Custom, Excise & Service Tax Tribunal
Fresh Laboratories vs Commissioner Of Customs (Exports) ... on 14 January, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal Nos. C/976, 977/02, 1270/02, 1354/02, 1355/02, 1356/02, 1357/02, 1359/02, 1360/02, 1360/02 and 1361/02/02 (Arising out of Order-in-Original No. 263/2002/CAC/CC/MD dated 12.6.2002 passed by Commissioner of Customs (Adj-I), Mumbai.) For approval and signature: Honble Mr.P.G. Chacko, Member (Judicial) Honble Mr. Sahab Singh, 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 :Yes 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?
====================================================== Fresh Laboratories Bhupendra J Shah Orbit International Prakshal Exports Alpine Chemicals Amee Agency Ratilal Hemraj Yogesh Korani Mahavir Export & Import Co Nikita Packaging Pvt Ltd Appellant (Represented by: Mr V.S. Nankani, M. Anil Balani, and Mr J.C. Patel, Advocates) Vs Commissioner of Customs (Exports) Mumbai Respondent (Represented by: Mr. K.M. Mondal, Special Consultant) CORAM:
Honble Mr.P.G. Chacko, Member (Judicial) Honble Mr. Sahab Singh, Member (Technical) Date of Hearing : 13.01.2011 Date of Decision: 13.01.2011 ORDER NO..
Per: P.G. Chacko
1. These appeals are directed against the Commissioners order, the operative part which reads as follows:
ORDER
i) 528.486 MTs. of Glycerine Valued at Rs. 1,71,24,361/- out of 588.486 MTs valued at Rs. 1,92,27,185/-, 59.61 MTs of Sodium Lauryl Sulphate valued at Rs. 34,43,256/-, 21.813 MTs of Irish Moss/Viscarene/Carragenam valued at Rs. 86,75,961/-, One M.T. of Sodium Mono Flouro Phosphate valued at Rs. 92,736/-, 1.2 MTs of Flavoring compound valued at Rs. 2,67,781/- and 5.040 MTs of Glycerine valued at Rs. 1,64,695/-, 1.260 MTs of SLS valued at Rs. 63,228/-, 18.9 MTs of Stearic Acid valued at Rs. 3,62,395/- and 570 kgs of Aromatic chemicals valued at Rs.3,15,644/- imported and cleared against advance licences as detailed in the Show Cause Notice are held liable to confiscation under Section lll(d) and lll(o) of the Customs Act 1962. However, as all these goods had already been cleared and are not available for confiscation I do not order confiscation of the same.
ii) Demand of all the following Customs Duties are hereby confirmed in terms of provisions of Section 28 (1) read with the proviso there of and M/s Fresh Laboratories and Shri Bhupendra Jayantilal Shah are directed to pay the same forthwith :-
a) Rs. 2,35,79,075/-( Rupees Two crores thirty five lacs seventy nine thousand and seventy five only) in respect of 528.4826 MTs of Glycerine valued at Rs.1,71,24,361/-
b) Rs. 51,02,951/- ( Rupees Fifty one lakh two thousand nine hundred and fifty one only) in respect of 59.61 MTs of SLS valued at Rs.34,43,256/-
c) Rs. 1,10,62,031/- (Rupees one crore ten lakhs sixty two thousand and thirty one only) in respect of 21.913 MTs of Irish Moss valued at Rs.86,75,961/-
d) Rs. 1,36,959/- (Rupees one lakh thirty six thousand nine hundred and fifty nine only) in respect of 1 MTs of SMFP valued at Rs. 92,736/-
e) Rs.3,01,923/-(Rupecs three lakh one thousand nine hundred and twenty three only) in respect of 1.2 MTs flavoring compound valued at Rs, 2,67,781/- in respect of advance licence bearing Nos. 3346394, 2149041,2011329, 2011331 & 3523035
f) Rs.2,40,824/- ( Rupees two lakh forty thousand eight hundred twenty four only) in respect of 5.04 MTs of Glycerine valued at Rs.1,64,695/-
g) Rs.92,455/-(Rupees ninety two thousand four hundred fifty five only) in respect of 1.26 MTs. SLS valued at Rs.63,228/-
h) Rs. 3,98,634/- (Rupees three lakh ninety eight thousand six hundred and thirty four only) in respect of 18.9 MTs of Stearic Acid valued at Rs. 3,62,395/-and
i) Rs. 3,86,190/-( Rupees three lakh eighty six thousand one hundred ninety only) in respect of 570 kgs of Aromatic chemicals valued at Rs. 3,15,644/- imported and cleared against advance licence No. 513996 dated 13.7.92.
iii) I impose penalty under section 112 (a) & (b) of the Customs Act, 1962 on the following noticees as under :-
Sr.No. Name of the Noticee Amt. of Penalty
1.
M/s.Fresh Laboratories Rs.4,00,00,000/-(Rupees Four crores only.)
2. Shri Bhupendra J.Shah Rs.50,00,000/-(Rupees Fifty Lakhs only.)
3. Shri Yogesh Korani Rs. 10,00,000/-(Rupees Ten lakhs only.)
4. M/s. Mahavir Exports & Imports Co.
Rs. 10,00,000/-(Rupees Ten lakhs only.)
