Customs, Excise and Gold Tribunal - Mumbai
Jayantilal Bhogilal, Usha ... vs Commissioner Of Customs, Mumbai on 28 November, 2001
Equivalent citations: 2002(143)ELT608(TRI-MUMBAI)
JUDGMENT
G.M. Srinivasan, Member(J)
1. This group of appeals has been filed by advance licence holder as well as letter of authority holder and others in respect of free import of aromatic chemicals, paper board and LAB. The question involved in this group of appeals is whether the importer has violated the provisions of Customs notification 159/90 and whether reversal of modvat credit by the importer would absolve him from the rigors of the conditions mentioned in the said notification.
2. The appellant in Appeals C/260 to 562 was a merchant exporter. He obtained five advance licences for the import of linear alkyl benzene, aromatic chemicals and paper board. The export product was synthetic detergent powder. The advance licence holder, the appellants in three appeals did not have manufacturing facility. Therefore it had contacted the other appellants, namely Mili Detergents and Jayantilal Bhogilal as supporting manufacturers. The names of these two persons were indicated in the application for advance licence as supporting manufacturers. The names were found in the advance licence and DEEC books along with the names and addresses of the factories of the supporting manufacturers. The ultimate Mili Detergents and Jayantilal Bhogilal and hand over to Usha Intercontinental who in turn exported it. Export obligation was fulfilled by the licence holder. This is undisputed. The licence holder gave letter of authority to the supporting manufacturers. It is an admitted fact that no permission from the licensing authority was obtained for issuing such a letter of authority in favour of the supporting manufacturers. On the strength of the letters of authority Mili Detergent and Jayantilal Bhogilal imported the goods and filed bill of entry in their names. It was assessed to duty at nil rate under notification 159/90.
3. The case of the department was, who issued three show cause notices, that the two supporting manufacturers who had imported the goods, have sold the imported goods in the open market; the said manufacturers had availed modvat facilities on the inputs purchased by them from the indigenous market which were used in the manufacture of the detergent power exported. This, the department alleges, was a violation of notification 159/90 and further the notice charged the supporting manufacturers that they have sold the imported material in violation of the Policy. The show cause notices also alleged that the permission of the licensing authority was not obtained for sale of LAB and which was violated by the appellant Usha Intercontinental. It is further stated in the show cause notice that paper board and aromatic chemicals falling under Appendix 13F of the Policy. Therefore in terms of paragraph 250(3) of the Policy transfer is permitted only subject to actual user condition. Transfer to somebody else is permitted only with the permission of the licensing authority and that too subject to the actual user condition and subject to the further condition that modvat should not have been availed. According to the department, there was violation of the provisions of Section 111(m) and (o) of the Customs Act. Therefore duty was sought to be claimed from Usha Intercontinental, Jayantilal Bhogilal and others. It was specifically stated in the notices that duty should be recovered from Usha Intercontinental on the above imported goods in case Jayantilal & Bhogilal and Mili Detergent fail to pay the duties. Penalties were also sought to be levied on each of the appellants.
4. After looking into the replies filed by the appellants who denied the liability and after looking into various provisions of the Export Import Policy at the relevant time namely paragraphs 249, 250 of the Policy, 1990-93 and 352 of the Hand Book of Procedures, the adjudicating authority namely the Commissioner of Customs (Adjn.) by the impugned order No. 7/98 demanded customs duty amounting to Rs. 70,77,307/- (LAB), a penalty of Rs. 35 lakhs on the appellant. Usha Intercontinental and penalty of Rs. 1 lakh on Jayantilal Bhogilal and penalty of Rs. 20 lakhs on Mili Detergent; Order-in-original 8/98 demanded duty of Rs. 44,12,863/- on paper board on Usha Intercontinental and imposed penalty of Rs. 20 lakhs on Usha Intercontinental, Rs. 16 lakhs on Mili Detergent and Rs. 6 lakhs on Jayantilal Bhogilal. Order-in-original 9/98 demanded duty of Rs. 40,83,800/- (LAB) and Rs. 72,96,196/- (aromatic chemicals) total Rs. 1,13,85,986/- on Usha Intercontinental and imposed penalty of Rs. 50 lakhs on Usha Intercontinental. Further penalty of Rs. 25 lakhs on Mili Detergent and Rs. 25 lakhs on Jayantilal Bhogilal. Hence the present nine appeals.
