Full Judgment
2. Factual backdrop : The appellants M/s. Wasan & Co., Agra, a partnership firm engaged inter alia in the manufacture of export of shoe uppers presented three shipping bills bearing Nos. 41278 dated 8-5-1986; 41893 dated 12-5-1986 and 41889 dated 12-5-1986 each for export of 3000 pairs of ladies boot uppers fitted with Polyurethane foam under duty exemption scheme (for short DEEC Scheme) and claiming drawback inter alia declaring on each of the shipping bills : (a) That 923 metres laminated polyurethane foam costing Rs. 27,690 were used in the consignment which was imported vide bill of entry No. 10102 dated 25-2-1986 duty free under DEEC Book No. 014905.
(b) That the shipment was being made in discharge of under duty exemption scheme against advanced licence No. P/L/3089861 dated 19-12-1985 for Rs. 30 lacs.
(c) That the exempt material, 923 mtrs. LP foam has been used for manufacturing of the resultant product.
On examination of the goods by the Customs Officer in the light of declaration made by the appellants it was found that the foam actually used in the manufacture of ladies boots uppers described in the shipping bill was much less than the quantity indicated in the shipping bill. Statement of Shri Sushil Kumar Wason, partner of the appellant firm was recorded on 24-5-1986 wherein he inter alia stated that the quantity of PU foam used has been shown as 923 mtrs. on the basis of the norms fixed for this item in the relevant Import Policy i.e. to say 13 pairs equal to four sq. mtrs. of PU foam (which works out to .308 per pair) and that the actual consumption of foam for the models of shoe upper under reference comes to four pairs per sq. mtr. approx.
(which works out to .25 sq. mtr. per pair). The appellants further in their letter dated 19-5-1986 reiterated that the norms approved for laminated PU foam was 13 pairs in four sq. metres and that they had applied for advance licence for 24923 sq. metres, laminated PU foam required for 81000 pairs of leather shoe uppers and accordingly, advance licence for Rs. 30 lacs was issued to them and further that the representative samples drawn one each from every shipping bill out of a lot of 9000 pairs may be gone as representative samples. The said samples were sent to Shri Ram Institute of Industrial Research, Delhi for their opinion regarding the quantity of PU foam used in the manufacture of the said pair of shoe uppers. In their report i.e. to say test certificate No. 14649/605-050-0839 dated 21-5-1986 the said Shri Ram Institute of Industrial Research communicated the test results as follows - 2. Max. number of pair can be drawn from 100x100 CM polyurethane foam 7 pairs" On receipt of the said test report the authorities concerned determined the quantity of PU foam actually used in the manufacture of 9000 pairs of ladies shoe uppers and noticed that there was a difference of 2867.79 sq. mtrs. valued at Rs. 55,587.83, attracting customs duty of Rs. 1,17,846.20 between the declared quantity and quantity of PU foam actually used. As a sequel thereof the department formed a tentative opinion that the appellants did not make a correct and true declaration in respect of the goods described in the shipping bills in terms of provisions of Section 50 of the Customs Act and attempted to export the goods which did not correspond in material particulars with the entry made in the shipping bills and therefore the goods in question which were seized earlier were liable to confiscation under Section 111, ibid. The appellants requested for decision on merits wherein the requirement of the issuance of a formal show cause notice was waived making it very clear that the charges made against them have been duly explained to them and that they have understood the same. During the course of personal hearing Shri Sunil Wason, partner of the appellant firm inter alia stated and again reiterated that as per the current Import/Export Policy they had been allowed for import of 13 pairs, 4 sq. mtrs. of PU foam and due to this misunderstanding they had declared the quantity used calculated on the above basis and that they had no mala fide intention and the error is a technical one due to ambiguity in the import policy. However, the Additional Collector did not agree with the said defence plea advanced by the appellants holding that "as the norms fixed in Annexure V to Appendix 9 are purely for clearing the application for grant of advance licence. The same norms cannot be automatically applied for export of resultant products without taking into consideration the actual imported material used in manufacture. It is precisely for this reason the exporter is required to declare the actual duty exempt material that has been used for the manufacture of the resultant product. It is abundantly clear that the declaration regarding the quantity of laminated PU foam used and more particularly declaration at SI. No. 2 given by the party was substantially wrong. If the exporter had succeeded in exporting the goods they would have evaded customs duty on 1911.86 mts. of PU foam and valued at Rs. 55,587.83, the duty on which works out to Rs. 1,17,846.20. In terms of Clause 3(A) of the Export Control Order, 1974 if it is found that the goods are not in confirmity with the declaration of the goods thus such goods shall be deemed to be prohibited goods, accordingly the goods seized in this case in respect of which true declaration was not made shall be deemed to be prohibited goods, the import and export of which has been prohibited under Section 11 of the Customs Act," and ultimately ordered for the confiscation of the seized goods with an option to redeem the same for passing back in town on payment of a redemption fine of Rs. 1,20,000/- and also imposed a personal penalty of Rs. 50,000/-. Hence the present appeal.
