Customs, Excise and Gold Tribunal - Bangalore
Commissioner Of Customs vs Cheminor Drugs Ltd. on 29 November, 2002
Equivalent citations: 2003(85)ECC555, 2003(160)ELT649(TRI-BANG)
JUDGMENT
S.S. Sekhon
1. This is an appeal filed by the Revenue. The respondents (hereinafter referred to as CDL), are known manufacturers, exporters of bulk drugs and drug intermediates etc. They had imported (1) tsobutyl Benzene (2) Acetyl Chloride (3) Sodium Cyanide (4) Sodium Boro Hydride (5) Isopropyl Alcohol (6) Nickel (7) Methylene Chloride etc., required for manufacture of "ibuprofen", a bulk drug. The imports were made, duty free, under the DEEC scheme during the period 1987-91. They fulfilled their export obligations as stipulated under the scheme. Consequent to certain enquiries that CDL had not utilised a part of the raw materials imported duty free but had mis-used/diverted them for other uses, a Show Cause Notice was issued. As it appeared from the balance sheets of CDL for the years 1987-88, 1988-89, 1989-90 and 1990-91 that the consumption of raw materials viz. Isobutyl Benzene, Acetyl Chloride and Sodium Cyanide given in these balance sheets were not tallying with the norms submitted vide applications made for their Advance Licence, Taking the consumption figures from these raw materials given in the balance sheet for the year 1989-90, it appeared that certain quantities of raw material were imported in excess of the requirement and thus mis-utilised in violation of Notification No. 44/87-Cus dtd. 19.2.87, 116/88-Cus dtd. 30.3.88, 159/90 Cus dtd. 30.3.90. Notice alleged that they appeared to have deliberately mis-declared the consumption norms, with a view to evade customs duty of Rs. 2.813 crores and were liable for a penalty under section 112 (a) of the Customs Act and why a duty amounting to Rs. 2.813 crores should not be paid and penalty should not be imposed.
2. The Ld. Adjudicator in view of the following findings:
"(i) The demand of duty was based on norms of consumption of raw materials, as given in the balance sheets, certificates of Chartered Accountants and applications made by M/s CDL, for advance licence under the DEEC Schemes, which were at variance with one another. The Commissioner observes that "the norms are like shifting sands" and "demand based on such a weak foundation cannot sustain.
(ii) The adjudicating authority held that the department had miserably failed to put forth recorded evidence to prove the alleged mis-utilisation of raw materials imported free of duty.
(iii) He is of the view that the allegation of wilful suppression of facts by M/s CDL or its Chairman would not sustain, as the proper Officers of Customs, who had made endorsements of fulfilment of export obligations in Parts 'F' and 'G' of the DEEC pass book had not found any objection, with the norms at that stage, He further held that those Customs Officers could have conducted detailed inquiry with regard to the actual consumption of duty free raw materials and only after satisfying themselves of the proper utilization of exempt raw materials; they should have made endorsements in the DEEC books, Since the customs Officers had made endorsements in the DEEC books, the adjudicating authority presumed that the Customs Officers were thoroughly satisfied with regard to proper utilization of exempt raw materials by M/s CDL. He had also observed that the Show Cause Notice had not spelt out the facts that were suppressed by M/s CDL or its Chairman. Hence, the demand cannot be made under Section 28(1) of the Customs Act, 1962, as the onus of showing the proof, had not been discharged by the department.
(iv) He concluded that there was no valid rationale behind the department's reliance on balance sheets figures for the year 1989-90 in preference to the figures for the year 1990-91.
(v) He was of the view that there was a significant material change in the allegations in Corrigendum, with reference to the original show cause notice and hence, the date of show cause notice had to be treated as 11.9.1992."
ordered the dropping of the proceedings against CDL and Dr. K. Anji Reddy, the Managing Director of CDL by issue of the said Show Cause Notice.
3. Revenue has filed this appeal on the following grounds, with a prayer that the order passed should be set aside:-
"The order of the Commissioner is not legally correct and proper for the following reasons:
(i) The Senior Vice-President of M/s Cheminor Drugs Ltd. in his statement dtd. 26.3.91, admitted that a quantity of 139 MT of Acetyl Chloride was consumed initially for the manufacture of export grade product. But due to the failure of quality in export grade, admittedly, they had converted the same into IP grade meant for home consumption, which was accounted for in different batches. He expressed his inability to furnish account of such conversions and categorically admitted that there was no record to show and identify such conversions and quantify the same.
