Customs, Excise and Gold Tribunal - Mumbai
J.B. Impex vs Commissioner Of Cus. on 18 September, 2000
Equivalent citations: 2001(134)ELT210(TRI-MUMBAI)
ORDER G.N. Srinivasan, Member (J)
1. These bunch of appeals Nos. - Appeal No. C/245/2000-Mum, Appeal No. C/260-R/2000-Mum, Appeal No. C/489/2000-Mum, Appeal No. C/493/2000-Mum, Appeal No. C/495/2000-Mum, Appeal No. C/238-R/2000-Mum have been filed against the decisions of the Commissioner of Customs, Nhava Sheva, and the Commissioner of Customs (Import), Mumbai holding that the imported goods not as DRY GARLIC as claimed by the appellants but as GARLIC classifiable under Tariff heading 0703.20. The adjudicating authorities have imposed penalties and fine at various sums. In respect of Appeal No. C/495/2000 the goods were imported at a value of US$ 325 PMT but loaded to US$ 510 PMT on the basis of contemporaneous import.
2. The appellants before us have imported DRIED GARLIC (Chinese White). Some of the appellants have approached the Singapore sellers. At the time when the contracts were enterted into sometime in July, 1999, the position was reported to be that DEHYDRATED GARLIC POWDER, FRESH GARLIC and DRIED GARLIC were importable freely, in the sense they were coming under OGL category. This is clear from the policy provisions contained in page 55 of the paper book in Appeal No. C-260-R/2000 which reads as under:
Item 64 07129002 DEHYDRATED GARLIC POWDER Item 65 07129003 DEHYDRATED GARLIC FLAKES Item 66 07129004 DRIED GARLIC The DGFT authorities subsequently sometime in 17th September, 1999 have examined the matter by going into the question and have issued a clarification by their Policy Circular No. 32 (RE-99)/2000 of even date clarifying that "DRIED GARLIC" classified under EXIM code No. 071290.04 of ITC (HS) Classification, (97-02) would be treated as DRIED GARLIC provided the moisture content thereof does not exceed 10% irrespective of the method of drying. This policy circular was signed by one Dr. Smt. Pratima Dixit, Joint Director General of Foreign Trade with the approval of Director of General of Foreign Trade. On the basis of this circular, the customs authorities objected to the import of goods which were imported sometime in the last week of August, 1999 and for which contract were entered into much earlier and letter of credit were also opened much earlier. The Customs authorities issued various show cause notices proposing to take action under Sections 111(d), 111(m) and 112(a) of the Customs Act, 1962. The parties were heard. Goods were examined at first check basis and sealed samples were called for inspite of the group cleared after examining the samples. It was found that the moisture contents appear to be more than 10% by weight (Appeal No. C/260-R/M/2000 MUM). (In respect cases of Appeal Nos. C/238-R/2000-MUM, and C/495/2000 MUM, no test was made). On the basis of the representations and the personal hearing the adjudicating authority viz. Commissioner of Customs, confirmed show cause notice and held that there was violation of Sections 111(d) and (m) read as it with Section 3(3) of the Foreign Trade (Development & Regulation) Act, 1992. In the impugned orders the lower authority had imposed penalties at various sums and also imposed redemption fines at various quantum. Hence these appeals.
2. S/Shri V.S. Nankani, Anil Balani, J.C. Patel, Shri Naresh Thakkar, Advocates, V.K. Jain, Chartered Accountant, appeared for the appellants and Shri K.M. Patwari, ld DR appeared along with Shri Gaitonde, ld. DR appeared for the Department.
