Custom, Excise & Service Tax Tribunal
) M/S Shree Renuka Sugars Ltd vs Commissioner Of Customs, Mangalore on 26 April, 2012
IN THE ,CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, FKCCI COMPLEX, K.G. ROAD,
BANGALORE 56009.
DATE OF HEARING : 20/3/12, 21/3/12, 22/3/12,
26/3/12 & 28/3/12
DATE OF DECISION : .
Customs Appeal Nos. 403 to 405, 323, 374 to 376
& 298 of 2009
(Arising out of the Order-in-Original No. 01/2009 (Commr.) dated 16.3.2009, passed by the Commissioner of Customs, New Custom House, Mangalore)
For approval and signature:
Honble Shri P. G. Chacko, Member (Judicial)
Honble Shri M. Veeraiyan, Member (Technical)
1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not ?
3. Whether Their Lordships wish to see the fair copy of the Order?
4. Whether Order is to be circulated to the Departmental authorities?
1) M/s Shree Renuka Sugars Ltd. Appellants
2) Mr. Nandan Vithal Yalgi, Director (Commercial)
3) Mr. Fredrick Dsouza, Asst. Manager
4) M/s J.M. Baxi & Co.
5) M/s B. N. Malli
6) Mr. Austin S. Fernandes
7) Capt A.R.B. Dsouza
8) Mr. D.V. Daivajna, Superintendent of Customs, Karwar.
Versus
Commissioner of Customs, Mangalore Respondent
Appearance
S/Shri K. S. Ravi Shankar & N. Anand, Advocates for appellants, M/s Shree Renuka Sugars Ltd. & its officials at serial Nos. (2) & (3) above.
Shri K. P. Kumar, Sr. Advocate for appellants, M/s J.M. Baxi & Co. and its officials at serial Nos. (5) to (7) above.
Shri B. V. Kumar, Advocate for appellant, Shri D.V. Daivajna, Superintendent of Customs, Karwar (at serial No. 8 above).
Shri Ganesh Havanur, Addl. Commissioner (AR) for respondent
CORAM : Honble Shri P. G. Chacko, Member (Judicial)
Honble Shri M. Veeraiyan, Member (Technical)
ORDER No..Dated .
[Order per: M. Veeraiyan]
1.1. Appeal No. C/403/2009 is by M/s Shree Renuka Sugar Ltd. (hereinafter referred to as the assessee or as the assessee-company ) against the order of the Commissioner demanding duty of Rs. 14,40,61,766/- along with interest and imposing penalty of equal amount.
1.2 Appeal No. C/404/2009 is by Shri Nandan Vithal Yalgi, Director of assesee-company challenging the penalty of Rs. 1,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.3 Appeal No. C/405/2009 is by Shri Frederick Dsouza, Assistant Manager (EXIM) of the assessee-company challenging the penalty of Rs. 1,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.4 Appeal No. C/323/2009 is by M/s J. M. Baxi & Co. challenging the penalty of Rs. 50,00,000/- imposed on them under Section 112 (a) of the Customs Act, 1962.
1.5 Appeal No. C/376/2009 is by Capt. A.R.B. Dsouza, Vice President of M/s J.M. Baxi & Co. challenging the penalty of Rs. 1,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.6 Appeal No. C/375/2009 is by Shri Austin S.Fernandes, Assistant Manager, M/s J. M. Baxi & Co. challenging the penalty of Rs. 2,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.7 Appeal No. C/374/2009 is by Shri B. N. Malli, Manager (C&F), M/s J. M. Baxi & Co. challenging the penalty of Rs. 1,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.8 Appeal No. C/298/2009 is by Shri D. V. Daivajna, Superintendent of Customs (Imports), Customs House, Karwar challenging the penalty of Rs.2,00,000/- imposed on him under Section 112 (a) of the Customs Act, 1962.
1.9 All these appeals arise out of a common order and involve common facts and issues and are accordingly disposed of by this common order.
2. Heard Shri Ravi Shankar, Advocate for the assessee and the three officials of the assessee-company. Heard Shri K.P. Kumar, Sr. Advocate for M/s J. M. Baxi & Co. and three officials of M/s J.M. Baxi & Co. Heard Shri B. V. Kumar, Advocate for appellant, Shri D. V. Daivajna. Heard Shri Ganesh Havanur, learned Addl. Commissioner (AR) for the respondent. Hearing was held extensively on 20/3/12, 21/3/12, 22/3/12, 26/3/12 & 28/3/12.
3. The relevant facts are as follows :
(a) Assessee is engaged in the manufacture of sugar from sugar cane. They are also regular importer of Raw Cane Sugar (RCS) for processing the same into white sugar in their factory.
(b) The assessee imported 25,750 MTs of RCS per vessel M-V-MANDARIN through Karwar Port and filed three Bills of Entry bearing Nos. 76, 77 & 78 of 2004 all dated 13.2.2004.
The Bill of Entry No. 76 dated 13.2.2004 was filed for clearance of 10545 MTs of RCS producing 8 DFRC Licences seeking duty-free clearances in terms of Notification No 46/2002-Cus dated 22.4.2002
The Bill of Entry No. 77 dated 13.2.2004 was filed for clearance 3446 MTs of RCS against Advance Licence, (which was issued to them based on exports already made by them) seeking duty-free import under Notification 43/2002-Cus dated 19.4.2002.
The Bill of Entry No. 78 dated 13.2.2004 was filed for clearance of 11759 MTs of RCS against Advance Licence (against exports to be made) seeking duty free import under Notification 43/2002-Cus dated 19.4.2002.
(c ) The goods covered by the above three Bills of Entry were assessed provisionally on 13.2.2004 prior to the arrival of the vessel at Karwar Port, for want of original documents relating to imported consignments and on execution of the PD Bond No. 17/2004 dated 13.2.2004. As testing of sample was also required, a test bond was also taken pending receipt of test results.
(d) The vessel arrived on 14.2.2004 and after examination of the cargo and drawal of sample, out of charge was granted on 14.2.2004 itself by the Superintendent of Customs, Karwar.
(e) The sample drawn by Customs on 14.2.2004 was sent to the Chemical Examiner, Customs House Laboratory, Cochin vide Test Memo No. 16/2004 dated 20-2-2004.
(f) The Test Report No. L. 282 (KW) S.10/11/2003-2004 Lab Cus dated 11.3.2004 was received in Karwar Customs on 29.3.2004 and the test result was entered in the sample Register as Sl No. 16/04 on 31.3.2004.
(g) The Bill of Entry No. 76/2004 dated 13.2.2004 relating to clearance of 10545 MTs which was originally assessed provisionally on 13.2.2004 was re-assessed provisionally on 27.5.2005 for the reason that Additional Customs Duty/Cess were found to be payable for the imports under Notification No. 46/2002 using DFRC Licences. Accordingly, an amount of Rs. 89,63,250/- towards the duty was paid by the assessee on 31.5.2005 and the interest due amounting to Rs. 17,45,992/- was also paid on 17.6.2005.
(h) The assessments of three Bills of Entry were finalized on 29.8.2006 extending the benefits of exemptions under the Customs Notifications Nos. 43/2002 & 46/2002.
