Custom, Excise & Service Tax Tribunal
V.K. Kannan vs Mumbai on 11 August, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: C/1002 & 1003/2007
[Arising out of Order-in-Original No: 70A/2007/CAC/CC/KS dated 16/05/2007 passed by the Commissioner of Customs (Adjudication), Mumbai.]
For approval and signature:
Honble Shri S.S. Kang, Vice President
Honble Shri P.R. Chandrasekharan, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Hindustan Lever Limited
V.K. Kannan
Appellants
Vs
Commissioner of Customs (EP)
Mumbai
Respondent
Appearance:
Shri M.H. Patil with Mr. T.C. Nair, Advocates for the appellants
Shri A.K.Prasad, Authorised Representative (JCDR) for the respondent
CORAM:
Honble Shri S.S. Kang, Vice President
Honble Shri P.R. Chandrasekharan, Member (Technical)
Date of hearing: 11/08/2011
Date of decision: 07/10/2011
ORDER NO: ____________________________
Per: P.R. Chandrasekharan:
There are two appeals under consideration which are directed against Order-in-Original No: 70A/2007/CAC/CC/KS dated 16/05/2007 passed by the Commissioner of Customs (Adjudication), New Custom House, Mumbai.
2. The facts of the case are briefly stated as follows:
2.1. M/s. Hindustan Lever Limited (HLL in short) imported a total quantity of 6627.492 MTs of Palm Stearine and 805.266 MTs of crude Palm Stearine (total quantity of 7432.758 MTs) under Quantity Based Advance Licence Scheme against 20 advance licences for the manufacture and export of perfumed glycerine soap (Pears) during the period from January, 1993 to January, 2002. Investigations conducted by the Department in respect of these imports revealed that-
(1) Of the above , only a quantity of 4057.361 MTs was utilized in the manufacture and export of Pears soap.
(2) Imported Crude Palm Stearine of quantity 805.266 MTs was neither required nor utilized in the manufacture of Pears soap and the same was found to have been diverted to their factory at Sewri for the manufacture of other soaps for local sale.
(3) A quantity of 839.560 MTs of Palm stearine was used in the manufacture of Pears soap which was exported under DEPB scheme.
(4) Balance quantity of 1730.565 MTs of palm stearine was diverted to Sewree and Aurangabad units of M/s HLL for manufacture of other soaps and their subsequent sale in the domestic market.
Investigations conducted further revealed that M/s. HLL had utilised only 339.150 Kgs. of Palm Stearine in the manufacture of 1 MT of Pears soap and the remaining quantity of Palm Stearine/crude Palm Stearine was diverted /transferred to their other factories for manufacture of other soaps for sale in the local market even though in the export documents, they had indicated the usage of Palm Stearine @ 676 Kgs per MT of Pears Soap, thereby misdeclaring the usage of the Palm Stearine so as to import excess quantity of the said product without payment of duty and without utilizing the same in the manufacture of the export product.
2.2 Accordingly, a show cause notice dated 29-10-2004 was issued to M/s. HLL, proposing as to why:-
(i) Customs duty amounting to Rs. 66,71,998/- along with interest on Crude Palm Stearine imported duty free against Advance licence Nos. 3207530 dated 01/1/1998 and 3206078 dated 23/06/1997 read with the provisions of Notification Nos. 204/92-Cus dated 19/05/1992, 80/95-Cus dated 31/03/1995 and 30/97-Cus dated 01/04/1997 and EXIM Policy 1992-97 and 1997-2002 should not be demanded under the first proviso to Section 28 of the Customs Act, 1962 and Crude Palm Stearine of an aggregate CIF value of Rs. 1,49,99,863/- should not be held liable to confiscation under the provisions of sections 111(d) and 111(o) of the Customs Act, 1962;
(ii) Customs duty amounting to Rs.2,13,20,122/- along with interest, on Palm Stearine covered under 15 Bills of Entry imported duty free against 20 Advance licences under DEEC scheme read with Notification Nos. 204/92-Cus dated 19/05/1992, 80/95-Cus dated 31/03/95 and 30/97-Cus dated 01/04/1997 and EXIM Policy 1992-97 and 1997-2002, should not be demanded under the first proviso to Section 28 of the Customs Act, 1962;
(iii) DEPB credit amounting to Rs. 2,35,20,388/- obtained fraudulently on export of Pears soap by utilizing duty exempt Palm Stearine imported under DEEC scheme should not be denied and recovered under the provisions of the Customs Act, 1962;
(iv) Palm Stearine of an aggregate CIF value of Rs. 1,95,68,464/- imported duty free and utilized in the manufacture of Pears soap and exported under DEPB scheme should not be confiscated under the provisions of section 111(d) and 111(o) of the Customs Act, 1962.
(v) Confiscation of Perfumed Glycerine Soap (Pears) exported under various DEPB Shipping Bills of an aggregate FOB value of Rs. 39,21,42,680/- should not be confiscated and penalties under Section 113(d) of the Customs Act, 1962 should not be imposed.
The said show cause notice also proposed to impose penalty on M/s HLL under the provisions of sections 112(a) and 114A of the Customs Act and on Shri V. K. Kannan, General Manager (Exports) under sections 112(a) & (b) of the Customs Act, 1962.
2.3 The case was adjudicated by the Commissioner of Customs (Adjudication), Mumbai, vide the impugned order dated 16/05/2007 wherein the Ld. Commissioner,-
(1) Confirmed customs duty demand on Crude Palm Stearine amounting to Rs. 66,71,998/- imported duty free against Advance licence Nos. 3207530 dated 01/01/1998 and 3206078 dated 23/06/1997 under DEEC scheme read with Notification Nos. 204/92 dated 19/05/1992, 80/95 dated 31/03/1995 and 30/97 dated 01/04/1997 and EXIM Policy 1992-97 and 1997-2002, along with interest leviable thereon under the first proviso to Section 28 the Customs Act 1962 and also under the provisions and conditions of the abovementioned Notifications;
(2) Confiscated Crude Palm Stearine of an aggregate CIF value of Rs. 1,49,99,863/- imported duty free and diverted to other units of M/s HLL under the provisions of sections 111(d) and 111(o) of the said Customs Act and imposed a redemption fine of Rs. 37,50,000/- under Section 125 of the Customs Act, 1962 in lieu of confiscation;
(3) Confirmed Customs duty amounting to Rs.2,13,20,122/- along with interest, on Palm Stearine covered under 15 Bills of Entry imported duty free against 20 Advance licences under DEEC scheme read with Notification Nos. 204/92 dated 19.5.1992, 80/95 dated 31.03.95 and 30/97 dated 01.04.97 and EXIM Policy 1992-97 and 1997-2002, under the first proviso to Section 28 of the Customs Act, 1962 and also under the provisions and conditions of the above mentioned notifications;
(4) Confiscated Palm Stearine of an aggregate CIF value of Rs. 4,39,53,675/- imported duty-free under 15 bills of entry mentioned above diverted /transferred by M/s. HLL to their other units or utilized in the manufacture of Pears soap exported under DEPB scheme under the provisions of section 111(d) and 111(o) of the Customs Act, 1962 and imposed a redemption fine of Rs. 1,09,29,000/- under Section 125 of the said Customs Act in lieu of confiscation;
(5) Denied DEPB credit amounting to Rs.2,35,20,388/- obtained fraudulently by utilizing exempt Palm Stearine imported under the DEEC scheme and ordered recovery of the same under the provisions of the Customs Act, 1962;
(6) Confiscated Pears soap of an aggregated FOB value of Rs. 39,21,42,680/- exported under DEPB shipping bills under the provisions of Section 113(d) of the Customs Act, 1962 and imposed a fine of Rs. 9,80,00,000/- in lieu of confiscation under section 125 of the said Customs Act;
(7) Imposed a penalty of Rs. 1,25,00,000/- on M/s HLL under section 114A and/or 112(a) of the Customs Act;
(8) Imposed a fine of Rs.10,00,000/- on Sri. V. Kannan, General Manager (Exports) of M/s HLL under section 112(a) and (b) of the Customs Act; and
(9) Appropriated the amount of Rs. 1,64,00,000/- paid as pre-deposit towards the dues adjudged as above.
The appellants are before us against the said order of the Commissioner.
