Custom, Excise & Service Tax Tribunal
Dinesh International Ltd vs Commissioner Of Customs (Import), ... on 5 April, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPLICATION Nos. C/MA(Ors)1766/10 & C/MA(Ors)379/11 APPEAL No. C/796/06 (Arising out of Order-in-Original No. 43/2006 dated 28.3.2006 passed by Commissioner of Customs (Import), Nhava Sheva) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. 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 : 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?
====================================================== Dinesh International Ltd. Appellant Vs. Commissioner of Customs (Import), Nhava Sheva Respondent Appearance: Shri Prakash Shah, Advocate, for appellant Shri K.M. Mondal, Consultant, for respondent CORAM: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. P.R. Chandrasekharan, Member (Technical) Date of Hearing: 5.4.2011 Date of Decision: 5.4.2011 ORDER NO Per: P.G. Chacko
The appellant had imported from M/s. Sri Chirag Pvt. Ltd., Sri Lanka, 66 consignments of remelted copper ingots weighing 1645.918 MTs valued at Rs.10.89 crores during the period from March to August 2002 and cleared the same on payment of duty at concessional rate in terms of Customs Notification No.26/2000 dated 1.3.2000 read with Customs Notification No.19/2000-Cus.(NT) dated 6.3.2000 issued under the India-Sri Lanka Foreign Trade Agreement (ISFTA, for short). Remelted copper ingots, classifiable under Heading 74.02 of the First Schedule to the Customs Tariff Act, 1975, were normally chargeable to duty @ 25% ad valorem. However, when imported from Sri Lanka in terms of ISFTA, the importer could claim the benefit of concessional rate of 2.5% ad valorem under Notification 26/2000-Cus. In order to claim this benefit, however, the importer was liable to prove to the satisfaction of the Deputy Commissioner or Assistant Commissioner of Customs, in accordance with the Customs Tariff (Determination of Origin under the Free Trade Agreement between The Democratic Socialistic Republic of Sri Lanka and The Republic of India) Rules, 2000 (Determination of Origin Rules, for short) published vide Notification No.19/2000-Cus.(NT) ibid., that the goods were of Sri Lankan origin. As per Rule 4 of the Determination of Origin Rules, the importer should make a claim that the goods are the produce or manufacture of the country from which they are imported and the same are eligible for preferential treatment under ISFTA, and should also produce evidence thereof. As per Rule 5, preferential treatment in the form of exemption under Notification 26/2000-Cus. could be claimed in the case of (a) products wholly produced or obtained in the territory of the exporting Contracting Party as defined in Rule 6, or (b) products not wholly produced or obtained in the territory of the exporting Contracting Party provided that the products are eligible under Rule 7 or Rule 8. As per Rule 7(a), where Rule 5(b) is applicable, products worked on or processed, as a result of which the total value of materials, parts or produce originating from countries other than the Contracting Parties or of undetermined origin used, does not exceed 65% of the FOB value of the products produced or obtained and the final process of manufacture is performed within the territory of the exporting Contracting Party shall be eligible for Preferential treatment, subject to the provisions of clauses (b), (c), (d) and (e) of Rule 7 and the provisions of Rule 8. As per Rule 8, in respect of a product which complies with the origin requirements of Rule 5(b) and is exported by any Contracting Party and which has used materials, parts or products originating in the territory of the other Contracting Party, the value addition in the territory of the exporting Contracting Party shall not be less than 25% of the FOB value of the products under export subject to the condition that the aggregate value addition in the territories of the Contracting Parties is not less than 35% of the FOB value of the product under export.
