2017 (5) TMI 743 - HC - Customs

Maintainability of petition - case of assessee is that the cancellation of proceedings ab initio by the DGFT had been set aside in the appeal proceedings and this petition is not maintainable since the order of the Settlement Commission has been passed after scrutiny of evidence on record and taking into consideration the due submissions of the parties - jurisdiction to file appeal against order of Settlement Commission about after 7 years - Held that - During the proceedings when the locus standi of the petitioner was questioned they impleaded the Commissioner of Customs ICD Tuglaqabad which was allowed on 12.11.2013 about 7 years after the writ petition was filed. However the same would not validate the filing of the petition when such powers were not specifically conferred upon the DRI. Therefore in the absence of a specific jurisdiction of the petitioner to have preferred this writ petition against the order of the Settlement Commission the writ petition would not be maintainable. Valuation - declared FOB acceptable or not? - Held that - the Court is of the view that in the absence of sufficient proof being led Revenue s doubt about the FOB value of the goods cannot be sustained. It has not substantiated its contention that the exported goods were overpriced. Furthermore there was nothing on record to conclude that there were business interests between Padmini and its importers in Singapore United States and USA so as to doubt that the transactions between them were not in the normal course of trade or that it was not a transaction at arms length. Hence the declared FOB would have to be accepted. Since Revenue has not led any evidence to indicate either a Hawala transaction or a back flow of money to Padmini through illegal means regarding the value of the exported goods the export transaction cannot be viewed with suspicion. There is no reason to interfere with the impugned order of the Settlement Commission - petition dismissed - decided against petitioner-Revenue.

Issues Involved:
1. Validity and scope of the Settlement Commission's orders.
2. Application of Section 127A and 127B of the Customs Act, 1962.
3. Allegations of fraudulent export obligations and over-valuation.
4. Jurisdiction and locus standi of the Directorate of Revenue Intelligence (DRI).
5. Interpretation of Section 14 and Section 28 of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Validity and Scope of the Settlement Commission's Orders:
The petitions sought to quash the orders passed by the Customs Central Excise Settlement Commission, which allowed applications under Section 125B of the Customs Act, 1962. The petitioner contended that the provisions of Section 127A and 127B are meant for bona fide applicants, not for those indulging in criminal activities. It was argued that the power to grant immunity against criminal prosecution should be used sparingly and in deserving cases. The Settlement Commission's orders were challenged on the grounds that it overlooked the necessity for the license holder to establish its innocence during settlement proceedings and that the aspect of over-invoicing could only be appreciated after a full trial.

2. Application of Section 127A and 127B of the Customs Act, 1962:
The petitioner argued that these sections are intended for bona fide applicants seeking to settle dues mistakenly unpaid or overpaid, not for tax dodgers engaging in criminal activities. The petitioner relied on the principle laid down in CIT vs. B.N. Bhatacharya, emphasizing that the Settlement Commission should not serve as a rescue shelter for big tax-dodgers.

3. Allegations of Fraudulent Export Obligations and Over-valuation:
The Directorate of Revenue Intelligence (DRI) issued two Show Cause Notices alleging fraudulent fulfillment of export obligations by Padmini. It was claimed that CD ROMs and Audio CDs were exported at inflated prices to Singapore companies, which then re-exported them at significantly lower prices. The petitioner alleged a relationship between the companies involved, suggesting a nexus and fraudulent transactions. The Settlement Commission, however, found that the evidence provided by the Revenue was not sufficient to conclusively prove over-valuation or fraudulent transactions. The Commission noted that the repatriation of funds through banking channels indicated the invoices they pertained to, and there was no evidence of Hawala payments or illegal backflow of money.

4. Jurisdiction and Locus Standi of the Directorate of Revenue Intelligence (DRI):
The respondents argued that the DRI had no locus standi to file the writ petition under Articles 226/227 of the Constitution of India. It was contended that only the Customs department, through the appropriate authority, could file the writ petition. The court referred to the judgment in Mangali Impex Ltd. v. Union of India, which held that the DRI officers were not "proper officers" under Section 2(34) of the Customs Act for the purposes of assessment or reassessment. The court concluded that in the absence of specific jurisdiction, the DRI's petition was not maintainable.

5. Interpretation of Section 14 and Section 28 of the Customs Act, 1962:
The Settlement Commission and the court examined the application of Section 14, which deals with the valuation of goods for customs purposes. The Commission found that the Revenue had not provided satisfactory evidence to establish mutual business interests between Padmini and its customers or that the declared prices were not in the normal course of wholesale trade. The court also referred to Section 28(11) and its interpretation in Mangali Impex Ltd., concluding that the DRI officers were not authorized to issue Show Cause Notices for periods prior to the amendment of Section 28.

Conclusion:
The court found no reason to interfere with the Settlement Commission's orders. It held that the Revenue had not substantiated its allegations of over-valuation and fraudulent transactions. The declared FOB value was accepted, and the court noted that all monies were received through banking channels. The writ petition was dismissed as it lacked merit, and the DRI's jurisdiction to file the petition was not established.

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