3. The learned counsel for the appellants submits as follows:
a) Perfumed Glycerin Soaps under the brand name Pears was being manufactured by Unilever, U.K. to cater to the needs of the customers worldwide and it was decided by Unilever, U.K. to shift the manufacturing activity to India. In the manufacture of Pears brand soaps Unilever, U.K. was using tallow, coconut oil and rosin. However, since import of tallow was banned in India, the company decided to develop a fatty constituent to substitute tallow. M/s. HLL formulated samples of perfumed glycerin soaps at their Sewri plant using Palm Stearine which was approved by their parent company in UK. Since the requirement of perfumed glycerin soap was huge, it was decided to set up a dedicated plant solely for the manufacture of the said product at Khamgaon, Buldhana District. Accordingly, Khamgaon plant was set up for the manufacture of Pears soap with a capacity of 3000 MTs per annum. M/s. HLL applied for the first quantity based advance licence for the manufacture of Pears soap and the major inputs was Palm Stearine. Based on approved sample, quantity of Palm Stearine was determined as 73.49% and HLL indicated 734.997 Kgs. of Palm Stearine for manufacture of 1 MT of 'Pears' soap on adhoc basis. Accordingly, advance licence No. 1521854 dated 08/07/1992 was issued to M/s. HLL allowing them to inter alia import Palm Stearine oil @ 734.997 kg. per 1 MT of the finished product. Under the said licence, import took place during the period January to August, 1993 and exports were undertaken during the period from April 1993 to June 1994. In the meanwhile, M/s. HLL applied for the second advance licence based on the adhoc norms mentioned above and the second advance licence No. 1525455 was issued on 14/06/1993 permitting import of specified materials as per the norms mentioned for the 1st licence and the appellant undertook import under the second advance licence during June,1993 and also exports of the finished product was made during April-October, 1994.
b) During the period from 15/07/1993 to 02/01/1994 they received complaints about the quality of Pears soap and the entire quantity of soaps exported was rejected. To overcome the quality problems, they conducted research and re-formulated the contents. As per the re-formulation done, the total content of Palm Stearine was reduced from 734.997 kg to 676.326 kgs in a combination of Palm Stearine and Hardened Groundnut Oil.
c) The appellant applied for the third advance licence as per the reformulated ingredients, showing their requirement Palm Stearine/hardened ground nut oil at 676.326 kgs for export of 1000 kgs of Pears soap. They also wrote to the licensing authority giving information/clarifications on the reformulation and the justification thereto during January February 1994.
d) On 04/05/1994 the DGFT issued third licence No. 3498941 permitting of import of Palm Stearine/ground nut oil (industrial grade) at 676.326 kg per MT of soap. The Development Officer from the Department of Industrial Development, Ministry of Industry also visited M/s. HLLs factory in January 1995 and examined the reformulations done by M/s. HLL. On 10/03/1995 they submitted application for the fourth licence showing inter alia the requirement of Palm Stearine / Ground Nut Oil (Industrial Grade) as 676.326 kgs per MT of Pears soap.
e) On 22/03/1995, DGFT, through Public Notice No. 277 notified the Standard Input Output Norm (SION) for Perfumed Glycerine Soap specifying Palm Stearine at 0.676 kg per 1 Kg of Perfumed Glycerine Soap. The fourth advance licence was issued by DGFT on 18-4-95 mentioning only Palm Stearine, but did not mention Groundnut Oil, although application was for a combination of both. On 18/05/1995 M/s. HLL wrote to DGFT to modify the norms so as to include Groundnut Oil (Industrial Grade), along with Palm Stearine. Ministry of Industry sought clarifications in December, 1995 which were provided by M/s. HLL and again on 20/03/1996 HLL requested DGFT to include Ground Nut Oil (Industrial Grade) in the advance licence so as to specify the raw materials as Palm Stearine/Ground Nut Oil (Industrial Grade). M/s. HLL were informed that once SION is fixed, imports for export products would be permitted according to SION even if certain other ingredients were used. Accordingly in all subsequent applications for licence (5th to 20th) between 05/2/1996 to 04/01/2001, all raw materials, including Palm Stearine, were shown as per SION, al though the use of inputs was different and they were using a combination of Palm Stearine (339.150 kg/MT) and Hardened Groundnut Oil (239.400 kg/MT).
f) In respect of their 21st, 22nd and 23rd advance licences applied on 01/7/2002, 06/02/2003 and 01/07/2003 respectively, M/s HLL in their applications had specified their input requirement as 339.150 kg of Palm Stearine and 239.400 kg of Hardened ground nut oil per MT of Pears Soap; though initially the DGFT issued the advance licence on that basis, however, subsequently, they amended the input requirement as 676.326 Kg/ MT of Palm Stearine in the advance licences already issued for the reason that once SION is already fixed, the licences can be issued only on that basis.
g) In the light of the above, the counsel for the appellant submits that there has been no mis-declaration, mis-representation or suppression of any facts before the DGFT by the appellant and the usage of Palm Stearine and Hardened Groundnut Oil in the manufacture of Pears soap was made known to the DGFT. It was given to understand by the Officers of the DGFT that once SION is fixed for an export product, import of other material than what is mentioned in SION would not be permitted normally and an exporter is not prohibited from using locally procured materials in place of imported material, so long as export obligations are fulfilled.
h) Another manufacturer, namely, M/s. Jaysynth wrote to DGFT on 30/05/1997 seeking clarification as to whether imported duty-free items can be substituted for indigenous items and whether surplus duty-free materials can be used for domestic clearance. The DGFT vide letter dated 16/07/1997 clarified that there would not be any objection in using indigenously procured items in export product and using imported duty free inputs as per SION for domestic market after fulfilling the export obligation and surplus duty-free imported materials is allowed to be utilized in the factory for domestic market.
i) The Dyestuff Manufacturers Association of India, of which M/s. HLL is a member, made a representation to CBEC on 03/02/1998 seeking clarification as to when imports are made as per SION, whether Customs Department can question the actual quantity utilised for export production and whether export production can be done by using indigenous goods and duty-free imported goods can be utilised for domestic production; and whether inputs mentioned in SION can be imported, even if export products are manufactured by using substituted materials. Vide letter dated 01/04/1998, the CBEC clarified that once export obligation is fulfilled, imported duty-free surplus materials can be used for manufacture of other items by the importer in his factory . It was further clarified that the exporter can discharge export obligation by using locally procured intermediates. It was also clarified that the exporter can import goods mentioned in the advance licence, if the same is commercially known to be used in the export product.
j) The learned counsel further submits that the appellant had fulfilled the export obligation in respect of all the 20 advance licences covered by the impugned order and all these licences were redeemed and export obligation discharge certificate (EODC) issued by DGFT from time to time and copies of these redemption / EODC were marked to the customs department also and at no point of time, the customs department had objected to or challenged such redemption / EODCs issued by DGFT.
k) The learned counsel further contends that once export obligation is fulfilled and major portion of the duty-free imported material has been used in the goods exported, exemption cannot be denied on the ground of usage of imported duty-free material for domestic production or by questioning the norms fixed by DGFT.
l) The learned counsel relies on the following judgments/circulars in support of his above contentions.
(a) Jay Engineering Works Ltd. - 2003 (162) ELT 680 (T)
(b) Kitply Industries Ltd. - 2001 (135) ELT 786 (T)
(c) Standard Industries Ltd. - 2001 (136) ELT 124 (T)
(d) Galaxy Surfactants Ltd. - 2006 (202) ELT 495 (T)
(e) Stumpp, Schuele & Somappa - 2006 (194) ELT 437 (T)
(f) Aditya Birla Nuvo Ltd - 2010 (249) ELT 273 (T)
(g) Sujana Steels - 2007 (218) ELT 542 (T)
(h) Jindal Drugs - 2007 (214) ELT 37 (T)
(i) Jaysynth Dyechem - 2001 (136) ELT 1429 (T)
(j) Jindal Drugs 2006 (197) ELT 471 (SC)
(j) DGFTs letters F.No.01/84/160/11121/a.m.98/des.v/1619 dated 16/07/1997 addressed to M/s Jaysynth Dyechem and Commissioner of Central Excise, Mumbai III.
(k) CBEC letter F.No.605/39/98-DBK dated 01/04/1998 in response to representation of Dyestuff Manufacturers Association
m) The learned counsel further submits that once DGFT has certified fulfillment of export obligation against each of the advance licences, such certification is final and binding on the customs authorities and relies on the following decisions of the Tribunal:
(1) Navjyothi International - 2004 (177) ELT 875 (T)
(2) Bharath Steel Corporation - 2005 (186) ELT 565 (T)
(3) Ashok Enterprises - 2005 (186) ELT 497 (T)
n) The learned counsel further argues that the DGFT is the competent authority in respect of advance licences, both for issue and redemption, and once that authority has given a finding that the export obligation have been fulfilled, it cannot be alleged that the advance licences have been obtained through misrepresentation and relies on the judgment of the Tribunal in the case of Kukar Sons (Indo-French) Exports 2005 (188) ELT in support of the said contention.
o) The excess quantity of Palm Stearine remained from each import on account of use of indigenously procured Hardened Groundnut Oil and such surplus accumulated Palm Stearine was used in subsequent exports treating the same as replenishment material. The surplus materials imported under advance licences were not sold to anyone and whatever quantity remained after fulfillment of export obligation was transferred to HLLs own units. Such transfer to own units, could not be considered as sale or transfer to any person stipulated in the relevant customs notifications. Use of imported goods in the other units of the same entity does not violate actual user condition as has been held in Galaxy Surfactants Ltd. case [2006 (202) ELT 495 (T)].
p) It is further argued that once export obligation is fulfilled, duty-free imported goods are free from all encumbrances. It is further contended that as per condition No. (vii) of Notification No.204/92-Cus, condition No. (vi) of Notification No.80/95-Cus and condition No. (vii) of Notification No.30/97-Cus, all relating to imports under advance licensing scheme, it is provided that after fulfillment of export obligation, the exempt material can be utilised for manufacture of other soaps cleared even to domestic market. The barring provisions of aforesaid notifications of not selling or transferring duty-free imported materials to any other person does not apply to their case, because such excess quantity of Palm Stearine was replenishment for indigenously procured Hardened Groundnut Oil and the same were used by HLL itself, in its own factories for manufacture of other soaps and hence cannot be considered to have been sold or transferred to any other person, and they rely on the following judicial decisions:
(i) Standard Industries Ltd. 2001 (136) ELT 124 (T)
(ii) Stumpp, Schuele & Somappa 2006 (194) ELT 437 (T)
(iii) Jindal Drugs 2007 (214) ELT 37 (T)
(iv) Galaxy Surfactants Ltd. 2006 (202) ELT 495 (T)
(v) Ashok Enterprises 2005 (186) ELT 497 (T)
(q) The learned counsel further argues that duty-free imported materials can be used in the production of goods meant for domestic sale as has been held by this Tribunal in the case of Commissioner of Customs vs. Grand Foundry Ltd. 2005 (186) ELT 594.
