CESTAT Upholds Confiscation & Penalties for Diversion of Imported Fabrics

Himachal Fashion Private Limited Vs Commissioner of Customs (CESTAT Delhi)

The recent decision of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in the case of Himachal Fashion Pvt Ltd versus Commissioner of Customs (CESTAT Delhi) addresses the issue of diverted imported fabrics. The appellant, Himachal Fashion Pvt Ltd, faced penalties and confiscation under the Customs Act for allegedly selling fabrics meant for export in the open market. This article provides a detailed analysis of the case and the tribunal’s decision.

Detailed Analysis

The case revolves around the import of fabrics by Himachal Fashion Pvt Ltd under an Advance Authorisation for export of garments. Allegations arose that the imported fabrics were diverted for sale in the open market instead of being used for manufacturing export products, violating the terms of the authorization. Investigations by the Directorate of Revenue Intelligence (DRI) led to the seizure of imported goods and subsequent penalties imposed on the appellant.

The appellant contested the penalties, arguing that they had fulfilled their export obligations and were unfairly denied the opportunity for cross-examination during the proceedings. However, the tribunal found that the appellant failed to cooperate with the investigations and failed to provide evidence to contradict the findings of the adjudicating authority.

The tribunal upheld the penalties and confiscation, citing evidence of diversion presented by the Department’s Authorized Representative. Statements from various individuals, including brokers and transporters, supported the allegation that the imported goods were diverted to the open market.

Furthermore, the tribunal rejected the appellant’s claim of completed export obligations, noting a lack of cooperation and evidence to substantiate their defense. The tribunal also found no merit in the appellant’s argument regarding undervaluation of imports, upholding the enhanced values determined by the authorities.

Conclusion

In conclusion, the CESTAT Delhi upheld the penalties and confiscation imposed on Himachal Fashion Pvt Ltd for diverting imported fabrics meant for export. The tribunal found sufficient evidence of diversion to the open market, supported by statements and investigative findings. Despite the appellant’s claims of fulfilled export obligations and procedural irregularities, the tribunal affirmed the decision of the adjudicating authority. This case serves as a reminder of the importance of compliance with customs regulations and the consequences of diversionary practices in international trade.

FULL TEXT OF THE CESTAT DELHI ORDER

The present 4 appeals have been filed by M/s Himachal Fashion Pvt Ltd. (previously known as M/s. Candex Chemical Fibres Company Pvt. Ltd. and hereinafter referred to as the appellant) against the Order-in-Original No. 12/2020/ M . K.S./Pr. Commr/Import/ICD/TKD dated 03.06.2020 wherein benefit of Customs Notification No. 99/2009 dated 11.09.2009 was denied along with confiscation of fabrics imported and imposition of penalties. The other three appeals are also filed by the co­noticees against the same impugned order and hence are being taken up together for disposal.

2. The brief facts of the case are reproduced for ease of The appellant obtained an Advance Authorisation for export of garments under the category of textile general and were entitled to import raw material which was to be used in the manufacture of the export products. On specific intelligence that fabrics imported under the above Advance Authorisation were being diverted by the importer for sale in the open market, search was conducted by DRI officials on 15.10.2013, and imported goods were seized, on the reasonable belief that there was violation of condition no. 14 of the Advance Authorisation No. 3010093690 dated 07.05.2013 which indicated the factory address for the processing of the imported raw material as Baddi, HP. Subsequently, investigations were conducted and statements were recorded. On conclusion, show cause notice dated 01.04.2014 was issued, and thereafter a corrigendum dated 11.05.2015 was issued. A second show cause notice dated 06.06.2018 was issued. Both the notices were adjudicated by the impugned order. Being aggrieved by the impugned order, the appellants have filed the appeals before the Tribunal.

3. Learned Counsels appeared for Shri Ajay Kumar Goyal and Shri Pawan Kumar Seth and the learned Authorised Representative for the department. As no one has appeared for the appellant and Shri Rakesh Goyal, we proceed to decide the case based on the appeal memorandum.

