Gujarat High Court
The Commissioner Of Customs vs Ultratech Cement Ltd on 30 July, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1488 of 2007
With
R/TAX APPEAL NO. 1489 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
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Approved for Reporting Yes
No
✔
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THE COMMISSIONER OF CUSTOMS
Versus
ULTRATECH CEMENT LTD.
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Appearance:
MR UTKARSH R SHARMA(6157) for the Appellant(s) No. 1
MR ANAND NAINAWATI(5970) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 30/07/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Utkarsh Sharma for the appellant and learned advocate Mr. Anand Nainawati for the respondent.
2. By separate orders dated 21.07.2008 in Tax Appeal No. 1488 of 2007 and Tax Appeal No. 1489 of 2007, the appeals Page 1 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined were admitted on the following substantial questions of law:
"(i)Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that respondent (Importer) has not violated condition no. (vii) of Notification No. 43/2002-CUS dated 19.04.2002?"
3. So far as the Tax Appeal No. 1489 of 2007 is concerned, the same arises from the common order of the Customs Excise and Service Tax Appellate Tribunal, Ahmedabad (For Short "the Tribunal") rendered in Customs Appeal No. 460 to 463 of 2006 against the Order-in-Original dated 31.12.2005 whereby the adjudicating authority has imposed penalty of Rs.1.0 crore under Section 112(a) of the Customs Act, 1962 (For Short "the Act") on the respondent - Narmada Cement Company Limited. Therefore, the substantial question of law framed in Tax Appeal No. 1489 of 2007 is required to be framed as under :-
"(i) Whether on the facts and circumstances of the case, the Tribunal was justified in law in holding that the respondent is not liable to pay penalty in view of its finding that the Importer has not violated condition no. (vii) of Notification No. 43/2002-CUS dated 19.04.2002?"
4. The brief facts of the case are as under :- Page 2 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025
NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined 4.1. M/s. Ultratech Cement Limited (For short "UCL") is manufacturer of cement/cement clinker and is also exporter of cement clinker/cement. M/s. Narmada Cement Company Ltd.
(For Short "NCCL") is also manufacturer of clinker/cement and is a subsidiary of UCL. UCL applied for various advance licenses under the Advance License Scheme for import of duty free coal to be used for manufacture of clinkers/cement for export as per the export obligation mentioned in such licenses. 4.2. UCL was granted the Advance Authorization Licenses stipulating the export obligation for export of clinkers/cement and were permitted to import duty free coal for manufacture of the clinkers/cement to meet with export obligation. UCL therefore, imported the coal as per Standard Inputs and Output Norms (SION) as per the Notification No. 43/2002-Customs dated 19.04.2002 as amended from time to time and utilized such duty free imported coal for manufacture of the final products i.e. cement clinkers and exported the same. 4.3. In addition to the consumption of duty free coal in its own factory, UCL dispatched duty free imported coal to its Page 3 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined subsidiary NCCL for manufacture of clinkers/cement based on an agreement. It appears that as per the terms and conditions of the agreement, NCCL was to utilize the duty free imported coal for manufacture of clinkers/cement so as to supply the same to UCL for further export only. Accordingly, UCL transferred the duty free imported coal raising debit notes on cost basis without addition of custom duty or profit for accounting purposes and NCCL after utilizing such duty free imported coal, manufactured clinkers/cement and transferred to UCL for further export. 4.4. The appellant - Commissioner of Customs issued the show cause notice dated 18.06.2005 upon UCL for violation of condition (vii) of Notification No. 43/2002-Customs dated 19.04.2002 as amended from time to time, on the ground that UCL transferred/sold the duty free imported coal to NCCL which was not permitted as per the said condition. It was also alleged that name of NCCL was not mentioned as supporting manufacturer and hence transfer/sale of duty free imported coal was held to be liable for confiscation and benefit of Notification No. 43/2002 was denied. The show cause notice also proposed to levy penalty upon NCCL and its other officers. Page 4 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025
NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined 4.5. UCL by reply to the show cause notice contended that the transfer of the duty free imported coal to NCCL was not sale in any case the goods manufactured out of such transferred coal was exported by UCL. It was also contended that the show cause notice was time barred and non-inclusion of NCCL as supporting manufacturer of the appellant was only procedural one. The adjudicating authority by order dated 31.12.2005 held that there is violation of condition no. (vii) of Notification No. 43/2002-Customs dated 19.04.2002 as there was transfer of duty free coal by UCL to NCCL and even if the cement clinkers manufactured by NCCL is exported by UCL, condition no. (vii) of the Notification is violated as there was a sale of imported duty free coal by UCL to NCCL. It was also held that as there was suppression by UCL regarding the diversion of the coal to NCCL, the extended period of limitation under Section 28(1) of the Customs Act, would apply and therefore, the show cause notice was issued within such extended period and hence the same was not time barred.
