TaxTMI 
TaxTMI 
2026 (2) TMI 617
X X X X Extracts X X X X
X X X X Extracts X X X X
....is a proprietorship concern represented by its Proprietor Smt.Anichandrakala. It is engaged in the processing of raw cashew nuts and has obtained seven Advance Authorisation licenses from the office of the Joint Director General of Foreign Trade, Madurai, during the period from 23.03.2016 to 27.05.2016, to import raw cashew shells without payment of Customs duty, and actual user condition with an obligation to export, the processed cashew kernals. (ii) M/s.RE imported and cleared a quantity of 3073.331 Mts of Raw Cashew Nuts (in short hereinafter referred to as 'RCN') valued at Rs. 31,85,42,558/- without payment of customs duty, vide 19 bills of entry by availing the benefit of notification No.18/2015-CUS dated 01.04.2015 for the period from 01.04.2016 to 26.07.2016. (iii)The officer of the Directorate of Revenue Intelligence received secret information that M/s.Regin Agencies, the respondent herein indulged in the diversion of imported RCN to the units of another IEC holder, M/s.Regin Exports violating the condition of notification No.18/2015, Customs dated 01.04.2015 as amended and the license issued by DGFT in terms of para 4.16 of FTP 2015-2020. (iv) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itions prescribed in Notification No.18/2015-CUS dated 01.04.2015 were not fulfilled and 2372.263 Mts RCN that were already diverted to the unauthorized units are liable for confiscation and it was ordered to confiscate 429.207 Mts confirming the customs duty to the tune of Rs. 2,71,69,335/- imposing interest, imposing penalty to the tune of Rs. 25 lakhs on Mr.Regin, penalty of Rs. 5 lakhs, each was imposed on the customs brokers, i.e., M/s.Zion logistics, M/s.Daniel and Samuel logistics. (xi) Aggrieved by the same the respondents filed an appeal before CESTAT. The CESTAT, vide its common and final order No.42432-42435/2018 dated 17.09.2018 allowed the appeal filed by the respondent. (xii)Aggrieved by the common final order of the Tribunal, the Customs Department filed the present appeal on the following ground: Whether the diversion of RCN imported duty-free under advance authorisation to the unauthorized unit for processing and the sales effected to third party in local market is permissible under FTP 2015- 2020 and notification No.18/2015-CUS dated 01.04.2015. (xiii) Learned counsel appearing on behalf of the appellants contented that as per the condit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e for maintenance of true and proper account of consumption and utilisation of inputs and furnish a return to the concerned Regional Authority as per the provisions of FTP and procedure laid down thereunder. (xvii)The authorisation holder should comply with the provisions of para 4.10 and 4.35 of HBP 2015-2020 and amended from time to time regarding the transfer of any material from one unit of the authorisation to another unit of the authorisation included in IEC or to a supporting manufacturer. (xviii)The factory address where the goods are imported shall be processed only with the M/s.Regin Exports, Door No.16/101, Ochavilai, Puthukkadai Post, Munchira Block, Kunnathur Village, Kanniyakumari District and M/s.Regin Exports, Door.No.3/60B Rs. No.513/2(P) Pulluvilai, Pookkadai, Thickanamcode Post, Kanniyakumari District. (xix)As per the advance authorisation issued by the DGFT of M/s.RE were required to bring the RCN imported duty-free into the premises M/s.RE in the above address and the authorisation shall not be transferred or sold as per notification No.18/2015 dated 01.04.2015 (xx)As per FTP 4.03 Advance Authorisation as follows : (a) Advanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stated that M/s.RE was not maintaining registers for accounting the consumption and stocks of duty-free imported raw materials allowed under Advance Authorisation as per Appendix 4.1 of the HBP. He further stated that the quantity of the imported and cleared quantity of cashew kernels as on 31.03.2016 was 13069.73 KG only. He further submitted that the unit at Ochavilai belongs to M/s.RE and all other units are agents of M/s.RA. (xxvii) It reveals that M/s.RE diverted the RCN imported duty-free goods to commission agents controlled by M/s.RA. However, M/s.RE had not obtained any permission from the Central Excise Authorities for the transfer of raw cashew nuts. They had not executed any bank guarantee with the customs as they were exempted from being a star house. (xxviii)The statements of managers/authorised persons from 14 units were recorded by Directorate of Revenue Intelligence, and they had also corroborated the statements of the proprietors of M/s.RE and M/s.RA. They further stated that RCN in shell were received directly from the Tuticorin Port in a container, accompanied by documents, such as the bill of entry, weighment slip, and form JJ. They further st....