2. Officers of the Directorate of Revenue Intelligence (DRI), who launched investigations into the subject imports of the appellant, found that the Country-of-Origin Certificate (hereinafter referred to as C.O. Certificate) produced by the appellant at the time of clearance of the goods had been issued under Rule 7 as applicable to goods not wholly produced or obtained in Sri Lanka and that the total value of the material originating in other countries had been certified to be less than 65%. DRI gathered from the Sri Lankan Customs authorities documents relating to the import of copper scrap and export of copper ingots by M/s. Sri Chirag Pvt. Ltd. covering the period from May to August 2002. These documents revealed that the raw material (copper scrap) had been imported by M/s. Sri Chirag Pvt. Ltd. from various countries and that the import price of the scrap was 1100 US$ PMT. During the relevant period, M/s. Sri Chirag Pvt. Ltd. were found to have exported remelted copper ingots @ US$ 1361 PMT. On this basis, the investigating agency found that the cost of raw material in the finished goods (copper ingots) exported by M/s. Sri Chirag Pvt. Ltd. to the appellant was substantially more than the maximum limit of 65% of FOB value prescribed under the aforesaid Rules and, consequently, the value addition at the end of the Sri Lankan exporter was more than 35%. Thus it appeared to DRI that the appellant violated the norms laid down under the aforesaid Rules and hence was not entitled to claim the benefit of concessional rate of duty in respect of the remelted copper ingots imported from M/s. Sri Chirag Pvt. Ltd., Sri Lanka. For arriving at this conclusion, DRI also relied on certain statements of Shri Daya Kishan Goel, Managing Director of the appellant-company, recorded under Section 108 of the Customs Act. DRI also obtained a copy of the Cost Statement produced by the Sri Lankan exporter before the Department of Commerce (Government of Sri Lanka) for obtaining the C.O. Certificate. The price of the imported raw material (copper scrap) was indicated in the Cost Statement as US$ 1000 PMT and the FOB value of the finished goods (remelted copper ingots) was mentioned as US$ 1539.30 PMT. The raw material percentage was indicated as 64.96% of the FOB value of the finished goods, which appeared to be the basis of the C.O. Certificate issued by the Department of Commerce, Sri Lanka.
3. On the basis of the results of investigations, the department issued a show-cause notice on 24.6.2004 to the appellant and another importer (M/s. Vipin Enterprises who had also imported several consignments of remelted copper ingots from Sri Lanka at concessional rate of duty in terms of Notification 26/2000-Cus. under ISFTA) for (a) recovery of differential amount of duty from them in respect of remelted copper ingots by denying the benefit of Notification 26/2000-Cus. ibid., (b) confiscation of the goods under Section 111 of the Customs Act, (c) imposition of penalty under Section 114A of the Act etc. The show-cause notice, for recovery of duty, invoked the extended period of limitation under Section 28 of the Customs Act on the ground that the importers had misdeclared and suppressed material facts about the value of copper scrap being higher than the stipulated 65% of the FOB value of the remelted copper ingots, with intention to avail the benefit of the above Notification fraudulently and to evade customs duty. The notice alleged that M/s. Sri Chirag Pvt. Ltd. did not import copper scrap @ US$ 1000 PMT into Sri Lanka and did not export remelted copper ingots to India @ US$ 1539.30 PMT. It alleged that all the imports of remelted copper ingots by the appellant from M/s. Sri Chirag Pvt. Ltd. into India was as much lower rates of US$ 1304 PMT and US$ 1361 PMT. It alleged that M/s. Sri Chirag Pvt. Ltd. had obtained C.O. Certificate from the Sri Lankan authorities by furnishing incorrect Cost Statement. The show-cause notice further alleged that there was no copper ingot manufacturing facility in Sri Lanka and that the only facility available was to convert one metal product to another. It was further alleged that the maximum value addition, which could occur in such conversion of a metal product to another metal product, was only 10% to 15%. The show-cause notice also relied on LME prices (prices quoted in the London Metal Exchange Bulletin) to arrive at this conclusion.
4. The appellant and others denied the allegations and contested the demand of duty and other proposals. In adjudication of the dispute, the Commissioner of Customs (Import) demanded duty of Rs.2,96,59,584/- from the appellant under the first proviso to Section 28(1) of the Customs Act with interest thereon under Section 28AB of the Act, ordered confiscation of the goods under Section 111(d) and (o) of the Act and imposed penalty equal to duty under Section 114A of the Act.
5. The present appeal is directed against the Commissioners order. There are also two miscellaneous applications before us, one filed in October 2010 and the other in March 2011, both under Rule 23 of the CESTAT (Procedure) Rules. These applications seek to bring on record certain documents annexed thereto. These will be considered in due course.
