Customs, Excise and Gold Tribunal - Tamil Nadu
Mrf Limited vs Commissioner Of Customs on 29 March, 2006
Equivalent citations: 2006(109)ECC341, 2006ECR341(TRI.-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The appellants, M/s. MRF Limited, Chennai (MRF for short) are engaged in the manufacture of Automotive Tyres, Tubes and allied products. They also export these goods. During the period June 1992 to January 1996, they exported tyres and tubes (manufactured in their factories at Thiruvottiyur, Goa, Arkonam and Medak) in terms of 12 Value-Based Advance Licences [VABALs] issued to them by the competent authority under the Ministry of Commerce, Govt. of India. The corresponding imports of inputs under the VABAL scheme (otherwise called Duty Exemption Entitlement Certificate [DEEC] scheme) were made during the period October 1992 to March 1995. Duty-free clearances of these inputs were obtained by MRF under Exemption Notification No. 203/92-Cus. dt 19.5.92 issued (as part of the DEEC scheme) by the Central Government. One of the conditions stipulated under the Notification [Condition No. v(a)] was that the export obligation (which was required to be discharged under the VABAL scheme) in relation to the imported inputs should be discharged within the specified period by exporting the goods manufactured in India, in respect of which no input stage credit was obtained under Rule 56A/51A of the Central Excise Rules, 1944. Upon scrutiny of MRF's records, the department found that they had violated the said condition by availing input stage credit under Rule 57A in respect of the export goods. It was also found (a) that they had suppressed the fact that they had so availed credit and (b) that it had been wilfully misdeclared that the export goods had been manufactured without availing such credit. Intention to evade payment of Customs duty leviable on the imported inputs was also attributed to MRF. On this basis, two show-cause notices (SCNs) were issued to MRF, the first one dated 19-6-95 covering 7 licences and the second dated 23-11-95 covering 5 licences, both in respect of their factories at Thiruvottiyur, Goa, Arkonam and Medak. The first SCN (read with its corrigendum dated 31-10-95) demanded Customs duty of Rs. 67,50,92,455/- from MRF on the inputs imported under the 7 licences from October'92 to May'94. The second notice raised a similar demand of Customs duty of Rs. 5,37,57,908/- on them in respect of the inputs imported under the 5 licences from August'94 to March'95. These demands were raised in terms of the proviso to Section 28(1) of the Customs Act read with Notification No. 203/92-Cus. ibid. Interest on duty was also sought to be levied from the party @ 24% per annum from the date of clearance of imports to the date of final payment in terms of para 128B of the Hand Book of Procedures 1992-97. The SCNs also held the imported goods to be liable for confiscation under Section 111(o) of the Customs Act and proposed to impose penalty on the importer under Section 112 of the Act. After receipt of the first SCN, MRF informed the department in writing that they had expunged in full the Modvat credit availed in respect of VABAL exports for the period June'92 to March'93, 1993-94 and 1994-95. The credits so expunged in respect of the exports from their factories were stated in reply to the SCN. MRF also produced certificates of expunction of credit from the respective Superintendents of Central Excise. They responded similarly to the second SCN also. The Commissioner of Central Excise (adjudicating authority) called for and obtained information, from the Asst.Commissioners of Central Excise in respect of the above factories, as to the actual amounts of Modvat credit to be expunged by MRF in terms of the formula prescribed by the Central Board of Excise & Customs [CBEC].
1.1 Subsequently, in January 1997, the Central Government announced an "amnesty scheme" allowing time-bound reversal of Modvat credit obtained by exporters in contravention of condition v(a) of Notification No. 203/92-Cus. According to this scheme, the exporters concerned had to reverse the Modvat credit availed on inputs used in the manufacture of the goods exported under the VABAL scheme, on or before 31.1.97 as also to pay interest @ 20% on the credit amount for the period from the date of export to the date of reversal of credit, on or before the same date. Where the Modvat credit was reversed and amount of interest paid by 31.1.97, there would be neither any demand of duty on the imported inputs nor any penal action or prosecution proceedings against the importer. It was further clarified that the VABAL-holders who failed to reverse the credit in full by 31.1.97 were not to be exempt from penal proceedings under the law. The amnesty scheme also laid down that the Modvat credit reversals must be based on the standard input-output norms [SION] prescribed by the Ministry of Commerce. Subsequently, MRF produced certificates of Modvat credit reversals and interest payments from the Asst.Commissioners of Central Excise in respect of their factories at Goa, Arkonam and Medak and claimed that they had reversed Modvat credit in full and paid interest in terms of the amnesty scheme.
