TaxTMI 
TaxTMI 
2009 (9) TMI 476
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....ge to the impugned orders, are common in both the writ petitions they were heard together and are now being disposed of by this common order. 2. Both Sri K V. Satyanarayana, learned Counsel for the petitioner and Sri A. Rajasekhar Reddy, learned Assistant Solicitor General would submit that the facts in W No. 18256 of 2008 are representative of both the writ petitions and it would suffice for their disposal to note, in brief, the facts stated therein. 3. The petitioner in WT. No. 18256 of 2008 is engaged in the manufacture of pharmaceutical products. They claim to nave exported the medicines manufactured by them to various countries, more particularly to African nations, under the incentive scheme, i.e., Duty Entitlement Pass Book (DEPB scheme), extended by the Director General of Foreign Trade (OCET) exercising powers under the Foreign Trade (Development & Regulation) Act, 1992 (Act 22 of 1992). 4. On the warrants issued by the second respondent, the office premises of the petitioner company, its Managing Director and others were searched on 27-10-2005 and certain documents were seized. On completion of investigation and, on the basis of the statements recorded, the impug....
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....ls, should not be rejected and the DEPB credit availed by them for Rs. 69,46,807/ should not be denied; (3) The DEN credit for Rs.69,46,807/-, already availed by M/s. VPL, should not be recovered under Section 28(1) of the Customs Act, 1962 along with interest under Section 28 AB; (4) Penalty under Section 114-A of the Customs Act, 1962 should not be imposed on M/s VPL; and (5) Penalty wider Section 114(iii) of the Customs Act, 1962 should not be imposed on the Managing Director of M/s. VPL and others. The Petitioner, its Managing Director and others were also called upon to show cause why: (1) Foreign currency equivalent to Rs.5,53,87,268/-, remitted into the account of M/s. VPL and already withdrawn, should not be held li able for confiscation under Section 111(d) read with Section 120 of the Customs Act, 1962; and (2) Penalty under Section i 12(a) of the Customs Act, 1962 should not be imposed on each of them. 6. They were called upon to produce evidence which they intended to rely, in support of their evidence, in their written statement. They were also called upon to indicate in writing whether they wished to be heard in person before the case was adjudica....
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.... E.L.T. 481 (S.C.) (2003) 5 SCC 194). It would, ordinar ily, not be proper or appropriate that the initial jurisdiction of the authority/Tribunal to deal with jurisdictional facts should be circumvented and the decision, on such a preliminary issue, sought before High court in its writ jurisdiction. (Express Newspapers (P) Ltd. v. Workers, AIl SC 569, M. Rainalinga Reddy, (2007) 9 SCC 286). However, the self-imposed restrictions on the High Court not to entertain a writ petition, if another effective and efficacious remedy is available, will not operate as a bar where the order or proceedings are wholly without jurisdiction. (Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 1). 9. In very rare and exceptional cases, the High court can quash a show cause notice if it is found to be wholly without jurisdiction. A show-cause notice does not give rise to any cause of action as it does not amount to an adverse or der which affects the rights of any party. It is quite possible that, after consider ing the reply to the show-cause notice, the authority concerned may drop the proceedings and/or hold that the allegations are not established. A Thow-cause notice does not infringe the....
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.... 13. It is, therefore, necessary to briefly note the allegations in the show cause notice. The case of the respondents, in short, is that M Venkat Pharrna Limited and M Sravani Implex Pvt. Ltd both sister concerns, exported goods, under the export promotion scheme viz., UEPB, during the years 2000-2005 mostly to African countries, that, at the relevant time, the scheme provided incentives in the form of credit certificates, between 12% to 15°/o on the value of exports, which was required to be utilized for payment of customs duty, that, in order to gain undue advantage of the scheme, the petitioner had inflated the value of exports several times, that the; over invoiced amounts were remitted into the petitioner's account by hawala operations, that one such hawala operator Sri Gollapudi Venu was engaged in the call diversion racket in U.S.A. & U.K. i.e., illegal diversion of telephone calls through VOIP (Voice Over Internet Protocol), that the amounts so earned had to be sent to India despite absence of a legal channel, that the petitioner required foreign remittances into their bank accounts to project the same as sale proceeds in order to gain DEPB benefits on the over valued exp....