(i) The officers of DRI, on the basis of specific intelligence, searched the Registered office, the Corporate office and the Factory all belonging to the assessee and also the premises of M/s J.M. Baxi & Co., the CHA and recovered documents. On investigation, they found that the sucrose content of sugar was only 98.1% as per Chemical Examiners Report and the same was overwritten to read as 98.9%, that the manipulation was done with a view to enable the assessee to avail the benefit of exemptions which was available only if the sucrose content was more than 98.5%. As per the investigation, the assessee-company and their officials and M/s J.M. Baxi & Co., CHA and their officials and the Superintendent, Shri D.V. Daviajna were found to have been involved in the manipulation. The Customs Lab Report recovered from the Customs Department was also sent to State Forensic Science Laboratory, Bangalore who vide report dated 12.7.2007 gave their opinion that decimal 1 at figure 98.1% was completely overwritten to read as 98.9%. Statements of officials of the assesee-company, officials of M/s JM Baxi & Co. and the officials of the Customs department were taken.
(j) On completion of the investigation, show-cause notice dated 31.12.2007 was issued to the appellants and in adjudication of the said show-cause notice, the Commissioner has passed the impugned order and each of the appellants have challenged the order of the Commissioner in so far as the same related to them.
4. The learned advocate, shri K. S. Ravi Shankar representing M/s Shree Renuka Sugars Ltd. challenges the order mainly on the following grounds :
(a) Assessments of the three Bills filed on 13.2.2004 were finalized on 29.8.2006. The show-cause notice has been issued without the department challenging the finalization of provisional assessment. Under these circumstances, invoking of the provisions of Section 28 for demand of duty is not justified. In this regard, the following decisions were relied upon :
(i) Jindal Vijayanagar Steel Ltd. vs. CC [2006 (200) ELT 263 (T) affirmed by the Karnataka High Court in 2007 (207) ELT 47 (Kar.)]
(ii) N. Ranga Rao and Sons vs. CC [2007 (218) ELT 146 (T)]
(iii) CC vs. TTK Prestige Ltd.[2005 (191) ELT 847 (T)]
(iv) Collector vs.Flock India Ltd. [2000 (120) ELT 285 (S.C.)]
(v) CCE vs. Standard Drum and Barrel Mfg. Co. [2006 (199) ELT 590 (Bom.)]
(b) In respect of DFRC Licences, the exports have already been made before the issue of the licences. In respect of one of the advanced licences also , export has been made before import was made. Only in respect of one of the advance licences, export was completed after import of the consignments. In respect of both advanced licences DGFT authorities have issued EODC certificate/ redemption letter. Commissioner has also held that the export obligation has been validly discharged. Under these circumstances, the allegations of violations of conditions of the Notification 43/2002-Cus and 46/2002-Cus are not justified. The Customs authorities are bound by the decision of the JDGFT authorities who are the competent authorities in matters relating to EXIM Policy. In this regard, he relies on the following decisions :
(i) Autolite India Ltd. vs. UOI [2003 (157) ELT 13 (Bom)]
(ii) Crystal Fashions vs. CC [2007 (211) ELT 580 (T)]
(iii) Rajesh Exports Ltd. vs. CC [2006 (199) ELT 833 (T)]
(iv) Sivshankar Tilakraj vs. UOI [1987 (28) ELT 342 (Bom.)]
(c) The licences permit import of raw cane sugar and no specification on the sucrose content in respect sugar to be imported is in the said licences. SION E-52 cannot be treated as a mandatory condition. As per the Bureau of Indian Standards (BIS), the sucrose content is required to be only more than 96.5% and the said condition has been fulfilled by them.
(d) There is no reliable evidence that the figure of sucrose contents in the report of the Chemical Laboratory was manipulated. The alleged overwriting to make 98.1% as 98.9% is not conclusively proved. The Customs House Lab records contained several overwritings and the department has referred only about alleged overwriting in respect of figures on sucrose contents in the said report. Since the reference to the Forensic Lab has been made by sending only selected documents omitting other documents which also contained overwriting, the said report should not be relied upon.
(e) Even if the test result was found to be 98.1%, the same is not reliable for various reasons. The polarimeter testing by the Chemical Examiner was done at 34 degree C, using very old equipment. The equipment should have been maintained at 20 degrees centigrade and test should have been normally carried out at 20 degrees centigrade. If this was not possible, the testing should have been done at a maximum temperature of 30 degrees C and the adjustments for variation in temperature as per the formula should have been done. This is a clear requirement of BIS (Bureau of Indian Standards).
(f) The Load Port report on the sucrose content was clearly over 98.5%.
(g) It is an admitted position that the test results would vary depending upon the temperature, method of use, the condition of the equipment and the skill of the personnel who are testing. In view of the various factors as above, the test report of sucrose content indicating the same as 98.1% is not reliable.
(h) The department has also failed to identify any particular person who has tampered the Lab Report and overwritten on the figure 98.1 to be read as 98.9. In fact, the Commissioner has held (in Para 34) that the DRI investigation has not identified the person who actually carried out the tampering.
(i) In other words, the tests were not conducted as per the requirements under BIS; there is no evidence that the figure of 98.1 in the Customs Lab Report was tampered with to be read as 98.9 especially in the absence of any evidence as to who has carried out such tampering; the Load Port Report was in favour of the assessee on the aspect of sucrose contents. Therefore, the finding that there is violation of SION in respect of the impugned imports and consequently violation of conditions of the Notifications is not justified.
(j) Advanced Licensing Committee (ALC) of the DGFT authorities considered a similar issue of sucrose content being below 98.5%. in their Meeting held on 2.2.2006 in pursuance to communication dated 2.12.2005 of the Commissioner of Customs and a reference dated 6.12.2005 by JDGFT. They resolved that, in such a situation, the licence holder would have to discharge the export obligation by procuring additional quantity of raw cane sugar so as to fulfill the export obligation as prescribed. In other words, they held that lower quality raw cane sugar might lead to low yield of export product but the licensee has to use more raw materials and fulfill the export obligation. The decision as above taken in the ALC Meeting held on 2.2.2006 was communicated vide letter dated 24.2.2006. JDGFT, Bangalore, in their subsequent communication dated 25.6.2008 has, also referred to the decision of the ALC Meeting held on 2.2.2006. Referring to Para 2.3 of Foreign Trade Policy, it was submitted that the decision of DGFT on interpretation of policy contained in Foreign Trade Policy and others was final and binding on the Customs authorities.
(k) Some of the DFRC licences were procured from third parties. Export obligation has already been fulfilled by the said parties who were the licence holders. The Commissioner has also clearly held that the export obligation stands discharged. Under these circumstances, the Customs authorities have no jurisdiction to demand duty when the licensing authority has not taken any adverse action against them or cancelled the licence but has certified the fulfillment of export obligation. In this regard, reliance was placed on the decision of the Honble Supreme Court in the case of Titan Medical Systems Pvt. Ltd. vs. CC [2003 (161) ELT 254 (S.C.)]
5. The learned advocate, Shri K. S. Ravi Shankar, on behalf of the officials of the assessee company, after adopting the arguments on behalf of the assessee-company , adds that there is no evidence that the said officials Shri Frederick Dsouza, Shri Nandan Vithal Yalgi are directly involved in any tampering or that they are in any way benefitted by the alleged tampering and therefore no penalties are warranted on them.
