2018 (1) TMI 225 - AT - Customs

Misdeclaration of description and value of imported goods - modems - automated teller machines - automated teller machine processors - Levy of penalty on the persons who were concerned in any manner with the handling of goods that were liable for confiscation or had, in any way, dealt with such goods. Held that - The contractors for supply to M/s Philips India were firms/companies being controlled and operated by Shri JP Mody and Shri Suketu J Mody. M/s Philips India and S/Shri V Ramamrutham and K Basu of Philips India admitted to having discussed the procurement routes with Shri JP Mody and Shri Suketu J Mody and they placed purchase orders on entities that did not have a factory for manufacture of these goods; nor were they able to furnish any evidence of compliance with Central Excise formalities. There was no transfer of technology from M/s Diebold, USA or M/s Philips Holland/ Jarfalla to these purported manufacturers. The Export Import Policy of the time had restricted the import of these goods to actual users qualified to be issued with special import licence. Likewise, parts could be imported for manufacture under restricted conditions. Admittedly, the imports were effected without such a licence entailing liability to confiscation of goods under section 111 of Customs Act, 1962. With that, penalties under section 112 of Customs Act, 1962 would have to be visited upon those who were concerned in any manner with the handling of goods that were liable for confiscation or had, in any way, dealt with such goods. Today, automated teller machines are commonplace and literally accessible to all at street corners but this was not so at the time of the impugned imports. Processors and modems were unheard of outside the tiny world of specialized engineers; today, every child is familiar with these and these are available across the counter. Not unnaturally, because the internet and worldwide web were part of techspeak and not of the lingua franca. In the context of goods under import, it is even less surprising that severe restrictions existed on manufacture and import. The Industries (Development & Regulation) Act, 1951 that controlled the command economy did not accord any priority for allocation of resources for manufacture of such luxury equipment. Imports of parts for manufacture of such luxury goods would have deprived priority areas of scarce foreign exchange; hence, these non-tariff barrier. Again, it is not surprising that automated teller machines could be imported only by actual users against licences. That facility was for the limited few and for customers of a few banks who were permitted to operate in India under strict and circumscribed conditions, including that of branch expansion, specified licence issued by the banking regulator. There is nothing on record to demonstrate that M/s Hongkong & Shanghai Banking Corporation Ltd were eligible to procure automated teller machines ; at the same time, their global policy envisaged such a facility for their customers. The sole alternative was to procure them from local manufacturers. In the narrated circumstances of the restricted import and operational regime, nothing has been adduced by them to establish that they were unaware of the source of the goods that were ultimately to be installed in their premises and, hence, have them excluded from the purview of coverage under section 112 of Customs Act, 1962. There is a specific finding in the impugned order which, for overcoming, would have to be controverted other than by protestation of innocence - Owing to lack of any credible justification, there is no reason to exclude M/s Hongkong & Shanghai Banking Corporation Ltd from the ambit of the penal provision. As far as M/s Philips India Ltd is concerned, they were the suppliers of the equipment to M/s Hongkong & Shanghai Banking Corporation purported to have been manufactured in India. They were not unaware of the exclusive source through which these products could have been vended - The subterfuge established in proceedings against the importer was conceived to overcome the imperatives of that regime and, having thus been connected to the impugned goods, M/s Philips India Ltd cannot be excluded from coverage under the penal provisions. S/shri V Ramamritham, K Basu and AA Ansari were employees of their respective organisations. There is no evidence on record that they stood to benefit from the subterfuge other than by continuance of their source of livelihood - Nevertheless, they are not beneficiaries. We feel that the ends of justice would warrant the setting aside the penalties against them. The appeals of these individuals are allowed. Appeal disposed off.

Issues Involved:
1. Misdeclaration of description and value of imported goods.
2. Evasion of customs duties and licensing requirements under the Export Import Policy.
3. Jurisdiction of the Collector of Customs to issue show-cause notices and adjudicate.
4. Imposition of penalties under Section 112 of the Customs Act, 1962.
5. Role and liability of various appellants including companies and individuals.

Detailed Analysis:

1. Misdeclaration of Description and Value of Imported Goods:
The appeals challenge three adjudication orders regarding the import of 'modems', 'automated teller machines' (ATMs), and 'automated teller machine processors' (ATMPs). The goods were allegedly misdeclared in terms of description and value to evade customs duties and licensing requirements. The ATMs were manufactured by Diebold, USA, and marketed by Philips Holland. The ATMPs were manufactured by Philips Holland in Sweden. The goods were dismantled and repacked in Belgium before being shipped to India. The importer, M/s Hindustan Engineering Corporation, declared these goods as parts and electricals to suppress their true nature and value.

2. Evasion of Customs Duties and Licensing Requirements:
The adjudicating authority found that the importers and related entities did not possess the special import licenses mandated under the Export-Import Policy for importing 'modems', 'machines', and 'processors'. The goods were imported through a complex chain involving multiple entities to camouflage the actual nature of the imports. The findings indicated that the imported goods were supplied to banks in India without the necessary licenses, thus evading customs duties.

3. Jurisdiction of the Collector of Customs:
The appellants challenged the jurisdiction of the Collector of Customs to issue show-cause notices and adjudicate the matter. The Tribunal noted that the provisions, as they existed then, mandated that in any proceedings for recovery grounded on misrepresentation, suppression, fraud, or collusion, jurisdiction was vested exclusively with the Collector as the specified authority. The plea of jurisdiction raised by the appellants was dismissed.

4. Imposition of Penalties under Section 112 of the Customs Act, 1962:
Penalties were imposed on various appellants under Section 112 of the Customs Act, 1962, for their involvement in the import and handling of goods liable for confiscation. The penalties were based on the findings that the appellants were concerned in any manner with the handling of goods that were liable for confiscation or had dealt with such goods. The Tribunal upheld the penalties against the companies and individuals directly involved but set aside the penalties against employees who were not beneficiaries of the subterfuge.

5. Role and Liability of Various Appellants:
- M/s Philips India Ltd: The company was found to be the supplier of the equipment to banks in India and was aware of the exclusive source of the products. The subterfuge was established to overcome the imperatives of the restricted industrial and import regimes, and M/s Philips India Ltd was held liable under the penal provisions.
- M/s Hongkong & Shanghai Banking Corporation Ltd: The bank was found to be aware of the source of the goods and was included in the penal provisions for their involvement in the procurement of the ATMs and ATMPs.
- Shri JP Mody and Shri Suketu Mody: The Modys were found to have orchestrated the entire stratagem to overcome the trade policy restrictions. Shri Suketu Mody's role was documented, and his plea of being a mere participant was not sufficient to exclude him from the penal provisions.
- Employees (S/shri V Ramamritham, K Basu, and AA Ansari): The penalties against these employees were set aside as they were not beneficiaries of the subterfuge and were merely executing the directions of their employers.

Conclusion:
The Tribunal dismissed the appeals of the companies and individuals directly involved in the import and handling of the goods. However, the penalties against the employees were set aside, considering their lack of direct benefit from the subterfuge. The order emphasized the importance of adhering to the licensing and duty requirements under the Export Import Policy and the Customs Act, 1962.

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