1. (a) These appeals have been filed by M/s. Hetero Drugs Ltd., Hyderabad (hereinafter referred to as the Appellants) and by Shri Rami Reddy, General Manager (Materials) against the order-in-original passed by the Commissioner of Customs, Airport, Chennai, in terms of which duty demand of Rs. 5,36,20,526/- under Section 28 read with Section 147 of the Customs Act, 1962 has been confirmed and penalties of Rs. 5,31,42,396/- imposed under Section 114A of the said Act on the appellants and Rs. 15,00,000/- on Shri Rami Reddy.
(b) The appellants are in the business of manufacturing bulk drugs and other pharmaceutical products. They have been importing various raw materials required for the manufacture of their finished goods. To handle the Customs clearing activity at the Chennai Sea and Airports, they had engaged the services of M/s. Far Port International, Chennai, a proprietary concern of one Shri D. Ramesh.
(c) (i) The appellants used to pay the duty in the form of crossed demand drafts, favouring the Commissioner of Customs A/c. Hetero Drugs in respect of the imports and receive the goods as mentioned and under the cover of Bills of Entry. The appellants were also taking Modvat credit on the strength of these Bills of Entry. These Bills of Entry were regularly scrutinised and defaced by the jurisdictional Central Excise authorities.
(ii) For consignments that were warehoused in Bond, the appellants used to provide necessary instructions and duty demand drafts to the clearing agent for bonding and debonding. Goods after being debonded were being received by them under the cover of ex-Bond Bills of Entry.
(d) In and around September 1999, when the appellants wanted to bond certain imported goods, permission was refused; as certain goods in their account were lying uncleared in the Bonded Warehouse.
(e) On enquiries made by the appellants, it was revealed that Shri D.Ramesh, Proprietor of M/s. Far Port International, had indulged in mala fide activities of substituting the goods at the Bonded Warehouse; that the CHA had sent the goods imported under the cover of fake Bills of Entry to the appellants; that the amounts sent by them in the form of demand drafts in favour of the "Commissioner of Customs - A/c. Hetero Drugs" after being deposited in the deposit account at Chennai Custom House treasury had not been utilised for payment of duty on consignments belonging to and meant for the appellants; that the said clearing agent had thereby misutilised the amounts sent by other importers.
(f) Besides making a detailed representation to the Commissioner of Customs, they also gave a police complaint against M/s. Far Port International Ltd. Immediately thereafter investigations were conducted by the Special Intelligence and Investigation Branch (SIIB), Air Cargo Complex, Chennai with regard to the alleged misuse of warehousing facilities and misappropriation of Customs duty by M/s. Far Port International Ltd., involving various importers including the appellants herein by visiting the premises of the appellants on 23-9-99 and recording statements. During the course of enquiries, the appellants provided details of all the Bills of Entry and the details of the demand drafts by which the amounts relating to the duties were paid. They also provided confirmatory letters from the Bank indicating that the amounts in question vide the demand drafts had been debited from their accounts and credited to the account of the Commissioner of Customs, Madras.
(g) A show cause notice was thereafter issued proposing to demand Rs. 5,31,42,396/- + Rs. 4,78,130/- under Section 28(1) of the Customs Act, 1962 and to impose penalties on the ground.
(i) Demand of Rs. 5,31,42,396/- was sought to be made on the ground that the cash numbers indicated in 68 Bills of Entry out of a total of 347 Bills of Entry for payment of duty relate to other importers and not to the appellants.
(ii) Demand of Rs. 4,78,130/- was sought to be made in respect of the time expired bond No. 5748, dated 19-9-95 which relates to the goods still lying in the warehouse.
(iii) The appellants filed detailed reply dated 8-6-2000 and written submissions dated 27-7-2001 denying the allegations made in the show cause notice. They also specifically requested for cross-examination of the bond officers, the escort officers and the officials of the accounts department who were in service in the department during the period in question.
(h) A personal hearing was held before the Commissioner of Customs on 13-11-2001 and one more written submissions was filed by the Appellants on 15-11-2001.
(i) The Commissioner passed the impugned Order-in-Original and confirmed the entire demands and imposed penalties both on the Company and its General Manager. Hence these appeals.
