J G Exports Vs Commissioner of Customs - Citation 19089 - Court Judgment

Excerpt:
1. these four appeals have come up before this larger bench pursuant to an order of reference passed by bench 'a' in view of conflicting decisions rendered by co-ordinate benches of the tribunal in two cases viz. mvt international v. commissioner of customs, new delhi - 2000 (36) rlt 799 and galani infin pvt. ltd. v. commissioner of customs, new delhi 2. these appeals are directed against order-in-original dated 30-10-1999 passed by the commissioner of customs, air cargo complex, new delhi. m/s. j.g. exports (appellants in appeal no. c/409/99-a), who are a partnership firm engaged in the export of goods, are aggrieved by the order of the commissioner confiscating 215 quartz analog watches and imposing a redemption fine of rs. 30 lakhs in lieu of confiscation.shri rajesh jain and shri mahesh jain (appellants in appeal nos.c/410/99-a and c/411/99-a respectively) are partners of the said firm and are aggrieved by the order of the commissioner imposing personal penalties of rs. 20 lakhs each on them. nipun impex (appellant in appeal no. c/20/2000) is a proprietary concern of shri ashwini kumar sarin and is a customs house agent. they are aggrieved by the order of the commissioner imposing a penalty of rs. 5 lakhs on them. the stay applications are for waiver of pre-deposit of penalty amounts for purpose of hearing appeal nos. c/410 & 411/99-a and c/20/2000-a.3. after careful examination of the records and consideration of the submissions made before us by both sides, we are convinced of the strong prima facie case in favour of the stay applicants. we, therefore, allow the stay applications unconditionally and proceed to consider the appeals on merits.4. m/s. j.g. exports (hereinafter called 'exporters') filed a shipping bill on 14-3-1999 for export of 215 quartz analog watches to the consignees at sharjah, claiming customs duty credit @ 21% under the duty entitlement pass book (depb) scheme. the exporters classified the goods under itc code no. 9101 and declared fob value at us $910 per piece. the consignment was examined by customs officials in the presence of the customs house agent (cha), namely nipun impex and also the authorised representative of the exporters. such examination revealed that each of the watches was quartz analog watch with gold chains/belts attached to either sides. the gold chains /belts had no coupling in the middle for fastening the watch on wrists of different sizes. it further appeared that the case of the watch was neither gold-made nor gold-plated and that the major portion of the value of the goods was on account of the gold chains /belts and the value of the watches (without gold chains/belts) appeared to be nominal. samples of the watches taken on random basis were got tested by a certified goldsmith who, in his report dated 20-3-1999, stated that the watch belt was 22 ct. gold, watch dial was not of gold and watch case was gold-polished and not gold-plated. samples of the wrist watches were then drawn for market enquiry, in which the all india electronic watch and clock manufacturers' (aiewcm) association examined the samples and certified on 22-3-1999 that the price of each watch (without chains/belts) was approximately rs. 120/-. the total value of 215 watches (without chains/belts) on this basis worked out to rs. 25,800/-. the whole consignment of 215 watches covered by the shipping bill was then seized under section 110 of the customs act. after the seizure, the goods were again examined by the seizing officers in the presence of cha (shri ashwini kumar sarin) certified goldsmith (shri kuldeep sugandh) and other witnesses on 6-4-1999. the certified goldsmith submitted his report in respect of the complete consignment.as per this report, 205 out of the 215 chains/belts were 22 ct. gold bracelets of weight 9330 grams and the remaining 10 pieces were 18 ct.gold-bracelet of weight 480 grams. all the 215 watches were ordinary watches, gold-polished. further, the total market value of the gold was approximately rs. 37,56,312.00.5. from the above results of enquiry, the customs authorities found that the actual present market value (pmv) of the 215 watches (without belts/chains) was rs. 25,800.00 and that of the gold contained in the chains/belts of the watches was rs. 37,56,312.00. as against this, the fob value of the goods declared by the party was rs. 82,75,995.00 and the pmv of the goods declared by them was rs. 56,50,000.00. customs authorities also recorded statements of shri rajesh jain under section 108 of the customs act. on the basis of all the findings so arrived at the department issued show-cause notices to the appellants. the noticees contested the department's allegations and pleaded for dropping the proceedings. but proceedings ensued and culminated in the impugned order.6. heard both sides at length. shri j.s. agarwal, advocate and shri j.m. sharma, consultant argued for the appellants. shri p.k. jain, sdr presented the respondent's case.7. the allegations in the show-cause notice as against the exporters were (i) that they misclassified the goods in the shipping bill by classifying the same under itc code no. 9101 whereas the goods were classifiable under itc code no. 9102; (ii) that they over-valued the goods at an fob value of rs. 82,75,995.00 and declared the pmv of the goods as rs. 56,50,000.00 whereas the correct pmv as determined by the department was only rs. 37,82,112.00 and (iii) that such overvaluation was done to avail high depb benefit of rs 17,27,959.00. it was also alleged that the goods (which the department considered as "ordinary watches with gold belts attached") were not of the kind generally traded/exported and therefore could not be covered under the depb scheme. the charge of over-valuation was sought to be substantiated by a further allegation that the value of gold could not be included in computing the depb benefits since gold was (allegedly) not an input as per the input-output norms under the scheme. the exporters were, therefore, alleged to have contravened various provisions of law viz.section 50(2) of the customs act, 1962; rule 14(1) of the foreign trade (regulation) rules, 1993 and section 18(l)(a) read with section 67 of the foreign exchange regulation act (fera) 1973. the show-cause notice proposed to confiscate the goods under section 113(d) of the customs act and to impose penalty on the exporters under section 114 of the act.8. the exporters, by themselves as well as through their advocate, contested the department's allegations by way of a series of letters sent in reply to the show-cause notice. the gist of their defence is as follows : (i) itc code no. 9101 is for customs import duty purposes and nor for exports; (without prejudice) the watches were gold-polished and hence the heading was mentioned as 9101; responsibility for correct classification is with the department and not with exporter; mentioning a different heading by itself does not mean misdeclaration; mentioning a different heading is at best an inappropriate classification only. (ii) general instruction no. 4 under appendix-28a to the hand book of procedure [volume 1] pertaining to exim policy 1997-2002, relied on by the department to deny depb benefit to the wrist watches in question, was incorporated in appendix 28a only w.e.f. 1-4-1999 and was not in force at the time of filing of the shipping bill; quartz analog watches very much figured at si. no. 37 under product group code 83 in the table of depb credit rates for the relevant period and, therefore, were eligible for depb benefit at the rate of 21% of the fob value; (iii) department's jewellery appraiser who examined the goods certified its declared value to be fair as per prevailing market price; valuation by aiewcm association is not reliable as their certificate does not contain anything to show that the samples drawn for examination by them were from the export consignment in question; only the values of the watches (without straps/belts) and the gold straps/belts as suggested by aiewcm association and certified goldsmith were considered by department in valuing the goods; necessary elements such as transportation and handling charges, labour charges for gold-polishing of watch-cases, labour charges for manufacture of gold belts, packing costs, and overhead charges were completely ignored; there is no evidence to disprove the price declared by the exporter and the value worked out by the department is without any basis; consignment ought to have been permitted to be exported atleast provisionally without depb benefit, pending the departmental proceedings; it was held up by the customs authorities disregarding the instructions issued by the government in relation to depb scheme; in the wake of cancellation of export order by the foreign buyer, the exporter would like to withdraw the shipping bill, in which event the question of depb credit did not arise and the goods were liable to be released; in the past, department had cleared exports of identical goods by accepting the exporter's similar declaration of fob value etc., and the departure from such consistent practice was not justifiable on the part of the department; the goods are not liable to confiscation and the exporters are not liable to be penalised as alleged by department.9. according to the adjudicating authority, the moot question in the case was one which had to be dealt with in the valuation angle. that authority also raised for determination of the question whether itc code no. 9101 was applicable only to import goods and not to export goods. as regards valuation, ld. commissioner relied on the certificates of aiewcm association and shri kuldeep sugandh (certified goldsmith) and also the statement of shri rajesh jain (partner of the export firm) to hold that the exporters misdeclared and over-valued the goods with intent to avail high depb credit than due. he, held the goods to be prohibited (on account of misdeclaration) in terms of section 18(1 )(a) of the fera, 1973. he