Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs M/S Global Exim on 22 May, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT - I
Appeal No.C/11278/2014-DB (C/Stay/12019 & 12021/2014)
Arising out of: OIA No.128/2014/Cus/Commr(A)/AHD, dt.24.03.2014
Passed by: Commissioner of Customs (Appeals), Ahmedabad
For approval and signature:
Mr.M.V. Ravindran, Honble Member (Judicial)
Mr. H.K. Thakur, Honble Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant:
M/s Global Exim.
Respondent:
CC Ahmedabad Represented by:
For Assessee: Shri Hari Shankar, Adv.
For Revenue: Shri Manoj Kutty, Superintendent (AR) CORAM:
MR.M.V. RAVINDRAN, HONBLE MEMBER (JUDICIAL) MR. H.K. THAKUR, HONBLE MEMBER (TECHNICAL) Date of Hearing:21.04.2014 Date of Decision: 22.05.2014 Order No. A/11012/2014, dt. 22.05.2014 Per: M.V. Ravindran Appeal No. C/ 11278 /2014
1. In this appeal the core issue relates to eligibility for duty exemption in connection with import of Patchouli Oil imported by the appellant under a transferable duty free import authorization dated 16.06.2011 (DFIA for short) in terms of the Notification No. 98/2009-Cus.dated 11.9.2009. The DFIA was issued to the exporter on the basis of SION E-1 for Assorted Confectionary. Having completed the export obligation, on 24.11.2011, the exporter (authorization holder) obtained endorsement of transferability from the Regional Licensing authority on the said DFIA in terms of para 4.2.6 of the Foreign Trade policy. The transferrable DFIA was thereafter transferred to the appellant. The appellant being a bona fide transferee sought duty free clearance of Patchouli Oil imported by it. In the list of permissible inputs in DFIA natural essential oils is mentioned. Pachouli Oil being the natural essential oil, the appellant sought its duty free clearance against the DFIA referred to above. The fact that Patchouli Oil is an essential oil is not in dispute. The duty free clearance was however denied by putting conditions. Appeal filed by the appellant before Commissioner (Appeals) was dismissed.
2. Following background facts are relevant for deciding the issue:-
2.1 The appellants presented a Bill of Entry No.4257982, dt.03.01.2014 for duty free import of Patchouli Oil Light J871, under a Transferable DFIA dated 16.6.2011 permitting duty free import inter- alia of Essential Oil. The exemption in the DFIA was against export product Assorted Confectionery, which were already exported by the License Holder and the Transferability was endorsed on the license. According to the appellants, Patchouli Oil is Essential Oil, which is not disputed by the Revenue.
2.2 Dy.Commissioner of Customs, however, sought clarifications from the appellant in his query memo dated Nil which is reproduced below:-
Item sensitive as per FTP HBP 4.32.2. PLS Correlate of Technical Specification with Export Product to be produced as mentioned in DFIA License. Documentary evidence not submitted than DFIA benefit will be denied. Certif. of analysis given by the suppliers and also submit for alcoholic permit required or not. Pls. Specify 2.3 The appellant explained that-
(i) Patchouli Oil is a well known food flavor used in various food products including assorted confectionary items.
(ii) The DFIA does not have any condition against the input item Essential Oils to stipulate that Patchouli oil is not permitted for import as per the provisions of Para 4.32.2 of Hand Book. Patchouli oil is not appearing specifically under Para 4.32.2 Hand Book of Procedures (Vol.I) of the Foreign Trade Policy, (sensitive list) as Resultant Product.
(iii) The First Proviso to the condition (i) of the notification no. 98/2009-Cus clearly states that- Provided that in respect of resultant product specified in paragraph 4.32.3 of the Hand Book of Procedures (Vol.I) of the Foreign Trade Policy, the materials permitted in the said authorisation or a duty free import authorisation for intermediate supply, as the case may be, shall be of the same quality, technical characteristics and specifications as the materials used in the said resultant product: Therefore the mandate to correlate the specifications is applicable only when the resultant product is specified in the sensitive list.
(iv) The resultant product in this case is confectionary which does not figure in the sensitive list. Therefore the fact that sensitive list mentions Essential oils cannot be a ground to demand establishing correlation between the imported inputs and those actually used in the export product.
(v) On the basis of the technical literature it was also clarified that alcoholic permit is not required in this case since the naturally present alcohol in the Pachouli oil is, tri cyclic tertiary sesquiterpene, which is not Ethyl Alcohol.
