TaxTMI 
TaxTMI 
TaxTMI 
2009 (5) TMI 434
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....lant was the holder of two DEEC Advance Licence bearing No. 07002638 dated 21-8-1998 and No. 0710000070 dated 13-5-1999, incorporating the actual user condition and issued under EXIM Policy under 1997-2002 by the licensing authority. There is also no dispute about the fact that the imports under these licenses affected by the appellant, which form the subject matter of the present case were under Notification No. 30/1997-Cus. 3. The export obligation stipulated in the said two advance licences required the appellant to export "Men's Shirt (full sleeves)" of FOB value mentioned therein with the entitlement to import duty free polyester/cotton blended fabrics up to the quantity and the value mentioned therein. Under advance licence No. 0710000070, the export obligation was fixed at FOB Rs.2,46,00,000/- (US $ 5,70,000) with entitlement to import duty free fabrics 2,25,000 sq. metres upto CIF Rs.1,65,00,000/- (US $ 3,80,000). 3.1 Accordingly, the appellant imported 96,063 sq. metres of polyester/cotton blended fabrics valued at Rs.64,87,647/- under advance licence No. 07002638 and 1,21,023 sq. metres of polyester/cotton blended fabrics valued at Rs.1,23,71,895/- under advance li....
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....ant was in excess of liability, the appellant preferred a refund thereof in respect of excess interest, which was also allowed vide order dated 20-12-2004. Subsequently, the said excess interest of Rs.10,93,019/- was also refunded to the appellant. The appellant deposited the penalty of Rs.10,000/-. It requires to be mentioned that none of these two orders dated 20-12-2004 were challenged by the Revenue and were permitted to attain finality. Moreover, in the meanwhile on 18-12-2004, the DGFT issued EODC in respect of this licence also. 3.4 In the above factual background, the issue and controversy in this case has arisen. The proceedings in the present case eminate from show cause notice dated 30-3-2006 issued to the appellant containing primarily the following allegations: (a) that, the appellant had mis-utilised the benefit of Notification No. 30/97-Cus. inasmuch as the material imported by them thereunder was incapable of use in the manufacture of men's shirts, but were actually capable of being utilized only in the manufacture of men's trousers; (b) that, in fact, the trousers were got manufactured by the appellant out of the said imported materials and most of such trousers....
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....thorities. Proceedings were, therefore, not maintainable at all. (b) As regards, the advance licence No. 0710000070, appellant submitted that they had exported 36,696 men's shirt totally under 40 shipping bills during the period 19-3-1997 and 28-9-1997. These shipping bills were lost in the fire accident which took place in the premises. They thereafter applied to the Customs Authorities for reconstruction of the said shipping bills on payment basis. The department was successful in reconstructing 31 out of said 40 shipping bills. As proceeds against the said exports had been received through normal banking channel, banks also received bank realization certificate in respect of the said 40 shipping bills. On going through the reconstructed shipping bills, in turn appellant found that there was shortfall fulfilment in export obligation. They voluntary approached the Asst. Commissioner (Exports), ICD vide their letter dated 22-4-2004 inter alia submitting that the differential duty which had become payable by them on account of the above said shortfall was Rs.2,62,02,277/- and interest therein was Rs.29,01,345/-, they claimed to have remitted entire amount under TR-6 challan on the ....
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....30/97 was concerned, it permitted the discharge of export obligation either by usage of the imported duty free material or by replenishment material. If the imported duty free material was replenished, Notification further stipulated that it will not be sold or transferred to any person. The appellant had not sold or transferred the replenished duty free imported material to any other person nor had the replenished duty free imported material had been diverted to the local market. They had exported a small quantity of trousers manufactured out of said material and had sold larger quantity of trousers manufactured in local market. This was not prohibited by Notification No. 30/97-Cus., Allegations in the show cause notice were on account of improper appreciation of Condition No. 1(7) of the said exemption notification. (g) Appellant also contended that once it was admitted fact that export obligation was complete and exempt material was not disposed off or sold as such but was utilized for manufacture of finished goods, the requirements notification were complied with and no violation of actual user condition can be alleged against the licence holder. (h) Customs authority cannot ....
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.... has been issued under Section 25 of the Customs Act, 1962. It grants exemption to allow customs duty free import of the goods imported against the advance license (hereinafter referred to as AL) under actual user conditions. Fulfilment of condition of notification ensures complete exemption from customs duty. (b) Condition No. (i) of the condition requires the imported materials to be covered by actual users DEEC in respect of value, quantity, description, quality and technical characteristics. (c) Condition No. (ii) reads as under: "(ii) That the importer at the time of clearance of the imported material executes a bond with such surety or security and in such form and for such sum as may be specified by the Assist. Commissioner of Customs binding himself to pay on demand an amount equal to the duty leviable but for the exemption, on the imported materials in respect of which the conditions specified in this notification have not complied with, together with interest and at the rate of 24% per annum from the date of clearance of the said materials: Provided the bond shall not be necessary in respect of imports made after the discharge of export obligation in full. Therefore,....