further, held the same to be liable to confiscation under section 113(d) of the customs act, 1962 by invoking sections 11 and 50(2) of the act read with section 67 of fera, 1973. the adjudicating authority also rejected the exporters' claim that itc code no. 9101 was applicable only to import goods.10. ld. advocate shri j.s. agarwal, who argued for the exporting firm and its partners, has raised several points, apart from reiterating the parties' submissions (supra) made in response to the show-cause notice.he has referred to the relevant provisions of the depb scheme and circulars and public notices connected therewith. he has also drawn our attention to a few shipping bills (under depb scheme) and connected invoices of the exporters evidencing availment of depb credit (without department's objection) against export of similar goods described as "quartz analog watches 22 ct. gold" during a period prior to the date of filing of the impugned shipping bill. ld. advocate has also relied on case law in support of the challenge against the confiscation of the goods and the imposition of penalty on the jains.11. in a recollection of the facts of the case, ld. advocate submitted that, while the watches had been procured from a supplier at chennai @ rs. 883.00 per piece, the gold for the manufacture of the watch straps/belts had been purchased from bullion merchants in delhi. he drew our attention to the copies of the suppliers' invoice/credit memo available on record and submitted that these documents were produced before the adjudicating authority. a break-up of the approximate cost of the 215 wrist watches with gold straps was also furnished to the said authority. it was without considering such documents and materials that the commissioner went into valuation of the goods. the report of examination of the goods submitted by the department's jewellery appraiser on 18-3-1999 had certified the declared price of the goods to be fair, but the report was also not considered by the adjudicating authority. it was in utter disregard of the principles of natural justice that all the proceedings after 18-3-1999 were resorted to by the department. ld. advocate explained this submission by pointing out that the drawal of the samples of the goods for testing by certified goldsmith, the taking of samples to the market for valuation, the removal of gold straps/belts from the watch-cases for separate valuation, the weighment of gold by the goldsmith and the seizure of the goods on 6-4-1999 were all done behind the back of the exporters.counsel, on this ground, challenged the credibility of the certificates of aiewcm association and goldsmith. the certificate of aiewcm association contained nothing to correlate the samples tested by them with the consignment in question. the results of market enquiry were, therefore, unreliable and consequently the valuation of the goods as made by the department and approved by the adjudicating authority was unsustainable. ld. advocate, further, submitted that there was no material on record to disprove the declaration in the shipping bill and, therefore, there was no prohibition on the export of the goods in terms of section 18(l)(a) of fera, 1973. there was no violation of section 50(2) of the customs act also. section 67 of fera, 1973 was not relevant to the case. in the absence of prohibition on the export of the goods, there was no question of its confiscation under section 113(d) or of imposition of penalty under section 114 of the customs act. as regards mention of itc code no. 9101 in the shipping bill, ld.advocate submitted that the watches were covered by heading 91.01 of the customs tariff inasmuch as the watch-cases were made of metal clad with gold (precious metal). even if it was assumed that classification under heading 91.01 was not correct, it did not amount to misdeclaration inasmuch as the onus of classification was on the revenue. ld. advocate further argued that, even if it was assumed that the goods had been over-invoiced or incorrectly described, such over-invoicing/incorrect description did not amount to any violation of section 18(l)(a) of fera, 1973 and, for that matter, any violation of section 11 of the customs act, 1962. in this connection, counsel relied on the decision of the calcutta high court in the case of cc, calcutta v. lexus exports pvt. ltd. -1994 (69) e.l.t. 228 (cal.). on the point, he also relied on the tribunal's decision in the case of mvt international v. cc, new delhi 12. ld. advocate further submitted that, since the goods in question were not subjected to any levy of duty, section 14 of the customs act could not be employed for the purpose of valuation of the said goods and, therefore, the fob value of the goods declared in the shipping bill could not be faulted with the aid of section 14. in support of this argument, counsel relied on the decision of the tribunal in the case of shilpi exports, v. cc, calcutta - 1996 (13) rlt 39. he also pointed out that the appeal filed against this decision of the tribunal was dismissed by the supreme court as reported in [2000 (115) e.l.t.a-219]. counsel further relied on the decision of the tribunal in the case of cc, kandla v. dimple overseas ltd. - 1995 (8) rlt 126 and pointed out that the appeal filed by the collector of customs against this decision of the tribunal was also dismissed by the supreme court vide [1996 (86) e.l.t. a-167].13. counsel further submitted that, since section 18(l)(a) of fera, 1973 was not attracted in the appellants' case, the provisions of section 113 (d) and section 114 of the customs act, 1962 were also not invocable against them. in support, he relied on a plethora of decisions of the tribunal including mvt international (supra).14. ld. advocate challenged the action of the department separating the straps/belts from the watch-cases for market enquiry purposes behind the back of the exporters. the action of the customs authorities vitiated the whole proceedings, he said. he submitted that each quartz analog (sic) watch with gold straps/belts attached thereto was an integrated unit. in this connection, he referred to the decision of the supreme court in the case of titan watches ltd. v. cc, bangalore - 2000 (115) e.l.t. 28 (s.c.) 15. counsel further drew our attention to circular no. 15/97-cus., dated 3-7-1997 of govt, of india (ministry of finance) and also to public notice no. 66 dated 25-6-1997 of the delhi customs issued in pursuance of the aforesaid circular, and submitted that, in terms of the said circular and public notice, the department ought to have permitted provisional export of the goods under the depb scheme pending the departmental enquiries on the value of the export goods. he submitted that the action of the department declining the exporters' request for provisional permission for export was high-handed and contrary to the instructions of govt. the order of the adjudicating authority upholding the department's action was liable to be set aside and the goods should be ordered to be released.16. ld. sdr, shri p.k. jain opposed the above arguments and submitted that, since section 14 of the customs act, 1962 was applicable to export goods also, the misdeclaration by the exporters of the pmv of the goods in the shipping bill amounted to a misdeclaration of value under section 14 ibid and, consequently, the goods were prohibited in terms of section 11 of the customs act, 1962 read with sections 18(1 )(a) and 67 of the fera, 1973. he, further, argued that the definition of "market price" under section 2(30) of the customs act should be taken as the definition of present market value (pmv). if the declared value was not in accordance with the provisions of section 14 of the customs act, the goods in question would be treated as prohibited goods for purposes of section 113(d) of the act. while conceding that there was no misdeclaration of fob value of the goods, ld., dr submitted that the exporters misdeclared the pmv of the goods and, therefore, the goods became liable to confiscation and the exporters became liable for penal action under the sections 113(d) & 114 respectively of the customs act. ld. sdr further argued, with reference to the definition of "licence" under section 2(g) of the foreign trade (regulation and development) act, that depb was also a licence within the meaning of this expression under the said act and, consequently, the misdeclaration by the exporters for the purpose of obtaining higher depb benefit amounted to a breach of rule 14(1) of the foreign trade (regulation) rules, 1993. he further argued that the ' full export value' of the goods, to be declared by an exporter under section 18(l)(a) of the fera, 1973 was the value to be determined in terms of section 14 of the customs act, 1962. in this connection, he relied on the decision of the calcutta high court in the case of cc v. pankaj v.sheth - 1997 (90) e.l.t. 31 (cal.). ld. dr also relied on the decision of the tribunal in the case of galani infin (p) ltd. v. cc, new delhi - 1999 (35) rlt 3 (t) as also on a later decision of the same bench in the case of amit batra v. cc, new delhi in appeal no. c/115/98-a (final order no. 1573/99-a dated 5-11-1999). ld. sdr also relied on the decision of the calcutta high court in the case of tosh & sons pvt.ltd. v. asstt. collector of customs - air 1979 calcutta 386 in support of his plea that the misdeclaration by the exporters should be held to be a breach of section 18(l)(a) of the fera, 1973. however, there was no answer to a query from the bench as to whether the adjudicating authority in the instant case determined the correct value of the goods in terms of section 14 of the customs act. in answer to another query from the bench as to why provisional export of the goods was not allowed, ld. dr replied that none of the circulars relied on by the appellants prohibited refusal of permission for provisional export. ld.sdr, with reference to the apparent conflict between the decisions of two coordinate benches of the calcutta high court in the cases of lexus