Custom, Excise & Service Tax Tribunal
Regin Exports vs Tuticorin on 17 September, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
C/40429 & 40430/2018 and C/40519 & 40521/2018
(Arising out of Order-in-Original No. 23/2017 dated 5.12.2017
passed by the Commissioner of Customs, Tuticorin)
M/s. Regin Exports
Shri Regin P. Proprietor of M/s. Regin Agency
M/s. Daniel and Samuel Logistics Pvt. Ltd.
M/s. Zion Logistics : Appellants
Vs.
Commissioner of Customs, Tuticorin : Respondent
Appearance :
Shri D. Arvind, Shri. Adithya Srinivasan & Ms. Meghna Arvind,
Consultants for the Appellants
Shri A. Cletus,
Addl. Commissioner (AR) for the Respondent
CORAM :
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial)
Hon'ble Shri Madhu Mohan Damodhar, Member (Technical)
Date of Hearing : 27.08.2018
Date of Pronouncement: 17.09.2018
Final Order Nos. 42432-42435 / 2018
Per Bench :
The facts of the case are that M/s. Regin Exports (herein
after referred to as RE) were engaged in processing of Raw
Cashew Nuts (herein after referred to as RCN) and export of
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cashew kernels. Acting on intelligence, DRI officers conducted
investigations into the imports of RCN by RE during 2016 - 17
without payment of customs duty availing concession under
Notification No. 18/2015-Cus. on licenses issued by DGFT in
terms of Par 4.16 of FTP 2015 - 2020 Pursuant to the investigation,
it appeared that RE had :
(i) Procured seven advance authorizations from DGFT for
import of RCN without payment of customs duty under
actual user condition with an obligation to export the
processed cashew kernels as specified in the said advance
authorizations
(ii) Imported and cleared a quantity of 3073.331 MTs of RCN
valued at Rs.31,85,42,558/- without payment of customs
duty, under the said seven advance authorizations vide 19
Bills of Entry through Tuticorin Port availing benefit of
Notification No.18/2015-Cus. during the period April 2016
to July 2016.
(iii) Received only 81.05 MTs of the imported RCN at their unit
at Ochavilai, Puthukadai, Kunnathur Village, Kanyakumari
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District, which is the unit authorized under the seven
advance authorizations to process the imported RCN.
(iv) Used 190.48 MTs of RCN to process 47.62 MTs of cashew
kernels for export as per the SION Norms.
(v) Diverted / sold the remaining 2801.47 MTs of the imported
RCN to various unit of another IEC holder viz M/s. Regin
Agency (herein after referred to as RA) or to some firms at
Kollan / Kanyakumari District, directly from the port of
import without following the procedures prescribed under
4.35 of the Handbook of Procedures and in violation of the
condition at Sl. No. 14 of the condition sheet annexed to the
advance authorizations and condition (x) of Notification
No.18/2015-Cus.
(vi) Neither obtained permission from jurisdictional Central
Excise authority for transfer of inputs/RCN.
(vii) Did not incorporate names of units to whom the RCN was
diverted in contravention of provisions of condition
contained in 4.10 of the Handbook of Procedures. A
quantity of 429.2 MTs of imported RCN lying in stock in 16
premises under RA were seized.
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(viii) Did not maintain true and proper account of consumption
and utilization of duty-free procured inputs under advance
authorization in violation of conditions in S. No.1 of the
condition sheet.
2. Based on the investigations, it appeared to DRI that RE had
diverted / sold 2801.47 MTs of imported RCN in shell valued at
Rs.29,03,94,777/- to the units / commission agents of M/s. RA
/other buyers directly from the port of import, involving duty
liability of Rs.2,71,69,335/-. Accordingly, a show cause notice
dated 30.1.2017 was issued, inter alia proposing demand of
customs duty foregone of Rs.2,71,69,335/- with interest thereon as
also for imposition of penalty under section 112(a) and / or 114A
of the Customs Act, 1962 from RE. The show cause notice also
proposed confiscation of 2801.47 MTs of imported RCN under
provisions of section 111(d) and 111(o) of the Customs Act.