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.... countries were sold at 1000 US$ per carton for a total value of Rs.10 crores, that the amounts so collected were also transferred in the guise of sale proceeds of regular medicines through M/s Reliance Pharma Limited, a company floated by the petitioner at Nairobi, Kenya, that they had also availed DEPB credit on such illegal supplies of narcotic drugs exported in the guise of regular medicines, that a complaint had been lodged before the Metropolitan Sessions Judge, Hyderabad and that the trial was nearing conclusion. 14. While elaborate oral and written submissions are made both by Sri Ky. Satyanarayana, learned Counsel for the petitioner and Sri A. Rajasckhara Reddy, Learned Assistant Solicitor General, appearing for the respondents, only those contentions relating to the jurisdiction of the respondent to issue the show cause notice are being noted and dealt with, for, if this contention were not to find acceptance, the petitioners must be relegated to their remedy of submitting their reply/objections to the said show cause notices. 15 Before examining the rival contentions it is necessary to note that medicines were notified as eligible for export incentives under ....
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....rohibition issued under Sections 3(2) and (3) of Act 22 of 1992 and that the Customs authorities lacked jurisdiction to initiate proceedings to impose penalties outside the Customs Act and under Act 22 of 1992. Learned Counsel would also rely on Economic Traders (Gujarat) Limited v. Union of India 2006 (TLS) 216292, Pradip Polyfils Pvi. Ltd. v. Union of india, 2004 (173) FIT. 3, J. Gvthaiya Ex ports v. Commissioner of Customs - 2001 (133) E.L.T. 280, and Vishal Exports Over seas L -2007(209) E.L.T. 331. 17. Sri A. Rajasekhar Reddy, Learned Assistant Solicitor General, would submit that the DE Scheme was covered by Customs No dated 7-4-1997 and 224-2002 which were in the nature of customs duty notifications/exemption notifications, that an authority which granted exemption had the power to cause an enquiry for the purpose of satisfying itself That the ex porter had compiled with the conditions of the exemption notification and the licence under which he had availed the benefit, that such an enquiry was con ducted on post exports and it was found that the petitioner had obtained DEPB scrips in a fraudulent manner, that, as DEPB credit scrips were in the nature of Customs duty, the....
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....he Foreign Trade Policy and the procedure laid down there under, pro vided for a composite scheme, that, in implementing the said provisions of the Scheme and, in the event an order of prohibition, restriction or regulation was passed, the provisions of the Customs Act would, mutatis mutandis, apply. The Supreme Court further observed that, in interpreting the provisions of Act 22 of 1992, the policy laid down and the procedures framed thereunder vis a vis the provisions of the Customs Act, the rate of customs duty had no relevance, what was relevant for the said purpose was the permission accorded by the proper officer granting clearance for exports and that, as soon as such permission was granted, the procedure laid down for export must be held to have been complied with. The questions which arise in the present case, as to whether Customs officers have jurisdiction to withdraw customs duty exemption, and pass an order of confiscation arid penalty, on detection of fraudulent over-invoicing of exports made for the purpose of claiming excess DEPB credit, and illegal remittances of foreign exchange through hawala operators in the guise of export proceeds, did not fall for considerat....
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.... articles of Polypropylene effected prior to the amendment of the public notice on 15-12-1999 the Customs authorities were justified in holding that, as it was not covered under Chapter 3901 the ITC classification, the petitioners were not eligible for benefits under the DEPH Scheme. The application made by the petitioners, seeking DEI'B licence, was ii respect of Polypropylene filter plates and accessories. The Licensing Authority had issued DEPB licences enabling them to avail the benefit of the Scheme in respect of the above goods. It was contended before the Bombay High Court that, as no discrepancy in the description, quantity and FOB value of the export product was found by the Customs authorities, it was not open to them to deny the petitioners the benefit of the DEPB Scheme. The Bombay High Court held that, under Circular No. 15/97 dated 3-6-1997, verification by the Customs authorities was restricted to the description, quantity and FOB value of the ex port product set out in the Shipping Bill, that it was not the case of the Customs authorities that there was any discrepancy in the description, quantity and FOB value of the export product and, under these circumstances wh....
