M/S Shree Laxmi Trading Co vs Commissioner Of Customs (Imports)

(Arising out of Order-in-Original No. 110/2012 dated 23.10.2012 passed by the Commissioner of Customs (Imports), Nhava Sheva).

For approval and signature:

Honble Shri Anil Choudhary, Member (Judicial) Honble Shri P.S. Pruthi, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy : Seen of the order?

4. Whether order is to be circulated to the Departmental : Yes authorities? ======================================================

M/s Shree Laxmi Trading Co. Appellant

Vs.

Commissioner of Customs (Imports), Nhava Sheva Respondent

Appearance: Shri Anil Balani, Advocate with Shri N.J. Gheewala, Consultant for Appellant

Shri A.K. Singh, Addl. Commissioner (AR) for Respondent

CORAM: SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) SHRI P.S. PRUTHI, MEMBER (TECHNICAL)

Date of Hearing: 12.02.2015

Date of Decision: .2015

ORDER NO.

Per: P.S. Pruthi

The appellant is in appeal against Order-in-Original dated 19.10.2012 passed by the Commissioner of Customs (Imports), Nhava Sheva.

2. The facts are that a search conducted by Directorate of Revenue Intelligence (DRI) at the premises of M/s Shri Laxmi Trading Company, an HUF (hereinafter referred to as SLT) resulted in recovery of documents said to be incriminating and also in seizure of 3765 kgs of Silver/Gold Polyester Metallic Yarn and Polyester Metalised Film. The premises of other importers namely, M/s Surat Melton Pvt. Ltd., M/s I.S. Corporation, M/s Milon Metallic (P) Ltd. & M/s Lakhotia Polyester (I) Pvt. Ltd. were also searched and documents were recovered. From the documents, it was revealed that the appellant had imported metalized film @ 2.50 to 2.60 US$/kg during the years 2005-06, 2006-07 and 2007-08 from Japan. Evidence collected from the other importers indicated that they had imported polyester metallic yarn in the range of 2.45 to 2.55 and sometimes the prices were loaded for assessment purpose upto 8 $ per kg. Insurance certificate recovered from the premises of the other importers in respect of the same goods indicated that the value declared on the insurance document/policy issued by Insurance Company was much higher. In respect of goods imported from the same company, M/s Brightex Corporation who had sold the goods to the appellant also, the insurance certificates indicated the CIF value in the range of 30-35$. Some contemporaneous imports made by the appellant at Kolkata Port showed the declared price as 37$ (silver metallic yarn) and 39$ (gold metallic yarn). The statement of Shri Devendra Jariwala, Karta of SLT was recorded on various occasions and he admitted that the appellant had indulged in under-valuation of the goods by obtaining invoices of lower value and the differential value was settled on cash basis with the supplier.

2.1 On completion of investigation, show-cause notice was issued to the appellant on 13.3.2008 proposing confiscation of seized polyester metallic yarn/polyester metalized film, re-determination of its value and payment of differential duty along with interest. It was also proposed to re-determine the value of imports for the goods imported through Nhava Sheva Port during 2005-06, 2006-07 and 2007-08 and to demand duty on the enhanced value. Penalty was also proposed under Sections 112 and 114(A) of the Customs Act. The amount of duty already paid was proposed to be appropriated. The Karta, proprietor of SLT was also show-caused for penalty under Section 112(b) of the Customs Act. Similarly confiscation of goods, re-determination of value of seized goods as well as goods imported in the past, demand of differential duty, interest and penalties was also proposed in respect of goods imported through Kolkata Port. The total duty demanded is Rs.1,49,56,984/- but the total duty confirmed in the Order of Commissioner is Rs.1,43,57,833/-