(r) It is further contended that once advance licence is issued by DGFT as per SION and such licences were not questioned by licensing authority, then customs authorities cannot deny exemption on the ground of any mis-representation or mis-statement and reliance is placed on the following judgments of the Honble Bombay High Court and Honble apex court.
(i) Titan Medical Systems - 2003 (151) ELT 254 (SC)
(ii) CC (EP) v/s. Jupiter Exports - 2007 (213) ELT 641 (Bom)
(iii) Autolite (India) Ltd. - 2003 (157) ELT 13 (Bom)
(s) As regards the import of crude Palm Stearine, the advocate contends that once the licence permits import of Palm Stearine, the said licence applies to all types and varieties of Palm Stearine and crude Palm Stearine can also be imported under the licence. The import documents clearly indicated that they were importing crude Palm Stearine under the advance licence scheme and the clearances were permitted by the customs authorities and no objections were raised at the time of importation. The advocate relies on the following decisions of the Tribunal, Honble High Court and Honble apex court.
(a) Rashtriya Ispat Nigam Ltd. 2004 (168) ELT 223 (T)
(b) CC v/s. Aditya International 2001 (135) ELT 667 (T)
(c) Tungabbadra Industries [11 STC 827]
(d) Jaswant Singh Charan Singh [19 STC 469]
(e) Sun Export Corporation 19987 (93) ELT 641 (SC)
(f) Agarwal & Co. 1983 (12) ELT 116 (Bom)
(t) As regards the use of the imported material in the manufacture of items which were exported under claim for DEPB credit, the counsel submits that once the export obligation is fulfilled, excess quantity of duty-free imported materials would be free from encumbrances and use of such excess quantity for production of goods for export under DEPB scheme is not prohibited and it is legally permissible and, therefore, there is no availment of double benefit as alleged in the notice. The learned counsel further points out that once DEPB credit is allowed by DGFT, the same cannot be questioned by the customs authorities, as has been held in a number of decisions of this Tribunal as given below:
(a) Adani Exports Ltd. - 2006 (199) ELT 613 (T);
(b) Pradip Polyfils - 2004 (173) ELT 3 (Bom);
(c) PTC Industries Ltd. - 2010 (252) ELT 42 (All);
(d) M.K. Fisheries - 2002 (150) ELT 998 (T);
(e) TTK Prestige Ltd. - 2005 (188) ELT 385 (T);
(f) Vishal Exports Overseas - 2006 (202) ELT 101 (T);
(g) Rexello Castors Pvt. Ltd. - 2009 (246) ELT 371 (T)
(u) The advocate for the appellant submits that denial of DEPB credit of about Rs. 2.35 Crore along with demand of duty of Rs. 83.29 lakhs on 839.560 of Palm Stearine amounts to duplication of demand since once duty is demanded thereon, DEPB benefit has to be allowed.
(v) In the light of the above submissions, the learned counsel submits that the appellant has fulfilled all the terms and conditions of the licensing scheme both under the EXIM Policy and the Handbook of Procedure relating thereto and also the terms and conditions of the customs notifications governing the advance licensing scheme. The licensing authorities have confirmed the fulfillment of export obligations and have issued EODCs in respect of the advance licences mentioned in the show cause notice and the excess materials were used in the manufacture of products sold in the domestic market or for export only after fulfillment of the export obligation and there has been absolutely no misuse of the scheme and, therefore, no penalty is impossible on the appellant and relies on the following judicial pronouncement in support of the above contention:
(a) Pattu Exports 2007 (213) ELT 545 (T);
(b) Galaxy Surfactants 2006 (202) ELT 495 (T).
(w) Composite penalty under section 114A and under section 112(a) & (b) without giving any break up is not sustainable as has been held in the following judgments:
(a) TELCO - 2006 (196) ELT 308 (T)
(b) Thyrocare Services - 2006 (4) STR 200 (T)
(c) Wipteh Peripherals - 2008 (232) ELT 621 (T)
(d) Explicit Trading & Trading - 2009 (240) ELT A-16 (SC)
(x) The learned counsel further submits that once export obligation is fulfilled, confiscation of goods or redemption fine in lieu of confiscation is not warranted as has been held by this Tribunal in the case of Jay Engineering Works 2007 (213) ELT 545.
(y) Lastly it is contended that imposition of personal penalty on Mr. V.K. Kannan, General Manager (Exports) is not sustainable as he was only an employee of the company and did not stand to gain anything personally and whatever action he undertook is in the nature of his ordinary employment and imposition of penalty is not sustainable as has been held in the following decisions:
(a) Z.U.Alvi v/s CCE - 2000 (117) ELT 69 (T)
(b) O.P.Agarwal 2005 (185) ELT 387 (T)
(z) The learned counsel further points out that even though these pleadings were made before the adjudicating authority, the said authority did not give any findings on the various submissions made by the appellant and merely confirmed the allegations made in the show cause notice and the duty demands proposed therein and also confirmed the penal liabilities. On the basis of the above the learned counsel contends that the impugned order is not sustainable in law and, therefore, needs to be set aside.
4. The learned Jt. CDR appearing for Revenue made the following submissions.
a) The importer obtained the advance licences by fraudulent means. They got the SION norms fixed through DGFT by deliberately furnishing wrong information. Even though they were well aware that the quantity of Palm Stearine used in the manufacture of one tonne of perfumed glycerine soap (Pears) was only 339.150 kgs., they projected to the DGFT that the actual requirement was 676.326 kgs. and imported the said product @ 676.326 kgs. per MT of Pears soap when they knew that they would not be actually using that much quantity in the manufacture of the export product. Since the SION norms were fixed at the instance of the appellants, it was their responsibility to inform the DGFT about the correct position and have the SION norms revised which they failed to do. The appellants did not apply for the revision of SION norms as provided for in para 7.10 of the Handbook of Procedures by making application under Appendix 11A.
b) In every shipping bill filed under the advance licensing scheme, the exporter is required to show the actual consumption of raw materials in the export product. However, it is on record that the appellant declared in their shipping bill the consumption of Palm stearine at 676.326 Kg. per MT of Pears soap while the actual consumption was only 339.150 kgs. Thus there was deliberate mis-declaration on the part of the appellant and the ld. JCDR relies in the decisions of this Tribunal in the case of Dharam Exports vs. CC 2005 (192) ELT 503 and Modern Mills vs. CC 1996 (87) ELT 304.
c) In all, in respect of 20 advance licences, the appellant imported a total quantity of 6627.492 MTs of Palm Stearine out of which they sent to their Khamgaon unit only a quantity of 5808.724 MTs where the export product Pears Soap was manufactured. The balance quantity of 818.712 MTs was diverted to their Sewri plant where the final product was not manufactured at all. Even in respect of their Khamgaon unit, out of the 5808.724 MTs of Palm Stearine received, only a quantity of 4057.361 MTs was actually utilised in the manufacture of Pears soap and the balance quantity of 1751.363 MTs were not used for the manufacture of export product under the DEEC scheme. The break up of 1751.363 MTs is as follows:-
(1) a quantity of 302.233 MTs was diverted from Khamgaon unit to Sewri and Aurangabad units of the appellant;
(2) the appellant used 839.560 MTs of Palm Stearine in the manufacture of goods exported under claim for DEPB which was not permissible;
(3) a quantity of 609.57 MTs were imported in excess of their actual requirements.
(d) From the details of imports of Palm stearine under DEEC scheme and export of Pears soap, available on records, it can be seen that, in most cases, exports under a particular advance licence were complete before the imports under the corresponding advance licence had even commenced which shows that the appellant had used palm stearine from earlier imports to fulfill export obligation even before imports under corresponding advance licence could start.
