TaxTMI 
TaxTMI 
2019 (6) TMI 1426
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....ported LSFO (Low Sulpur Fuel Oil) under Advance Authorization. They were issued show cause notice dt. 08.12.2016 alleging that they have mis-declared that the exported product has been manufactured out of LSFO and has thereby violated the condition of Notification No. 31/(RE-2013)/2009-14 dt. 01.08.2013 issued by DGFT readwith para 4.1.15 of FTP 2009 - 14. It was alleged that the Appellant has not used LSFO as an input in the export goods but has used VGO (Vacum Gas Oil) generated during the refining of crude oil and had subsequently imported permissible input LSFO without payment of customs duty under Notification no. 96/2009 - Cus dt. 11.09.2009 against the Advance authorizations and has thus contravened the provisions of Rule 14 of Foreign Trade (Regulation) Rule 1993. It was proposed to demand customs duty on goods imported by them under Advance Authorization under Section 28 (4) alongwith interest under Section 28AA and penalty u/s 112 (a)/114 A and 114 (iii) of Customs Act. Vide impugned order the exemption availed by the Appellant towards importation of Low Sulphur Fuel Oil (LSFO) against Advance Authorization scheme has been denied on the ground that the said import had bee....
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....CCU to yield various refinery finished products such as LPG, motor spirit, etc. In order to optimally utilize the spare FCCU capacity, they imported LSFO which though an intermediate product is also marketed by many refineries world over as a finished product. The LSFO was imported against Advance Authorization dated 6.5.2013 which was issued in terms of Standard Input Output Norms (SION) A3263. They first completed their export obligation against the subject Advance Authorization and another Advance Authorization dt. 08.05.2013 by exporting a quantity of 55,034 metric tonnes of Motor Spirit. Post export of motor spirit, they imported the disputed consignment of LSFO vide Bill of entry No. F-65 dated 11.10.2013 which was cleared by the Customs without payment of duty under the Advance Authorization dated 6.5.2013. The LSFO so imported was used within the refinery as a component of the FCCU feed stock from which Motor Spirit, amongst other finished products was produced. The department conducted investigation in October 2015 and recovered internal records of the refinery showing that in respect of 4 storage tanks, the name (service details) was changed on 14.9.2013 from VGO and VR (....
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....ed w.e.f. 1.8.2013 was applicable even to an Advance Authorization issued prior to that date; and the second being that the said para 4.1.15 necessarily required the export products to be manufactured only by using permissible duty free inputs. In case of first assumption he submits that neither the Advance Authorization nor the FTP nor the Customs Notification either existing at the relevant time when the import was made, or even today, require export goods to be manufactured only by using duty free inputs. He places reliance on DGFT circular 72(RE-08)/2004-09 that clarifies that the objective of SION was to allow duty free imports of inputs actually used or capable of being used in the export products. He therefore submits that the first assumption of the impugned order that LSFO ought to have been actually used in manufacture of export product was totally incorrect. In respect of second assumption that whether para 4.1.15 was at all applicable in the present case, he submits that as per the impugned order, the requirement of manufacturing export goods only from permissible inputs was introduced in the FTP only vide DGFT Notification No. 31/(RE-2013)/2009-14 dated 1.8.2013, by wh....
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....forming to IS specification 1593:1982. A letter dated 9.8.2016 and a statement dated 3.8.2016 of Mr Chakrapany Manoharan, Director (Refinery) of the Appellant company is cited by him to emphasize that the attention of the investigating agency was specifically drawn during the course of the investigations to the fact that the FCCU feed stock from which exported motor spirit was produced was conforming to the specifications of LSFO as per IS 1593:1982. A statement of Mr Shreedhar Rudraraju as also the record of cross-examination of various refinery personnel is relied upon by him in support of this submissions. He submits that as per the above statements and record of cross examination, VGO is a specific variety of LSFO having low sulphur content (much less than 1%), and met the specification prescribed for fuel oils in IS 1593:1982. The declaration on the shipping bill that the Motor Spirit had been produced out of LSFO was therefore perfectly correct. He submits that LSFO is a generic name used to refer to various kinds of fuel oils, meeting BIS specifications, which are traded with a specific stipulation between the contracting parties as to the maximum sulphur content. That some ....
