Commissioner Of Customs vs Orion Enterprises
2015 Latest Caselaw 6262 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI
16.
+                  CUSAA 4/2013
       COMMISSIONER OF CUSTOMS                ..... Appellant
                   Through Mr Rahul Kaushik, Senior Standing
                   Counsel.

                        Versus

       ORION ENTERPRISES                       ..... Respondent
                    Through Mr Navneet Panwar, Advocate.

       CORAM:
       HON'BLE DR. JUSTICE S.MURALIDHAR
       HON'BLE MR. JUSTICE VIBHU BAKHRU
                     ORDER

% 25.08.2015

1. This appeal under Section 130 of the Customs Act, 1962 by the Commissioner of Customs is directed against the final order dated 12 th June, 2012 passed by the Principal Bench of the Customs and Central Excise & Service Tax Appellate Tribunal ('CESTAT') in Customs Appeal No.214/2012. By the impugned order, the CESTAT allowed the appeal of the Respondent and set aside the order dated 15 th February, 2012 of the Commissioner of Customs (Appeals) affirming the Order-in-Original dated 21st October, 2011 of the Additional Commissioner of Customs.

2. The background of the present case is that the Respondent filed two shipping bills both dated 25th January, 2011 for export of 'PUSA 1121 Indian Basmati Sella Rice' to Dubai in four containers. The Respondent

also submitted a copy of the test report of private laboratory, i.e., Sri Ram Institute of Industrial Research, New Delhi. The goods were examined in the presence of the staff of Customs and of the Respondent and samples were drawn for testing at the SGS Laboratory Pvt. Ltd. at Gurgaon. However, the CHA and the representative of the Respondent requested that the sample be sent for testing to any Agmark Testing Centre. A written request was made by the Respondent to the Customs authorities by letter dated 3rd February, 2011.

3. The Respondent thereafter filed Writ Petition (Civil) No.953/2011 before this Court. This Court by an order dated 1st March, 2011 in the said writ petition directed the Department to draw the necessary samples in the presence of the Respondent and send them to any of the Agmark Testing Centres in terms of Circular No. 33(RE-2008)/2004-2009 dated 30th September, 2008 of the Customs Department.

4. Pursuant to the above order, samples were drawn on 10 th March, 2011 and sent to the Regional Agmark Laboratory, Okhla, New Delhi (RAL). Two analytical reports, both dated 14th March 2011, were submitted by the RAL. The findings returned by the RAL in the said reports were as under:

1. The sample does not conform to standards prescribed in Basmati Rice (Export) Grading and Marketing Rules, 1979 (hereafter 'the Basmati Rules').

2. The sample conforms to the requirements of length and length/breadth ration as per the Notification dated 5 th November, 2008 of the Director General of Foreign Trade (DGFT).

5. Since there was some ambiguity in the above report, the Commissioner of Customs (CoC) wrote a letter dated 15th March, 2013 to the RALNew Delhi asking it to clarify, specifically in the light of the notification dated 5th November 2008, whether the product in question was Basmati (including Pusa Basmati 1121) or Non-Basmati Rice. In response to the above query the RAL, New Delhi sent a letter dated 16 th March, 2011 in which it confirmed that both samples were not conforming to the Basmati Rules as they contained 'other rice' in a proportion that exceeded 20% which was the maximum permitted under the said Rules. Secondly, the rice did not possess the natural fragrance in both raw and cooked stages. Hence, neither these sample could be considered as samples of Basmati Rice (RUD No.3). As the Respondent was permitted only to export Basmati Parboiled in terms of the certificate issued in its favour, and since export of non- Basmati Rice was prohibited under the Export Policy in terms of Notification No. 55 (RE-2008) 2004-2009, a show cause notice was issued to the Respondent on 26th May, 2011 by the CoC.

6. Inter alia, in the said show cause notice a reference was made to the order passed by this Court in Writ Petition (Civil) 953/2011 on 1 st March, 2011; to the reports sent by the RAL, Okhla, New Delhi; to the further

query posed by the CoC to the RAL by the letter dated 15 th March, 2011 and the reply thereto from the RAL Laboratory on 16th March, 2011 to the effect that the samples were not conforming to the Basmati Rice "as they were having other rice more than 20% (maximum permitted under the rules) and do not possess the natural fragrance in both Raw and Cooked stages"; that since the admixture exceeded the prescribed limit and in the absence of fragrance, neither sample could be considered be as a sample of Basmati Rice; and that since the exporter had tendered goods for export which were prohibited for export they were liable for confiscation under Section 113 (d) of Customs Act, 1962. The Respondent was asked to show cause why these goods should not be confiscated and penalty should not be imposed.

