By TIOL News Service

MUMBAI, JAN 22, 2014: A case of overvaluation of readymade garments by M/s. Sri Balaji Overseas, Mumbai and fraudulent availment of drawback on such garments alleged to have been exported to Russia was investigated by the DRI.

SCN followed and the adjudicating authority came to the conclusion that drawback amounting to Rs.46,28,867/- on exports ostensibly made to Russia and Rs.10,16,381/- in respect of exports made to Dubai was availed fraudulently by M/s. Sri Balaji Overseas and the same was inadmissible and the said goods exported were liable to confiscation.

The allegation against the appellant HDFC Bank Ltd. is that they, as bankers were supposed to be custodian of money on behalf of persons banking with them and they were expected to scrutinize the documents submitted by the exporter minutely and systematically. In the present case, the exporter, M/s. Sri Balaji Overseas filed documents with the said Bank showing different dates of shipment for the same voyage and the same vessel and Port of discharge and place of delivery were shown as Moscow and Russia respectively and these declarations were accepted and based on the claim of the exporter, the documents were processed and money credited to their accounts. Consequently, the appellant bank failed to protect government money amounting to Rs.3,02,09,760/- inasmuch as they did not properly scrutinize the documents presented to them by M/s. Sri Balaji Overseas, Mumbai for availment of remittance from RBI under Rupee-Rouble Trade and they also failed to notice that the exporter had no letter of credit in their favour on the date of export which was a condition for export to Russia under the Rupee-Rouble Trade Agreement.In view of the above purported omissions on the part of the Bank, a penalty of Rs.1 crore was imposed u/s 114 of the Customs Act by the adjudicating authority.

And so, the appellant bank is before the CESTAT.

It is submitted -

++ The actions taken by the bank were in the ordinary course of business and in good faith and after following the internal policies of the bank.

++ So long as the documents were not fraudulent on the face of it, a bank is not obligated to undertake any independent investigation to verify the authenticity of each and every statement made in the documents submitted.

++ The allegation that the exporter did not have the letter of credit in their favour on the date of export is incorrect. As per the documents submitted, the date on the Bills of Lading presented to the bank, were subsequent to the Letter of Credit issue dates.

++ They deny the allegation that they failed to protect government money amounting to Rs.3,02,07,960/- as it is the RBI who had permitted the remittance.

++ Even if it is assumed that there was lapse on the part of the bank, the lapse, at best can be held as an act of negligence and such lapse cannot be treated as deliberate or intentional.

Inasmuch as the penalty imposed on the bank under Section 114 for an alleged omission is not justified.

The Revenue representative reiterated the allegations leveled against the bank and also referred to the RBI guidelines vide Circular No. 30 dated 28/09/21993 and Circular No. 4 dated 05/09/1999.

The Bench adverted to the Tribunal decision in Bank of Madura Ltd. & Others vs. Collector of Customs, Madras 1978 (28) ELT 396 where it was held that "omissions on the part of the bank are acts culpable of ignorance and reprehensible imprudence on the part of a banking institution but would fall short of an act/omission rendering the goods liable to confiscation under the provisions of Section 111 as only a person 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 shall be liable to penalty" and that frittering away its funds in either disregard of the banking procedures and rules and regulations would not ipso facto make the bank liable for a penalty under Section 112(a) of the Customs Act, 1962.

The CESTAT also referred to the decision in IDBI Bank Ltd. vs. Commissioner of Customs (Export), New Delhi - 2012-TIOL-20-CESTAT-DEL where it was held that banking transactions relating to the export goods carried out in the normal course of business without any mensrea cannot attract the provisions of Section 114.

The Bench, thereafter, concluded -

"6.4 In the present case before us, the goods have been held liable to confiscation under the provisions of Section 113(i) of the Customs Act for overvaluation of the goods under export. The overvaluation has been done by the exporter and the appellant-bank has no role to play in such overvaluation. No doubt there has been some negligence on the part of the bank in not properly verifying the export documents and recommending to the RBI for allowing remittance to the exporter under the Rupee-Rouble Trade Agreement. However, such omissions on the part of the bank do not fall within the scope of Section 113(i) and consequently no penalty is imposable on the appellant-bank under Section 114."

Holding that the appellant-bank has made out a strong case in their favour, the CESTAT granted unconditional waiver from pre-deposit of penalty adjudged and stayed the recovery.

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(See 2014-TIOL-107-CESTAT-MUM)