Customs, Excise and Gold Tribunal - Mumbai
Bussa Export Corporation vs Collector Of Customs on 12 July, 1993
Equivalent citations: 1994(50)ECR256(TRI.-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. This is an appeal against the order-in-appeal No. 1571/87 BCH dated 303.1987.
2. The appellants imported three consignments declared to be 6 years old vatted malt scotch spirit at 60% over-proof strength spirit--concentrated whisky tor the manufacture of Alcoholic beverages and filed three Bills of Entry for their clearance. They sought for clearances of the goods against transferred R.E.P. licences issued against product group 11.1 of Appx. 17 of AM 1984-85 Policy. The list attached to thtese licences indicates that R.E.P. licences were issued against the export of gripe water. It is the contention of the appellants that the licences are specifically endorsed for import of Ethyl alcohol end the goods imported are ethyl alcohel for preparation of alcoholic. beverages. However, the Department objected to their clearance on the following grounds:
2.1. The goods imported are old vatted malt scotch spirit having a distinct colour and flavour. It is not colourless and it does not appear to pharmacopoeical grade and hence may not find use in the manufacture of the end product, namely 'gripe water'.
22. In terms of Col. 4 of the statement of import of replenishment, which lists the materials permitted for import against B.11.1 only those chemicals as have been actually used in the manufacture of the product exported can be imported. Since old vatted malt spirit does not go into the production of drugs and drug intermediates, the importation of ethyl alcohol of the colour/flavour/type imported is not covered by entry in col 4 of item B.11.1 of Appx 17 of the Policy. It, therefore, violates para 8 of the general condition of the appendix 17, which stipulates that only those items are included in the list, which are actually used as raw material in the manufacture of the final product. Hence, in this case, only colourless ethyl alcohol of Pharmacopoeical grade, which goes in the manufacture of gripe water could be permitted against these licences, whereas the item imported is ethyl alcohol further processed to attain a distinctive colour and flavour, which is known in the trade as whisky (over-proof). Hence, it was alleged that the licences produced are not valid to cover the importation.
3. In the adjudication proceedings held by the Dy. Collector, he upheld the above objections contained in the show cause notice and ordered confiscation of the goods but allowed redemption on payment of a fine of Rs. 230 lakhs and also imposed a penalty of Rs. 20,000/- on the appellants. When the matter was pursued by way of appeal before the Collector (Appeals), the Collector (Appeals) accepted the appellants' contention to the effect that the lower authority has erred in not going into the question of whether the impugned goods were covered by the specific description of the licence namely, 'Ethyl alcohol'. The lower authority has instead erroneously referred to condition 2 of Col. 5 against B.1.11 of Appx. 17 of A.M. 985. He also held that the appellants have rightly contended that the said condition applies only for the purpose of obtain -ing replenishment licence. But he has held that the appellants, have, however, erred in supposing the Malt Whisky to be 'Ethyl alcohol'. It is neither sold/offered for sale nor is it priced on that basis. It is a consumer item and this is a universal fact. Hence, he rejected the appeal
4. The present appeal is against the said order. The mam issue to be decided is whether whisky concentrate can be permitted import against R.E.P. Licences endorsed for import of Ethyl Alcohol, when these licences have been endorsed on the basis of declaration to the effect that Ethyl alcohol is used as raw material in the gripe water. The connected issues are whether it is a consumer item and whether it is not ethyl alcohol at all
5. On the aforesaid issue, we heard the arguments from both the sides.
5.1. The main thrust of the arguments from the learned advocate for the appellants is as below:
(i) The issue raised in this appeal is squarely covered by the Judgment of Bombay High Court in Bussa Overseas and Properties (P) Ltd . He took us through paras 2,5 & 13 of the said Judgment to point out that all the issues raised by the Dy. Collector have been covered by the Judgment of the Bombay High Court and even in that case the goods imported are over--proof whisky, gin & Brandy against REP licence for dyes and dye intermediates indicating the description as 'Ethyl alcohol'. The High Court have held the goods imported answer the description of 'Ethyl alcohol' mentioned in the REP licences and it is not open for the Custom authorities to question the type of ethyl alcohol imported, so long as the licence indicates 'Ethyl alcohol' simphciter. The licences cannot be held to have prescribed any restriction.
