M/S Carpenter Classic Exim. P. Ltd vs Commr. Of Customs (Imports) & Anr

M/s Carpenter Classic Exim P. Ltd. ..Appellant

Versus

Commnr. Of Customs (Imports) and Anr. ..Respondents

(With Civil Appeal No. 3872 of 2006)

JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. Challenge in these appeals is to the judgment of Customs, Excise and

Service Tax Appellate Tribunal, South Zone, Bangalore (in short the

`CESTAT'). The orders in original passed by the Commissioner of

Customs, Bangalore and Commissioner of Customs, Chennai were affirmed

subject to certain modifications.

2. Seven appeals were filed against the Order-in-Original No.27/2004

dated 27.7.2004 by Commissioner of Customs, Bangalore and Order-in-

Original No.2724/2004 dated 30.9.2004 passed by the Commissioner of

Customs, Chennai. The details of the orders challenged before the CESTAT

and the quantum involved are as follows:

Appeal No. Appellant Differential Redemption Penalty Duty Fine C/428/04 M/s Rs.59,12,619/ Rs.15,00,000/ Rs.55,44,396/ Carpenter - - -

Classic Exim (P) Ltd.

C/429/04 Ravi - - Rs.10,00,000/ Karumbaiah, - MD, CCEPL C/433/04 Sanjeev - - Rs.1,00,000/- Kabubur

Appeal No. Appellant Differential Redemption Penalty Duty Fine C/436/04 M/s Rs.36,96,201/ - Rs.9,61,506/- Carpenter - Classic Exim (P) Ltd. C/437/04 Ravi - - Rs.9,00,000/- Karumbaiah, MD CCEPL C/13/05 Thomas - - Rs.5,00,000/- Mathew C/06/05 Sanjeev - - Rs.7,00,000/- Kabbur

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3. Background facts as noted by the CESTAT are as follows:

The DRI Officers received intelligence regarding the under-valuation

of imported goods by the appellants. The business premises and the

residential premises of the concerned persons were searched and

incriminating documents were seized. Statements of S/Shri Ravi

Karumbaiah, Managing Director of M/s. Carpenter Classic Exim Pvt. Ltd.,

V.S. Chandan, CADD Operator were recorded under Section 108 of the

Customs Act 1962 (in short the Act). The residential premises of Shri

Sanjeev Kabbur, Ex-Marketing Manager of the company were searched and

some documents were seized. Statement of Sanjeev Kabbur was also taken.

Ms. Jagruthy Sevak was the Executive of the appellant company, her

statement was also recorded. The investigations conducted revealed that

Shri R. Karumbaiah, his wife, Shri Thomas Mathew and his wife as

Directors started M/s. Carpenter Classics Exim Pvt. Limited (in short

`CCEPL') as a private limited company in the year 1995. The company

decided to import their requirements of kitchens from Veneta Cucine of

Italy who are reputed manufacturers. Shri Karumbaiah and Thomas Mathew

hatched a conspiracy to undervalue their imports for increasing their profits

in the local market. For this purpose, they had prepared the invoices of the

3 foreign supplier and sent them to Italy. Thomas Mathew floated a front

company in the name of Proma SRL, the manipulated invoices were raised

in the name of the above front company. These invoices were filed by the

appellant before the Customs officials for assessment. They made their first

import in the year 1995 through ICD, Bangalore. The foreign suppliers

invoice and packing list had been signed by Shri Thomas Mathew on behalf

of M/s. Proma SRL. CCEPL communicated their requirements along with

the drawing to Proma SRL with a copy to Veneta Cucine. Sometimes the

orders were communicated directly to Veneta Cucine. Proma SRL prepared

the bill showing the actual price in Lira and forwarded the drawings to

Veneta Cucine. Veneta Cucine in turn forwarded the confirmation order to

Proma SRL and CCEPL. These orders of confirmation indicated the actual

price of the products ordered in Liras. Veneta Cucine at the time of loading

of containers and shipment prepared their own packing lists showing the

order numbers of CCEPL and the destination as CCEPL. CCEPL arranged

for their representatives to be present at the time of loading of the containers

at the factory premises of Veneta Cucine to ensure not only proper loading

but also to relabel the packages to make it appear that the shipment had

been affected by Proma SRL. CCEPL presented the invoices prepared in the

name of Proma SRL along with the Bills of Entry which showed

4 substantially lower prices than what was actually charged by Veneta Cucine.

In order to camouflage the entire conspiracy of under-valuation CCEPL

collected a certain portion of their sales proceeds from certain customers in

cash. The cash so collected was handed over by Shri R. Karumbaiah to Mr.

Thomas Mathew for settling the account of Veneta Cucine. The portion

containing the prices in the confirmation order has been cut out in almost all

such documents ostensibly to hide the actual price from the customers.

Thus, CCEPL substantially under-valued their import consignments in order

to evade payment of customs duty. Similar modus operandi was adopted to

import goods through Chennai Port also. On the basis of investigation, show

cause notices were issued to the noticees. After observing the principles of

natural justice, the adjudicating authorities at Bangalore and Chennai passed

orders which were assailed before CESTAT.

Various stands were taken before the CESTAT. The CESTAT noted

the fact that the Commissioner has observed that Ravi Karumbaiah has

admitted that Proma SRL was a front company set up in order to get the

documents in the name of the said company and to evade payment of

customs duties. The appellants submitted that from the extract of the

company's house record, it is clear that the Proma SRL is a genuine

5 company which is in existence. Hence, it is clear that there are discrepancies

in the statement recorded from Ravi Karumbaiah and as such it is clear that

the statement was obtained under duress and coercion. It was submitted that

the oversea suppliers have granted the appellants substantial discount on the

listed price and it was for this reason that the prices mentioned in the

invoices were deleted. It is a normal trade practice not to reveal the price of

the product at which they are procured by the importer/wholesaler to a

customer. This is done basically to prevent the customers from knowing the

margin of profit enjoyed by a wholesaler/importer; otherwise customer will

start bargaining.