2.2 The appellant was given opportunities of personal hearing by Commissioner of Customs, Nhava Sheva on three occasions, but they did not attend. Thereafter, they requested for a common adjudicating authority to be appointed for imports at Nhava Sheva and Kolkata. After a common adjudicating authority was appointed, opportunity for personal hearing was given on 3.12.2008, 4.12.2008 and 5.12.2008, but the appellant did not attend. As per their request, hearing was again postponed to 10.12.2008 but they sought time as they intended to approach the Settlement Commission. As no response was received from them for a long time, personal hearing was fixed on 27.8.2009 but appellant again intimated that they are approaching the Settlement Commission and that they have already deposited Rs.30 lakhs on 22.8.2009 towards the demand raised. Nothing was heard from the appellant for many months, therefore, opportunities of personal hearing were given on 3.3.2010 and 27.7.2010, 24.8.2010 and 22.9.2010. When hearing was fixed again for 25.2.2011, the Counsel for the appellant intimated vide their letter dated 8.2.2011 their intention to approach the Settlement Commission and informed that they had paid Rs.1,01,75,901/- through various challans and also authorized DRI to encash the Bank Guarantee given by them amounting to Rs.10,14,960/- towards admitted liability + interest. They also submitted that they were making best efforts to deposit the rest of the amount towards admitted liability and interest by March, 2011 and requested for personal hearing in March, 2011, as they still proposed to approach the Settlement Commission. On 10.3.2011, the appellants were requested to forward the acknowledged copy of application filed by them before the Settlement Commission. They replied that they were still making the efforts to deposit the entire amount. Thereafter personal hearing was fixed on 3.10.2012 and the Counsel sought adjournment on ground of sickness. Finally, the Commissioner went ahead to decide the case having provided opportunities of personal hearing for more than four years.

2.3 The Commissioner considered the following evidence in arriving at his conclusion: -

(a) Categorical admission of Shri Jariwala to having imported goods at undervalued price from their suppliers namely, M/s Brightex Corporation, Japan and M/s Shanva Corporation Japan and paying the differential amount to the local representatives of the supplier in Indian rupees.

(b) Evidence by way of documents recovered from premises of other importers showing that the goods were invoiced by the same supplier at much higher price than shown in the invoices produced by M/s SLT before the Customs for assessment of the goods. For example, zerox copy of fax from M/s Brightex Corporation showing much higher prices of silver metallic films recovered from M/s Surat Metlon P. Ltd; copy of E-mail addressed to proprietor of Surat Metlon P. Ltd. from M/s KEIO Corporation indicating much higher prices than declared for clearance of silver/gold metallic yarn 1/64; copy of fax addressed to Director of Lakhotiya Polyester P. Ltd. showing much higher prices of silver metallic yarn/film rolls, from M/s Brightex Corporation, Japan; sale note of Brightex Corporation issued to M/s Navprabhat Impex, Chinchpada, Vasai recovered from the office of Lakhotiya Polyester (I) P. Ltd. showing much higher prices; contemporaneous imports of silver polyester metallic/metallized yarn 1/64 by Milon Metallic Pvt. Ltd, Surat showing much higher prices while clearing the same goods through JN Port, proforma invoices of another supplier M/s KEIO Corp Korea which were recovered, also showed much higher prices for identical goods.

(c) Import of identical goods subsequent to the searches of their premises, through Kolkata Port at much higher prices than declared by them.

(d) The value indicated in the insurance certificate of the Insurer namely M/s Neponcoa, Japan.

The Commissioner confiscated the seized goods, ordered re-determination of value of seized goods as well as goods cleared in the past, ordered differential duty accordingly along with interest and imposed penalties equal to duty and interest under Section 114(a) of the Customs Act on M/s SLT, but did not impose separate penalty on Shri Jariwala Karta of M/s SLT under Section 112 ibid.

3. Heard both sides.

4. The learned Counsel for the appellant made the following contentions: -

(a) The order passed is ex parte with prejudiced mind as the Karta was not aware about progress of filing of application for settlement of case before the Settlement Commission.

(b) There is a mistake of Rs.19,59,247/- in respect of 28 consignments described in Annexure-A to the show-cause notice and this amount is deductible.

(c) While not denying undervaluation as admitted in the grounds of appeal, he stated that Shri Jariwala had told the officers in his statement that the foreign supplier used to quote 10 to 12% higher value of goods for insurance purposes as the insurance companies always reject part of the claim in case of damage etc.

(d) The import at higher price at Kolkata after the search of their premises was because they obtained new invoices at the instance of Customs as their goods were not being released. He drew attention to fax copy of letter dated 21.12.2007 of M/s Brightex Corporation, which states that the revised invoices of same number/same date was issued only on the request over and above the original invoice, because the consignment was put on hold by Indian Customs. The statements of Shri Jariwala were forcibly taken.