4. We note that that the appellant, in the appeal memorandum has submitted that the export obligation of the Advance Authorisation had been duly discharged and the appellant had applied to DGFT for their EoDC. It has been also submitted that the adjudicating authority has not considered their defense nor any opportunity was provided to them to cross examine the persons whose statements had been relied upon. Consequently, there is violation of principles of natural justice. The Appeal memorandum has relied on the judgment of Supreme Court in the case of Andaman Timber Industries vs Commissioner of Central Excise, Kolkata II [2015 (324) ELT 641 (SC). And Civil Appeal No. 2216 /2000 Order dated 17.3.2005 [2005 (187) ELT A 33 (SC)]. It has been further submitted in the Appeal memorandum that cross examination was permitted of some of the witnesses relied on for the notice dated 01.04.2014. However, no cross examination was permitted with regard to the witnesses figuring the notice dated 06.06.2018. The Appeal memorandum goes on to state that there is no evidence that goods were not found in their custody. The goods were found in the appellant’s custody in their Ludhiana factory, from where these goods were sent in lots for processing in their factory in Baddi.

4.2 In the appeal filed by Shri Rakesh Kumar Goyal, the Director of M/s. Himachal Fashion Pvt. Ltd. it has been stated that the imposition of penalty on him is based on the statements given by Shri Sunil Kumar Goyal and Shri Ajay Kumar Goyal are clearly erroneous and have no evidentiary value.

4.3 The learned Counsel appearing on behalf of Shri Ajay Kumar Goyal, Director of M/s. Fever India Ltd. submitted that they were engaged in the business of manufacturing of jeans from the imported fabrics and then re-warehoused at BLR Warehouse at Samalkha. They sold fabrics to the appellant, under an Agreement dated 19.8.2013. The learned counsel submitted that on 18.1.2014 and 20.1.2014, he had been forced to record his statement under duress, and was also forced to deposit Rs.52,04,253/- even though the import was made by the appellant viz., M/s Candex Chemical Fibre Co. Ltd. under Bill of Entry No. 009152 dated 12.09.2013. Further, the learned counsel contended that penalty under section 114AA of the Customs Act, 1962 could not have been imposed on the appellant. The learned counsel stated that duty cannot be demanded from Shri Ajay Goyal, hence the impugned order regarding the appropriation of Rs.52,04,263/- was incorrect. The learned counsel relied on several decisions to submit that it is established principle of law that duty cannot be demanded jointly or severally.

4.4 The learned Counsel appearing for Pawan Kumar Seth, Manager of Puneet Enterprises stated that his role was restricted to the instructions given by the owner and he had purchased the goods from local market from Mr. Ajay Goel in cash and therefore, imposition of penalty under Section 117 of the Customs Act is bad in law. He relied on the following decisions:

1. M J Joshi vs CC, Chennai [2010 (258) ELT 460 (Tri­-Chennai)]

2. M Renganathan vs CC, Chennai [2009 (235) ELT 860 (Tri-Chennai)]

3. Bhola Singh vs CC [1993 (66) ELT 105]

In the light of these submissions, impugned order is prayed to be set aside and appeals are prayed to be allowed.

5. Learned Authorised representative appearing for the department submitted that the impugned order had in detail discussed the modus operandi used by the appellant for diverting the imported goods into open market without using the same in export goods. The Authorized Representative of the Department has made the following submissions.:

