Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Cus. vs Bharat Starch Industries Ltd. on 7 July, 1997
Equivalent citations: 1998(97)ELT159(TRI-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. M/s. Bharat Starch Industries (respondents) filed a Bill of Entry seeking clearance of the goods imported by them (viz. Ion exchange resins) under the EPCG scheme at NIL rate of duty in terms of Notification No. 111/95-Cus. against a release advice dated 11-9-1996 issued by Mumbai Custom House. The subject goods were covered by an EPCG licence No. P/CG/2134490/C/XX/37/01 /95, dated 22-8-1995 issued by the DGFT authorities under Para 38 of the EXIM Policy, 1992-97 AM, which was registered at Mumbai Custom House. However, the Asstt. Commissioner, Appraising Group VA, Jawahar Custom House vide his order, dated 4-10-1996 rejected the party's claim for assessment under the EPCG scheme and denied concessional assessment under Notification No. 111/95-Cus. on the grounds that the goods imported did not fall under the purview of 'Capital goods' as defined in the Notification No. 111/95-Cus. Therefore, as the goods in question failed to satisfy the primary requirement laid down in the Notification No. 111/95-Cus. to qualify for concessional assessment envisaged therein, they were denied benefit under the same. The Asstt. Commissioner held that though the goods are undoubtedly used for the purification of Dextrose or Citric Acid, they do not participate in any chemical reaction and they neither accelerate nor retard such reaction so as to be considered as catalyst which is covered by the Notification.
2. He, therefore, concluded that the goods in question cannot be considered as catalysts for initial charge for the purpose of inclusion in the definition of 'capital goods' in Notification No. 111/95-Cus. Consequently, he ordered assessment of the goods on merits under their respective tariff heading at an effective duty rate applicable thereto. He held that the goods were consumables and not capital goods as defined in Notification No. 111/95-Cus.
3. Being aggrieved, the importer preferred an appeal before the Commissioner of Customs (Appeals). They contended that the impugned goods are 'Catalysts' for initial charge and therefore, covered under the term 'Capital goods' as defined in the Notification No. 111/95-Cus. and consequently eligible for concessional assessment under the same. They also averred that the lower authority bypassed the provisions of the Import Policy and disregarded the background to the issuance of an EPCG licence by a Committee consisting of a team of experts and experienced persons in the field. Commissioner of Customs (Appeals) vide her Order No. 838/96-BCH, dated 4-11-1996 set aside the impugned order of the Asstt. Commissioner and granted consequential relief to the appellants while allowing the appeal. The ld. Commissioner of Customs (Appeals) held that as the appellants have a valid EPCG import licence issued by the DGFT authorities which is duly registered by the Customs authorities and includes the impugned goods, it is incorrect to deny the benefit of Notification No. 111/95-Cus. to the goods under import. Further, Commissioner of Customs (Appeals) held that as the EPCG licence has been specifically issued under the provisions of the EXIM Policy, therefore, to disregard this is erroneous and bad in law.
4. Shri K.M. Mondal, ld. SDR contended that Commissioner (Appeals) has only considered the fact that the respondents had produced EPCG licence but has failed to consider the other aspect which is a condition for exemption under the Notification viz. that the Ion Exchange Resin imported does not answer the definition Capital Goods as defined in the notification. This condition is also equally to be satisfied. The ld. SDR also referred to the reasoning in the Asstt. Collector's order which brings out that Ion Exchange Resin is used for purifying dextrose. It does not participate in any chemical reaction; therefore the goods cannot be considered as Catalyst for first charge to be covered by the definition of capital goods in the Notification. The ld. SDR also cited and relied upon the Delhi High Court judgment in the case of Exports Apparels Group v. U.O.I. - 1997 (91) E.L.T. 307 wherein the court held that it is for the Customs authorities to examine whether the goods have been imported in terms of the licence and what duty, if any, has to be levied. Further, the ld. SDR cited the Supreme Court decision in the case of Seshank Sea Foods Pvt. Ltd. v. U.O.I. - 1996 (88) E.L.T. 626 wherein the Supreme court held that when the terms of the exemption notification has been made part of the import licence, the Customs authorities have the competence to go into whether the terms for the exemption are specified with reference to the licence.
5. Dr. N. Kantawalla ld. Counsel for the respondent pointed out that the licence has been issued after the application for the licence has been scrutinised by the Capital Goods Committee consisting of experts. The goods imported are specifically covered by the licence issued and in such a situation, the question of not granting the exemption will not arise at all. The ld. Counsel referred to Condition (1) to the exemption notification which is that goods should be covered by valid licence issued under Export Promotion Capital Goods (EPCG) Scheme in terms of Export and Import Policy permitting import of goods free of duty and the said licence is produced for debit by the proper officer of the Customs at the time of clearance. The respondent have fully satisfied this condition and the ld. Counsel urged the exemption under the Notification should therefore flow from such fulfilment of the condition. The ld. Counsel relied upon the Bombay High Court judgment in the case of Lokash Chemical Works v. Collector of Customs -1981 (8) E.L.T. 235 wherein the court had held that it is not for the Customs who interpret licensing policy and that when a valid licence covering goods have been produced, it should be accepted by the Customs.
