By TIOL News Service

MUMBAI, FEB 10, 2015: M/S EPL established an industrial unit at Santacruz Electronics Export Processing Zone (SEEPZ), Mumbai, for manufacture of computer systems with an aggregate annual capacity of 2,50,000 numbers vide permission granted by the Ministry of Commerce in its letter dated 16/02/1990 subject to certain conditions.

Investigation was carried out by the officers of the M & P Wing of the Preventive Commissionerate, Mumbai regarding the unit's manufacturing activities for export and sales of computer systems in the Domestic Tariff Area under its DTA sale entitlement claimed against its exports made. The investigation revealed that the terms & conditions of the Industrial Licence as also the DTA sale entitlement were grossly violated. Foreign brand computers were imported under the guise of components and parts and sold under DTA sale entitlement.

The present proceedings relate to the clearances effected after 31/03/1992 against the DTA sale permission.

SCN dated 27/03/1997 came to be issued and was adjudicated by the Commissioner of Customs, Sahar Airport, Mumbai on 25/02/2005 inter alia confirming a duty liability of Rs.11.49 crores & and after giving a set-off of Rs.6.41 crores paid as CE duty and Rs.1.69 crores deposited, confirmed a net duty liability of Rs.3.39 crores; ordered confiscation of foreign brand computer systems with an option to redeem the same on payment of redemption fine and also imposed numerous penalties.

Marathon hearing sessions were held in the month of September and October 2014.

After considering the rival submissions, the CESTAT in its findings running into 36 pages observed thus -

+ Penal proceedings abate against Sri. V. Raghavendran as he passed away during the pendency of the proceedings.

+ As the law has been amended retrospectively by the Customs Amendment and Validation Act, 2011, conferring powers on the customs officers in the preventive commissionerates and also validating the actions taken by such officers, the order passed is proper in law. [Sunil Gupta - 2014-TIOL-1949-HC-MUM-CUS refers]

+ The charge against the appellant is that M/s EPL imported complete computer system by mis-declaring them as parts and components of computers so as to avail ineligible duty exemption under notification 227/79-Cus and 133/94-Cus. This was also done to circumvent ITC restrictions as import of computer systems required an import licence. This charge is based on the evidence that M/s Microland Ltd., Bangalore were dealers/distributors of M/s Compaq Computer Asia Pte. Ltd., Singapore and Compaq brand computers marketed by them were found to have been imported by EPZ units, mostly by M/s EPL, who in turn sold these computer systems under its DTA sales entitlement. Evidences available on record revealed that M/s Microland Ltd. had placed orders directly on Compaq Asia, Singapore for complete computer systems of various Compaq brand models with instructions to bill and ship the said goods to M/s EPL, SEEPZ; Mumbai. Against the purchase orders of Microland, M/s Compaq, Singapore issued invoices to EPZ units quoting Microland's purchase orders. In the invoices so issued, M/s Compaq, Singapore described the goods supplied as computer parts and peripherals with specific reference to respective model nos. and complete assembly nos. of the computers ordered by M/s Microland Ltd. The above modus operandi adopted is clearly evident from the correspondences exchanged between Mr. Ashok Radhakrishnan of Microland with Mr. Anand Sudarshan of M/s Compaq, Singapore and also with EPL particularly with Mr. Raghavendran and Mr. Navin Kulkarni. The above modus operandi is well documented in the incriminating documents seized during the investigation.

+ From the statements of the various officials of the appellant firm, it is clear that M/s. EPL and other Tandon Group of Companies imported complete computer systems without having any licence for the same thereby violating the EXIM policy. They did not have any manufacturing facility for manufacture of computers from the parts and components and the only activity undertaken by them was insertion of FDD and HDD into the system and conducting certain tests to ensure that the computer systems work properly .

