TaxTMI 
TaxTMI 
1998 (10) TMI 282
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....red by Ratan Exports (for short RE) (exporters) from M/s. Sujata Data Products at their factory at Medak (AP) and were cleared for export there from under AR4 procedure i.e. after examination and sealing of the container by the jurisdictional Central Excise officer. The show cause notice proposes denial of Draw back, confiscation of goods and penal ties. The impugned order-in-original held that the seals of the containers were found intact by Customs, that the outer shells and labels of the FDDs appeared normal, that since there was no evidence of theft or replacement as seals were intact, therefore M/s. Sujatha Data Products (for short SDPL) deliberately packed only shells (without full components inside). It also notes that SDPL had no capacity to produce these within the given time frame, that no Central Excise officer had been examined by the Customs Department that evidence showed all required components had not been procured etc. Therefore, the order concludes that SDPL are responsible for this fraud. The impugned order further holds that since M/s. RE did not verify the contents prior to export packing and neither SDPL asked them to check it before shipment, so there was col....
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....h; and (i) that Trading Houses normally don't inspect export goods manufactured by reputed manufacturers, therefore it is wrong to conclude that non-verification by RE was "unprofessional". (2) On the merits of the case learned Senior Advocate further submitted that : (a) tere was no omission or commission by RE; (b) that RE would never pay Rs. 38 lakhs advance for mere shells; (c) that when found to have been cheated, a civil suit was filed; (d) as per agreement with SDPL onus of quality passes to SDPL on complaint of buyer; (e) all documents were prepared by SDPL; (f) whith 4 years of business relationship with SDPL, RE had continued to have faith in SDPL; which is a normal Trading House reaction; (g) that pre-shipment containerisation inspection was done by Central Excise officers who sealed the container and seals were found intact; (h) therefore, there was no evidence to show any fraudulent action and intent on their part; and (i) that even if some negligence is presumed (not admitted) while confiscation of goods (in rem) was justified (they had abandoned the goods), but no penalty was imposable. (3) On the statement of Shri Goyal, he submit....
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....s not imposable. 6. Heard learned Advocate Shri S. Sunderrajan for Shri Alok Gupta, then Director of SDPL who submitted as follows :- (1) that he was an NRI and one of the two Directors of SDPL. NRI meant being out of India for at least 180 days in a year so not a whole-time Director and certainly not in charge of day to day affairs of the company, (2) that he had not signed the contract at Delhi and when shipment was involved, he was neither at Hyderabad nor Madras. (3) that he does not hold any shares and he may have negotiated with RE but did not sign any agreement. Negotiation is mere discussion but not a commitment. (4) The SCN had since merged with impugned order. (5) There is no finding in the impugned order and no allegation in SCN that the goods are prohibited for export under any Export Control Order in the condition seized as Order involves Section 113 (d) and 113 (i). (6) Since either party has not supported the stand of the other throughout the proceedings, so collusion cannot be inferred. (7) Section 113 (d) is not applicable to him and with respect to Section 113 (i) he submitted that he is not covered by it as he has not filed Drawback S....
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....d that: (1) The purchase order on RE clearly mentions model of the product as "SDP 55 9 FR" which shows that the whole attempt to fraudulently export was pre-planned (2) Since the Shipping Bill etc., were signed by Yogendra Pandey and a Director of RE hence it is clear that RE is the exporter. (3) Clause 10 of the contract between RE and SDPL clearly provides for inspection of goods. Therefore, only logical reason why this was not implemented was because there was collusion. (4) Statement of Suryanarayana Murthy clearly deposes that G.B. Goyal of RE supervised containerisation. This is also supported by Col. Sheopuri's statement. (5) In his statement CEO Apte had stated that normal production could not exceed 75-80 pcs per day of fully operational units. It would, learned SDR submits, have taken over 7 weeks for 4,000 pcs to be manufactured. SDP has no explanation and hence did not deliberately manufacture complete goods. (6) Just because RE paid Rs. 38 lakhs advance to SDPL it does not absolve them. (7) Since RE filed Green Drawback S/B, so they are the claimants and nominee is a different issue. (8) Collusion is to be appreciated in totality and as laid do....
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....mitted by SDPL for these goods as ready for export. Only one signature is in dispute-whether of representative of RE or not. (4) The Shipping Bill carries nomination of SDPL for draw-back payment, declared by exporter (RE). (5) The examination report found that goods were not fully manufactured, non-functional and were virtually junk. However, outer visual appearance was that they were complete as even lead wires were coming out, though internally they had been secured to the shell by adhesive tape. (6) But no CE Officer concerned has been examined at any stage. (7) Agreement between RE and SDPL had a clause (10) facilitating pre-containerisation inspection and as per clause 3 thereof, SDPL indemnifies RE against complaints on quality etc., (8) SDPL received advance of Rs. 38 lakhs from RE and now face a civil suit at Delhi. 10. The main points of dispute are as follows : (1) who was to benefit from the drawback claim, as and when it was paid? SDPL and RE now point fingers at each other. (2) who would have benefited from the remittances received if the junk goods had been exported? SDPL claims that Rs. 50 lakhs is still due to them, while RE has sued th....
