2022 (12) TMI 1583 - AT - Customs

Adjudication upheld; appeal dismissed as importers concealed unsheathed OFC, justifying extended limitation; Section 28 and Rule 8 IGCR,1996 applied

CESTAT upheld the adjudication, dismissing the appeal and confirming demands. The Tribunal found appellants had repeatedly declared fibres under tariff ... Suppression of fact or not - sustainability of proceedings initiated by the department under the extended period of limitation - HELD THAT:- The appellants had made statutory declarations under the IGCR, 1996 that the optical fibre manufactured by them were of tariff heading 8544 7090 of the Central Excise Tariff Act, 1985. They had also made similar declaration in the periodic ER-1 returns filed before the department. To the same effect, were the declaration in terms of the different bonds executed by them, under ICGR, 1996. At no point of time, the appellant had declared that the OFC manufactured by them were not made up of individually sheathed Optical fibre. The relevant fact is that OFC manufactured by the appellants were not made up of individually sheathed optical fibre and consequently, they were not eligible to the benefit of subject notification dated 01.03.2005, in respect of the raw materials used for the manufacture of the OFC. This fact came to the knowledge of the jurisdictional Customs and Central Excise authorities only upon investigations/inquiries conducted in this case, consequent upon the receipt of intelligence. Therefore, the elements of suppression of facts, wilful mis-statement etc., were very much present in this case and the adjudged demands have been rightly confirmed by the department in invoking the extended period of limitation. The SCN dated 01.05.2006 issued by the department to the appellants had invoked both Section 28 ibid as well as Rule 8 of the IGCR, 1996. At the time of importation of goods, the appellants had submitted requisite bonds under the IGCR, 1996, binding themselves to pay the differential duty along with interest, in the case, the imported goods shall not be used for the intended purpose. Since, OFC is classifiable under heading 9001 and such classification has not been considered for duty exemption as per the Notification dated 01.03.2005, the department’s stand in invoking both the above statutory provisions are justified, in support of confirmation of the adjudged demands on the appellants. There are no infirmity in the impugned order, in so far as it has confirmed the adjudged demands on the appellants - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended period of limitation for recovery of customs duty could be invoked where raw materials were imported duty-free under a notification but the finished goods manufactured were not of the tariff description declared, and whether such facts constituted suppression or wilful mis-statement. 2. Whether Optical Fibre Cables (OFC) manufactured without individually sheathed optical fibres were eligible for duty exemption under the relevant notification permitting concessional import for manufacture of excisable goods. 3. Whether invocation of Section 28 of the Customs Act, 1962 (recovery with interest) together with Rule 8 of the Import of Goods at Concessional Rate (IGCR), 1996 (and the bonds executed thereunder) was justified where concessional import had been availed but the finished goods differed from the declared tariff description. 4. Whether penalty provisions (Sections 114 and 117, as applied) were supportable on the facts of nondisclosure and mis-declaration in the IGCR/bond declarations. ISSUE-WISE DETAILED ANALYSIS Issue 1: Extended limitation - suppression or wilful mis-statement Legal framework: The extended period of limitation for demand under customs law is available where there is suppression of facts or wilful mis-statement; recovery is governed by Section 28 and related provisions permitting extended time where concealment is proved. Precedent treatment: The Court relied on the larger tribunal conclusion that correct classification may exclude concession; prior divergent bench views were resolved against treating OFC under the concessional heading. That precedent was followed for classification purposes (see cross-reference under Issue 2). Interpretation and reasoning: The appellants had executed statutory declarations, ER-1 returns and bonds under IGCR, 1996, repeatedly declaring the goods as falling under the concessional tariff heading (8544 7090). The Tribunal found that the actual manufactured OFC were not made up of individually sheathed optical fibre - a material fact which was not disclosed at any time. The jurisdictional authorities only discovered the true nature of the goods following enquiries based on intelligence. The Court treated the persistent incorrect declarations as suppression/wilful mis-statement because the declarations were material to entitlement to concession and the true composition (absence of individually sheathed fibres) directly negated eligibility. Ratio vs. Obiter: Ratio - concealment of a material fact in statutory declarations/bonds that affects entitlement to concessional import attracts the extended period and sustains demand. Obiter - procedural remarks on how and when intelligence may trigger inquiries. Conclusion: Suppression/wilful