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TMI Blog1998 (10) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... from M/s. Sujata Data Products at their factory at Medak (AP) and were cleared for export there from under AR4 procedure i.e. after examination and sealing of the container by the jurisdictional Central Excise officer. The show cause notice proposes denial of Draw back, confiscation of goods and penal ties. The impugned order-in-original held that the seals of the containers were found intact by Customs, that the outer shells and labels of the FDDs appeared normal, that since there was no evidence of theft or replacement as seals were intact, therefore M/s. Sujatha Data Products (for short SDPL) deliberately packed only shells (without full components inside). It also notes that SDPL had no capacity to produce these within the given time frame, that no Central Excise officer had been examined by the Customs Department that evidence showed all required components had not been procured etc. Therefore, the order concludes that SDPL are responsible for this fraud. The impugned order further holds that since M/s. RE did not verify the contents prior to export packing and neither SDPL asked them to check it before shipment, so there was collusion between the two. 3. Heard Learned Senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured by reputed manufacturers, therefore it is wrong to conclude that non-verification by RE was unprofessional . (2) On the merits of the case learned Senior Advocate further submitted that : (a) tere was no omission or commission by RE; (b) that RE would never pay Rs. 38 lakhs advance for mere shells; (c) that when found to have been cheated, a civil suit was filed; (d) as per agreement with SDPL onus of quality passes to SDPL on complaint of buyer; (e) all documents were prepared by SDPL; (f) whith 4 years of business relationship with SDPL, RE had continued to have faith in SDPL; which is a normal Trading House reaction; (g) that pre-shipment containerisation inspection was done by Central Excise officers who sealed the container and seals were found intact; (h) therefore, there was no evidence to show any fraudulent action and intent on their part; and (i) that even if some negligence is presumed (not admitted) while confiscation of goods (in rem) was justified (they had abandoned the goods), but no penalty was imposable. (3) On the statement of Shri Goyal, he submitted that the witness Had denied collusion; he had not inspected the goods (only sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SDPL who submitted as follows :- (1) that he was an NRI and one of the two Directors of SDPL. NRI meant being out of India for at least 180 days in a year so not a whole-time Director and certainly not in charge of day to day affairs of the company, (2) that he had not signed the contract at Delhi and when shipment was involved, he was neither at Hyderabad nor Madras. (3) that he does not hold any shares and he may have negotiated with RE but did not sign any agreement. Negotiation is mere discussion but not a commitment. (4) The SCN had since merged with impugned order. (5) There is no finding in the impugned order and no allegation in SCN that the goods are prohibited for export under any Export Control Order in the condition seized as Order involves Section 113 (d) and 113 (i). (6) Since either party has not supported the stand of the other throughout the proceedings, so collusion cannot be inferred. (7) Section 113 (d) is not applicable to him and with respect to Section 113 (i) he submitted that he is not covered by it as he has not filed Drawback Shipping Bill and neither claimed drawback on it. There is no proof of abetment too as paras 92.5 to 92.7 of impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raudulently export was pre-planned (2) Since the Shipping Bill etc., were signed by Yogendra Pandey and a Director of RE hence it is clear that RE is the exporter. (3) Clause 10 of the contract between RE and SDPL clearly provides for inspection of goods. Therefore, only logical reason why this was not implemented was because there was collusion. (4) Statement of Suryanarayana Murthy clearly deposes that G.B. Goyal of RE supervised containerisation. This is also supported by Col. Sheopuri s statement. (5) In his statement CEO Apte had stated that normal production could not exceed 75-80 pcs per day of fully operational units. It would, learned SDR submits, have taken over 7 weeks for 4,000 pcs to be manufactured. SDP has no explanation and hence did not deliberately manufacture complete goods. (6) Just because RE paid Rs. 38 lakhs advance to SDPL it does not absolve them. (7) Since RE filed Green Drawback S/B, so they are the claimants and nominee is a different issue. (8) Collusion is to be appreciated in totality and as laid down in the case of Bhoormal, 1984 (13) E.L.T. 1546 by Apex Court, it has not to be proven by mathematical precision. (9) Any misdeclaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of SDPL for draw-back payment, declared by exporter (RE). (5) The examination report found that goods were not fully manufactured, non-functional and were virtually junk. However, outer visual appearance was that they were complete as even lead wires were coming out, though internally they had been secured to the shell by adhesive tape. (6) But no CE Officer concerned has been examined at any stage. (7) Agreement between RE and SDPL had a clause (10) facilitating pre-containerisation inspection and as per clause 3 thereof, SDPL indemnifies RE against complaints on quality etc., (8) SDPL received advance of Rs. 38 lakhs from RE and now face a civil suit at Delhi. 