TaxTMI 
TaxTMI 
2015 (2) TMI 552
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....facture of the said bulk drugs, appellants require various inputs such as Pencillin-G, Ethyl Aceto Acetate and various other chemicals. The appellants manufacture the said drugs and are selling the same in the domestic market and also exporting the same. Some of the inputs are procured locally and majority of the inputs are imported. For the manufacture and thereafter export of such bulk drugs various inputs are being imported under Advance Licence Scheme which permits import of such inputs free of Customs duty. Appellant No. 2 was working as supporting manufacturers for Appellant No. 1 and they had strategic alliance and later on control of various activities. In fact, a case was booked against appellant No. 2, which was also heard alongwith this case as many issues are common and hence many of our observations in that case are also reproduced here. 2. Advance Licensing Scheme was introduced with a view to encourage the export and leave the exporter of the duty burden at the time of import of raw material. Thus the Scheme primarily envisaged import of raw material free of Customs duty against specific export order. The term Advance denotes import before export. These materials ....
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....ed. According to the Revenue, imported raw materials should have been used in the manufacture and thereafter export of goods for fulfilment of export obligation and before fulfilling the export obligation, the goods so produced could not have been cleared to the domestic market. During search operation on 30.08.2007, neither pencillin-G nor the final products (bulk drugs) were found in the manufacturing units even though export obligations were yet to be fulfilled. 5. The learned Advocate for the appellant s main contention is that as per Notification No. 93/2002-Cus and No. 94/2004-Cus there is no requirement that the duty free imports alone should be used in the resultant product exported out of India. The learned advocate for the appellant further contended that there are notifications specifically stipulating that the imported duty free inputs alone should be used in discharge of export obligation. However, there is no such stipulation in the earlier mentioned two Notifications. It was also contended that the Legislative history of notification covering the imports under Advance Licensing Scheme also supports the case of the appellant. The learned advocate also relies upon t....
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....ed Special Counsel for the Revenue argued that during the visit of the said unit on 30.8.2007 no stock of Pencillin-G imported free of Customs duty was found. Similarly no stock of any of the export products such as 7ACCA, Cefaclor, Cephalexin monohydrate etc was found. There is no dispute on this factual position. Obviously the Pencillin-G imported by the appellant have been used in the manufacture of such products which had been cleared in the domestic market. This action of the appellant is in clear violation of the provisions of the FTP and the conditions of the aforementioned notifications. In terms of para 4.1.5 of the FTP 2004-09 advance licence and/or materials imported thereunder shall not be transferable even after completion of export obligation. However, the licencee will have the option to dispose of the product manufactured out of the duty free inputs once the export obligation is completed . 8. The learned Special Counsel further argued that admittedly the appellant has disposed of part of the finished export products even before completion of the export obligation which is in clear violation of the provisions of the Foreign Trade Policy. Further the appellant has....
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....cision of the Hon ble Supreme Court in the case of Sheshank Sea Foods Pvt Ltd vs UOI 1996 (88) ELT 626 (SC). 11. We have considered the rival submissions. The dispute here is that the appellant imported Pencillin-G free of Customs duty. During visit to the said unit, no Pencillin-G or goods manufactured from the said Pencillin-G were found in the manufacturing unit. This implied that the goods manufactured out of the said Pencillin-G have been sold in the domestic market. This fact has also not been disputed by the appellant. It is also not under dispute that export obligation was yet to be fulfilled. The main contention of the appellant is that the Customs Notification relating to Advance Authorization do not require that the duty free imports alone should be used in the resultant products exported. We find that the objection of the Revenue is not that the duty free imports alone should be used the resultant product exported. The objection is that before fulfilling export obligation, duty free materials imported cannot be used for manufacture of goods which are sold in the domestic market. There was no objection from the Revenue if the appellant could have fulfilled the export ....
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....ore export obligation was complete. We are unable to agree with the contention that there is no violation of the FTP in clearing the resultant product in the domestic market before completion of the export obligation. In fact in the present case neither Pencillin-G nor the goods manufactured from the Pencillin-G were found in the factory during the visit to the unit and export obligation in number of such Advance Authorisations were yet to be fulfilled. 14. We have gone through the case law quoted by the learned counsel for the appellant. In the case of Zincollied, export obligation was first completed and thereafter goods manufactured out of duty free material was sold in domestic market.The case of M/s Dophin Drugs Pvt Ltd (supra), was relating to VABAL Scheme covered under Notification No. 203/1992-Cus. In the said case export obligation though not fulfilled during the initial period of export obligation but were fulfilled within the extended period no such condition as discussed in para 13 was envisaged. In the case of U-Foam Pvt Ltd (supra) the export obligation although not fulfilled during the period initially allowed but was fulfilled within the extended period. Here aga....
