2025 (12) TMI 134 - AT - Customs

DRI officers valid as proper officers; demand quashed for exceeding show cause and treating job-work under Notification 30/97

CESTAT Mumbai held that officers of DRI are competent 'proper officers' to issue show cause notices in view of the statutory amendment and the SC's review ... Competency of the officers of DRI to issue show cause notice - dropping of charge of excess import - Appellant declared as “Merchant Exporter” - sending of the goods for job-work while importing under N/N. 30/97. Competency of the officers of DRI to issue show cause notice - HELD THAT:- The issue has been set to rest by the amendment brought by the Government and the decision of the Hon’ble Apex Court in the case while deciding the Review Petition of the Government in the case of Canon India [2024 (11) TMI 391 - SUPREME COURT (LB)]. It is found that Hon’ble Apex Court has observed 'The assignment of functions of the proper officer is to be done only to officers of customs (whether they be appointed under Section 4 or entrusted with certain functions under Section 6). There may be some overlap between the assignment of functions of proper officers under Section 2(34) read with Section 5 and the entrustment of functions of officers of customs under Section 6 in some instances but there can be no scenario in which we can hold that the “functions” under Section 6 and Section 2(34) are congruent.' In view of the above, the first premise of the appellants on the jurisdiction of the officers of DRI to issue show cause notice is no longer valid - the officers of DRI have competency to issue show cause notices in view of the above. Commissioner Adjudication has dropped charge of excess import - Appellant declared as “Merchant Exporter” - HELD THAT:- The issue of merchant-exporter was not raised in the show cause notice; learned Commissioner has raised the issue for the first time in the adjudication which is not permissible as Commissioner cannot go beyond the show cause notice - the Commissioner held that though the appellants have fulfilled export obligation, have violated the conditions of the Notification No.30/97. Learned Counsel for the appellants submits that it is wrong on the part of the Commissioner to hold that the Job-work undertaken by SCF is covered by Condition No (viii) of Custom N/N.30/97 - Department itself found that the appellant purchased 1266.211 MT of PCE locally during 1997 to 2002 and have also imported 40.504 MT on 5.11.98. Whether manufacturer-importer can send the goods for job-work while importing under N/N. 30/97? - HELD THAT:- Hon’ble High Court iin the case of Galaxy Surfactants [2023 (1) TMI 1062 - BOMBAY HIGH COURT] has put to rest the dispute regarding the transferability of material imported under Notification No.30/97 after the completion of export obligation - Hon’ble High Court has held that the raw material imported under the Notification cannot be sold as such but can be transferred for jobwork - the appellants are importer-manufacturer-trader and M/s SEF is a sister concern of the appellants and therefore, the sending of the goods for job-work is not in violation of the conditions of the Notification. It is also found that it was held similarly in the case of Tetrapack (I) Ltd. [2005 (4) TMI 182 - CESTAT, MUMBAI] - it is further found that not taking permission of the Assistant Commissioner of Customs before sending the goods, imported or replenished, is at the most a procedural lapse and duty cannot be fastened on the appellants for this reason. Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether officers of the Directorate of Revenue Intelligence are competent 'proper officers' to issue show cause notices under Section 28 of the Customs Act, in view of Mangali Impex and Canon India. 1.2 Whether a manufacturer-importer operating under Customs Notification No. 30/97-Cus. can send duty-free imported/replenished inputs to a sister concern for job work without violating the 'actual user' / non-transferability conditions of the notification and EXIM Policy. 1.3 Whether characterization of the assessee as 'merchant exporter' and the sister concern as 'supporting manufacturer', introduced for the first time in adjudication, could lawfully be used as the basis for denial of exemption and demand of duty. 1.4 Whether failure to obtain prior permission of the Assistant Commissioner of Customs for sending imported/replenished goods for job work constitutes a substantive violation of Notification No. 30/97-Cus. justifying denial of exemption or is only a procedural lapse. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Competency of DRI officers to issue show cause notice under Section 28 Legal framework 2.1 The Tribunal examined the effect of the Supreme Court's review decision in Canon India and the statutory validation introduced by Section 97 of the Finance Act, 2022, as well as the setting aside of the Delhi High Court decision in Mangali Impex. 2.2 The Court noted the Supreme Court's conclusions that: (i) only the 'jurisdiction' aspect of Canon India was reviewed; (ii) Mangali Impex was set aside; (iii) Section 97 validly and retrospectively cured the jurisdictional defect; and (iv) officers of DRI and similarly placed formations are 'proper officers' for purposes of Section 28. Interpretation and reasoning 2.3 The Tribunal recorded that the Supreme Court has expressly held that DRI, Customs (Preventive) and similar officers are proper officers competent to issue show cause notices under Section 28 and that challenges based on lack of jurisdiction of such officers can no longer be sustained. 