Custom, Excise & Service Tax Tribunal
Seen vs Unknown on 6 June, 2012
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:15/05/2012;
17/05/2012
Date of decision:.
Appeal No.C/249 to 252/2009;
C/399 to 402/2009;
C/363/2009
(Arising out of Order-in-original No.07/2009-Adjn.-Cus.
dt. 19/02/2009 and No.10/2009-Adjn.-Cus. dt. 16/03/2009
passed by CC,CE&ST, Hyderabad)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
Honble Mr. 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?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
Appellant(s)
Respondent(s)
M/s. Gimpex Ltd.
CC, Hyderabad Mr. Samir Goenka
-do-
Mr. Anil Goyal
-do-
Mr. Ranjit S Choudhari Vs.
-do-
M/s. Sree Enterprises
-do-
Mr. Sanjay Bansal
-do-
Mr. Anil Goyal
-do-
Mr. Ranjit S Choudhari
-do-
CC, Hyderabad M/s. Gimpex Ltd.
Appearance Mr. V.S. Nankani, Sr. Advocate, Mr. Satish Sunder, Advocate and Mr. Krishnanandh, Advocates for the appellants.
Mr. P.R.V. Ramanan, Special Consultant for the Revenue.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) Honble Mr. M. Veeraiyan, Member(Technical) FINAL ORDER No._______________________ [Order per: P.G. Chacko] The main appeals, No.C/249/09 & C/399/09 filed by M/s. Gimpex Ltd. (hereinafter referred to as GL) and M/s. Sree Enterprises (hereinafter referred to as SE) respectively, are directed against demands of duty confirmed against them under Section 28(2) of the Customs Act and penalties imposed on them under Section 114A of the Act. Appeal No.C/363/09 was filed by the Commissioner of Customs, Hyderabad-II praying for enhancement of the quantum of penalty imposed on GL under Section 114A of the Act. The appellant wants penalty equal to the sum of duty and interest, to be imposed on the assessee. The remaining appeals were filed by the persons aggrieved by the penalties which were imposed on them by the adjudicating authority under Section 112 of the Act. The particulars of the party-appeals are as tabulated below:
Sl.
No. Appeal No. Appellant name Period of Export Period of Import Duty demand under proviso to Section 28(1) Rs.
Penalty under Section 114A/112(a) Rs.
1.
C/249/09 M/s Gimpex Ltd.
2003-04 2004-05 September 2006 to April 2007 3,95,68,820/-
3,95,68,820/-
(u/s 114A)
2. C/250/09 Samir Goenka, Joint Managing Director of M/s Gimpex Ltd.
20,00,000 (u/s 112(a)
3. C/251/09 Anil Goyal, General Manager of Metal and Copper Division of M/s Gimpex Ltd.
15,00,000/-
(u/s 112(a))
4. C/252/09 Ranjit Choudhari 7,50,000/-
(u/s/112(b)
5. C/399/09 M/s Sree Enterprises 2003-04 2004-05 June 2006 to Sept.2007 1,50,47,618/-
1,50,47,618/-
6. C/400/09 Sanjay Bansal, Proprietor of M/s Sree Enterprises 20,00,000/-
(u/s 112(a)
7. C/401/09 Anil Goyal Authorized Signatory of M/s Sree Enterprises 15,00,000/--
(u/s 112(a))
8. C/402/09 Ranjit Choudhari Rs 10,00,000/-
(u/s 112(b))
2. Both GL and SE had filed Writ Petitions against the direction of this Bench for predeposit, mainly on the ground that the relevant show-cause notices were issued without jurisdiction and consequently the orders passed in adjudication thereof were liable to be quashed. This challenge was based on the Honble Supreme Courts decision in Commr. Vs. Sayed Ali [2011(265) ELT 17 (SC)]. The Honble High Court of Andhra Pradesh disposed of the Writ Petitions ( WP Nos.15570 and 15571 of 2011) directing the CESTAT to reconsider the stay applications keeping in view the decision of the Supreme Court in Sayed Alis case. Subsequently, this Bench reheard the stay applications of the parties and disposed of the same granting waiver of predeposit and stay of recovery in respect of the adjudged dues. In the de novo proceedings, it was submitted on behalf of the Department that the above jurisdictional question did not survive after the issue of Notification No.44/2011-Cus(N.T.) dt. 6/7/2011 by the Central Government. It was also submitted that legislation was under way to give retrospective effect to the Notification. However, the benefit of waiver and stay was granted by this Bench not for any jurisdictional reason but in view of the prima facie case made out on merits by the appellants. When ultimately the appeals came up for hearing, the legislation referred to by the learned Special Consultant for the Department was in place. The newly enacted sub-section (11) of Section 28 of the Customs Act gave retrospective effect to the provisions of Notification No.44/2011-Cus(N.T.) thereby removing any jurisdictional defect of show-cause notices issued by DRI authorities. Thus any jurisdictional question does not survive for consideration by this Bench.
