Custom, Excise & Service Tax Tribunal
M/S. Neyveli Lignite Corporation Ltd vs Commissioner Of Customs (Import), ... on 10 August, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
C/86/2012
(Arising out of Order-in-Original No. 18583/2012 dated 28.3.2012 passed by the Commissioner of Customs (Seaport Import), Chennai)
M/s. Neyveli Lignite Corporation Ltd. Appellant
Vs.
Commissioner of Customs (Import), Chennai Respondent
Appearance Shri B.V. Kumar, Advocate for the Appellant Shri M. Rammohan Rao, DC (AR) for the Respondent CORAM Honble Shri D.N. Panda, Judicial Member Honble Shri R. Periasami, Technical Member Date of Hearing: 09.04.2015 Date of Pronouncement : 10.08.2015 FINAL ORDER No.40966/2015 Per R. Periasami The appellant has filed the present appeal against the impugned order dated 28.3.2012 passed by Commissioner of Customs (Seaport-Import), Chennai.
2.1 Appellant entered into agreement with M/s.Projects and Development (India) Ltd., Noida (PDIL, for short) to revamp their Fertilizer plant at Neyveli obtaining the economic and technical clearance from the Government of India. Various plant, machinery and parts imported on behalf of appellant under various Bills of Entry during the period March 99 to August 99 and May 2000 to August 2000 were allowed to be cleared at concessional rate of Customs duty under Notification No.20/99-dt. 28.2.99 and Notification No.16/2000-Cus.dt. 1.3.2000. Appellants also imported plant and machinery directly for revamping of Urea Synthesis Plant and cleared the same at concessional rate of duty in terms of the above notification.
2.2 In the year 2002, the appellants had shut down the plant and disposed the entire plant and machinery consisting of old as well as new machinery by e-auction through their selling agents viz. M/s.MSTC Bangalore and M/s.Metro Machinery Traders, Delhi was successful bidder in the auction for an amount of Rs.132 crores on 1.4.2005. The imported goods as above which were cleared under the concessional rate of duty forming part of the plant and machinery were also disposed. Such disposal was alleged by Customs as violation of the condition of notification on the ground that imported goods have not been put to intended use but were sold. The imports were subject to the condition of consumption thereof within India for the intended purpose as required by the customs notification. The DRI Chennai seized the imported machinery vide mahazar dt. 14.9.2006 and handed over the same to the appellant. But those were released provisionally on execution of bond for Rs.23 crores and giving of bank guarantee of Rs.3.0 crores executed by NLC.
3. After detailed investigation by Zonal DRI Chennai, the appellants were issued Show Cause Notice (SCN) dt. 2.3.2006, answerable to the Commissioner of Customs, Chennai. Differential customs duty was demanded as per SCN and confiscation of goods was proposed. Also imposition of penalty on the appellant as well as penalties on the co-noticees were proposed. Upon adjudication, the adjudicating authority rejected the concessional benefit availed under Notification No.20/99 and 16/2000 on the imported goods covered by various Bills of Entry and confirmed the demand of differential duty of Rs.10,02,42,538/- recoverable from the appellant for violation of conditions of aforesaid notifications read with Section 12 and 143 of the Customs Act and also appropriated an amount of Rs.5,46,915/-. Adjudicating authority also ordered confiscation of the goods. But valued the same at Rs.23 crores under Section 111 (o) of the Act and allowed redemption thereof on payment of fine of Rs.2,30,00,000/-. He also imposed penalty of Rs.10,02,42,538/- under Section 112(a) of Customs Act and dropped the proceedings against the co-noticees. The adjudicating authority also ordered for enforcement of bank guarantee given by the appellant and appropriated the same towards differential duty against provisional release of the seized goods ordered. Hence the present appeal.
4.1 Heard both sides on 9..4.2015 and proceeding recorded in the open court.
4.2 Learned counsel for the appellant submitted written synopsis and paper book. He submitted that the appellant had a fertilizer plant in Neyveli which consisted an Ammonia Plant as well as a Urea Plant. After some times of operation although disinvestment commission suggested disinvestment in the plant due to unviability thereof, to secure employment to several employees being concern of the appellant, Ammonia Plant was decided to be renovated. The appellant accordingly proceeded to make renovation thereof awarding the contract to Projects and Development (India) Ltd., Noida (PDIL in short). The said developer imported equipments through 22 Bills of Entry on behalf of the appellant for use in renovation of the plant availing duty concession in terms of Notification No. 120/99-Cus. dated 20.2.1999 read with Notification No. 16/2000-Cus. dated 1.3.2000. The concession in duty was allowed in terms of Sl. No. 142 of the Notification No. 120/99. The said entry reads as under:-
No. Chapter or heading No. or sub-heading No. Description of goods Standard rate Additional duty rate Condition No.