6. The learned Sr. Advocate, Shri K. P. Kumar appearing for M/s JM Baxi & Co. and its officials took us through the relevant findings of the Commissioner leading to imposition of the penalties on them and submitted that there was no justification for imposing penalties on them. He particularly drew our attention to the definition abet in the General Clauses Act and to Sections 107 & 108 of the Indian Penal Code relating to abetment and submitted that there should be a main participant in the offence before a person could be considered as an abettor. The investigation has not brought out the main participant. Therefore, he submits that the appellants cannot be treated as abettors. Further, they cannot be considered as beneficiary of the alleged abetment, as no evidence of any benefit accruing to the appellants have been relied upon. Further, he submits that the burden of proof is on the Customs authorities to bring home the guilt of the person alleged to have committed a particular offence by adducing satisfactory evidence. He also submits that the burden of proof required in the penalty proceedings is higher than in the proceedings relating to mere assessment disputes. Further, he submits that mere knowledge on the part of any person about an alleged offence does not justify a conclusion that the person who has such knowledge is an abettor of such offence. In support of his submissions, he relied on the following decisions:
(i) Amba Lal Vs. Union of India & Others [1961 (1) SCR 933]
(ii) Macneill and Magor Ltd. vs. Collector of Customs [1987 (10) ECR 609]
(iii) Sher Bahadur vs. Union of India & Others, AIR [2002 SC 3030]
(iv) Nimesh Suchde vs Commissioner of Customs, Nhava Sheva [2007 (209) ELT 276]
7.1 The learned Advocate, Shri B.V. Kumar appearing for Shri Daivajna, at the outset submits that, in terms of Section 155 of the Customs Act no proceedings could be initiated against the appellant without issue of a months previous notice in writing of the intended proceeding and of the cause thereof or after the expiry of three months from the accrual of such cause. In this regard, he relies on the following decisions :
(i)C.C., New Delhi vs. M.I. Khan [2000 (12) E.L.T. 542 (T)
(ii) Costao Fernandes vs State at the instance of D.S.P., C.B.I., Bombay [1996 (82) E.L.T. 433 (S.C.)]
(iii) CC & C.Ex., Hyd.-II vs. Rajiv Kumar Agarwal [2007 (217) ELT 392 (Tri.-Bang.)]
7.2 Alternatively, he submits that there is no evidence that the manipulation of the Lab Report was done by the appellant. In fact, there is no finding that the appellant had tampered or concerned himself with the tampering of the test report. The finding is only to the effect that, by delaying the finalization of provisional assessment, the appellant has provided an opportunity for the test report to be tampered with. Such a finding does not take into account the relevant fact that the Assistant Commissioner/Deputy Commissioner is the competent authority for finalization of provisional assessment. Therefore, the delay in finalization of provisional assessment cannot be solely attributed to the appellant. Even if there was delay, that alone cannot lead to the conclusion that the appellant has tampered with the test report or abetted the tampering and therefore no penalty can be imposed. In this regard, he relies on the following decisions :
(i) A.P. Sales vs. CC, Hyderabad [2006 (198) ELT 309 (Tri.-Bang.)]
(ii) P.N. Ram vs. CCE,Kanpur [2008 (225) ELT 294 (Tri.-Del.)]
(iii) CC, New Delhi vs. Hargovind Export [2003 (158) ELT 496 (Tri.-Del.)]
(iv) CC, Mumbai vs. M. Vasi [2003 (151) ELT 312 (Tri.-Mum)]
8. The learned Additional Commissioner (AR), Shri Ganesh Havanur, reiterating the findings and reasoning of the Commissioner, supports the impugned order with the following submissions:
(a) The sample was sent to the Chemical Examiner vide Test Memo dated 20-2-2004 and the Lab Report dated 11.3.2004 was received in the Customs office at Karwar on 29.3.2004 and the entries relating to the test reports were made in the sample register maintained in Karwar Customs office on 31.3.2004. The evidence of Shri V.N. Prasad, Inspector clearly confirms that when the report was received and entered in the sample register, the sucrose content mentioned therein was 98.1%. The office copy of the Lab Report recovered from Cochin Customs Lab also confirms that the sucrose content was 98.1%. The Forensic Lab Report clearly shows that the figures 98.1 in both the Customs Lab report and sample register maintained in the Customs office were overwritten to read as 98.9. Further, the officials of assessee-company and that of the CHA company have clearly stated that they were aware of the problem relating to non-fulfillment of criteria of minimum 98.5% sucrose content in respect of the imported raw sugar. All these, taken together, will go to show that there was manipulation of the test report to suit the conditions prescribed under SION and to avail the benefit of the Notifications wrongly.
(b) The Test report was addressed to the Supdt and it was in his custody and though the report was received in March 2004, the Supdt. has kept the file for nearly 2= years before taking up the matter for finalization on 29.8.2006. The evidence of the employees of the assessee-company and those of the CHA clearly indicate that the problem relating to sucrose content was attempted to be solved with the help of the Supdt. That being the case, the Supdt. and the officials of assessee-company and those of the CHA have to be jointly held responsible for tampering the lab report with a view to cause loss to the government revenue. Therefore, he submits that penalties have been rightly imposed on them.
(c) The protection under Section 155 of the Customs Act can be invoked only in respect of action taken by an officer in good faith. The present case, involving deliberate tampering of test results with a view to cause loss to the Govt. revenue, cannot be treated as action in good faith. No valid reason has been adduced for the undue delay of about 2= years in taking up the finalization of provisional assessment when the test report was received in March 2004 itself.
(d) The copy of the tampered report was found in the records of the CHA also.
(e) The evidences of the officials of the assesee-company and CHA clearly indicate knowledge on the part of all the appellants about the problem on the aspect of sucrose content and the effort to sort out the problem. Since tampering is clearly established, the attempt to solve the problem was obviously by means which are not legal. Therefore, enough circumstantial evidences exist to show that the appellants have caused the manipulation and therefore penalties have been rightly imposed.
(f) The submission that the accuracy of the test report is questionable as the equipment was old and the tests were conducted at 340C. should not be accepted. The test report has been calibrated using scientific formula to make adjustment for having tested at 340C. Undisputedly, the test report given by Cochin Lab in respect of another consignment cleared by the appellant-assessee in April/May 2005, on retest stands upheld by the Chief Chemist, Delhi. This goes to show the veracity of test reports given by the Cochin Lab. As regards testing at 340C., though Chemical Examiner was offered for cross examination and very large number of question were put to him, no such questions at testing at 340C. were put to him. And therefore, the veracity of the report which is based on a prescribed formula cannot be questioned. In this regard, he relies on the decision of the Honble Supreme Court in the case of Quinn India Ltd. vs. CCE, Hyderabad [2006 (199) E.L.T. 326 (S.C.)].
(g) As regards the submission that the Load Port Report was favourable to them, referring to the contract for supply of the impugned goods, it was submitted that the supply was in wet conditions and therefore the test report taken at South African Port was not relevant.
(h) The test reports maintained by the assessee after processing also indicate the sucrose content to be in the range of 98.1% to 98.32% which clearly goes to prove the correctness of 98.1% as per the lab report and the manipulation involved in the said lab report.