6. We have carefully considered the submissions. The Notification 111/95 is issued Under Section 25 of the Customs Act, 1962 and grants exemption to goods specified in the table to the notification from whole of the duty of Customs and the additional duty subject to the condition that the goods are covered by EPCG licence permitting import of goods duty free and such licence is produced by the importer at the time of clearance as well as certain other conditions prescribed therein. The table annexed to the notification covers capital goods; capital goods in SKD/CKD condition to be assembled into capital goods by the importer; Components of capital goods required for assembly or manufacture of such goods by the importer; Spare parts not exceeding 20% value of the goods stated above as actually imported and required for maintenance of capital goods so imported, assembled or manufactured. The Notification contains, the following explanation which shows that in the notification capital goods means any plant, machinery, equipment and accessories required for -
(a) manufacture or production of other goods, including packaging machinery and equipment, refractories refrigeration equipment, power generating sets, machine tools, catalysts for initial charge, and equipments and instruments for testing, research and development, quality and pollution control;
(b) use in manufacturing, mining, agriculture, acquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultury and sericulture.
7. The respondent had claimed that Ion Exchange Resins imported are covered by the explanation Catalysts for initial charge and hence are eligible for the exemption against the EPCG licence produced in which the goods are covered. However, it is found that the Ion Exchange Resins are used by the respondent in the following manner in the manufacture of Citric Acid. They manufacture Citric Acid from starch by process of fermentation. Starch is converted into Dextrose and the Dextrose is fed in cationic exchangers for purification. These exchangers are charged with the impoited Ion Exchange resin, when dextrose is passed through the resin, impurities are trapped in the charge. The resin is thus used to purify the dextrose which is then fermented into Citric Acid. The crude Citric Acid is converted into calcium citrate on reaction with lime. Calcium citrate is split into Citric Acid and Gypsum with the help of sulphuric acid. The Citric Acid is then passed through Ion Exchangers to remove various impurities. These Ion Exchangers contain the Ion Exchange Resin which purifies the Citric Acid. The resin as such does not participate in any chemical reaction; it simply purifies the products at various stages in the manufacture of Citric Acid.
8. The material on record also does not indicate that Ion exchange resin would answer the description of Catalysts. A catalysts is a substance which affects the rate of a chemical reaction without itself undergoing a chemical change. Catalysts accelerate or retard the chemical reaction. In this connection, it is significant to note even the suppliers in their explanation regarding their product have not categorically accepted that Ion Exchange Resin is a catalyst. They have only stated that they are similar to catalysts. They do not undergo any chemical change during manufacturing process nor form part of the plants finished product in any way according to the supplier. On the contrary, they say that the same charge of resin would be used again and again. They have further stated by analogy with catalysts, Ion Exchange Resin should not be termed as 'raw materials' and they further indicate that it could "possibly" be a spare parts rather than consumer goods.
9. Therefore, the conclusion of the Asstt. Collector that Ion Exchange Resin will not be covered by the catalysts for first charge occurring in the explanation in the notification is well founded, because clearly it is not the categorical assertion of the respondent's supplier that these are catalysts and judging by the information on Ion Exchange Resin in the manufacturing process of being a purifier also it does not answer the definition of a catalyst.
10. The Commissioner (Appeals) in the impugned order has accepted the respondent's contention that exemption should be granted because the licence specifically covers the goods imported and it is a licence issued under EPCG for import of capital goods under the scheme laid down in the Import Policy. Therefore, the Commissioner (Appeals) has held that the department cannot disregard this aspect. However, in this regard it is to be noted that production of EPCG licence is only one of the conditions in the licence. We may also note that so far as the licensing authority is concerned, the licensing policy, 1992-97 contains the definition of capital goods which is much wider than in the explanation to the Notification 111/95 and the import policy definition defines capital goods inter alia as meaning plant, machinery equipment or accessories required for manufacture or production either directly or indirectly of goods or in rendering services. Such a wide definition not being available in the exemption notification, the argument, that when any specific licence under EPCG has been produced the exemption has to automatically follow, is not well founded.
11. In such a context, the Delhi High Court judgment relied upon by the Ld. S.D.R. in the case of Export Apparel Group (supra) becomes relevant. There the petitioner questioned the detention of their goods by the Customs authorities against DEEC licence as being without jurisdiction. The petitioner took objection to the Customs authorities seeking information whether the integrated circuits imported against the licence can be used in the export product viz. radios. Before the Delhi High Court it was submitted by the revenue that a circular issued by the Director General Foreign Trade relied upon by the Petitioner was against the provision of Customs exemption notification for DEEC purpose No. 203/92 issued Under Section 25 of the Customs Act under which various conditions have been prescribed and the term "materials" for the purpose of exemption was also defined; and that therefore the Customs authorities could go into the fact whether the goods imported will be eligible for exemption under the notification against the DEEC licence produced. The High Court held that it is for the Customs authorities to examine if the goods have been imported in terms of the licence, and what duty of customs, if any is leviable thereon. It may be noted that under the Import Policy Advance Licences for duty free imports under DEEC scheme are also issued by Advance Licensing Committee. So in the present case also the Customs authorities will be within their rights to ensure that the goods imported answer the definition of capital goods given in the explanation to notification for the purpose of granting the exemption to the goods.
12. Similarly the Supreme Court decision in the case of Seshank Sea Foods (supra) has held that where the terms of the exemption were made part of the import licence the Customs authorities have the power to ascertain whether any breach of conditions of exemption has occurred. In such a context of the inter-linking of exemption to the import licence, ratio in the case of Lokash Chemicals (supra) relied upon by the respondent will not be applicable because that was the case where import licence produced did not have a inter-connection with the Customs duty exemption. In the result, it is held that in the facts of this case exemption under Notification 111/95 cannot be extended to the Ion Exchange Resin imported by the respondent, and in this view of the matter, the impugned order is set aside and the appeal by the department is allowed.