5. M/s. Nikita Packaging P.Ltd.
Rs. 10,00,000/-(Rupees Ten lakhs only.)
6. M/s.Prakshal Exports Rs. 10,00,000/-(Rupees Ten lakhs only.)
7. M/s.D.G.Gore & Co.
Rs. 10,00,000/-(Rupees Ten lakhs only.)
8. M/s. Orbit International Rs. 10,00,000/-(Rupees Ten lakhs only.)
9. M/s.Alpine Chemicals Rs. 10,00,000/-(Rupees Ten lakhs only.)
10. M/s. Amee Agency Rs. 10,00,000/-(Rupees Ten lakhs only.)
11. M/s.Patel Exports Rs. 10,00,000/-(Rupees Ten lakhs only.)
12. M/s.Ratilal Hemraj Rs. 10,00,000/-(Rupees Ten lakhs only.)
2. M/s Fresh Laboratories had imported certain raw materials under six advance licences, one of which belonged to them and the rest belonged to three merchant-exporters viz M/s U.K. Paints, M/s VAM International Ltd and M/s Dolphin International. Some of the licences specified toothpaste as the export product, while others mentioned both toothpaste and shaving cream as export products. During the tenure of Exim Policy 1990-93, M/s Fresh Laboratories imported Glycerine, Sodium Lauryl Sulphate (SLS), Irish Moss, Sodium Mono Fluoro Phosphate (SMFP), Stearic Acid, Flavouring Compound and Aromatic Chemicals and cleared the same duty-free under Notification No. 159/90-Cus dated 30.3.90. 4 of the 6 advance licences were used for these imports. The remaining two licences were used for duty-free import of some of the above raw materials under Notification No. 204/92-Cus dated 19.5.1992 during the tenure of Exim Policy, 1992-97. 5 out of the six advance licences , which belonged to the three merchant-exporters, were allowed to be used by M/s Fresh Laboratories under Letters of Authority issued by the merchant-exporters.
3. Notification 159/90-Cus, which superseded Notification 116/88-Cus dated 30.3.88, enabled holders/transferees of advance licences to make duty-free imports of raw materials which were required for the purpose of manufacture of products to be exported in discharge of the export obligation under the advance licences or for replenishment of materials having identical specifications and technical characteristics as those actually used in the manufacture of the resultant products already exported. The exemption under this notification was conditional. Accordingly, the imported raw materials shall be utilized for the manufacture of resultant products for export and no portion thereof shall be sold, loaned, transferred or disposed of in any other manner. Alternatively, the imported material could be used for replenishment of materials having identical specifications and technical characteristics as those used in the manufacture of the resultant products already exported. Such materials imported for replenishment could be utilized or disposed of in accordance with para 250 in Chapter XIX of the Import and Export Policy, 1990-93. The notification further stipulated that the materials under import should be covered by a Duty Exemption Entitlement Certificate (DEEC) issued by the licensing authority in the prescribed form. Such materials should conform to the value, quantity, description, quality and technical characteristics specified in the DEEC.
4. Notification No. 204/92-Cus provided for duty-free import of raw materials against quantity-based advance licence. The imported materials should be covered by a quantity-based DEEC and should conform to the value, quantity, description, quality and technical characteristics specified in the DEEC, apart from the requirement of the importer having to discharge his export obligation. One of the main conditions attached to this notification was condition No. (vi) which reads thus:
(vi) that where export goods are manufactured availing credit of Central Excise Duty or Additional Customs duty, in respect of any of the materials permitted import under the said licence, under rule 56A or 57A of Central Excise Rules, 1944, the facility of sale or transfer of materials or the said licence shall not be available.
5. M/s Fresh Laboratories had used the following materials (inputs) in the manufacture of toothpaste (resultant product) exported by them:
(i) Sorbitol
(ii) Sodium Lauryl Sulphate
(iii) Gum
(iv) Sodium Saccharine
(v) Sodium Mono Fluoro Phosphate(SMFP)
(vi) Flavouring Compound.
6. On the basis of results of certain investigations conducted by the department, the following allegations were mainly raised in the relevant show-cause notice viz:
(i) Glycerine imported by M/s Fresh Laboratories was not liable to be exempted from payment of duty under any of the above notifications inasmuch as the input used in the export product was a different commodity, namely Sorbitol. This allegation is based on the premise that the imported raw material should be of the same specifications and technical characteristics as those of the input actually used in the resultant product (export product). A similar allegation was raised in relation to import of Irish Moss and Viscarine also inasmuch as a different material was found to have been used in the manufacture of export product.
(ii) The importer availed MODVAT credit on indigenous inputs (Glycerine, Sorbitol and SLS) used in the manufacture of the export product and, therefore, the inputs subsequently imported as replenishment by them and sold in local market were not eligible for the benefit of Notification No. 204/92-Cus on account of breach of Condition No. (vi) thereof.