exports (supra) and pankaj v. sheth (supra), submitted that it was the latter decision of the court, being the later in point of time, that had to be followed. he then pleaded for rejecting the appeals by following pankaj v. sheth (supra).17. ld. consultant shri sharma who appeared for the cha adopted all the arguments of shri j.s. agarwal and further submitted that, since the goods in question were neither dutiable nor prohibited, the provisions of sections 113 & 114 of customs act were not invocable. he also submitted that the adjudicating authority imposed penalty on the cha without even granting personal hearing. he also submitted that there was no discrepancy in description of goods between the shipping bill and invoice and, therefore, the charge levelled against the cha by the department in the show-cause notice was not sustainable. with reference to the department's allegation that the cha did not check the credentials of the exporter, ld. consultant pointed out that there was no such obligation for them under the customs house agents licensing regulations, 1984. he submitted that the adjudicating authority did not record any finding as to why the cha was held to be liable under section 114 of the customs act. he, therefore, prayed for setting aside the order of penalty imposed on the cha.18. we have carefully considered the rival submissions. the depb scheme, which was implemented w.e.f. 1-4-1997 in pursuance of para 7.14 of the exim policy 1997-2002, had the objective of neutralising the incidence of basic customs duty with surcharge thereon on the import content of the export product. such neutralisation was provided by way of grant of duty credit against the export product. the duty-credit under the scheme shall be calculated by taking into account the deemed import content of the said export product as per the standard input-output norms and determining the basic customs duty and surcharge payable- on such deemed import. the value addition achieved by export of such product shall also be taken into account while determining rate of duty credit under the scheme. an exporter, under the scheme, is eligible to claim credit as a specified percentage of fob value of export made in freely convertible currency. the credit shall be available against such export products and at such rates as may be specified by the director general of foreign trade (dgft) by a public notice issued in this behalf. quartz analog watches are among the export products notified by the dgft vide si. no. 37 under product group code 83 and the depb credit rate applicable to the said goods is 21% of fob value. the description of the goods in the alphabetical index of export items is "quartz analog watches - digital electronic watches". under the "standard input-output and value addition norms" applicable to the depb scheme, goods of the description viz., "quartz analog watches" - figured as export item at si. no. b132 and watch-case, watch-strap /bracelet etc. stood mentioned as separate import items against the said export item. the relevant extract of the input-output norms is given below :-duty exemption scheme i-o norms electronicss. no. export item import item name quantity name quantityb 132 quartz analog case with or without watches integrated bracelet watch straps/bracelets.19. quartz analog watches were certainly covered under the depb scheme (as seen from the above account) at the material time. the goods in question were quartz analog watches made of inputs viz. cases, watch straps/bracelets etc. and the same ought to have been valued as an integrated unit by the department. a quartz analog watch did not cease to be a watch by mere reason of a bracelet having been attached to the watch-case. the gold bracelet attached to the watch-case was an integral part of the watch and therefore the watch required to be assessed for fob value as a single unit. this position is supported by the supreme court's decision in the case of titan watches ltd. (supra) cited by ld. advocate. we thus find that the department's allegation that the gold bracelets were attached to ordinary watches for the purpose of over-valuation with intent to claim higher depb credit has no legal basis.20. on the facts brought on record, we also find that the adjudicating authority reached the finding of over-valuation by the exporters, by heavily relying on aiewcm association's certificate of examination as well as goldsmith's certificate of examination and by ignoring the earlier report submitted by the department's jewellery appraiser. the adjudicating authority has not stated any reason as why the jewellery appraiser's report was not considered nor has that authority recorded any reason for not considering the evidence adduced by the exporters by way of their letter dated 14-3-1999 and the documents enclosed therewith in support of the declared value of the goods.21. we have noted the description of the export goods as stated in the shipping bill and the corresponding invoice of the exporter. while, in the shipping bill, the description is "quartz analog watches 22ct. gold belt", in the invoice it is "quartz analog watches 22 ct." we have not been able to find any material discrepancy between the descriptions in the two documents. the submission of ld. consultant in this regard appears to be correct. as regards fob value of the goods also, no discrepancy whatsoever has been found between the shipping bill and the corresponding invoice. the pmv declared for the 215 wrist watches with gold belts is rs. 56,50,000.00. as per public notice no. 66 dated 25-6-1997 issued by the delhi customs read with circular no.15/97-cus., dated 3-6-1997 of govt, of india (ministry of finance), the correctness of pmv could be examined at the stage of processing of shipping bills, having regard to the description and specification of the export product declared with reference (in the case of factory-cleared products) to ar-4 or excise invoice or (in the case of export goods procured from the market) to the sale invoice of the authorised dealer or any other evidence based on enquiries. in the instant case, the watches were procured from the market and the sale invoice of the suppliers at chennai had been furnished by the exporters to the department. the exporters had also provided the approximate break-up of the cost of the goods. these materials ought to have been considered by the customs authorities at the stage of processing of the shipping bill for the purpose of verifying the correctness of the declared pmv.22. the aforesaid public notice/circular further provided that where, upon examination of the goods, the examining officer found that the declared pmv or the fob price was unduly high, the matter should be referred to the assistant commissioner (export) along with sample of goods for the purpose of verification/determination of pmv through market enquiries. but before making such market enquiries, the assistant commissioner must satisfy himself as to the necessity for causing such enquiries. the purpose of such enquiry was to ensure that the credit entitlement should not exceed 50% of the pmv ascertained through market enquiry [para 7.36a in the hand book of procedure (volume-1) provided that, in the case of export products attracting depb credit @ 15% or more, the amount of credit should not exceed 50% of the pmv, and it was for this purpose that exporters were required to declare pmv of the goods also in their shipping bills]. in the instant case, the order of the commissioner does not indicate whether the assistant commissioner had considered the report of the jewellery appraiser on the examination of the goods and, on the basis thereof, had satisfied himself as to the necessity for market enquiries for the purpose of determining the actual pmv. even assuming that the assistant commissioner concerned had resorted to market enquiries after rejecting the report of the jewellery appraiser, the question now arises as to whether the market enquiry results in the instant case could have been accepted for the purpose of evaluation of the pmv of the goods.23. we have seen the certificate dated 22-3-1999 issued by aiewcm association, which reads as follows : with reference to the visit of shri kiran kumar inspector air cargo preventive customs along with two sample of the wrist watches with dial name "sekon". one in golden dial & one in black dial. 2. the cases & dials are indian & the case appear to be golden flash plating. 3. the price in market should be approximately rs. 120 each watch (rs. one hundred twenty only).the above certificate does not contain any reference to the consignments in question, nor does it otherwise correlate the samples tested with the consignments in question. it also does not disclose the basis for the certified market price. on these grounds, we hold that the above certificate is not a valid evidence in relation to the consignment in question and, therefore, the reliance placed by the adjudicating authority on the above certificate for the purpose of determining the value of the goods cannot be accepted.24. we have also seen the certificate dated 6-4-1999 issued by the certified goldsmith, shri kuldeep sugandh. this certificate deals with the bracelets and the watches (without bracelets) separately. as regards the bracelets, it was certified that 205 out of 215 pieces were 22 ct. gold bracelets and the remaining 10 pieces were 18 ct. gold bracelets. the weights of the 22 ct. and 18 ct. gold bracelets were also stated. the 215 watches were certified to be ordinary gold-polished. the total market value of the gold bracelets was stated to be rs. 37,56,312.00.25. it is evident from the above certificates that, in the process of market enquiry, each of the 215 pieces of the export product was dismantled into watch (without bracelet) and bracelets. the watches were examined by the aiewcm association and the bracelets, removed from the watch-cases, were examined by the goldsmith. it is not disputed that these proceedings were carried out in the absence of the exporters