TaxTMI 
TaxTMI 
2011 (10) TMI 36
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....nbsp; Investigations conducted by the Department in respect of these imports revealed that- (1) Of the above, only a quantity of 4057.361 MTs was utilized in the manufacture and export of 'Pears' soap. (2) Imported Crude Palm Stearine of quantity 805.266 MTs was neither required nor utilized in the manufacture of 'Pears' soap and the same was found to have been diverted to their factory at Sewri for the manufacture of other soaps for local sale. (3) A quantity of 839.560 MTs of Palm stearine was used in the manufacture of Pears soap which was exported under DEPB scheme. (4) Balance quantity of 1730.565 MTs of palm stearine was diverted to Sewree and Aurangabad units of M/s HLL for manufacture of other soaps and their subsequent sale in the domestic market. Investigations conducted further revealed that M/s. HLL had utilised only 339.150 Kgs. of Palm Stearine in the manufacture of 1 MT of 'Pears' soap and the remaining quantity of Palm Stearine/crude Palm Stearine was diverted /transferred to their other factories for manufacture of other soaps for sale in the local market even though in th....
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....of sections 112(a) and 114A of the Customs Act and on Shri V. K. Kannan, General Manager (Exports) under sections 112(a) & (b) of the Customs Act, 1962. 2.3 The case was adjudicated by the Commissioner of Customs (Adjudication), Mumbai, vide the impugned order dated 16/05/2007 wherein the Ld. Commissioner,- (1) Confirmed customs duty demand on Crude Palm Stearine amounting to Rs. 66,71,998/- imported duty free against Advance licence Nos. 3207530 dated 01/01/1998 and 3206078 dated 23/06/1997 under DEEC scheme read with Notification Nos. 204/92 dated 19/05/1992, 80/95 dated 31/03/1995 and 30/97 dated 01/04/1997 and EXIM Policy 1992-97 and 1997-2002, along with interest leviable thereon under the first proviso to Section 28 the Customs Act 1962 and also under the provisions and conditions of the abovementioned Notifications; (2) Confiscated Crude Palm Stearine of an aggregate CIF value of Rs. 1,49,99,863/- imported duty free and diverted to other units of M/s HLL under the provisions of sections 111(d) and 111(o) of the said Customs Act and imposed a redemption fine of Rs. 37,50,000/- under Section 125 of the Customs Act, 1962 in lieu of ....
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....anned in India, the company decided to develop a fatty constituent to substitute tallow. M/s. HLL formulated samples of perfumed glycerin soaps at their Sewri plant using Palm Stearine which was approved by their parent company in UK. Since the requirement of perfumed glycerin soap was huge, it was decided to set up a dedicated plant solely for the manufacture of the said product at Khamgaon, Buldhana District. Accordingly, Khamgaon plant was set up for the manufacture of Pears soap with a capacity of 3000 MTs per annum. M/s. HLL applied for the first quantity based advance licence for the manufacture of Pears soap and the major inputs was Palm Stearine. Based on approved sample, quantity of Palm Stearine was determined as 73.49% and HLL indicated 734.997 Kgs. of Palm Stearine for manufacture of 1 MT of 'Pears' soap on adhoc basis. Accordingly, advance licence No. 1521854 dated 08/07/1992 was issued to M/s. HLL allowing them to inter alia import Palm Stearine oil @734.997 kg. per 1 MT of the finished product. Under the said licence, import took place during the period January to August, 1993 and exports were undertaken during the period from Apri....
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....ns in December, 1995 which were provided by M/s. HLL and again on 20/03/1996 HLL requested DGFT to include Ground Nut Oil (Industrial Grade) in the advance licence so as to specify the raw materials as Palm Stearine/Ground Nut Oil (Industrial Grade). M/s. HLL were informed that once SION is fixed, imports for export products would be permitted according to SION even if certain other ingredients were used. Accordingly in all subsequent applications for licence (5th to 20th) between 05/2/1996 to 04/01/2001, all raw materials, including Palm Stearine, were shown as per SION, al though the use of inputs was different and they were using a combination of Palm Stearine (339.150 kg/MT) and Hardened Groundnut Oil (239.400 kg/MT). f) In respect of their 21st, 22nd and 23rd advance licences applied on 01/7/2002, 06/02/2003 and 01/07/2003 respectively, M/s HLL in their applications had specified their input requirement as 339.150 kg of Palm Stearine and 239.400 kg of Hardened ground nut oil per MT of Pears Soap; though initially the DGFT issued the advance licence on that basis, however, subsequently, they amended the input requirement as 676.326 Kg/ MT of Palm Stearine i....