6. Heard both sides. The learned counsel for the appellant has, at the outset, questioned the reliance placed by the Revenue on the Cost Statement. This Cost Statement was submitted to the Sri Lankan authorities as on 14.3.2003. According to the learned counsel, the adjudicating authority erred in relying on this Cost Statement for reaching its conclusion that the C.O. Certificate had been obtained by furnishing incorrect statement to the Sri Lankan authorities inasmuch as the said Cost Statement cannot be applicable to the period of dispute (March to August 2002) in this case. The counsel further submits that, though this objection was raised in the reply to the show-cause notice, it was not considered by the Commissioner. The learned counsel has also contended that the Revenue cannot go behind the C.O. Certificate which was undisputedly issued by the Sri Lankan authority concerned and was not forged or fake. According to the counsel, it was not open to the department to enquire whether the said certificate was issued on the basis of correct or incorrect statement of facts. In this connection, reliance has been placed on Bombay Chemicals Pvt. Ltd. vs. UOI & 14 others 1982 (10) ELT 171 (Bom.) wherein the Honble High Court had held that the Customs authorities were bound to accept the certificate of the Director-General of Technical Development (DGTD) and that it was not permissible to go behind it merely because the Customs authorities felt that the contents of the certificate were disproved by some other materials. In the cited case, it was the allegation of the department that the petitioners had deliberately kept back certain information from the DGTD and obtained the certificate certifying that the goods imported by them were not produced in India. Therefore, according to the department, the certificate issued by DGTD was only to be ignored by the assessing authority while considering the importers claim for exemption under the relevant Notification. This contention of the Revenue was rejected by the Court.
7. The learned counsel has also submitted that it was open to either of the Contracting Parties (India and Sri Lanka) under Rule 13(2) of the Determination of Origin Rules to take appropriate legal and/or administrative steps to investigate into the circumstances in which the C.O. Certificate was issued by the Sri Lankan authority so as to prevent circumvention of the Foreign Trade Agreement. It is submitted that no such investigation was even attempted by the Indian authorities and, therefore, it is not open to them to allege that the C.O. Certificate was issued on the basis of incorrect Cost Statement.
8. The learned counsel has also heavily relied on the Boards Circular No.73/2003-Cus. dated 13.8.2003, which, according to him, made it obligatory for the department to honour the C.O. Certificate issued by the Sri Lankan authority.
9. The learned counsel has also submitted that the extended period of limitation under Section 28(1) of the Customs Act was not invocable against the appellant on the facts of this case and, therefore, the demand of duty is barred by limitation.
10. The learned counsel has also urged that the miscellaneous applications be allowed and the documents produced therewith be admitted in support of the appellants case against the Commissioners order. It is submitted that the documents filed with miscellaneous application No.1766/10 include commercial invoices issued to the appellant by M/s. Sri Chirag Pvt. Ltd., Sri Lanka, the connected bills of lading and the bills of entry filed by the appellant in India for clearance of the respective consignments of remelted copper ingots. All these documents relate to the month of March 2003, i.e., after the period of dispute and are intended to show that remelted copper ingots were imported by the appellant from the Sri Lankan exporter at US$ 1550 PMT after the period of dispute also. It is submitted that the declared value has been accepted by the assessing authority in India. The above invoices, bills of lading and bills of entry are listed in Annexure-1 to miscellaneous application No.1766/10. Annexure-2 to the said application is a list of 27 invoices, nearly half of them issued in December 2001 and the rest issued from February to May 2002. All these invoices were issued to M/s. Sri Chirag Pvt. Ltd., Sri Lanka by overseas exporters who exported copper scrap to M/s. Sri Chirag Pvt. Ltd. at prices in the range of US$ 770 to 1100 PMT. The copies of the bills of entry filed in Sri Lanka by M/s. Sri Chirag Pvt. Ltd. to clear the copper scrap covered by the above invoices have also been produced with Annexure-2 to the miscellaneous application. The learned counsel submits that these documents covered by Annexure-2 to the miscellaneous application would clearly establish that, during the period of dispute as also in the near past, the Sri Lankan company had actually imported copper scrap at prices in the range of US$ 770 to 1100 PMT and, therefore, there is no question of undervaluation of the raw material by the Sri Lankan company to keep its percentage within 65% of the FOB value of the finished goods (remelted copper ingots) exported to the appellant.
11. Moving the second miscellaneous application No. 379/11, the learned counsel submits that the appellant and some other Indian importers had imported several consignments of remelted copper ingots from Sri Lanka both before and after the period of dispute with a value addition of 35%. Exhibit-A annexed to the miscellaneous application is a list of the bills of entry covering such import of remelted copper ingots for the period subsequent to the period of dispute and the same is accompanied by copies of all the bills of entry. Exhibit-B annexed to the application is a copy of the letter dated 4.2.2004 submitted by the appellant to DRI as covering letter for a statement of imports of copper scrap by M/s. Sri Chirag Pvt. Ltd. for the period December 2001 to May 2002. The said statement of imports has also been produced and the same would disclose the average price of copper scrap imported by M/s. Sri Chirag Pvt. Ltd. during the said period to be US$ 868.66 PMT. The counsel further points out that the average price of remelted copper ingots imported into India from Sri Lanka as per Exhibit-A ibid. is approximately US$ 1340 PMT. On this basis, it is pointed out that the average value of copper scrap imported by M/s. Sri Chirag Pvt. Ltd. is less than 65% of the average value of the remelted copper ingots imported from them by the appellant.