(ii) Referring to para 15 of the said judgement, it is contended that the Bombay High Court have also rejected the contention of the Department that it is consumable as such. They have held that it is not ordinarily consumed and hence it is not a consumable whisky. It requires further process in the distilleries. They have relied on the averment of the Department's own chemical examiner for arriving at the conclusion. Hence the objection of the Collector (Appeals) that it is a consumer product is not sustainable. Moreover, the show cause notice does not make any such allegation. The Collector (Appeals) has traversed beyond the show cause notice.
(iii) He also submitted that the Bombay High Court have taken note of the affidavit filed by the Department to the effect that the goods imported are admittedly Ethyl alcohol' but they are not 'Ethyl alcohol' of the type required for dye industry. Even in the show cause notice issued in the present appeal, there is no denial by the Department that the goods are ethyl alcohol Hence, the objection of Collector (Appeals) is not at all sustainable.
(iv) He also submitted that S.L.P. filed by the Department against the Bombay High Court Judgment before the Supreme Court has been dismissed. He filed a copy of the order of the Apex Court 5.2. Shri Mondal in reply, elaborated on the provisions of para 8 of Appx. 17 and the condition prescribed in Col. 5 of Appx. 17 to point out that as against these conditions, the manufacturer exporter's declaration of 'Ethyl alcohol' as being used in the manufacture of gripe water is required to be interpreted. The manufacturer exporter, while giving the declaration and seeking for insertion of 'Ethyl alcohol' could not have given it for 'Malt Whisky over proof. Hence, when Ethyl Alcohol is included against the manufacturer Exporter's declaration by the licensing authorities, it can only refer to ethyl alcohol of pharmaceutical grade and not to Malt Whisky over proof. He also contended that according to Hawleys Condensed chemical dictionary, ethyl alcohol is a colourless liquid of 100%, whereas Malt Whisky over proof is not a colourless liquid and it is only 60%. This has been brought out in the show cause notice also. Hence, what is imported is not 'ethyl alcohol' answering the description in the licence but something different. He also submitted that a mere perusal of the list attached to the licence indicates that it has been just endorsed by the licensing authority in the context of the declaration made by the manufacturer/Exporter on his own letter head. Hence, what was approved for import could only be that Ethyl alcohol used for gripe water, and not old vatt malt over--proof whisky.
6.1. After hearing both the sides and perusing the documents made available before us, we find that these imports have been made against REP licences with a list attached thereto. A copy of one of the list attached is enclosed (Annexure-A), to this order. This list has been duly attested by the office of the JCCI&E, Bombay, thereby making it valid for the import of sodium Bicarbonate and Ethyl alcohol which are declared to be the items actually used as raw materials in the manufacturing process of drugs exported. Viewed in the context of the declaration, mentioning sodium bicarbonate and Ethyl alcohol in the form of the manufacturers/exporters under the letter head of Mazda International duly endorsed by the office of JCCI&E, we have no doubt that the item sought to be included viz Ethyl alcohol can only be a pharmacopoeical grade, which finds use in gripe water and hence the objection taken by the Department on the basis of the Policy provisions prima fade appears to be acceptable to us. However, on a perusal of the Judgment of the Bombay High Court in the case of M/s. Bussa Overseas and Properties (Pvt.) Ltd. , we find that the very same issue viz the importability of concentrates of whisky, gin and brandy against REP licence issued against Export Product of dyes and dyes intermediates has been considered by the Hon'ble High Court and they have held that when the goods imported (which are commonly known as concentrates of whisky) answer the description of the goods in the REP licence, it should be allowed. They have also taken note of the affidavit of the Customs Department admitting that such concentrated whisky is ethyl alcohol. They have also taken note of the chemical examiner's averment in the affidavit, to the effect that such a product is only used by distilleries, which process such products to make and sell alcoholic beverages, which are meant for human consumption. The Chemical Examiner also has opined that it is undenatured ethyl alcohol