From the above statement it is evident that M/s CDL have manufactured IP product meant for domestic market, consuming exempt imported raw material and mis-utilised them, in contravention of the Notfn. Nos. 44/87, 116/88 and 159/90-Cus, read with the provisions of Para 244 of Import-Export Policy for 1988-89 and Para 250 of Import-Export Policy for 1990-93. It is also clear that there is no account of such conversion/consumption of exempt material and resultant product. Therefore, it may be said that the adjudicating authority had not looked into the aspect of admission of mis-utilisation of 139 MTs of acetyl chloride, the exempted import raw material, in the form of a statement given by the Senior Vice-President of M/s CDL. In view of the above categorical admission, of mis-utilisation of exempt imported raw material and non-availability of records for the same, by the Senior Vice-President of M/s CDL, the view taken by the adjudicating authority that the department should have obtained the account of raw material consumption in absolute terms, appears to have erred in appreciating the evidence available on record in the form of a statement given by the Senior Vice-President of M/s CDL.
(ii) In absence of any authenticated record as discussed above, the adoption of balance sheet figures for arriving at the actual consumption norms of raw material and to determine the quantities of raw material imported, in excess of requirement is correct. If the adoption of balance sheet figures is questioned, the validity of the balance sheet would be at stake.
The adjudicating authority's observations, describing the consumption norms as "shifting sands" appears to be incorrect and baseless for the reason that the import and export policy itself indicates the norms per unit to each product, to regulate the requirement/importation/consumption by the licence holders.
(iii) The adjudicating authority did not consider and failed to appreciate the admission of the Senior Vice-President of M/s CDL, to the effect that their efficiency has improved year by year and thereby the consumption of raw materials could be reduced. The consumption figures shown in the balance sheets for the years 1987, 1988-89 and 1989-90 also confirm the above fact of their improved efficiency and the trend of lowered consumption norms where as in the balance sheet for the year 1990-91, the consumption ratio of raw materials viz. IBP, acetyl chloride, Nickel, Methelene chloride and Isopropyl alcohol have suddenly gone up in contradiction to their own statement of improved efficiency and reduction in consumption of raw materials and this only shown their intentions to adjust the quantities of raw material imported in excess of requirement. Further, M/s CDL have not substantiated the sudden higher incidence in consumption figures for the year 1990-91.
Therefore, the Commissioner's observations that there was no rationale basis for reliance on balance sheet figures for the year 1989-90, in preference to the figures for 1990-91 appear to be irrational.
(iv) The adjudicating authority concluded that the Customs authorities were thoroughly satisfied with regard to utilization of raw materials, by making endorsements in DEEC books and hence there was no suppression of facts and raising demand for duty for the period beyond six months was impermissible, In this context, the adjudicating authority failed to appreciate the fact that there was no condition in any of the three notifications, stipulating the end-use verification of the raw material imported. In absence of any such expressed stipulation, the Customs authorities are not concerned with the end use verification and investigation into the mis-utilisation of raw material at the time of making endorsements in the DEEC books.
As per the conditions envisaged in the notification, the importers were bound by a declaration, to pay a demand, an amount equivalent to the duty leviable but for the exemption, on the imported material, in respect of which the conditions of the notifications have not been complied with. In this case, 139 MTs of acetyl chloride was admittedly mis-utilised in the manufacture of IP product, which resulted in disposal of exempt raw material otherwise, as against 208.137 MTs of acetyl chloride, arrived at by the department and alleged as mis-utilised, apart from the remaining raw materials as detailed in the annexures to the show cause notice. The above fact was not brought to the notice of the Customs department or DGFT at any stage by M/s CDL Hence the adjudicating authority's observations, that there is no evidence for suppression of facts, appear to be baseless.
(v) The adjudicating authority observed that there was material and significant change in the allegation, and that the corrigendum to show cause notice is in the nature of fresh show cause notice. Consequently, date of issue of corrigendum was treated as date of issue of show cause notice.
