of Customs Vs. M/S.Television & Components Ltd. & Ors  INSC 83 (24 February 2000)
The issues in these appeals arise out of the import of Tape Deck Mechanisms (TDMs)
by the respondent No.1. According to the appellant, not only were the TDMs
imported at a gross under-value which resulted in a non- payment of the
appropriate customs duty but they were also imported contrary to the provisions
of the Import and Export (Control) Act, 1947 and the Import Control Order 1955.
(2) The TDMs had been imported by the respondent No.1 at S $ 250.00 per set
from Yamato Industrial Co. Ltd. (referred to hereafter as 'Yamato). Acting on
intelligence that the imported TDMs were fraudulently under-invoiced and that
the provisions of the Import Control Order, 1955 had been violated, the
consignment was intercepted by the Directorate of Revenue Intelligence (DRI) at
were started by the DRI. The respondent No.
challenged the investigation under Article 226 before the High Court at Gujarat. The writ petition was disposed of
by directing the DRI to complete the investigation and issue the show cause
notice within two months. (3) Raids were conducted at office and factory
premises of the respondent No. 1 by the DRI and several documents recovered.
of the Managing Director, the Director and Assistant Manager as well as the
clearing agent of the respondent No. 1 were recorded under Section 108 of the
Customs Act, 1962 (referred to as the 'Act'). (4) The TDMs were seized. The
respondent No.1 appears to have filed a Second Writ Application in the High
Court at Gujarat challenging the seizure of the TDMs.
The High Court directed the provisional release of the TDMs against security.
The goods were accordingly released but the investigation continued. (5) On the
basis of the documents recovered and statements under Section 108, a detailed
show cause notice was issued to the respondents on 15th June 1990 alleging
inter alia that the respondent No.1 was liable to pay the difference of duty in
respect of the TDMs calculated at the rate of S $ 343.45 per set instead of S $
250.00 as well as alleging contravention of the Import Control Order.
respondent No.1 replied to the Notice. The Collector gave the respondents a
hearing. (6) The Collector after considering the evidence found that there was
a deliberate mis-declaration of value, manipulation of documents, attempt to
evade payment of full customs duty and attempt to circumvent the Import Control
Regulations by the Respondent No. 1 and its Directors. According to the
Collector, the TDMs imported by the respondent No.1 at S $ 250.00 per set were
of the value of Singapore Dollar 343.45 per set and that the respondent No.1
should have declared the value of the TDMs at Rs.88,34,698/- as against the
declared value of Rs.64,30,847/-. He, therefore, concluded that the respondent
No.1 had sought to evade duty to the extent of Rs.32,03,594.00 and that the
entire consignment was liable to confiscation under Section 111(m) of the Act.
The Collector also held that the TDMs required an import licence and since no
import licence had been produced, the goods were liable for confiscation under
section 111(d) of the Customs Act read with Section 3(2) of the Import and
Export (Control) Act, 1947 and Clause 3 of the Import Control Order, 1955. (7)
Having regard to his findings and the fact that the goods had already been
released pursuant to an order of the High Court, he directed the respondent
No.1 to pay the differential duty of Rs.32,03,594.00 and imposed penalty of
Rs.40 Lakh on the respondent No.1 under section 112(a) of the Act ( as the
redeemable value of the goods) and Rs.5 Lakh each on the Managing Director and
Director of the respondent No.1. (8) The respondent No.1 and its Directors
preferred an appeal before two Members of the Tribunal. (9) During the pendency
of the appeal the Gujarat High Court on a Writ Application filed by the
respondent No.1 passed an order on 26th June, 1992 to the following effect:
Mr.B.B. Naik, learned counsel, waives service of notice.
heard Mr. S.I.Nanavati, learned counsel for the petitioners and Mr. H.M. Mehta,
senior Central Government standing counsel, for the respondents.
have been informed that as against the adjudication order, dated 26th February, 1992, the petitioners have already
preferred an appeal. The only grievance is that respondent No.2 is not
permitting the petitioners to produce the import licence. His grievance could
be ameliorated by directing respondent No.2 to accept the import licence within
two weeks from today and respondent No.2 shall proceed with the matter in
accordance with law. This petition is disposed of in the above terms. Notice is
discharged. No costs." (10) As far as the appeal before the Tribunal was
concerned, on a difference of opinion between the two members as to whether the
order of the Collector should be upheld or not, the matter was referred to a
third Member concurred with the view that the order of the Collector in so far
as it assessed the value of the TDMs at Singapore Dollar 343.45 was wrong.
