W.P.(C) No.5013/2010 Page 1 of 26 * IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment Reserved On: 28th October, 2010 Judgment Delivered On:24th November, 2010 + W.P.(C) 5013/2010 UOI & ORS. ..... Petitioners Through: Mr.R.V.Sinha, Mr.A.S.Singh and Mr.R.N.Singh, Advocates versus HARSH VARDHAN CHAUHAN .....Respondent Through: Mr.Kailash Vasdev, Sr.Advocate with Mr.Priyadarshi Manish, Ms.Anjali Manish, Advocates CORAM: HON'BLE MR. JUSTICE PRADEEP NANDRAJOG HON'BLE MR. JUSTICE SIDDHARTH MRIDUL 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to Reporter or not? 3. Whether the judgment should be reported in the Digest? PRADEEP NANDRAJOG, J. 1. In the financial year 2004-2005, two companies namely Rajesh Exports Limited (hereinafter referred to as “REL”) and Adani Exports Limited (hereinafter referred to as “AEL”) obtained Advance Licenses from the office of The Directorate General of Foreign Trade (hereinafter referred to as “DGFT”) under the provisions of Chapter 4 of Foreign Trade Policy 2004-2009 and pargraph 4.56.1(b) of Handbook of Procedures authorizing them to effect duty free import of gold bars having 99.5% purity, with an obligation to manufacture and export gold jewellery studded with synthetic, semi-precious and imitation stones having 7% value addition. On the basis of advance licenses granted to them, REL and AEL imported duty W.P.(C) No.5013/2010 Page 2 of 26 free gold, manufactured the final product and exported the same; as claimed by them and in respect whereof they filed the necessary documents with the concerned department. 2. On 11.02.2005, DGFT issued policy circular No.18/2004- 9, which reads as under:- “Sub: Minimum Value addition norms and calculation of value addition for the studded jewellery items. Letters have been received from the licensing and customs authorities about the appropriate minimum value addition required for the export of studded gold/silver/platinum jewellery and how the value addition for such export is to be calculated. Handbook of Procedures Volume (2004-09) contains clear provisions regarding the above. These are reiterated for clarity. Minimum Value Addition The studded jewellery items falls under Para 4.56 I(a) of Handbook of Procedures Volume I (2004- 09), and accordingly the minimum value addition required for studded gold/silver/platinum jewellery of all types is 15%. How to calculate Value Addition Para 4.68 of the Handbook of Procedures Volume I (2004-09) is clear about how the value addition is to be calculated. It is reproduced here for ready reference. “Value Addition – Under the scheme for export of jewellery, the value addition shall be calculated with reference to the CIF value of gold/silver/platinum which shall be equivalent to the total outflow of foreign exchange on account of gold/silver/platinum content in the export product plus the admissible wastage. Wherever gold on loan basis has been given, the CIF value shall also include interest paid in free foreign exchange to the foreign supplier.” The above Para does not talk about CIF value of the imported gold only, rather it talks about total outgo W.P.(C) No.5013/2010 Page 3 of 26 of foreign exchange with reference to the gold content in export product plus the admissible wastage. On the basis of above Para it is reiterated that the CIF value of gold will be equivalent to the total outflow of foreign exchange on account of gold content in the export product plus the admissible wastage and this will include imported gold and gold procured from other sources used in the export product.” 3. Being aggrieved by the aforesaid circular issued by DGFT, REL filed a petition bearing No.7256/2005 (GM-RES) under Articles 226 and 227 of Constitution of India before High Court of Karnataka, seeking quashing of the said policy circular and sought issuance of a direction to DGFT to redeem the licenses in respect of which REL had completed exports in accordance with Foreign Trade Policy 2004-2009 by achieving the required value addition. In the said petition, it was contended on behalf of REL that studded gold jewellery items fall within paragraph 4.56.1(a) of Handbook of Procedures Volume I (2004-09) and therefore minimum value addition required for studded gold jewellery items is 7%; that they had utilized gold which was purchased locally from the open market in manufacturing studded gold jewellery items and that the value of local gold should also be taken into consideration in determining the value addition in terms of the policy circular dated 11.02.2005. 4. Vide judgment and order dated 15.06.2005, a learned Single Judge of the High Court of Karnataka allowed the writ petition filed by REL and directed DGFT to redeem the licenses in respect of which REL had completed exports in accordance with the Foreign Trade Policy 2004-2009 by achieving required value addition of 7% under paragraph 4.56.1(b). W.P.