Madras High Court
The Commissioner Of Customs (Exports) vs M/S. Sumangala Steels Pvt. Ltd on 15 November, 2012
Bench: Chitra Venkataraman, R. Karuppiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 15.11.2012 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice R. KARUPPIAH C.M.A.Nos. 3016 and 3017 of 2012 and MP.Nos. 1 and 2 of 2012 & 1 of 2012 The Commissioner of Customs (Exports) Custom House, Chennai 600 001 ... Appellant in both CMAs -vs- M/s. Sumangala Steels Pvt. Ltd No. 45, Chamiers Road, Chennai 28 ... Respondent in CMA.No. 3016 of 12 Shri.Rajendiran Sabanayagam New No.14, Bishop Garden Chennai 28 ... Respondent in CMA.No. 3017 of 12 Civil Miscellaneous Appeal against the common order dated 2.3.2012 passed in Final Order Nos. 175-176 of 2012 by Customs, Excise and Service Tax Appellate Tribunal. For Appellant : Mr.Ravi Anantha Padmanabhan For Respondents : Mr.Mohammed Shaffiz [Caveator] JUDGMENT
(Judgment of the Court was delivered by CHITRA VENKATARAMAN,J) The Revenue is on appeal as against the order of the Customs, Excise and Service Tax Appellate Tribunal.
2. It is seen from the orders of the Tribunal that the exporter herein claimed that the goods exported by them were alloy steels and hence, they attracted nil duty. However, based on the intelligence report and the verification of the shipping bills, show cause notices were issued, holding the view that the respondents were exporting non-alloy steel billets, attracting customs duty at 15% as per Notification 66/2008 dated 10.05.2008. Samples were drawn from the seaport consignments and the same were tested in National Metallurgical Laboratory. The report obtained, revealed boron content as less than 0.0008% to indicate that the items in question were non-alloy steel billets misdeclared as alloy steel. Thus the additional Additional Director General, Enforcement Directorate, held that the export goods were liable for confiscation under Section 113(1) of the Customs Act and further the exporter was liable to pay penalty under Section 114/114A of the Customs Act. After receiving the reply, the proposal in the notice was confirmed.
3. As against the order of treating the export items as an non- alloy steel, the exporter came on appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), wherein it was found that the test reports on the nature of impugned goods obtained by the respondent herein from M/s.Kidao Laboratories contained different results from the report obtained from M/s.National Metallurgical Laboratory by the Revenue. In the circumstances, with the consent of the parties, the matters were remitted to the original Authority for fresh consideration by M/s.National Metallurgical Laboratory. Based on the results given by M/s.National Metallurgical Laboratory, orders were passed once again by the Commissioner, confirming the earlier view that there was misdeclaration of the goods sought to be exported.
4. The respondent went on appeal once again before the CESTAT, contending that the respondent initially contracted for supply of non-alloy steel on 23.04.2008 to M/s.Al Hussainy factor, Dammam. In the meantime, Notification No.66/08-Cus. came into force effective from 10.06.2008, imposing export duty at the rate of 15% ad valorem on non-alloy steel. Since this amendment made non-alloy steel was costlier than alloy steel, after discussion with the buyer, it was decided that the contract for supply of non-alloy steel would be converted to a contract for supply of alloy steel, with boron content at 0.0008%. The respondent pointed out that as per the customs tariff, steel billets containing boron content of 0.0008% or more are to be classified as alloy steel billets and hence, would be exempted under Notification No.66/08-Cus. dated 10.06.2008. Thus alloy steel billets containing 0.0008% of boron was manufactured and shipping bills containing the description of the said goods was filed along with the test reports issued by M/s.Kidao Laboratories, certifying the consignment as alloy steel containing 0.0008% boron.
5. The assessee pointed out that National Metallurgical Laboratories had already given the a favourable finding in its report dated 26.06.2010 in respect of 37 samples out of 76 samples. On re-testing, apart from 37 samples, 24 samples out of the balance were also cleared. Thus, 61 samples were found to have contained boron at 0.0008% and only 15 samples were found to have lower boron content in both the tests. Since the first test had already proved 37 samples as alloy steels, the same should not have been tested again. In any event, applying the tolerance limit of a conservative percentage plus 0.0006% to the 15 samples, it would be seen that even these claims merit to be accepted as having minimum content of 0.0008% of boron. The respondent pointed out that the adjudication order was passed without taking into account these facts. On a consideration of the materials, the Tribunal pointed out that the scientists from National Metallurgical Laboratories clarified that the testing method had given rise to uncertainty to the extent of plus or minus 0.0006%. By applying uncertainty on the positive side i.e., by adding 0.0006% to the test result, if the result conformed to the declared nature of the goods, no case could be held against the assessee. The Tribunal further pointed out that the concerned Scientist from National Metallurgical Laboratories had indicated an error margin as high as 200%. An error margin to the extent of 0.0006% on the positive side, takes it upto 0.0009%, which is more than the tested value of 0.0003%, which was the test result in respect of a sample taken on the second test.
