Custom, Excise & Service Tax Tribunal
Nayara Energy Ltd vs Jamnagar(Prev) on 4 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 03
Customs Misc. (Ors.) Application No. 10847 of 2018
And
Customs Cross Objection No. 10877 of 2018
in
Customs Appeal No. 11674 of 2018
[Arising out of OIO-JAM-CUSTM-PRV-COM-006-17-18 passed by Commissioner
(Prev.) Jamnagar]
C.C.-Jamnagar (prev.) .....Appellant
Sharda House...Bedi Bandar Road,
Opp. Panchavati,
Jamnagar-Gujarat
VERSUS
M/s. Essar Oil Ltd. .......Respondent
Post Box No.-24, Khambalia P.o., DEV BHUMI DWARKA GUJRAT-361305.
WITH Customs Appeal No. 11391 of 2018 [Arising out of JAM-CUS-PRV-COM-006-1718 passed by Commissioner (Prev.) Jamnagar] M/s Nayara Energy Ltd. .....Appellant (formerly known as Essar Oil Ltd.) P.B. No. 24, Head Post Office, Khambalia, Dist. Devbhumi Dwarka, Gujarat- 361 305 VERSUS C.C.-Jamnagar (prev.) .......Respondent Sharda House...Bedi Bandar Road, Opp. Panchavati, Jamnagar-Gujarat APPEARANCE:
Shri. V.K. Jain, Aqeel Sheeraji, Shilpa Balani, Dimple Gohil, Advocates for the Appellant Shri. Sameer Chitkara, Authorized Representative for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL) , MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. RAJU FINAL ORDER NO. A/ 10986-10987 /2019
2|Page C/11391, 11674/2018-DB DATE OF HEARING:07.02.2019 DATE OF DECISION:04.06.2019 PER: RAMESH NAIR The present appeal has been filed against Order-in-Original No. JAM-CUSTM-PRV-COM-006-17-18 dt. 20.02.2018 passed by the Commissioner of Customs, Jamnagar. The brief facts of the case are that the Appellant are engaged in manufacture and export of various Petroleum products including Motor Spirit, LPG, SKO etc, falling under chapter heading 25 and 27 of the First Schedule to the CETA, 1985. The Appellant exported Motor Spirit under shipping Bill No. F-100/2- 13-14 dt. 07.10.2013 and imported LSFO (Low Sulpur Fuel Oil) under Advance Authorization. They were issued show cause notice dt. 08.12.2016 alleging that they have mis-declared that the exported product has been manufactured out of LSFO and has thereby violated the condition of Notification No. 31/(RE-2013)/2009-14 dt. 01.08.2013 issued by DGFT readwith para 4.1.15 of FTP 2009 - 14. It was alleged that the Appellant has not used LSFO as an input in the export goods but has used VGO (Vacum Gas Oil) generated during the refining of crude oil and had subsequently imported permissible input LSFO without payment of customs duty under Notification no. 96/2009 - Cus dt. 11.09.2009 against the Advance authorizations and has thus contravened the provisions of Rule 14 of Foreign Trade (Regulation) Rule 1993. It was proposed to demand customs duty on goods imported by them under Advance Authorization under Section 28 (4) alongwith interest under Section 28AA and penalty u/s 112 (a)/114 A and 114 (iii) of Customs Act. Vide impugned order the exemption availed by the Appellant towards importation of Low Sulphur Fuel Oil (LSFO) against Advance Authorization scheme has been denied on the ground that the said import had been made in violation of para 4.1.15 of the Foreign Trade Policy (FTP). Further that since LSFO was not used in the manufacture of Motor Spirit which the Appellant had exported while claiming discharge of export obligation, it was not entitled to clear such LSFO duty free. The show cause notice proposed to deny the benefit of customs exemption Notification No.96/2009-Cus dated 11.9.2009, to the consignment of LSFO imported vide Bill of Entry No.F-65 dated 11.10.2013. The Appellant filed reply denying the allegation of mis-declaration. They filed defence reply stating that
3|Page C/11391, 11674/2018-DB sweet VGO which was the main feed component of the FCCU was an LSFO meeting all specifications of LSFO as prescribed in IS 1593:1982.
The demand was also contested on grounds of jurisdiction and on limitation. Cross examination of witnesses was sought. After granting opportunity of cross examination of witnesses to the Appellant, the Commissioner vide impugned order confirmed the demand for duty by invoking the larger period of limitation and also imposed penalties under section 28AA and section 114A of the Customs Act. Aggrieved by the same, the Appellant has filed the present appeal.
2. Shri Vipin Jain, Ld. Counsel appearing for the Appellant submits that the exemption has been denied wrongly as there is no requirement in the Advance license or Notification that the imported LSFO should be used as an input in export product. He submit that the Appellant in their Oil refinery are manufacturing petroleum products viz. motor spirit, LPG, SKO etc using crude oil and condensates as the starting raw material. The Crude Oils are first distilled in distillation columns known as CDU (Crude Distillation Column) or VDU (Vacuum Distillation Column), and thereafter cracked in Fluidized Catalytic Cracking Unit (FCCU for short) for yielding the finished products. In between the two basic processes of distillation and cracking, the intermediate product streams emerging from the distillation columns also undergo further processing, including in particular, the process of hydro-treatment aimed at reducing the sulphur content which is an impurity. The intermediate products emerging from the distillation process include various kinds of Vacuum Gas Oils (VGO) which are hydro treated to turn them into sweet VGO, which is then blended with other intermediates to form the FCCU feed stock which is then cracked FCCU to yield various refinery finished products such as LPG, motor spirit, etc. In order to optimally utilize the spare FCCU capacity, they imported LSFO which though an intermediate product is also marketed by many refineries world over as a finished product. The LSFO was imported against Advance Authorization dated 6.5.2013 which was issued in terms of Standard Input Output Norms (SION) A3263. They first completed their export obligation against the subject Advance Authorization and another Advance Authorization dt. 08.05.2013 by exporting a quantity of
4|Page C/11391, 11674/2018-DB 55,034 metric tonnes of Motor Spirit. Post export of motor spirit, they imported the disputed consignment of LSFO vide Bill of entry No. F-65 dated 11.10.2013 which was cleared by the Customs without payment of duty under the Advance Authorization dated 6.5.2013. The LSFO so imported was used within the refinery as a component of the FCCU feed stock from which Motor Spirit, amongst other finished products was produced. The department conducted investigation in October 2015 and recovered internal records of the refinery showing that in respect of 4 storage tanks, the name (service details) was changed on 14.9.2013 from VGO and VR (Vacuum Residue) to LSFO (FCCU FEED). Several statements were recorded from various employees and Directors of the company seeking explanations for the change in name of the storage tanks and also on other related issues. He submits that the undisputed facts of the case are that that the goods exported (Motor Spirit) and that imported (LSFO) by them is conforming to the description and classification declared in the shipping bill and bill of entry respectively; the DGFT accepted the exports made by the Appellant as being in discharge of the export obligation under the Advance Authorization and issued the necessary Export Obligation Discharge Certificate (EODC)/redemption letter on 11.6.2015; LSFO imported by the Appellant as its replenishment entitlement was actually used by it in its refinery as part of the feed stock required for manufacturing motor spirit, amongst other finished products. That in the light of above undisputed facts neither the Show Cause Notice nor the impugned order cites any condition or para of the relevant Customs exemption Notification No.96/2009-Cus dated 11.9.2009 which the Appellant had failed to satisfy. The duty has been demanded by denying the benefit of the said exemption notification solely on the basis that one of the requirements in the FTP, which came to be introduced on 1.8.2013 by insertion of para 4.1.15 in the policy had been infringed and violated. He submits that the conditions imposed in para 4.1.15 of the FTP were inapplicable in the present case as the Advance Authorization had been issued to the Appellant prior to 1.8.2013 when the said para 4.1.15 was inserted in the FTP. In any event the conditions imposed in para 4.1.15 of the FTP has not been incorporated in the Customs exemption Notification and therefore any perceived violation of that policy provision could not be a ground for
5|Page C/11391, 11674/2018-DB denying duty exemption. Even though the restrictions imposed vide para 4.1.15 were inapplicable, its requirements nonetheless stood satisfied in the present case by them. The Motor Spirit exported by them was produced out of LSFO as declared in the Shipping Bill. The VGO is a variety of LSFO and therefore there was no substance in the finding of mis-declaration on the Shipping Bill.