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... driver along with copies of the bills of entry and form KK. One person from M/s.RE presented to coordinate and supervise the transportation of goods and provided the details of the dispatch of imported raw cashew nuts to various units of M/s.RE. He further stated that M/s.Pixel Impex collects the payment from M/s.RE and gives them by cheque and provided the cheque numbers. (xxxii)M/s.Pixel Imports who were acting as mediators for clearing the import consignment of M/s.RE, in their statement also corroborated the statement of M/s.Zion Logistics. M/s.Sea Dart Logistics also stated that M/s.RE gave instructions to hand over the same to M/s.Daniel and Samuel Logistics Private Limited to dispatch the goods to their various units. They used to send the names by email. Their head office collects charges from M/s.RE and pays M/s. Daniel and Samuel Logistics Private Limited by way of cheque. M/s.RE made payments through RTGS to their account maintained at the Federal Bank. (xxxiii)Mr.P.Regin, Proprietor of M/s.RA vide letter dated 17.11.2017 admitted that to reduce the transportation cost, the container would be delivered to the job workers' premises from the Port in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y. They also stated that they made a full payment. M/s.RE has not endorsed any of the documents, and they also submitted that the payment was made in full. Therefore, the company cannot be treated either as a job workers or third party exporters of M/s.RE. (xl)Further, the respondent has not made any intimation to the jurisdictional Central Excise Authorities for the transfer of goods from the authorised unit to other job worker units for processing. The importer has misused that Advance Authorisation for their own convenience. (xli) From the above, it is clear that M/s.RE neither obtained permission from the jurisdictional Central Excise officers, for transfer of goods from authorised units nor incorporated the names of such units to which RCN has been diverted, contravening, the provisions contained in para 4.10 of the Handbook of Procedures. (xlii) The respondent did not maintain a true and proper account of the consumption and utilisation of duty-free procured inputs under Advance Authorisation in violation of the condition in Sl.No.7 in the condition sheet annexed to the Authorisations and Para 4.21 of the Handbook of Procedures. (xliii) Mr.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e not admitted. Statements do not show any such diversion or violation of the conditions of the licenses. viii) It is true that RCN imported under the said licenses were sent to other units for processing as mentioned in the notice but the same were in the process for job work and cannot be construed as a diversion of RCN in terms of the purpose for which 7 licenses have been obtained. There may have been some procedural violations in not securing endorsement of the Regional Office, but that is not a deliberate omission, but rather arose due to ignorance of procedures, as Raw Cashew came under the customs duty regime only recently (hardly 5 months before the search of their premises). ix) As far as the RCN alleged to have been sold by M/s.Regin Exports in para 5.6 the same are not RCN imported under the aforesaid 7 licenses. It is incorrect to state that they failed to maintain true and proper accounts of the consumption and utilisation of imported materials. The sale of cashew nuts by M/s.Regin Agency and M/s.Regin Exports mentioned in para 5.6 were procured from the local market. In any case, the entire export obligations of processing of cashew nuts have been c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thorised units after job work, which is a usual and permitted practice under the Advance Authorisation (Para 4.16). The broker's duty ends with customs clearance, and there is no obligation to track goods thereafter. 4.3. The Commissioner of Customs wrongly imposed penalty and the same is highly excessive against this respondent, which is improper. If a broker has not acted upon his obligations he could be punished under the Customs Brokers Licensing Regulations, 2013. In this case no further action was taken against the respondent. Even under Section 112 of the Customs Act, the maximum penalty on a Customs Broker is Rs. 5,000/-. Therefore, the imposition of a penalty of Rs. 5 lakhs is illegal, arbitrary, and contrary to law. Hence, the Civil Miscellaneous Appeal is liable to be dismissed. 5. Heard the learned counsel on either side and perused the material available on records. 6. It is admitted that the M/s.RE procured 7 Advance Authorisation licenses from the period 23.03.2016 to 27.05.2016, from the Joint Director General of Foreign Trade, Madurai for import of RCN in shell without payment of customs duty. They imported and cleared a quantity of 3073.331 Mts of RCN....