and without notice to them. the dismantling of the watches destroyed the identity of each of the 215 wrist watches. none of the wrist watches after the market enquiry could have been with the same bracelets as it had before the enquiry. no precautions were taken to avoid this. the manner of market enquiry conducted by the department was beyond the scope of "market enquiry" contemplated under the public notice and circular aforesaid and was also grossly prejudicial to the importers. a market enquiry which destroyed the very identity of goods could not have been the one so contemplated. we, therefore, observe that the certificates of the aiewcm association and the goldsmith cannot be a reliable basis for the determination of the pmv of the goods. the basis of assessment of market value by department having been found to be unreliable, the allegation of misdeclaration stands disproved.26. even if it be assumed that the exporters misdeclared the pmv at a high value or over-invoiced the export goods, would it make them liable for penal action under the customs act? on this question, conflicting decisions were cited before us. in the case of pankaj v. sheth (supra), the question which arose before the high court was whether misdeclaration of value by exporter amounted to violation of restrictions deemed to have been imposed under section 11 of the customs act, 1962, which was punishable under section 113 of the act.the writ petitioner in that case had argued that the jurisdiction of customs authorities to determine the value of the goods was limited to those cases where duty was leviable, and in this connection, had relied on two decisions of the tribunal namely shilpi exports (supra) and dimple overseas (supra). the bench rejected the writ petitioner's arguments in the light of the fact that the tribunal's decisions in shilpi exports (supra) and dimple overseas (supra) were subject to stay orders of the supreme court in the appeals filed against such decisions. we note that the appeals filed against the tribunal's decisions in shilpi exports (supra) and dimple overseas (supra) were later on dismissed by the supreme court vide, 2000 (115) e.l.t. a-219 and 1996 (86) e.l.t. a-167. the tribunal's decisions in shilpi exports (supra) and dimple overseas (supra) having so merged with the appellate judgments of the supreme court, we find that the tribunal's decisions in shilpi exports (supra) and dimple overseas (supra) still hold the field and the calcutta high court's decision on the aforesaid point has ceased to have precedent value.27. in the case of galani infin (supra) cited by ld. dr, the tribunal was following the calcutta high court's decision in the case of pankaj v. sheth (supra) in its finding that the power to assess the value of goods under section 14(1) of customs act was independent of any question of assessability of the goods to duty, which were sought to be exported. this decision in galani infin (supra) cannot be accepted as good law inasmuch as the ruling of the calcutta high court in pankaj v.sheth (supra) was rendered nugatory by the supreme court's decision upholding the tribunal's decision in shilpi exports (supra). for the same reason, the decision of the tribunal in the case of amit batra (supra), which was rendered by following the decision in galani infin, also cannot be successfully relied on by the revenue. we, therefore, hold that, since the goods in question were not assessable to duty, it was not open to the customs authorities to determine the pmv of the goods by having recourse to the provisions of section 14 of the customs act, which were not applicable to cases like this one as rightly held in shilpi exports (supra). ld. commissioner's reliance on the calcutta high court's decision in pankaj v. sheth (supra) with reference to the provisions of section 14 of the customs act is totally inapposite to the facts of the case.28. it was also argued by counsel that, even if over-invoicing and incorrect description of the goods in question could be found in the instant case, the same did not amount to violation of section 18(l)(a) of the fera, 1973 and, for that matter any violation of section .11 of the customs act, 1962. reliance was placed on the calcutta high court's decision in the case of lexus exports (supra). that was a case involving export of steel rods by the writ-petitioner under two contracts with a us-based company. stainless steel rods had to be exported under one of these contracts and non-stainless steel rods under the other contract. the exporters, by an inadvertent mistake, mentioned the goods under the second contract as stainless steel rods in the export documents filed with the customs authorities. the customs authorities, upon testing samples of the goods, found the same to be of non-stainless steel. they, therefore, assessed the consignment, conducted random raids at the exporter's office, factory and residential premises, seized records, froze bank accounts etc. these proceedings were challenged before the high court by the exporters. the customs authorities argued before the court that the writ-petitioner had, by over-invoicing, violated section 18(l)(a) of the fera, 1973 and, therefore, by virtue of section 67 of the fera, there was a deemed violation of section 11 of the customs act and, consequently, the goods were liable to be confiscated under section 113(d) of the customs act.the division bench of the court elaborately considered the relevant provisions of the fera, 1973 and the customs act, 1962 and held that fera, 1973, which was enacted for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interest of the economy of the country, was concerned only with under-invoicing of export goods and not with over-invoicing. the bench, therefore, held that over-invoicing of the goods in the export documents did not amount to violation of section 18(l)(a) of the fera and, for that matter, there was no violation of section 11 of the customs act, 1962. this decision was followed by the tribunal in mvt international (supra). the calcutta high court (single bench) decision in tosh & sons (supra) relied on by ld. dr is not good law after the division bench decision in lexus exports (supra) and the same has been correctly distinguished by the tribunal in mvt international (supra).we would follow the high court's ruling in lexus exports (supra), which was rightly relied on by the tribunal in mvt international (supra), to hold, in the instant case, that any over-valuation by the exporters in their shipping bill did not violate section 18(l)(a) of the fera, 1973 and, therefore, there was no deemed violation of section 11 of the customs act, 1962. section 67 of the fera, 1973 did not have any operation in the instant case.29. we have also noted that the calcutta high court in lexus exports (supra) considered the applicability of section 113(d) of the customs act, 1962 to the facts of that case and held that the writ-petitioner had not contravened the said section since the export of the goods was not prohibited and the goods were not dutiable. the facts of the instant case are also similar. it has not been shown to us that quartz analog watch fitted with gold straps/bracelets was in the negative list of export items. the adjudicating authority has not recorded any finding to the effect that the said goods were prohibited for export or that the goods were dutiable. therefore, the goods were not liable to confiscation under section 113(d) of the customs act and, in the result, there was no question of imposition of penalty on the exporters under section 114 of the act. moreover, neither in the show-cause notice nor in the order of the adjudicating authority is there any material to show that the partners of the exporting firm were personally liable for any penal action under section 114 of the act.30. the only allegation raised against the cha was that they did not check the credentials of the exporters and the documents submitted by them. it was particularly alleged that the description of the export goods in the shipping bill prepared/tendered by the cha to the customs was not in accordance with that given in the invoice. we have perused both these documents and have found no material discrepancy with regard to the description of the goods. further, it was no obligation of the cha to check the credentials of the exporters under the customs house agents licencing regulations, 1984. we have also noted that the adjudicating authority has not recorded any adverse finding on the allegations raised against the cha by the department. imposition of penalty on the cha is, therefore, without any basis. even otherwise, when no penalty was imposed by the adjudicating authority on the exporting firm, there was no justification in imposing penalty on their agents for the same alleged offence.31. we have noted the copies of shipping bills with invoices, available on record, relating to previous exportations [by the appellants] of "quartz analog watches with 22 ct. gold belts". appellants have submitted that, on all such previous occasions, the customs authorities had cleared the exports without any objection whatsoever. this submission has not been controverted before us. in view of the above circumstance, the authorities ought to have allowed the appellants to provisionally export the impugned goods, pending departmental enquiries into the alleged misdeclaration of pmv. the circular and public notice cited by ld. advocate almost cast an obligation on the authorities to permit provisional exportation. the order of the commissioner is vitiated by silence on the exporter's request for such permission.32. on the basis of the findings recorded by us, appeal no. c/409/99-a filed by the exporters is allowed and the order of confiscation of the goods and of imposition of redemption fine in lieu of confiscation is set aside. the customs authorities shall release the goods to the appellants within forty five days from the date of receipt of this order. appeal nos. c/410 & 411/99-a and c/20/2000-a are also allowed.