3. We have heard Shri K. Narasimhan, Advocate for the appellants and Shri R.M. Ramchandani, SDR for the respondent.
4. While reiterating the defence plea which was taken up before the Adjudicating Authority, Shri K. Narasimhan, learned counsel for the appellants submitted that the appellants' unit is wholly a 100% exporting unit and therefore has been enjoying all the facilities and concessions available to such units of export incentives, import entitlement, eligibility for licence, etc., which are governed by the policy of Advance Licensing under the duty exemption scheme; that in terms of this licensing policy Advance Licence No. P/l/3089861 dated 19-12-1985 for the importation duty-free of certain quantities and value of different components and raw materials required for the manufacture of shoe uppers of different sizes for which the appellants had to secure export orders and that the quantities determined and set out in the Import Licence by the Licensing authorities were based on specific particulars set out against Sri. No. 80 of Annexure V to Appendix 19 of the Import & Export Policy, April 1985 - March 1988 (Vol.-I). Against the said advance licence issued to the appellants, the appellants imported the full requirement of laminated foam (PUF) for execution of the export contracts for shoe uppers in two consignments - first one by air and second by sea, vide two Bills of Entry namely (1) 10102 dated 27-2-1986 and (2) 342 dated 3-3-1986 and utilised the PUF imported by air for manufacture and export of shoe uppers and it was only thereafter that they had utilised the PUF imported in consignment by sea. It was stressed that for every export consignment the appellants had been preparing the shipping bills in the same manner as they had been doing in the past and at least seven such consignments, the particulars of which were declared in identical manner had been shipped by air through Air Cargo Complex at Delhi between the months of January and April 1986 and it was only in the month of May 1986 that the department held the appellants guilty of making wrong declaration in the three shipping bills filed for exporting the goods in question under reference. In this premises it was submitted that keeping in view the past practice the department should have allowed the export of the subject goods under the three shipping bills filed by the appellants as stated above. It was also contended by Shri K. Narasimhan, learned counsel for the appellants that since the three shipping bills under reference were detained and the adjudication proceedings commenced the appellants were rendered helpless because of the commitments to export the shoe uppers by specified date and therefore, in order to expedite the proceedings the appellants waived the requirement of issue of a formal show cause notice and submissions of written reply and appeared before the Additional Collector of Customs for oral hearing. In a nutshell his submission was that the appellants had no opportunity of examining the authorities in the Shri Ram Institute of Industrial Research who had furnished the test report on the basis of which test report was prepared and certain adverse conclusion was drawn against the appellants. He continued and laid a great emphasis that nothing was disclosed during the adjudication proceedings as to the particular size of the shoe upper of model 135-383 which was tested by Shri Ram Institute of Industrial Research as several sizes of shoe uppers were contained in the three shipment declared in three separate shipping bills. Even no disclosure was made by the adjudicating authority of the details of the difference between the declared quantity and the quantity allegedly found as actually used on which basis the Customs duty involved had been calculated. To be precise it was submitted that these details were only set out for the first time in the impugned order. He also attacked the reasonings and findings recorded by the Additional Collector by stating that the Additional Collector had at no time disclosed on what basis he has made the assertion that "It is precisely for this reason the exporter is required to declare the actual duty exempt material that has been used for the manufacture of the resultant product" - to quote his own words. It was submitted that at no time either by Public Notice or by way of express requirement of Notification, rules etc. has there been any stipulation that in respect of shipment made of the 'resultant products' using duty exempt material imported against advance licence the exporter was required to make declaration on the shipping bills of the actual duty exempt material that has been used in the manufacture of the 'resultant products' exported. Continuing further Shri Narasimhan submitted that the declaration of 923 mtrs. of laminated foam as having been used in the manufacture of 3000 pairs of shoe uppers declared in each of the three shipping bills under reference was based on the norms set out against Sri. No. 80 of Annexure V to Appendix 19 of the Policy and it was made known even before the adjudication proceedings were commenced in the instant case. Therefore, the charge of mis-declaration is misconceived.