10. The main points of dispute are as follows : (1) who was to benefit from the drawback claim, as and when it was paid? SDPL and RE now point fingers at each other. (2) who would have benefited from the remittances received if the junk goods had been exported? SDPL claims that Rs. 50 lakhs is still due to them, while RE has sued them in a civil suit; (3) Were junk goods manufactured and deliberately packed in container by SDPL or not? SDPL maintained that they had packed correct goods and that the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hesitation in concluding that the goods which were found therein during Customs examination are the very goods which were manufactured and then packed by M/s. SDPL at their factory at Medak under the relevant AR4 form. This conclusion is also supported by the fact that in the original proceedings, neither SDPL nor RE moved the adjudicating authority to cross-examine the CE Officers who had processed the AR4 and sealed the containers. Therefore, records are clear that neither the AR4, nor the sealing of the container, after inspection, by the Central Excise Officers are under dispute. This conclusion is further supported by another corroborative evidence: the deposition of Shri Apte, CEO of SDPL, that their normal production capacity (with the work force etc., used) would be about 75-80 pieces of fully manufactured and tested FDDs per day. Learned SDR rightly argued that if this admitted yardstick is applied here, then 4,000 pieces of fully manufactured and tested FDDs could just not have been manufactured within the time available as on record. We also note that in his statement dated 27-4-1995 Shri A. Suryanarayana Murthy had admitted, after seeing sample of goods from the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to go into the question of why the Central Excise Officers could not detect this fraud. They are not a party here. Secondly, as has been held in AIR 1976 Cal. 21 in the case of United India Minerals Ltd., failure of Customs Officials (here Central Excise Officials) in performing their statutory functions does not exonerate the appellants from doing their duty under law. We are also led to conclude that in view of their deliberate act of misdeclaration, as found above, SDPL harboured a culpable mental state or knowledge and knew that these goods manufactured and cleared by them for export, would be liable to confiscation, if the true character thereof was detected prior to export. Since the journey of these goods tendered for export commences from the factory of M/s. SDPL, under AR4 procedure, they now cannot take the highly technical stand that, not being the exporters as defined under Section 2 of Customs Act, 1962, they are out of the picture. We wish to draw a distinction between a manufacturer who clears goods for home consumption and then those goods are exported by a merchant exporter, having bought them from the market; and (as in the case here) where a manufacturer knows al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue as to why such an inspection was not carried out by RE. Because, if RE chose to put their neck in the hands of SDPL by reposing faith, or trust, or whatever you may call it, this does not in any way lessen their responsibilities liabilities under law as an exporter, let alone absolve them. We therefore conclude that M/s. Ratan Exports, as the exporter, have misdeclared the goods tendered for export. 15. In view of the aforesaid discussions, we find that both M/s. Ratan Exports and M/s. Sujatha Data Products Ltd., are liable for imposition of penalty. This is so because in 1988 (38) E.L.T. 647 (Tribunal) it has been held that when there is an attempt to export illegally, it is not only the exporter but also others privy to the attempt who are liable to imposition of penalty. In this case, M/s. RE are the exporters and M/s. SDPL, as discussed above, were privy to this misdeclaration in the Shipping Bill, apart from themselves having misdeclared on the AR4 etc. Secondly, it is now a well established law that misdeclaration under Customs Act entails penal action. Thus in the case of Hotchand Jawaharmal v. U.O.I. as reported in 1983 (14) E.L.T. 2197, Hon ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L in his statements has mostly been evasive effacing the questions put to him squarely; that there is sufficient evidence to show that SDPL had neither the time nor the stocks to manufacture complete goods and had not taken any urgent steps to acquire the stocks; and that an advance of Rs.38 lakhs had been paid by RE to SDPL even before the goods were manufactured and delivered. The only logical conclusion available from an objective consideration of these facts on record, is that SDPL would never have dared to supply incomplete goods i.e. junk to RE unless there was a tacit understanding between them to this effect. This conclusion is supported by the following : (a) that the agreement between RE and SDPL clearly stipulated that SDPL would be responsible for complaints from foreign buyer and it indemnified RE there from. Now, it goes without saying, that if this was a normal and above board export transaction, then SDPL would have known that by supplying junk, it was only creating troublesome liability for itself, as no foreign buyer would accept this junk for the price of correct goods. Yet SDPL went ahead and not only got junk stuffed but also misdeclared the AR4. The only log ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 57 (T) the Hon ble Tribunal had enhanced penalty from Rs. 10,000/- to Rs. 25,000/- for misdeclaration of goods. Therefore, if need be, we shall be able to follow this precedent. On merits, we find that the order impugned has imposed a penalty of Rs. One lakh on M/s. SDPL. M/s. SDPL was to get a draw-back of Rs. 22 lakhs approx. in addition to the negotiated price of Rs. 92 lakhs i.e., their total likely receipts from this transaction would be Rs. 1.14 Crore against an estimated value of the junk being between Rs. 5 to 10 lakhs. On this net, likely gain of Rs. 1.04 crores involved in this fraud, the learned Commissioner has imposed a penalty of Rs. One Lakh. Similarly, M/s. RE were to get a remittance of Rs. 1.02 crores (FOB value declared) for these junk goods for which they had only paid Rs. 38 lakhs to SDPL. Their net gain (even if balance of Rs. 52 lakhs was also paid to SDPL) would still be over Rs. 8 lakhs. They have been penalised only Rupees One Lakh in the impugned order. The Revenue in its cross appeal, feels that this quantum of penalty is too low and prays for its enhancement. We have already found that in this case there was a collusion between RE SDPL and both are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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