5. Shri V. Sridharan, learned Advocate along with Shri Srinath Iyengar, Advocate, appeared for the appellant, Usha Intercontinental, and Shri K.M. Mondal, learned Consultant, appeared for the appellants Mili Detergent and Jayantilal Bhogilal. Shri B.K. Choubey, learned DR, appeared for the department.
6. It is submitted by Shri Sridharan that the show cause notices proposed to recover duty from the appellant only if the said duty could not be recovered from the two supporting manufacturers who are the other appellants before us. It is stated with emphasis by the learned counsel that the notice accordingly indicated the duty of demand against each of the supporting manufacturers. Shri Sridharan emphasized that the merchant exporter Usha Intercontinental had nothing to do with the import of the materials and therefore they have nothing to do with the availment of modvat credit. He therefore states that how the adjudicating authority while adjudicating the show cause notice could cause the duty to be paid on the appellant without specifying how and why duty is to be recovered from the licence holder instead of specifying how the duty could not be recovered from the supporting manufacturers who have admittedly imported the goods and filed bill of entry. Shri Sridharan further submitted that the demand of duty under the Customs Act, 1962 can only be on the person chargeable with duty namely the importer. It is an admitted fact revealed in the show cause notices that the two supporting manufacturers had directly imported. Bills of entry were filed by them in their own names. Therefore the demand of duty can only be raised against those supporting manufacturers. It is further contended that since no bill of entry was required to be filed by the licence holder as it was not the imported, question of charging it for violation of the provisions of Section 111(m) of the Customs Act does not arise. It is also further emphasized by Shri Sridharan that since they were not the manufacturers availment of modvat credit allegedly in violation of the said classification 159/90 cannot arise again as far as these appellants are concerned. As far as the violation under Section 147 of the Customs Act is concerned, the provisions of the said Act will not be applicable inasmuch as it will be applicable only as a clearing agent. Here in terms of arrangement between the licence holder and letter of authority as contained in the agreements, they were told not to violate the notifications. Therefore in case of any violation, the licence holder cannot be proceeded with. Without prejudice to the above, it was contended by Shri Sridharan, that as far as modvat credit is concerned, it is admittedly reversed subsequently prior to the issuance of show cause notice by supporting manufacturers voluntarily. Such a reversal though after fulfillment of export obligation cannot amount to violation of notification 159/90. It is therefore argued that the goods are not liable for confiscation under Section 111(m) and (o) of the Customs Act insofar as it relates to the appellants. Hence, penalty is not imposable on the appellant under Section 112(a). Admittedly in the present case the imports have taken place prior to the introduction of Section 28AB of the Customs Act w.e.f. 28.9.1996. Hence recourse to the said section by the adjudicating authority is wrong in law. Shri Sridharan read through paragraphs 108, 109, 249, 250 of the Policy and paragraph 352 of the Hand Book of Procedures, 1990-93. He also referred to paragraph 244(1) & (2) of the Export Import Policy, 1988-91 to show the liberalisation of the Policy in respect of import, replenishment of the material and disposal of the same. He also took us through public notice No. 194 dated 28.11.1989 etc. in support. He states that the appellant, Usha Intercontinental, cannot be charged with duty and penalty at all.
