2025 (4) TMI 462 - AT - Customs

Over invoicing of goods exported under cover of 35 shipping bills from ICD Pantnagar to avail inadmissible drawback benefits under the Customs Act 1962 - confiscation and impositions of penalty - HELD THAT - The evidences collected by the Department are only value of goods determined on the basis of costing and non existence of few suppliers. It is interesting to note that market enquiry carried out by the Officers of ICD Pantnagar shows entirely different result from the report of DRI Officers in respect of value of export goods. As per report of ICD Customs Pantnagar the value of goods exported was at par or at higher side than FOB value of the respective goods. The outcome of the enquiry was very much in the knowledge of the DRI but it was deliberately ignored. DRI Officers got the enquiry conducted not from the market but by way of costing given by a couple of manufacturers of garments and applied Rule 5 of the CVR to determine value of export goods. It is well established fact that market price of a product does not depend on the value arrived by way of costing. Many times market price is substantially higher than the costing value. The costing certificate on which the department relies does not have any evidentiary value for determining the cost of the exported goods. It is found that the Appellant has produced all bills/invoices of purchases of goods with payment details thereof. The Department did not challenge its authenticity. In the case of M/s Peerless Consultancy Services Private Limited vs. Commissioner of Customs (PORT) Kolkata 2013 (8) TMI 508 - CESTAT KOLKATA it has been held by the Tribunal that the burden of proof is on the Department regarding overvaluation in absence of flow back of payment made to the merchant-exporters. Moreover the Appellant had undoubtedly received remittances equal to the FOB value of the exported goods. The department has not proved any flowback of the money from foreign buyers to exporter or vice versa. There is no proof at all that any transaction of money was carried out other than the payment of FOB value of goods - thus there is no case of over invoicing of export goods in the present case. Declaration of higher quantity of goods and drawback in shipping bill - HELD THAT - All export documents like invoice packing list etc were showing correct quantity of export goods. There are sufficient force in the contention of the Appellant that in shipping bill quantity of goods was shown on higher side due to typographical mistake. Conclusion - There is no role of the CHA (Appellant No.2) in deciding valuation of the subject goods and the Appellant is also not responsible for verification of declared FOB values of the subject goods. The Customs Broker i.e. Appellant No.2 has not done any act of commission or omission which would render the goods liable for confiscation under Section 113(i) or under Section 113(ia) of the Act. The Redemption fine and the penalties imposed under Section 114 and 114AA on both the Appellants are set aside. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the goods exported by the appellants were overvalued to avail inadmissible drawback benefits under the Customs Act, 1962.
• Whether the procedural fairness was adhered to in the adjudication process, specifically regarding the opportunity for personal hearings.
• Whether the penalties and redemption fines imposed under Sections 114 and 114AA of the Customs Act, 1962, were justified.
• Whether the Customs House Agent (CHA) was liable for penalties under the Customs Act for the alleged overvaluation of goods.

2. ISSUE-WISE DETAILED ANALYSIS

Overvaluation of Export Goods:

• Legal Framework and Precedents: The Customs Act, 1962, specifically Sections 113, 114, and 114AA, along with the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, were relevant. The Tribunal relied on precedents such as Essar Automotive Pvt Ltd and Siddachalm Export Pvt. Ltd., which emphasized the importance of foreign remittances equaling the FOB value in determining valuation authenticity.
• Court's Interpretation and Reasoning: The Tribunal noted discrepancies between the valuation methods used by the Department and the market inquiry conducted by ICD Pantnagar. The Tribunal highlighted that market value does not necessarily align with computed cost values, especially when the latter lacks certification from a Cost Accountant or Chartered Accountant.
• Key Evidence and Findings: The Tribunal found that the Department's reliance on costing from a couple of manufacturers was insufficient without supporting certificates. The Tribunal also noted that foreign remittances received equaled the FOB value, undermining the overvaluation allegation.
• Application of Law to Facts: The Tribunal applied the principle that in the absence of evidence of money flow back, the FOB value should be accepted when foreign remittances match the declared value.
• Treatment of Competing Arguments: The Tribunal considered the Department's arguments regarding overvaluation but found them unsupported by substantial evidence, especially given the remittances received.
• Conclusions: The Tribunal concluded that there was no overvaluation of export goods in this case.

Procedural Fairness and Personal Hearings:

• Legal Framework: Section 122A of the Customs Act mandates at least three opportunities for personal hearings before adjudication.
• Court's Interpretation and Reasoning: The Tribunal found that the appellants were not given adequate opportunities for personal hearings, particularly during the COVID-19 pandemic when virtual hearings were not offered.
• Conclusions: The Tribunal determined that the adjudication process violated principles of natural justice due to insufficient hearing opportunities.

Penalties and Redemption Fines:

• Legal Framework: Sections 114 and 114AA of the Customs Act were relevant for imposing penalties for improper export practices.
• Court's Interpretation and Reasoning: The Tribunal found that the penalties and fines were unjustified given the lack of evidence supporting the overvaluation claims.
• Conclusions: The Tribunal set aside the penalties and redemption fines imposed on the appellants.

Liability of the Customs House Agent (CHA):

• Legal Framework: The CHA's role was examined under Sections 113 and 114 of the Customs Act.
• Court's Interpretation and Reasoning: The Tribunal concluded that the CHA acted within its role as a Customs Broker and was not responsible for verifying the valuation of goods.
• Conclusions: The Tribunal found no basis for penalizing the CHA and set aside the penalties imposed.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reinforced the principle that foreign remittances equaling FOB value are crucial in determining the legitimacy of declared export values. Additionally, procedural fairness in adjudication, including adequate hearing opportunities, is paramount.
• Final Determinations: The Tribunal allowed the appeals, setting aside the redemption fines and penalties imposed under Sections 114 and 114AA of the Customs Act. The Tribunal found no evidence of overvaluation or misconduct by the CHA.