By TIOL News Service

MUMBAI, NOV 02, 2015: WHILE scrutinizing the shipping bill,it was noticed by the Customs authorities that the invoice showed the size of the fabric as 6.3 meters x 1.12 meters. On examination,it was noticed that the goods were actually embroidered Sarees which were hemmed and ready for use whereas the exporter had given the description of goods as fabric and declared the goods as dyed fabric made from 100% polyester filament yarn with embroidery and claimed the higher rate of 8.2% DEPB.

Inasmuch as since the goods should have been classified as made-ups under lower DEPB rates,it was alleged that the exporter had wrongly claimed the higher DEPB rates on the goods mentioned in the shipping bills by mis-classifying them. The goods were,therefore,held liable for confiscation under section 113(d) of the Customs Act,1962 for mis-declaration. A redemption fine was imposed on the exporter and penalties were imposed on the CHA and the exporter under section 114 of the Customs Act,1962.

In appeal before the CESTAT,the exporter placed reliance on the CESTAT decision in the case of  Kanhaiya Exports (P) Ltd.  2006-TIOL-2018-CESTAT-KOL , wherein it was inter alia held:-

"4.   In any case the export was under DEPB claim. It is well settled that the Customs authority,do not have any jurisdiction to order confiscation and penalty in such cases since in the provisions of Sections 113 and 114 of the Customs Act are not to be invoked in cases of DEPB exports and DEPB is not covered by word licence under Foreign Trade (Development and Regulation) Rules,1992. Hence the misdeclaration,if any,was not covered by the relevant Regulation to call for and uphold the confiscation…."

It was further submitted that the same view was taken in the case of  Texport India  - 2006-TIOL-479-CESTAT-MUM.

On the other hand,the Revenue representative placed reliance on the decision in  Asian Exports - 2008-TIOL-2803-CESTAT-MUM,wherein it is observed:-

"5.   … Overvaluation of the goods with intent to obtain undue DEPB benefit stands established in this case,thereby attracting Section 113 of the Customs Act. Incidentally,the conduct of the appellants also squarely attracted the provisions of Section 114 of the Customs Act inasmuch as,by mis-declaring the value of the goods with ulterior purpose of obtaining undue DEPB benefit,they were rendering the goods liable to confiscation under Section 113 and rendering themselves ‘liable to be penalized under Section 114…"

In view of the contrary decisions,the Bench directed the Registry to place the matter before the President to constitute a Larger Bench for deciding the issue.

We reported this case as 2010-TIOL-1144-CESTAT-MUM.

The Larger Bench heard the matter recently.

Armed with a catena of cases cited as 2007-TIOL-1085-CESTAT-MAD, 2005-TIOL-783-CESTAT-DEL, 2005-TIOL-1306-CESTAT-MUM, 2003-TIOL-55-SC-CUS, 2004-TIOL-965-CESTAT-MUM, 2006-TIOL-131-SC-CUS, 2008-TIOL-1434-CESTAT-MAD, 2007-TIOL-2351-CESTAT-MUM, 2007-TIOL-864-CESTAT-AHM, 2003-TIOL-77-CESTAT-MUM, 2006-TIOL-2018-CESTAT-KOL, 2009-TIOL-1178-CESTAT-BANG, 2008-TIOL-559-CESTAT-MAD, 2005-TIOL-1156-CESTAT-MUM,the appellant submitted that the dispute being specific to classification solely for availment of DEPB credit,the jurisdiction to initiate penal action vested exclusively with the authority under the Foreign Trade (Development & Regulation) Act,1962 and that the invoking of Section 113 of the Customs Act,1962 was,for that very reason,improper.

The AR too was fully equipped with an almost equal number of case laws to support the departmental stand. The case laws cited are - 2015-TIOL-47-SC-CUS, 2003-TIOL-137-CESTAT-DEL, 2004-TIOL-515-CESTAT-DEL, Om Prakash Bhatia 2003-TIOL-06-SC-CUS, 2009-TIOL-715-HC-AP-CUS, Prayag Exporters 2003-TIOL-55-SC-CUS, 2006-TIOL-131-SC-CUS and 2008-TIOL-62-SC-CUS.

