Claim of wrong supply by supplier merely supported by unauthenticated e-mails is unacceptable

Commissioner of Customs Vs Sree Nakoda Enterprises (CESTAT Chennai)

CESTAT Chennai held that claim of wrong supply made by the supplier merely supported by e-mails, the authenticity of which were never proved before the Adjudicating Authority, is unacceptable.

Facts- The assessee-respondent had filed two Bills-of-Entry through their CHA, for the clearance of goods imported from China which were declared as “Polyethylene Laminated in Rolls” under CTH 3921 1900.

Said Bills-of-Entry were facilitated by RMS without assessment and examination. But, however, the unclear description appears to have prompted the Revenue to open the containers which were later examined by the Dock Officers. Only “PVC Flex Fabrics” were found instead of the declared Polyethylene Laminated in Rolls, which attracted Anti-Dumping Duty under Notification No. 79/2010-Cus. dated 30.07.2010.

During adjudication, it appears that the respondent claimed ignorance by throwing the blame on the foreign supplier; that the supplier had sent the wrong consignment to them and thus requested the Commissioner to permit them to re-export the consignment in question.

The learned First Appellate Authority concludes that there was no deliberate misdeclaration, despite the fact on record that the same misdeclaration was repeated in the earlier import, on the part of the respondent and that the Department also did not come out with conclusive evidence to the contrary to the correspondence between the supplier and the respondent.

Conclusion-

The documents sought to be relied upon are nothing but e-mails, the authenticity of which were never proved before the Adjudicating Authority and hence, the presumption in terms of Section 114 of the Indian Evidence Act has to be drawn against the importer. The above discussion, in effect, is that the initial burden has to be discharged by the importer. It is only thereafter that the onus would shift to the Revenue and not vice versa.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed by the Revenue against Order-in- Appeal C.Cus. No. 1278/2012 dated 29.10.2012 passed by the Commissioner of Customs (Appeals), Chennai.

2. Brief facts, as could be gathered from the Order-in-Original and the impugned Order-in-Appeal, are that the assessee-respondent had filed two Bills-of-Entry Nos. 5263238 and 5263239 both dated 22.11.2011 through their CHA, for the clearance of goods imported from China which were declared as “Polyethylene Laminated in Rolls” under CTH 3921 1900. Total invoice value of USD 10530.00 (CIF) and USD 10530.00 (CIF) was also declared.

3. It appears that said Bills-of-Entry were facilitated by RMS without assessment and examination. But, however, the unclear description appears to have prompted the Revenue to open the containers which later on came to be examined by the Dock Officers. It appears that what was found was only “PVC Flex Fabrics” instead of the declared Polyethylene Laminated in Rolls, which according to them attracted Anti Dumping Duty under Notification No. 79/2010-Cus. dated 30.07.2010. It thus appears that the following doubts/suspicion emerged thereafter: –

• Similar Bills-of-Entry were cleared by the respondent declaring the unit price as USD 0.65 and USD 0.60 per kg.
• The Bills-of-Entry under dispute also appeared to be undervalued.
• The net weight of the fabrics imported under both the Bills-of-Entry is 41375.80 kgs. whereas the importer had declared the total net weight of the consignment as 32400 kgs., resulting in an excess import of 8975.80 kgs. of fabrics.
• As per Notification No. 82/2011-Cus. dated 25.08.2011, PVC Flex Films originated from China attracted Anti Dumping Duty (ADD) of USD 0.538 per kg. and as such, the impugned goods are amenable to ADD as per the aforesaid Notification.
• The ADC (Gr-2) in F.No. S.Misc 197/2011-SIIB permitted provisional clearance of the goods covered under the disputed Bills-of-Entry on (i) submission of Bond for the entire value of the goods; (ii) Bank Guarantee for Rs.25,58,316/-towards fine and penalty under Section 112(a) and 114A of the Customs Act, 1962; and (iii) payment of differential duty on the actual quantity of the goods and on enhanced value @USD 1300 per M.T.
• The importer vide letter dated 03.05.2012 stated that they were unable to pay the Bank Guarantee.

4.1 During adjudication, it appears that the respondent through its representative claimed ignorance by throwing the blame on the foreign supplier; that the supplier had sent wrong consignment to them and thus requested the Commissioner to permit them to re-export the consignment in question. It also appears that the respondent-importer, on the same day, requested the Deputy Commissioner of Customs (Gr-2) for clearance.

