2003 (7) TMI 74 - SC - Customs

Appeal dismissed; export value must be determined under s.2(41)/s.14 of Customs Act; over-invoicing deemed illegal racket

OM PRAKASH BHATIA Versus COMMISSIONER OF CUSTOMS, DELHI

SC dismissed the appeal, upholding authorities' finding of deliberate over-invoicing and organized racket to claim fraudulent drawback on export ... Export 'prohibited goods' - over-invoicing of the goods for export - determining the value of goods for the purposes of assessment of tariff under the Act or any other law for the time being in force where under a duty of customs is chargeable on any goods by reference to their value - Whether, while exporting the good, exporter has to give value of the goods as provided under Section 14 of the Customs Act, 1962 ('the Act') or the value of goods which he expects to receive on sale of goods in the overseas market? Held that:- For determining the export value of the goods, we have to refer to the meaning of the word 'value' given in Section 2(41) of the Act, which specifically provides that value in relation to any goods means the value thereof determined in accordance with the provisions of sub-section (1) of Section 14. Therefore, if the export value of the goods is to be determined, then even if no duty is leviable, the method (mode) for determining the value of the goods provided under Section 14 is required to be followed. Section 14 specifically provides that in case of assessing the value for the purpose of export, value is to be determined at the price at which such or like goods are ordinarily sold or offered for sale at the place of exportation in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for sale. No doubt, Section 14 would be applicable for determining the value of the goods for the purpose of tariff or duty of customs chargeable on the goods. In addition, by reference it is to be resorted to and applied for determining the export value of the goods as provided under sub-section (41) of Section 2. This is independent of any question of assessability of the goods sought to be exported to duty. Hence, for finding out whether the export value is truly stated in the shipping bill, even if no duty is leviable, it can be referred to for determining the true export value of the goods sought to be exported. In cases where the export value is not correctly stated but there is international over-invoicing for some other purpose, that is to say not mentioning true sale consideration of the goods, then it would amount to violation of the conditions for import/export of the goods. The purpose may be money laundering or some other purpose, but it would certainly amount to illegal/unauthorized money transaction. In any case, over-invoicing of the export goods would result in illegal/irregular transactions in foreign currency. In the present case, as found by the authorities, 28,000 pieces of ladies skirts at the rate of $10.25 per piece, export value of which was mentioned as Rs. 1,21,54,447/-, were sought to be exported. The market price of such skirts was ascertained to be Rs. 45/- per piece and on that basis total value of the goods came to be Rs. 9,53,280/-. The exporter claimed a drawback of Rs. 21,87,800/- on the consignment on the basis that value of each skirt was Rs. 78/- per piece. No doubt, during the enquiry exporter admitted that the market price of Rs. 45/- per piece was acceptable to him and the claim for drawback was withdrawn. Thereafter, the exporter has not led any evidence that export value mentioned in the shipping bill was the true sale consideration for the goods sought to be exported. Considering the aforesaid facts and also the fact that this was the second case belonging to the same exporter, the authorities arrived at the conclusion that it was an organized racket to claim fraudulent drawback or an act of deliberate over-invoicing the readymade garments. Hence, the authority imposed redemption fine as well as levied penalty. In our view, this finding arrived at by the authorities below cannot be said to be, in any way, unreasonable which would call for interference by this Court in this appeal. In the result, the appeal is dismissed. Issues Involved:1. Whether over-invoicing of the goods for export constitutes an attempt to export 'prohibited goods'.2. Whether the exporter must declare the value of the goods as per Section 14 of the Customs Act, 1962, or the value expected to be received from the overseas market.Issue-wise Detailed Analysis:Issue A: Over-invoicing and Prohibited GoodsThe primary issue was whether over-invoicing of export goods equates to an attempt to export 'prohibited goods' under the Customs Act, 1962. The appellant, engaged in garment export, had over-invoiced ladies' skirts at $10.25 per piece, while the market price was Rs. 45/- per piece. The Customs Commissioner found this to be a deliberate act to claim fraudulent drawback, noting it was the second such instance by the same exporter. Citing Section 113(d) of the Act, the Commissioner held that the goods were liable for confiscation as they were attempted to be exported contrary to prohibitions imposed by law. The Tribunal upheld this decision, leading to the present appeal.The Supreme Court referred to Section 2(33) of the Act defining 'prohibited goods' and Section 11 empowering the Central Government to impose conditions on import/export. The Court emphasized that non-compliance with prescribed conditions renders goods 'prohibited'. The Court cited the precedent in Shekih Mohd. Omer v. Collector of Customs, Calcutta, affirming that 'any prohibition' includes all types of restrictions. The Court concluded that over-invoicing, resulting in unauthorized foreign currency transactions, constitutes a violation of export conditions, thus making the goods 'prohibited'.Issue B: Declaration of Export ValueThe second issue was whether the exporter must declare the value as per Section 14 of the Customs Act or the expected overseas market value. The appellant argued that the exporter should declare the value expected from the overseas purchaser, not the market value in India. The Court, however, referred to Section 18 of the Foreign Exchange Regulation Act, 1973, which mandates exporters to declare the full export value or the expected value in the overseas market, affirming that the full value will be received. The Court also referenced Section 14 of the Customs Act, which provides the procedure for determining the value of goods for assessment purposes, emphasizing that the declared value must reflect the true sale consideration in international trade.The Court stated that even if no duty is leviable, the method for determining the value under Section 14 must be followed to ascertain the true export value. The Court noted that the appellant had admitted the market price of Rs. 45/- per piece and had not provided evidence to support the higher declared value. The Court dismissed the hypothetical argument that higher export value could be genuine, stating it depends on the facts and evidence of each case. The Court concluded that the appellant's over-invoicing was not justified and upheld the penalties imposed by the authorities.Conclusion:The Supreme Court dismissed the appeal, affirming that over-invoicing constitutes an attempt to export 'prohibited goods' and that exporters must declare the true export value as per the Customs Act and Foreign Exchange Regulation Act. The Court upheld the penalties imposed for fraudulent drawback claims and deliberate over-invoicing.