Customs, Excise and Gold Tribunal - Delhi
Hy-Grade Pellets Ltd. vs Commissioner Of Customs on 14 June, 2004
Equivalent citations: 2004(171)ELT177(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The adjudication order dated 6-11-2003 of the Commissioner of Customs, Visakhapatnam, which is impugned before us in this appeal, has raised enormous amount of duty demand, penalty and redemption fine and interest and also raised fears of "any further action as may be initiated". We read the operative part of the order :-
"Order Having regard to facts and circumstances explained above, I order as follows :-
(i) An amount of Rs. 31,03,66,083/- which was paid by M/s. ESSAR to M/s. LURGI Germany towards design and engineering charges including documentation, project handling, workshop tests, etc., shall be added to the assessable value and M/s. ESSAR shall pay appropriate differential duty on the above amount which comes out to Rs. 11,99,29,516/- as per working sheet enclosed together with accruing interest as applicable as per Section 47(2) of the Customs Act, 1962.
(ii) In addition to above, M/s. ESSAR shall also pay appropriate duty on Rs. 28,05,29,374/- i.e. proportionate value of the goods to the extent of short fall in export obligation fulfilment which comes out to Rs. 6,46,97,989/- as per working sheet enclosed together with interest as applicable in terms of Para 4 (iv) of conditions of Customs Notification 160/92, dt. 20-4-92 read with Para 38 of EXIM Policy and Para 102 of Handbook of Procedures.
(iii) I order for confiscation of capital goods valued Rs. 107,10,54,801/-(A.V.) release of which has been obtained provisionally against bond, under Section 111(d), (o) & (m) of the Customs Act, 1962 for the contraventions mentioned above. However, I give an option to M/s. ESSAR to redeem the same on payment of redemption fine of Rs. 15,00,00,000/- (Rupees fifteen crores only) under Section 125 of the Customs Act, 1962.
(iv) I, impose a penalty of Rs. 5,00,00,000/- (Rupees five crores only) on M/s. ESSAR under Section 112(a) of Customs Act, 1962.
This order is issued without prejudice to any other action as may be initiated against M/s. ESSAR under any other provisions of the Customs Act, or any other law for the time being in force in the Republic of India".
2. The dispute arose on two counts. One that the appellant failed to meet the export obligation cast on it under EPCG Licence No. 2133217, dated 22-7-94 under Paragraph 38 of EXIM Policy 1992-97. The other that the value of the imported machinery should be enhanced and duty assessed after including into the value of the imported machinery, the amount paid to a foreign company towards licence and engineering charges including documentation, project handling work etc.
3. The appellant's defence is three fold. First that they had fulfilled their export obligation and therefore there was no occasion to raise any duty demand for failure to complete the export. They have referred to the letter dated 8-5-2003 of DGFT informing the appellant that "they had fulfilled the entire export obligation against the said licence". The second, relating to valuation of the equipment is that it is settled law that customs authorities should accept the valuation of the imported goods as approved under the EPCG licence and they are not to carry out valuation of the capital goods on their own. Reliance is placed on the decision of this Tribunal in the case of Jindal Vijaynagar Steel Ltd. v. Commissioner of Customs, Mumbai - 2001 (131) E.L.T. 667. The third contention is that order is entirely beyond the jurisdiction of the customs, inasmuch as export obligation is the responsibility of the Directorate General of Foreign Trade who issues EPCG licence and the customs have no concern with the matter. Reference is made in this connection to Para 115 of Chapter 6 (export promotion capital goods scheme) of Export and Import Policy 1992-97 of EXIM Policy.
4. We have perused the records and have heard the learned JDR also. We are entirely in agreement with the appellants. Their export obligation was under a licence granted to them by the Directorate General of Foreign Trade. The licence give accepted their claim that they had met the export obligation and issued letter dated 8-5-2003 intimating them of it. That matter is to end there. There cannot be multiplicity of authorities adjudicating the same issue.
5. The issue of valuation also cannot arise in view of the decision of this Tribunal in the case of Jindal Vijaynagar Steel Ltd. (supra). The facts of that case were somewhat identical to the facts of the present case. We held in favour of the assessee. We read Paras 5 to 10 of that order :-
"5. As per Notification 111/95 items of capital goods mentioned in the annexure to the licence issued under EPCG scheme are allowed import free of customs duty. For getting this benefit one has to see whether the goods imported are those mentioned in the licence. If so, their free import is without reference to the value. In such a situation the Customs are not to value the goods imported under the licence invoking the provisions contained in Section 14 of the Act and those in the Valuation Rules. If such an action is taken it will defeat the policy underlying the EPCG scheme and the exemption notification. Customs authorities are not to take action defeating the policy enunciated by Government and notification issued pursuant thereto.
6. As stated earlier various parts of machinery satisfying the term 'capital goods'/components of capital goods, covered by Notification 111/95-Cus., dated 5-6-1995 were imported by the company under 19 Bills of Entry. Goods covered by these Bills of Entry were specifically enumerated in the annexure to the licence granted under EPCG scheme to the appellant. Goods so imported were in terms of supply contract entered into between the company and the foreign supplier. It was in relation to the goods covered in the EPCG scheme, licence was obtained by the company. Prior to the completion of supply contract the company had concluded three contracts with foreign supplier. Those contracts were -
(a) Operation Licence Agreement - whereunder 42 million ATS was paid to the foreign supplier,
(b) Engineering Contract - evidencing payment of 236 million ATS to the foreign supplier, and
(c) Service Contract for various erection related services for a consideration of 118 million ATS, The amounts covered by these three contracts were taken by the Customs Authorities as payments made by the importer to foreign supplier over and above the value of the goods mentioned in the Bills of Entry. Consequently they took it that the value of the goods covered by the Bills of Entry must be loaded with the amounts covered by the abovementioned three contracts. The amounts covered by the three contracts came to 396 million ATS. When that amount is added to the value of the goods imported, authorities took the view that terms of the licence was violated. Consequently, they found that there was suppression of value of the goods and misdeclaration with intent to evade payment of customs duty.