12. The learned counsel, therefore, submits that, for a correct decision on the substantive issue in the present case, it is necessary that all the documents produced by the appellant along with the two miscellaneous applications be received and admitted as evidence. He prays that the applications be allowed.
13. The learned consultant for the Revenue reiterates the findings of the adjudicating authority. He has also produced excerpts from LME Bulletin to show that the prices of copper scrap in an Asian market (Hong Kong free market) during the period of dispute were much higher than US$ 1000 PMT indicated in the Cost Statement. His endeavour is to show that copper scrap was heavily undervalued in the Cost Statement so as to keep the percentage of imported raw material below 65% of the FOB value of the finished product (remelted copper ingots) exported from Sri Lanka to the appellant in India. In this connection, the learned consultant has also attempted to show that the appellant is related to M/s. Sri Chirag Pvt. Ltd. and that the C.O. Certificate was obtained by the Sri Lankan exporter only to benefit the appellant. Referring to the Boards circular, the learned consultant has expressed the view that the assessing authority, which assessed the relevant bills of entry, was not bound by the circular. In this connection, he claimed support from Varsha Plastics Pvt. Ltd. vs. UOI 2009 (235) ELT 193 (SC), wherein the Supreme Court examined the legality and validity of a Standing Order issued by the Chief Commissioner of Customs, Mumbai with regard to valuation of plastic items and held that the Standing Order had only to be read as guidelines to the assessing authority and that the said authority in its quasi-judicial function had to take independent view. He has also relied on Hindustan Motors Ltd. vs. UOI 2000 (117) ELT 32 (Del.), wherein it was held by the High Court that a circular issued by the Board under Section 37B of the Central Excise Act could not interfere with or take away quasi-judicial function of adjudicating authorities. He has also referred to Laxmi Machine Works Ltd. vs. UOI 1992 (57) ELT 211 (Mad.), wherein the High Court held that a circular issued under Section 37B ibid. could not interfere with the powers of a quasi-judicial authority in so far as the quasi-judicial authority applied the statutory provisions. The learned consultant for the Revenue has thus endeavoured to justify the adjudicating authority in the present case, which did not follow the Boards Circular No.73/2003-Cus. ibid. in the matter of dealing with the C.O. Certificate.
14. On the miscellaneous applications filed by the appellant, the learned consultant submits that all the documents produced therewith were available when the appeal was filed. He submits that the appellant has not offered any explanation as to why these documents were not produced with the appeal. It is submitted that none of the documents now produced by the appellant is liable to be admitted under Rule 23 of the CESTAT (Procedure) Rules.
15. After considering the rival contentions, we are of the view that the case is fit for remand to the adjudicating authority. The substantive question before the learned Commissioner was whether the appellant was entitled to the benefit of Notification No.26/2000-Cus. dated 1.3.2000 (as amended) in respect of the remelted copper ingots imported by them from M/s. Sri Chirag Pvt. Ltd., Sri Lanka during the period March to August 2002. The goods were covered by the Table annexed to the Notification and the same were imported through the Indian port specified in the Notification. One condition which was required to be complied with by the importer was that they should prove to the satisfaction of the Deputy/Assistant Commissioner of Customs, in accordance with the Determination of Origin Rules published under Notification No.19/2000-Cus. (NT) dated 1.3.2000, that the goods, in respect of which exemption was claimed, were of the origin of Sri Lanka. The adjudicating authority proceeded to ascertain whether the importer/appellant complied with the said condition in accordance with the Determination of Origin Rules. Though it rightly noted that Rules 5(b), 7(a) and 8 were applicable to the subject-goods, it apparently erred in applying these provisions correctly to the facts and evidence available on record. The value of copper scrap (raw material) imported into Sri Lanka was taken as US$ 1100 PMT and the export price of copper ingots as US$ 1361 PMT for the period of dispute and, on this basis, the value of raw material as a percentage of FOB value of the finished goods was worked out at 80.82%, much above the maximum limit of 65% prescribed under the Rules. Accordingly, the value addition in the product manufactured in Sri Lanka and exported to India was found to be much less than the minimum limit of 35% prescribed under the Rules. It appears from the show-cause notice that a Director of the appellant-company had, on 4.2.2004, produced a statement of imports of copper scrap by M/s. Sri Chirag Pvt. Ltd., Sri Lanka for the period December 2001 to May 2002, which indicated the unit price of the raw material in the range of US$ 770 to 1100 PMT. Apparently, copies of certain import documents and export documents of the Sri Lankan company were also produced. The impugned order does not indicate that these documents produced by the appellant were considered by the Commissioner. We also note that the appellant had contended before the adjudicating authority that it was not open to the department to question the correctness of the percentage of raw material (64.96% of FOB value of remelted copper ingots) shown in the C.O. Certificate, on the basis of the Cost Statement dated 14.3.2003. It was contended that the data contained in the Cost Statement submitted to the Sri Lankan authorities on 14.3.2003, i.e., long after the period of dispute, could not be reliable. We find that this objection raised by the party was not addressed by the adjudicating authority.
