lieu of confiscation. It ordered the recovery of drawback ... Recovery of drawback where sale proceeds not received - repayment of State Credit Scheme - over-valuation of export goods - mis-declaration / material particular - fraud vitiates transactions - pre-deposit as condition for hearing appealRecovery of drawback where sale proceeds not received - repayment of State Credit Scheme - Whether the ratios in Terai Overseas Ltd. and Collector v. Sun Industries apply and whether drawback is recoverable when sale proceeds have not been received under the Repayment of State Credit Scheme. - HELD THAT: - The Tribunal held that the decisions in Terai Overseas Ltd. and Collector v. Sun Industries are not applicable because the law was amended by insertion of provisos to the erstwhile Section 75(1) (post-1991) making drawback liable to recovery if sale proceeds are not received within the stipulated time. Moreover the exports in the present case were made under the Repayment of State Credit Scheme governed by specific RBI circulars which mandate utilization of repayments for exports to the Russian Federation only. The evidence indicated that sale proceeds were not received in respect of the purported exports to Russia; therefore the condition in the amended provision and scheme requirements were not satisfied and the drawback granted is liable to be recovered. [Paras 3]Ratios of Terai Overseas and Collector v. Sun Industries are inapplicable; drawback is recoverable where sale proceeds were not received and where the Repayment of State Credit Scheme conditions were not complied with.Repayment of State Credit Scheme - mis-declaration / material particular - Whether, under the Repayment of State Credit Scheme, it was necessary that export goods reach the Russian Federation and whether non-arrival/mis-declaration is actionable. - HELD THAT: - The Tribunal accepted that RBI Circulars governing the Scheme (notably clause 1(vii)) make it mandatory that funds are utilised for exports to the Russian Federation and prohibit financing third-country exports. Consequently it is necessary to ascertain whether goods reached the Russian consignee. Prior authority on identical facts (Rajeev Verma) was noted to hold that mis-declaration of port of discharge/destination under the Scheme amounts to mis-declaration of a material particular actionable under Section 113(i). The overseas enquiries and documentary material prima facie showed non-arrival at Russia and diversion to other ports, justifying adverse consequences under the Scheme and Customs law. [Paras 4]Compliance with the Repayment of State Credit Scheme requires arrival at the Russian Federation; non-arrival and mis-declaration of material particulars render the exports non-compliant and actionable.Over-valuation of export goods - fraud vitiates transactions - Whether there was overvaluation of the exported goods and whether prima facie fraud is established. - HELD THAT: - The Tribunal found on the material before it - overseas reports and comparative port values - that the export values declared in India were materially higher than the values declared at ports of discharge (in some instances less than 5% of the Indian declared price), demonstrating overvaluation. Coupled with overseas confirmations that goods did not reach Russia, changes in country of origin and consignee details, return of advances, and non-existence of certain importers, the facts collectively amounted to prima facie fraudulent practice. The Tribunal relied on established principles that fraud unravels transactions and justifies denial of benefits and penal consequences. [Paras 5, 9, 14]Prima facie overvaluation and fraudulent misdeclaration are established, disentitling the appellants from drawback/benefits and exposing them to recovery and penal consequences.Pre-deposit as condition for hearing appeal - Whether the appeals should be heard without full pre-deposit or subject to a pre-deposit condition. - HELD THAT: - Having recorded prima facie findings of fraud, mis-declaration and failure to comply with the Scheme, the Tribunal directed pre-deposit to safeguard Revenue. While observing that the case called for full pre-deposit, the Tribunal fixed a lower amount in view of pleaded financial difficulty: appellants M/s. Hem Chand Gupta & Sons and M/s. Gee Dee International were directed to deposit 25% of the duty drawback availed after adjusting amounts already deposited (Rs. 25 lakhs each) within six weeks. Subject to compliance, realization of the balance demand was stayed during pendency of the appeal. [Paras 14, 15]Appellants required to make a pre-deposit of 25% of the duty drawback (after adjustment of prior deposits); on compliance, balance demand stayed pending appeal.Final Conclusion: The Tribunal held that the earlier case law relied on by the appellants was inapplicable to exports made under the Repayment of State Credit Scheme after statutory amendment; on the material before it the exports did not reach Russia, involved mis-declaration and overvaluation amounting to prima facie fraud, and therefore drawback and benefits are liable to be recovered; appellants were directed to make a specified pre-deposit (25% after adjustment) for admission of their appeals, with balance demand stayed upon compliance. Issues Involved:1. Confiscation of exported goods and imposition of fines.2. Recovery of drawback amounts and interest.3. Imposition of penalties.4. Over-valuation of exported goods.5. Compliance with the Repayment of State Credit Scheme.6. Applicability of judgments in Terai Overseas Ltd. and Sun Industries cases.Detailed Analysis:1. Confiscation of Exported Goods and Imposition of Fines:The Tribunal upheld the confiscation of readymade garments exported by the appellants under Sections 113(d) and 113(i) of the Customs Act, 1962. The goods were not physically available for confiscation; hence, fines of Rs. 6 crores and Rs. 7.25 crores were levied on M/s. Hem Chand Gupta & Sons and M/s. Gee Dee International, respectively, in lieu of confiscation.2. Recovery of Drawback Amounts and Interest:The Tribunal ordered the recovery of drawback amounts of Rs. 6,58,22,845/- and Rs. 7,96,78,663/- availed by M/s. Hem Chand Gupta & Sons and M/s. Gee Dee International, respectively, under Rules 16 and 16A of the Customs and Central Excise Duties Drawback Rules, 1995. Interest on these amounts was also directed to be recovered under Section 28AA read with Section 75A(2) of the Customs Act, 1962.3. Imposition of Penalties:Penalties were imposed under Section 114 of the Customs Act, 1962, as follows:- Rs. 2 crores on M/s. Hem Chand Gupta & Sons.- Rs. 2.5 crores on M/s. Gee Dee International.- Rs. 50 lakhs each on Shri Jai Dev Gupta and Shri Kapil Dev Gupta.4. Over-valuation of Exported Goods:The Tribunal noted that the appellants resorted to overvaluation to claim higher duty drawbacks and DEPB credits fraudulently. It was observed that the goods did not reach the Russian destination, and the importers in Russia were non-existent. The goods were diverted to third countries, violating the conditions of the Repayment of State Credit Scheme.5. Compliance with the Repayment of State Credit Scheme:The Tribunal emphasized that the goods must reach the Russian Federation as per the RBI Circular No. 4 dated 19-5-1999. The appellants failed to comply with this requirement, as the goods were diverted to other destinations. The Tribunal cited the Delhi High Court's decision in Rajeev Verma v. Union of India, which held that misdeclaration of the port of discharge/destination under the Repayment of State Credit Scheme is actionable under Section 113(i) of the Customs Act, 1962.6. Applicability of Judgments in Terai Overseas Ltd. and Sun Industries Cases:The Tribunal distinguished the present case from the Terai Overseas Ltd. and Sun Industries cases. It noted that the relevant provisions of Section 75 of the Customs Act, 1962, were amended in 1991, requiring the receipt of sale proceeds for the grant of duty drawback. The Tribunal concluded that the ratios of the cited judgments were not applicable due to the amendments and the specific requirements of the Repayment of State Credit Scheme.Conclusion:The Tribunal directed the appellants to make a pre-deposit of 25% of the duty drawback availed, after adjusting Rs. 25 lakhs already deposited during the investigation. The realization of the balance demand was stayed during the pendency of the appeal, considering the financial difficulties pleaded by the appellants. The judgment was pronounced on 1-2-2011.