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assistant Commissioner of Customs, as the case may be, as the materials which were imported." 8. The importer M/s.Regin Exports/the respondent was mentioned in the condition sheet attached to the advance authorisation. In column 14, the factory address of the authorisation holder and/or the supporting manufacturer where the goods imported shall be processed is mentioned as below: 1. SUPP. MANF. Regin Exports, D.No. 16/101, Ochavilai, Puthukadai Post, Munchirai Block, Kunnathur Village, Vilavancode Taluk, Kanyakumari. 2. Factory add: M/s.Regin Exports, D.No.3/60B, R.S.No. 513/2(P), Pulluvilai, Pookadai, Thickkanamcode Village, Kanyakumari. He further mentioned in column 15, that no co-licensee in terms of para 4.35 of Handbook of Procedures 2015-2020. 9. Certain instructions were set out in the condition sheet attached to the advance authorisation:- "Condition no. 6 of the condition sheet; The exempt goods imported against this authorisation shall only be utilised in accordance with the provisions of paragraph 4.16 of the Foreign Trade Policy 2015-2020 and other provisions and the relevant Customs Notification - [Custom Notification 18/2015 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in Exports further reveals that the original proprietor was not involved in any of the business activities and that her name was utilised only nominally by her husband for conducting the business. 14. Further, Mr.P.Regin, husband of Smt.Anichandrakala, in his statement dated 25.07.2016, admitted that the imported raw cashew nuts, after clearance from the port, were dispatched under Form JJ delivery notes to various units owned by his agency. After processing the cashew kernels, the same were sold to different buyers, predominantly at Kollam. He also admitted that no register was maintained for accounting the consumption and stock of duty-free imported raw materials as required under Appendix 4(I) of the HBP, as stipulated in Clause 4.21 thereof. He further admitted that no permission had been obtained from the Central Excise Authorities for transferring the cashew nuts to various units or commission agents of M/s.Regin Agency on behalf of M/s. Regin Exports /respondent-exporter. 15. Subsequently, on 23.07.2016, 03.08.2016, and 04.08.2016, further search was conducted, in the premises of 16 units alleged to the units/commission agents of M/s.Regin Agency. During the search, 42....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... M/s.Thaya Exim, Mr.Cyril Raj of M/s.Viswam Cashew Traders, Mr.Anilkumar of M/s.PCN Cashew, Mr.Vijaykumar of M/s.NVK Cashew, Mr.Martin of M/s.Jebi Cashew, Mr.Easai of M/s.Christal Cashew, Mr.Arun Kumar of M/s.D.R. Cashew Company. All the above the witnesses categorically stated before the Senior Intelligence Officer, Directorate of Revenue Intelligence, Trivandrum that they had received the imported raw cashew nuts in shell directly from Tuticorin port at the instruction of M/s.Regin Agency. The containers were proceeded directly from the Tuticorin port to their units with documents viz., bills of entry, weighment slip, form JJ etc., the transporters handed over the documents to them. The route checker of M/s.Regin Agency comes to their unit and verifies the seal of the container and supervises the unloading of goods. After processing from their Agencies, the process of cashew kernels was sent to M/s.Regin Agency through trucks owned by them without any documents for transfer. 21. The witnesses further stated that M/s.Regin Agency paid the processing charges through RTGS for processing work. The above fact was not disputed by the respondent. The investigating agency seized the m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9.16 Mts imported RCN, totally valued at Rs. 60.16 lakhs from M/s.Regin Exports vide invoice No.8, dated: 23.05.2016, invoice No.11, dated: 22.06.2016 and invoice No.12, dated 22.06.2016. He further states that the payments for the above were made through RTGS from their account and thereafter the cashew kernels were sold in the local market. 25. Mr.Shihansha of M/s.Alin Cashews was examined. He stated that they bought 6139.86 Kgs of processed cashew kernels from Regin Exports under Form H vide invoice No.18 dated 15.04.2016 and invoice No.96 dated 14.07.2016, without payment of sales tax. The cashew kernels bought were exported by them. They further bought 7034.69 Kgs of processed cashew Kernals valued at 35.15 lakhs from them under Form C vide invoice No.75 dated 20.06.2016 on payment of sales tax. The payments for the above invoices were made through RTGS from their account at UCO Bank, Kollam. The bills raised by M/s.Regin Agencies were produced in pages 620, 674, 694 of the typed set produced by the appellant. 