6.2. In view of these findings given by the Bombay High Court directly on this issue, judicial decipline warrants us to accept the same and hold the issue in favour of the appellants. But then, a question was raised by Shri Mondal that what is imported is not ethyl alcohol and he referred to the Condensed Chemical Dictionary by Hawleys, wherein, Ethyl Alcohol is defined as having Proper-ties of pure 100% absolute alcohol and it is a colourless, limpid, volatile liquid, and what is imported is only concentrated whisky and even It is not marketed as ethyl alcohol as is evident from the invoices. Even the description in the B/E is not describing the product as ethyl alcohol. Hence, licence, which is endorsed for ethyl alcohol, cannot be said to cover concentrated whisky. Hence, even going by the Judgment of the Bombay High Court, in the case of M/s. Bussa Overseas and Properties (Pvt.) Ltd. (supra) the goods imported cannot be said to answer the description "ethyl alcohol" endorsed in the licence. Though this argument is very attractive, unfortunately, the Department have never contended that the item 'concentrated whisky' is not ethyl alcohol In the affidavit filed before the Bombay High Court with regard to the import of the identical item, they have stated that concentrated whisky is admittedly ethyl alcohol and this has been referred to by the Bombay High Court Even with regard to the show cause notice, on the basis of which adjudication in the present appeal had been done, the allegation is not specific to the effect that what is imported is not ethyl alcohol but something else. On the contrary, it alleges that the product is not colourless and does not appear to be pharmacopoeical grade and hence may not find use in the manufacture of end product viz gripe water. The allegation is that only those chemicals as have been actually used in the manufacture of product exported could be imported; since concentrated whisky does not go into the production of drugs and drugs intermediate, the importation of ethyl alcohol of the colour. flavour and tyape imported fay the appellants is not covered by the entry in col. 4 of Item B.11.1 of Apex 17 of the Policy and hence violate the provisions of para 8 of the General condition. In the context of this allegation, which has already been adjudicated, it may not be open for the Departmental representative now to contend that the item imported is not ethyl alcohol but something else. The accepted position by the Department is that it is ethyl alcohol but not of pharmacopoeical grade. On this aspect, the Bombay High Court, in the case of M/s. Bussa Overseas and Properties (Pvt.) Ltd. has held the issue in the appellants' favour. The same Judgment holds good for negativing the contention of the Collector (Appeals;, wherein, he has held that the appellants have erred in supposing the Malt Whisky to be "Ethyl Alcohol" We find that the Department itself did not challenge the imported item as not ethyl alcohol. It has accepted it as ethyl alcohol but of different grade. Shri Mondal also contended that the concentrated whisky can be diluted and consumed like other fruit essences used for preparation of beverages. Hence, he supported the findings of the Collector (Appeals) holding it as consumer item. We find that before the Bombay High Court, the same argument was placed by the Department with regard to the imported product namely concentrated whisky, gin, etc The Bombay High Court held, on the basis of the averment made by the Customs Chemical Examiner that the product is used only by distilleries, which process such product to make and sell alcohol beverages. They have, therefore, held that the goods imported are not consumable as such. As against the plea that they could be consumed by adding water or soda, the Bombay High Court held that the pertinent question, is whether the same is ordinarily consumed and in that view the High Court had rejected the contention of the Department that it should be considered as consumable whisky, or gin for purpose of levying countervailing duty. In the context of these observations, the issues raised before us in this appeal seem to be squarely covered by the decision of the Bombay High Court in the case of M/s. Bussa Overseas and Properties (Pvt.) Ltd.