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....llowed even if they are not exactly those used in the export product but provided the inputs are commercially known to be usable in the product exported. (h) It is also not in serious dispute that as per the said notification, the exempted imported goods can be replenished for fulfilment of export obligation, but cannot in such event if transferred as such, but are to be used in the manufacture. There is no restriction in disposal of the manufactured goods, made out of such replenished material. (i) Further, from the reading of para 7.17 of the Handbook of Procedures, 1997-2002, it is apparent that the license holder is free to get material processed through any other manufacturer including through job worker, however, export obligation is entirely of the license holder. Para 7.17 of the Handbook of Procedures, 1997-2002 merits reproduction - "Facility of supporting manufacturers: 7.17 the license holder has option to have the materials processed through any other manufacturer including a job work. However, the license holder shall be responsible for imported items and fulfillment of export obligation." 7. In the above factual premises having gone through the records and after ....
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..... Therefore, in the instant case the exempted goods were covered by the actual user DEEC, in respect of value, quantity, description, quality and technical characteristics. The bills of entry along with DEEC covering these goods were presented before the proper officer of Customs. Assessments were made under DEEC scheme and after satisfying about the fact that the exempted goods were covered by actual user DEEC, in respect of value, quantity, description, quality and technical characteristics, the order permitting clearance of goods for home consumption under Section 47 of the Customs Act, 1962 was made by the proper officer. Therefore, the exempted goods in question were legally imported. In fact there is no proposal to confiscate the goods under Section 111(d), which clearly show that the show cause notice is also not raising any dispute on this point. The Revenue's contention is that it was post-importation condition of the notification which was violated and therefore, confiscation only under Section 111(o) was proposed. It would also lead to a conclusion that the proper officer of the Customs, before permitting clearance of the goods in question for home consumption by extendi....
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....e by extending the benefit of exemption notification is not in any dispute, it would necessarily lead to the conclusion that (i) the proper officer was satisfied that the goods imported were required for manufacture of export goods mentioned in the license and even, if they were not exactly those used in the export product, but inputs were commercially known to be usable in the product exported, (ii) being satisfied as to the above that no discrepancies regarding the nexus of the imported goods (in the instant case polyester/cotton blended fabrics), with export item (shirts) was noticed by the proper officer at the time of importation. After clearance for home clearance and fulfilment of EO, even if exempted goods were cleared from Customs, are replenished and not used in the manufacture of export goods stipulated in the license but in manufacture of any other goods, it cannot be held that subsequent use of the goods would justify the conclusion that the goods were not required for manufacture. It is apparent that even as per Board Circular No. 36/1997-Cus., dated 16-9-1997, the words "required for" used in the exemption notification does not necessarily mean actual usage and phys....
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....ge of logging is no doubt with regard to the conditions prescribed in exemption notification, but it must be exercised without asking for information which goes beyond the ingredients specified in the exemption notification and in the format of DEEC Books appended to the Notification". As far as the notification, there is no restriction specified for disposal of such manufactured goods (trousers in this case) manufactured from the replenished goods after fulfilment of the export obligation by exporting full sleeves shirts. Even the Adjudicating authority in the impugned order observes in Para 152 that the defence of the appellant could have been tenable if the imported cloth has been used for manufacture of shirts and those had been cleared to domestic market. It is thus, undisputed position that once export obligation is discharged, the replenished inputs can be used in the manufacture of other product and not necessarily incorporated in the export goods under the license, and that there exists no restriction on disposal of such manufactured goods. The notification except restricting sale, transfer and disposal of replenished goods, as such, nowhere specifies the manner in which ....
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....tification No. 51/2000. But, in this regard JDGFT's order has taken the wind out of revenue's sail. In the result, the charge of breach of conditions of Customs Notification does not survive. Hence, now, there is no reason to deny the benefit of Notification to the appellant or to take any penal action against them." On the same ratio, breach of Condition Nos.(vii) and (viii) cannot be alleged even in the appellant's case before us. Once it was not under dispute that the exempted goods after replenishments were used by the importer in manufacturing and who are neither sold or transferred, it is not open for the customs authorities to look into further disposal of such manufactured goods and such disposal of manufactured goods would not in any manner govern the eligibility of the exemption availed on the imported inputs. 8.3 We now take up question (d) for discussion. (d) Whether after completion of the export obligation stipulated in the advance license, can duty demand on the imported material sustain under Customs Notification? The proviso to condition (ii) of the exemption Notification No. 30/97 stipulates that the bond shall not be necessary in respect of imports made after....