7. The Additional Commissioner of Customs by the order dated 21 st October, 2011, inter alia, held that although the samples conform the requirement of the length and length/breath ratio as per the DGFT Circular dated 5th November 2008, they failed to conform to the standard of Basmati Rice since the samples contained other rice in a proportion that exceeded 20% and did not possess the required natural fragrance in both raw and cooked stages. Therefore, from the report of the RAL it was evident that the goods presented for export was non-Basmati Rice which was prohibited for export. The Additional Commissioner, therefore, ordered confiscation of the seized goods valued at Rs.42,73,320/- under the Provisions of Section 113(d) & (i) of the Customs Act, 1962. However, an option was given to the Respondent to redeem the goods on payment of a

redemption fine of Rs.8,00,000/-. The Additional Commissioner also imposed a penalty of Rs.3,00,000/- on the respondent under Section 114 of the Customs Act, 1962.

8. The Appeal filed by the Respondent against the aforementioned order was dismissed by the CoC (Appeals) by order dated 15 th February, 2012. In the Appeal filed by the Respondent before the CESTAT it was submitted by the counsel for the Respondent that a similar issue arose in Appeal No. 504/2011 being Appeal No. 504/2011 (Global Agro Impex v. Commissioner of Customs, NOIDA 2013 (290) E.L.T. 717 (Tri. - Del.) in which by an order dated 16th May, 2012 the CESTAT had held that the Rice sought to be exported was not prohibited goods. Consequently, the appeal was allowed and the impugned order of the CoC as well as the Additional Commissioner was set aside.

9. This Court has heard the submissions of learned counsel for the parties. It is pointed out by the learned counsel for the Appellant that it was at the instance of the Respondent that this Court had by order dated 1 st March, 2011 in Writ Petition (Civil) No. 953/2011 directed the samples to be drawn in the presence of the Respondent and sent to the Agmark Testing Centre in terms of the Circular dated 30th September, 2008 of the DGFT. Consequently, the Respondent cannot now raise the plea that the test report of the RAL cannot form a reliable basis for determining whether the consignment sought to be exported by the Respondent conformed to the

standards prescribed by DGFT for Basmati Rice. The test reports of the RAL clearly stated that the percentage of other Rice in the consignment was more than 20% which was the maximum permitted under the Basmati Rules. The sample also did not possess the natural fragrance in both raw and cooked stages. It was pointed out that in the decision in Global Agro Impex (supra), the CESTAT observed that the counsel for the Revenue had been unable to point out any notification of the DGFT which prescribes that the AGMARK standards had to be applied to decide whether the goods were Basmati Rice or otherwise. The attention of the CESTAT was not drawn to the above DGFT circular dated 30th September, 2008. The DGFT circular has been enclosed with the present Memorandum of Appeal as Annexure-A6.

10. Learned counsel for the Appellant submitted that the decision of the CESTAT in Global Agro Impex (supra) is pending consideration before the Allahabad High Court in Appeal No. 797/2012. He relied on the decision of the Hico Products Ltd. v. Collector of Central Excise (1994) 4 SCC 578, Commissioner of Central Excise, Delhi v. Ishaan Research Lab (P) Ltd. & Ors. (2008) 13 SCC 349 and Commissioner of Central Excise, Mumbai-IV v. Damnet Chemicals (P) Ltd. & Ors. (2007) 7 SCC 490 to submit that the report of the RAL was binding on the customs authorities.

11. Learned counsel for the Respondent, on the other hand, submitted that the samples clearly conformed to the requirements of length and the

length/breadth ratio in terms of the DGFT notification dated 05 th November, 2008. The requirement regarding percentage of other rice was later on introduced by the Department on its own and even the show cause notice did not call upon the Respondent to explain any discrepancy on that score. It was submitted that it was only the requirements of the above mentioned DGFT notification that were expected to be complied with. It was further submitted that the test reports did not clearly indicate whether the 'other rice' found present in the consignment was also another form of Basmati Rice itself. A reference was made to the reply received by the Respondent under the Right to Information Act (RTI Act) from the Bureau of Indian Standards that there was no Indian Standard or method to differentiate non-Basmati Rice from Basmati Rice. A reference was also made to the reply dated 22nd September, 2011 of the Ministry of Agriculture under the RTI Act to a query as to whether the Basmati Rice Rules were made to ascertain the quality or veracity of Basmati Rice stating that the said rules have been made to ascertain the 'quality of Basmati Rice.' The thrust of the submission was that the expression 'other rice' could include even other varieties of Basmati rice which may not be able to be determined in terms of the Basmati Rules and that unless the RAL report categorically stated that the other rice was not Basmati Rice, the Respondent could not be said to violate Section 113 (d) of the Customs Act.