26. Mr.Jayalal of M/s.Nandana Cashew Traders was examined. He stated that he purchased processed cashews from M/s.Regin Agency in the financial year, they bought 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 88 and payments were made through RTGS, maintained in Federal Bank, Polayathodu Branch. They further stated that the processed cashews were exported by their name. They had been produced shipping bills contract, export invoice, bill of lading and purchase bills, (statement found on page No.785 of the typed set). The bills issued by M/s.Regin Agency were annexed by appellant vide page Nos.642, 643 645 and 686 of the typed set. 32. Mr.G.G.Rajan of M/s.RCN Impex Private Ltd., another purchaser stated that they bought 9570.02 Kgs of processed cashew kernels worth of Rs. 55.79 lakhs from M/s.Regin Agency vide invoice No.17 dated 15.04.2016, invoice No.24 dated 20.04.2016 and payments were made through RTGS. The bill issued by M/s.Regin Agency were annexed by the appellant vide page Nos.619, 626 of the typed set. 33. Mr.Najimudeen of M/s.Najeem Cashew Industries, also stated in his statement that they purchased 34,583.96 Kgs of processed cashew kernels valued at Rs. 20.793 lakhs from the M/s.Regin Agency and paid the payment through RTGS from their South Indian Bank, Kollam, UCO Bank, Kollam account. 34. One Subhash Babu of M/s.Kumar Cashew Exports stated that they had procured....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... lakhs from M/s.Regin agency on 14.07.2016 vide invoice Nos.97, 98 and payments were made through RTGS. They further stated that they exported the cashew purchased by them. The bills issued by M/s.Regin Agency were annexed by the appellant vide page Nos.695 and 696 of the typed set. 40. Mr.D.Sreekumaran Nair of M/s.Western India Cashew Co. Pvt. Ltd., was examined. He informed that 12190.5 Kgs of processed cashew kernels worth of Rs. 78.37 lakhs were purchased from M/s.Regin agency during the period 02.06.2016 and 18.07.2016 vide invoice Nos.57 and 102 and payments were made through RTGS. The bills issued by M/s.Regin Agency were annexed by appellant vide page Nos. 656 and 700 of the typed set. They further stated that they exported the purchased goods. 41. Mr.G.Raveendran Pillai of M/s.Prashanti Cashew Company was examined, he informed that they had bought 12190.66 Kgs of processed cashew kernels worth of Rs. 76.54 lakhs from M/s.Regin Agency from 20.06.2016 and 21.06.2016 vide invoice Nos. 72, 73, 76. The payments were made through RTGS. He further stated that during the financial year, they bought for another company M/s.Global Foods totally 10743.08 KG of processed cashew ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndent, confirmed that he used to receive originals of Advance Authorisation license from the office of M/s.Sea Dart Logistics, Tuticorin on behalf of M/s.Regin Exports, and filed the bills to the customer authorities, and after custom examination, the containers are dispatched to the various units of M/s.Regin Exports, as per the instruction of M/s.Sea Dart Logistics. He produced the details of bills of entry, the details of the dispatch of imported goods to various units of M/s.RE. The details are produced on page Nos.203 to 205. The authority also examined one Mariappan, imports-in-charge of Zion logistics, who cleared the imported consignment of the respondent categorically stated that they dispatch the goods to various units of the respondent as per the instructions of M/s.Pixel Impex. The statement of the above witness found on pages 206 to 211 of the typed set. 47.Thiru.Simeon, partner of M/s.Pixel Impex was examined, who was acting as a mediator for the clearance of the import concerned of the respondent. He stated that the goods were dispatched to various units as per the mail sent by the respondent. Thiru.Velmurugan of M/s.Sea Dart Logistics was examined, he also corrob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Customs authorities. In the present case, the diversion was carried out solely on the instructions of M/s. Regin Agency, which had neither authority nor authorisation to undertake or arrange processing work. 51.Further, the respondent failed to maintain true and proper accounts as stipulated under Paragraph 4.21 of the Handbook of Procedure. No records were produced to show the exact details of diversion, the locations where processing was carried out, or the payments made for such processing. No registers were maintained except a daily stock register, which itself did not tally with the quantity of goods imported through the port under the Advance Authorisation. 52.The respondent was expressly prohibited from transferring the goods to any other unit. Nevertheless, in connivance with M/s. Regin Agency, the goods were transferred to third parties without any authorisation or proof to establish that such parties were authorised agents. Moreover, M/s. Regin Agency alone received the processed cashew kernels, sold the imported goods to third-party purchasers, and received huge amounts in its bank account. The third-party purchasers, in turn, either sold the goods in the local mar....