2.1 He submits that the demand was confirmed on two assumptions both of which are not sustainable, the first being that para 4.1.15 of the FTP introduced w.e.f. 1.8.2013 was applicable even to an Advance Authorization issued prior to that date; and the second being that the said para 4.1.15 necessarily required the export products to be manufactured only by using permissible duty free inputs. In case of first assumption he submits that neither the Advance Authorization nor the FTP nor the Customs Notification either existing at the relevant time when the import was made, or even today, require export goods to be manufactured only by using duty free inputs. He places reliance on DGFT circular 72(RE-08)/2004-09 that clarifies that the objective of SION was to allow duty free imports of inputs actually used or capable of being used in the export products. He therefore submits that the first assumption of the impugned order that LSFO ought to have been actually used in manufacture of export product was totally incorrect. In respect of second assumption that whether para 4.1.15 was at all applicable in the present case, he submits that as per the impugned order, the requirement of manufacturing export goods only from permissible inputs was introduced in the FTP only vide DGFT Notification No. 31/(RE-2013)/2009-14 dated 1.8.2013, by which para 4.1.15 was added. The show cause notice as well as the impugned order rely heavily on para 4 of the said DGFT Notification dated 1.8.2013 which purports to explain the effect of the amendment by stating that the inputs actually used in the manufacture of export products should only be imported under the Authorization. He submits that it is clear that the amendment made in the FTP by the said notification dated 1.8.2013 has been applied retrospectively by the lower authorities inasmuch as the Advance Authorization in question had been issued on 6.5.2013 which was prior to the said DGFT Notification. Such retrospective application of a newly inserted
6|Page C/11391, 11674/2018-DB provision in FTP is impermissible in law. He places reliance on judgments in case of DGFT vs. Kanak Exports, 2015 (326) ELT 26 (SC) wherein it was held that Section 5 of the FTDR Act does not empower the Central Government to retrospectively amend the Policy. He places reliance upon the Hon'ble Bombay High Court decision in case of M/s Sonia Fisheries Vs. UOI 1997 (90) ELT 22 (Bom) wherein it was held that a restriction imposed later on cannot have retrospective effect. He also relies upon judgment of Hon'ble Punjab and Haryana High Court in case of Pushpanjali Floriculture Pvt. Ltd 2016 (340) ELT 32 (P&H) wherein the above principle was applied in the context of the very same DGFT Notification to hold that imports made after 1.8.2013 by using DFIA prior to 1.8.2013 could not be subjected to the additional restriction imposed by the said DGFT Notification. The High Court also struck down para 4 of the DGFT Notification dated 1.8.2013 by holding that it was manifestly absurd and unreasonable. That even if para 4.1.15 of FTP inserted w.e.f. 1.8.2013 is assumed to be applicable to imports made against an Advance Authorization issued before 1.8.2013 and even if para 4 of the Notification dated 1.8.2013 is assumed to be correctly reflecting the true effect of para 4.1.15, in that case the demand had been wrongly confirmed as the Appellant had infact satisfied the requirements of para 4 of the said DGFT Notification by actually using LSFO in the manufacture of motor spirit which was exported on 7.10.2013. VGO which is main component of FCCU feed stock is an LSFO as it fully meets the specifications of LSFO as per IS: 1593:1982. According to supplementary Chapter Note (g), Fuel Oils means any hydrocarbon oil conforming to IS specification 1593:1982. A letter dated 9.8.2016 and a statement dated 3.8.2016 of Mr Chakrapany Manoharan, Director (Refinery) of the Appellant company is cited by him to emphasize that the attention of the investigating agency was specifically drawn during the course of the investigations to the fact that the FCCU feed stock from which exported motor spirit was produced was conforming to the specifications of LSFO as per IS 1593:1982. A statement of Mr Shreedhar Rudraraju as also the record of cross-examination of various refinery personnel is relied upon by him in support of this submissions. He submits that as per the above statements and record of cross examination, VGO is a specific variety of LSFO having low
7|Page C/11391, 11674/2018-DB sulphur content (much less than 1%), and met the specification prescribed for fuel oils in IS 1593:1982. The declaration on the shipping bill that the Motor Spirit had been produced out of LSFO was therefore perfectly correct. He submits that LSFO is a generic name used to refer to various kinds of fuel oils, meeting BIS specifications, which are traded with a specific stipulation between the contracting parties as to the maximum sulphur content. That some varieties of VGOs are described as low Sulphur Waxy residue (LSWR) by some refineries in a sense synonymous with LSFO. As per IS 1593:1982 the maximum sulphur content in fuel oils, depending upon its grade, cannot exceed the range of 3.5 to 4.5%. The IS standards records that a lower limit of sulphur can be specified by mutual agreement between the purchaser and the supplier if the purchaser wishes to buy LSFO for some specialized uses. It is thus clear that though a maximum sulphur content is prescribed in the ISI, the lower limit for sulphur content is not specified but left to the contracting parties to decide. Sweet VGO, which is produced in the refinery and from which exported Motor Spirit was produced according to the Revenue had sulphur content of much less than 1% and was therefore an LSFO meeting with all the specifications in IS 1593:1982. Some refineries market low sulphur fuel oil also by the description low sulphur waxy residue (LSWR). He states that SION A3263, while referring to import items LSWR/LSFO, infact refers to the same product described differently by different refineries. The said SION norms is therefore not a SION norm providing for alternative inputs as wrongly assumed by the Commissioner while applying para 4.1.15 of the FTP to the present case. Within refinery various intermediate streams emerging from different processing units are given very specific names such as LVGO, HVGO, HHVGO, etc so as to enable identification of their sources and their internal separate storage, accountal, etc. The fact that these intermediate streams are known by such specific names as their refinery parlance does not change the fact that they are all otherwise covered by the generic description LSFO. Since a chapter note exists in the customs tariff giving a specific meaning to fuel oils as those conforming to IS 1593:1982, the lower authority has erred in overlooking the said statutory definition by giving a different meaning to LSFO by referring to the internal terminology and nomenclatures
8|Page C/11391, 11674/2018-DB given to various types of LSFO streams emerging within the refinery. Explaining the use of the specific terminology VGO (as against LSFO) while exporting some consignments of VGO in the past, he submits that it is natural and usual for a seller to use the specific description of a product when the product is a superior variety of the generic product as that enables the seller to command a premium over the average price of the generic product. Citing examples, the Ld. Counsel submits that the term "paper'' is a generic description which covers all kinds of papers starting from the inferior varieties such as news print, waste paper and ending with the best variety bond paper. While marketing bond paper the seller would obviously describe it as "bond paper'' and not as "paper''. The same person while selling newsprint, may market it by its generic name "paper''. Another example cited was that of Aviation Turbine Fuel (ATF) which, though a kind of superior kerosene oil (SKO), is always marketed as ATF and not as SKO. Likewise, LSFO being a generic description, products which are sold under the trade name LSFO are usually at the lower end/spectrum of the range of LSFO's. The superior varieties of LSFO such as VGO are marketed and sold, not with reference to their generic name, but by describing them by their specific name VGO. That such fundamental point has been totally overlooked by the lower authorities and the conclusion in the impugned order that VGO is not LSFO is therefore totally erroneous, fallacious and illogical.