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....own to be used in the export product. j) The learned counsel further submits that the appellant had fulfilled the export obligation in respect of all the 20 advance licences covered by the impugned order and all these licences were redeemed and export obligation discharge certificate (EODC) issued by DGFT from time to time and copies of these redemption / EODC were marked to the customs department also and at no point of time, the customs department had objected to or challenged such redemption / EODCs issued by DGFT. k) The learned counsel further contends that once export obligation is fulfilled and major portion of the duty-free imported material has been used in the goods exported, exemption cannot be denied on the ground of usage of imported duty-free material for domestic production or by questioning the norms fixed by DGFT. l) The learned counsel relies on the following judgments/circulars in support of his above contentions. (a) Jay Engineering Works Ltd. - 2003 (162) ELT 680 (T) (b) Kitply Industries Ltd. - 2001 (135) ELT 786 (T) (c) Standard Industries Ltd. - 2001 (136) ELT 124 (T) (d) Galaxy Surfactants Ltd. - 2006 (202) ELT 495 (T) (e)....
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....r contended that as per condition No. (vii) of Notification No.204/92-Cus, condition No. (vi) of Notification No.80/95-Cus and condition No. (vii) of Notification No.30/97-Cus, all relating to imports under advance licensing scheme, it is provided that after fulfillment of export obligation, the exempt material can be utilised for manufacture of other soaps cleared even to domestic market. The barring provisions of aforesaid notifications of not selling or transferring duty-free imported materials to any other person does not apply to their case, because such excess quantity of Palm Stearine was replenishment for indigenously procured Hardened Groundnut Oil and the same were used by HLL itself, in its own factories for manufacture of other soaps and hence cannot be considered to have been sold or transferred to any other person, and they rely on the following judicial decisions: (i) Standard Industries Ltd. - 2001 (136) ELT 124 (T) (ii) Stumpp, Schuele & Somappa - 2006 (194) ELT 437 (T) (iii) Jindal Drugs - 2007 (214) ELT 37 (T) (iv) Galaxy Surfactants Ltd. - 2006 (202) ELT 495 (T) (v) Ashok Enterprises - 2005 (186) ELT 497 (T) (q) The learned counsel ....
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....f this Tribunal as given below: (a) Adani Exports Ltd. - 2006 (199) ELT 613 (T); (b) Pradip Polyfils - 2004 (173) ELT 3 (Bom); (c) PTC Industries Ltd. - 2010 (252) ELT 42 (All); (d) M.K. Fisheries - 2002 (150) ELT 998 (T); (e) TTK Prestige Ltd. - 2005 (188) ELT 385 (T); (f) Vishal Exports Overseas - 2006 (202) ELT 101 (T); (g) Rexello Castors Pvt. Ltd. - 2009 (246) ELT 371 (T) (u) The advocate for the appellant submits that denial of DEPB credit of about Rs. 2.35 Crore along with demand of duty of Rs. 83.29 lakhs on 839.560 of Palm Stearine amounts to duplication of demand since once duty is demanded thereon, DEPB benefit has to be allowed. (v) In the light of the above submissions, the learned counsel submits that the appellant has fulfilled all the terms and conditions of the licensing scheme both under the EXIM Policy and the Handbook of Procedure relating thereto and also the terms and conditions of the customs notifications governing the advance licensing scheme.The licensing authorities have confirmed the fulfillment of export obligations and have issued EODCs in respect of the advance licences mentioned in the show cause not....