7. The show-cause notice, therefore, demanded the duty foregone and also proposed to impose a penalty on the importer, apart from a proposal for confiscation of the imported goods. These proposals were contested in a reply filed by M/s Fresh Laboratories. It was in adjudication of this dispute that the impugned order was passed confirming the demand of duty against M/s Fresh Laboratories in respect of the raw materials imported by them duty-free during the period of dispute ordering confiscation of the goods under Section 111 (d) and (o) of the Customs Act and imposing a penalty on them under Section 112 (a) and (b) of the Act. The first appeal is against this part of the Commissioners order. The second appeal is by Bhupendra J Shah, a partner and Chief Executive Officer of M/s Fresh Laboratories and the same challenges the penalty imposed on him under Section 112 of the Act. The remaining appeals are, all, by the buyers of the goods imported by M/s Fresh Laboratories and sold in the domestic market. Penalties imposed on them under Section 112 of the Act are under challenge in these appeals.
8. The arguments advanced by the learned counsel representing M/s Fresh Laboratories and their Chief Executive Officer can be summarized as follows:
(a) There was no condition under Notification No. 204/92-Cus that goods of identical specifications and technical characteristics vis-`-vis the inputs used in the export product must be imported for duty-free clearance under the Quantity Based Advance Licences. It was enough if the goods imported for replenishment purpose were covered by relevant advance licences;
(b) The exemption scheme under this notification is different from that covered by Notification No. 159/90-Cus but the adjudicating authority did not make any differentiation;
(c) No MODVAT credit had been taken on many of the inputs used in the export product and, therefore, the learned Commissioners order demanding duty on all the imported goods by denying the benefit of Notification No. 204/92-Cus on the premise that MODVAT credit had been taken on all the inputs contained in the export goods is not sustainable. In this connection, the learned counsel has named five inputs viz Irish Moss, SMFP, Flavouring compound, Stearic Acid and Aromatic Chemicals;
(d) MODVAT credit on other inputs contained in the exported product was actually reversed with interest, and, therefore, M/s Fresh Laboratories are entitled to the benefit of the Amnesty Scheme covered by Circulars dated 3/1/97 and dated 10.1.97;
(e) As per Public Notice No. 191 dated 14.8.91, M/s Fresh Laboratories were entitled to sell the raw materials imported for replenishment purpose once the MODVAT credit availed on inputs contained in the exported product stood reversed and export obligation attached to the advance licence stood discharged;
(f) The penalty of Rs 4 crores imposed on M/s Fresh Laboratories is not justifiable.
The learned counsel made occasional references to the two notifications as also to case law in support of the above points. In the case of Metro Tyres Ltd vs Collector 1994 (74) ELT 964 (Tri) cited by him, synthetic rubber of the type of butyl rubber was imported under an advance licence claiming the benefit of Notification No.159/90-Cus. What was used in the exported product was synthetic rubber which was not of butyl rubber variety. The department noted this fact and proposed to deny the benefit of the above notification to the importer. This Tribunal examined the relevant condition of the notification which required import of raw materials having identical specifications and technical characteristics as those of the inputs used in the manufacture of the exported product. This Tribunal held the importer to be entitled to the benefit of the notification subject to fulfilment of other conditions of the notification. The learned counsel has also submitted that the Civil Appeal filed against the Tribunals decision in Metro Tyre case was dismissed by the apex court vide 2000 (116) ELT A 71 (SC). The Supreme Courts order dated 2.11.99 reads:
We have heard the learned counsel and perused the judgement under challenge. We find no good reason to interfere. The Civil Appeal is dismissed Claiming support from Metro Tyres (supra), the learned counsel has submitted that the Glycerine imported by his client should be exempt from payment of duty and cannot be denied the benefit on the ground that the input contained in the exported product was Sorbitol and not Glycerine. It is submitted that Glycerine and Sorbitol are sweetening agents used in the manufacture of toothpaste (export product) and they can be interchangeably used. Adverting to the Amnesty Scheme, the learned counsel has referred to Bharti Telecom Ltd vs Commissioner 2001 (134) ELT 327 (SC), wherein it was held that the Amnesty Scheme dated 10.1.97 recognised the already reversed MODVAT Credit also. The submission made by the learned counsel is that the benefit of the Amnesty Scheme is available to his client inasmuch as they had admittedly reversed the MODVAT credit availed on indigenous inputs used in the manufacture of the exported product and also paid interest thereon long before the Amnesty Scheme was introduced. With regard to the penalty imposed on the importer, the learned counsel has claimed support from one of the decisions cited by the Special Consultant for the Revenue and the same is M/s Fresh Laboratories vs CC, Mumbai 2000 (39) ELT 881 (CEGAT), wherein the penalty imposed on the party (who happens to be the importer in the instant case also) in connection with denial of the benefit of Notification No. 159/90-Cus was reduced from Rs 20 lakhs to Rs 15 lakhs. The learned counsel has urged that the precedent be followed in the instant case as well.
9. The learned Special Consultant for the Revenue has countered the counsels submissions in the following manner:
(i) Any exemption notification should be strictly construed and, therefore, the relevant condition attached to Notification No. 159/90-Cus or Notification No. 204/92-Cus cannot be relaxed. Replenishment per se means import of material of the same specifications and characteristics as those of the input used in the manufacture of the exported product. Indisputably, Sorbitol is different from Glycerine in all material characteristics, including chemical composition, physical properties, use etc. Therefore, duty-free import of Glycerine could not have been allowed where the input contained in the exported product was Sorbitol;
(ii) The Amnesty Scheme was specific to Notification No. 203/92-Cus and the same cannot be applied to the present case involving other notifications. For this reason, the apex courts judgment in Bharti Telecom case is inapplicable.