2.2 He submits that the finding of the adjudicating authority that VGO and FCCU feed stock had been tested in the refinery only for some parameters specified in the IS 1593:1982, therefore had not been established by the Appellant to be LSFO is incorrect. He submits that this finding is premised on the assumption that the burden of proof rested upon the Appellant and not on the Revenue. Since the Appellant had declared in the shipping bill that motor spirit had been manufactured using LSFO and that declaration had been initially accepted by the department at the time of shipment, the burden of proving that there was mis-declaration of the shipping bill after the goods have been exported rested upon the Revenue. He submits that various types of VGO, including sweet VGO, which formed part of FCCU feed stock were regularly tested in the Appellants in-house laboratory which was an ISO approved facility for checking the key
9|Page C/11391, 11674/2018-DB parameters specified in IS 1593:1982. The in-house test reports which were collected in the course of investigations and which are acceptable evidence as per Board Circular No.25/2005-Cus dated 6.5.2005, prove beyond doubt that the key parameters of IS 1593:1982 were satisfied. He also submits that when questioned by the investigating agency about the remaining parameters of ash, acidity, sediment and water content for which the inhouse test reports did not contain any readings, Mr Sreedhar Rudraraju, Chief Planning Officer of the Appellant company had clarified in his statement dated 8.8.2016 that these parameters also met the inferred or derived stream property calculations. The investigating officers or the SCN has not disputed the said testimony of Shri Rudraraju either by seeking further details of such calculations or by drawing and testing samples in the course of investigation. He also draws our attention to the note marked Annexure-A to his written submissions, explaining the inferred or derived stream property calculations with respect to parameters of acidity, ash, sediment and water content.
2.3 While assailing the Commissioner's approach that export product should be manufactured only by using permissible inputs, he pointed out that the said approach is based on an improper understanding of the nature of SION notified by the DGFT. According to Mr Jain, SION's only prescribe the quantity ratio in which duty free entitlements are to be allowed to an exporter, and do not necessarily reflect the actual ratio in which inputs are used for manufacturing export products. Elaborating on this, he pointed out that the ratio of 1 MT : 1.265 MT given in the relevant SION A3263 for motor spirit: LSWR/LSFO is not the material balance equation representing the actual ratio of consumption and yield in the manufacturing process, but is only the ratio in which duty free entitlement has been allowed. It was pointed out that it was physically impossible to produce 1 MT of motor spirit using only 1.265 MT of LSWR/LSFO. He pointed out that in actual practice about 5 MT of LSFO is required to produce 1 MT of motor spirit, as several co-products such as SKO, LPG, HSD also emerge together with MS. Hence, while working out the duty free entitlement for 1 MT of MS exported, the quantity of duty free entitlement gets reduced from 5 MT to 1.265 MT considering the realizable economic value of other co-products, such as SKO, LPG and HSD, which are not 10 | P a g e C/11391, 11674/2018-DB being exported. He also referred to a report of Dr S. Ganguly, Chairman of the Expert Committee constituted by the Department of Chemicals and Petroleum, for the purpose of recommending the input/output norms of Naptha. According to the said report, in cases when a raw material like Naptha necessarily produces many co- products and by-products, the duty free entitlement qua one particular export product is worked out by pro-rata apportioning of the realizable economic value of all co-products which are produced.
2.4 The Ld. Counsel submits that the revenue has overstepped its jurisdiction inasmuch as it had demanded duty by ignoring the fact that the licensing authorities had accepted the export made by the Appellant towards the export obligation and had issued an export obligation discharge certificate (EODC)/redemption letter on 11.6.2015 which showed that the DGFT was fully satisfied with the export made by the Appellant and also with the license conditions being met. Despite specific reference from the investigation agency, the DGFT had neither withdrawn the EODC/Redemption letter nor cancelled the license, nor initiated any proceedings alleging violation of the FTP provisions. The contention of the adjudicating authority that Advance Authorization was misused by violating para 4.1.15 of the FTP was contrary to and, at any rate not supported by any action of the DGFT, who is competent authority to adjudge and adjudicate upon the alleged or perceived policy violation. He places reliance on judgment of Titan Medical Systems Pvt. Ltd 2003 (151) ELT 254 (SC). He also relies upon Hon'ble High Court order in case of Rajnarayan Jwalaprasad 2014 (306) ELT 592 (Guj) to state that a license is valid till the licensing authorities take steps to suspend or cancel the same and unless such an action is taken their can be no question of payment of duty on goods imported under the said license. He submits that only such imports which are made subsequent to the cancellation of a license get disentitled to the exemption as a license even if obtained by mis-representation remains valid for imports already made. He also submits that demands are time barred as the provisions of Section 28(4) of the Customs Act were not invokable in the present case in the absence of their being any wilfull mis-declaration or suppression of facts.
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3. Shri Sameer Chitkara, the Ld. Additional Commissioner (AR) appearing for the Revenue reiterates the findings of the adjudicating authority. He submits that the judgement of the Punjab and Haryana High Court in case of Pushpanjali Floriculture Pvt. Ltd 2016 (340) ELT 32 (P&H) had been challenged by the Revenue before the Apex Court and an SLP had been admitted and is pending consideration of the Hon'ble Apex Court. Though no stay had been granted, the correctness of the conclusion reached by the High Court is still at large. He further submits that the Appellant has failed to prove that VGO produced within its refinery and used as FCCU feed stock was meeting all the specifications of LSFO as per IS 1593:1982 The in-house test reports did not contain test findings for acidity, ash, sediments and water content which was also a requirement if IS: 1593:1982 and therefore the Appellant's contention that sweet VGO was also LSFO had not been proved. He also refers to the fact that the Appellant themselves had exported LSFO and VGO in the past declaring them as LSFO and VGO respectively which established that the two products were understood differently in trade. While exporting VGO in the past, Appellant had not classified the same under the classification entry for fuel oil. The customs exemption Notification has to be strictly construed and all policy provisions were impliedly conditions of the exemption notification issued under the Customs Act. Dealing with the question of bonafides, he drew attention to the change in the name of four storage tanks which demonstrated a willful intent to deceive and mislead the customs into believing that Motor Spirit had been produced out of LSFO when infact it had been produced from VGO which was a product different from LSFO as per trade parlance. He therefore submits that the order demanding duty and imposing penalty is fully justified.
4. Heard both the sides and perused the records. We find that following issues arise for determination before us :
a) Whether an import made against an Advance Authorization issued prior to 1.8.2013 are subject to the restrictions imposed by DGFT Notification No.31/(RE- 2013)/2009-14 dated 1.8.2013 inserting para 4.1.15 of the policy.
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b) Assuming that para 4.1.15 was applicable, even to Advance Authorization issued prior to 1.8.2013 whether, on its true and correct reading, the said para required export products to be manufactured only from permissible inputs ?
c) Assuming that para 4.1.15 was applicable and did require the export product to be manufactured only from permissible input, whether the Appellant had infact satisfied this requirement by using VGO for manufacture of motor spirit ?
d) Whether the customs had overstepped its jurisdiction by going beyond the terms of the exemption Notification and by acting contrary to a valid and subsisting authorization and EODC issued by DGFT ?
e) Whether the extended period of limitation in terms of Section 28(4) has rightly been invoked for demanding duty and imposing mandatory penalty.
f) Whether there was any mis-declaration made by the Appellant on the Shipping Bill dated 7.10.2013 and consequently whether it had become liable to a penalty under Section 114(iii) of the Customs Act, 1962 as held in para 41.1 of the order.
