REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 810 OF 2007

M/S SIDDACHALAM EXPORTS PRIVATE  LTD.  

— APPELLANT  

VERSUS

COMMISSIONER OF CENTRAL EXCISE,  DELHI-III

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1. Challenge in this civil  appeal,  under Section 130-E(b) of the Customs  

Act, 1962 (for short “the Act”), is to the judgment and order dated 14th  

September,  2006  delivered  by  the  Customs,  Excise  &  Service  Tax  

Appellate Tribunal (for short “the CESTAT”)  whereby it allowed the  

appeal preferred by the revenue, the respondent herein.  Consequently,  

the customs duty drawback (`49,75,536/-) claimed by the appellant under  

the scheme of duty drawback, incorporated in Chapter X of the Act, read  

with  Customs  and  Central  Excise  Duties  Draw-back  Rules,  1995  (as  

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amended) got disallowed on the ground of mis-declaration of value of the  

goods entered for exportation.

2. The facts, material for adjudication of the present appeal, may be stated  

thus:

The appellant  viz.  M/s  Siddachalam Exports  Pvt.  Ltd.,  (hereinafter  

referred to as  “the exporter”)  was engaged in the  exports  of  ready-made  

garments, engineering goods, handicrafts, woollen garments, leather goods,  

etc. On 24th February, 2003, the exporter filed seven shipping Bills (Nos.J-

903000127-129 and            J-903000131-134) for export of goods declared  

as ‘ladies tops’ valued at `390/- per piece and ‘denim shirts’ valued at `417/-  

per piece consigned to one M/s Zao Jainyo Overseas, Moscow, Russia at a  

total FOB value of `4,14,63,360/-. The exporter claimed a duty drawback of  

`49,75,536/-.

3. Based on secret  information that  the afore-mentioned  goods had been  

over-valued with  the  intention  of  claiming undue draw-back amounts,  

customs authorities carried out 100% examination of the consignment on  

26th February, 2003; drew samples, and forwarded the same to one M/s  

Skipper International for their opinion regarding their market value.

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4. On  27th February,  2003,  Mr.  Sanjeev  Jain,  director  of  the  exporter  

company was also examined, and in his statement recorded under Section  

108 of the Act he stated that the goods covered by the shipping bills were  

not manufactured by his company, but were supplied by one Mr. Gupta.  

Payments to       Mr. Gupta in respect of the goods were made through  

cheques.  He, however, did not remember the address or contact number  

of Mr. Gupta.   Mr. Jain also stated that the goods covered by the seven  

shipping bills were purchased @ `150/- to `350/- per piece, however, he  

had not seen the invoices for the same.  

5. Vide letter dated 5th March, 2003, the exporter requested for provisional  

release of the goods on execution of bond and bank guarantee. On 12th  

March, 2003, one Pankaj, claiming to be an authorised representative of  

the said M/s Skipper International submitted his valuation letter, opining  

that samples of ‘ladies tops’ and ‘denim shirts’ were export surplus and  

export rejected garments having poor quality of fabric and stitching, and  

the  market  value of  the  said goods ranged between  `40/-  to  `70/-  per  

piece.   Based  on  the  said  report,  the  customs  authorities  formed  the  

opinion  that  the  total  value  of  the  consignments  was  `56,04,000/-  as  

against  the  declared  FOB  value  of  `4,14,63,360/-  and  the  admissible  

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drawback should be  `3,56,328/-  as  against  the claim of  `49,57,536/-.  

The consignments in question were seized under Section 110 of the Act.  

However,  subsequently  the  goods  were  released  provisionally  on  

execution of bond and bank guarantee by the exporter.  