4. It is the contention of the appellants that at the time when the appellant had entered into contracts import of the DRIED GARLIC the same were under the OGL (Open General License) which could be imported freely. They cited the relevant policy provisions mentioned below :-
(I) DEHYDRATED GARLIC POWDER (II) DEHYDRATED GARLIC FLAKES (III) DRIED GARLIC They have opened letters of credit in pursuance of the said import contracts sometime in July, 1999. The shipments were made in the last week of August, 1999. The Bills of Entries in respect of these import were filed sometime in October, 1999. The arguments of the appellant are in the following lines. At the time of entering into contract the goods were freely importable. The condition of certain percentage of moisture content was not there in the Policy without DRIED GARLIC were dried in the course of International Trade and confirmed letter of credit were opened and the shipment have already taken place. The DGFT authorities purported to change or imposed certain conditions in respect of the DRIED GARLIC by fixing moisture contents at a certain percentage after the shipment. It is further contended by the appellants that the proposed action of the DGFT is not warranted by law and the Customs authorities trying to follow certain purported clarification given by the DGFT authorities was illegally wrong in applying the said classification in respect of the import of the goods. It is further contended that the Customs authorities were wrong in putting the cases under Clause (d) of Section 111 of the Customs Act, 1962. It is argued by the appellants further that the goods were always traded in a normal commercial international transactions as a DRIED GARLIC and it is emphasised that what is treated as a DRIED GARLIC in the trade parlance should be accepted. It was never in the contemplation of the parties that the moisture contents would be relevant for parties of categorising or classifying their goods viz. DRIED GARLIC. This product under the category of DRIED GARLIC coming within the Tariff Entry 0712.90. Even HSN notes under the said chapter heading does not provide for moisture content as one of the criteria. The following is the subheading chapter notes, which reads as follows :-
"This heading covers vegetables of headings 07.01 to 07.09 which have been dried (including dehydrated, evaporated or freeze-dried) i.e. with their natural water content removed by various processes. The principal kinds of vegetables treated in this way are potatoes, onions, mushrooms, trifles, carrots, cabbage and spinach. They are usually prepared in strips or slices, either of one variety or mixed (julienne)."
It only refers to "natural water content" being removed by various process. It does not prescribed in limit of certain percentage either more or less than at a particular quantum. The fixation of 10% without indicating how it should be calculated and recommended 10% by the DGFT is vague. It is therefore argued by the appellant that action of Customs authorities was wrong in law. They argued and stated that reliance on 10% water content in respect of the goods is delightfully vague. They argued that reference 10% of what denomination? Or it by weight? Is it by volume? The entire approach of the DGFT authorities to say the least puts the entire trading community in a state of confusion. When this is the position argue the parties before us that how the customs authorities can treat the import of the goods as a violation of Sections 111(d) and (m) of the Customs Act, 1962. It is further argued that clarification issued by the DGFT, even if it is admitted to be change the policy, without admitting, it can not be applicable in a retrospective way. It is emphasised by the appellants before us that the contracts were entered into on the basis of the policy provisions existing then. There was no impediments or limitation as to the moisture content in respect of the goods in the policy which are under consideration. To impose certain conditions when the goods were on high seas is a very serious consequence. In this connection they also referred to the provisions of Section 5 of the Foreign Trade Development and Regulation Act, 1992 which states that the Central Government, may from time to time, formulate and announce by notification in the official Gazette export and import policy and may also in like manner amend the policy. Here admittedly the policy clarification has been issued on 17-9-1999, signed by JDFT with the approval of DGFT. It was stressed that the said letter was only clarifies the position. It is argued that if the designated authority which had notified the policy had made the clarification then the picture may be treated in a different way and favour to the Government. Here the policy which is not amended in terms of Section 5 of the Foreign Trade and Development Act, 1992 could not be applied in the manner prejudicial to the interest of the appellants. It is argued forcefully that the clarification could not have affected on the imported goods. It was further emphasised that certain pamphlets have been produced to Holster their case. One such pamphlet is "EU QUALITY STANDARDS FOR FRESH FRUITS AND VEGETABLES under the Europe regulations. Definition of produce have been mentioned under the "common quality standard for garlic regulation" 228897 under that certain definitions have been mentioned regarding dried garlic, semi dried garlic and green garlic. We do not find any moisture contents referred to therein. It is reproduce below :-
DEFINITION OF PRODUCE "This standard applies to garlic of varieties (cultivars) grown from Allium Sativum L. to be supplied fresh (1), semi-dry (2) or dry (3) to the consumer, green garlic with full leaves and undeveloped cloves and garlic for industrial processing being excluded.
(1) 'Fresh garlic' means produce with a 'green' stem and with the outer skin of the bulb still fresh.
(2) 'Semi-dry garlic' means produce with the stem and the outer skin of the bulb not completely dry.
(3) 'Dry garlic' means produce in which the stem, the outer skin of the bulb and the skin surrounding each clove are completely dry".
They also cited certain decisions which we have referred.
5. As against this learned DR would argue that limitation has to be by means of the policy laid down by DGFT authorities. He states that a clari-ficatory nature of a written instruction will have retrospective angle inasmuch as what was intended by the DGFT authorities have been clearly stated in September, 1999 communication. In this connection he also submitted IS:5452-1969 UDC 664.5 : 635 : 252 standard specification at para 3.8 provides for chemical requirements moisture content referred to percentage by weight. He also heavily relies on the lower authorities order.