Further, the show cause notice also proposed imposition of
penalties under Section 112(b) of the Customs Act on the
following persons:-
(a) Shri Regin P., Proprietor of M/s. Regin Agency
(b) Zion Logistics (CHA)/Customs Broker
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(c) Daniel and Samuel Logistics Pvt. Ltd. (CHA)/CB
3. In adjudication, the Commissioner of Customs, Tuticorin
vide impugned order dated 5.12.2017 held that as per the
condition sheet annexed, the imported cargo should have been
delivered only to two units i.e. Pulluvilai and Ochavilai as
declared in the Advance licences and processes should have been
undertaken only in the said units. However, appellants diverted
to other units which have not been authorized for the purpose of
processing RCN imported duty-free. As the RCN imported duty-
free under advance authorizations had been diverted / sold to
unauthorized units, the importer has not satisfied the conditions
contemplated in the Notification, for which appropriate action
under Customs Act, 1962 is warranted. The adjudicating
authority further held that the quantity of 2801.47 MTs out of
3073.331 MTs of RCN imported duty-free under Notification
18/2015-Cus. read with advance authorization has been diverted /
sold to unauthorized units, which is totally against policy
conditions contemplated under FTP 2015 - 2020 and Handbook of
Procedures 2015- 2020 and thereby the benefit of exemption is not
available ipso facto and duty involved on 2801.47 MTs of RCN is
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liable to be paid by the importer with appropriate interest. The
adjudicating authority also held that the other noticees are liable
for imposition of penalties under section 112(b) of the Act. Based
on these and other findings, the adjudicating authority :
(a) held that in respect of 2801.47 MTs of RCN, conditions
prescribed under Notification 18/2015 are not met / fulfilled
(b) 2732.263 MTs (i.e. total quantity diverted 2801.47 MTs less
quantity provisionally released 429.207 MTs) of RCN valued at
Rs.25,29,617/- diverted to unauthorized units are liable for
confiscation under section 111(d) / 111(o) of the Customs Act.
(c) confiscated 429.207 MTs of RCN diverted to unauthorized
units under section 111(d) and 111(o) of the Act, however ordered
release of the same on payment of redemption fine of Rs.10 lakhs
under section 125 of the Customs Act.
(d) confirmed customs duty of Rs.2,71,69,335/- with interest
thereon
(e) imposed equal penalty of Rs.2,71,69,335/- under section
114A of the Act on RE
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(f) Imposed penalty of Rs.25 lakhs on Shri P. Regin, Proprietor
of RA; Rs.5 lakhs each on Zion Logistics and Daniel and Samuel
Logistics Pvt. Ltd. under Section 112(b) of the Customs Act.
Hence the appellants have filed these appeals before this
Tribunal.
4. When the matter came up for hearing, Shri D. Arvind, Ld.
Consultant, accompanied by Mr. Aditya Srinivasan and Ms.
Meghna Arvind, appeared and made a number of submissions on
behalf of the appellants, which can be broadly summarized as
follows:-
4.1 RA was in the business of cashew processing cum sales
business from 2006 and dealt with local sale of cashew kernels
which are processed from RCN from 2006 to 2011; RCN procured
locally by RA would be sent to various branches / supporting
processors / job workers spread across 48 locations in the district
of Kanyakumari. The entire process is labour intensive involving
rural womenfolk and after processing the same would be sent to
RA's office for sale in the domestic market.
4.2 RE was started in 2011 and imported RCN were sent by RE
to these very job workers, who were processing the RCN of RA.
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However, in order to ensure that the goods of RE are not mixed
with RA, different processing units were maintained.
4.3 When the processed cashew kernels were received back by
head office from job workers, the receipt was recorded as receipt
CO1, CO2 representing RE and RO1 and RO2 representing RA.
4.4 The above process continued without hindrance for five
years.
4.5 On 1.3.2016, customs duty was imposed for the first time on
import of RCN @ 5% BCD and 4% SAD, totaling to 9.4%.
4.6 Thereafter, RA applied and obtained seven advance licenses
for import of 3073.33 MTs of RCN valued at Rs.31,85,42,558/-.
4.7 Based on the quantity of RCN imported, as per the SION
norms, 768.48 MTs of cashew kernels had to be exported within
the prescribed time.
4.8 As per condition 14 of the license, the goods imported
should be processed in the premises mentioned therein. In the
advance licenses, the head office located in Puluvilai and one
owned processing unit located in Ochavilai are mentioned.
4.9 The practice followed by RE is to import RCN and directly
send the containers to various branches / job workers premises, to
9
get them processed, bring it back to the office mentioned in the
licence, sort and grade, pack and store in hygienic conditions and
ultimately export.
4.10 The only mistake committed by RE out of ignorance is that
they did not mention the branches / job workers' premises at the
time of obtaining Advance Authorizations.
