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| Recently, the Supreme Court, in the case of Om Prakash Bhatia [2003 (115) ELT 423 (SC)], held that over-invoicing of exports would result in illegal or irregular transaction in foreign currency. The judgment settles some key issues but leaves certain other issues open. |
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| Section 14(1) of the Customs Act, 1962, is the complete code for valuation of export goods. No Export Valuation Rules have been put in place, although a section of the bureaucracy is keen to do so and the Kelkar committee has also recommended such rules. |
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| Section 14(1) mandates a deemed value -- the price at which such goods are ordinarily sold or offered for sale in the course of international trade, where the buyer and seller have no interest in the business of each other and price is the sole consideration -- but this section comes into play only when the goods are dutiable. So, what happens when the export goods are not dutiable? |
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| The Supreme Court referred to the definition in Section 2 (41) of the Customs Act, 1962, which says value in relation to any good means the value determined in accordance with the provisions of sub-section (1) of Section 14. This was independent of any question of assessability to duty of the goods sought to be exported, it said. |
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| The court held that if the export value was to be determined, the method (mode) of determining the value provided under Section 14(1) would have to be followed even if no duty was leviable. Therefore, Section 14(1) could be referred to for finding out whether the export value was truly stated in the shipping bill, even if no duty was leviable, the court pointed out. |
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| When the exporter contended that in some cases he might be able to negotiate a much higher price, the court called it a hypothetical contention and said much would depend on facts and circumstances as well as evidence on record in each case. When margin of profit appeared unreasonable, it was for the exporter to establish that the value stated in the shipping bill was true, the court ruled. In other words, the issue remains open. |
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| The court relied on Section 18 of the Foreign Exchange Regulation Act (FERA), 1973, and Rule 11 of the Foreign Trade (Development and Regulation) Rules, 1993, to conclude that in case the export value is not correctly stated in the shipping bill, it will amount to violation of the conditions of export of the goods and confiscation under the Customs Act will be justified. |
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| The point is that Section 7 of the Foreign Exchange Management Act (FEMA), 1999, which replaced FERA, has only a directory provision to declare the value. There is no provision parallel to Section 18 or 67 of FERA. |
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| Also, Rule 11 of the FTDR Rules only asks the exporter to certify that the quantity and specifications of the goods as stated in the documents are in accordance with the terms of the relevant export contract. Therefore, the Om Prakash Bhatia judgment may have limited value as a precedent. |
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| tncr@sify.com |
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