6. On 11th September,  2003,  Assistant  Commissioner  of  Customs (SIIB),  

ICD,  Tughlakabad,  New  Delhi  issued  a  show  cause  notice  to  the  

exporter,  inter-alia,  alleging that the FOB value of the goods covered  

under  the  seven  shipping  bills  had  been  grossly  mis-declared  by  

artificially  inflating  it,  thereby  rendering  them liable  for  confiscation  

under Sections 113(d) and/or (i) of the Act.  The exporter was asked to  

show cause as to why the draw back on goods covered under shipping  

Bills No. J903000134 and J903000129 dated 24th February, 2003 should  

not be reduced to  `3,56,328/-; draw back amounting to  `29,90,280/- on  

goods  covered  under  the  remaining  shipping  bills  should  not  be  

disallowed,  and  penalty  under  Section  114  of  the  Act  should  not  be  

imposed on the exporter.

7. On 7th December,  2004,  the  said  Pankaj,  authorised  signatory  of  M/s  

Skipper  International  submitted  another  letter  to  the  Commissioner  

(Adjudication Bench)  stating that  their  earlier  letter  dated 12th March,  

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2003 should not be relied upon for any purpose in as much as the same  

was prepared by the Customs authorities,  and he was merely asked to  

transcribe his signature on the same. It  was further stated that he was  

neither shown any goods nor any documents.

8. On 14th December, 2004, the exporter replied to the show cause notice  

denying  all  the  allegations  contained  therein.  The  exporter  also  

questioned  the  authenticity  of  the  report  dated  12th March,  2003  

submitted by M/s Skipper International.

9. The Commissioner of Central Excise, Delhi-III adjudicated on said show  

cause notice vide Order-in-Original dated 31st January, 2005.  Relying on  

the decisions of the CESTAT, wherein the market enquiries conducted by  

the revenue in the absence of and without notice to the exporter had been  

held to be invalid, the Commissioner dropped the proceedings against the  

exporter,  and allowed the draw back as  claimed by the exporter.  The  

Commissioner held as follows:

“In the light of above decisions of Hon’ble Tribunal, I find that  the enquiry conducted from M/s Skipper International,  in the  absence of and without any notice to the exporter company or  its Director, cannot be assigned any evidential weightage as it  does  not  depict  if  the  identical  garments  had  ever  been  purchased by M/s  Skipper  International  for  the  given prices.  So, being the evidence and the relevant law, it has to be held  

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that there had been indeed no market enquiry to establish the  present market value.  Further, Mr. Pankaj, authorized signatory  of  M/s  Skipper  International,  has  retracted  his  statement  he  made in his certificate dated 12.03.2003 by which he had given  present market value of the samples shown to him.  In  view of  this  conclusion,  and in  the  absence  of  any  other  independent evidence relating to market enquiry, I fail to find  corroboration from any other independent evidence as far as the  aspect relating to the present market price and inflating of FOB  value are concerned.”    

10.Being aggrieved, the Revenue preferred an appeal before the CESTAT.  

As  afore-mentioned,  the  CESTAT,  vide  the  impugned  judgment,  has  

allowed the appeal filed by the Revenue, observing thus:

“9. We find merit in the appeal of the revenue. The basic issue in  this  case  was  whether  the  declared  export  prices  were  mis- declarations  on  account  of  being  over-valuation  of  the  goods  under export. The second issue was whether the Present Market  Value  of  the  consignments  were  as  indicated  by  M/s  Skipper  International,  thereby  denying  draw  back  amount.  While  the  defence  of  the  respondent  is  that  the  export  price  has  been  realized, the declared value remains entirely unsubstantiated. The  opinion of  M/s  Skipper  International,  who saw the samples  is  based on the observation that "these samples of Ladies Tops and  Denims Shirts are export  surplus and export  rejected garments  having poor Quality of fabric and stitching". There is no contest  raised against  the finding regarding poor quality  of  fabric  and  stitching. It is upon this finding that M/s. Skipper International  reached the conclusion that  the  garments  were  'export  rejects'.  The valuation was also on that basis. Instead of contesting the  factual position noted about the samples, the exporter has chosen  to  attack  the  competence  of  the  opinion  giver.  This  is  not  acceptable  for  two  reasons.  The  first  is  that  the  quality  of  stitching and fabric would be evident to any one familiar  with  garment trade and cannot be ruled to be beyond the ken of an  

