Holding

Confiscation under Section 113(d) requires a statutory prohibition; a mere discrepancy between market value and drawback claimed does not justify confiscation, and the CEGAT must rehear the matter applying the Om Prakash Bhati principles.

Summary

The case concerned appeals by the Commissioner of Customs against the confiscation of a consignment of readymade garments exported by Mis Brooks International for duty drawback. The revenue authorities seized the goods, invoking Sections 113(c) and (d) of the Customs Act, 1962, alleging that the market value of the goods was far below the drawback claimed and that the export violated provisions of the Act. The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) had allowed the appeals, holding that it had no power to confiscate the goods and that no material showed a mismatch with the bills. The Supreme Court set aside the CEGAT order, directing a fresh hearing in line with the principles laid down in Om Prakash Bhati v. Commissioner of Customs, Delhi, emphasizing that confiscation under Section 113(d) requires a statutory prohibition, not merely a low market value. Consequently, the appeals were allowed, the CEGAT order was vacated, and the matter was remitted to the Tribunal for reconsideration.

Issues considered

When does Section 113(d) of the Customs Act, 1962 empower confiscation of exported goods?
Does a market value of exported goods being lower than the claimed duty drawback constitute a 'prohibition' under the Act?
How should Section 76(1)(b) be interpreted in relation to drawback claims where market price is less than the drawback amount?
Whether the CEGAT erred in its interpretation of Sections 113(c), 113(d) and 76 of the Customs Act.

Legislation cited

Customs Act, 1962s. 113(c), s. 113(d), s. 14, s. 2(41), s. 76
Foreign Exchange Regulation Act, 1973s. 18
Foreign Trade (Development and Regulation) Act, 1992s. 11(1)

Subjects

Customs Actduty drawbackconfiscationmarket valueprohibitionCEGATexport valuationSection 113Section 76

Judgment

.,.

_...
COMMISSIONER OF CUSTOM, NEW DELHI A
v.
MIS BROOKS INTERNATI ON AL AND ORS.

MAY 24, 2007

[DR. ARIJIT PASA YAT AND LOKESHWAR SINGH PANTA, JJ.] B

·t Customs Act, 1962; ss. 76 & IJ3 (c) & (d):

Duty drawback-Export of goods-Seizure of consignment by Revenue
authorities ordering confiscation of all the goods under s. IJ 3(d)-Appeal c
allowed by Tribunal holding that the authorities had no power of confiscation
of the goods in question and no .material placed to show that the goods did
not correspond to the description of the goods as disclosed in the bills-On
appeal, held: Tribunal is directed to consider the matter afresh keeping in
view the principles set out by its larger bench and approved by the Supreme
Court on similar issues in the matter of Om prakash Bhati v. C.I. T. Delhi D
>{_ The question arose for determination in these appeals was that in case
the market value of goods under export is much less than the amount of
drawback claimed, whether such goods can be confiscated by the authorities
for violation of the provisions of the Customs Act, 1962.
E
Revenue contended that Section 113(1)(c) and (d) of the Customs Act
apply as they deal with three types of goods i.e. excisable goods, prohibited
goods and goods entered for exportation; that the assessee attempted to export
old and used readymade garments which is not permissible under Rule 3 of
the Drawback Rules; that the market value was less than duty drawback which
was not admissible under Section 76(1) (b) of the Act; and·that CEGAT has F
erroneously interpreted the provisions of Section 113(c) and (d) of the Act
and the contents of the show-cause notice were not properly analysed.

Allowing the appeals, the Court

HELD: 1. It would be appropriate for the CEGAT which had not G
considered the effect of the larger bench judgment, which had approval of this
Court in the matter of Om Prakash Bhati v. CIT, Delhi, to rehear the appeals
keeping in view the principles set out in the said case.
)
(Para 81 (798-G; 799-AI

791 H'
792 SUPREME COURT REPORTS (2007) 7 S.C.R.

A Om Prakash Bhati v. Commissioner of Customs, Delhi 120031 6 SCC
161, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4559-4561 of
2002.

B From the Fil"!al Judgment and Order No ..A/242-244/2002/NB-D dated
06.02.2002 of the CEGAT, New Delhi in Appeal No. C/171-173/01-NB.

P. Vishwanatha Shetty, Sr. Adv., S.J Aristotle and B. Krishna Prasad for i'
the Appellant.

C Joseph Vellapally, Sr. Adv., Mukesh Verma, Manish Shanker, M.R.
Shamshad, Pravesh Thakur, Yash Pal Dhingra and Ashish Mohan for the
Respondents.