(e) Apart from the totalling mistake of Rs.19,59,247/-, there is a difference of Rs.17,35,394/- as the investigating agency had wrongly adopted the method of over-valuation. Therefore, the accepted amount is Rs.1,06,63,192/- as against the total amount of Rs.1,49,57,833/-. According to him, the aspect of discount on negotiated price has not been considered.

(f) They have already paid an amount of Rs.1,18,19,318/- and therefore, the amount of Rs.11,56,126/- (1,18,19,319  1,06,63,192) has been paid in excess. This amount has been paid before the issue of Order-in-Original and therefore, only 25% penalty is imposable.

(g) He argued strongly that the adjudicating authority has relied on Rule 6 and Rule 8 of the Valuation Rules while arriving at the differential duty demanded as per Annexure-A to the show-cause notice, but he has not specified for which consignment Rule 6 has been resorted to and for which consignment Rule 8 has been resorted to. Further, the basis for actual rate has also not been made clear.

(h) He also contended strongly that enhancement in value is based on documents recovered from other importers, who may be importing goods at lower price. According to him, these documents cannot be presumed to be true in terms of Section 139 of the Customs Act, as the documents were not recovered from the appellants custody.

(i) He argued that outcome of investigation against those importers from whom documents indicating higher value were recovered is not known and whether any action was taken against those importers.

5. The learned AR took us through various paras of the show-cause notice. He drew our attention to paras 6.1 and 8 which gave details about the confessional statement of Shri Jariwala regarding import of goods at lower price. The statements also indicated that Shri Jariwala confessed that they had destroyed their insurance certificate because the insurance was of actual value, whereas the invoices were raised at lower value. Further, Shri Jariwala agreed with the contents of the various documents recovered from other importers which indicated the actual higher price of the goods. Shri Jariwala also confessed to making payments of differential amount to the representative of the supplier. He admitted that the invoices in which the description is shown as p.m. film (12 mic.) downgrade did not represent goods of downgrade quality. The word downgrade was written only to justify undervaluation.

5.1 The learned AR specifically referred to para 9 of the show-cause notice, which gives details of document No. 61 of Box File No. 5, Proforma Invoice No. B7-05 dated 30.7.2007 showing import at lower value and that they had produced invoice of the correct value before the Customs bearing the same invoice no. Further, one Bill of Entry No. 381995 dated 17.12.2007 of Silver Polyester Metallic Yarn (downgrade) was cleared at US$ 37 per kg.

5.2 The learned AR emphasized that the appellant while seeking the extensions of date of personal hearing, kept admitting their liability on account of undervaluation.

6. We have considered the submissions of both sides. In this case we find that more than ample opportunities were given to the appellant to defend their case. The details of the opportunities given are mentioned in para 2.2 above. For record, we note that personal hearing was fixed on 15 occasions but the Counsel of the appellant expressed his inability to attend the hearing for some reason or other. The personal hearing dates were spread over months and years. In fact the personal hearing dates are spread over four years from the first date i.e. 20.8.2008 to the last date i.e. 3.10.2012. Normally, postponement of hearing is given for genuine reasons and no order is passed ex parte. But in this case we find that at times the excuse for not appearing was flimsy, such as expressing inability on account of Budget Seminar. Repeatedly, the excuse was given that the appellant intends to approach the Settlement Commission, which he never did finally.

6.1 As regards the merits of the case, we notice that the appellant had not contested the liability of duty and interest. At para 28 of the adjudication order, it is stated that the noticee had already deposited Rs.1,01,75,901/- and also gave consent to enchashment of Bank Guarantee amounting to Rs.10,19,960/-, to ADG, DRI, Surat. The appellant in their letter dated 8.2.2011 informed that they have already deposited substantial amount of duty and are in the process of depositing the rest of the amount towards the admitted liability + interest and would make the complete deposit by March, 2011. This letter was written while seeking postponement of the personal hearing fixed on 25.2.2011. Again in their letter dated 13.5.2011, they submitted a challan evidencing payment of Rs.5 lakhs and stated that they are in the process of depositing the rest of the amount towards admitted liability + interest.