In the corrigendum, in respect of Para 17, the emphasis was said to have been shifted from non-compliance of the conditions of notification to mis-utilisation of raw material. In this context, it is needless to reiterate that mis-utilisation of raw material imported is the case of non-fulfilment of conditions of the notifications and that the corrigendum has only brought clarify to the allegation in the show cause notice and did not change the basic structure of show cause notice in any manner. Likewise in para 18 of the corrigendum, provisions of confiscation were invoked facilitating imposition of penalty. In a situation where the goods were not available for confiscation, this cannot be considered as a material/significant change in the nature of show cause notice. Mere non-invocal of Section 111 (o) in the original show cause notice, cannot be treated as a fatal defect. It is pertinent to note that CEGAT, in their order in the case of Md. Babar Ali Meah, Dhubri and 2 Ors. v. Collector of Central Excise, Shillong, 1991 (33) ECR (578) CEGAT (ERB) held that "amendment to add a charge of liability to confiscation is not substantial modification, and hence valid."
4. After hearing both sides and considering the submissions, we find:
(a) There is no contest that export obligations under the said DEEC Advance Licences were fully met and the Bonds/undertaking etc. were discharged. Intact, grounds taken in appeal itself indicates that Customs authorities have no jurisdiction to proceed with the end use verification. It is also not a case, as fairly admitted by the Ld. DR, that excess goods were cleared under the Advance Licences. Therefore, we cannot find any cause to come to a conclusion, that any of the imported raw materials had been dealt with in any manner to have violated the provisions of the Customs Notifications or the EXIM policy. To a specific question from the Bench, the Ld. DR submitted that the violation is of Para (d) of Notfn. No. 44/87-Cus and para meteria provisions in the other notifications, which read as under:
"(d) the exempt materials shall be utilized for the manufacture of resultant products specified in Part 'E' of the said certificate or for export as mandatory spares, and no portion thereof shall be sold, loaned, transferred or disposed of in any other manner:
Provided that where such exempt materials are imported for replenishment of materials used in the manufacture of resultant products exported, holder of an advance licence being a manufacturer-exporter may utilize the replenished materials for further production subject to actual user conditions;
Provided further that the licensing authority may consider the request of holder of an advance licence not being a manufacturer-exporter for transfer of the replenished materials at landed cost, to the supporting manufacturer concerned, whose name appears in the said Certificate, for further production, subject to actual user condition"
We find that in the term "portion disposed of in any other manner", in Para (d) has to be interpreted ejusdem generis to the words 'sold, loaned, transferred' and would mean to be restricted to the activity of parting with the goods i.e. raw materials, imported under the benefit of the notification in the condition they are imported. The words 'disposed of in any other manner' cannot be interpreted to mean and convey a ban on the use of such raw material for processing and or producing other goods by the importer/manufacturer/exporter. On this aspect, we are reinforced in our views as we find that the Proviso under this Para (d) of the Notification, permits replenished materials to be specifically permitted to be used for further production, subject to actual user condition. No definition of replenishment appears in the notification. We cannot restrict it to mean raw material imported after effecting exports, as was urged by the DR. In this view of the matter, we find no cause to initiate the present proceedings, to raise the demands of duty and penalty on the Managing Director as regards utilization of 139 MTs of acetyl chloride in the manufacture of items of IP standards in the appellants' premises.
(b) We find that the Tribunal in the case of Standard Industries Ltd., 2001 (136) ELT 124 (Tri-Mum) have held "Advance Licence-DEEC Scheme - Exempt imported material having been utilized for manufacture of finished product and not sold, transferred or disposed of in any other manner, benefit of Notification Nos. 159/90-Cus." Following the same, we are of the view that the interpretation being placed on the provisions of Para (d) by the Revenue is not the interpretation upheld by the Tribunal in this case. Since the provisions of Para (d) in the case before us and the provisions in the Standard Industries Ltd. case (supra), Notification No. 159/90-Cus are para materia. Following the said decision, we find no valid reasons as taken in the grounds before us to allow this appeal filed by the Revenue.
5. In view of our findings, the Revenue's appeal is dismissed.