Commissioner of Customs Kolkata Vs. M/S. Peerless Consultancy Services Pvt. Ltd.
 Insc 665 (24 May 2007)
Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA
Dr. ARIJIT PASAYAT, J.
1. Challenge in these appeals is to the orders passed by the Customs Excise
and Gold (Control) Appellate Tribunal, EZB Kolkata (in short the 'CEGAT')
allowing the appeals filed by the respondent holding that the guidelines
contained in circular No.69/97-CUS dated 8.12.1997 issued by the Government of
India, Ministry of Finance, Department of Revenue, New Delhi, as it has not
succeeded in making out a case against respondent as the Present Market Value
(in short the 'PMV')declared is not more than 150% of the AR 4 value.
Accordingly the order passed by the Commissioner of Customs (Post) Kolkatta
was set aside.
2. Background facts in a nutshell are as follows:
3. The Respondent Company which is engaged in the business of computerized
printing exported for the first time consignments of steel balls of a total
declared value at Rs.14.63 crores to one M/s. Ria Multiple Enterprises of
Malaysia under Duty Entitlement Pass Book (in short the 'DEPB') Scheme.
Incidentally, the consignee is also a dealer of computer and information
technology based products who also acts as General Insurance Agent. Exports
were made under DEPB scheme and a claim of Rs.3.20 crores was made.
4. In the light of information received by DRI of gross over- invoicing of
the goods to avail higher DEPB credit, it conducted investigation which
revealed inter-alia that:
(i) the declared P.M.V. varies between 98.35% to 124% of the declared Export
Price (described as 'FOB').
(ii) the shipments were effected between 11.06.99 and 25.08.99 as per Bill
of Lading date and as per the contract, the terms of payments is DA 60 days'.
(iii) Till 31.5.2000, the assessee received payment for 3 consignments only
and further till 11 .10.2000 they received payment of only 5 consignments out
(iv) the declared FOB value for different size Steel Balls comes as under:
Steel Balls 3.17mm size Rs.0.70per pc.
Steel Balls 6.35mm size Rs.l.30 per pc.
(v) it has been claimed that the PMV was declared on the basis of price
quoted by the local suppliers and the variation in the declared PMV is due
rejection on quality check.
(vi) The FOB value of the consignment was fixed on the basis of price agreed
upon by the foreign buyer.
(vii) The FOB value declared is highly inflated only to avail greater amount
of DEPB Credit.
(viii) The explanation offered to substantiate highly declared FOB vis-`-vis
the PMV has no basis in as much the agreement of precision quality, quality
control checking by an expert, are all after thought having no consistency and
no evidence whatsoever could be produced in this regard.
(ix) Neither the export nor the foreign buyer or even the local suppliers
are regular dealers of Steel balls in as much neither the exporter nor the
local suppliers could produce any piece of evidence of sale of such Steel Balls
to any other party in India or abroad excepting the production of evidence of
sale by M/s. S.F. Forging to one M/s. Arlun Automobile, that too for the
purpose of export under DEPB scheme.
(x) Surprisingly the suppliers had received only about 1/4th or 1/3rd of the
so called sale value amount but did not receive huge sum of money which was due
as balance of payment towards supply of goods for over an year.
(xi) Based on the aforesaid revelation, the declared PMV as well as the FOB
value seems to be very high compared to the actual market value of the goods.
(xii) It appears that the entire deal had taken place in a manner which is
not consistence with normal trade practice and the declared FOB value as well
as the PMV had been highly inflated with intent to wrongly avail export benefit
under DEPB Scheme.
5. Accordingly, alleging gross misdeclaration of material facts and the
value of the steel balls and willful misstatement and suppression and violation
of Section 113(d) of Customs Act, 1962 (in short the 'Act') read with Rule 11
of Foreign Trade (Regulation) Rules 1993 (in short the 'Foreign Trade Rules')
and for penal action under Section 114 of the Customs Act, a Show
Cause Notice was issued asking to show cause as to why (i) the PMV and FOB
value should not be taken as Rs.2,80,52,027/- and Rs.2,73,60,806/-
(ii) The permissible DEPB credit against the goods exported should not be
taken as Rs.60,19,377/-.
(iii) The goods exported cover 16 Nos. of Shipping bills having total
declared FOB value of Rs.14,91,89,854.00 shall not be held liable for
confiscation under 113(d) of the Act.
(iv) Penal action shall not be taken against the exporter and its Director
Sri Parasmal Lodha and Sri N.R. Bachhawat authorized signatory under Section
114 of the Act.
6. In support of the appeal learned counsel for the appellant submitted that
Sri Parasmal Lodha who was the Director of the respondentCompany had clearly
admitted about the following aspects:
(i) The Company's main line of business is computerized printing.
(ii) The benefit of DEPB scheme attracted to venture into steel balls export
and also took the risk of exporting to the party on credit which is a big risk
(iii) The payment was to be made within 60 days and the payments were delayed
by over 6-18 months.
(iv) 90% of the payment was already received and the balance was to be
cleared by 15.4.01 i.e. after the enquiry started in the year 2000.
(v) He does not have any idea about the international price of steel balls.
(vi) He received major payments from buyer only after September 2000 and he
cleared the claimed outstandings of local suppliers.
(vii) He was aware of the process or method used for checking the quality of
the steel balls. But he had engaged an expert.
7. On the basis of the aforesaid materials the Commissioner recorded the
"(1) Background facts clearly indicate that the whole exercise was not
done in the usual course of business and there was definitely something wrong.
