2014 (12) TMI 812 - AT - Customs

Tribunal upholds penalties for misdeclaration of export value under Customs Act

The Tribunal upheld penalties against the appellants for misdeclaration of export value and confiscation of goods under the Customs Act. The declared FOB ... Valuation of goods - Export of Porcelain Mugs - Inflated value of goods - claim of higher export incentives - main contention of the appellants is that the goods exported by them are branded and tailor-made as per the requirement of the buyer in U.K. and obviously such goods would fetch higher price - Held that:-If the goods are tailor-made the value may be higher but the question is which value. In our opinion, the ARE-1 value itself will become higher. This reasoning will not increase the FOB value to 400 - 500 per cent of ARE-1 value. This factor is irrelevant to explain increase in FOB value from ARE-1 value. As far as the branded goods are concerned, it may not increase the ARE-1 value. By branding, the retail price of the goods may increase but would not affect the purchase price of the buyer from the manufacturer as the brand is that of buyer and not that of manufacture. We also note that no evidence whatsoever has been produced by the appellants to support their contention that the goods were tailor-made and were made of special designs and no such correspondence was produced to support their contention. The fact that earlier, based upon the market enquiry, the declared value was accepted is of no consequence. In fact, the appellants should have produced these documents to the customs authorities before finalization of those 14 shipping bills. It is a case of concealment of vital documents from Customs authorities and producing some other documents that the value was accepted, the appellants cannot be allowed to take benefit of their wrong deeds. We, therefore, reject the appellants’ contention. In view of the overwhelming evidence found during the search of the appellants’ premises, we have no doubt that the FOB value declared was not the actual transaction value/FOB value but were highly inflated for claiming DEPB benefits or for bringing in illegally obtained foreign exchange. - Decided against the assessee. Issues Involved:1. Valuation of Porcelain Mugs for export under the DEPB scheme.2. Misdeclaration of export value and subsequent liability for confiscation and penalties.3. Relevance of branding and quality claims in determining export value.4. Acceptance of export value based on market enquiry and subsequent investigation findings.5. Applicability of Supreme Court decisions on similar cases.6. Denial of cross-examination request and its impact on the case.Detailed Analysis:1. Valuation of Porcelain Mugs for Export under the DEPB Scheme:The appellants were exporting Porcelain Mugs under the DEPB scheme, which allows them to claim benefits based on the FOB (Free on Board) value of the goods exported. A significant discrepancy was found between the ARE-1 value (ex-factory value) declared by manufacturers and the FOB value declared by the appellants, with the latter being 4 to 5 times higher. Investigations revealed that the appellants were adding .08 pounds per piece to the ARE-1 value before exporting.2. Misdeclaration of Export Value and Subsequent Liability for Confiscation and Penalties:The Commissioner rejected the declared export value and re-determined it based on ARE-1 plus .08 pounds per piece. Due to the misdeclaration, the exported goods became liable for confiscation under Sec. 113(d) & 113(i) of the Customs Act. However, since the goods were already exported, no order for redemption was issued. Penalties equivalent to the re-determined value were imposed on the appellants and their director under Sec. 114(i) of the Customs Act. An additional penalty of Rs. 50 lakhs was imposed on the erstwhile Export Manager.3. Relevance of Branding and Quality Claims in Determining Export Value:The appellants argued that the higher prices were due to the goods being branded and of high quality. The Tribunal was not convinced, stating that if the goods were tailor-made, the ARE-1 value itself would be higher. The argument that branded goods fetch higher prices was deemed irrelevant for the comparison between ARE-1 and FOB values. No evidence was provided to support the claim that the goods were tailor-made or of special designs.4. Acceptance of Export Value Based on Market Enquiry and Subsequent Investigation Findings:Initially, 14 consignments were provisionally released based on market enquiries. However, the appellants did not produce ARE-1 or procurement invoices at that time. Subsequent investigations based on incriminating documents recovered from the appellants' premises revealed parallel sets of invoices with one set indicating values 400 to 500% higher than the ARE-1 value. The Tribunal held that the earlier acceptance of value based on market enquiry was of no consequence given the new evidence.5. Applicability of Supreme Court Decisions on Similar Cases:The appellants cited the Supreme Court decision in M/s. Vishal Exports Overseas Ltd., where the value 4 to 5 times the local market value was accepted. The Tribunal distinguished this case, noting that the Supreme Court upheld the Tribunal's order due to lack of evidence to the contrary. In the present case, the re-determination was based on incriminating documents, making the Vishal Exports case inapplicable. The Tribunal found the decision in Om Prakash Bhatia more relevant, as it dealt with the valuation of export goods.6. Denial of Cross-Examination Request and Its Impact on the Case:The appellants argued that they were not allowed to cross-examine Shri Jajodia of JCPL. The Tribunal noted that this point was not raised in the appeal, indicating a lack of seriousness. Even without Shri Jajodia's statement, the conclusion of the adjudicating authority would remain unchanged. The Tribunal emphasized that the appellants did not question the authenticity of the incriminating documents.Conclusion:The Tribunal found overwhelming evidence that the declared FOB value was highly inflated. The appeals of the appellants were rejected, and penalties were upheld. However, the penalty on the erstwhile Export Manager was set aside, as he was found to be acting under the direction of the main appellant. The stay petitions were dismissed as infructuous.