7. Shri K.M Mondal, learned Consultant arguing for the appellants stated as follows. He stated that the two appellants, Mili Detergent Inds. (Appeals C/584, 585 and 592/98) and Jayantilal Bhogilal (Appeals C/442 to 444/98) have procured letter of authority from Usha Intercontinental, the appellants in Appeals C/560 to 562/98, for import of raw materials which they had used in the manufacture of the detergent powder which were exported through Usha Intercontinental under DEEC Scheme. It is admitted by both the appellants that they had availed of input stage credit in respect of export products supplied to Usha Intercontinental. Five advance licences were obtained by Usha Intercontinental and these were given to supporting manufacturers with letter of authority in terms of paragraph 352 of the Hand Book of Procedures which was prevalent at that time. The supporting manufacturer had imported the replenishment material against the relevant licence and letter of authority during the period April, 1992 to December, 1992. The allegations against the appellants were contained in paragraphs 26 to 28 of the show cause notices. He states that as far as the findings against his clients are concerned, they are contained in paragraph 32 Order-in-Original 7/98, paragraph 32-35 Order-in-Original 8/98. His main grievance is that no duty even though demanded from Mili Detergent and Jayantilal Bhogilal, the argument of Usha Intercontinental, the other appellant that they were not liable for duty, is wrong. He invited our attention to the permitted import defined in Section 2(26) of the Customs Act which includes owner. Since it is not disputed that the appellants Mili Detergent and Jayantilal Bhogilal had imported material in the capacity of the letter of authority holder, they cannot be characteristics as actual importer and owner of the goods. He relied on the judgments of the Tribunal in the case of Usha Rectifier Corporation (India) Ltd. v. CC 1997 (93) ELT 71 which was relied upon by the DR. He also invited our attention to the decision of the Tribunal in Indian Potash Ltd. v. CC 1991 (55) ELT 236 and CC v. Jain Exports Pvt. Ltd. 1990 (46) ELT 147. He therefore states that the actual importer could not be appellants Mili Detergent and Jayantilal Bhogilal but only the licence holder and in this connection he also invited our attention to the provisions of Clause (3) of paragraph 5 of the Importer Control Order which states inter alia that it shall be deemed to be a condition of every such licence that the goods for the import of which a licence is granted shall be the property of the licensee at the time of import and thereafter upto the time of clearance through Customs.
8. As far as the DR is concerned he refutes each and every argument made by all the appellants. It is an admitted fact, he says, that in terms of the bills of entry the goods were imported from April 1992 to December 1992. It is also admitted during the course of investigation the appellants Mili Detergent and Jayantilal Bhogilal have disposed of the material in the open market in violation of the various provisions of the Import Policy. The licence for which letters of authority have been issued is not a transfer. The letters of authority only enabled the appellants Mili Detergent and Jayantilal Bhogilal to act as agents. Action of agents will bind the principal. Being the licence holder therefore Usha Intercontinental can only be treated as the owner of the goods. He also tries to draw support from a definition of importer as defined in Section 2(26) of the Customs Act which includes any owner. He also emphasizes like Shri Mondal in terms of condition 5(3)(ii) of the Import Control Order the goods should be the property of the licensee only upto the time of clearance. He practically went along with the line of the arguments made by the appellants Mili Detergent and Jayantilal Bhogilal. He also stated that the Supreme Court judgment in Chandrapur Magnet Wires (P) Ltd. v. CCE 1996 (81) ELT 3 cannot support the case of Usha Intercontinental because in that case as has been held by the adjudicating authority that in that case the Supreme Court has held that "we see no reason why the assessee cannot make a debit entry in the credit account before the removal of the exempted final product". The DR emphasizes that in this case the modvat credit was taken. Finished products were exported and debit entry was not made before removal of the exempted final product. Therefore Chandrapur Magnet judgment will not be applicable to the facts of the case.
9.1 To appreciate the various contentions, certain provisions of the Import Export Policy, 1990-93 needs extraction. We extract paragraph 108(1) of the Policy.
"108(1) The licence holder can appoint another person as his agent for arranging the imports permitted by the licence. The licence should, however, continue to be in the name of the licence holder and the provisions of the Imports (Control) Order, 1955, in regard to the duties and obligations of the licence holder or Letter of Authority holder will continue to apply respectively to the persons concerned. Subject to these conditions and legal requirements, it will be open to the licence holder to decide upon his own form of Letter of Authority. But the functions of the holders of such Letter of Authority shall be limited to place orders, to open Letters of Credit, to make remittance of payment for importing the goods, to arrange movement and to clear the same through the Customs having regard to Section 147 of the Customs Act, 1962, on behalf of the licensee and other related matters connected with the operation of the licence in question, but not its ownership."
9.2 Relevant portion from notification 159/90 being Clause (b) is extracted below:
"(b) the importer at the time of clearance of the importer materials makes-
(i) a claim in writing to the Collector of Customs for such exemption and executes a bond or legal undertaking before such authority as may be approved by the Central Government for complying with the conditions specified in this notification.