(iii) Even otherwise, reversal of MODVAT credit after the crucial event (export of resultant product) cannot be accepted as a ground for relaxing the relevant condition of Notification No. 204/92-Cus;
(iv) M/s Fresh Laboratories deliberately disposed of the imported materials with the knowledge that such disposal was barred under both the notifications, No. 159/90-Cus and No. 204/92-Cus. By selling the materials in the local market, M/s Fresh Laboratories committed breach of the relevant condition and thereby disentitled themselves to the benefit of exemption from payment of duty on the materials imported by them. The demand of duty confirmed against them by the learned Commissioner, therefore, cannot be interfered with;
(v) The conduct of the importer rendered the imported raw materials liable to confiscation under Section 111 of the Customs Act and also rendered themselves liable to penalty under Section 112 of the Act;
(vi) As regards the other appellants, the learned Special Consultant submits that they are also liable to be penalized under Section 112 ibid. In this connection, he has reiterated the findings of the Commissioner.
(vii) Case law was also cited.
(a) In the case of Zenith Tin Works Ltd vs Commissioner 1995 (75) ELT 865, the party had imported tinplates of thickness 0.19 mm claiming duty-free clearance under Notification No. 159/90-Cus but what were used in the manufacture of the goods exported by them were tinplates of different thickness. The first appellate authority denied the benefit of the notification to the importer after noting that the material of the specifications of the imported goods had not been used in the exported product. It, therefore, held that the import was not a replenishment as envisaged under Notification No. 159/90-Cus. This Tribunal upheld the Appellate Collectors order and dismissed the assessees appeal. The Civil Appeal filed by the assessee against the Tribunals decision was dismissed by the apex court vide 1997 (93) ELT A 176 (SC).
(b) Another decision cited by the learned Special Consultant is Usha Intercontinental (India) vs Collector of Customs 2001 (129) ELT 794 (Tri-Del), wherein the same notification was involved. The appellant in that case was a merchant-exporter who imported certain raw materials under the DEEC Scheme and cleared the same without payment of Customs duty by claiming the benefit of Notification No. 159/90-Cus. The goods were imported as replenishment for inputs used in the exported goods. It was found that the party had availed MODVAT credit on the inputs used in the production of the export goods. Under para 250 (2) of the relevant Exim Policy, the goods imported by way of replenishment could not be sold if MODVAT credit had been taken on the inputs used in the exported goods. Thus the breach of a condition of the above notification was found and the duty foregone was demanded. The learned Special Consultant has also relied on Raj Exports vs National Aluminium Co Ltd 1996 (87) ELT 349 (Ori), wherein certain imports made under DEEC Scheme claiming the benefit of Notification No. 203/93-Cus were considered. In that case also, MODVAT Credit had been availed on the inputs used in the production of the export goods but this credit was subsequently reversed. The Honble High Court held that a breach of condition of the above notification could not be restored by reversal of the MODVAT credit. The Honble High Court also contextually held that every word used in an exemption notification should be strictly construed and no liberal interpretation with greater flexibility could be given. In this connection, the learned Special Consultant has further pointed out that, though the Supreme Court disposed of on merits certain Special Leave Petitions filed against the Orissa High Courts judgment, giving liberty to the importer (National Aluminium Co) to reverse MODVAT credit availed on inputs used in the finished goods exported under DEEC Scheme, the apex court did not interfere with the principle laid down by the High Court. In this context, the learned Special Consultant has usefully referred to para 8 of the judgment of Bharati Telecom (supra), wherein the Honble Supreme Court observed inter alia thus:
the orders dated 21st and 22nd January 1997 relied upon by the counsel were passed on the facts of the said case without settling any principle and without reversing principles laid down by the Orissa High Court. (SLPs filed against the Orissa High Courts judgment in Raj Exports case were disposed of by the apex court by orders dated 21st and 22nd January 1997).
(c) The learned Special Consultant has also referred to Omega Enterprises vs Commissioner 2001 (137) ELT 1120 (Tri-Del), wherein the exemption notification considered by the Tribunal was Notification No. 116/88-Cus dated 30.3.1988, predecessor to Notification No. 159/90-Cus. In that case, it was held that the Notification provided that the exempted materials should be utilized in the manufacture of resultant products. The raw materials imported by the party were leaded free cutting steels and the same were cleared duty-free under the above notification but not used in the export product. The imported goods were disposed of in the local market. In this scenario, the benefit of the notification was denied to the importer. The Tribunals decision in Omega Enterprises came to be affirmed by the apex court when the Civil Appeal filed by the party was dismissed on merits vide 2002 (139) ELT A 188 (SC).