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.... of Palm Stearine used in the manufacture of one tonne of perfumed glycerine soap (Pears) was only 339.150 kgs., they projected to the DGFT that the actual requirement was 676.326 kgs. and imported the said product @ 676.326 kgs. per MT of Pears soap when they knew that they would not be actually using that much quantity in the manufacture of the export product. Since the SION norms were fixed at the instance of the appellants, it was their responsibility to inform the DGFT about the correct position and have the SION norms revised which they failed to do. The appellants did not apply for the revision of SION norms as provided for in para 7.10 of the Handbook of Procedures by making application under Appendix 11A. b) In every shipping bill filed under the advance licensing scheme, the exporter is required to show the actual consumption of raw materials in the export product. However, it is on record that the appellant declared in their shipping bill the consumption of Palm stearine at 676.326 Kg. per MT of Pears soap while the actual consumption was only 339.150 kgs. Thus there was deliberate mis-declaration on the part of the appellant and the ld. JCDR relies ....
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....er section 111(d) of the Customs Act, 1962 by the adjudicating authority was justified. Further as per para (vii) of notification No. 204/92, the imported materials could be transferred only after fulfillment of export obligation and realization of full export proceeds. Thus transferring the raw materials to other units even before the receipt of Redemption certificate/EODC from DGFT was a clear contravention of the conditions of the relevant customs exemption notification making the goods liable to confiscation under section 111(o) of the Customs Act, 1962. (f) Condition (vii) of customs notification governing DEEC scheme was contravened in as much as the raw materials were transferred to units which have not been declared as supporting manufacturers in the relevant Advance licences. Only Khamgaon unit was manufacturing Pears Soap and the other units were using imported Palm Stearine for production of soaps meant for domestic industry. (g) The appellant's case can not be considered as a case of replenishment as that pre-supposes use of domestic raw materials of the same kind in the manufacture of goods exported but it is on record that Palm Stearine was not manufactured anyw....
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.... they have used Palm Stearine to the extent of 676 kgs. for manufacture of 1 tonne perfumed glycerine soap. On the basis of such wilful mis-declaration, the appellant had procured DEEC licences for import of Palm Stearine @ 676 kgs. per tonne of 'Pears' soap which was not permissible as per the Policy and also availed ineligible customs duty exemption. This conduct clearly evidences fraud and suppression of facts on the part of the importer. Though the DGFT had redeemed the Bonds executed for the advance licences, the bonds/LUTs executed with the customs had not yet been redeemed and the duty demands can be raised in terms of the said bonds/LUTs and there is no time limit for the same as has been held in CC, Mumbai vs. Jagdish Cancer Research Centre [2001 (132) ELT 257 (SC)] and CC vs. Wockhard Hospital and Heart Institute [2006 (200) ELT 15 (Bom)]. (l) As regards the demand of duty in respect of Palm Stearine used in the manufacture of Pears soap exported under DEPB scheme, wherein a quantity of 839.560 MTs of Palm Stearine oil has been used, the importer has availed double benefit 'once, by importing the goods without payment of duty under DEEC scheme and second by obtaining d....
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....ty as per the norms fixed on fraudulent figures, divert the excess quantity for other uses and for part of it claim double benefit under DEPB scheme and then seek shelter under the specious logic that they have not contravened any law and no duty can be demanded or penalty imposed. Thus he pleads for upholding the impugned order confirming the duty demands, fines and penalties on the appellant firm and penalty on Shri V.K. Kannan, General Manager of the appellant firm. 5. We have carefully considered the rival submissions. 5.1 The details of the imports of Palm Stearine oil/crude Palm Stearine imported under the said scheme, period of import, quantity of 'Pears' soap exported, quantity of Palm Stearine utilised in the export product, the period of export of the finished product and the date of redemption of the bond before DGFT on completion of the exports consignmentwise are indicated in the table below: Sl. No. Advance licence No. Date Items Covered* Qty Imported Palm Stearine (MTS) Period of Import Qty of Pears Soap(MT) Exported Qty of P.S utilized in export (MT) Export period Date of redemption by DGFT From To From To 1. 1521854 ....