Diversion to Open market of live Bs/E:- The learned Authorized Representative submitted that the imported goods were diverted into open market, without using the same in export goods, as has been confirmed by the Joint Excise & Taxation Commissioner (IT & Enf), Himachal Pradesh, who vide his letter no. 2-5/201 1-EXN-Comp.C-Barrier. Data-Vol-II-17940 dated 15-06-2015 (which is RUD-84 to SCN dt.6-6-18) stated that no trucks loaded with the imported fabrics has ever crossed the border and never reached their declared manufacturing site at Plot No. 62, EPIP, Jharmajri, Baddi as per the condition sheet attached to the said Advance Authorization issued to the importer during the period 01-05-2013 to 31-12-2014. As regards the Live Bill of Entry No. 3404857 dated 30-09-2013, the learned Authorized Representative contended that on 05-10-2013, one container No. HJCU 1676116 pertaining to Bill of Entry No. 3404857 dated 30-09-2013 of knitted fabric imported under Advance Authorisation was found at the premises of M/s. Hariom Textiles, Gandhi Nagar, Delhi at D-15/2, Okhla Industrial Area, Phase-I, New Delhi. The knitted fabrics rolls contained in the said container were shifted into three trucks of M/s. Ahuja Transport Company and sold to M/s. Hariom Textiles, Gandhi Nagar and delivered at the premises of the said buyer at Gandhi Nagar, Delhi. The impugned goods pertaining to B/E no 3404885 dt. 30- 09-2013 (Container number SEGU 4328954) were found in the office premises of the importer i.e. 851, Industrial –A, Ludhiana which proves that the goods were not delivered at the premises of as per the Advance Authorization where the said material was required to be processed i.e., Baddi (H.P.). Further, the Authorized Representative submitted that the goods imported by the appellant under the said authorisation prior to 30.09.2013 were not found at the notified premises as mentioned at Sl No. 14 of the condition sheet of the advance authorisation or at any factory / godown premises mentioned in the IEC. The panchnama dt 7-10-2013 drawn at the said premises also shows that no goods were found. He further stated that thus all the Bs/E where goods have been seized for which demand has been raised in the Annex A to Show Cause Notice dated. 06-06-2018 have been accounted for to prove that the impugned goods have been diverted. As regards the past consignments, the learned Authorized Representative submitted details of Past Bs/E and stated that the imported goods were diverted into open market, without using the same in export goods, as was evident from the fact that the appellant colluded and connived with Shri Manish Suneja to act as his partner in the offence in the disposal of the imported goods in open market at market rates. With regard to the ex-bond B/E No. 09152 dated 12.09.2013, the learned Authorized Representative submitted details of the impugned goods which were imported by M/s Fever India Ltd. vide BE No. 2864292 dated 31.07.2013, and were re-warehoused and subsequently the same goods were cleared by the appellant (Candex Chemical Fibres Co. Pvt. Ltd.) duty free vide B/E No. 09152 dated 12.09.2013 on the strength of Advance Authorization No. 3010093690 dated 07.05.2013. After clearance, the subject goods had been delivered at Greater Kailash, Delhi and Karol Bagh, Delhi from the godown and place of M/s Rohit Cargo Movers. From the above, it is evident that these goods have not been delivered to the appellant’s premises at Baddi (HP) which is the actual user factory. In view of the overwhelming evidence, he prayed that the appeal may be dismissed.

6. We have considered the submissions made by the Authorized Representative of the Department, and the learned counsels appearing for two co-noticees. At the outset we take note of the facts that no one appeared on behalf of the appellant and Sh Rakesh Goyal, Director of the appellant. However, Sh Ajay Kumar Goyal and Sh Pawan Kumar Seth were represented by their Counsels. It is also pertinent to note that the appellant and Shri Rakesh Goyal, Director of the appellant did not cooperate with the investigations, did not respond to summons, and also did not accept the summons for recording of his statement in the Central Jail, Ludhiana. The modus operandi adopted by the appellant, the active role of Shri Rakesh Goyal to defraud the Government have been brought out clearly by the statements of Shri Sunil Kumar, the broker and Shri Ajay Kumar Goyal, co­noticee and other statements as discussed in the impugned order.

6.1 We proceed to consider the main argument made in the grounds of appeal in the Appeal memorandum of the appellant regarding denial of cross examination of all the witnesses. We note that the Department had partly acceded to the request for cross examination, and four witnesses were cross examined. However, the appellant has sought cross examination of a greater number of people, which is not justified. We note that neither the appellant nor the Director cooperated with the Department during investigations. They did not voluntarily come forward to assist the investigations to negate the allegations of the Department. They have also not submitted any evidence to contradict the findings in the impugned order. We also note that the adjudicating authority has dealt in a cogent and detailed manner as to why he did not permit cross examination of other witnesses. We are of the opinion that the appellant was merely using cross examination as a tactic to delay the proceedings. In this regard, we note that this Tribunal in the case of M/s Silicon Concepts International Pvt Ltd vs Pr. Commissioner of Customs, in Final Order No. 50963/2019 dated 1.08.20 19 held as follows:

