JUNE 04, 2024

By S K Rahman, IRS, working as AR at Delhi CESTAT

1. THE CESTAT has passed Final Order No. 55850-55851/2024 dated 31.05.2024 - 2024-TIOL-512-CESTAT-DEL in the cases of M/s Candex Filament Pvt. Ltd. and Shri R K Goyal on the issue of attempting to export inferior quality garments for fulfilment of export obligation of Advance Licence, wherein, good quality polyester knitted fabric was imported duty free.

2. In these cases, there were 2 appeals namely M/s Candex Filament Pvt. Ltd. Vs. Commissioner of Customs, Preventive, New Delhi in Customs Appeal No. 50762 of 2019 and Shri R K Goyal. Vs Commissioner of Customs, Preventive, New Delhi in Customs Appeal No.50761 of 2019 pending before Hon'ble CESTAT all arising out of one Order-in-Original No. DLI/CUS-PREV/OPD/COMMR/10/2018 dated 05.12.2018 passed by the Principal Commissioner, Customs, New Custom House, New Delhi.

3. M/s. Kwality Overseas holding advance licence has imported good quality polyester knitted fabric duty free. They have a factory at Badli, HP to where they were supposed to take these imported fabrics, manufacture Ready Made Garments (RMG) Ladies Dress using these fabrics and export the finished goods namely, readymade garments. But it appears that the impugned goods were diverted to open market instead of using them for manufacture of garments in violation of condition no 14 of the Advance Authorisation which stipulates that the imported goods shall be processed at the declared factory address.

4. M/s Kwality Overseas instead of exporting the finished goods namely, readymade garments, have supplied to M/s Candex Filament Pvt. Ltd. (Appellant) to export as merchant exporter.

5. The Authorized Representative for Revenue has pointed out to the Hon'ble CESTAT, the following omissions by the Appellant while exporting the goods.

6. Mis-declaration of description (Composition):- The export goods were found to be old, torn and very bad quality of RMG. There were no stickers, no brand name, no manufacturing name and date. The exempted raw material imported under Advance Authorization was polyester dyed fabric with GSM of 200-300. The RMGs attempted to be exported are of GSM 55-90.

7. Exports after expiry of EO:- The above exports were attempted to be done on 06.02.2018 as exports for fulfilment of export obligation of advance licences whose EO period has already expired on 10-06-2012 and 18-03-2014. Thus, the exports were beyond 4 to 6 years period compared to EO obligation.

8. DGFT:- The DGFT vide Orders-in-Original dtd 02-06-2017 has cancelled the Advance Authorization as the party has failed to fulfil the export obligation by the prescribed due date of 10-06-2012 and 18-03-2014.

9. Lifting of Corporate veil: The importer of fabric under Advance Authorization and exporter appellant have the same Directors, viz. Shri R K Goyal and Shri Kanav Goyal (father and son) but were operating under different companies. They have camouflaged themselves as manufacturers and merchant exporters. It is well settled law that in the matters of defrauding the Government Exchequer, the corporate veil can be lifted to hold responsible the natural persons who are involved in managing and operating the companies. In this regard, reliance was placed on M/s. Calcutta Chromotype Ltd. vs. CCE, Calcutta where in it is held that :

"It is not only that both the manufacturer and buyer are associated with each other for which the corporate veil may be lifted to see who is behind it"

10. The Counsel for the Appellant has argued that Appellants cannot be held responsible for the default of Kwality Overseas. For this, the Authorized Representative for Revenue has rebutted it by saying that:

11. Appellants cannot be absolved of the default of Kwality Overseas, which allowed them to use their advanced licence and influence them to export low quality goods to fulfil their export obligation The Directors of the appellant company as well as of Kwality Overseas are one and the same Shri R K Goyal a natural person is capable of influencing the function of both the appellant as well Kwality Overseas.

12. The instant case, it is not alleged that the appellants have defaulted in fulfilment of export obligation but were alleged of attempting to export by mis-declaring the description (composition &GSM) quality and quantity of export goods, (ladies dresses) meant for export under the cover of various shipping bills.

13. It was submitted to the Hon'ble CESTAT that in the Shipping Bills "the third party" details are given as Kwality Overseas and the undertaking at the bottom reads as "We declare that the particulars given herein are true and are correct" and exporter signed on it. That is why the exporter is being penalized.

14. The Hon'ble CESTAT has agreed with the submissions of Authorized Representative for the Revenue, upheld the impugned Order-in-Original and dismissed the Appeals filed by the Party.

15. The Lessons learned from this Final Order No. 55850-55851/2024 dated 31.05.2024- 2024-TIOL-512-CESTAT-DEL are:

a) Attempting to export inferior quality finished goods as fulfilment of Export Obligation for duty free imports under Advance Licencing is not permitted.

b) The quality of goods (by test reports) being exported may be compared with the quality of imported raw material so as to verify whether imported duty free goods are used in manufacture of finished goods being exported.

c) Exports done after the due date for fulfilment of export obligation is not permitted.

d) The merchant exporter cannot absolve himself of responsibility for the mis-declaration of quality of goods received from the manufacturer and attempted for export, as particulars declared in the Shipping bills are under signature of exporter.

16. This Final Order No. 55850-55851/2024 dated 31.05.2024-2024-TIOL-512-CESTAT-DELmay be read along with Final Order No. 55357-55360/2024 dated 19.03.2024 - 2024-TIOL-298-CESTAT-DEL in the cases of Himachal Fashion Private Limited (erstwhile known as Candex Chemical Fibres Company Pvt.Ltd) and others on the issue of diversion of imported polyester knitted fabric imported duty free under Advance Licence to open market which was supposed have been used in the manufacture of readymade garments and export them.

(The views expressed are personal and not in official capacity)