12. First, it requires to be noted that the Order-in-Original dated 21st October, 2011 of the Additional Commissioner of Customs refers to the fact that the certificate issued to the Respondent for export mentions the

commodity permitted to be exported as 'Basmati Parboiled 158248'. The second important fact is that under the Export Policy in terms of the DGFT notification dated 5th November 2008, export of non-Basmati Rice is prohibited. The third factor is that in terms of the policy circular dated 30th September, 2008 again issued by the DGFT the Customs Department was to allow the export of Basmati Rice and Pusa 1121 non-Basmati Rice based on the parameters of the grain length, and grain length to breadth ratio. This circular made it clear that "Customs may draw, redeem samples for testing to ascertain variety identification and send these samples for analysis to Agmark Analyst Centres". While the notification dated 16th September, 2008 did prescribe that the standard to be met as far as Basmati rice meant for export was concerned was that the grain should be 7 mm in length and ratio of length to breadth of the grain shape should be more than 3.6, (which was later amended vide notification dated 17th August, 2010 to read more than 6.61mm of length and a length to breadth ratio of more than 3.5), the fact is that under the DGFT Circular dated 30th September, 2008 the samples were also to be sent for testing to the Agmark Laboratories. Combined with the fact that the notification dated 5th November, 2008 prohibited the export of non-Basmati rice, this meant that the consignment had to also conform with the requirement of the Basmati Rice Rules. Schedule 2 to the Basmati Rice Rules specifies the maximum presence of other rice including red grain as 20%.

13. Therefore, the contention of the Respondent that the samples in question were required to conform only to the DGFT notification dated 5th

November 2008 and only in terms of the length and length/breadth ratio as specified in said the DGFT notification is not acceptable. In the decision in Global Agro Impex (supra), the CESTAT did not have the benefit of noticing the DGFT circular dated 30th September, 2008 which permitted samples to be sent for analysis to Agmark Centres. It was in that context that the CESTAT declined to act on the Agmark Standards which conform to the standards prescribed under the Basmati Rice Rules. To that extent, the CESTAT, in the impugned order, by mechanically following the earlier decision in Global Agro Impex (supra) clearly committed an error. In the present case, the testing by the RAL was on the request of the Respondent itself as is evident from the order dated 1st March, 2011 passed by this Court in Writ Civil Petition No. 953/2011. Learned counsel for the Appellant is right in the submission that once there was a report of the RAL clearly stating that the samples did not conform to the requirements of the Basmati Rules inasmuch as the presence of other rice exceeded the maximum permissible limit of 20%, then the Customs Authority was bound by such report. This is consistent with the legal position as explained by the Supreme Court in Commissioner of Central Excise, Delhi and Commissioner of Central Excise, Mumbai v. Damnet Chemicals Private Ltd. (supra) which hold that test reports given by chemical examiners are binding upon the Department in the absence of other acceptable evidence produced by it.

14. The contention of the Respondent that the words 'other rice' could mean other varieties of Basmati Rice is not borne out from the test reports

in the present case. If the Respondent wanted to show that the other rice found present to the consignment was also Basmati Rice then the burden was on the Respondent to show that. As far as the Department is concerned, it was justified in proceeding on the strength of the test report that the presence of other rice, i.e. non-basmati rice, was more than the permissible maximum limit of 20%. Since the consignment was not entirely of Basmati Rice, it was not sufficient that the grains confirmed to the length and length/breath ratio prescribed for Basmati Rice in order to pass the test.

15. The contention of the Respondent that the show cause notice (SCN) did not mention the additional requirement of the maximum permissible limit of 'other rice' is not borne out from a reading of the SCN. It does clearly set out all the relevant facts.

16. For these reasons, the Court is of the opinion that the Additional Commissioner was justified in his conclusion that the Respondent had attempted to export non-Basmati Rice prohibited for export in terms of DGFT notification thereby inviting action under Section 113 (d) & (i) of the Customs Act, 1962.

17. The impugned order dated 12th June, 2012 passed by the CESTAT is hereby set aside and the Order in Original dated 21 st October, 2011 of the

Additional Commissioner of Customs as affirmed by the Order dated 15 th February, 2012 of the Commissioner of Customs (Appeals) is restored.

18. The appeal is allowed in the above terms but, in the circumstances, with no order as to costs.

S.MURALIDHAR, J

VIBHU BAKHRU, J AUGUST 25, 2015 pkv