mis-statement was present; invocation of the extended period for recovery was justified. Issue 2: Eligibility of the OFC for the duty exemption - classification and substance Legal framework: Eligibility for concessional import under the notification is contingent upon the imported goods/raw materials being used for manufacture of specified tariff items. Correct classification and the actual physical composition of the manufactured goods determine entitlement. Precedent treatment: The matter of classification of OFC was the subject of earlier reference to a larger bench which held that OFC used for telecommunications are not classifiable under the concessional heading invoked by the appellants but under an alternative heading (9001). The Court followed that larger-bench conclusion. Interpretation and reasoning: The appellants did not contest the classification under heading 9001 in the appeals before the Tribunal. The core factual and legal point was that the manufactured OFC lacked individual sheathing of optical fibres; hence they did not fall within the tariff description for which concession was provided. Since the notification did not cover OFC as actually manufactured, the duty exemption could not apply. The Court connected the material factual mismatch (composition) to the legal disqualification from the notification. Ratio vs. Obiter: Ratio - goods actually manufactured that do not meet the tariff/description qualifying for a notification cannot attract duty exemption even if declared otherwise; adherence to larger bench classification is binding. Obiter - none of significance beyond application to the facts. Conclusion: The OFC as manufactured were not eligible for the duty exemption; classification under the non-concessional heading (9001) and lack of individual sheathing excluded entitlement. Issue 3: Application of Section 28 and Rule 8 of IGCR, 1996 and the effect of bonds Legal framework: IGCR, 1996 governs import of goods at concessional rate for manufacture of excisable goods, including procedural bonds and conditions obliging importers to pay differential duty if goods are not used as declared. Section 28 (and related interest provisions) of the Customs Act permits recovery of duty and interest upon rejection of concession or breach of conditions. Precedent treatment: The Court applied the statutory scheme of IGCR and accepted the enforcement of bonds/conditions where the concessions were misused or the ultimate product differed from the declared description. Earlier rulings on classification (larger bench) were followed to establish that the concession did not extend to the actual goods. Interpretation and reasoning: The appellants had executed bonds under IGCR, 1996 accepting liability for differential duty and interest if the imported materials were not used for the stated eligible manufacture. Given the non-eligibility of the finished OFC, the conditions of the bonds crystallized, and recovery under Section 28 together with Rule 8 enforcement was appropriate. The Court held that invocation of both statutory recovery provisions and IGCR Rule 8 was justified on the admitted facts and proved concealment. Ratio vs. Obiter: Ratio - where bonds under IGCR are breached because the manufactured goods do not conform to declared tariff description, the authorities may invoke Section 28 and IGCR Rule 8 to recover differential duties and interest. Obiter - none beyond affirmation of statutory interplay. Conclusion: Invocation of Section 28 and Rule 8 of IGCR, 1996 was justified and supports confirmation of the adjudged demand and interest. Issue 4: Imposition of penalties under relevant provisions Legal framework: Penalties under the customs law (including provisions analogous to Sections 114 and 117 as applied) are attracted where there is suppression of facts, false statements or breach of statutory obligations in relation to concessional imports and bonded declarations. Precedent treatment: The Court treated penalties as ancillary to the finding of concealment and mis-statement; no separate authority overruling prior penalty jurisprudence was invoked. Interpretation and reasoning: Given the repeated, material mis-declarations in statutory returns, bonds and ER-1 filings, and the finding that the true composition of the manufactured OFC was concealed until inquiries, the elements necessary for imposition of penalties were present. The tribunal found no infirmity in confirmation of adjudged demands and associated penalties on the company and a monetary penalty on an individual officer. Ratio vs. Obiter: Ratio - material suppression in concessional import matter justifies imposition of penalties under the relevant statutory provisions. Obiter - assessment of quantum of penalty in particular circumstances. Conclusion: Penalties confirmed by the adjudicating authority were supportable on the established facts of suppression and false declaration. Overall Conclusion The appeals were dismissed: the Court upheld the finding of suppression/wilful mis-statement, followed the larger-bench classification that excluded the actual OFC from the concessional tariff, and sustained recovery of differential duty with interest under Section 28 together with enforcement under IGCR Rule 8 and imposition of penalties under the applicable provisions.