1.2 In respect of the Thiruvottiyur factory, there was a special situation. That factory had received duty-paid compounded rubber from the sister unit at Kottayam [which had availed Modvat credit on the indigenous inputs used in the manufacture of compounded rubber] and had used the same in the manufacture of the goods which were exported under the VABAL scheme. The amount of credit reversed by MRF at Thiruvottiyur was not that of the duty paid on the compounded rubber, but an amount equivalent to the duty paid on the inputs used in its manufacture. The Asst.Commissioner concerned took the view that MRF was liable to reverse credit equivalent to the duty paid on compounded rubber itself. Accordingly, he passed Order-in-Original No. 34/97 dt. 31.7.97 declining certification of compliance (with amnesty scheme) to MRF. In their appeal against the said order, MRF contested the AC's stand and contended that, as compounded rubber was an intermediate or in-process material in the process of manufacture of tyres and tubes from original inputs, credit of duty paid on compounded rubber could not be treated as 'input stage credit' envisaged under the DEEC scheme. According to them, input stage credit was the one taken on the original inputs used in the manufacture of compounded rubber in their Kottayam factory. This contention of the party was accepted by the appellate authority [Commissioner of Central Excise (Appeals), Chennai] in Order-in-Appeal No. 23/98 dated 26-2-98 and the case was remanded to the original authority. The Order-in-Appeal was appealed against by the department. While that appeal was pending before this Tribunal, the Kar Vivad Samadhan Scheme [KVS Scheme], 1998, was introduced by Parliament through Chapter IV (Sections 86 to 97) of the Finance (No. 2) Act, 1998. MRF filed a declaration with the designated authority under Section 88 of the Finance Act and obtained a certificate of settlement of dispute from that authority under Section 90 of the said Act upon payment (on 15.6.99) of 50% of the disputed amount, i.e. Rs. 2,93,40,449/-, determined by the said authority. In view of this settlement of dispute, MRF resisted the demand of duty raised by the SCNs in relation to their Thiruvottiyur factory.
1.3 The contentions raised in the replies to the SCNs were reiterated before the Commissioner at the personal hearing stage. It was also pointed out that the view taken by the Commissioner (Appeals), Chennai, in relation to input stage credit to be expunged at Thiruvottiyur had become final and binding on the Revenue, whose appeal against the order passed by the appellate Commissioner had been dismissed as infructuous by the Tribunal. It was claimed that, in respect of all the four factories, the Modvat credit which was required to be reversed as per the amnesty scheme had been reversed in full and the interest which was required to be paid as per the scheme had also been paid in full and, therefore, condition v(a) of the Notification stood fulfilled and, consequently, no duty of customs could be demanded in respect of the imported inputs. Ld.Commissioner of Customs rejected this claim after examining the certificates issued by the Asst.Commissioners of Central Excise in respect of Goa, Medak, Arkonam and Thiruvottiyur factories. In respect of the Goa factory, he found that, out of the total credit of Rs. 1,61,60,226/-, which was liable to be reversed before 31.1.97 in terms of the amnesty scheme, only an amount of Rs. 1,43,73,226/- was reversed before that date. The balance amount was found to have been reversed on 9.9.98 only. Out of the total amount of interest (Rs. 83.70 lakhs), which was liable to be paid before 31.1.97 in terms of the amnesty scheme, only an amount of Rs. 59.43 lakhs was paid before 31.1.97 and the balance amount was deposited only on 9.9.98. In respect of the Arakonam unit, the following findings were recorded:
Total amount of credit to be reversed before 31.1.97 = Rs. 19,72,037 Amount of credit actually reversed before 31.1.97 = Rs. 8,29,041 Credit reversed (11.11.98) after 31.1.97 = Rs. 11,42,996 Total amount of interest to be deposited before 31.1.97 = Rs. 13,31,627 Amount of interest paid before 31.1.97 = Nil Amount of interest paid on 30.12.97 = Rs. 90,485 Amount of interest paid on 11.11.98 = Rs. 22,41,142 Amount of interest paid after 31.1.97 = Rs. 13,31,627
In respect of the Medak factory, though ld.Commissioner found that the amounts of Rs. 59,297.52 (credit) and Rs. 16,492.56 (interest) had been reversed / deposited by MRF before 31.1.97, she could not say for certain whether the manufacturer had satisfied the amnesty scheme as the amounts of credit and interest to be reversed/paid were not available. As regards the Thiruvottiyur factory, the adjudicating authority did not accept MRF's contention that, on account of the KVSS settlement of dispute, the demand of duty etc. proposed in the SCNs in relation to the said factory did not survive. It chose to go by Order-in-Original No. 34/97 ibid Ld.Commissioner, thus, found, in respect of all the four factories, that MRF had not completed reversals of credit and payments of interest before 31-1-97 and was therefore not entitled to the benefit of the amnesty scheme. Accordingly, it was held that MRF was not entitled to exemption from payment of Basic Customs Duty on the inputs imported by them under the DEEC scheme. Ld.Commissioner, in this connection, relied on the Tribunal's decision in Bharti Telecom Ltd v. Commissioner of Customs affirmed by the Supreme Court in . In Order-in-original dated 31.1.2002, the adjudicating authority (a) confirmed demand of duty of Rs. 72,88,50,363/- against MRF under the proviso to Section 28(1) of the Customs Act read with Customs Notification No. 203/92 dated 19.5.92, (b) charged interest on the amount @ 24% per annum from the date of clearance of the imported inputs to the date of payment, (c) held the imported goods to be liable for confiscation under Section 111(o) of the Act and (d) imposed on the assessee a penalty of Rs. 5 Crores under Section 112(a) of the Act. Hence the present appeal.
