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

SC dismissed the appeal, upholding authorities' finding of deliberate over-invoicing and organized racket to claim fraudulent drawback on export ... Over invoicing as violation of export conditions - prohibited goods (definition and scope) - confiscation under Section 113(d) of the Customs Act - declaration of full export value under Section 18 of the Foreign Exchange Regulation Act - valuation of goods for export under Section 14 of the Customs Act - market price for drawback eligibilityConfiscation under Section 113(d) of the Customs Act - prohibited goods (definition and scope) - over invoicing as violation of export conditions - Whether deliberate over invoicing of export consignments can render the goods 'prohibited goods' for the purpose of confiscation under Section 113(d) of the Customs Act, 1962. - HELD THAT: - Section 113(d) authorises confiscation of goods attempted to be exported contrary to any prohibition imposed by or under the Act or any other law. The expression 'prohibited goods' includes goods whose import or export is subject to prohibition or restriction and goods in respect of which prescribed conditions for export have not been complied with. A declaration requirement under the Foreign Exchange Regulation Act (Section 18) and allied notifications makes export subject to furnishing of true particulars including the full export value or the value expected to be received overseas. Failure to comply with such conditions - for example, deliberately misstating export value by international over invoicing - falls within the scope of a prohibition or restriction and therefore may render the goods liable to confiscation under Section 113(d). The Court accepted the authorities' factual finding that the present over invoicing was not a bona fide variation of price but part of an organised scheme and held that conclusion was not unreasonable. [Paras 7, 8, 9, 18, 22]Deliberate over invoicing that violates the export conditions prescribed by law amounts to attempted export contrary to a prohibition and can attract confiscation under Section 113(d). The authorities' finding of organised over invoicing was upheld.Declaration of full export value under Section 18 of the Foreign Exchange Regulation Act - valuation of goods for export under Section 14 of the Customs Act - market price for drawback eligibility - Whether the exporter must declare the full export value as per Section 18 and whether Section 14's valuation rules apply to determine export value even where no customs duty is leviable. - HELD THAT: - Section 18 of the Foreign Exchange Regulation Act requires the exporter to declare the full export value or, if not ascertainable, the value which the exporter expects to receive in the overseas market and to affirm that the full export value will be paid. Section 2(41) of the Customs Act defines 'value' by reference to sub section (1) of Section 14, which prescribes that value for export is the price at which such or like goods are ordinarily sold or offered for sale for delivery in the course of international trade between independent parties. The Court held that Section 14's mode of valuation must be resorted to for determining the export value even where no customs duty is payable, because 'value' for export is defined by reference to Section 14. For drawback claims Section 76 makes the domestic market price relevant where drawback exceeds market price, and an exporter who alleges a higher export value must prove that the stated value is the true sale consideration; an unreasonable margin on its face requires explanation and evidence. [Paras 13, 14, 16, 19, 21]Exporter must declare the full and true export value as required by Section 18, and Section 14's valuation principles apply to determine export value even when no customs duty is leviable; the exporter must substantiate any alleged higher export price.Final Conclusion: The appeal is dismissed. The Court held that deliberate over invoicing contrary to prescribed export conditions can render goods 'prohibited' for confiscation under Section 113(d), and that an exporter must declare and substantiate the full export value as governed by Section 18 read with Section 14; the authorities' findings of organised over invoicing were sustained. 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.