Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri M. ... on 11 September, 2012
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad Appeal No. : C/276 of 2011 Arising out of : OIO No. KDL/Commr/DE.NOVO/27/10-11 dt. 31.3.2011. Passed by : Commissioner of Customs, Kandla For approval and signature : Hon'ble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant (s) : M/s. Indu Nissan Oxo Chemical Industries Represented by : Shri M. Chandrasekharan, Sr. Adv. and Shri Arun Mehta, Advocate Respondent (s) : Commissioner of Customs Kandla
Represented by : Shri P.N. Sarvaiya, A.R. CORAM :
Hon'ble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. B.S.V. Murthy, Member (Technical) Date of Hearing : 11.09.2012 Date of Decision : 11.09.2012 ORDER No. _____________ /WZB/AHD/2012 Per : Mr. B.S.V. Murthy;
The assessee imported Heptane and Nonene during the period 27.3.1991 to 06.9.1006 under 38 bills of entry. The assessee was using the said materials for manufacturing of final product namely Iso-Octanol and Iso-Decanol. The first two bills of entry dated 27.3.1991 and 27.6.1991 were covered by the Exim Policy 1990-92 and remaining 36 bills of entries pertained to the policy period 1992 to 1997. As regards the imports under Import Export Policy 1990-92, the imported items on chemically test were found to be Naphtha and therefore, were required to be declared as Naphtha by the Revenue and were held to be imported in contravention of policy provisions since during the relevant period Naphtha was a canalized item and could be imported through Indian Oil Corporation Limited (IOCL) only. As regards imports during the period from 1992 to 1997, the importation and subsequent utilisation by the assessee were viewed as in contravention of policy provisions during the relevant period and accordingly, proceedings were initiated and show cause notice was issued on 04.11.1996.
2. The matter is coming up before the Tribunal for the third time. The last order was passed by this Tribunal on 23.6.2010 with following observations/ directions:-
7. As is clear from the above the benefit has not been extended to the appellant on the sole ground that hey have failed to produce the documentary evidence showing usage of the product as fuel in their factory. As against above learned advocate has shown us a few certificates relating to some of the bills of entries, issued by the Superintendent indicating usage of the return stream as fuel. As such the only lapse on the part of the assessee remains that such certificates could not be placed by them before the original adjudicating authority. The assessees answer is that since the same were part of the proceedings in a connected matter, they were not separately placed before the adjudicating authority. However we find that in as much as such certificates were there and have now been shown to us, it would be in the interest of justice that the matter be remanded to Commissioner for verification of the said certificates. Since the matter is quite old, we expect him to pass a fresh order within a period of four months from today.
8. As regards the two bills of entries covered by the export policy 1990-1993, as we have already remanded the matter, the Commissioner would examine the appellants plea of bonafide in respect of the said bills of entries. The appellants are at liberty to place reliance on the evidence, as they think fit, in support of their plea of bonafide. Appeal is disposed off in above terms. As per these directions, impugned order has been passed wherein the Commissioner has considered the issue afresh and has imposed penalty of Rs. 7 Crores under Section 112A of Customs Act, 1962.
3. As regards the imports during the period 1990-1992, it was submitted that Directorate General of Technical Development (DGTD) had written a letter to Jt. Chief Controller of Imports and Exports on 15.8.1981, that Heptene and Nonene for importation of which the assessee had applied are covered under OGL and do not require import License. Further, the Jt. Chief Controller of Imports and Exports had clarified that Propylene Trimer / Nonene is under OGL vide letter dated 13.11.1981. IOCL which was canalising agency for import of Naphtha had written to M/s. Hico Products Limited on 27.1.1993 that Propylene Trimer is not listed under canalised products and DGFT had also clarified that Propylene and Tetramer are freely importable. Moreover, BPCL and HPCL in October 1996 had informed the appellant that product imported by the appellant is not Naphtha as per the Ministry of Petroleum and Natural Gas guidelines.
4. It was submitted by the learned counsel that in view of the above stand taken by various statutory authorities/ public sector units from time to time, if appellant entertained a bonafide belief that Heptene and Nonene could be imported under OGL, they cannot be found fault with. He also submits that in the bills of entries they had always indicated the imported items as Heptene/ Nonene and because the product was subjected to chemical test and chemical examiner had opined that the product is raw Naphtha, they were including a clause As Raw Naphtha in the bills of entries. It is his submission that this also supports the claim that appellant entertained a belief that Heptene and Nonene are under OGL and did not require any license during the policy period 1990-1992. Further, he also submits that the stand taken by Ppublic Sector Companies that the specifications of raw Naphtha as per the Ministry of Petro-Chemicals would not cover the product imported by the appellant, would also show that Government departments had different parameters for different purposes and the clarification issued in 1981, which has not been retracted at any time later would also show that Heptene/ Nonene cannot be considered as Naphtha, as per the statutory authorities other than Customs. Since the policy restrictions are imposed by the Commerce Ministry and Commerce Ministry generally acts on the basis of Ministry of Petro-chemicals as well as Ministry of Finance, deliberate violation of policy prohibitions cannot be laid at the doors of the assessee especially in view of the fact that there is no allegation of mis-declaration of description of the goods by the assessee at all.