4.11 Based on these procedural lapses, department has alleged
that RE diverted 2801.47 MTs of RCN. However, this allegation
has not been supported by any evidence. When officers searched
the Puluvilai office, physical stock of cashew kernels in the
finished goods in the godown and the packing was not recorded
in the Mahazar.
4.12 The adjudicating authority failed to consider the appellant's
request dated 11.7.2017, to consider the stock of 273.77 MTs of
cashew kernel which is equivalent to 1095.08 MTs of imported
RCN available from the stock register (Sl. No. 4 of Mahazar at Sl.
No. 123 in Annexure A to the Show Cause Notice).
4.13 429.267 MTs of RCN seized from 16 numbers of units
during July 2016 were provisionally released to RE on 19.1.2017
and the same was processed and exported.
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4.14 The adjudicating authority has however erroneously
concluded that entire 2801.47 MTs of imported RCN was
transferred / sold which includes 429.207 MTs of RCN
provisionally released as above.
4.15 DRI officers were well aware of the 37 processing units were
engaged by the appellant which was evident in the stock register
maintained by them and also in the statement dated 25.7.2016 of
Shri Regin P.
4.16 However, the DRI officers restricted themselves to 16
processing units and seized only RCN available in those units.
The stock of RCN and cashew kernel available at remaining 21
processing units was not taken into account.
4.17 Department has not brought out any evidence allegedly
diverted to RE was transferred or sold. Instead, RCN has been
alleged to be sold without considering the receipt of cashew
kernels by the appellant from the processing units as shown in the
stock register relied as Sl. No. 123 in Annexure to the Show Cause
Notice.
4.18 The accounts of both the entities REs and RAs detailed stock
/ reconciliation, purchase and sales made by both entities in
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quantity and value, duly certified by the statutory audits for the
year 2016-17, would clearly indicate that only imported RCN
have been processed and used to make cashew kernel for export
made by RE. Negligible quantity of raw cashew kernel have been
procured locally to replace inferior imported RCN received only
to match the quality and grade of export products.
4.19 The appellants retained ownership and title of the imported
RCN and only sent the goods for processing to their own
branches / job workers and received back and carried out the final
process in the premises mentioned under the advance
authorization. Hence, there is no sale / transfer as contemplated in
the FTP and appellant has made the actual user condition in letter
and spirit as mentioned in the FTP.
4.20 The Ld. counsel took support from the statements of Shri T.
Selvakumar, Managing Director of M/s. Daniel and Samuel
Logistics Pvt. Ltd. and Shri V.Leon, operations in-charge of M/s.
Daniel and Samuel Logistics Pvt. Ltd. and Shri S. Mariappan,
imports in-charge of Zion Logistics referred to in para 6, 7 and 8
of the impugned order to argue that they have correctly explained
that the RCN after clearance was dispatched to the processing
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units belonging to RE accompanied by Bills of Entry and forms
and other transport documents for movement of imported goods
for processing.
4.21 The only condition that has been violated, if at all, is the
procedure prescribed in para 4.35 of Handbook of Procedures
which provides for endorsement of job workers / supporting
manufacturers on the authorization.
4.22 The appellant has not imported anything contrary to what
has been authorized by the DGFT either in terms of product or
quantity or value.
4.23 They have not sold or diverted in the local market after
importation and have only send the goods to their processors for
processing RCN.
4.24 The appellants have also exported the finished goods within
the time limit prescribed in FTP.
4.25 They have also received foreign currency for exports made
and have submitted proof of exports and remittance to the DGFT.
4.26 In fact, they have applied for the EODCs for the exports
made by them. However, the DGFT have informed them that
since DRI are investigating the seven advance authorizations, the
13
applications cannot be considered at present and that the request
for EODC will be processed only after the decision is taken by
DRI in the notice issued by them.
4.27 Ld. consultant drew our attention to para 5 of reply dated
16.5.2017 to the show cause notice filed in page 83 onwards of the
appeal paper book, where it has been informed that the entire
export obligations under the said seven advance licences have
been fulfilled well before the stipulated period as per the details
given in Annexure I to the reply.
4.28 Ld. Consultant drew our attention to the decision of the
Tribunal in the case of Silverline Plastpack Pvt. Ltd. Vs.
Commissioner of Customs, Bhavnagar - 2016 (343) ELT 281 (Tri.
Ahmd.) wherein it has been held inter alia that though imported
goods had been sent to job work for manufacture of final
products, title and ownership of the goods remain with the
appellant therein, hence denial of exemption under Notification
32/2005-Cus. under Target Plus Scheme is not justified. Ld.
consultant submitted that the ratio of the case was very much
applicable to the facts of the present appeal.