5. Being aggrieved by the said order, five appeals were Page 5 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined preferred before the Tribunal who by impugned order dated 15.03.2007 held that there is no violation of condition no. (vii) of the Notification No. 43/2002-Customs as amended from time to time and appeal of the assessee was allowed on the said issue. The Tribunal however, remanded the matter before the adjudicating authority to consider the factual details regarding export obligation fulfilled by the UCL as there was an issue raised by the adjudicating authority that UCL has not exported the goods manufactured from imported coal which required verification as the Tribunal found that the adjudicating authority did not consider all the details as regards the mentioning of the file number on the export document and co-related the same to the import of coal made by them and did not consider the facts in correct perspective and was carried away by interpretation of condition (vii) of the Notification No. 43/2002-Customs.
6. Learned advocate Mr. Utkarsh Sharma appearing for the appellant Revenue submitted that once the Tribunal has restored the matter for verification of the export obligation of the cement clinkers/cement manufactured out of the duty free imported coal by the UCL, and upon such verification if it is Page 6 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined found that the export obligation is not met with then the finding of the Tribunal that there is no violation of condition (vii) of the Notification No.43/2002-Customs would be rendered negatory because in absence of the meeting with the export obligation it would lead to a conclusion that the duty free imported coal would have been sold in the market by the NCCL and, therefore, the conclusion arrived at by the Tribunal is required to be set aside and the entire matter ought to have been restored to the adjudicating authority without giving any findings as to whether there is violation of condition (vii) of Notification no. 43/2002- Customs or not.
6.1. Learned advocate Mr. Sharma invited the attention of the Court to the following findings recorded in the Order-in-Original to point out that the adjudicating authority after considering the analysis of facts on record has observed that NCCL had sold the clinkers manufactured out of the duty free imported coal in the market which clearly suggest that the duty free imported coal transferred by UCL was sold in market by NCCL which is overlooked by the Tribunal.
"7.1. I find that Ultratech have cited the decision of Hon. Page 7 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined Tribunal in case of M/s. Tetra Pak (I) Ltd. v. Commissioner of Customs, Nhava Sheva [Order No.A/409, 410/WZB/2005/C-III dated 01.04.2005 in support of its argument that failure to mention the name of supporting manufacture viz. NCCL in the licence(s) was not fatal to their entitlement to the benefit under Notification Nos. 43/2002-Cus and 94/2004-Cus. However, on comparing the facts, it is seen that unlike in the case of Tetra Pak (I) Ltd. where the entire production of K-film manufactured by Ecoplast out of Nucrel 3990 sold to it by Tetra Pak (I) Ltd. was exported by the latter, in the present case, NCCL also serviced domestic market with clinker/cement manufactured by it out of imported coal sold it by Ultratech (as per following details that were made available by NCCL:
Year Coal received (MT) Clinker Clinker dispatched (MT) Cement produce produced (MT) d (MT) From From To Sold in To grinding Ultratech other Ultratech market unit sources (for export 2002-03 91864 NIL 711899 637890 49722 33351 NIL From Sept.02 2003-04 164990 3182 1216010 815865 NIL 349088 49523 2004-05 (Up 157261 NIL 1022050 493992 NIL 347077 141623 to Dec.04
7. From the above table it was pointed out that for the period from September, 2002 to March, 2003 NCCL has sold 49722 metric tones of clinkers in the market which means that out of the duty free imported coal received from UCL which was 91864 metric tones, utilizing the said coal to manufacture clinkers which were sold in open market would result into sale of such duty free imported coal in the market. It was, therefore, submitted that there is clear violation of condition (vii) of Page 8 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined Notification No. 42/2002-Customs which stipulates "conditions
(vii) - that the said license and the material shall not be transferred or sold". It was, therefore, submitted that the Tribunal has overlooked the above factual finding arrived at by the adjudicating authority to come to the conclusion that the duty free coal imported by UCL and transferred to NCCL resulted into the violation of condition (vii).
