Customs, Excise and Gold Tribunal - Mumbai
Jaysynth Dyechem Limited, Mahendra K. ... vs Commissioner Of Customs (Export ... on 30 April, 2001
Equivalent citations: 2001(136)ELT1429(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. Jaysynth Dyechem Limited, the appellant in 24 of these appeals, against a common order of the Commissioner of Customs (Export), Mumbai, is manufacturer of dye and intermediates. During the period with which we are concerned, 1994 to 1997 it sought for, and obtained number of quantity based advance licences for import of materials required for the manufacture of dyes. Such licences are issued either to facilitate import materials required for the manufacture of export product, or permit importation of such goods for replenishment in cases where export of the of the product already taken place, manufactured by it either from imported material or from Indian material. We are told that the licences involved both the types, where the export has already taken place or where it was yet to take place. The import and export was concurrently going on.
2. This appellant claimed in respect of the material that it imported under these licences, benefit of notification 204/92. In essence this notification requires that the goods be imported against the quantity based duty exemption entitlement certificate issued by the licensing authority. The importer is required to furnish a bond or legal undertaking before the licensing authority for compliance of the condition in the notification, that exempted material shall not be disposed of or utilised in any manner, except for utilisation and discharge of export obligation, before the obligation under the licence is discharged in full and export is full. Notification, defines, in the explanation 'material' to mean "(a) raw materials, components, intermediates, consumable and parts required for manufacture of export product;
(b) spares and mandatory spares within a value limit of 5% of the value of the licence, which are required to be exported along with the export products; and
(c) packing materials required for packing of export products"
3. The 24 notices, which we referred to, were issued to the appellant in 1997 by the Commissioner of Customs (Export). Chapter VII of the Import Policy for 1992-97 deals with duty exemption scheme. Paragraph 51 of this chapter provides that "standard input-output norms for the imports and exports for the grant of both value based and quantity based advance licences and value addition norms for value based licences shall be in accordance with the norms published by the Director General of Foreign Trade in the Handbook of Procedures (Vol. II). However, in respect of quantity based advance licences for which no input-output norms having been published, quantitative norms will be as specified by the competent authority. Chapter VII of Handbook of Procedures contained in paragraph 109 a provision that in respect of application for quantity based licences for which standard input-output value addition norms has not be published, Regional Advance Licensing Committee (RALC), Zonal Advance Licensing Committee (ZALC) or Advance Licensing Committee (ALC) will function as recommendatory authorities. The application made for issue of advance licences related to export of items for many of which there were no input-output norms fixed in the Handbook. For such goods presumably the norms were fixed by any of these two committees.
4. The department issued 24 notices to the appellant, that we referred, in 1997. It proposes to recover duty which have been foregone by granting exemption on the basis essentially of the following three charges. The first was that out of quantities of imported exempted material for which the licences were issued in accordance with the norms published in the Handbook of Procedure that portion which has not been shown to be utilised in the export product were not covered by the exemption and liable to duty. Secondly it alleges that in respect of those materials for which there was no input-output ratio fixed in the Handbook and ratio was specifically fixed by the committees that we referred to, the importer had mis-declared the quantity that it required for manufacture of the export product and propose to recover duty on the quantity the notices found to be in excess. It thirdly alleges that some materials, predominantly lignite sulphonate could not be used at all in the manufacture of the exported product but had been incorporated int eh licence by furnishing wrong information to the licensing authorities and propose denial of exemption to it. Notices also propose confiscation of materials under Section 111(d) of the Act and penalties on the importer, its director Mahendra Kothari and manager Ashwin Thakkar.
5. In the orders disposing of these show cause notices the Commissioner gave up the first charge that we have referred to. He noted that the norma prescribed in the Handbook were in the nature of average and any person, who by using better and more efficient technology could do with a lesser quantity than that was prescribed in the norms could not be punished, and was entitled to the exemption for the entire quantity arrived at by applying that norms. He found the second and third charges to be substantiated and demanded duty on these and imposed penalties on the company, its director and manager. Hence these appeals.
6. The reason that the Commissioner advances for his conclusion with regard to the charge relating to import of materials for which the norms were fixed by the licensing committees are as follows: The manufacturer who applies for the licence is aware of the quantity, the different inputs that he needs, having regard to its manufacturing process. However, he misdeclares the quantities that he needs, and therefore imports goods in excess of that which is required, and he has done so with the sole intention of evading payment of customs duty on these goods. Therefore the benefit of notification is not available and the customs authorities are entitled to examine this aspect.
7. This conclusion of the Commissioner, in effect, puts him so that since he sits in judgement over the function of the Advance Licensing Committee or the Zonal Advance Licensing Committee. We are told by the counsel for the appellants, these Zonal and Regional committees comprises, in addition to the licensing authority, representatives of the Director General of Technical Development, Director of Industries of the concerned State and a representative of the Customs Department. He has, in effect, sat in judgement on the issue of licence. It is now settled law that customs authorities cannot question the basis upon which the licence is issued. They are required to abide by the terms of the licence, even if they are of the opinion, the licence ought not to have been issued. The landmark judgement on this aspect was delivered by the Bombay High Court in Lokash Chemical Works Vs. M.S. Mehta, Collector of Customs (Preventive) Bombay & Others 1981 ELT 235. In this judgement, the Court delineated the respective functions of the customs authorities with regard to import and assessment to duty of such goods. It said the function of the licensing authorities is to consider whether any particular items would be allowed to be imported or not looking into various circumstances. If satisfied it could permit import. It is their function to permit import by grant of licence and impose such conditions as necessary. As against this the function of the customs authorities starts only after the goods are imported, brought into the territorial waters of the country. It is not for the customs authorities to interpret the licensing policy and to enforce the same once a valid licence is produced. This function is with the licensing authority. If this bifurcation of the function is not adhered to there is every likelihood of utter confusion. The licensing authority may interpret one way and the customs authorities may take contrary view producing conflict between the two authorities resulting harassment to the importer. If the licence is granted for a particular item by the licensing authority the customs authority will have no right or power to go beyond the licence. Despite the passage of 20 years after the judgement was delivered, it is distressing to find the same situation. This judgement of the Court has been followed in number of decisions of the Tribunal. Therefore, if the Commissioner were of the view that the importer has misled the licensing authority or any other authority formulated by it with regard to the quantity that it required for manufacture of the export product, it is his duty and function to intimate the licensing authority so that authority can investigate into the matter and institute necessary proceedings against the licensee under the statute. It is not his function to overrule the decision of the licensing authority to decide whether a particular item could or not be imported.
