2006 (10) TMI 148 - SC - Customs

Whether cheap garments were being exported by grossly misdeclaring the description and heavily over-invoicing the value under the Duty Entitlement Pass Book Scheme (DEPB Scheme)? Held that - The Tribunal, in our opinion, should have considered the matter from another angle, namely, as to whether Respondents have violated the provisions of the Foreign Exchange Regulation or not. As regards, the finding arrived at by the Tribunal that Respondents had not over-valued the goods, inter alia, on the ground that no expert opinion regarding the value of the export goods had been adduced, the Tribunal did not advert to the materials which had been brought on records during investigation, whereupon the Commissioner relied upon. The impugned judgment cannot be sustained, which is set aside accordingly. The appeal is allowed. The matter is remitted to the Tribunal for consideration thereof afresh.

Issues Involved:
1. Denial of export under DEPB Scheme and rejection of declared value.
2. Confiscation of goods under Sections 113(d), 113(h), and 113(i) of the Customs Act, 1962.
3. Imposition of penalties under Section 114(i) of the Customs Act, 1962.
4. Applicability of decisions in Prayag Exporters Pvt. Ltd. and Om Prakash Bhatia cases.
5. Interpretation of "prohibited goods" under Section 2(33) of the Customs Act.
6. Examination of overvaluation and fraudulent intent.

Detailed Analysis:

1. Denial of export under DEPB Scheme and rejection of declared value:
The Commissioner of Customs and Central Excise, in its order dated 31-3-2004, denied the export of goods under the DEPB Scheme and rejected the declared value of US $6.40 per piece. The DEPB credit amounting to Rs. 41,06,700/- was also denied. This decision was based on findings that the goods were over-invoiced and misdeclared.

2. Confiscation of goods under Sections 113(d), 113(h), and 113(i) of the Customs Act, 1962:
The Commissioner ordered the confiscation of the goods under Sections 113(d), 113(h), and 113(i) of the Customs Act, 1962. The goods were found to be of low quality and misdeclared, which led to their seizure and subsequent confiscation. The Tribunal, however, concluded that the goods were not prohibited and thus not liable to be confiscated under these sections.

3. Imposition of penalties under Section 114(i) of the Customs Act, 1962:
Penalties were imposed on various individuals under Section 114(i) of the Customs Act, 1962, ranging from Rs. 5,00,000/- to Rs. 40,00,000/-. The penalties were based on the fraudulent intent to obtain undue benefits under the DEPB Scheme.

4. Applicability of decisions in Prayag Exporters Pvt. Ltd. and Om Prakash Bhatia cases:
The Tribunal relied on the decision in Prayag Exporters Pvt. Ltd., which held that Clause (d) of Section 113 of the Customs Act would not apply to cases where the export of goods is not prohibited. However, the Supreme Court highlighted that the decision in Om Prakash Bhatia, which involved the drawback scheme, was more relevant as it dealt with the correct declaration of export value and fraudulent over-invoicing.

5. Interpretation of "prohibited goods" under Section 2(33) of the Customs Act:
The Supreme Court emphasized that the definition of "prohibited goods" under Section 2(33) is broad and includes goods subject to any prohibition under the Customs Act or any other law. The Tribunal failed to consider this broad interpretation, which could justify the confiscation of goods even if they are not explicitly prohibited.

6. Examination of overvaluation and fraudulent intent:
The Supreme Court noted that the Tribunal did not adequately consider the evidence of overvaluation and fraudulent intent. The Commissioner's findings were based on physical examination, statements of various witnesses, and documents indicating that the goods were over-invoiced and of low quality. The Tribunal's decision to dismiss the overvaluation claim due to the lack of expert evidence and cross-examination was found to be insufficient.

Conclusion:
The Supreme Court set aside the Tribunal's judgment and remitted the matter for fresh consideration, emphasizing the need to examine the broader definition of "prohibited goods" and the evidence of overvaluation and fraudulent intent. The appeal was allowed, and the matter was sent back to the Tribunal for a thorough re-evaluation.

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