3. M/s. Gimpex Ltd. are engaged in the export of industrial minerals like iron ore, bentonite, feldspar, granite slabs etc. The raw material/machinery required for export of the said goods are packing materials like PP bags and machines like dozers, dumpers, generators, excavators, tippers, crushing and screening systems, etc. GL had exported iron ore fines valued at Rs.142.3 crores and other minerals valued at Rs.31 crores totalling to Rs.173.3 crores during the period from 01/04/2004 to 31/03/2005. These exports helped GL attain sufficient incremental growth when compared to the exports made in the previous year (2003-04), to make them eligible for duty credit certificates under Target Plus Scheme (TPS) for a total amount of Rs.7,08,12,793/-. GL applied in the prescribed format to the Director-General of Foreign Trade (DGFT) for grant of such certificates and obtained 7 such certificates for a total amount of Rs.7,08,12,793/- in the month of May, 2006. These duty credit certificates/licences under TPS, which were granted by the Joint DGFT, Chennai, enabled GL to import canalized items as per para (3.2.5.) of the Handbook of Procedures (Volume-I) 2004-09 and subject to actual user condition. The Conditions Sheet attached to each certificate/licence specified two export product groups viz. CHEMICAL AND ALLIED PRODUCTS and ENGINEERING PRODUCTS and also carried an endorsement: Import will have broad nexus. As these licences were registered at Chennai Port Customs and GL wanted to make imports through ICD Hyderabad, they obtained Transfer Release Advices(TRAs) from Chennai Customs for imports through ICD Hyderabad. GL used these TRAs for importing continuous cast copper rods (a canalized item) (hereinafter, also, referred to as c.c. copper rods) in 14 consignments (total weight 427.383 MTs and value Rs.13,53,94,741/-) through ICD Hyderabad during the period from September, 2006 to April, 2007 [These imports were made under High Sea Sale Agreements concluded between GL and M/s. MMTC Ltd.]. Notification No.32/2005-Cus dt. 08/04/2005 issued by the Central Government under the TPS in terms of paragraph (3.7.) of the Foreign Trade Policy (FTP), 2004-09 granted full exemption from payment of basic customs duty and additional customs duty (CVD) on goods imported into India against duty credit certificates/licences issued under the TPS. Any inputs, capital goods (including spares, office equipments etc.) and agricultural products, which were freely importable under the FTP, could be imported duty-free under the Notification subject to actual user condition. GL claimed this benefit of exemption in respect of the c.c. copper rods imported by them, and the relevant Bills of Entry were accordingly assessed and the goods allowed to be cleared without payment of duty. Subsequently, the DRI launched investigations into the manner in which GL had availed themselves of the benefit of TPS. The relevant documents related to the purchase of c.c. copper rods by GL from MMTC under High Sea Sale Agreements, import documents related to duty-free clearance of the goods under TPS, documents related to export of iron ore fines and other goods, correspondence between GL and MMTC and others, etc., were recovered and scrutinized by the DRI. Statements were recorded from functionaries of M/s. Gimpex Ltd., M/s. Mangalchand Alloys and Refineries Pvt. Ltd. (MARPL), M/s. Shah International Travels (CHA) and others under Section 108 of the Customs Act. The relevant provisions of the FTP, 2004-09 and of the Handbook of Procedures (Volume-I) were examined. The provisions of Customs Notification No.32/2005 dt. 08/04/2005 were also examined. On the basis of the results of investigations, the Department issued a show-cause notice to GL and others (a) denying exemption under the above notification in respect of the imported copper rods and demanding duty under the proviso to Section 28(1) of the Customs Act, (b) holding the said goods liable to confiscation under Section 111(o) of the Act and holding GL liable to penalty under Section 114A of the Act, (c) demanding interest on duty under Section 28AB of the Act, and (d) proposing penalties on other noticees S/Sh Samir Goenka, Anil Goyal and Ranjit S Chaudhari under Section 112 of the Act. The demands and other proposals were contested. In adjudication of the dispute, the Commissioner of Customs passed order-in-original No.7/2009. The operative part of this order reads as follows:
(i) The benefit of exemption in terms of Notification No.32/2005-Cus. Dt. 8/4/2005 as amended in respect of the Copper rods imported by M/s. Gimpex Ltd. against the duty credit certificates issued under Target Plus Scheme vide Bills of Entry mentioned in Annexure A.17 of the show cause notice is denied.
(ii) An amount of Rs.3,95,68,820/- (Rupees three crores ninety five lakhs sixty eight thousands eight hundred and twenty only) towards duties of Customs not paid on the quantities of copper rod imported by them during the period from September 2006 to April 2007 should be paid by them in terms of proviso to Section 28(1) of the Customs Act, 1962 read with provisions of Customs Notification No.32/2005-Cus. Dt. 8/4/2005 as amended. An amount of Rs.75 lakhs voluntarily paid by M/s. Gimpex Ltd. is adjudged against the above amount of duty of Customs.
(iii) The Continuous Copper rods weighing a quantity of 427.383 MTs totally valued at Rs.13,53,94,741/- is held liable to confiscation in terms of Section 111(o) of the Customs Act, 1962. However, since the goods are not physically available, no fine is imposed.
(iv) Interest as applicable is to be paid by M/s. Gimpex Ltd. on the duty amount demanded above, in terms of Section 28AB of the Customs Act, 1962.
(v) Penalty of Rs.3,95,68,820/- (Rupees ninety five lakhs sixty eight thousands eight hundred and twenty only) is imposed on M/s. Gimpex Ltd. in terms of Section 114A of the Customs Act, 1962.
(vi) In terms of Section 112(a) of the Customs Act, 1962, I impose a penalty of Rs.20 lakhs (Rupees twenty lakhs only) on Sri Samir Goenka, Joint Managing Director, M/s. Gimpex Ltd. and Rs.15 lakhs (Rupees fifteen lakhs only) on Sir Anil Goyal, General Manager, Metal & Copper Division of M/s. Gimpex Ltd.
(vii) In tersm of Section 112(b) of the Customs Act, 1962, I impose a penalty of Rs.7,50,000/- (Rupees seven lakhs and fifty thousand only) on Sri Ranjit Chaudhari, Managing Director of M/s. Mangalchand Alloys and Refineries Pvt. Ltd., Hyderabad.
The first four appeals are directed against this order of the Commissioner. The Departments appeal, C/363/09, seeks enhancement of penalty on GL.