(i) The clarification dated 21.2.2006 issued by the JDGFT based on ALC Meeting held on 2.2.2006 related to import in May 2005 by vessel M-V LAVANTE which was detained by the Customs authorities in October 2005. It particularly related to Advance Licence No. 0710040417 dated 22.9.2005. The amendment to the said licence was made in the peculiar facts and circumstances of the case and it was specifically clarified that the same cannot be treated as a precedent. The clarification vide letter dated 25.6.2008 given by JDGFT Bangalore referring to consignment imported by M-V LAVANTE has, therefore, no relevance to the facts of this case.
(j) E-mails dated 23.11.2005 exchanged between Shri Nandan Yalgi of the assessee-company and Capt. ARB Dsouza of CHA-company clearly indicate the designs of the appellants. It talks about taking all precautions to avoid any problem with PHO or Cochin Lab. It also holds that it is the responsibility of the CHA to ensure that everything goes smoothly.
(k) CBI has also filed FIR against the importer and the connected persons under Cr. PC.
(l) The issue of show-cause notice under Section 28 of the Customs Act without resorting to challenging the order of final assessment is valid and as provided under the law. In this regard, he relies on the following decisions :
(i) Union of India vs. Jain Shudh Vanaspati Ltd. [1996 (86) ELT 460 (S.C.)]
(ii) Venus Enterprises vs. Commissioner of Customs, Chennai [2006 (199) ELT 405 (Mad.)]
[SLP against the said decision was dismissed as reported in 2007(209) ELT A61 (S.C.)]
(iii)Titanide Coating (P) Ltd. vs. Assistant Collector of Customs [1993 (67) ELT 260 (Kar.)]
(m) The Customs authorities are empowered to investigate and adjudicate cases of violation of conditions of notification and violations under the Customs Act notwithstanding the fact that the JDGFT authorities have granted EOD certificates. In this regard, he relies on the following decisions :
(i) South India Exports vs. Joint Director of Foreign Trade [2004 (177) ELT 57 (Mad.)]
(ii) Pooja Exporters vs. Asst. Director, D.R.I. [1989 (41) E.L.T. 21 (Kar.)]
(iii) Sravani Impex P. Ltd. vs. Addl. Dir. Genera, D.R.I., Chennai [2010 (252) E.L.T. 19 (A.P.)]
(iv) Kamath Packaging Ltd. vs. Union of India [1991 (55) E.L.T. 304 (Kar.)]
(n) Relying on the decision of the Honble Supreme Court in the case of Commissioner of Customs (Preventive) vs. Aafloat Textiles (P) Ltd. [2009 (235) E.L.T. 587 (S.C.)], he submits that the burden of proof to establish that they are eligible for the concession and the exemption notification is on the assessee-company
Regarding Schemes under which imports have been made
9.1 We have carefully considered the submissions from both sides and perused the records. It would be appropriate to note the salient features of the schemes under which the impugned imports have been made, particularly the conditions under which RCS could be imported.
9.2. DFRC licences are replenishment licences. In other words, the exports take place first and thereafter, the licensing authority after taking into account various factors and conditions and norms issue the licences. In respect of such licences, there is no export obligation to be fulfilled as the export has already taken place and the said DFRC licences are only in the nature of export incentives for exports already made. DFRC licences enable import of goods duty free in terms of Notification No. 46/2002-Cus dated 24.2.2002. The relevant portions of the said notification are re-produced below:
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts materials when imported into India from the whole of the duty of customs leviable thereon, under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), and from the whole of the Special Additional Duty leviable thereon under section 3A, of the said Customs Tariff Act, subject to the following conditions, namely :-
(i) that the importer has been granted duty free replenishment certificate licence by the Licensing Authority for import of the said materials in terms of paragraph 4.2 of the Export and Import Policy (hereinafter referred to as the said licence ) and the said licence is produced at the time of clearance for debit by the proper officer of the customs;
(ii) the said licence contains the endorsements specifying, inter alia;
(a) the Standard Input Output Norm (SION) number, description and value of the resultant product exported on the reverse;
(b) the shipping bill number(s) and date(s) FOB value in Indian Rupees of the resultant product, on the reverse; and
(c) the description, value and quantity of the materials which are allowed to be imported :
Provided that in respect of resultant products specified in the Sensitive List contained in paragraph 4.31 of the Hand Book of Procedure (Vol. 1) of the Export and Import Policy, the materials permitted in the said licence shall be of the same quality, technical characteristics and specifications as the materials under in the said resultant product :
Provided further that in respect of said resultant products the exporter shall give declaration with regard to technical characteristics, quality and specification of materials used in the shipping bill;
(iii) that the said licence and/or materials shall be freely transferable;
(iv) . . . .
Explanation.- In this notification, -
(i) Export and Import Policy, means Export and Import Policy 2002-2007, notified by the Government of India in the Ministry of Commerce vide notification No. 1/2002-2007, dated the 31st March, 2002;
(ii) Licensing Authority means the Director General of Foreign Trade appointed under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant a licence under the said Act;
(iii) Materials means -
(a) raw materials, components, intermediates, consumables and parts used in the manufacture of resultant product;
(b) packing materials used in the packaging of resultant product.
9.3 Goods (in this case raw cane sugar) can also be imported duty free under Advance Licence Scheme either on pre-export basis or post-export basis in terms of Notification No. 43/2002 dated 19.2.2002. The relevant portions of the said notification are reproduced below:
In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts materials imported into India, against an Advance Licence issued in terms of sub-paras (a) and (b) of paragraph 4.1.1 of the Export and Import Policy (hereinafter referred to as the said licence), from the whole of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), and from the whole of the additional duty, safeguard duty and anti-dumping duty leviable thereon respectively under Sections 3, 8 and 9A of the said Customs Tariff Act, subject to the following conditions namely :-
(i) that the description, value and quantity of materials imported are covered by the said licence and the said licence is produced before the proper officer of customs at the time of clearance for debit;
(ii) that where import takes place after fulfilment of export obligation, the shipping bill number(s) and date(s) and quantity and FOB value of the resultant product exported are endorsed on the said licence.
Provided that where import takes place before fulfilment of export obligation, the quantity or FOB of the resultant product to be exported are endorsed on the said licence;
(iii) that the importer at the time of clearance of the imported materials executes a bond with such surety or security and in such form and for such sum as may be specified by the Assistant Commissioner of Customs or Deputy Commissioner of Customs binding himself to pay on demand an amount equal to the duty leviable, but for the exemption, on the imported materials in respect of which the conditions specified in this notification have not been complied with, together with interest at the rate of twenty four per cent per annum from the date of clearance of the said materials.
Provided that bond shall not be necessary in respect of imports made after the discharge of export obligation in full;
(iv) . . .
(v) that the export obligation as specified in the said licence (both in value and quantity terms) is discharged within the period specified in the said licence or within such extended period as may be granted by the licensing Authority by exporting resultant products, manufactured in India which are specified in the said licence and in respect of which facility under rule 18 or rule 19 of the Central Excise Rules, 2002 has not been availed :
Provided that an Advance Intermediate Licence holder shall discharge export obligation by supplying the resultant products to ultimate exporter in terms of sub-para (b) of para 4.1.1 of the said Export and Import Policy;
(vi) that the importer produces evidence of discharge of export obligation to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs within a period of 30 days of the expiry of period allowed for fulfilment of export obligation, or within such extended period as the said Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow;
(vii) that the said licence and the materials shall not be transferred or sold;
(viii) .
