Fashion Accessories Vs Commissioner of Customs (CESTAT Ahmedabad)
CESTAT Ahmedabad held that penalty duly imposable for mis-classification of export goods with the intent of claiming higher incentives under MEIS Scheme.
Facts- The exporter, M/s. Fashion Accessories, had classified goods i.e. Quilts fitted with cotton/polyester exported by them under two different eight digit HS Codes ‘94049019’ & ‘94049099’.
Department believed that the exporter had knowingly and consistently misclassified their products under CTH 94049099 from ports other than Nhava Sheva to fraudulently avail higher rate of MEIS benefits.
A wilful “decision” to misclassify the goods with intent to wrongfully avail undue MEIS benefit was as per the department a wilful misstatement for invoking provisions of Section 28AAA of the Customs Act, 1962. Thus, reversal of benefit was done and penalties were imposed on persons involved.
Conclusion- Held that it was also agreed in the above testimonial evidence recorded under Section 108 of the Customs Act, 1962 that the wrong classification was resorted to claim higher incentives under MEIS Scheme. Thereafter, the partner also made voluntary payment as per his stated 06.07.2021 against excess availment of MEIS benefit on account of mis-classification. All the above statements recorded under Section 108 are admissible evidence and are sufficient evidence too, in overall facts of the matter. Department in these circumstances including that the appellant had in some other ports classified the goods correctly, (thereby giving impetus to the notion of the department that as found out in their intelligence and investigation), has submitted that the same was done with deliberate intent to avail excess benefit of MEIS Scheme.
Held that the benefit having been reversed indicates wrongful use of MEIS Scheme and the conduct of differential treatment to same exports at different ports justifies the penalty as has been imposed by the department through well reasoned order of the Commissioner of Customs, Kandla, which is impugned before us.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The matter in this case pertains to alleged exports of quilts containing cotton. Polyester by claiming admittedly wrong classification and consequently wrong MEIS benefits. During the course of investigation, the Additional Director General Foreign Trade, DGFT, New Delhi vide letter F. No. DRI/AZU/CI/ENQ-55(INT-09)/2020 dated 15/7/2021 was requested to cancel/suspend/restrict the MEIS Scrips/licenses issued to M/s. FASHION ACCESSORIES (FA for short hereinafter) by the department to the extent of misuse of such MEIS Scrips/licenses by mis-classification of their export goods in contravention of the relevant provisions of Foreign Trade Policy and the Customs Act, 1962. Accordingly, the Deputy Director General of Foreign Trade, DGFT, New Delhi too issued Show Cause Notice bearing F. No. 5/MISC-1/AM22/EPS-I/LA dated 25/8/2021 under Section, 9, 11(2), 11(3) read with Section 13, 14 and 17 of Foreign Trade (Development & Regulation) Act, 1992 to M/s. FASHION ACCESSORIES which was adjudicated vide DGFT order dated 12.04.2023 against the party, but it is stated to have been reversed in appeal under that Act.
2. In the instant case, it is not disputed that the exporter M/s. FASHION ACCESSORIES had themselves classified the same goods i.e., Quilts fitted with cotton/polyester exported by them under two different eight digit HS codes 94049019″ & 94049099″. It is pertinent to mention that the Shipping Bills filed by the said exporter are self-assessed and therefore, the classification of the goods exported had also been assessed by them under two different HS codes, “94049019” & “94049099”. The contention of the exporter that they had inadvertently classified the goods under wrong CTH 94049099 in respect of Quilts fitted with cotton/ polyester did not appear to be proper to the department, as M/s. FASHION ACCESSORIES they were well aware about the correct classification of their product “Quilts” which were already being exported by them under correct CTH 94049019 from Nhava Sheva Sea Port at about the same time. M/s. FASHION ACCESSORIES also mentioned two different CTH i.e., 94049019 and 94099099 for the same products Quilts in their export invoices filed with the respective shipping bills and presented to the Customs Authorities. Further, Shri Jile Singh, Manager (Export) in his statement dated 15.09.2020, admitted that as per instruction from the management (Shri Anoop Thatai), the export product Quilts was classified under two different CTHs, as also informed by Shri Pradeep Arora Manager (Shipping & Logistics). Shri Pradeep Arora in his statement dated 15.09.2020 also agreed with the facts stated by Shri Jile Singh. It therefore appeared to the department that Shri Anoop Thatai, partner of M/s. FASHION ACCESSORIESwere aware that their firm had exported Quilts fitted with cotton/ polyester and had knowingly and consistently misclassified their products under CTH 94049099 from ports other than Nhava Sheva to fraudulently avail higher rate of MEIS benefits. Therefore, department proposed even penal action against both the managers.