Consequently, the imposition of differential duty was set aside. On the
question of the violation of the Import Control Order, the Tribunal acted on
the basis of the High Court order and the concession of the departmental
representative that the issue was one which the "original authority"
would have to look into and decide and remanded the matter back to the
Collector with liberty granted to the parties to produce any fresh evidence
before the adjudicating authority in this connection. In view of this order,
the penalty imposed by the Collector on the respondents was also set aside.
appeals were thereafter preferred. No stay having been granted, the order of
the Tribunal directing a re- adjudication of the licensing aspect was taken up
by the Commissioner of Customs on 27th September, 1995. Before the Commissioner,
additional licences were produced by the respondent No. 1. It was noted that
since it was already found by the Collector that the licence covered the goods
in question, and that the issue had not been pursued before the Tribunal, the licences
should be accepted. The order, some what ambiguously, concludes with the
sentence: "However, if the Department now decides not to accept the licences
the party may be given another hearing to argue the merits of the case from the
ITC angle." (12). The first question raised before us by the appellant
relates to the finding of mis-declaration of the value and the evasion of
customs duty. In our opinion, the finding of the Collector that the TDMs
imported from Yamato should be valued at S $ 343.45 instead of S $ 250.00 was
justified in fact and was in keeping with the relevant statutory provisions on
the subject. As for the finding on facts, the relevant and admitted facts are
required to be set out chronologically. (13). The respondent No. 1 had placed
several orders in July, September, October and December 1988 on M/s Mohan Impex
for supply of TDMs. None of the orders mentioned the model or the make of the TDMs.
of the earlier consignments had been obtained by respondent No. 1 from M/s
Mohan Impex @ S$ 343.45 per set.
As far as the consignment in question is concerned, the DRI recovered two
identical proforma invoices bearing the same number, both dated 29.12.98 for
supply of 3000 sets of TDMs. Both were invoices of M/s Mohan Impex but the
price quoted in one was S $ 343.45 per set and the other for S $ 250.00 per
set. The respondents have not been able to explain this duplication of
invoices. (15). The respondent No. 1 then placed an order on M/s Mohan Impex
being Order No.TC-89-004 dated 5th January 1989 for supply of 3000 sets of TDMs
at S$ 343.45 per set. The DRI recovered an identical order bearing the same
number and date placed by respondent No. 1 on Yamato but @ S $ 250.00 per set.
The respondent No. 1's Director admitted in his statement under Section 108
that no order was placed on Yamato on 5.1.89 and this was a fabricated
document. (16.) A letter of credit was established by respondent No. 1 through
the Bank of India in favour of M/s Mohan Impex for supply of "Electronics
components for VCRs, viz. Tape Deck Mechanisms as per order No.TC-80-004 dated 5th January 1989". (17).
not in dispute that till 21st
March 1989, TDMs were
covered by Open General Licences (OGL) under the Import and Export Policy of
April 1988 to March 1991. By public notice dated 21st March 1989 the Import and Export Policy was amended by removing TDMs
from the list of items covered by OGL. Therefore, the import of TDMs after 21st March 1989 required a licence in terms of
clause 3 (1) of the Control Order. The public notice, however, allowed certain
imports of TDMs without licence subject to the fulfilment of conditions
detailed in paragraph 4 of the notice, as under:
In respect of raw materials, components and consumables taken out of Open
General Licence in terms of this Public Notice import under Open General Licence
by eligible importer shall not be permitted except to the extent of irrevocable
letters of credit already opened and established before the date of this Public
Notice for which shipments are made within a period of ninety (90) days from
the date of this Public Notice." (18). The respondents sought to avail of
this exemption. To this end, on 26th May 1989, the respondent No. 1 wrote to
the Reserve Bank of India through the Bank of India stating that it had been
informed by M/s Mohan Impex that the material 'will not be ready for shipment
before July 1989. Since we are urgently in need of the Tape Deck Mechanism to
ensure smooth production, we advised the beneficiary to arrange for immediate
shipment. Accordingly, our beneficiary could find out a Japanese supplier who
is in a position to give immediate delivery'. It was also stated that the
supplier, Yamato had written stating that they were 'holding the goods ready'
and that L/C should be amended accordingly. The implication of this letter is
that Yamato was to supply the same material for which the order had been placed
on M/s Mohan Impex and that Yamato was the agent of M/s. Mohan Impex. (19). Incidentally,
the respondent No.