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....es the seller to command a premium over the average price of the generic product. Citing examples, the Ld. Counsel submits that the term "paper" is a generic description which covers all kinds of papers starting from the inferior varieties such as news print, waste paper and ending with the best variety bond paper. While marketing bond paper the seller would obviously describe it as "bond paper" and not as "paper". The same person while selling newsprint, may market it by its generic name "paper". Another example cited was that of Aviation Turbine Fuel (ATF) which, though a kind of superior kerosene oil (SKO), is always marketed as ATF and not as SKO. Likewise, LSFO being a generic description, products which are sold under the trade name LSFO are usually at the lower end/spectrum of the range of LSFO's. The superior varieties of LSFO such as VGO are marketed and sold, not with reference to their generic name, but by describing them by their specific name VGO. That such fundamental point has been totally overlooked by the lower authorities and the conclusion in the impugned order that VGO is not LSFO is therefore totally erroneous, fallacious and illogical. 2.2 He submits that t....
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....exporter, and do not necessarily reflect the actual ratio in which inputs are used for manufacturing export products. Elaborating on this, he pointed out that the ratio of 1 MT : 1.265 MT given in the relevant SION A3263 for motor spirit: LSWR/LSFO is not the material balance equation representing the actual ratio of consumption and yield in the manufacturing process, but is only the ratio in which duty free entitlement has been allowed. It was pointed out that it was physically impossible to produce 1 MT of motor spirit using only 1.265 MT of LSWR/LSFO. He pointed out that in actual practice about 5 MT of LSFO is required to produce 1 MT of motor spirit, as several co-products such as SKO, LPG, HSD also emerge together with MS. Hence, while working out the duty free entitlement for 1 MT of MS exported, the quantity of duty free entitlement gets reduced from 5 MT to 1.265 MT considering the realizable economic value of other co-products, such as SKO, LPG and HSD, which are not being exported. He also referred to a report of Dr S. Ganguly, Chairman of the Expert Committee constituted by the Department of Chemicals and Petroleum, for the purpose of recommending the input/output norms....
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....t. Ltd 2016 (340) ELT 32 (P&H) had been challenged by the Revenue before the Apex Court and an SLP had been admitted and is pending consideration of the Hon'ble Apex Court. Though no stay had been granted, the correctness of the conclusion reached by the High Court is still at large. He further submits that the Appellant has failed to prove that VGO produced within its refinery and used as FCCU feed stock was meeting all the specifications of LSFO as per IS 1593:1982 The in-house test reports did not contain test findings for acidity, ash, sediments and water content which was also a requirement if IS: 1593:1982 and therefore the Appellant's contention that sweet VGO was also LSFO had not been proved. He also refers to the fact that the Appellant themselves had exported LSFO and VGO in the past declaring them as LSFO and VGO respectively which established that the two products were understood differently in trade. While exporting VGO in the past, Appellant had not classified the same under the classification entry for fuel oil. The customs exemption Notification has to be strictly construed and all policy provisions were impliedly conditions of the exemption notification issued und....
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....d 1.8.2013 which the Revenue is relying upon to limit the benefit of duty exemption only to such inputs which were actually used in the manufacture of export product. The DFIA in that case was issued prior to 1.8.2013. It was Revenue's contention that since imports were made after 1.8.2013, the restrictions imposed in the FTP w.e.f. 1.8.2013 would apply to all such imports even if they were being made against an DFIA issued prior to 1.8.2013. After taking note of the judgment of the Apex Court in the case of DGFT vs Kanak Exports the High Court held that the imports made against DFIA issued prior to 1.8.2013 could not be subjected to the restrictions contained in para 4.1.15. The relevant paras of the said judgment are as under: 30. Even on first principles, we find that neither Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, nor Para 1.2 of the FTP, whereunder the impugned Notifications dated 1-8-2013 and 21-8-2014 purport to have been issued, allow retrospective divesting, by any newly added provision, of the rights already available to the License holder/subsequent transferee, of the DFIA. It is well-settled that the power to legislate retrospecti....
