The Hindu Business Line : Fighting a charge of `smuggling'

The case of Hillari Computer Exports P Ltd that appears in a recent issue of Excise Law Times should interest those watching special zones. Hillari is a unit in Visak EPZ (Export Processing Zone).

The company manufactured and exported computer systems and took the benefit of Customs Notification that allowed duty-free import of goods used for manufacture. "The Development Commissioner can permit certain percentage of the manufactured goods for DTA (domestic tariff area) sales. Under the Notification there is an obligation of value addition," informs the text of the Bangalore Tribunal's order in the case.

An investigation by the taxman revealed certain irregularities such as over invoicing of exports, under invoicing of imports, diversion of imported spares and components to the domestic market, selling assembled computers in the home market, and failing to repatriate foreign exchange. As a result, the Department officials confiscated many imported goods from the premises of Hillari, and imposed penalties.

Arguing for the company, R. Sashidaran and M.S. Rajappa presented to the Tribunal more than a dozen points in defence. The first was about an agreement between Hillari and Technosys Pacific Pvt Ltd, Singapore, according to which the latter was to supply "required computer components except I/O (input/output) chords, casings and power supply units."

Technosys was to buy back 85 per cent of the finished computer systems and Hillari could sell the rest 15 per cent in the DTA. "It was also agreed that the prices of computer components and finished computer systems would be fixed as per the prevailing international market prices from time to time."

Hillari's advocates said that the Department had incorrectly enhanced the value of imports based on "some contemporaneous imports of about three months ago and that too by traders who had imported smaller quantities of stock". Also, "out of the 29 consignments imported, 24 consignments were imported by sea and the comparison of values was made with goods imported by air."

Hillari and Technosys were not related companies, and the Department had not produced `any incriminating evidence to indicate any flow back of finance', argued Hillari's counsels. "There can be no concealment for the simple reason that the entire VEPZ is a bonded warehouse," they said.

One other point that they laid emphasises on was about weight. "In view of the difference in gross weights in certain bills of entry, the Commissioner has come to the conclusion of smuggling components inside by concealment. There may be various reasons for difference in weights between different consignments," reasoned Hillari's side.

For the Department, it was R.N. Vishwanath who spoke. He drew the attention of the Tribunal to the statement made by Anil Narra, the managing director of Hillari. "In the said statement, he has accepted that there was an understanding between him and the foreign supplier with regard to the under-valuation of the imported consignments by 20 per cent," reads a snatch of the Tribunal's order.

Dr S.L. Peeran and Mr T.K. Jayaraman, Tribunal Members, heard the arguments and observed that the case had been made on the basis of the intelligence received by the departmental officers. "The Government of India is bringing out very many schemes for the promotion of exports. Export processing zones have been developed in various places in the country. Visak EPZ came up a little later," said the Tribunal.

On the contention of Hillari's counsels that there could be no concealment in the EPZ, the Tribunal had this to say: "It is true that the EPZ is a bonded area because free goods are kept there for manufacture of goods which are ultimately to be exported... Whatever may be the checks by the customs, we find instances of concealment and fraud. In any case, this is not the place for discussing the lapses of the customs officers. If investigations reveal concealment and smuggling of goods, then law will take its own course."

The Tribunal studied the elaborate statement made by Narra and found many disturbing facts. Such as: That on occasions, the company had removed some motherboards and so on out of the VEPZ and sold the same in the local market. That the removed components were replaced by some defective parts. That under-invoicing of imports was resorted to for enhancing Hillari's DTA entitlement and also reducing Central Excise Duty liability for DTA clearance. That the profit obtained from such clearances was to be shared 50:50 between Narra and Sukhdev Singh (MD of Technosys). And so forth.

"When importers adopt ingenious methods of smuggling, direct evidence would not be forthcoming," said the Tribunal while relying on the many derived evidences produced by the Department. However, on the allegation that Hillari had exported incomplete systems, the Tribunal could not agree. "The export has already been completed; the goods are not available. Only, there are certain documents... In the absence of proper evidence, we hold that this charge cannot be sustained."

The minuses, though, weighed against Hillari. As a result, the Tribunal upheld the confiscation of imported goods.

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