Collector of Customs Vs. Lexus Exports Private Ltd. - Court Judgment

Excerpt:
foreign exchange regulation - customs--offence--respondent exporting non-stainless steel rods to u.sa. but describing it as stainless steel rods inadvertently in customs documents--customs detaining goods and not allowing export on ground that there was over-invoicing and violation of fera--not correct--value of goods exported not under-stated--section 18(1)(a) of fera not attracted--hence section 11 of customs act not attracted--technical violation, if any, because of wrong description, rectified--export could not be stopped--goods whether stainless steel or non-stainless steel not prohibited for export, did not require licence to export and were not dutiable--no contravention of section 113 of customs act--wrong description, if any, violated only rules and regulations under fera but not fera--allegation that non-stainless steel goods were deliberately described as stainless steel goods to take advantage of iprs--not tenable--benefit under iprs can be claimed only after fulfilling several conditions and not by mere wrong description of goods in customs documents--export of goods ordered to be allowed--customs act (52 of 1962), sections 11, 113--foreign exchange regulation act (46 of 1973), sections 18(1)(a), 67. - ajit k. sengupta, j.1. the respondent-writ petitioner, lexus export private ltd. (in short 'lexus export') entered into a contract with messrs. omega enterprises, u.s.a. through messrs. hind international and investment ltd., their sole procurement agent for china, south korea, taiwan and india for supply of 1,20,000 pieces of stainless steel rods, also known as stainless steel earth rod.2. while the supply under the aforesaid contract was pending, the respondent-writ petitioner entered into another contract with messrs. omega enterprises, u.s.a. through messrs. hind international and investment ltd. for supply of 48,000 pieces of non-stainless steel rods, also known as non-stainless steel stay rods.3. there is no dispute about the existence of both the contracts and about the obligation of the respondent-writ petitioner to supply stainless steel rods as well as non-stainless steel rods to messrs. omega enterprises, u.s.a.4. the respondent-writ petitioner in terms of the second contract manufactured 36,000 pieces of non-stainless steel rods and loaded the same in six containers for effecting export. it is claimed that due to inadvertence in the documents that were filed with the customs authorities these goods were mentioned as stainless steel rods, i.e. rods required to be supplied by the respondent-writ petitioner under the first contract.5. it is claimed that the respondent-writ petitioner could not have done this deliberately. before any export could be effected the excise authorities are obliged to take samples. in the instant case, the excise authorities took samples on 2nd september 1992 which they forwarded to the customs department for necessary test. since the respondent-writ petitioner was always aware that excise authorities would take samples and these would be tested by the customs authorities, it could not have deliberately mentioned stainless steel rods in the customs document while despatching non-stainless rods.6. the customs authorities upon testing the samples found that the goods were of non-stainless steel variety. the customs authorities thereupon, not only seized the goods but also started random raids at all conceivable places, i.e. the respondent-writ petitioner's office, factory, residence of its directors, office of its suppliers of raw materials, office of its chartered accountants and seized all books and records of the respondent-writ petitioner and took them away from the factory including excise records and even went to the extent of freezing all bank accounts of the respondent-writ petitioner.7. such action of the customs authorities was challenged in the writ petition on the ground that the action is high-handed and arbitrary. the said writ application was moved in the presence of the appellants on 24th september 1992. it was urged that the customs authorities had no power to freeze the bank accounts of the respondent-writ petitioner. it was also contended that after the description of the goods in the customs papers were corrected, the customs authorities had no power to withhold export of 36,000 pieces of non-stainless steel stay rods. the customs authorities could not show any ground on the basis of which they could seize or confiscate those export goods.8. upon hearing the parties on 24th september 1992, umesh chandra banerjee, j. the learned judge of the court of the first instance, passed an order of injunction in terms of prayer (g), g(i), g(ii) and g(v) of the writ petition. the learned judge clarified that the release of the goods for the purpose of export shall take place in accordance with law. an ad interim order in terms of prayer (h) was also passed. it was made clear that the said order would not prevent the customs authorities to initiate any proceedings in accordance with law, if not already initiated. the prayers referred to above are as follows :-'(g) order of injunction to issue restraining the respondents and each of them, their servants, agents and subordinates from :-(i) detaining 36,000 pieces of stay rod of non-stainless steel variety;(ii) preventing the export of the company;(v) continuing with the freezing of the accounts of the petitioner no. 1 more fully mentioned in the instant petition.