(e) From the details of dates of redemption of the advance licences by DGFT available on records, it can be seen that redemptions have been done many years after the imports were effected. As per the EXIM policy read with HOP, raw materials imported under advance licence could be transferred only after fulfillment of export obligation and redemption of the bond/LUT by the DGFT. However the appellant indulged in diversion of the imported Palm Stearine, sometimes straight from the port of import and sometimes from one unit to another unit of the appellant much before fulfilling export obligation and obtaining EODC from DGFT which was not permissible. Hence the confiscation of imported Palm Stearine under section 111(d) of the Customs Act, 1962 by the adjudicating authority was justified. Further as per para (vii) of notification No. 204/92, the imported materials could be transferred only after fulfillment of export obligation and realization of full export proceeds. Thus transferring the raw materials to other units even before the receipt of Redemption certificate/EODC from DGFT was a clear contravention of the conditions of the relevant customs exemption notification making the goods liable to confiscation under section 111(o) of the Customs Act, 1962.
(f) Condition (vii) of customs notification governing DEEC scheme was contravened in as much as the raw materials were transferred to units which have not been declared as supporting manufacturers in the relevant Advance licences. Only Khamgaon unit was manufacturing Pears Soap and the other units were using imported Palm Stearine for production of soaps meant for domestic industry.
(g) The appellants case can not be considered as a case of replenishment as that pre-supposes use of domestic raw materials of the same kind in the manufacture of goods exported but it is on record that Palm Stearine was not manufactured anywhere in India during the relevant period and hence the appellant could not have sourced it from anywhere in India to later replenish it through imports.
(h) The advance licences were subject to Actual User Condition. Therefore the appellant could not have transferred the raw materials to other units, till the licences/raw materials were made transferable. For the same reason, they could not have diverted any quantity to another unit for use in production of goods for domestic clearance and reliance is placed on the judgments in the case of Srini Pharmaceuticals vs. CC [2005(181)ELT 286], Royal Embroideries vs. CC [2008 (221) ELT 446] and Ess Kay International vs. CC [2002(213) ELT 703].
(i) The appellant had also imported 805.266 MT of crude palm stearine which was not required for manufacture of Pears soap and the said product was used for the manufacture of different varieties of soap cleared to the domestic market in India. Therefore, crude palm stearine could not be considered as materials required for manufacture of export product under notification No. 204/92-Cus and its successor notifications.
(j) In the case of Sheshank Sea Foods Pvt. Ltd. Vs. Union of India 1996 (88) ELT 626 (SC), the Honble apex court had held that goods imported duty-free under the advance licensing scheme is disposed of in any manner not provided for in the EXIM policy or in the governing customs Notifications, then the customs authorities have powers under Section 111(o) of the Customs Act to investigate the matter and take appropriate action. A similar view was held by this Tribunal in Surya Samudra Holiday Resorts Pvt. Ltd. [2010 (256) ELT 433]. Further, the importer had executed bonds before the customs authorities for fulfilment of post-importation conditions of the import licence/duty exemption, which is a continuing liability. Demands in such cases can be raised under section 12 of the Customs Act, 1962 as has been held by the honble High Court of Bombay in Bombay Hospital Trust vs. CC [2006 (201) ELT 555(BOM)].
(k) The learned JCDR relied on the judgment of the Hon'ble apex court in the case of Commissioner of Customs, Kandla vs. Essar Oil Ltd. 2004 (172) ELT 433 (SC) wherein it was held that fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept descriptive of human conduct. In the said case it is further held that fraud would be involved if a deception is committed by disclosure of incorrect facts knowingly and deliberately. In the instant case even though the appellant very well knew that they needed only 339.150 kgs. of Palm Stearine for manufacture of 1 MT of Pears soap, in all the export documents relating to export of Pears glycerine soap, they had made a categorical declaration that they have used Palm Stearine to the extent of 676 kgs. for manufacture of 1 tonne perfumed glycerine soap. On the basis of such wilful mis-declaration, the appellant had procured DEEC licences for import of Palm Stearine @ 676 kgs. per tonne of Pears soap which was not permissible as per the Policy and also availed ineligible customs duty exemption. This conduct clearly evidences fraud and suppression of facts on the part of the importer. Though the DGFT had redeemed the Bonds executed for the advance licences, the bonds/LUTs executed with the customs had not yet been redeemed and the duty demands can be raised in terms of the said bonds/LUTs and there is no time limit for the same as has been held in CC, Mumbai vs. Jagdish Cancer Research Centre [2001 (132) ELT 257 (SC)] and CC vs. Wockhard Hospital and Heart Institute [2006 (200) ELT 15 (Bom)].
(l) As regards the demand of duty in respect of Palm Stearine used in the manufacture of Pears soap exported under DEPB scheme, wherein a quantity of 839.560 MTs of Palm Stearine oil has been used, the importer has availed double benefit once, by importing the goods without payment of duty under DEEC scheme and second by obtaining duty credit under DEPB scheme on a product on which no duty has been paid. This is clear from para 7.25 of the EXIM Policy which states that The objective of the DEPB scheme is to neutralise the incidence of Basic Customs duty on the import content of the export product.. As per Public Notice No. 65/2000 dated 8-6-2000 of the Bombay Custom House, an exporter working under DEPB scheme was required to file a declaration in the shipping bills, inter alia, to the effect that the exporter had not claimed any benefit under the advance licence scheme simultaneously. In the instant case, the appellant had availed the benefits of DEEC scheme in respect of the exports made under DEPB shipping bills which is clearly a violation of the DEPB scheme and, therefore, the importer could not have claimed DEPB benefit on 839.560 MTs of Palm Stearine imported under advance licence scheme. Therefore, the duty demand confirmed in this regard of Rs. 83,29,990/- is correct in law. The ld. JCDR submits that Boards Circular No. 26/2002Cus dated 16/05/2002, 54/2002-Cus dated 27/08/2002 and 62/2003Cus dated 21/07/2003 confirms this point as also the judgment of this Tribunal in Sierra Trading vs. CC, Chennai [2011(269) ELT 245].
(m) The learned JCDR also submits that as regards crude Palm Stearine which has been imported under the advance licences amounting to 805.266 MTs, the said product is not notified under the DEEC scheme as an input nor are they required for manufacture of export product. In as much as the product has not been notified under the advance licence nor are they required for the manufacture of the export product, the appellant could not have claimed benefit of customs duty exemption under the various Notifications governing the said scheme and, therefore, the confirmation of duty amounting to Rs. 66,71,998/- denying the benefit of exemption in respect of crude Palm Stearine is correct in law.
(n) As regards the penalty on Sri. V. K. Kannan, General Manager (Exports) of the appellant firm, the investigation has clearly brought out his complicity in the fraudulent availment of the DEEC scheme and therefore, penalty has been rightly imposed on him.
In the light of these submissions, the learned JCDR submits that the appellant can not be permitted to first get wrong SION norms fixed by giving false/wrong figures to DGFT, then import the full quantity as per the norms fixed on fraudulent figures, divert the excess quantity for other uses and for part of it claim double benefit under DEPB scheme and then seek shelter under the specious logic that they have not contravened any law and no duty can be demanded or penalty imposed. Thus he pleads for upholding the impugned order confirming the duty demands, fines and penalties on the appellant firm and penalty on Shri V.K. Kannan, General Manager of the appellant firm.
5. We have carefully considered the rival submissions.
5.1 The details of the imports of Palm Stearine oil/crude Palm Stearine imported under the said scheme, period of import, quantity of Pears soap exported, quantity of Palm Stearine utilised in the export product, the period of export of the finished product and the date of redemption of the bond before DGFT on completion of the exports consignmentwise are indicated in the table below:
Sl. No.
Advance licence No.
Date
Items Covered*
Qty Imported Palm Stearine (MTS)
Period of Import
Qty of Pears Soap(MT) Exported
Qty of P.S utilized in export (MT)
Export period
Date of
redemption by DGFT
From
To
From
To
1.
1521854
08.07.92
(i)PS
732.547
18.01.93
27.08.93
656.02 + 348.943
482.602
@73.5% + 118.344 @ 33.915%
27.04.93
17.06.94
02.03.01
2.
1525455
14.06.93
(i)PS
734.997
29.06.93
29.06.93
1036.155
351.412
30.03.94
31.10.94
28.06.99
3.
3498941
04.05.94
(i)PS (iii)HGNO
676.326
07.10.94
28.02.96
1010.801
342.813
02.11.94
04.12.95
29.06.00
4.
3493602
18.04.95
(i).PS
676.000
28.02.96
19.09.96
1013.048
343.575
25.11.95
27.07.96
20.08.99
5
3202979
16.08.96
(i)PS
135.200
21.08.98
21.08.98
200.215
67.903
17.01.97
14.08.98
24.04.00
6.
3202978
16.08.96
(i) PS
405.593
13.06.97
21.08.98
605.229
205.263
16.01.97
28.09.97
21.03.00
7.
3201204
05.02.96
(i).PS
507.000
17.09.96
13.06.97
754.299
255.821
01.08.96
11.01.97
31.03.99
8.
3206078
23.06.97
(i).S (ii)CPS
399.666
25.06.99
25.06.99
600.597
203.692
17.12.97
15.06.99
06.06.00
9.
3204926
27.02.97
(i)PS
368.680
12.03.98
21.08.98
600.345
203.607
09.06.97
11.02.99
06.06.00
10.
3204927
27.02.97
(i).PS
No import
199.643
67.709
24.07.98
29.09.99
03.08.00
11.