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..... 310066945 04.01.01 (i)PS 51.37 15.01.02 15.01.02 76.004 25.777 20.01.01 04.04.01 01.04.03 TOTAL 7432.75 11196.37 4057.361 * Items Covered:- (i) PS = Palm Stearine; (ii) CPS = Crude Palm Stearine; (iii) HGNO = Hardened Groundnut Oil; (iv) Cartons 5.2 During the period in question, Export-Import Policy 1992-97 and Export-Import Policy 1997-2002 were in operation. Para 47 of the Exam Policy 1992-1997 read as follows: "47. Under the Duty Exemption Scheme, import of raw materials, intermediates, components, consumables, parts, accessories, mandatory spares (not exceeding 5% of the CIF value of the licence), packing materials and computer software (hereinafter referred to as 'inputs') required for the product to be exported may be permitted duty free for processing and export by the competent authority under the categories of licences mentioned in this chapter. However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import. The said additional customs duty shall be adjusted in the following manner: (a) If the importer uses the inputs for produ....
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....nst it was not transferable and could not be sold or otherwise disposed of by the licence holder under any circumstances. 5.4 The governing customs Notifications prevalent during the material time were Notification Nos. 204/92-Cus dated 19/05/1992, 80/95-Cus dated 31/03/1995 and 30/97-Cus dated 01/04/1997. These Notifications also stipulated condition vide condition No. (vi) and (vii) which are reproduced below: "(vi) (a) that the facility of sale or transfer of materials or transfer of the said licence shall not be available in respect of those materials which are permitted for import under the said licence and for which the credit of Central Excise duty or Additional Customs duty has been veiled under rule 56A or rule 57A of the Central Excise Rules, 1944; (b) the facility provided in sub-para (a) above shall be applicable only to a manufacturer exporter or to an exporter who has declared a supporting manufacturer and name of the supporting manufacturer so declared appears on the said licence; (vii) exempt materials shall not be disposed of or utilised in any manner, except for utilization in discharge of export obligation, before the export obligation under th....
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....importer in respect of the aforesaid 20 licences for violation of any of the conditions of the EXIM Policy as it stood at the relevant time. 5.6 The issues for consideration in this case are," (1) whether the import of Palm Stearine within the quantity limits prescribed under the advance licence, which were in excess of the actual requirements for manufacture of the export products would be eligible for the benefit of customs duty Notification even though such excess quantity have been utilised by the manufacturer in his own units for the manufacture of similar products which were sold in the Domestic Tariff Area; (2) Whether 'Crude Palm Stearine' can be considered as an eligible input for import under the aforesaid advance licences as the licences specified only Palm Stearine; (3) Whether the export product specified in the advance licence could have been exported under claim for credit under DEPB scheme (after fulfillment of export obligation under advance licence) when the raw material Palm Stearine has been imported duty-free under the aforesaid advance licences; (4) Whether customs duty could be demanded on the Palm Stearine imported duty....
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....ad sought clarifications wherein they had sought details regarding consumption of Palm Stearine, Groundnut Oil, Stearic Acid, Coconut Oil and Kernel Oil, Rosin and Gum Rosin separately. In reply thereto, the appellant had given the specifications and a composition of all the above items including Palm Stearine and Groundnut Oil vide letter dated 15/04/1994. Further in their letter dated 18/04/1994 the appellant had renewed the request with the DGFT for reformulation of the input/output norms. In the advance licence No. 3498941 dated 04/05/1994, the DGTD had mentioned the requirement of Palm Stearine / Ground Oil (Industrial Grade) at 676.236 MTs. Per 1000 MT of the finished product, namely, 'Pears' soap. The appellant had also written to the Development Officer in the Department of Industrial Development, Ministry of Industry, New Delhi vide letter dated 09/03/1995 requesting them to send their recommendations to DGFT to modify the input/output norms for perfumed glycerine soap as per requests made earlier. In the said letter they had clearly stated that: "as a result of in-house R&D efforts, a mix of oils was developed which....
