Customs, Excise and Gold Tribunal - Mumbai
Virgo Steel And Associated Cement ... vs Commissioner Of Customs on 14 September, 1999
Equivalent citations: 2000(67)ECC326
ORDER Gowri Shankar, Member (T)
1. M/s Associated Cement Company (ACC for short), one of the two appellants before us at the relevant time had one of its cement factories at Shahabad in Karnataka. In July, 1998 it embarked upon a project for a substantial expansion and modernisation of its works at Shahabad. ACC floated a tender inviting quantity for supply inter alia of high strength deformed steel bars. The tender described the project as being aided by the International Bank for Reconstruction and Development (IBRD for short). In response to the tender, M/s Virgo Steels, the other appellant made an offer to supply 5187.000 metric tonne of its steel. This offer was accepted by the ACC. The import policy at the relevant time, in Chapter XVI deemed supplies of goods meant to IBRD aided project under international competitive bidding to be exports for the purposes of benefits under the import replenishment scheme. Such deemed exports were entitled for grant of import replenishment licence and other such benefits. Such goods were also entitled to exemption from Customs duty by notification 210/82 as subsequently amended.
2. Towards fulfilment of the contract M/s Virgo Steels supplied between August and November, 1988, 2483.540 metric tonne of high strength deformed steel bars. In November 1988 the ACC reviewed its project. As a result of the review, ACC decided to suspend further work on the expansion project. Mr. Gosher of Virgo Steel who was also present at the meeting was also informed that no further material shall be despatched to Shahabad after the meeting.
3. Virgo Steel asked the ACC for issue of a certificate that the material supplied to ACC was in pursuance of the deemed exports. This certificate was asked for so that it could be demonstrated to the Customs authorities that the steel has been supplied in pursuance of an IBRD aided project, or for replenishment of raw material component used in the manufacture of goods so supplied. ACC informed Virgo Steel that it was not possible to furnish such a certificate for the reason that it had been decided not to go ahead with the expansion and modernisation project. It also asked Virgo Steel to treat the contract for supply of the balance as cancelled.
4. Virgo Steel however imported 2570.000 metric tonne of prime mild steel billets valued at Rs 1.43 crores approx in August, 1989. The goods were cleared against a special imprest licence issued to Virgo Steel for the purpose of enabling it to import the goods to be supplied or to be used for manufacture of goods to be supplied to ACC for the IBRD aided project.
5. The Custom House came to know that the expansion project has been aborted and therefore concluded that the import made by Virgo Steel would not be entitled to the notification. In the course of the enquiries which followed, ACC agreed to pay to the Department Rs. 1.50 crores towards duty which it had not paid and leviable on the goods imported by Virgo Steel subject to its being indemnified by Virgo Steel. On this being done, this duty was paid.
6. Initially Notice was issued by the Department demanding duty on the goods proposing confiscation of the imported steel and penalty on Virgo Steel. Later notice was issued to ACC proposing penalty on it for abetment of the illegal importation by Virgo Steel. Two separate Orders were passed in adjudication. By the first Order passed on 16.3.1993, the Collector confirmed the liability to duty on imported goods and imposed a penalty of Rs. 5.00 lakhs on Virgo Steel. By the second Order passed on 8.2.1993, the Collector imposed a penalty of Rs. 5.00 lakhs on ACC under Section 112(a)(ii) for abetment of the illegal import of Virgo Steel. These appeals are against these two Orders.
