Custom, Excise & Service Tax Tribunal
Cummins (India) Ltd vs Commissioner Of Customs, Pune on 27 March, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPEAL NO. C/135/11 Mum
(Arising out of Order-in-Original No. 31/2010-11 dated 21.03.2011 passed by the Commissioner of Customs, Pune)
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
Cummins (India) Ltd.,
:
Appellant
Versus
Commissioner of Customs, Pune
Respondent
Appearance Shri T. Vishwanathan, Advocate for appellant Shri A.N. Sharma, Commissioner (A.R.) For Respondent CORAM:
Shri Ashok Jindal, Member (Judicial) Shri P.R. Chandrasekharan, Member (Technical) Date of Hearing : 27.03.2012 Date of Decision : 12.04.2012 ORDER NO.
Per P.R. Chandrasekharan The appeal is directed against the order-in-original No.31/2010-11 dated 21.03.2011 passed by the Commissioner of Customs, Pune.
2. The appellant M/s. Cummins India Ltd., Pune are manufacturer and exporters of IC Diesel Engines. During the period from May, 2005 to December, 2008, they exported the said goods under advance licence-cum-draw back scheme and from December, 2008 onwards under draw back scheme.
3. The appellant applied for determination and sanction of draw back for the goods exported during May, 2005 to January, 2010 under Rule 6(1)(a) of the Draw Back Rules and the Jurisdictional Commissioner of the Central Excise determined the amount of draw back in respect of the said goods under Rule 6(1)(b) based on the declaration made in the application for fixation of brand rate and draw back was sanctioned and paid to the appellant. Thereafter the department noticed that Diesel Engines are notified under Rule 3 of Draw Back Rules for the purpose of All Industry Rate of draw back vide Notification No.36/2005-Cus (NT) dated 02.05.2005, 81/2006-Cus (NT) dated 13.07.2006, 68/2007-Cus (NT) dated 16.07.2007, 103/2008 Cus (NT) dated 29.8.2008 and 84/2010-Cus (NT) dated 17.09.2010 during the relevant period and varying rate of draw back of 1% to 1= % was prescribed as All Industry Rate during the material period. Rule 6 of the Draw Back Rules provides for determination of the rate/amount of draw back on export goods for which no rate of draw back under Rule 3, i.e. All Industry Rate of draw back, has been determined by the Government. In their application under Rule 6, the appellant-exporter had declared that no All Industry Rate of draw back has been declared by the Government in respect of the goods exported by them. It was noticed that the amount of draw back sanctioned to the appellant under Rule 6 exceeded the All Industry Rate of draw back admissible to the appellant under Rule 3 by Rs.12,95,57,132/- during the period May, 2005 to January, 2010. Accordingly two show-cause notices, one dated 25.11.2010 and another dated 03.12.2010 and an addendum to the show-cause notice dated 14.12.2010 were issued to the appellant proposing to recover the excess draw back of Rs.12,95,57,132/- paid to them along with interest thereon and also proposing to impose penalty on the appellant under Section 114 of the Customs Act, in as much as the goods exported were liable to confiscation under Section 113 (h)(ii) of the said Customs Act. The appellant contended that they were entitled to claim draw back in respect of IC Diesel Engines exported in terms of Rule 7 of the Draw Back Rules, 1995. Out of 4251 shipping bills involved in the show-cause notice, All Industry Rate of draw back in respect of 2841 number of shipping bills were less than 4/5th of the duty paid on the inputs used in the exported IC Diesel Engines and thus eligible for draw back under Rule 7. It was also argued that the procedure to be followed by the exporter under Rule 6/Rule 7 of the Draw Back Rules are one and the same and, therefore, they have duly complied with the procedural requirements under Rule 7 and, therefore, their draw back claim should be treated as made under Rule 7. The appellant contended that there was no excess draw back granted to them and hence they are not liable to pay any excess amount of draw back as proposed in the show-cause notice nor are they liable to any penalty under Section 114. Their claim for grant of draw back under Rule 7 of the Draw Back Rules was rejected by the adjudicating authority on the ground that the appellant did not make any application in writing to the proper officer seeking determination of draw back under Rule 7 for the goods exported and on the contrary the appellant made an application seeking determination of draw back under Rule 6 and the application so made by mis-declaration was illegal. Accordingly, he rejected the claim of the appellant and confirmed the demand of Rs.12,95,57,132/- under Rule 16 of the Draw Back Rules read with Section 75 of the Customs Act, 1962 and also demanded interest thereon at the rate of 13% per annum, under the afore said provisions of law. He also held that the goods exported by claiming ineligible draw back are liable to confiscation under Section 113(h)(ii) of the Customs Act, 1962 and imposed a penalty of Rs.13,07,99,397/- on the appellant under Section 114 (iii) of the Customs Act, 1962. Hence the appellant is before us.
