2025 (9) TMI 487 - AT - Customs

Appeal allowed; duty, interest and penalties quashed as export rule doesn't require jewellery be made only from imported gold

CESTAT (Hyderabad) - AT allowed the appeal and set aside the impugned order. The tribunal held the exemption notification did not mandate that exported ... Export of jewellery manufactured out of domestic gold instead of exporting jewellery made of the imported gold - violation of N/N. 57/2000- Cus dated 8.5.2000 - notification stipulate that export obligation must be fulfilled by only exporting jewellery made out of the imported gold or not - notification stipulate that export obligation must be fulfilled by only exporting jewellery made out of the imported gold or not - demand of duty with interest and penalties - HELD THAT:- A plain reading of the notification shows that it nowhere specifies that only the imported gold must be used to manufacture jewellery to export. However, the SCN took this view by reading some directions in CBEC’s circular No. 27/2016-Cus dated 10.6.2016 to say that ‘exporter shall export jewellery manufactured out of the gold issued to them by the Nominated Agency within 90 days from the date of issue of the precious metal to them, to fulfil export obligation under the above said notification.’ The impugned order, likewise read some directions in the CBEC’s circular 27/016-Cus into the exemption notification no. 57/2000 and thereby concluded that it is essential that only the imported gold should be used to manufacture jewellery and export. What emerges is that while the exemption notification does not stipulate that only imported gold should be used to manufacture goods for export, the FTP specifically provides that gold can be procured duty free either in advance or as an replenishment after export. It is only the CBEC’s circular, which is in the nature of instructions to the officers by the Board, stipulated that the imported gold must be used only for export - A well settled legal principle is that there is no scope for intendment in taxation. Whatever is the law must be enforced regardless of the consequences. The law in question is the Customs Act, 1962 section 25 of which empowers the Central Government to issue exemption notifications. Therefore, the exemption notifications issued by the Government are in the nature of subordinate legislation and are part of the law. It may not be out of place to mention here that every notification which is issued is place with a note before both houses of Parliament and the Committees of Subordinate Legislation of both houses examine the notifications and at times direct some changes to be made. Neither the SCN nor the impugned order says that it is a condition of the exemption notification that only the imported gold must be used for export. he SCN was issued under the misconception that the CBEC circular no. 27/2016-Cus dated 10.06.2016 had to be read into the notification and therefore jewellery must be exported only out of imported gold. The impugned order was also issued under the same misconception. The impugned order therefore, cannot be sustained and need to be set aside. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an exemption notification under section 25 of the Customs Act, 1962, which exempts imported precious metal when imported under specified schemes, requires that the exported jewellery must be manufactured only from the specifically imported metal (i.e., whether export obligation must be fulfilled by exporting jewellery made out of the imported metal alone). 2. Whether instructions/circulars issued by the Board (CBEC) can be read into or add conditions to an exemption notification issued under section 25 of the Customs Act. 3. Consequential: If the exemption is held not to impose the 'imported-metal-only' condition, whether demands of duty, interest and penalties premised on that condition can be sustained and what remedy follows for amounts paid. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the exemption notification mandates use of only the imported metal to meet export obligation Legal framework: Exemption notifications are issued under section 25 of the Customs Act, 1962, and specify duty concessions for precious metals imported under enumerated schemes (for example, 'Export Against Supply by Nominated Agencies' and replenishment schemes) subject to prescribed conditions, including bonds undertaking to export jewellery/articles with precious metal content equivalent to the imported quantity. Precedent Treatment: No judicial precedents were relied upon or overruled in the decision; the Court applied statutory and textual analysis principles. Interpretation and reasoning: A plain textual reading of the exemption notification shows no express stipulation that the exporter must use the specifically imported metal to manufacture the exported jewellery. The Foreign Trade Policy (FTP) and Handbook of Procedures regulate procedural and policy aspects (e.g., procurement in advance or replenishment), but they do not themselves create exemptions from duty. The Board's circular (CBEC Circular No.27/2016-Cus) contains administrative instructions to officers that the metal issued by a nominated agency ought to be used for export within a timeline; however, such circulars are subordinate administrative guidance and cannot