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TMI Blog1994 (12) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... from HDPE granules were in fact manufactured out of re-cycled plastic scrap/waste and were purchased for the purpose of export under DEEC Scheme, the officers of Directorate of Revenue Intelligence intercepted and detained a consignment of 60 M. Tonnes of Polyethylene Newar Straps which was being exported by the exporter. The officers also recovered shipping bills and documents which accompanied these export consignments. 3. Scrutiny of the documents relating to this consignment revealed that the exporter have filed 10 shipping bills under 5 different DEEC books for export of 60 M. Tonnes of Polyethylene Newar/Strap declared to be made out of HDPE granules/powders for export to a Dubai based party M/s. International Textile Company, Dubai. The investigation has further revealed that the exporter has declared the total value of the consignments contained in the said 10 shipping bills as US $ 30,00,000/- i.e. an exhorbitantly over-invoiced rate with the sole intention to enable themselves to avail disproportionately higher entitlement for import of prime quality HDPE granules upto a value of US $ 18,57,000/- completely exempted from Customs duty. 4. The exporter filed a Writ Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttempting to export by declaring the FOB value as US $ 30 lakhs equivalent to Indian Rs. 8.59 crores. 7. A show cause notice was, therefore, issued to the exporter by the Collector of Customs, Kandla on 10-1-1994 proposing confiscation of the said export goods under Section 113(d) as the said exporter knowingly made false declaration with respect to the description, nature and value of the goods before the licensing authorities as well as in the export documents in contravention of Clause 3(3) of Export (Control) Order (1 of 1988), dated 30-3-1988. It was also proposed to impose penalty on M/s. Dimple Overseas and its Managing Director under Section 114 of the Customs Act, 1962. Further, it was proposed to penalise the supporting manufacturer for his wilful and intentional collusion with M/s Dimple Overseas and for aiding and abetting in the export of the said prohibited goods. 8. In adjudication proceedings, Collector of Customs, Kandla vide impugned order in original dropped the charges levelled against the party in said Show Cause Notice. He held as follows : (a) The Collector of Customs held that the Senior Intelligence Officer and Director, Directorate of Revenue Intelligen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, the Tribunal should set aside the said order and should order for confiscation of the goods and confiscation of the sale proceeds realised from the goods in the absence of the goods which have since been exported and hence not physically available for confiscation; and (iii) whether a penalty should be imposed on the exporters and their Managing Director, Shri V.K. Gandhi and Shri Pankaj Valia, partner of the supporting manufacturer M/s. Associated Plastic Industries, or pass such other order as deemed fit and proper. 10. Arguing for the appellant Collector, ld. S.D.R., Shri B.K. Singh, appearing alongwith ld. Counsel, Shri Satish Agarwal, contended that the Collector erred in holding that the Assistant Director, DRI and Senior Intelligence Officer, DRI, Bombay Zonal Officer of DRI, had no jurisdiction for issuing summons, recording statements, and seizing of goods and documents in Gujarat under the relevant provisions of the Customs Act, 1962. This is because the Additional Director General, DRI, Bombay has been duly appointed as Collector of Customs for the whole of Gujarat. As Collector, the Additional Director General can assign any function to be performed under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spirit of freedom as he has found in the relevant Advance licensing policy, ignoring the letter of the law. The Calcutta High Court decision in the case of H.C.L. v. Collector of Customs - 1990 (59) E.L.T. 507 was cited in support. As regards the quality and composition of the material, the ld. S.D.R. referred to the Test Reports on the samples drawn from the exported consignment by the Customs House Chemical Examiner and by Prof. Pandya of I.I.T. and their deposition during cross-examination. It will be seen, therefrom, argued the ld. S.D.R., that the newar exported was not made of H.D.P.E., but was out of a material consisting of a blend of polyethelene and polypropelene with pigments. In three of the samples the specific gravity was less than 0.94 showing clearly that these goods were not H.D.P.E. even going by the Chapter Notes to Chapter 39 CTA, 1975 relied upon by the respondents. The question is whether the goods are as per description in the import licence. Duty-free import entitlement is for H.D.P.E. and for which it should be shown that the export product is made out of H.D.P.E. only. There is no room to invoke the concept of predominance and to hold, as the Collector has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard. Ld. S.D.R., thereafter, submitted that the Collector erred in holding that provisions of Section 14 of Customs Act, 1962, relating to valuation will not apply to export goods. Export goods are governed by Foreign Trade (Development & Regulations) Act, 1992 and the Rules laid down under Exports (Control) Order, 