5. We find that the first question is covered in favour of the Appellant by the judgment of the Hon'ble Punjab and Haryana High Court in the case of Pushpanjali Floriculture Pvt Ltd 2016 (340) ELT 32 (P&H) wherein the Hon'ble High Court has held that para 4.1.15 could not be applied retrospectively to cover imports made after 1.8.2013 against a DFIA license issued prior to 1.8.2013. The dispute in that case arose also in the context of the very same Notification No.31/(RE- 2013)/2009-14 dated 1.8.2013 which the Revenue is relying upon to limit the benefit of duty exemption only to such inputs which were actually used in the manufacture of export product. The DFIA in that case was issued prior to 1.8.2013. It was Revenue's contention that since imports were made after 1.8.2013, the restrictions imposed in 13 | P a g e C/11391, 11674/2018-DB the FTP w.e.f. 1.8.2013 would apply to all such imports even if they were being made against an DFIA issued prior to 1.8.2013. After taking note of the judgment of the Apex Court in the case of DGFT vs Kanak Exports the High Court held that the imports made against DFIA issued prior to 1.8.2013 could not be subjected to the restrictions contained in para 4.1.15. The relevant paras of the said judgment are as under:
30. Even on first principles, we find that neither Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, nor Para 1.2 of the FTP, whereunder the impugned Notifications dated 1-8-2013 and 21-8-2014 purport to have been issued, allow retrospective divesting, by any newly added provision, of the rights already available to the License holder/subsequent transferee, of the DFIA. It is well-settled that the power to legislate retrospectively is not inherent, and has to be specifically conferred by statute no such power seems to emanate, either from Section 5 of the Foreign Trade (Development and Regulation) Act, 1992, or from Para 1.2 of the FTP. The following decisions, on which reliance has been placed in the writ petition, also underscored this settled legal position :
(a) Shri Hari Exports v. DGFT, 1994 (73) E.L.T. 794 (Del.),
(b) Hoewitzer Organic Chemicals Co. v. DGFT, 2013 (294) E.L.T. 7 (Mad.), and
(c) DGFT v. Kanak Exports, 2015 (326) E.L.T. 26 (S.C.).
31. Clause 12 of the Terms and Conditions attached to the DFIA licenses issued to the petitioner also stated they would be governed by the extent FTP, HOP and guidelines issued by the DGFT. Significantly, the words used in the said clause are "as amended" and not "as amended from time to time." In any event, the provisions of the FTP, HOP, Notifications, Public Notices and guidelines issued by DGFT as amended till the date of issuance of the DFIA, would govern the DFIAs during their entire life.
32. The same position stands reflected in Para 4.2.2(b) of FTP, as amended w.e.f. June, 2012, which reads as under
:
"DFIA shall be issued in accordance with Policy and procedure in force on the date of issue of Authorization."
14 | P a g e C/11391, 11674/2018-DB (Emphasis supplied) Though, undoubtedly, the specific stipulation to that effect was not contained in the FTP on the dates of issuance of DFIA to the petitioner, i.e., 28-3-2012 and 13-4-2012, introduction of the said stipulation, just 3 months thereafter, has to be regarded as clarificatory, especially in view of the fact that such stipulation did exist in the case of Advance Authorizations, in Para 4.1.7 of the FTP, which read thus :
"Advance Authorization shall be issued in accordance with Policy and procedure in force on Authorization issue date."
There is no reason to believe that the framers of the FTP intended the FTP to apply differently, in the case of the DFIA Scheme, as compared to the Advance Authorization Scheme, especially in view of Para 4.1 of the FTP, which already stands extracted herein above, and which parenthesize the Advance Authorisation scheme and the DFIA Scheme into one bracket 33 ........
34 ..........
35 .........
36. This would also flow from the principle of promissory estoppel, inasmuch as, at the time of issuance of the DFIAs, it was held out by the respondent to the DFIA holders as well as, consequently, to the transferees thereof, that all benefits accruing under the said DFIAs read with the then existing FTP, HOP and DGFT Circulars, etc., would be available thereunder. It was on the basis of this promise, as held out by the respondent, that the petitioner invested considerable amounts in purchasing the said DFIAs from the original holders thereof in the belief that import benefits available to the said DFIAs at the time of issuance thereof would not be denied to it merely by erroneously applying the restrictions which were introduced thereafter.
37. To the said extent, therefore, the impugned Notifications, Public Notice and Circulars, insofar as they make the restrictive conditions incorporated therein applicable to all imports made thereafter, even under DFIAs issued prior thereto, cannot sustain. The impugned DGFT Circular dated 2-8-2013 is also, consequently, illegal, insofar as it makes the Notification dated 1-8-2013 (supra) applicable to all imports effected under the DFIA scheme thereafter.
38.........
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39. That apart, as already indicated herein above, said clause (b) of Para 4.1.15 cannot be used to restrict or limit the entitlement under DFIA, which existed on the date of issuance of DFIA under the FTP, HOP, DGFT Circular dated 2-8-2013 and the provisions of the SION.
40. Any other interpretation would also render the statutory SION norms a dead letter. DFIA is issued in terms of the SION norms. Duty free import benefits on all items referred to in the said licences as per the SION as on date of its issuance have, therefore, to be guaranteed to the licence holder as well as to all bona fide transferees thereof. Such benefit cannot be whittled down and truncated on the basis of any notification or executive instructions that may be subsequently issued after issuance of the DFIA. All such notifications or instructions would, therefore, be inapplicable or liable to be struck down.
41.................
42.................
43................
44................
45. In view of the above discussion, the writ petition of the petitioner is partially allowed in the following terms :
(i) Clause 4 of Notification No. 31 (RE-2013)/2009-
2014, dated 1-8-2013, Clause 2 of Public Notice No. 35 (RE-2013)/2009-2014, dated 30-10-2013, and Clause 3 of Notification No. 90 (RE-2013)/2009-2014, dated 21-8- 2014 are struck down.
(ii) It is declared that the rest of the said impugned Notification No. 31 (RE-2013)/2009-2014, dated 1-8-2013, Public Notice No. 35 (RE-2013)/2009-2014, dated 30-10- 2013, and Notification No. 90 (RE-2013)/2009-2014, dated 21-8-2014, would not apply to DFIAs issued prior to 1-8- 2013, whether they be in the hands of the holders or of transferees thereof, provided, of course, that the transfer of the DFIAs has been effected after securing necessary permission of the DGFT therefor. The entitlement under the DFIA shall be as per the SION as it existed on the date of issuance of the DFIAs.
(iii) Respondents 1 to 3 are directed to revalidate the DFIAs dated 28-3-2012 and 13-4-2012 which are the subject matter of the present proceedings.
(iv) The Commissioner of Customs, ICD Ludhiana, is directed to allow exemption of basic customs duty in respect of the import of Soda Ash by the petitioner by 16 | P a g e C/11391, 11674/2018-DB debiting the DFIA licence under Bill of Entry No. 7080616, dated 16-10-2014.
(v) The prayer for granting exemption, so far as anti- dumping duty is concerned, is rejected for the reasons recorded above.
5.1 Though the above referred judgement was given in the situation where the licence holder had first fulfilled its export obligation and then obtained a transferable DFIA, thus entitling him to challenge the applicability of the amending Notification also on the ground of promissory estoppel, we note that the conclusions reached by the Hon'ble High Court in the above extracted passages are not premised on the principle of promissory estoppel. This is clear from para 36 of the judgment by where the doctrine of promissory estoppel was cited only as an additional ground to support the conclusion otherwise reached by the Court independent of that doctrine. We note that the primary basis for the conclusion reached by the High Court was the absence of the power in the Foreign Trade (Development & Regulations) Act 1992 (FTDR) to legislate retrospectively. The judgment also relied upon the provisions in the FTP cited in para 32 of the judgment which state that DFIA and Advance Authorization have to be issued in accordance with policy and procedure in force on authorization issue date. Para 4.1.7 of the FTP dealing with Advance Authorization was cited by the High Court and the same reads as under:
„‟Advance authorization shall be issued in accordance with Policy and procedure in force on Authorization issue date.‟‟ The conclusion reached by the High Court was therefore based on its interpretation of the policy provisions and its legislative framework, and therefore the said judgment cannot be confined in its application to the fact situation prevailing in that case.