2. The learned Counsel for the appellant makes the following submissions:-
(i) Though they had claimed the draw back under Rule 6 of the Draw Back Rules, in majority of the cases the All Industry Rate of Draw Back prescribed for IC (Diesel) Engines were less than 4/5th of the duty incidence suffered by them on the inputs used for the manufacture of export goods. Therefore, they are rightly entitled for claiming draw back under Rule 7 of the Draw Back Rules. If their application for draw back under Rule 7 is considered, then bulk of the demand raised confirmed against them would go away.
(ii) When they made the application under Rule 6 for brand rate, they were under the impression that in as much as All Industry Rate of Draw Back prescribed under Rule 3 is far less then the duty incidence suffered by them on inputs, they are eligible for brand rate of draw back. Their application was considered by the competent authority and the draw back was sanctioned to them. The fact that the goods which they exported were notified under Rule 3 was equally known to the department and yet, the department sanctioned brand rate of draw back under Rule 6. In other words, the appellant as well the department were clearly in error in respect of the claim of draw back under Rule 6. Therefore, the appellant cannot be penalised for entertaining a wrong notion that they were eligible for draw back under Rule 6.
(iii) The application to be filed for claim of draw back under Rule 6 and Rule 7 of the Customs and Central Excise duties and Service Tax Draw Back Rules, 1995 are the same and information that needs to be furnished for claiming draw back under both these Rules are also the same. In as much as the application under Rule 6 has been made in time within the prescribed time limit, there is no bar in considering the alternate claim under Rule 7. All the information required for considering their claim was furnished very much within the prescribed time.
(iv) They also relied on the clarification issued by the CBEC vide letter dated 06.11.2006 issued to the Commissioner of Central Excise, Delhi II in respect of fixation of brand rate of draw back on export of Oral Polio Vaccine by M/s. Panacea Biotec Ltd. In the said letter, the Board had clarified that rejection of brand rate claims only on the ground of non-filing of application under Rule 7 is improper and unjustified which has deprived the exporter of the substantive benefit of reimbursement of duties suffered on inputs used in the manufacture of export product. The Board has directed the Commissioner to ensure that unintended interpretation of law and procedure should not be taken to deprive the exporters of their substantive benefits.
2.1 The learned Counsel for the appellant relies on the judgement of the Honble High Court of Gujarat in the case of Stovec Industries Ltd. vs. Union of India 2011 (265) ELT 192 (Guj) wherein an identical matter was considered and the Honble High Court in the said case held that mere inadvertent filing of application under a different rule (Rule 6) is not a valid ground for rejection and condoned the delay in filing the application (under Rule 7) and held that change in nomenclature of claim on the ground of limitation is not sustainable. In as much as, the facts involved in their case are identical with that decided by the Honble High Court of Gujarat, the appellant prays for applying the ratio of the above said judgement to their case.
2.2 The learned Counsel also relies on the judgement of the Honble Apex Court in the case of Unichem Laboratories Ltd. vs. Collector of Central Excise - 2002 (145) ELT 502 wherein the apex court was considering the benefit of exemption under Notification No.234/86 dated 3.4.1986. In that case the applicant claimed the benefit under the said Notification in respect of bulk drugs and there was a requirement that the applicant should produce a certificate from the Drugs Controller. At the time of clearance of the goods, the applicant did not have the required certification and the same was obtained after a gap of 3= months. The department rejected the claim on the ground that at the time of clearance of the goods the appellant did not produce the requisite certificate and, therefore, not eligible for exemption. The honble apex court held that the Notification does not prescribe any time limit for filing the certificate of the manufacturer for claiming the exemption. Therefore, though the certificate has been produced subsequently, the appellant would still be eligible for the benefit of exemption under the Notification.