1988. Rule 2(h) of Export (Control) Order defines value as having the same meaning as in Section 14(1) of the Customs Act, 1962. Therefore, it follows that the value of goods in export transactions has to conform to the provisions of Section 14(1) Customs Act, 1962, whether the goods are dutiable or not. Any declaration which does not give value in terms of Section 14(1) would, therefore, contravene Section 3 of Foreign Trade (Development & Regulation) Act, 1992. Ld. S.D.R. urged that value in relation to any goods under the Act has been defined under Section 2(41) of Customs Act as value thereof determined in accordance with provisions of Section 14(1). Relying on the Calcutta High Court judgment in the case of Bird & Co. v. Kalyan Kumar Sen Gupta - 1988 (37) E.L.T. 70, it was urged that what has to be taken as the basis of valuation, is the price at which su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of "imported" HDPE granules/powder. The mistake was reflected in all the export documents including the Shipping Bills. However, on the mistake being pointed out by an application made by the respondents to the licensing authority, the licence description of the resultant product was amended deleting the word "imported" therefrom. Similar amendments were also carried out in the Shipping Bills. The ld. Sr. Counsel urged that there was no stipulation in the export contract or in the import licence that the resultant product must be made from prime quality raw-material. But the Customs Authorities in this case have presumed that it should be so. Even so assuming, the ld. Sr. Counsel pointed out, the test results given by the Departmental Chem-ical Examiner, as also that given by an I.I.T. Professor do not support the Department's case. These reports are clear that goods are made out of prime H.D.P.E. specific gravity of the material is found to be 0.94 which is prescribed under sub-heading 3901.20 Customs Tariff Act, 1975. The presence of about 3 to 5% inorganic compound for colouring is negligible. It was also submitted that the presence of small traces of poly- propylene only conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14 of Customs Act, 1962 has no relevance in this situation. Section 14 of the Act through a fictional 'deemed value' determines the `value' of an item which is either imported or exported when a duty of customs is to be levied on such item on its import or export based on its `value'. It was contended that the value which is the measure of the levy is not at all attracted when the goods are not subjected to any levy of duty. If the goods are otherwise dutiable but for an exemption by way of notification the situation would be different, and, the ld. Sr. Counsel pointed out, it is such a situation which was dealt with by the Hon'ble Calcutta High Court in Bird & Co. case cited by the ld. S.D.R. since value of goods in this case is not relevant for assessment of duty, the only value that is relevant is that in the export contract. Ld. Sr. Counsel in this context cited the conclusion on these lines as to the applicability of Section 14 to duty-free export goods at a Collectors' Conference held on 21st & 22nd July, 1994. As regards jurisdiction of DRI Officers of Bombay DRI Zonal Office in this case, the ld. Sr. Counsel urged that although the Collector held that they had no juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent to the IIT and were tested by Prof. Pandya of Polymer Science and Technology & Laboratory, Department of Chemistry, I.I.T., Bombay vide his letter dated 22-6-1993. He submitted the report giving the particulars of the density as follows : Sample No. Density (g/cc) Differential Transition Thermal Analysis Melt Flow (g/10 Min) Ash Content (%) 1. 0.958 130 156 1.51 3.2 2. 0.955 140 165 1.56 4.7 3. 0.932 130 170 2.32 4.7 4. 0.945 135 165 1.28 4.5 5. 0.945 135 160 1.85 4.6 6. 0.949 130 160 1.52 4.4 7. 0.933 130 155 1.54 4.6 8. 0.916 130 160 2.05 4.4 9. 0.962 125 155 1.29 4.4 10. 0.949 125 160 2.27 5.2 The inferences drawn from the above table and the inferred (IR) spectra of each sample (attached alongwith) are as follows : (a) All the materials are found to be of prime type as there are no peaks in IR Spectra at 1700 - 1750 cm-1, corresponding to C-0, which if present, is a pointer to recycled or used material. (b) The material is not a homopolymer, but it is either a blend or a copolymer as indicated by two transition temperature observed in DTA analysis. (c) The IR Spectra indicates that all the samples are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh-density grades are used for wire insulation, beverage cases, dishpans, toys, and the film used for boil-in-bag packaging. In general, polyethylenes are not used in load-bearing applications because of their tendency to creep. However, a special type, high-molecular-weight polyethylene, is used for machine parts, bearings, bushing, and gears. Polyethylenes can be blended or combined with other monomers-propylene, ethyl acrylate, and vinyl acetate - to produce copolymers to improve such properties as stress-crack resistance and clarity and to increase flexibility." 