7. The argument of the advocate for appellant M/s Virgo Steel are as follows:
8. The notification exempts from duty raw materials and components imported for manufacture of the goods to be supplied to IBRD aided projects, or for replenishment of raw materials and components used in the manufacture of such goods already so supplied subject to fulfilment of various conditions. The IBRD aided project was still in force, when the supply was made by Virgo Steel between March and November, 1988. It is only at the end of November, 1988 that the appellant's director was asked to stop further supply and it was only in March, 1989 that the ACC formally terminated the contract. When the supply was made, Virgo Steel did not know that the project for modernisation would subsequentlybe abandoned. ACC had incurred its liabilities in pursuance of the contract and satisfied the conditions required for complying with the conditions of the notification. Therefore, the import of the prime steel billets by ACC was in pursuance of an obligation already incurred by it and the right already accured to it in pursuance of the supply made to an existing IBRD aided project. If the ACC had imported these goods from abroad directly and cleared them under confessional rate of duty, it would have been bound to pay back the differential duty to the Department. He cites the exemption of 100% export orient unit supply to which considered to be deemed exports. If such units do not utilise the goods for the specified purpose, liability to pay duty falls on that 100% export orient unit and not upon the supplier to it. The bona fides of Virgo Steel are emphasised by pointing out that supplies were made at prices lower than the prevailing domestic prices fixed by the Joint Plan Committee (JPC) of primary steel products in the country. Virgo Steel had in fact incurred a loss in the supplies. The only incentive counterbalance is the special imprest licence. It is further contended that if as a result of abandonment of the expansion project duty is demanded on Virgo Steel, it would in effect amount to undermining the deemed exports/DEEC scheme of causing liability of credibility to the Government and its departments.
9. No notice has been issued under Section 28 of the Act to Virgo Steesl. Such a requirement is mandatory and incorporated in the provisions of Section 28 of the Act. If this requirement is not followed, it cannot be confirmed. The Supreme Court's decision in CCE v. Tin Plate Co of India Ltd is cited.
10. Advocate for M/s ACC contends that there is no basis made out for imposition of penalty on ACC. ACC had placed Orders on Virgo Steel for supply of the material, consequent upon its deciding to undertake the expansion of the Shahabad plant. As soon as the decision was taken to review the project, the supplier M/s Virgo Steel was informed and asked further supplies in abeyance. Subsequently, when the final decision was taken to abort the project Virgo Steel was informed. The Company has thus acted entirely according to law and without any impropriety. The only charge against the Company is that it failed to inform the licensing authority and the Customs department about its intention not to pursue the expansion project. This has been held by the Commissioner to be a silent abetment. There was no legal obligation on the Company to inform the licensing authority or the Customs. He says that there is no basis for imposition a penalty.
11. The Department representative contends that M/s Virgo Steel had waived issue of written show cause notice and the Order of the Collector demanding duty is therefore in accordance with law. He contends that the import licence to M/s Virgo Steel could only be issued on a certificate by ACC that it (Virgo Steel) supplied goods to ACC's IBRD aided project and therefore the liability casts upon the ACC to inform the Department as soon as this was done. Penalty has therefore been rightly imposed.
12. It is not possible for us to accept the first submission of the advocate for Virgo Steel, that supplies were made to IBRD aided project. The import policy refers at paragraph 190B to "supplies made to IBRD/IDA/ADB aided project in India where such supplies are made under the procedure of international competitive bidding." Notification 210/82 also exempts raw materials and components required for the manufacture of goods to be supplied to International Development Association or International Bank for Reconstruction and Development or bilateral or multi-lateral aided projects " Neither the policy nor the notification has defined or explained the scope of the term "IBRD aided project" It is therefore reasonable to apply the common meaning of the term and to say that an IBRD aided project is a project which has received aid from the International Bank and Reconstruction and Development. We specifically asked the advocate for the ACC whether any such aid has been received by ACC for this project. After verifying the matter, the advocate for the appellant has produced latter of 24th December, 1992 from the Industrial Development Bank of India (IDBI for Short) to ACC and ACC's letter dated 22nd December, 1992 to IDBI. It is relevant to reproduce the letter dated 22nd December, 1992 of ACC to IDBI and the reply dated 24th December, 1992 of that bank:
You will recall that IDBI vide its letter No. BY.PFD.01 .A(3311) Lot No. 004420.5873/ 795 dated July 15,1988 had approved financial assistance for modernisation of our cement plant at Shahabad, Karnataka State, which has since been disposed of. The loan envisaged an amount of Rs. 4112 lakhs under IBRD Line of credit and a further Rupee Loan of Rs. 1824 lakhs to be shared between IDBLIFCI, ICICI and IRDB.
Subsequently, the Company had on review decided not to proceed with the subject project and had therefore requested IDBI to cancel the subject loan. It may be mentioned here that no funds were availed either against the IBRD portion or the Rupee loan portion of the loans stated above. The Company had, however, gone ahead and procured some steel for the project from M/s Virgo Steel Limited, Bombay, which was meant to be financed out of IBRD line of credit. After some supplies were made, the party was informed about the revision in Company's plans and was asked to stop further supplies. The party was also paid from the Company's own international resources to the extent of supply effected by it. No claim for the same was made by ACC to the Financial Institutions for disbursement against the loan sanctioned.
