M/S Om Prakash Bhatia vs Commissioner Of Customs, New Delhi

garments. Appellant received an order from an overseas buyer i.e.

from Dubai, for supply of ladies' skirts, the contracted price for which

was said to be approximately $10.25 per piece. Appellant filed 4

shipping bills in 1998 for export of 28000 pieces of ladies skirts @

$10.25 per piece (Rs.434 per piece) amounting to Rs.1,21,54,447/-.

On checking, the actual quantity of the skirts was found to be 21184

pieces. On enquiry, the market price of the skirts was ascertained to

be Rs.45/- per piece, according to which total value of the goods

comes to Rs.9,53,280/-. The exporters had claimed a draw back of

Rs.21,87,800/- on the consignment @ Rs.78/- per piece. For shortage

of goods, vide letter dated 4.2.1999, the exporters pleaded that it was

an unintentional mistake which had happened on the part of the

fabricators and suppliers. During the course of hearing, on 6.2.1999,

for the drawback, it was admitted by the exporters that the market

price of Rs.45/- per piece was acceptable to them and that their claim

for drawback be not granted. The Commissioner of Customs noted

that this was the second such case belonging to the same exporters and

that there was an organized racket to claim fraudulent drawback by

deliberately over-invoicing the readymade garments. The

Commissioner of Customs imposed a redemption fine of

Rs.10,00,000/- and levied a penalty of Rs.20,00,000/-. It was held

that no drawback was admissible even if the party exported the goods

in terms of Section 76 of the Act as the market value of the goods was

less than the amount of drawback claimed.

Being aggrieved by the said order, the appellant filed appeal

before the Customs, Excise and Gold (Control) Appellate Tribunal,

New Delhi (hereinafter referred to as 'the Tribunal'). The Tribunal

also dismissed the appeal and held that the over-invoicing of the

goods for exportation was an offence under the Act. Hence, this

appeal.

At the time of hearing of this appeal, learned senior counsel Mr.

Adhyaru for the appellant submitted that the appellant is not claiming

any drawback and, therefore, that question is not required to be dealt

with. However, his contention is – Section 113(d) is not applicable to

the facts of the present case as the goods are not prohibited goods. He

further stated that exporter is not required to declare the market value

of the goods which he would fetch in the market in India. He is

required to declare the value of the goods which he is expected to

receive from the overseas purchaser and that is the scheme of the

Customs Act as well as of the allied Acts.

Learned Additional Solicitor General Mr. Raju Ramchandran,

on the other hand, contended that over-invoicing is not permitted

under the Act as it is in violation of statutory provisions. He further

submitted that at the time of export, the exporter has to give correct

value of the goods and that correct value of the goods would be the

value of goods which he would fetch in market in India or which he is

likely to fetch from overseas purchaser.

At the outset, we would state that the learned counsel for the

appellant has not pressed for the drawback in view of specific

provision of Section 76 which inter alia provides that no drawback

shall be allowed "(b) in respect of any goods the market-price of

which is less than the amount of drawback due thereon". Therefore,

for the purpose of getting drawback, relevant consideration is the

market price of the goods prevailing in the country and not the price

of the goods which the exporter expects to receive from the overseas

purchaser.

Next — as the order for confiscation of goods is passed by

referring to Section 113(d) of the Act, we would refer to the same. It

reads as under: —

"113. Confiscation of goods attempted to be

improperly exported etc.— The following export goods

shall be liable to confiscation:—

(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."

The aforesaid Section empowers the authority to confiscate any

goods attempted to be exported contrary to any 'prohibition' imposed

by or under the Act or any other law for the time being in force.

Hence, for application of the said provision, it is required to be

established that attempt to export the goods was contrary to any

prohibition imposed under any law for the time being in force.

Further, Section 2(33) of the Act defines "prohibited goods" as

under:—

"prohibited goods" means any goods the import or

export of which is subject to any prohibition under this

Act or any other law for the time being in force but does

not include any such goods in respect of which the

conditions subject to which the goods are permitted to be

imported or exported have been complied with."