142.
Any Chapter (A) Machinery, instruments, apparatus and appliances, as well as parts (whether finished or not) or raw materials for the manufacture of aforesaid items and their parts, required for renovation or modernization of a fertilizer plant; and (B) spare parts, other raw materials (including semi finished material) or consumables stores, essential for maintenance of the fertilizer plant mentioned above 5% 10% 24 4.3 The developer filed 22 Bills of Entry for import of the equipment, spare parts and installed the same in the factory of the appellant. Upon installation, the Ammonium Plant factory operated for 22 months. But thereafter, it was again found infeasible due to reason beyond control of the appellant for which a further study was made by ICICI to suggest to the appellant whether it should continue the manufacturing of fertilizer in the said plant or to dispose of the same. Basing on the recommendation of ICICI, which was made in April 2001, the plant was auctioned.
4.4 Urea plant of the appellant was set up importing the capital goods availing duty concession in terms of the aforesaid notifications filing 3 Bills of Entry and the goods so imported were used in the modernization and renovation of that plant availing service of a contractor namely, UREA Casale. Even this unit was found to be infeasible to operate as an integral part of the fertilizer plant.
4.5 In view of the aforesaid unviability reported by ICICI, e-auction of the appellant was done for the reason beyond control of the appellant.
4.6 Revenue came out with a show-cause notice dated 12.3.2007 to recover the differential duty in respect of imported equipments and spares imported during the period March 1999 to August 1999 and May 2000 to August 2000 concerning above two plants.
4.7 It was submission of the appellant that it has no intention to stop functioning of the plant suo motu but compelling reason dragged it to dispose the same on the basis of unviability recommended by ICICI. The condition No.24 of the notification No.120/99-Cus. dated 20.02.1999 requires that the importer has to furnish an undertaking to the customs authority at the time of import stating that the goods imported shall be used for the purpose specified in Sl. No. 142 of the notification and in the event of failure to do so, the differential duty shall be recovered. Customs authority relying on this condition sought to recover differential duty on the goods imported and used in the plant for renovation and modernization. The duty so sought to be recovered was Rs.10,02,48,538/- unreasonably.
4.8 Appellant submitted that so far as the urea plant is concerned the developer PDIL being the importer filing 22 Bills of Entry is liable to pay duty if any such duty is payable but not the appellant. Secondly, the meaning of the term importer under Section 2 of Customs Act, 1962 stating that who files bill of entry or owns the goods becomes importer, the appellant not being owner of the imported goods nor having filed the Bill of Entry cannot be fastened with any liability. There was no issuance of show-cause notice to PDIL to seek recovery of the differential duty. Therefore, adjudication is unsustainable.
4.9 Further submission of the appellant was that Tribunal has already in the decision reported in Nippon Audiotronix Ltd. Vs. Commissioner of Customs, New Delhi 2000 (120) ELT 736 held that the person who is liable to duty is the importer but not anybody else. Therefore, show-cause notice issued after a long time in 2007 for the import of a decade old shall not bring the appellant to the liability. Accordingly, neither duty nor penalty is imposable on the appellant since it was not an importer. Further, relying on the decision reported in AIR 2003 SC 2629 in the case of Oil and Natural Gas Corporation Ltd. Vs. Saw Pipes Ltd., it was submitted that public policy being to avoid further losses of a PSU, any disinvestment made in accordance with such Policy shall not be treated as deliberate disposal of the Plant to bring the appellant to the consequence of law.
5.1 The Ld. A.R appearing for the Revenue on the other hand, submitted that the appellant was beneficiary of the entire import for its own plant on the basis of duty concession certificate issued to it. Therefore, it was the owner of the goods for which it is liable to duty as well as interest and penalty. PDIL was only a bailee to act as intermediary who filed the Bills of Entry on behalf of the appellant while the ownership of the goods was all along with the appellant. Therefore, decision reported in Nippon Audiotronix Ltd. Vs Commissioner of Customs, New Delhi reported in 2000 (120) E.L.T. 736 (Tribunal) shall not apply to the defence of the appellant.