Continuing further he submitted that in determining the quantity actually used in the manufacture of 9000 pairs of Leather shoe uppers "wastages and rejection" during the manufacturing process were not taken into consideration, though in the letter dated 13th June, 1986 this fact was expressly brought to the notice of the Additional Collector of Customs (a photo-copy of it was placed on our record by the appellants). As regards the applicability of Clause 3(A) of the Export Control Order, 1974 it was contended that the same was nonexistent and it appears that the relevant clause and order which was in the mind of the Additional Collector was Clause 3(3) of the Export Control Order, 1977, which speaks that "If in any case, it is found that the value, sort, specification, quality and description of the goods to be exported are not in conformity with the declaration of the exporter in those respects or the quality and specification of such goods are not in accordance with the terms of the export contract, the export of such goods shall be deemed to be prohibited." In the alternative it was also contended that the basis adopted by the Additional Collector for computing the duty difference between the declared quantity and quantity allegedly found to have been used of PU foam as also the calculation of the customs duty was on erroneous premises as would be evident from the statement filed before this Tribunal showing how the calculation should have been made even on the case made out by the department and how duty effect will be of a much lower order than what has been taken into consideration in passing the impugned order and that no case for confiscation or levying the penalty and fine was made out as there was no metis rea on the part of the appellants.
5. In reply Shri R.M. Ramchandani, learned SDR supported the impugned order and added that the basis adopted by the Additional Collector for determining the quantity of PU foam actually used in the manufacture of 9000 pairs of Leather shoe uppers was in accordance with the Import Policy. As regards the challenge to the test report given by Shri Ram Institute of Industrial Research the learned SDR submitted that the same was communicated to them and it was only on the receipt of the said test report that the subject goods were actually seized in the presence of the Customs Clearing Agents of the appellants on 24-5-1986 and the material particulars of the test report were incorporated in that panchnama (a photo-copy of the said panchnama is on the record).
Not only this, statement of Shri Sushil Kumar Wason, partner of the appellant company was recorded on the same date. Despite all these facts on the record the appellants never protested or asked for the copy of the test report nor ever challenged the authority of the said Shri Ram Institute of Industrial Research, who carried out the test.
6. In his rejoinder Shri K. Narasimhan, Advocate submitted that since they have already redeemed the subject goods and the remand will take sufficient time, the appellants would not press about their grievances as stated above regarding the test report.
7. We have considered the submissions. The crucial question before us is as to whether the basis adopted by the Additional Collector for ascertaining the quantity of PU foam actually used in the manufacture of the subject 9000 pairs of Leather shoe uppers was correct. As stated above it was the case of the appellants that the current Import-Export Policy 1985-88 (page 315) indicates norms for laminated PU foam as 13 pairs in 4 sq. mtrs. and that the same norms was adopted by the exporter as the output and accordingly the quantity was declared on the shipping bill under reference. This defence was negatived by the Additional Collector observing that the norm fixed in Annexure V to Appendix 19 of the said Import & Export Policy are purely for clearing the application for grant of advance licence and therefore the same norms cannot be automatically applied for export of resultant products without taking into consideration the actual imported material used in manufacture and further that it is precisely for this reason the exporter is required to declare the actual duty exempt material that has been used for the manufacture of the resultant product.