4.2 The Adjudicating Authority has observed in the Order-in-Original that the respondent, claiming wrong shipment/supply, had also sought for clearance, which did not arise, and thus vide Order-in-Original No. 19327/2012 dated 30.08.2012 (i) rejected the declared description and held the same as “PVC Flex Fabrics” (ii) rejected the declared value of USD 0.65 per kg. under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and redetermined the same at USD 1.30 per kg. (iii) ordered payment of Anti Dumping Duty of Rs.11,14,122/- under Notification No. 82/2011-Cus. dated 25.08.2011 (iv) ordered payment of differential customs duties of Rs.2,80,168/- on the enhanced value (v) ordered confiscation of the goods imported vide the Bills-of-Entry in question in terms of Section 111(l) and 111(m) of the Customs Act, 1962, while also giving an option to redeem the goods on payment of redemption fine of Rs.1,15,000/-under Section 125 of the Act, thereby rejecting the request for re-export of the goods; and (vi) imposed penalty of Rs.13,94,290/- on the respondent under Section 114A ibid.

5.1 Aggrieved by the above Order-in-Original, the respondent filed an appeal before the First Appellate Authority and after hearing, the learned First Appellate Authority has allowed the appeal vide Order-in-Appeal C.Cus. No. 1278/2012 dated 29.10.2012 by accepting the contentions urged on behalf of the respondent. To summarise his findings:

• The documents produced before him, like Purchase Order dated 23.09.2011, clearly described the product.
• Specifications of the product are very clear and hence, prima facie, no fault could be found with the declaration by the respondent.
• The fact of wrong shipment was communicated by the respondent to the supplier on 02.12.2011, which was accepted by the supplier on 05.12.2011, [no such communication/acknowledgement furnished before us by either of the parties]
• Supplier replied per fax dated 08.12.2011 to the effect that the shipment was for another importer. [our observation: but however, details of such another importer could have been very well furnished before Adjudicating Authority / Commissioner (Appeals), which is apparently not done]
• The supplier regretted for the mistake.
• With regard to misdeclaration, it is observed that the packing list and the Bill-of-Lading clearly and correctly mentioned the total gross weight and net weight.
• Excess quantity found during physical examination may be due to wrong supply, for which respondent could not be held responsible as the same was without their knowledge, and the respondent simply went by the declaration made in invoice, packing list and Bill-of-Lading.
• Difference in weight should have been noticed by the steamer agent at the port of loading.
• Department should have considered the genuine mistake and should not have disturbed the valuation [our observation: what is the basis for considering the same as genuine is not forthcoming, but however, when it is clear that there was import of wrong goods, there was wrong weight, which attracted ADD, the same could not be ignored]
• If the Department had acted in a just manner, comparison of both the goods with past clearances would have thrown some light on the genuineness of the mistake.
• Department chose to enhance the value of the past consignment with the present declared description with that of re-determined without conclusively proving that the earlier consignment also was mis-declared. [our observation: when the importer itself had accepted and paid the differential duty, there is nothing for the Revenue to ‘prove’]
• Department failed to issue Show Cause Notice or produced documentary evidence of their allegations or offer a personal hearing and thereby, totally failed to follow principles of natural justice. [our observation: grievance should have been lodged/protested, no such things appear on record]
• Vide letter dated 20.02.2012, the respondent had not accepted the value enhancement for the past clearance and the duty was paid under protest. [our observation: the importer could have filed appeal as payment was never a bar]
• Letter to the Deputy Commissioner, Group-2 clearly states that they accepted wrong shipment by the supplier and the same letter made it clear that the respondent was willing to clear the cargo only if it was allowed without any penal action. [our observation: this is perhaps the second and repeated case of misdeclaration, for which a condition is put by the importer itself thereby pretending innocence]

5.2 The learned First Appellate Authority thus concludes that there was no deliberate misdeclaration, despite the fact on record that the same misdeclaration was repeated in the earlier import, on the part of the respondent and that the Department also did not come out with conclusive evidence to the contrary to the correspondence between the supplier and the respondent. Apparently, no concrete evidence was filed by the importer either before the Adjudicating Authority or even before us. Consequently, the unilateral action taken by the Department in the past clearance was held unsustainable.