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.... Another contention of the learned advocate for the appellant is that in the absence of a condition in Notification No. 93/2004-Cus or in Notification 94/2004-Cus to the effect that imported inputs alone should be used in the manufacture of resultant product to be exported or that the inputs should not be used for domestic production prior to fulfillment of export obligation, insisting that export obligation should be completed using the imported inputs alone is not sustainable. 17. As observed earlier, it is not the case of Revenue that export obligation should be completed using the imported inputs alone. Case of Revenue is that appellant cannot use the raw material for domestic production before completion of export obligation. We note that every authorization has a condition sheet attached. In a case of appellant No. 2 where appellant No. 1 is supporting manufacturer, the said sheets reads (this is to be for all advance authorizations) as under: Notification No. 93/2004-Cus dated 10.9.2004 reads as under: Notification No 93 /2004-Customs In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government....
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....nd Cochin or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad, Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri (Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune), Vadodara, Daulatabad (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai, Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur and Dadri or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva (Sonauli), Petrapole and Mahadipur. Provided that the Commissioner of Customs may, by special order, or by a Public Notice, and subject to such conditions as may be specified by him, permits import and export from any other seaport/airport/inland container depot or through any land customs station; (v) that the export obligation as specified in the said licence (both in value and quantity terms) is discharged within the period specified in the said licence or within such extend....
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.... the Director General of Foreign Trade appointed under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorized by him to grant a licence under the said Act; (iii) Materials means - (a) raw materials, components, intermediates, consumables, catalysts and parts which are required for manufacture of resultant product; (b) mandatory spares within a value limit of ten per cent. of the value of the licence which are required to be exported alongwith the resultant product; (c) fuel required for manufacture of resultant product; and (d) packaging materials required for packing of resultant product; (iv) manufacture has the same meaning as assigned to it in paragraph 9.37 of the Foreign Trade Policy. Thus it is clear from the condition sheet attached to the Advance Authorisation that exempt material is requited to be utilized in accordance with the provision of Export Import Policy and relevant Customs Notification. Even the opening paragraph of the Customs Notifications stipulates that material is exempted when imported in India, against an Advance Authorisation in terms of paras 4.1.3 of the Foreign Trade Policy. Thu....
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....t is also a breach of the condition in the Exemption Notification upon which the appellants obtained exemption from payment of Customs duty and, therefore, the terms of Section 111 (o) enable the Customs authorities to investigate. 19. In view of the above analysis, we hold that demand is correctly made and dismiss the appeal on the said issue. 20. The second issue in the present case is relating to demand of Rs. 19,13,968/- as detailed in Annexure B of the demand notice on the ground that the appellant had made excess import of duty free materials on the basis of self declared norms in respect of 11 Advance Authorisations. The norms fixed by DGFT were lower than self declared norms. The appellant failed to meet the export obligation on the excess imports. Instead the appellant disposed of the finished goods out of the excess duty free materials in the local market in contravention of the conditions of the Advance Authorisations read with the relevant notifications. 21. During the hearing the learned advocate for the appellant did not press for this issue and stated that they have already paid duty alongwith interest, hence there cannot be any penalty on the appellants. ....
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....onsumed is less than the benefit has to go to the authorization holder. The learned counsel also stated that similar situation arises in the case of all industry rate of drawback. Even when an exporter does not use any imported raw material, he is entitled to get all industry rates. This has been clarified by the Board number of times and he placed reliance on the decision of the Hon ble Supreme Court in the case of Chemical & Fibres of India Ltd reported in 1991 (54) ELT 3 (SC). The learned counsel further stated that para 4.28 (v) of the Hand Book of Procedure does not advance the case of the department and even if it does, it is contrary to the Policy and the Customs Notification. His main contention was that the Hand Book of Procedure cannot restrict the scope of the Policy. As the Hand Book of Procedure is issued by the DGFT while the Import Policy is formulated and notified by the Government of India under Section 5 of the Foreign Trade (Development and Regulations) Act, 1992. He also relied upon the decision of Hon ble Bombay High Court in Narendra Udesh vs UOI reported in 2003 (156) ELT 819 (Bom). 25. The learned special counsel for the Revenue, on the other hand, quoted....
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.... considered the submissions. There is no dispute that the raw material imported was far in excess of that required by the appellant. This fact was not brought to the notice of the licensing authorities so that they could have issued the licence as per the actual requirement. Even after duty free importation, the appellants have neither made additional exports, nor paid the Customs duty. These details were suppressed and came to light during investigation. Accordingly, we hold that there is a violation of the provisions of Handbook read with Foreign Trade Policy and since the exemption is granted to raw materials imported against Advance Authorisation issued in terms of Foreign Trade Policy, the exemption is subject to limitation as provided in the Notification, Foreign Trade Policy/Handbook of Procedures. We are not impressed with the argument of the learned counsel for the appellants that the said provision tries to restrict the provisions of the Foreign Trade Policy. In our view, it only clarifies the position relating to SION. It is not practically possible to precisely point out the exact input-output required which would be applicable for all manufacturers. Moreover such norms....
