2022 (5) TMI 1316 - AT - Customs

Tribunal upholds retrospective application of amendment to Letter of Permission, allowing duty-free raw materials use.

The Tribunal dismissed the Revenue's appeals, affirming that the amendment to the Letter of Permission (LOP) applied retrospectively from the date of ... 100% EOU - letter of permission mentioned the finished goods for exports as Capsules/Tablets of Pharmaceutical Formulations - SCN were for issued demanding Customs/ Excise duty on raw materials procured claiming exemption as above and used for finished products, which were not listed in their Letter of Permission - HELD THAT:- It was never the case of the revenue that the raw materials as imported were not used for the manufacture of the finished goods finally exported as required for fulfillment of export obligations of the EOU. Appellants have in their reply before the adjudicating authority taken the stand that all the injections and suspensions were exported after May, 2006 - the issue of achieving the NFE as per the LOP over the period of entire five years (including annual achievement) from the date of start of commercial production is the question to be examined by the DGFT who has issued the LOP. It is not for the Custom/ Central Excise Authorities to interfere in the manner. It is not even the case for the revenue that any investigations were undertaken by the DGFT in this regards. The entire case of revenue is based on the fact that appellant had manufactured these finished products which were not as per LOP, using the raw material imported duty free. We do not find any merits in these arguments as the appellants have consumed the duty free raw material for achieving the export obligations on yearly basis and on whole as per the LOP issued to them and amended from time to time. No evidence has been produced by the revenue that the terms of LOP have been violated in terms of quantity or value as specified in the said LOP. IN absence of any such allegation or finding by the relevant authorities the violations if any cannot be termed to be anything more than technical violations as pleaded by the respondents and held by Commissioner (Appeals). The amount of duty involved is less than Rs.50,00,000/- and the same could have been dismissed as withdrawn in terms of litigation policy Circular No. F. No. 390/Misc/116/2017-JC dated 22.08.2019. The appeals filed by the revenue are dismissed. Issues Involved:1. Validity of the amendment to the Letter of Permission (LOP) and its retrospective effect.2. Legitimacy of duty-free raw material usage for manufacturing products not initially listed in the LOP.3. Interpretation and application of relevant notifications and regulations.4. Compliance with export obligations and achieving Net Foreign Exchange (NFE).Detailed Analysis:1. Validity of the Amendment to the LOP and Its Retrospective Effect:The core issue revolves around whether the amendment to the LOP dated 15.05.2006 should be considered effective retrospectively from 01.01.2002. The Revenue argued that the amendment should only be effective from the date it was issued, i.e., 15.05.2006, as the Foreign Trade Policy 2004-09, under which the amendment was made, was not in force in 2002. The Commissioner (Appeals) disagreed, noting that the Assistant Development Commissioner had remarked that the unit commenced production from 18.01.2004, implying that the benefits of the amended LOP should be available from that date. The Tribunal upheld this view, emphasizing that the amendment was effectively a clarification and should be applied retrospectively.2. Legitimacy of Duty-Free Raw Material Usage:The respondents used duty-free raw materials to manufacture products (Dry Syrup, Suspension, Injections) not initially listed in the LOP. The Revenue contended that this usage was beyond the scope of the original LOP and thus not eligible for duty exemption. The Commissioner (Appeals) found that the classification of pharmaceutical formulations remains the same irrespective of their form (tablet, capsule, gel, suspension, injection), and hence, the non-inclusion of specific forms in the initial LOP was a technical lapse. The Tribunal agreed, noting that the raw materials were indeed used for manufacturing and exporting the finished goods, thereby fulfilling the export obligations.3. Interpretation and Application of Relevant Notifications and Regulations:The Revenue's argument was based on the premise that the respondents violated the terms of the original LOP by manufacturing products not listed therein using duty-free raw materials. The Tribunal referred to several judgments, including Synergies Dooray Automotive Ltd and G T Cargo Fitting India Pvt Ltd, which supported the view that amendments to LOPs could be applied retrospectively and that technical lapses could be condoned if the overall export obligations were met. The Tribunal found no evidence that the respondents violated the terms of the LOP in terms of quantity or value.4. Compliance with Export Obligations and Achieving NFE:The Tribunal noted that the issue of achieving NFE as per the LOP over the entire period of five years is to be examined by the DGFT, not the Customs or Central Excise Authorities. There was no indication that the respondents failed to achieve the NFE or that any investigations were undertaken by the DGFT in this regard. The Tribunal reiterated that the raw materials were used for manufacturing and exporting the finished goods, and thus, the respondents complied with their export obligations.Conclusion:The Tribunal dismissed the appeals filed by the Revenue, upholding the Commissioner (Appeals)'s decision that the amendment to the LOP applied retrospectively and that the usage of duty-free raw materials for manufacturing the amended products was legitimate. The Tribunal emphasized that the respondents fulfilled their export obligations and that any technical lapses in the LOP could be condoned. The appeals were dismissed on merits, and the decision was pronounced in the open court.