5.2 Though the SLP filed by the Revenue against the above referred judgment by the Punjab and Haryana High court has been admitted by the Hon'ble Apex Court, in the absence of any stay being granted, judicial discipline requires us to follow the view taken by the High Court. We also find that the above judgment has been followed by the 17 | P a g e C/11391, 11674/2018-DB Tribunal in the case of Unibourne Food Ingredients LLP reported in 2018 (364) ELT 254. Since the Revenue's case is based on the DGFT Notification dated 1.8.2013 by which para 4.1.15 was introduced, the demand for duty in the present case as well as consequential levies of interest and penalties cannot be sustained in view of the above judgment. However, since the Revenue's SLP has been admitted by the Hon'ble Apex Court and since both sides have extensively argued on the other issues, we consider it appropriate to give our findings on those issues too.
5.3 As regards second issue we find that the same is also covered in Appellant's favour by the Pushpanjali Floriculture Pvt. Ltd judgment supra vide which para 4 of the DGFT Notification dt. 1.8.2013 seeking to explain the effect of para 4.1.15 was struck down as being manifestly absurd and unreasonable. A reading of the Show cause Notice and the impugned order shows that the entire emphasis of the Revenue is on para 4 of the DGFT Notification No.31/2009 dated 1.8.2009 which seeks to explain 'the effect' of the said Notification and para 4.1.15 of the FTP in the following words :
"4. Effect of the Notification: Inputs actually used in manufacture of the export product should only be imported under the authorization. Similarly inputs actually imported must be used in the export product. This has to be established in respect of every Advance Authorisation/DFIA.‟‟
6.1 Para 4.1.15 whose effect is sought to be explained in the above extracted passage reads as under:
"4.1.15 Wherever SION permits use of either (a) a generic input or (b) alternative inputs, unless the name of the specific input(s) [which has (have) been used in manufacturing the export product] gets indicated / endorsed in the relevant shipping bill and these inputs, so endorsed, match the description in the relevant bill of entry, the concerned Authorization will not be redeemed. In other words, the name/description of the input used (or 18 | P a g e C/11391, 11674/2018-DB to be used) in the Authorization must match exactly the name/description endorsed in the shipping bill. At the time of discharge of export obligation (EODC) or at the time of redemption, RA shall allow only those inputs which have been specifically indicated in the shipping bill."
5.4 We find that Para 4 of the DGFT Notification having been struck down by the High Court and thus the very basis of the proceedings of the present case has become untenable. We find that the Commissioner's understanding of para 4.1.15 and the DGFT Notification dated 1.8.2013 is summed up in para 34.4.5 of the order wherein he has contended that "the said Notification implies that inputs actually used in manufacture of the export product should only be imported under Authorization and similarly inputs actually imported must be used in the export product.'' Based on such understanding the Commissioner has concluded in para 34.4.6 that "imported materials so permitted could be utilized only for the manufacture and export of the resultant products by importer for discharge of export obligation''. We do not agree with such interpretation by the adjudicating authority as this will lead to situation where no holder of Advance Authorization would be entitled to import duty free inputs as replenishment material. In other words, every holder of Advance Authorization will necessarily have to first import duty free materials, use the very same imported goods for production of export goods, and then export such goods. This is clearly not envisaged either in the FTP or in the Customs Notification, both of which allow exports to be made first by using indigenous raw materials and import to be made thereafter as replenishment entitlement which could then be used for domestic production. The above conclusion reached by the Adjudicating authority with respect to the meaning and effect of the DGFT Notification is therefore not correct.
5.5 Before concluding our discussion on this issue, we may mention here that the applicability of para 4.1.15 to the present case was disputed by the Counsel for the Appellant on a third ground too by pointing out that the said para applied only in situations where the SION norm provides for alternative inputs or generic inputs, a situation 19 | P a g e C/11391, 11674/2018-DB which does not exist in the present case, as LSWR and LSFO are synonymous terms referring to the same product. We do not consider it necessary to go into the issue as this contention was never taken by the Appellant before the lower authority and there is insufficient material available on record to come to a conclusion on this point. Determination of this issue, in any case is not required in view of our findings above that para 4.1.15 was inapplicable otherwise. We accordingly hold the second issue also in favour of the Appellant without expressing any opinion, whether SION A3263 was at all a norm providing for alternative or generic inputs.
5.6 Coming now to the third issue, we find that there is no dispute on the fact that motor spirit which was exported by the Appellant was produced out of FCCU feed stock comprising mainly of sweet VGO, an intermediate product produced in the Appellant's refinery by processing crude oils. The question that arises for determination is whether such sweet VGO was LSFO or not. This question has to be answered by applying the statutory chapter note (g) in Chapter 27 of the Customs tariff which reads as under :
(g)„‟fuel oil‟‟ means any hydrocarbon oil conforming to the Indian Standards Specification of Bureau of Indian Standards IS : 1593 : 1982 5.7 It is not in dispute that BIS standards 1593:1982 for fuel oils also cover LSFO. The Adjudicating authority in fact proceeded on this basis in para 38.2 of the impugned order. We note that above statutory definition which uses the word 'means' lays down an objective definition of LSFO as referring to any hydro carbon oil conforming to BIS standards IS 1593:1982 with the added condition of the sulphur content being low. This statutory definition will prevail over any contrary meaning existing in the common trade parlance or the internal terminologies used within the refinery. The impugned order findings in para 35 of the order is mainly based on such trade parlance and the refinery parlance appearing in the internal records of the refinery, wherein VGO and LSFO are treated differently. In our view such understanding is not determinative of the issue. It is elementary that a product may be known and described either by its 20 | P a g e C/11391, 11674/2018-DB specific name or by its generic name. Further, different people and trade entities in different parts of the world describe a product by different view. The closest instance that we can think of in the present context is motor spirit which is an export product. Motor Spirit is known as gasoline in many parts of the world or only as gas or as petrol, as in India. There appears to be no standardization of terminology in these kinds of products world over. Due to trade practice, marketing strategies, even difference in language and dialects a product may be described differently by different people even within the same country. In the context of a statutory definition in the Customs Tariff which both sides agree to be applicable, the concept of trade parlance as also the terminologies and abbreviations adopted within the refinery is irrelevant. Therefore, what was required to be examined by the Commissioner in the present case was whether or not sweet VGO met with the specification given in IS: 1593:1982.
The table in IS 1593:1982 summarizes the specification of fuel oils in general with a separate reference to LSFO which is reproduced in para 38.1 of the impugned order.
5.8 It appears from the said table that out of the nine parameters, two are merely to be reported and no limitation has been prescribed. Effectively thus there are seven parameters which needs to be satisfied. These parameters are acidity, ash, flash point, kinematic viscosity, sediment, sulphur and water content. Note 3 in the above table deals with Low-Sulphur Fuel Oils and can be regarded as imposing an additional requirement of sulphur content being low. How low the sulphur content should be has not been specified in the BIS Standards and the same has been left to the contracting parties to decide. In the above context we find that the in house test reports of the Appellant, which were collected in the course of investigation show that the VGO's emerging within the refinery as intermediate streams were routinely tested as part of the Appellants regular refinery operations. The laboratory of the Appellant is ISO 9000 certified and as per Board circular 25/2005 dated 6.5.2005, test results given by such a laboratory are acceptable to the Customs. The Commissioner has also not doubted the credibility and accuracy of the in-house test reports. He has however held that since these test reports did not contain test values for four different parameters viz: ash, acidity, sediment and water content and that the Appellant had failed to establish that VGO was conforming to all the prescribed specifications for LSFO. The Appellant on the other hand has submitted, relying upon statements recorded in the course of investigations that the in house testing is done for certain key parameters which includes three 21 | P a g e C/11391, 11674/2018-DB of the seven mentioned in the IS 1593:1982. Compliance with the remaining four parameters is inferred through property stream calculations as stated by Mr Shreedhar Rudraraju in his statement dated 8.8.2016 which reads thus:
"On being asked as to what parameters were put to check while giving a go-ahead by EPS, I state that the Technical Services and Operations Group gave their clearance on the 04 parameters based on the Test of FCCU combine feed that the refinery conducted on regular basis to ascertain as to whether the combine feed is fit to be used as a FCCU Feed or not. The other parameters such as ash, sediments, viscosity, water, etc were confirmed based on our inferred or derived stream property calculations. On being asked as to whether while confirming the said parameters, any chemical or physical testing of the samples were done or not, I state that no such testing was done and these parameters are arrived based on our experience and knowledge about the properties of different feeds contained in the mixed feed.‟‟ 5.9 Mr Chakrapany Manoharan, Director, Refinery had also clarified in his statement dated 3.8.2016 that VGO met the specifications of LSFO. He had followed up this statement by submitting a letter dated 9.8.2016 to the investigating officer enclosing the test reports to show how FCCU feedstock met some of the specifications of fuel oil under IS 1593:1982. We find that no attempt was made by the investigation to dispute the above testimonies either by seeking further details or particulars of the such stream property calculations or inferences or by drawing and testing samples in the course of investigations. In our view, in view of the explanation given in the course of the investigation, it was necessary for the investigating officers to have examined the correctness of the claims put forth by the Appellant's above employees either by producing technical literature or by conducting further investigations, including if necessary the withdrawal or testing of samples. No such verification is shown to have been conducted, thus leaving the crucial statement of Mr Shreedhar Rudraraju unrebutted.