4. M/s. Sree Enterprises (SE) were engaged in the manufacture and export of articles of mild steel, articles of alloy steel such as ferro-silicon, etc. They obtained 11 duty credit certificates/licences in February, 2006 from the Joint DGFT, New Delhi by showing sufficient incremental growth in exports in the year 2004-05 vis-`-vis 2003-04. By making use of TRAs based on these licences, they imported c.c. copper rods in a quantity of 136.654 MTs valued at Rs.4,92,58,835/-, through ICD Hyderabad. The imported goods were cleared duty-free in terms of Notification No.32/2005-Cus dt. 08/04/2005. Subsequent investigations by DRI culminated in the issuance of a show-cause notice to SE, similar to the one issued to GL. This show-cause notice also proposed penalties on S/Sh Sanjay Bansal (proprietor of SE), Anil Goyal (authorised signatory of SE) and Ranjit Chaudhari under Section 112 of the Customs Act. The demand of duty and other proposals were contested by the noticees. In adjudication of this dispute, the Commissioner of Customs passed Order-in-Original No.10/09 similar to Order-in-Original No.7/09. The operative part of Order-in-Original No.10/09 reads as follows:
(i) The benefit of exemption in terms of Notification No.32/2005-Cus. Dt. 8/4/2005 as amended in respect of the Copper rods imported by M/s. Sree Enterprises against the duty credit certificates issued under Target Plus Scheme vide Bills of Entry mentioned in Annexure A.44 of the show-cause notice is denied.
(ii) An amount of Rs.1,50,47,618/- (Rupees one crore fifty lakhs forty seven thousand six hundred and eighteen only) towards duties of Customs not paid on the quantities of copper rod imported by them during the period from June 2006 to September 2006 is demanded in terms of proviso to Section 28(1) of the Customs Act, 1962 read with the provisions of Customs Notification No.32/2005-Cus. Dt. 08/04/2005 as amended.
(iii) The Continuous Copper rods weighing a quantity of 136.654 MTs totally valued at Rs.4,92,28,835/- is held liable to confiscation in terms of Section 111(o) of the Customs Act, 1962. However, since the goods are not physically available, no fine is imposed.
(iv) Interest as applicable is to be paid by M/s. Sree Enterprises on the duty amount demanded above, in terms of Section 28AB of the Customs Act, 1962.
(v) Penalty equivalent to duty and interest as per (ii) and (iv) above is imposed on M/s. Sree Enterprises in terms of Section 114A of the Customs Act, 1962.
(vi) In terms of Section 112(a) of the Customs Act, 1962, I impose a penalty of Rs.20 lakhs (Rupees twenty lakhs only) on Sri Sanjay Bhansal, Proprietor, M/s. Sree Enterprises and Rs.15 lakhs (Rupees fifteen lakhs only) on Sri Anil Goyal, Authorised Signatory, M/s. Sree Enterprises.
(vii) In terms of Section 112(b) of the Customs Act, 1962, I impose a penalty of Rs.10 lakhs (Rupees ten lakhs only) on Sri Ranjit Chaudhari, Managing Director of M/s. Mangalchand Alloys and Refineries Pvt. Ltd., Hyderabad.
Appeals C/399-402/09 are directed against this order of the Commissioner.
5. Heard both sides. The learned counsel for GL and co-appellants referred to the relevant provisions of the Target Plus Scheme under the Foreign Trade Policy, 2004-09 and submitted that the imports made by GL were in accordance with the Policy provisions as interpreted by the Honble High Courts of Delhi and Mumbai and hence the benefit of Notification No.32/05-Cus. dt. 8/4/2005 was not deniable to the importer. In this connection, the learned counsel referred to the following judgments:
i. Judgment dt. 5/8/2010 passed by a learned Single Judge of the Honble Delhi High Court in W.P.(C) No.2497 of 2008 (Indian Exporters Grievance Forum & anr. vs. UOI and ors.).
ii. Judgment dt. 24/2/2012 passed by a Division Bench of the Honble Delhi High Court in LPA No.755 of 2010 (UOI & ors. vs. Indian Exporters Grievance Forum & anr.).
iii. Judgment dt. 14/6/2011 passed by a Division Bench of the Honble Bombay High Court in W.P. No.4499 of 2007 (Essel Mining & Industries Ltd. Vs. UOI & ors.).
Claiming direct support from the above judgments, the learned counsel contended that the broad nexus requirement of paragraph (3.2.5) of the Handbook of Procedures (Volume-I), 2004-09 had been fulfilled by GL in importing c.c. copper rods as input vis-`-vis the products exported by them viz. iron ore fines, etc. belonging to Engineering Products Group specified in the Conditions Sheets attached to the duty credit certificates/licences granted by the DGFT under Target Plus Scheme. Relying on para (3.2.5) ibid and the Bombay High Courts judgment, the learned counsel submitted that, for the purpose of duty-free import of inputs under the said scheme, broad nexus would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the certificate/licence. Paragraph (3.7.6) of the FTP authorized the certificate/licence-holder to utilize the duty credit in the import of any inputs subject only to two conditions viz. (i) such inputs should be freely importable and (ii) such inputs were imported for the importers own use. Paragraph (3.7.6.) did not stipulate that the imported goods must be inputs for the manufacture of products identical to the products which were exported for obtaining TPS certificates/licences. The Department had no case that the copper rods imported by GL were not intended for their own use or that the goods were not freely importable. Therefore, according to the learned counsel, GL was entitled to the benefit of the aforesaid Notification in respect of the subject imports.