3. Shri AnoopThatai, partner of M/s FA in his statement recorded under Section 108 of the Customs Act, 1962 on 15/16.09.2020 and 06.07.2021 agreed and accepted that the classification of the export product, Quilts fitted with Cotton, polyester, in their export documents under HS code “94049099″ was not correct as the same were to be classified under CTH 94049019. He also agreed that based on the wrong classification, they had wrongly claimed higher rate of incentives under MEIS Scheme. Shri Anoop Thatai, in his statement dtd.6.7.2021 also produced the details of voluntary payment made by them against excess availment of MEIS benefit on account of mis-classification.
4. Further, in the MEIS application, the Exporter was required to make a declaration in form ANF-3A that, “I hereby declare that the Exported Product/goods and markets are covered under Appendix 3B and the exports, for which this application is being filed, are made on or after the respective admissible date of export, as indicated in relevant Appendix”. But, the declaration made by the Exporter in the MEIS application was apparently false, as per the department which amounted to wilful misstatement since the exported goods were correctly classifiable under CTH 94049019, where MEIS benefit is less as compared to CTH 94049099 (mis-declared), as per Appendix 3B of Handbook of Procedures. Therefore, it appeared that the Exporter availed MEIS Scrip by way of wilful misstatement in the documents submitted to both, Customs and DGFT authorities in contravention to the provisions of Customs Act, 1962 and the Foreign Trade (Development and Regulation) Act, 1992.
5. A wilful “decision” to misclassify the goods with intent to wrongfully avail undue MEIS benefit was as per the department a wilful misstatement for invoking provisions of Section 28AAA of the Customs Act, 1962.
6. Vide Finance Act, 2011 with effect from 08.04.2011 “Self-Assessment has been introduced under the Customs Act, 1962. Section 17 of the said Act provides for self-assessment of duty on import and export goods by the importer or the exporter by filing a bill of entry or shipping bill as the case may be, in the electronic form, as per Section 46 or 50 respectively. Thus, under self-assessment, it is the importer or exporter who will ensure that he declares the correct classification, applicable rate of duty, value, benefit of exemption notification claimed, if any, in respect of the imported/exported goods while presenting Bill of Entry or Shipping Bill. In the present case, M / s FA have deliberately contravened the above said provisions with an intention to wrongfully avail excess MEIS benefit fraudulently.
7. Whereas in the inquiry conducted, by the department it was revealed that the M/s. FA, Gurgaon by way of willful mis-statement, mis-representation and suppression of facts as regards the classification of goods, presented the subject goods for export before the designated authority of Customs with intent to avail fraudulent benefit of MEIS subsequently. In view of the above, it appeared to the department that the Exporter having indulged in fraudulent export of goods by mis-declaring the actual classification of goods so exported, which as per department fall within the ambit of ‘illegal export’ as defined in section 11H(a) of the Customs Act, 1962 in as much as the same was in contravention of various provisions of Customs Act, 1962, Foreign Trade (Development and Regulation) Act, 1992, Foreign Trade (Regulation) Rules 1993 and Foreign Trade Policy.
8. Further as admitted in his statement dated 15.09.2021, Shri Jile Singh, Manager (Export) and Shri Pradeep Arora, Manager (Shipping & Logistic) of M / s Fashion Accessories willfully mis-declared the classification of goods in the export documents viz. Shipping Bills, invoices, packing list, presented by M/s Fashion Accessories before the Customs authorities as per direction and guidance of Shri AnoopThatai, partner of M / s Fashion Accessories, with an intent to avail undue benefit of MEIS scheme and on account of such misclassification of exported goods, excess export benefits under MEIS Scheme had been availed by/s. Fashion Accessories, Gurgaon. Therefore, it appears to the department that Shri AnoopThatai, partner, Shri Jile Singh, Manager (Export) and Shri Pradeep Arora, Manager (Shipping & Logistic) of M/s. Fashion Accessories, Gurgaon had knowingly made, signed or used the declaration, statements and/or documents and presented the same to the Customs authorities, which were incorrect in as much as they were not representing the true & correct classification of the exported goods, and have therefore rendered themselves liable for penalty under section 114AA of the Customs Act, 1962. It further appeared to the department that Shri Anoop Thatai, partner, Shri Jile Singh, Manager (Export) and Shri Pradeep Arora, Manager (Shipping & Logistic) of M/s. Fashion Accessories, Gurgaon had consciously and deliberately dealt with the goods which they knew or had reasons to believe were liable to confiscation under the provisions of Section 113(i) of the Customs Act, 1962 in respect of the exported goods and Section 111(m) and 111(o) of the Customs Act, 1962 in respect of the goods imported by availing the exemption under MEIS Scheme and such acts &omissions on the part of Shri Anoop Thatai, partner, Shri Jile Singh, Manager (Export) and Shri Pradeep Arora, Manager (Shipping & Logistic) of M / s Fashion Accessories, Gurgaon rendered themselves liable for penal action under the provisions of Section 112(a) & (b), 114(iii) and 114AAof the Customs Act, 1962. Since Shri Anoop Thatai, partner, Shri Jile Singh, Manager (Export) and Shri Pradeep Arora, Manager (Shipping & Logistic) of M/s. Fashion Accessories, Gurgaon had allegedly also violated the provisions of Section 17, 46 and 50 of the Customs Act, 1962 which was their duty to comply, but for which no express penalty is elsewhere provided for such contravention or failure, they were also alleged to be liable to penalty under Section 117 of Customs Act, 1962.