5. We find considerable force in these arguments and feel that benefit of doubt has to be given to the assessee especially in view of the fact that we are in third round of litigation and definitely two views are possible as regards the items restricted/ prohibited covered under OGL category as far as imports during the Policy period 1990-92.
6. The second issue relates to imports for the period covered by the policy 1992-97. During this period the Naphtha was under restricted category and nature of restriction was as under:-
Import permitted without a license subject to the condition that the importer shall sell the return stream of naphtha to crude oil refineries only. The sale will be on commercial terms as may be settled between the importer and the refinery. However, the importer may use the return stream as an industrial feed stock for his own captive consumption, but the balance left, if any, shall be sold to crude oil refineries only. On 27.01.1993, IOCL had clarified to Hico products Limited that Propylene Trimer is not listed among the canalised products. On 25.3.1994, DGFT had clarified to Hico Products that Propylene Trimer and Tetramer are freely importable by actual users subject to actual user condition. BPCL and HPCL had replied to the assessee stating that product imported by them is not Naphtha as per guidelines of Ministry of Petroleum and Natural Gas and it is only Naphtha, if imported can be returned to the nearest public sector refinery. On 17.11.1994, DGFT had instructed to all licensing authorities and Customs authorities that import of Naphtha is permitted without license subject to condition that importer shall sell the return stream to crude oil refineries only. It was also clarified that return stream may be used as industrial feed stock for captive consumption and if there is any balance it should be sold to crude oil refineries only. Subsequently, on 17.12.1997, DGFT had permitted the assessee to use return stream as feed stock/fuel.
7. In the light of the permission granted by the DGFT to use the return stream as feed stock/ fuel and on the basis of submissions made by the assessee that they had end use certificates in respect of the goods imported, the matter was remanded. In the proceedings subsequent to remand, the Commissioner has on verification of certificates found that the assessee could not account for the full quantity of by-products as having been used as feed stock/ fuel. According to him, 31000.97 MT imported by the assessee could be accounted for as having not been used in terms of policy and accordingly, penalty was imposed.
8. As regards the facts, on going through the certificates, it was found that the certificates which have been prepared in respect of each and every bill of entry, show the total quantity imported and bye-products generated and used as fuel. The learned Commissioner totalled the quantity used as fuel and came to the conclusion that balance has not been used as per the policy. Learned counsel would rely upon the certificate issued by Superintendent of Central Excise, AR-III, Division-1, Baroda, wherein he has stated that the bye-product generated were utilised by the company for their captive use as fuel. The Superintendent also says that production and consumption of these by-products are duly recorded in RG-1 and clearances for captive consumption are after payment of Central Excise duty as applicable and issue of necessary invoices. Apparently, there is contradiction between two certificates. The certificate in respect of each bill of entry shows the quantity used as fuel and when totalled comes to less than the by-product generated whereas the certificate dated 31.7.1997 is a summary certificate which certifies that whole quantity of by-product has been used for captive consumption. The certificates in respect of which bills of entries have been issued on 16.12.1998 are much later than the certificate issued. There is no indication whether appellant could have used/ used the by-product as feed stock or whether they have used. In the year 1995, the appellant had intimated the department that they are seeking permission of DGFT to use the by-product as fuel and they are installing burner for this purpose. On the other hand it was also submitted that Revenue has no proof to show that this feed stock has been diverted in the market by the appellant. In fact, the Commissioner has simply relied upon the fact that certificates issued in respect of each bill of entry certify only the quantity used as fuel and did not talk about feed stock at all. In any case, the certificate is required to be produced in view of the fact that policy has imposed restriction and the obligation is on the appellant. Under these circumstances, Commissioner cannot be found fault with for recording findings that the appellant has not accounted for the portion of bye-product. Further, the appellant have been claiming that they have not sold the bye-product and have used them for captive consumption only and there is no clear contradiction/ rebuttal of this claim also. The net result is that the department has gone by just certificate and appellant has omitted to note that certificate talks only use of by-products as fuel and does not consider or record as to whether any of the by-products was used as feed stock at all. Since this is third round of litigation that the matter has been under consideration and further a view is possible that the product imported may not be Naphtha at all, in view of the fact that Public Sector Undertakings refused to accept the return stream on the ground that the product imported by the appellant do not fulfil the specifications/ guidelines of Ministry of Petroleum and Natural Gas. This aspect definitely goes in favour of the appellant. In the case of penal proceedings, in circumstances like this, in the absence of any deliberate diversion of by-products proved/ established by the department nor any allegation to that effect is made, the benefit of doubt has to go to the assessee. More so in view of the fact that there is no rebuttal or rejection of claim by the assessee that they have used some quantity as by-product. Moreover, if the product is not Naphtha at all, the assessee has no obligation.