6.4. However, we notice that the Division Bench of the Bombay High Court, in the case of SVA Udyog Viniyog Limited reported in 1993 (46) ECR 376 (Bom.) while interpreting the description 'seeds' specified in REP licence issued against G-2 Export Product being fresh fruits, vegetables and flowers, have held as below:
The perusal of items in Clause G-2 makes it clear that the materials permitted for import under Clause 4 are, those which had nexus to the goods, which were exported and in respect of which REP licence was granted. Each of the items covered under (a). (b). (c). (d) and (e). leaves no manner of doubt that it had direct nexus or relation to the export product of fruits, vegetables, and flowers. Clause (d) under item 4 refers to "seeds/bulbs, mother plant germ plasm". It is obvious that expression "seeds" must be read as referring to seeds of fruits, vegetables and flowers. Mr. Vahanvati submitted that the expression "seeds" is a generic term and it need not have any nexus to the export products under clause I. It is not possible to accede to the submission of the learned Counsel. The contention that once the item imported falls under generic terms "seeds" then, the imported goods are in accordance with the licences cannot be accepted. We will assume for the purposes of the case that seeds of almonds will fall under the generic term "seeds" but that would not entitle the appellants to claim benefit of the licences which have been issued for the purpose of import of items covered under G-2. The expression "seeds" used in item G-2 is obviously not a generic term but circumscribed by limitations contained in the clause itself. The expression "seeds" has a nexus to fresh fruits, vegetables and flowers and such seeds are permitted to be imported provided they are to be used for the purpose of germination of plantation. It is not the claim of the appellants that seeds of almonds are imported for the purpose of germination or plantation. The appellants do not dispute that the seeds of almonds will be sold as dry fruit but claim that once the imported goods fall under the category of "seeds", then, irrespective of the purpose for which they are imported, the import must be held to be in accordance with the licence. It is not possible to accede to the submission. In our judgement, the limitation or the restriction in respect of import of seeds is intrinsic in, clause G-2 and the seeds to. be imported cannot be de hors the export products referred to in clause G-2. Under these circumstances, the contention of the appellants that the seeds of almonds fall under G-2 cannot be accepted In this view, of the matter, it is not necessary to examine whether the contention of the Department that the seeds of almonds are not seeds is correct or otherwise.
(Emphasis supplied).
6.5. Viewed in the context of the declaration made in this case before us and in the light of the thinking of another Bench of the Bombay High Court in another case, we find that the arguments of Shri Mondal cannot be brushed aside, with regard to the establishment of nexus of import product with the export product. However, we find that in the same Judgment in para 5, the case of M/s. Bussa Overseas and Properties (Pvt.) Ltd. cited before us was also cited before the Bombay High Court. However, the Bombay High Court have held that it has no application to the case before them. The relevant observations contained in para 5 are reproduced below:
Mr. Vahanvati referred to the decision of the Division Bench in the case of Bussa Overseas and Properties (Pvt.) Ltd. and Anr. v. Union of India and Anr.. The decision, in our judgement, has no application to the facts of the present case.. In the case before the Division Bench, the item permitted to be imported under REP licence was a generic term of Ethyl Alcohol. The Division Bench held that as the licence was issued simpliciter for Ethyl Alcohol without restricting its ID meaning or scope, the import, for whatever purpose, cannot be faulted. In the present case, the expression 'seeds' though is a generic term, the plain reading of item G-2 under appendix 17 establishes that the expression is used by restricting its meaning. The object and intention of the policy makers being extremely clear, it is not possible to accede to the submission that seeds of whatever nature can be imported tinder REP licence. Under these circumstances, in our judgment, the conclusion recorded by the Additional Collector and the learned Single Judge are not required to be disturbed.
(Emphasis supplied).
6.6. We also observe that the decision of the Single Judge in the case of SVA Udyog Ltd. was also cited before the Bombay High Court in the case of M/s. Bussa Overseas and Properties Pvt. Ltd. However, the Bombay High Court in that case have chosen to distinguish this.
7. However, with due respect to the Hon'ble Bombay High Court and in all humility, we find that we could not reconcile ourselves to the distinction sought to be made by the Bombay High Court in regard to the issue dealt with in the two cases (supra), for the following reasons.
7.1. In the case of S.V.A. Udyog the item endorsed for import is 'seeds'. Almonds in shells are also coming within the description of 'seeds'. But the Bombay High Court held that the term 'seeds' is to be construed as intrinsically linked up with the export of fresh fruits and vegetables and hence almonds cannot be said to have nexus with the export product In the case of Bussa Overseas Properties, the licence is endorsed for the import of Ethyl alcohol The Bombay High Court viewed it as 'Ethyl Alcohol' simpliciter and any type or grade of ethyl alcohol can be permitted import, without having any nexus with the export product. We are to note that though 'Ethyl Alcohol' may cover a wide range of alcohols, the Customs Tariff, on the basis of which the schedule to I.T.C. order is based, makes a clear distinction between Ethyl alcohol of 80% proof strength or more and undenatured ethyl alcohols of less than 80% proof strength including spirits, liquers and sprituous beverages and compound alcoholic preparations of a kind used for the manufacture of alcoholic beverages--(Vide headings 2207,2208,220720 and 2208). Hence, when the licence is endorsed for 'Ethyl alcohol' in the context of the declaration (vide list attached to the licence--a specimen attached to this order), such an endorsement in our humble view, has to be read with that declaration and thus has a nexus with the export product. We could not visualise that J.C.C.I. & E., by putting his signature and office seal, under the declaration, had permitted import of concentrated malt whisky of 60% strength.