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4.29 In the case of Navjyothi International Vs. Commissioner of
Customs, Chennai - 2004 (177) ELT 875 (Tri. Chen.), the Tribunal
held that transfer of the imported raw materials to non-declared
job worker whose names were not endorsed on DEEC licenses,
but when held by DGFT that appellants have fulfilled their export
obligation, the findings of Commissioner is contradictory.
4.30 The Tribunal in the case of Ashok Enterprises Vs.
Commissioner of Customs - 2005 (186) ELT 497 (Tri. Chen.), inter
alia held that very definition of actual user (industrial) in para 3.5
of EXIM Policy, importer is free to manufacture a final product in
his own industrial unit or in any other unit including the job
worker.
4.31 Moreover, DRI could not gather any evidence of any one in
the domestic market having purchased the raw material from the
appellant.
5. On the other hand, Ld. AR Shri A. Cletus supports the
impugned order and made the following the submissions:-
5.1 The goods have been imported under Notification 18/2015-
Cus. dated 1.4.2015 under advance authorization scheme. As per
condition (x) "authorization shall not be transferred and the said
15
materials shall not be transferred or sold". In the advance
authorization only two supporting manufacturers have been
authorized to process. As per the conditions of the seven advance
authorizations and as per the conditions laid down in the
Notification, the imported RCNs should have been only sent to
RE or the premises of the supporting manufacturers endorsed in
the advance authorization. However, this has not been done and
instead the imported the RCN have not been sent to authorized
places to other persons.
5.2 Ld. AR took us to para 2 of the impugned order to point out
that as on the date of search of the premises of RE on 22.7.2016,
there was no stock of imported RCN.
5.3 When goods were not sent in the premises declared in the
advance licences, then it is established that they have been
diverted. It is not necessary for the department to prove that the
goods have been sold other persons. It is enough for the
department to prove that the goods have been diverted to
premises or persons which are not authorized by the advance
authorization licenses. Hence notification condition is violated
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and section 111(d) is attracted, the goods become liable for
confiscation and penalty.
5.4 Hence it has been proved that 2801.47 MTS of RCN have
been diverted. Therefore the conditions of the notification
18/2015-Cus. have been denied and the duty foregone on such
quantity diverted is very much demandable.
5.5 RE was fully aware that the processing should be
undertaken only in the authorized premises. In spite of this
knowledge, they have diverted the subject goods to other
unauthorized units. RE have thus misused the authorization
scheme for their own benefits and deliberately suppressed the fact
of diverting imported RCN with intent to evade appropriate
customs duty payable on the 2801.47 MTS of RCN. For these
reasons, the Ld. AR drew our attention to paras 74 to 79 of the
impugned order to point out that the adjudicating authority has
thoroughly analyzed the imposability of penalties on RE and
other co-noticees.
5.6 Hence confiscation of seized cashew kernels is fully
justified. For these reasons, the Ld. AR contended that there is no
case for interference with the impugned order.
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6. Heard both sides.
7. The primary allegation of the Department is that RE have
diverted/sold 2801.41 MTs of imported RCN out of a total of
3073.331 MTS imported by them. This conclusion has been
arrived at by the following apparent findings :
(i) There was no stock of imported RCN during search of
premises of RE on 22.07.2016.
(ii) RE were directly sending imported RCN either to RE -
Ochavilai premises (authorized by DGFT) or to other units
of RA.
(iii) During search of 16 units of RA, imported RCN
totaling 429.20 MTs were found lying and seized.
(iv) Shri. Regin P., Proprietor of RA, in his statement dated
18.11.2016 submitted that only unit at Ochavilai belongs to
RE and all others are units/commission agents of RA.
(v) RCN has been diverted directly from the port of various
units under sale invoice and in some cases, payment of
applicable sales tax.
(vi) As per statement of Shri. S. Mariappan, Imports-in-
charge of Zion Logistics, after Customs examinations, RCN
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containers are dispatched to various units of RE; that they
prepare KK form for transport of imported RCN and hand
over goods to truck driver along with copies of Bills of
Entry and KK form. The names in such units are sent by e-
mail to Zion Logistics by RE.
(vii) Exempt goods imported under Advance
Authorizations by RE should have been utilized only in
accordance with provisions of paragraph 4.16 of FTP 2015-
20 and other provisions of relevant Customs Notification
18/2015 dated 01.04.2015.