2.3 The learned Counsel also relies on the judgement of this Tribunal in the case of Decora Ceramics Pvt. Ltd. vs. Commissioner of Central Excise, Rajkot 1998 (100) ELT 297 wherein the issue related to sanctioning of a refund claim. In that case, it was held that it must be open to the assessee to point out any error committed in original determination of assessable value and after such errors are pointed out, cognizance must be taken by the authority whose function is to compute the correct assessable value and duty and the correct amount of short levied duty. This function of the authority cannot be avoided merely because the assessee himself had earlier committed an error at the stage of filing classification list or price list or at any other stage and had failed to discover the error or to file refund claim within the time allowed by law and this exercise of determining the correct amount of duty short-levied cannot be stultified by the failure of the assessee to file refund claim within the time allowed by law. Following the ratio of the judgement, it is contended that even if the appellant has made an application under Rule 6 wrongly, it is for the competent authority to consider the claim under Rule 7 and grant them the benefit under the said Rule. On the basis of these submissions, the learned Advocate submits that the demand is unsustainable in law.
3. The learned Commissioner (A.R.) appearing for the Revenue, on the other hand, strongly justifies the impugned order. He submits that Rules 3 and 6 of Draw Back Rules are mutually exclusive. If draw back is entitled under Rule 3, then benefit under Rule 6 cannot be claimed. In the instant case the IC Diesel Engines are specified under Rule 3 for sanction of draw back on All Industry Rate basis and, therefore, the appellant cannot claim the benefit under Rule 6 for fixation of brand rate of draw back. He further submits that when their application was submitted to the Jurisdictional Range Superintendent vide letter dated 7.09.2010 had sought a clarification as to why they have applied for fixation of brand rate under Rule 6 when there exists All Industry Rate for the said exported goods. Vide letter dated 24.09.2010, the appellant had replied that the rate of draw back in most of their manufactured and exported engines comes to less than 1.1% which is the rate prescribed under All Industry Rate. Having admitted that the All Industry Rate is more than Brand Rate, they cannot now turn around and say that All Industry Rate prescribed for the IC Engines is less than 4/5th of the brand rate which they are entitled to under Rule 7. He also relies on the judgment of the Apex Court in the case of Chemicals and Fibres of India Ltd. vs. Union of India 1991 (54) ELT 3 (S.C.). In the said case, the honble apex court held that Rule 3 and Rule 6 of the Customs draw back Rules are mutually exclusive and relief under Rule 7 cannot be granted as relief under the said Rule is restricted for the cases where the margin of difference is substantial. He submits that ratio of this judgement would apply squarely to the facts of the present case and, accordingly he contends that the adjudicating authoritys finding that they are not eligible for draw back under Rule 7 is correct. He also relies on the judgement of the Larger Bench of this Tribunal in the case Jay Yuhshin Ltd. vs. CCE New Delhi as reported in 2000 (119) ELT 718 (Tri. LB) wherein it was held that if the scheme opted for by the assessee is found to have been misused, the existence of an alternate scheme would not be an acceptable defence and the said decision of the Larger Bench was upheld by the Honble Apex Court in the case of CCE vs. Kitply Industries Ltd. 2011 (267) ELT 289 (S.C.).