(ii) a declaration before Assistant Collector of Customs binding himself to pay on demand an amount equal to the duty leviable but for the exemption, on the imported materials in respect of which the conditions specified in this notification have not been complied with."
9.3. Para 250 of Policy for year 1990-93 regarding disposal of materials is extracted below:
250(2) In respect of other products, the replenished exempt materials can either be used for further production or disposed of to any person, with permission of the Licensing Authority concerned. This permission will be given only after the submission of satisfactory evidence of fulfillment of export obligation and realisation of foreign exchange or payment certificate, as the case may be. This will further be subject to the condition that on the materials originally used in the manufacture of the resultant product against which disposal of replenished materials is sought for, the licensee or his supporting manufacturer, as the case may be, has not availed of the relief:
(i) Under the MODVAT/Proforma Credit Scheme; or
(ii) Under Rule 191-B of Central Excise Rules; and undertakes not to claim the same subsequently.
A certificate to this effect shall be produced by the licensee from the concerned Central Excise Authority.
(3) Notwithstanding the provisions contained in sub-para(2) above, the facility of free disposal of replenished exempt materials shall not be available in cases where the items of imports are covered by Appendix 13-F of the Import policy. In such cases, the licensing authority may consider requests of registered exporters after fulfillment of the stipulated export obligation, for transfer of the replenished exempt materials in favour of the supporting manufacturers, whose names appear in the DEEC book for further export/ domestic production and subject to the actual users conditions. In case of genuine difficulties, the concerned regional licensing authority, not below the level of Jt. CCI&E may consider request for disposal of the replenished exempt materials to an Actual user subject to the fulfillment of the conditions stipulated in sub-para (2) above."
9.4. Para 352 of the Hand Book of Procedure, Vol. 1 pertaining to Letter of Authority is extracted below:
352. On a licence issued under this Scheme, the facility of issuing letter of authority, if eligible, will be restricted to supporting manufacturer(s) whose name(s) appear(s) in the DEEC issued, notwithstanding the provision in para 108 and 109 of the Hand Book. No letter of credit shall be allowed to be opened against a licence issued under this scheme by a person other than the licensee or the supporting manufacturers shown in the DEEC. This facility will also be available to Export/Trading/Star Trading Houses."
10. When we go through the above extracts, it will be clear that the licence holder normally could appoint another person as agent in terms of paragraph 108 and who can as letter of authority holder open letters of credit, make remittances on payment of importing goods, to arrange movement and clear the same through Customs in terms of Section 147 of the Customs Act but the ownership and the licence would still lie with the licensee.
11. From the reading of the show cause notice it will be clear that in paragraph 28 at the beginning the department charges all the appellants and others namely Susmit Surtaria to pay the duty but in sub-paragraph(2) of paragraph 28, the duty is sought to be recovered from Mili Detergent and Jayantilal Bhogilal and from Usha Intercontinental in case Jayantilal Bhogilal and Mili Detergent failed to pay the duty. This aspect also we shall deal with later in the order. When we go through the show cause notice and the admitted facts, it will be clear that the show cause notice proceeds on the basis that both parties are liable for duty in terms of earlier portions of the order.
12. But in the impugned order (i.e. Order-in-Original 7/98, in paragraph 32 pertaining to import of LAB weighing 218.211 MT under the DEEC Scheme by Mili Detergent and Jayantilal Bhogilal as letter of authority holders of Usha Intercontinental), the adjudicating authority has held in paragraph 32.6, after holding that the Bombay High Court judgment in the case of M. Shanshikant & Co. v. UOI 1987 (30) ELT 868 is not applicable to the facts of the case, that "In the present case, the liabilities of the licence holder as per Notification No. 159/90 Cus and para 250 of the import policy read with para 108(1) of the Hand-Book, could not be transferred to someone who is given a Letter of Authority under the said para 108(1)." In paragraph 32.7 he had held - "The declarations given by LOA holder to Customs etc. were on behalf of the licensee. Therefore, it was the responsibility of the licensee to ensure that proper and correct declarations were made at the time of export as well as import. However, it was falsely declared that modvat had not been availed which was a deliberate mis-statement. Accordingly, extended time limit under proviso to Section 28(1) is applicable." He however held that in terms of paragraph 250(1) non availment of modvat credit was one of the pre-conditions. Therefore the claim that the modvat has not been availed was of no avail because modvat had been reversed after three years. He therefore held that there was not fulfillment of para 205(2) of the Policy read with notification 159-90. He also distinguished Chandrapur Magnet case.
