The Commissioner Of Customs v. M/S Globle Entertainments And ANR

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION CUSTOMS APPEAL NO.30 OF 2005 The Commissioner of Customs(Airport) ..Appellant -VersusM/s. Globe Entertainments & Anr.

..Respondents ...........

Mr. Advait Sethna a/w Ms. Raju Thakkar and Ms. Suchitra Kamble for the Appellant.

Mr. Vipin Jain a/w Mr. Krishan Kumar and Mr. P. K. Shetty for the Respondent No.1.

Mr. Yahya Ghoghari i/b. M/s. Sonal Doshi & Co. for the Respondent No.2. ...........

CORAM: S.C. DHARMADHIKARI AND N. W. SAMBRE, JJ.

DATE :- 6 FEBRUARY, 2015 P.C.:

This Appeal is by the Revenue questioning the legality and validity of the order passed by the Tribunal whereby the Appeal preferred by the Respondent No.1-Assessee came to be allowed.

2] While admitting the present Appeal, this Court has framed the following questions of law:- 1/22

"(1) Whether the CESTAT erred in setting aside the Order in Original dated 9.7.2003, which directed confiscation of 8 seized pre-recorded cassettes as also the cassettes already exported, under Shipping Bills dated 27.1.1999 and 16.2.1999, on the ground of mis-declaration, resulting in contravention of the provisions of section 113(d) and (i) of the Customs Act?

(2) Whether the CESTAT erred in disregarding the contraventions of relevant statutory provisions of the Customs Act, namely, sections 2(33), 11, 50(2) as also section 18(1)(a) and section 67 of the FERA read with the relevant notifications thereunder, all of which justify the confiscation of the said cassettes under section 113(d) and (i) as held in the order in Original?

(3) Whether the CESTAT erred in disregarding the contraventions of the Income Tax Act, i.e. sections 80HHC inter alia, duly considered in the order in Original leading to the confiscation of the said video cassettes for violation of the Customs Act provisions as well as other applicable statutes collateral to Customs Act?

(4) Whether the CESTAT was justified in allowing the consequential relief to the respondents herein, in terms of setting aside the penalty imposed under section 114 despite illegal exportation of goods, which were held liable to absolute confiscation under section 113(d)and (i) vide Order in Original dated 9.7.2003?"

3] The few facts regarding the contentions raised before this Court can be summarized as under:

The present Respondent No.1 claimed to have entered into an agreement on May 18, 1998, transferring the overseas rights in relation to a television serial "Dekh Bhai Dekh" for its 55 episodes in eight number of 2/22

VHS cassettes and has exported the same to Set-Satellite Pvt.Ltd., Singapore for consideration of Rs.1.32 crores. The rights were transferred for a period of two years.

4] On 18th January 1999, respondent No.1 entered into another agreement with M/s. ABCL, who were producers of the said serial for acquiring the telecast rights of the same on Sony T.V. for a consideration of Rs.50 Lacs. It is not in dispute that the earlier contract of transferring overseas rights to M/s Set-Satellite executed on 18th May 1998, another contract was entered into in relation to the same, as stated herein above, in view of the agreement of export.

5] The video cassettes of Hindi serial were exported vide shipping bills dated 27th January 1999 and 16th February 1999 having declared value of Rs.44,40,675/- and Rs.28,29,950/- respectively. 6] In view of the export agreement, third shipping bill was filed for export of recorded video cassettes on 4th March, 1999 having declared value of Rs.1,10,71,852/- 7] The Revenue, having received an information that the cassettes in the said shipping bill were overvalued, as such stalled the processing of the shipping bills and initiated inquiry.

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8] It is an admitted fact on record that the above referred transaction/goods are not chargeable, by the Revenue. The goods were exported on two occasions vide Shipping Bills dated 27th January, 1999 and 16th February, 1999. The nature of the goods which were shifted where the VHS Video Cassettes which were recorded on 4th March, 1999 at the facility of the Respondent No.2. The Respondent No.2 who was third party exporter in the present case has processed the same at their unit. The shipping bill filed by the Respondent No.2 in relation to the cassettes declared the value of the same at Rs.1,10,71,852/-. The consignee shown to be the Set Satellite.

9] Having regard to the above referred development, the Revenue has started an inquiry in the matter and has proceeded to record the statement of Hirachand Damaji Dand, proprietor of M/s. Globe Entertainments, Mr Aziz Dohodwala, General Manager of M/s. Orson Video, who was assisted by Mr Namdeo Bhuvad under section 108 of the Act. In the said statement, which was recorded under section 108 of the Customs Act, 1962, it is claimed by the Revenue that the Director of the Respondent No.1 company has admitted that the transfer was over valued and same was done with an intention to derive the benefit under section 80 HHC of the Income Tax Act.

