Mis-Declaration of Maida as Wheat for MEIS Benefit: CESTAT Upholds conditions for release of Seized Export Goods

C. L. International Vs Commissioner of Customs (CESTAT Delhi)

Introduction: The recent CESTAT Delhi order on the case of C. L. International vs Commissioner of Customs revolves around the mis-declaration of Maida as Wheat in export documents for availing MEIS benefits. The Commissioner of Customs upheld the conditions for the release of seized export goods, leading to an appeal before the Tribunal.

Detailed Analysis:

1. Background of the Case: The appellant filed eight shipping bills for the export of “Whey Flour (Powder)” under MEIS. However, investigations revealed that the goods were mis-declared as “Maida” (Wheat Flour). Seizure followed, and provisional release conditions were set.
2. Conditions for Provisional Release: To secure the release of the seized goods, the appellant was required to submit a seizure bond equivalent to the declared FOB value, furnish a bank guarantee, and provide an undertaking not to dispute the goods’ identity.
3. Legal Proceedings: The appellant challenged the conditions before the High Court, citing exemption for ‘Star Export House.’ The Commissioner of Customs, considering mis-declaration and CBEC Circulars, upheld the conditions. The appellant then appealed to CESTAT.
4. Non-Appearance and Ex-Parte Proceedings: The appellant’s repeated non-appearance in court led to ex-parte proceedings. Despite warnings, the appellant failed to submit written arguments, resulting in the Tribunal considering the case based on the grounds in the appeal memorandum.
5. Appellant’s Grounds of Appeal: The appellant argued that the conditions were harsh and violated judicial principles. They contended that disputing the description and identity of the seized goods should not be foreclosed. The appellant’s status as a “Two Star Export House” was emphasized.
6. CBEC Circular and Legal Precedents: The Revenue’s representative relied on CBEC Circular 1/2011-CUS, justifying the conditions for provisional release. Legal precedents from the Madras High Court and Gujarat High Court were cited to support the authorities’ discretion in denying provisional release in smuggling cases.
7. Tribunal’s Decision: The Tribunal upheld the conditions imposed for provisional release, emphasizing mis-declaration, overvaluation, and the potential penalties under the Customs Act. The appellant’s reliance on Circular 17/2009 was deemed misconceived, as it pertains to different export promotion schemes.

Conclusion: The CESTAT Delhi dismissed the appeal, affirming the conditions for the provisional release of seized export goods. The decision underscores the authorities’ discretion in imposing conditions, considering mis-declaration and potential penalties under the Customs Act.

This case serves as a reminder of the significance of accurate documentation in international trade and the consequences of misrepresentation in export proceedings. The legal battle highlights the need for exporters to adhere to regulatory requirements to avoid severe penalties and ensure a smooth export process.

FULL TEXT OF THE CESTAT DELHI ORDER

The present appeal has been filed by the appellant challenging the Order-in-Appeal No.CC(A)CUS/D-II/ICD-TKD/EXPORT/3730/2018-19 dated 11.03.2019, whereby the Commissioner of Customs, upheld the quantum of bond and bank guarantee sought by the Department for provisional release of the impugned seized export goods as fair and reasonable.

2. Brief stated, the appellant filed 8 shipping bills bearing nos.8963637 dated 17.11.2018, 8963642 dated 17.11.2018, 8963639 dated 17.11.2018, 8986925 dated 19.11.2018, 8976509 dated 19.11.2018, 8976512 dated 11.2018, 9069487 dated 22.11.2018 and 9069488 dated 22.11.2018 with the ICD-Export, Tughlakabad, New Delhi for export of goods, namely “Whey Flour (Powder)”, which were classified under CTH 04041020. These shipping bills were filed claiming benefit under Merchandise Export from India Scheme (MEIS). As per Public Notice No.23/2015-2020 dated 13.07.2018 issued by the Director General of Foreign Trade, Ministry of Commerce & Industry, Department of Commerce, Udyog Bhawan, New Delhi, the impugned goods i.e. “Whey Flour Powder (Customs Tariff Head- 04041020)” was added in the MEIS Appendix 3 B, Table 2 @ 10% of FOB value during 13.07.2018 to 12.01.2019. The declared FOB value of the impugned orders was Rs.6,89,41,504/- wherein the MEIS benefit @ 10% of the FOB value that would be available to the appellant was Rs.68,94,150/-.