(d) One case involving Notification No. 204/92-Cus cited by the learned Special Consultant is Commissioner of Customs vs Bharat Pulvarising Mills Ltd 1999 111) ELT 193 (Tri-Mum), wherein the benefit of the said notification was denied to the party on the ground that condition (vi) thereof was violated by them by availing MODVAT Credit under Rule 57A on the inputs used in the manufacture of the exported goods. It is pointed out that, in the case of Bharat Pulvarising Mills case, the Orissa High Courts judgment was followed in preference to the Supreme Courts judgment in Chandrapur Magnet Wires Pvt Ltd vs Collector 1996 (81) ELT 3 (SC). The learned Special Consultant has also distinguished the case of Chandrapur Magnet Wires by submitting that, in that case, the benefit of exemption notification was allowed by the apex court to the assessee by holding that the relevant condition (which required the assessee not to avail MODVAT Credit on any input used in the manufacture of the exempted final product) stood complied with inasmuch as the credit so availed had been reversed prior to clearance of the exempted final product. It is submitted that this ruling cannot be applied to the present case. In this connection, the learned Special Consultant has also referred to Kamra Bottling Companies 2003 (160) ELT 487 (Tri-Del), wherein the benefit of SSI exemption under Notification No. 1/93-CE dated 28.2.1993 was denied to the assessee after noting that the MODVAT Credit taken on inputs had been reversed only after clearance of the final product. The Tribunals decision was affirmed by the High Court in Kamra Bottling Co 2009 (233) ELT 329 (Raj). Thus, claiming support from case law, the learned Special Consultant has argued that any reversal of MODVAT credit subsequent to the export of the resultant product would not have the effect of erasing the breach of the relevant conditions of notifications No. 159/90-Cus and No. 204/92-Cus. The learned Consultant has also submitted that the decision in Bharati Telecom case also cannot be applicable to the present case as it did not deal with any of the above two notifications.
10. The learned counsel representing M/s Mahavir Export and Import Co (C/1360/02), M/s Nikita Packaging Pvt Ltd C/1361/02) and Mr. Yogesh Korani (C/1359/02) submits that these appellants are bona fide buyers of the goods sold by M/s Fresh Laboratories. Yogesh Korani is the proprietor of M/s Mahavir Export and Import Co and a Director of M/s Nikita Packaging Pvt Ltd. These appellants did not have knowledge of any fraudulent act of the importer. They were not concerned with the goods exported by M/s Fresh Laboratories. They did not admit any involvement with such goods, nor did any other person give any incriminating statement against these appellants. The impugned order does not contain adequate grounds for a penalty under Section 112 of the Customs Act on these appellants. In any case, it was not open to the adjudicating authority to impose separate penalties on M/s Mahavir Export and Import Co and their proprietor (Mr. Yogesh Korani). For these reasons, it is urged that the penalties on these appellants be vacated.
11. The learned counsel representing M/s Orbit International (C/1270/02) has also advanced similar arguments. By way of assistance to the Bench, the learned counsel has also referred to the Supreme Courts judgment in Jindal Dye Intermediate Ltd vs Collector 2006 (197) ELT 471 (SC) and the Tribunals judgment in M.K. Shah Exports Ltd vs Commissioner 1998 (104) ELT 696 (Tri-Mum). The point sought to be made by the learned counsel is that the material imported under an advance licence in the DEEC Scheme, with an obligation for discharge of export obligation, need not be identical with the input used in the exported final product. According to him, it is enough if the imported raw material is commercially usable in the export product.
12. The learned Special Consultant has opposed the counsels submissions relating to penalty. It is submitted that there was a prior understanding between the Chief Executive Officer of M/s Fresh Laboratories and Mr Yogesh Korani with regard to the import and sale of raw material. He has referred, in this connection, to paragraphs 7 to 9, 11 and 13 of the show-cause notice as also to para 7 of the impugned order. It is submitted that Mr. Yogesh Korani cannot claim innocence and was rightly penalized by the adjudicating authority.
13. We have given careful consideration to the submissions. The main issue arising for consideration is whether the benefit of Notification No. 159/90-Cus and No. 204/92-Cus is liable to be granted to M/s Fresh Laboratories in respect of the raw materials imported by them under the six advance licences during the material period. We have already indicated the salient conditions of the notifications. The show-cause notice issued by the department proposed to deny the benefit of the notifications to M/s Fresh Laboratories by alleging (a) that the raw materials imported by them were different from those used in the manufacture of the exported product, and (b) that the raw materials imported by them were disposed of by sale in local market in breach of condition (vi) of Notification No. 204/92-Cus after having availed MODVAT credit on indigenous inputs used in the manufacture of the exported product. The imported goods relevant to the first leg of this allegation are Glycerine, Irish Moss and Viscarine. Glycerine was imported as replenishment for Sorbitol used in the manufacture of the exported product. Irish Moss and Viscarine were imported as replenishment for gum. The show-cause notice alleged that the imported goods were different in specifications and material characteristics from the input used in the exported product and, therefore, the former would not be eligible for duty-free clearance under the notification.