(viii) Hence, as per the conditions of Advance
Authorizations, RE was required to process imported RCN
only at their premises at Ochavilai or Pulluvilai unit and not
at any other place. However, only 81.05 MTs of imported
RCN was dispatched to the two units of RE which was
authorized by DGFT.
(ix) RE had exported 47.62 MTs of processed cashew
kernels which works out to RCN quantity of 190.48 MTs.
(x) Thus, it appears that out of 3073.331 MTs of imported RCN,
only 81.05 of imported RCN in shell was dispatched to
19
authorized units, 190.48 MTs was used for export and
remaining quantity of 2801.47 MTs was diverted.
(xi) RCN imported under Advance Authorization was
subject to "actual user condition". The same shall not be
transferable even after completion of export obligation.
Only after export obligation is completed will authorization
holder have option to dispose of product manufactured out
of duty-free import.
(xii) As per condition (x) of Notification 18/2015, materials
imported under Advance Authorization shall not be
transferred or sold.
(xiii) Hence, RE have violated conditions prescribed under
Notification 18/2015-Cus. in respect of 2801.47 MTs of RCN
and hence, duty foregone of Rs. 2,71,69,335/- with interest is
required to be recovered from them. Further, penalties
under various provisions are also required to be imposed.
8.1 With regard to the allegation that no stock of imported RCN
was found during search of premises of RE on 22.07.2016,
appellants have contended that no stock taking was done during
that search and that only documents were collected. In this
20
regard, we find that as per the Mahazar dated 22.07.2016 drawn at
the premises of RE, which is the relied upon document for the
Show Cause Notice, there is no reference to any type of stock
taking that has been done. The relevant portions of the Mahazar
are reproduced as ready reference :
"Then, the officers and the witnesses entered the office premises of M/s. Regin
Exports and started a systematic search of the premises by opening and
examining the documents and files present in the cupboards as well as tables.
The officers thereafter segregated certain files containing documents relating
to their import consignments. As a result of the search, the documents as
listed in the annexure to the Mahazar were seized on the reasonable belief
that they would be useful for further investigation under the provisions of the
Customs Act, 1962.
The officers thereafter took a round of the premises in presence of Shri. C. T.
Sureshkumar and the witnesses. It was seen that the packing of processed
cashewnuts after segregating them quality wise is carried out there. No other
activity relating to processing of cashewnuts was noticed there."
8.2 It is therefore not known how in para 7.1 of the Show Cause
Notice it has been alleged that RE had received only 81.05 MTs of
RCN and hence it appears to reason that this conclusion may be a
deduction arrived at from the documents seized.
8.3. In the same para 7.1 it is alleged that RE used 190.48 MTs of
RCN to process 47.62 MTs of cashew kernels for export. From
para 5.4 of the Notice, we find that the quantity of 190.48 MTs of
RCN receipts in RE is also a deduction based on quantity of 47.62
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MTs of processed cashew kernels exported vide Shipping Bills
8243331/13.06.2016, 8317986/17.06.2016 and 8354161/18.06.2016.
8.4 We further find that these two allegations are at variance
and are contradicting one another. On the one hand, it is claimed
in the Show Cause Notice that 190.48 MTs of RCN have been
received in RE. At the same time, it is also alleged that only 81.05
MTs of imported RCN was dispatched to RE.
8.5 Another allegation in the Notice is that RE were directly
sending imported RCN to various units of RA or to other firms at
Kollam/KK district directly from the port of import in violation of
the procedures prescribed in para 4.35 of HBP and condition (x) of
Notification 18/2015-Cus. At the same time, the Show Cause
Notice elsewhere alleges that RE had "sold" the imported RCN to
commission agents/other buyers. There is also an allegation that
in some cases such sales have been effected under sales invoice
and even payment of sales tax.
8.6 Notwithstanding such allegations, although as many as 149
documents have been relied upon in the Show Cause Notice,
there is not a single sales invoice or challan or document by any
other name relied upon as evidence of such alleged sales. Nor
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have any of the alleged sales tax documents listed or enclosed.
Interestingly, even in the body of the Show Cause Notice there is
no reference to any Sl. No. or Invoice No. or sales tax document
no. to support an allegation that sales has been caused right at the
port of import.
8.6 On the other hand, from the statements of Shri. Regin P.,
Shri. S. Mariappan, Proprietor of Zion Logistics and of the various
other stakeholders and associates of both RE and RA, what
actually comes to the fore is that the imported RCN was sent
directly from the port of various processing units of RE as well as
RA for processing the RCN into cashew kernel.