8.1 It was also alleged that M / s Fashion Accessories, Gurgaon have transferred/sold the MEIS credit Scrips to other importers. The said importers (a person other than the person to whom the instrument (MEIS Scrips) were issued) had imported the goods by utilizing the said transferred MEIS duty credit scrips, which were fraudulently obtained by deliberate suppression of facts by M / s Fashion Accessories, Gurgaon. The excess/ineligible/wrongly availed duty credit MEIS amount which was transferred to other importers by M / s Fashion Accessories, Gurgaon and subsequently utilized by the said importers, to the tune of Rs.3,77,53,455 was required to be recovered from M/s. Fashion Accessories, Gurgaon under Section 28AAA of the Customs Act, 1962 along with interest under Section 28AA of the Customs Act, 1962. Through common adjudication order Commissioner of Customs, Kandla disposed of the show cause notice by giving following findings:
“I have through all the Show Cause Notices issued to M/s Fashion Accessories & others, their defense submission and record of personal hearing. The main issue to be decided in the present case is whether M/s Fashion Accessories obtained the MEIS licenses by mis-classifying the goods at the time of export to avail/made the other persons avail duty exemption at higher rate or otherwise, at the time of import. In the present case, it is alleged in the show cause notice that first goods were exported by mis-classifying the goods and M/s FA availed License / Scrips from DGFT fraudulently, second the scrips were utilized by themselves and availed duty exemption which is required to be recovered under Section 28(4) of the Customs Act, 1962 and third where scrips fraudulently obtained by M/s. FASHION ACCESSORIES were sold to others and duty under Section 28AAA is required to be recovered from M/s FA. Therefore, for the sake of simplicity, I will discuss in three segments.
Export of Quilt by M/s Fashion Accessories with mis-classifying the goods and fraudulently availment of License / Scrips:
(i) I find that DRI in their investigation alleged that when Quilts fitted with Cotton /Polyester were exported from Nhava Sheva Port, M / s FA correctly classified the Quilts under Customs Tariff Sub-Heading 94049019. Whereas, when the same product Quilts fitted with Cotton/Polyester were exported from the ports other than Nhava Sheva Sea Port, they mis-classified the same product under Customs Tariff Sub-Heading 94049099. Hence, M/s. FASHION ACCESSORIES deliberately utilized two different CTH for export of the same product Quilts for different ports of export. In their statement, they have also admitted this fact of classifying same product i.e., Quilts fitted with Cotton, polyester under two different CTH from different ports, for exports. Hence, M/s. FASHION ACCESSORIES at the time of exports had mis-classified the product i.e., Quilts fitted with cotton/polyester under CTH 9404 9099 to avail higher MEIS @ 5% & 7% of the FOB value as against actual entitlement @ 3% under correct CTH 94049019, by deliberate misrepresentation and willful mis-statement.
(ii) The Noticee submits that they had bonafidely classified the Quilts and believed and still believe that the same are classifiable under Tariff Item 94049099 of the Customs Tariff based on their understanding of the entries of the Customs Tariff and ITC(HS) and the legal advice received. I find that during the investigation it was noticed that M/s. FASHION ACCESSORIES used two different CTH for the same product they exported; while exporting from Nhava Sheva Port, they used CTH 94049019 and for the ports other than Nhava Sheva Port, they used the classification 94049099. In this scenario, how the claim that they bonafidely classified the quilts under 94049099 CTH cannot be taken fully into consideration. Therefore, I find the contention raised by M/s. FASHION ACCESSORIESnot sustainable.