5.3 Regarding the present appeal, the learned Commissioner (Appeals) holds that the Department should have allowed re-export, as requested, considering the wrong supply. The sum and substance of the order is that the appeal filed by the respondent-importer was allowed with the direction to the respondent to re-export the goods without any payment of fine and penalty. However, if the respondent was interested in clearing the goods for home consumption as per the request of the supplier, then the order passed by the lower authority would be upheld with modification; the action taken by the lower authority was held to be not legal and proper and the Order-in-Original was set aside, with a direction to the lower authority to issue necessary detention certificate for waiver of demurrage and container detention charges.

6. The above has thus resulted in the present appeal.

7. Heard Shri S. Balakumar, Learned Assistant Commissioner representing the appellant-Revenue and Shri Shravan Kochar, Learned Advocate appearing for the respondent.

8. After hearing both sides, we find that the issue, on the facts and in law, is: whether the order of Commissioner (Appeals) is sustainable?

9. We find that the appellant-Revenue, is aggrieved by the impugned Order-in-Appeal, on the following grounds:-

• There is no specific decision and the directions issued by the Commissioner (Appeals) are in favour of both Revenue and the assessee.
• The Commissioner (Appeals) has decided the case by stepping in the shoes of the Adjudicating Authority, which is violative of Section 2(1) of the Customs Act, 1962.
• The Commissioner (Appeals) erred in granting relief in respect of past clearance, which was not arising out of the order of the Adjudicating Authority against which the appeal was filed by the assessee before him.
• This is a classic case, inter alia, of misdeclaration of import from China which attracted ADD.
• Imported goods liable to and thus confiscated under Section 111(l) and (m) of the Customs Act, 1962.
• The Commissioner (Appeals) accepted the letter from the supplier, the veracity of which was never cross-checked nor remand/report called from Adjudicating Authority.
• Letters per se cannot be a document of any evidentiary value since the letter which was apparently filed before Commissioner (Appeals) was only a print of e-mail and no one knows whether the same contained registered address of the supplier, registration no., telephone no., etc.
• The documents furnished by the respondent before the Commissioner (Appeals) appear to be after-thought since all letters/e-mails, etc., came to be filed after being pointed out, and many days after the consignments were opened for verification.
• Two letters dated 03.05.2012 were filed before different authorities, i.e., Commissioner, requesting for re-export and the other to the Deputy Commissioner accepting the clearance
• for home consumption of the goods covered by the two Bills-of-Entry Nos. 5263239 and 5263238 both dated 22.11.2011 on payment of duties.
• Redemption fine is permissible in respect of dutiable goods and not in the case of prohibited goods, where the authority may or may not offer redemption fine.
• The order of the Commissioner (Appeals) directing the re-export of impugned goods without fine and penalty is not in accordance with the appellate power and Section 125(1) of the Customs Act, 1962.
• Deletion/reducing of penalty under Sections 112(a) and 114A of the Customs Act, 1962 was not legal and proper.
• Interest of the importer is not a consideration for clearing two consignments and hence, Commissioner (Appeals) erred in giving opportunity to the importer, whose interest was to be ascertained.
• Penalty under Section 114A is mandatory in nature.
• The goods in question were never seized and the importer was offered provisional release which was declined by them, and they preferred appeal.
• Adjudication order having been passed, it is incumbent on the importer to pay detention/demurrage charges in terms of statute, for which no authority is empowered to meddle with, which did not depend upon the outcome of their appeal.
• Thus, there was no question of issuing detention certificate for waiver of demurrage and container charges.
• Commissioner (Appeals) seriously fell in error in not appreciating that the assessee participated in the adjudication proceedings, was heard and only thereafter the Order-in-Original was passed and hence, there was no question of violation of the principles of natural justice.

10. Per contra, Shri Shravan Kochar, Learned Advocate appearing for the respondent, supported the findings of the Commissioner (Appeals). He would also contend that the learned Commissioner (Appeals) has given a categoric finding as to there being wrong supply and that the Revenue did not file any evidence to the contrary. His other submissions made orally and, in the synopsis filed, are: –

• Goods were allowed for provisional clearance on execution of Bond & Bank Guarantee, which was not availed.
• Respondent waived Show Cause Notice and participated in personal hearing before the Adjudicating Authority; prayer was made for re-export of goods.
• Order-in-Original was passed and the same was challenged in appeal; case was projected to be a case of wrong shipment.
• Commissioner (Appeals) came to the conclusion on the basis of correspondences that it was the case of wrong supply.
• Further finding of the Commissioner (Appeals) is that the Department did not bring on record any material to contradict the contention of wrong supply.
• If it is a wrong supply, the respondent has not made the goods liable for confiscation by any act of omission or commission attributable to them.
• In any event, no confiscation or penalty could be made in the case of wrong supply.
• They have relied on the following case-law: –

(a) Gopal K. Sapru v. Commissioner of Customs (Airport), Chennai [2007 (213) E.L.T. 689 (Tri. – Chennai)];

(b) J. K. Enterprises v. Commissioner of Central Excise, Delhi-IV [2014 (301) E.L.T. 681 (Tri. – Del.)]