22 | P a g e C/11391, 11674/2018-DB 5.10 The Appellant submitted a technical note, explaining how compliance with the remaining four parameters of ash, acidity, sediment and water content can be inferred or derived from property stream calculations. This note is as under:
23 | P a g e C/11391, 11674/2018-DB 24 | P a g e C/11391, 11674/2018-DB 25 | P a g e C/11391, 11674/2018-DB 5.11 In the absence of any contrary technical material or evidence produced from the Revenue, we have no reasons to disbelieve the correctness of the explanations given above more so when neither the Show Cause Notice nor the order of the Commissioner has referred to any technical material or evidence to rebut the statements of Mr Shreedhar Rudraraju and Mr Chakrapany Manoharan. As such, we accept the claim of the Appellant that VGO complied with all the specifications of LSFO in IS 1593:1982.
5.12 We also note that the approach adopted by the adjudicating authority in expecting the Appellant to prove to the hilt the correctness of the declaration made on the shipping bill after many years after the export had been made, by insisting on in house test readings of all parameters of intermediate streams which went into the making of the export product is totally unreasonable and unfair besides being legally incorrect. Such an approach could have been justified, if the goods 26 | P a g e C/11391, 11674/2018-DB were still, awaiting exports and were available for examination. Once export of goods has been permitted by the Customs by accepting the declaration made in the Shipping Bill, the burden of proving that such a declaration was false would squarely rest upon the Revenue.
Therefore, even if we were to ignore the technical note given to us, the case of the Revenue cannot sustain and the burden of proof resting upon the Revenue had not been discharged.
5.13 Going further on question of burden of proof we find, that in the show cause Notice the Revenue had tried to discharge this burden by relying upon several statements of refinery personnel and also the internal records of the refinery showing that the description of four storage tanks No.503A, 503B, 503C, 503D was changed on 14.9.2013 from VGO/VR to LSFO. The Appellant, on the other hand relied upon the statements given by Mr Shreedhar Rudraraju, Chief Planning officer and Mr. Chakarapany Manoharan, Director Refinery wherein both had pointed out that VGO was conforming the BIS standards for LSFO and had also produced inhouse test reports to substantiate this claim. When Mr Shreedhar Rudraraju was confronted with the fact that in house test reports did not cover the four parameters mentioned above, he had clarified that those parameters were confirmed based on their inferred or derived stream property calculations and also their experience and knowledge about the properties of different feeds contained in the mixed feed. As we have observed above, the correctness of the above explanation was not probed further. It is in this context that the record of cross examination assumes relevance.
5.14 The record of cross examination of Mr Jayesh Gajjar, Head ISBL, Shyama Sadan Maji, (Senior Vice President and head of Operations), Mr Chakrapany Manoharan and Mr Dharmendra Mehta all contain a clear assertion that the VGO meets with the IS specification of LSFO. The record of cross examination of Mr Chakrapany Manoharan seems to be the most relevant and reads as under:
Q1. Your statement referred to LSFO (FCC Feed) and VGO. Can you explain the difference between the two?
A1. LSFO is a generic term wide enough to cover VGO. VGO meets the specification of LSFO. VGO is the higher end in the LSFO family.
27 | P a g e C/11391, 11674/2018-DB Q2. If VGO is only a variety of LSFO, why is it so described separately in refinery records, process charts etc? Can you please explain?
A2. Within the refinery, we need to give specific names to differentiate different intermediate streams which arise within the refinery for e.g. from the CDU itself, we have HVGO, LVGO; Sweet VGO from VGOHT unit; cracked VGO from cracker Unit. These are all different members of VGO family and the VGO itself is a member of the larger family of LSFO.
Q3. What if the penultimate intermediate product from which Motor Spirit is manufactured ?.
A3. One of the most critical components of Motor Spirit comes from the Fluid Catalytic Cracking Unit (FCCU) whose raw material is called FCC feed.
Q4. What is the FCC feed comprising of ?
A4. The FCC feed comprise of various kinds of VGOs some of which are described above. These streams comes from different process units within the refinery.
Q5. Since in your statement there is a reference only to feed coming from storage tanks 503A, 503B & 503D, it gives an impressions that the main raw material for Motor Spirit is coming from these tanks. Is it correct? Kindly explain.
A5. The answer to the question is that „‟NOT AT ALL‟‟. The feed for FCC comes from different sources. The feed coming from three tanks is only for balancing the feed. The major stream is sweet VGO from VGOHT and Sour VGO from Crude Units.
Q6. I put it to you that during the period Sept-Oct 2013 when Motor Spirit was exported under the disputed advance licence, the percentage of FCC feed from the three tanks mentioned above was around 15% only, the rest being from VGOHT (48%) and from CDU-I (23%). Is this correct ?. If so, why was this fact not put in your statement ?
A6. These figures are correct and they corroborate my earlier reply. In the course of DRI enquiries, answers are required to be given only to specific questions put to you and further clarifications like this are not recorder.
Q7. You have in your statement dated 03.08.2016, referred to the Sulphur content of VGO used as a feed but have not given the precise percentage of such Sulphur content. Can you clarify now?.
A7. I do not remember exact percentage but it generally remains low so that the Motor Spirit produced from it is meeting the Sulphur requirement of Motor Spirit.
Q8. Sir, Is it generally less than 1% or can it exceed 1% 28 | P a g e C/11391, 11674/2018-DB A8. It is much lower than 1%.
Q9. Is it therefore correct to say that MS produced from FCCU was produced from FEED which had less than 1% Sulphur content i.e. LSFO ?
A9. Yes.
Q.10. According to your statement, you have confirmed that as per the production records of the refinery, LSFO was not produced in the refinery on the relevant dates, i.e. from 14.09.2013 to 10.10.2013. Can you please explain this ?
Q11. I am showing you your statement where Mr Gajjar‟s statement has been shown to you, with which you have agreed. Mr Gajjar has stated that according to the reports of production, LSFO is not shown as one of the raw materials. Can you explain your previous answer in the context of this part of the statement ?.
A11. The specific names of streams are used in the refinery reports rather than the generic name LSFO. This explains the position.
5.11 The record of Cross examination of Shri Shyama Sadan Maji, Senior Vice President and Head of Operations is also relevant and reads as under:
Q1. In your statement dated 26.07.2016 you have given answers with reference to stock report contained in a ROM CD and have referred to four tanks nos. 503A to 503D. Are these the only tanks from which FCC Feed is made.
A1. No. These are not the only tanks from which FCC feed is made. These four tanks are connected to FCC unit of which one tank i.e 503C was used for different service (Vacuum Residue). FCC feed is having different components and some of them are coming directly from other processing units and balance comes from storage tank.
Q2. In your statement, you have stated that LSFO is not there amongst all the feeds.
A2. Yes. I did made this statement because „‟on perusing‟‟ the documents shown to me the word „‟LSFO‟‟ was not appearing in the list.