The Judgment of the Court was delivered by
o- DR. ARIJIT PASAYA T, J. I. Since all these appeals relate to identical
q,..iestion, they are taken up for disposal by this common judgment.

2. The basic issue is when the market value of goods under export is
much less than the amount of drawback claimed,. whether such goods can be
E confiscated for violation of the provisions of the Customs Act, 1962 (in short
the 'Act'). In the matters relating to CA No.4559-456 l of 2002, the respondent
had sent a consignment to the export shed of ICD, TKD, New Delhi for
exporting the same under claim for duty drawback. On the basis of intelligence,
Directorate of Revenue, Intelligence (in short 'ORI') detained the consignment.
It was, prima facie, noted that the goods did not appear as per description,
F quantity and value disclosed in the bills. The consignments of the respondents
were examined on different dates by DRI.

3. Consignment of RI was examined by ORI on 7.1.1999 & 12.1.1999,
Consignment of R2 was examined by ORI on 18.1.1999 & 25.1.1999, Consignment
G ofR3 was examined by DRI on 14.1.1999 & 08.02.1999.
4. The Commissioner ofCustoms directed confiscation of all the: goods
under Section 1I3(d) and (i) of the Act and allowed to redeem of the same
on payment of fine of Rs. I0,00,000/-, disallowed the export of readymade
(
garments and claim of drawback. No penal action was invoked as ORI
H contemplated to seek separate adjudication in respect of the penal clause
COMMNR. OF CUSTOMS, NEW DELHI 1•. BROOKS INTERNATIONAL [PASAYAT. J.) 793
provided under the Act. Appeals were preferred before the Customs, Excise A
~ and Gold (Control) Appellate Tribunal (in short 'CEGA T) which allowed the
appeals holding that there was no power of confiscation and there was no
material placed to record to suggest that the goods did not correspond to any
material entry made in the bills and the correctness of the FOB and description
of the goods specified in the bills had not been disputed.
• B
5. In support of the appeal learned counsel for the appellant submitted
that Section 113(1) (d) and (c) apply as they deal with three types of goods
i.e. excisable goods, prohibited goods and goods entered for exportation.
Respondents attempted to export old and used readymade garments etc
which is not permissible under Rule 3 of the Drawback Rules. The market C
value was less than duty drawback which was not admissible under Section
76( I )(b) of the Act. CEGA T has erroneously interpreted the provisions of
Section 113(d) and (c) of the Act. The contents of the show-cause notice were
,not properly analysed.

6. Learned counsel for the respondent on the other hand supported the D
order of the CEGAT.

7. It is to be noted that in view of the divergence of opinion between
the several benches of the CEGAT, matter was referred to a larger bench and
the larger bench decision was assailed by the assessee in the concerned case. E
Before this Court in Om Prakash Bhati v. Commissioner of Customs, Delhi,
[2003) 6 sec 161 it was, inter alia, observed as follows:

"6. At the outset, we would state that the learned counsel for the
appellant has not pressed for the drawback in view of specific provision
of Section 76 which inter alia provides that no drawback shall be F
allowed "(b) in respect of any goods the market-price of which is less
than the amount of drawback due thereon". Therefore, for the purpose
of getting drawback, relevant consideration is the market price of the
goods prevailing in the country and not the price of the goods which
the exporter expects to receive from the overseas purchaser.
G
7. Next-as the order for confiscation of goods is passed by referring
to Section 113(d) of the Act, we would refer to the same. It reads as
under:--

"I I 3. Confiscation ofgoods attempted to be improperly exported
etc.-- The following export goods shall be liable to confiscation:- H
794 SUPREME COURT REPORTS [2007) 7 S.C.R.

A (d) any goods attempted to be exported or brought within the
limits of any customs area for the purpose of being exported,
contrary to any prohibition imposed by or under this Act or
any other law for the time being in force. ·~
8. The aforesaid Section empowers the authority to confiscate any
B goods attempted to be exported contrary to any 'prohibition' imposed
by or under the Act or any other law for the time being in force.
Hence, for application of the said provision, it is r_equired to be
established that attempt to export the goods was contrary to any
prohibition imposed under any law for the time being in force.

C 9. Further, Section 2(33) of the Act defines "prohibited goods" as
under:--

"prohi'Jited goods" means any goods the import or export of
which is subject to any prohibition under this Act or any other
law for the time being in force but does not include any such
D . goods in respect of which the conditions subject to which the
goods are permitted to be imported or exported have been
complied with."