4. We have carefully considered the rival submissions.
5. There is no dispute on the fact that the appellants product was notified under Rule 3 and the appellant made an application for fixation of brand rate of draw back under Rule 6. The same was considered and brand rate of draw back was fixed and sanctioned by the competent authority. Thus, both the department and the appellant committed an error in applying for and sanctioning of the brand rate of draw back. The sanctioning authority obviously is expected to know that the product is notified under Rule 3 and, therefore, brand rate of draw back cannot be sanctioned under Rule 6. In view of the above position, it cannot be alleged that the appellant made a wrong declaration with deliberate intention to avail ineligible draw back. We also find that the application for fixation of draw back under Rule 6(1)(a) (Brand rate) and under Rule 7 (i) (Special Brand Rate) are one and the same and the information required to be furnished in respect of both the claims are identical. In other words, for consideration of draw back both under Rule 6 or under Rule 7, the information required by the department is one and the same and there is no difference what-so-ever. If that be so, even if the application was made wrongly under Rule 6, there is nothing which prevents the authority for considering the claim of the appellant under Rule 7. The purpose of draw back is to relieve the burden of the taxes on the export goods and to make our exports competitive in the international market. If this policy objective is to be achieved, then the department has to interpret and implement the rules in a meaningful way so that the exporter gets the maximum benefit eligible as prescribed under the law. It is, in this context, the instruction issued by the CBEC vide letter 06.11.2006 assumes significance. In the said letter the Board, in para 3 to 6, has clarified as follows:-
3. After receipt of Asst. Commissioner (Drawback)s letter the issue has been re-examined by the Board. As conveyed earlier, the brand rate of duty drawback is granted in terms of Rule 6 and 7 of the Drawback Rules in cases where the export product does not have any All Industry Rate of duty drawback or where the All Industry Rate of duty drawback notified is considered by the exporter as inadequate to compensate the duties or tax suffered on inputs used in the manufacture of export product. However, all the conditions and guidelines including the time limit prescribed for determination of drawback rate are the same for the claims made under Rule 6 & Rule 7 of the said Rules.
4. The Drawback Schedule 2005-2006 was notified aligning tariff items in the Schedule with those in the Customs tariff. In this elaborate exercise, the rates for certain tariff items could not be determined either due to non availability of data, as in the case of tariff item in dispute i.e. 3002 or consciously omitted to prescribe rate, as in the case of tariff items in Chapter 71. Thus, in so far as this particular tariff item is concerned, i.e. tariff item 3002, it is informed that the rate of drawback has not been determined by the Ministry.
5. It may be noted that all the conditions to be complied with for determination of the drawback rate under Rule 6 & Rule 7 are the same and therefore, the claim should not be rejected only on the ground that the claim was filed under Rule 6 instead of Rule 7. Even the Boards Circular No. 82/98-Cus df. 29.10.98 dealing with condonation of delay in filing application for fixation of brand rate treats the claims under Rule 6 & 7 alike. The Board vide Circular No. 14/2003-Cus dt. 6.3.2003 which was reiterated in the Member (Customs)s D.O. letter F. No. 609/110/2005-DBK dated 26.8.2005, had instructed that the brand rate claims need to be settled within the maximum period of 25 days i.e. 15 days for verification of data and another 10 days for determination of rates. However, in this case, after having kept the application pending for more than 8 months, the claim has been rejected. In this regard, I am directed to request that you may kindly get the case records scrutinized and find out as to why the claim of drawback was inordinately delayed.
5.1 It is also noted that if the claims were rejected immediately after filing, the exporter could have filed the application for determination of rate under Rule 7 (if the same was considered as a mandatory provision by your office).
6. The Board is of the view that the rejection of brand rate claims only on the ground of non filing under Rule 7 is improper and unjustified. This has deprived the exporter of the substantive benefit of reimbursement of duties suffered on inputs used in the manufacture of the export product. The Board, therefore, desires that you may review the order of Assistant Commissioner to ensure that unintended interpretations of law and procedure are not taken to deprive the exporters of their substantive benefits. 5.1 A perusal of the above clarification issued by the CBEC which is binding on the departmental officers clearly shows that draw back claims should not be rejected merely on the ground that they have been filed under Rule 6 and not under Rule 7. This instruction of the Board clearly applies to the facts of the present case. Therefore, we are of the view that the adjudicating authority should have considered the claim made by the appellant under Rule 7 if they had satisfied the eligibility under the said Rule.