8.7 In fact, even as per para 7.1 (v) of the Show Cause Notice, it
is indicated that a quantity of 429.2 MTs of imported RCN were
lying found in stock in 16 premises under RA in the searches
carried out by DRI. The appellants have flagged this very fact in
support of their contention that the imported RCN was only sent
to the said units for processing. Appellants have further pointed
out that this stock of 429.2 MTs was ignored by the investigating
agency and that further, stock lying in the other 21 such
processing units was never considered by DRI.
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8.8 The Ld. Counsel for the appellants has drawn our attention
to Stock Register seized at Head Office at Puluvilai relied at Sl.
No. 123 of the Show Cause Notice. From this relied upon
document, it has been pointed out that when the processed
kernels were received back in the Head Office from job workers,
the receipt was recorded as receipt from CO1, CO2 ( for RE
processors) and when RA got kernels from their job workers after
processing, the initial RO1 and RO2 were mentioned as code. We
find that this assertion has not been disputed either in the Notice
or even in the impugned Order.
8.9 Ld. Counsel has also demonstrated that the imported RCN
were sent to the job workers of both RA and RE. However, in
order to ensure that the goods of RE were not mixed with that of
RA, as per list in page 139 of the Appeal book, 37 units were
asked to do processing only for RE and 11 units listed in page 142
of the Appeal book, were asked to do processing for RA.
9.1 From the facts on record, it also appears to reason that a
substantial quantity of RCN alleged to have been diverted from
the port itself was found at 16 processing units of RA.
Interestingly, even as per the Show Cause Notice in para 7.15, the
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allegation is that "a quantity of 429.2 MTs of 'imported' RCN,
found lying in stock in 16 premises ..." (emphasis added). It is
therefore evident that even the Show Cause Notice has not
disputed that the quantity of RCN found at these 16 processing
units was only the part of the RCN "imported" by RE. There is
also substance in the appellant's contention that the DRI located
this quantity in their investigations in respect of 16 processing
units whereas stock lying at 21 other such units were not taken
stock of or investigated by DRI. In any case, there is no dispute
that these 37 units were in fact engaged by RE for processing the
imported RCN in shell.
9.2 In the impugned Order, there is a finding that RCN
processed by processing units were sold in the local market; that
RA have sold cashew kernels processed out of imported cashew
nuts to different firms, etc. However, as in the other allegations of
sale of imported RCN directly from the port, no evidences to
corroborate these allegations have been brought forth or adduced.
9.3 Per contra, we find that in the statement of Shri. V. Leon,
Operations-in-charge of the CHA, it has been clarified that the
imported material was sent to the various units under form KK, a
25
transport document for movement of imported goods. On being
asked as to why the Customs Authorities were not informed
about the dispatch of RCN by RE to various units which were not
authorized in their licences, Mr. Leon has replied that the
destination of the imported goods was only RE with various
addressed and that it was known that the processed goods would
eventually be returned to the premises of RE mentioned in the
Advance Licence. Hence, they did not feel anything strange
warranting informing the Customs Authorities. "Strangely"
enough, this assertion of the Customs House Agent (CHA) has
not been contradicted or not been countered or demolished by the
Department.
9.4 No proof or evidence has also been adduced by the Revenue
to dispute the assertion of the appellants that they retained
ownership and title of the imported RCN; that they only sent the
imported RCN to 37 units for processing and that they received
back the processed cashew kernel.
9.5 However, the Department has alleged that even such
transfer even if not involving sale, since not being to units
26
authorized by DGFT, falls foul of the condition (x) in Notification
18/2015-Cus. which reads as under :
"(x) that the said authorization shall not be transferred and the said materials
shall not be transferred or sold :
Provided that the said materials may be transferred to a job worker for
processing subject to complying with the conditions specified in the relevant
Central Excise Notifications permitting transfer of materials for job work:
.... "
As per para 6 of the Show Cause Notice, the actual user condition
for Advance Authorizations (para 4.16) of the FTP and the para
4.35 (facility of supporting manufacturer/job worker/co-licensee)
have also been allegedly followed in the breach. True, these
conditions do mandate inter alia that the materials imported
under the said Advance Authorization shall not be transferred or
sold. At the same time, there is a provision that the materials may
be "transferred" to a job worker for processing, subject to
complying with certain conditions.
9.6 Section 4 of the Sales of Goods Act, 1930 defines a sale of
goods as a "contract of sale whereby the seller transfers or agrees
to transfer the property in the goods to the buyer for price". One
important ingredient is that there should be transfer of ownership
of goods. The transfer of mere possession or limited interest is not
enough.