15. Therefore, when a resultant product is to be made out of H.D.P.E., the product should not exhibit characteristics of copolymer and the presence of other monomers like propylene would indicate a blending to create a copolymer. In fact, this property, has come out in the test report of the samples drawn from the export consignment given by both the Chemical Examiner in the Customs House as well as the I.I.T. Prof. Pandya. The presence of pigment is no doubt understandable because the newars of various colours, but the product cannot be blend of copolymer when it is contracted to be supplied as being made out of H.D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and the return of the finished product from the job workers Associated Plastics, nor any indication that the payments made were only towards job work. It is also significant that the licences issued in this case indicate the class of importer as "AU (RE)" which is in accord with the existing endorsement on the licence and the DEEC of the supporting manufacturer's name. The Duty Exemption Entitlement Certificate (DEEC), which is also a part of the value-based Advance Licence, gives the name of Associated Plastic Industries, Bhavnagar in Part A under column name and address of the factory where resulted products for export are manufactured. It is significant that this endorsement has been maintained and has not been cancelled by the Licensing Authority at any stage, although the respondents had got an amendment to the licence to delete the word "imported" from condition 4 of the licence which originally read to the effect that newars were to be made out of imported H.D.P.E. granules/powder. Therefore, when the Licensing Authority has issued the licence with such specific endorsement relating to supporting manufacturer, the Customs Authorities, in our view, were not precluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants, therein, for obtaining clearance of the goods by paying concessional rate of duty by suppression and wilful mis-statement was correct, and the Supreme Court held that in such a context, the office of the Deputy Chief Controller of Imports had no role in the matter of levy of customs duty and, therefore, the Supreme Court held that the appellants, therein, informing the Licensing Authority of the formation of a company was of no relevance. Another aspect in this case to be seen is that the grant of the Advance Licence is subject to the condition and is linked to the exemption Notification 203/92. It will also be relevant to bear in mind that the issue also involves interpretation of an exemption Notification 203/92, and in doing so, strict adherence is required to the language used therein. When the exemption is given to H.D.P.E. granules/powder which is dependent on export of resultant product made from such H.D.P.E. granules and powder, and when it is found that the resultant export product was not made of H.D.P.E., then the exemption cannot be extended by holding that although the export product is not made wholly from H.D.P.E., it is predominantly so made. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment. But it may be seen that the very same circular does indicate that though it will not be necessary for the Customs Authorities to obtain a declaration from the customer in respect of each shipment giving full details of quantity specifically of inputs used, a simple declaration that the export product has been manufactured out of inputs identical to those sought to be imported for which Advance Licence is issued will be sufficient. As we have seen above, the export product in this case made out of a copolymer blend of H.D.P.E. polypropylene cannot be said to be manufactured out of inputs identical to H.D.P.E. granules/powder for which the Advance Licence has been granted. 16. On the aspect of over-valuation of exported goods which is an aspect dealt with in the impugned order, it is seen that there is no specific charge on this count in the Show Cause Notice, but the respondents had inferred it and put forth their defence on this aspect which has been in effect accepted by the Collector, who has held that since goods, herein, are not subject to duty provisions relating to valuation for the purpose of assessment under Section 14 of Customs Act, 1962 and Rules made thereun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and place of exportation so as to establish that the value declared by the respondents is at variance with the value as envisaged under Section 14. In the present case, such an exercise has not been undertaken though it has been shown that the goods are qualitatively different not being made wholly of H.D.P.E. leading to substantial windfall to the respondents on export. Another aspect in this regard of relevance is that there has been remittance of foreign exchange to India against the exported goods as confirmed by Enforcement Directorate. Respondents have also placed on record Minutes of Collectors' Conference headed by Board Member on 21st & 22nd July, 1994 as issued by Bombay Customs House Vol. V 1/94 on the aspect of over-valuation of export goods under VABAL Scheme and it had been recognised that there are legal difficulties in their way if the goods are not dutiable and the absence of penal provision in this regard so long as exporter is able to bring the remittance back. Hence, for the abovesaid reasons, the Collector's conclusion that the rigours of Section 14 on valuation are not in terms applicable to the present case where the goods exported are not subject to any l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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