10. From the aforesaid definition, it can be stated that (a) if there is
any prohibition of import or export of goods under the Act or ·any
E
other law for the time being in force, it would be considered to be
prohibited goods; and (b) this would not include any such goods in
respect of which the conditions, subject to which the goods are
imported or exported, have been complied with. This would mean that
if the conditions prescribed for import or export of goods are not
F complied with, it would be considered to be prohibited goods. This
would also be clear from Section 11 which empowers the Central
Government to prohibit either 'absolutely' or 'subject to such conditions'
to be fulfilled before or after clearance, as may be srecified in the
notification, the import or export Of the goods of any specified
G description. The notification can be issued for the purposes specified
in Sub~section (2). Hence,. prohibition of importation or exportation
could be subject to certain prescribed conditions to be fulfilled before
or after clearance of goods. If conditions are not fulfilled, it may
amount to prohibited goods. This is also made clear by this Court in
Sheikh Mohd. Omer v. Collector of Customs, Calcutta and Ors.,
H [ 1970) 2 sec 728 wherein it was contended that the expression
C{)MMNR. OF C!JSTOMS, NEW DELHll•. BROOKS INTERNATIONAL iPASA~AT, I. ). 7,95' .
•.• t

'prohibition' used in Section 111 (d) must be considered as a total A'
prohibition and that the expression does not bring within its fold the
restrictions imposed by Clause (3) of the Import Control Order, 1955.
The Court negatived the said contention and held thus:--

"... What Clause (d) of Section 111 says is that any goods which
are imported or attempted to be imported contrary to "Any B
prohibition imposed by any law for the time being· in force in this
country" is liable to be confiscated. "Any prohibition" referred 1

to in that section applies to every type of "prohibition". That
prohibition may be complete or partial. Any restriction on
import or export is to an extent a prohibition. The expression
"any prohibition" in Section 11 l(d) of the Customs Act, 1962 C
includes restrictions. Mendy because Section 3 of the Imports
and Exports (Control) Act, 1947, uses three different expressions i
''prohibiting", "restricting" or "otherwise controlling", we
cannot cut down the amplitude of the word "any prohibition"
in Section 11 l(d) of the Act. "Any prohibition" means every D
prohibition. In other words all types of prohibitions. Restriction
· is one type of prohibition. From item (I) of Schedule I, Part IV
to Import Control Order, 1955, it is clear that import of livingl
animals of all sorts is prohibited. But certain exceptions are
provided for. But nonetheless the prohibition continues."
E

15. Apart from the aforesaid provision, for finding out the true export
value of the goods, Section 14 of the Act provides relevant procedure:.
Section 14 is to be read along with Section 2(41), which defines the
word 'value'. Section 2(41) reads as under:-- p
"Section 2(41)-"value'', in relation to any goods, means the
value thereof determined in accordance with the provisions of
Sub-section (1) of Section 14."

Thereafter, relevant part of Section 14 reads thus:--
G
"14. Valuation ofgoodsfor purposes ofassessment.'--{ I) For the
purposes of the Customs Tariff Act, 1975 (51 of 1975) or any
other law for the time being iit force whereunder a duty (>f
)
customs is chargeable on any goods by reference to their value,
the value of such go"ds shall be deemed to be--
H
796 SUPREME COURT REPORTS (2007) 7 S.C.R.

A the price at which such or like goods are ordinarily sold. or
offered for sale, for delivery at the time and place of importation
or exportation, as the case may be, in the course of international
trade, where the seller and the buyer have no interest in the
business of each other and price is the sole consideration for
the sale or offer for sale:
B
Provided that such price shall be calculated with reference to the
rate of exchange as in force on the date on which a bill of entry
is presented under Section 46, or a shipping bill or bill of export,
as the case may be, is presented under Section 50;
c (IA) Subject to the provisions of Sub-section (I), the price
referred to in that sub-section in respect of imported goods shall
be determined in accordance with the rules made in this behalf.
(2) Notwithstanding anything contained in Sub-section (I) or
Sub-section (IA) ifthe Central Government is satisfied that it is
necessary or expedient so to do, it may, by notification in the
D
Official Gazette, fix tariff values for any class of imported goods
or export goods, having regard to the trend of value of such or ~""'
like goods, and where any such tariff values are fixed, the duty
shall be chargeable with reference to such tariff value.
(3) ..."
E
16. The aforesaid Section would be applicable for determining the
value of goods for the purpose of assessment of tariff under the Act
or any other law for the time being in force whereunder a duty of
customs is chargeable on any goods by reference to their value. In
the present case, on export of goods in question, no duty was payable
F
under the Act. It was, therefore, contended that there is no scope of
application of Section 14 for determining the value of goods by
applying the criteria laid in the said Section. In our view, this submission
cannot be accepted. For determining the export value of the goods,
we have to refer to the meaning of the word 'value' given in Section
G 2(41) of the Act, which specifically provides that value in re'.ation to
any goods means the value thereof determined in accordance with the
provisions of Sub-section (I) of Section 14. Therefore, if the export
value of the goods is to be determined, then even if no duty is
leviable, the method (mode) for determining the value of the goods
provided under Section 14 is required to be followed. Section 14
H
.COMMNR Of CUSTOMS. NEW DELHI•. BROOKS INTERNATIONAL (PASAYAT. I.) 797
specifically provides that in case of assessing the value for the purpose A
of export, value is to be determined at the price at which such or like
j
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 B
of 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 provide 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 C
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.