3. The consignments covered under these shipping bills were examined by the officers of Directorate of Revenue Intelligence (“DRI” in short) on 12.2018 and 17.12.2018 at Mundra Port. Samples of the consignments were sent for testing to Fair Quality Institute (Food Analysis & Industrial Research Quality Institute), New Delhi, which confirmed the impugned goods to be “Maida” (Wheat Flour), against which there was no Merchandise Export from India’s Scheme benefit during the relevant period. As the goods were found to be mis-declared, they were seized vide seizure memo dated 19.01.2019. On the request made by the appellant, the competent authority provisionally released the impugned seized goods and communicated the same to the appellant vide letter dated 21.01.2019, subject to the fulfillment of the following conditions:-

“i. Submission of Seizure Bond of Rs.6,89,41,504/- i.e. equivalent to the declared FOB value of the seized goods’

ii. Furnishing of Bank Guarantee of 70,00,000/- with auto-renewal clause; and

iii. Submission of an undertaking by the appellant that they will not dispute on quantity description and identity of the seized ”

4. The said letter was challenged by the appellant in an appeal before the High Court of Delhi in WP (C) 1274/2019 and vide order dated 6.2.2019, it was held, inter alia, that –

“2.4 It is open to the petitioner to approach the Commissioner with an appeal, within three days. The Commissioner shall decide the appeal at the earliest, preferably within two weeks form the date of receipt of the appeal in accordance with law.”

5. The appellant, therefore, filed appeal before the Commissioner (Appeals), inter alia, submitting that ‘Star Export House’ are exempted from imposition of any bank guarantee for provisional release of export goods in terms of FTP 2014-2019 and also referred to the Circular No.17/2009-CUS dated 25.05.2009 issued by the Government of India, Ministry of Finance, whereby facility of ‘nil’ rate of bank guarantee was extended to Star Export House Moreover, the demand of bank guarantee cannot be made as the appellant would be entitled to the benefit of MEIS only upon realization of the export proceedings and, therefore, mis-declaration, if any, is of no immediate benefit to the appellant. The Commissioner of Customs considered the report of Testing Agency and observed that the goods in question were mis-declared. Further, noticed that the Dy. Commissioner of Customs (SIIB-Export), ICD-TKD, New Delhi vide letter dated 28.02.2109 considered the CBEC Circular No.01/2011-CUS dated 4.1.2011 providing the guidelines for the provisional release of the seized export of goods pending adjudication under Section 110A of the Customs Act, 1962 and, therefore, observed that the quantum of bond to be executed for provisional release of the seized export goods equal to the declared FOB value of the export goods is justified. The power to fix the quantum of bank guarantee was entrusted to the Competent Authority, which as per the said Circular covered the probable redemption fine and penalties that may be imposed at the time of adjudication. As the Department had also alleged the charge of over- valuation of the goods so as to wrongly avail the MEIS benefit, it was observed that the export goods appeared to be liable for confiscation under the Customs Act, 1962 and accordingly, the redemption fine and penalties under Section 114 (iii) and Section 114 (AA) were liable to be imposed and in that view, the quantum of bank guarantee was held to be justified. Being aggrieved, the appellant has preferred the present appeal before this Tribunal.

6. The present appeal was filed on 04.2019 and we find from the Court proceedings that there is a chequered history of non-appearance of the appellant except on one or two occasions. The order passed by this Tribunal on 20.04.2023 is quoted below:-

“ None is present for the appellant. Perusal of file shows that appellant has repeatedly been seeking the adjournments though on few of the occasions, the matter could not have been taken up during the court hours. In the interest of justice, the matter is adjourned for today for awaiting presence, however, with the warning that the next date shall be the last opportunity for the appellant to make submissions in the appeal. Matter now be listed for hearing on 01.06.2023.”

7. On the next date of hearing on 1.6.2023, a request was made by the learned counsel for the appellant to list the same on August 18, On the next date (18.08.2023) also none appeared for the appellant and hence, in terms of the earlier order, as quoted above, we are constrained to hear the matter ex parte.

8. Having heard the Authorised Representative for the Revenue and also perusing the grounds of appeal taken by the appellant in the present appeal, we reserved the order on 18.08.2023, with liberty to file written submissions within two weeks, however the appellant has not submitted any written arguments despite long gap of time and hence we are passing the present order considering the grounds taken in the memorandum of appeal.

9. The appellant herein is aggrieved by the conditions imposed on the provisional release of the impugned seized goods, particularly, the quantum of bond and the bank guarantee.