5.2 It was further contention of Revenue that the appellant availed duty exemption on the basis of certificate issued by line Ministry for which it cannot disclaim that it has no liability.
5.3 Relying para 31.4 of Page 142 of the Order-in-Original and 35 thereof, learned DR submitted on behalf of Revenue that appellant was aware as early as 1997 98 that its unit was not viable to operate but still then in the year 1999 it went for renovation for no good reason. That has caused prejudice to Revenue because Customs duty concession was availed at the cost of the exchequer. Such conduct of the appellant is established when it again became unviable by the report of ICICI. Therefore, appellant cannot plead that it was beyond its control to dispose the plant.
5.4 Reliance was placed by Revenue in the case of Mediwell Hospital and Health Care Pvt. Ltd. Vs. Union of India reported in 1997 (89) ELT 425 (SC) to submit that use of the goods imported availing duty concession casts a responsibility on the appellant to avail the benefit to make use of the goods but not merely make any temporary use and discard the same causing prejudice to interest of Revenue. Relying on the decision in the case of Commissioner of Customs (Import), Mumbai Vs Jagdish Cancer & Research Centre reported in 2001 (132) ELT 257 (SC) it was submitted that appellant has continuing liability to protect interest of Revenue by continuous use of the duty-free imports but not to make mere temporary use thereof and sell the same under the plea of unviability enriching itself by duty lost by Revenue.
5.5 Further, relying on the decision in the case of Union of India Vs. Wood Papers Ltd. reported in 1990 (47) ELT 500 (S.C.). Revenue submitted that duty exemption being given at public interest, legislature has freedom to impose any condition at public interest for use of the goods in the manner indicated in the notification. The judgment brings out that strict construction of the intended benefit cannot be given goby by a temporary use and discarding thereof on the plea of unviability of the Plant.
5.6 Revenue further relied on the decision in the case of Novopan India Ltd. Vs. CCE, Hyderabad reported in 1994 (73) ELT 769 (S.C.) to submit that exemption being an exception that calls for strict construction to grant benefit at public cost. Therefore, the grant of benefit cannot be abused. Accordingly, appellant is liable to the consequence arose out of adjudication.
5.7 Relying on the decision in the case of CCE, New Delhi Vs. Hari Chand Shri Gopal reported in 2010 (260) ELT 3 (SC), Revenues prayer is that substantial compliance being necessity of law such a doctrine cannot be loosely interpreted to grant any relief to appellant since public interest has suffered huge duty demand. Further, relying on the decision in the case of Commissioner of Customs Vs. Virgo Steels reported in 2002 (141) ELT 598 (SC) Revenue submitted that substantive provision of levy of duty requires recovery through the provisions of Section 28 of the Customs Act, 1962. Since appellant did not pay appropriate duty while importing the goods but has paid part of that availing concession unduly, question of any time bar does not arise to defeat the grant of notification. In absence of compliance to the statutory mandate, appellant fails to succeed.
5.8 Lastly, on the basis of decision in Motiram Tolaram Vs. Union of India reported in 1999 (112) ELT 749 (S.C.), Revenue submitted that the total burden is on the assessees to prove that it has used the imported goods till its economic life ended and no loss caused to Revenue by disposal thereof. Appellant having failed to discharge such burden, proper consequence of law has followed.
6. In the rejoinder, appellants submission was that entire action of appellant being based only on the technical feasibility it cannot be construed that the appellant has disposed the unit without any reasonable cause. Due to compelling reason, it went for disinvestment. Relying on page 140 of the Order-in-Original, appellant submitted that entire fact was within the knowledge of Revenue as to the import of the goods, use thereof, infeasibility of the plant as well as disposal thereof for which there was no suppression of any fact at any stage by the appellant. Accordingly, adjudication is time barred. In this regard, appellant invited attention to letter dated 24.5.2004 which brought out the appellants good conduct and proper disclosure of material fact as to unviability of the plant calling for disposal thereof. Appellant also submitted that there was condition in the notification restraining the appellant to dispose the plant before certain period like the impediment/ conditions prescribed in other notifications such as : condition No. 42 and conditions 48 to 50 of the Notification No.120/99-Cus. dated 20.02.1999. Accordingly, the appellant should not be dragged to litigation.