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....t open to the customs authorities to go behind the license and deny duty free clearance of the goods. The exemption Notification No. 116/1988 dated 30-3-1998 specifically states that the materials that are required to be imported for the purpose of manufacture of resultant products shall include such items as are imported into India against advance license for subsequent exportation. In the instant case, license specifically states that the petitioner is entitled to import the steel as a material required for the manufacture of resultant product. The Apex Court in the case of Titan Medical Systems Pvt. Ltd. v. Collector of Customs as reported in 2003 (151) E.L.T. 254 (S.C.) has held that once advance license is issued not questioned by the licensing authority, the customs authorities cannot refuse exemption on an allegations that there was any misrepresentation. In the present case also, the licensing authorities have not found fault with the statement of the petitioner that the steel is a material required in the manufacture of the resultant product and have granted advance license to the petitioner. Assuming that the licensing authorities have wrongly accepted the statements of t....
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....ellant to contend otherwise, particularly, when all the conditions incorporated in the licenses and notifications have been complied with by the respondent". In the matter of Marmo Classic v. CC (E.P.), Mumbai - 2002 (143) E.L.T. 153 (Tri.-Mumbai), the coordinate Bench of this Tribunal its impugned order has held that customs authorities have no jurisdiction to go beyond the license and sit in judgment over the licensing authority. The appeal filed by the revenue against the same was dismissed by the Hon'ble Supreme Court as reported in 2003 (152) E.L.T. A85 (S.C.). The ratio laid down by these precedents prohibits the customs authorities to contend contrary to the stipulations in the licenses and if any misrepresentation in obtaining the license is alleged, it is for the licensing authority to take steps in that behalf. 8.5 We now take up issue No. (f) which has been framed by us. (f) Whether the proceedings were hit by the principles of constructive res judicata? It was argued on behalf of the Revenue that as fresh facts came to the light, proceedings were initiated. These fresh facts indicate that the exempted fabrics were imported for use in the manufacture of trousers and ....
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....law that nexus between the imported materials and export product, is not required to be proved fresh by the transferee/licensee once imported material is otherwise covered by the advance license and the benefit of exemption notification would be available. In Commissioner v. Goodluck Industries - 2000 (120) E.L.T. A66 (Supreme Court), the Hon'ble Supreme Court upheld the Tribunal's judgment in Goodluck Industries v. Commissioner - 1999 (108) E.L.T. 818 (Tribunal) laying down the said ratio, and on merits dismissed the same appeal filed by the Commissioner of Customs, Calcutta against the same. In Jayant R. Patel v. CC, Hyderabad - 1997 (89) E.L.T. 164, the Tribunal held that the duty free import entitlement are not to be proved again by the exporter or the transferee of license once advance license is granted and vide Commissioner v. Jayant R. Patel - 2003 (155) E.L.T. A68 (S.C.), the Revenue's appeal against said judgment was dismissed. In CC, Chennai v. Salem Stainless Steel - 2001 (131) E.L.T. 30 (Mad.), the Hon'ble Madras High Court held that nexus need not be established because the question of nexus would arise only when obligation of the exporter exists and the petitioner as....
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..../97-Cus., dated 1-4-1997 as amended." These observations in the impugned order cannot sustain the facts of the case of the instant case as claimed in the discussions to the issue raised in (a). (ii) It was also further observed by the Adjudicating Authority that: "141.....In the present case, the noticee has failed to prove that the inputs imported duty free are even required for the purpose of manufacture of resultant products specified in Part 'E' of the certificate. Therefore, the ratio of the above, judgment (Oblum Electrical Industries Ltd. as reported in 1997 (94) E.L.T. 449) does not apply in this case." Hon'ble Supreme Court in the matter of Oblum Electrical Industries (supra) held that: "11.....In the Notification two different expressions have been used namely, 'materials required to be imported for the purpose of manufacture of products' and 'replenishment of materials used in the manufacture of resultant products' which indicates that the two expressions have not been used in the same sense. The expression 'materials required to be imported for the purpose of manufacture of products' cannot be construed as referring only to materials which are used in the manufact....