7.1. It was, therefore, submitted that the impugned order passed by the Tribunal so far it is held that there no is violation of the condition (vii) is liable to be quashed and set aside and the question of law framed is required to be answered in favour of the Revenue as there is clear violation of said condition by the respondent assessee.
8. Per contra, Mr. Anand Nainawati appearing for the respondent submitted that the Tribunal has after considering the facts of the case has come to the conclusion that once the UCL has met with most of the export obligation in respect of advance licenses and has also redeemed the same by submitting the details of export obligation before the DGFT and, therefore, Page 9 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined the allegation of transfer/sale of the duty free imported coal would not be of any consequence as in view of the agreement between UCL and NCCL, UCL has transferred the duty free imported coal for manufacturing the cement clinkers/cement, which was in turn transferred by NCCL to UCL for further export to meet the export obligation. It was also submitted that it is not in dispute that the NCCL has returned back the clinkers cement to UCL after adjustment of the debit notes for the cost of the coal and transfer by raising debit notes would not amount to sale resulting into violation of condition no. (vii) of Notification No. 43/2002.
8.1. Learned advocate Mr. Nainawati in support of his submissions referred to the Export Import Policy 1997-2002, more particularly '7.3.' pertaining to Advance License which stipulates that licenses shall not be transferable even after completion of the export obligation. Attention of the Court was invited to the Notification No. 30/1997-Cus dated 01.04.1997 issued by the Customs Department and more particularly condition no. (vii) thereof to point out that by condition (vii) of the said Notification it was stipulated that the exempt material Page 10 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation or for replenishment of such materials. It was submitted that the said notification was further explained and diluted by Notification No. 36/1997-Cus dated 16.09.1997 in relation to the garment export so as to permit the exporter to discharge the export obligation by export of the resultant products and if any extra material is left which was permitted to be imported duty free then such material would be utilized for manufacture of other products and the exporter is not required to establish that the entire quantity of the raw material was used in manufacture of the resultant product.
8.2. In support of his submissions reliance was also placed on the decision of the Hon'ble Karnataka High Court in case of Commissioner of Customs, Bangalore v. Aditya Birla Nuvo Ltd., reported in 2021 (378) E.L.T. 42 (Kar.) wherein the Hon'ble Karnataka High Court has held as under :-
"7. Now we may advert to the first issue whether the respondent has violated the actual use condition as envisaged under Section Notification 30/1997. It is pertinent to note that none of the terms and conditions of Notification No.30/1997 envisage physical incorporation of Page 11 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined imported material in the goods that are exported towards fulfillment of export obligations. The aforesaid Notification grants exemption from the whole of the custom duty and whole of the additional duty to the 'materials' imported against an Advance Licence subject to conditions stipulated therein. The word 'material' has been defined in Explanation II to mean raw materials, components, intermediates, consumables, computer software and parts required for manufacture of resultant product specified in Part E of the said certificate. It is also pertinent to note that phrase 'required to manufacture' as stated in the Notification contemplates possible or intended use and not actual use as clarified in Circular No.36/97 dated 16.09.1997. Thus, the material need not be directly used in the manufacture of resultant product and proof of actual use is not a condition attached to the exemption Notification. The aforesaid position has been explained in the Circular 36/1997-Cus dated 16.09.1997 which was issued specifically in the context of difficulties faced by garment exporters as the custom field formations were insisting that nexus between export product and duty free material imported was required to be established. The imported goods need not be physically used in the manufacture of goods that are exported. Condition (vii) of Notification No.30/97-Cus permitted discharge of export obligation either by usage of imported duty free material or by replenishment material. The only requirement as per condition No.(vii) is that such inputs should not be sold or transferred in the market. In other words, the replenished inputs can be used in manufacture of other products and not necessarily incorporate in export of goods. Thus, from the aforementioned reasons, it is evident that the respondent has not violated the conditions of the Notification No.30/97- Cus and has rightly imported the material and has discharged its export obligations. The tribunal therefore, in the impugned order has rightly held the Circular to be applicable in the case of the assessee."