(a) Out of the 68 Bills of Entry impugned, in these proceedings while in respect of 52 Bills of Entry, the departments case is that the cash numbers indicated in the Bills of Entry for payment of duty relate to other importers and not to the appellants; in respect of the remaining 16 Bills of Entry the departments case is that the amount of duty has either been paid partly by the Clearing agent at the time of clearance or in full by the clearing agent subsequent to the clearance of the goods.
(b) The Commissioner with reference to the contention of the appellants that the amount of duty involved in all the 68 Bills of Entry has been sent by way of demand drafts in favour of the Commissioner of Customs - A/c. Hetero Drugs, has held that there appears to be no proper evidence with regard to the drafts sent in respect of these Bills of Entry. While the appellants submit that the above observation of the Commissioner is factually incorrect as is explained below. During the investigations, Shri Rami Reddy, General Manager (Materials) of the company in his statements provided details of the duty payments made through their bankers as well as receipts of confirmation from their bankers with regard to the payment of duty amounts made by them. Letters received from the State Bank of Hyderabad as available in the paper book confirm the payments of amounts as sent by the appellants to the account of Commissioner of Customs. Therefore, appellants are held to have provided details of the various demand drafts sent in respect of the 68 Bills, of Entry in question and consequently observation of the Commissioner on this aspect are found to be factually incorrect.
(c) The Commissioner has observed that though the total duty to be adjusted for all the clearances made by the appellants was Rs. 12,65,92,422/-, the appellants had only made a payment of Rs. 9,81,99,115/- out of which only an amount of Rs. 6,58,47,153/-was adjusted towards payment of duty on goods relating to the appellants. The appellants submit that the above observation is irrelevant to the issue since the demand of duty is in respect of 68 specified Bills of Entry indicated in Appendix 17 to the show cause notice. Therefore, all that the appellants have to demonstrate whether in respect of these 68 Bills of Entry the appellants have made the payment by way of demand drafts which position has been established above. Examining further the same it is found :- (i) The show cause notice relies on the statements dated 1-10-99 and 7-10-99 of S/Shri Y.V.S. Prasad and Hanumanth Rao, who were in charge of the Accounts of the CHA. Both these individuals have clearly stated that the total amount received from the appellants was Rs. 13,92,45,290/- and out of which an amount of Rs. 8,54,16,229/- has been adjusted towards payment of duty. The remaining amount of Rs. 5,38,29,061/- was adjusted by them for payment of duty relating to the other importers.
(ii) It is submitted that Revenue has not taken into account the total number of DDs sent by the appellants to the CHA. They have made a chart for those demand drafts, out of the total number which were utilised by the CHA for discharging duty for the imports made through the Sea Customs and the Air Customs as below : 5. Perusal of photocopy of manual submitted stipulating the procedure evolved in the Customs House's for the receipt of the duty amounts and for ensuring that the same is used for payment of duty liability in respect of the particular importer indicates that the said duty draft amounts should have been permitted to be used only for payment of duties on the appellants goods only. They should not have been allowed to be misused by the CHA, or the officers of the Accounts Section of the Customs House Madras, enabling the CHA or/and other importers to avail the duty payment benefits, which were not available to them. If that has taken place, and false fabricated cash number Bills of Entry have been handed over to the appellants would not indicate that the goods imported and cleared out of custom charge and ex-Bond and delivered to the appellants are not duty paid.
6. The Commissioner has also observed that in respect of most of the cases in question into-bond bills of entry were filed and double bonds were executed and that the goods were removed under the cover of manipulated documents. The appellants submit that as has been their consistent plea throughout the proceedings that there has been a misuse of the position by the CHA. In fact, Shri Rami Reddy has stated in his statement dated 28-10-99 in unequivocal terms that they had not executed any double duty bonds with the Customs. The show cause notice vividly brings out how warehoused goods have been removed substituted and delivery of imported goods sent to Hyderabad on forged/false Bills of Entry. In fact the CHA could have done so only because of collusion.
