Custom, Excise & Service Tax Tribunal
Lactose (I) Ltd vs Commissioner Of Customs (Acc & Export) ... on 1 April, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. C/85561/2015-Mum and Appeal No. C/88889/2013-Mum (Arising out of Order-in-Appeal No. MUM-CUSTM-AXP-122 & 123-13-14 dt.11.07.2013 passed by the Commissioner of Customs (Appeals), Air Cargo Complex, Mumbai-III ) For approval and signature: Honble Mr. Anil Choudhary, Member (Judicial) Honble Mr. P.S. Pruthi, 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 : No
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?
=============================================================
Lactose (I) Ltd.
:
Appellant
VS
Commissioner of Customs (ACC & Export) Mumbai
:
Respondent
Appearance
Shri Prakash Shah, Advocate with
Shri J.C.Patel, Advocate and
Shri Prasad Paranjape, Advocate for Appellant
Shri M.S. Reddy, Deputy Commissioner (A.R) for respondent
CORAM:
Mr. Anil Choudhary, Member (Judicial)
Mr. P.S. Pruthi, Member (Technical)
Date of hearing : 01/04/2015
Date of pronouncement : /2015
ORDER NO.
Per : P.S. Pruthi
M/s Lactose India Ltd, the appellant, have filed appeals against the impugned order in appeal dated 18.7.2013.
2 The appellant imported consignments of lactose against DFIA license No 0310597347 dated 18.10. 2010 issued against the export of biscuits and against DFIA License No 0310662287 dated 25.10.2011 against export of Metamitron and filed ex-bond Bills of Entry filed in April 2013. Sugar is permissible as one of the inputs allowed to be imported against the export of biscuits under SION norm E-5. Under DGFT circular No 013/2011 dated 31.1.2011, import of lactose/Maltose/ sodium saccharine and other artificial sweetening agents is not allowed under SION E-5 against the input item no 2, that is sugar. The appellants plea before the adjudicating authority that the license had been issued to M/s Parle Products Private Limited (original manufacturer exporter) prior to the circular was rejected. The authority held that the date of shipment, in this case 2013, is the relevant date for applicability of a license. The authority also rejected the contention that the DGFT clarification letter dated 31.7.2008 stated that sugar in the form of lactose can be imported against the DFIA license . And also did not consider Board clarification vide circular 46/2007 dated 20. 12. 2007 and DGFT policy circular 50 (RE 08) dated 6. 1. 2009 that co-relation of inputs with import products under DFIA is not required except in the case of 22 sensitive items. In appeal before the Commissioner appeals, the appellant contended that technical authorities such as National Sugar Institute confirmed that lactose can be considered as another sugar (milk sugar); further that para 4.2.2b of the policy states that DFIA is issued as per the policy and procedure prevailing on the date of issue of authorisation; therefore date of bill of lading cannot be considered while deciding the validity of the policy circular. The Commissioner appeals held that the decision of DGFT is final and binding in terms of para 2.3 of Foreign trade Policy and that clarification circulars are retrospective in nature. Thus the benefit of duty free import in terms of notification number 98/2009 under the DFIA was denied.
3 Heard both sides and considered the submissions.
4. The ld counsel for the appellant stated that lactose is milk sugar and covered by the entry sugar under SION. There is no basis to hold that Sugar in the SION norms refers to cane sugar alone. The circular of 2011 merely says that only cane sugar is permitted without explaining why other forms of sugar are not permitted. And the amended SION norms E 5 which substituted the entry Sugar by the entry cane sugar was issued only under DGFT Public notice No 93 dated 1.2.2012. Therefore prior to this date the policy circular relied upon by Revenue does not have the effect of amending the SION. He relied on the decision of the Madras High Court in the case of Hoeweitzer Organic Chemical Co Ltd versus DGFT 2013 (294) ELT (Mad) which held that Policy circular no 13 dated 31.01.2011 will have no effect in respect of licences already issued. The para 4.2.2b of the Policy lays down that the DFIA will be issued in accordance with Policy and procedure in force on date of issue of Authorization.