6. The learned counsel further pointed out that the CBECs Circular No.21/2007-Cus dt. 8/5/2007 which took a different view on the nexus issue was struck down by both the High Courts as ultra vires the relevant provisions of the FTP. He further pointed out that Public Notice No.9/2007 dt. 21/06/2007 issued by the DGFT narrowing down the scope of Para (3.7.6.) of the FTP and Circular No.45/2007-Cus. dt. 19/12/2007 issued by the CBEC clarifying that an input imported under the TPS should be one usable in the manufacture of the exported product were also quashed by the Bombay High Court. Therefore, the impugned order passed by the learned Commissioner by placing heavy reliance on the Boards Circular dt. 8/5/2007 and the DGFTs Public Notice dt. 21/6/2007 was liable to be set aside.
7. It was further submitted by the learned counsel that the entire demand of duty was beyond the normal period. The extended period of limitation was invoked on the alleged ground of suppression/wilful misstatement of facts by the assessee. In fact, GL had placed all the necessary materials including the duty credit certificates before the proper officer at the time of clearance of the goods imported by them. Nothing was misstated, misdeclared or suppressed in the Bills of Entry. On the basis of the particulars declared and the documents produced by GL, the proper officer assessed the Bills of Entry granting the benefit of Notification No.32/2005-Cus. to the assessee and, accordingly, the imported goods were cleared for home consumption. In such circumstances, the extended period of limitation could not have been invoked on the alleged ground of suppression or wilful misstatement of facts. The learned counsel submitted that the demand of duty was based on a misunderstanding of the relevant provisions of the FTP and the Handbook of Procedures (Volume-I), 2004-09. The issuance of Public Notices and Circulars by the DGFT and the CBEC on the subject would per se indicate the lack of clarity of the provisions as understood by the authorities. For this reason also, the extended period of limitation was not invocable in this case. More or less the same reasons were also cited in support of the challenge against penalties.
8. The learned counsel for M/s. Sree Enterprises and co-appellants adopted all the above arguments. The duty credit certificates were obtained by SE from the DGFT after exporting articles of mild steel, articles of alloy steels such as ferro-silicon, etc., falling under Engineering Products Group. The c.c. copper rods imported by them had a nexus to this group as per SION as well as ITC(HC) classification. The broad nexus required under the FTP was established and, therefore, it was not open to the Customs authorities to deny them the benefit of Notification No.32/2005-Cus. The goods in question were imported under the TPS as permitted by the licensing authority. The relevant licences/certificates were never withdrawn or revoked, nor even amended to the detriment of the importer. Hence it was not open to the Customs authorities to take the view that the goods were not permitted to be imported under the Foreign Trade Policy. They were rather bound by the terms of the TPS certificates/licences. In this connection, the learned counsel relied on Varun Industries Ltd. vs. UOI [2009(244) ELT 39(Bom.)]. Furthermore, it was submitted that the relevant Bills of Entry had been finally assessed by the proper officer of Customs granting the benefit of the exemption notification and that it was not open to the Department to invoke Section 28 of the Customs Act for recovery of duty without successful challenge (by way of appeal) to such assessments. In this connection, the counsel relied on Priya Blue Industries Ltd. vs. Commissioner of Customs [2004(172) ELT 145 (SC)]. In any case, in the absence of suppression or wilful misstatement of any material fact by SE, the extended period of limitation was not invocable in this case. Claiming support from Allied Glass Pvt. Ltd. vs. Commissioner [2010(251) ELT 423 (Tri. Del.)], the learned counsel submitted that the penalties in this case were not warranted as the substantive issue involved interpretation of provisions of the FTP. In any case, both Shri Sanjay Bansal and SE (his proprietorship) could not have been penalized at the same time for the same offence if any.
9. The learned Special Consultant for the Department argued that any goods to be imported under the TPS should have nexus/relation with the goods exported in the sense that the imported goods could have been useful for the processing/manufacture /packing of the export goods. Even as per the Standard Input-Output Norms (SION), c.c. copper rods were specified inputs for the manufacture of copper wire, conductors and equipments such as stators/motors, but the goods exported by GL were none of these but industrial minerals like iron ore fines, bentonite etc. The imported goods did not have even a broad nexus with the goods exported by GL. Similarly, there was no nexus between the goods exported by SE (articles of mild steel, articles of alloy steel etc.) and the c.c. copper rods imported by them.
10. The learned consultant also referred to the judgments passed by the Honble High Courts of Delhi and Bombay in the cases of Indian Exporters Grievance Forum (supra) and Essel Mining and Industries Ltd. (supra). According to him, two points emerged from those decisions viz. (i) the clarifications to the effect that the goods imported must be inputs used in the manufacture of goods identical to the exported goods are not legally valid and (ii) the imported goods should, nevertheless, have broad nexus with a larger group of goods which are similar to the exported goods. The judgments would thus admit a larger coverage including not only goods identical to the exported goods but also goods similar to them. The learned Consultant argued that the judgments of the Honble High Courts laid emphasis on this coverage which should include a group of products similar to the exported goods. The goods imported under a TPS licence should be usable in the manufacture of any goods within such group of products. In this view of the matter, the appellants were required to satisfy the Customs authorities that the copper rods imported by them had such broad nexus with the exported goods. According to the learned Consultant, this condition of broad nexus, as interpreted by the Honble High Courts, was not satisfied by the assessees in the present case. In the context of explaining the scope of the above coverage within a group of products similar to the exported goods, the learned consultant referred to the dictionary meaning of the word similar as also to the meaning of the expression similar goods defined in the Customs Valuation Rules. If such meaning was applied in the present case, it could be concluded that any goods imported as inputs under the TPS must be inputs for products having general likeness, by way of comparable features and applications, to the exported goods. Thus it was argued that, as against iron ore fines exported by GL, the permissible imports would be goods meant for producing products similar to iron ore fines. According to the learned Consultant, such similar products would be those falling under ITC (HS) heading 26.01. In his view, only the products of ITC(HS) heading 26.01 would satisfy the criterion of similar goods and, thereby, the broad nexus test. This view was claimed be in line with the judgment of the Delhi High Court. It was further argued that it might not be reasonable to examine the nexus between the imported goods and the exported goods with reference to SION which were issued much before the TPS was introduced. According to the learned Consultant, such nexus could be better ascertained with reference to the provisions of ITC(HS) Schedule.