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....deceipt. Reliance placed by Sri K.V. Satyanarayana, learned Counsel for the petitioner, on the judgments of the Calcutta High Court in Kanhaiya Exports - 2001 (133) E.L.T. 280, the Bombay High Court in Pradip Polyfils Pvt. Ltd. - 2004 (173) E.L.T. 3 and the Gujarat High Court in Economic Traders (Gujarat) Ltd. - 2006 (TLS) 216292 is misplaced as the questions which fell for consideration therein did not relate to fraudulent over- invoicing of exports or illegal remittances of foreign exchange through hawala operators. 24. In Om Prakash Bhatia - 2003 (155) E.L.T. 423 (S.C.) among the questions, which arose for consideration before the Supreme Court, was whether over invoicing of goods for export meant attempt to export "prohibited goods"? The Supreme Court held that prohibition of importation or exportation could be sub ject to certain prescribed conditions to be fulfilled before or after clearance of the goods, that, if the conditions were not fulfilled, it may amount to "prohibited goods", that Section 14 read with Section 2(41) of the Customs Act could be applied for determining the value of the goods sought to be exported and find out whether the export value was trudy stated....
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....ourt, following the earlier larger bench judgment in Om Prakash Shatia, 2003 (155) E.L.T. 423 (S.C.), and the matter was remanded back to the Tribunal for its fresh consideration keeping in view the principles set out in Om Prakash Bhatia, (2003 (155) E.L.T. 423 (S.C.). 27. In Rajan Ghoshal v. Union of India [202 (148) L.L.T. 3] the Calcutta High Court held that, in cases where the shipping bill or the export bill included over-invoicing and the declaration was alleged to be incorrect, liability accrued at the stage of Sections 50 and 51, that the act or omission, at the stage of exportation, or at the stage of attempt to exportation, formed the basis of the liability, that, on account of this liability, the goods could be subjected to confiscation and penalty under Sections 113 and 114, even if the attempt to export was successful, and the goods were actually exported, that an attempt to export improperly did not become proper exportation merely on the basis of the clearance given, when it was really an improper exportation and, where there was reason to believe that the goods were liable for confiscation, Sections 113 could be resorted to. 28. In Vishal Exports Overseas Ltd....
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....e court could not be brushed aside and the question had to be considered having regard to the definition "prohibited goods and "export goods". The order of the Tribunal was set aside and the matter remanded back for its consideration afresh. 30. In R.A. International -2005 (192) LIT. 101 a show cause issued, and an order passed, by the DGVF stopping all exim benefits to the petitioner was under challenge on the ground that the DGFT had no jurisdiction to pass the said order. The Calcutta High court held that the show cause notice was founded on allegations of fraudulent mis-representation of facts in the application filed for obtaining DEP that these DEPB licences were obtained after exports were effected and, if the information furnished by the applicant as to the factum of export was found not to be correct by the Customs authorities, the DGFT had no jurisdiction to decide whether or not there was fraudulent export. The Learned Judge held that the question whether the export was lawful or not could not be gone into by the DGFT and that, under the provisions of the Customs Act, the Customs Authorities were alone entitled to examine this aspect. 31. Taking the show cause noti....
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....her kind of moveable property. Section 2(37) defines "shipping bill" to mean a shipping bill referred to in Section 50. Section 2(41) defines "value", in relation to any goods, to mean the value thereof determined in accordance with the provisions of sub-section (1) or sub-section (2) of Section 14. Section 11(1) of the Customs Act empowers the Central Government to prohibit, subject to such conditions to be fulfilled before or after clearance, the export of goods. Section 14 relates to "valuation of goods" and, under sub-section (1) thereof, for the purpose of the Customs Tariff Act, 1975 or any other law for the time being in force, the value of export goods shall be the price actually paid when sold for export from India for delivery at the time and place of importation, subject to such other conditions as may be specified in the rules made in that behalf. Rule 2(i) of the Foreign trade Rules, 1993 made under Act 22 of 1992, defines "value" to have the meaning as signed to it in clause (41) of Section 2 of the Customs Act, 1962. Section 7(1)(a) of the Foreign Exchange Management Act, 1999 requires every exporter of goods to furnish a declaration, in such form and in such manner ....