6. Referring to the decision reported in 1996 (84) ELT 53 (Shoruk Mills Vs. Collector of Central Excise), wherein the tolerance limit was fixed at 2.5% and 3%, holding that the test method adopted indicated uncertainty on the results to the extent of 200%, the Tribunal held that the evidence relied upon by the Department had little value for the purpose of tariff determination. It further pointed out to the plea of the Revenue as regards the statements recorded from the officials of the respondent company and held that when the impugned goods had undergone chemical test which was a primary determining factor to adjudge on the existence of the misdeclaration, other evidence sought to be relied upon, would not, in any manner, go in support of the Revenue's case.
7. The Tribunal further pointed out that the accurate quantification of boron content in steel, although posed a special challenge on the customs classification all over the world, yet, the U.S. Customs had published a paper on "Determination of boron in steel by Emission Spectrometry", which shows that by employing Optical Emission Vacuum Spectrometric Analysis, boron content in alloy steel could be accurately determined on levels ranging from 0.001% to 0.0026%. Thus, when there is a test available to give accurate results, the method adopted by the Revenue indicating the error margin going upto 200% reflected on the poor facilities existing in the present administrative set up. Hence, the Tribunal directed the Board to pay attention to this area and necessary accurate testing facilities be made available to the respondent; thereby the HSN based import tariff can be used for export duty purposes in the context of boron content. In the light of the above view, the Tribunal allowed the appeal, thereby set aside the order of confiscation of the impugned goods, imposition of redemption fine and penalty on the respondent company and on the Managing Director. Aggrieved by this, the present appeal has been filed by the Revenue.
8. Learned Standing Counsel appearing for the appellant submitted that the Tribunal had based its decision only on the National Metallurgical Laboratory's report and had ignored the other evidence placed before it. Pointing out to the shipping bills dated between 19.06.2008 and 25.06.2008, that the goods were declared as alloy steel billets of prime quality and the earlier practice of the respondent was of exporting non-alloy steel only, learned Standing Counsel submitted that the change in the description had come only in the wake of imposition of duty on non-alloy steel and thus there was conscious misdeclaration to evade the appropriate customs duty. He further submitted that the Tribunal committed a serious error in placing much emphasis on the error margin to grant the relief. In the circumstances, he submitted that the Tribunal's order is an arbitrary one and liable to be set aside.
9. We do not agree with the contention of the learned Standing Counsel appearing for the Revenue. We have narrated the findings of the Tribunal in detail in the preceding paragraph and we have no hesitation in agreeing with the line of reasoning of the Tribunal.
10. Alloy steel is defined in the import schedule based on HSN, as follows:-
"Steels not complying with the definition of stainless steel and containing by weight one or more of the following elements in the proportion shown:-
- 0.3% or more of aluminium
- 0.0008% or more of boron
- 0.3% or more of chromium
- 0.3% or more of cobalt
- 0.4% or more of copper
- 0.4% or more of lead
- 1.65% or more of manganese
- 0.08% or more of molybdenum
- 0.3% or more of nickel
- 0.06% or more of niobium
- 0.6% or more of silicon
- 0.05% or more of titanium
- 0.3% or more of tungsten (wolfram)
- 0.1% or more of vanadium
- 0.05% or more of zirconium
- 0.1% or more of other elements (except sulphur, phosphorus, carbon and nitrogen), taken separately".
11. A reading of the order of the Tribunal clearly pointed out that when the chemical test of the impugned goods pointed out the nature of goods sought to be exported and that with an uncertainty to the extent of 200% error margin writ large on the results, the test done by the Revenue is uncertain to support its claim on misdeclaration. Thus, there being no other material placed, we do not find any justifiable ground to accept the plea of the Revenue to admit the present appeal.
12. The appellant does not dispute the above-said facts, but then, their only insistence is on the statement recorded from the Managing Director and other officials of the respondent company. We do not find any good ground to accept that such statements could be substituted as good evidence in the place of the chemical test results. At one stage, learned Standing Counsel submitted that the scientists may be called for an examination before this Court to ascertain about the nature of the impugned goods. We do not think, this Court should undertake this exercise, when a final fact finding body had already dealt with the issue in detail.
13. The Revenue does not deny the fact that National Metallurgical Laboratory is not a laboratory of the respondent's choice, but an authoritative institution to speak on materials like the impugned consignments. The remand order at the first instance itself was on account of the Revenue pointing out to the discrepancy between the respondent's test and the Revenue's report. As agreed to between the parties, the matter was once again referred to National Metallurgical Laboratory. When confronted with the error margin, the further plea for once again calling for further report from the Scientist, appears as a cry in vain. Thus, when a reading of the order of the Tribunal does not disclose any perversion in the finding, in the nature of absence of material on the factual finding, we do not find any question of law arising out of the order of the Tribunal for admitting this case by this Court. Hence, we have no hesitation in rejecting this appeal at the admission stage itself.
CHITRA VENKATARAMAN,J and R.KARUPPIAH, ,J bg/ksv
14. In the circumstances, the above Civil Miscellaneous Appeals are dismissed at the admission stage itself. Consequently, connected MPs are closed. No costs.
(C.V.,J) (R.K.,J)
15.11.2012
bg/ksv
To
1. The Commissioner of Customs (Exports)
Custom House, Chennai 600 001
2.Customs, Excise and Service Tax Appellate Tribunal
Chennai
C.M.A.Nos. 3016 and 3017 of 2012
and
MP.Nos. 1 and 2 of 2012 & 1 of 2012