Explanation. - In this notification,-
(i) Export Import Policy means the Export and Import Policy 2002-2007, published vide notification of the Government of India in the Ministry of Commerce No. 1/2002-2007, dated the 31st March, 2002;
(ii) Licensing Authority means the Director General of Foreign Trade appointed under Section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant a licence under the said Act.
(iii) Materials means -
(a) raw materials, components, intermediates, consumables, catalysts, computer software and parts which are required for manufacture of resultant product;
(b) mandatory spares within a value limit of 10 per cent of the value of the licence which are required to be exported along with the resultant product;
(c) fuel, oil and catalysts required for manufacture of resultant product; and
(d) packing materials required for packaging of resultant product.
9.4 DFRC licences, in respect of import of RCS for the export of white sugar is governed by SION E52. Similarly, Advance Licences governing import of RCS for the export product of white sugar are issued based on SION E52. SION E52, during the relevant period reads as under :
S. No. Export Item Import Item
E52 Name Qty
------------------------------------
White Sugar 1MT Notes :
1. Content of sucrose by weight, in dry state, in raw sugar must correspond to a polarimeter reading of less than 99.5% but not less than 98.5%. 2. *** Name Qty allowed ------------------------------ Raw Sugar 1.05 MT
10.1 The appellants have imported 25,750 MTs of raw sugar in February 2004 and cleared 10,545 MTs by producing 8 DFRC licences in terms of notification No. 46/2002-Cus. In respect of 3,446 MTs they claimed duty-free import in terms of Notification No. 43/2002 Cus on the basis of advance licence after the export has been fulfilled. For the balance of 11,759 MTs, duty-free clearance was sought for in terms of Notification No. 43/2002-Cus producing advance licence against which exports were yet to be made.
10.2 According to the department, the sucrose content of the above consignments were less than 98.1% and consequently the conditions in SION were violated and therefore, benefits of the said notifications are not available. However, the assessee and the other appellants concerned have conspired to manipulate the test report and the sample register maintained by the Karwar Customs to read the sucrose content as 98.9% and availed the benefit of notifications irregularly.
11. Based on elaborate submissions from both sides, the following main issues arise for consideration:
(a) If sucrose content was less than 98.5% in the imported raw cane sugar, whether the goods would be eligible to the benefit of Notifications No. 43/2002 - Cus. and 46/2002-Cus.?
(b) Whether the lab report was containing 98.1% sucrose content and the same was manipulated to read as 98.9%?
(c) If the lab report dated 11.3.2004 was manipulated, who is the person or persons who are responsible for the manipulation of the same?
(d) Whether a demand under Section 28 can be made without the department challenging the finalization of provisional assessment done on 29.08.2006?
If the sucrose content was less than 98.5%, whether the benefit of Notification No. 43/2002 - Cus. and 46/2002-Cus available?
12.1. As already noted, DFRC licences are issued by the DGFT authorities as export benefits to replenish the inputs/packing materials used in the manufacture of goods already exported. While giving such licences obviously the licensing authority has taken into account the norms prescribed for the concerned export product and the inputs permitted to be imported. There is no dispute as to the correctness or otherwise of the exports already made by the assessee. We are concerned only whether the imported items are as per the licences and whether the import satisfies the conditions under the Customs Notification 46/2002-Cus. so that the exemption can be allowed. Undisputedly the importer has produced the DFRC licences (either issued to them or procured by them from the market) at the time of clearance of the raw sugar. The said licence contains the endorsement indicating standard input/output norm No. E52 which reads as under :
S. No. Export Item Import Item E52 Name Qty ------------------------------------ White Sugar 1MT Notes :
1. Content of sucrose by weight, in dry state, in raw sugar must correspond to a polarimeter reading of less than 99.5% but not less than 98.5%.
2. *** Name Qty allowed
------------------------------
Raw Sugar 1.05 MT The above Note 1 was introduced by Public Notice No. 50 (RE-02)/2002-2007 dated 29/11/2002 issued by Director General of Foreign Trade. In the present case, the imports have taken place in February 2004, i.e. after amendment to SION by issue of Public Notice dated 29/11/2002. There is a clear purpose in imposing the above restriction. The appellant-assessee has been permitted to import raw sugar duty-free with a view to enable them to export processed white sugar or by way of replenishment towards white sugar already exported. Obviously, import of raw sugar involves outgo of foreign exchange and export of white sugar involves inflow of foreign exchange. It would not make sense to import very high quality raw sugar and export white sugar. The sucrose content of domestically produced sugar, in some cases, may be lower and if high quality raw sugar is imported indiscriminately, the same can have adverse impact on the domestic sugarcane growers and sugar factories. Therefore, intention of the Government is to restrict import of raw cane sugar with the sucrose content of not less than 98.5% and at the same time not to allow import of raw cane sugar with sucrose content exceeding 99.5%. The import has to be governed by the provisions of EXIM Policy as applicable at the time of import. Therefore, it is incumbent that the materials imported shall be of the same quality, technical characteristics and specifications as the materials used in the resultant product. When SION E-52 governing the impugned licences has permitted import of raw sugar of sucrose content only in a narrow range of 98.5% to 99.5%, the said conditions are required to be fulfilled. The understanding of the Commissioner (para 45 of the impugned order) that the SION norms in the present case served the twin purposes of protecting domestic cane growers as well as preventing dumping of substandard raw sugar into the country has to be approved. Therefore, import of sugar below 98.5% of sucrose content being in violation of SION cannot be treated as fulfilling the condition of the exemption notification 46/2002-Cus.
12.2. The Advance Licences are also issued based on SION. In respect of import prior to export, there is a condition that that the said licence and the materials shall not be transferred or sold. Therefore, the imported materials require to be used for the manufacture of export product and hence compliance of specification regarding sucrose content in SION is a must. Otherwise, the purpose of restriction imposed by Public Notice dated 29/12/2002 will be defeated.
12.3. Heavy reliance is placed on behalf of the assessee on the communication dated 21.02.2006 on the amendment to advance licence No. 0710040417 dtd. 22.09.2005. A careful perusal of the said communication along with enclosure thereto indicates that the ALC in the meeting dated 02.02.2006 specifically considered only amendment to the advance licence No. 0710040417 dtd. 22.09.2005. The said meeting was pursuant to letter dated 02.12.2005 of the Commissioner of Customs addressed to JDGFT relating to imports made in Vessels M.V. Arkaan (imported in April 2005) and M.V. Lavent (imported in May 2005). It specifically referred to some quantity having already been cleared duty-free under two other advance licences and the test results failing to meet norms fixed in SION E52. It also mentioned that the retest was ordered to be conducted with Chief Chemist, Delhi.
The meeting also appears to have considered a reference dated 06.12.2005 of the JDGFT on the same issue and given the opinion and the relevant portion of which is as follows :
The representative of Dte. Of sugar was present in the meeting, who deliberated the issue and the Committee clarified that the polarization of the sugar imported by the firm is still above than the minimum polarization provided in the Indian Specification of Raw Sugar No. IS-5975 1970 i.e. 96.5%. In view of the above, the Committee decided that Customs Mangalore may be informed that the Raw Sugar which they have detained (their letter No. S-16/118/2005 DEEC Imp. Dated 02.12.2005) may be released, despite lower Pol content. This may not be cited as a precedence as this has been allowed on account of detention as well as comment from Directorate of Sugar that Pol content can get reduced on account of hygroscopic nature of Sugar and Lower Pol Content results in lower yield. The Committee felt that E.O. in quantity and value may not be lowered, although the lower limit of Pol content may be waived/deleted, if needed by RLA.