10. The appellant in the grounds of appeal apart from reiterating the grounds taken in appeal before the Commissioner and referring to the decisions in the case of Kuber Castings (P) Ltd. Vs. Union of India – 2013 (29) ELT 49 (P&H) and also in the case of Pallahan Industries Union of India -2015 (325) ELT 18 ( P &H) on the principle that the demand of bank guarantee is not only harsh but squeezes the petitioner’s business and in case of dispute of valuation and classification, the condition of demand of guarantee is not justified. Also, the status of the party has to be taken into account and, therefore, the bank guarantee cannot be imposed mechanically. The appellant, claims himself to be a “Two Star Export House”. We would like to quote some of the grounds taken in the appeal memorandum as under:-

“E. Because the conditions imposed in the Order of provisional release are harsh and have been passed in violation of the judicial principles. It is submitted that the appellant has been called upon to submit an undertaking that they will not dispute on quality, description and identity of the seized goods. It is pertinent to mention that the above mentioned conditions prejudices the case of the appellant as he is prejudiced from proceeding with his case in a rightful manner and amounts to foreclosing the defence pending investigation. It is pertinent to mention that the case is under investigation and allegation qua the appellant have not been finalized.

F. Because the appellant cannot be debarred from asserting its version as to the value and classification of the goods. It if the condition of furnishing undertaking is allowed to stand, the respondent can unilaterally allege any description and continue to keep the goods under detention unless the appellant agrees to withdraw the challenge to the valuation, description, etc. This would certainly amount to denial of justice.”

11. The learned Authorised Representative for the Revenue has heavily relied on the CBEC Circular 1/2011-CUS dated 04.01.2011. The title of the Circular reads as – “Provisional release of export – goods detained for investigation – Regarding”. The relevant provisions of the said Circular is reproduced below:-

“4. Seizure should be resorted to only when the Customs officers have a reason to believe that the goods in question are liable to confiscation under the Customs Act, 1962 and thereafter the provisions of Section 110A of the Customs Act, 1962 would come into play. However, there may be situations when the goods are to be detained for purpose of tests etc. to confirm the declaration. In such cases the endeavour should be to quickly undertake the necessary action (test / enquiry etc.) and take appropriate legal action thereafter so that the period of detention is kept to the minimum. Thus, the following course of action is prescribed in respect of goods entered for exportation:

(a) In case the export goods are found to be mis- declared in terms of quantity, value and description and are seized for being liable to confiscation under the Customs Act, 1962, the same may be ordered to be released provisionally on execution of a Bond of an amount equivalent to the value of goods along with furnishing an appropriate security in order to cover the redemption fine and penalty.

(b) In case the export goods are either suspected to be prohibited or found to be prohibited in terms of the Customs Act, 1962 or ITC (HS), the same should be seized and appropriate action for confiscation and penalty initiated.

(c) In case the export goods are suspected of mis- declaration or where declaration is to be confirmed and further enquiry / confirmatory test or expert opinion is required (as in case of chemicals or textiles materials), the goods should be allowed exportation provisionally. The exporters in these cases are required to execute a Bond of an amount equal to the value of goods and furnish appropriate security in order to cover the redemption fine and penalty in case goods are found to be liable to confiscation. In case exports are made under any Export Promotion / Reward Schemes, the finalization of export incentives should be done only after receipt of the test report / finalisation of enquiry and final decision in the matter. The Bond executed for provisional release shall contain a clause to this effect.”

11.1 Learned Authorised Representative for the Revenue has relied on the decision of the Madras High Court in the case of Malabar Diamond Gallery Pvt. Ltd. Vs. The Additional Director General, Directorate of Revenue Intelligence, The Commissioner of Customs (Import), The Commissioner of Customs (AIR) -2016 (8) TMI 530 (Madras), where the petitioner sought provisional release of gold jewellery, which was smuggled into India on suitable conditions and the Court observed as under:-

“54. If the contentions of the appellant have to be accepted, then all the goods seized and liable for confiscation have to be provisionally released, in terms of Section 110(1A) of the Customs Act, 1962, and in such circumstances, the very object of the Customs Act, 1962, would be defeated. Going through the notifications, we are of the view that the above said notifications do not confer any absolute right to the appellant, to seek for provisional release of gold, alleged to have been smuggled.

89. While considering a prayer for provisional release, pending adjudication, whether all the above can wholly be ignored by the authorities, enjoined with a duty, to enforce the statutory provisions, rules and notifications, in letter and spirit, in consonance with the objects and intention of the Legislature, imposing prohibitions/restrictions under the Customs Act, 1962 or under any other law, for the time being in force, we are of the view that all the authorities are bound to follow the same, wherever, prohibition or restriction is imposed, and when the word, restriction, also means prohibition, as held by the Hon’ble Apex Court in Om Prakash Bhatia’s case (cited supra).

92. Objective satisfaction, at the stage of provisional release, casts a duty on the authority, to consider, as to whether, there are prohibitions/restrictions in Customs Act, 1962, or any other law for the time being in force and whether he is bound to exercise his discretion, satisfying principles of fairness, reasonableness and whether, it is in accordance with the objects sought to be achieved. At the time of provisional release, it is also to be seen as to whether subjective satisfaction is based on valid materials, and not on whims and fancies of the authority.