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....toppel, inasmuch as, at the time of issuance of the DFIAs, it was held out by the respondent to the DFIA holders as well as, consequently, to the transferees thereof, that all benefits accruing under the said DFIAs read with the then existing FTP, HOP and DGFT Circulars, etc., would be available thereunder. It was on the basis of this promise, as held out by the respondent, that the petitioner invested considerable amounts in purchasing the said DFIAs from the original holders thereof in the belief that import benefits available to the said DFIAs at the time of issuance thereof would not be denied to it merely by erroneously applying the restrictions which were introduced thereafter. 37. To the said extent, therefore, the impugned Notifications, Public Notice and Circulars, insofar as they make the restrictive conditions incorporated therein applicable to all imports made thereafter, even under DFIAs issued prior thereto, cannot sustain. The impugned DGFT Circular dated 2-8-2013 is also, consequently, illegal, insofar as it makes the Notification dated 1-8-2013 (supra) applicable to all imports effected under the DFIA scheme thereafter. 38......... 39. Th....
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.... The prayer for granting exemption, so far as anti-dumping duty is concerned, is rejected for the reasons recorded above. 5.1 Though the above referred judgement was given in the situation where the licence holder had first fulfilled its export obligation and then obtained a transferable DFIA, thus entitling him to challenge the applicability of the amending Notification also on the ground of promissory estoppel, we note that the conclusions reached by the Hon'ble High Court in the above extracted passages are not premised on the principle of promissory estoppel. This is clear from para 36 of the judgment by where the doctrine of promissory estoppel was cited only as an additional ground to support the conclusion otherwise reached by the Court independent of that doctrine. We note that the primary basis for the conclusion reached by the High Court was the absence of the power in the Foreign Trade (Development & Regulations) Act 1992 (FTDR) to legislate retrospectively. The judgment also relied upon the provisions in the FTP cited in para 32 of the judgment which state that DFIA and Advance Authorization have to be issued in accordance with policy and procedure in force on author....
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....reads as under: "4.1.15 Wherever SION permits use of either (a) a generic input or (b) alternative inputs, unless the name of the specific input(s) [which has (have) been used in manufacturing the export product] gets indicated / endorsed in the relevant shipping bill and these inputs, so endorsed, match the description in the relevant bill of entry, the concerned Authorization will not be redeemed. In other words, the name/description of the input used (or to be used) in the Authorization must match exactly the name/description endorsed in the shipping bill. At the time of discharge of export obligation (EODC) or at the time of redemption, RA shall allow only those inputs which have been specifically indicated in the shipping bill." 5.4 We find that Para 4 of the DGFT Notification having been struck down by the High Court and thus the very basis of the proceedings of the present case has become untenable. We find that the Commissioner's understanding of para 4.1.15 and the DGFT Notification dated 1.8.2013 is summed up in para 34.4.5 of the order wherein he has contended that "the said Notification implies that inputs actually used in manufacture of the export product s....
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....GO, an intermediate product produced in the Appellant's refinery by processing crude oils. The question that arises for determination is whether such sweet VGO was LSFO or not. This question has to be answered by applying the statutory chapter note (g) in Chapter 27 of the Customs tariff which reads as under : (g) "fuel oil" means any hydrocarbon oil conforming to the Indian Standards Specification of Bureau of Indian Standards IS : 1593 : 1982 5.7 It is not in dispute that BIS standards 1593:1982 for fuel oils also cover LSFO. The Adjudicating authority in fact proceeded on this basis in para 38.2 of the impugned order. We note that above statutory definition which uses the word 'means' lays down an objective definition of LSFO as referring to any hydro carbon oil conforming to BIS standards IS 1593:1982 with the added condition of the sulphur content being low. This statutory definition will prevail over any contrary meaning existing in the common trade parlance or the internal terminologies used within the refinery. The impugned order findings in para 35 of the order is mainly based on such trade parlance and the refinery parlance appearing in the internal records of....
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....en by such a laboratory are acceptable to the Customs. The Commissioner has also not doubted the credibility and accuracy of the in-house test reports. He has however held that since these test reports did not contain test values for four different parameters viz: ash, acidity, sediment and water content and that the Appellant had failed to establish that VGO was conforming to all the prescribed specifications for LSFO. The Appellant on the other hand has submitted, relying upon statements recorded in the course of investigations that the in house testing is done for certain key parameters which includes three of the seven mentioned in the IS 1593:1982. Compliance with the remaining four parameters is inferred through property stream calculations as stated by Mr Shreedhar Rudraraju in his statement dated 8.8.2016 which reads thus: "On being asked as to what parameters were put to check while giving a go-ahead by EPS, I state that the Technical Services and Operations Group gave their clearance on the 04 parameters based on the Test of FCCU combine feed that the refinery conducted on regular basis to ascertain as to whether the combine feed is fit to be used as a FCCU Feed ....