Thus, it is seen that the above relaxation has been given only in respect of specific consignments imported by M.V. Lavent in April 2005 and the detained goods were ordered to be released making it clear that the same could not be treated as a precedent. The concerned advance licence was accordingly amended. The specific amendment permitted in a particular licence in the given facts and circumstances cannot be treated as guidelines applicable to all licences issued in the past.
The Joint DGFT Bangalore referring to the minutes and decision of the ALC meeting held on 02.02.2006 has chosen to give the following clarifications vide his letter dated 25.06.2008.
GOVERNMENT OF INDIA MINISTRY OF COMMERCE AND INDUSTRY DEPARTMENT OF COMMERCE Office of the Joint director General of Foreign Trade KNEDRIYA SADAN, 6th Floor, C&E Wing, 17th Main Road, Koramangala, 2nd Block, Bangalore 560 034.
07/24/040/00330/AM03 25.06.2008 To, M/s. Shree renuka Sugars Ltd. B.C. 105, Havelock Road, Contonment, Belgaum - 590 001. Sirs,
Sub: Clarification regarding Polarimeter reading - Sucrose content in Raw Sugar Advance Licence No. 0710023972 dt. 16.09.2003 reg.
Ref.: Your letters dated 15.05.2008 and 21.06.2008.
With reference to the above cited letters seeking endorsement/amendment of the licence, it is hereby clarified that as per the Advance Licencing Committee, New Delhi Meeting No. 43/2005 dated 02.02.2006 the licnece issued under SIOM S.No. E-52 is valid for import of Raw Sugar with Polarimeter reading below 995% without insisting for the lower limit of 98.5% prescribed in the foot note. If the sucrose content is lower than 98.5%, licencee may be entitled to a higher wastage, but a licence already obtained under E-52 may not be eligible for wastage above 5%. In other words the quantity and value of Export Obligation will not be reduced on account of lower Polarimeter reading. However, since the licence has already expired, this office is not able to amend/endorse the licence as asked for.
You may bring the above points to the notice of the concerned authorities, in case you face any problem on account of polarimeter reading of any sample falling below 98.5%. I am returning herewith the above said Licence along with enclosures please acknowledge the receipt.
Yours faithfully (T.P. BASAVARAJU) Foreign Trade Development Officer For Joint director General of Foreign Trade Encl: As above The above clarification appears to be a solicited clarification after commencement of investigation by officers of DRI. The clarification is in respect of a higher wastage whether permissible or not. However, it overlooks the direction of the ALC that the decision therein cannot be treated as a precedent. Obviously endorsement/amendment of the licence has not been allowed as the matter was not placed before the ALC, which is the competent forum to amend the conditions of licence already issued. Therefore, this communication dated 25.06.2008 merely reiterating the decision taken by ALC on 02.02.2006 which has no precedent value is of no help to the appellants. In other words, an amendment carried out as per the decision taken by ALC after deliberation by them to an advance licence which was used for clearing goods imported in May 2005 cannot come to the rescue of the assessee-appellant.
Whether the lab report was containing 98.1% sucrose content and the same was manipulated to read as 98.9%?
13.1. The Customs Laboratory Report found with the Customs at the time of search by the DRI officers and also the sample register with the Customs department were sent to Forensic Lab for examination. The report clearly indicates that the sucrose content of 98.1% was overwritten to read as 98.9%. The office copy of the Customs Lab Report at Cochin was also recovered and the same indicated the sucrose content as 98.1% only. In addition, the evidence given by Shri V.N. Prasad, Inspector goes to show that when the report was received from Customs Lab, the sucrose content mentioned therein was only 98.1% and the same was so entered in the sample register maintained in the office as well. In view of the above overwhelming evidence, we have no doubt in concluding that the report of the chemical examiner was to the effect that the sucrose content was 98.1% and the same has been overwritten after the same was received by Karwar Customs authorities.
13.2. Submission was made that there were overwriting in other files/records of Chemical Examiner, Cochin and the same were not sent for the purpose of forensic examination and therefore, the test results by the forensic department could not be relied upon. In view of the cogent evidences in the form of office copy of the Customs Laboratory Report, the submissions in the statement of concerned inspectors of Karwar Customs and the other evidences, we have discussed below, we have no reason to disregard the forensic report.
13.3. In addition, we also find that the daily analysis reports maintained by the appellants indicated the purity of the imported raw cane sugar only as 98.1% to 98.32% as duly noted by the Commissioner. This also gives credence to the fact that the sucrose content as per the customs lab report was only 98.1% which was tampered to read as 98.9%.
13.4. Alternatively, an attempt was made to discredit the accuracy of the test report given by the Chemical Examiner. It was claimed that the testing equipments were very old and the same were not maintained at 200C. and the same were not conducted at 200C. and even if the tests were conducted at a higher temperature, the adjustment based on the formula has to be done only up to 300C. It was claimed that the tests were conducted at 340C. and, therefore, the sucrose content of 98.1% as determined by the Chemical Examiner was not reliable. We note that the Chemical Examiner was offered for cross-examination at the request of the appellant. We find that the chemical examiner has been extensively questioned with as many as 42 questions. However, no such question as to the applicability of the formula when the test was conducted beyond 300C. was put to him. Undisputedly, the test result of the Chemical Examiner in another subsequent import by the very same assessee stood upheld by the Chief Chemist, Delhi. Therefore, no valid reasons exist for disregarding the test report especially when the same was subjected to further scrutiny during cross-examination on behalf of the appellant.
13.5. Another submission was made that load port report was in their favour. However, as rightly shown to us by the learned Additional Commissioner with reference to the purchase contract, we find that the test report relates to goods supplied in wet condition and therefore, cannot support the case of the appellants. As already noted, test reports maintained by the assessee themselves are against them.
13.6. A submission is being made that as per BIS, it is enough that the sucrose content of the sugar is more than 96.5%. It is to be appreciated that BIS is in respect of sugar produced/manufactured in India and obviously takes into account the varied conditions under which sugar cane is produced in India and sugar manufactured in India. The minimum stipulation of sucrose content in BIS cannot be the relevant factor to overlook the specific condition about sucrose content in respect of imported RCS which is prescribed under EXIM Policy by issue of Public Notice.
If the Lab Report is held to be manipulated, then who is the person or persons who are responsible for the manipulation of the lab report?
14.1. The representative samples drawn by Customs on 14.2.2004 at the time of examination was sent to the Chemical Examiner, Customs House Laboratory, Cochin Vide Test Memo No. 16/2004 dated 20-2-2004. The Test Report No. L. 282 (KW) S.10/11/2003-2004 Lab Cus. dated 11.3.2004 was received in Karwar Customs on 29.3.2004 and the Test results was entered in the sample register as Sl. No. 16/04 on 31.3.2004. The statement of Shri V.M. Prasad, Inspector confirms that the report was indicating the sucrose content as 98.1% and it was so recorded in the sample register. According to Supdt. Shri D.V. Daivajna, the test report and the sample register were not in his exclusive custody but were kept in the cupboard which was accessible to others. The evidence given by Shri Dayananda M. Nayak, Inspector Customs was also to the effect that many people had access to the customs documents/files/records. In particular, it was claimed that the test report was sent outside Customs House for taking photocopy, immediately on receipt, through sepoy/contingents. In this regard, the Commissioner has recorded the following findings:
34. While the fact of tampering has been established, the DRI investigation has not identified this person who actually carried out that tampering. The evidence cited suggests that some employees of the CHA as well as some customs officers had the opportunity. The relevant papers were in the custody of Shri D.V. Daivajna, Superintendent but there is no evidence that he actually carried out the tampering. The above finding of the Commissioner has not been challenged by the department. However, a submission has been made that CBI has registered an FIR and the investigation by them are in progress.