2. The appeal is accompanied by voluminous records. Paper Book-I filed with the appeal contains copies of SCNs, copy of impugned order, copy of Customs Notification No. 203/92, extracts from EXIM Policy 1992-97, copies of 'amnesty scheme' circulars dated 3.1.97 and 10.1.97, copies of CBEC circulars dated 13.2.95, 2.3.95 and 26.6.97, copies of Order-in-Original No. 34/97 dated 31.7.97 and Order-in-Appeal No. 23/98 dated 26.2.98 pertaining to the Thiruvottiyur factory, copy of Final Order No. 1839/99 dated 27.7.99. passed by this Bench in Department's appeal No. E/1707/98, copy of MRF's Customs House Agent's letter dated 24.10.94, copy of letter dated 4.9.98 of the Commissioner of Central Excise, Goa issued to the Asst.Commissioner of Central Excise, Panaji Division, extract from the Finance Act, 1998 [KVS Scheme, 1998] and copies of letters, sent in reply to SCNs or otherwise, of the appellants. Paper Book-II filed with the appeal contains 2 affidavits, one by Shri Mammen A. Mathew, Corporate Manager-Materials (Imports) and the other by Shri S. Narayanaswamy, Manager-Export (Finance), and the annexures thereto. Paper Book-III is a compilation of the correspondence between the appellants and the department.
2.1 On 28.4.2004, after hearing counsel for both sides, we had directed the appellants vide Misc. Order No. 265/2004 dated 28.4.2004 to bring on record the following documents:
(a) Certified copies of triplicate copies of all the Bills of Entry covering all imports made during the period of dispute i.e. 6/1992 to 3/1995.
(b) Certified copies of all the Shipping Bills covering all exports relatable to the above imports under the DEEC scheme.
The respondent was directed to file the first (original) and second (duplicate) copies of all the Bills of Entry as well as copies of the relevant Shipping Bills and AR.4 Forms. The appellants filed their documents under cover of affidavits dated 24.7.04 of Shri Mammen A. Mathew and Shri S. Narayanaswamy. These documents include copies of 1027 Shipping Bills (900 Shipping Bills relating to the first SCN and 127 Shipping Bills relating to the second SCN). Copies of the remaining 9 Shipping Bills out of the total number of 909 Shipping Bills which ought to have been produced in relation to the first SCN could not be produced (despite Sh. Narayanaswamy's offer to produce all the Shipping Bills vide his first affidavit) as the same were not traceable [total no. of Shipping Bills relating to both the SCNs was stated to be 909 + 127 = 1036]. According to Sh. Mammen Mathew's affidavit dated 24.7.2004 accompanying the documents, there are 366 Bills of Entry covering the subject imports and copies of 362 of these Bills of Entry have been filed. The remaining four are said to be missing. His affidavit further says that these 362 documents include Customs-certified xerox copies of 289 triplicate Bills of Entry and self-attested xerox copies of 73 triplicate Bills of Entry. But the compilation of the 289 Bills of Entry ("Bundle-A") filed with the above affidavit, upon scrutiny at our end, indicates duplication of Bills of Entry. For instance, B/E No. 14567 appears twice in the "Bundle" and figures twice under licence No. 1521859 dt. 22.8.92 in the index given for the "Bundle". Further, in "Bundle-B" (compilation of 73 self-attested xerox copies of Bills of Entry), B/E No. 44546 appears twice and, in the index for the book, it figures thrice under three different licences. Thus it is evident that the number of copies of Bills of Entry produced by the appellants is less than what MRF has claimed to have produced.
2.2 Pursuant to our order dated 28.4.04, the department filed copies of 233 Bills of Entry in two sets, one set containing copies of 197 Bills of Entry (with invoices) assessed finally and the other set consisting of copies of 36 Bills of Entry (with invoices) assessed provisionally. They have not claimed to have filed copies of all the Bills of Entry involved in the case. The appellants' written submissions dated 2/3 November 2005, vide para IX (B) thereof, contain a statement to the effect that the respondent filed 210 finally assessed Bills of Entry and 39 provisionally-assessed Bills of Entry and did not file 117 Bills of Entry. There are obvious numerical errors in this statement. The appellants have also claimed to have produced "copies of all Bills of Entry not produced by the Department", which are said to be 109 Bills of Entry finally assessed and 8 Bills of Entry provisionally assessed, totalling to 117.