(c)Guru Ispat Ltd. v. C.C.E. [2003 (151) E.L.T. 384 (Tri. – )]

(d) Marmo Classic v. Union of India [2003 (156) E.L.T. 14 (Bom.)]

(e) Seimens Ltd. v. Collector of Customs [1999 (113) E.L.T. 776 (S.C.)]

(f) Sankar Pandi v. Union of India [2002 (141) E.L.T. 365 (Mad.) affirmed in 2018 (360) E.L.T. A214 (S.C.)]

(g) Shree Salasar Tools (HUF) v. Commissioner of Customs, Chennai [Final Order No. 40327/2022 dated 23.09.2022 – CESTAT, Chennai]

Discussion of the finding as to violation of principles of natural justice:

11.1 We find, at the outset, that the impugned Order-in-Appeal insofar as the same relates to violation of principles of natural justice, is not sustainable, for the following reasons: –

• Finding by the learned Commissioner (Appeals) as to violation of natural justice appears to be independent of the pleadings of the importer.
• Nothing was argued before us nor is there any plea on this, in the synopsis filed during the hearing.
• In any case the respondent has categorically admitted in the synopsis filed before us that they
• had waived issue of Show Cause Notice, but they did participate in the personal hearing before the Adjudicating Authority.
• They also admit to have claimed before Adjudicating Authority, to only permit re-export of goods in question, which is also on record.
• The learned Commissioner (Appeals) has extracted the grounds of appeal before him and from those grounds also, we do not see any specific attack made by the respondent as regards violation of principles of natural justice is concerned.
• If there is violation of the principles of natural justice by the Adjudicating Authority, then only the automatic choice for an appellate authority is to direct the Adjudicating Authority to file remand report based on the contentions urged and the documents furnished before Commissioner (Appeals) specifically inviting comments of Adjudicating Authority to the grounds urged.
• The respondent-importer waived the Show Cause Notice voluntarily and also participated in the personal hearing. We do not find any basis in the finding of the Commissioner (Appeals) as to the violation of the principles of natural justice.
• Initial burden is always on the importer, which was never discharged by them; there was apparently not even an attempt to discharge the burden and so there is no question of shifting the onus.
• The importer has been claiming that it is the case of wrong supply; the same was accepted without there being any supporting evidence to that effect, by the Commissioner (Appeals), so there is no question of ‘if’, as contended at paragraph B of the synopsis.
• The importer has argued that no confiscation or penalty can be made in the case of wrong supply and the importer has taken all possible grounds by assuming it is the case of wrong supply. In the synopsis filed, the importer itself doubts the ‘wrong supply’ and contends that the respondent is not responsible in any way for confiscation of the goods in question; their contentions in seriatim at ‘B’ and ‘D’ of the synopsis are contrary.

11.2 In view of the above, it is very clear that the findings as to violation of the principles of natural justice is not sustainable in law and deserves to set aside, which we hereby do.

Discussion on merits:

12.1 The Commissioner (Appeals) has concluded that it was the case of wrong supply made by the supplier for which respondent could not be held liable. This aspect requires a bit of analysis.

12.2 In the first place, ‘wrong supply’ has to be proved, obviously with supporting evidence.

12.3 When irregularity was pointed out by the Revenue to the importer, the importer immediately waived issuance of Show Cause Notice, thereby preventing the Revenue from highlighting the case against them, for which they had to answer, in writing. That situation was very decisively/conveniently avoided by the importer!

12.4 During personal hearing also, they appear to have made only formal representation, again perhaps trying to avoid the possible further probing/digging by the Adjudicating Authority, except requesting for permission to re-export. We do not see any reference to the e-mail sent by the supplier admitting wrong supply anywhere in the order of the Adjudicating Authority, though we are not suspecting the very existence of such e-mail from supplier at that stage. We do not want to guess here, that it was because they were not filed since the only ground urged was for re-export.