7. Heard both sides and perused the records.
8.1 We have noticed that learned Adjudicating Authority has framed following issues in page 133 of Order-in-Original for his decision which reads as under:-
(a) Whether the concessional benefits available by M/s. NLC under Notification Nos. 20/99-Cus and 16/2000-Cus as amended on the goods covered under Bills of Entry as detailed in Annexure I and II of the Show Cause Notice imported for the revamping of the fertilizer unit should be denied inasmuch as the imported goods were sold and not utilized for the intended purpose in their fertilizer plant as stipulated under the said Notifications and thereby violated the conditions of the said Notifications.
(b) Whether the differential duty of Rs.10,02,48,538/- (Rupees Ten Crores Two Lakhs Forty Eight Thousand Five Hundred and Thirty Eight Only) (as detailed in Annexure I and Annexure II of SCN) arising out of the above along with applicable interest is to be demanded under Notification Nos. 20/99-Cus. and 16/2000-Cus. as amended, read with Sections 12 and 143 of Customs Act, 1962;
(c) Whether an amount of Rs.5,46,915/- voluntarily paid by them towards the imported surplus material taken back by M/s. PDIL, Noida is to be adjusted against the differential duty liabilities;
(d) Whether the seized goods which were released provisionally valued at Rs.23 crores are liable to confiscation under Section 111(o) of the Customs Act, 1962;
(e) Whether the imported goods relating to the urea synthesis section which were dismantled and cleared prior to the initiation of investigation by DRI valued at Rs.33,52,78,239/- are to be held liable for confiscation under section 111(o) of the Customs Act, 1962;
(f) Whether Shri Sampath Kumar, Deputy General Manager, Fertilizer Plant, M/s. NLC and Shri A.R. Ansari, Director, Planning and Projects M/s. NLC Limited, Neyveli are liable for penal action under section 112(a) of the Customs Act, 1962 for their acts of commission and omission in rendering the goods liable for confiscation;
(g) Whether the bond for Rs. 23 crores and the bank guarantee for Rs.3 crores executed by M/s. NLC Ltd. towards the provisional release of the seized goods should be enforced and adjusted towards the differential duty and adjudication liabilities. 8.2. The primary issue appears to have been enumerated in para 25 (a) and 25(e) as above which calls for addressing on the basis of pleadings of both sides.
9. The main dispute is whether the concessional benefit is available to NLC under notification No.20/99-Cus. dated 28.2.1999 and 16/2000-Cus. dated 1.3.2000 as amended, on the goods imported under the Bill of Entry as per Annexure I & II of the SCN. The goods covered under the Bill of Entry were imported for revamping of fertilizer plant and not utilized for the intended purpose but the same were sold. As seen from the Notification No.20/99 at Sl.No.142 which is already reproduced in para 1.1 of this order the concessional rate of customs duty for plant and machinery required for renovation or modernization of fertilizer plant is chargeable to concessional rate of duty @5% and additional duty @ 10% and the said concession was allowed subject to fulfillment of conditions stipulated at condition No.24 of the said notification. For the purpose of convenience, Condition 24 of the Notification No.20/99 is reproduced as under :-
"24. (1) If an officer not below the rank of a Deputy Secretary to the Government of India in the Department of Fertilisers, -
(i) certifies that the scheme for renovation or modernisation, as the case may be, of the fertilizer plant has been granted techno-economic clearance by the said Department;
(ii) recommends, in each case, the grant of exemption under this notification to, -
(a) Machinery, instruments, apparatus and appliances, as well as components (whether finished or not) or raw materials for the manufacture of aforesaid items and their components, required for renovation or modernisation of a fertiliser plant; and (b) spare parts, other raw materials (including semi-finished material) or consumable stores, essential for maintenance of the fertiliser plant mentioned above, (hereinafter referred to as the said goods), for such scheme; and
(iii) certifies in each case, that the said goods are, or will be required for the purposes specified above.
(2) the value of import of the goods specified in sub-clause (b) of clause (ii) of sub-condition (1) shall not exceed 10% of the value of imported goods specified in sub-clause (a) of the said clause;
(3) if the importer furnishes an undertaking to the Assistant commissioner of Customs to the effect that the said imported goods shall be used for the purposes specified above and in the event of his failure to use the goods for such purposes, he shall pay an amount equal to the difference between the duty leviable on the said imported goods but for the exemption under this notification and that already paid at the time of importation."
