Retrospective trade restriction and misdeclaration standards under Advance Authorization were applied to set aside demand and penalties.

A later Foreign Trade Policy restriction could not be applied retrospectively to an Advance Authorization issued before the amendment, and para 4.1.15 was construed as barring wholly unconnected inputs rather than requiring exact identity between imported replenishment material and export-product input. On the evidence, VGO was accepted as LSFO under the controlling tariff definition, so the export declaration was not proved false. Customs could still examine exemption claims despite an EODC, because the certificate preserved action for fraud, misdeclaration, misrepresentation, or misuse. Once misdeclaration was not established, the extended limitation period and penalty also failed, and the demand, interest, and penalties were set aside.

---

---

Issues: (i) Whether the restriction introduced by Notification No. 31/(RE-2013)/2009-14 dated 01.08.2013 inserting para 4.1.15 of the Foreign Trade Policy 2009-14 could apply to an Advance Authorization issued before that date; (ii) whether para 4.1.15, on its true construction, required export products to be manufactured only from permissible inputs; (iii) whether the Appellant satisfied the requirement by using VGO as LSFO for manufacture of motor spirit; (iv) whether Customs exceeded its jurisdiction by denying the exemption despite a valid authorization and EODC issued by DGFT; and (v) whether the extended period of limitation and penalty could be sustained.

Issue (i): Whether the restriction introduced by Notification No. 31/(RE-2013)/2009-14 dated 01.08.2013 inserting para 4.1.15 of the Foreign Trade Policy 2009-14 could apply to an Advance Authorization issued before that date.

Analysis: The governing principle applied was that a newly inserted restriction cannot operate retrospectively to divest rights already available under an authorization issued earlier. The decision followed the view that the policy and notifications in force on the date of issuance of the authorization govern the entitlement, and that the later amendment could not be applied to imports under an earlier authorization.

Conclusion: The issue was decided in favour of the Appellant. The amendment inserted on 01.08.2013 could not be applied retrospectively to the earlier Advance Authorization.

Issue (ii): Whether para 4.1.15, on its true construction, required export products to be manufactured only from permissible inputs.

Analysis: The expression was read as preventing import of totally unconnected inputs, not as imposing a strict one-to-one identity between the imported replenishment material and the exact material used in the export product. A construction that would make replenishment imports impossible or require the same imported goods to be used first in production was rejected as inconsistent with the scheme of Advance Authorization.

Conclusion: The issue was decided in favour of the Appellant. Para 4.1.15 did not require the export product to be manufactured only from the exact permissible imported input.

Issue (iii): Whether the Appellant satisfied the requirement by using VGO as LSFO for manufacture of motor spirit.

Analysis: The statutory definition in Chapter Note (g) of Chapter 27 of the Customs Tariff Act was treated as controlling over trade or internal refinery nomenclature. On the evidence, including in-house test reports, statements, and cross-examination, VGO was accepted as conforming to LSFO specifications under IS 1593:1982. The burden of disproving the shipping bill declaration rested on Revenue after export had been permitted, and that burden was not discharged.

Conclusion: The issue was decided in favour of the Appellant. VGO was treated as LSFO and the export declaration was not found to be false.

Issue (iv): Whether Customs exceeded its jurisdiction by denying the exemption despite a valid authorization and EODC issued by DGFT.

Analysis: The redemption certificate expressly preserved Customs' right to act in case of fraud, misdeclaration, misrepresentation, or misuse of the scheme. Customs was therefore competent to examine the correctness of the declaration and the entitlement to exemption, even though the DGFT had issued an EODC.

Conclusion: The issue was decided against the Appellant. Customs did not exceed its jurisdiction in examining the matter.

Issue (v): Whether the extended period of limitation and penalty could be sustained.

Analysis: Once misdeclaration on the shipping bill was not established, the foundation for invoking the extended limitation period and for imposing mandatory penalty disappeared. The demand and penalty were therefore unsustainable on these ancillary issues.

Conclusion: The issue was decided in favour of the Appellant. The extended period and penalty could not be sustained.

Final Conclusion: The appeal of the assessee succeeded and the demand, interest, and penalties were set aside, while the Revenue's connected penalty appeal did not survive.

Ratio Decidendi: A later policy restriction cannot retrospectively curtail the benefit of an earlier authorization, and where export goods have already been cleared on a declaration later alleged to be false, Revenue must establish misdeclaration by cogent evidence; trade nomenclature cannot override a controlling statutory tariff definition.

---