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....pecting the Appellant to prove to the hilt the correctness of the declaration made on the shipping bill after many years after the export had been made, by insisting on in house test readings of all parameters of intermediate streams which went into the making of the export product is totally unreasonable and unfair besides being legally incorrect. Such an approach could have been justified, if the goods were still, awaiting exports and were available for examination. Once export of goods has been permitted by the Customs by accepting the declaration made in the Shipping Bill, the burden of proving that such a declaration was false would squarely rest upon the Revenue. Therefore, even if we were to ignore the technical note given to us, the case of the Revenue cannot sustain and the burden of proof resting upon the Revenue had not been discharged. 5.13 Going further on question of burden of proof we find, that in the show cause Notice the Revenue had tried to discharge this burden by relying upon several statements of refinery personnel and also the internal records of the refinery showing that the description of four storage tanks No.503A, 503B, 503C, 503D was changed on 14.9.2....
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....scribed above. These streams comes from different process units within the refinery. Q5. Since in your statement there is a reference only to feed coming from storage tanks 503A, 503B & 503D, it gives an impressions that the main raw material for Motor Spirit is coming from these tanks. Is it correct? Kindly explain. A5. The answer to the question is that "NOT AT ALL". The feed for FCC comes from different sources. The feed coming from three tanks is only for balancing the feed. The major stream is sweet VGO from VGOHT and Sour VGO from Crude Units. Q6. I put it to you that during the period Sept-Oct 2013 when Motor Spirit was exported under the disputed advance licence, the percentage of FCC feed from the three tanks mentioned above was around 15% only, the rest being from VGOHT (48%) and from CDU-I (23%). Is this correct ?. If so, why was this fact not put in your statement ? A6. These figures are correct and they corroborate my earlier reply. In the course of DRI enquiries, answers are required to be given only to specific questions put to you and further clarifications like this are not recorder. Q7. You have in your statement dated ....
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....FCCU, VGOHT_Sweet VGO_FCC, CDU2_Hot VGO_FCCU, CDU2 AR, VGO_PIT_FCC. Q4. Is it correct to infer from the list that LSFO was not used for manufacturing Motor Spirit. A4.No. I did mentioned that all these feed components meet the specification of LSFO. These are only internal names given for operational convenience to identify the units from where these streams are coming. Q5. Being the plant head of operations can you clarify what was the approximate sulfur content of the FCCU Feed that was processed to make Motor Spirit in September - October 2013? A5. I would like to clarify that I was not in Operations department during the said period. Q6. In your statement you were questioned about the change in nomenclature of storage tank from "VGO" to "LSFO" on 14.09.2013 but you have not commented whether the said change was proper or not. Can you clarify?. A6. I did mention that VGO meets specification of LSFO i.e. FCC Feed. I was however told that I should restrict the answers only to the questions asked. Q7. In your statement you have not clarified what percentage of Sulphur constitutes a threshold for describing the product a....
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....the record of cross examination are three fold. Firstly, the Commissioner claims that the Appellant's stance that VGO is LSFO as per BIS Standards is a new contention taken only in the reply. As we have already noted above this finding is actually wrong in view of the crucial statements of Mr Shreedhar Rudraraju and Mr. Chakrapany Manoharan. Secondly and more importantly a submission made by the Appellant in the course of investigation cannot be ignored by terming it as an afterthought as adjudication if the first stage when the Appellant gets an opportunity to plead its case and make submissions in reply to the show cause notice. It is entitled to make new submissions and lead fresh evidence. The bar against producing fresh evidence or accepting new submissions exist only in Appellate proceedings, and not to original proceedings of adjudication of a show cause notice where it is the assessees' right to make submission and lead evidence . Such submissions cannot be ignored and brushed aside on the ground that it was not made in the course of investigation. If the Commissioner had doubts about the correctness of the Appellant's claim, with regard to compliance of the four parameters....
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....e above classifications have never been disputed by the Appellant at any stage. The Appellant on the other hand has submitted that an erroneous classification of VGO claimed by the Appellant in the past cannot bind it for all times to come particularly when the two classification attracted the same rate of duty and therefore did not warrant the raising of a dispute. We agree with this submission as no estoppel can be pleaded against law particularly when the issue of classification was never a subject matter of any lis or adjudication in the past. A mistake in the claiming of classification in the past cannot become the sole basis for shutting out a plea for proper classification of the product in future. We are of the view that matters of classification have to be decided with reference to the statutory provisions and definition and not merely on the basis of what the department or the assessee claimed or did in the past. 6.2 The Commissioner has recorded a finding in para 38.3 of the order that as per the appellant's own submission LSFO and VGO have distinct use, marketability and description. This finding is not correct as the Appellant's submissions in its replies and writte....