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....e. Investigation revealed that in addition to the amount declared at the time of clearance appellant No. 2 has raised debit note for the additional amounts. Department s contention is that assessable value will be the total value i.e. declared at the time of clearance plus the amount of debit notes raised. The learned advocate for the appellant stated that in view of the Hon ble Supreme Court s decision in the case of Ispat Industries reported in 2006 (202) ELT 561 (SC) one has to see the value of goods not for each specific transaction, but the ordinary value at which it would have been sold in the course of international trade at the time of its import. The learned advocate further stated that for debiting the value in the Advance Authorisation the price paid by URL to the foreign supplier alone is relevant. Therefore even if URL has raised debit note on the appellant for the price over and above the invoice price that is irrelevant. He further stated that for debiting the licence, the decision of the Hon ble Bombay High Court in UOI vs Glaxo Laboratories (India) Ltd is relevant wherein it was held that only the CIF value would be relevant. 31. The learned special counsel for ....
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....ts of present case. 35. The impugned order also confiscates the goods under Section 111 (d) and (o) of the Customs Act, 1962 and imposed fine and penalties. The case of the Revenue is that the duty free materials meant for manufacture of the resultant export product were used for manufacture of sale of finished goods in the domestic market whereby they have contravened the provisions of Section 111 (d) and Section 111 (o) of the Customs Act, 1962 and the goods are therefore liable to confiscation for violation of post importation condition. 36. The learned advocate for the appellants stated that the impugned order invoked Section 111 (d) and Section 111 (o) for purpose of confiscating the exported goods on the ground that the appellants have violated condition No. (vii) of Notification No. 93/2004-Cus. The said condition provides that the materials imported against Advance Authorisations shall not be sold or transferred. He further submitted that Section 111 (d) of the Customs Act, 1962 is applicable only when the goods are otherwise prohibited or restricted for import. The goods are freely importable and hence the provisions of Section 111 (d) of the Customs Act, 1962 is not....
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....both under Section 111 (d) and Section 111 (o) of the Customs Act, 1962. We do not find any force in the argument of learned advocate for the appellant that goods are freely importable and hence there is no restriction for imports and Section 111 (d) is applicable only when the imported goods are prohibited. It may be true that goods are freely importable. However, in that situation full Customs duty is chargeable. Moreover, appellants have not imported the goods under the said provision of free importability. Appellants have imported the goods under Advance Authorisation which have its own benefits and obligations, restriction and prohibitions. Both benefits and obligations, restrictions and prohibitions are interlinked. Appellants cannot be permitted to avail the benefits and when it comes to obligations, restrictions and prohibition to say that goods are freely importable. We therefore hold that confiscation under Section 111 (d) is correct. As far as confiscation under Section 111 (o) is concerned, we find that imported duty free material were meant for manufacture of the resultant product and export, thereby contravening the provisions of relevant notifications and condition o....
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....d in domestic market before fulfilment of export obligation, input-output norms were misdeclared as also in other cases where raw material consumption was far lower than imported, these facts were suppressed and no duty on excess raw material was paid. The value of the goods purchased on the high-sea sale were misdeclared etc. We have already upheld that the goods have been correctly confiscated under Section 111 (d), Section 111 (m) and Section 111 (o) of the Customs Act, 1962. The various acts clearly indicate mala fide intention to evade the duty and therefore in our view the penalty under Section 114A is correctly imposed on appellant No. 1. 41. In the case of Appellant No. 2, primarily Appellant No. 2 took over the administration of Appellant No. 1. They were controlling the supply of raw materials to Appellant No. 1 and the goods so manufactured were also being diverted as per their direction. They helped appellant No. 1 in under declaring the value of goods sold on the high-sea basis. Thus Appellant No. 2 had in relation to the goods under question has done various acts which has led to confiscation under various sub-sections of Section 111 and therefore they are liable t....
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....pellant No. 1. He was in-charge of the factory including the storage of imported goods, delivery of manufactured goods etc. He failed to carry out his activity in line with the provisions of duty-free import scheme which led to confiscation under Sections 111 (d), (m) and (o) of the Customs Act, 1962 and is therefore liable to penalty. However, keeping in view his role and status in the organization, we reduce the penalty on appellant No. 7 to Rs. 10.00 lakhs. 47. Similarly appellant No. 8 was Vice President Accounts and Commercial in Appellant No. 1. The reasons for imposing penalties are upheld. However, the penalty amount is reduced to Rs. 5.00 lakhs, keeping in view his role and status in the organization. 48. Appellant No. 9 was the general Manager Finance of Appellant No. 1. He was aware of the Advance Authorisation Scheme and the diversion of the manufactured goods. Keeping in view his status and role the penalty imposed on him is reduced to Rs. 5 lakhs. 49. Appellant No. 10 Was the Chief Financial Officer in Appellant No. 2. He was fully aware of the debit notes relating to high-sea sales. Without his active help, under valuation of high seas sold goods would have ....