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10] Based on the above referred factual matrix, the Revenue has issued a show cause notice to the Respondent herein under section 124 of the Customs Act calling upon the Respondent No.1 as to why the 8 VHS prerecorded video cassettes under the seizure having been declared value of Rs.1,10,71,850/- shall not be confiscated under section 113 (d) and (i) of the said Act. The Respondent No.1 was also called upon as to why 6 VHS pre-recorded video cassettes exported under the Shipping Bill dated 27th January, 1999 and 12 video cassettes exported under Shipping Bill dated 16th February, 1999 total valued at Rs.74,30,625/- shall not be held liable for confiscation under section 113 (d) and (i) of the Customs Act, 1962. It was also informed to the Respondent No.1 as to why penalty be not imposed under section 114(i) of the Customs Act.

11] The Commissioner of Customs while passing the Order in Original on 14th July, 2003 has reached to a conclusion that the confiscation of the 8 VHS pre-recorded video cassettes under seizure having declared value of Rs.1,10,71,850/- under section 113(d) and (i) of the Customs Act, 1962 to be absolute. It was further ordered that the said video cassettes were being exported only to show physical exports as discussed earlier, they are of no use to the exporter and same be destroyed.

exported under Shipping Bill dated 27th January, 1999 and 12 video cassettes exported under Shipping Bill dated 6th February, 1999 total valued at Rs.74,30,625/- are liable for confiscation to section 113(d) and 113(i) of the Customs Act, 1962. In view of the order of the confiscation as narrated herein above and the non-availability of the goods for confiscation, the Commissioner invoked provisions of section 114 and imposed penalty of Rs.10 lakhs under section 114(i) on the Respondent No.1 M/s. Globe Entertainments on the basis of evidence as is discussed in the said order. A further penalty under section 114(i) came to be imposed on Mr. Hirachand Dand, Director of Respondent No.1, M/s. Orson Video Pvt. Ltd., Respondent No.2, Mr. Namdeo Bhuvad and Mr. Aziz Dohadwala, who are employees/Director of the two firms. 12] Appeal Nos.

C/799 and 800/2003 came to be filed by Respondent No.1 and 2 respectively. The Appeals came to be allowed by the decision dated 10th December, 2004 by the Tribunal whereby the Tribunal has proceeded to allow the same and set aside the order passed by the Commissioner of Customs as such present Appeal. 13] Mr.

is required to be scrutinized, as according to him the issue which were sought to be raised, and adjudicated by the Tribunal are not gone into its entirety by the Tribunal, having regard to the scope of appeal. He has sought to urge that though it is an admitted position on record that the goods are not chargeable under the Customs Act, however, the Revenue cannot overlook the over valuation of the goods and according to him, the Revenue has rightly conducted an inquiry and the Commissioner has passed an order having regard to the valuation of the goods in accordance with provisions to section 14 of the Customs Act.

He submits that the very parameters which are required to be considered in the light of the scheme of section 14 were adhered to by the Revenue while determining the value of the goods in the light of statement and conduct of the parties, so as to reach to a conclusion for determining the true value. Said aspect according to him was duly appreciated and gone into by the Commissioner of Customs. According to him, due weightage was given to the statement given by Mr. Dand, representative of the Respondent No.1 which was recorded in exercise of power under Section 108 of the Act which according to him in view of Section 108, same has strong evidentiary value. Based on the same, Mr.

allowed the Appeal. According to him, Mr. Hirachand Dand in his statement recorded on 8th March, 1999 in clear terms admitted that the goods in question that is the video cassettes are over valued and the same according to him is done with an intention to claim benefit under section 80HHC of the Income Tax Act. He further submits that it is an admitted position on record that the goods of which the export was sought to be demonstrated, was not to be used for the purpose of the telecasting, as the said event of telecasting in relation to the serial had already commenced. 14] In support of his contentions, he has sought to place reliance upon the judgment of the Apex Court in the matter of Om Prakash Bhatia V/s. Commissioner of Customs, Delhi reported in 2003(155) E.L.T. 423 (S.C.)

so as to canvas that the over-invoicing of the goods for export would mean attempt to export the prohibited goods. He has sought to place reliance upon the observations made by the Apex Court in para 12 and 18 of the said judgment. The said judgment is relied upon by him so as to demonstrate that the goods which were over valued could be termed as prohibited goods.