3. We examined all the records and heard learned Sr.Advocate Shri F.S. Nariman (assisted by Sh. G. Ganesh, Sr.Advocate) for the appellants and ld.Sr.Advocate Shri M. Chandrasekharan (assisted by Sh. C. Hari Shankar, Advocate) for the respondent.
4. After conclusion of the hearing in the case, the appellants filed, on 4.1.2006, certain submissions/ statements / documents, copies whereof were served forthwith on the Sr.Departmental Representative. A period of 20 days was allowed to the SDR to file the respondent's counter, if any. After consulting counsel, the SDR informed the Bench (after the said period of 20 days) that they did not intend to file any counter. The papers brought on record by the appellants on 4.1.06 are: (i) Statements of details of VABALs redeemed and those not redeemed -- these statements show that nine (seven pertaining to the first SCN and two to the second SCN) out of the 12 licences were redeemed and the remaining three (pertaining to the second SCN) were not redeemed; (ii) copy of letter issued by Jt.DGFT, Chennai to Commissioner of Customs, Mumbai and copies of MRF's letters to Mumbai Customs authorities -- these documents indicate that some of the exports under the three non-redeemed licences had been made through Mumbai port but the DEEC book (Part 2) and connected documents could not be produced by MRF before the Jt.DGFT for redemption as they failed to get the entries of exports logged in the DEEC book by the Mumbai Customs authorities; (iii) Summary Statement of particulars of Bills of Entry; (iv) List of "47" Bills of Entry provisionally assessed; and (v) List of "319" Bills of Entry finally assessed. Each of these lists shows licence-wise grouping of Bills of Entry.
All these data were also examined at our end. The "Summary Statement" at (iii) above states that 47 Bills of Entry (41 relating to 9 licences redeemed and 6 relating to 3 licences not redeemed) were provisionally assessed. It further states that, out of the 41 Bills of Entry relating to the 9 redeemed licences, 40 are covered by the first SCN and 1 by the second SCN. All the six Bills of Entry relating to the 3 non-redeemed licences are said to be covered by the 2nd SCN. It is also stated that 319 Bills of Entry were finally assessed and, out of these, 273 are said to be covered by the first SCN and the remaining 46 by the second SCN. However, in the lists of Bills of Entry mentioned at (iv) and (v), there are numerous duplications. For instance, B/E No. 48005 dt. 22.12.93 figures twice (under two different licences) in the "list of 47" provisionally assessed Bills of Entry. Similarly, in the "list of 319" finally assessed Bills of Entry, B/E No. 34139 dt. 17.9.93 figures twice under two different licences, and so do Bills of Entry Nos. 44546 dt.30.11.93 and 33754 dt. 15.9.93. Thus, it appears, the number of copies of different Bills of Entry provisionally assessed and the number of copies of different Bills of Entry finally assessed, produced by the appellants, are less than 47 and 319 respectively. Nevertheless, the aforesaid "summary statement" of the appellants has not been contested by the respondent, nor has the respondent filed counter to MRF's affidavits containing pleadings of facts relevant to the "summary statement". Therefore, we would go by the appellants' data as regards the total number of Bills of Entry, number of Bills of Entry provisionally assessed, number of Bills of Entry finally assessed, licence-wise groupings of Bills of Entry, total number of Shipping Bills, licence-wise groupings of Shipping Bills etc.
5. Annexure-B to Sh. Mammen Mathew's affidavit (Paper Book-II) is a statement of imports, showing licencewise groupings of Bills of Entry. Annexure-C to Sh.Narayanaswamy's affidavit (Paper Book-II) is a statement of exports, showing licencewise groupings of Shipping Bills. By combining the two in a broad manner, we have made the following chart:
S.No. Number of Bills of VABAL No.& Number of
Entry with period of Date Shipping Bills
import with period of
export
1. 111 (15.10.92 - 28.9.93) 1521859 / 12.8.92 273 (3.6.92 - 22.4.93) Show-cause
notice dated
19-6-1995
2. 4 (10.2.93 - 10.5.93) 30311 / 19.10.92 144 (7.9.92 - 3.8.93)
3. 116 (19.3.93 - 30.11.93) 1524932 / 14.1.93 300 (16.11.92 - 8.11.93)
4. 29 (23.9.93 - 6.4.94) 1525553 / 8.7.93 95 (27.3.93 - 26.8.94)
5. 13 (18.8.93 - 22.12.93) 32898 / 13.7.93 22 (11.6.92 - 20.6.94)
6. 4 (13.9.93 - 2.2.94) 33448 / 5.8.93 33 (4.6.93 - 24.8.94)
7. 36 (11.9.93 - 19.5.94) 33449 / 6.8.93 42 (4.6.93 - 12.8.94)
313 (15.10.92 - 19.5.94) Total 909 (3.6.92 - 26.8.94)
(for 7 VABALs)
8. 23 (17.8.94 - 31.3.95) 401940 / 20.7.94 22 (28.4.94 - 27.12.95) SCN dated
23-11-95
9. 14 (28.10.94 - 31.3.95) 402591 / 8.9.94 17 (28.6.94 - 29.12.95)
10. 9 (5.12.94 - 27.3.95) 402993 / 18.10.94 16 (25.7.94 - 15.12.94)
11. 5 (10.1.95 - 27.3.95) 403460 / 24.11.94 33 (7.5.94 - 21.11.95)
12 2 (15.3.95 - 21.3.95) 404369 / 31.1.95 49 (29.10.94 - 29.1.96)
53 (17.8.94 - 31.3.95) Total 137 (18.4.94 - 29.1.96)
(for 5 VABALs)
366 (Oct'92 - March'95) Grand Total 1046 (June'92 - January'96)
(for 12 VABALs)
6. The following issues arise for consideration:
(a) whether the appellants can be held to have fulfilled condition v(a) of Customs Notification No. 203/92 dated 19-5-92 in respect of the imports made under the DEEC scheme during Oct'92 to March'95 in respect of their factories at Goa, Arkonam and Medak.