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....ce licences are issued as per the input / output norms by the competent licensing authority, the question of denial of customs duty exemption on goods imported under the advance licences cannot arise unless any of the conditions of exemption is violated. 6.2 The Hon'ble apex court in the case of Titan Medical Systems Pvt. Ltd. (cited supra) was concerned with the denial of customs duty exemption in respect of imports made under advance licensing scheme on the ground that in the application for advance licence the importer had indicated the value of the goods imported at an amount larger than those actually spent. In the said case the apex court held as follows: "The licensing authorities have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf." Similarly, in the case of Commissioner of Customs (EP) vs. Jupiter Exports Ltd. (cited supra), the Hon'ble Bombay High Court held as follo....
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....eard to argue against it. It goes without saying that the case law cited by ld. SDR cannot improve the Revenue's case or plight. The Revenue's allegation was that the appellants had violated conditions (vii) and (viii) of Notification 30/97 and similar conditions of Notification 51/2000. But, in this regard, the DGFT's order has taken the wind out of the Revenue's sails. In the result, the charge of breach of conditions of the Customs Notifications does not survive." An identical view was held by this Tribunal in the case of Bharath Steel Corporation vs. Commissioner of Customs, Chennai, and Ashok Enterprises vs. Commissioner of Customs, Chennai, cited supra. A similar issue came up for consideration before this Tribunal in the case of Kukar Sons (Indo-French) Exports Ltd. vs. Commissioner of Customs, Jaipur. In that case the Revenue alleged violation of conditions of Notification No.204/92-Cus by the appellants as they failed to realise the sale proceeds of exported goods. The DGFT, which is the competent authority in the matter of advance licences, had already redeemed the bank guarantee and legal undertaking furnished by the appellants after considering the ....
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..... You are also allowed to utilize the surplus duty free raw material imported against the advance licence in your factory for the domestic market after fulfilling the export obligation mentioned against the advance licence issued under the duty exemption scheme. (emphasis supplied) Necessary clarification in this regard have already been communicated to Commissioner of Central Excise, Mumbai, whom you may contact further in the matter." A copy of the above letter dated 16/07/1997 was endorsed to the Customs also. 6.5 The Dyestuff Manufacturers Association of India, Bombay had also sought clarification from the Central Board of Excise and Customs relating to import/consumption of inputs under quantity based advance licensing scheme. The CBEC vide letter dated 01/04/1998 clarified as follows: "M/s. Dyestuff Manufacturer's Association of India, Bombay have written to the Ministry seeking clarification on three points in respect of units who have fully discharged the export obligation against Quantity Based Advance Licence and have not sold any inputs in the domestic market. Copy of the letter is enclosed for ready reference. This clarification is sought in respect....
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....that it required for manufacture of the export product and proposes to recover duty on the quantity the notices found to be in excess. It thirdly alleges that some materials, predominantly lignine sulphonate could not be used at all in the manufacture of the exported product but had been incorporated in the licence by furnishing wrong information to the licensing authorities and propose denial of exemption to it. Notices also propose confiscation of materials under Section 111(d) of the Act and penalties on the importer, its director Mahendra Kothari and Manager Ashwin Thakkar., and in that case it was held that: "It is not for the customs authorities to interpret the licensing policy and to enforce the same once a valid licence is produced. This function is with the licensing authority. If this bifurcation of the function is not adhered to there is every likelihood of utter confusion. The licensing authority may interpret one way and the customs authorities may take contrary view producing conflict between the two authorities resulting in harassment to the importer. If the licence is granted for a particular item by the licensing authority the customs authority will have no r....
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....s an essential ration for the maintenance of life but also that feed which is supplied over and above the maintenance requirement of growth or fattening and for production purposes such as for reproduction, for production of milk, eggs, meat, etc. or for efficient output of work and since the products were also fed to animals or poultry to give them better nourishment, they would, qualify as 'animal feeds'. In both the above cases, the use of the product was not in question at all. 7.2 However, in the case before us, the facts are otherwise. Shri V.K. Kannan, the General Manager of the appellant firm, in his statement dated 11-3-2004 has, inter alia, admitted that the 805.27 MTs Crude Palm stearine imported had gone directly from the docks to the Sewree factory of the appellant and not to the Khamgaon factory where Pears soap was manufactured. Further Shri Dinesh Raj Thapar, Sr. Buyer, Oil Buying Department of the appellant firm, in his statement dated 16/02/2004 has explained the difference between Palm Stearine and Crude Palm Stearine. As per his statement while Palm Stearine for the manufacture of Pears soap had an iodine value (IV) in excess of 42 and Free Fatty ....