Director subsequently admitted that the amendment of the L/C had been obtained
on a mis-representation that Yamato had been introduced to the respondent No. 1
by M/s Mohan Impex in May 1995. In fact, the respondent No. 1 and its Directors
were personally known to Yamato and its partners for several years and Yamato
was wholly independent of M/s.
(19-A) The Collector held that the consent of the Bank of India and Reserve
Bank of India to the amendment of the Letter of
Credit by substituting Yamato in place of M/s. Mohan Impex and change in the
Port of shipment in place of origin of the TDMs was obtained by suppression and
mis-representation of essential facts. It was also held that the letter of
credit which was operated for payment of M/s. Yamato was in fact a new letter
of credit and therefore the import of the TDMs from Yamato was not covered by
clause 4 of the Public Notice dated 21st March, 1989.
the Tribunal the advocate for the respondents did not press for the validity of
the letter of credit from January, 1989 and conceded that it may be deemed as
if the letter of credit was opened in May 1989 as held by the Collector.
In view of this, the entire consignment of TDMs required an import licence
under clause (2) of the Import and Export (Control) Act, 1947 and clause 3 of
the Import Control Order, 1955 prior to the import. (20). Returning to the
narration of facts relevant to the issue of valuation. After the issuance of
the Public Notice, there was a purported fall in the declared value of TDMs
from S $ 343.50 to S $ 250.00 per set. Yamato is a Japanese concern.
17.5.1989 Yamato is alleged to have given a fresh proforma invoice to the
respondent No.1 quoting the price in Singapore Dollars per set instead of
quoting the price in yen. As said by the Collector "Due to the change in
the Import Policy, the importers had a special interest in ensuring that the
unit price was brought down so that the quantity of import could be
increased." That this dramatic "fall" in value of the TDMs did
not reflect the real value of the TDMs is borne out by the evidence both
documentary and oral.. (20-A) At the outset it is clear that if the shipment by
Yamato was pursuant to the fabricated order dated 5th January 1989 placed on it, the value declared by it cannot be accepted
as genuine. [See Collector of Customs, Calcutta V. Sanjay Chandiram (1995 (4) SCC 222).] Therefore the value of the TDMs
would have to be determined according to the law applicable. (20 B). Section
14(1) of the Act provides for valuation of goods for purposes of assessment by
reference to the price at which "such or like goods" are ordinarily
sold at the time and place of importation in the cause of international trade.
(20-C) Much of the arguments of the respondents before the Collector, the
Tribunal as well as this Court proceeded on the basis as if it were established
that the TDMs which were to have been supplied by M/s. Mohan Impex were
different from the TDMs in fact supplied by Yamato. It was argued that M/s.
Mohan Impex was to supply TDMs of National Model whereas M/s. Yamato had supplied
VCRs of NEC model. To this end, several documents in connection with the price
of NEC model TDMs were also sought to be relied upon by the respondents. The
basis of the argument was never established and was contrary to the evidence.
the respondent No. 1 utilised the letter of credit to import 500 sets of TDMs
from M/s Mohan Impex @ S$ 260 per set and 3000 sets of TDMs at S$ 250 from
Yamato. The 500 sets from M/s Mohan Impex arrived at Bombay and the 3000 sets from Yamato
arrived at Kandla. No change, however, had in fact been effected in the Letter
of Credit in respect of the nature of the goods for which the letter of credit
was initially opened, namely, "electronics components, namely, Tape Deck
Mechanisms, as per order No. TC-89-004 5189" .
other words, the type and rate of TDMs of S $ 343.45 remained the same. In
availing of the letter of credit, the parties thereto must be taken to have
done so in fulfilment of the original order placed on the Mohan Impex where the
rate mentioned was S $ 343.45 per set. (22). Secondly, Yamato's invoice which
was filed with the Customs authorities also described the TDMs as 'electronic
components for VCRs viz. Tape Deck Mechanisms as per order No. TC/89/004 dated
5.1.89'. As already noted, it was admitted by the respondent No. 1's Director
in his statement under Section 108, that in fact no order had been placed on
Yamato on 5th January
1989 and the only
genuine order was the one placed on M/s Mohan Impex. Since Yamato's supply of
the 3000 sets of TDMs was as per Mohan Impex's order, it must be taken to have
supplied the same goods at the rate of S $ 343.45 per set. (23). Thirdly, that
the TDMs which were supplied by Yamato were the same as those for which the
order had been placed on M/s Mohan Impex is further supported by the statements
recorded under Section 108 of the Act. [See in this connection : Naresh J.