Q3. What was the names of the feed that were appearing in that list ?.
A3. It was CDU, LVGO to FCCU, CDU HVGO to FCCU, CDU_HHVGO_FCCU, VGOHT_Sweet VGO_FCC, CDU2_Hot VGO_FCCU, CDU2 AR, VGO_PIT_FCC.
Q4. Is it correct to infer from the list that LSFO was not used for manufacturing Motor Spirit.
29 | P a g e C/11391, 11674/2018-DB A4.No. I did mentioned that all these feed components meet the specification of LSFO. These are only internal names given for operational convenience to identify the units from where these streams are coming.
Q5. Being the plant head of operations can you clarify what was the approximate sulfur content of the FCCU Feed that was processed to make Motor Spirit in September - October 2013 ?
A5. I would like to clarify that I was not in Operations department during the said period.
Q6. In your statement you were questioned about the change in nomenclature of storage tank from „‟VGO‟‟ to „‟LSFO‟‟ on 14.09.2013 but you have not commented whether the said change was proper or not. Can you clarify ?.
A6. I did mention that VGO meets specification of LSFO i.e. FCC Feed. I was however told that I should restrict the answers only to the questions asked.
Q7. In your statement you have not clarified what percentage of Sulphur constitutes a threshold for describing the product as LSFO. Can you clarify now ?.
A7. There are no norms or rules available to define fuel oil as either low Sulphur or high Sulphur. There is an Indian Standard which specify fuel oil viz: IS:1593. This Standard stipulates that a buyer and seller can mutually decide the sulphur requirement of LSFO, subject to a maximum of 3.5%.
Q8. In trade what percentage of Sulphur is being accepted as a threshold of low Sulphur fuel oil ?
A8. I will not be able to specify a number for sulphur content of LSFO. As far as our FCC is concerned, we used to process upto 2% sulphur as LSFO (FCC feed).
Q9. In the stock reports shown to you at the time of recording statement the word „‟LSFO‟‟ also appears as one the Feed element. This is on addition to various types of VGO that you have referred to above. Does this indicate various types of VGO are not LSFO ?
A9. Answer is No. Name of the Feed streams appearing in the list indicates their source from where they are coming. LSFO (FCC feed) is coming from a tank whose service is LSFO (FCC Feed) and hence it is appearing in the list separately.
Q10. Do these different types of VGO meets the
specifications of LSFO ?
A10. Yes, They meet the specification of LSFO.
Q11. Why did you not clarify in the statement ?
30 | P a g e C/11391, 11674/2018-DB
A11. As I mentioned earlier, answers were restricted only to the questions asked.
5.15 The above record of cross examination shows that within the refinery different intermediate streams emerging from different processing units were given specific abbreviated names such as LVGO, HVGO, HHVGO, VGOHT, Sweet VGO, etc. It was clarified by the refinery personnel that the internal records maintained by the refinery used the above specific names which are abbreviations of individual feed components of FCCU feedstock. It was further clarified that these abbreviations are only internal names given for operational convenience and better internal communication to differentiate different intermediate streams arising within the refinery. The Commissioner has, while relying upon the statements, recorded in the course of investigations for drawing an adverse conclusion against the Appellant has totally brushed aside and discarded the averments made by these persons in their cross examination. The reasons given by the Commissioner in para 39 of the order for disregarding the record of cross examination are three fold. Firstly, the Commissioner claims that the Appellant's stance that VGO is LSFO as per BIS Standards is a new contention taken only in the reply. As we have already noted above this finding is actually wrong in view of the crucial statements of Mr Shreedhar Rudraraju and Mr. Chakrapany Manoharan. Secondly and more importantly a submission made by the Appellant in the course of investigation cannot be ignored by terming it as an afterthought as adjudication if the first stage when the Appellant gets an opportunity to plead its case and make submissions in reply to the show cause notice. It is entitled to make new submissions and lead fresh evidence. The bar against producing fresh evidence or accepting new submissions exist only in Appellate proceedings, and not to original proceedings of adjudication of a show cause notice where it is the assessees' right to make submission and lead evidence . Such submissions cannot be ignored and brushed aside on the ground that it was not made in the course of investigation. If the Commissioner had doubts about the correctness of the Appellant's claim, with regard to compliance of the four parameters, the Commissioner could have got the matter verified by directing withdrawal of samples of the 31 | P a g e C/11391, 11674/2018-DB intermediate products. As it is nobody's case that the refinery processes and product quality has undergone any change between the time when export goods were produced and the time when the Commissioner adjudicated the case. Instead of making any such effort, the Commissioner has chosen to cast an absolute burden of proof upon the Appellant which, in the circumstance explained above was neither reasonable nor legally justified.
6 The third point that the Adjudicating authority has made for disbelieving the testimonies in cross examination is the absence of retraction or clarification from the refinery personnel post recording of the statements. Here again the Adjudicating authority is wrong as the question of retraction of statements becomes relevant only if there are sought to be used against the very same person who made the statements. It is only then that such statements acquire the character of an admission, which, in the absence of timely retraction may bind the maker of the statements. The statement of a witness, on the other hand, stands on an altogether different footing. The correctness of such witness statements can be validly contested by the third party against whom such statements are to be used, by seeking cross examination in the course of adjudication. If such witnesses chose to resile from their statements, the evidentiary value of the original statements become weak and questionable and it is then left to the adjudicating authorities to appraise and weigh to come to a proper conclusion. A blanket brushing aside of the record of cross examination is not justified in any case. We therefore cannot accept the finding of the Commissioner in para 39 on the issue of cross examination.
6.1 In the impugned order, the adjudicating authority has laid a lot of emphasis on the fact that the Appellant itself was classifying LSFO and VGO under two different headings. It is stated that in the Central Excise Registration obtained by the Appellant, as well as in certain export shipments, VGO was classified under CET 2710 1990 as "Other'' while LSFO was classified in the Bill of Entry under 2710 1950, thus proving that the two products were differently classified both by the department as well as by the Appellant. The Adjudicating authority has 32 | P a g e C/11391, 11674/2018-DB stated that the above classifications have never been disputed by the Appellant at any stage. The Appellant on the other hand has submitted that an erroneous classification of VGO claimed by the Appellant in the past cannot bind it for all times to come particularly when the two classification attracted the same rate of duty and therefore did not warrant the raising of a dispute. We agree with this submission as no estoppel can be pleaded against law particularly when the issue of classification was never a subject matter of any lis or adjudication in the past. A mistake in the claiming of classification in the past cannot become the sole basis for shutting out a plea for proper classification of the product in future. We are of the view that matters of classification have to be decided with reference to the statutory provisions and definition and not merely on the basis of what the department or the assessee claimed or did in the past.
6.2 The Commissioner has recorded a finding in para 38.3 of the order that as per the appellant's own submission LSFO and VGO have distinct use, marketability and description. This finding is not correct as the Appellant's submissions in its replies and written submissions do not contain any such admission. Probably the Commissioner was referring to the statements of the refinery's personnel recorded in the course of investigation. Such statements of the company's employees cannot be regarded as the submissions of the Appellant company. The submission of an Appellant are those which are made in the reply to the show cause Notice. Further, in any event statement's made in the course of investigation have to be read alongwith the depositions made in the cross examination. In the cross examination all the concerned personnel has stated that VGO is also a type of LSFO. Significantly, even Mr Chakrapany Manoharan in his statement recorded on 3.8.2016 stated ".........that both VGO and LSFO can be considered as different goods however, VGO meets the specification of LSFO''. In this regard we find the Appellants explanation about generic and specific terms to be apposite. We agree with the examples cited by the Appellant to give force to the point that a superior variety of product within a genus is usually known and marketed under its specific name, while the lower end and inferior varieties of products within the same genus tend to be sold with 33 | P a g e C/11391, 11674/2018-DB reference to their generic name. The example of Aviation Turbine Fuel (ATF) and Superior kerosene Oil (SKO) is very close and germane to the fact situation in the present case.