9. While making above observation, we take not of the following submissions of the learned Senior Counsel and consider that these decisions would apply to the facts of this case :-
In Akbar Badruddin Jiwani vs. CC. 1990 (47) ELT 161, while dealing with liability to penalty under Section 112 (the Section was the same as sit is at present), the Hon'ble Supreme Court held (in Para 57) that the burden lies on the department to show that the appellant has acted dishonestly or contumaciously or with a deliberate or distinct object of breaching the law. In the case before the Hon'ble Supreme Court, since the appellant had a bonafide plea that the goods were importable under OGL, the Hon'ble Supreme Court considered whether the penalty and the fine in lieu of confiscation required to be quashed. After referring to its earlier decisions on the subject, the Hon'ble Supreme Court (in Para 59) held that in imposing penalty, the requisite mens rea has to be established and relied in this regard, particularly, on the decision of the Hon'ble Supreme Court in the case of Hindustan Steel Limited [1978 (2) ELT J159 (SC)]. It is of particular importance to mention in the present case that the show cause notice dated 04.11.96 (in Para 8) called upon the party to show cause why, since the goods are not (sic) available for confiscation, penalty should not be imposed upon them under Section 112 of the Customs Act, 1962. Apart from the fact that there is no reference to mala fides in the show cause notice, there is no suggestion of any mala fides even in the three adjudication orders which have been passed by the respective Commissioners in the present case, including the impugned order.
10. Another submission made by the learned Senior Counsel with which we find ourselves unable to disagree is that penalty cannot be imposed in lieu of redemption fine where the goods are not available for confiscation. This was the observation in the case of Universal Steel Agencies vs. Commissioner of Customs, Kandla 2003 (158) ELT 360 (Tri.) and this decision has been followed in the case of Agro Impex vs. Commissioner of Customs Mumbai - 2003 (158) ELT 705 (Tri.). This is another ground which supports the case of the assessee that no penalty could have been imposed in this case.
10. Learned Sr. Counsel also submitted that goods have been held liable to be confiscation under Section 111(d) of the Customs Act, 1962, which is totally incorrect. As already observed by us that for the policy period 1990-92, the appellant was entitled to bonafide belief and therefore, in our view goods cannot be held liable to confiscation under Section 111(d) in that case. As regards the next period from 1992-1997 policy period, at the time of import, being the actual user, appellant was definitely entitled to import the goods. The condition was that the return stream also should be used as feed stock or if an excess should be sold to public sector refineries. Subsequently, DGFT has clarified that the same could have been used as fuel and in the impugned order also use as fuel has been accepted as fulfilment of requirement of policy. What emerges from the above observations is that imports during the policy period 1992-97, even if it is assumed that appellants have failed to account for the end use of return stream to the extent upheld by the Commissioner, confiscation under Section 111(d) cannot be sustained. According to Section 111(d) of the Customs Act, 1962, any goods which are imported or attempted to be imported or brought within the Indian Customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force, are liable to confiscation.
12. It can be seen that appellants imports cannot be considered to be against the policy at the time of import nor can be considered to have been prohibited. The relevant provisions which renders the goods imported by the appellant liable to be confiscation is Section 111(o) of Customs Act, 1962 and according to which any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this act or any other law for the time being in force, in respect of which condition is not observed unless the non-observance of the condition was sanctioned by the proper officer are liable to confiscation.
13. In this case, even the show cause notice did not propose confiscation under Section 111(o) of Customs Act nor did the Commissioner in the impugned order hold that the goods are liable to confiscation under Section 111(o) of the Customs Act, 1962. Therefore, the observation of the Commissioner that the goods are liable to confiscation are wrong and penalty under Section 112 can be imposed only when a person renders the goods liable to confiscation.
14. According to Section 112A of Customs Act, 1962, under which penalty has been imposed, a person is liable to penalty if in relation to any goods he does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111. Once the correct Section is not quoted and it is held that goods are not liable to confiscation under that Section, penalty can not be imposed. Therefore, on legal ground also, penalty is not sustainable.
15. In view of the above discussion, appeal is allowed with consequential relief to the appellant.
(Operative part of the order pronounced in the Court)
(M.V. Ravindran) (B.S.V. Murthy)
Member (Judicial) Member (Technical)
.KL
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