(C) No.5013/2010 Page 4 of 26 5. Aggrieved by the judgment and order dated 15.06.2005 passed by the learned Single Judge of the High Court of Karnataka, DGFT filed an appeal bearing No.1252/2005 under Section 4 of Karnataka High Court Act together with an application seeking stay of the operation of the impugned judgment dated 15.06.2005. Needless to state the appeal was before a Division Bench of the High Court of Karnataka. 6. Vide order dated 20.09.2005, the Division Bench admitted the aforesaid appeal for hearing but declined to grant any stay as sought for. It is thus apparent that the mandamus issued by the learned Single Judge was capable of being given effect to notwithstanding the appeal pending before the Division Bench. 7. On 18.11.2005, Commissioner of Customs, Bangalore issued a show cause notice to REL and AEL, inter-alia, alleging that they have evaded custom duty in sum of Rs.54,64,31,672/- by wrongly declaring exported items as studded gold jewellery/CE bangles instead of gold scrap and not achieving required value addition of 15% in the exported items as per para 4.61 of Handbook of Procedures of Foreign Trade Policy. 8. On 21.12.2006, the Chief Commissioner Customs issued an Office Order, relevant portion whereof reads as under:- “At the Chief Commissioners Conference held on 15th and 16th December, 2006, the Member (Customs) desired that a Work Plan should be chalked out for disposal of pendencies in key areas. Accordingly, I have devised a Work Plan, which is enclosed herewith. The disposals are time-bound and the Member has stated that performance in these areas will be taken into account for assessing the Zonal/Commissionerate performance for the year. W.P.(C) No.5013/2010 Page 5 of 26 I would therefore request you to make all out efforts to see that the time schedule for disposals is adhered to and disposals in all key areas are maximized. Work Plan for Disposal of Pendency in Key Result Areas 1. Adjudication ….. WORK PLAN: The priority for disposal will be for cases pending over one year, cases involving revenue over Rs.one crore and cases pending over six months. The plan for disposal is as under:- All cases over one year to be disposed of by 31-12- 2006. All cases involving revenue over Rs.1 crore by 31-3- 2007 with a minimum disposal of six cases per month. 50% of the cases pending over six months to be disposed of by 31-3-2007. ….” 9. Disposing of the show cause notice, vide order dated 31.01.2007, the respondent who was then posted as Commissioner Customs, Bangalore determined that the department has not been able to prove the charges leveled by it against REL and AEL in the show cause notice dated 18.11.2005 and thus consequently the demand of customs duty raised in the said show cause notice was dropped. The operative portion of the order dated 31.01.2007 reads as under:- “79. In view, of the above it is held and Ordered as below:- I(i) The imported gold as per description and condition of the Advance Licence and has been utilized for manufacture and export of gold jewellery. The said exported jewellery has also not been misdeclared at the time of export. Hence, no case is W.P.(C) No.5013/2010 Page 6 of 26 made out for confiscation of imported gold i.e. 21428.643 kgs of gold under Section 111(o) of the Customs Act, 1962, read with Notification No.93/04 Cus. Dt. 10.09.2004. 2) As there has been no misdeclaration of gold jewellery exported, no case is made out for confiscation of 23053.90 kgs of gold jewellery exported under Section 113(i) of the Customs Act, 1962. 3) Further and consequently, as the allegations of misdeclaration of the gold product at the time of export or misdeclaration of the imported gold at the time of import has not been made out, there is no ground or basis for raising any demand of Customs duty under notification no.93/04 Cus and/or proviso to Section 28 of the Customs Act, 1962 in respect of any quantity of gold imported. As such the demand of duty indicated in para 36 of SCN is not sustained and require to be dropped. 4) Since there is no case for demand of duty, the question of demand and levy of interest does not arise. 5) The exports made from India was studded gold jewellery, bangles, articles as per declaration in the shipping bill and other documents filed with the Customs at the time of export. Accordingly, all assessment of shipping bill, including provisional assessed shipping bills of Rajesh Export Ltd and Adani Export Ltd at Air Cargo Complex, Bangalore are to be finalized. 6) Further, as contravention of Section 111(o) and 113(i) of the Customs Act, 1962 has not been held, the question of imposition of penalty under Section 112(a) and Section 114(a) of the Customs Act, 1962 does not arise. II. In terms of Value Addition, the Judgment of the Karnataka High Court dated 15.6.05 as prevailing is binding. The above High Court Judgment also applies to the issue regarding jewellery exported. Although, an appeal has been filed, no stay has been obtained. However, these matters, as to whether the Value Addition of 7% or 15% is to be taken into account, as well as the foreign exchange component in respect W.P.