95. Under the Customs Act, 1962, the authorities are duty bound to pass orders for confiscation, impose penalty, initiate prosecution and pending conclusion of the adjudicating proceedings, may order provisional release. At the time, when discretion is exercised under Section 110A and if any challenge is made under Article 226 of the Constitution of India, the twin test, to be satisfied is “relevance and reason”. Testing the discretion exercised by the authority, on both subjective and objective satisfaction, as to why, the goods seized, cannot be released, when smuggling is alleged and on the materials on record, we are of the view that the discretion exercised by the competent authority, to deny provisional release, is in accordance with law. When there is a prima case of smuggling, for which, action for confiscation is taken, such proceedings taken should be allowed, to reach its logical end, and not to the stiffed, by any provisional release.”

12. The above decision was followed by the Gujarat High Court in Bhargavraj Rameshkumar Mehta Vs. Union of India – 2018 (3) TMI 284 – Gujarat High Court.

13. In this case the appellant is seeking provisional release of goods. As per the settled position of law there is no absolute right to claim provisional release and the same is subject to conditions that may be imposed by the competent authority, though the conditions that may be imposed cannot be arbitrary and capricious. To safe guard the exercise of this power, the Board has issued the Circular, the provisions thereof we have quoted Perusal of the Circular, we find that in case export goods are found to be mis-declared in terms of quantity, value and description, the first and foremost condition for grant of provisional release is execution of a bond which has to be of an amount equivalent to the value of the goods and along with that is the requirement of furnishing appropriate security so as to cover the redemption fine and penalty. The contents of the circular are simple, clear and there is no ambiguity in the terms and conditions prescribed therein and hence the same has to be complied.

14. The authorities below has categorically recorded the findings on the basis of the test report that the description of the impugned goods to be exported have been mis-declared. The appellant has described the goods as ‘Whey Flour Powder’, however, they were found to be ‘Maida’. By virtue of the said mis-declaration, the appellant attempted to achieve the benefit of 10% of the FOB value as whey flour powder was covered under the MEIS whereas Maida was not covered under the said Scheme and therefore the appellant would not have been entitle to the benefit of the Similarly, even in respect of valuation, the appellant has over valued the goods.

15. In view of such mis-declaration the Circular is clearly applicable and hence the conditions imposed for provisional release are fully justified. The Commissioner by the impugned order has rightly arrived at the conclusion that the competent authority have judiciously exercised the discretion, inter- alia observing :

“5.4 From the above CBEC Circular, it is evident that quantum of the Bond to be executed for provisional release of the seized export goods should be equal to declared FOB value of the export goods. However, power to fix quantum of the bank guarantee has been entrusted to the competent authority, but as per the said Circular, the quantum of the bank guarantee should cover the probable redemption fine and penalties that may be imposed at the time of adjudication of the matter.

5.6. The Department also alleges the charge of overvaluation of the goods to wrongly avail MEIS benefit, which was not due in the first place. The export goods having been mis-declared and overvalued, appeared liable for confiscation under the Customs Act, 1962. Redemption fine is imposable under Section 125 ibid. Besides, penalties under Section 114 (iii) and Section 114 AA are also liable to be imposed for alleged fraud committed to unduly avail inadmissible/ineligible MEIS benefits. Penalties imposable are maximum upto five times the value of the export goods. Therefore, in my view, while deciding the quantum of Bank guarantee for allowing provisional release of the seized export goods to safe guard the probable redemption fine and penalty, the value of the goods and the quantum of the alleged undue benefit of MEIS have to be considered. The MEIS benefit that would have been available to the appellants has been calculated as Rs.68,94,150/- with export value as Rs.6,89,41,504/-. Therefore, quantum of the probable penalties under the applicable provisions of the Customs Act, 1962, if the investigation succeeds, are not only equal to or more than the alleged MEIS benefit, but upto five times the export value. Besides, quantum of redemption fine under Section 125 ibid is also leviable depending upon value of the seized export goods, which is declared as Rs.6,89,41,504/-. These aspects are to be borne in mind while adjudicating bank guarantee.”

16. Reliance placed by the appellant on Circular No.17/2009-CUS dated 25.05.2009 is misconceived as it specifically refers to norms for execution of bank guarantee under specified export promotion schemes, i. e. Advance License and EPCG Schemes, whereas the Circular dated 4.1.2011 specifically provides for conditions while ordering provisional release of export goods where they have been mis-declared.

17. We therefore do not find any infirmity in the impugned order and the same deserves to be upheld.

18. Accordingly, the appeal stands dismissed.

[Order pronounced on 12.2023]