The collusion of the appellants by a positive act on their part is not found. When the appellant has withdrawn the duty amounts from the Bank and remitted the same. There was no motive or mens rea on their part to have colluded with the CHA even by an alleged act of malfeasance, malfeasance or non-feasance. The Com missioner has also observed that in respect of 9 Bonds the CHA had filed into Bond Bill of Entry, but the appellants had received the goods under the cover of a home consumption Bill of Entry which indicates the tacit approval of the appellants in the activity of the CHA. The factual position in this regard is better appreciated from appendix-23 to the show cause notice which is a chart indicating the advice given by the appellants to the CHA for warehousing the goods. The advice given by the appellants in respect of these 9 Bonds is summarized as under :- From the above it will be evident that in respect of the 9 Bonds, instructions given by the appellants were to clear the goods whereas the CHA in so far as the appellants were concerned, appears to have implemented the instructions by dispatching the goods to the factory of the appellants under the cover of a Home consumption Bill of Entry. As far as the customs was concerned, the CHA appears to have misused his position, filed an into Bond Bill of Entry and sought permission to warehouse the goods. It is, therefore, evident that the action of the CHA was not with the approval of the appellants. The Commissioner has observed in respect of the consignments relating to the 7 Bonds, the appellants had received the consignments, which were warehoused according to the records of the Customs. The factual position relating to the 7 Bonds is also wet out as under:- Rs. 5,88,133 to-wards duty and Rs. 2,15,213 to-wards interest paid on 29-5-99 Ex-bond B/E Nos. 1008, dt. 27-5-96; 1026, dt. 30-5-96 and 982, dt.
24-8-96 with duty en-dorsement of Rs. 9,89,212 Amount of Rs. 6,89,480 paid towards duty and Rs. 2,66,724 paid towards interest on 26-4-99 with ex-bond B/E No. 1134 dt. 23-4-99 Ex-Bond B/E No. 1040/ 31-5-96 and 041/31-5-96 with duty en-dorsement of Rs. 11,98,118 on each of the B/E Rs. 16,71,571 paid towards duty and Rs. 6,40,235 paid towards interest on 26-4-99 with ex-bond B/E 1133, dt. 23-4-99 Home con-sumption B/E No. 31647 dt. 25-5-96 with duty endorse-ment of Rs. 6,10,606 Rs. 4,25,692 paid towards duty and Rs. 1,63,707 paid towards interest on 26-4-99 with ex bond B/E No. 1025, dt. 30-5-99 (men-tioned as 30-5-96 in SCN) Ex-Bond B/E No. 1106, dt. 10-6-96 and 1146, dt. 17-6-96 with duty en-dorsement of Rs. 12,16,673 Rs. 12,16,673 paid on 11-6-96 under ex-bond B/E No. 1106, 10-6-96 Rs. 8,48,021 paid along with in-terest of Rs. 3,37,351 on 29-5-99 under ex-bond B/E No.Home con-sumption B/E No. 50998, dt 11-9-95 with a duty endorse-ment of Rs 6,65,000 Rs. 5,85,200 paid towards duty on 26-4-99 Rs. 3,07,511 paid on 26-4-99 with ex-bond B/E No. 1375, dt. 31-10-98. As per the bond register ex-bond B/E No. 1375, dt. 31-10-95 also Ex bond B/E No. 1260, 1391 and 1392, dt.... with the duty endorsement o Rs. 24,02,320 Rs. 8,63,102 was paid towards duty on 29-5-99 along with an amount of Rs. 3,31,526 to-wards interest paid on 29-5-99 under ex-bond B/E No.1261, dt. 2-7-96 From the above chart it is evident that in these cases the appellants had either advised the CHA to immediately clear the goods, which were duty complied with by the CHA or after initial Bonding had instructed him to effect ex-Bond clearances. In all these cases the demand drafts have been issued by the appellants either on the date of the Bill of Entry or immediately thereafter whereas the CHA appears to have paid the duties subsequently almost four years thereafter. This payment has been made by the CHA making use of the demand drafts sent by the appellants for the subsequent imports.