add substantive conditions to a statutory exemption notification. The correct approach is that exemption notifications, being subordinate legislation issued under statutory power, determine the legal conditions; administrative circulars cannot be read into the notification to impose additional obligations. Ratio vs. Obiter: Ratio - the exemption notification does not, by its terms, obligate that only the imported metal be used to manufacture exported jewellery; that interpretation is dispositive of the controversy. Obiter - observations on the separate roles of FTP/Handbook and Board circulars as policy/instructional instruments and their relationship to notifications are explanatory but support the ratio. Conclusion: The Court holds that the exemption notification does not stipulate that export obligation must be fulfilled only by exporting jewellery manufactured out of the specifically imported metal; therefore, the premise that diversion occurred solely because jewellery exported was made from domestic metal is not established as a legal violation of the notification. Issue 2 - Whether Board circulars can be read into exemption notifications to impose conditions Legal framework: Statutory exemption notifications under section 25 constitute subordinate legislation and form part of the law. Circulars issued by the Board are internal administrative instructions to departmental officers. Precedent Treatment: No contrary authority was adopted; the Court applied settled administrative law principles distinguishing subordinate legislation from executive circulars. Interpretation and reasoning: The Court reiterated the principle that circulars (instructions to officers) cannot modify or add substantive conditions to a notification. While FTP/Handbook set out policy measures and procedures, they do not independently create customs exemptions; only the notification does so. Accordingly, the CBEC circular cannot be read to import an additional condition into the exemption notification requiring exclusive use of imported metal for exports. Ratio vs. Obiter: Ratio - administrative circulars cannot be read into or used to alter the substantive scope of a statutory exemption notification. Obiter - contextual remarks regarding the placement and parliamentary scrutiny of notifications and the nature of FTP/Handbook as policy instruments. Conclusion: The CBEC circular cannot operate to impose a legal condition absent in the notification; the SCN and impugned order erred in reading the circular into the notification. Issue 3 - Consequences for demands of duty, interest and penalties premised on the misinterpretation Legal framework: Where an order demanding duty and interest is founded on an incorrect legal premise (misreading of notification), such demand cannot be sustained. Section 27 (refund provisions) allows persons who paid or bore duty/interest to claim refund. Confiscation and penalties under Customs Act provisions require the foundational illegality to be established in law. Precedent Treatment: None cited; Court relied on statutory refund mechanism and appellate remedial powers. Interpretation and reasoning: Because the notification does not impose the 'imported-metal-only' condition, the basis for the Show Cause Notice, the confirmation of duty and interest, and the imposition of penalties was misconceived. Therefore the impugned order cannot be sustained. Amounts of duty and interest paid (even if paid by a nominated agency) must be refunded; parties who bore such payments (including exporters who reimbursed nominated agencies) are entitled to claim refunds under the statutory refund provision. Penalties imposed on appellants based on the same flawed premise cannot be upheld insofar as they rest on the misinterpreted condition. Appropriation by the impugned authority of amounts paid cannot cure the foundational illegality. Ratio vs. Obiter: Ratio - where duty/interest/penalty orders rest on a legal misinterpretation of an exemption notification, those orders must be set aside and refunded where paid; entitled claimants may seek refund under section 27. Obiter - procedural remarks about which party paid or bore the duty do not affect the legal entitlement to refund; practical allocation disputes are to be resolved under refund claims. Conclusion: The demand for duty and interest, and the penalties predicated on the misreading of the notification, are unsustainable; the impugned order is set aside and refunds (including pre-deposits) are to be granted to entitled parties under section 27, with consequential relief to appellants. Cross-references and Related Points 1. Issues (1) and (2) are interlinked: the determination that the notification's text controls (Issue 1) is premised on the legal principle that circulars cannot add conditions to notifications (Issue 2). 2. Resolution of Issues (1) and (2) renders factual inquiries about whether specific jewellery was manufactured from domestic metal (originally Question (b)) unnecessary for sustaining duty/penalty demands; such factual findings become immaterial once the legal premise fails. 3. Remedies: Refund entitlement is statutory and available both to the payer and to the person who actually bore the financial burden; appellate orders should grant consequential remedies including refund of pre-deposit where applicable.