8.3. With regard to the transfer of the goods by UCL to NCCL, learned advocate Mr. Nainawati has referred to and relied upon the decision of the Hon'ble Bombay High Court in case of Page 12 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined Commissioner of Customs (EP), Mumbai v. Galaxy Surfactants Ltd., reported in 2023 (384) E.L.T. 357 (Bombay), wherein the Hon'ble Bombay High Court in similar circumstances when goods were transferred from one unit to another unit has held that there is no violation of condition no.
(vii). Learned advocate Mr. Nainawati drawing the analogy submitted that when UCL has transferred the duty free imported coal to its subsidiary NCCL, it cannot be said that there is violation of condition (vii) as rightly held by the Tribunal and relied upon the following observations made by the Hon'ble Bombay High Court.
"21 The said exemption Notification which exempts customs duty on material imported into India against an Advance licence with actual user condition is subject to the condition that the said materials imported are covered by an Actual User Duty Exemption Entitlement Certificate issued by the Licencing Authority as well as the condition that the exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of the export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person. This means that the exempt materials can either be utilized for discharge of an export obligation or for replenishment of exempt materials and the exempt materials so replenished cannot be sold or transferred to any other person. It is not in dispute that the export obligation has been met. It has been argued on behalf of Appellant that the exempt materials have been diverted to M-3 unit at Tarapur, instead of V-23 Taloja unit and that, therefore, there has been a transfer resulting in breach of Page 13 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined condition (vii). It is not in dispute that the V-23 Taloja unit as well as the M-3 Tarapur unit are units of the Respondent. The Respondent is a person' as defined in paragraph 3.37 of the EXIM Policy where a company is also included in the said definition. Actual User (Industrial)' is defend to mean a person who utilizes the imported goods for manufacturing in his own industrial unit or manufacturing for his own use in another unit including a jobbing unit. The Respondent is the person and V-23 and M-3 are the units are of the same person viz. The Respondent and if the imported duty free goods are utilized for his own use in another unit (viz. M-3 at Tarapur unit) then going by the definition of Actual User (Industrial)' in paragraph 3.5 of the EXIM Policy, the question of transfer to any other person would not arise.
22 Therefore, the question of breach of paragraph 7.4(ii) of the EXIM Policy which clearly provides that Advance Licences and/or materials imported thereunder shall not be transferable even after completion of the export obligation would not arise. Also, the question of breach of paragraph 7.16 of the EXIM Policy which pertains to actual user condition and provides that the licences granted under this scheme are subject to actual user condition till endorsement of transferable by the Licencing Authority would not arise, as there has been no transfer in the instant case as the materials have been received by one of the Units of the Respondent. Paragraph 7.17 of the EXIM Policy relied upon by Mr. Sham Walve, the learned Counsel for the Appellant, merely provides that the licence holder has the option to have the material processed through any other manufacturer or jobber and that the licence holder shall be solely responsible for the imported items and fulfillment of the export obligation. The Respondent has used the imported material for manufacturing in its own M-3 Unit at Tarapur and there is also no dispute as regards fulfillment of the export obligation. Therefore, in our view, the contentions of the learned Counsel for the Appellant appear to be misplaced. The arguments of Mr.Walve with respect to Part A and Part B of the said licences as well as the other arguments on facts do not persuade us to take any other view in the matter.
8.4. It was, therefore, submitted that the Tribunal has Page 14 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined remanded the matter only to verify the fulfillment of the export obligation met by UCL as per condition no. (vii) of Notification No. 43/2002 so as to enable the assessee to demonstrate before the adjudicating authority that all conditions of Notification No. 43/2002 are met with in addition to the findings arrived at by the Tribunal that there is no violation of condition no. (vii) as there is no transfer or sale of the material imported by UCL namely, the duty free imported coal. It was, therefore, submitted that the contentions raised on behalf of the appellant that the Tribunal ought not to have given a finding that there is no violation of condition no. (vii) inasmuch as the Tribunal has restored the matter before the adjudicating authority only to verify the factual aspect of the export obligation met by UCL as well as redemption of such advance licenses by the DGFT.
8.5. Learned advocate Mr. Nainawati further submitted that the Tribunal has relied on the decision in the case of Tetra Pak (I) Ltd. and Shri Kumar Iyer vs Commissioner of Customs reported in 2005 (190) E.L.T 257(TRI-Mumbai) which is not challenged by the Revenue and has achieved finality which would be squarely applicable in the facts of the case and, Page 15 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined therefore, it cannot be said that the Tribunal has committed an error in holding that there is no violation of condition no. (vii) of Notification No. 43/2002-Customs.