(h) an order of injunction be passed restraining the respondents and each of them in any way obstructing or creating any hindrance in your petitioner's carrying on its export obligation and/or its business of export and/or operating its bank accounts.'9. it was stated that no proceedings had been initiated against the respondent-writ petitioner or against any of its directors in respect of the aforesaid export till then.10. on 25th september 1992 the order dated 24th september 1992 was clarified as follows :-'let the order dated 24-9-1992 be modified in the manner following :-in the sixth paragraph after the word 'proceeding or proceedings' the following be added :-'in respect of the subject consignment.'let this be incorporated in the order dated 24-9-1992. department and all parties are to act on a signed copy of the minutes of this order on the usual undertaking.'11. since the learned judge of the court of the first instance did not accede to the other prayers made in the writ petition, to the effect that no coercive action should be taken against the first writ petitioner and its directors, an appeal was preferred by the respondent-writ petitioner against the said orders dated 24th september 1992 and 25th september 1992. in that appeal a stay application was moved on 26th september 1992 which was heard by this bench and an order was passed permitting the presence of a learned lawyer at the time of interrogation and restraining arrest/detention of the respondent-writ petitioner no. 2 and other officers, employees of the respondent-writ petitioner no. 1 in connection with the proceeding.12. after a lapse of over two months the customs authorities preferred the present appeal against the said orders dated 24th and 25th september, 1992 and moved the instant stay application therein.13. by consent the application was treated as an appeal and elaborate arguments were made by the learned counsel appearing for the parties.14. mr. roy chowdhury, the learned counsel appearing for the customs authorities had urged the following points :-(a) the court should set aside the order of the learned judge of the court of the first instance and in fact dismiss the writ application because of the conduct of the respondent-writ petitioner. it was alleged that in spite of obtaining an order from the court of the first instance for release of the goods, the respondent-writ petitioner preferred an appeal alleging that the learned judge of the court of the first instance rejected the prayer for release of the goods and in view of such conduct, the respondent-writ petitioner should not be permitted to seek any relief under article 226 of the constitution of india.(b) the order for release passed by the learned judge of court of the first instance is wrong as the goods are liable to confiscation.15. we have not been able to appreciate the first contention advanced on behalf of the customs authorities. the first objection is factually incorrect. the appeal filed by the respondent-writ petitioner before this bench was not on the basis that the trial court declined to release the goods, but on the ground that the trial court did not injunct coercive action against the respondent-writ petitioner, its directors and officers. this would be evident from the order of the appeal court dated 26th september 1992. it is the customs authorities who made incorrect statement in this regard in paragraphs 11 and 12 of the stay petition.16. in so far as the second ground is concerned, the customs authorities argued that by mentioning in the customs document that the goods were stainless steel rods when admittedly they were non-stainless steel rods, the respondent-writ petitioner has violated section 18(1)(a) of the foreign exchange regulation act, 1973 ('fera' in short) and therefore by virtue of section 67 of the fera there is a deemed violation of section 11 of the customs act and as there is a deemed violation of section 11 of the customs act, the goods are liable to be confiscated under section 113(a) of the customs act.17. fera was enacted for the conservation of foreign exchange resources of the country and the proper utilisation thereof in the interest of the economic development of the country. this is the preamble to the fera. all the sections of the said act including section 18(1)(a) have to be read with this preamble in mind.18. section 18(1)(a) of the foreign exchange regulation act, 1973 reads as follows :-'section 18. payment of exported goods.(1)(a) the central government may, by notification in the official gazette, prohibit the taking or sending out by land, sea or air (hereafter in this section referred to as export) of all goods or of any goods or class of goods specified in the notification from india directly or indirectly to any place so specified unless the exporter furnishes to the prescribed authority a declaration in the prescribed form supported by such evidence as may be prescribed or so specified and true in all material particulars which, among others, shall include the amount representing -(i) the full export value of the goods; or(ii) if the full export value of the goods is not ascertainable at the time of export, the value which the exporter, having regard to the prevailing market conditions expects to receive on the sale of the goods in the overseas market.and affirms in the said declaration that the full export value of the goods (whether ascertainable at the time of export or not) has been, or will within the prescribed period be, paid in the prescribed manner.'19. section 18(1)(a) provides that the central government may prohibit the sending out of all goods from india to any place unless the exporter furnishes to the prescribed authority a declaration in the prescribed form which among others is to include the amount representing the full export value of the goods and affirms in the said declaration that full export value of the