“12. Coming to the aspect of violation of natural justice, it has way back been listed by Supreme Court in Kanungo & Co. Vs. Collector of Customs, Calcutta and others reported in 1983 (13) E.L.T. 1486 (S.C.) wherein it was held that principles of natural justice do not require that where the show cause notice set out of the material on which the Customs Authorities had relied and it was for the appellant to give a suitable explanation, persons who had given information should be examined in presence of the appellants or should be allowed to be cross-examined by them on the statements made before the Customs Authorities. It was clarified that formal cross-examination was procedural justice and principles of natural justice did not require that there should be a kind of formal cross examination. It was held that natural justice certainly includes that any statement of person before it is accepted against somebody else that the person should have an opportunity of meeting it whether by way of interrogation or by way of comments and assailing as the party charged as a firm and reasonable opportunity to see comment and criticisms. The evidence, statement or recorded on which the charge is being made against him the demands and test of natural justice are satisfied. This Tribunal in the case of Popular Carpet Industries Vs. Commissioner of Customs, Mumbai reported in 1996 (84) E.L.T. 244 has held that where a co-noticee did not agree to be examined he cannot be compelled to come as a witness for cross examination. The Hon’ble High Court of Calcutta in the case of Tapan Kumar Biswas Vs. Union of India and others reported in 1996 (63) E.C.R. 546 has held that where the precede would be entitled to intercept the relevant documents they would not be entitled to cross examine any witness.”

Consequently, we are unable to find merit in this submission made by the appellant in the grounds of appeal.

6.2 We now consider the facts of this case in itself. From the submissions of the Authorized Representative of the Department, it appears that impugned goods of all the 3 Live Bs/E where goods were seized for which demand was raised. We also note that the in the impugned order, the adjudicating authority has considered the corroborative evidence viz., the statements viz., Sh Rajeev Mehta, Proprietor of M/s Friends Transport, Shri Kailash Prasad Tekriwal, Prop of M/s Hariom Textiles, the letter dt 15.06.2015 received from Jt Excise and Taxation Commissioner, Himachal Pradesh etc. to arrive at the conclusion that the imported raw material was diverted to the open market. Therefore, we have no hesitation in upholding the conclusion arrived at the impugned order that the impugned goods have not been delivered at the factory premises of the actual user as mentioned in the condition sheet of the Advance Authorization. We now address the demand for the past 7 B/Es. It is brought on record that Shri Manish Suneja had actively connived with the appellant to divert the imported raw materials to the open market. We take note that the Revenue has investigated each consignment and has indicated as to how and where the said consignments were disposed off. This is corroborated by the statements recorded under section 108 of the Customs Act, 1962. Consequently, the findings in the impugned order that the impugned goods have not been delivered at the factory premises of the actual user as mentioned in the condition sheet of the Advance Authorization is upheld.

6.3 As regards the clearance of goods vide the Ex-bond B/E dated 12.09.2013, we note that impugned goods had been imported by M/s Fever India Ltd. vide BE No. 2864292 dated 31.07.2013 which were re-warehoused and subsequently same goods were cleared by the appellant (Candex Chemical Fibres Co. Pvt. Ltd.) duty free vide BE No. 09152 dated 12.09.2013 on the strength of advance authorization No. 3010093690 dated 07.05.2013, which was thereafter diverted to open market. This again is corroborated by several statements and the other corroborative evidences, as discussed in the findings. We have no hesitation to agree with the conclusion arrived at by the adjudicating authority that the impugned goods have not been delivered at the factory premises of the actual user as mentioned in the condition sheet of the Advance Authorization. The Advance Authorization issued to the appellant by DGFT, Ludhiana has been misused to clear the said goods without payment of duty.