(vi) The mandate contained in the Public Notice No. 35 (RE-2013)/2009-2014 dated 30.10.2013, requiring the importer to furnish an undertaking to confirm the actual use of Patchouli Oil in the export product is not applicable to the present case of the appellant since the DFIA in question was issued prior to DGFT Notification No. 31 dated 1/8/2013.
(vii) The notification no. 31 amends the Policy from 01.08.2013 and will be applicable prospectively and not to the DFIAs which were issued prior to 01.08.2013. This is so for the reason that as per provisions of Para 4.2.2 (b) of the FTP a DFIA is issued in accordance with Policy and procedure in force on date of issue of authorization. Consequently the right to import inputs which are required for use, without establishing the actual use in the resultant product, which accrued on the date of issue of the DFIA on 16.06.2011 remains protected.
2.4 The Deputy Commissioner Air Cargo Complex, passed an order-in-original dated 09.03.2014 against the appellant by denying exemption.
2.5 The Commissioner Customs (Appeals) vide the impugned order-in-appeal dated 24.03.2014 dismissed the appeal and denied the exemption.
2.6 The claim of exemption by the appellant has been rejected by the lower authorities on the following premises
(i) The importer was required to get the information from the original licence holder about input utilization.
(ii) The contention of the appellant that the correlation between the imported inputs and that used in the export product is not required is not tenable for the reason that the DGFT has the power to exclude any item from the provisions of the DFIA through circulars and Public notices.
(iii) Public Notice 35(RE2013)/20019-2014 dt.31.10.2013 issued by the DGFT cannot be assailed by the appellate authority which says that only those inputs shall be allowed which were used in the export product.
(iv) The argument of the appellant that when the DFIA was issued and made transferable the Public Notice was not in existence and therefore the same cannot be applied to the imports under the said DFIA is not acceptable since Para 2 of the DGFTs Public Notice 35 dated 31.10.2013 states that in case where exports are fully or partly completed before 01.08.2013, the corresponding import of inputs which were actually used in the export product shall be allowed subject to the undertaking from the authorization holder.
(v) The Patchouli Oil is capable of being used in Manufacture of confectionary items. However, actual use is required to be established as stipulated in the Public Notice 35.
2.7 Aggrieved by the same the appellants are before us in the instant appeal.
3. Both sides were heard at length. We have carefully perused the records before us. Our attention was drawn by both sides towards various Notifications, Circulars, Public Notices and precedents which we have taken into consideration. The appeal has been taken for hearing out of turn for the reason that the case relates to a live consignment and the issue is of recurring nature.
3.1 Whether Patchauli Oil is capable of being used in food industry in Assorted Confectionery:
3.2 The appellant has invited attention inter alia to the following technical literature placed on record-
I. Fenarolis HANDBOOK of FLAVOR INGREDIENTS Volume I The reported uses of Patchouli Oil in this Handbook are as follows:
Reported uses Patchouli Oil Baked goods 2.21 ppm Frozen diary 2.12.ppm Meat products 0.10 ppm Soft candy 2.18 ppm Gelatin, pudding 1.14 ppm Nonalcoholic beverages 1.01 ppm Alcoholic beverages 1.01 ppm Hard candy 758.0 ppm Chewing gum 1137. ppm II. Encyclopedia of common natural ingredients used in food, drugs, and cosmetics: The said encyclopedia inter alia gives the following uses of Patchouli oil-
Food. Patchouli oil is extensively used as a flavor ingredient in most major food products, including alcoholic and nonalcoholic beverages, frozen diary deserts, candy, baked goods, gelatins and puddings, and meat and meat products. Use levels reported are generally very low, mostly below 0.0002% (2.21 ppm) III. Perfume and Flavor materials of natural origin The said book gives inter alia the following uses of Patchouli Oil-
In flavors, patchouli oil once was widely used in the Sen-Sen type of licorice flavoring, combined with geranium, ionones, orris extracts, nitromusks, anise, clove, etc.,, it produced a very heavy Oriental flavor, popular as a masking agent for alcoholic breath, onion or garlic odors, etc. as a after-dinner candy. 3.3 Moreover, it is seen that the Learned Commissioner of Customs (Appeals), Ahmedabad has recorded following specific findings in the impugned order-in-appeal dated 24.03.2014- 12 The adjudicating authority has ruled that Patchouli Oil is not even usable in confectionary on the ground that FDA Lab did not test the samples stating that the goods are not edible, which has been vehemently objected to by the appellant and they have furnished myriad of write ups and literature indicating use of Patchouli Oil in confectionary. Having examined that literature. I am convinced that Patchouli Oil are capable of being used in the manufacture of confectionary.