7. Short question that arises for consideration is whether the approach made by the Commissioner in valuing the goods in terms of Section 14 of the Customs Act, by loading value with the amounts covered by the other three contracts is justifiable or not.
8. Government of India evolved a policy as Export Promotion Capital Goods scheme. As per that scheme an applicant was entitled to get a licence on fulfilling the conditions mentioned in the scheme. One who obtains licence for import of capital goods under the scheme was to discharge certain export obligations depending on the value of the goods imported. In terms of that policy the company, Appellant before us, applied for licence. In the application he made known to the Departmental authorities all the contracts entered into between it and the foreign supplier. On proper verification of the contracts entered into between the company and the foreign supplier, licence No. P/CG/2156090/C/XX/38/D/95 was issued on 14-11-1995. As per that licence various parts of "capital goods" mentioned in the annexure to it were permitted to be imported free of customs duty, as provided by Customs Notification 111/95. For clearing these goods covered by the licence, the Customs authorities are not to value them in terms of Section 14 of the Customs Act. Customs authorities are required to see whether goods imported were covered by valid licence and whether the terms of Notification 111/95, dated 5-6-1995 are satisfied. In an import covered by licence issued under EPCG scheme the Customs authorities are to verify whether the goods imported are specifically mentioned in the licence. If so mentioned, those goods are to be allowed to be cleared free of duty in terms of Notification 111/95. They are not to value those goods mentioned in the licence under Section 14 of the Customs Act to see whether the import exceeds the total value of the goods mentioned in the licence. Identical question came up for consideration before a Bench of this Tribunal in the case of CC, Bombay v. Reliance Industries Ltd., 1996 (62) ECR 62. In that decision, this Tribunal took the view that Customs authorities are to verify whether the goods are covered by contract or not and not to examine whether there was a misdeclaration to other authorities or not. This view expressed by the Tribunal has been upheld by the Apex Court in Collector of Customs v. Reliance Industries Ltd., 2000 (115) E.L.T. 15. According to their Lordships if import was in terms of import licence, Customs authorities are not to interfere with the import.
9. Learned Counsel representing the Revenue, contended that Customs authorities are having final authority to decide on the question of valuation of the goods imported and in arriving at the value the amounts paid by the importer to the foreign supplier otherwise than under supply contract must also be reckoned. In support of this argument, he relied on the decision of the Apex Court in CC v. Essar Gujarat Ltd. - 1996 (88) E.L.T. 609 and Associated Cement Companies Ltd. v. Commissioner of Customs - 2001 (128) E.L.T. 21. In those cases, the Apex Court was concerned about the valuation to be made of the goods imported under Section 14 of the Customs Act for levying customs duty. Their Lordships had no occasion to consider import of goods covered by any scheme under a licence wherein no duty was leviable. In this view of the matter, we hold that the above-mentioned two decisions of the Apex Court cannot be pressed into service by the Revenue to sustain the order passed by the Commissioner.
10. Revenue has no case that the goods imported were not capital goods covered by the Schedule attached to the licence granted under EPCG scheme. The goods so imported are treated duty free imports by the Government of India as per Notification No. 111/95, dated 5-6-1995. The goods so imported are not to be valued in terms of Section 14 of the Customs Act. Consequently the value of the goods imported cannot be loaded by adding the consideration paid by the importer under three other contracts. In case, authorities which are implementing EPCG scheme find that the importer spent more for getting the capital goods, he can be saddled with more export obligations. Customs authorities cannot impose duty on the ground that considerations under other three contracts have also to be reckoned in valuing the goods for purposes of assessment to customs duty. Commissioner has completely misdirected himself in passing the impugned order. We set aside the order in its entirety".
6. Under the Export Promotion Capital Goods Scheme, an exporter gives bank guarantee for the export performance, to the DGFT. That guarantee is released only after the obligation is fulfilled. In these circumstances, it is grossly improper for other authorities to start investigation of the matter. Therefore, these proceedings were entirely misdirected.
7. In the view we have taken above, the appeal succeeds and is allowed after setting aside the impugned order.
8. Before parting with the case, we feel compelled to observe as to how unnecessary and vexatious this proceeding was. All for a concessional import duty, the appellant had to execute bank guarantee for several crores of Rupees with the Directorate General of Foreign Trade. This guarantee was kept in force for about a decade. After the appellant had incurred those transaction costs and got itself released from the export obligation to the DGFT, Commissioner of Customs passed the impugned order imposing enormous duty and other burdens on the appellant and also holding threats of further proceedings. Sufficient to rattle business confidence in the appellants. This is clearly no way to promote export. Clear delineation of authority and responsibility in the area of export promotion between DGFT and Customs is necessary to eliminate double jeopardy for exporters as in the present case. Ministry of Commerce and Department of Revenue should draw the line and issue clear instructions. We, therefore, direct that a copy of this order be sent to Commerce Secretary and Revenue Secretary, Government of India.