8.6. It was, therefore, further submitted that in view of the findings arrived at by the Tribunal that there is no violation of condition no. (vii) of Notification No. 43/2002-Customs, the penalty imposed upon NCCL was also rightly deleted.
9. Having heard the learned advocates for the respective parties and considering the facts of the case, in order to answer the substantial questions of law admitted by this Court it would be germane to refer relevant clauses of Notification No. 43/2002-Customs which reads as under :
"19th April, 2002 NOTIFICATION NO.43/2002-CUSTOMS In exercise of the powers conferred by sub-section(1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts materials imported into India, against an Advance Licence issued in terms of sub-paras (a) and (b) of paragraph 4.1.1 of the Export and Import Policy (hereinafter referred to as 'the said licence), from the whole of the duty of customs leviable thereon which is specified in the First Schedule tot he Customs Tariff Act, 1975 (51 of 1975), and from the whole of the additional duty, safeguard duty and anti-dumping Page 16 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined duty leviable thereon respectively under sections 3, 8 and 9A of the said Customs Tariff Act, subject to the following conditions namely :-
"(v) that the export obligation as specified in the said licence (both in value and quantity terms) is discharged within the period specified in the said licence or within such extended period as may be granted by the Licensing Authority by exporting resultant products, manufactured in India which are specified in the said licence and in respect of which facility under rule 18 and 19 of the Central Excise Rules, 2002 has not been availed.
(vii) that the said license and the materials shall not be transferred or sold."
9.1. It is not in dispute that UCL had transferred the duty free imported coal under Advance Authorization License to its subsidiary Company NCCL by raising debit note excluding custom duty or profit for accounting purpose and NCCL utilizing such imported coal manufactured clinkers/cement and transferred the same to the UCL for export to meet the export obligation as per condition of Authorization License. The Tribunal after considering the facts of the case has held as under :-
"5. We have considered the detailed and lengthy submissions made by both sides and perused the records. The fact that NCCL is a subsidiary of UCL is not disputed by revenue. It is also undisputed that the appellant UCL was holding valid advance licenses for import of duty free coal Page 17 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined as per the norms of SION. It is also undisputed that UCL had committed export obligations against the said advance licenses to DGFT. The conditions of advance licenses are to be met by the UCL being the holder of such licenses. It is on record that UCL had met with the most of the export obligations in respect of most of the advance licenses and have also redeemed the same and in respect of balance licenses they have submitted the details of export obligation to the DGFT authorities. It is also undisputed that UCL had transferred such imported duty free coal to NCCL and raised debt notes for the cost of the coal without inclusion of the customs duty and other duties. It is also seen from records that NCCL had returned back clinker/cement back to UCL after adjustment of the debit notes for the cost of coal. Revenue has taken a view that such transfer and raising debits notes would amount to sale and violation of notification. The question, which arises for our consideration, is that whether the transfer of imported coal duty free by UCL to NCCL could be considered as violation of the condition no. (vii) of Notification No. 43/1997-Cus grants exemption from customs duties and other duties subject to the fulfilling of the conditions in the notification. We are concerned only with clause (vii) of the said notification, which we read :
"(vii) that the said licence and the materials shall not be transferred or sold;"
It can be noticed that above reproduced clause of notification No. 43/1997-Cus lays down a condition that duty free imported goods should not be sold or transferred. The restriction of clause (vii) has to be viewed from the intention of this condition being incorporated into notification. To our mind this condition was to discourage the importers from importing duty free goods and diver the same to local markets and try to misuse the advance license scheme. In the case before us it is seen from records that appellant UCL has met with export obligations and have redeemed the licenses by exporting clinker/cement manufacture by themselves and NCCL. In such a situation it cannot be said that by transferring duty free imported coal to NCCL there was violation of notification by UCL. We find that the very same clause in the earlier notification was in dispute before Page 18 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined the Tribunal in the case of Tetra Pak India Ltd. (supra), Relevant paragraphs are as under :
"(g) Whatever quantity of goods were so transferred, for conversion into K-film, have been accounted & received back. That fact is not in dispute. The subsequent use in Terra Pack Aseptic Packaging and Export with the value additions being met on the 22 Advance licenses also is not doubted. The Standard Import Output norms (SION for short) do not stipulate an exclusive actual user condition in the importers/ Licence holders premises.
