Dilip B. Bhosale, J.@mdashThis Customs Appeal u/s 130 of the Customs Act, 1962 (for short ''the Act''), is directed against the order dated 10-5-2011 passed by the Customs, Excise and Service Tax Appellate Tribunal (for short ''CESTAT'') in Appeal No. C/486/2006 [2014 (305) E.L.T. 144 (Tribunal)], whereby, the respondent''s appeal has been allowed and the order of imposing penalty u/s 114 of the Act has been set aside. Since the goods had already reached its destination outside the country, there was no question of its confiscation as contemplated u/s 113 of the Act and hence, there was an order of imposing penalty only. Appeal before the CESTAT was against the order of the Commissioner of Customs in Order-in-Original No. 5/2006, whereby, the Commissioner imposed the penalty of Rs. 25 lakhs on the respondent-exporter u/s 114 of the Act.
2. This Court while admitting the appeal on 20-1-2012, formulated the following substantial questions of law:-
(i) Whether the conclusions of the CESTAT that the order-in-original travelled beyond the scope of the show cause notice since the original authority relied on some fresh materials which were not cited in the show cause notice and the two reports of chemical laboratory cited therein were not relied upon because of certain defects, is legally tenable?
(ii) Whether the conclusions of the CESTAT that the Commissioner has travelled beyond the scope of the show cause notice, while passing the order-in-original, is legally tenable?
3. The respondent-exporter had presented a consignment (Iron Ore) for export, declaring its Fe contents as 65% in Shipping bill dated 14-5-2004. The quantity of the export goods (Iron Ore) was 39650 MTs and the Free on Board (FOB) value declared was over to Rs. 5.75 Crores. Admittedly, the respondent-exporter was possessing Export licence of Iron Ore fines containing Fe content of + 64-65%. At the time of export, samples of the consignments were drawn and sent for chemical analysis to the Chemical Examiner, Custom House, Cochin, for testing and ascertaining Fe content of the goods. However, the export was allowed provisionally pending the receipt of test report. The chemical examiner, Custom House, Cochin, after analysis of the samples covered by Test Memo. No. 196, dated 25-5-2004 reported vide S-10/11/2004-05 Lab Customs L-148(M) on 18-6-2004, that the Fe content of Iron Ore samples was 68.4%. Since the Fe content as per the chemical examiner, Custom House, Cochin, was on the higher side, the respondent-exporter requested for retest of the samples at the Central Revenue Control Laboratory (CRCL), New Delhi. The laboratory at Delhi, vide its letter dated 1-3-2005, confirmed the Fe content in the subject consignment as 67.3%. Admittedly, Export and Import Policy 2002-2007 had restricted export of Iron Ore containing Fe content above 65% and permitted it only through Metals and Minerals Trading Corporation (MMTC) and under licence issued by Director General of Foreign Trade (DGFT).
4. In the present case, the respondent-exporter had exported the consignment under Export Licence No. 0001718, dated 10-3-2004, wherein, they were permitted to export Iron Ore Fines containing Fe + 64-65%. Since the Fe content of Iron Ore exported by the respondent-exporter was found to be more than 65%, in exercise of the powers conferred under Chapter XIII of the Act, a show cause notice u/s 114 of the Act was issued to the respondent-exporter to show cause, why the goods u/s 113(d) and (i) of the Act be not confiscated and penalty be imposed u/s 114(i) of the Act.
5. In the show cause notice dated 13-12-2005, the Commissioner after making reference to the factual matrix, as mentioned above, while calling upon the respondent to show cause, in paragraphs 5-9 stated thus:-
5. Therefore, it appears that the exporter has exported the goods in violation of the conditions prescribed in the Export-Import policy in respect of export of Iron Ore and as such the goods appear to be liable for confiscation u/s 113(d) of the Customs Act, 1962 read with Section 3(3) of the Foreign Trade (Development & Regulation) Act, 1992. Further, it appears that the exporter had misdeclared the export goods in the shipping bill and the connected export documents and thereby the goods are also rendered liable for confiscation u/s 113(i) of the Customs Act.
6. By their act of exporting the goods by misdeclaring the Fe content in the Iron Ore in violation of license issued by DGFT and Policy provisions, rendering the goods liable to confiscation under Sections 113(d) and 113(i) of the Customs Act, 1962, the exporter, M/s. Laxminarayana Mining Company, Sannidhi Rood, Basavanagudi, Bangalore - 560004 [appear liable for penalty u/s 114(i) of the Customs Act, 1962].