The Company is facing an enquiry from the Customs authorities in Bombay with regard to the subject steel. During the course of the proceedings, it has been advised to produce a certificate from IDBI stating that it had not availed of any loan from the Financial Institutions for the Shahabad Project in the same, you are requested to kindly issue a certificate to the effect that ACC has not availed of any loan from the Financial Institutions for the Shahabad project. As the next hearing is stated foil 26th December, 92 your early action in the matter will be highly appreciated.
Reply dated 24th December, 1991 of the Industrial Development Bank:
Dear sir, Erstwhile Shahabad Works Please refer to your letter No. AC/FP.120/NHI/1664 dated December 22, 1992 on the above subject.
As indicated therein we confirm that the Company was sanctioned a loan by IDBI for the modernisation scheme of its Shahabad Works. Company did not avail of the loan and the entire loan was cancelled.
3. This letter is being issued to enable the Company for producing it before the Customs Authorities in connection with its hearing slated for December 26,1992.
It will be clear from reading this letter, that no financial assistance was provided by IBRD for the project. There was thus no aid or assistance provided to ACC by the IBRD. The project therefore had not acquired the status of an IBRD aided project. It could be at the most said to be a project for which IBRD aid has been promised or a project in which IBRD's aid would be provided in future. This falls short of it being an IBRD aided project.
13. The next question to be considered is whether, in the absence of written notice, demand for duty could be confirmed. No written notice was issued to Virgo Steel, and the amount has been recovered in terms of the letter of its proprietor dated 30.3.1991. In that letter Virgo Steel has waived issue of written show cause notice and agreed to pay the duty.
14. Section 28 of the Customs Act, 1962, at the relevant time, provided in Sub-section (1) that the proper officer, may within the time specified "serve notice on the person chargeable with the duty which has not been levied or which has been so short-levied or whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice." There is no provision in the Section for waiver of written notice. The words of this Section are to be compared with those of Section 124. Clause (a) of third Section, requires that no Order proposing to confiscate goods or imposing a penalty shall be passed unless the concerned person "is given a notice in writing informing him of the grounds on which it is proposed to confiscate the goods or impose a penalty." Clause (b) provides giving opportunity of making a representation in writing against the grounds of confiscation or imposition of penalty. The proviso to that Section says that the notice referred to in Clause (a) and the representation referred to in Clause (b) may, at the request of the person concerned be oral.
15. We have to note here the difference in words used with regard to notice in Section 28 and in Section 124. Section 28 speaks of service of the notice, whereas Section 124 requires to giving of notice. It is difficult to conceive of a notice being served in writing whereas one can easily conceive of notice being given either orally or in writing. The distinction between the words used with regard to the notice between Section 28 and Section 124 therefore is deliberate. Section 153 of the Act provides that any Order or decision passed or any summons or notice issued under this Act shall be served by tendering the Order, decision, summons or notice or sending it by registered post to the person for whom it is intended, or to his agent or if it cannot be served in this manner, by affixing it on a notice board on the Custom House. The provisions of Section 153 apply equally to notice under Section 28 and the notice under Section 142. But for the proviso contained in Section 124 and the use of the word "given" in that Section, in contradistinction of the word "served" used in Section 28, it would have to be held that notice under both Sections has to be in writing. The use of the word given "in Section 124 has been resorted to evidently in Order to connect the proviso to that Section which provides that the notice to be oral. It is not possible to think of an oral notice being served. It would therefore follow that the notice under Section 28 cannot be oral but has to be in writing.
16. In CCE v. Tin Plate Co. of India Ltd , the Supreme Court was of the view that letters dated 27 and 28 December, 1984 informing the importer that there is a short levy on account of the fact that the goods were assessed free instead of the exempting from duty and a further letter dated 27.2.1985 in which reference is made to the earlier two demands did not constitute show cause notice under Section 28 (1) of the Act. The earlier letter dated 27/28.12.1984 to the assessee indicated that there has been wrong assessment and asked for duty to be paid. The letter dated 22.7.1985 sought to invoke the extended period by saying that there was a suppression referring to the two earlier notices. On these facts the Supreme Court held that the letter dated 22.7.1985 would hardly be described as show cause notice under Section 28 (1) of the Act.