13. When we look into the show cause notice it has been stated in paragraph 4 thereof that statements of Shri Yogesh J. Shah, partner of Mili Detergent, who is also a director, were recorded and they have imported LAB, paper board from Singapore under the provisions of paragraph 352 of Chapter 19 of the Hand Book of Procedures, 1990-93. In para 6 of the show cause notice it is specifically stated by Yogesh Shah that "imports and its disposal were managed by Bharatbhai Shah and Jayeshbhai Bhimani and he had simply signed the debit note as per their advice, therefore he was unable to explain the same." This specifically shows that Yogesh Shah had sold the goods in open market. If at all there is any violation, it can only be violation by the appellants Mili Detergent and Jayantilal Bhogilal. In para 7 of the show cause notice it has been stated that aromatic chemicals and LAB were not utilised for manufacture of detergent powder for export/home consumption in his factory but the same are sold in the open market. It was also admitted by Yogesh Shah as revealed in the said paragraph that they have given indemnity to Usha Intercontinental. The show cause notice is silent about the payment of money by Usha Intercontinental for the imported material. If the payment of money is not made by Usha Intercontinental coupled with the fact that the import having been admittedly done by Mili Detergent and Jayantilal Bhogilal as is revealed in the various statements made by them, how could the department charge Usha Intercontinental as the owners of the goods? How could any man be named as owner of the goods without having paid any money to the imported goods? How could there be any establishment of legal collusion, between the seller of the imported material and the buyer of the imported material which in this case is admittedly Jayantilal Bhogilal and not Usha Intercontinental. It is an admitted fact that in the show notice it has been specifically stated that the appellants Mili Detergent and Jayantilal Bhogilal were the importers. Having admitted the same in the show cause notice, how could the adjudicating authority go beyond the show cause notice in making the appellant Usha Intercontinental as the importer.
14. This leads us to take up the interesting arguments made by Shri Mondal and Shri Choubey regarding Clause 5(3)(ii) of the Import Control Order. The said clause reads as under:-
"It shall be deemed to be a condition of every such licence that:-
the goods for the import of which a licence is granted shall be the property of the licensee at the time of import and thereafter upto the time of clearance through Customs."
It is true that a condition may be mentioned in the licence that the property of the goods shall be the licensee at the time of import and thereafter upto the time of clearance through Customs. Here the violation is regarding the sale of the material in the open market and claiming of the modvat. Modvat could be claimed at the input stage only by the manufacturer which is after the clearance not at the time of importation. Even the word thereafter contained in the said clause is only upto the time of clearance through Customs. It is admitted in the show cause notice that finances were not arranged by Usha Intercontinental. Therefore we are of the view that the argument of Mili Detergent and learned DR on this aspect cannot be accepted when the show cause notice does not make the case beyond the show cause notice and the adjudicating authority has found wrongly in casting the duty liability on the appellant Usha Intercontinental without finding as to the failure of payment of duty by Mili Detergent as contained in sub-para (3) of para 28 of the show cause notice which is going beyond the show cause notice. We therefore hold accordingly.
15. The reading of paragraph 352 of the Hand Book of Procedure which says that letter of authority will be issued to the supporting manufacturers which is in this case notwithstanding the provisions of para 108 and 109 of the Hand Book of Procedure. In para 108 and 109 of the Hand Book, any person could be issued letter of authority but here letter of authority has been restricted to supporting manufacturers only. This has not to go anywhere, namely the show cause notice as drafted does not state specifically that the goods have been imported in violation of the provisions of Section 111(d). This is because if the letter of authority holder is to be treated as the importer, then he has been treated as the importer. Normally letter of authority holder is the representative of the licensee. Any person who applies for licence need not be granted licence. In terms of clauses of the Import Control Order, the Government may refuse to grant licence. Moreover the show cause notice does not proceed against the appellants for violation of Section 111(d) when the bills of entry were filed, Customs did not object to it. We are therefore of the view, in the facts and circumstances of the case, that the charges against the appellants Usha Intercontinental, are not proved.
