2009 (8) TMI 247 - AT - Customs

Tribunal overturns penalties, affirms duty-free import entitlement under Notification No. 43/02-Cus.

UMANG BOARDS PVT. LTD. Versus COMMISSIONER OF CUSTOMS, JAIPUR

The Tribunal allowed the appeals, setting aside the confiscation and penalties imposed on the appellant company. It held that the appellant was entitled ... Availability of exemption to Electrical Grade Insulation Kraft Paper (EGIKP) – EGIKP whether raw material for Electrical Grade Insulation Pre-Compressed Press Boards (EGIPB). - Duty free clearance of these goods is sought under Notification No. 43/02-Cus., as amended, against advance licence for intermediate exports dated 9-6-03 issued by EGFT – on selling price of imported EGIPB, only 15% value addition found, and in that view revenue’s plea that as manufacture from imported EGIKP was uneconomical, it was sold illicitly, rejected – no evidence procuded by revenue to support such sales - When the goods imported are covered by a valid advance licence and there is no evidence indicating that the same were not used for the intended purpose and were illicitly diverted, the benefit of duty free clearance against the advance licence value Notification No. 42/02-Cus., cannot be denied. If the Department had any doubt about the use of the imported Kraft Paper in the manufacture of EGIPB they should have referred the matter to DGFT requesting for cancellation of the licence but neither any such reference has been made nor the licence has been cancelled. It is settled law that Customs Authrities cannot be sit in judgment over the decision of DGFT to issue an advance licence and go behind the licence to deny its benefit to the importer. – appeal allowed Issues Involved:1. Whether EGIKP is the raw material for EGIPB.2. Eligibility for duty-free import under Notification No. 43/2002-Cus.3. Confiscation and penalty under Sections 111 and 112 of the Customs Act, 1962.4. Validity and utilization of the advance licence issued by DGFT.Issue-wise Detailed Analysis:1. Whether EGIKP is the raw material for EGIPB:The primary dispute is whether Electrical Grade Insulation Kraft Paper (EGIKP) is used as a raw material for manufacturing Electrical Grade Insulation Pre-Compressed Press Boards (EGIPB). The appellant company manufactures EGIPB from EGIKP, which is produced in-house from Electrical Grade unbleached Softwood Pulp and also procured from external sources. The Department contended that EGIPB is made from wood pulp and not from EGIKP, supported by letters from other manufacturers like M/s. Raman Boards Ltd. and M/s. Senapathy Whiteley Pvt. Ltd. However, the appellant argued that their process involves manufacturing EGIKP first, which is then used to produce EGIPB. The Tribunal found that the appellant's manufacturing process was verified by departmental officers and supported by Form-IV registers showing the receipt of imported EGIKP, thereby substantiating the appellant's claim.2. Eligibility for duty-free import under Notification No. 43/2002-Cus:The Notification No. 43/02-Cus. provides duty exemption for imports against an advance licence, subject to conditions. The appellant's advance licence was valid for importing 34.925 MT of EGIKP, and the imported goods matched the description, value, and quantity specified in the licence. The Department's objection was based on the assumption that EGIKP is not used for manufacturing EGIPB. However, the Tribunal noted that there was no evidence to prove that the imported EGIKP was not used for the intended purpose or was illicitly sold. The Tribunal emphasized that Customs authorities cannot question the validity of a licence issued by DGFT unless the licence is cancelled or found invalid.3. Confiscation and penalty under Sections 111 and 112 of the Customs Act, 1962:The Commissioner of Customs ordered the confiscation of 31.349 MT of imported EGIKP under Sections 111(d), (m), and (o) of the Customs Act, 1962, and imposed fines and penalties on the appellant company and its directors. The Tribunal, however, found that the confiscation and penalties were unwarranted as the imported goods were covered by a valid advance licence and there was no evidence of illicit diversion or misuse of the imported EGIKP.4. Validity and utilization of the advance licence issued by DGFT:The appellant's advance licence was issued by DGFT based on standard input-output norms (SION) and a Chartered Engineer's certificate regarding the production process. The Department did not dispute the production process certified by the Chartered Engineer. The Tribunal held that Customs authorities cannot challenge the decision of DGFT to issue an advance licence or deny its benefits unless the licence is cancelled. The Tribunal cited precedents where it was established that Customs authorities cannot sit in judgment over the licensing authorities' decisions.Conclusion:The Tribunal set aside the impugned order, holding that the appellant was entitled to duty-free import under Notification No. 43/02-Cus. and that the confiscation and penalties imposed were not sustainable. The appeals were allowed, reaffirming the principle that Customs authorities cannot override the decisions of DGFT regarding the issuance and validity of advance licences.