17. It is evident from this judgment that a notice has to contain details of the ground on which a short levy is proposed, and where the extended period is invoked indicate the reasons for the extended period. The letter waiving issue of written notice of Virgo Steel does not even indicate that it was made aware of the fact that the extended period was invoked. The Collector's view that this appellant has acknowledged in its letter dated 30.3.1991, which is accompanied by a cheque of Rs 25.00 lakhs was on the argument raised before him that the waiver of show cause notice was not voluntary. It appears that this point now being raised before us that there is no provision for an oral show cause notice under Section 28 was not raised before him.
18. On consideration of these facts we have to conclude that no notice as required under Section 28 was issued to the appellant. The Order confirming the duty therefore cannot be sustained.
19. The Collector has imposed a penalty of Rs. 5.00 lakhs on Virgo Steel on his view that the goods will be liable to confiscation under Clause (o) of Section 111 that the goods would be liable to confiscation under this clause cannot be disputed. The goods were not supplied to an IBRD project or used as replenishment for such supply, which is the condition subject to fulfilment of which were exempted from duty. The condition subject to the fulfilment of which exception was granted, that the goods would be supplied to, or used as replenishment for the supply to an IBRD project, has not been fulfilled. They would therefore be liable to confiscation under Clause (o) of Section 111 of the Act. Virgo Steel would therefore be liable to penalty under Clause (a) of Section 112 of the Act. The penalty of Rs. 5.00 lakhs is commensurate with the value of the goods.
20. Penalty of Rs. 5.00 lakhs has been imposed on ACC by Order dated 8.12.1993 of the Collector. The Collector's finding is that ACC abetted the import by Virgo Steel. The act or omission of the abetment stated to be the sale of the goods supplied by Virgo Steel in the local market at premium without obtaining permission from the licensing authority, the implied contravention of the import policy provision relating to grant of special imprest licence for duty free import of the raw material in that ACC failed to inform the licensing authority or the Customs department of the fact of abandonment of the project. The Collector finds that it is a silent abetment of the illicit import of mild steel by unlawful import by Virgo Steel. He says the facts proved that a ACC has "played a game in which the entire responsibility is sought to be shifted to M/s Virgo Steel and they are trying to save themselves by weak legal subterfuges.
21. It is not very clear to us how by the sale of the imported material supplied by Virgo Steel, ACC has contravened the import policy. Chapter XVI of the policy, which deal with such deemed exports, does not contain any such condition. Apart from this fact, the Collector seems to have lost sight of the point that what was supplied to ACC was not imported material, but material locally manufactured and cleared on payment of duty. It is the material for replenishment towards manufacture of raw material for such which was imported by Virgo Steel. That material never reached ACC.
22. It is true that ACC did not inform the Custom authority or the licensing authority for the failure on the fact that it would abort the project. ACC may have thought that since it informed Virgo Steel, it would be sufficient, and it need not inform the licensing authority or the Custom authority.
23. Certainly it would have been preferable if the ACC had informed the Custom department and the licensing authority; ethically that would have been the correct thing to do. It was on the basis of ACC's letter that supplies were being made by Virgo Steel to its project that resulted in Virgo. Steel obtaining a licence. Without this letter such a licence would almost certainly not have been issued.
24. However, there was no legal liability cast upon the ACC to inform the Custom department, or for that matter the licensing authority of the cancellation of the project. The notice issued to ACC does not spell out the existence of any such requirement, nor does the Collector refer to it. Abetment of an offence requires conscious act or an omission of an act that a person is legally required to do. There is nothing to show that ACC omitted to do what it was legally required to do, nor is there anything to show that its not informing the licensing authority or the Custom department of the termination of the project was with deliberate intention of aiding Virgo Steel in the import by the latter of the steel that it was not permitted to import duty free. No penalty is therefore imposable on ACC.
25. Appeal C/1994/92 allowed in part and appeal C/151/94 allowed.