Judgment:
1. These four appeals have come up before this Larger Bench pursuant to an order of reference passed by Bench 'A' in view of conflicting decisions rendered by co-ordinate Benches of the Tribunal in two cases viz. MVT International v. Commissioner of Customs, New Delhi - 2000 (36) RLT 799 and Galani Infin Pvt. Ltd. v. Commissioner of Customs, New Delhi 2. These appeals are directed against Order-in-Original dated 30-10-1999 passed by the Commissioner of Customs, Air Cargo Complex, New Delhi. M/s. J.G. Exports (appellants in appeal No. C/409/99-A), who are a partnership firm engaged in the export of goods, are aggrieved by the order of the Commissioner confiscating 215 Quartz Analog Watches and imposing a redemption fine of Rs. 30 lakhs in lieu of confiscation.

Shri Rajesh Jain and Shri Mahesh Jain (appellants in appeal Nos.

C/410/99-A and C/411/99-A respectively) are partners of the said firm and are aggrieved by the order of the Commissioner imposing personal penalties of Rs. 20 lakhs each on them. Nipun Impex (appellant in appeal No. C/20/2000) is a proprietary concern of Shri Ashwini Kumar Sarin and is a Customs House Agent. They are aggrieved by the order of the Commissioner imposing a penalty of Rs. 5 lakhs on them. The stay applications are for waiver of pre-deposit of penalty amounts for purpose of hearing appeal Nos. C/410 & 411/99-A and C/20/2000-A.3. After careful examination of the records and consideration of the submissions made before us by both sides, we are convinced of the strong prima facie case in favour of the stay applicants. We, therefore, allow the stay applications unconditionally and proceed to consider the appeals on merits.

4. M/s. J.G. Exports (hereinafter called 'exporters') filed a shipping bill on 14-3-1999 for export of 215 Quartz analog watches to the consignees at Sharjah, claiming Customs duty credit @ 21% under the Duty Entitlement Pass Book (DEPB) Scheme. The exporters classified the goods under ITC Code No. 9101 and declared FOB value at US $910 per piece. The consignment was examined by Customs officials in the presence of the Customs House Agent (CHA), namely Nipun Impex and also the authorised representative of the exporters. Such examination revealed that each of the watches was Quartz analog watch with gold chains/belts attached to either sides. The gold chains /belts had no coupling in the middle for fastening the watch on wrists of different sizes. It further appeared that the case of the watch was neither gold-made nor gold-plated and that the major portion of the value of the goods was on account of the gold chains /belts and the value of the watches (without gold chains/belts) appeared to be nominal. Samples of the watches taken on random basis were got tested by a certified goldsmith who, in his report dated 20-3-1999, stated that the watch belt was 22 ct. gold, watch dial was not of gold and watch case was gold-polished and not gold-plated. Samples of the wrist watches were then drawn for market enquiry, in which the All India Electronic Watch and Clock Manufacturers' (AIEWCM) Association examined the samples and certified on 22-3-1999 that the price of each watch (without chains/belts) was approximately Rs. 120/-. The total value of 215 watches (without chains/belts) on this basis worked out to Rs. 25,800/-. The whole consignment of 215 watches covered by the shipping bill was then seized under Section 110 of the Customs Act. After the seizure, the goods were again examined by the seizing officers in the presence of CHA (Shri Ashwini Kumar Sarin) certified goldsmith (Shri Kuldeep Sugandh) and other witnesses on 6-4-1999. The certified goldsmith submitted his report in respect of the complete consignment.

As per this report, 205 out of the 215 chains/belts were 22 ct. gold bracelets of weight 9330 grams and the remaining 10 pieces were 18 ct.

gold-Bracelet of weight 480 grams. All the 215 watches were ordinary watches, gold-polished. Further, the total market value of the gold was approximately Rs. 37,56,312.00.

5. From the above results of enquiry, the Customs authorities found that the actual Present Market Value (PMV) of the 215 watches (without belts/chains) was Rs. 25,800.00 and that of the gold contained in the chains/belts of the watches was Rs. 37,56,312.00. As against this, the FOB value of the goods declared by the party was Rs. 82,75,995.00 and the PMV of the goods declared by them was Rs. 56,50,000.00. Customs authorities also recorded statements of Shri Rajesh Jain under Section 108 of the Customs Act. On the basis of all the findings so arrived at the Department issued show-cause notices to the appellants. The noticees contested the Department's allegations and pleaded for dropping the proceedings. But proceedings ensued and culminated in the impugned order.

6. Heard both sides at length. Shri J.S. Agarwal, Advocate and Shri J.M. Sharma, Consultant argued for the appellants. Shri P.K. Jain, SDR presented the respondent's case.

7. The allegations in the show-cause notice as against the exporters were (i) that they misclassified the goods in the shipping bill by classifying the same under ITC Code No. 9101 whereas the goods were classifiable under ITC Code No. 9102; (ii) that they over-valued the goods at an FOB value of Rs. 82,75,995.00 and declared the PMV of the goods as Rs. 56,50,000.00 whereas the correct PMV as determined by the Department was only Rs. 37,82,112.00 and (iii) that such overvaluation was done to avail high DEPB benefit of Rs 17,27,959.00. It was also alleged that the goods (which the Department considered as "ordinary watches with gold belts attached") were not of the kind generally traded/exported and therefore could not be covered under the DEPB scheme. The charge of over-valuation was sought to be substantiated by a further allegation that the value of gold could not be included in computing the DEPB benefits since gold was (allegedly) not an input as per the Input-Output norms under the scheme. The exporters were, therefore, alleged to have contravened various provisions of law viz.

Section 50(2) of the Customs Act, 1962; Rule 14(1) of the Foreign Trade (Regulation) Rules, 1993 and Section 18(l)(a) read with Section 67 of the Foreign Exchange Regulation Act (FERA) 1973. The show-cause notice proposed to confiscate the goods under Section 113(d) of the Customs Act and to impose penalty on the exporters under Section 114 of the Act.

8. The exporters, by themselves as well as through their Advocate, contested the Department's allegations by way of a series of letters sent in reply to the show-cause notice. The gist of their defence is as follows : (i) ITC Code No. 9101 is for Customs import duty purposes and nor for exports; (without prejudice) the watches were gold-polished and hence the heading was mentioned as 9101; Responsibility for correct classification is with the Department and not with exporter; Mentioning a different heading by itself does not mean misdeclaration; Mentioning a different heading is at best an inappropriate classification only.

(ii) General instruction No. 4 under Appendix-28A to the Hand Book of Procedure [volume 1] pertaining to Exim Policy 1997-2002, relied on by the Department to deny DEPB benefit to the wrist watches in question, was incorporated in appendix 28A only w.e.f. 1-4-1999 and was not in force at the time of filing of the shipping bill; Quartz analog watches very much figured at SI. No. 37 under Product Group Code 83 in the Table of DEPB credit rates for the relevant period and, therefore, were eligible for DEPB benefit at the rate of 21% of the FOB value; (iii) Department's Jewellery Appraiser who examined the goods certified its declared value to be fair as per prevailing market price; Valuation by AIEWCM Association is not reliable as their certificate does not contain anything to show that the samples drawn for examination by them were from the export consignment in question; Only the values of the watches (without straps/belts) and the gold straps/belts as suggested by AIEWCM Association and certified goldsmith were considered by Department in valuing the goods; Necessary elements such as transportation and handling charges, labour charges for gold-polishing of watch-cases, labour charges for manufacture of gold belts, packing costs, and overhead charges were completely ignored; There is no evidence to disprove the price declared by the exporter and the value worked out by the Department is without any basis; Consignment ought to have been permitted to be exported atleast provisionally without DEPB benefit, pending the Departmental proceedings; It was held up by the Customs authorities disregarding the instructions issued by the Government in relation to DEPB scheme; In the wake of cancellation of export order by the foreign buyer, the exporter would like to withdraw the shipping bill, in which event the question of DEPB credit did not arise and the goods were liable to be released; In the past, Department had cleared exports of identical goods by accepting the exporter's similar declaration of FOB value etc., and the departure from such consistent practice was not justifiable on the part of the Department; The goods are not liable to confiscation and the exporters are not liable to be penalised as alleged by Department.

9. According to the adjudicating authority, the moot question in the case was one which had to be dealt with in the valuation angle. That authority also raised for determination of the question whether ITC Code No. 9101 was applicable only to import goods and not to export goods. As regards valuation, ld. Commissioner relied on the certificates of AIEWCM Association and Shri Kuldeep Sugandh (certified Goldsmith) and also the statement of Shri Rajesh Jain (partner of the export firm) to hold that the exporters misdeclared and over-valued the goods with intent to avail high DEPB credit than due. He, held the goods to be prohibited (on account of misdeclaration) in terms of Section 18(1 )(a) of the FERA, 1973. He further, held the same to be liable to confiscation under Section 113(d) of the Customs Act, 1962 by invoking Sections 11 and 50(2) of the Act read with Section 67 of FERA, 1973. The adjudicating authority also rejected the exporters' claim that ITC Code No. 9101 was applicable only to import goods.

10. Ld. Advocate Shri J.S. Agarwal, who argued for the exporting firm and its partners, has raised several points, apart from reiterating the parties' submissions (supra) made in response to the show-cause notice.