14. The case of the importer, as stated by their counsel, is that the notifications did not purport to insist that the raw material imported under an advance licence should be of the same specifications and material characteristics as those of the inputs actually used in the exported product. It is their contention that, if the raw material imported and the one used in the exported product are both covered by the advance licence, that would suffice the purpose. It was in this context that the learned counsel relied on the Tribunals decision in Metro Tyres case. We have already discussed the case of Metro Tyres, to some extent, in an earlier part of this order. In the present context, it would be enough to say that, in that case, what was imported for duty-free clearance under Notification No. 159/90-Cus was synthetic rubber and what was used in the manufacture of the exported product (resultant product) was also synthetic rubber. The only difference was that the imported synthetic rubber was of the type of Butyl rubber, whereas the input used in the resultant product was synthetic rubber of a different variety. The Tribunal, in that case, held in favour of the importer after observing thus Once the appellants contention that they had used synthetic rubber although not of the Butyl rubber variety in the manufacture of exported articles has not been contradicted or found to be wrong, the importation of synthetic rubber of Butyl variety could amount to a material which could be imported for purpose of replenishment in terms of the language of the Notification. It would thus appear that, in the case of Metro Tyres, the department had not found fault with the importer having used one variety of synthetic rubber in the resultant product and importing another variety of synthetic rubber for duty-free clearance under the notification. The facts of the present case are different. In the present case, it has been the consistent case of the Revenue that the benefit of Notification No. 159/90-Cus is not admissible to the importer who used Sorbitol in the manufacture of toothpaste and imported Glycerine as replenishment claiming duty-free clearance under the Notification and further that they used gum in the manufacture of the resultant product and imported Irish Moss/Viscarine as replenishment. It is not in dispute that Glycerine is different from Sorbitol in material characteristics including chemical composition, physical properties, uses etc. It is again not in dispute Irish Moss or Viscarine is not the same as gum. The only case of the importer is that all these items are covered by the advance licences and, therefore, one material should be allowed as replenishment for the other. In this scenario, the Tribunals decision in Metro Tyres (supra) is not applicable to the present case. On the other hand, the learned Special Consultant for the Revenue has specifically argued that the imported input cannot be materially different from the one used actually in the manufacture of the resultant product so as to attract the exemption notification. In this connection, he has usefully relied on a few decisions, which we have already referred to in an earlier part of this order. In the case of Zenith Tin Works Ltd (supra), tinplates of thickness 0.19 mm were imported for duty-free clearance under Notification No. 159/90-Cus, whereas tinplates of different thicknesses other than 0.19 mm were actually used in the manufacture of the exported product. The first appellate authority, this Tribunal and the apex court held against the importer and, consequently, the import of tinplates of a thickness of 0.19 mm was held not a replenishment as envisaged under Notification No. 159/90-Cus. In the case of Omega Enterprises (supra), the exemption notification was Notification No. 116/88-Cus, predecessor to Notification No. 159/90-Cus. In that case, the imported material was leaded free cutting steel, but such material was not found to have been used in the exported product. This Tribunal denied the benefit of the notification to the importer and this decision came to be affirmed by the Honble Supreme Court. The applicable case law is, thus, in favour of the Revenue. We, therefore, hold that the benefit of Notification No. 159/90-Cus cannot be claimed by M/s Fresh Laboratories in respect of the materials imported by them inasmuch as same materials were not used in the manufacture of the exported product. The show-cause notice has succinctly brought out the chemical, physical and other differences between Glycerine and Sorbitol. These differences were not disputed by the importer in their reply to the show-cause notice, nor even in the memorandum of appeal before us. If tinplates of thickness of 0.19 mm could be recognized as a commodity different from tinplates of 0.22 mm, in the case of Zenith Tin Works, by this Tribunal and the apex court, we have no hesitation to hold that Glycerine can come nowhere near Sorbitol in material characteristics/specifications. The contention raised by the learned counsel that, as both these materials were covered by the advance licences, duty-free import of any of them should be allowed where the other one was found to have been used in the manufacture of the resultant product, is not supported by any judicial authority and hence cannot be accepted.