(b) whether, in respect of their Thiruvottiyur factory, the appellants can be held to have fulfilled condition v(a) of the Notification for similar imports.
(c) whether Section 28 of the Customs Act is applicable in this case.
(d) whether, in the event of the appellants being found liable to pay Customs duty on any of the above imports on account of breach of the above condition of the Notification, the extended period of limitation under Section 28(1) of the Customs Act is invocable for recovering such duty from them.
(d) whether any penalty is liable to be imposed on the appellants under Section 112 of the Customs Act and, if so, to what extent ?
We proceed to deal with these issues one by one.
7. Issue (a): whether the appellants can be held to have fulfilled condition v(a) of Customs Notification No. 203/92 dated 19-5-92 in respect of the imports made under the DEEC scheme during Oct'92 to March'95 in respect of their factories at Goa, Arkonam and Medak.
7.1 The appellants held 12 Value-Based Advance Licences (VABALs), vide para (5), which were issued by the licencing authority under the Ministry of Commerce in terms of paragraphs 47 & 48 of the Export and Import Policy, 1992-1997. These licences entitled the appellants to import inputs free of duty for the purpose of manufacture of tyres and tubes to be exported with a value addition of not less than 50% in terms of the input-output norms specified at Sl.No. 1484 in the Hand Book of Procedures (Volume-II) 1992-97, issued by the Director-General of Foreign Trade (Ministry of Commerce) in terms of para-51 of the EXIM Policy 1992-97. It was obligatory for the licence-holder to achieve both quantity and FOB value of exports specified in each licence vide para-49 of the EXIM Policy 1992-97. Under para-66 of the EXIM Policy, exports made from the date of receipt, by the licencing authority, of an application for VABAL were acceptable towards discharge of export obligation under the prospective licence. Apparently, the benefit of this provision was availed by MRF in this case. Most of their exports were made prior to issuance of the respective licences. Customs Notification No. 203/92 dt. 19.5.92, issued by the Central Government under the above scheme viz. DEEC scheme, granted exemption from payment of Basic Customs Duty (leviable under Section 12 of the Customs Act) and Additional Duty of Customs (leviable under Section 3 of the Customs Tariff Act) on raw materials imported in terms of Value- Based Advance Licence issued by the licencing authority. Among the numerous conditions stipulated in the Notification, the one relevant to this case is condition No. (v) (a), there being no case for the respondent that the appellants did not comply with the rest of the conditions. Condition (v)(a) reads as under:
(v) that the export obligation is discharged, within the period specified in the said certificate or within such extended period as may be granted by the Licencing Authority, by exporting goods manufactured in India in respect of which-
(a) no input stage credit is obtained under Rule 56A or 57A of the Central Excise Rules, 1944 (hereinafter referred to as the said rules);
(emphasis added) 7.2 ld.Sr.Advocate for the appellants referred to Board's circulars No. 267/9/95-CX.8 dated 13.2.95 and No. 108/19/95-CX. dated 2.3.95 and argued that the above condition of the Notification required to be interpreted in the light of these circulars. The circular dated 13.2.95 conveyed to the department's field formations incorporates the following decision taken by the Principal Collectors' conference (January 95):
Where a manufacturer exporter or his supporting manufacturer has already availed of input credit in respect of export consignment but where the imports under the DEEC Scheme have yet to be made, the concerned exporter should be advised in writing that in terms of Notification No. 203/92-Cus. exports made cannot be counted towards discharge of export obligation. In those cases where the imports have already been effected under the DEEC Scheme, the exporter can be permitted to reverse the credit taken in respect of inputs used in exported finished product with reference to the actual amount of duty credit taken. If quantification of input credit is not possible reversal of credit should be based on the input-output norms approved by the Commerce Ministry.
