2011 (4) TMI 1 - SC - Customs

Duty drawback - goods had been over-valued with the intention of claiming undue draw-back amounts - instead of first determining the value of the goods on the basis of contemporaneous exports of identical goods, the Revenue erroneously resorted to a market enquiry - contemporaneous exports of identical goods was not available, the procedure laid down in Rules 5 to 8 of the 1988 Rules was required to be followed and market enquiry could be conducted only as a last resort - in the absence of any other independent evidence relating to market enquiry, there was no other corroborating evidence to support the allegation of inflation in FOB value - the matter is remitted back to the adjudicating authority for fresh consideration in accordance with law

Issues Involved:
1. Misdeclaration of value of export goods.
2. Legitimacy of the market enquiry conducted by the customs authorities.
3. Validity of the opinion provided by M/s. Skipper International.
4. Imposition of penalty on the exporter and its Director.
5. Adherence to the statutory procedure for determining the value of export goods.

Detailed Analysis:

1. Misdeclaration of Value of Export Goods:
The core issue was whether the exporter had misdeclared the value of the goods to claim undue duty drawback. The customs authorities, based on a market enquiry, alleged that the goods were overvalued, reducing the admissible drawback significantly. The CESTAT upheld this view, emphasizing that the declared export prices were unsubstantiated and based on poor-quality garments.

2. Legitimacy of the Market Enquiry Conducted by the Customs Authorities:
The customs authorities conducted a 100% examination of the consignment and sought an opinion from M/s. Skipper International. The Commissioner initially dismissed the market enquiry's validity, citing the absence of notice to the exporter and the retraction by M/s. Skipper International. However, the CESTAT found merit in the customs authorities' reliance on the market enquiry, noting the exporter's failure to provide evidence supporting the declared values.

3. Validity of the Opinion Provided by M/s. Skipper International:
The opinion from M/s. Skipper International, which labeled the goods as export rejects with low market value, was a critical piece of evidence. Despite a retraction, the CESTAT considered the initial opinion credible, given the exporter's inability to substantiate the declared values. The Supreme Court, however, noted procedural lapses in relying solely on this opinion without following the statutory valuation process.

4. Imposition of Penalty on the Exporter and Its Director:
The CESTAT imposed penalties on the exporter and its Director, Mr. Sanjeev Jain, for the alleged misdeclaration. The Supreme Court highlighted that the penalty on Mr. Jain was questionable as he was not a party to the appeal filed by the Revenue.

5. Adherence to the Statutory Procedure for Determining the Value of Export Goods:
The Supreme Court underscored the necessity of following the statutory procedure under Section 14 of the Customs Act and the 1988 Rules for determining export value. It criticized both the Commissioner and the CESTAT for not adhering to the prescribed rules, which require sequentially proceeding through Rules 5 to 8 if Rule 4's transaction value is rejected.

Conclusion:
The Supreme Court allowed the appeal, setting aside the orders of the CESTAT and the Commissioner. It remitted the matter back to the adjudicating authority for fresh consideration, emphasizing the need to follow the statutory valuation procedure and providing the exporter an opportunity to substantiate the declared values. The entire exercise was directed to be completed within six months, with no opinion expressed on the merits of the opinion by M/s. Skipper International or the exporter's conduct. Both parties were directed to bear their own costs.

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