goods has been, or will within the prescribed period, be paid in the prescribed manner. in brief, under the aforesaid section the obligation of an exporter is to furnish a declaration regarding the amount representing full export value of the goods. this is obviously to ensure that the full value, i.e. the entire price of the goods which is sought to be exported, is brought into india. it conversely follows that if the full value of the goods sought to be exported is not mentioned in the declaration, then the goods will not be allowed to be exported. full export value means the value of the goods declared in the declaration must not be less than the actual export value of the goods sought to be exported. in other words, while exporting goods worth rs. 100/- per metric ton, the declaration for the purpose of the fera cannot say that the goods are valued at rs. 90/-. if while exporting goods worth rs. 100/- per metric ton in the declaration an amount is mentioned which is less than rs. 100/-, then it would be a case where full export value of the goods has not been mentioned in the declaration and section 18(1)(a) would impose an embargo. the logic is obvious. if while sending goods worth rs. 100/- an exporter makes a declaration that the value of the goods is less than rs. 100/-, then the country will lose foreign exchange. in the above example, while exporting goods worth rs. 100/- per metric ton, if in the declaration an exporter mentions rs. 110/- per metric ton, then what is mentioned is not less than 'full export value of goods' and section 18(1)(a) will not be attracted.20. as indicated, in the instant case, the goods inside the containers were non-stainless steel rods. the goods which were actually being exported were non-stainless steel rods. the value of non-stainless steel rods is less than the value of stainless steel rods. in the customs documents the respondent-writ petitioner mentioned the price of stainless steel rods. thus, more than 'full export value of the goods' which were being exported was mentioned in the documents and the declaration filed by the respondent-writ petitioner. the relevance of correct mentioning of the goods is only from the point of view of its value as otherwise the return of the goods sought to be exported is the concern of fera authority. fera is concerned with the regulation of foreign exchange and not of any goods. it is not a case where a declaration was filed by the respondent-writ petitioner where the full export value of the goods had not been mentioned. it is best a case of over-invoicing and not a case of under-invoicing. therefore, there is no violation of section 18(1)(a) of the fera in the instant case. there is no question of any transaction affecting foreign exchange or affecting conservation of the foreign exchange resources of the country. the fera is not concerned with over-invoicing.21. section 67 of the foreign exchange regulation act, 1973 provides as follows :-'application of the customs act, 1962 -the restrictions imposed by or under section 13, clause (a) of sub-section (1) of section 18 and clause (a) of sub-section (1) of section 19 shall be deemed to have been imposed under section 11 of the customs act, 1962 (52 of 1962) and all the provisions of that act shall have effect accordingly.'22. thus section 67 of the fera provides that the restriction imposed by or under section 18(1)(a) of the fera be deemed to have been imposed under section 11 of the customs act, 1962, and all the provisions of customs act, 1962 shall have effect accordingly. if there is no violation of section 18(1)(a) of the fera, then there is necessarily no violation of section 11 of the customs act, 1962.23. section 18(1)(a) of the fera in any event only imposes an embargo on taking or sending goods out of india unless declaration in the prescribed form is filed, inter alia, mentioning the full export value of the goods. violation of section 18(1)(a) only restricts export. there is no other offence prescribed in the statute for such violation. the act does not provide for any punishment for such violation. therefore, once the full export value is mentioned, export cannot be stopped. in the instant case, even assuming that there had been a technical violation of section 18(1)(a) of fera by mentioning that the goods in the containers were stainless steel rods when in fact the goods were non-stainless steel rods, as soon as such mistake is rectified and correct description of the goods and the full export value thereof is mentioned, then the export cannot be stopped under the fera.24. section 11(1) of the customs act, 1962 provides for prohibitions of importation and exportation of goods. section 11(1) provides as follows :-'(1) - if the central government is satisfied that it is necessary so to do for any of the purposes specified in sub-section (2), it may, by notification in the official gazette, prohibit either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification, the import or export of goods of any specified description.'25. there is no notification issued by the central government in the instant case under section 11 of the customs act, 1962. it is only by virtue of section 67 of the fera that there is a deemed violation of section 11 of the customs act. therefore, the restriction under section 11 of the customs act, 1962 in the instant case would also be deemed to be the same, namely, that unless full export value is mentioned, goods will not be allowed to be exported. a necessary corollary is that once full export value is mentioned goods would be allowed to be exported. section 11 of the customs act, 1962 does not provide for any total prohibition for export of goods once there is a violation of section 18(1)(a) of the foreign exchange regulation act. none of the other clauses of section 11 of the customs act, 1962 is applicable in the instant case for which the customs authorities can prohibit exports of the goods in question.26. the next question is whether section 113(d) of the customs act, 1962 has any application on the facts and in the circumstances of this case. section 113(d) provides as follows :-'section 113 - confiscation of goods attempted to be improperly exported, etc.