15] He has also placed reliance on the judgment of the Apex Court in the matter of Commissioner of Central Excise & Customs, A. P. V/s. 8/22

Suresh Jhunjhunwala reported in 2006 (203) E.L.T. 353 (S.C.) so as to canvas that even the violation of the provisions of other statute, such as the Income Tax Act or the FERA could be taken into account so as to form an opinion that the export was that of prohibited goods. In support of his contentions, he has placed reliance upon the observations made in para 16, 18, 19 and 24 of the said judgment so as to canvas that once the Director of the Respondent No.1 while conducting an inquiry by the Revenue has brought on record through the statement recorded under Section 108 that there is an admission as regards violation of the provisions of Income Tax Act, the order passed by the Commissioner according to him is justifiable.

16] In addition to above, Mr. Sethna has also relied upon the judgment of the Apex Court in the matter of Commissioner of Customs (Gen), Mumbai V/s. Abdulla Koyloth reported in 2010 (259) E.L.T. 481 (S.C.) so as to canvas that the approach of the Tribunal in the matter is required to be re-assessed by this Court having regard to the scope of power of Tribunal.

17] According to him, having regard to the above referred factual matrix and the legal provisions cited above, the order passed by the 9/22

learned Tribunal is not sustainable. He further urged that the valuation of the goods which is concluded in accordance with the provisions of section 14 is based upon the practical approach and the scheme thereof. He submits that there was enough material before the Revenue to form an opinion that the goods are over valued and proper value of the goods under export is Rs.21,000/-. So as to support the said contentions, he has taken us through the contents of the show cause notice, the Order in Original passed by the Commissioner of Customs and the considerations thereof by the learned Tribunal.

18] While resisting the above referred submissions, Mr. Jain, learned Counsel, appearing for the Respondent No.1 has urged that the very approach of the Tribunal is just and proper. According to him, every event of export of the goods, duty cannot be leviable by Revenue unless provided so expressly. He has urged that valuation of the goods was very much established before the Revenue, while responding to the show cause notice. He submits that what is required to be taken into account is not the value of the video cassettes as is available in the shop but also with intellectual rights with which the said goods were purchased by the Respondent No.1. He further submits that the Revenue is not able to establish the over valuation of the goods particularly having regard to the 10/22

contents of the show cause notice and the observations made in the order of Commissioner thereto. According to him, the considerations towards the rights which are transferred through the contents of the said video cassettes which also gives right of telecast is also required to be considered which, according to him, was not looked into and appreciated by the Commissioner of Customs. He further submits that the said issue is no more res integra and is already covered by the judgment of Apex Court in the matter of Tata Consultancy Services V/s. State of Andhra Pradesh reported in (2005) 1 SCC 308. He has sought to rely upon the observations made by the Apex Court in para 27 for the purpose of consideration of fact while assessing the value of the goods to be exported.

19] In addition to above, he submits that the learned Tribunal has rightly taken into account the entire matter and has reached to a conclusion that the Assessee is not liable for the penalties/fine as ordered. As such, he has supported the order passed by the Tribunal and prayed for dismissal of the Appeal.

20] In the light of above referred submissions, we proceed to consider the findings recorded by the Commissioner in the order in original and 11/22

that of the Tribunal. It is noticed from the order of the Commissioner that respondent No.2 to the appeal, i.e. Orson Video which has acted for the Globe Entertainments, i.e. respondent No.1, who is an exporter, as a manufacturer of the cassettes have processed the recording of VHS cassettes at their workshop and has also further processed export of the same. The Commissioner noted that though the matter before him was adjourned from time to time, respondent No.2 has not participated in the said inquiry by filing any statement. The Commissioner proceeded to consider the statement of Namdeo Bhuvad, who worked as an Assistant of Aziz Dohodwala, Managing Director of respondent No.2, so also statement of Mr Dohodwala and noted as under :

"Respondent No.1 was a common exporter and respondent No.2 are the manufacturer of the recorded cassettes, who were effecting export of the cassettes through respondent No.1. The exports were effected for M/s. Set-Satellite, Singapore, who had agreement with respondent No.1 for purchase of telecast rights of the same serial in terms of separate contract entered into between Set-Satellite, Singapore and respondent No.1. Respondent No.1 against shipping bill No.16379 dated 4th March 1999 for export of 55 episodes of T.V. Serial "Dekh Bhai Dekh", claimed the manufacture of the goods by respondent No.2 in SEEPZ. Respondent No.2 have produced photocopy of agreement between respondent No.1 and Set-Satellite, Singapore dated 18th January 1999, which was admitted by the 12/22

representative of respondent No.2."