4.1 The ld counsel relied on ISI specification 1008: 20044 for Sugar Boiled Confectionery which specifies lactose as one of the optional ingredients. Similarly the ISI specifications 1011:20024 for biscuits specifies sugars including lactose as one of the optional ingredients. The appellant referred to the clarification issued by the DGFT on 31. 7.2008 in the case of SION E -1 and SION E 5 stating that lactose can be considered as sugar against the export of biscuits and confectionery. This clarification has not been cancelled. In any case, he submitted that, the policy circular number 13 dated 31.10.2011 interpreted the entry Sugar listed in SION E5 only. Therefore import of lactose against the entry sugar listed in the DFIA number 031066278 dated 25.10.2011 issued against the export of Metamin Tech cannot be said to be barred by the circular. The ld counsel submitted a copy of the minutes of the Advance Licensing Committee Meeting in DGFT held on 29. 10. 2008 which decided that oxalic acid can be manufactured through sugar and lactose. A technical opinion given by the Joint Director New Custom House Laboratory Mumbai to the Deputy Commissioner of Customs Mumbai stated that lactose produced from milk solids is a commercial sugar and finds use as a raw-material (input) for the manufacture of oxalic acid (which is used in the manufacture of metamin).
4.2 The ld counsel referred to para 4.32.2. of the policy for the DFIA scheme which mentions that for 22 items the licensing authority, while issuing DFIA, shall mention the technical characteristics, quality and specifications in respect of such inputs. Sugar not being specified in the list of 22 items, it is therefore permissible to import forms of sugar such as lactose.
5 The ld AR appearing on behalf of Revenue stated that the DFIA was issued on 18.10.2010 and therefore the conditions of public notice 84/2009 dated 23.7.2010 are applicable. Therefore the appellant must show the actual use of lactose in the export product to be eligible to import lactose against the exports of biscuits and confectionery. Lactose cannot be imported under the description of sugars.
5.1 It was pointed out by the ld AR, that a communication was sent by DGFT to M/s Kawarlal and Co, Chennai in September 2010 communicating that the Norms Committee decided that no further import of lactose may be allowed as an alternative input to sugar under SION E-5. He further stated that deletion of AU condition in the amendment sheet after change of policy is an error on the part of the Licensing authorities. He distinguished the facts in the present case from the facts in the case of Madras High Court judgement (supra) explaining that in the facts of the Madras High Court judgement, the license was issued prior to the change in policy and therefore it does not apply in the present case where the license was transferred after the change in policy.
6. We have carefully considered the submissions made by both sides.
6.1 The benefit of duty-free exemption available under customs notification No 98/09 under DFIA scheme has been denied primarily on the ground that the import took place after the issue of the policy circular dated 31.1.11. We note that the DFIA 0310597347 dated 18. 10. 2010 was originally issued to M/s Parle Products Private Limited against the export of biscuits in terms of SION norms E 5. The DFIA number 031066278 dated 25.10.2011 was issued to M/s Excel Crop Care Ltd against export of Metamitron. The SION No E-5 relating to biscuits was amended vide Public Notice No 93 dated 1.2.2012 by addition of note 1 which states that import of lactose is not allowed as a substitute input against import item number 2, that is cane sugar. However there was no such restriction prior to 1.2.2012. The SION norms prevalent at the time of issue of the DFIA were laid down under public notice 127 dated 7.1.2009 which described the import item no 2 as sugar without any restriction on import of lactose. There is merit in the contention of the appellant that the policy circular no 13 dated 31.1.2011 did not amend the SION norms otherwise there was no need to amend the same on 1.2.2011. Therefore it stands to reason that sugar did not refer to cane sugar alone but also referred to alternative inputs. This interpretation is supported by the DGFT letter number 1/94/1 8 0/1 5 1/A.M/PC 4 dated 31.7.2008 addressed to Commissioner of Customs Exports Chennai stating that Taking into account the inputs received from the aforesaid technical authorities and the provisions of customs circular No 46/2007 CUS dated 20. 12.0 7 to be read with inputs allowed under relevant the DFIA for import of sugar (as per relevant SION) as well as the contents of paragraph 4. 55. 3 of HBP volume 1, I have been directed to inform you that sugar in the form of lactose (Pharma grade) can be imported against the aforesaid DFIA, referred in your letter. This was followed by Policy Circular number 72 (RE 0 8)/2004 2009 dated 24. 