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Obviously, then without any evidence of sale - documents,
invoices, payments effected and transfer of ownership, the
allegation that the imported RCN has been sold can at the best be
called an assumption.
9.7 We, however, find that even in the para 4.35 of the HBP, it is
provided that "if applicant desires to have name of any
manufacturer or job worker added to authorization, he may
apply". Evidently, both the Customs Notification 18/2015-Cus. as
well as para 4.35 of the HBP do provide for addition of
supporting manufacturers/processors. Discernibly, the appellants
have added the names of only two such processing units.
However, they continued to send the imported RCN to all the 37
processing units, as they used to prior to 01.03.2016, when
Customs Duty was imposed for the first time on the import of
RCN. There is however no allegation that there has been any
misuse or diversion of imported RCN on earlier occasions.
9.8 There is then no evidence that the imported RCN has been
"sold". The only allegation that survives is that the imported RCN
has been sent to processing units of RA/RE which have not been
28
authorized as supporting manufacturer in the licences, but
without transfer of ownership.
9.9 Credence is also found in the appellants' submission that
they regularly export pre-dominantly to the USA and the cashew
kernels which are exported to that country have to meet the
stringent USA Regulatory Approvals, apart from high quality
specifications required by the customers. For this reason only the
appellants are importing RCN in shell from abroad because the
export orders require a better quality of cashew kernel which is
not available in India. If this be the case, we wonder what the
appellants would achieve by selling the imported RCN, since the
cashew kernel of Indian origin would not be accepted by the
buyers abroad. In any case, there is no allegation that any of the
export consignments effected by the appellant have been rejected
or sent back. On the other hand, appellants have adduced proof of
export as well as receipt of foreign exchange proceeds in USD in
all the consignments exported by them.
9.10 Appellants have submitted the details of export of 769.759
MTs cashew kernel out of 3073.921 MTs imported RCN, between
29
June, 2016 to March, 2017 as required under SION norms, as
under :
Sl. Advance Qty. of RCN Qty. of Cashew Period of
No. Authorization Imported (in Kernel Exported Export
MT) (in MT)
1. 3510044901/23.3.16 296.305 74.070 6/16 to 8/16
2. 3510044902/23.3.16 197.850 49.462 8/16
3. 3510044903/23.3.16 74.000 19.352 8/16 to 9/16
4. 3510044913/13.4.16 357.899 89.475 9/16
5. 3510044914/13.4.16 219.338 54.835 10/16
6. 3510044936/13.5.16 883.890 221.405 10/16 to 12/16
7. 3510044942/27.5.16 1044.639 261.160 12/16 to 3/17
TOTAL 3073.921 (MT) 769.759 (MT)
9.11 Viewed in this light, the non-inclusion of all the supporting
manufacturers in the Advance Authorizations are then only a
procedural aberration that can surely be condoned. The type of
diversion that is sought to be disallowed by Notification 18/2015-
Cus. and also by the relevant para 4.35 of the FTP is transfer by
way of sale or transfer of ownership, once and for all. The facts on
record do not bear out any such transaction. The above facts have
been informed by the appellants in their reply to the Show Cause
Notice dated 16.05.2017. At the same time, there is no allegation
or evidence that, in actuality, cashew kernel was not exported or,
for that matter, that the exported cashew kernel were not
processed out of the imported 3073.921 MTs of RCN in shell.
From all accounts, therefore, the raison d'etre for allowing duty-
30
free import of RCN in shell by issue of Advance Authorizations
has been fulfilled since the mandated quantity of cashew kernel
has been exported as above.
9.12 Appellants have also submitted statements of bank
realization in foreign exchange in USD for all these exports. There
is no allegation made that RE have not exported 769.759 MTs as
claimed by them or that the foreign exchange proceeds have not
been realized . In fact, it is seen that they have sought for the
EODC from DGFT, who, while acknowledging the receipt of the
said applications, have informed the appellants that the request of
EODC has been held up as per a DRI letter on alleged misuse of
Advance Authorization.
9.13 It has to be kept in mind that this type of value addition
exports in the area of food processing are highly labour intensive.
As brought out by the appellant, the process of de-shelling
imported RCN and its conversion to cashew kernel is done by
hand, pre-dominantly by rural womenfolk who do the peeling of
the skin of the kernel, grading and primary packing by hand.
Surely, this is not a process involving highly mechanized or
31
organized sector. In such spread out job working, therefore, there
may be a few aberrations or procedural infractions along the way.