He has referred to the relevant provisions of the DEPB scheme and Circulars and Public Notices connected therewith. He has also drawn our attention to a few shipping bills (under DEPB scheme) and connected invoices of the exporters evidencing availment of DEPB credit (without Department's objection) against export of similar goods described as "Quartz analog watches 22 ct. gold" during a period prior to the date of filing of the impugned shipping bill. Ld. Advocate has also relied on case law in support of the challenge against the confiscation of the goods and the imposition of penalty on the Jains.

11. In a recollection of the facts of the case, ld. Advocate submitted that, while the watches had been procured from a supplier at Chennai @ Rs. 883.00 per piece, the gold for the manufacture of the watch straps/belts had been purchased from bullion merchants in Delhi. He drew our attention to the copies of the suppliers' invoice/credit memo available on record and submitted that these documents were produced before the adjudicating authority. A break-up of the approximate cost of the 215 wrist watches with gold straps was also furnished to the said authority. It was without considering such documents and materials that the Commissioner went into valuation of the goods. The report of examination of the goods submitted by the Department's Jewellery Appraiser on 18-3-1999 had certified the declared price of the goods to be fair, but the report was also not considered by the adjudicating authority. It was in utter disregard of the principles of natural justice that all the proceedings after 18-3-1999 were resorted to by the Department. Ld. Advocate explained this submission by pointing out that the drawal of the samples of the goods for testing by certified Goldsmith, the taking of samples to the market for valuation, the removal of gold straps/belts from the watch-cases for separate valuation, the weighment of gold by the Goldsmith and the seizure of the goods on 6-4-1999 were all done behind the back of the exporters.

Counsel, on this ground, challenged the credibility of the certificates of AIEWCM Association and Goldsmith. The certificate of AIEWCM Association contained nothing to correlate the samples tested by them with the consignment in question. The results of market enquiry were, therefore, unreliable and consequently the valuation of the goods as made by the Department and approved by the adjudicating authority was unsustainable. Ld. Advocate, further, submitted that there was no material on record to disprove the declaration in the shipping bill and, therefore, there was no prohibition on the export of the goods in terms of Section 18(l)(a) of FERA, 1973. There was no violation of Section 50(2) of the Customs Act also. Section 67 of FERA, 1973 was not relevant to the case. In the absence of prohibition on the export of the goods, there was no question of its confiscation under Section 113(d) or of imposition of penalty under Section 114 of the Customs Act. As regards mention of ITC Code No. 9101 in the shipping bill, ld.Advocate submitted that the watches were covered by heading 91.01 of the Customs Tariff inasmuch as the watch-cases were made of metal clad with gold (precious metal). Even if it was assumed that classification under heading 91.01 was not correct, it did not amount to misdeclaration inasmuch as the onus of classification was on the Revenue. Ld. Advocate further argued that, even if it was assumed that the goods had been over-invoiced or incorrectly described, such over-invoicing/incorrect description did not amount to any violation of Section 18(l)(a) of FERA, 1973 and, for that matter, any violation of Section 11 of the Customs Act, 1962. In this connection, Counsel relied on the decision of the Calcutta High Court in the case of CC, Calcutta v. Lexus Exports Pvt. Ltd. -1994 (69) E.L.T. 228 (Cal.). On the point, he also relied on the Tribunal's decision in the case of MVT International v. CC, New Delhi 12. Ld. Advocate further submitted that, since the goods in question were not subjected to any levy of duty, Section 14 of the Customs Act could not be employed for the purpose of valuation of the said goods and, therefore, the FOB value of the goods declared in the shipping bill could not be faulted with the aid of Section 14. In support of this argument, Counsel relied on the decision of the Tribunal in the case of Shilpi Exports, v. CC, Calcutta - 1996 (13) RLT 39. He also pointed out that the appeal filed against this decision of the Tribunal was dismissed by the Supreme Court as reported in [2000 (115) E.L.T.A-219]. Counsel further relied on the decision of the Tribunal in the case of CC, Kandla v. Dimple Overseas Ltd. - 1995 (8) RLT 126 and pointed out that the appeal filed by the Collector of Customs against this decision of the Tribunal was also dismissed by the Supreme Court vide [1996 (86) E.L.T. A-167].

13. Counsel further submitted that, since Section 18(l)(a) of FERA, 1973 was not attracted in the appellants' case, the provisions of Section 113 (d) and Section 114 of the Customs Act, 1962 were also not invocable against them. In support, he relied on a plethora of decisions of the Tribunal including MVT International (supra).

14. Ld. Advocate challenged the action of the Department separating the straps/belts from the watch-cases for market enquiry purposes behind the back of the exporters. The action of the Customs authorities vitiated the whole proceedings, he said. He submitted that each Quartz analog (sic) watch with gold straps/belts attached thereto was an integrated unit. In this connection, he referred to the decision of the Supreme Court in the case of Titan Watches Ltd. v. CC, Bangalore - 2000 (115) E.L.T. 28 (S.C.) 15. Counsel further drew our attention to Circular No. 15/97-Cus., dated 3-7-1997 of Govt, of India (Ministry of Finance) and also to Public Notice No. 66 dated 25-6-1997 of the Delhi Customs issued in pursuance of the aforesaid Circular, and submitted that, in terms of the said Circular and Public Notice, the Department ought to have permitted provisional export of the goods under the DEPB scheme pending the departmental enquiries on the value of the export goods. He submitted that the action of the Department declining the exporters' request for provisional permission for export was high-handed and contrary to the instructions of Govt. The order of the adjudicating authority upholding the Department's action was liable to be set aside and the goods should be ordered to be released.

16. Ld. SDR, Shri P.K. Jain opposed the above arguments and submitted that, since Section 14 of the Customs Act, 1962 was applicable to export goods also, the misdeclaration by the exporters of the PMV of the goods in the shipping bill amounted to a misdeclaration of value under Section 14 ibid and, consequently, the goods were prohibited in terms of Section 11 of the Customs Act, 1962 read with Sections 18(1 )(a) and 67 of the FERA, 1973. He, further, argued that the definition of "market price" under Section 2(30) of the Customs Act should be taken as the definition of Present Market Value (PMV). If the declared value was not in accordance with the provisions of Section 14 of the Customs Act, the goods in question would be treated as prohibited goods for purposes of Section 113(d) of the Act. While conceding that there was no misdeclaration of FOB value of the goods, ld., DR submitted that the exporters misdeclared the PMV of the goods and, therefore, the goods became liable to confiscation and the exporters became liable for penal action under the Sections 113(d) & 114 respectively of the Customs Act. Ld. SDR further argued, with reference to the definition of "licence" under Section 2(g) of the Foreign Trade (Regulation and Development) Act, that DEPB was also a licence within the meaning of this expression under the said Act and, consequently, the misdeclaration by the exporters for the purpose of obtaining higher DEPB benefit amounted to a breach of Rule 14(1) of the Foreign Trade (Regulation) Rules, 1993. He further argued that the ' full export value' of the goods, to be declared by an exporter under Section 18(l)(a) of the FERA, 1973 was the value to be determined in terms of Section 14 of the Customs Act, 1962. In this connection, he relied on the decision of the Calcutta High Court in the case of CC v. Pankaj V.Sheth - 1997 (90) E.L.T. 31 (Cal.). Ld. DR also relied on the decision of the Tribunal in the case of Galani Infin (P) Ltd. v. CC, New Delhi - 1999 (35) RLT 3 (T) as also on a later decision of the same Bench in the case of Amit Batra v. CC, New Delhi in appeal No. C/115/98-A (Final Order No. 1573/99-A dated 5-11-1999). Ld. SDR also relied on the decision of the Calcutta High Court in the case of Tosh & Sons Pvt.

Ltd. v. Asstt. Collector of Customs - AIR 1979 Calcutta 386 in support of his plea that the misdeclaration by the exporters should be held to be a breach of Section 18(l)(a) of the FERA, 1973. However, there was no answer to a query from the Bench as to whether the adjudicating authority in the instant case determined the correct value of the goods in terms of Section 14 of the Customs Act. In answer to another query from the Bench as to why provisional export of the goods was not allowed, ld. DR replied that none of the circulars relied on by the appellants prohibited refusal of permission for provisional export. Ld.