The circular dated 2.3.95 clarified the doubts raised with regard to the above italicized expression. This clarification reads thus:
In the above connection, it is clarified that the aforesaid observation were made to cover the situations wherein if the exporters after having availed credit themselves reverse the credits, then we may not object to the same. Similarly, if the amounts of input credit are not known the conference was of the view that reversal of credit can be based on the input-output norms approved by the Commerce Ministry.
According to ld.counsel, these circulars constituted administrative interpretation of Notification 203/92-Cus. and provided the practical way of giving effect to condition v(a) thereof, which, it was argued, was to permit the manufacturer initially to avail Modvat credit on inputs entering his factory and thereafter require him to expunge or reverse the credit in proportion to his exports on the basis of input-output norms of the Commerce Ministry. Ld.counsel relied on a Press statement dated 5.7.95 of the Revenue Secretary, to claim that such expunctions (reversals) were required to be completed by 15.7.95. MRF, admittedly, had taken Modvat credit on the inputs upon receipt thereof in their factory and had used such inputs in the manufacture of the tyres and tubes exported by them, but, later on, they reversed the credit in proportion to the quantum of exports on the basis of input- output norms specified in the Hand Book of Procedures 1992-97 issued by the DGFT (Ministry of Commerce). Ld.counsel also placed on record the following account of Modvat credit reversals made by the appellants in the 4 factories:
(AMOUNT IN RUPEES)
DATE THIRUVOTTIYUR GOA ARKONAM MEDAK TOTAL
13.11.1994 4443688 4443688
21.11.1994 5395 5395
05.12.1994 2584931 92330 2677261
06.12.1994 1570930 1570930
Jan'95 to Dec'95 249541 310996 86600 647137
(Daily)
09.01.1995 3000000 3000000
31.3.1995 4275 4275
20.04.1995 1898 1898
13.07.1995 10942793 6618542 648213 49628 18259176
_____________________________________________
TOTAL 15348195 14373226 829041 59298 30609760
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It was also pointed out that the above reversals were intimated to the department and that, in respect of the reversals effected on 13th July, 1995, certificates of the Central Excise Range Officers concerned were also produced. Ld.counsel argued that, with the expunction of Modvat credits as above based on inputs-output norms, there was substantive compliance with condition v(a) of the Notification. According to Shri Nariman, the word "obtained" used in the said condition of the Notification should be understood as meaning "taken and retained". In the present case, the credits originally taken were not "retained" inasmuch as the same were expunged at later stages. Hence it should be held that any input stage credit was not "obtained" by MRF under Rule 57A of the Central Excise Rules, 1944 in respect of the goods exported by them under the DEEC scheme. In this context, reliance was placed on the Allahabad High Court's judgment in Hello Minerals Water (P) Ltd. v. UOI , wherein the High Court had held, in the context of dealing with Exemption Notification No. 15/94-CE dated 1.3.94 (which stipulated that no Modvat credit should be availed on the inputs used in the manufacture of the final (exempted) products), that Modvat credit initially taken on inputs and subsequently reversed should be treated as not having been taken at all. Ld.counsel also relied on the Supreme court's judgment in Chandrapur Magnet Wires (P) Ltd. v. CCE , wherein it had been held that, where a credit entry for duty paid on the input utilized in the manufacture of the final exempted product was deleted by the assessee, it could not be said that under Rule 57A the assessee had taken credit of the duty paid on the input utilized in the manufacture of such final product. Referring, again, to the Board's circulars dated 13.2.95 and 2.3.95, ld.counsel submitted that these were not withdrawn, rescinded or superseded at any point of time and were binding on the department. In this connection, he relied on the Supreme Court's judgments in Collector v. Dhiran Chemical Industries , Collector v. Dhiren Chemical Industries , Collector v. Maruti Foam (P) Ltd. and Kalyani Packaging Industry v. UOI . As MRF had expunged all forbidden credits prior to 15.7.95 (deadline announced by Revenue Secretary) in terms of the Board's circulars dated 13.2.95 and 2.3.95, they should be held to have satisfied condition v(a) of Notification No. 203/92-Cus., Sh. Nariman argued.