6.2 The karta of the appellant Shri Jariwala, on various occasions admitted to undervaluation in his statements recorded under Section 108 of Customs Act, 1962. In his statement dated 26.9.2007, he confessed that the actual value of polyester metal yarn was US $ 35 to US $ 37, whereas they had shown the value as US $ 8 to US $ 9 per kg. He also admitted in his statement dated 28.9.2007 that sale value of the goods sold in the local market is shown as less and the differential amount is collected in cash. Further, that the sum insured for the goods was the actual value, whereas the invoices were raised at lower value and they had destroyed all the insurance certificates. In his statement recorded on 27.11.2007, on being shown the following documents, he admitted with the contents of the documents which reflected the actual price of the goods imported: -

(i) Fax dated 8.8.2005 of M/s Brightex Corporation, Japan addressed to Shri Patil,

(ii) E.mail dated 17.4.2007 to KEIO Corporation, addressed to Shri Shri Pragnesh Chariwal.

(iii) Fax dated 19.7.2006 to M/s Bightex Corporation, addressed to Shri Madhuri Lakhotia.

(iv) Sales Note No. 07045 dated 29.1.2007 to M/s Brightex Corporation issued to M/s N.B. Impex.

He clearly confessed that most of the imports made by them were from M/s Bightex Corporation, Japan, which were undervalued and the differential payments were made to the representative of the seller in India. He also confessed that wherever the description shown in some invoices is polyester metallic film, downgrade quality they used the word downgrade just to undervalue the goods. It is also noted that Shri Jariwala did not retract his statements. On the contrary, he voluntarily deposited a major portion of the duty liability.

6.3 It is to be noted that during the period of investigation, a consignment was imported by the appellant at Kolkata Port @ US $ 37 per kg. in respect of Silver Polyester Metallic Yarn and @ US $ 39 per kg. in respect of Gold Polyester Metallic Yarn, in December, 2007. The plea now taken that they were forced to get the revised invoices because their consignment was seized by Customs in Kolkata port lacks credibility. We have seen a copy of the fax clarification dated 21.12.2007 of the foreign supplier stating that he is sending revised invoices. We do not understand why the foreign supplier will write such a clarification and issue revised invoices wherein the value shown is significantly higher than the value stated to be shown by the original invoices of the same number and dates. No foreign supplier in Japan would be expected to issue two invoices bearing the same number and date. We have not been shown any evidence that this letter was given to the department in December, 2007. Further, various evidences collected by the department only indicate that invoices showing the higher value reflects the actual value of the goods imported.

6.4 The learned Counsel contended that the documents recovered from third parties cannot be used as evidence when it is not known whether any action was taken against those importers. We find that the documents recovered from other parties had reflected higher prices of imports from the same suppliers. In any case, we also note that there are more definite evidences regarding contemporaneous imports showing much higher values as shown below: -

Sr. No. Name of Importer Name of supplier abroad Description of goods B/E No. & date Rate per kg. in USD 1 M/s MILON Metallic P. Ltd., Surat M/s Brightex Corp. Japan Silver Metallic Yarn 1/64 679797 31.5.2006 35.56

2.

-do-

M/s Keio Corporation Korea

(i) Silver Metallic Yarn (1/64) 750680 7.5.2007 JPY 4230/ USD 36.71

(ii) Metallic Yarn 1/64 (Gold)

-do-

JPY 2552/ USD 37.97

3. M/s Navbharat Impex, Dist. Thane

-do-

Silver Metallized Film (12 MIC)

---

32.90

It is seen that the description of the goods imported in the above cases is identical to the goods imported by the appellant. In the case of Sr. No. 1 in the table above, the name of the supplier i.e. M/s Brightex Corporation, Japan is also the same.

6.5 The appellant contended that the adjudicating authority has not specified whether he has relied on Rule 6 or Rule 8 in respect of the various consignments imported and on which differential duty has been demanded as per the chart at Annexure-A to the show-cause notice. We find that show-cause notice has relied on Rule 6, where documentary evidence in the form of insurance certificates, invoices of contemporaneous imports of M/s Milon Metallic Pvt. Ltd., M/s Surat Metlon Pvt. Ltd., M/s Lakhotia Polyester (I) Pvt. Ltd., M/s Navbharat Impex and parallel invoices raised by M/s Brightex on SLT is available. In other cases recourse has been taken to Rule 8 because the sale price of goods in India was not available on record and the data relating to cost structure was also not available for allowing the recourse to Rule 7 and 7A. Only because Rule 6 or Rule 8 was not mentioned against each entry in Annexure  A, it does not vitiate the proceedings.