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....further provides that the declared PMV may also be verified, by the proper officers of Customs, at the time of examination of goods as was done in the case of drawback shipping bills, that, upon examination of the goods, where the Examining Officer finds that, in view of the quality or conditions of the goods, prima facie, the PMV declared, or the fob, price, was unduly high, the matter may be referred to the Assistant Commissioner (Export) along with a sample of the goods wherever possible and, in such cases, the PMV may be verified/determined through market enquiries or by such process as the Assistant Commissioner (Customs) may direct. Circular No. 15/97, dated 3-6-1997 recognises the similarity between DEPB and a duty drawback scheme when it provides that the declared PM may also be verified by the proper officers of customs at the time of examination of goods as was done in the case of drawback shipping bills. 35. The law laid down in Om Prakash Bhatia [2003 (155) E.L.T. 423 (S.C.)] has been followed by the Supreme Court in Gurucharan Singh [Judgment in CrlA. No. 576 of 2008, dated 1-4-2008 [2008 (224) E.L.T. 497 (S.C.) and Brooks International - (2007) 10 SCC 396. The Supr....
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....y, been sold to third parties, the only course open to the Customs Officers is to demand repayment of DEPB credit (i.e., Customs (Import) duty) from the petitioner. Exercise of power to make such a demand is referable to Section 28(1) of the Customs Act. The impugned show cause notices, which propose a demand for repayment of DEPB credit under Section 28(1) as it was availed by resort to fraudulent over-valuation of export consignments, cannot be said to have been issued without jurisdiction. 39. Section 113 relates to confiscation of goods attempted to be improperly exported and, under Clause (i) thereof, any goods entered for exportation which do not correspond in respect of value, or in any material particulars, with the entry made under the Act, shall be liable to confiscation. Section 114 relates to penalty for attempt to export goods improperly. Under Section 1 14A, where duty has not been levied or has been short levied or interest has not been charged or paid by reason of collusion or any willful mis-statement or suppression of facts, the person who is liable to duty or interest as the case may be, as determined under Section 28(2), shall also be liable to pay penalty eq....
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....e cancellation of license, without anything more, would also result in immunity being conferred on ex porters to make fraudulent exports which is not the purpose for which the DEPB scheme was made. Once the benefits, of the fraudulently obtained DEPB scrips, have been utilized by the exporters, or on its sale by third parties the only course open is to demand repayment of the credit (customs duty) under Section 28 of the Customs Act as, otherwise, the very purpose of framing the DEPB Scheme would be defeated. 41. Section 25 of the Customs Act relates to the power to grant exemption from duty. Under sub-section (1) thereof, if the Central Government is satisfied that it is necessary in the public interest so to do it may, by notification in the Official Gazette, exempt generally, either absolutely or subject to such conditions to be fulfilled before or after clearance as may be specified in the notification, goods of any description from the whole or any part of the customs duty leviable thereon. In exercise of the powers conferred by Section 25(1) of the Customs Act, 1962, Customs Notification No. 45/2002 dated 22-4-2002 was issued i.e., "Customs Exemption notification for DEPB"....
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....y submitting Bank realization certificates, issued by the bankers, as proof of receipt of sale proceeds in the form of foreign remittances, even though the remittances were arranged by unconnected parties into the petitioner's account. Section 111 of the Customs Act relates to confiscation of improperly imported goods and, under clause (d) thereof, any goods which are imported contrary to any prohibition imposed by or under the Act, or any other law for the time being in force, shall be liable for confiscation. Section 112 relates to penalty for improper importation of goods. The show cause notices propose that the foreign currencies, remitted in contravention of Section 11 of Customs Act, 1962 into the account of the petitioner, should be confiscated in terms of Section 111(d) read with Section 120 of the Customs Act, 1962. As goods include currency, negotiable instruments and any kind of movable property, the amounts remitted into the petitioner's account are 'imported goods" within the said meaning. In as much as the petitioner had illegally brought foreign currency into their account, in the guise of sale proceeds, they have contravened the provisions of Section 11 of the Custo....