(d) any goods attempted to be exported or brought within the limits of any customs area for the purpose of being exported, contrary to any prohibition imposed by or under this act or any other law for the time being in force.'27. section 113 of the customs act, 1962 provides for confiscation of goods attempted to be improperly exported. section 113(d) provides that any goods attempted to be exported or brought within the limits of any customs area for the purpose of export contrary to any prohibition imposed by or under this act or any other law for the time being in force are liable to confiscation. as mentioned above, there is no prohibition imposed in the instant case under the customs act, 1962. none of the grounds mentioned in section 11 of the customs act are applicable in this case. there is also no prohibition in the instant case imposed under the fera. as has been explained above, section 18(1)(a) of the fera has no application in the instant case. the respondent-writ petitioner has raised the invoice for more money than what it should have asked for. if the foreign buyer pays more money, then there is no violation of the fera. there is no application of section 113(d) of the customs act, 1962 in the instant case.28. whether the goods were non-stainless steel rods or stainless steel rods made no difference insofar as their export is concerned. export of neither of them require any licence; export of neither of them is prohibited under any law. neither of the goods are dutiable goods. as such there could be no contravention of section 113 of the customs act, 1962.29. our attention has been drawn to a decision of a division bench of this court in jute investment co. v. s.k. srivastava, reported in 77 cwn 501. there the division bench held that the customs authorities have no right to exercise the power of confiscation of any goods on the ground that incorrect particulars have been given when the goods are neither dutiable nor prohibited goods. there could be no contravention of section 113(1) of the customs act, 1962 (as it then stood) on the ground that incorrect particulars of the goods have been given.30. section 113(1), as it stood at the material time, was as follows :- 'section 113. the following export goods shall be liable to confiscation :-(i) any dutiable or prohibited goods which do not correspond in any material particulars with the entry made under this act.'31. it is due to this reason that the customs authorities in the appeal court in this case did not urge that in the instant case there has been a violation of section 113(1) of the customs act, 1962 authorising them to confiscate the goods.32. section 18(1)(a) of the fera does not prescribe any particular form in which a declaration is required to be given by that section. no such form or declaration was produced by the authorities at the time of hearing. such forms, if any, are prescribed by rules and regulations. section 67 of the fera only makes the restrictions imposed by the act as deemed to have been imposed under section 11 of the customs act, 1962 and not the restrictions imposed by any rules or regulations imposed under the act. therefore, even by application of section 67 of the fera in the instant case the restrictions imposed under section 11 of the customs act, 1962 cannot be introduced. in jute investment co. (supra) it has been held by the division bench that a declaration which is in contravention of the rules or forms prescribed under the rules may be penalised under the fera, but such contravention will not attract the provisions of the customs act. in that case, section 12(1) of the fera as amended in 1969 was under consideration. under that section the form of declaration was not set out [as is the case in section 18(1)(a) of fera, 1973]. the declaration was required to be made as per form prescribed under the rules. the division bench held that if a declaration is made in contravention of the foreign exchange rules, a person may be penalised under section 23 of fera, but such contravention will not attract the provisions of the sea customs act. applying the same logic it can be said here that section 18(1)(a) does not require that the respondent-writ petitioner was obliged to give correct description of the goods in the declaration, hence incorrect description would not amount to violation of section 18(1)(a) of the fera. therefore, even by operation of section 67 of fera it could not be said that there has been a violation of section 11 of the customs act. the incorrect particulars in the declaration filed by the respondent-writ petitioner even if such allegation is correct, is in violation of the foreign exchange regulations and rules, but not a violation of fera act.33. it has been alleged by the customs authorities that there is a motive on the part of the respondent-writ petitioner to declare the goods as stainless steel rods when goods inside the containers were in fact non-stainless steel rods. according to the customs authorities such incorrect declaration was made by the respondent-writ petitioner in order to get the benefit of international price reimbursement scheme, 1981 (iprs for short) formulated by the engineering export promotion