3207530
01.01.98
(i).PS
-
03.03.99 03.03.99 601.914 204.139 27.06.98 27.02.99 27.01.00
(ii)CPS 405.600 12 3023698 30.06.98
(i).PS 405.600 27.05.99 27.05.99 600.321 203.599 26.12.98 06.09.99 14.07.00 13 3027623 02.02.99
(i)PS 135.000 05.01.00 05.01.00 200.000 67.830 08.04.99 16.12.99 05.07.02 14 3027626 02.02.99
(i)PS 405.389 27.05.99 05.01.00 600.000 203.490 13.05.99 28.02.00 28.05.03 15 3028775 05.04.99
(i) PS 405.600 05.01.00 29.10.01 600.000 203.490 18.10.99 05.05.00 08.01.02
16. 3028773 05.04.99 .
(i) PS 135.000 08.12.00 08.12.00 200.000 67.830 01.12.99 31.03.01 05.10.01
17. 310039380 30.05.00
(i)PS 405.600 29.10.01 16.01.02 607.734 206.113 22.08.00 16.03.01 29.05.02
18. 310022302 11.01.00
(i)PS 405.600 08.12.00 01.11.01 600.200 203.558 12.03.00 23.03.01 05.12.01 19 310066947 04.01.01
(i)PS 41.990 16.01.02 16.01.02 84.900 28.794 30.03.01 22.11.01 24.04.03
20. 310066945 04.01.01
(i)PS 51.37 15.01.02 15.01.02 76.004 25.777 20.01.01 04.04.01 01.04.03 TOTAL 7432.75 11196.37 4057.361 * Items Covered:- (i) PS = Palm Stearine; (ii) CPS = Crude Palm Stearine; (iii) HGNO = Hardened Groundnut Oil; (iv) Cartons 5.2 During the period in question, Export-Import Policy 1992-97 and Export-Import Policy 1997-2002 were in operation. Para 47 of the Exam Policy 1992-1997 read as follows:
47. Under the Duty Exemption Scheme, import of raw materials, intermediates, components, consumables, parts, accessories, mandatory spares (not exceeding 5% of the CIF value of the licence), packing materials and computer software (hereinafter referred to as inputs) required for the product to be exported may be permitted duty free for processing and export by the competent authority under the categories of licences mentioned in this chapter.
However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import. The said additional customs duty shall be adjusted in the following manner:
(a) If the importer uses the inputs for production of export goods, which are otherwise liable to a duty of excise and eligible for Modvat, he may avail of Modvat credit in respect of the additional customs duty so paid, immediately upon the said inputs entering his factory;
(b) If the importer uses the inputs for production of export goods, which are otherwise not excisable or not dutiable or not eligible for Modvat benefit, he may claim drawback in respect of the additional customs duty so paid, immediately upon the said inputs entering his factory;
(c) If the importer uses the inputs for manufacture and sale in the DTA of excisable goods, he may claim Modvat in respect of the additional customs duty so paid, immediately upon the said inputs entering his factory;
(d) If the importer uses the inputs for manufacture and sale in the DTA of goods which are not excisable or not dutiable or not eligible for Modvat benefit, he shall not be eligible to any rebate or adjustment of the additional customs duty so paid.
Notwithstanding anything contained above, exemption from payment of additional customs duty shall be allowed in respect of Quantity Based Advance Licences, issued with Actual User condition to:
(a) manufacturer-exporters, on applications made on or after December 1, 1995; and
(b) merchant-exporters where the merchant exporter agrees to the endorsement of the name or names of the supporting manufacturer or manufacturers on the relevant DEEC book, on applications made on or after April 1, 1996.
Such Quantity Based Advance Licences will not be transferable even after completion of export obligation. 5.3 Para 63 of the said Policy provided that the exporter shall fulfill the export obligation within a period of 12 months from the date of issue of licence. Para 67 of the said policy further provided that a quantity based advance licence or the materials imported against it may be freely transferable after the export-obligation is fulfilled and the bank guarantee/LUT redeemed. EXIM Policy 1997-2002 also prescribed similar conditions. As regards the transferability, the said policy provided for transferability of the licence and/or the materials imported against it after the completion of the export obligation and endorsement of transferability by the licensing authority. Further, in respect of advance licence issued under actual user condition, material imported against it was not transferable and could not be sold or otherwise disposed of by the licence holder under any circumstances. 5.4 The governing customs Notifications prevalent during the material time were Notification Nos. 204/92-Cus dated 19/05/1992, 80/95-Cus dated 31/03/1995 and 30/97-Cus dated 01/04/1997. These Notifications also stipulated condition vide condition No. (vi) and (vii) which are reproduced below:
(vi) (a) that the facility of sale or transfer of materials or transfer of the said licence shall not be available in respect of those materials which are permitted for import under the said licence and for which the credit of Central Excise duty or Additional Customs duty has been veiled under rule 56A or rule 57A of the Central Excise Rules, 1944;
(b) the facility provided in sub-para (a) above shall be applicable only to a manufacturer exporter or to an exporter who has declared a supporting manufacturer and name of the supporting manufacturer so declared appears on the said licence;
(vii) exempt materials shall not be disposed of or utilised in any manner, except for utilization in discharge of export obligation, before the export obligation under the said licence has been discharged in full and export proceeds realized:
Provided that the materials imported against an Advance Licence issued after 31st March, 1993, shall not be disposed of after the discharge of export obligation and realization of sale proceeds and such materials may be utilised by the importer for manufacture of any other goods. The explanations in the said Notification further defined the term materials as follows:
(iv)Materials means
(a) raw materials, components, intermediates, consumables, computer software and parts required for manufacture of export product; or, in case of a Quantity based Advance Intermediate Licence, for manufacture and supply to holder of a Special Imprest Licence for producing final goods referred to in sub-clauses (b), (c) and 9d) of clause (iii) of the Explanation, in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 128/94-Customs, dated the 10th June, 1994.
(b) .
(c) . Similar conditions were prescribed under Notification No. 80/95-Cus dated 31/03/1995 which stipulated that exempt materials shall not be disposed of or utilised in any manner, except for utilization in discharge of export obligation, before the export obligation under the said licence has been discharged in full; vide condition No. (vi) of the Notification. As regards Notification No. 30/97-Cus dated 01/04/1997, the condition stipulated was that exempt materials shall not be disposed of or utilised in any manner except for utilization in discharge of export obligation or for replenishment of such materials so replenished shall not be sold or transferred to any other person;.
5.5 In the instant case there is no dispute about the fact that the goods have been imported under a valid DEEC licence and the quantities imported were within the limits permitted under the aforesaid licences. It is also not in dispute that the export obligations have been fulfilled in respect of all the 20 advance licences and the bonds executed before the licensing authority have been redeemed and export obligation discharge certificates (EODCs) issued to the importer by the licensing authority. It is also not in dispute that the licensing authority has not initiated any action against the importer in respect of the aforesaid 20 licences for violation of any of the conditions of the EXIM Policy as it stood at the relevant time. 5.6 The issues for consideration in this case are, (1) whether the import of Palm Stearine within the quantity limits prescribed under the advance licence, which were in excess of the actual requirements for manufacture of the export products would be eligible for the benefit of customs duty Notification even though such excess quantity have been utilised by the manufacturer in his own units for the manufacture of similar products which were sold in the Domestic Tariff Area; (2) Whether Crude Palm Stearine can be considered as an eligible input for import under the aforesaid advance licences as the licences specified only Palm Stearine; (3) Whether the export product specified in the advance licence could have been exported under claim for credit under DEPB scheme (after fulfillment of export obligation under advance licence) when the raw material Palm Stearine has been imported duty-free under the aforesaid advance licences; (4) Whether customs duty could be demanded on the Palm Stearine imported duty free and used in the manufacture of Pears soap which were exported under claim for DEPB credit; and (5) Whether Sri. V.K.Kannan, General Manager of the appellant firm, is liable to penalty.