14.2. While the fact of tampering has been established, the DRI investigation has not identified the person who actually carried out that tampering. The evidence cited suggests that some employees of the CHA as well as some customs officers had the opportunity. It has been held that the relevant papers might have been in the custody of Shri D.V. Daivajna, superintendent but there was no evidence that he actually carried out the tampering. Having held as above, Commissioner has chosen to impose penalties on officials of assessee-company, CHA and officials of CHA. The relevant findings/reasoning adopted by him leading to imposition of penalties may be extracted:
It is clear from the statements of Shri Austrin and Shri Malli that they were aware since December 2005/January 2006 that the test report did not meet the parameters of SION E-52.
It has been argued on behalf of Shri Daivajna that it was revealed during cross examination that files were kept in the copboard in the hall and many officers had access to them. However, no direct question was raised about the MV Mandarin file to the concerned officers and this assertion is based on the general replies of the three officers concerned. However, as indicated earlier the custody of files with Shri Daivajna does not establish that he carried out the tampering. The fact that the employees of the importer and CHA were discussing among themselves as to how to solve the problem arising out of an unfavourable test report, clearly suggests that when the test report was received at Karwar, it showed sucrose content as 98.1%. By delaying finalization of provisional assessment, Shri Daivajna provided an opportunity for this crucial record to be tampered with. Both Shri Fredrick Dsouza, of M/s. SRSL and Shri Austin Fernandes of the CHA were aware that there was a problem relating to the polarimeter reading indicating a lower sucrose content than required in terms of the entry E-52 of SION and the DFRCs and Advance Licences produced. Instead of bringing this problem to the notice of customs at Karwar, they tried to find ways in which to solve it by altering the sucrose content as recorded in the test report. Capt. A.R.B. Dsouza and Shri B.N. Malli both employees of the CHA, were also aware of this problem and have colluded with their junior employees to wrongly avail of customs duty exemption on goods which did not satisfy the required conditions. 14.3. While we have already concluded that there were tampering with the Customs Lab report and sample register, the beneficiary of such tampering is obviously the assessee. The assessee as a juridical person has to necessarily get it done through some human agent/person. Needle of suspicion may point to any of the six persons (two officials of assessee-company, three officials of CHA and the Supdt. Of Customs).
14.4. The Commissioner has found that the Supdt. has delayed the finalization proceedings. This finding cannot be upheld without reservation. Undisputedly the Assistnat commissioner/Deputy Commissioner in-charge of Karwar Division is the competent authority for the purpose of finalization of the assessment. It is to be noted that the order for provisional assessement has been given only by the Deputy Commissioner on 13.02.2004. Obviously the Supdt. could not have finalised the Bills of Entry which were ordered to be provisionally assessed by his higher authority, namely, the Deputy Commissioner. It is further noted that the Deputy Commissioner has reassessed provisionally in May 2005 one of the three bills (No. 76/2004) on the ground that some differential duties were to be paid which stand paid on 31.05.2005. Apparently, the report of the Chemical Examiner has been received in March 2004 and nothing prevented the Deputy Commissioner ordering for finalization of assessment of three bills of entry immediately thereafter or in May 2005 when the file was submitted to him for the purpose of reassessing one of the three impugned bills of entry. How it escaped his notice is not forthcoming. At any rate, the finding that, by delaying the finalization of provisional assessment, the Supdt. provided an opportunity for the record to be tampered with cannot be the basis to conclude that he has tampered with or abetted the tampering.
14.5 The Supdt. Shri. Daivajna points his finger at Shri Austin Fernandis as possible culprit in tampering with the test report at the instance of Federic Dsouza from the importer side. It is again his opinion. It is evident that the test report and the sample register were not in proper safe custody as it is claimed that the same was accessible to many persons. Therefore, there could be suspicion falling on the officials of CHA who were visiting the Karwar Customs office that they might have done that and that the same could have been done only at the instance of the officials of the assessee-company. All these are suspicions. The suspicion, however strong the same may be, cannot take the place of proof. As rightly held by the Commissioner in para 34, the investigation by DRI could not pinpoint the person who has committed the manipulation. The adjudication proceedings are based on evidences relied upon in the show-cause notice. In other words, as far as the department is concerned, the show-cause notice is the outer limit and a decision taken by the Commissioner cannot go beyond the evidences relied upon in the show-cause notice. Therefore, to charge all the six persons as responsible for the tampering may not be permissible. As rightly pointed out by the senior advocate Shri K. P. Kumar, the level of evidence required for penal action under adjudication proceedings is higher than those required in the assessment/reassessment leading to enhanced demand of duty. Therefore, even on the yardstick of preponderance of probability, it is not possible to pinpoint the person/persons who are responsible for the manipulation except to hold that the assessee-company as the beneficiary is clearly responsible. The evidence available as per the show-cause notice do not justify penalties on all of them except the assessee-company. If new evidence is gathered during the investigation by CBI, that could be relevant for the proceedings that may be initiated by them.
Whether a demand under Section 28 can be made without the department challenging the finalization of provisional assessment done on 29.08.2006?
15.1. In the present case, the goods were allowed on the basis of provisional assessments made on two grounds. One of the grounds relates to non-production of relevant documents by the assessee-company and other ground is that the imported goods were required to be tested and samples have to be sent for testing and the same would take time. In fact, the provisional assessments were completed on 13.02.2004 even before arrival of the vessel with the goods on 14.02.2004 and after examination of cargo and drawal of samples pass out of customs charge granted on the same day of arrival of the vessel i.e. on 14.02.2004. On noticing that the appellants have to pay additional customs duty and cesses in respect of imports made under DFRC licences, one of the three bills was again re-assessed provisionally on 27.05.2005 and additional duty and cess were paid by the appellant-assessee. The finalization naturally depends upon production of relevant documents by the assessee and also receipt of test results from the customs laboratory. Records reveal that the test result was received in March 2004 itself and that the appellants have produced the following original documents on 09.07.2004.
1) Bill of Lading No. 1 to 6 all dated 01.02.2004 for 25750 MT
2) Invoice Nos. SIO 403252 dated 09.02.2004 for 23750.000 MTs and SIO 403350 dated 19.02.2004 for 2000.000MT of Raw Cane Sugar.
3) Certificate of Origin Reference No. 22 to 27 all dated 2.2.2004
4) Certificate of analysis of manufacturer 6 Nos.
5) Insurance Policies 2 Nos.
The above position is clear from the note dated 26.07.2006 which was put up by superintendent for the purpose of finalization of the assessment. In the said note the sucrose content of raw sugar, as per the report of the Chemical Examiner was noted as 98.9%. On the basis of above details, the assessment was finalized by the Assistant Commissioner.