3. 2009 addressed to all Regional Licensing Authorities and Commissioners of Customs clarifying that since the objective of SION is to allow duty-free import of the inputs which are actually used or capable of being used in the export product, the exporter has the flexibility to import the alternative input/product mentioned in the SION. In view of these communications of DGFT, the benefit must be allowed as per policy on the on the date on which DFIA was issued read with Board Circular 46/2007 . The ld AR pointed out that a letter to M/s Kawarlal and Co Chennai in September 2010 communicated that the Norms Committee decided that no further import of lactose may be allowed as an alternative input to sugar under SION E-5. We find that this letter was issued to a particular party but the Policy Circular 72 mentioned above still prevailed in general. Support is had from the Madras High Court judgement in the case of Hoewitzer Organic Chemical Ltd (supra) holding that the clarification dated 23.9.2010 and the Policy Circular dated 31.1.2011 is concerned, the same may not apply to a valid license, the transferability of which is endorsed. It is to be noticed that the clarification issued by the Ministry of commerce dated 31.7.2008 and the DGFT policy circular dated 24.3.2009, which were enforced prior to issuance of license in question dated 15.4.2010, will be made applicable to the license, as it extends the benefits of flexibility to import the alternative input/product mentioned in the SION and that appears to be the main tenor of the petitioners seeking release of the lactose stating that the clarification and the circular which were in force at the time of issuance of license will be applicable to the goods imported and not the subsequent clarifications. This judgement referred to the decision of the Honble Supreme Court in the case of S. B. International Ltd 1996(82)ELT 164 (SC) wherein it was held that the norms applicable on the date on which the license is issued will be valid in respect of goods imported under the said license. The judgement also states that a similar view was taken by the Honble Supreme Court in the case of Jain Exports (P) Ltd. 1992(61)ELT 173(SC). In the present case the norms which existed on the date on which the license was issued allowed import of alternative inputs. In view of the stated judicial pronouncements we find no reason to deny the benefit of exemption to the appellant.
6.3 As regards the DFIA issued against the export of Metamitron it is seen that the policy circular No 13 dated 31.10.2011 interpreted the entry Sugar listed in SION E5 only. Therefore import of lactose against the entry sugar listed in the DFIA number 031066278 dated 25.10.2011 issued against the export of Metamin Tech is definitely not restricted by the circular.
6.4 The ld AR stated that deletion of AU condition in the amendment sheet after change of policy is totally wrong. Even if the actual user condition was brought in in 2011, fact remains that this condition has been deleted. The spirit of the judicial pronouncement is that the license has to be accepted as it is. And Customs cannot deny the benefit unless the DFIA is amended. Significantly, till date, the DFIA licenses have not been cancelled nor has any evidence been produced that the Customs have approached the DGFT for the same. The ld AR tried to distinguish the facts in the present case from those in the Madras High Court judgement case where the license was issued prior to the change in policy. However in the present case the license was transferred after the change in policy on 18.2.11. We find that the Madras High Court judgement speaks about the date on which the license is issued and not the date on which the license is transferred. Further the export obligation was discharged in April /May/ June 2010. As per para 4 (a) of the Handbook, exports made from the date of EDI generated file number is accepted towards discharge of export obligation for the purpose of advance authorization. This is also applicable in the case of exports under DFIA as per paragraph 4. 33 of the Handbook. And as per paragraph 4.12 (b), the authorization shall be issued based on input/output norms in force on the date of receipt of application by the RA till any amendment in norms is notified. For remaining exports, the policy in force on authorization issued date shall be applicable. These provisions negate the contention of the AR.
7. In view of the above, we hold that the appellants are entitled to the benefit of Notification No. 98/2009Cus. in terms of the DFIA presented to customs.
8. Impugned order is set aside and appeals are allowed.
(Pronounced in court on /2015)
(Anil Choudhary)
Member (Judicial)
(P. S. Pruthi)
Member (Technical)
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