6.3 We note in this connection that the ratios in the SIONS do not necessarily represent the actual material balance equation in which inputs are used for producing a particular final product. The report of Dr. S. Ganguly which was submitted by the Appellant shows that in cases of petrochemical products where the starting material necessarily yield many co-products and by-products, SION for one particular export product is worked out by first ascertaining the realisable economic value of each such product and then reducing the entitlement pro-rata to the extent of the economic value of co- products/by-products, which though emerging alongwith the export product in question, are not exported. We take note of the Appellant's submission that in actual practice, the quantity of LSFO required for producing 1 MT of motor spirit can be as high as 5 MT, even though the duty free entitlement as per SION is only 1.265 MT which obviously means that the remainder quantity of LSFO and other inputs used in export production are not granted duty free entitlement so as to factor in the fact that all end products arising from processing of LSFO are not being exported. The scaling down of the quantity entitlement thus compensates for non-export of the other co-products such as SKO, HSD, LPG, etc which as a technical necessity arise alongwith the export product motor spirit, from processing of LSFO. As such, the finding of the Commissioner that export goods should have been produced only by using permissible inputs is an impossible requirement, which is not only totally illogical but also absent in para 4.1.15. Para 4.1.15, in our view, is not aimed at laying down a strict quantity correlation between permissible inputs and export product. This para only aims to prevent duty free import of totally unconnected and different type of inputs than what was actually used in the export production. In our view, the Commissioner has totallymisinterpreted this provision of the FTP.
7 The Commissioner has also observed that according to the statements of the refinery personnel the technical specifications of 34 | P a g e C/11391, 11674/2018-DB VGO and LSFO were different. We note that this observation is not entirely true in view of the two crucial statements that we have referred to repeatedly in this issue. Even otherwise, in any situation where a specific superior variety of a product from out of a generic class of product will always have its own specific specifications. The technical specifications of the generic group of products will be in broader range sufficient to cover the specification of the superior variety. Thus, the observations of the Ld. Adjudicating authority based on the statements that technical specifications of VGO and LSFO were different is not really relevant. What needed to be examined is whether the technical specifications of the specific product fell within the range of the wider specifications of the generic product. This was not examined either by the investigating agency or the adjudicating authority.
7.1 In view of our conclusions that VGO was also one variety of LSFO, the issue regarding the change of names of the storage tanks on 14.9.2013 also loses significance. This issue would have been relevant only if we had come to a conclusion that VGO was not LSFO. Since we have accepted the Appellants explanation that the said change in name was not improper, as it merely described the product by its generic name LSFO as against its specific name VGO, the issue of intention behind the making of this has no relevance.
7.2 Before concluding our discussion on this we note that a considerable part of the discussion in the impugned order is devoted to the question of how low the sulphur content should be in LSFO. While the Revenue has claimed that the maximum sulphur content in LSFO should be one percent in view of BIS standards of heavy petroleum stock in 11489-1985, the Appellant has contended that the one percent criteria cannot be applied as BIS 11489-1985 applies only to heavy petroleum stock and not to fuel oils. We do not find this controversy to be relevant for the present purposes as it is an admitted position that the sulphur content of LSFO imported in the present case as well as in the VGO was less than 1%. As such, for the purpose of present appeal there is no need for us to decide the question whether the upper threshold for sulphur content is 1% as 35 | P a g e C/11391, 11674/2018-DB claimed by the Revenue or 2 % or more as claimed by the Appellant. Insofar as the BIS standards are concerned, no upper threshold for low sulphur varieties of fuel oil has been specified. Since we are not dealing with this issue, we are also not expressing any opinion on the statements and cross-examination of Shri Rajaraman Dhasarathan, Joint Director, Customs Laboratory, Kandla which have been relied upon by the Commissioner in his order mainly for deciding the upper threshold of sulphur content in LSFO.
7.3 Before concluding our discussion on this issue, we note that a considerable part of the discussion in the impugned order is devoted to the question of how low the sulphur content should be in LSFO. While the Revenue has claimed that the maximum sulphur content in LSFO should be one percent in view of the BIS standards of heavy petroleum stock in 11489:1985, the Appellant has contended that the one percent criteria cannot be applied as BIS 11489:1985 applies only to heavy petroleum stock and not to fuel oils. As observed by us in para 7 above, the IS standard 1593:1982 for LSFO does not prescribe any upper limit for the sulphur content and leaves the same to the contracting parties to decide. An upper limit for sulphur content (3.5 to 4.5) exist only for normal fuel oils covered by the same standard. When no upper limit has been prescribed in the said standard for LSFO, we are of the view that both the Appellant as well as the Commissioner are wrong in debating about the precise upper limit of sulphur content (1% or 2%). The Commissioner is therefore not correct in assuming that the upper limit for sulphur content in LSFO is 1%. We also find that the upper limit of 1% for sulphur content in standard BIS 11489 - 185 <11489185> is totally inapplicable as that BIS applies to a totally different product namely heavy petroleum stock and not to LSFO. We also find that the opinion of Joint Director, Customs laboratory Shri Rajaraman Dhasharathan justifying the application of BIS 11489:1985 to LSFO is totally unacceptable, particularly in view of the statutory definition of LSFO, in the chapter note which refers only to IS 1593:1982 and not to IS 11489:1985. The Joint Director has otherwise gone beyond his role of testing samples and reporting test results, by offering his own interpretation and views on what LSFO is.
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8. Coming now to the fourth issue concerning the Customs jurisdiction, we are unable to accept the contention of the Appellant as we find that the Commissioner has correctly observed in para 34.3 of the order that the present case is not one where the Advance Authorization was obtained through mis-representation but is one where the Appellant had wrongly claimed fulfillment of export obligation by claiming that the export product had been made from LSFO. As such the case laws cited by the Appellant before the Commissioner on the point that a license obtained through mis- representation remains valid unless revoked by the licensing authorities was not relevant. What applies to a license cannot be equally applicable to a redemption letter issued by the licensing authorities, more so when the redemption letter does not contain an unqualified acceptance of fulfillment of export obligation by the licensing authorities. The last para of the said redemption letter reads as under:
"This EO discharge /redemption certificate is issued without prejudice and will not preclude custom authority to take action against the licensee at any stage, in case any fraud or mis-declaration/misrepresentation or mis-use of the scheme is noticed."
Apart from the above the reliance placed by the Adjudicating authority in para 4.5.7 of the Handbook of Procedures and para 2.15 of the FTP, in paras 34.4.1 and 34.4.2 of the order is opposite. In any case an act of misdeclaration on the shipping bill, which is a Customs document is certainly actionable under the Customs law. We therefore hold that the Customs did not act beyond its jurisdiction in questioning the correctness of the redemption letter issued by the DGFT. This conclusion of ours however will not make any difference to the result of this case as we have already held above while dealing with the third issue that there was infact no mis-declaration on the shipping bill.
9. As regards the last two issues, since we have already held above that there was no mis-declaration on the Shipping Bill, the Appellant cannot be held liable for any penalty under Section 114 (iii) of the Customs Act. For the same reason, no basis exists for sustaining the 37 | P a g e C/11391, 11674/2018-DB invocation of the extended period of limitation in Section 28(4) of the Customs Act. These two issues are therefore decided in favour of the Appellant.
10. Thus in view of the above observations and findings, we allow the appeal filed by the assessee by setting aside the impugned order.
11. The Revenue also filed appeal bearing No. 11674 of 2018 for imposition of penalty under Section 114(iii) of Customs Act, 1962. Since demand itself is not sustained, the Revenue's appeal on the penalty aspect, being consequential will not survive and accordingly dismissed. The assessee filed an application for change of cause title in the appeal no. 11674 of 2018 which is allowed. Cross Objection also stand disposed of.
(Order pronounced in the open court on 04.06.2019) (RAMESH NAIR) MEMBER (JUDICIAL) (RAJU) MEMBER (TECHNICAL) Neha