EPCG license amendments validated, spare parts imports allowed, sham contract allegations rejected, Rs. 32.76 crore demands set aside

M/s. Tata Steel Ltd. Shri S.K. Roy, Shri R.P. Singh, M/s TM International Logistics Ltd., Shri Koushik Chatterjee, Shri N Rammurty, M/s. Larsen & Toubro and Mr. AB Das Versus Commr. of Customs (Port), Kolkata

M/s. Tata Steel Ltd. Shri S.K. Roy, Shri R.P. Singh, M/s TM International Logistics Ltd., Shri Koushik Chatterjee, Shri N Rammurty, M/s. Larsen & Toubro ... ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the agreements entered into by the appellant, purportedly to split the consideration for supply of imported equipment and services, were sham agreements designed to evade customs duty.
• Whether the denial of the EPCG scheme benefits for certain imports was justified, particularly in relation to the location of the 'H Blast' furnace and the nature of imported goods as spares.
• Whether the confirmed demands for differential customs duty and confiscation under the Customs Act were sustainable on merits and within the limitation period.
• Whether penalties imposed on the appellants under various sections of the Customs Act were legally sustainable.

ISSUE-WISE DETAILED ANALYSIS

1. Alleged Sham Agreements and Customs Duty Evasion

• Relevant Legal Framework and Precedents: The Customs Valuation Rules, 1998, and interpretative notes for Rule 4(1) were central to determining whether the agreements were sham and whether the consideration should be added to the value of imported goods.
• Court's Interpretation and Reasoning: The Tribunal found that the agreements were not sham. The detailed offers and agreements from the pre-first offer to the final offer demonstrated a clear demarcation of services and goods, negating the claim of a single lump-sum contract later bifurcated to evade duty.
• Key Evidence and Findings: The Tribunal noted the chronological documentation of offers and agreements, which consistently separated imported goods and services. The Tribunal also considered the payment of service tax on designs and drawings, which the revenue accepted.
• Application of Law to Facts: The Tribunal applied Rule 4(1) of the Customs Valuation Rules and found that the agreements were genuine and not designed to evade customs duty.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the agreements were fraudulent by highlighting the detailed planning and execution of contracts.
• Conclusions: The Tribunal concluded that the confirmed demand of Rs. 32,76,67,821 was not sustainable on merits.

2. Denial of EPCG Scheme Benefits

• Relevant Legal Framework and Precedents: The Foreign Trade Policy and the EPCG scheme under Notification No. 97/2004-Cus were relevant. The Tribunal also referenced the Bombay High Court decision in Bhilwara Spinners Ltd. regarding the power of licensing authorities.
• Court's Interpretation and Reasoning: The Tribunal held that the amendments made by the DGFT to include 'H Blast' in the EPCG license were valid, and the customs authorities had no power to challenge these amendments.
• Key Evidence and Findings: The Tribunal found that the DGFT had approved the amendments to the EPCG license, and the imported goods were permissible as spares under the Foreign Trade Policy.
• Application of Law to Facts: The Tribunal applied the relevant provisions of the Foreign Trade Policy and the Customs Act, concluding that the denial of EPCG benefits was unjustified.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments regarding the improper use of the EPCG scheme, emphasizing the DGFT's authority and the appellant's compliance with the policy.
• Conclusions: The Tribunal set aside the confirmed demand of Rs. 9,76,71,819 related to the EPCG scheme.

3. Limitation and Penalties

• Relevant Legal Framework and Precedents: Sections 111(m), 111(o), 114A, and 114AA of the Customs Act, 1962, were relevant for confiscation and penalties. The limitation period for issuing demands was also considered.
• Court's Interpretation and Reasoning: The Tribunal found that the demand was issued beyond the permissible period and that there was no suppression of facts by the appellant to justify the extended period.
• Key Evidence and Findings: The Tribunal noted that all transactions were documented and transparent, and the appellant fulfilled export obligations under the EPCG scheme.
• Application of Law to Facts: The Tribunal applied the relevant sections of the Customs Act and found the demand and penalties unsustainable due to the lack of suppression and the limitation period.
• Treatment of Competing Arguments: The Tribunal rejected the Revenue's claim of suppression, emphasizing the appellant's compliance with procedural requirements.
• Conclusions: The Tribunal set aside the confiscation order and penalties, finding them unsustainable both on merits and due to limitation.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: 'The Revenue has built the present case purely on presumptions and assumptions basis, without actually verifying the documentary evidence placed before them.'
• Core Principles Established: The Tribunal established that detailed and documented contractual arrangements, when transparent and compliant with legal frameworks, cannot be dismissed as sham for customs duty evasion without substantive evidence.
• Final Determinations on Each Issue: The Tribunal set aside the confirmed demands and penalties, allowing the appeals of all appellants, including the main appellant TISCO, on both merits and limitation grounds.