7. Now, therefore M/s. Laxminarayana Mining Company, Sannidhi Road, Basavanagudi, Bangalore - 560004, are hereby called upon to show cause to the Commissioner of Customs, New Custom House, Panambur, Mangalore - 575010, as to why:
(i) the 39650 Metric Tons (Net Qty.) of iron ore fines, valued at Rs. 57506378/- (FOB) and exported vide shipping Bill No. 1011286, dated 14-5-2004 should not be rendered liable for confiscation under Sections 113(d) and 113(i) of the Customs Act, 1962, and
(ii) penalty should not be imposed on M/s. Laxminarayana Mining Company, Sannidhi Road, Basavanagudi, Bangalore - 560004 [under Section 114(i) of the Customs Act, 1962].
8. Reply to this notice, along with originals of all documents that they may rely upon, should reach the undersigned within 15 days from the date of receipt of this notice. They should also mention whether they wish to be heard in person before the case is decided. If no reply is received within the stipulated time or if they fail to appear for the personal hearing fixed for the case, the case will be decided on the basis of evidence on record without any further reference to them.
9. This notice is issued without any prejudice to any other action taken under this Act or any other Act or Law for the time being in force in the Union of India.
6. The respondent-exporter contested the show cause notice. The Commissioner in the course of hearing of the case, seem to have made reference to the report of chemical examiner at the receiving port in China and so also to some other documents which admittedly were not referred to in the show cause notice. Based on that material, the Commissioner passed the order dated 31-8-2006 imposing penalty of Rs. 25 lakhs on the respondent-exporter u/s 114 of the Customs Act. The Commissioner held that the Iron Ore exported by the respondent-exporter contain more than 65% Fe content and since it was not permissible under the export licence produced by the respondent-exporter, imposed the penalty u/s 114 of the Act.
7. The CESTAT, however, set aside the order passed by the Commissioner on two grounds. Firstly, the reports of the chemical examiners at Cochin and New Delhi were rejected on the ground that the concerned authority did not follow the procedure contemplated in drawing samples as prescribed by the Bureau of Indian Standards and so also on the ground that method of chemical analysis of the Iron Ore as prescribed by the same authority was not followed. It is pertinent to note that these reports were not accepted even by the Commissioner. Secondly, it was held that the material, on which the Commissioner relied upon was not mentioned or referred to, in the show cause notice u/s 124 of the Act.
8. Mr. C. Shashikanth, learned counsel appearing for the appellant, at the outset, invited our attention to the order passed by the Commissioner and after taking us through the same, submitted that the Commissioner after relying upon the material extracted from the respondent-exporter, in the course of hearing/enquiry, recorded the finding that the Fe content of the Iron Ore samples was more than 65%. He placed reliance upon the report of the chemical examiner at China, which show that the Fe content of Iron Ore was 65.27% as per CIQ reports dated 28-6-2004 and 7-7-2004. On the basis of these reports and the other documents which came on record, in the course of hearing, before the Commissioner, learned counsel for the appellant submitted that the Commissioner has rightly drawn the inference that the Fe content of Iron Ore was more than 65%. He also submitted that it was not necessary for the Commissioner, while issuing show cause notice, to disclose all the materials they wanted to rely upon. He submitted that it was open to the Commissioner to take into consideration the materials which surfaced in the course of enquiry i.e., after issuing the show cause notice.
9. On the other hand, Mr. N. Anand, learned counsel appearing for the respondent-exporter, invited our attention to Section 124 of the Act and submitted that in any case, it was not open to the Commissioner to take into consideration the material which was not mentioned/referred to/disclosed in the show cause notice. In other words, he submitted that the Commissioner in the present case, travelled beyond the scope of show cause notice while passing the order-in-original.
10. We have perused the provisions contained in Section 124 of the Act and also other relevant provisions. Chapter XIII of the Act deals with searches, seizure and arrest. This Chapter contains Sections 100-110A. From bare perusal of the provisions contained in this Chapter, it is clear that the concerned authorities are conferred with lot of powers and suppose to follow several stages before confiscation of goods attempted to be improperly exported. Section 100 empowers to search suspected persons entering or leaving India. Section 102 provides that a person to be searched is required to be taken before the Gazetted Officer of the Customs or Magistrate. Section 104 empowers the concerned authority to arrest any person in India, if commits any offence punishable under Sections 132, 133, 135, 135A and 136 of the Act. Section 105 empowers to search the premises. Section 106 confers power to stop and search conveyances. Section 107 empowers to examine persons in the course of any enquiry in connection with smuggling of any goods. The concerned authority has a power u/s 108 to summon persons to give evidence and produce documents in any enquiry, which the concerned officer is making under the Act. Section 110 empowers the proper officer for seizure of goods, documents and things. Section 110A also confers power to the concerned officer to provisionally release the goods, documents and things seized pending adjudication.
