Customs, Excise and Gold Tribunal - Mumbai
Commr. Of Cus. (Appeals) vs Cosper Impex Pvt. Ltd. on 17 January, 2003
Equivalent citations: 2003(160)ELT712(TRI-MUMBAI)
ORDER C. Satapathy, Member (T)
1. Shri Ishwar Singh, learned J.D.R. appearing for Revenue states that this is an appeal filed against the order-in-appeal, dated 4-7-1997 passed by the Commissioner of Customs (Appeals), Mumbai. He further states that the appeal has been filed on the following grounds :
"Under para 47 of the Exim Policy, inputs required for manufacture of export product may be allowed to be imported duty free against an advance licence under the Duty Exemption Scheme. Exempted materials allowed to be imported duty free under Notification No. 80/95-Cus., dated 31-3-1995 as amended from time to time are defined as "raw materials, component, intermediates, consumables, computer software and parts required for manufacture of export product. Therefore, the concept of nexus between inputs used in the export production and the imported items is inherent in the Notification and the Duty Exemption Scheme.
Further to above, the licence in the present case was issued subject to the condition sheet attached to licence, wherein condition No. VII specifically required that nexus between item of import and export product must be maintained. This condition was not deleted by the Licensing Authority even after endorsement of transferability. It has been held by the Hon'ble CEGAT in Mewati & Co. v. Collector of Customs, Bombay - 1996 (81) E.L.T. 109 (Tribunal) that the transferability only indicates that the licence holder can, if he does not himself require the items permitted thereunder, pass over his entitlement under the licence, to any other person similarly situated. The mere right to transfer the licence neither bestows upon him nor entitles him to transfer any right more than what he possesses. The effect of making such licence transferable, may result in the holder of such Licencees earning some premium, but in the absence of any specific provision, such right cannot be construed as enabling the transferee to import any item mentioned as permissible notwithstanding its nexus with the export product for which the licence is granted.
Further the above Ministry of Finance and Ministry of Commerce have issued a few circulars for verification of nexus with particular reference to marble. As per Ministry of Commerce Circular 16/96-97, dated 30-9-1996 the marbles imported should be in broad conformity with the goods exported in terms of their physical specifications such as size, thickness. From the language of above circular it appears that the confirmation has to be with reference to physical specifications like size, thickness, etc., and not only with reference to size and thickness. Circulars F. No. 605/226/94 DBK (PT), dated 4-10-1996 and F. No. 506/22694/DBK, dated 4-3-1997 from Ministry of Finance have further clarified this aspect. The circular dated 440-1996 requires that the nexus in case of import of marble under DEEC Scheme, has to be established w.r.f. colour, size, and thickness. Circular dated 4-3-1997 while talking of marble exports under DEEC prior to 6-12-1997 clarifies "Where colour of marble has been indicated on any of the documents, namely Shipping Bill, Letter of Credit, Bill of Lading, Export Order, packing list or any other documents, or as mentioned in the examination report, in that case, clearance of imported marble will be allowed duty free provided the colour group (white or non-white) of the imported marble is the same as the colour of exported marble. If export is of coloured marble, import of only coloured marble will be allowed and likewise against export of white marble only white marble will be allowed". Hence even the circulars issued by the Government require establishment of nexus before allowing duty free. That the licence has been endorsed for transferability cannot circumvent requirement of nexus between imported goods and those used as inputs in the export product and also it cannot be presumed that the licence has been endorsed for transferability only after verification of nexus.
The condition of nexus has not been waived by the Licensing Authority even at the time of making endorsement of transferability and the same has to be verified at the final stage at the time of import."