2.4 It further noted that the Supreme Court has specifically disapproved the reasoning in Mangali Impex and approved the contrary view of the Bombay High Court, thereby removing the basis of the appellant's jurisdictional objection. Conclusions 2.5 The Tribunal held that the objection to the competence of DRI officers to issue the show cause notice is no longer tenable; officers of DRI have jurisdiction and competency to issue show cause notices under Section 28. Issue 2: Sending duty-free imported inputs to sister concern for job work under Notification No. 30/97-Cus. and EXIM Policy Legal framework 2.6 The Tribunal considered conditions (i) and (vii) of Notification No. 30/97-Cus., which require that: (a) materials be covered by an Actual User Duty Exemption Entitlement Certificate; and (b) exempt materials not be disposed of or utilized except for discharge of export obligation or replenishment, and replenished materials not be sold or transferred to any other person. 2.7 The Tribunal referred to EXIM Policy definitions and provisions discussed and applied by the Bombay High Court in Galaxy Surfactants: * Para 3.4 - definition of 'Actual User'.* Para 3.5 - 'Actual User (Industrial)' as a person who utilises imported goods for manufacturing in his own industrial unit or for his own use in another unit including a jobbing unit.* Para 3.37 - 'Person' includes a company and other legal persons.* Para 7.4 - permits issuance of advance licences with actual user condition to manufacturer exporters and merchant exporters (with endorsement of supporting manufacturer).* Para 7.16 - licence subject to actual user condition till endorsement of transferability.* Para 7.17 - licence holder may have material processed through any other manufacturer or jobber, remaining solely responsible for imported items and fulfilment of export obligation. 2.8 Relying on Galaxy Surfactants, the Tribunal also noted the High Court's holding that movement of duty-free imported inputs between different units of the same legal person does not amount to a 'transfer' to another person and does not breach the actual user or non-transfer conditions when export obligation is fulfilled. Interpretation and reasoning 2.9 The Tribunal observed that the Commissioner had already dropped the allegation of excess import but proceeded to deny exemption on the premise that the appellant was a 'merchant exporter' and its sister concern SCF was a 'supporting manufacturer', treating the transfer of inputs to SCF for job work as diversion and violation of Notification No. 30/97-Cus. 2.10 The Tribunal held that the 'merchant exporter/supporting manufacturer' characterization was not a ground in the show cause notice and was introduced for the first time in the adjudication order. The Commissioner thereby travelled beyond the scope of the show cause notice, which is impermissible. 2.11 On the substance of the notification conditions, relying on Galaxy Surfactants, the Tribunal reasoned that: * The relevant enquiry is whether there is a 'transfer to any other person' in breach of the actual user / non-transfer condition.* A company is a single 'person' under the EXIM Policy; different units or sister concerns of such person, when processing goods for that person's own use/export obligation, do not constitute a transfer to 'any other person' within the meaning of the notification and policy.* The EXIM Policy itself contemplates processing through another manufacturer or jobber, while the licence holder remains responsible for imported items and export obligation. 2.12 The Tribunal found that the appellant is an importer-manufacturer-trader and SCF is its sister concern. The inputs were sent to SCF for job work, while export obligation was admittedly fulfilled and licences were redeemed. In these circumstances, consistent with Galaxy Surfactants, there is no transfer to another person and no breach of conditions (i) or (vii) of Notification No. 30/97-Cus. 2.13 The Tribunal also noted that the Department's own case recognized that SCF had substantial independent purchases and imports of PCE and that reliance on alleged diversion was intertwined with the impermissible merchant-exporter/supporting-manufacturer theory. Conclusions 2.14 The Tribunal held that a manufacturer-importer operating under Notification No. 30/97-Cus. is not barred from sending duty-free imported/replenished inputs to a sister concern or jobbing unit for job work, so long as the inputs are used for the licence holder's own manufacture/export and there is no sale or transfer to an unrelated person. 2.15 It concluded that, in the facts of the case, sending PCE to the sister concern SCF for job work did not violate the actual user or non-transfer conditions of Notification No. 30/97-Cus. or the EXIM Policy, and the exemption could not be denied on this ground. 2.16 The Tribunal further held that the Commissioner's introduction of the merchant exporter/supporting manufacturer concept at the adjudication stage, without foundation in the show cause notice, was unlawful and could not sustain the demand. Issue 3: Effect of absence of prior permission for job work Interpretation and reasoning 2.17 The Tribunal considered the Department's contention that the appellant did not obtain specific permission of the Assistant Commissioner of Customs before sending imported/replenished inputs to SCF for job work, and that such absence of permission constituted a violation justifying denial of exemption. 2.18 Having already concluded that transfer for job work to a sister concern is permissible under the EXIM Policy and does not by itself breach Notification No. 30/97-Cus., the Tribunal viewed the requirement of prior permission in the circumstances as procedural in nature. 2.19 It held that, once export obligation is fulfilled and there is no substantive breach of the actual user/non-transfer conditions, non-obtaining of prior permission for job work cannot be treated as a substantive infraction so as to fasten duty liability. Conclusions 2.20 The Tribunal held that failure to obtain prior permission of the Assistant Commissioner before sending inputs for job work, even if assumed, is at most a procedural lapse and cannot be a valid ground to deny exemption under Notification No. 30/97-Cus. or to confirm duty demand. Final Outcome 2.21 Applying the above findings, the Tribunal allowed both appeals, holding that the demand of duty and penalties based on alleged violation of Notification No. 30/97-Cus. could not be sustained.