15. In relation to Notification No. 204/92-Cus also, we have found a firm case for the Revenue. Condition (vi) of this notification is relevant to this case. This condition stipulates that one who imports raw materials covered by an advance licence cannot, after its clearance duty-free under the notification, cannot sell or transfer the material if he has availed MODVAT credit of Central Excise duty or Additional Customs duty paid on any indigenous or imported input contained in the exported goods. It would mean that any sale or transfer of raw material imported duty-free under the above Notification would be a breach of condition no. (vi), if MODVT credit has been taken on the input which was used in the exported product and against which the import was made as replenishment. In the instant case, the learned counsel for the importer has submitted that demand of duty on five raw materials imported by them cannot be sustained inasmuch as no MODVAT credit had been taken on the corresponding inputs used in the exported product. These are items mentioned at clauses (c) Irish Moss, (d) (SMFP), (e) Flavouring Compound, (h) Stearic Acid (i) Aromatic Chemicals, of para (ii) of the operative part of the Commissioners order. In the case of other raw materials imported by M/s Fresh Laboratories, the learned counsel has submitted that whatever MODVAT credit had been taken on the corresponding inputs contained in the exported final product was reversed with interest and, therefore, the benefit of Amnesty Scheme should be granted. We have not found any valid ground to accept these contentions either. First of all, the claim that no credit was availed on duty-paid inputs contained in the exported product, against which the aforesaid five materials were imported as replenishment, has not been substantiated. Secondly, the plea for Amnesty Scheme cannot be considered against breach of conditions of notifications 159/90-Cus and 204/92-Cus. That scheme was introduced by the Central Government only to benefit those importers/exporters who imported raw materials duty-free under Notification No. 203/92-Cus without ensuring that no input-stage credit had been availed under Rule 57A of the Central Excise Rules, 1944 on the inputs used in the manufacture of the exported product. We have perused the relevant Circulars which embodied the Amnesty Scheme viz Circular dated 4.1.97 and Circular dated 10.1.97. It is clear from these circulars that the Amnesty Scheme purported to benefit those who committed breach of condition (v) (a) to Notification No. 203/92-Cus by importing raw materials duty-free after having availed MODVAT credit on the inputs used in the manufacture of exported product. The very caption of Circular dated 4.1.97 reads thus: SCHEME FOR PERMITTING REVERSAL OF MODVAT CREDIT AVAILED BY THE EXPORTERS OF GOODS, UNDER VALUE-BASED ADVANCE LICENSING SCHEME IN CONTRAVENTION OF CONDITIONS OF THE SCHEME. The relevant notification which provided for exemption from payment of duty on raw materials imported under Value-Based Advance Licences under the DEEC Scheme was Notification No. 203/92-Cus. We, therefore, hold that nothing contained in the Amnesty Scheme can be applied to the present case. The Honble Supreme Courts judgment in Bharati Telecom case also related to the Amnesty Scheme as applicable to importers/exporters who committed breach of condition (v) (a) of Notification No. 203/92-Cus by availing input-stage credit on inputs used in the manufacture of the exported product. The adjudicating authority, in this case, has taken the right decision on this issue.
16. Some of the decisions cited by the learned Special Consultant are apposite to this context. In the case of Usha Intercontinental (supra), merchant-exporters had imported certain raw materials under the DEEC Scheme claiming the benefit of Notification No. 159/90-Cus. Those goods were imported as replenishment for the use in exported product. It was found that the party had availed MODVAT credit on the input used in the production of the resultant product. Under para 250- (2) of the relevant Exim Policy, there was a bar against sale of the imported goods if MODVAT credit had been taken on the inputs used in the exported product. As the party had sold the raw material imported by them, the benefit of the above Notification was denied to them inasmuch as one of the conditions of the Notification barred availment of MODVAT credit on inputs used in the export product if the raw material imported by way of replenishment under the advance licence was to be disposed of by sale. In the case of Bharat Pulvarising Mills (supra), the benefit of notification No. 204/92-Cus was denied to the importer on the ground that condition (vi) was violated by them by availing MODVAT credit on the inputs used in the manufacture of the exported goods. In the said case, this Tribunal followed the Orissa High Courts judgment in Raj Exports case. The Honble High Court ruled out liberal interpretation of expressions used in Exemption Notification. It was held that every word used in an Exemption Notification should be strictly construed and there was no room for flexible or liberal interpretation. The SLP filed against the Orissa High Courts judgment in Raj Exports case was disposed of by the apex court by orders dated 21st/22nd.1.97, which we have perused. The Honble Supreme Court upheld the principles laid down by the High Court. The main principle laid down by the High Court was that any subsequent reversal of MODVAT credit would not have the effect of erasing the breach of condition (v) (a) of Notification No. 203/92-Cus. In other words, the resultant product should be exported, in DEEC Scheme, without availment of MODVAT Credit on the inputs used therein. This principle is equally applicable to notification No. 159/90-Cus. Where an importer intended to dispose of, by sale or transfer, any raw material imported duty-free under Notification No. 204/92-Cus, he must not have availed MODVAT credit on the corresponding inputs used in the manufacture of the exported product vide condition (vi) of the Notification. The above principle laid down by the Honble High Court in Raj Exports case is applicable to this context as well. In any case, as we have already observed, the importer in the present case cannot claim the benefit of any Amnesty Scheme.