8. The fact that the benefit of notification is available does not in any way alter this position. The right to import of the goods under the notification flows from the possession of the advance licence. No doubt other conditions have to be satisfied. We are not concerned at this point with a situation where the goods are not being used at all. It is only the extent of the goods which are to be used that is before us. They are, therefore, 'materials' within the meaning of the notification, and the existence of notification does not empower the Commissioner to go beyond the licence.
9. The departmental representative is unable to advance any reason outside the Commissioner's order to justify the conclusion that the Commissioner has arrived or to say why the ration of the judgement of the Lokash Chemical Works Vs. M.S. Mehta, Collector of Customs (Preventive) & Others and other decisions of the Tribunal following it should not be adopted.
10. There is in fact a contradiction in the Commissioner's own order. As we have noted, he drops the proceedings relating to the goods permitted to be imported under the published norms but not really required by the manufacturer. When doing so, he in effect, accepts that it is not necessary that every bit of material that is imported under the advance licence must be used in the export product. If that is the case, the question that would then arise, how he can justify not permitting import of excess of material (assuming it to be so) in cases where the norms are determined by the licensing committee. We see here a contradiction that we are unable to resolve. For these reasons, we therefore, hold that the demand on this count is not maintainable and set it aside and also the penalties on the manufacturer and the other appellants in this regard.
11. The question that we are now left with is the eligibility to the exemption on lignine sulphonate. It is the appellant's contention that lignine sulphonate is used in the manufacture of reactive dyes. The Commissioner finds, from the statements of various employees in the appellant'[s factory that lignine sulphonate cannot be used at all in the manufacture of any dyes or dye intermediates. A simple reference to The Condensed Chemical Dictionary of Gessner G. Hawley indicates one of the use of lignine sulphonate to be manufacture of dyestuffs. The Commissioner accepts that if any material is useable commercially in the manufacture of the exported product the fact that it may not have been used by a particular manufacture will not debar the material from entitlement to the exemption. In his own words for being eligible for granting of exemption under the said notification it is to be seen whether lignine sulphonate is as such or of a kind which is commercially known to be used in the manufacture of the said product so as to fall within the definition of 'material' as discussed in the preceding paragraph. He records the submission of the manufacturer that lignine sulphonate is commercially known to be used in the manufacture of resultant product. Thereafter he relies upon the statement of the Dy. General Manager of the appellant, which he finds have said; "in the correct terms lignine sulphonate is a dispensing agent which is never used in the manufacture of reactive dyes."
12. The Condensed Chemical Dictionary indicates as one of the use of lignine sulphonate as manufacture of dyestuffs although it is silent about the kind of dyes. Counsel for the appellants could not produce before us any material from any recognised technical literature to show that lignine sulphonate is used in the manufacture of reactive dyes. He, however, cites some patent application filed in the UK and India, which indicates in the manufacturing process, use of the lignine sulphonate in the reactive dyes. Nor have any of the three Dy. General Managers stated that lignine sulphonate is 'never' used in the manufacture of reactive dyes. Each of them only says that lignine sulphonate is never used in the manufacture of any of the reactive dyes manufactured at appellant's factory. In the Commissioner's own view it is not necessary for the benefit of the exemption to be granted for a particular item to be used by the manufacturer in the material that he exports. Exemption would be available so long as the materials are commercially useable. Therefore, even if it can be shown that lignine sulphonate is useable in the manufacture of the reactive dyes there would, by applying the Commissioner's own reasoning, be no bass for denying the exemption. The counsel for the appellants seeks one opportunity to successfully establish afresh with standard technical literature on reactive dyes the capability to use lignine sulphonate in the manufacture of reactive dyes. Having regard to the material that has been furnished before us we are of the view at least a prima facie case has been made out in support of his submission and the appellant should be given an opportunity to substantiate its contention. We have also taken note of the fact that the show cause notices issued proposes denial of the exemption only on the ground that the appellant did not use the lignine sulphonate in the export product and not on the ground that it may not be useable at all.
13. The denial of benefit to lignine sulphonate is an issue or the sole issue in the following appeals:
C/235, 236, 237, 340, 341, 342, 343, 344, 345, 349, 350, 351, 776, 777, 778, 979, 980, 981/2000; C/329, 330, 331, 332, 333, 334, 341, 342 & 343/2001.
These appeals are accordingly allowed and the impugned orders set aside. The Commissioner shall adjudicate in respect of these appeals eligibility of the lignine sulphonate to the notification after considering the submissions which the counsel for the appellant says, he will make to the Commissioner within six weeks from the receipt of this order. Thereafter, he says he would require a reasonable opportunity of hearing. The Commissioner shall after considering the submissions and the materials contained in the submissions and at the hearing, and also the materials that the department may rely upon, pass orders in accordance with law. We have already set aside the Commissioner's finding with regard to the other aspects.
14. All the appeals are accordingly disposed off.