4. This finding of the Commissioner (Appeals) has not been disputed before us either orally or by filing cross-objection or otherwise. We are even otherwise convinced on the basis of the aforesaid material on record that Patchouli Oil is capable of being used as an input in Assorted Confectionery.
5. A perusal of the DFIA shows that while issuance thereof no endorsement was made on the same by the office of DGFT restricting the scope of Item Essential Oil, so as to exclude from its ambit and scope Patchauli Oil which, admittedly, is also an Essential Oil. Thus, neither the SION norms nor the DFIA imposes any specific restriction on the type of Essential Oil. It is seen and is undisputed that Patchouli Oil is capable of being used as an input in the manufacture of Confectionery. Since it is established that the imported goods are covered under the scope and ambit of permissible item Essential Oil, and also that it was capable of being used in the manufacture of Confectionery, it is now to be seen whether exemption could still be denied only on the ground as taken in the impugned Order-in-appeal, such as nexus and Public Notice no. 35 dated 30.10.2013.
6. We have considered the following notifications, public notices and policy circulars-
Notifications issued under section 5 of FTDR Act:
1. DGFTs notification no.31 (RE-2013)/2009-14 dated 01.08.2013 amending the Foreign Trade Policy with effect from 01.08.2013, by insertion of para 4.1.15 in FTP, and amending para 4.2.3 by adding phrase 4.1.14 and 4.1.15 in place of and 4.1.14
2. Notification 48 (RE-2013)/2009-14 dt. 30.10.2013, amending Para 4.1.15 of the Policy by amending para 2 of earlier Notification 31 of 1.8.2013.
DGFT Public Notices:
DGFTs Public Notice 35 (RE-2013)/2009-14 dated 31.10.2013 regarding applicability of para 4.1.15 inserted by Notification 31 dt. 1.8.2013 Policy Circulars:
1. Policy Circular no 72 (RE-2008)/2004-09 dated 24.3.2009- 2. The matter was examined in detail and it has been decided to clarify to all concerned that since the objective of SION is to allow duty free import of the inputs which are actually used or are capable of being used in the export product, the exporter has the flexibility to import the alternative input / product mentioned in the SION.
2. Similar Policy Circular 30 (RE-05)/2004-09 dt. 10.10.2005 in DFRC scheme
3. Policy Circular 3 (RE-2013)/ 2009-14 dt. 2.8.2013 concerning Withdrawal of Policy Circular 30 dt. 10.10.2005 concerning alternative inputs.
7. It is settled law as held by the Honble Bombay High Court in the matter of Narendra Udeshi 2003 (156) E.L.T. 819 (Bom.) that by way of Circulars and Public Notice, restrictions and prohibitions in imports under licence cannot be imposed. The said judgment was upheld by the Honble Supreme Court in U.O.I. v. Narendra Udeshi - 2003 (158) E.L.T. A275 (S.C.). Further, in Sandur Micro Circuits Ltd., 2008 (229) E.L.T. 641 (S.C.) it was held that-
5.?The issue relating to effectiveness of a Circular contrary to a Notification statutorily issued has been examined by this Court in several cases. A Circular cannot take away the effect of Notifications statutorily issued. In fact in certain cases it has been held that the Circular cannot whittle down the Exemption Notification and restrict the scope of the Exemption Notification or hit it down. In other words it was held that by issuing a circular a new condition thereby restricting the scope of the exemption or restricting or whittling it down cannot be imposed
8. Regarding the Public Notice no. 35 dated 30.10.2013, it is seen that it seeks to enlarge the scope of Notification no.31 (RE-2013)/2009-14 dated 01.08.2013 amending the Foreign Trade Policy with effect from 01.08.2013, by insertion of para 4.1.15 in FTP, and amending para 4.2.3 by adding phrase 4.1.14 and 4.1.15 in place of and 4.1.14. It is seen that in Union of India vs Asian Food Industries, 2006 (204) E.L.T. 8 (S.C.), the Honble Supreme Court was pleased to hold as follows-
48. ...Prohibition promulgated by a statutory order in terms of Section 5 read with the relevant provisions of the policy decision in the light of sub-section (2) of Section 3 of the 1992 Act can only have a prospective effect. By reason of a policy, a vested or accrued right cannot be taken away. Such a right, therefore, cannot a fortiori be taken away by an amendment thereof. Further, in Soubhik Exports Ltd, 2007 (214) E.L.T. 334 (Cal.) the Honble High Court also on the same lines held that-
19.?Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 does not authorize the Central Government to amend the Export and Import Policy with retrospective effect In exercise of the powers conferred under section 5 of the Foreign Trade (Development and Regulation) Act, 1992, the policy can be amended. However any oppressive amendment to the Policy is applicable only prospectively, as repeatedly held by Courts that the Government has no powers under the section 5 of the FT (D&R) Act, to amend the policy retrospectively. In our view, even in the context of Public Notices, the ratio laid down by the Honble Apex Court in Narendra Udeshi (supra) and Sandur Micro Circuits Ltd (supra) will apply in full force. When we are faced with a situation of choosing between these decisions and the provisions amended after issuance of DFIA read with subsequent Public Notices, the binding precedents of higher judicial fora needs to be given precedence and followed. However, as against the said binding precedents, the Public Notice no. 35 dated 31.10.2013 seeks to apply the Notification no. 31 dated 1.8.2013 retrospectively, to make the conditions applicable, even to the licenses issued prior to the amendment. We are bound by these binding precedents and we cannot ignore them to deny exemption to item covered under the DFIA issued prior to amendment.