The conditions of notifications No. 31/97, 48/2000 & 46/2002 have been met. That notifications do not exempted CVD is not material since Terra Packs attract excise duty & are covered by MODVAT Scheme & imports under that notification are exempt from SAD. There is no anti dumping duty on Ethyl Acrylic Copolymer, the SION norms nor violated. Then the proposed demand of Custom Duty and CVD duty made on Nucrel 3990 imported and which was sold to ECOPLAST and repurchased as K-film and brought to appellants premises and consumed cannot be upheld.
(h) The words "sold or transferred" as used in the notifications will not cover a situation where duty free imported material is Out Sourced for conversion amounting to manufacturer or other wise emergence of intermediate products which are returned to a Licence holder for further use /export. The entire DEEC is a schedule to the Customs Notifications and an integral part thereof. Part B of the same relates to an ancillary of export product manufactured and if the words "Sold /transferred" are literally construed, even compliance to Part B would be then a violation of condition (VII) of the notification & of Para 4.16 & 4.17 of the Policy. Such an interpretation cannot therefore be accepted, since a harmonized reading would be required in these matters as stipulated in Aphatic Pharmaceuticals case (1989 (44) ELT 613 (SC)). Therefore, giving of the material to ECOPLAST and its receipt back cannot be a violation.
(i) The decision in Sehgal Kntiwear case, relied by the Commissioner, has been suitably distinguished by the Ld. Page 19 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined Advocate on facts of exports having been made by Independent manufacturer and the fact of the history of EXIM POLICY & Orient at Experts decisions was not before that bench of the Tribunal. We find substance in this submission to hold that Sehgal Knitwear decision cannot apply in the facts herein. The Customs Notifications have to be interpreted to advance the Policy Directions of EXIM POLICY. The Commissioners finding in para 6 of the impugned order page 20 thereof that History of notification & Policy are irrelevant when the language of the notification is Plain & the existing notification has to be read misses the point of interpreting the reason for granting the manufacturing / processing. Out Sourcing condition relaxed as evident from this History. History is a good teacher and those who ignore the same do so at their own risk. We cannot ignore the lessons from the History in this case. The Ld. Advocate has demonstrated how History in this case is relevant to advance the interpretation being arrived and ignoring the same would defeat the Export Incentive Policy, which is to be understand in its totality and not in a manner isolated with blinkers on to interpret any the Customers Notifications."
6. As against this revenue relied upon the case law of Sehgal Knitwear - 2002 (143) E.L.T. 653 and it can be seen that the decision in that case was taken in respect of the provisions of the policy during the relevant time, there is strong force in the arguments of the learned advocate that the Division Bench in the case of Tetra Pak Indian Ltd., impliedly overrules the Sehgal Knitwear case. The other two case laws of viz. Macnair Exports (P) Ltd. (2002 (143) E.L.T. 167 and Akai Impex Ltd. 2003 (156 E.L.T. 700 relied upon by the revenue may not help the case for the reason that in those two cases there was a categorical finding that the imported duty free goods were diverted and by the assessee in violation of the clauses of notification. Whilst in this case before us, there is neither an allegation nor a whisper that appellant UCL had diverted the duty free imported coal in local market.
7. In view of this and in the facts and circumstances of the case, respectfully following the decision of the Tribunal in Page 20 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined the case of Tetra Pak Indian Ltd., we hold that there is no violation of the clause (vii) of Notification No. 43/97-Cus as amended from time to time. Accordingly, the appeal of the appellant on this issue is allowed."
10. From the above finding of fact arrived at by the Tribunal, it is pertinent to note that the Tribunal has considered its decision in the case of Tetrapak India Limited (supra) and applied to the facts of the present case by distinguishing the reliance placed by the Revenue on the decision in case of Sehgal Knitwear v. Commissioner of Customs, New Delhi reported in 2002 (143) E.L.T. 653 and other similar decisions where admitted facts were to the effect that the duty free imported goods were diverted resulting into violation of the clause (vii) of the Notification.