(iii) The Noticee submits that while declaring goods during export, the department did not question about the classification and if they were not correct, why their export was allowed. I find that Noticee is not aware about Section 17 of the Customs Act, 1962. In the show cause notice, it is also clearly put forth that under the self-assessment era, they have to declare the true facts before the Customs. As soon as it came into knowledge of the department, DRI investigated the matter and found that they have mis-declared the description of goods while exporting goods and availed scrips and wrongly claimed higher rate of MEIS Incentive @5% & @7% against the applicable rate @3%. Thus, I do not find any veracity in taking shield under the custom department for the mistake done on their part.
(iv) The Noticee submits that DGFT after perusing the ANF 3A form wherein the full facts have been disclosed and all the documents enclosed therein, granted the MEIS benefit to them. No material fact has been hidden from the competent authorities. I find that the said contention is related to DGFT. Regarding obtaining of scrips, DGFT has already issued Show Cause Notice and same has also been adjudicated wherein scrips have been cancelled. As per the records available, M/s. FASHION ACCESSORIES has not filed any appeal against the said OIO issued by DGFT which clearly infers that they fraudulently availed the scrips (MEIS License) by mis-declaring the export products for claiming higher incentives.
(v) The Noticee M/s. FASHION ACCESSORIES placed reliance on the judgment of the Hon’ble Supreme Court in the case of Northern Plastic Ltd. v Collector of Customs & Central Excise, 1998 (101) ELT 549 (SC), wherein the Hon’ble Apex Court held “that description of goods given correctly and fully in Bill of Entry/classification declaration and the appellant laying claim to some exemption, whether admissible or not, is a matter of belief of assessee and does not amount to mis-declaration”. On going through the said judgment, I found that the said case was actually not of any mis-declaration and at the initial stage, it was found that the importer of the said case correctly classified the goods. Thus, facts of the said case is different from the facts of the present case. In view of this, I find the said judgment not relevant for the present case.
(vi) Further, M/s. FASHION ACCESSORIES relied upon the case of CCE Vs Pioneer Scientific Glass Works 2006 (197) ELT 308 (SC), wherein the Hon’ble Supreme Court noted that while exporting the goods, all the relevant facts are known both to the exporter and the department regarding the classification of the exported goods unless and until proved contrary. The Hon’ble Court held that “when assessee disclosed all relevant facts and where facts are already known to both parties, omission by one to do what he might have done by itself does not render or amount to suppression of facts.” On going through the said judgment, I find that the said case law defines suppression, however, in the present case, M/s. FASHION ACCESSORIES has willfully mis-stated the classification of the goods exported by them to avail the higher amount of incentive. Hence, I find the cited case law not applicable for the present case.
(vii) The Noticee further relied upon the decision of Hon’ble Supreme Court in the case of Hindustan Steel Ltd Vs State of Orissa reported in 1978 ELT 159, wherein it was held that:-
“Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law and was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation.”
The above judgment will not apply for the present case as the Manager (Shipping & Logistics) of M/s. FASHION ACCESSORIESand Shri Anoop Thatai, one of the Partner of M/s. FA, during the course of recording of statement at the time of inquiry, have accepted their mistake and agreed that classification adopted by them was wrong. The relevant part of the statement recorded of the Manager (Shipping & Logistics) of M/s .FA and Shri Anoop Thatai, one of the partners of M/s. FASHION ACCESSORIES is produced hereunder:
Statement of Shri Pradeep Arora, Manager (Shipping & Logistic) of M/s. Fashion Accessories, recorded under Section 108 of the Customs Act. 1962 on 15.09.2020:
“On being further asked as to why quilt was classified under CTH 94049099 in shipping Bill No.3848073 dtd. 29.03.2018, he stated that it was a mistake. On being asked that the correct classification of quilt was 94049011 or 94049019, he stated that he agreed that quilt should be classified under CTH 94049011 or 94049019.”
Statement of Shri AnoopThatai, Partner of M/s. Fashion Accessories. recorded under Section 108 of the Customs Act, 1962 on 15.09.2020 and 06.07.2021:
(viii) On being asked whether he agreed that they were mis-classifying of their export products ie. Quilt under CTH 94049099 to get the higher rate of incentive i.e. MEIS, he stated that he was not aware of the said error, when DRI initiated inquiry against his firm in respect of classification of quilt, he reviewed the classification of his product and found that the export of quilt under CTH 94049099 was incorrect and he immediately changed their classification and paid the excess amount availed due to the misclassification.
(ix) As per the export documents, M/s FA defined their goods as:
“Quilt: two layers of cloth filled with padding/filling- cotton fill, polyester fill, etc. held in place by functioned stitched.
It does not have any opening.”
(x) Further, the Customs Tariff Heading 9404 reads as under:
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