9.14 What is to be seen is whether these aberrations are
substantive, causing grave economic loss to the country or
whether they are condonable and curable defects. As per the
discussions hereinabove, we hold that they are only of the latter
variety. It is also an undeniable fact that appellants have
produced proof of export of the quantity that they were required
to export as per the SION norms and they have also shown proof
of the valuable inward foreign exchange payments received.
9.15 In arriving at this decision we also draw sustenance from
the Tribunal decision in Navjyothi International Vs.
Commissioner of Customs - 2004 (177) E.L.T. 875 (Tri. - Chennai).
The relevant portion of the Order is reproduced below :
"6. We have carefully considered the submissions. The short question
arising in this case is whether the appellants committed any breach of
conditions of Notification Nos. 30/97-Cus. and 51/2000-Cus., disentitling
themselves to the benefit of exemption from payment of duty on the subject
imports and rendering themselves liable for penalty under Section 112 of the
Customs Act along with rendering any goods liable for confiscation under
Section 111 of the Act. It appears, the impugned order has found, against the
appellants, violation or non-fulfilment of two conditions of Customs
Notification. The following were the relevant conditions of Notification 30/97
:-
"(vii) exempt materials shall not be disposed of or utilised in any manner
except for utilisation in discharge of export obligation or for replenishment of
32
such materials and the materials so replenished shall not be sold or
transferred to any other person;
(viii) that in relation to an Advance Licence issued to a Merchant- Exporter
-
(a) the name and address of the supporting manufacturer is specified in the said licence and the said certificate and the bond required to be executed by the importer in terms of condition (ii) shall be executed jointly by the Merchant-Exporter and the supporting "manufacturer binding themselves jointly and severally to comply with the conditions specified in this notification; and
(b) exempt materials are utilised in the factory of such supporting manufacturer in terms of condition (vii)".
With reference to condition (vii), it has been held that the appellants violated this condition by transferring 68.972 MTs of imported raw material to non- declared job workers i.e., jobbers whose names were not endorsed (as supporting manufacturers) on the licences. We find that this finding of the Commissioner is not sustainable inasmuch as the JDGFT has found (vide his order dated 4-2-2004) as follows :-
"(a) A merchant-exporter can get a licence with AU condition and that the goods imported under the licence can be manufactured through a supporting manufacturer or through a jobber.
(b) The merchant-exporter has got the option to get the name of the supporting manufacturer endorsed on their licence.
(c) Such endorsement is only optional and not mandatory.
(d) Prior endorsement and the approval of the Licensing Authority for the manufacture of the resultant product in the supporting manufacturer premises is required only for those item which contained prior import condition and not otherwise."
As it was not mandatory to get supporting manufacturers' (jobbers') names endorsed on the advance licences, it was permissible for the appellants to get the imported raw material processed through jobbers other than M/s. Heena International. Hence, in respect of 68.972 MTs of raw-material processed into SS utensils through non-declared jobbers, there was no breach of condition (vii).
The finding recorded by the Commissioner with reference to condition (viii) is not cogent. After reading this condition followed by condition (vii), he holds thus :
33"...........it is quite clear that 53.060 MTs of S.S. utensils got manufactured by job workers not mentioned in the licences and exporter are not eligible for export benefits as claimed. This is against the obligations enforced by the DEEC licence quoted therein."
In any case, this finding is contradictory to the JDGFT's findings. According to the latter, the appellants could validly get the imported raw material processed into finished goods through non-declared jobbers. This is precisely what the appellants did for export of 53.060 MTs of SS utensils manufactured (through jobbers) out of 68.972 MTs of imported raw material."
9.16 In the light of the findings, discussions and conclusions supra, we find that the allegations raised in these proceedings and consequential demand and penalties confirmed by the impugned Order against RE cannot be sustained and will have to be set aside, which we hereby do. So ordered. The ratio in Silverline Plastpack Pvt. Ltd. (supra), relied upon by the Ld. Counsel, will also apply on all fours to the appeal on hand. In the said decision, the Tribunal held that though the imported goods had been sent to job work for the manufacture of final products, the title and ownership of the goods remained with the importer all throughout. Hence, denial of exemption Notification under Target Plus Scheme is not justified.
10. As the main appeal C/40429/2018 succeeds on merits, the penalties imposed on other appellants in Appeal Nos. C/40519 & 34 40521/2018 will also require to be set aside, which we hereby do.
So ordered.
11. Accordingly, all the appeals are allowed with consequential reliefs, if any, as per law.
(Pronounced in open court on 17.09.2018)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Rex/Sdd