11. The learned Special Consultant for the Department also contested the assessees challenge against the invocation of Section 28 of the Customs Act. While admitting that all the assessments of the Bills of Entry were final, he submitted that the Customs Department had power to invoke Section 28 to recover the duty forgone. In this connection, he relied on the Supreme Courts judgment in UOI vs. Jain Shudh Vanaspati [1996(86) ELT 460 (SC)]. In another context, the learned Consultant submitted that the Customs Department was only examining the importers claim for duty exemption under Notification No.32/2005-Cus. and was not sitting in judgment over any action of the DGFT. In this connection, he claimed support from the Supreme Courts judgment in Sheshank Sea Foods Pvt. Ltd. vs. UOI [1996(88) ELT 626 (SC)].
12. We have given careful consideration to the submissions. At the outset, we shall deal with one basic issue raised by the assessee-appellants. It was submitted that Section 28 of the Customs Act should not have been invoked to demand the duty forgone, without a successful challenge to the final assessments of the relevant Bills of Entry. As rightly submitted by the learned Special Consultant for the Department, the question whether Section 28 of the Act could be invoked for recovery of the duty forgone in respect of the imported goods finally assessed to nil duty and allowed to be cleared for home consumption, without successful challenge to the assessment, is no longer res integra inasmuch as the Honble Supreme Courts judgment in Jain Shudh Vanaspati case is a binding answer to the question. In this connection, we may conveniently quote from a judgment of a co-ordinate Bench viz. Rahul Ramanbhai Patel vs. CC(Import), Mumbai [2010(256) ELT 424 (Tri. Mumbai)] :
5.?We have considered the submissions. We find that in the case of Jain Shudh Vanaspat Ltd. the Honble Supreme Court had held as follows :-
It is patent that a show-cause notice under the provisions of Section 28 for payment of Customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance under Section 47 of the concerned goods. Further, Section 28 provides time limits for the issuance of the show-cause thereunder commencing from the relevant date; relevant date is defined by sub-section (3) of Section 28 for the purpose of Section 28 to be the date on which the order for clearance of the goods has been made in a case where duty has not been levied; which is to say that the date upon which the permissible period begins to run is the date of the order under Section 47. The High Court was, therefore, in error in coming to the conclusion that no show-cause notice under Section 28 could have been issued until and unless the order under Section 47 had been first revised under Section 130.
6.?We further note that, in the case of Venus Enterprises (supra), the assessee had filed 11 Bills of Entry for clearance of computer parts in 1995-96. The declared value was accepted in respect of some of these Bills of Entry, while in respect of other Bills of Entry, the value was enhanced. After the assessment, consignments were allowed to be cleared under Section 47. However, on subsequent investigations by the DRI, certain incriminating documents were recovered from the premises of the importer. On the basis of the results of the investigations, the department issued a show-cause notice to the importer under Section 28(1) of the Customs Act for recovery of further amount of duty of over Rs. 24 lakhs from them as also for confiscation of the goods and imposition of penalty on the importer. One of the questions of law framed by the Honble High Court reads thus :-
Whether the Tribunal was right in holding that the order of assessment on which no Appeal was preferred, can be reopened by issue of a fresh show-cause notice under Section 28A(sic) 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. v. Commissioner of Customs ? The Honble High Court answered the above question in favour of the Revenue in paragraph 6 of its judgment, which is reproduced below :-
6.?With regard to question No. 1, the law is well settled that a show-cause notice under the provisions of Section 28 of the Act for payment of customs duties not levied or short-levied or erroneously refunded can be issued only subsequent to the clearance of the goods under Section 47 of the Act vide Union of India v. Jain Shudh Vanaspati Ltd. [1996 (86) E.L.T. 460 (S.C.)]. Therefore, as rightly held by the Tribunal, if the contention of the appellants counsel that when the goods were already cleared, no demand notice can be issued under Section 28 of the Act is accepted, we will be rendering the words whether any duty has been short-levied as found in Section 28(1) of the Act as unworkable and redundant, inasmuch as the jurisdiction of the authorities to issue notice under Section 28 of the Act with respect to the duty, which has been short-levied, would arise only in the case where the goods were already cleared. In view of the clear finding with regard to the misdeclaration and suppression of value, which led to the undervaluation and proposed short-levy of duty, we do not see any lack of jurisdiction on the part of the adjudicating authority to issue notice under Section 28(1) of the Act.
7.?We are told that the SLP filed against the above decision of the High Court was dismissed by the Apex Court [Venus Enterprises v. Commissioner - 2007 (209) E.L.T. A61 (S.C.)].
The above excerpt from R.R. Patel will also meet the case which was sought to be made out by the assessees by relying on Priya Blue Industries (supra). In the result, it has to be held that it was within the powers of the proper of officer of Customs to issue show-cause notices to the assessees under Section 28 of the Act demanding the duty forgone under Notification No.32/2005-Cus.