12.5 That makes it clear that their claim of ‘wrong supply’ could possibly be an after-thought, which gave birth to the e-mail from supplier! It is thus clear that the Department or at least the Adjudicating Authority never had any chance to address/examine this issue of ‘wrong supply’ and hence, there was nothing for the Adjudicating Authority to prove or disprove on this, at the time of adjudication.

13. When an irregularity was pointed out, instead of discharging the same, the respondent simply evaded by requesting for re-export. So, if we go by the findings of the Commissioner (Appeals), then it was for the Adjudicating Authority to even explain the irregularity, not just ‘wrong supply’. Thus, the burden which was on the respondent was never discharged and hence, there is no question of onus shifting on to the Revenue, to prove, what the learned Commissioner (Appeals) wanted or as desired by the respondent, that there was no ‘wrong supply’.

14.1 The requirements under the burden of proof are covered in Chapter VII of the Indian Evidence Act.

14.2 Under the Indian Evidence Act, 1872, Sections 101 to 103 deal with the burden of proof in general, whereas Sections 104 to 106 deal with the situation where the burden of proof is placed on a specific individual.

14.3 Order 6, Rule 2 of the Civil Procedure Code, 1908, states that the pleading shall only contain important facts that must be shown in a concise form. Evidence is a relative term that refers to a connection between two facts: the fact in dispute (factum probandum), or statement to be proven, and the evidential fact (factum probans), or material corroborating the proposition.

14.4.1 The burden of proof is defined under Section 101 of the Indian Evidence Act: –

“Anyone who wants a court to rule on a legal right or responsibility based on facts he claims must first show that such facts exist. The second Section of the statute specifies that when a person is required to show the existence of a fact, that person shall also bear the burden of proof.

As a result, a person seeking a favourable decision from the court must provide evidence in support of his case, according to this clause. The usual rule is that the party that asserts a truth bears the burden of proof, not the side that denies it.”

14.4.2 Section 102 of the Indian Evidence Act reads as under: –

“Who bears the burden of proof — In a suit or procedure, the person who would fail if no evidence was presented on either side has the burden of proof.”

14.4.3 Section 103 of the Indian Evidence Act states:

“The burden of proof as to any specific fact is with the person who asks the court to believe in its existence unless any law provides that the burden of proof rests with any particular individual.”

14.4.4 Section 104 of the Indian Evidence Act states that the burden of proof is on the person giving the evidence to prove the facts that must be shown in order for the evidence to be admissible, but in any case, we are not examining the issue on hand from the Evidence Act perspective.

15.1 Section 123 of the Customs Act requires burden of proof in certain cases and in the light of our above discussion, the ‘burden of proof’ which has not been defined under the Customs Act, therefore, has to be looked into from the point of the Indian Evidence Act. When a statutory authority entertains a doubt, a Show Cause Notice will be naturally issued based on certain observations and it is for the noticee to satisfy and to prove that the observations / allegations of the statutory authority issuing such Show Cause Notice is wrong. The burden of proof, therefore, is always there on the noticee initially, which has to be discharged in the first place.

15.2 A cumulative reading of the above provisions leads us to understand that the fact as to the ‘wrong supply’ was advanced by the importer and ence, the burden of proof is always on the importer to prove the wrong supply to the satisfaction of the authority.

15.3 The documents sought to be relied upon are nothing but e-mails, the authenticity of which were never proved before the Adjudicating Authority and hence, the presumption in terms of Section 114 of the Indian Evidence Act has to be drawn against the importer. The above discussion, in effect, is that the initial burden has to be discharged by the importer. It is only thereafter that the onus would shift to the Revenue and not vice versa.

16.1 Thus, the Commissioner (Appeals) was clearly in error to observe that the Department did not bring on record any material to contradict the contention of ‘wrong supply’ which, according to us, is not the intention or spirit of law.

16.2 Other than mere contention, we do not find any attempt being made by the importer to furnish any other piece of evidence to justify its claim as to the wrong supply.

17. In view of the above discussion, we are of the clear view that the Commissioner (Appeals) committed an error in allowing the appeal of the importer without there being any evidence in support of the importer’s claim and hence, the impugned order cannot sustain.

18. Consequently, we set aside the impugned order and allow the Revenue’s appeal.

(Order pronounced in the open court on 31.05.2023)