1999 (8) TMI 430 - AT - Customs

Summary

Issues Involved:
1. Whether the musical greeting cards were over-invoiced.
2. Whether the customs authorities had the jurisdiction to assess the value of goods not liable to duty.
3. Whether the actions of the exporter violated the Foreign Exchange Regulation Act.
4. Whether the customs authorities were justified in confiscating the goods and imposing penalties.

Detailed Analysis:

1. Over-Invoicing of Musical Greeting Cards:
M/s. Galani Infin Pvt. Ltd. filed three Shipping Bills for the export of 7125 pieces of musical greeting cards with a total FOB value of Rs. 13,37,902.00. The customs authorities, upon examination, found the real value to be approximately Rs. 40.00 per piece, while the export invoice showed Rs. 190.00 per piece CIF. The statement of Shri Damodar S. Bulani, Working Director of M/s. Galani Infin Pvt. Ltd., revealed that the cards were over-invoiced to generate more money and evade income tax. The arrangement involved transferring money from Dubai and Vienna to Russia, and then to India, inflating the export product prices to benefit from income tax and establish market credibility.

2. Jurisdiction of Customs Authorities to Assess Value:
The appellant argued that musical greeting cards were not prohibited goods and not liable to any duty, hence customs authorities should not interfere if the full value is declared in the Shipping Bill. They contended that Section 14(1) of the Customs Act, 1962, relating to valuation, applies only to goods chargeable to customs duty. However, the judgment clarified that Section 14(1) prescribes a method for determining the value of goods, independent of their duty liability. The customs authorities have the power to assess the value of goods under Section 14(1), irrespective of their duty status, to prevent economic harm from over-invoicing.

3. Violation of the Foreign Exchange Regulation Act:
Section 18(1)(a) of the Foreign Exchange Regulation Act mandates exporters to furnish the full export value of goods. The customs authorities concluded that the appellant's declaration was not genuine, as the inflated value was a method to clandestinely bring money into India, affecting the economy. The judgment referenced the Supreme Court's view in McDowell & Co. Ltd. v. Commercial Tax Officer, emphasizing the negative impact of tax avoidance and the need for judicial scrutiny of such transactions.

4. Justification for Confiscation and Penalties:
The customs authorities issued a notice to M/s. Galani Infin Pvt. Ltd. to show cause for the confiscation of the musical greeting cards and the imposition of penalties. The Commissioner of Customs ordered the confiscation under Section 113(d) of the Customs Act, 1962, with an option to redeem the goods on payment of a fine, and imposed a penalty under Section 114(i). The Tribunal upheld this decision, noting that the export was not genuine and the inflated value was meant to bring money into India unlawfully. The judgment dismissed the appellant's reliance on previous decisions, aligning with the Supreme Court's stance on tax avoidance.

Conclusion:
The Tribunal confirmed the order of the Commissioner of Customs, dismissing the appeal. It held that the customs authorities were justified in assessing the value of the goods, confiscating them, and imposing penalties due to the over-invoicing and the clandestine financial arrangements that violated the Foreign Exchange Regulation Act and impacted the economy.