7.3 Ld.counsel also contended that the "amnesty scheme" introduced in January 97 by the Central Government was not applicable to the facts of this case. It was meant only for those who had not fully complied with the terms and conditions of the two CBEC circulars dated 13.2.95 and 2.3.95 before 15.7.95. MRF had, by completing credit reversals on the basis of input-output norms by 13.7.95, fully complied with the said circulars before the deadline and had thereby acquired a vested right to exemption under Notification 203/92. They were not defaulters to attract any amnesty scheme. The "amnesty" circulars dated 3.1.97 and 10.1.97 did not have retrospective operation affecting the rights which already accrued to the appellants under the earlier circulars dated 13.2.95 and 2.3.95. In this connection, it was also pointed out by ld.counsel that whatever additional payments were made by MRF after the amnesty scheme was introduced were just to cover the additional amount of Modvat credit which was required to be reversed in terms of the formula set out under the said scheme. Such payments were made 'only to buy peace with the department' and not by way of compliance with the amnesty scheme. Ld.counsel also questioned the manner in which the amnesty scheme was introduced. The scheme was framed in an administrative circular instead of a statutory Notification and hence no retrospective effect could be imparted to it. Referring to the Supreme Court's judgment in Bharti Telecom (supra) relied on by the Commissioner in the impugned order, Shri Nariman pointed out that, in a case similar to MRF's case, the judgment was distinguished by a learned Single Judge of the Madras High Court. Ld.counsel was referring to Shasun Drugs & Chemicals v. CESTAT and Ors. [judgment dated 2.11.04 in W.P. Nos. 26760 and 26761 of 2004], whereby the final order passed by the Tribunal in Commissioner v. Shasun Drugs & Chemicals by following the Supreme Court's judgment in Bharti Telecom (supra) was set aside. It was also pointed out that the High Court's decision in Shasun Drugs & Chemicals (supra) had been accepted by the department through Order-in-Original No. 4221/05 of the Commissioner of Customs (Exports), Chennai. Ld.counsel argued that the interpretation given by the High Court to the Supreme Court's judgment in Bharti Telecom (supra) as well as to the provisions of the "amnesty" scheme was binding on this Tribunal. In this context, reference was made to the apex court's ruling in East India Commercial Co. Ltd. v. Collector of Customs 1983 ELT 1342 (SC), wherein it had been held that the law declared by a High Court was binding on its subordinate courts and tribunals.
7.4 Referring to yet another CBEC circular (No. 318/34/97-CX dated 26.6.97), ld.Sr.counsel argued that there was a "parallel scheme for Modvat credit reversal on actual basis", which, it was claimed, operated beyond 31.1.97 and was yet to be revoked. It was submitted that, under this scheme, Modvat credit could be reversed on actual basis even after 31.1.97 and certificate of compliance was required to be issued by the proper officer of Central Excise after verification of records by a Cost Accountant nominated by the Chief Commissioner under Section 14A of the Central Excise Act. It was also pointed out that, in respect of their Kottayam unit, the appellants were allowed to follow this scheme and the demand of duty and other proposals raised in the relevant SCN were ultimately dropped.
7.5 Ld.Sr.Advocate for the Revenue contended that, both on facts and in law, the decision rendered by the apex court in Bharti Telecom (supra) was squarely applicable to the present case. In that case, VABAL was obtained on 1.6.93, export obligations completed in July 1993 and Modvat credit reversals made in Jan-Feb'94, three years prior to the amnesty scheme. The interest on the amount of credit, which was required to be paid under the amnesty scheme, was paid after 31.1.97 (deadline under that scheme). The Hon'ble Supreme Court held that the amnesty scheme recognized the already reversed Modvat credits and, therefore, the reversal of credit made in 1994 by the party had to be treated at par with reversal of credits made by similar exporters after coming-into-force of the amnesty scheme. In this view, the apex court applied the scheme to the case of Bharti Telecom Ltd. and upheld the demand of Customs duty raised on them by the Commissioner of Customs and sustained by the Tribunal on the ground of violation of condition v(a) of Notification 203/92-Cus. Ld.counsel, further, pointed out that, in the case of Raj Exports v. National Aluminium Co. Ltd. , the apex court had once again given effect to the amnesty scheme by giving an opportunity to the VABAL-licensee to reverse the balance of Modvat credit (which was remaining to be reversed in terms of that scheme) before 31.1.97. Referring to the Madras High Court's judgment in Shasun Drugs & Chemicals (supra), Shri Chandrasekharan submitted that the High Court's judgment was incapable of wiping out the binding effect of the ruling given by the apex court in Bharti Telecom (supra). All subordinate courts/tribunals/authorities were bound by the decision of the apex court until it was reviewed or corrected by the same court. In this connection, ld.counsel drew support from the Supreme Court's judgment in Suganthi Suresh Kumar v. Jagdeeshan , wherein it had been held that a High Court could not question the correctness of a decision of the Supreme Court even though the point sought before the High Court had not been considered by the Supreme Court. The binding effect of the apex court's judgment in Bharti Telecom (supra) was not in any way affected by the fact that the Board's circulars dated 13.2.95 and 2.3.95 were not produced or cited before the court. In that case, condition No. v(a) of Notification No. 203/92, as relaxed under the amnesty scheme, was strictly construed by the apex court. As conclusively settled in Eagle Flask Industries Ltd. v. Commissioner , conditions of an exemption notification are required to be strictly construed. On this basis, ld.Sr.Advocate urged that, as in the case of Bharti Telecom Ltd. MRF be held to have failed to fulfil condition v(a) of Notification under 203/92 by not complying with the amnesty scheme.