11. Chapter XIV speaks about confiscation of goods and conveyances and imposition of penalties. This chapter contains Sections 111 to 127. Section 113 provides for confiscation of goods attempted to be improperly exported. Section 114 provides penalty for attempt to export goods improperly.
12. Before taking any action of confiscation of goods or imposition of penalty under the provisions of the Act, it is necessary to issue show cause notice u/s 124 of the Act. Under this provision, no order confiscating any goods or imposing any penalty on any person shall be made unless the owner of goods or such person is given a notice in writing with the prior approval of the officer of the Customs not below the rank of Assistant Commissioner of Customs, informing him "of the grounds" on which, it is proposed to confiscate the goods or to impose the penalty; and is given an opportunity of making representations in writing within such reasonable time as may be specified in the notice against the grounds of confiscation or imposition of penalty mentioned therein. Section 124 also provides for an opportunity of being heard, provided, such request is made by the person concerned either in writing or oral.
13. Having regard to the provisions of the Act referred to above, it is clear that in the show cause notice u/s 124 of the Act, it is mandatory to inform, any person, of the grounds, on which the authority proposes to confiscate his goods or impose penalty on him. In the present case, as observed earlier, in the show cause notice, reference was made only to the reports of chemical analysis made at Cochin and New Delhi. It is not in dispute before this Court nor was there any dispute before the CESTAT that the procedure laid down by the Bureau of Indian Standards for drawing samples and sample preparation was not followed by the concerned authority. In view of the admitted facts, the reports of chemical examiners at Cochin and New Delhi had been rightly rejected by the Commissioner and CESTAT, holding that they are of no avail to the appellant to prove that the Fe content of Iron Ore samples was more than 65%.
14. The material, on which the Commissioner relied upon to hold that the Fe content of Iron Ore samples was more than 65%, was admittedly not referred to/mentioned/disclosed in the show cause notice. In other words, the grounds on which the Commissioner relied upon to hold that the Fe content of Iron Ore was more than 65% and imposed penalty on the basis thereof, were not the grounds mentioned in the show cause notice dated 13-12-2005. This has not been disputed by learned counsel for the appellants. In this view of the matter, we do not find any reason to interfere with the order passed by the CESTAT which has rightly set aside the order of the Commissioner.
15. The contention urged by learned counsel for the appellant that in the course of enquiry, it was open to the Commissioner to consider and deal with all the material that was disclosed, though it was not referred to in the show cause notice, deserves to be rejected outright. If this submission is accepted, it would also amount to violation of principles of natural justice. Section 124 of the Act clearly provides that notice should disclose all the grounds on which it is proposed to confiscate the goods or impose penalty. Even if it is assumed that what Mr. C. Shashikanth, learned counsel appearing for the appellant submitted is correct still, in our opinion, the material on which the Commissioner relied upon cannot be the ground to hold that the Fe content of Iron Ore samples was more than 65%. The Commissioner held against the respondent-exporter placing reliance upon the two reports of the Laboratory at China dated 28-6-2004 and 7-7-2004 (CIQ report). It is not clear nor any attempt was made by the appellant to show that while conducting chemical analysis, what was the method adopted by the laboratory in China or what were the standards prescribed for collecting the samples and conducting chemical analysis there. The report of the chemical laboratory at China which has shown 0.27% more Fe content than what is prescribed. Admittedly, the show cause notice did not make any reference, direct or indirect to these reports. Therefore, in our opinion, the reports of laboratories in China are of no avail to the appellant to take their case any further. Even the other material which was relied upon by the Commissioner, was not disclosed/reflected in the show cause notice and in any case that would not help the appellants to contend that there was an admission on the part of the respondent-exporter that the Fe content of Iron Ore exported by them was more than 65%. As a matter of fact, respondent-exporter, right from inception has contended that the Fe content of Iron Ore exported by them was not more than 65%. It is in this backdrop, we do not find any merit in the appeal and hence, it is dismissed. Both the questions are accordingly answered against the appellant and in favour of the respondent. No costs.