6.6 We also find that the range of values shown in column 14 of the Annexure A, which has been taken as Actual value is uniform in respect of most of the Bills of Entry as US $ 35 or US $ 37 per kg. Where the rates taken are lower i.e. US $ 30 or US $ 32, these reflect imports for the earlier periods i.e. 2005-06 or the beginning of 2006-07. In some cases of goods imported in 2007, the lower rate of US $ 30 relates to 12 micron talorized polyester film, whose rate in any case is less than the rate of silver/gold metallic yarn. We also note that the values adopted in Annexure-A are the same or are less than the value of contemporaneous imports show at table in para 6.4 above. In this view of the matter, we find no infirmity in the re-determination of the value in accordance with law.

6.7 A contention has been made by the learned Counsel that in terms of Section 139 of the Customs Act, the presumption as to documents recovered is for the documents seized from the custody of the person against whom the charges are made. While we do appreciate this argument, we find that the undervaluation is established by definite evidence in the form of contemporaneous imports and other evidences. It is this evidence which ultimately established the massive undervaluation indulged in by the appellant, otherwise no assessee would voluntarily deposit Rs.1,18,19,319/- out of the total demand of duty of Rs.1,49,57,833/-. As regards the plea of the Counsel that the department has not revealed the outcome of investigation in respect of other importers from whom documents were recovered, we are of the view that we are confined to the impugned order in the present case and our decision is independent to the outcome of other investigations, if any, in respect of their importers.

6.8 The appellants have contended that for imposition of penalty under Section 114(A), establishment of mens rea is necessary and that the HUF cannot be penalized for mis-statement or suppression of facts, which resulted from acts of a Karta of the HUF. According to him, the HUF cannot have a mind of its own and therefore, cannot have mens rea which is essential for penal action under Section 114A of the Customs Act and that no penalty has been imposed under Section 114A on the Karta. We do not agree with the argument that HUF can have no mind of its own and it cannot have mens rea. By this logic, every company will not have a mind of its own and therefore penalty cannot be imposed on the company. Section 114A of the Customs Act impose penalty on acts for short levy or non-levy by reason of collusion or willful statement or suppression of facts. In the present case, more elaborate discussion would not be required to establish that there has been willful suppression of facts and mis-statement. The undervaluation in this case is clearly established and has been admitted by Mr. Jariwala. Imposition of penalty on the HUF is logically tenable as the word person would include proprietorship, partnership, company, HUF etc.

7. The learned Counsel argued that the duty demand calculated in Annexure A of the show-cause notice is in excess by Rs.19,59,237/- due to a calculation error and Rs.3,46,907/- due to wrong reading of rate of duty adopted. The appellant had addressed this matter to the DRI, vide their letter dated 29.12.2012 but the same has not been rebutted by the DRI to date and the Commissioner (Adjn.) also overlooked this error. The learned AR for the department was asked to verify this fact. Vide his letter dated 3.3.2015, the learned AR has confirmed that the duty demand confirmed as per Annexure  A should be Rs.1,14,02,178/- instead of Rs.1,33,61,415/- due to an error in computation. Thus, we hold that the total duty payable is reduced by Rs.19,59,237/- to Rs.1,43,57,833/- from Rs.1,49,56,984/-. But we reject the contention that discounted price must be considered because the value has been determined on basis of contemporaneous imports and other evidence and in accordance with the Valuation Rules. There is no merit in the contention that penalty is payable equal to twenty five percent of the duty or interest because the second proviso to Section 114A lays down that this benefit is available only if the reduced penalty (under first proviso) is also paid within a period of thirty days from the date of communication of the Order determining the duty payable. But penalty has not been paid by the appellant.

8. We find no reason to interfere in the order of the Commissioner. Accordingly, the appeal is dismissed on merits. However, the demand of duty is reduced by Rs.19,59,237/-. And the penalty payable will be equal to the reduced amount of duty in terms of Section 114A of the Customs Act. The impugned order is modified to this extent only.

(Pronounced in Court on )

(Anil Choudhary) (P.S. Pruthi) Member (Judicial) Member (Technical)

Sinha

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