6. The first allegation against the appellant is that they had obtained the DEEC licences by misrepresentation / fraud and, therefore, they are not eligible for duty exemption under Notification No. 204/92-Cus and its successor notifications. The contention of the Revenue is that the appellant had not informed the licensing authority the reduced requirement of Palm Stearine in the manufacture of perfumed glycerin soap and the usage of groundnut oil in admixture with Palm Stearine for the manufacture of the said soap. Since licence had been obtained by misrepresentation of facts, in view of the apex courts decision in the in the case of Sheshank Sea Foods Pvt. Ltd. Vs. Union of India cited supra, the appellants are not eligible for the exemption under the customs notification governing DEEC scheme. 6.1 We have perused the records. It is seen that, as early as 24/01/1994, the appellant had informed the licensing authority that the input/output norms fixed on adhoc basis in respect of advance licences already granted needed change and had proposed that instead of Palm Stearine at 0.735 kg. per kg. of export product, the norm should be refixed as Palm Stearine / groundnut oil (industrial grade) @ 0.676 kgs. per kg. of Pears soap. In the letter dated 18/02/1994 the appellant had informed the DGFT, New Delhi the need and justification for reformulation of perfumed glycerine soap for export as the product manufactured with the already approved norms met with serious quality complaints from the international buyers and the resultant need to reformulate the product. In the annexure to the said letter they had again stated that as against the already approved norm in respect of advance licence No. 1521854 dated 08/07/1992 in respect of Palm Stearine @ 0.735 kg. per 1 kg. of export item, the revised norm requested was Palm Stearine / Groundnut Oil (Industrial Grade) @ 0.676 kgs. per 1 kg of export item and this request was made in the context of application for advance licence vide application dated 14/01/1994. Further, the Directorate General of Technical Development in their letter dated 01/03/1994 addressed to the appellant had sought clarifications wherein they had sought details regarding consumption of Palm Stearine, Groundnut Oil, Stearic Acid, Coconut Oil and Kernel Oil, Rosin and Gum Rosin separately. In reply thereto, the appellant had given the specifications and a composition of all the above items including Palm Stearine and Groundnut Oil vide letter dated 15/04/1994. Further in their letter dated 18/04/1994 the appellant had renewed the request with the DGFT for reformulation of the input/output norms. In the advance licence No. 3498941 dated 04/05/1994, the DGTD had mentioned the requirement of Palm Stearine / Ground Oil (Industrial Grade) at 676.236 MTs. Per 1000 MT of the finished product, namely, Pears soap. The appellant had also written to the Development Officer in the Department of Industrial Development, Ministry of Industry, New Delhi vide letter dated 09/03/1995 requesting them to send their recommendations to DGFT to modify the input/output norms for perfumed glycerine soap as per requests made earlier. In the said letter they had clearly stated that:
as a result of in-house R&D efforts, a mix of oils was developed which required use of a combination of palm stearine, stearic acid and partially hydrogenated groundnut oil. This mix approximated the fatty acid chain distribution of tallow and resulted in a product which had acceptable transparency, colour and perfume impact. However, vide letter dated 18/04/1995, the DGFT intimated that they had issued a public notice No. 277 dated 22/03/1995 prescribing the standard input and output norms (SION) for perfumed glycerin soap wherein the norm prescribed for Palm Stearine was 0.676 kg. per 1 kg. of the finished product. The same norm was prescribed in the Handbook of Procedures for the period April, 1992 to March, 1997 under serial No. 1481 of chemical group. In their letter dated 18/05/1995, the appellant had again written to DGFT requesting for allowing import of Palm Stearine / Groundnut Oil for the manufacture and export of perfumed glycerin soap under DEEC wherein they had once again stated that Palm Stearine and groundnut oil both form part of our formulation in the manufacture of Perfumed Glycerin Soap. Omitting groundnut oil will result in our inability to produce soap of the right quality. On this basis they had requested to make amendment in the advance licence No. 3493602 dated 18/04/1995 to include groundnut oil (industrial grade) along with Palm Stearine as an item of import and this was reminded vide letters dated 21/12/1995 and 20/03/1996. Thus, the fact that the appellants were using groundnut oil (industrial grade) along with palm stearine was very well known to the licensing authority and the appellant at no point of time suppressed this fact from the licensing authority. However, the licensing authority prescribed standard input/output norms prescribing only Palm Stearine @0.676 kg. per kg. of perfumed glycerin soap and accordingly the appellant had imported Palm Stearine at the norms prescribed and allowed to them under the quantity based advance licences. It is also on record that the appellant had fulfilled the export obligations in respect of the above 20 licences and the bonds/LUTs executed by the appellant before the licensing authority were also redeemed. Thus, it is clear that the allegation of the department that the appellant withheld information or mis-declared information before the licensing authority is not borne out from the records available. Once advance licences are issued as per the input / output norms by the competent licensing authority, the question of denial of customs duty exemption on goods imported under the advance licences cannot arise unless any of the conditions of exemption is violated.
6.2 The Hon'ble apex court in the case of Titan Medical Systems Pvt. Ltd. (cited supra) was concerned with the denial of customs duty exemption in respect of imports made under advance licensing scheme on the ground that in the application for advance licence the importer had indicated the value of the goods imported at an amount larger than those actually spent. In the said case the apex court held as follows:
The licensing authorities have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf. Similarly, in the case of Commissioner of Customs (EP) vs. Jupiter Exports Ltd. (cited supra), the Hon'ble Bombay High Court held as follows:
With regard to the issue as to whether a license issued by the DGFT is valid or not is an issue that has to be determined by the DGFT and not the Customs Authorities. It is now well settled that until the licenses are cancelled by the licensing authority they are deemed to be valid. Therefore, the allegation of misrepresentation before the licensing authority and consequent denial of Customs duty exemption under Notification No. 204/92-Cus and its successor notifications are not legally sustainable as in the instant case the licensing authority has not questioned the appellant with regard to the usage of various items in the manufacture of export products and have issued advance licences in accordance with the standard input/output norms prescribed in the policy. Once advance licences have been issued for a given quantity and for a given value, the Customs cannot deny benefit of Customs duty exemption in respect of such quantity and value of import on extraneous grounds for which they have no jurisdiction to investigate. Therefore, so long as the terms and conditions of advance licences have not been violated by the appellant, the benefit of customs duty exemption under the aforesaid notifications cannot be denied or withheld and we hold accordingly 6.3 The next issue for consideration is whether once the licensing authority certified that export obligation has been fulfilled whether such certification is final and binding on the Customs authorities? This issue came before this Tribunal in the case of Navjyothi International vs. Commissioner of Customs, Chennai, cited supra. In that case the Revenue sought to deny the benefit of Customs duty exemption under Notification No. 30/97-Cus dated 01/04/1997 and 51/2000-Cus dated 27/04/2000 under DEEC scheme wherein the importer had undertaken imports under seven quantity based advance licences issued by the DGFT and had fulfilled the export obligation. This Tribunal in that case held as follows:
With regard to licence conditions, the licensing authority has certified full discharge of export obligation by the appellants. The adjudicating authority under the Foreign Trade (D&R) Act has found no violation of licence conditions on their part and its order has been accepted by the Revenue. Hence the Revenue cannot be seen to be critical of that order, nor can the DR be heard to argue against it. It goes without saying that the case law cited by ld. SDR cannot improve the Revenues case or plight. The Revenues allegation was that the appellants had violated conditions (vii) and (viii) of Notification 30/97 and similar conditions of Notification 51/2000. But, in this regard, the DGFTs order has taken the wind out of the Revenues sails. In the result, the charge of breach of conditions of the Customs Notifications does not survive. An identical view was held by this Tribunal in the case of Bharath Steel Corporation vs. Commissioner of Customs, Chennai, and Ashok Enterprises vs. Commissioner of Customs, Chennai, cited supra. A similar issue came up for consideration before this Tribunal in the case of Kukar Sons (Indo-French) Exports Ltd. vs. Commissioner of Customs, Jaipur. In that case the Revenue alleged violation of conditions of Notification No.204/92-Cus by the appellants as they failed to realise the sale proceeds of exported goods. The DGFT, which is the competent authority in the matter of advance licences, had already redeemed the bank guarantee and legal undertaking furnished by the appellants after considering the fulfillment of export obligation by the assessee. This Tribunal held as follows:
Once a bank guarantee and legal undertaking has been redeemed by the competent authority and no action is being taken by the competent authority, therefore, we find this finding is not sustainable in view of the decision of the Hon'ble Supreme Court in the case of Titan Medical Systems Pvt. Ltd.(supra). The Hon'ble Supreme Court held that once an advance licence was issued and not questioned by the licensing authority, the Custom authorities cannot refuse exemption on an allegation that there was any misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf. The ratio decidendi laid down in the above judgments applies to the facts of the present case. In the instant case also, the licensing authority has accepted the fulfillment of export obligation and have issued export obligation discharge certificates and have discharged the appellants from any further obligation. That being the position, the Customs authorities cannot deny the benefit of Customs duty exemption under the notifications governing the advance licensing scheme. If at all they felt that the appellant had violated any of the terms and conditions of the licences, they should have referred the matter to the licensing authority for appropriate action rather than taking action suo motu.
6.4 Revenue has raised a contention that the appellant had not used all the Palm Stearine which they had imported but part of the material had been diverted for use in the manufacture of other soaps which have been sold in the domestic market. In this context it would be useful to refer to the clarifications issued by the licensing authority and also by the Central Board of Customs and Excise. The DGFT had issued certain clarifications on quantity based advance licence vide their letter dated 16/07/1997 addressed to the manufacturer-exporter by name Jaysynth Dyechem Ltd. In that letter the DGFT clarified as follows:
With reference to your letter dated 30th May, 1997, I have to inform that this office has no objection in your using indigenously procured intermediate items in the export product and using imported duty free input as per the standard norms in your factory for domestic market, after fulfilling the export obligation as prescribed in the licence.
You are also allowed to utilize the surplus duty free raw material imported against the advance licence in your factory for the domestic market after fulfilling the export obligation mentioned against the advance licence issued under the duty exemption scheme. (emphasis supplied) Necessary clarification in this regard have already been communicated to Commissioner of Central Excise, Mumbai, whom you may contact further in the matter. A copy of the above letter dated 16/07/1997 was endorsed to the Customs also.