7. When into Bond and ex-Bond procedures have to be necessarily undertaken by under the supervision of a Customs Preventive Officer, then it is strange that the collusion and or negligence of these officers is not even whispered in the show cause notice or considered by the Commissioner. Such large scale breech of Customs procedures prescribed under the Customs Act, 1962 could not have occasioned but for the connivance or/and collusion or/and negligence of Customs Preventive Officers in the discharge of their duties. Surely the importer-company at Hyderabad cannot be found fault with and be visited with penalty and duty liability, when amounts drawn from their bank accounts stands transferred and credited to the Commissioner of Customs, Chennai's account.
8. The submission of the appellants that in view of the evidence that in respect of the 68 Bills of Entry the amounts in question have been sent by the appellants by way of demand drafts drawn in favour of the Commissioner of Customs - A/c. Hetero Drugs, the duty in respect of these consignments is deemed to have been paid on the date the demand draft is deposited with the Customs authorities has to be approved. In fact the Larger Bench of this Tribunal in the case of CCE v. Genus Overseas Electronics [2003 (155) E.L.T. 541 (Tri.-LB) = 2003 (56) RLT 759 (LB)] held that payment of duty by cheque would be date of Tender of the same and not realisation following the same, the date of Tender of the demand draft would be date of payment for the duty. That the demand draft got accounted elsewhere and not as tendered by the appellants due to no fault of the appellants cannot be held to make the goods of the appellants to be non-duty paid.
(a) A bank draft in law is considered as a Bill of Exchange drawn by one Bank upon another and the relationship of the holder of the draft and the Bank is that of a creditor and a debtor. While issuing the demand draft, the Bank takes on itself a commitment in favour of a third person at the instance of the purchaser of the draft. Once a draft is issued, the purchaser of the draft cannot in a normal situation ask the issuing Bank to stop payment of the draft. The only question which the Bank has to satisfy itself is that of the title of the person presenting the draft.
(b) A purchaser of a draft is entitled to cancel it before it is delivered to the drawee. In other words the relationship of the purchaser of a draft and of a bank is that of a debtor and a creditor and once the draft is delivered to the payee, the purchaser is not entitled to ask the Bank to stop payment to the payee.
Reference in this regard is made to the commentary in Pages 540 to 543 of the Negotiable Instruments Act, Seventeenth Edition by Bhashyam & Adiga, accepted with approval by the Tribunal in the case of Wall Street Finance Ltd, v. Commissioner of Customs (Prev.), Mumbai reported in 2002 (147) E.L.T. 112 (Para 7, Page 120) and relying on the same, the payment of duty in due discharge for goods impugned, have to be upheld as far as the appellants as concerned.
10. That the amounts in question has gone into the Consolidated Fund of the Union of India is evident from the fact that even according to the show cause notice, the amounts deposited by the appellants have been permitted to be used by the CHA for payment of duty for the other importers, if that be so, the officers who allowed the same should be held liable not the importer, i.e. appellant herein.
11. In view of the above, when a demand draft is on par with a cheque that is not dishonoured, then following the Larger Bench of the Tribunal in the case of CCE, Jaipur-I v. Genus Overseas Electronics Ltd. reported in [2003 (155) E.L.T. 541 (Tri.-LB) = 2003 (56) RLT 759 (L.B)] which followed the decision of the Hon'ble High Court of Andhra Pradesh in the case of Sanghi Polyester Ltd. v. CCE - 2001 (134) E.L.T.344 (A.P.) and of the Hon'ble Supreme Court in the case of K.Saraswathy v. P.S.S. Somasundaram Chettiar - (1989) 4 SCC 527 and Commissioner of Income Tax, Bombay South v. Ogale Glass Works Ltd. - AIR 1954 SC 429, the date of presentation of the demand draft by the CHA to the Customs authorities would be deemed to be the date on which the appellants would have paid the duty. Any further misuse of the said amounts, either by the CHA and/or with the connivance of the officials of the Customs House by any other importer, who might have availed or might not have availed the benefit cannot result in a visit of demand of duty or penalty on the appellants.