From the aforesaid definition, it can be stated that (a) if there is

any prohibition of import or export of goods under the Act or any

other law for the time being in force, it would be considered to be

prohibited goods; and (b) this would not include any such goods in

respect of which the conditions, subject to which the goods are

imported or exported, have been complied with. This would mean

that if the conditions prescribed for import or export of goods are not

complied with, it would be considered to be prohibited goods. This

would also be clear from Section 11 which empowers the Central

Government to 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 the goods of any

specified description. The notification can be issued for the purposes

specified in sub-section (2). Hence, prohibition of importation or

exportation could be subject to certain prescribed conditions to be

fulfilled before or after clearance of goods. If conditions are not

fulfilled, it may amount to prohibited goods. This is also made clear

by this Court in Sheikh Mohd. Omer v. Collector of Customs,

Calcutta and Others [(1970) 2 SCC 728] wherein it was contended

that the expression 'prohibition' used in section 111 (d) must be

considered as a total prohibition and that the expression does not bring

within its fold the restrictions imposed by clause (3) of the Import

Control Order, 1955. The Court negatived the said contention and

held thus:—

"… What clause (d) of Section 111 says is that any

goods which are imported or attempted to be imported

contrary to "any prohibition imposed by any law for the

time being in force in this country" is liable to be

confiscated. "Any prohibition" referred to in that section

applies to every type of "prohibition". That prohibition

may be complete or partial. Any restriction on import

or export is to an extent a prohibition. The expression

"any prohibition" in section 111 (d) of the Customs Act,

1962 includes restrictions. Merely because Section 3 of

the Imports and Exports (Control) Act, 1947, uses three

different expressions "prohibiting", "restricting" or

"otherwise controlling", we cannot cut down the

amplitude of the word "any prohibition" in Section

111(d) of the Act. "Any prohibition" means every

prohibition. In other words all types of prohibitions.

Restriction is one type of prohibition. From item (I) of

Schedule I, Part IV to Import Control Order, 1955, it is

clear that import of living animals of all sorts is

prohibited. But certain exceptions are provided for. But

nonetheless the prohibition continues."

The next question is — Is there any prohibition imposed under

other law which is for the time being in force?

For this purpose, reliance is placed upon Section 18 of the

Foreign Exchange Regulation Act, 1973, relevant part of which reads

thus:—

18. Payment for 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.

This Section contemplates that exporter is required to furnish to

the prescribed authority in prescribed form declaration of true material

particulars which include:—

(a) the amount representing the full market export value of

the goods; or in the alternative,

(b) if the full export value of the goods is not ascertainable,

the value which the exporter expects to receive on the

sale of the goods in the overseas market, and

(c) the exporter has to affirm that full export value of goods

will be received.

These two clauses of Section 18 leave no doubt that exporter is

not concerned with the prevailing market price in India of the goods

sought to be exported, but he is required to disclose true export value

of goods. That is to say, exporter has to disclose full and true sale

consideration – export value of the goods. The notification issued in

exercise of the power under Section 18 also inter alia provides that

Central Government prohibits the export of all goods unless exporter

furnishes to the prescribed authority a declaration in the prescribed

form of material particulars including the full export value of the

goods or in the alternative the value of the goods which he expects to

receive on their sale in overseas market. Hence, importance is given

to the value of goods which exporter is to receive. It also provides

that the exporter shall affirm in the declaration that full export value

of the goods has been or will within prescribed period be paid in the

prescribed manner. Further, the learned Additional Solicitor General

referred to the notification issued under the said Section, relevant part

of which reads thus:—

"GSR.78—In exercise of the powers conferred by

sub-section (1) of Section 18 of the Foreign Exchange

Regulation Act, 1973 (46 of 1973), and in supersession

of the notification of the Government of India in the

Ministry of Finance (Department of Economic Affairs)

No.GSR 2641, dated the 14th November, 1969, the

Central Government hereby prohibits the export,

otherwise than by post, of all goods, either directly or

indirectly, to any place outside India, other than Nepal

and Bhutan, 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."

Apart from the aforesaid provision, for finding out the true

export value of the goods, Section 14 of the Act provides relevant

procedure. Section 14 is to be read along with Section 2(41), which

defines the word 'value'. Section 2(41) reads as under:—

"S. 2 (41) — "value", in relation to any goods, means the value

thereof determined in accordance with the provisions of sub-

section (1) of section 14."