(C) No.5013/2010 Page 7 of 26 of local gold are matters to be examined and finalized by the Licensing Authority/by the office of DGFT Bangalore/Ahemdabad and these Authorities may take appropriate action in light of Judgment of Division Bench of Karnataka High Court as and when the same is pronounced. III. However, in the interest of revenue and pending orders of the Division Branch Judgment, I propose to hold back the surety Bonds executed by the two Exporter i.e. M/s. Rajesh Export Ltd., Bangalore and M/s. Adani Export Ltd., Ahemdabad, in case of any adverse Judgment delivered by the Division Bench of Hon‟ble Karnataka High Court, in respect of the points/issues raised in the writ petition No.7256 of 2005 (GM-RES), (against which a Writ Appeal against the present Judgment of the Karnataka High Court has been filed) and the same would be released only after the Judgment is received and/or on receipt of directions from the Joint DGFT Bangalore/Ahemdabad.” (Emphasis Supplied) 10. On the next day i.e. 01.02.2007, the respondent got transferred to DRI, Bangalore. 11. Aggrieved by the order dated 31.01.2007 passed by the respondent in his capacity as Commissioner Customs, Bangalore the department filed an appeal under Section 129A(1) of Customs Act, 1962 before Customs Excise, Sales Tax Appellate Tribunal (hereinafter referred to as “CESTAT”), South Zonal Branch, Bangalore. 12. On 24.08.2007 Deputy Director General of Foreign Trade issued a letter to Joint Director General of Foreign Trade regarding the value addition required in case of AEL, the relevant portion whereof reads as under:- “Subject: Clarification on the applicable Value Addition against export of Studded Jewellery where per gram value of precious metal is less than per gram value of gold-regarding. W.P.(C) No.5013/2010 Page 8 of 26 Sir, Please refer to your letter dated 9-4-2007 referring to your earlier letters dated 19-1-2006 and 15-1-2007 on the above subject. The matter was deliberated upon in this Directorate in detail taking into account the following facts furnished by Regional Authorities concerned:- 1. M/s Adani Exports have not availed any benefit under DFCB and Target Plus Scheme for the exports of studded jewellery for the period of these exports under consideration under advance authorization scheme. 2. Orders of Hon‟ble High Court of Karnataka directing the RA to consider value addition to be 7% against which no stay could be obtained till date. ….. Accordingly, it is informed that for the exports of studded jewellery effected prior to 11-2-05 (i.e. prior to issuance of the Policy Circular No.18 dated 11-2-05) where per gram value of precious stones is less than per gram value of gold, the said minimum value addition will be 7% and not 15%. Pending Export Obligation discharge applications may be processed accordingly.” (Emphasis Supplied) 13. In the meantime, the respondent got information that the department is contemplating initiation of disciplinary proceedings against him in respect of the adjudicating order dated 31.01.2007 passed by him. In such circumstances, the respondent made as many as eight representations before the department inter-alia stating that the adjudicating order dated 31.01.2007 passed by him is legally sound and that he had not favored AEL & REL while passing said order and therefore no disciplinary proceedings be initiated against him. 14. While the appeal preferred by the petitioner was pending adjudication before the CESTAT, the department issued a charge sheet dated 16.01.2009 to the respondent initiating disciplinary proceedings against him under Rule 14 of Central W.P.(C) No.5013/2010 Page 9 of 26 Civil Services (Classification, Control and Appeal) Rules 1965. The relevant portion of the charge sheet reads as under:- “ARTICLES OF CHARGE FRAMED AGAINST SHRI H.V. CHAUHAN, THE THEN COMMISSIONER OF CUSTOMS, BANGALORE ARTICLE-I That the said Shri H.V. Chauhan, while functioning as Commissioner of Customs, Bangalore during the period of 05.05.2006 to 31.01.2007 passed an adjudication order No.1/2007 dated 31.1.07 in the case of M/s Rajesh Exports Ltd, Bangalore and M/s Adani Exports Ltd., Ahemdabad dropping the proceedings initiated against the aforesaid exports for recovery of Customs duty foregone on 21428.693 KGs Gold imported by them duty free under Advance License Scheme under Foreign Trade Policy. Bangalore Customs (C.I.U.) investigated this case relating to the irregularities in exports made by the above firms and on completion of this investigation, a Show Cause Notice C. No.VIII/10/56/2005 Cus. Adj. dated 18.11.2005 was issued to M/s Rajesh Exports