8. To appreciate the rival contentions of the parties it has become necessary for us to set out the relevant provisions of the Import & Export Policy, 1985-88 under reference. Chapter XVI provides for a "Duty Exemption Scheme" and contains only one paragraph (paragraph 242), which runs thus - "242. Duty Exemption Scheme also known as Advance Licensing Scheme was initially introduced in the Import Policy for 1976-77. The details of this Scheme, as amended, with the procedures for issue of different categories of Advance Licences thereunder, are given in Appendix 19 of this policy," 8A. Appendix 19 referred to in the said paragraph 242 provides for the three categories of licences covered by Duty Exemption Scheme, which are (1) Advance licence, (2) Advance licence for supply of Intermediate products and (3) Special Imprest licence, and the basis and conditions on which these three categories of licences are issued are different and licences issued under one category cannot be mixed up with the other. In the instant case we are concerned only with the Advance licence issued to the appellants and therefore, we are confining ourselves with this Advance licence only. Paragraph 2 of the said Appendix 19 states the purpose and scope of the three categories of licences referred to above and provides that "Advance licences are issued to registered exporters for import of exempt materials specified in Annexure I to the Department of Revenue Notification No. G.S.R.dated 5-4-1982 (Annexure I to this Appendix) and the resultant products have to be exported outside the country." Paragraph 4 speaks about the eligibility of Registered Exporters who may apply for licences under this scheme. Paragraph 6 provides for the submission of application for issue of licences under this scheme. Paragraph 7 provides that where input-output norms have already been prescribed by the Advance Licensing Committee either in individual cases or in Annexure V to Appendix 19 no certificate from a Chartered Engineer or Chartered Accountant or DGTD, etc. would be required to be submitted along with the application and further that an input-output norm fixed in an individual case cannot be claimed as the basis for issue of licences under this scheme for another applicant. Paragraph 22 to 24 speaks of export obligation and the execution of bond. Paragraph 25 speaks of exports covered by the duty exemption scheme and provides that "the shipping bill relating to exports covered by this Scheme shall bear such declaration and follow such procedures as may be laid down by the Customs authorities concerned." Paragraph 30 speaks of "utilisation of exempt materials" and provides that 'exempt materials imported against a licence under this Scheme shall be utilised for the manufacture of the resultant products specified in the DEEC. Such material shall not be loaned, sold or transferred or disposed of otherwise under any circumstances'. Annexure V to Appendix 19 as referred to in paragraph 7 as stated above provides that the Advance Licensing Committee has already approved input-output norms in various types of cases mentioned therein and the applications of the parties whenever received for the grant of Advance Licences are cleared on the basis of these norms. In this Annexure at Srl. No. 80 the description of the export product is given as 'Leather shoe uppers' and in Col. No. 3 at Sri. No. 3 the description of raw-material against this export product is inter alia stated as "laminated Foam" and in Col. No. 4 quantity of export product is shown as 13 pairs and in Col. No. 5 quantity allowed for import is shown as 4 sq. mtr. and in Col. No. 6 the quantity allowed for duty exemption benefit is again shown as 4 sq. mtr.