10. As seen from the above, Condition 24 (3) stipulates that importer shall furnish an undertaking to the Asst. Commissioner of Customs to the effect that the said imported goods shall be used for the purpose specified and in the event of his failure to use said goods for such purpose, he shall pay an amount equal to the difference between the duty leviable on the said imported goods but for exemption under this notification. The appellants main contention that the goods were imported for revamping of the fertilizer plant and the machineries were installed and commissioned therefore, they have complied with condition of the notification. Appellant also contended that as far as urea plant is concerned, plant and machinery was imported by M/s.PDIL, the differential duty if to be demanded, it is to be demanded from PDIL and not from the appellants. On perusal of the above notification and the impugned order, we find that the issues made out in their grounds of appeal before this Tribunal and the issues brought out in their written submissions to SCN before the adjudicating authority are identical nature and the adjudicating authority discussed in his findings each and every plea raised by appellant in detail in his elaborate order containing 148 pages.
11. It is pertinent to see that the concessional rate of duty is available to a person under Notification 20/99 (S.No.142) or under Notfn 16/2000 (Sl.No.182) for import of plant and machinery for renovation or modernization of Fertilizer Plant only if they fulfill all the 3 conditions stipulated in the Condition No.24 or Condition No.27 appended to the above two notifications respectively. Sl.No. (1) & (2) of the conditions relates to administrative approval and recommendations by the Competent Authority of the concerned Line Ministry and the value of limit of the imported goods. This was duly complied by the appellants at the time of clearance of the imported goods. The Sl.No. (3) of the condition No. (24) or (27) is relevant to the present case where it is alleged in the SCN and in the impugned order that appellants had not fulfilled the Sl.No.(3) of the condition of Notification. As seen from the Notification No.20/99 and condition (24) reproduced above, we find that Sl.No.(3) of condition is specific and unambiguous and it stipulates that appellant to give undertaking before the Asst. Commissioner of Customs that the imported machinery shall be used for the purpose of Renovation/Modernization of fertilizer plant and in the event of failure to use the goods for such modernization/renovation of fertilizer plant the appellant shall pay an amount equal to differential Customs duty on the said goods.
12. On perusal of records, we find it is an admitted fact that appellants took decision to close down the Urea & Ammonia Synthesier Plant within 2 years of importation and commissioning of the plant and sold the plant to the third party M/s.Metro Machinery Traders, Delhi. Therefore, the imported plant and machinery were not used for manufacture of fertilizer. Considering this undisputed fact, the reasons for shut down of the plant is irrelevant in so far as the customs exemption availed under Notification No.20/99 and 16/2000 is concerned. Therefore, disposal of imported goods did not serve intended purpose of the notification. That frustrated object thereof.
13. On perusal of records and various statements recorded from Mr.Ansari, Director, Planning, Project, Mr.Sampath, DGM, V. Mohan, DGM & Company Secretary, K. Viswanath, Company Secretary, it reveals beyond doubt that in spite of Disinvestment Commission report dated March 1998 recommending for closure of Fertilizer plant, the NLC in its 287 Board Meeting held on 5.5.97 took decision to revamp the fertilizer plant. When the revamping was under progress on 14.12.99 study was also conducted by M/s.ICICI for feasibility study/commercial viability of fertilizer plant.
14. Appellants imported machinery through PDIL for Ammonia Synthesis in 1999 and during May & August 2000 appellant themselves imported machineries for Urea Plant without waiting for the outcome of the ICICI's report. ICICI submitted report in Dec 2001 and recommended closure of fertilizer plant/option to reduce losses. The Standing Committee on Energy in their Report 2002 also recommended for closure of the plant. The appellant's Board meeting held on 28.1.2003 approved for closure of Fertilizer plant which was not in operation since 31.1.2002 and also approved for sale of plant "as is where is basis".
15. It is pertinent to state that it is the appellant who took decision to go ahead for revamping the said plant in spite of the Disinvestment Commission's report which is against them and proceeded ahead and approached the Line Ministry for granting such approval and to issue necessary certificate for import of machineries at concessional rate under the said notification and also availed the exemption under the respective notification. Appellants having availed the conditional exemption and having been fully aware of such facts, and being a PSU they failed to discharge the differential customs duty on the imported goods when they got approval for closure of the plant on 28.1.2003. In spite of being fully aware of the fact that the imported goods were to be used for the intended purpose, the appellants failed to fulfill the undertaking given to the Customs authorities as required by the condition of the notification. That warranted the appellant to pay the duty in the event of failure of not using the goods for manufacture of fertilizer.