15.2. The subsequent investigation by DRI has revealed that the Chemical Examiners report dated 29.03.2004 relied upon for the purpose of finalisation was a tampered one. Therefore, the finalization was found vitiated as the same was based on tampered documents.
15.3 The decision of the Honble Supreme Court in the case of Collector of Central Excise Vs. Flock (India) Pvt. Ltd., relied upon by the assessee related to a case where the assessee did not challenge the order dated 21.01.78 on classification but claimed a refund on 06.04.79 on the ground that the goods were wrongly classified. It was contended on behalf of the assessee that the jurisdiction to determine the validity and sustain the claim of refund was an independent jurisdiction and not fettered by any order passed by the authority regarding the classification of the product. In the said case, it was held that an order which was appealable under the Act, if not challenged then the order was not liable to be questioned and the matter could not be reopened in a proceeding for refund as the same was in the nature of execution of the order.
15.4. The department, on the other hand, has relied on the decision in the case of Union of India Vs. Jain Shudh Vanaspati Ltd. wherein it has been held that issuance of show cause notice for confiscation of goods under Section 124 was not barred on the ground that the order of clearance passed under Section 47 of the Customs Act was not set aside. The department also relied on the judgment of the Honble High Court of Madras in the case of Venus Enterprises Vs. Commissioner of Customs, Chennai wherein the question whether the Tribunal was right in holding that the order of assessment on which no appeal was preferred, could be reopened by issue of a fresh show-cause notice under Section 28(1) of the Customs Act, in the light of the Apex Courts decision reported in 2004 (172) E.L.T. 145 (S.C.) in the case of Priya Blue Industries Ltd. Vs. CC was considered. It was held that Notice under Section 28 could be issued, for, if it was held otherwise, the words where any duty has been short levied as found in Section 28(1) of the Act would become unworkable and redundant. With the above observation, the High court upheld the order of the Tribunal.
15.5. In the facts of the case, when the investigation has brought out evidence of tampering of documents with the clear intention to evade customs duty, the question of lack of jurisdiction of the customs authorities for invoking the provisions of Section 28 does not arise. The fact of provisional assessment and subsequent finalization of provisional assessment are relevant in the context of determining the relevant date for the purpose of issue of show-cause notice under Section 28. The relevant date has to be reckoned from the date of finalization of the assessment. In a case, like the present one, where tampering of documents with intent to evade duty is involved, show-cause notice could be issued invoking the extended period of limitation reckoning the relevant date from the date of finalization of the provisional assessment.
15.6. A submission was also made that, unlike in Section 11A of the Central Excise Act, the term fraud is conspicuously absent. This submission does not in any way advance the case of the appellant-assessee. In Central Excise, when non-levy, non-payment or short-levy short payment etc. have happened by reason of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any provisions of this act or of the rules made thereunder with intent to evade payment of duty . demand can be raised invoking the extended period of limitation of five years. In a Customs matter, when duty has not been levied or has been short-levied etc. by reason of collusion or any willful mis-statement or suppression of facts the extended period of limitation of five years can be invoked. It is not as if fraud cannot be there in relation to a customs evasion case. It only means that, even in the absence of fraud, five years period of limitation can be invoked in a customs case when the above conditions are satisfied. In other words, the provisions for invoking extended period in the Customs Act are stronger against the assessee than those under Section 11A of the Central Excise Act.
16. From the foregoing, the following emerges:
(a) Office copy of the test report found in the customs laboratory, the report originally received by the Karwar Customs and the entry made in the sample register indicated the sucrose content as 98.1%. The internal reports maintained by the assessee-company indicated the sucrose content as 98.1% to 98.3%. All these taken together along with other circumstantial evidences, clearly prove that the entries in the lab report and the sample register were tampered with by overwriting to make them read as 98.9%.
The manipulation of figures 98.1% to 98.3% was done with malafide intention and to benefit the assessee-company.
(b) DFRC licences are being issued on post-export basis and the question of certifying export obligation in respect of such licences does not arise. As DFRC licences are issued after the export, the licences take into account whatever wastages are allowable on raw materials. Similarly advance licences which are issued only as per SION norms take these factors into account.
(c) In respect of raw sugar imported, under DFRC and DEEC licences, the condition of sucrose content prescribed under PN 50 LRE-027 2002-07 dated 29.11.2002 has to be fulfilled for the purpose of availing the benefit of exemption.
(d) The reliance placed by the assessee on a one-time amendment approved by ALC in respect of a licence used for clearing raw sugar imported subsequently in May 2005 has no relevance to the import made in February 2004 and in respect of which the test report was tampered. The ALC itself has held that their decision has no precedent value. Therefore, the question of the said decision being of binding nature in terms of Para 2.3 of the EXIM Policy does not arise.
(e) BIS standardS on the sucrose content applicable to sugar manufactured in India cannot be applied to imports when specific norms are prescribed in Public Notice No. 50 (RE-02/2002-2007) dated 29.11.2002 stipulating the range of sucrose content.
(f) The beneficiary of the tampering of the lab report on sucrose content is clearly the assessee and the consequences are to be faced by them, not withstanding the fact that the actual person/persons have not been identified.
(g) As held by the Commissioner, the investigation by DRI could not pinpoint the person who has manipulated/tampered the lab report and the sample register and the needle of suspicion is on several persons but the evidence is not sufficient to sustain penalties on any person other than the assessee-company. It is like a case where theft is confirmed but thief is not identified.
(h)The reliance placed on e-mail correspondence dated 23.11.2005 between Shri Nandan Alvi, Director of assessee-company and Captain ARV Dsouza, Vice-President of CHA company relate to import made in November 2005 and the said communications even if they are suspicious, may not be relevant for the impugned import which took place much earlier in February 2004 and therefore, cannot be of help to fix responsibility for manipulation done on the lab report received in March 2004.
(i) The applicability of Section 155 of the customs Act, in respect of Shri D.V. Daivajna, need not be gone into, as we have held that there was no evidence for fixing the responsibility for the manipulation on Shri D.V. Daivajna.
17. In other words, the major issues framed for consideration require to be resolved as follows:
(a) Sucrose content of less than 98.5% in the imported raw cane sugar disentitle the goods to the benefit of Notification No. 43/2002-Cus. and 46/2002-Cus.
(b) The lab report was originally containing 98.1% as sucrose content and the same was manipulated to read as 98.9%.
(c) On the basis of totality of evidences, the assessee-company, who is obviously the beneficiary of the manipulation, is clearly responsible for the manipulation and the person or persons who are responsible for the manipulation of the lab report could not be identified on the basis of evidence relied upon in the show-cause notice except the assessee-company, who is obviously the beneficiary.
(d) Demand under Section 28 can be made without the department challenging the finalization of provisional assessment done on 29.08.2006.
18. In view of the above, we uphold the order of the Commissioner insofar as the same relates to the confirmation of duty demand, order for recovery of interest and imposition of penalties on the appellant-assessee. However, the orders relating to imposition of penalties on other appellants are set aside.
19. Thus :
(a) Appeal No. C/403/2009 by appellant-company is rejected.
(b) Other appeals are allowed with consequential relief as per law.
(Pronounced in the open court on ..) (M. Veeraiyan) (P. G. Chacko) Member (Technical) Member (Judicial) /vc/