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export surplus dealer. There is no rocket science involved in as  certainly quality of fabric or stitching of a garment. Therefore,  the attack on the opinion giver is entirely misplaced. It  is also  because the opinion itself is not flawed. Secondly, M/s Skipper  International  was  dealing  in  (sic.)  export  surplus  garments,  therefore, it had expertise in the market valuation of such goods.  If  fabric and stitching are of poor quality,  certainly,  the items  would not be having the price of prime quality export garments  as declared by the exporter. 10.  Another  entirely  unacceptable  aspect  in  the  appellant's  conduct  is  that  it  has  refused  to  place  on  record  the  material  which  it  should  be in  possession of  to  substantiate  the  values  declared. The appellant is a merchant exporter and has purchased  the garments, valued over  `4 crores from the market. It is to be  expected that the appellant would have taken care to place the  order for the goods on competent manufacturers or traders along  with proper specification regarding material, make, and size and  those manufacturers or traders would give the appellant proper  invoices  and  other  documents.  Instead  of  producing  such  evidence, it has chosen to state that procurement is through one  illusory Gupta, whose particulars are not known to the appellant.  Such abnormal vagueness can only be attributed to an effort to  cover up inconvenient facts. It is well settled that a person in the  possession of clinching evidence on an issue in dispute cannot  hope  to  succeed  by  withholding  that  evidence.  Therefore,  the  Commissioner  was clearly  in  error  in  faulting the  revenue for  relying upon the opinion of M/s Skipper International  and not  carrying out  investigations on the lines indicated by Shri  Jain.  The particulars supplied by Shri Jain were not reliable at all and  was intended only to mislead. Further, issuance of some cheques  is  no  satisfactory  evidence  about  the  correct  value  of  the  consignments.”

Accordingly, the CESTAT confirmed the reduction of draw back claim in  

case of consignments covered by Shipping Bill              Nos. J-903000134  

and J-903000129 to `3,26,328/- and denial of draw back claim amounting to  

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`29,90,280/- in relation to other consignments as contemplated in the show  

cause notice dated 11th September, 2003. The CESTAT also levied a penalty  

of  `5  lakhs  each  on  the  exporter  and  its  Director,  Mr.  Sanjeev  Jain,  

respectively.  

11.Hence, the present appeal by the exporter.

12. Mr. Ramji Srinivasan, learned senior counsel appearing on behalf of the  

exporter,  while  assailing  the  impugned  judgment,  contended  that  the  

Revenue has failed to discharge the onus placed on it in as much as it has  

failed  to  establish  that  the  exporter  had mis-declared the value of  the  

export goods as was held in Nanya Imports & Exports Enterprises Vs.   

Commissioner of Customs, Chennai1.  Learned counsel contended that  

the show cause notice was vitiated as it was based solely on the opinion  

of  the  said  Pankaj,  authorised  signatory  of  M/s  Skipper  International,  

who  had  not  even  examined  the  goods  in  question.  Learned  counsel  

asserted that the procedure for determining value of goods has to be in  

terms  of  Sections  2(41)  and  14  of  the  Act,  read  with  Rule  4  of  the  

Customs Valuation (Determination of Price of Imported Goods) Rules,  

1988 (for short “the 1988 Rules”).  Relying on Varsha Plastics Private   

1 (2006) 4 SCC 765

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Limited & Anr. Vs. Union of India & Ors.2, learned counsel argued that  

the 1988 Rules having been framed to maintain uniformity and certainty  

in the matter of valuation of goods, which is a matter of procedure, these  

Rules  have  to  be  adhered  to  strictly.  It  was  also  contended  that  the  

CESTAT has erred in law in levying penalty on Mr. Sanjeev Jain who  

was not even made a party to the appeal filed by the Revenue.  