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....ow :- (1) Since the seals on the container were found intact at Madras Port, therefore the contents of the container were not tampered/substituted either en route or in the port. Therefore, we have no hesitation in concluding that the goods which were found therein during Customs examination are the very goods which were manufactured and then packed by M/s. SDPL at their factory at Medak under the relevant AR4 form. This conclusion is also supported by the fact that in the original proceedings, neither SDPL nor RE moved the adjudicating authority to cross-examine the CE Officers who had processed the AR4 and sealed the containers. Therefore, records are clear that neither the AR4, nor the sealing of the container, after inspection, by the Central Excise Officers are under dispute. This conclusion is further supported by another corroborative evidence: the deposition of Shri Apte, CEO of SDPL, that their normal production capacity (with the work force etc., used) would be about 75-80 pieces of fully & manufactured and tested FDDs per day. Learned SDR rightly argued that if this admitted yardstick is applied here, then 4,000 pieces of fully manufactured and tested FDDs could just ....
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....was so cleverly maintained by them that a non-technical and mere visual inspection would not detect the fraud-i.e., that labels were affixed and even power wires were jutting out. There is no need for us to go into the question of why the Central Excise Officers could not detect this fraud. They are not a party here. Secondly, as has been held in AIR 1976 Cal. 21 in the case of United India Minerals Ltd., failure of Customs Officials (here Central Excise Officials) in performing their statutory functions does not exonerate the appellants from doing their duty under law. We are also led to conclude that in view of their deliberate act of misdeclaration, as found above, SDPL harboured a culpable mental state or knowledge and knew that these goods manufactured and cleared by them for export, would be liable to confiscation, if the true character thereof was detected prior to export. Since the journey of these goods tendered for export commences from the factory of M/s. SDPL, under AR4 procedure, they now cannot take the highly technical stand that, not being the exporters as defined under Section 2 of Customs Act, 1962, they are out of the picture. We wish to draw a distinction betwee....
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....one of self-defence. Hence when their statement is weighed against those of Goyal, the latter prevails in the absence of any corroboration of the former by other independent evidence. Now, it is immaterial to the issue as to why such an inspection was not carried out by RE. Because, if RE chose to put their neck in the hands of SDPL by reposing faith, or trust, or whatever you may call it, this does not in any way lessen their responsibilities & liabilities under law as an exporter, let alone absolve them. We therefore conclude that M/s. Ratan Exports, as the exporter, have misdeclared the goods tendered for export. 15. In view of the aforesaid discussions, we find that both M/s. Ratan Exports and M/s. Sujatha Data Products Ltd., are liable for imposition of penalty. This is so because in 1988 (38) E.L.T. 647 (Tribunal) it has been held that when there is an attempt to export illegally, it is not only the exporter but also others privy to the attempt who are liable to imposition of penalty. In this case, M/s. RE are the exporters and M/s. SDPL, as discussed above, were privy to this misdeclaration in the Shipping Bill, apart from themselves having misdeclared on the AR4 etc....
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.... was over Rs. 1 crore but in fact their real value was not exceeding Rs. 10 lakhs (or even less); that RE had nominated SDPL as the beneficiaries of Duty Drawback payable to the tune of over Rs. 22 lakhs; that Col. Sheopuri of SDPL in his statements has mostly been evasive effacing the questions put to him squarely; that there is sufficient evidence to show that SDPL had neither the time nor the stocks to manufacture complete goods and had not taken any urgent steps to acquire the stocks; and that an advance of Rs.38 lakhs had been paid by RE to SDPL even before the goods were manufactured and delivered. The only logical conclusion available from an objective consideration of these facts on record, is that SDPL would never have dared to supply incomplete goods i.e. junk to RE unless there was a tacit understanding between them to this effect. This conclusion is supported by the following : (a) that the agreement between RE and SDPL clearly stipulated that SDPL would be responsible for complaints from foreign buyer and it indemnified RE there from. Now, it goes without saying, that if this was a normal and above board export transaction, then SDPL would have known that by supplyi....
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....ve i.e., whether there is any need to and whether it is legally correct to enhance the quantum of penalties imposed, as prayed for by the Revenue in their cross appeal. As far as power to enhance it is concerned, we note that in 1991 (55) E.L.T. 57 (T) the Hon'ble Tribunal had enhanced penalty from Rs. 10,000/- to Rs. 25,000/- for misdeclaration of goods. Therefore, if need be, we shall be able to follow this precedent. On merits, we find that the order impugned has imposed a penalty of Rs. One lakh on M/s. SDPL. M/s. SDPL was to get a draw-back of Rs. 22 lakhs approx. in addition to the negotiated price of Rs. 92 lakhs i.e., their total likely receipts from this transaction would be Rs. 1.14 Crore against an estimated value of the junk being between Rs. 5 to 10 lakhs. On this net, likely gain of Rs. 1.04 crores involved in this fraud, the learned Commissioner has imposed a penalty of Rs. One Lakh. Similarly, M/s. RE were to get a remittance of Rs. 1.02 crores (FOB value declared) for these junk goods for which they had only paid Rs. 38 lakhs to SDPL. Their net gain (even if balance of Rs. 52 lakhs was also paid to SDPL) would still be over Rs. 8 lakhs. They have been penalised onl....