SDR, with reference to the apparent conflict between the decisions of two coordinate Benches of the Calcutta High Court in the cases of Lexus Exports (supra) and Pankaj V. Sheth (supra), submitted that it was the latter decision of the Court, being the later in point of time, that had to be followed. He then pleaded for rejecting the appeals by following Pankaj V. Sheth (supra).

17. Ld. Consultant Shri Sharma who appeared for the CHA adopted all the arguments of Shri J.S. Agarwal and further submitted that, since the goods in question were neither dutiable nor prohibited, the provisions of Sections 113 & 114 of Customs Act were not invocable. He also submitted that the adjudicating authority imposed penalty on the CHA without even granting personal hearing. He also submitted that there was no discrepancy in description of goods between the shipping bill and invoice and, therefore, the charge levelled against the CHA by the Department in the show-cause notice was not sustainable. With reference to the Department's allegation that the CHA did not check the credentials of the exporter, ld. consultant pointed out that there was no such obligation for them under the Customs House Agents Licensing Regulations, 1984. He submitted that the adjudicating authority did not record any finding as to why the CHA was held to be liable under Section 114 of the Customs Act. He, therefore, prayed for setting aside the order of penalty imposed on the CHA.18. We have carefully considered the rival submissions. The DEPB scheme, which was implemented w.e.f. 1-4-1997 in pursuance of para 7.14 of the Exim Policy 1997-2002, had the objective of neutralising the incidence of basic Customs duty with surcharge thereon on the import content of the export product. Such neutralisation was provided by way of grant of duty credit against the export product. The duty-credit under the scheme shall be calculated by taking into account the deemed import content of the said export product as per the Standard Input-Output norms and determining the basic Customs duty and surcharge payable- on such deemed import. The value addition achieved by export of such product shall also be taken into account while determining rate of duty credit under the scheme. An exporter, under the scheme, is eligible to claim credit as a specified percentage of FOB value of export made in freely convertible currency. The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade (DGFT) by a Public Notice issued in this behalf. Quartz analog watches are among the export products notified by the DGFT vide SI. No. 37 under Product Group Code 83 and the DEPB credit rate applicable to the said goods is 21% of FOB value. The description of the goods in the alphabetical index of export items is "Quartz analog Watches - Digital electronic watches". Under the "Standard Input-Output and Value Addition Norms" applicable to the DEPB scheme, goods of the description viz., "Quartz Analog Watches" - figured as export item at SI. No. B132 and watch-case, watch-strap /bracelet etc. stood mentioned as separate import items against the said export item. The relevant extract of the Input-Output Norms is given below :-Duty Exemption Scheme I-O Norms ELECTRONICSS. No. Export Item Import Item Name Quantity Name QuantityB 132 Quartz analog Case with or without Watches integrated bracelet Watch Straps/Bracelets.

19. Quartz analog watches were certainly covered under the DEPB scheme (as seen from the above account) at the material time. The goods in question were Quartz analog watches made of inputs viz. cases, watch straps/bracelets etc. and the same ought to have been valued as an integrated unit by the Department. A Quartz analog watch did not cease to be a watch by mere reason of a bracelet having been attached to the watch-case. The gold bracelet attached to the watch-case was an integral part of the watch and therefore the watch required to be assessed for FOB value as a single unit. This position is supported by the Supreme Court's decision in the case of Titan Watches Ltd. (supra) cited by ld. Advocate. We thus find that the Department's allegation that the gold bracelets were attached to ordinary watches for the purpose of over-valuation with intent to claim higher DEPB credit has no legal basis.

20. On the facts brought on record, we also find that the adjudicating authority reached the finding of over-valuation by the exporters, by heavily relying on AIEWCM Association's certificate of examination as well as Goldsmith's certificate of examination and by ignoring the earlier report submitted by the Department's jewellery appraiser. The adjudicating authority has not stated any reason as why the jewellery appraiser's report was not considered nor has that authority recorded any reason for not considering the evidence adduced by the exporters by way of their letter dated 14-3-1999 and the documents enclosed therewith in support of the declared value of the goods.

21. We have noted the description of the export goods as stated in the shipping bill and the corresponding invoice of the exporter. While, in the shipping bill, the description is "quartz analog watches 22ct. gold belt", in the invoice it is "quartz analog watches 22 ct." We have not been able to find any material discrepancy between the descriptions in the two documents. The submission of ld. Consultant in this regard appears to be correct. As regards FOB value of the goods also, no discrepancy whatsoever has been found between the shipping bill and the corresponding invoice. The PMV declared for the 215 wrist watches with gold belts is Rs. 56,50,000.00. As per Public Notice No. 66 dated 25-6-1997 issued by the Delhi Customs read with Circular No.15/97-Cus., dated 3-6-1997 of Govt, of India (Ministry of Finance), the correctness of PMV could be examined at the stage of processing of shipping bills, having regard to the description and specification of the export product declared with reference (in the case of factory-cleared products) to AR-4 or Excise Invoice or (in the case of export goods procured from the market) to the sale invoice of the authorised dealer or any other evidence based on enquiries. In the instant case, the watches were procured from the market and the sale invoice of the suppliers at Chennai had been furnished by the exporters to the Department. The exporters had also provided the approximate break-up of the cost of the goods. These materials ought to have been considered by the Customs authorities at the stage of processing of the shipping bill for the purpose of verifying the correctness of the declared PMV.22. The aforesaid Public Notice/Circular further provided that where, upon examination of the goods, the examining officer found that the declared PMV or the FOB price was unduly high, the matter should be referred to the Assistant Commissioner (Export) along with sample of goods for the purpose of verification/determination of PMV through market enquiries. But before making such market enquiries, the Assistant Commissioner must satisfy himself as to the necessity for causing such enquiries. The purpose of such enquiry was to ensure that the credit entitlement should not exceed 50% of the PMV ascertained through market enquiry [para 7.36A in the Hand Book of Procedure (Volume-1) provided that, in the case of export products attracting DEPB credit @ 15% or more, the amount of credit should not exceed 50% of the PMV, and it was for this purpose that exporters were required to declare PMV of the goods also in their shipping bills]. In the instant case, the order of the Commissioner does not indicate whether the Assistant Commissioner had considered the report of the jewellery appraiser on the examination of the goods and, on the basis thereof, had satisfied himself as to the necessity for market enquiries for the purpose of determining the actual PMV. Even assuming that the Assistant Commissioner concerned had resorted to market enquiries after rejecting the report of the jewellery appraiser, the question now arises as to whether the market enquiry results in the instant case could have been accepted for the purpose of evaluation of the PMV of the goods.

23. We have seen the certificate dated 22-3-1999 issued by AIEWCM Association, which reads as follows : With reference to the visit of Shri Kiran Kumar Inspector Air Cargo preventive customs along with two sample of the wrist watches with dial name "SEKON". One in golden dial & one in black dial.

2. The cases & dials are Indian & the case appear to be golden flash plating.

3. The price in market should be approximately Rs. 120 each watch (Rs. one hundred twenty only).

The above certificate does not contain any reference to the consignments in question, nor does it otherwise correlate the samples tested with the consignments in question. It also does not disclose the basis for the certified market price. On these grounds, we hold that the above certificate is not a valid evidence in relation to the consignment in question and, therefore, the reliance placed by the adjudicating authority on the above certificate for the purpose of determining the value of the goods cannot be accepted.

24. We have also seen the certificate dated 6-4-1999 issued by the certified goldsmith, Shri Kuldeep Sugandh. This certificate deals with the bracelets and the watches (without bracelets) separately. As regards the bracelets, it was certified that 205 out of 215 pieces were 22 ct. gold bracelets and the remaining 10 pieces were 18 ct. gold bracelets. The weights of the 22 ct. and 18 ct. gold bracelets were also stated. The 215 watches were certified to be ordinary gold-polished. The total market value of the gold bracelets was stated to be Rs. 37,56,312.00.

25. It is evident from the above certificates that, in the process of market enquiry, each of the 215 pieces of the export product was dismantled into watch (without bracelet) and bracelets. The watches were examined by the AIEWCM Association and the bracelets, removed from the watch-cases, were examined by the goldsmith. It is not disputed that these proceedings were carried out in the absence of the exporters and without notice to them. The dismantling of the watches destroyed the identity of each of the 215 wrist watches. None of the wrist watches after the market enquiry could have been with the same bracelets as it had before the enquiry. No precautions were taken to avoid this. The manner of market enquiry conducted by the Department was beyond the scope of "market enquiry" contemplated under the Public Notice and Circular aforesaid and was also grossly prejudicial to the importers. A market enquiry which destroyed the very identity of goods could not have been the one so contemplated. We, therefore, observe that the certificates of the AIEWCM Association and the goldsmith cannot be a reliable basis for the determination of the PMV of the goods. The basis of assessment of market value by Department having been found to be unreliable, the allegation of misdeclaration stands disproved.