21] The Commissioner further noted that the representative of respondent No.1 Mr Hirachand Dand in his statement recorded under Section 108 of the Customs Act, 1962 stated that on 14th May 1998, respondent No.1 has entered into MOU with M/s. ABCL, wherein respondent No.1 acquired sole and exclusive rights of T.V. Serial, which include second telecast for satellite cable and Pay T.V. 22] The first telecast right was with M/s. Madhu Videotec which had sold it to M/s. Sony.

23] Respondent No.1 had purchased the said rights for a sum of Rs.50 Lacs and has entered into a contract with Set-Satellite, Singapore for a consideration of Rs.1.32 Crores, in support of which he has produced original contract and receipt of Rs.1.32 Crores from M/s. Set-Satellite, Singapore against different foreign inward remittance which was certified by Union Bank of India. It is noted by the Commissioner that Mr Hirachand had admitted that the contract dated 18th January 1999 produced by respondent No.2 was a forged document. The Commissioner further noted that the said witness had admitted that the export is meant so as to draw benefit under Section 80 HHC of the Income Tax Act and as 13/22

such, proceeded to hold that respondent No.1 was effecting export by misdeclaring the value for the purpose of claiming income tax benefit and the material cost plus the recording charges and valued the exported goods at Rs.21,000/- against shipping bill dated 4th March 1999 and as such, ordered confiscation.

24] In appeal, the Tribunal noted that there is no dispute that the goods under export are neither dutiable nor prohibited for export. It is also claimed that the provisions under Sections 113 (d) and 113 (i) of the Customs Act are not attracted. The Tribunal, in the light of the observations made by the Commissioner and while reassessing the same has noted that the purchase of rights by respondent No.1 for goods of Rs.50 Lacs from M/s ABCL was very much established as M/s. ABCL was producer of the serial. The Tribunal also noted that pursuant to the agreement with Set-Satellite, Singapore of that of respondent No.1, the foreign remittance was very much certified by the Bank about receipt of consideration of Rs.1.32 Crores. As such, according to the Tribunal, there appears to be genuineness in the transaction, however, if the allegations of undue benefit under the provisions of Section 80 HHC of the Income Tax Act are noticed, the same will be looked into by the Income Tax Department and as such, formed an opinion that no contravention of the 14/22

provisions of Customs Act was noticed, further declaring confiscation of goods and imposition of penalties as illegal. 25] In the light of the observations made by the Tribunal, it is required to be noted that the Tribunal was alive to the fact as regards the evidentiary value attached to the statement given by Hirachand for respondent No.1, Namdeo Bhuvad and Aziz Dohodwala for respondent No.2 under the provisions of Section 108 of the Customs Act. The Tribunal noted that the violation of the provisions of the Customs Act was not proved as the goods were not dutiable or prohibited one and further observed the genuineness of transaction between respondent No.1 and Set-Satellite as regards receipt of consideration of Rs.1.32 Crores under foreign remittance. The Tribunal has also taken into account the approach of the Commissioner while passing the order in original in the matter of valuation of the goods.

26] The evaluation of the issue, as regards whether the goods could be termed as prohibited goods, as is declared by the Commissioner and reversed by the Tribunal, if analyzed, it is noted that the forged agreement produced by the representative of respondent No.2, to which respondent No.1 admittedly is not a signatory, cannot be read in isolation to the detriment of respondent No.1. Respondent No.2, for production of such 15/22

forged agreement will face independent action and as is informed, that is already underway. However, it is required to be noted that the genuineness of the agreement between respondent No.1 and Set-Setellite for transfer of viewing rights to be telecasted on Sony T.V. for the second time was very much established pursuant to the agreement in between Set-Satellite and respondent No.2 against shipping bill dated 4th March, 1999. The receipt of the foreign remittance and the production of original agreement before the Commissioner to that effect justifies the action of respondent No.1 of purchase of right and transfer of the same through overseas export by virtue of an agreement.

Merely because nonavailability of the cassettes in the form as agreed in between, cannot be a reason for drawing conclusion that the export agreement was an empty formality, undertaken with an intention to draw benefit under Section 80 HHC of the Income Tax Act was not correct, and there was no contravention of the provisions of the Customs Act, is just and proper. The reliance placed on the judgment of Om Prakash Bhatia (cited supra), in the matter of over-invoicing of the goods and as such, the goods under this case are to be termed as prohibited goods, was rightly negated by the Tribunal.

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27] So far as the evidentiary value of the statement recorded under Section 108 of the Customs Act is concerned, the said statement cannot be read in isolation in the background of the fact that the contract by respondent No.1 with Set-Satellite, Singapore was taken to its logical end. Reading down of said statute to the detriment of respondent No.1 was rightly overlooked by the Tribunal. In view thereof, the judgment relied upon in the matter of Commissioner of Central Excise and Customs (Gen), Mumbai Vs. Abdulla (cited supra), will be hardly of any assistance to the Revenue.