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....duction are not granted duty free entitlement so as to factor in the fact that all end products arising from processing of LSFO are not being exported. The scaling down of the quantity entitlement thus compensates for non-export of the other co-products such as SKO, HSD, LPG, etc which as a technical necessity arise alongwith the export product motor spirit, from processing of LSFO. As such, the finding of the Commissioner that export goods should have been produced only by using permissible inputs is an impossible requirement, which is not only totally illogical but also absent in para 4.1.15. Para 4.1.15, in our view, is not aimed at laying down a strict quantity correlation between permissible inputs and export product. This para only aims to prevent duty free import of totally unconnected and different type of inputs than what was actually used in the export production. In our view, the Commissioner has totally misinterpreted this provision of the FTP. 7 The Commissioner has also observed that according to the statements of the refinery personnel the technical specifications of VGO and LSFO were different. We note that this observation is not entirely true in view of the two....
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....dealing with this issue, we are also not expressing any opinion on the statements and cross-examination of Shri Rajaraman Dhasarathan, Joint Director, Customs Laboratory, Kandla which have been relied upon by the Commissioner in his order mainly for deciding the upper threshold of sulphur content in LSFO. 7.3 Before concluding our discussion on this issue, we note that a considerable part of the discussion in the impugned order is devoted to the question of how low the sulphur content should be in LSFO. While the Revenue has claimed that the maximum sulphur content in LSFO should be one percent in view of the BIS standards of heavy petroleum stock in 11489:1985, the Appellant has contended that the one percent criteria cannot be applied as BIS 11489:1985 applies only to heavy petroleum stock and not to fuel oils. As observed by us in para 7 above, the IS standard 1593:1982 for LSFO does not prescribe any upper limit for the sulphur content and leaves the same to the contracting parties to decide. An upper limit for sulphur content (3.5 to 4.5) exist only for normal fuel oils covered by the same standard. When no upper limit has been prescribed in the said standard for LSFO, we a....
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....te. In any case an act of misdeclaration on the shipping bill, which is a Customs document is certainly actionable under the Customs law. We therefore hold that the Customs did not act beyond its jurisdiction in questioning the correctness of the redemption letter issued by the DGFT. This conclusion of ours however will not make any difference to the result of this case as we have already held above while dealing with the third issue that there was infact no mis-declaration on the shipping bill. 9. As regards the last two issues, since we have already held above that there was no mis-declaration on the Shipping Bill, the Appellant cannot be held liable for any penalty under Section 114 (iii) of the Customs Act. For the same reason, no basis exists for sustaining the invocation of the extended period of limitation in Section 28(4) of the Customs Act. These two issues are therefore decided in favour of the Appellant. 10. Thus in view of the above observations and findings, we allow the appeal filed by the assessee by setting aside the impugned order. 11. The Revenue also filed appeal bearing No. 11674 of 2018 for imposition of penalty under Section 114(iii) of Customs Act, 1....
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....high ash contents of petroleum stocks are metallic salts and organometallic compounds. The FCC feed contains metals like Nickel, Sodium etc in the 5-50 ppmw range (0.005%). Hence, ash content is never likely to be more than 0.1% by mass. The numbers given are 3 Calorific value, gross cal/g IS 1448 [P:7] To be reported (Note 1 should be around 10400-10500 from test reports 10800 10800 obtained subsequent to 10,000 cal/g) IS 1448 Relative density [P: 16] or To be reported (Marine Engines at 15/13ed1448 CamScan [82] 0.99 Max) the issue of the SCN. Tested 875- 874-908 928 Document 3 Flash point, 5 Pensky-Martens closed, °C Kinematic viscosity at 50°C, 6 cSt, Above Up to ANNEXURE-A The flash point is the temperature at which sufficient vapors in presence of air will form combustible mixture and will flash/momentarily ignite, when given a spark. LSFO FCC feed is heavier IS 1448 142- 162- than diesel cut has IBP of 66 Min [P:21] 200 197 around 300 degree C. It is 80 125 180 IS 1448 22-67 22-32 [....