Thereafter, relevant part of Section 14 reads thus:—

"14. Valuation of goods for purposes of

assessment. — (1) For the purposes of the Customs

Tariff Act, 1975 (51 of 1975) or any other law for the

time being in force whereunder a duty of customs is

chargeable on any goods by reference to their value, the

value of such goods shall be deemed to be—

the price at which such or like goods are

ordinarily sold, or offered for sale, for delivery at the

time and place of importation or exportation, as the case

may be, in the course of international trade, where the

seller and the buyer have no interest in the business of

each other and price is the sole consideration for the

sale or offer for sale:

Provided that such price shall be calculated with

reference to the rate of exchange as in force on the date

on which a bill of entry is presented under section 46, or

a shipping bill or bill of export, as the case may be, is

presented under section 50;

(1A) Subject to the provisions of sub-section (1),

the price referred to in that sub-section in respect of

imported goods shall be determined in accordance with

the rules made in this behalf.

(2) Notwithstanding anything contained in sub-

section (1) or sub-section (1A) if the Central Government

is satisfied that it is necessary or expedient so to do, it

may, by notification in the Official Gazette, fix tariff

values for any class of imported goods or export goods,

having regard to the trend of value of such or like goods,

and where any such tariff values are fixed, the duty shall

be chargeable with reference to such tariff value.

(3) …. "

The aforesaid Section would be applicable for determining the

value of goods for the purposes of assessment of tariff under the Act

or any other law for the time being in force whereunder a duty of

customs is chargeable on any goods by reference to their value. In the

present case, on export of goods in question, no duty was payable

under the Act. It was, therefore, contended that there is no scope of

application of Section 14 for determining the value of goods by

applying the criteria laid down in the said Section. In our view, this

submission cannot be accepted. For determining the export value of

the goods, we have to refer to the meaning of the word 'value' given

in Section 2(41) of the Act, which specifically provides that value in

relation to any goods means the value thereof determined in

accordance with the provisions of sub-section (1) of Section 14.

Therefore, if the export value of the goods is to be determined, then

even if no duty is leviable, the method (mode) for determining the

value of the goods provided under Section 14 is required to be

followed. Section 14 specifically provides that in case of assessing

the value for the purpose of export, value is to be determined at the

price at which such or like goods are ordinarily sold or offered for sale

at the place of exportation in the course of international trade, where

the seller and the buyer have no interest in the business of each other

and the price is the sole consideration for sale. No doubt, Section 14

would be applicable for determining the value of the goods for the

purpose of tariff or duty of customs chargeable on the goods. In

addition, by reference it is to be resorted to and applied for

determining the export value of the goods as provided under sub-

section (41) of Section 2. This is independent of any question of

assessability of the goods sought to be exported to duty. Hence, for

finding out whether the export value is truly stated in the shipping bill,

even if no duty is leviable, it can be referred to for determining the

true export value of the goods sought to be exported.

It is true that Section 50 of the Act inter alia provides that

before exporting the goods the exporter shall make entry thereof by

presenting to the proper officer in the case of goods to be exported, a

shipping bill and a bill of export in prescribed form. The Shipping

Bill & Bill of Export (Form) Regulations, 1991 inter alia prescribes

the said form. After that form is amended w.e.f. 15.6.2001, it is stated

that exporter shall state "Value – FOB/PMV where applicable". We

are not required to deal with this aspect in this appeal as the goods

were sought to be exported in the year 1998.

From the aforesaid provisions, mainly, Section 2(41) read with

Section 14 of the Act and Section 18 of the Foreign Exchange

Regulation Act, 1973, it is crystal clear that:—

(a) Exporter has to declare full export value of the goods

(sale consideration for the goods exported).

(b) Exporter has to affirm that the full export value of the

goods will be received in the prescribed manner.

(c) If the full export value of the goods is not ascertainable,

the value which the exporter expects to receive on the

sale of the goods in the overseas market.

(d) Exporter has to declare true or correct export value of the

goods, that is to say, correct sale consideration of the

goods. Criterion under Section 14 of the Act is the price

at which such or other goods are ordinarily sold or

offered for sale in the course of international trade where

the seller and buyer have no interest in the business of

each other and the price is the sole consideration for sale

or offer for sale.