12. (a) The liability of a principal i.e. the appellants-company herein, for the acts committed by the agent i.e. CHA at Chennai will only be with reference to the bona fide acts committed by the agent and not for the mala fide acts committed by the Agent or the Custom House Officers. On examination of Section 147 of the Customs Act, 1962, it is found that Section 147(1) of the Customs Act contemplates that an agent can on behalf of the owner, importer or the exporter do things which the Act requires the owner, importer or the exporter to do. Section 147(2) thereof stipulates any such thing done by an agent shall, unless the contrary is proved, be deemed to have been done with the knowledge and the consent of such owner importer etc. Therefore, an importer is liable to establish that the actions of the CHA were in excess of the authority given to him. If that is on record, then in terms of the exception set out in Section 147(2), the importer would not be liable.
In terms of Section 147(3) an agent is also considered to be an importer of the goods in addition to the liability of the importer. The proviso to Section 147(3) states that if a short-levy or a non-levy arises as a result of an act which is not wilful in nature on the part of the agent, the amount is to be recovered first from the owner and then from the agent. A conjoint reading of the above provisions would indicates that in terms of Section 147(3), if an agent is guilty of wilful act, negligence or default, he would alone be liable to pay duty, having been conferred with the status of an importer under Section 147(3) of the Customs Act, 1962.
(b) The opening portion of Section 147(1) of the Customs Act, 1962 refers to those actions which the Customs Act requires an importer to do. For instance, Section 46 of the Customs Act, 1962 requires an importer to file a Bill of Entry for home consumption of the goods or for warehousing in the prescribed form. Section 59 of the Customs Act, 1962 requires the importer to execute a bond in case the goods are to be entered for warehousing, for an amount equal to twice of the duty assessed on the goods and to observe all attendant formalities. The acts of the CHA and or others unknown in substituting the goods and in faking the Bill of Entry are not acts which an importer was expected to do under the Customs Act, 1962. In this case, as could be seen from the factual position narrated in the show cause notice itself, the activity undertaken by M/s. Far Port International in substituting the goods or in forging the documents were acts done by Shri Ramesh on his own or in assistance with persons other than the importer.
The department having come to the conclusion that the mala fide act has been committed by Shri D. Ramesh, Proprietor of Far Port International who is reported to have expired on 1-9-1999, cannot entitle them to proceed against the appellants to recover from them alleged non-payment/short-payment of duty, which in fact stand paid and credited to the Revenue's accounts.
(c) That a principal is not to be considered guilty for the wrongful acts of the agents, is settled law, please see Bombay High Court in the case of M. Shashikant & Company and Ors. v. UOI reported in 1987 (30) E.L.T. 868 (Bom.). Therefore, provisions contained in the proviso to Section 147(3) of the Customs Act would come into play if the CHA, had undertaken the malicious activity, has been settled by the following decisions :Commissioner of Customs, Cochin v. Trivandrum Rubber Works Ltd. [1999 (106) E.L.T. 9 (S.C.)] (c) Pilmen Agents Pvt. Ltd. v. Commissioner of Customs, Madras [2000 (126) E.L.T. 79 (Mad.)] (d) The demand in this case is made under Section 28 of the Customs Act, 1962. That a demand to recover customs duty can be made only under Section 28 and not under Section 147 is set out by the Madras High Court in the case of Pilmen Agents Pvt. Ltd. v. Commissioner of Customs, Madras reported in 2000 (126) E.L.T. 79 (Mad.) and such a demand could be made on an agent is a case taken this.
13. There cannot be an allegation of the appellants having any intention to evade payment of duty when the entire amount in question has been paid by way of demand drafts in favour of the Commissioner of Customs as and when clearances were sought by them. In fact it is to establish their bona fide it is the appellants who had requested the Commissioner to defer the proceedings till the completion of the investigations by the CBI, which the Commissioner has rejected. Such a rejection shows undue haste to confirm the demand and impose penalty.
Such an order passed in haste, cannot be sustained following the decision of the Tribunal in the case of Zeenath International Supplies & Anr. v. Commissioner of Customs, Chennai, Final Order Nos. 296 & 297/2003, dated 28-2-2003.
14. When no duty demand as made out could be confirmed on the appellants, they are not liable for any penalty under the Customs Act, 1962.
15. Consequently, the appeals are allowed after setting aside the order.