2. He further states that in this case export of green marble tiles of Indian origin has taken place and against the same white marble slab of Greek origin have been imported. He also states that the term "material" which can be imported against export to be made has been defined in the relevant Notification No. 80/95 and order-in-original clearly gives a finding after detailed discussion that the impugned imported product has no nexus to the exported product and hence the duty exemption cannot be granted by the Customs Authorities. He also submits that the Commissioner (Appeals) is clearly in error when she says that customs authorities cannot deny the duty exemption once the DGFT has made the licence transferable. He also refers to various circulars of the DGFT and the Board at Annexure E-I to E-V to the Appeal Memorandum. Finally, he states that the provision of relevant Notification No. 80/95-Cus., dated 31-3-1995 has to be strictly interpreted particularly with reference to Explanation (iv) and the exemption has to be denied where nexus between the imported product and export product has not been established. He also refers to the following case laws :-
(1) Mewati & Company v. Collector of Customs, Bombay - 1996 (81) E.L.T. 109 (Tri.) (2) SVA Udyog Viniyog Ltd. v. U.O.I. - 1993 (65) E.L.T. 20 (Bombay) (3) Zenith Tin Works Ltd. v. Collector of Customs, Bombay - 1995 (75) E.L.T. 865 (Tri.) against which the civil appeal was dismissed by the Apex Court - 1997 (93) E.L.T. A176.
3. The learned J.D.R. also states that the Commissioner (Appeals) has relied on the decision in the case of Wearon Exports Pot. Ltd. v. Union of India in the Writ Petition No. 1186-CE-1996 against which SLP has been filed by the Department in the Apex Court. Shri S.N. Kantawala, learned Advocate for the respondents states that the said SLP has been dismissed but he is not able to produce a copy of the order.
4. The learned Advocate states that the issue involved in this case is settled by the following decisions of the Tribunal :-
(1) Nitco Marble and Granite Pvt. Ltd. and Anr. v. Collector of Customs, Nhava Sheva and Anr. - 1999 (112) E.L.T. 193 (Tri.) = 1996 (63) ECR 111 (Tri.).
(2) Goodluck Industries v. Commissioner of Customs, Calcutta - 1999 (108) E.L.T. 818 (Tri.).
(3) Commissioner of Customs, Nhava Sheva v: Alfa Exim & Sandeep Impex P. Ltd. - 1997 (95) E.L.T. 366 (Tri.) = 1997 (71) ECR 287 (Tri.).
To a query from the Bench as to whether the importer under the transferred licence can import something which the original exporters could not himself import, the learned Advocate states that since the licence is in specific terms, the case law relating to SVA Udyog Viniyog Ltd. is not applicable. The learned J.D.R., however, contends that the licence is not in specific term, but in generic term.
5. .After hearing rival submissions and perusal of case records and the case laws, we find that the central issue involved in this case is whether under the DEEC Scheme, an importer holding a transferred licence can import a product which has no nexus with an export product exported by the original licence holder and whether such imported product can be granted exemption from customs duty. We find that the Additional Commissioner adjudicating the case has passed a very detailed speaking order examining the factual aspect of the case as well as the licence conditions, the legal provisions in the relevant customs duty exemption notification and has come to the conclusion that since the imported goods have no nexus with the export product, the duty exemption cannot be granted to the same. On the other hand, the order-in- appeal passed by the Commissioner (Appeals) is superficial and sketchy, the operating portion of which runs into the following four short paragraphs in which she does not deal with the facts of the case, the provision under the relevant notification or other law points involved :-
"From the above it is clear that appellants are holding a validly transferred licence and in terms of condition VII of the notification 80/95 benefit accrues. The DGFT, the authority for the endorsement for transferability has discharged their obligation, subsequently to sit in judgment after endorsement is going beyond the said jurisdiction. The impugned import has been made based on licence issued by the competent authority. Once the export obligation under the DEEC Scheme are met with and the 'licence transferee are available, no further nexus is required to be established between the goods imported and goods earlier exported under the DEEC Scheme.
Since the goods were imported against advance licence which covers the description of impugned goods and licence was validly transferred. Hence appellants are eligible for exemption benefit 80/95-Cus. under condition VII of the said notification.
To arrive to this conclusion I rely on the judgment in the Writ Petition 1186-CE 1996 in the case of Wearon Exports Pvt. Ltd. and Anr. v. Union of India and Ors., of High Court, Bombay, in which it is held that "at the third stage in relation to chain, namely the stage of import, neither the exporter nor the transferee of the licence would be required to be called upon to satisfy the customs authorities once again that the duty free import entitlement was legitimate.
In view of above, I set aside the impugned order with consequential benefit to the appellant".