16. Further, we find from the statements of V. Mohan DGM & Company Secretary dt. 20.9.2006 who is responsible for preparation and co-ordination of e-tender/e-auction that he admitted the fact that while floating the e-tender through MSTC they have included provisions for payment of following statutory levies / taxes except Customs duty,
a) 12% Sales tax
b) 5% Surcharge on Sales Tax
c) 1% Income Tax
d) 10% Surcharge on Income tax
e) 2% Education CESS etc. In his statement, he clearly admitted that they had not made any provisions for Customs duty in the said e-Tender. From the above, it is evident that the appellant when floated the e-tender for sale of Fertilizer Plant on 'as is where is basis' did not make any provision for payment of differential customs duty on the imported goods by the successful bidder.
17. We find that the above facts has been confirmed by Shri Harish Durgon, Partner and Shri Ramkrishnan Gupta, Partner of M/s. Metro Machinery Traders, Delhi (successful bidder/awardee) in their statements dt. 21.9.2006 and 10.10.2006. They have clearly admitted that they have to bear all duties and taxes as stipulated in the e-auction but there was no mention of any payment of customs duty on the imported machineries. Nothing was explained by the appellant for no provision of customs duty in the e-auction when they were fully aware that the sale of the Fertilizer Plant was renovated by using imported machines availing conditional exemption under the Notfn 20/99 and 16/2000. When the whole plant was sold for Rs.132 Crores to third party i.e. M/s.Metro Machinery Traders, Delhi, nothing prevented the appellant to collect the differential customs duty on imported goods contained in the plant which was sold. Therefore, it is difficult to extend any relief to appellant in so far as recovery of differential duty is concerned.
18. It is pertinent to state that, when a fertilizer plant of large scale capacity was renovated/revamped using imported machinery the intention of legislature in granting exemption was to use the same continuously for manufacturer of fertilizer by the importer. The appellant cannot take shelter on the ground that mere installation of imported machinery and commissioning the plant for short period shall absolve it from liability. The Sl.No.142 of the Notification 20/99 read with condition No.(24) casts a continuous obligation on the appellant and the benefit exemption was extended to the appellant only for manufacture of fertilizer but not to sell the plant to third party immediately availing duty exemption at the cost of the exchequer.
19. The Hon'ble Supreme Court in the case of Mediwell Hospital And Health Care Pvt. Ltd. Vs UOI (supra) has laid down the law that once the person who availed the benefit of exemption and failed to discharge continuing obligations, Revenue has right to recover the customs duty forgone. This was again affirmed by the Apex Court in their subsequent decision in the case of CC Vs Jagdish Cancer & Research Centre (supra). It is held therein that the importer has a continuing obligation of the use of the goods imported under exemption notification.
20. In the case of Bombay Hospital Trust Vs CC (supra) the Larger Bench of Tribunal has relied on the Apex court's decision referred above and discussed the issue at length and held that failure to fulfill the post-importation condition by the importer, the Customs has jurisdiction to demand duty for violation of the condition of the notification. The relevant paragraphs of Tribunal decision is reproduced as under :-
"12.?As regards the time limits under Section 28, both sides have agreed that since the duty demand does not relate to short levy or non levy at the time of initial assessment on importation, but has arisen subsequently on account of failure to fulfil the post-importation conditions under the Notification No. 64/88, the said Section 28 has no application to a duty demand of this kind. We do not, therefore, wish to dwell further on the inapplicability of Section 28 to such demands. However, we note that since no specific time limit is prescribed under any other provision of the statute, the notice of demand in such cases cannot be subjected to any limitation of time. This view is supported by the ratio of the following two decisions of the Honourable Bombay High Court and the Apex Court :-
(i) Prakash Cotton Mills Pvt. Ltd. v. S.K. Bhardwaj, A.C.C.E. - 1987 (32) E.LT. 534 (Bombay)
(ii) Commissioner v. Raghuvar (India) Ltd. - 2000 (118) E.L.T. 311 (S.C.)