5.2 The decision of the Honble High Court of Gujarat in the Stovec Industries Ltd. (cited supra) deals with the issue herein squarely. In the said case, the appellant had exported Printing Machine and claimed brand rate of draw back under Rule 6 of the Draw Back Rules. Their claim was rejected on the ground that All Industry Rate was fixed in respect of the product exported. The appellant pleaded that their application be considered under Rule 7. The said claim was rejected on the ground that the request is hit by time limitation and the Honble High Court held as follows:-
13. The aforesaid order had also been cited before the respondent No. 2. However, the respondent No. 2 has sought to take shelter behind a very hyper technical plea, namely that in the present case he was deciding the application pursuant to directions given by the High Court to dispose of the application under Rule 6 of the Rules and as such could not consider the plea to fix the Brand rate under Rule 7 in accordance with the Drawback Rules. The respondent NO. 2 has also raised another specious plea to the effect that the plea is hit by limitation. On both counts the respondent No. 2 was not justified in not entertaining the request of the petitioner to consider the application as one under Rule 7 of the Rules. As recorded by the Additional Commissioner in the case cited hereinabove, there is no substantial difference in the format of the application whether under Rule 6 or Rule 7 of the Rules. As such, merely because the petitioner had inadvertently made the application under Rule 6 of the Rules which consequently was reflected in the order made by the High Court, was not a valid ground for the respondent No. 2 not to entertain the application as one under Rule 7 of the Rules. As regards the plea being hit by limitation, the High Court in writ petition had already condoned the delay caused in filing the application. In the circumstances, merely because there was a change in nomenclature, inasmuch as instead of treating the application as one under Rule 6, the respondent No. 2 was required to consider the same under Rule 7 of the Rules, the same would not attract the bar of limitation as the application is the same. It is only being treated as having been filed under a different provision. The impugned order of the Joint Commissioner, therefore, cannot be sustained.
14. In the peculiar facts and circumstances of this case narrated hereinabove, this petition is allowed. Hence the following order:
15. The impugned order dated 10.03.2010 passed by the respondent No. 2, Joint Commissioner, Central Excise [BRU], Ahmedabad is quashed and set aside. The matter is remanded to the respondent No. 2 who shall decide the application made by the petitioner for fixation of drawback rate for the goods exported by the petitioner vide Shipping Bill dated 28.06.2004 afresh and grant consequential benefits, by treating the same as an application under Rule 7 instead of Rule 6 of the Customs and Central Excise Duties Drawback Rules, 1995, without raising the question of limitation. Thus we find that this judgement would apply squarely to the facts of the case under consideration before us.
5.3 The reliance placed by the Revenue on the Chemical and Fibres of India Ltd. (cited supra) does not the help their case for the reason that in that case it was found that the claim under Rule 7 of the Draw Back Rules could not be considered in as much as the appellant did not satisfy that the All Industry Rate fixed under Rule 3 was less than 4/5th of the eligible draw back under Rule 7. It was on this ground the honble apex court rejected the Boards Circular for sanction of draw back under Rule 7. In the instant case, the learned adjudicating authority has not considered the appellants claim under Rule 7 and has given a finding that the appellant does not satisfy the condition under Rule 7, without giving a positive finding the appellant is not eligible for draw back under Rule 7. He cannot out-rightly reject the claim of the appellant as being not eligible for benefit under Rule 7 without examining and considering their claim.. Similarly, the reliance placed on Jay Yuhshin Ltd.case (supra) also does not support the revenues cause. In that case, the Larger Bench of this Tribunal held that where the scheme opted for by the assessee is found to have been mis-used (in contradistinction to mere deviation or failure to observe all the conditions), the existence of an alternate scheme would not be an acceptable defence. The case before us is not one of misuse of any scheme. The appellant had exported the product manufactured by him and the question is what is the amount of draw back he is entitled to; whether it is the All Industry Rate under Rule 3 or the Special Brand Rate under Rule 7? To claim the benefit under Rule 7, certain terms and conditions have been prescribed. It is for the department to verify the claim of the appellant whether he satisfies the terms and conditions prescribed for sanction of draw back under Rule 7 and if so, grant the benefit and if not, reject the claim of the appellant. Without examining the appellants claim, the department cannot out-rightly reject the claim of the appellant for brand rate of draw back under Rule 7.
6. In view of the above findings we are of the considered opinion that the matter needs to be remanded back to the adjudicating authority for consideration afresh of the claim of the appellant for sanction of draw back under Rule 7 of the Draw Back Rules and if the appellant is found to be eligible, then sanction the same as per law. Needless to say that the appellant should be given a reasonable opportunity to substantiate their claim for sanction of draw back under Rule 7. All issues are kept open.
7. Accordingly, we set aside the impugned order and allow the appeal by way of remand.
(Pronounced in Court on 12.04.2012) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) nsk 18