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.... the import of the said Aluminium Alloy, it is a material required for the manufacture of ceiling fans." (b) M/s. Stumpp, Schuele & Somappa Ltd. v. CC, Chennai - 2006 (194) E.L.T. 437 (Tri. - Bang.) "10...... It has been further held that if the Customs Authorities take a view that certain materials are not required for the manufacture, contrary to the view of the Standard Input/Output Norms of the EXIM Policy, it would lead to disharmonious situation, as while import licences granted will entitle the import under DEEC Scheme while the clearances of the same into the country would not be in conformity with the DEEC Scheme. It has been held that the EXIM Policy of the Government has to be harmoniously interpreted and no discordant notes be made. It has been further held that if Input-Output Norms permit, clearance as per Policy have to be allowed by the customs. If the norms are not correct, the norms could be changed not the clearances effected. In a like situation, the Tribunal, in the said case, has held that once export obligations have been fulfilled, then the raw materials imported for replenishment be used in the manufacture of the goods, which are sold in the domestic mark....
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....ons. In the instant case, it is seen that the licensing authority has not indicated the technical characteristics of the import and the export in the certificates and it is also observed in departmental investigation that the items imported is trousers fabric and the export product in men's shirt (full sleeves). Therefore, the case in hand is not with regard to the technical characteristics of the goods/materials." We find that these observations are extraneous out of context and not tenable at all. These case laws cited by the appellants were squarely applicable in the facts of the instant case. We may reproduce the said ratio. (a) ITC Ltd. v. CC, Chennai - 2003 (153) E.L.T. 366 (Tri.-Chennai) "20. The gist of the above provisions of the circulars is that the goods imported should be shown to be goods of a kind which are commercially known to be used in the export product and are covered by the description of inputs in the DEEC license. In the instant case, the description of raw material in the license is 'paperboard'. The raw material imported is admittedly paperboard. The department has no case that the appellants did not use paperboard in the export products. As per the cir....
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....ndition No. 1 (viii) of the Notification No. 30/97 dated 1-4-1997 and infringement of the Export Import policy 1997-2002 and the ratio of the decision of the above Tribunal case (Tetra Pak (I) Ltd. v. CC, Nava Seva, Mumbai - 2005 (190) E.L.T. 257 (Tri.-Mum.) apply to that extent." We have already held in the discussion to the issue (c) raised above that non-mention of the job worker on the license was not violation of the conditions of license of the notification. The judgment referred in this para also laid down the same ratio. The Tribunal in the case of Tetra Pak (I) Ltd. v. CC, Nhava Seva - 2005 (190) E.L.T. 257 (Tri.-Mumbai.) held as under: "2. (h) The words "sold or transferred" as used in the notifications will not cover the situation where duty free imported material is out sourced for conversion amounting to manufacture or otherwise, emergence of intermediate products which are returned to a License holder for further use/export. The entire DEEC is a schedule to the Customs notifications and an integral part thereof. Part B of the same relates to an ancillary of export product manufactured and if the words "sold/transferred" are literally construed, even compliance to Pa....
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....case. In those cases, the issue was pertaining to the violation of post-importation condition of the exemption notification issued under the Customs Act and in that context, it was held that even if the importation was under valid license, if there is violation of exemption notification issued under the Customs Act, then the authorities under the Customs Act are entitled to take action. Those were not the cases involving any doubts raised in respect of scope and contents of the licenses. (vii) We find that the Adjudicating Authority has ignored the above binding precedence and relied by the appellant without any justifiable reason. The endeavour in the impugned order appears to be doubting the scope and content of advance license in the question. Though the settled position of law has enunciated by several binding precedents, was in particular clear in the instant case, if at all the revenue had any doubts on the scope and contents of the license, the proper course would have been reference to DGFT. The Chapter 4 of EXIM Policy 1997-2002 which applies to the present case deals with the general position of exports and imports. Para 4.13, thereunder reads as: "4.13 If any question ....
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....n, it was for the licensing authority to take steps on that behalf. One may also refer usefully in this context the recent decision of the Hon'ble Supreme Court in the case of Atul Commodities Pvt. Ltd. - 2009 (235) E.L.T. 385 wherein in the context of role of DGFT interpreting the policy, the Supreme Court held in Para 17 of the said judgment as under: "under para 2.3 of the FTP (2004-2009 ) DGFT's is empowered to interpret the policy. If any doubt or question arises in respect of interpretation of any provision in FTP or in the matter of classification of any item in ITC (HS) or in handbook, the said question or doubt shall be referred to the DGFT whose decision thereon shall be final and binding." Proceeding on the basis of the above reasoning, it becomes apparent that in fact, the present proceedings were essentially prematured. With the help of several precedents the appellants clarified the legal position and also supported his legal entitlement of exemption in the facts of the instant case. Inasmuch as the questions relating to scope and content of advance license issued to the appellant arise for consideration therein, it was the bounden duty of the customs authorities to....