6. We have considered the rival submissions. When we consider the facts of this case, it will be clear that the contracts were entered into sometime in July 1999. The letters of credit were opened in pursuance thereof sometime in August 1999. Shipments have taken place in August 1999. Certain clarifications have been issued by DGFT on 17-9-1999. Bills of entry were filed in October 1999. The question is whether the communication dated 17-9-1999 send by Jt. DGFT would be applicable to the facts of this case and whether such a communication issued by DGFT would amount to change in the EXIM policy. If it is so then whether the valuation of the goods could be changed.
7. Let us take the Foreign Trade Development Regulation Act, 1992. The said Act was passed by Parliament to provide for the development and regulation of foreign trade by facilitating import into, and augmentic exports from India. Section 3 of the Act provides for making of Order by the Central Government to provide for development and regulation of foreign trade by facilitating imports and increasing the exports. Section 5 of the said Act which provides for formulation and announcement by notification in the Gazette of the Export and Import Policy. It is only the Central Government which has been designated authority for formulation of the policy. Section 6 of the Act provides for appointment of a person to be DGFT for purpose of the Act and for advising the Central Government in the formulation of the Export and ImporWolicy and he shall be responsible for carrying out that policy. The relevant policy in para 4.13 thereof which reads are as under :-
"If any question or doubt are arises in respect of the interpretation of any provision content in this policy or regarding the classification of any item in the bookl titled ITC (HS) Classification of Export and Import Items", the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding."
If any question or doubt arises whether a licence has been issued in accordance with this policy or if any question or doubt arises touching upon the scope and content of licence, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding."
From the above it will be clear that the interpretation could be given by DGFT whose decision shall be finalised and binding only if any question or doubt arises hence, if we see the policy provisions it says only after any question or doubt arises then DGFT could give certain interpretation. Communication dated 17-9-99 issued by Jt. DGFT does not state as to how doubt has arisen nor does it state as to how any question has arisen. The Customs authorities also did not state as to whether any question was referred by the appellants or the Customs authorities to the DGFT for interpretation of the policy. It is nobody's case that a doubt has been arisen in the minds of the appellant in respect of the DRIED GARLIC. Therefore the reliance of paragraph 4.13 of the Policy for purpose of this case in our view is wrong is law. As stated earlier the appellants have not referred the case to DGFT nor the Customs authorities, only if the answer is in the affirmative then the interpretation given by DGFT may be binding on them. All along the case of the appellant was that at the time of entered into contract of import DRIED GARLIC it was a freely importable item without any words of limitation regarding a moisture content by volume or otherwise. The HSN clarification no doubt speaks of natural water content being removed but it does not speak of any percentage or by volume. Here the appellants placed orders on the foreign sellers for the purchase of dried garlic. The nature of the commodity has been certified regarding the origin thereof by the respective chambers of commerce. The shipment had taken place in August, 1999 the clarification given by the JDGFT on the approval of DGFT was made on 17-9-1999. It can not be treated as an amendment of the policy in terms of Section 5 of the Foreign Trade Development and Regulation Act. As stated earlier DGFT can only advise the Central Government regarding formulation of the policy and the policy can be decided only by the Central Government that means of the President of India or the Central Government in terms of Section 3(8) of the General Clauses Act. JDFT can never rise herself to the position of Central Government nor does DGFT can raise himself to that of Central Government. It may be another matter as to whether Central Government can change the policy under the circumstances because that is not the question before us in these cases. In our view therefore the action of the Customs Authorities in treating the cases on hand as coming within Section 111(d) of the Customs Act is wrong in law. Once a particular matter comes within OGL category there can not be any violation of Section 111(d) of the Customs Act, 1962.
8. The FRESH GARLIC, it may be clarified under that they come under fall under 0703.20 garlic is a restricted item in terms of policy. Here DRIED GARLIC has been treated as 0701.90. Therefore equating the present goods as a fresh garlic is wrong in law. The decisions cited by the appellants viz.
(i) Enterprise International Ltd. v. Collector of Customs. [1994 (69) E.L.T. 453 (Cal.)]
(ii) ITC Ltd. v. CCE (Appeals), Madras [1994 (69) E.L.T. 458 (Mad.)]
(iii) State ofMizoram v. Biakchhawna [1995 (1) SCC 156.]