+ From the evidence unearthed by the investigation, it is clear that, as against the requirement of value addition of 20% the value addition actually achieved was only 10.8%, 6.8%, 10.25% and 6.30% during 1990-91, 1991-92, 1992-93 and 1993-94 and these figures have not been disputed at all by the appellant. It is also on record that the value addition norms were required to be fulfilled not only in respect of the exports made by the appellant but also in respect of the DTA sales effected as the permission to sell in DTA was subject to fulfilling the requirement of value addition in terms of para 102(b) of the EXIM Policy 1992-97. From the evidence available on record these requirements of the EXIM Policy were not at all complied with by the appellants.

+ It is also on record that the appellant sold computers having foreign brand names in the DTA which was also not permissible. It is further seen that the appellant failed to repatriate the export proceeds to the extent of Rs. 15.76 crores, which is yet to be realized as evidenced from RBI's letter dated 10/03/1994.

+ The appellant has relied on the decisions of the hon'ble apex Court in the case of Rai Bahadur Shreeram Durga Prasad, Becker Gray and Universal Cables in support of the contention that in terms of Notification 227/79-CUs and 133/94-Cus, they were only required to execute a bond for import of goods without payment of duty; Once the bonds are executed, the conditions of the Notification are satisfied and even if the terms and conditions of the bond are not fulfilled, the benefit of the aforesaid Notification cannot be denied. - A declaration and a bond are entirely different and distinct and cannot be equated with one another. In the present case, the bonds executed by the appellants bind them to fulfil the export obligations in terms of the EXIM Policy (both in terms of the value of exports to be achieved and also the value addition required to be achieved both for export products and the products sold in the DTA in terms of the permission granted) and on failure to do so, the appellant has undertaken to pay to the Government the amount of duty foregone on the plant and machinery, raw materials, components and consumables allowed to be imported in terms of the licence granted under the EXIM Policy. Further, the bond also mandated payment of interest @ 18% on the duty payable and provided that recovery of duty along with interest has to be made in terms of Section 142 of the Customs Act, 1962 or Section 11 of the Central Excise Act. Therefore,to equate the bond executed with the declaration is an assault on the common sense and amounts to absurdity . It would also imply that execution of bond was a mere formality and the same is not binding on the importer. Such an interpretation of law would be a mockery of the EXIM policy provisions and the provisions of the Customs Notifications. The law cannot be interpreted in such a way so as to defeat the objects and purposes of the policy and the terms and conditions of exemption . Therefore, the contentions in this regard made by the appellants in this regard have to be rejected in toto.

+ It has also been argued that the show cause notice does not invoke the provisions of the bond executed by the appellants for the demand of duty, while the adjudicating authority has invoked the provisions of the bond for recovery of duty and, therefore, the order-in-original has travelled beyond the show cause notice and reliance has been placed on certain decisions in the case of Toyo Engineering India and Ballarpur Industries (supra). This contention is completely incorrect and bereft of any logic.

++ In view of paras 336 and 337 of the show cause notice, it cannot be said that the appellants were not put to notice with respect to their statutory obligations in terms of the legal undertaking (bond) executed by them at the time of importation of the goods. In the present case, from the documents referred and examined and the statements recorded, it is clear that the appellants have intentionally and deliberated violated the provisions of the EXIM Policy and the terms and conditions of the relevant Notifications and, therefore, the extended period of time has been rightly invoked for confirmation of demand of duty. In fact, from the evidence available, it is absolutely clear that the appellant hatched a conspiracy with the foreign suppliers as well as the domestic purchasers of the goods to import restricted items without having any licence and, therefore, sold the same in the DTA, the sale of which was prohibited, inasmuch as the goods sold bore the brand names of the foreign manufacturers. It is also evident that fully built computer systems were purchased which were dismantled before export of India and brought to India under the guise of parts and components. The action of the appellant is a fraud played on the exchequer.