17. It is true that Section 50 of the Act inter alia provides that before
exporting the goods the exporter shall make entry thereof by presenting D
to the proper officer in the case of goods to be exported, a shipping
bill and a bill of export in prescribed form. The Shipping Bill & Bill of
Export (Form) Regulations, 1991 inter alia prescribes the said form.
After that form is amended w.e.f. 15.6.2001, it is stated that exporter
shall stated "Value- FOBIPMVwhere applicable". We are not required
to deal with this aspect in this appeal as the goods were sought to E
be exported in the year 1998.

18. From the aforesaid provisions, mainly, Section 2(41) read with
Section 14 of the Act and Section 18 of the Foreign Exchange
Regulation Act, 1973, it is crystal clear that:--
F
(a) Exporter has to declare full export value of the goods (sale
consideration for the goods exported).

(b) Exporter has to affirm that the full export value of the goods
will be received in the prescribed manner.

(c) If the foll export value of the goods is not ascertainable, the G
value which the exporter expects to receive on the sale of the
goods in the overseas market.

(d) Exporter has to declare true or correct export value of the
goods, that is to say, correct sale consideration of the goods.
H
798 SUPREME COURT REPORTS (2007) 7 S.C.R.

A Criterion under Section 14 of the Act is the price at which such
or other_ goods are ordinarily sold or offered for sale in the
course of international trade where the seller and buyer have no'
interest in the business of each other and the price is the sole
consideration for sale or offer for sale.

B 19. To the same effect, Rule I I of the Foreign Trade (Development and
Regulation) Rules, 1993 provides. This Rule is to be read along with
Section 11(1) of the Foreign Trade (Development & Regulation) Act,
1992, which inter alia provides that no export or import shall be made
by any. person except in accordance with the provisions of this act,
the rules and the orders made thereunder and the export and import
c policy for the time being in force. Rule I I reads thus:--

n1 I. Declaration as to value and quality of imported goods.-
-On the importation into, or exportation out of, any customs
.ports of.any goods, whether liable to duty or not, the owner of
such g(,)Ods shall in the bill of entry or the shipping bill or any
D other documents prescribed under the Customs Act, I 962 (52 of
1962), state the value, quality and description of such goods to
the. best of his knowledge and belief and in case of exportation
of goods, certify that the quality and specification of the goods
as stated in those documents are in accordance with the terms
E of the export contract entered into with the buyer or consignee
in pursuance of which the goods are being exported and shall
subscribe to a declaration of the truth of such statement at the
foot of such bill of entry or shipping bill or any other documents.
ti

20. Hence, in cases where the export value is not correctly stated, but
F there is intentional over-invoicing for some other purpose, that is to
say, not mentioning true sale consideration of the goods, then it
would amount to violation of the conditions for import I export of the
goods. The purpose may be money laundering or some other purpose,
_ but it would certainly amount to illegal/unauthqrised money
transaction. In any case, over-invoicing of the export goods would
G result in illegal/irregular transactions in foreign currency.
ti

8. It would be appropriate for the CEGA T which had not considered the
effect of the larger bench judgment, which had approval of this Court in Om
Parlt.ash case (supra) to rehear the appeals. We, therefore, set aside the order (
of the CEGAT and remit the matter to it for fresh consideration keeping in
H
COMMNll. OF CUSTOMS. NEW DELHI v. BROOKS INTERNATIONAL [PASAVAT. J. ) 799
view the principles set out in the Om Parkash case (supra}. A
9. The appeals are allowed to the aforesaid extent

C.A. Nos. 140-143 of2004

to. The factual position is almost identical to those involved in C.A. B
Nos. 4559-4561 OF 2002 except that in the instant case the appellant had file~
an application for review which was rejected .
.(
11. Following the view expressed in the connected civil appeals we
allow these appeals and remit the matter to CEGAT for fresh consideration.
It is to be. noted that CEGAT is presently known as Customs, Excise and C
Service Tax Appellate Tribunal.

12. Appeals are allowed.

S.K.S. Appeals allowed:
D

,.