6.5 The Dyestuff Manufacturers Association of India, Bombay had also sought clarification from the Central Board of Excise and Customs relating to import/consumption of inputs under quantity based advance licensing scheme. The CBEC vide letter dated 01/04/1998 clarified as follows:
M/s. Dyestuff Manufacturers Association of India, Bombay have written to the Ministry seeking clarification on three points in respect of units who have fully discharged the export obligation against Quantity Based Advance Licence and have not sold any inputs in the domestic market. Copy of the letter is enclosed for ready reference. This clarification is sought in respect of 4 QABL Customs Notifications.
2. The issue has been examined in the Ministry. As regards the first point, it is to clarify that after the importer has fully discharged the export obligation, he is free to utilize any excess quantity of imported input for manufacture of other items in his factory. As regards the 2nd point, the exporter can discharge the export obligation by doing locally produced intermediates and utilize the imported basic raw materials for manufacture of other products in his factory. As regards the third point, so long as the inputs authorised in the import licence are the ones which are commercially known to be used in the export product, the importer can import such inputs. 6.6 From the above clarifications issued by the licensing authority as also the Central Board of Excise and Customs, it is clear that once the export obligation has been discharged, the importer, operating under the quantity based advance licensing scheme, can utilise the imported material under the said scheme for manufacture of other products in his factory and therefore, the allegation in the show cause notice in the present case that the appellant had utilised the imported product in the manufacture of other products for sale in the domestic market and therefore, they are not eligible for the benefit of Customs duty exemption does not have any legal basis.
6.7 The above view is also supported out by a number of judicial pronouncements. In the case of Jaysynth Dyechem Ltd. vs. Commissioner of Customs (Export Promotion), Mumbai, cited supra this Tribunal had occasion to examine the matter as under:
4. ?The Department issued 24 notices to the appellant, that we referred, in 1997. It proposes to recover duty which have been foregone by granting exemption on the basis essentially of the following three charges. The first was that out of quantities of imported exempted material for which the licences were issued in accordance with the norms published in the Handbook of Procedure that portion which has not been shown to be utilised in the export product were not covered by the exemption and liable to duty. Secondly it alleges that in respect of those materials for which there was no input-output ratio fixed in the Handbook and ratio was specifically fixed by the committees that we referred to, the importer had mis-declared the quantity that it required for manufacture of the export product and proposes to recover duty on the quantity the notices found to be in excess. It thirdly alleges that some materials, predominantly lignine sulphonate could not be used at all in the manufacture of the exported product but had been incorporated in the licence by furnishing wrong information to the licensing authorities and propose denial of exemption to it. Notices also propose confiscation of materials under Section 111(d) of the Act and penalties on the importer, its director Mahendra Kothari and Manager Ashwin Thakkar. and in that case it was held that:
It is not for the customs authorities to interpret the licensing policy and to enforce the same once a valid licence is produced. This function is with the licensing authority. If this bifurcation of the function is not adhered to there is every likelihood of utter confusion. The licensing authority may interpret one way and the customs authorities may take contrary view producing conflict between the two authorities resulting in harassment to the importer. If the licence is granted for a particular item by the licensing authority the customs authority will have no right or power to go beyond the licence, despite the passage of 20 years after the judgement was delivered, it is distressing to find the same situation. 6.8 In the light of the foregoing discussion, we hold that the demand of customs duty on Palm stearine imported by the appellant on the ground that advance licences were obtained by fraud or the said goods were imported in excess of their actual requirement and were used for manufacture of other goods sold in the domestic area, etc. does not sustain and consequently the penal proceedings on account of the same also will not sustain.
7. The next issue for consideration relates to the appellants eligibility to import crude Palm Stearine under the advance licences and consequent eligibility for Customs duty exemption thereon. The advance licences issued indicate the product eligible for import as Palm Stearine. It does not say whether such Palm Stearine should be crude or refined or should be conforming to any quality parameters. It has been contended on behalf of the appellant that in the absence of any such restrictions in the advance licence(s), it is not for the Customs to deny the benefit of exemption on the ground that exemption will not be available in respect of crude Palm Stearine.
7.1 The appellant has relied on the judgment in the case of CC v/s. Aditya International (cited supra) wherein this Tribunal considered a case where the advance licence specified sewing thread as an item eligible for import while the item imported was silk sewing thread. The Customs sought to deny exemption under Notification No.204/92-Cus on the ground that the importer had imported silk sewing thread of Chinese origin. In that case this Tribunal held that since the licence did not specify the nature of the sewing thread allowed to be imported and specified sewing thread in a generic way, the benefit of exemption could not be denied. In the Sun Export Corporation vs. Collector of Customs, Bombay case relied upon by the appellant, the honble apex court was considering the eligibility to exemption under Notification No. 234/82-C.E. dated 01/11/1982 of animal feed supplements when the notification provided exemption to animal feed including compound livestock feed. In the facts of that case, the hon'ble apex court held that animal feed would include not only that food supplied to domestic animals or birds as an essential ration for the maintenance of life but also that feed which is supplied over and above the maintenance requirement of growth or fattening and for production purposes such as for reproduction, for production of milk, eggs, meat, etc. or for efficient output of work and since the products were also fed to animals or poultry to give them better nourishment, they would, qualify as animal feeds. In both the above cases, the use of the product was not in question at all. 7.2 However, in the case before us, the facts are otherwise. Shri V.K. Kannan, the General Manager of the appellant firm, in his statement dated 11-3-2004 has, inter alia, admitted that the 805.27 MTs Crude Palm stearine imported had gone directly from the docks to the Sewree factory of the appellant and not to the Khamgaon factory where Pears soap was manufactured. Further Shri Dinesh Raj Thapar, Sr. Buyer, Oil Buying Department of the appellant firm, in his statement dated 16/02/2004 has explained the difference between Palm Stearine and Crude Palm Stearine. As per his statement while Palm Stearine for the manufacture of Pears soap had an iodine value (IV) in excess of 42 and Free Fatty Acid (FFA) content in the range of 0.25%, Crude Palm Stearine was imported by them for manufacture of distilled fatty acids for domestic soaps which had an IV ranging from 35 to 40 and FFA content in excess of 20%. He had also confirmed that as per the given formulation, crude palm stearine of FFA in excess of 20% was not being used in the manufacture of Pears soap for export. Sri. Tanmay Agarwal, Commercial Manager of M/s. HLL, vide letter dated 04/08/2004 in reply to certain queries put to him by the investigating officer, had stated that the diverted Crude Palm Stearine had been used for manufacture of toilet soap for the domestic market. All these statements have been recorded under section 108 of the Customs Act, 1962 and have not been retracted and therefore, they have substantial evidentiary value. These statements make it abundantly clear that Crude Palm Stearine could not have been used for manufacture of Pears soap because its IV and FFA content were much higher than what was required and it was never used in the manufacture of Pears soap and was straightaway diverted from the port (at the time of import) itself to the Sewree unit of M/s HLL for manufacture of soap for the domestic market. Thus crude palm stearine did not satisfy the definition/criterion of material which were permitted to be imported duty free both under the EXIM policy and the relevant customs notifications. The material imported should be capable of being used in the manufacture of the export product. Crude Palm Stearine did not also satisfy the criterion stipulated in the customs notification that the materials are required for the manufacture of export product. Therefore, Crude Palm Stearine was not eligible for customs duty exemption and therefore, the demand of customs duty on the said goods amounting to Rs. 66,71,998/- confirmed in the impugned order is sustainable in law and we hold accordingly. 7.3 The appellant has also raised a contention that duty demand is time-barred as the show cause notice has been issued only on 29/10/2004, whereas the import of crude palm stearine has taken place in March and June 1999, that is, after a period of five years from the date of import. The question of time bar in this case will not arise for the reason that the duty demand is raised in terms of the bond and letter of undertaking executed by the importer appellant with the customs authorities. In terms of the said bond/LUT, there is a obligation on the part of the appellant to fulfill the terms and conditions of import which we have already held that the appellant has not fulfilled. The bond/LUT executed with the customs has not been discharged and therefore, duty demand can be raised at any time before the bond is discharged. Since the duty demand is sustainable, the liability to pay interest thereon is automatic and consequential. Therefore, the appellant is liable to pay interest on the duty demand of Rs. 66,71,998/- in terms of the bond/LUT executed by them at the appropriate rates. Since the appellant has failed to fulfill the terms and conditions of the relevant customs notification in respect of the end use specified therein, the quantity of 805.266 MTs of crude palm stearine valued at Rs.1,49,99,863/- is liable to confiscation under the provisions of section 111(o) of the Customs Act, 1962 and we hold accordingly. Consequently the appellant would be liable to penalty under section 112(a) of the Customs Act, 1962. Since the crude palm stearine was allowed to be cleared in terms of the bond executed with the customs, in lieu of confiscation, redemption fine under section 125 of the said Customs Act can also be imposed.