V. Union of India (1996 (83) ELT 258 (SC).] The
respondent No. 1's Director and Assistant Manager confirmed before the DRI in
their statements under Section 108 of the Act that the TDMs which were sent by
Yamato were the same as those for which the orders were placed on M/s Mohan Impex.
Assistant Manager of the respondent No. 1 stated that the order with M/s Mohan Impex
was subsequently transferred to Yamato and not that a fresh order was placed.
Even the Managing Director of respondent No. 1 had this to say: "I also
state that whatever item was entered into contract with M/s Mohan Impex for the
L/C opened with them in January '89 remained same (but for the make) - even in
our fresh contract with Yamato Japan. Thus, there is no material change in our
fresh contract with M/s Yamato." (24). Now, the TDMs supplied by Yamato
bore no marking and the order on M/s Mohan Impex did not mention the model.
the clearing agent of the respondent No. 1 in his statement under Section 108
said: "On the basis of common experience, it is stated that it is a fact
that though importer had been telling the customs at Kandla port that these T.D.M.'s
are not of national G-30, there cannot be any proof of these as it is
undisputed that TDM (Tape Deck Mechanism) of National G-30 is 100% identical to
the ones being now cleared by the importer. I can only say on the basis of my
experience of exclusively handling this item (V.C.R./T.V. and their components)
for some importers and other sister concerns that as per sample drawn and being
submitted to D.R.I. today, it is 100% same and identical to National G-30 but
for only G-30 Marking not being shown on these sets. Anyone in this trade can
also know the same as it is a trade information of such and such
manufacturer." (25). Again the clearing agent stated that the price of the
TDM as shown by respondent No. 1 was unusually low. He said: "I am very
well aware that in past consignments, the same was never so low at S $ 250 per
set. Tape Deck Mechanism has never been passed by me for any importer for any
model. I had told the importer that this value was too low but they stated that
they would manage by showing that these goods were different. The party also
said they would produce some engineer to show that these were different while I
on the basis of my experience told them that these goods did not look different
from what I have been clearing on their behalf. But they said they would try to
bring some engineer." (26). The respondents sought to rely upon an invoice
dated 10th March 1989 passed by NEC to Yamato for which the price was shown at
approximately @ 237.00 S $ per set. The invoice further showed that the
shipment was to be made to India. The
significance of the date was not lost on the Collector who noted that it could
not relate to the shipment in question as admittedly the contract for supply of
TDMs was placed on Yamato by respondent No. 1 only in May 1995. The Collector
also discounted the evidentiary value of two other invoices produced by
respondents in respect of NEC model of TDMs on the ground that they related to
imports of 8 to 10 months after the date of import of the consignment in question.
(27). The Collector on the other hand relied upon earlier invoices showing the
value of TDMs S $ 343.45 per set. There is nothing on record to show that the
earlier invoices did not refer to TDMs of the type supplied by M/s Yamato. The
Assistant Manager of respondent No. 1 had admitted that respondent No. 1 had
effected many shipments of the same TDM (4 to 5 shipments) earlier. (28).
Collector, in the circumstances narrated, correctly determined the value of the
TDMs supplied by Yamato to be "such or like" the goods for which the
order was placed on M/s Mohan Impex within the meaning of S.14 (1) of the Act.
The finding of the Collector is also justifiable under Section 14 (1A) of the
Act. Section 14(1A) provides for the determination of the price in accordance
with rules made in this behalf subject to the provisions of sub-section (1).
The rules which have been framed in this connection are the Customs Valuation
(Determination of Price of Imported Goods) Rules 1988 (hereinafter referred to
as the Valuation Rules). (30). Rule 3 of the Valuation Rules provides for the
determination the method of valuation and states that: "For the purpose of
these rules:- (i) the value of imported goods shall be the transaction value;
If the value cannot be determined under the provisions of clause (i) above, the
value shall be determined by proceeding sequentially through Rules 5 to 8 of
these rules." (31). Rule 4 sub-rule (2) provides that the transaction
value of imported goods shall be accepted. The transaction value has been
defined in sub-rule (1) of Rule 4 as the price actually paid or payable for the
goods when sold for export to India subject
to certain adjustments with which we are not concerned. ( 32). Yamato supplied
the TDMs "as per Order No. TC/89/004 dated 5.1.89" which was the
order placed on M/s Mohan Impex for supply of TDMs at S $ 343.45 per set. The
"price payable" for the goods remained S $ 343.45 per set. The
transaction in this case even at the time of import referred to the order
placed on M/s Mohan Impex. The price payable in respect of that transaction for
the TDMs was S $ 343.45 per set. It may, therefore, be stated that the
transaction value was S $ 343.45 per TDM set within the meaning of Rule 3.