9. In the instant case from the copy of the application made by the appellants for issue of the Advance Licence (a photo-copy filed by the appellants is on record) we find that in Part III of the Application (page 4) details of materials sought to be imported duty free are given. Under group (a) - 'Arranged and shown separately for each kind of export product', description of the raw-material to be imported is given at Sri. No. 3 in Col. No. 3, the raw-material described is 'Laminated Polyurethane Foam of 150 CM width' and in Col. No. 6 which provides for 'Quantity required per unit of resultant product', the appellants have stated the quantity as 4 Sq. Mts. = 13 Pairs and in Col. No. 9 which provides for 'Wastage claimed (weight)%', the appellants have stated 'Qty. in Mts.' i.e. to say they have not claimed any wastage and in Col. No. 11 which provides for Additional information regarding "By-product if any" and "Recoverable wastage", the appellants have stated 'Net to Net Basis'. On the basis of this application the Advance licence under reference No. P/1/3089861, dated 19-12-1985 was issued (a copy of which filed by the appellants is on the record). From a perusal of the said Advance Licence so issued we find that it was issued subject to certain conditions. Condition No. 3 provides that "The goods imported against this Advance Licence shall be utilised in accordance with the provisions of Customs Notification No.117/F. No. 602/14/78-DEK, dated 9-6-1978, as amended from time to time". From Annexure-I to Appendix 19, we find that the said Notification No. 117/78, dated 9-6-1978 was superseded by Department of Revenue Notification No. G.S.R. dated 5-4-1982 (referred to in paragraph 2 of the Duty Exemption Scheme - Appendix 19 as indicated above). In the said Notification it is provided that benefit of exemption from duty would be available subject to certain conditions mentioned therein. Condition No. (d) provides that the exempt materials shall be used for the purpose specified in the Notification and Condition No. (e) provides that the exempt materials or any portion thereof shall not be sold or otherwise transferred to any other person, or utilised or disposed of in any other manner without the previous permissions of the Committee. From a con-joint reading of these provisions it is clear that the importer claiming the benefit of the duty exemption scheme is under an obligation to utilise the exempt materials imported against a licence under the duty exemption scheme for the manufacture of the resultant products and further according to paragraph 25 to Appendix 19 the exporter is under an obligation to declare actual duty exempt material that has been used in the manufacture of the resultant products. In the instant case the appellants admittedly did not declare the actual duty exempt material that was used in the manufacture of the resultant products in the shipping bills. In other words, on each of the 3 shipping bills the appellants stated that 923 meters laminated polyurethane foam was used for manufacturing of the resultant product (totally comes to 2769 linear mts. or 4153.5 sq. mts.). On being asked as to why in the shipping bills the appellants have shown quantity as 923 metres instead of sq. mts., Shri Sushil Kumar Wasan in his statement dated 24-5-1986 came out with an interesting explanation that Metre and square metre implies the same thing. To quote his own words "that in the Shipping Bills we have shown quantity as 923 metres instead of Square metre because Metre and Square metre implies the same thing. However if the consumption was in linear Metre then it would have been written as such".
10. As stated above on the test result conducted by Sri Ram Institute of Industrial Research, Delhi the quantity of PU foam used in the manufacture of 9000 pairs in question was found to be only to the extent of 857.14 linear metres or 1285.71 sq. metres. Thus, there was a difference of 2867.79 sq. mtrs. between the quantity declared by the appellants and the quantity of PU foam actually used. The defence of the appellants that since Annexure V to Appendix 19 of the Import and Export Policy 1985-88 indicate the norms for laminated PU foam as 13 pairs in 4 sq. mtrs., the same norms was adopted by the appellants as the output and accordingly the quantity was declared on the three shipping bills under reference. To put it differently the appellants admit that actual quantity of PU foam which was used in the manufacture of 9000 pairs in question was not declared and what was declared was the quantity which is according to the norms indicated in the said Annexure to the Policy. From the heading of Annexure V to Appendix 19 it would be clear that the Advance Licensing Committee has approved input-output norms for the purpose of clearing the applications received for the grant of advance licences in terms of para 7 of the Duty Exemption Scheme referred to above. However, the matter does not rest here. For, from the same paragraph we find that the Advance Licensing Committee may also prescribe the input-output norms in individual cases and input-output norms so fixed in individual cases cannot be claimed as the basis for issue of licences under the duty exemption scheme for another applicant. In the instant case from the applications submitted by the appellants for advance licence under the duty exemption scheme the appellants themselves in part-Ill of that application have stated in Col. 6 the quantity required per unit of resultant product as 4 sq. Mts. - 13 pairs. In other words the appellants themselves declared that 4 sq. Mts. of laminated polyurethane foam would be required for 13 pairs but on test by laboratory as aforesaid it was found to contain less than 4 sq. mtrs.