13. Per contra,  Ms. Rashmi Malhotra, learned counsel appearing on behalf  

of the Revenue strenuously urged that the impugned judgment deserves  

to be affirmed, and the CESTAT rightly did not consider the effect of  

retraction by M/s Skipper International, as the same was not dealt with by  

the  Commissioner  as  well.   Learned  counsel  urged  that  the  exporter  

cannot be allowed to urge this ground at this stage, as the same was not  

raised by it before the CESTAT.  In support of the contention, decision of  

this Court in M/s Builders’ Association of India Vs. State of Karnataka  

& Ors3. was pressed into service.  According to the learned counsel, since  

the retraction was tendered after twenty one months of the submission of  

original report, it had lost its efficacy and, therefore, had no bearing on  

the authenticity of the report.  

2 (2009) 3 SCC 365 3 (1993) 1 SCC 409

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14.It is trite law that the amplitude of an appeal under Section 130E(b) of the  

Act, in relation to the rate of duty of customs or to the value of goods for  

the purposes of assessment, is very wide but it is equally well settled that  

where the CESTAT, a fact finding authority, has arrived at a finding by  

taking into consideration all material and relevant facts and has applied  

correct legal principles, this Court would be loathe to interfere with such  

a finding even when another view might be possible on same set of facts.  

Nevertheless, if it is shown that the conclusion under challenge is such as  

could not possibly have been arrived at by a person duly instructed upon  

the  material  before  him  i.e.  the  conclusion  is  perverse  or  that  the  

CESTAT  has  failed  to  apply  correct  principles  of  law,  this  Court  is  

competent to substitute its own opinion for that of the CESTAT.

15.Having bestowed our anxious consideration to the facts at hand, we are  

constrained to observe that the decisions of both the authorities below are  

unsustainable.   In  our  opinion,  neither  the  Commissioner  nor  the  

CESTAT has examined the issue before them in its correct perspective  

and as per the procedure contemplated in law for determination of the  

value of the goods for exportation.

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16. It is settled that the procedure prescribed under Section 14(1) of the Act  

and  particularized  in  Rule  4  of  the  1988  Rules  has  to  be  adopted  to  

determine the value of goods entered for exports, irrespective of the fact  

whether any duty is leviable or not.   It is also trite that ordinarily, the  

price received by the exporter in the ordinary course of business shall be  

taken  to  be  the  transaction  value for  determination of  value of  goods  

under export,  in absence of any special  circumstances indicated under  

Section 14(1) of the Act and Rule 4(2) of the 1988 Rules.  The initial  

burden to establish that the value mentioned by the exporter in the bill of  

export or the shipping bill, as the case may be, is incorrect lies on the  

Revenue. Therefore, once the transaction value under Rule 4 is rejected,  

the value must be determined by sequentially proceeding through Rules 5  

to 8 of the 1988 Rules. (See: Commissioner of Customs (Gen), Mumbai   

Vs. Abdulla Koyloth4.)

17. In  Om Prakash Bhatia  Vs. Commissioner  of  Customs,  Delhi5,  while  

dealing with a similar case of fraudulent drawback claim by deliberately  

over-invoicing ready-made garments, this Court rejected the plea of the  

exporter that Section 113(d) of the Act was not applicable to the facts of  

that case as the goods were not prohibited goods; (ii) the exporter was  4 JT 2010 (12) SC 267 5 (2003) 6 SCC 161

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required to declare the value of the goods expected to be received from  

the overseas purchaser and not the market value of such goods in India  

and (iii) since in that case, no duty was payable on the export, Section 14  

of the Act could not be applied to determine the value of the goods. It  

was,  inter-alia, held that the definition of “prohibited goods” in Section  

2(33) of the Act indicates that if the conditions prescribed for import or  

export of the goods are not complied with, it would be considered to be  

“prohibited goods”.  It was held that for determining the export value of  

the goods, it is necessary to refer to the meaning of the word “value” as  

defined in Section 2(41) of the Act and the same must be determined in  

accordance with the provisions of sub-section (1) of Section 14 of the  

Act.  The Court observed thus:

“…For determining the export value of the goods, we have to  refer to the meaning of the word “value” given in Section 2(41)  of the Act, which specifically provides that value in relation to  any goods means the value thereof determined in accordance  with the provisions of sub-section (1) of Section 14.  