(33). The reasoning of the two Members of the Tribunal who set aside the order
of the Collector proceeded on the fallacious premise that the Collector could
not 'adopt two different dates, one from the date of L/C and other from the
date of the valuation'. They also relied on the invoice dated 10th March 1989 issued by NEC as well a statement
of the Collector quoted out of context to come to the conclusion that it was
evident that the value of TDMs had substantially fallen. (34). The two Members
misread the order of the Collector completely. The Collector had referred to
the date of L/C only in connection with applicability of paragraph 4 of the
Public Notice and not in connection with the valuation at all. They also
misconstrued the statement of the Collector relating to the fall in prices. What
he had said was that the fall in price of TDMs was manipulated because of the
change in the import policy by which the import of TDMs was restricted
considerably. (35). We would, therefore, uphold the finding of the Collector
that the unit price of the TDMs for S $ 343.45. as also his further order
regarding payment of differential duty. (36).
second issue raised by the appellant before us is whether the question of
acceptability of the licences covering the import of the TDMs should have been
remanded by the Tribunal. According to the appellant, the import of TDMs
clearly contravened the Import and Export (Control) Act, 1947 and the Import
Control Order 1955. It is submitted that the import of the TDMs having been
made without a licence there was no question of submission of a licence
subsequent to the import. According to the respondents the appellant should not
be allowed to raise the issue because the appellant had participated in the
proceedings before the Commissioner after the remand and that the hearing was
proceeding. (37). We accept the submission of the respondents, not on the
ground put forward but because the appellants representative before the
Tribunal had conceded that the issue should be decided by the original
authority in terms of the order of the High Court. Nevertheless, we would like
to clarify the scope of the issue before the adjudicating authority. (38). It
is not clear on what basis the High Court was persuaded to allow the import licence
to be produced subsequent to the importation of the goods. However in directing
the matter to be proceeded with in accordance with law, it is clear that the
High Court did not decide finally whether the licences could, at all, be relied
upon by the respondent No.
avoiding their liability for contravention of clause (3) of the Control Order.
The adjudicating authority will, therefore, have to decide (i) whether in law,
a licence subsequently produced in respect of items already imported is
acceptable in law, (ii) If so, whether the licences in fact covered the items
imported and are otherwise valid.
brings us to the question of penalty. It is to be remembered that the Collector
had imposed a penalty of Rs. 40 lakhs on the respondent No. 1 as being
equivalent to the redemption value of the TDMs which were not available for
confiscation and Rs. 5 lakh each on the respondent No.
Directors. The penalty was a composite one in the sense that it was imposed
both on account of violation of the Import Control Order and because of mis-declaration
of value and evasion of customs duty. The majority set aside the penalty on the
respondent No. 1 because they negatived the finding of under valuation and
evasion and also in view of the order of remand. It is not possible to
apportion the quantum of penalty between the contraventions found.
although we have upheld the Collector's finding on the issue of mis-declaration
and evasion, the question of quantum of penalty will have to be re-determined
by the Collector after determining the issue on the licensing aspect. (40). We
make it clear that there was no finding by the Tribunal that the penalty
imposed was unreasonable.
other hand, the dissenting Member who had opined against the remand, had held,
in our opinion correctly, that in the circumstances of the case the quantum of
the penalty was justified. (41). The appeal is accordingly partly allowed. The
decision of the Tribunal is set aside in so far as it relates to the finding on
mis-declaration and evasion. The order of the Collector directing payment of
differential duty is affirmed . On the question of the violation of the Import
Control Order, the adjudicating authority will decide the matter in the light
of the questions earlier framed. Depending on his decision the quantum of
penalty will thereafter be determined by the Collector in the light of the
findings in this judgment.
respondents will pay the costs of the appeals to the appellant assessed at