Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
PETITIONER:
COLLECTOR OF CUSTOMS
Vs.
RESPONDENT:
M/S.TELEVISION & COMPONENTS LTD. AND ORS.
DATE OF JUDGMENT: 24/02/2000
BENCH:
S.P.Bharucha, Ruma Pal
JUDGMENT:
RUMA PAL, J.
(1) 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 Kandla Port.
Investigations were started by the DRI. The respondent No.
1 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.
Statements 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.
The 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
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:
"Notice. Mr.B.B. Naik, learned counsel, waives
service of notice.
We heard Mr. S.I.Nanavati, learned counsel for the
petitioners and Mr. H.M. Mehta, senior Central Government
standing counsel, for the respondents.
We 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.
The 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. (11).
These 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
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.
Each of the earlier consignments had been obtained by
respondent No. 1 from M/s Mohan Impex @ S$ 343.45 per set.
(14). 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).
It is 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
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.
1’s 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.
Mohan Impex. (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.
Before 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.
(19-B) 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.
Yet on 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
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. (21).
Firstly, 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" .
In 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.
Sukhawani 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.
The 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.
Interestingly, 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
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).
The 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.
(29) . 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;
(ii) 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
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).
The 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.
1 for 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.
(39). This 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.
1’s 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
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.
Therefore, 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.
On the 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.
The respondents will pay the costs of the appeals to the
appellant assessed at Rs.5000/-.