9. We also find support for the above view from the decision of the Honourable Bombay High Court in the case of A.V. Industries Versus Union of India, 2005 (187) E.L.T. 9 (Bom.), which inter alia held that, When import is in accordance with import licence issued to petitioner, department cannot take shelter under import policy and purport to take action against importer.
10. Moreover, Para 4.2.2(b) of Foreign Trade Policy stipulates that DFIA shall be issued in accordance with Policy and procedure in force on date of issue of Authorisation. We are therefore not impressed by the submission of the Revenue that the position as prevailing on the date of clearance would govern imports under valid licence. The Appellant, who are transferee, cannot be compelled to establish that Patchauli Oil was actually used in the manufacture of the Confectionery which had been exported against the DFIA. The provisions of Notification No. 31 dated 1.8.2013 (as amended) will not be applicable to such DFIA issued in 2011 i.e. issued prior to amendment. Consequentially any policy circular or public notice, if seeks to deny the exemption which is otherwise available in the instant imports, will also have no applicability for the same reason.
11. In Aditya Birla Nuvo Ltd vs CC, 2010 (249) E.L.T. 273 (Tri. - Bang.), this Tribunal, while relying on various precedents of the Honble Supreme Court and Honble High Court held as under-
8.6?We now take up next issue framed by us i.e., issue (g) for discussions.
(g) Whether the appellant has failed to establish nexus as envisaged in advance licensing scheme?
The instant case relates to imports under license issued for actual user condition by the license to the license holder. It is no longer res integra and is a settled law that nexus between the imported materials and export product, is not required to be proved fresh by the transferee/licensee once imported material is otherwise covered by the advance license and the benefit of exemption notification would be available. In Commissioner v. Goodluck Industries - 2000 (120) E.L.T. A66 (Supreme Court), the Honble Supreme Court upheld the Tribunals judgment in Goodluck Industries v. Commissioner - 1999 (108) E.L.T. 818 (Tribunal) laying down the said ratio, and on merits dismissed the same appeal filed by the Commissioner of Customs, Calcutta against the same. In Jayant R. Patel v. CC, Hyderabad - 1997 (89) E.L.T. 164, the Tribunal held that the duty free import entitlement are not to be proved again by the exporter or the transferee of license once advance license is granted and vide Commissioner v. Jayant R. Patel - 2003 (155) E.L.T. A68 (S.C.), the Revenues appeal against said judgment was dismissed. In CC, Chennai v. Salem Stainless Steel - 2001 (131) E.L.T. 30 (Mad.), the Honble Madras High Court held that nexus need not be established because the question of nexus would arise only when obligation of the exporter exists and the petitioner as a purchaser of the licenses after discharge of the obligation of export is not required to establish the nexus. The Honble Supreme Court in the matter CC (Imports), Mumbai v. Hico Enterprises - 2008 (228) E.L.T. 161 (S.C.) held that the Customs Department cannot compel the appellant-importer who are the transferee to once again prove that the export obligation has been fulfilled by the original license holder in accordance with the notification.