7.2. We are of the view that in this case also, nexus with export products is intrinsic in the entry in Appx. 17, because ethyl alcohol is a generic term covering a range of different alcohols. As per Mc'Graw Hill Dictionary of Scientific and Technical Terms, ethyl alcohol is synonymous with 'ethanol', which is a colourless liquid mixable in water, boiling point 78.3299 C, used as reagent and solvent. It is also known as alcohol, Ethyl alcohol and grain alcohol. Whisky is recognised as another type of potable alcohol in that dictionary. Hence, the term 'ethyl alcohol' endorsed in the licence under the declaration to the effect that it is used as raw material in gripe water or dye/dye intermediates, appears to be Ethyl alcohol used as solvent or of pharmaceutical grade. To illustrate, if a person seeks for import of 'Blade' for the manufacture of industrial knives and on the basis of his declaration, the licensing authority endorses 'Blades' for import, that authority could not be construed as having endorsed import of 'razor blade', though razor blades might fall in the generic description of blades. Hence, in our humble view, the nexus requirement approved by the. Bombay High Court in S.V.A. Udyog case may have to be applied in regard to similar cases, where licences are endorsed for an item having a generic description covering a wide range of products. In this case, 'Ethyl alcohol' appears to us to be a generic description, covering a wide range of alcohols and whisky, though might fall in the basket of alcohol is treated distinctly both in the Customs Tariff and the recognished dictionaries. Hence, we feel that the ratio of S.V.A. Udyog may stand attracted here also.
7.3. But, we find that the two Division Benches of the Bombay High Court are aware of the issue in both the cases, since their attention has been specifically brought to the notice of these two case and both the Bench of the Bombay High Court have held the two cases as distinguishable from each other. Hence, Whatever be our personal view, Judida disdpline warrants respecting the decision, especially when we find that all the issues, including the imported goods, licences dealt with and the policy period aw identical with the case of Bussa Overseas & Properties decided by the Bombay High Court, distinguishing the case of SVA Udyog
8. In the result, despite our earnest desire not to deprive the babies of their share of gripe water to provide for the elite's consumption of alcoholic beverages, we are to allow the appeal with consequential relief for the above reasons. Accordingly, we allow the appeal.
dt. 12.7.1993 Sd/- (R Jayaraman)
Member (Technical)
P.K. Desai, Member (J)
9. Though I am in agreement with the order as proposed and concur with the same that the appeal be allowed, because of some reservations that we cater as to correct interpretation of the policy provisions in the judgment of the Bombay High Court in Buss* Overseas and Properties (Pvt.) Ltd. v. Union of India 1991 (57) ELT 165 (Bom), which of course, we are following as having binding effect on us, as judicial discipline restricts us from going contrary thereto, it appears desirable that my own views in this regard may also be duly projected, and hence this separate notings are made.
10.1. The Bombay High Court has, in Re: Bussa Overseas (supra) have dealt with the import of the item, same as the one hearsic, by the same importer, on similar REP licences, and have considered all the grounds that have been raised here, and hence, irrespective of the personal views in that regard, the same is being followed and consequently the appeal is being allowed. We however sincerely feel that the relevant policy provisions indicate contrary and hence with utmost respect and due apologies, take liberty to project our humble view, which leads us to feel that the policy provisions contemplates something contrary to what has been held in the said judgement.
10.2. REP Licences of the type available with the appellants and produced for clearance of the subject import are issued against the export of some specific manufactured product. A detailed provision, during the period of the subject import, existed in Appx. 17 of the Policy Book AM 1985-88. Each product group is separately identified and certain items are specified against each product group, as the items permissible for import against the export of products specified. A study of the same clearly indicates that each of the items so specified as permissible for import under REP licence, has a nexus with the manufactured item. The entire exercise in identifying the product group and specifying items permitted for import could not be overlooked, and could not be taken as an exercise in futility, and only inference that appears probable is that items made permissible for import, must have a clear nexus with the item manufactured by the licence holder.