16. The department did not file any appeal against the impugned order for failure to impose duty on Mili Detergent and Jayantilal. In view of the failure, we cannot make any comment on that.
17. In view of the fact that the appellant Usha Intercontinental are not the owner of the goods and they did not file bill of entry there cannot be any violation of Section 111(m), namely false declaration. No doubt both Shri Mondal and Shri Choubey took plea of Section 2(26) of the Customs Act. Section 2 starts with prefix unless context otherwise requires and Sub-clause (26) states importer in relation to any goods at any time between their importation and at the time their clearance for home consumption includes any owner held to be importer. When we look into the definition clause we have to give meaning to the words "unless otherwise requires". The words are very important. The show cause notice does not charge Usha Intercontinental as to payment by them and the act played by them in importation. The show cause notice specifically admits on the basis of the statements that the appellants Mili Detergents and Jayantilal Bhogilal were the importers. Viewed from these facts of the case, we cannot agree with the able arguments put by Shri Mondal and Shri Choubey.
18. That takes us to the case law which Shri Choubey and Shri Mondal relied, namely Usha Rectifier Corporation (India) Ltd. v. CC 1997 (93) ELT 71 (Tribunal). In the said case the appellant on the basis of the import licence issued in the name of Passive Components Pvt. Ltd. imported as letter of authority holder. He claimed exemption under 40/78. The Tribunal was required to look into the provisions of paragraph 383 of Hand Book in paragraph 6 of the said judgment which is more or less similar to paragraph 108 of the Import Export Procedure. But there is one distinction in this case. In para 7 of the said judgment it has been held as follows - "It was conceded by the ld. DR that the Letter of Authority was presented along with the Bill of Entry and we also find at page 24 the letter dated 11.6.1983 from Passive Components Pvt. Ltd. to Asstt. Collector that the Bill of Entry was filed by M/s. Rectifier on their behalf as per their letter of authority dated 12.4.1982." This type of fact is not present in this case. It is nowhere admitted between the parties nor was it alleged in the show cause notice that bill of entry was filed by Mili Detergent or Jayantilal Bhogilal on behalf of Usha Intercontinental as has been found by us earlier. Usha Intercontinental did not spend any money for the importation of the goods. The agreement between Usha Intercontinental and the other appellants shows that the other appellants as the letter of authority holder, should not violate the provisions of notification 159/90-Cus and the Import Export Policy. We are therefore of the view that the said judgment cannot help the department and the appellants Mili Detergent and Jayantilal and Bhogilal. We are therefore of the view that appeals of Usha Intercontinental, in the facts and circumstances, have to be allowed.
19. Reference to Section 147 of the Act also will not apply to the facts of the case because it is not the case of any party that the appellants Mili Detergent and Jayantilal Bhogilal were clearing agents. Only in case of clearing agents non payment of duty, the question of equity from either principal or agents would be applicable. In this case it is not the case of actual importer and clearing agent but licensee and letter of holder. We do not think the provisions of Section 147 will be applicable to the case.
20. We are not making any reference to the applicability of the judgment of the larger bench of the Tribunal in Franco Italian Co. Pvt. Ltd. v. CCE 2000 (40) RLT 295 because we have come to a conclusion on the other factual aspects.
21. This takes us to levy of penalty on Mili Detergent and Jayantilal Bhogilal. It is an admitted position in terms of the statements recorded by the authorities that Mili Detergent and Jayantilal Bhogilal have violated. In the show cause notice at paragraphs 3 to 7 they have admitted that they have sold the goods outside violating the provisions of Import Export Policy as well as they have taken modvat credit. The sale of the materials by Mili Detergent and Jayantilal Bhogilal is an undisputed fact and taking modvat credit also undisputed. Therefore violations have been taken place only by the active participation and connivance by Mili Detergent and Jayantilal Bhogilal. We are therefore of the view that there is a violation of Section 111(o) of the Customs Act. Therefore their appeals are dismissed except that the reduction of penalty as indicated below:-
Mili Detergent - Rs. 25 lakhs Jayantilal Bhogilal - Rs. 25 lakhs
22. Appeals of Usha Intercontinental are allowed. Appeals of Mili Detergent and Jayantilal Bhogilal are dismissed except as indicated above. Ordered accordingly.