With this clear exposition, it is emphatically clear that in case of transferable license the nexus between the imported material and export product is not required to be proved afresh by the transferee/importer, once the imported material is otherwise covered by the advance license. In view of this authoritative judicial pronouncement, the department cannot now loosely interpret the provisions under scheme by reading several contrasting instructions issued from time to time in Notification as 4/93 4-3-1993, 1/94 dated 5-1-94, 34/94 12-12-94, 11/95 dated 15-2-1995 and thereafter superseded by 36/97-Cus., dated 16-9-1997, in a manner out of the context or contrary to these authoritative judicial pronouncement, only to deny the exemption benefit granted by the license. Merely because in the instant case, licenses are not transferable, it does not mean that the customs authorities are permitted to go beyond the license to deny exemption benefits. In the instant case, the specifications of the goods imported are squarely covered by the advance license issued by the licensing authority. The appellant has thus established a nexus as envisaged by the advance licensing scheme. We find that the theory of broad nexus is thus settled by Honble Apex Court and has been followed by the Tribunal. The import being against the transferred DFIA, and broad nexus stands established, it is not necessary for the Transferee to further establish that the material imported was actually used in the export product.
12. Moreover, we have also noted provisions of para 4.32.2 of the HBP, which is as follows-
However in respect of following items, exporter shall be required to give declaration with regard to technical characteristics, quality and specification in shipping bill. RA while issuing DFIA shall mention technical characteristics, quality and specification in respect of such inputs:
Alloy steel including Stainless Steel, Copper Alloy, Synthetic Rubber, Bearings, Solvent, Perfumes/ Essential Oil/ Aromatic Chemicals, Surfactants, Relevant Fabrics, Marble, Articles made of polypropylene, Articles made of Paper and Paper Board, Insecticides, Lead Ingots, Zinc Ingots, Citric Acid, Relevant Glass fibre reinforcement (Glass fibre, Chopped / Stranded Mat, Roving Woven Surfacing Mat), Relevant Synthetic Resin (unsaturated polyester resin, Epoxy Resin, Vinyl Ester Resin, Hydroxy Ethyl Cellulose), Lining Material [Emphasis supplied]
13. It is seen that in the said Para 4.32.2, the obligation of declaration is cast on the exporter to be fulfilled at the time of exports, and also on the Regional Authority to be performed at the time of issuance of DFIA. As per the Policy and Procedure prevailing on the date of issuance of DFIA, no obligation whatsoever has been imposed thereafter on a Transferee Importer, who imports under a Transferrable DFIA / license, except to show broad nexus. We have also noted the CBEC Circular 46/2007-Cus dated 20.12.2007, and find that nothing more can be construed from the same. Further, in the appellants own case in Commissioner v. Global Exim, 2010(259)A139 (Bombay High Court), it was observed that-
4.?According to the Revenue, a co-relation of technical characteristics, quality and specification is required to be established in respect of bearings sought to be imported that the bearings were actually used in the resultant product.
5.?The Tribunal did not agree with the submissions made by the Revenue which were pressed into service by Revenue before the Tribunal and rejected them making following observations :
Having allowed export of motors with input specifications as bearings upto 50 mm bore, it may not be appropriate for the customs authorities to insist on technical specifications at the time of import of bearings. Further we also find that specifications provided in the DFIA authorisation have to be considered as sufficient for the customs purposes since the specifications are based on goods exported under a shipping bill. Therefore the responsibility to ensure that exporter gives a proper declaration while making exports in the shipping bill lies on both customs as well as DGFT authorities and having missed the bus at the time of export, it may not be correct to insist on specifications from a transferee of DFIA. Further we also take note of the fact that DGFT is supposed to ensure that all the requirements have been fulfilled before allowing transferability.
6.?The above findings recorded by the Tribunal is based on the documentary evidence. Even during the course of hearing, the learned counsel appearing for the Revenue was unable to point out from any of the documents available on record that the import was not in accordance with the licence conditions or the specifications provided therein. The view taken by the Tribunal is in accordance with the law laid down by this Court in the case of A.V. Industries v. Union of India, 2005 (187) E.L.T. 9 (Bom.) to which one of us (V.C. Daga, J.) is party. The Appeal is therefore dismissed for want of substantial question of law with no order as to costs. We are bound by the said precedent. The License Amendment Sheet dated 23.11.2011 (at page 24) at Sr. no. 4 mentions the modified Import Item as Essential Oils without any further restriction as to its description or classification. Patchouli Oil being admittedly covered under the scope of the permissible input Essential Oil mentioned in the transferrable DFIA, the appellant is entitled for duty exemption under Notification No. 98/2009-Cus.dated 11.9.2009, without insisting on specifications, being a transferee of DFIA.
14. In view of the foregoing findings and authoritative judicial pronouncements, the appeal is allowed with consequential relief. The Respondent is directed to assess the Bill of Entry as per directions recorded hereinabove within seven days.
15. Since we have disposed of the appeal itself stay petitions also stands disposed of.
(Pronounced in Court on 22.05.2014)
(H.K. Thakur) (M.V. Ravindran)
Member (Technical) Member (Judicial)
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