28] So far as the over-valuation of the goods is concerned, the Commissioner of Customs in his order in original has given finding that the actual valuation of the export consignment covered by the shipping bill dated 4th March 1999 as Rs.21,000/- and tried to justify the same on the basis of the material cost plus recording charges. The basis for forming said opinion by the Commissioner was the already existing right in favour of Set-Satellite from Madhu Videotec about the same serial for first telecast. The Commissioner noted that the Set-Satellite has started second telecast before the export under the agreement in question, however, it is required to be noted that the Commissioner has lost sight of the fact that what was sought to be exported under the shipping bill dated 17/22

4th March 1999 was not only the cassettes but also the overseas rights of telecast by virtue of the agreement dated 8th May 1998 between respondent No.1 and Set-Satellite. The said issue as is rightly pointed out by M/s. Jain is squarely covered by the judgment of the Apex Court in the matter of Tata Consultancy Services (cited supra) and the relevant observations in paragraph 27 thereof read thus : "In our view, the term "goods" as used in Article 366 (12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra).

A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in case of painting) or computer discs or cassettes, and marketed would become "goods". We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value.

The software and the media cannot be split up.

CD. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media i.e. the paper or cassette or disc or CD. Thus a transaction sale of computer software is clearly a sale of "goods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes." 29] Having considered rival contentions raised by the parties, it is required to be noted that the Revenue while issuing the show cause notice to the Respondent No.

1 has placed reliance upon the certain factual matrix in relation to the transaction in question and has in clear terms relied upon the admissions given by the representative of the Respondent No.1, namely, Mr. Hirachand Dand, whose statement was recorded under section 108 of the Act for the purpose of conducting an inquiry and for reaching to a conclusion as regards the over valuation of the goods. Except the said piece of evidence which is considered by the Revenue, it is not independently established on the record as to how the figure of Rs.1.32 crores arrived at in between the Respondent No.1 and the Purchaser is unrealistic.

appropriate weightage while drawing a conclusion that the goods were over valued. The fact that the valuation of the goods in question at the rate of Rs.21,000/- as is concluded by the Revenue, is in our opinion, rightly overturned as the valuation of the blank video cassettes and not the art-rights which are sought to be transferred was taken into account. Perusal of the order of the Tribunal reflects that the said fact appropriately weighed before the Tribunal and the Tribunal as such has drawn the conclusion that there is no contravention of the provisions of Customs Act. The Tribunal has also looked into the fact that the evidence, as to the terms arrived at in the agreement between the Respondent No.

1 and the purchaser about transfer of the rights thereof, was not dealt with on record so as to establish that the said was over valued. The Tribunal has also looked into the approach of the learned Commissioner that the export though also admitted to be under an agreement entered into with a foreign buyers and the remittance of Rs.1.32 crores received by the Respondent No.1 through local banking channel was also not properly appreciated. The Tribunal has also looked into the description and the valuation of the goods as was declared in the shipping bill in terms of the agreement and the physical value of the cassettes and the cost of recording thereof.

value of the goods declared as per the agreement to the extent i.e. Rs.1.32 crores having regard to the transfer of not only the video cassettes but the contents thereof and right to telecast the same. 30.

The reliance placed by the learned counsel for the Appellant in the matter of Om Prakash Bhatia (supra) so as to canvas the over-invoicing the goods for export would mean attempt to export the prohibited goods is concerned, the facts of the present case, the agreement between the parties and the transfer of the consideration through the banking channel is not in dispute. Once the said facts are admitted on record, the applicability of the law in the said judgment will be of hardly any assistance to the Revenue. So far as the law which is sought to be placed in service, namely, of Commissioner of Customs V/s. Abdulla Koyloth (supra) is concerned, in our opinion, the weightage that is given to the statement recorded under section 108 of the Customs Act by the statement of representative of Respondent No.

1, in our opinion, as far as the same is required to be read in the context of the show cause notice and the explanation tendered thereto particularly having regard to the agreements entered into between the Respondent and the overseas buyer. The Tribunal as such rightly overlooked the same, as same was of no consequence in the right of establishment of transaction value.

statement under Section 108 of the Act was very much contested by respondents.

31] In our view, the view taken by the Tribunal is a plausible view and no material illegality or irregularity can be noticed therein. As such the present Appeal which is devoid of merit, stands dismissed. There will be no order as to costs.

(N. W. SAMBRE, J.) (S.C. DHARMADHIKARI, J.) wadhwa 22/22