Thus, under these circumstances the contention of the learned counsel for the appellants that the norms indicated in Annexure V to Appendix 19 of the Import & Export Policy should be adopted for the purpose of declaration cannot be accepted, otherwise the very purpose of the duty exemption scheme would be frustrated and the provisions of paragraph 30 which speaks of utilisation of exempt materials and paragraph 25 which speaks for declaration to be made by the exporter on the shipping bills regarding the actual use of duty exempt material in the manufacture of the resultant products would become nugatory.
11. The further contention of the learned counsel for the appellants that between the months of January and April 1986 the appellants declared the output in identical manner is also of no consequence. For, failure or omission on the part of the authorities concerned to detect such mis-declaration cannot constitute a long outstanding practice of the Customs House.
12. The other contention of the learned counsel for the appellants that in determining the quantity actually used in the manufacture of 9000 pairs of Leather shoe uppers in question "wastage and rejection" during the manufacturing process was not taken into consideration by the Adjudicating Authority has also no force in view of the peculiar facts and circumstances of the case. As stated above in their application for the grant of advance licence under the duty exemption scheme the appellants never claimed the wastage as could be seen from Part-III of the said application. On the other hand in part-Ill of their application they have stated in Col. No. 11 "Net to Net basis". That apart, from the record we find that while conducting the test by the Sri Ram Institute this wastage was also taken note of while determining the actual quantity of polyurethane foam used in the manufacture of Leather shoe uppers which was admitted by the appellants in their letterxiated 13-6-1986 addressed to the Additional Collector of Customs, New Delhi and referred to by the learned counsel for the appellants during his arguments by stating that their consumption because of wastages and rejection during the manufacturing process is somewhat higher than certified by the Sri Ram Institute. It is significant to note that no evidence was led to prove the said plea that the consumption of the appellants because of wastages and rejection was somewhat higher in their case.
13. As regards the contention of the learned counsel that there was no mens rea on the part of the appellants and therefore confiscation or levying the penalty and fine was not called for, we do not agree. As stated above the appellants admittedly did not declare the actual quantity of the PU foam used in the manufacture of 9000 pairs in sq.
mtrs. or linear mtrs. Instead, they stated the quantity in metres. On being confronted Shri Sunil Kumar Wason came out with an absurd explanation that square metre and metre implies the same thing and further that if the consumption was in linear metre then it would have been written as such. That apart, in the facts and circumstances of the case we find that the appellants intentionally did not declare the actual quantity of PU foam which was used in the manufacture of 9000 pairs but instead declared the quantity according to the norms which was prescribed for clearing the application for advance licence by the authorities concerned.
14. It was also contended by the learned counsel for the appellants that the basis adopted by the Additional Collector for computing the duty difference between the declared quantity and the quantity allegedly found to have been used of PU foam as also the calculation of the customs duty was on erroneous premises and if correctly made, as per the statement submitted during the pendency of the appeal before us the duty effected would be of much lower order than what has been taken into consideration in passing the impugned order. In other words it was his submission that the Additional Collector has imposed a redemption fine and the amount of penalty keeping in view the fact that if the exporter has succeeded in exporting the goods they would have evaded the customs duty to the extent of Rs. 1,17,846.20. Against this it was the contention of the learned SDR that the duty liability was never disputed by the appellants before the Adjudicating Authority.
15. We have considered the submissions. From the impugned order we find that the goods were confiscated with an option to redeem the same for passing back in town on payment of a redemption fine of Rs. 1,20,000/- besides a personal penalty of Rs. 50,000/-. It was stated at the Bar that the goods have already been redeemed. In other words no duty was demanded from the appellants. From the statement filed before the Tribunal by the appellants it appears that the duty liability in the instant case would come to the extent of Rs. 42,986.55 and not Rs. 1,17,846.20 as found by the Additional Collector. However, even if we agree with the appellants that duty liability which the appellants according to the Additional Collector, tried to evade comes to Rs. 42,986.55, the redemption fine and the penalty imposed do not appear to be on higher side in the peculiar facts and circumstances of the case.