13.?We find that while Section 12 gives the power to levy customs duty, Section 25 gives the power to grant exemption of duty in the public interest either absolutely or subject to conditions. In the case of Notification No. 64/88, the exemption granted is conditional. The conditions relating to (i) free treatment of 40% outdoor patients and (ii) reservation of 10% of beds for free treatment of patients with family income less than Rs. 500 p.m. make it manifestly clear what the public interest behind the said exemption is. If these conditions are not fulfilled after importation and the public interest is not served, the exemption becomes unavailable and full duty as leviable under Section 12 becomes payable.
14.?We note that the impugned notification has not provided for obtaining any bond or bank guarantee for recovery of duty in the event of failure to fulfil the conditions of free treatment. However, it is the prerogative of the Government to grant exemption, as has been held in Sri Sathya Sai Inst. (supra), and it is for the Government to incorporate appropriate provisions. Merely because some other exemption notifications incorporate provisions regarding bond etc. by way of extra precaution and this one does not (as the Government may have valid reasons not to burden hospitals doing genuine charitable work with bonds and bank guarantees), this cannot be a valid plea by the appellants not to pay the demanded duty when the conditions of free treatment are violated. We also do not think that it is necessary for an exemption notification issued under Section 25 to contain a recovery provision when the power to recover duty can be traced to Section 12, nor any mandate to provide such a recovery provision in an exemption notification is contained in the said Section 25.
15.?We find that in Mediwell (supra), the Apex Court has interpreted the said Notification No. 64/88 in the context of allowing import of medical equipment without payment of duty and has observed in Paragraph 12 thereof as follows :-
While, therefore, we accept the contentions of Mr. Jaitley, learned senior Counsel appearing for the appellant that the appellant was entitled to get the certificate from Respondent No. 2 which would enable the appellant to import the equipment without payment of customs duty but at the same time we would like to observe that the very notification granting exemption must be construed to cast continuing obligation on the part of all those who have obtained the certificate from the appropriate authority and on the basis of that to have imported equipments without payment of customs duty to give free treatment at least to 40% of the outdoor patients as well as would give free treatment to all the indoor patients belonging to the families with an income of less than Rs. 500/- p.m. The competent authority, therefore, should continue to be vigilant and check whether the undertakings given by the applicants are being duly compiled with after getting the benefit of the exemption notification and importing the equipment without payment of customs duty and if on such enquiry the authorities are satisfied that the continuing obligation are not being carried out then it would be fully open to the authority to ask the person who have availed of the benefit of exemption to pay the duty payable in respect of the equipments which have been imported without payment of customs duty. Needless to mention the Government has granted exemption from payment of customs duty with the sole object that 40% of all outdoor patients and entire indoor patients of the low income group whose income is less than Rs. 500/- p.m. would be able to receive free treatment in the Institute. That objective must be achieved at any cost, and the very authority who have granted such certificate of exemption would ensure that the obligation imposed on the persons availing of the exemption notification are being duly carried out and on being satisfied that the said obligations have not been discharged they can enforce realization of the customs duty from them. The Apex Court has thus clearly held that the said Notification No. 65/88 casts a continuing obligation and that in the event of failure to discharge that obligation, duty is demandable."
The ratio of the Apex Court is squarely applicable to the present case as the appellants have not fulfilled the condition of the Notification. The Sl.No.3 of the condition (24) of the notification is specific, clear and unambiguous and as per the condition the appellants had given undertaking before Asst. Commissioner of Customs that the imported machineries shall be used for manufacturer of fertilizer. When there is a breach of the said condition, the department is right in enforcing the recovery of differential duty as provided in the said notification itself.
21. Further, we find that the Hon'ble Supreme Court in the case of CCE Vs Hari Chand Shri Gopal (supra) has explained what is mandatory condition and what is directory condition and held that mandatory condition of the exemption notification must be obeyed/fulfilled exactly as it is stated in the notification. The relevant paragraphs of order are reproduced as under :-
"22.?The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. In Novopan Indian Ltd. (supra), this Court held that a person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State. A Constitution Bench of this Court in Hansraj Gordhandas v. H.H. Dave - (1996) 2 SCR 253, held that such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption.
23.?Of course, some of the provisions of an exemption notification may be directory in nature and some are of mandatory in nature. A distinction between provisions of statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished. In Tata Iron and Steel Co. Ltd. (supra), this Court held that the principles as regard construction of an exemption notification are no longer res integra; whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally. An eligibility criteria, therefore, deserves a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature.