6. Basic features of the DEEC Scheme operated jointly by the Department of Commerce and the Department of Revenue to promote exports are as follows. Under the scheme, potential exporters are granted licences to import goods duty free for producing export products. There is a parallel scheme under which if duty paid inputs are used in the export product, drawback of such duty is allowed. The rationale behind such schemes is to free export product from duty which would otherwise be leviable on inputs which go to produce goods for domestic consumption. Grant of such exemption enables the export products to be free from domestic levies and internationally competitive. Grant of such exemption is also compatible under WTO Agreements to which India is a signatory. Any exemption granted over and above the actual duty leviable on the imported inputs and any exemption granted to products which are not required for the export product will not only amount to grant of an impermissible subsidy under the WTO regime but is also beyond the competence of the Departments administering such schemes.
7. The normal course under the DEEC scheme for an exporter would be to obtain a licence specifying the export product, the materials required for producing such export product and to import the same through customs. While allowing such imports duty free, customs would normally examine the material and ensure that the same is required for the manufacture of the export product "nexus" which is a term used to represent such requirement. Ultimately, when the finished export products are presented to customs, the same would also be examined to ensure that the same have been produced out of the imported materials and that they conform to description in the licence.
8. The scheme also permits, as an exception, to fulfil the export obligation first using available materials with the exporters and subsequently making duty free imports against such exports. As a further relaxation the scheme also allows such licences where export obligations are fulfilled to be transferred with approval of the DGFT authorities. In such cases, the export products would have been examined by the customs authorities but the imported goods can only be examined for the first time when they are imported by the transferees. The impugned order relates to such a case where white marble of Greek origin have been imported against transferred licence issued for prior export of green marble of Indian origin.
9. Keeping in view the basic features of the DEEC Scheme as explained above and also the specific provision contained in the customs duty exemption Notification No. 80/95-Cus., dated 31-3-1995, we have no doubt in our mind that since imported product in this case has no nexus as per the detailed finding of the adjudicating Additional Commissioner with the export product, the same cannot be given the customs duty exemption. The terms of the notification also makes it clear that the exemption is restricted to 'materials' which has been defined to mean 'raw materials, component, intermediate, consumable, computer software and parts required for manufacture of export products.' If a material has no nexus with the export product, the same cannot be considered to be required for manufacture of the export product nor can it be granted the duty exemption under the said notification. We are, however, of the view that so long as the licence issued by the DGFT covers the imported goods, even in generic term, import of the same have to be allowed without confiscation and penal action. In other words, while imports under such transferred licence where the imported goods conform to the description given in the transferred licence will have to be allowed without confiscation and penalty, so long as the goods have no nexus to the export product, the same have to be denied duty exemption under the relevant customs notification.
10. Before parting with the case we observe that there are some decisions of the Tribunal such as in the case of Collector of Customs, Nhava Sheva v. Alfa Exim & Sandeep Impex P. Ltd. - [1997 (95) E.L.T. 366 (Tri.) = 1997 (71) ECR 287 (Tri.)] where it has been held that in the case of transferred licences where eligibility to export has been examined twice, the importers cannot be required to prove once again eligibility to duty free import and nexus with the export product. There are other decisions of the Tribunal as in the case of Zenith Tin Works Ltd. v. Collector of Customs, Bombay - 1995 (75) E.L.T. 865 (Tri.) where it has been held that the goods imported as replenishment against raw materials used in manufacture of export goods which have already been exported under the duty exemption scheme must be of identical specifications. Civil Appeal against this decision has been dismissed by the Apex Court - 1997 (93) E.L.T. A176. We are unable to agree with the ratio of the first set of decisions for the reason that as in the instant case of import under a transferred licence, the imported product in question is examined for the first and only time by the customs authorities after import. What was examined earlier by Customs was the export product and obviously, the DGFT authorities while making the licence transferable had no occasion to either examine the export product or the goods yet to be imported. Our finding is, however, in agreement with the second set of decisions which logically require nexus to be established at the time of import under the transferred licence.
11. In view of the foregoing, we set aside the impugned order-in-appeal. The Department's appeal is allowed in so far as duty demand is concerned but we set aside the order of confiscation and imposition of penalty for the reasons as indicated above.