17. In the result, the demand of duty raised on M/s Fresh Laboratories has to be sustained and we do so.
18. Coming to penalties, we find that the learned Commissioner imposed penalties of Rs 4 crores and Rs 50 lakhs on M/s Fresh Laboratories and Mr. Bhupendra J. Shah, respectively under Section 112 (a) and (b) of the Customs Act on certain grounds stated in paras 31 and 35 of the impugned order. It has been held that M/s Fresh Laboratories and Mr. Bhupendra J. Shah rendered the goods (imported by them) liable for confiscation under Section 111 (d) and (o) of the Customs Act by violating the conditions of Notifications No. 159/90-Cus and No. 204/92-Cus. They have also been found to have rendered themselves liable to penalty under Section 112 of the Act. We have already found, against M/s Fresh Laboratories, violation of certain conditions of the two Notifications, which would attract Section 111 (o) of the Customs Act. It goes without saying that M/s Fresh Laboratories, by their commissions and omissions in relation to the imports in question, rendered the goods liable to confiscation, thereby attracting penalty under Section 112 (a) and (b) of the Act. However, nothing contained in para 35 of the impugned order brings forth any penal liability of these parties. This para says that most of the imported materials were sold by M/s Fresh Laboratories but does not specifically state that this activity amounted to breach of any particular condition of any Notification. On the other hand, it has been acknowledged that para 250 (2) of the Exim Policy 1990-93 allowed disposal of replenished exempt material to any person without permission of the licensing authority. It has also been noted that the importer reversed MODVAT credit amounting to Rs 18.8 lakhs and paid interest of Rs 3.6 lakhs thereon. In any case, the penal liability of M/s Fresh Laboratories under Section 111 (o) of the Customs Act cannot be refuted by them inasmuch as it has already been found that they committed breach of certain conditions of the two Notifications leading to demand of duty and confiscation of the goods. However, we have found no material on record in support of invocation of Section 111 (d) of the Act. All the goods imported by them were admittedly covered by advance licences and none of those goods were in the prohibited category so as to attract this provision of law. Considering the fact that M/s Fresh Laboratories reversed MODVAT credit to the extent of Rs 18.8 lakhs and paid interest thereon subsequently, and also considering the inapplicability of Section 111 (d) of the Act to this case, we are of the view that the penalty of Rs 4 crores imposed on them is harsh. In this context, we also note that, in their own earlier case, this Tribunal reduced the quantum of penalty from Rs 20 lakhs to Rs 5 lakhs. Considering all the aspects, we reduce the quantum of penalty on M/s Fresh Laboratories from Rs 4 crores to Rs 50 (fifty) lakhs. Where a penalty stands imposed on the partnership firm, there is no reason why there should be separate penalty on a partner under the same provision of law. Therefore, the penalty on Shri Bhupendra J. Shah is vacated.
19. The learned counsel for M/s Mahavir Export & Import Co, M/s Nikita Packaging Pvt Ltd and Shri Yogesh Korani has fervently argued for vacating the penalties imposed on them. He has contended that none of them was aware of the conduct of M/s Fresh Laboratories in relation to the exports made by them. They are bona fide buyers of the goods imported and sold by M/s Fresh Laboratories and, therefore, Section 112 of the Act cannot be invoked against them. In this connection, we have perused the statements given by Mr. Yogesh Korani under Section 108 of the Customs Act, wherein he had stated that he had purchased the materials imported by M/s Fresh Laboratories; that he had used to send money to M/s Fresh Laboratories after obtaining Letter of Credit; that M/s Fresh Laboratories sent him debit note for CIF value + profit margin and that accordingly he sent the bank drafts; that intents for import of 60 MT of Glycerine vide Bill of Entry No. 5057 dated 15.7.93 had been obtained by him in the name of M/s Fresh Laboratories who opened Letter of Credit; that M/s Fresh Laboratories sent him the documents only after he sent bank draft, etc. His statement relating to import of 60 MT of Glycerine by M/s Fresh Laboratories was corroborated by the clearing agent. This evidence, considered by the adjudicating authority, is yet to be rebutted. Therefore, the involvement of Mr. Yogesh Korani in the import of 60 MT of Glycerine in the name of M/s Fresh Laboratories has been established. Under Section 112 (a) of the Act, any person abetting the offence of the importer can also be penalized. Mr. Yogesh Korani appears to have abetted the offence committed by M/s Fresh Laboratories in relation to the import of 60 MT of Glycerine. Under Section 112 (b) of the Act, any person who acquired possession of, or otherwise physically dealt with, any imported goods with the knowledge or belief that such goods was liable to confiscation under the Act is liable to be penalized. The records indicate that 60 MT of Glycerine imported by M/s Fresh Laboratories were sold to Mahavir Export and Import Company, of which Mr. Yogesh Korani was the proprietor. The learned Commissioner has imposed a penalty of Rs 10 lakhs on M/s Mahavir Export & Import Co and equal penalty on Mr. Yogesh Korani. No adverse findings have been recorded against them in relation to any other goods sold to them by M/s Fresh Laboratories. In this scenario, the penalty of Rs 10 lakhs is excessive. Further, there cannot be separate penalties on M/s Mahavir Export & Import Co and its proprietor. In the result, we set aside the penalty imposed on Mr. Yogesh Korani and reduce the quantum of penalty on M/s Mahavir Export and Import Co to Rs one lakh.
20. M/s Nikita Packaging Pvt Ltd also purchased raw materials imported by M/s Fresh Laboratories. The same is the position with regard to the remaining appellants also. Therefore, the penalties imposed on M/s Nikita Packaging Pvt Ltd, M/s Orbit International, M/s Prakshal Exports, M/s Alpine Chemicals, M/s Amee Agency and M/s. Ratilal Hemraj have also to be vacated and it is ordered accordingly.
21. In the result, the appeal filed by M/s Fresh Laboratories is dismissed on merits, with reduction of the quantum of penalty to Rs 50,00,000 (Rupees Fifty lakhs only), the appeal filed by M/s Mahavir Export & Import Co is disposed of by reducing the quantum of penalty to Rs 1,00,000/- (Rupees One lakh only) and the appeals filed by all the other appellants are allowed.
(Dictated in Court.) (Sahab Singh) Member (Technical) (P.G. Chacko) Member (Judicial) rk 34