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....ith the customs authorities. In terms of the said bond/LUT, there is a obligation on the part of the appellant to fulfill the terms and conditions of import which we have already held that the appellant has not fulfilled. The bond/LUT executed with the customs has not been discharged and therefore, duty demand can be raised at any time before the bond is discharged. Since the duty demand is sustainable, the liability to pay interest thereon is automatic and consequential. Therefore, the appellant is liable to pay interest on the duty demand of Rs. 66,71,998/- in terms of the bond/LUT executed by them at the appropriate rates. Since the appellant has failed to fulfill the terms and conditions of the relevant customs notification in respect of the end use specified therein, the quantity of 805.266 MTs of crude palm stearine valued at Rs.1,49,99,863/- is liable to confiscation under the provisions of section 111(o) of the Customs Act, 1962 and we hold accordingly. Consequently the appellant would be liable to penalty under section 112(a) of the Customs Act, 1962. Since the crude palm stearine was allowed to be cleared in terms of the bond executed with the customs, in lieu of co....
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....uct. It is for the licensing authority to ensure that the credit is permitted at the correct rate as notified by DGFT. The word description occurring in this circular, does not extend to adjudication on description or classification. If there is any doubt on the description or classification at the time of verification, the matter has to be referred to DGFT for declaration under Section 13 of the Foreign Trade (Development and Regulation) Act, 1992. If the DGFT decides after giving an opportunity to the owners of the goods that the goods do not meet the description and classification for DEPB, the owner of the goods may in addition to the confiscation and penalty under the Foreign Trade (Development and Regulation) Act, 1992 be punished with penalty under the Customs Act, and that he may also be liable for suspension or cancellation of the license. The customs authority, however, are not entitled to adjudicate over description and classification of the goods for DEPB." 8.3 From the above judicial pronouncements, it is clear that the Customs authorities has no jurisdiction to decide the matter with regard to the eligibility of credit under the DEPB scheme and it is for the ....
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....nefit under the advance licence scheme simultaneously. This is to ensure that the exporter does not claim double benefit, one under the advance licence for duty free import of inputs and another under DEPB by claiming credit towards import duty incidence on the inputs used in the manufacture of export product. In the instant case, the import duty benefit has been claimed under notification no. 204/92-Cus or its successor notifications. As per the notifications relating DEEC and the exim policy relating thereto, materials imported under the said scheme should be specified in the advance licences issued thereunder and they should be used in the manufacture of export product specified in the licence and the product should be exported. If any imported material is in excess of the requirement for the manufacture of export product, after fulfillment of the export obligation, the material could be used in the manufacture of other products which could be sold in the domestic market. In respect of palm stearine used in the manufacture of perfumed glycerine soap (Pears), the product imported is specified in the concerned DEEC licence and the same has been used in the manufacture of exp....
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....ner has imposed a redemption fine of Rs. 37,50,000/- on the crude palm stearine confiscated, which works out to 25% of the coif value of the goods. The said amount of fine is not excessive considering the fact the product was restricted for imports. Accordingly, we uphold the imposition of fine of Rs.37,50,000/- on crude palm stearine. As regards the quantum of penalty, there is a deliberate attempt on the part of the appellant to avail ineligible duty exemption, in as much as they knew in advance that crude palm stearine can not be used for the manufacture of export product and as soon as the product landed in India, they straightaway diverted the product to other units of the appellant for manufacture of other soaps. Such deliberate attempt to defraud the exchequer should not be allowed to go scot free. Since the duty sought to be evaded in respect of crude palm stearine is Rs.66,71,998/- we consider it appropriate to impose an equal amount of penalty on the appellant under the provisions of section 112(a) of the Customs Act, 1962. 11. There is an appeal filed by Shri V.K. Kannan, General Manager (Exports) of the appellant firm against imposition of penalty of Rs.10 lakh....