11. Regarding the contention raised on behalf of the Revenue that the Tribunal has remanded the matter to the respondent Assessing Officer to verify the export obligation discharged by the UCL is concerned, it would be germane to refer to the findings recorded by the Tribunal as under :
"8. As regards the claim of the appellant that the adjudicating authority had not divulged the working as to how he had come to conclusion that appellant had not consumed the duty free imported coal for the purpose of export, we feel that this issue needs to be verified from the Page 21 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined voluminous records. We find that the statement prepared by the adjudicating authority to come to conclusion that the appellant UCL has not exported goods manufacture from imported coal may have to be re-looked into for the reason that on test check we find the adjudicating authority has not considered all the details as regards the mentioning of the file no. on the export documents and co-related the same to the imports of coal made by them, as claimed by the advocate. Further the claim of the advocate that almost all the advance licenses are redeemed has to be looked into by the adjudicating authority. Learned advocate submits that, if needed, they are ready and willing to demonstrate all the details of duty free imports made and corresponding exports, to the lower authorities, if the appeal is remanded for the limited purpose. Learned SDR has also no objection to this proposition. We find strong force in the contention of the advocate on this point. As we have already noted that on test check we found that the lower authorities did not consider the facts in correct perspective and were carried away by the interpretation of the clause (vii) of the notification no. 43/97-Cus. It is also not clear whether the appellant redeemed all the advance licenses after fulfilling the export obligations. This factual aspect has also to be gone into by the lower authorities, as if the appellant UCL has fulfilled all the export obligations then there would no violation of the infringement for demand of the duty and other consequential actions. We are of the view that, only for this limited issue the matter has to be remanded back to the original authority.
9. Accordingly, in the facts and circumstances of the case, holding the appellants have not violated the condition no.
(vii) of notification no. 43/97-Cus as amended from time to time, we allow the appeal by way of remand to the original adjudicating authority to look into the claims of the appellants that they have utilized the duty free imported coal as per SION in the manufacture of the clinker/cement exported by them, in totality. The adjudicating authority will afford a reasonable opportunity of personal hearing before deciding the issue and the appellants will be at liberty to marshal all the evidences in their support."
12. From the above findings of the Tribunal, it is discernible Page 22 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined that the Tribunal has restored the matter only to verify the aspect of export obligation fulfilled by the UCL as per clause (v) of Notification No. 43 of 2002 therefore there is no conflict arising from the impugned order of the Tribunal as tried to be demonstrated by the learned advocate for the appellant because as per the facts emerging from record and as per the findings of fact arrived at by the Tribunal, it is not in dispute that the UCL has transferred duty free imported coal to NCCL for the purpose of manufacture of cement clinkers/cement and NCCL transfer the same to UCL for further export and therefore there is no transfer/sale of the imported duty free coal instead of manufacturing clinker/cement by UCL, the same was done on job work basis by NCCL which is also found as a matter of fact by the Tribunal as UCL has issued debit note by excluding custom duty and profit upon the NCCL and NCCL after adjusting such debit note has transferred the cement clinkers to UCL for further export. In such circumstances, the analogy adopted by the Hon'ble Bombay High Court that the goods were transferred to one unit instead of the unit for which the such goods were imported by the assessee in the said case, the Page 23 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined same analogy would apply in the facts of the present case also as the duty free imported coal was transferred by UCL to NCCL only for the purpose of manufacture of cement clinkers which in turn were transferred back to UCL by NCCL for the export purpose so as to meet with the export obligation by UCL.
13. Paragraph '7.3' of the Export Import Policy 1997-2002 reads as under :
"Advance License 7.3. (a) Advance Licence is issued for duty free import of inputs, as defined in paragraph 7.2, subject to actual user condition. Such licenses (other than Advance Licence for deemed exports) are exempted from payment of basic customs duty, additional customs duty, and dumping duty and safeguard duty, if any." However, Advance Licences for deemed export shall be exempted from basic customs duty and additional customs duty only. Such licences are issued to :-
(i)Manufacturer exporter or Main contractor in case of deemed exports.
(ii)Merchant exporter where the merchant exporter agrees to the endorsement of the name(s) of the supporting manufacture(s) on the relevant DEEC Boom and in the case of deemed exports, sub-
contractor(s) whose name(s) appear in the main contract.
Such licences and/or materials imported thereunder shall not be transferable even after completion of export obligation. Such licences shall be issued with a positive value addition. However, for exports for which payments are not received in freely convertible currency, the same shall Page 24 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined be subject to value addition as specified in Appendix-39 of Handbook (Vol.1). 1997-2002.