(2) The exporter does not know the international price of his exported
products, cannot produce any evidence regarding the quality of his goods, can
submit quotations of only those companies from whom he purchased the goods and
above all, exports goods worth Rs.14.91 crore were without the cover of any
letter of credit and it sat tight when remittance of Rs.14.91 crores did not
come within the stipulated time.
8. All these clearly show that the shipping bills and the export invoices do
not reflect the correct transaction value. He was therefore, inclined to hold
that the subject goods were over invoiced with an intent to wrongly avail
higher DEPB credit and the PMV indicated on the shipping bills was also
inflated. He rejected the FOB value as well as the declared PMV. He held that
the FOB value and the PMV of the subject goods need to be ascertained on the
basis of the findings of the market enquiry.
9. With regard to PMV, the Commissioner held as under:
"I find that the guidelines for verification of the PMV and the FOB
Value have been suitably followed by DRI. Nowhere in the above mentioned 3
circulars issued by the Board, it is stated that the PMV would be
challenged/rejected/modified on the basis of evidence of contemporaneous
export. It is to be done on the basis of the findings of the market enquiry
only. I, therefore, accept the proposal of ascertaining the PMV and the FOB
value as given in the show cause notice."
10. The Commissioner accordingly inter alia held as follows:
"The subject goods exported under claim of DEPB credit did not
correspond to the declaration made regarding the same on the shipping bills in
respect of the value and DEPB benefit, since it was declared on the shipping
bills that the benefit under the DEPB scheme would not exceed 50% of the
present market value. The same should be deemed to be prohibited in terms of
Rule 11 and 14 of the Foreign Trade (Regulation) Rules, 1993 read with Section
3(3) of the Foreign Trade (Development & Regulation) Act, 1992 and Section
11 of the Customs
Act, 1962 and, therefore, should be held liable for confiscation under
Section 113(d) of The Customs Act."
11. He accordingly confirmed the demand made in the Show Cause Notice.
12. Aggrieved by the orders passed by the Commissioner, the respondent filed
appeal before the CEGAT.
13. Allowing respondents' appeals, CEGAT accepted the stand of the assessee.
Its conclusions were essentially as follows:
"The PMV, in our view, cannot be challenged by going into the cost of
manufacture. Market enquiry into the prices of the steel balls of size 6.3mm
and 3.17 conforming to AISI:316 Grade should have been ascertained from the
market which has not been done. The burden to prove that PMV is inflated one is
on the Department which has not been discharged. It is mentioned in the show
cause notice itself that the local suppliers had supplied the exported goods at
price ranging from Re.l to Rs.1.25 per piece of 6.35 mm and Re.0.56p to Re0.70p
per piece of 3.17 mm. There is no allegation in the show cause notice against
the local suppliers nor there is any mention that the payment made to local
suppliers subsequently flowed back to the Appellants."
"In view of these guidelines, the Revenue has not succeeded in making
out a case against the Appellants as the PMV declared is not more than 150% of
Accordingly, we set aside the impugned order and allow all the
14. According to appellant, the Tribunal has failed to note that the
findings recorded by the Commissioner were based on the evidence tendered by
the company from which it can be clearly inferred that there has been a mis-declaration
and misstatement only with the object to boost the value to get higher DEPB
benefit. The entire transaction is vitiated by misstatement, mis-declaration
and suppression of material facts which has not been considered by the
15. It is pointed out by the learned counsel for the appellant that
absolutely no reason has been indicated by the Tribunal to set aside the
elaborate order passed by the Commissioner.
There were clear findings of over invoicing. So far as Circular No.69/97 is
concerned, it only delineates the general principles. The fraudulent
transaction was clearly established.
Approach of the Tribunal is relevant from the abrupt conclusions arrived at.
16. In response, learned counsel for the respondent submitted that the
issues involved in the appeal relate to the DEPB credit allowable to the
respondent under the Export and Import Policy, 1997-2002 (in short the 'EXIM
With reference to para 7.25 of the EXIM Policy, DEPB was allowable as a
percentage of FOB value of exports. In para 7.36 of the Handbook of Procedures,
1997-2002 (in short the 'Handbook'), if the rate of credit entitlement was 15%
or more, the credit shall not exceed 50% of the PMP of the export product.
17. In the present case, the foreign buyer purchased the goods for agreed
FOB and made full payment. Entire export proceeds have been realized in foreign
currency and copies of bank remittances/FIRC were filed. There is no allegation
or finding that the foreign buyer was a related person. FOB was fully supported
by all export documents such as invoices and shipping bills and by the
documents as regards its realization such as BRC/FIRC.
18. It is stated that the expressions "FOB' and 'PMV' were not defined
in the EXIM Policy. However, the method of determination was laid down by the
Ministry of Finance in the Circular No.69/97.
19. It is submitted in almost identical case in Commissioner of Custom, New
Custom House, Mumbai v. Vishal Exports Overseas Ltd. [2007 9309) E.L.T. 331
(S.C.)], this Court has dismissed the appeal filed by the Revenue.
19. We find that the Commissioner had in detail referred to various aspects
to conclude about over-invoicing. The applicability of Circular No.69/97 would
depend upon the factual scenario of a particular case.
20. In the instant case, what the Tribunal appears to have done is to refer
to the arguments of parties and then came to abrupt conclusions without
discussing in detail as to how the conclusions of the Commissioner were
erroneous. That having not been done the order is vulnerable. Accordingly, we
set aside the order of the CEGAT and remit the same to it for fresh
adjudication. It is to be noted that present CEGAT is known as Customs Excise
and Service Tax Appellate Tribunal (in short 'CEGAT').
The appeals are allowed to the aforesaid extent. We express no opinion on
the merits of the case.