2025 (3) TMI 1259 - AT - Customs

Export goods cannot be deemed prohibited for non-declaration of technical characteristics on shipping bills under DFIA scheme

CESTAT New Delhi held that export goods cannot be deemed prohibited merely due to non-declaration of technical characteristics on shipping bills under ... Confiscation of export goods - prohibited goods or not - Whether export goods become prohibited for export on account of non-declaration of technical characteristics of inputs on shipping Bills as was required in terms of DFIA Scheme? - HELD THAT:- In the present case, the show cause notices have been issued with respect to the exports made by appellants. Apparently and admittedly no exemption from duty has been claimed on such exports. Further these notifications require that the product manufactured out of these imported inputs i.e. the Resultant Product should have same quality, technical specifications and characteristics as that of the imported materials used in the said resultant product. The Revenue/department has failed to produce any evidence to prove that the exported goods were the resultant goods and were not of same quality, technical characteristics and specifications as those of the inputs used in the said resultant product. It becomes clear that there is no evidence to support the violation of Condition No. (i) of both the notifications. Hon’ble Supreme Court in the case of Titan Medical System Pvt. Ltd. Vs. Collector [2002 (11) TMI 108 - SUPREME COURT] has held that in the absence of any action taken by the licensing authority, revenue cannot take any action that too on the allegations of misrepresentation/suppression on part of assessee. Thus we are of the opinion that non-compliance of condition of DFIA/Notifications in the shipping bills could affect the duty free import of inputs but shall have no effect on export of products for which there is no evidence that the export goods were “resultant products” as mentioned in 4.55 of HBP. Revenue has failed to produce any such law, rule, notification policy or any such thing, according to which there is restriction in export of pan masala and gutkha. In such circumstance, any condition on imports and non-compliance thereof cannot affect the exportability; Not specifically in the present case when DFIA was obtained post impugned export and was transferred also to third party and also when no exemption is availed by appellants while exporting pan masala and gutkha. More so for the reason the exported products were got manufactured from synthetic oils procured domestically. The synthetic oils are not mentioned in para 4.55 of HBP. Revenue also has failed to produce any evidence that the exempted pan masala and gutkha were the Resultant Products of the duty free inputs i.e. the natural essential oils imported under DFIA. Whether non compliance of condition of DFIA i.e. non-declaration of technical characteristics of inputs on the shipping bills as required under para 4.55/4.32 of HBP and under Notification No. 40/2006 dated 01.05.2006 and Notification No. 98/2009 dated 11.09.2009 for the purpose of duty free import of inputs can render the export goods as “Prohibited Goods”? - HELD THAT:- On looking into the definition of “Prohibited goods means goods the import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have been complied with.” Apparently there was no condition on the export of pan masala and gutkha. The condition which is alleged to have been violated is the condition of import. Thus, it is clear that based on impugned allegations freely exportable pan masala and gutkha cannot be called as prohibited goods. Above all, appellant has availed no benefit out of alleged non-declaration. Levy of penalty under Section 113(1) of the Customs Act, 1962 - HELD THAT:- The alleged non-compliance cannot render the export goods prohibited, the order of confiscation passed by adjudicating authority below is not sustainable. Once goods are not found to be liable for confiscation, penalty under Section 113(1) of the Customs Act, 1962 cannot be sustained. The penalty imposed is also required to be set aside. Conclusion - The goods exported i.e. pan masala and gutkha were freely exportable goods in terms of Foreign Trade Policy. Those have wrongly been called as prohibited for alleged violation of the conditions meant for duty free imports. Also there is no evidence proving connection between imported inputs and the export goods. The order confiscating those export goods and imposing penalty on the appellants is, therefore, not sustainable. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the export goods (pan masala and gutkha) became prohibited for export due to the non-declaration of technical characteristics of inputs on shipping bills as required under the Duty Free Import Authorization (DFIA) Scheme. This involves examining whether such non-declaration renders the goods liable for confiscation under Section 113(d) of the Customs Act, 1962, and whether penalties under Section 114 of the Customs Act are justified.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe DFIA Scheme, under the Foreign Trade Policy (FTP) and Handbook of Procedures (HBP), requires exporters to declare the technical characteristics, quality, and specifications of inputs like essential oils on shipping bills. Notifications No. 40/2006 and 98/2009, issued under Section 25 of the Customs Act, provide conditions for duty-free import of inputs under the DFIA Scheme. Section 113(d) of the Customs Act deals with the confiscation of goods attempted to be exported contrary to any prohibition imposed by law.Court's Interpretation and ReasoningThe Tribunal observed that the non-declaration of technical characteristics of inputs on shipping bills does not render the export goods prohibited under the Customs Act or any other law. The DFIA Scheme and related notifications pertain to duty-free import conditions and not directly to the exportability of goods. The Tribunal emphasized that the non-compliance with import-related conditions does not affect the free exportability of goods unless there is a specific prohibition under the Foreign Trade (Development and Regulation) Act, 1992, or the Customs Act.Key Evidence and FindingsThe Tribunal noted that the appellants exported pan masala and gutkha without claiming any exemption from duty or benefits under the DFIA Scheme at the time of export. The DFIA licenses were obtained post-export and transferred to third parties with DGFT approval. The customs authorities did not object to the exports at the time, and no evidence was presented to show that the exported goods were resultant products of duty-free imported inputs.Application of Law to FactsThe Tribunal applied the legal framework to the facts, concluding that the non-declaration of input details on shipping bills does not equate to a violation of export conditions under the Customs Act. The DFIA Scheme conditions relate to import benefits and do not impose restrictions on the export of goods like pan masala and gutkha, which are not listed as prohibited items under the FTP or any other law.Treatment of Competing ArgumentsThe appellants argued that the customs authorities lacked jurisdiction to adjudicate matters related to the DFIA Scheme, which falls under the purview of DGFT. The Tribunal agreed, emphasizing that any issues related to the DFIA Scheme should be addressed by DGFT, not customs authorities. The department's argument that non-compliance with DFIA conditions rendered the goods prohibited was rejected, as no specific prohibition was established under the relevant laws.ConclusionsThe Tribunal concluded that the non-compliance with DFIA-related conditions does not render the export goods prohibited. The order of confiscation and penalties imposed by the adjudicating authority were not sustainable, as the goods were freely exportable under the FTP, and no evidence was provided to prove a connection between the imported inputs and the export goods.SIGNIFICANT HOLDINGSThe Tribunal held that:'The goods exported i.e. pan masala and gutkha were freely exportable goods in terms of Foreign Trade Policy.''The order confiscating those export goods and imposing penalty on the appellants is not sustainable.''Non-compliance with import-related conditions under DFIA does not affect the exportability of goods.''Customs authorities cannot adjudicate matters related to DFIA, which falls under the jurisdiction of DGFT.'Final determinations on each issue were made in favor of the appellants, resulting in the setting aside of the confiscation order and penalties. All four appeals were allowed, emphasizing that the alleged non-declaration did not impact the exportability of the goods.