On the massive count of case laws doled out by both sides,the Bench felt that the task before it would not be advanced any further by examination of most of these cited decisions as it is these very contrary decisions that is the reason for constitution of the Larger Bench. Nonetheless,observing that it would be more advantageous to examine the relevant statutory provisions as well as the decisions of the Supreme Court,the Bench proceeded its analysis thus -

++ Section 11 of Customs Act,1962 empowers the Central Government,by notification,to prohibit,absolutely or conditionally,the import or export of any goods. Section 2(33) of Customs Act,1962 defines "prohibited goods" to be 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.

++ DEPB scrip is issued by the field offices of the Director General of Foreign Trade on the basis of value and description of export goods in accordance with the scheme envisaged in Chapter IV of the Foreign Trade Policy for the relevant period. The Foreign Trade Policy is notified in exercise of powers vested with the Director General of Foreign Trade under Section 5 of the Foreign Trade (Development & Regulation) Act,1991.

++ In relation to exports,a declaration under section 50 of Customs Act,1962 in the form of shipping bill is filed before the goods are brought into the customs area for examination and clearance thereof as per section 51. Thereafter goods are loaded on the designated conveyance in accordance with its availability for taking out of India and,thus,completing the process of export.

++ Generally,the verification of particulars filled in the shipping bill is exclusively in the hands of the proper officer of Customs whose reports are relied upon by other agencies and offices of the Government of India. We also observe that section 113 of Customs Act,1962 which contains the provisions relating to confiscation of export goods was amended with effect from 14 th May 2003 by deletion of the phrase "dutiable or prohibited" that qualified the word "goods" till then in clauses (c),(e),(f),(g) and (h).

++ It is worth noting that till May 2003 many of the clauses in section 113 were liable to be invoked only when export goods were dutiable or prohibited; "prohibited" in this context was interpreted by the Tribunal with reference to section 2(33) of Customs Act,1962 as being prohibited for import or export by the Foreign Trade Policy or by a specific notification under Section 11 of the Customs Act,1962. The use of the word "prohibition" in other clauses of section 113 was also assigned the same meaning as prohibited. This appears to have been the consistent stand of the Tribunal that the Hon'ble Supreme Court did not find it necessary to interfere with.

++ The consistent stand of the Tribunal in narrowly interpreting the scope of section 113(d) and endorsed by the Hon'ble Supreme Court in re Prayag Exporters,further restricted the jurisdiction to confiscate. However,with the deletion of the phrase ‘dutiable or prohibited' with effect from 14 th May 2003 in those clauses of sec 113 where it qualified the word ‘goods',this view could no longer be sustained. Therefore,the corresponding restriction attached to "prohibited" in clause (d) would also be without a logical foundation. Accordingly,the conclusion arrived at by the Hon'ble Supreme Court in re: Om Prakash Bhatia could not be ignored any further solely on the ground that the dismissal of the review petition of Revenue in re:Prayag Exporters virtually overruled the former.

++ Having discussed the mandates prescribed in the Foreign Exchange Management Act and the rules framed under the Foreign Trade (Development & Regulation) Act,1962,it was held that these mandates and rules,if not complied with,amounted to goods being exported in contravention of prohibition under other laws and hence crystallizing the liability to confiscation under section 113(d) of Customs Act,1962. We would note that section 113(d) used the word "prohibition" whereas in clauses (c),(e),(f),(g) and (h) of section 113 the word "prohibited" qualified the goods liable for confiscation. The deletion of this qualifying phrase by Finance Act,2003 without any changes in clause (d) would indicate that the word "prohibition" was not intended to be read as related only to prohibited goods. It is,thus,amply clear that prohibition referred to in other sections of the Customs Act,1962 are not limited to those notified under section 11 of the same Act. Prohibition has a much wider connotation that traverses beyond Prayag Exporters.

++ It is,therefore,impossible to ignore the binding effect of the decision in re Om Prakash Bhatia particularly after May 2003 when the words "dutiable or prohibited" ceased to be a requirement for invoking section 113 of Customs Act,1962 while retaining "prohibition" in clause (d).

++ This would appear to set the issue to rest; that misdeclaration of quantity,description or value with intent to claim benefits under schemes in the Foreign Trade Policy would bring such goods within the prohibition envisaged in the Foreign Trade (Development and Regulation) Rules,2003 which allows section 113(d) and section 114 to be invoked for confiscation of export goods that breach these Rules.

(See 2015-TIOL-2344-CESTAT-MUM-LB)