13. Another contention raised on behalf of the assessees is that, once the DGFT duly issued duty credit certificates/licences enabling them to import canalized goods with broad nexus to the exported products and to claim the benefit of Target Plus Scheme, it was not open to the Customs authorities to deny the benefit on any ground whatsoever. This argument is also unacceptable. The Customs authorities have exclusive jurisdiction to examine the importers eligibility for claiming exemption under a Customs Notification vide Sheshank Sea Foods (supra). The TPS certificates did not specifically name the goods for import. It was for the Customs authorities to examine and find out whether the c.c. copper rods imported by GL and SE answered the broad nexus test so as to attract the benefit of Notification No.32/2005-Cus. Rightly or wrongly, it was this function which was discharged by the Customs Department in this case. In this view, the above contention of the learned counsel for the appellants cannot be sustained.
14. The substantive issue agitated before us is whether the assessees, GL and SE, satisfied the requirements of the TPS under the FTP, 2004-09 to claim the benefit of Notification No.32/2005-Cus. dt. 8/4/2005 in respect of continuous cast copper rods imported by them during the relevant period under the duty credit certificates/licences granted by the DGFT. GL had obtained such certificates/licences from the DGFT after exporting iron ore fines etc. of Engineering Products Group and bentonite and certain other items of Chemicals and Allied Products Group. SE had obtained such certificates/licences after exporting articles of mild steel and alloy steels of the Engineering Products Group. All the licences required the importers to establish a broad nexus between the imported goods and the goods exported for obtaining the above certificates/licences from the DGFT. The Bills of Entry filed by the importers were assessed duty-free in terms of Notification No.32/2005-Cus. dt. 08/04/2005, which exempted goods when imported into India against a duty credit certificate issued under the TPS in accordance with para (3.7.) of the FTP, from basic customs duty and additional customs duty (CVD) subject to certain conditions including actual user condition. Explanation to the Notification defined the term goods as follows:
good means any inputs, capital goods including spares, office equipment, professional equipment, office furniture and agricultural products listed in Chapters 1 to 24 of the First Schedule to said Customs Tariff Act as may be notified by DGFT from time to time, which are freely importable under the Foreign Trade Policy.
It is not in dispute that the assessees imported continuous cast copper rods as input for actual use. The goods were also freely importable under the FTP. The duty credit certificates issued to the assessees by the DGFT under the TPS required them to establish a broad nexus between the goods to be imported and the products already exported. The certificates were issued in accordance with para (3.7.) of the FTP. Para (3.7.6.) of the Policy provided that the duty credit could be used for import of any inputs, capital goods provided the same was freely importable under ITC(HS) for the importers own use or for use of his supporting manufacturer declared in Appendix 17D, the format prescribed for an application for issue of duty credit certificate under the TPS. In column 10 of Appendix 17D, it was provided thus Goods allowed to be imported under this scheme shall have a broad nexus with the product exported and declaration in this regard shall be made by the applicant in Appendix 17D. For the purpose of import entitlement under this scheme, broad nexus would mean goods imported with reference to any of the product groups of the exported goods within the overall value of the entitlement certificate. Identical provision was available under para (3.2.5.) of the Handbook of Procedures (Volume-I), 2004-09. The learned counsel for the assessees have argued that a broad nexus as envisaged under para (3.2.5.) of the Handbook of Procedures was established by them between the imported goods and the exported products. In this connection, they have heavily relied on the judgment of the Honble Delhi High Court in the case of Indian Exporters Grievance Forum (supra) and judgment of the Honble Bombay High Court in the case of Essel Mining & Industrial Ltd. (supra).
15. We have perused the cited judgments and noted the following findings of the Honble High Courts:
i. Para (3.7.6.) of the FTP, by itself, does not indicate that the imported goods should constitute inputs in the goods exported. It is not possible to read para (3.7.6.) restrictively. (Delhi HC) ii. Given the objective of providing an incentive to exporters, para (3.7.6.) of the FTP can reasonably be interpreted to require an exporter to show that the goods imported should have broad nexus with reference to any product group of the exported groups within the overall value of the entitlement certificate. The word nexus obviously refers to a larger group of similar goods and not the very exported goods itself. (Delhi HC) iii. Reading paragraph (3.7.6.) of the FTP, it is evident that an eligible exporter is entitled to utilize duty credit in the import of any inputs, provided (i) they are freely importable and (ii) they are imported by importers for their own use. Para (3.7.6.) does not stipulate that the goods which are imported must be inputs for the manufacture of the export product in relation to which the benefit of the TPS is claimed. What para (3.7.6.) requires is that the goods which are imported by the eligible exporter must be inputs and the inputs must be imported for their own use, meaning thereby the use of the importer himself. (Bombay HC) iv. Para (3.7.6.) on its plain construction does not incorporate a requirement that the goods which are imported as inputs must find physical incorporation in the export products in relation to which the benefit of the TPS is claimed. In fact, even para (3.2.5.) of the Handbook of Procedures, which spells out the meaning of the broad nexus requirement, does not impose such a condition. (Bombay HC) Upon the above interpretation of the relevant provisions of the FTP, 2004-09, the CBECs Circular No.21/2007-Cus dt. 8/5/2007, the DGFTs Public Notice No.9/2007 dt. 21/6/2007 and the CBECs Circular No.45/2007-Cus dt. 19/12/2007 came to be struck down as ultra vires the provisions of the FTP. The above Public Notice and Circulars were relied on by the adjudicating authority in the cases of GL and SE, and the quashing thereof by the Honble High Courts has, of course, rendered the impugned orders infirm to the extent to which those orders relied on the said Public Notice and Circulars.