16. The appellant heavily relied on the Boards Circular No.73/2003 dated 13.8.2003 and urged the adjudicating authority to accept the C.O. Certificate issued by the Sri Lankan authorities. The learned Commissioner dismissed this plea by observing that the circular was issued because of concerns that there was a rise in imports of copper only because of circumvention of value addition norms by some unscrupulous traders. We have perused the circular, which was issued by CBEC in view of the surge of exports of copper ingots from Sri Lanka to India from 1775 MTs in 2001 to 47430 MTs in 2002. The Board noted that the unprecedented rise in exports from Sri Lanka to India was not due to genuine value addition of 35% in Sri Lanka but due to circumvention of value addition norms by some unscrupulous traders. The adjudicating authoritys observation to this effect appears to be correct. However, the adjudicating authority overlooked the operative part (para 2) of the Boards circular, which reads as follows:-
2. The Sri Lankan side has been requested to put an end to the export of copper strips and profiles immediately, and other items of copper (other than copper strips and profiles) within a period of six weeks from 18th July, 2003. However, the Origin certificates issued by Sri Lankan authorities on these items will continue to be honored till the time further instructions are issued from the Board. The learned counsel for the appellant has claimed the benefit of the Boards instructions by submitting that the C.O. Certificate in question is also liable to be honoured by the Customs authorities in terms of the Boards instructions. The consultant for the Revenue has not claimed that the above instructions of CBEC were subsequently rescinded or modified to the detriment of the appellant. But, claiming support from Supreme Court/High Court decisions, the learned consultant has argued to the effect that the adjudicating authority should not be influenced by the Boards circular. In our view, the circular should be seen as part of the Indian Governments endeavour (a) to prevent circumvention of value addition norms by unscrupulous traders and (b) to ensure smooth working of the Free Trade Agreement by advising the assessing authorities in India, as an interim measure, to accept C.O. Certificates issued by Sri Lankan authorities. The adjudicating authority is expected to act in aid of such governmental endeavours. The case law cited by the learned consultant is, therefore, not applicable to this case. Hence, prima facie, the appellant is entitled to claim the benefit of the Boards circular dated 13.8.2003. This claim was not properly examined by the Commissioner.
17. We are not impressed with the LME evidence produced by the consultant, as we are at a loss to understand as to how the prices in Hong Kong market are relevant to the case in hand. Further, to our mind, the argument that the value addition in Sri Lanka during the material period could not be more than 10-15% for want of manufacturing facility in that country is just an ipse dixit.
18. All the documents produced by the appellant along with the two miscellaneous applications are unauthenticated xerox copies and, therefore, the documents cannot be admitted. The counsel for the appellant has submitted that the original documents are available and can be produced if permitted. As we are inclined to remand the case to the Commissioner, the party can produce the original documents before him. In so far as the miscellaneous applications are concerned, the same are only liable to be rejected inasmuch as all the documents sought to be brought on record are unauthenticated photocopies. The applications are rejected. It is open to the appellant to produce all the original documents before the Commissioner and establish that the country of origin in this case was correctly determined in accordance with the Determination of Origin Rules.
19. For all the reasons stated hereinbefore, we set aside the impugned order and allow this appeal by way of remand with a request to the Commissioner to undertake de novo adjudication of the dispute in accordance with law after giving the party a reasonable opportunity of adducing evidence and of being personally heard.
20. The appeal and the miscellaneous applications are disposed of as above.
(Operative part of the order pronounced in Court) (P.R. Chandrasekharan) Member (Technical) (P.G. Chacko) Member (Judicial) tvu 1 18