council (eepc for short), whereunder an exporter gets reimbursement of the amount of difference between the international price and the domestic price of the raw materials used for export. if the price of steel in the local market is higher than in the international market, the indian producers who manufacture the steel items out of indian steel are not able to compete in the global market. in and by that scheme an indian manufacturer of products for export would be found the difference between the domestic price and international price of the raw materials used. the said scheme was formulated with a view to making exports competitive.34. as per the scheme, two requirements are to be satisfied, namely, (i) the indian manufacturer should use one or other of the iron/steel specified in paragraphs (ii) and (iii) of the scheme in the manufacture of export products; and (ii) thereafter must actually export the finished products to foreign countries. in support of that, he must produce proof that he purchased the raw materials mentioned in paragraphs (ii) and (iii) in the local market, by producing invoices. he must also produce a chartered engineer's certificate to show that those raw materials were used in the manufacture of the products.35. a perusal of the booklet containing the said scheme as published by the repc will show that before an exporter becomes eligible for reimbursement, he has to fulfil a number of conditions. conditions (a), (b) and (c) are as follows :-(a) exporters produce test certificate of export inspection agency oo other approved testing agency certifying use of alloy/non-alloy steel.(b) export orders, copies of tender documents etc. indicate use of, alloy/non-alloy steel.(c) exports are made at or above floor prices notified by the eepc. eepc will fix floor prices for the above items providing for value addition of not less than 50% on the international price of alloy/steel/non-alloy steel. these floor prices will be reviewed by eepc periodically, i.e. every six months.36. it is thus not the case that an exporter gets reimbursement under iprs merely by producing customs documents showing that stainless steel rods have been exported by it. the test certificate of export inspection agency or other approved testing agency etc. are the conditions precedent before an exporter even becomes eligible for reimbursement. in the instant case, therefore, there was no question of the respondent-writ petitioner getting reimbursement under the iprs since the test report would have shown, and in fact it did show, that the goods were non-stainless steel rods. the respondent-writ petitioner contends to have made claims in the past under the iprs after fulfilling each of the essential conditions. the goods covered by each of the exports had been duly received by the foreign buyer and they were as per their specifications and requirements and there was no rejection. each of the invoices of the respondent-writ petitioner raised on the foreign buyer was duly paid by the foreign buyer and no amount is outstanding. in respect of each claim the respondent-writ petitioner furnished before the eepc the chartered accountants' certificate certifying the consumption of raw material consumed, chartered engineers' certificate confirming the use of the material, test certificate for chemical composition issued by an independent test laboratory, bank certificate, invoice, original shipping bill etc. each of the exports was made after thorough excise supervision. samples had been selected from the export consignment lot and had been sent for chemical test at the customs laboratory at the customs house and no adverse report had been given by the said laboratory. in respect of each of them, the customs authorities completed their inquiry and informed the eepc that the customs office had no objection if eepc admits the iprs claim of the respondent-writ petitioner. since before obtaining iprs reimbursement, an exporter has to fulfil so many requirements, it would have been impossible for the respondent-writ petitioner to get iprs reimbursement in the instant case by mentioning in the customs documents that the goods inside the containers were stainless steel rods when in fact they were not stainless steel rods. there is no basis for contending that the respondent-writ petitioner deliberately made incorrect statement in the customs document for the purpose of getting benefit under the iprs.37. besides, while obtaining the payment under the iprs, an exporter has to give an undertaking and to produce a bond in which he had to undertake, amongst others, that in the event of being found ineligible for the claim, the exporter would refund to eepc the entire reimbursement amount along with 18% penal interest within 15 days of the demand and agree to the recovery at the discretion of the authorities concerned, of the excess payment made to the exporter on account of iprs on such shipments from his other iprs claims and also from other export entitlements including ccs, if found necessary.38. for the reasons aforesaid, we are unable to persuade ourselves to accept the contentions urged on behalf of the customs authorities. in the result, the appeal fails and is dismissed without any order as to costs. all interim orders are vacated. the customs authorities shall allow the respondent-writ petitioner to export the goods in question forthwith. however, the writ petitioner will be entitled to the benefit of iprs on the goods to be exported, i.e. non-stainless steel rods upon fulfilment of all conditions therefor.39. all parties shall act on a signed copy of the operative part of this judgment and order on the usual undertaking.nure alam chowdhury, j.40. i agree.