16. What emerges from the above findings of the Honble High Courts is that the Policy provisions as interpreted by the Honble High Courts did not restrictively require the assessees, (for exemption under Notification No.32/2005-Cus) to prove that the goods imported by them were usable in the very products which were exported by them for obtaining the TPS certificates. It was enough for them to show that the c.c. copper rods imported by them could be used as input in the manufacture of any goods of a larger group of similar goods including the exported goods. If this burden of proof was discharged, the importers would be held to have established a broad nexus between the imported and exported goods. But this larger group of similar goods cannot be left indeterminate, lest it should be unduly enlarged by unscrupulous seekers of TPS benefit (No offence to GL or SE!). Therefore the licensing authority which issued TPS certificates to GL and SE specified therein groups of export products, such as Engineering Products and Chemical & Allied Products, each being a larger group of similar goods. The Honble High Courts judgments cannot be understood as having so interpreted the Policy provisions as to place any fetter on this power of the licensing authority(DGFT).
17. It is not in dispute that SE had obtained such certificates/licences under the TPS from the DGFT by exporting articles of mild steel(sleeves, collors etc.) and articles of alloy steels (ferro-silicon etc.) through ICD, Patparganj during 2003-04 and 2004-05. The TPS certificates were registered at ICD, Tuglakabad and the TRAs obtained from there were used by SE for duty-free import of c.c. copper rods through ICD, Hyderabad. It cannot be in dispute that both the exported and imported goods (steel articles and copper rods respectively) belonged to the same group viz. Engineering Products as per SION. The broad nexus which was required to be established between the imported and exported goods under the FTP provisions as construed by the Honble High Courts was established by SE.
18.1. GL had obtained their TPS certificates/licences from the DGFT after exporting iron ore fines falling under SIONs Engineering Products Group and also exporting items such as bentonite falling under SIONs Chemicals and Allied Products Group, through Chennai and other ports during 2003-04 and 2004-05. The TPS certificates were registered at Chennai Seaport Customs and the TRAs obtained from there were used for duty-free import of c.c. copper rods under the TPS through ICD, Hyderabad. Though it is not in dispute that the c.c. copper rods imported by GL and one of the products exported by them (iron ore fines) belonged to the same product group viz. Engineering Products, no such broad nexus existed between the imported goods and other exported products falling under Chemicals and Allied Products Group. According to the learned counsel for GL, for the benefits of TPS, it was not necessary for the importer to establish nexus between the imported goods and each of the exported products. It was submitted by him, relying on para (3.2.5.) of the Handbook of Procedures (Volume-I), 2004-09, that it was enough for the importer to establish a broad nexus with reference to any of the product groups of the exported goods within the overall value of the TPS certificate. As there was broad nexus between the copper rods imported by GL and one of the exported products (iron ore fines of Engineering Products Group), the importer could claim the benefit of the scheme within the overall value of the TPS certificate, according to the learned counsel. This, in our view, is a specious argument which, if accepted, can yield results not envisaged by the Policy as interpreted by the Honble High Courts.
18.2. For illustration, we may consider a hypothetical case:
A Star Export House(SEH) exported the product X [Engineering Products Group] with its FOB value contributing to the extent of 50% of the incremental growth in FOB value of exports in a given fiscal year over the previous year. It also exported the product Y [Chemical and Allied Products Group] with its FOB value contributing to 50% of the incremental growth in FOB value of exports. Suppose, on an application made by the SEH, the DGFT taking into account the entire incremental growth in FOB value of exports granted a duty credit certificate under the TPS entitling them to make duty-free import of inputs having broad nexus with the exported products. Where the SEH imports c.c. copper rods under the scheme, the question arises as to whether this goods can be said to have broad nexus with the exported products. Between the copper rods and the export product X, there is a broad nexus. But, between the copper rods and the export product Y, there is no nexus. If that be so, can it be said that a broad nexus has been established by the SEH between the imported copper rods and the exports made by them? [Our answer is in the negative.] No question of this sort was considered by the Honble High Courts in the cited cases of Indian Exporters Grievance Forum (Delhi) and Essel Mining and Industries Ltd. (Bombay) and, therefore, in our view, GL (whose case resembles the hypothetical case supra) cannot claim support from the Honble High Courts judgments to the plea that a broad nexus was established in terms of para (3.2.5.) ibid between the c.c. copper rods imported by them and the products exported by them.
18.3. We do not find it prudent to think that para (3.2.5.) ibid implied that a person having obtained a TPS certificate by exporting goods of two or more different product groups could, under the scheme, import inputs with a broad nexus with any of the exported products within the overall value of the certificate. The expression any of the product groups of the exported goods within the overall value cannot be so liberally construed as to mean that, where two or more goods of different product groups are exported by a person for the purpose of obtaining TPS certificate from the licensing authority, he need not establish any nexus between some of the exported goods and the inputs imported under the TPS and that it is enough for him to establish a broad nexus between the imported goods and any one of the different products exported by him. We hold that any broad nexus in terms of para (3.2.5.) of the Handbook of Procedures (Volume-I) as interpreted by the Honble High Courts in the cited cases has not been established by M/s. Gimpex Ltd. Therefore, M/s. Gimpex Ltd. cannot claim the benefit of Notification No.32/2005-Cus. ibid and consequently the demand of duty cannot be resisted on merits.
19.1. We have also carefully considered the plea of limitation raised by the assessees. It is not in dispute that the impugned demands of duty were confirmed against them in adjudication of show-cause notices wherein the extended period of limitation under the proviso to Section 28(1) of the Customs Act was invoked on the alleged ground of suppression of facts with intent to evade payment of duty. Admittedly, in the case of both the assessees, the demand of duty is for the extended period of limitation under the said proviso. Both GL and SE have contested the demand by submitting that the larger period of limitation is not invocable in their case. We have considered their submissions and the connected arguments put forward by their counsel.
