2014 (3) TMI 798 - AT - Customs

Manufacturer faces penalties for failing to comply with Project Import Regulations, tribunal decision upholds fines.

BHARAT BIJLEE LTD Versus COMMISSIONER OF CUSTOMS (IMPORT)

The appellant, a manufacturer of electric transformers, imported materials under Project Import Regulations claiming duty benefits. However, they failed ... Denial of benefit of Project Import Concession under CTH 9801 - import of raw materials in excess of the quantity required - import of raw material after finished goods (transformers) manufactured and dispatched - one-to-one co-relation between raw material (inputs) and finished goods - Confiscation of goods - Redemption fine - Difference of opinion - Majority order - Held that:- This condition implies that materials imported for one unit of a specified project cannot be used elsewhere in any other unit or in any other project. Similarly, the application for the project imports should clearly specify the particulars mentioned under clauses (a) to (d) of a sub-regulation (3) of the Regulation 5 and these particulars are required to be registered unit-wise and project-wise. The purpose of requiring all these details in advance is to ensure that there is one-to-one co-relation between the goods imported and the projects where they would be used and, therefore, it cannot be said that there is no requirement of one-to-one co-relation between the materials imported and the unit/projects where they are going to be used. It is an admitted position that the materials have been imported after the machinery have been already supplied to a project. If the machinery has already been supplied to a particular project, usage of the imported raw materials for the manufacture of machinery which is required to be supplied to a specific project cannot happen at all and, therefore, it is clear that the appellants have not complied with the terms and conditions of the Project Import Regulations. It is very clear the even before placing the order, the appellant have declared that the raw material is being imported for the initial assembly of capital goods required for the Project. The appellant have also made declaration that they shall be liable for any legal action and penalties as per the relevant Customs Tariff Act as amended form time to time in case of diversion of the goods imported under concessional duty or misuse of the imported material. The electrical steel sheets were diverted for the manufacture of other goods which were supplied to various customers, perhaps for some other Projects also. Under these circumstances, the action of the appellant is contrary to the declaration given to the authorities and it cannot be said that the appellant was not aware of the said provisions. Therefore, there can be no doubt that the imported goods are liable to confiscation, and the appellant is liable to pay redemption fine and penalty. Appellants have cleared goods/obtained Recommendatory letter based upon false declaration, knowing the implications. There is no interpretation of law involved. This is clear from the declaration given by them - appellant is not eligible for the benefit of Project Import Concession under CTH 9801 and consequently the imported goods are liable to confiscation with option to redeem the same on payment of fine and the appellant is liable to penalty - However, the fine is reduced from ₹ 1.25 crore to ₹ 1 crore and penalty is reduced from ₹ 50 lakhs to ₹ 10 lakhs - Decided partly in favour of assessee. Issues Involved:1. Eligibility for Project Import Concession under CTH 9801.2. Requirement of one-to-one correlation between imported materials and their usage in specified projects.3. Imposition of penalties and fines for non-compliance.4. Interpretation of the Project Import Regulations and associated provisions.Detailed Analysis:1. Eligibility for Project Import Concession under CTH 9801:The appellant, a manufacturer of electric transformers, imported raw materials under the Project Import Regulations, 1986, claiming concessional duty benefits under heading 98.01 of the Customs Tariff Act. The investigation revealed that the appellant imported materials in excess of the requirement and did not use them for the specified projects, violating the provisions of the Project Import Regulations, 1986. The Commissioner confirmed the differential duty demand and imposed penalties and fines. The appellant argued that they used similar raw materials in stock to meet delivery schedules and passed on the duty benefit to customers. They claimed substantial compliance with the regulations and cited various judicial precedents to support their case. However, the Tribunal held that the appellant violated the terms and conditions of the Project Import Regulations by not using the imported materials for the specified projects.2. Requirement of One-to-One Correlation:The Tribunal emphasized that the Project Import Regulations require a one-to-one correlation between the imported materials and their usage in the specified projects. The materials imported for one unit of a specified project cannot be used elsewhere. The adjudicating authority found that the appellant used the imported raw materials for manufacturing transformers for other projects, thereby violating the regulations. The Tribunal rejected the appellant's contention that a liberal interpretation should be applied and upheld the requirement of one-to-one correlation.3. Imposition of Penalties and Fines:The Tribunal confirmed the imposition of penalties and fines on the appellant for violating the Project Import Regulations. The goods imported under the Project Import Scheme were liable to confiscation under Section 111(o) of the Customs Act, and penalties were imposable under Section 112(a) and Section 114A. The Tribunal noted that the appellant made false declarations and suppressed facts, justifying the imposition of penalties. However, the Tribunal reduced the penalty from Rs. 50 lakhs to Rs. 10 lakhs, considering the issue related to the interpretation of the tariff entry.4. Interpretation of Project Import Regulations:The Tribunal held that the Project Import Regulations and the Customs Tariff Act require strict compliance with the specified conditions. The appellant's argument of hardship and inconvenience in following the regulations was rejected. The Tribunal emphasized that the statutory provisions must be interpreted based on the language used, and any deviation from the specified conditions cannot be justified. The Tribunal also distinguished the case from other judicial precedents cited by the appellant, noting that those cases involved procedural delays or different factual circumstances.Separate Judgments:Judge P R Chandrasekharan:- Emphasized strict compliance with the Project Import Regulations.- Held that the appellant violated the terms by not using the imported materials for the specified projects.- Confirmed the imposition of penalties and fines but reduced the penalty amount.Judge Anil Choudhary:- Differed with the view of strict compliance.- Argued for a purposive interpretation of the regulations.- Held that the appellant made substantial compliance and should be granted the benefit of concessional duty.- Quashed the impugned order and allowed the appeal.Majority Decision:- The appeal was dismissed by the majority decision.- The fine was reduced from Rs. 1.25 crore to Rs. 1 crore, and the penalty was reduced from Rs. 50 lakhs to Rs. 10 lakhs.