To the same effect, Rule 11 of the Foreign Trade (Development

and Regulation) Rules, 1993 provides. This Rule is to be read along

with Section 11(1) of the Foreign Trade (Development & Regulation)

Act, 1992, which inter alia provides that no export or import shall be

made by any person except in accordance with the provisions of this

act, the rules and the orders made thereunder and the export and

import policy for the time being in force. Rule 11 reads thus:—

"11. Declaration as to value and quality of

imported goods.—On the importation into, or

exportation out of, any customs ports of any goods,

whether liable to duty or not, the owner of such goods

shall in the bill of entry or the shipping bill or any other

documents prescribed under the Customs Act, 1962 (52

of 1962), state the value, quality and description of such

goods to the best of his knowledge and belief and in case

of exportation of goods, certify that the quality and

specification of the goods as stated in those documents

are in accordance with the terms of the export contract

entered into with the buyer or consignee in pursuance of

which the goods are being exported and shall subscribe to

a declaration of the truth of such statement at the foot of

such bill of entry or shipping bill or any other

documents."

Hence, in cases where the export value is not correctly stated,

but there is intentional over-invoicing for some other purpose, that is

to say, not mentioning true sale consideration of the goods, then it

would amount to violation of the conditions for import / export of the

goods. The purpose may be money laundering or some other purpose,

but it would certainly amount to illegal / unauthorised money

transaction. In any case, over-invoicing of the export goods would

result in illegal/irregular transactions in foreign currency.

Learned senior counsel Mr. Dave submitted that in some cases,

exporter may get much higher value of the goods than the market

price prevailing in the country and, therefore, merely because higher

export value is mentioned, it cannot be inferred that it is not the true

sale consideration. In some cases, this hypothetical contention may be

right. However this would depend upon facts and circumstances as

well as evidence on record in each case. If the goods are easily

available in the market, then it would be difficult to arrive at the

conclusion that a foreign buyer – a prudent businessman would pay

ten times more than the prevailing market price of readymade clothes,

particularly, in the days where information is easily available through

internet or various other sources. In any case, when margin of profit

appears, on the face of it, unreasonable, it is for the exporter to

establish that it was a true export value stated in the shipping bill.

Section 14 itself contemplates that the price at which such or like

goods are ordinarily sold or offered for sale in the course of

international trade would be the value of the goods.

In Toolsidass Jewraj v. Additional Collector of Customs &

Others [(1991) 2 SCC 443], full export value of the goods was not

correctly stated in the shipping bills along with G.R. I forms and it

was a case of under-valuation in respect of full export value of goods.

In that set of circumstances, the Court upheld the order passed by the

authorities that there was violation of Section 12(1) of the Foreign

Exchange Regulation Act, 1947.

In the present case, as found by the authorities, 28,000 pieces of

ladies skirts at the rate of $10.25 per piece, export value of which was

mentioned as Rs.1,21,54,447/-, were sought to be exported. The

market price of such skirts was ascertained to be Rs.45/- per piece and

on that basis total value of the goods came to be Rs.9,53,280/-. The

exporter claimed a drawback of Rs.21,87,800/- on the consignment on

the basis that value of each skirt was Rs.78/- per piece. No doubt,

during the enquiry exporter admitted that the market price of Rs.45/-

per piece was acceptable to him and the claim for drawback was

withdrawn. Thereafter, the exporter has not led any evidence that

export value mentioned in the shipping bill was the true sale

consideration for the goods sought to be exported.

Considering the aforesaid facts and also the fact that this was

the second case belonging to the same exporter, the authorities arrived

at the conclusion that it was an organized racket to claim fraudulent

drawback or an act of deliberate over-invoicing the readymade

garments. Hence, the authority imposed redemption fine as well as

levied penalty. In our view, this finding arrived at by the authorities

below cannot be said to be, in any way, unreasonable which would

call for interference by this Court in this appeal.

In the result, the appeal is dismissed. There shall be no order as

to costs.

I.A. No.3 OF 2002

We had heard learned counsel for the intervenor on the question

of law involved in this appeal. I. A. stands disposed of accordingly.