Ltd., Bangalore and M/s Adani Exports Ltd., Ahemdabad demanding Customs duty of Rs.54,64,31,672/-, besides proposals for imposition of fine and penalties under various provisions of the Customs Act, 1962. Shri H.V. Chauhan at the time of adjudication was fully aware of the fact that the Department‟s appeal is pending in this matter before the Hon‟ble High Court of Karnataka. Further Shri H.V. Chauhan went ahead and adjudicated the case instead of transferring it to Call Book as per CBEC Circular No.162/73/95 CX dated 14.12.95 and 719/35/2003 CX dated 28.5.2003. The hasty action on the part of Shri H.V. Chauhan, in dropping the proceedings initiated by the aforementioned S.C.N. has resulted in loss of revenue to the Government to the tune of Rs.54,64,31,672/-. Thus by above acts of commission and omission, Shri H.V. Chauhan, the then Commissioner of Customs, Bangalore failed to maintain devotion to duty and acted in a manner unbecoming of a Government servant and thereby violated the provisions of Rule 3(1)(ii) and (iii) of C.C.S. (Conduct) Rules, 1964. W.P.(C) No.5013/2010 Page 10 of 26 ARTICLE-II That during the aforesaid period and while functioning in the aforesaid office, the said Shri H.V. Chauhan passed an adjudication order No.1/2007 dated 31.1.2007 in the case of M/s Rajesh Exports Ltd, Bangalore and M/s Adani Exports Ltd., Ahemdabad dropping the proceedings initiated against the aforesaid exports for recovery of Customs duty foregone on 21428.693 KGs Gold imported by them duty free under Advance License Scheme under Foreign Trade Policy. While passing the adjudication order, Shri H.V. Chauhan has ignored the evidence adduced by the Department in the SCN. Shri H.V. Chauhan acting as a quasi-judicial adjudicating authority has relied on the copies of the Bills of Entry produced by the aforesaid exporters and gave no credence to the copies of Bills of Entry relied upon in SCN issued by the Department. Shri H.V. Chauhan has accepted the copies of Bills of Entry produced by the exporters during Personal Hearing without causing further verification; as the discrepancies noticed in the description of the items are quite glaring in the documents relied upon in the SCN and those produced by the aforesaid exporters during the proceedings/personal hearing and these discrepancies cast a grave doubt as to the bonafides of the exports. Thus, Shri H.V. Chauhan as a quasi- judicial authority has denied principles of natural justice to the Department by not causing the verification of the documents produced by the aforesaid exporters during personal hearing as there are variations in the evidences adduced by the Department and by the Noticees of the SCN. Therefore, it appears that Shri H.V. Chauhan, the then Commissioner of Customs, Bangalore has favoured M/s Rajesh Exports Ltd and M/s Adani Exports Ltd, the Noticees of SCN dated 18.11.2005 by dropping the proceedings initiated by aforesaid SCN. As a quasi-judicial adjudicating authority, Shri H.V. Chauhan has failed to safeguard Government revenue and his action of dropping the case led to loss of revenue of Rs.54,64,31,672/- to the Government. By the aforesaid commissions and omissions, Shri H.V. Chauhan while working as Commissioner of Customs, Bangalore failed to maintain absolute integrity, devotion of duty and acted in a manner unbecoming of a Government W.P.(C) No.5013/2010 Page 11 of 26 servant and thereby violated the provisions of Rule 3(1)(i), (ii) and (iii) of C.C.S. (Conduct) Rules, 1964. STATEMENT OF IMPUTATION IN SUPPORT OF ARTICLES OF CHARGES FRAMED AGAINST SHRI H.V. CHAUHAN, THE THEN COMMISSIONER OF CUSTOMS, BANGALORE Articles I & II ...... 5. As the said matter is pending before the Division Bench of High Court, it was not legal and proper on the part of Shri H.V. Chauhan to take a final decision with regard to the value addition or other matters in the light of instructions issued by Central Board of Excise and Customs in their Circular No:162/73/95/CX dated 14.12.95 and 719/35/2003 CX dated 28.5.2003 warranting such categories of cases to be transferred to call book pending decision or proceedings before the Court. Shri H.V. Chauhan as Commissioner of Customs was bound to follow the aforesaid instructions of the Board directing that cases where the Department had gone in appeal to the appropriate authorities be transferred to Call Book and it was improper on his part to decide a matter which is sub-judice….. 7. Shri H.V. Chauhan, as adjudicating authority should not have taken up this case for adjudication as the matter is pending in Hon‟ble Karnataka High Court and in the light of the instructions contained in CBEC Circular No.162/73/95 CX 3 dated 14.12.95, the case should have been kept in Call Book. In deed, a Call Book is maintained in Bangalore Customs (Hqrs.) and it is noticed that cases not ripe for disposal were regularly transferred to the call book. During the year 2006, six cases and during the year 2007, fifteen cases were transferred to the call book as per the Call book register maintained in Bangalore Customs Commissionerate. …. 