19.2. It is not in dispute that c.c. copper rods imported by the assessees were a canalized item which could be used as input in the manufacture of products of Engineering Products Group. The duty credit certificates/licences which were used by them for duty-free clearance of the imported goods required them only to establish a broad nexus between the imported goods and the products exported under the TPS. The products exported by SE were, admittedly, of Engineering Products Group and at least one of the products exported by GL was also, admittedly, of the said group. Apparently, GL bona fide believed that a broad nexus as defined in para (3.2.5.) of the Handbook of Procedures (Volume-I), 2004-09 was established by them and hence could claim the benefit of Notification No.32/2005-Cus in respect of the c.c. copper rods imported by them. SE, a fortiori, believed likewise. It is not the case of the Revenue that the duty credit certificates used by the assessees for duty-free clearance of the imported goods had been obtained by fraud or other clandestine means, nor was any of these certificates subsequently revoked or cancelled or amended to the detriment of the licensees by the licensing authority at the instance of the Customs authorities or otherwise. Where such certificates were used by the assessees under the TPS to secure duty-free clearance of the imported goods, the assessees can hardly be said to have done so with any intent to evade payment of duty. One has to presume that the TPS certificates were issued to them by the DGFT after due verification of the relevant Shipping Bills and allied export documents. Obviously, the Shipping Bills filed under the Target Plus Scheme had been duly assessed and all the exports cleared by the Customs authorities for shipment. Copies of such Shipping Bills must be part of the Customs record. If that be so, non-production of copies of Shipping Bills, which documents were already in the Departments possession, cannot amount to suppression of the documents by the assessees. Even if it be assumed that the assessees suppressed anything before the Department, they cannot be held to have done so with intent to evade payment of duty.
19.3. The Target Plus Scheme itself was short-lived when compared to other export promotion schemes. The clarificatory Circulars/Public Notices issued by the DGFT during the short tenure of the scheme, apparently, could not eliminate the ambiguities of its provisions. In particular, the meaning of broad nexus given in para (3.2.5.) of the Handbook of Procedures (Volume-I), 2004-09 lacked clarity and left room for conflicting interpretations. Para (3.7.6.), which allowed duty credit to be used for import of any inputs, capital goods provided the same is freely importable under ITC(HS) for their own use did not improve the situation. Suffice it to say that the language of the Policy provisions pertaining to the Target Plus Scheme provided scope for divergent interpretations of broad nexus. The Customs authorities sought to restrict the meaning of broad nexus to the extent of taking the view that this expression meant that an input imported under the TPS should be one which could be used in the manufacture of the exported product. On the contrary, the importers wanted to stretch the meaning of broad nexus to the other extreme. The Honble High Courts of Delhi and Bombay got occasion to interpret the Policy provisions, and the Circulars/Public Notices in question came to be struck down. Having outlined the chequered history of the Target Plus Scheme, we must accept that the ambiguous TPS provisions made the assessees believe bona fide that they were entitled to claim the benefit of Notification No.32/2005-Cus in respect of the c.c. copper rods imported by them, and they did not have any intention to evade payment of duty. Therefore, the extended period of limitation was not invocable against them. In the result, the demands of duty raised on the assessees are liable to be set aside on the ground of limitation and the penalties imposed on them under Section 114A of the Customs Act are also liable to be set aside.
20. If the person sought to be penalized under Section 112 of the Act is, in relation to any goods, found to have, by his commission or omission, rendered the goods liable to confiscation under Section 111 or is found to have abetted such commission or omission of another person, then, a penalty can be imposed on him under clause (a) of the above Section 112. Any person who is found to have physically dealt with such goods with the knowledge or belief that the goods are liable to confiscation under Section 111 can be penalized under clause (b) of Section 112. As regards GL and SE, however, there was no proposal in the show-cause notices to impose any penalty on them under Section 112 of the Act and no such penalty was imposed on any of them by the adjudicating authority though the goods imported by them were held liable to confiscation in terms of Section 111(o) of the Act. The adjudicating authority, however, chose to impose penalties on the other appellants under Section 112 of the Act on the ground that they were instrumental in aiding and abetting the importers in misuse of Target Plus Scheme and evasion of Customs duty. In other words, according to the adjudicating authority, GL and SE are the main offenders and others are abettors. As no penalty was proposed or imposed on GL and SE under Section 112 of the Act, there can be no penalty under the said provision on the so-called abettors. In the result, all the penalties imposed under Section 112 are liable to be set aside.
21. For the reasons stated hereinbefore, we hold i. that, for claiming the benefit of exemption under Notification No.32/2005-Cus. dt. 08/04/2005 under the Target Plus Scheme, it was not necessary for the assessee-appellants to establish that the goods imported as input by them were usable in the manufacture of the goods exported by them;
ii. that, for claiming the above benefit, it was enough for them to establish a broad nexus between the imported input and the exported products with reference to the respective Export Product Groups;
iii. that M/s. Gimpex Ltd. were not eligible for exemption under Notification No.32/2005-Cus. ibid in respect of the c.c. copper rods imported by them inasmuch as there existed no nexus between the said goods and the exported products of Chemical & Allied Products Group;
iv. that M/s. Sree Enterprises were eligible for exemption under Notification No.32/2005-Cus. ibid in respect of the c.c. copper rods imported by them inasmuch as they could establish a broad nexus between the said goods and the exported products;
v. that the extended period of limitation under the proviso to Section 28(1) of the Customs Act was not invocable on the facts of these cases and, consequently, the demands of duty on GL and SE are entirely time-barred;
vi. that, consequently, the penalties imposed on GL and SE under Section 114A of the Act are liable to be set aside and, for that matter, the Departments appeal C/363/2009 is liable to be dismissed, and vii. that the penalties imposed on other appellants under Section 112 of the Act are also liable to be set aside.
22. Appeal No.C/363/2009 is dismissed and all other appeals are allowed on the aforesaid relevant grounds.
(Pronounced on ) (M. VEERAIYAN) MEMBER (TECHNICAL) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 37