+ Commissioner of Customs, Kandla vs. Essar Oil Limited - 2004-TIOL-84-SC-CUS - 'fraud' and 'collusion' vitiate even the most solemn proceedings in any civilized system of jurisprudence. In the present case, the appellants resorted to complete mis-declaration and suppression of facts, planned and executed evasion of customs duty by importing prohibited goods without having any valid licence and selling the same in DTA in complete disregard to the provisions of EXIM Policy and the Customs Notifications.

+ As regards notification No. 227/79, condition No. 4 stipulated that the exemption contained therein is subject to fulfilment of the conditions stipulated in the notification and in or under the Import & Export Policy. The same was the position in respect of notification 133/94 except that the condition No. was 3 and instead of para 1A, it was para 3 of the notification. Thus both these conditions stipulated in the notification made fulfilment of the value addition norms not only with respect to exports but also in respect of DTA sale. With respect to the DTA sale, the LOP/LOI issued under the exim policy also stipulated an additional condition that foreign brand names shall not be used in respect of goods sold in DTA. It is on record as well as from the admissions of the appellant that both these conditions were violated. Therefore, the appellant was not eligible to avail the benefit these exemption notification ab-initio. Further as admitted by the appellants the goods under import were not parts and components of computer systems but were fully manufactured computer systems which was dismantled before importation so as to camouflage the imports as parts and components. Fully manufactured computer systems were restricted for imports as per the EXIM Policy as applicable at the relevant time and the appellants did not have the requisite licence for import of the same. These are all admitted positions and there are no disputes whatsoever about these facts. If that be so, the appellant was certainly not entitled to claim the benefit of the exemptions under these notifications. Both the customs notifications and the EXIM policy form an integrated code and violation of the exim policy is also a violation of the condition of customs exemption and we hold accordingly.

+ For violation of the terms and conditions of the EXIM Policy and for failure to fulfil the export obligations, which envisages certain value addition norms not only in respect of the goods exported but also in respect of the goods sold in DTA, the Customs authorities can initiate action both in terms of the provisions of the Notification and the Customs Act, 1962 and also under the provisions of the bond executed by the appellant at the time of the importation of the goods. [M/s. Sheshank Sea Foods Pvt. Ltd. - 2002-TIOL-142-SC-CUS. Noel Agritech Ltd. vs. Commissioner of Central Excise & Customs [2011 (273) ELT 306] Rattan Exports Ltd. vs. CC, Calcutta [1987 (31) ELT 66 (SC)] relied upon]

+ In the present case, the adjudicating authority has sought to demand duty only in respect of the SKD assemblies/functional units of the computer systems sold in the DTA without achieving the necessary value addition and also for violating the provisions relating to the brand name. Therefore, the duty demand made in this regard is completely justified and cannot be faulted.

+ However, the balance of duty demanded is clearly sustainable in law inasmuch as the goods have been imported by mis-declaring them as parts/components and the goods needed a licence for importation which the appellant did not have. Thus the goods are liable to confiscation under Sections 111 (d). For non-achievement of the value addition norms and selling the goods in DTA under foreign brand names, the goods become liable to confiscation under 111 (o) of the Customs Act, 1962 and we hold accordingly. Consequently the appellants are liable to penalty.

+ As regards the penalties imposed on the various officials of the appellant-company, their role is clearly evident and they have undertaken all these activities fully knowing that they are contravening the provisions of the EXIM Policy and the Customs Notifications and, therefore, imposition of penalty on the officials of the appellants except Shri Raghavendran, who passed away during the proceedings, deserve to be upheld and we do so. Similarly, the penalty imposed on M/s. Microland Ltd. is also sustainable as it aided and abetted the evasion of Customs duty by the appellants and, therefore penalties imposed under Section 112(a)/(b) of the Customs Act, 1962 is justified and sustainable in law.

+ It is a settled position in law that the ratio of a decision is applicable only if the facts are identical and if the facts are different and distinguishable, the ratio cannot be applied. [Case laws cited by appellant were distinguished]

Appeals dismissed.

(See 2015-TIOL-296-CESTAT-MUM)