26. Even if it be assumed that the exporters misdeclared the PMV at a high value or over-invoiced the export goods, would it make them liable for penal action under the Customs Act? On this question, conflicting decisions were cited before us. In the case of Pankaj V. Sheth (supra), the question which arose before the High Court was whether misdeclaration of value by exporter amounted to violation of restrictions deemed to have been imposed under Section 11 of the Customs Act, 1962, which was punishable under Section 113 of the Act.

The writ petitioner in that case had argued that the jurisdiction of Customs authorities to determine the value of the goods was limited to those cases where duty was leviable, and in this connection, had relied on two decisions of the Tribunal namely Shilpi Exports (supra) and Dimple Overseas (supra). The Bench rejected the writ petitioner's arguments in the light of the fact that the Tribunal's decisions in Shilpi Exports (supra) and Dimple Overseas (supra) were subject to stay orders of the Supreme Court in the appeals filed against such decisions. We note that the appeals filed against the Tribunal's decisions in Shilpi Exports (supra) and Dimple Overseas (supra) were later on dismissed by the Supreme Court vide, 2000 (115) E.L.T. A-219 and 1996 (86) E.L.T. A-167. The Tribunal's decisions in Shilpi Exports (supra) and Dimple Overseas (supra) having so merged with the appellate judgments of the Supreme Court, we find that the Tribunal's decisions in Shilpi Exports (supra) and Dimple Overseas (supra) still hold the field and the Calcutta High Court's decision on the aforesaid point has ceased to have precedent value.

27. In the case of Galani Infin (supra) cited by ld. DR, the Tribunal was following the Calcutta High Court's decision in the case of Pankaj V. Sheth (supra) in its finding that the power to assess the value of goods under Section 14(1) of Customs Act was independent of any question of assessability of the goods to duty, which were sought to be exported. This decision in Galani Infin (supra) cannot be accepted as good law inasmuch as the ruling of the Calcutta High Court in Pankaj V.Sheth (supra) was rendered nugatory by the Supreme Court's decision upholding the Tribunal's decision in Shilpi Exports (supra). For the same reason, the decision of the Tribunal in the case of Amit Batra (supra), which was rendered by following the decision in Galani Infin, also cannot be successfully relied on by the Revenue. We, therefore, hold that, since the goods in question were not assessable to duty, it was not open to the Customs authorities to determine the PMV of the goods by having recourse to the provisions of Section 14 of the Customs Act, which were not applicable to cases like this one as rightly held in Shilpi Exports (supra). Ld. Commissioner's reliance on the Calcutta High Court's decision in Pankaj V. Sheth (supra) with reference to the provisions of Section 14 of the Customs Act is totally inapposite to the facts of the case.

28. It was also argued by Counsel that, even if over-invoicing and incorrect description of the goods in question could be found in the instant case, the same did not amount to violation of Section 18(l)(a) of the FERA, 1973 and, for that matter any violation of Section .11 of the Customs Act, 1962. Reliance was placed on the Calcutta High Court's decision in the case of Lexus Exports (supra). That was a case involving export of steel rods by the writ-petitioner under two contracts with a US-based company. Stainless steel rods had to be exported under one of these contracts and non-stainless steel rods under the other contract. The exporters, by an inadvertent mistake, mentioned the goods under the second contract as stainless steel rods in the export documents filed with the Customs authorities. The Customs authorities, upon testing samples of the goods, found the same to be of non-stainless steel. They, therefore, assessed the consignment, conducted random raids at the exporter's office, factory and residential premises, seized records, froze bank accounts etc. These proceedings were challenged before the High Court by the exporters. The Customs authorities argued before the Court that the writ-petitioner had, by over-invoicing, violated Section 18(l)(a) of the FERA, 1973 and, therefore, by virtue of Section 67 of the FERA, there was a deemed violation of Section 11 of the Customs Act and, consequently, the goods were liable to be confiscated under section 113(d) of the Customs Act.

The Division Bench of the Court elaborately considered the relevant provisions of the FERA, 1973 and the Customs Act, 1962 and held that FERA, 1973, which was enacted for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interest of the economy of the country, was concerned only with under-invoicing of export goods and not with over-invoicing. The Bench, therefore, held that over-invoicing of the goods in the export documents did not amount to violation of Section 18(l)(a) of the FERA and, for that matter, there was no violation of Section 11 of the Customs Act, 1962. This decision was followed by the Tribunal in MVT International (supra). The Calcutta High Court (Single Bench) decision in Tosh & Sons (supra) relied on by ld. DR is not good law after the Division Bench decision in Lexus Exports (supra) and the same has been correctly distinguished by the Tribunal in MVT International (supra).

We would follow the High Court's ruling in Lexus Exports (supra), which was rightly relied on by the Tribunal in MVT International (supra), to hold, in the instant case, that any over-valuation by the exporters in their shipping bill did not violate Section 18(l)(a) of the FERA, 1973 and, therefore, there was no deemed violation of Section 11 of the Customs Act, 1962. Section 67 of the FERA, 1973 did not have any operation in the instant case.

29. We have also noted that the Calcutta High Court in Lexus Exports (supra) considered the applicability of Section 113(d) of the Customs Act, 1962 to the facts of that case and held that the writ-petitioner had not contravened the said Section since the export of the goods was not prohibited and the goods were not dutiable. The facts of the instant case are also similar. It has not been shown to us that Quartz analog watch fitted with gold straps/bracelets was in the negative list of export items. The adjudicating authority has not recorded any finding to the effect that the said goods were prohibited for export or that the goods were dutiable. Therefore, the goods were not liable to confiscation under Section 113(d) of the Customs Act and, in the result, there was no question of imposition of penalty on the exporters under Section 114 of the Act. Moreover, neither in the show-cause notice nor in the order of the adjudicating authority is there any material to show that the partners of the exporting firm were personally liable for any penal action under Section 114 of the Act.

30. The only allegation raised against the CHA was that they did not check the credentials of the exporters and the documents submitted by them. It was particularly alleged that the description of the export goods in the shipping bill prepared/tendered by the CHA to the Customs was not in accordance with that given in the invoice. We have perused both these documents and have found no material discrepancy with regard to the description of the goods. Further, it was no obligation of the CHA to check the credentials of the exporters under the Customs House Agents Licencing Regulations, 1984. We have also noted that the adjudicating authority has not recorded any adverse finding on the allegations raised against the CHA by the Department. Imposition of penalty on the CHA is, therefore, without any basis. Even otherwise, when no penalty was imposed by the adjudicating authority on the exporting firm, there was no justification in imposing penalty on their agents for the same alleged offence.

31. We have noted the copies of shipping bills with invoices, available on record, relating to previous exportations [by the appellants] of "Quartz analog watches with 22 ct. gold belts". Appellants have submitted that, on all such previous occasions, the Customs authorities had cleared the exports without any objection whatsoever. This submission has not been controverted before us. In view of the above circumstance, the authorities ought to have allowed the appellants to provisionally export the impugned goods, pending departmental enquiries into the alleged misdeclaration of PMV. The Circular and Public Notice cited by ld. advocate almost cast an obligation on the authorities to permit provisional exportation. The order of the Commissioner is vitiated by silence on the exporter's request for such permission.

32. On the basis of the findings recorded by us, Appeal No. C/409/99-A filed by the exporters is allowed and the order of confiscation of the goods and of imposition of redemption fine in lieu of confiscation is set aside. The Customs authorities shall release the goods to the appellants within forty five days from the date of receipt of this order. Appeal Nos. C/410 & 411/99-A and C/20/2000-A are also allowed.

Court	Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On	Sep-06-2000
Reported in	(2000)(72)ECC95
Appellant	J.G. Exports
Respondent	Commissioner of Customs

J.G. Exports Vs. Commissioner of Customs - Court Judgment