10.3. What appears implicit in framing of Appx. 17 on the Policy Book, is also made explicit in the same appendix by incorporating para 8, which reads thus:
8. Against certain export products, for example SI. No. A. 64 SI. No. B.11.1 etc. Col. 4 permits the import of items appearing in the Appendixes 3 and 5 without mentioning the specific items. In such cases, the export product in Col. 2 covers more than one product and it is difficult to mention in Col. 4 itself the specific items of raw materials and components which go into the product of each of the export products covered by the particular Serial Number or Sub serial Number. Therefore, in such cases, while applying for REP licence, each exporter should submit with the import application the list of such items as are actually used as raw materials/components in the manufacture of the product(s) exported except items which have been specifically excluded in Col. 4 or Col. 5. It should be also ensured that only those items are included in the list which are actually used as raw materials and components in the manufacture of the relevant product exported. The licensing authority may, after due scrutiny of the list, exclude therefrom any item which in his opinion is not actually used as raw material/component in the manufacture of product(s) exported. If at any time, it is found that an exporter obtained REP licence under this provision for an item which was not actually used as raw material/component for the manufacture of the product exported against which the REP licence was issued, the licence in question, shall be liable to cancellation. If the licence has been used by the time the irregularity comes to notice, the value of the licence shall be adjusted against the import entitlement of the exporter in any category. These actions will be without prejudice to any other action that may be taken in this behalf under the import and export control regulations.
10.4. REP licences, so issued, besides having the list attached specifying the items permitted to be imported, also mentions conspicuously, the product group for which the licence stands issued Such a mention cannot be construed to be an empty formality, and if it is held that, notwithstanding anything and irrespective of the nexus with the item exported, any item figuring in the list could be imported, such a mention of the product group would be rendered nugatory. The mention of the product group, on the face of licence, is specifically meant to indicate and to alert all concerned, as to the nature of the licence and as to the policy restrictions in import of the items specified in the list attached to such Scence. 103. Merely because, such licences are made freely transferable, that could in no way alter the position. May be, that by making the licences freely transferable, the framers of the policy may have intended to give some concessions even in the nature of permitting them to earn some extra profit by sale of such licences, if their own needs are otherwise catered, what is made permissible is the transfer of the right of the holder of the licence, and the holder cannot transfer better rights than what he possesses and the buyer or transferee thereof has just to step into the shoes of the transferor, with a full knowledge as to the limitations in-built in such a case. Each such licence has the export product group conspicuously mentioned on the face of the licence, of which the transferee is supposed to be aware of.
10.6. There also does not appear any scope for differentiating upon the descrption in "generic' or "specific" terms, as with clear policy provisions in that regard, any item specified in the list attached has to be, by virtue of provisions in Appx. 17 of the Policy Book, at all the relevant time, taken as "specific" as otherwise, provisions in the said appendy would be rendered meaningless.
10.7. The above view gets fortified from another Judgment of the Bombay High Court in SVA Udyog Vinimaya Ltd v. Union of India 1993 (46) ECR 376 (Bom.), where, while dealing with import of item "Almonds" claiming that as falling within the category of "seeds" mentioned in the list attached to REP licence issued against the product Group "G-2" in Appx. 17 of the Policy Book, it is observed In our judgement, the limitation or restriction in respect of import of seeds is mtrensic in clauses G-2 and the seeds to be imported cannot be de hors the export product referred to in clause G-2.
10.8. If any discretion was available, we would have preferred following the subse qvent decision in Re: SVA Udyog (supra) however, in the said judgement, the Judgment in Re Bussa Overseas (supra) has been referred to and observed as distinguishable, and for this Tribunal in the subject appeal the decision in Re: Bussa Overseas is attracted on all fours.
11. Notwithstanding our personal views, on the issue, which are attempted to be reflected hereinabove, following the decision of Re. Bussa Overseas (supra), the appeal has to be allowed, and accordingly, I concur with the findings as proposed and allow the appeal.