The CESTAT noted that the main charge against the appellants is that

of under valuation of the imported goods using a particular modus operandi.

Many incriminating documents were seized from the premises of the

appellant. The statements were recorded under Section 108 of the Act from

various persons. DRI investigation was taken up consequent to

investigations made by Income Tax Department. It appears that Ravi

Karumbaiah was the Managing Director and the Chief Promoter of the

company. Shri Sanjeev Kabhur was ex- marketing manager of the company

and Shri Thomas Mathew was the Director of the appellant-company and

6 also a Director of Proma SRL who issued the invoices relating to the

imports. Allegation was that with the help of Thomas Mathew invoices

were issued by Proma SRL using it as a front. The actual suppliers of the

imported equipment were M/s Veneta Cucine and other foreign companies.

Investigations established that value of the imported goods as per Veneta

Cucine was different from those in the invoices of Proma SRL. The

difference between the two values was settled by Thomas Mathew who

collected differential sale amount during his visit to India and later settled

the same with Veneta Cucine. This probably was the modus operandi. The

revenue relied upon the following documents:

7 Photocopy of a Fax dated 214.1997, said to have been sent by

Thomas Mathew bearing No.VC/CC/9708 dated 21.4.97

addressed to Anchise Ballestrieri and Vittorio Tollardo of

Veneta Cucine S.PA. Treviso, Italy.

7 Photocopy of a fax message No.CCEPL/TM/089/97 dated

5.4.97, said to have been sent by Carpenter Classics to Thomas

Mathew.

7 Photocopy of a fax message dated 8.10.98, said to have been

sent to Thomas Mathew by Ravi Karumbaiah.

7 7 Photocopy of a letter No.CCEL/Proma/1362/97-98 dated

10.1.98 to have been sent by Carpenter Classics to Proma SRL.

7 Photocopy of Bill of quantity and Order confirmations of M/s.

Veneta Cucine pertaining to shipment called lndia-13 and

lndia-14

7 Photocopy of packing list of M/s. Veneta Cucine pertaining to

shipment called lndia-13 and lndia-14.

The CESTAT referred to the statements given by Shri Ravi

Karumbaiah under Section 108 of the Act. It held that the conclusions were

supportable as the evidence on record clearly established that there was

under valuation to the extent of 65% with which Shri Thomas played crucial

role in the nefarious activities. It was held that both Ravi Karumbaiah and

Thomas Mathew were liable to penalty under Section 112(a) of the Act and

the company was also liable to penalty under Section 114A of the Act. The

differential duty was to be paid alongwith interest. The penalty however was

deleted so far as Shri Sanjeev Kabbur is concerned.

4. The primary stand is that even before the show cause notice was

issued, to prove its bona fide, a sum of Rs.25 lakhs was paid. Reference is

8 made by learned counsel for the appellant to the proviso to Section 114A of

the Act. It is submitted that since reduction in the quantum is permissible,

discretion is given in the matter of imposition of penalty.

5. Learned counsel for the respondents on the other hand supported the

judgment.

6. Section 112(a) and Section 114A read as follows:

"112(a) Penalty for improper importation of goods, etc. - Any person, -

(a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act, or

114A-" Penalty for short-levy or non-levy of duty in certain cases. - Where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has [xxx] been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-

statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (2) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined :

Provided that where such duty or interest, as the case may be, as determined under sub-section (2) of section 28, and the interest payable thereon under section 28AB, is paid within

9 thirty days from the date of the communication of the order of the proper officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent of the duty or interest, as the case may be, so determined :

Provided further that the benefit of reduced penalty under the first proviso shall be available subject to the condition that the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :

Provided also that where the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty or interest as reduced or increased, as the case may be, shall be taken into account :

Provided also that in case where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available if the amount of the duty or the interest so increased, along with the interest payable thereon under section 28AB, and twenty-five per cent of the consequential increase in penalty have also been paid within thirty days of the communication of the order by which such increase in the duty or interest takes effect :

Provided also that where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

Explanation. - For the removal of doubts, it is hereby declared that -

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(i) the provisions of this section shall also apply to cases in which the order determining the duty or interest under sub-

section (2) of section 28 relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;

(ii) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person."

7. The relevant proviso in Section 114A is applicable only where duty

has been paid. In the instant case the claim that Rs.25 lakhs which is not

whole of the differential duty is claimed to have been paid before the

issuance of the show cause notice. The same is not a mitigating

circumstance.

8. Above being the position, the appeal filed by the company is without

merit and is dismissed. So far as appeal filed by Ravi Karumbaiah is

concerned it is to be seen that the provision of penalty is not mandatory in

the sense since discretion is given. CESTAT has not dealt with the question

whether the quantum of penalty levied under Section 114A is reasonable

and fair. It appears that Ravi Karumbaiah was the Managing Director and

Chief Promoter of the appellant company while Thomas Mathew who was

11 the director of the appellant company was also a Director of Proma SRL.

Even though there is no elaborate discussion regarding the quantum of

penalty yet considering the background facts it cannot be said that the

quantum of penalty imposed suffers from any infirmity. Appeal filed by

Ravi Karumbaiah is also dismissed. Accordingly both the appeals are

dismissed with no order as to costs.

........................................J. (Dr. ARIJIT PASAYAT)

........................................J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, February 12, 2009

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