Advance Licence shall be issued in accordance with the Policy and procedure in force on the date of issue of licence and shall be subject to the fulfillment of a time bound export obligation as may be specified.
The facility of Advance Licence shall also be av available where some of the inputs are supplied free of cost to the exporter. In such cases, for calculation of value addition, the notional value of the free of cost inputs along with value of other duty free inputs shall be taken into consideration."
14. From the above it appears that the Advance licences and materials imported thereunder is prohibited from being transferred even after completion of the export obligation. However, there is no embargo in the policy for utilization of the materials imported after completion of the export obligation to manufacture the other product which may be sold in the open market. In the facts of the case, once UCL has met with the export obligation and the Advance Licence is redeemed by the DGFT, question as to whether the duty free imported coal is utilized for production of other products is of no consequence inasmuch as it is not in dispute that the duty free imported coal was neither transferred or sold by UCL in the open market except transferring the same to NCCL for the purpose of Page 25 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined manufacture of cement clinkers which in turn were transferred to UCL for further export. This aspect is further fortified by Notification No. 36 of 1997 dated 16.09.1997 for clarification of in respect of difficulties being faced by the Garment Exporters at the time of logging of their exports in DEEC Book wherein it is observed as under
"2. Instances of this type are being raised giving the impression that the staff in the Custom Houses are not aware of or are not implementing, Board's instructions contained in Circular Nos. 4/93, dated 04.03.1993, 1/94, dated 05.01.1994 and 34/94, dated 12.12.1994 and Member (customs) letter F. No. 605/373/96/DB-K, dated 16.01.1997. These instructions clearly spell out that correct interpretation of the words "raw-materials required for use", does not mean that raw-materials must be physically incorporated. It was also clarified with the help of examples that inputs may be allowed even if they are not exactly those used in the export product but provided the inputs are commercially known to be useable in the product exported.
3. Further, it appears that at the stage of logging of Part-II of DEEC Book, the exporters have, in some cases, been asked to establish that the entire quantity of raw- materials, mainly fabric, was used in the manufacture of Garment entered for export. Attention in this regard is invited to Exemption Notification Nos. 30/97 and 31/97 both dated 01.04.1997 (QBAL). Para (V) of both the Notifications only requires that the exporter must discharge his Export Obligation by exporting the 'resultant products" which are specified in Part (E) of Duty Entitlement Exemption Certificate. The Part (E) specifies both, the quantity and FOB value of export products which has to be exported as also the quality and technical characteristics of the export product. So long as the exported product meets the requirements indicated in Part (E) of DEEC Book, Customs House should not go into any extraneous questions Page 26 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined pertaining to the size of the Garment and utilisation of total quantity of fabric permitted for import in Part-I-C of DEEC Boo. The satisfaction of Assistant Commissioner at the stage of logging is not doubt with regard to the conditions specified in Exemption Notification, but it must be exercised without asking for information which goes beyond the ingredients specified in the Exemption Notification and in the format of DEEC Book appended to the Notification."
14.1. The above clarification was required so as to meet with the clause (vii) of Notification No. 30 of 1997 dated 01.04.1997 for General Exemption which reads as under:-
"(vii) exempt materials shall not be disposed of or utilised in any manner except for utilisation in discharge of export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person;"
15. On conjoint reading of both the notifications, it appears that there is no prohibition against utilization of the imported material after the export obligation is met as per the Advance Authorization License.
16. In view of the above analysis of the Policy as well as various Notifications, it cannot be said that the Tribunal has committed any error in holding that the respondent importer i.e. UCL has not violated condition (vii) of Notification No. 43/2002- CUS dated 19.04.2022. We, therefore, the answer the Page 27 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025 NEUTRAL CITATION C/TAXAP/1488/2007 JUDGMENT DATED: 30/07/2025 undefined substantial question in favour of the assessee and against the Revenue and in view of such answer, the penalty levied upon NCCL would not survive and, therefore, we also answer the re- framed question in Tax Appeal No. 1489 of 2007 in favour of the assessee and against the Revenue.
17. Both the appeals are accordingly dismissed. No order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) phalguni Page 28 of 28 Uploaded by PHALGUNI PATEL(HC00175) on Mon Aug 18 2025 Downloaded on : Fri Aug 22 22:04:31 IST 2025