11. Shri H.V. Chauhan assumed office as Commissioner of Customs, Bangalore on 5.5.06 and relinquished that office in Bangalore Customs on 31.1.07. At the time of his assuming charge, the number of adjudications pending at the level of W.P.(C) No.5013/2010 Page 12 of 26 Commissioner was 24. Similarly, at the time of his relinquishing charge, the number of adjudications pending at Commissioner‟s level was 41. The total number of cases adjudicated by Shri H.V. Chauhan during his tenure as Commissioner of Customs in Bangalore was 10 only. Hence, it appears that the undue priority was given to the case relating to M/s Rajesh Exports, and M/s Adani Exports and that too this case was decided on the last working day of his tenure in Bangalore Customs i.e. on 31.1.07. Shri H.V. Chauhan has not taken similar steps to reduce pendency in respect of all other cases. In respect of two other cases relating to M/s GEBE Pvt. Ltd and M/s G.E. Medical System, Shri H.V. Chauhan has conducted Personal Hearing on 14.11.06. These Personal hearings were held prior to the Personal hearing of the case relating to M/s Rajesh Exports Ltd and M/s Adani Exports Ltd. Such an action on the part of Shri H.V. Chauhan has created doubts over the undue haste in the finalization of the case relating to M/s Rajesh Exports Ltd and M/s Adani Exports Ltd. …..” (Emphasis Supplied) 15. Vide order dated 10.02.2009, CESTAT dismissed the appeal filed by the petitioner against the adjudication order dated 31.01.2007 passed by the respondent. The relevant portion of the appellate order reads as under:- “…. 4. Learned Special Counsel Shri P.R.V. Ramanan appearing for the revenue would submit that the impugned order is not correct for more than one reason. It is his submission that the Adjudicating Authority should have waited for the outcome of the appeal filed by the revenue before Division Bench of Hon‟ble High Court of Karnataka. It is his submission that the Adjudicating Authority has overlooked para 28 of the Show Cause Notice, wherein it is indicated that the revenue reserves right to add/alter/amend/modify the Show Cause Notice…. 4.3 It was submitted that the Commissioner accepted the evidentiary value of the copies of Bills of Entry purported to have been filed by the W.P.(C) No.5013/2010 Page 13 of 26 importers at Dubai, which were submitted at the time of the personal hearing, without causing any enquiries as to their veracity. In fact prima facie comparison of the said copies with the copies of Bills of Entry forwarded by the Indian Consulate revealed many discrepancies such as: …. 7 Learned counsel for revenue in rejoinder would submit that the Adjudicating Authority has not appreciated the entire evidence on record and rejected the evidence adduced by the department in the form of report received from the Consulate of India, Dubai……. 8.2 We would first deal with the issue of the revenue as to whether the Adjudicating Authority was in error to decide the show cause notice when an appeal is pending before the Division Bench of Hon‟ble High Court of Karnataka…… It was submitted by the Special Counsel for revenue that revenue has challenged the above order in a Writ Appeal and the same is admitted in the Hon‟ble High Court of Karnataka. On a specific query from the bench, it was submitted that the Division Bench of Hon‟ble High Court of Karnataka has not stayed the order of the Hon‟ble Single Judge. It is settled law, that unless there is a stay of the order by higher judicial forum, the order is binding. We note that in the absence of any stay of the order in W.P. No7256 of 2005, the learned Adjudicating Authority as not in error in taking up the matter for adjudication, as the show cause notice is dated 18.11.2005. We note that the action of the Adjudicating Authority to take up the matter for disposal vide Order-In-Original dated 31.1.2007 cannot be faulted for the reason that Writ Appeal is pending before Division Bench. 8.3 The next issue for disposal is whether the impugned order needs to be set aside and the matter should be remanded back to the Adjudicating Authority only on the ground that the Commissioner should have awaited the outcome of the Writ Appeal filed by revenue. In our considered opinion, this proposition does not contain any merit. On perusal of the impugned order, we find that being a speaking order, does not require any remand. W.P.(C) No.5013/2010 Page 14 of 26 …. 9.1 We take up the challenge of the impugned order, by the revenue on merits. We find that the grounds on which revenue has filed appeals are as under:- ….. It can be seen from the above reproduced grounds of appeal that the revenue‟s challenge is only on the ground that