Doctrine of substantial compliance and intended use :
24.?The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the essence or the substance of the requirements. Like the concept of reasonableness, the acceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. Fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non- compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the substance or essence of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the essence of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential."
The above Apex Court's decisions are squarely applicable to the present case as the exemption under Notification No.20/99 & 16/2000 is subject to the fulfillment of Condition No. (24), No.(27). The wordings used in Sl.(3) of the condition is that the appellant shall use (emphasised) the imported machinery for manufacturer of fertilizer and if they failed to fulfill they shall pay the differential duty. The word shall (emphasized) used in the notification signifies that it is a mandatory condition. It is established that the appellants failed to comply to the said condition. Mere fact that the imported machineries were installed and temporarily put to use and thereafter sold does not amount to fulfillment of the mandatory condition. Therefore, we are of the considered view that the notification casts continuous obligation on the appellant for use of imported machineries for manufacture of fertilizer till the utility period and when that was sold prematurely plant to third party there is a breach of the condition of the notification and the adjudicating authority had rightly ordered recovery of the differential duty. That is upheld. Appellants fail to succeed on plea of limitation for the above reasons.
22. As regards the appellant's contention that they kept informed the Customs and Central Excise authorities on their closure and sale of the Fertilizer Plant, on perusal of correspondences of NLC with Superintendent of Central Excise vide their letters dt. 30.6.2004, 1.6.2004 and 20.6.2004 and the Superintendent-Central Excise letters addressed to NLC dt. 26.5.2004, 7.6.2004 we find the jurisdictional Superintendent-Central Excise had sought specific clarification from NLC as to whether any concessional duty benefit availed on the plant and machinery which is on sale; it is noticed that the appellants had replied that they had only availed duty benefit on furnace oil but failed to inform the customs duty exemption availed on the imported machinery installed in the plant. Further, we find from the appellant's letters dt. 30.6.2005 addressed to Commissioner of Customs and Central Excise, Puducherry and Customs, Chennai that nowhere appellant disclosed availment of concessional duty benefit under notification 20/99 or 16/2000. Further there is no evidence of despatch of such letter or receipt of such letter by the Department. Therefore, all the citations and case laws relied by the appellant in support of their contentions on merit as well as on suppression of facts are not profitable to the appellant.
23. As regards appellant's another plea that differential Customs duty cannot be demanded from the appellant when the goods were imported by M/s.PDIL on behalf of appellant, in respect of Ammonia Synthesis Plant, we find the appellant, a PSU, is the beneficiary of the said exemption notification and availed Customs duty concession on the imported goods and the competent authority for Line Ministry had issued necessary certificate to the appellant-company allowing it exemption under the said notification. The appellant themselves had admitted before Customs/DRI vide their letters dt. 14.9.2006 and 6.11.2006 that they are the importers and responsible for any customs dispute and undertook full responsibility on Customs duty when they sought for provisional release of seized goods. It is the appellants who executed Bond for 23 crores and gave Bank Guarantee for Rs.3.0 Crores before Customs authorities for provisional release of the seized goods. These facts are clearly discussed at para 6 (iii) (v) of the OIO. We also find that when DRI detected that M/s.PDIL took back surplus imported goods which are not used in the fertilizer revamping project, it is the appellant who paid the Customs duty of Rs.5,46,915/- on 22.12.2006. therefore, we hold that the adjudicating authority rightly demanded Customs duty from the appellant who are the owners and beneficiary of imports.
24. In view of the foregoing discussions, we hold that : (i) the differential Customs duty of Rs.10,02,48,538/- is confirmed and liable to be recovered from the appellant.
(ii) Goods valued Rs.23 crores are liable to confiscation. Redemption fine of Rs.2.30 crores imposed is upheld.
(iii) As regards the imposition of penalty of Rs.10,02,48,538/- on the appellant under Section 112 (a) of the Customs Act, 1962 is concerned, taking into consideration of the facts and circumstances of the case, penalty is reduced to Rs.2,50,00,000/- (Rupees Two Crores fifty lakhs only). Accordingly, appeal is partly allowed to the extent indicated above.
(order pronounced in open court on 10.08.2015)
(R. PERIASAMI) (D.N. Panda)
Technical Member Judicial Member
Rex/ksr/gs
27