2022 (4) TMI 529 - AT - Customs

Duty Drawback - circular trading of footballs and other sports items - whether the appellants herein have connived in doing circular trading in order to claim wrongful benefit of duty drawback - admissibility of evidences - penalty u/s 114 and 114AA of Customs Act - HELD THAT - It is found that the entire case of the Revenue is mainly based on the statements, which are not corroborated with any independent credible evidence - In the present case, the trail of flow back of money to the overseas buyer from the 1st Appellant, due to the alleged over-invoicing, is not established in the investigation. Further, the Respondent revenue has failed to establish the said money trail even during the hearing before this Tribunal. It is found from records that the Revenue has failed to prove even by probability that the footballs and other sports goods exported were subsequently imported back and again exported the same. The footballs exported by the 1st Appellant from India were of Indian origin, manufactured from Polyurethane. Further, the exports were under the claim for drawback. The officer who passed order under Section 51 of the Customs Act was satisfied after examination of the exports, that they are as declared in the shipping bill - it can be concluded that the declarations made in the import documents by the 3rd and 4thAppellants and the goods exported by the 1st Appellant are not disputed. It is clear that the case of the department is based on assumption and the investigation is not complete and conclusive. The case of circular trading is setup based on assumption and not proved definitively - It is constrained to observe that the contention of the Appellants that the goods imported and exported are different, deserves acceptance on merits. In a case of alleged circular trading, the crucial aspect is to prove that the goods exported and those subsequently imported are the same. Similarly, in case of alleged overvaluation of export goods with a claim of incentives, allegation of flow back of money from the exporter to the overseas buyer needs to be proved. It is found that the Revenue has failed to prove the same - there are considerable force in the argument that the goods exported by the 1st Appellant are common sports goods such as footballs manufactured with PU and other sports articles, for which the details of identical or similar contemporaneous goods are always available. Both the authorities below have grossly erred in holding that there were no records to determine the value under Rules 4 and 5 of the Valuation Rules and hence, the value is determined under Rule 6 of the Valuation Rules by resorting to market survey. There are considerable force in the argument of the Appellants that the authorities below have committed an error of law in admitting the statements of various persons in evidence, without complying with the mandatory requirement of Section 138B of the Customs Act - the statements made and signed by a person before any gazetted officer of customs during the course of any inquiry or proceedings under the Customs Act shall be relevant, for the purpose of proving, in any proceedings under the Customs Act, the truth of the facts which it contains only when the person who made the statement is examined in the case before the adjudicating authority and the adjudicating authority is of the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice. None of the exceptions contained in Section 138B (1)(a) are recorded as reasons by the authorities below to dispense with the mandatory requirement of Section 138B. Since the statements are the basis on which the entire case has been set up by the Revenue against the Appellants, cannot be relied upon for the want of following the procedure prescribed under Section 138B of the Customs Act. Thus the entire proceedings initiated by the Respondent Revenue fails, due to insufficient evidence - in absence of any material evidence corroborating and supplementing the allegations and/or the statements relied upon, and for the want of following the procedure prescribed under Section 138B of the Customs Act, it is found that the Revenue has failed to prove its case of purported overvaluation of the footballs and other sports goods exported, and that of circular trading. The authorities below have denied the drawback under Rule 16A by holding that the Appellant has failed to produce evidence in respect of realisation of export proceeds within the time allowed - the denial of claim for drawback under Rule 16A is liable to be set aside. Penalty under Section 114 and Section 114AA of the Customs Act - HELD THAT - The revenue has failed to establish violation of any provisions of Section 113 of the Customs Act and/or any provisions of the Duty Drawback Rules and hence, no penalties can be imposed on any of the Appellants under Section 114 and Section 114AA of the Customs Act - In absence of any violation of provisions of Section 113 of the Customs Act, the goods are not liable to confiscation and seizure of goods is liable to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegations of circular trading to claim wrongful duty drawback.
2. Jurisdiction of Additional Commissioner of Customs, DRI.
3. Overvaluation of export goods.
4. Realization of export proceeds.
5. Admissibility of statements under Section 138B of the Customs Act.
6. Imposition of penalties under Section 114 and Section 114AA of the Customs Act.

Issue-wise Detailed Analysis:

1. Allegations of Circular Trading:
The department alleged that the appellants were involved in circular trading of footballs and other sports items to claim wrongful duty drawback. The goods were exported and then re-imported at a lower value, declared as Chinese origin, and then re-exported. Investigations included seizure of goods, statements from various individuals, and issuance of show cause notices. However, the Tribunal found that the case was based mainly on statements without independent corroboration. The Revenue failed to provide credible evidence of compensatory payment to the overseas buyer or any material evidence of money transfer through hawala channels. The Tribunal concluded that the allegations of circular trading were not substantiated.

2. Jurisdiction of Additional Commissioner of Customs, DRI:
The appellants contended that the Additional Commissioner of Customs, DRI, was not the proper officer to re-determine the value assessed by the proper officer under Section 51 of the Customs Act. They relied on the Supreme Court judgment in Canon India Pvt. Ltd. vs Commissioner of Customs and other judgments to argue that the DRI lacked jurisdiction. The Tribunal did not explicitly rule on this jurisdictional issue but focused on the merits of the case.

3. Overvaluation of Export Goods:
The department alleged that the exported goods were overvalued to claim higher drawback. The Tribunal found that the goods exported and imported were made of different materials (PU and PVC), and there was no evidence to prove that the same goods were repeatedly exported and imported. The test reports were inconclusive, and the market survey conducted by the Senior Intelligence Officer was vague and lacked supporting details. The Tribunal concluded that the Revenue failed to prove the overvaluation of export goods.

4. Realization of Export Proceeds:
The authorities denied the drawback under Rule 16A, alleging that the appellant failed to produce evidence of realization of export proceeds. The Tribunal found that the appellant had produced bank realization certificates downloaded from the DGFT website, evidencing receipt of export proceeds. Therefore, the denial of claim for drawback under Rule 16A was set aside.

5. Admissibility of Statements under Section 138B of the Customs Act:
The Tribunal observed that the entire case was based on statements that were not corroborated with independent evidence. The statements were not examined under Section 138B of the Customs Act, which requires the examination of the person who made the statement before the adjudicating authority. The Tribunal held that the statements could not be relied upon due to non-compliance with Section 138B and the lack of corroborative evidence.

6. Imposition of Penalties under Section 114 and Section 114AA of the Customs Act:
The Tribunal found that the Revenue failed to establish any violation of provisions of Section 113 of the Customs Act or any provisions of the Duty Drawback Rules. Consequently, no penalties could be imposed on any of the appellants under Section 114 and Section 114AA of the Customs Act. The goods were not liable to confiscation, and the seizure of goods was set aside.

Conclusion:
The Tribunal set aside both the impugned Orders-in-Appeal and allowed the appeals filed by all the appellants with consequential reliefs, concluding that the Revenue failed to prove its case of purported overvaluation and circular trading. The denial of drawback claims and imposition of penalties were found to be erroneous.