6.4 As regards the undervaluation of imports, we find that the impugned order has relied on the declarations filed by the supplier in Hong Kong, wherein the value of the goods imported by the appellant was higher than what was declared by the appellant before the Indian Customs. Consequently, we have no hesitation in upholding the enhanced values as shown in the table below:-

6.5 The benefit of Notification 99/2009-Cus dt 11.09.2009 cannot be extended to the appellant in view of the overwhelming evidence of diversion of imported raw material to the open market. We note that mensrea of the appellant and Shri Rakesh Goyal is established by the fact that raw material imported duty free by the appellant under Advance Authorization to be used in manufacture of RMGs and exported, was, in fact, diverted to the open market. The contention of the appellant that the export obligation against the Advance authorisation was completed stands negated by the letter dt 30.6.2015 issued by DGFT wherein it was stated that for the advance authorization no. 3010093690 dated 07.05.2013, the show cause notice was issued to the party on 29.06.2015. In addition, vide their letter dated 13.08.2015, it was confirmed that demand notice dated 18.11.2014 had been issued. We also note that the appellant has not denied the findings of the investigation. As noted earlier, Shri R K Goyal, failed to appear for recording of statement in spite of many summons. No evidence has been placed before us to negate any of the findings of the adjudicating authority in the impugned order.

7. We have considered the arguments of the learned counsels appearing for co-noticee Shri Ajay Kumar Goyal and Shri Pawan Kumar Seth. We observe that the said goods remained in the custody of Shri A K Goyal, which has been admitted by him in the statement dated 18.01.2014 and 20.01.2014. The goods were sold in open market by Shri A K Goyal. As regards Sh Pawan Seth, we note that he has purchased imported goods from Fever India Pvt. Ltd. without any bill knowing fully well that they have been imported free of duty under advanced authorization. There are statements recorded under Section 108 of the Customs Act admitting their role in the instant case. These statements are not retracted. It is a settled position of law that what is admitted need not be proved. We rely on the decision of this Tribunal in the case of Sangeeta Metals (India)/Arvind Kalidas Shah/Amulakh Shah Vs Commissioner of Customs (Import), Nhava Sheva [2014-TIOL­2970-CESTAT-MUM] held as follows:

“5.2 A confessional statement given before a Gazetted Officer of Customs under Section 108 of the Customs Act is a valid piece of evidence under the Indian Evidence Act, as held by the hon’ble apex Court in Romesh Chandra Mehta vs. State of West Bengal [1970 AIR 940 SC] and a lot of other decisions. Further in K.I. Pavunny Vs. Asst. Collector of Central Excise [1997 (90) ELT 241 (SC)] = 2002-TIOL-739-SC-CUS-LB, the hon’ble apex court held that –

“In a criminal trial punishable under the provisions of the IPC, it is now well settled legal position that confession can form the sole basis for conviction. If it is retracted, it must first be tested whether confession is voluntary and truthful inculpating the accused in the commission of the crime. Confession is one of the species of admission dealt with under Sections 24 to 30 of the Evidence Act and Section 164 of the Code.” The Hon’ble Madras High Court in the case of Govindasamy Raghupathy [1998 (98) ELT 50 (Mad)] and the hon’ble apex court in the case of Systems & Components [2004 (165) ELT 136 (SC)] have held that – “it is a basic and settled law that what is admitted need not be proved”. If we apply the ratio of these decisions to the facts of the present case, the transaction values admitted in the confessional statements of the importer and the commission agent can straightaway be adopted for determination of the value which escaped the assessment and for the demand of differential duty liability. The argument of the appellant that the values contained in the export declarations made before Antwerp Customs should have been taken as the basis for determination of transaction value is not tenable for the reason the actual transaction value is available in the documents retrieved which has also been admitted by the appellant. Therefore, we do not find any infirmity in the adoption of values reflected in the computer printouts and the confessional statements as the basis for demand of differential duty in respect of the 13 B/Es.”

8. Considering all the above, we do not see any reason to interfere with the impugned order. Accordingly, all the four appeals filed by the appellant are dismissed.

(Pronounced in the open Court on 19/03/2024 )