1995 (10) TMI 94 - AT - Customs

Supreme Court directs re-hearing, upholds Collector's findings on export dispute

The Supreme Court set aside the Tribunal's order and directed a re-hearing of the matter instead of remanding it to the Collector. The dispute over the ... Classification of polymer blends by predominant comonomer - evidentiary value of expert chemical analysis in determining raw material quality - deemed prohibition under Export Trade Control Order for nonconformity of value, sort, specification, quality or description - finality of unchallenged factual finding - licence condition enforceability linked to contemporaneous policy requirement to name supporting manufacturersEvidentiary value of expert chemical analysis in determining raw material quality - classification of polymer blends by predominant comonomer - Whether the finished goods exported were manufactured from virgin HDPE granules or from recycled/waste HDPE. - HELD THAT: - The Tribunal and Collector considered chemical reports from the Deputy Chief Chemist and Professor Pandya (IIT Bombay). The Deputy Chief Chemist's report did not establish recycled material and showed specific gravity values mostly consistent with HDPE. Professor Pandya's detailed examination concluded the samples were of prime type, that the polyethylene component was likely HDPE, and that samples were blends or copolymers containing small percentages of polypropylene and inorganic pigment/stabilizer. The Court applied the tariff Note which directs that polymer blends are classified by the comonomer that predominates by weight. On the expert evidence the predominant polymer was polyethylene; the presence of minor polypropylene or pigments introduced by manufacture (e.g., masterbatch for pigmentation) did not convert the product into recycled material or change its character as HDPE goods. The Collector's conclusion that the sampled goods were predominantly HDPE and thus manufactured from prime raw material is upheld. [Paras 5, 6, 7, 8]Samples were predominantly HDPE (prime quality) notwithstanding small admixture of polypropylene or pigments; the Collector's finding that the goods were made from virgin HDPE is sustainable.Deemed prohibition under Export Trade Control Order for nonconformity of value, sort, specification, quality or description - Whether Clause 3(3) of Export Trade Control Order No. 1/88-ETC (deeming export prohibited where goods do not conform to declared value, sort, specification, quality or description) applies so as to bar the export in the present case. - HELD THAT: - The show cause notice invoked Clause 3(3) on the premise that the goods were not made of virgin HDPE but of recycled scrap/waste. The Collector, supported by the expert evidence and the analysis of samples, found no material to conclude that the goods were made of recycled material rather than HDPE granules/powders. Because the attempt to show nonconformity on this ground failed, the deemed prohibition under Clause 3(3) could not be invoked. The Court sustained the Collector's conclusion that the export could not be treated as barred under that provision. [Paras 3, 5, 9]Clause 3(3) cannot be invoked; the deemed bar against the export is not attracted on the material before the Court.Licence condition enforceability linked to contemporaneous policy requirement to name supporting manufacturers - Whether the respondents breached DEEC licence conditions by not using the supporting manufacturer named in the application. - HELD THAT: - Advance licences were obtained during 30-10-1992 to 15-1-1993 under the 1992 Scheme. The relevant policy history shows that the requirement to furnish names of supporting manufacturers was deleted in the 1992 policy then reintroduced only from 1-4-1993. At the time the respondents obtained licences there was no requirement to name supporting manufacturers. Consequently there was no licence condition then obliging the licence-holder to use only the named supporting manufacturer. On that basis, the contention that the use of other manufacturers violated the licence conditions fails. [Paras 10]No breach of licence conditions as there was no contemporaneous requirement to name or restrict manufacture to a specified supporting manufacturer.Finality of unchallenged factual finding - Whether the Department may reopen the Collector's unchallenged finding on valuation. - HELD THAT: - The Tribunal earlier upheld the Collector's finding that valuation was not excessive. That finding was not challenged by the Department before the Supreme Court and has therefore attained finality. The Court records that it is not open to the Department at this stage to seek reopening of that particular finding. [Paras 4]The Collector's unchallenged finding on valuation is final and cannot be reopened by the Department.Final Conclusion: The appeal is dismissed. The Collector's findings that the exported goods were predominantly manufactured from virgin HDPE (despite minor polypropylene/pigment admixture), that Clause 3(3) ETC could not be invoked to deem the export prohibited, and that there was no breach of DEEC licence conditions by reason of supporting manufacturers are sustained; the Collector's unchallenged finding on valuation remains final. Issues:1. Appeal against dropping of proceedings by Collector of Customs.2. Alleged misdeclaration and overvaluation in export under DEEC Scheme.3. Raw material used for export product - virgin HDPE or recycled/waste HDPE.4. Interpretation of Export Trade Control Order.5. Declaration of supporting manufacturer in DEEC Book application.Issue 1:The appeal was filed by the Collector of Customs, Kandla against the order dropping proceedings initiated by a show cause notice. The Central Board of Excise and Customs passed an order under Section 129D(1) of the Customs Act. The Tribunal set aside some findings of the Collector, leading to the matter being remanded for fresh consideration. The Supreme Court later set aside the Tribunal's order, directing a re-hearing of the matter instead of remanding it to the Collector. The cross objections filed by the respondents were supportive of the Collector's order.Issue 2:The respondents obtained an advance license under the DEEC Scheme for exporting Newar/Straps, entitling them to import duty-free raw material. An intelligence report revealed misdeclaration and overvaluation in an attempted export under the scheme. The goods were declared as made from HDPE Granules but were actually manufactured from recycled plastic scrap/waste to gain higher import entitlement. The Tribunal upheld the Collector's finding on valuation but set aside other aspects, which were not challenged before the Supreme Court.Issue 3:The main dispute revolved around whether the raw material used for the export product was virgin HDPE or recycled/waste HDPE. Samples were tested by experts, with conflicting reports. The Deputy Chief Chemist's report was inconclusive, while Professor Pandya from IIT Bombay inferred that the materials were blends of copolymer of Polyethylene with polypropylene, indicating prime type HDPE. The presence of polypropylene was explained as necessary for pigmentation during manufacturing.Issue 4:The interpretation of Export Trade Control Order clause 3(3) was crucial, deeming export prohibited if goods did not conform to the declaration. The Department alleged the goods were made from recycled material, but the Collector's finding that the export bar could not be invoked was upheld due to lack of evidence supporting the claim.Issue 5:Regarding the declaration of supporting manufacturers in the DEEC Book application, the contention was that the finished products were not manufactured by the named supporting manufacturer. However, the requirement to name supporting manufacturers was not in effect during the period the advance licenses were obtained, leading to the dismissal of this contention and the appeal.In conclusion, the Tribunal's order was set aside by the Supreme Court, directing a re-hearing of the matter. The dispute over the raw material used in the export product was resolved in favor of the respondents based on expert opinions. The Collector's findings on valuation and the export bar were upheld due to lack of evidence supporting the Department's claims. The absence of a requirement to name supporting manufacturers during the relevant period led to the dismissal of that contention and the appeal.