….. ….. ….. Section 14 specifically provides that in case of assessing the  value for the purpose of export, value is to be determined at the  price at which such or like goods are ordinarily sold or offered  for sale at the place of exportation in the course of international  trade,  where  the seller  and the buyer have no interest  in the  business of each other and the price is the sole consideration for  sale. No doubt, Section 14 would be applicable for determining  the  value  of  the  goods  for  the  purpose  of  tariff  or  duty  of  

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customs chargeable on the goods. In addition, by reference it is  to be resorted to and applied for determining the export value of  the goods as provided under sub-section (41) of Section 2. This  is  independent  of  any question  of  assessability  of  the  goods  sought to be exported to duty. Hence, for finding out whether  the export value is truly stated in the shipping bill, even if no  duty is leviable, it can be referred to for determining the true  export value of the goods sought to be exported.”

18. The opinion expressed in Om Prakash Bhatia (supra) has been reiterated  

by this Court in Bibhishan Vs. State of Maharashtra6.  It has been held  

that the definition of “prohibited goods” in the Act is a broad one and the  

said provision not only brings within its sweep an import or export of  

goods which is subject to any prohibition under the Act, but also any of  

the law for the time being in force.   

19. In the present case, as stated above, neither the adjudicating authority i.e.,  

the Commissioner of Central Excise nor the CESTAT has dealt with the  

matter as per the procedure prescribed under the Act.  At the threshold,  

instead  of  first  determining  the  value  of  the  goods  on  the  basis  of  

contemporaneous exports  of  identical  goods,  the  Revenue  erroneously  

resorted to a market enquiry.  If for any reason, data of contemporaneous  

exports of identical goods was not available, the procedure laid down in  

Rules 5 to 8 of the 1988 Rules was required to be followed and market  

6 (2007) 12 SCC 390

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enquiry could be conducted only as a last resort.  It is evident that no  

such exercise was undertaken by the Commissioner and interestingly he,  

acting as an appellate authority, proceeded to test the evidentiary value of  

the report submitted by M/s Skipper International and rejected it on the  

ground that it  does not depict if  the identical  garments had ever been  

purchased by the said concern.  Observing that in the absence of any  

other independent evidence relating to market enquiry, there was no other  

corroborating  evidence  to  support  the  allegation  of  inflation  in  FOB  

value, he dropped the proceedings initiated vide show cause notice dated  

11th September 2003.  Similarly, it is manifest from the CESTAT’s order  

that revenue’s appeal has been accepted mainly on the ground that report  

of M/s Skipper International  was worthy of credence and the exporter  

had failed to produce any evidence to establish that export value stated in  

the shipping bills was the true export value.  In our opinion, both the said  

authorities  have  failed  to  apply  the  correct  principles  of  law  and  

therefore, their orders cannot be sustained.

20.Resultantly,  for the  reasons as  enumerated,  the  appeal  is  allowed;  the  

orders passed by the CESTAT and the Commissioner are set aside and  

the  matter  is  remitted  back  to  the  adjudicating  authority  for  fresh  

consideration  in  accordance  with  law,  after  affording  adequate  

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opportunity of hearing to the exporter.  The entire exercise, in terms of  

this order, shall be completed within six months from the date of receipt  

of a copy of this judgment.  Needless to add that we have not expressed  

any  opinion  on  the  merits  of  the  opinion  rendered  by  M/s  Skipper  

International  or  on  the  conduct  of  the  exporter  in  not  adducing  any  

evidence in support of the export  value stated in the shipping bills  in  

question.

21.In the facts and circumstances of the case, the parties are left to bear their  

own costs.

.……………………………………               (D.K. JAIN, J.)  

                             .…………………………………….              (H.L. DATTU, J.)

NEW DELHI; APRIL 1, 2011. ARS

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