8. The next issue for consideration relates to denial of DEPB credit in respect of inputs imported duty free under the DEEC scheme which have been utilized in the manufacture of export product under DEPB. A related issue is whether customs duty exemption could be granted under DEEC scheme when the inputs are used in the manufacture of products exported under DEPB. The allegation is that the appellants have obtained the input Palm Stearine without payment of duty under advance licence. Some of the products manufactured out of the inputs imported duty free have been exported under claim for DEPB. Whether DEPB credit would be admissible in respect of inputs imported under duty free under the DEEC scheme, after fulfillment of export obligation under the said scheme? 8.1 A similar issue came up before the Hon'ble High Court of Bombay in the case of Pradip Polyfils Pvt. Ltd. vs. Union of India, cited supra. The Hon'ble High Court held as follows:
The endorsement made on the licences clearly show that the DEPB licences have been issued against the export of Polypropylene Filter Plates and accessories as contained in the shipping bills furnished by the petitioners. Whether an item falls under Chapter 39 of ITC classification or not is for the licensing authorities to consider before issuing the licence. Even after the issuance of the licences, the licensing authorities have not taken any steps to declare that the said licences were wrongly issued. Once the licensing authorities have held that the export product is covered under the DEPB Scheme and have issued the DEPB licence, it is not open to the Customs authorities to hold that the said export product is not covered under the DEPB Scheme. 8.2 A similar view was held by the Hon'ble High Court of Allahabad in the case of PTC Industries Ltd. vs. Union of India cited supra. In that case, the Hon'ble High Court held as follows:
17. ?The Department of Revenue, Ministry of Finance, Government of India in its circular dated 3-6-1997 had clarified that the role of customs authorities in the matter of DEPB scheme introduced in the new export and import policy for the period 1997-2002 was confined to verification of correctness of exporters declaration regarding description, quantity, and FOB value of the export product. It is for the licensing authority to ensure that the credit is permitted at the correct rate as notified by DGFT. The word description occurring in this circular, does not extend to adjudication on description or classification. If there is any doubt on the description or classification at the time of verification, the matter has to be referred to DGFT for declaration under Section 13 of the Foreign Trade (Development and Regulation) Act, 1992. If the DGFT decides after giving an opportunity to the owners of the goods that the goods do not meet the description and classification for DEPB, the owner of the goods may in addition to the confiscation and penalty under the Foreign Trade (Development and Regulation) Act, 1992 be punished with penalty under the Customs Act, and that he may also be liable for suspension or cancellation of the license. The customs authority, however, are not entitled to adjudicate over description and classification of the goods for DEPB. 8.3 From the above judicial pronouncements, it is clear that the Customs authorities has no jurisdiction to decide the matter with regard to the eligibility of credit under the DEPB scheme and it is for the licensing authority to decide whether any particular export qualifies for the DEPB scheme or not. The Customs authorities, at best, can bring to the notice of the licensing authority the factual position and it is for the licensing authority to decide whether the export would qualify for the DEPB benefits or not. The Customs, on their own cannot decide upon the issue of eligibility to DEPB benefits of exports made by an exporter. The ratio of the above judgment applies to the facts of the present case and accordingly the denial of DEPB credit amounting to Rs. 2,35,20,388/- on the ground of fraudulent availment can not be sustained for want of jurisdiction by the Customs authorities. The jurisdiction in this regard lies with the licensing authorities and the customs authorities, could, at best refer the matter to the licensing authority for necessary action. We should, however, make it clear that merely because we have held the denial of credit is not sustainable, it does not mean that there is no breach of the conditions relating to DEPB scheme. In fact, the very availment of double benefit in respect of a single export, that is availment of duty exemption under DEEC and grant of credit DEPB militates against the grant of benefits under the two export promotion scheme. It is, in fact, a mockery of the schemes and a fraud played by the appellant on the exchequer. Therefore, the licensing authority is at liberty to take appropriate action against the appellant in accordance with the law, if they so desire.
9. The last issue for consideration is whether customs authorities can demand import duty on the inputs imported duty free and which have been used in the manufacture of export product on which DEPB credit is claimed. From the Exim Policy it is seen that the objective of the DEPB scheme is to neutralize the incidence of basic customs duty on the import content of the export product. In other words, the question of neutralization would arise only when the imported input suffers import duty incidence. In the instant case, it is an admitted position that the appellant has imported the input duty free under the advance licensing scheme. Further as per Public Notice No. 65/2000 dated 8-6-2000 of the Bombay Customs, an exporter working under the DEPB scheme was required to file a declaration, inter alia, to the effect that he had not claimed any benefit under the advance licence scheme simultaneously. This is to ensure that the exporter does not claim double benefit, one under the advance licence for duty free import of inputs and another under DEPB by claiming credit towards import duty incidence on the inputs used in the manufacture of export product. In the instant case, the import duty benefit has been claimed under notification no. 204/92-Cus or its successor notifications. As per the notifications relating DEEC and the exim policy relating thereto, materials imported under the said scheme should be specified in the advance licences issued thereunder and they should be used in the manufacture of export product specified in the licence and the product should be exported. If any imported material is in excess of the requirement for the manufacture of export product, after fulfillment of the export obligation, the material could be used in the manufacture of other products which could be sold in the domestic market. In respect of palm stearine used in the manufacture of perfumed glycerine soap (Pears), the product imported is specified in the concerned DEEC licence and the same has been used in the manufacture of export product specified, namely, Pears soap and such Pears soap has also been exported. There is also no allegation that the palm stearine has been used in the manufacture of export product before fulfillment of obligation under the concerned DEEC licence. Thus all the terms and conditions specified in the concerned DEEC licence and the EXIM policy relating thereto have been fulfilled by the appellant importer. Therefore, no duty demand can sustain either under the customs notifications or under the DEEC licence on the Palm stearine used in the manufacture of Pears Soap exported under DEPB scheme. When the scheme itself permits that the materials imported in excess of actual use can be used in the manufacture of other goods which may be sold in the domestic market by the manufacturer himself, there can not be any objection to the export of the manufactured product also. No doubt, there is a mis-declaration when the exports are made under claim for DEPB. In such cases, what is legally possible is to deny the DEPB credit on such exports and not denial of exemption under customs notifications relating to DEEC. Such action for denial of DEPB credit can be taken only by the DGFT authorities and the customs have no jurisdiction in that matter as held in the preceding paragraphs. For a violation in respect of exports made under DEPB scheme, action has to be taken under that scheme itself and it does not stand to reason that action can be taken under DEEC scheme when no violations have been committed with respect to that scheme. Therefore, the demand of duty amounting to Rs.83,29,990/- towards duty foregone under the DEEC scheme in respect of inputs which have been used in the manufacture of product exported under DEPB scheme is not sustainable in law and we hold accordingly.
10. In view of our finding in para 7.3 that customs duty demand on import of crude palm stearine is sustainable and the said goods were liable to confiscation and in lieu of confiscation, redemption fine can be imposed under the provisions of the Customs Act, the quantum of fine and penalty to be imposed on the appellant has to be determined. At the relevant time, Palm Stearine was an item restricted for import. Therefore, it would fetch a high premium in the market when sold. The CIF value of the crude palm stearine imported was Rs. 1,49,99,863/-. The learned Commissioner has imposed a redemption fine of Rs. 37,50,000/- on the crude palm stearine confiscated, which works out to 25% of the coif value of the goods. The said amount of fine is not excessive considering the fact the product was restricted for imports. Accordingly, we uphold the imposition of fine of Rs.37,50,000/- on crude palm stearine. As regards the quantum of penalty, there is a deliberate attempt on the part of the appellant to avail ineligible duty exemption, in as much as they knew in advance that crude palm stearine can not be used for the manufacture of export product and as soon as the product landed in India, they straightaway diverted the product to other units of the appellant for manufacture of other soaps. Such deliberate attempt to defraud the exchequer should not be allowed to go scot free. Since the duty sought to be evaded in respect of crude palm stearine is Rs.66,71,998/- we consider it appropriate to impose an equal amount of penalty on the appellant under the provisions of section 112(a) of the Customs Act, 1962.
11. There is an appeal filed by Shri V.K. Kannan, General Manager (Exports) of the appellant firm against imposition of penalty of Rs.10 lakhs on him under section 112 of the Customs Act. Since the bulk of the duty demand on the appellant has been held to be not sustainable and in view of the fact that Mr. Kannan did not stand to benefit personally in respect of the transactions involved, and also considering the fact that we have imposed penalty on the appellant firm, we are of the view that penalty on Sri. Kannan is not warranted in the facts and circumstances of the case. Accordingly we set aside the penalty imposed on him in the impugned order and allow his appeal.
12. In sum, we uphold the demand of customs duty of Rs. 66,71,998/- on import of crude palm stearine along with interest thereon at appropriate rates and imposition of redemption fine of Rs.37.50 lakhs on the said goods in lieu of confiscation. We impose a penalty of Rs. 66,71,998/- on the appellant under the provisions of section 112(a) of the Customs Act, 1962. All other dues adjudged against the appellant are set aside and the penalty imposed on Shri V.K. Kannan, General Manager of the appellant firm is also set aside. The appeals are disposed of in the above terms.
(Pronounced in Court on 07/10/2011) (S.S. Kang) Vice President (P.R. Chandrasekharan) Member (Technical) */as 3