(iv) CC, Bombay v. East Punjab Traders [1997 (89) E.L.T. 11 (S.C.)] [Para 7]
(v) Chandra Kishore Jha v. Mahavir Prasad [1999 (8) SCC 266] before us are not at all relevant for purpose of this case and we find that on other grounds the appellants have made a good case. We are therefore of the view that the action of the DGFT authorities, introducing the certain conditions in respect of the DRIED GARLIC by means of a moisture content putting in a delightfully vague way is absolutely wrong in law. Even the ISI specification submitted by the ld. DR refers to only DEHYDRATED GARLIC that is ISI specification 5452-1969. It is not referred to as DRIED GARLIC but only for Re-hydration. In para 3.7 thereof, there is reference to DEHYDRATED GARLIC is entirely different from DRY GARLIC. The communication dated 18-8-1999 issued by National Horticultural Research and Development Foreign Trade, Nasik state that the definition of dry garlic is normally used for DEHYDRATED GARLIC. This is completely destroys the case of the department. It is because dry garlic cannot be equated to dehydrated garlic. We are therefore of the view the action of the DGFT as well as the Customs authorities are not supported by law. Hence the appeals are allowed setting aside the impugned order with consequential relief if any according to law.
9. As far as the valuation is concerned in Appeals No. C-495-R/2000-MUM, C/489-R/2000-MUM, C/493-R/2000-MUM and C/245-R/2000-MUM, the contention of the appellants are that the Customs authorities have sought to revise valuation without any material and without discussing the grounds on which such loading of value is being made to the transaction value. It is fundamental that whenever valuation is sought to be revised the comparable prices of the commodities, quantities, the quality, the relationship between buyer and seller, the prevailing market conditions and the any substantial conditions which may be present in respect of the compared price and comparable prices. All these matters have to be looked into. After all transaction value has a primacy in the customs valuation. No doubt in terms of Section 14 of the Act, it is only a deemed value. Particulars mentioned above have to be harmonised and compared with reference to each particular case. The particulars have to be given to the importer so that his reply has to be taken into consideration and discussed in the impugned order. These are absent in these cases. Therefore the valuation which has been sought to be revised by the Customs authorities, in these cases are also wrong. Hence all the appeals are allowed with consequential relief if any.
S.S. Sekhon, Member (T) I have gone through the order of my ld. Brother and I would like to record :
(a) The Department has classified the goods under 0703.20 by relying on Jt. DGFT Circular dated 17-9-1999 which prescribes moisture limit of 10%. I find that HSN Notes under 0712 prescribe that dried vegetables, dried by any process which would include process of sun drying as in their OGL, would be classifiable under 0712, if the normal natural moisture content of such vegetable including garlic has been reduced up to almost zero by dehydrating them. Thus if the subject vegetable is known and understood in commercial parlance as a dried vegetable, it would not be fresh vegetable classifiable under 0703.20. Even though garlic is specifically mentioned under 0703, by reading the heading notes of the HSN under 0703, and 0712, it would be apparent that when the item is not understood as green garlic or /and fresh garlic it is treated as dried garlic then it will not be classified under 0703 but would be classified under 0712.
(b) The Policy Circular clarification dated 17-9-1999 has been commented by my ld. Brother and to which I agree. By a Policy Circular, by invoking the interpretation powers under para 4.13 of the Policy an amendment to the HSN heading notes cannot be introduced. I see, this Policy circular to be doing the same in a delightfully vague manner and therefore I do not find this clarification to be applicable at all. It does not set the unit parameters by referring to which 10% limit could be determined, therefore implementing the same by 10% by weight is not called for. It is also not issued under the provisions of para 4.13 of the Policy, as a plain reading of the clarification would exhibit. Therefore this clarification should be ignored as it cannot be implemented.
(c) I find, that commercial parlance test is the best test for classification of the goods, when not artificially defined by law. That has to be followed in this case. The Garlic under import is understood as 'Dry' by Exporters in China, Singapore and Importers in India, and the Trade Bodies as per certificates produced. If it is the intention to prohibit import of garlic with moisture content more than 10%, then by law, that is under Section 5 read with para 1.3 and 4.1 of the Export Import Policy the Central government should issue an amendment to the Policy by creating a new sub-heading. Only thereafter such items could be considered to be in the restricted list. Since, no such Notification has been issued by the Central Government, the subject goods imported which are understood as Dry Garlic by the persons dealing with the same would be binding. Their classification should be under 0712.90.40 of ITC HSN Classification of the Import Policy and 0712.90 of the 1st Schedule to Customs Tariff Act, 1975.
With these observations, I would also order the acceptance of these appeals and allow the same on all grounds. As I agree also to the findings as arrived at by my ld. Brother. The appeals disposed of in the above terms.