7.6 We have carefully considered the rival submissions and arguments on the issue. In this case, licencewise, most of the exports of tyres and tubes under the DEEC scheme were made prior to importation of inputs, a fact which is discernible from the chart which we have made vide para (5) of this order. Besides the imported inputs, indigenously procured inputs were also used in the manufacture of the exported products. Again, it is not in dispute that the appellants had availed Modvat credit of the duty paid on the indigenous inputs used in the manufacture of the exported goods. Condition v(a) of Notification No. 203/92-Cus. required the importer of inputs under DEEC scheme to discharge his export obligation by exporting goods in respect of which no input stage credit was obtained under Rule 57A of the Central Excise Rules, 1944. Inbuilt in this condition (strictly construed, being a condition of an exemption notification) was the requirement that any Modvat credit already taken on any inputs used in the manufacture of the goods for export be expunged by the time of export. The appellants, admittedly, did not comply with this requirement for a major part of the period of export, during which they exported their products after availing credit on the indigenous inputs used in the manufacture of the said goods, in breach of condition v(a) of the Notification as this condition stood before it was relaxed. The appellants made subsequent Modvat credit reversals in respect of such exports, over a period of time. We have already given a tabulated statement of such reversals made from 13.11.94 to 13.7.95 vide para (7.2). The appellants have stated that, even prior to the Board's circulars dated 13.2.95 & 2.3.95, they were given to understand that, where indigenous duty-paid inputs were used along with imported inputs in the manufacture of final products for export under DEEC scheme, any Modvat credit taken on such indigenous inputs should be expunged pro rata at the time of such exports. In this connection, reference has been made to an Asst.Commissioner's letter dated 4.10.93. The relevant part of this letter reads as under:
...in my letter cited above I had enquired whether you were availing Modvat credit on the inputs going into the manufacture of finished products exported under DEEC. The question was raised on the presumption that apart from inputs imported under DEEC other inputs procured locally on payment of duty may be used in the manufacture of finished products, which are exported under DEEC Scheme. In this eventuality, the Modvat credit, if any, taken on these indigenous duty paid inputs should be expunged, pro rata, for the products exported under DEEC....
(emphasis added) It appears from the records that, over a period of time, the exhortations made by jurisdictional officers of the department for proportionate reversal of Modvat credit taken on duty-paid inputs used in the manufacture of finished products exported by MRF were resisted by the latter on the strength of Sub-rule (3) of Rule 57F. For instance, MRF's letter dated 4.2.94 to the Additional Collector of Customs, Madras stated in categorical language that they were not required to expunge Modvat credit availed in respect of tyres exported under bond as they were fully covered and protected by the provisions contained in the first proviso to Rule 57F(3). Nevertheless, they made some reversals of credit from Nov'94 to July'95 vide tabulated statement in para (5). It has been claimed that these reversals were made on the basis of the input-output norms prescribed by the Ministry of Commerce and it has been argued that these reversals should be regarded as having been made in terms of the scheme formulated in the Board's circulars dated 13.2.95 & 2.3.95, which required reversal of proportionate credit on the basis of the input-output norms prescribed under the EXIM Policy 1992-97. It has been claimed that, with such reversal of credit made by the appellants, the entire input stage credit availed in respect of the exported goods stood expunged and, in such a scenario, it could well be held that no input stage credit was obtained under Rule 57A in respect of the export goods. Hence their claim of having fulfilled condition No. v (a) of the Notification.
7.7 It is not in dispute that circulars dated 13.2.95 and 2.3.95 brought in a scheme which relaxed condition No. v(a) of Notification 203/92 enabling the non-compliant exporters under DEEC scheme to retain the benefit of the Notification by making proportionate (based on input-output norms) reversals of input stage credits subsequent to the exports. However, these circulars did not appoint any date as deadline for such reversal of credit. It has been claimed by ld.counsel for the appellants that the department had set '15.7.95' as the deadline for such reversal of credit. This claim is based on a Press report (dated 5.7.95) quoting the then Revenue Secretary who had reportedly announced, while speaking at a seminar, that "the exporters have been asked to reverse MODVAT credit before July 15, failing which the revenue department would pursue legal action". We cannot accept the Press report as proof of the appellants' claim. The appellants have not produced any pre-1997 circular or other authentic document fixing 15.7.95 as deadline for compliance with the terms of the circulars dated 13.2.95 and 2.3.95. On the other hand, it is a fact on record that it was the circular dated 3.1.97 -- the so-called "amnesty circular" -- which set a deadline for reversal of input stage credits availed by exporters under the DEEC scheme, which was 31.1.97. The operative part of the said circular (F.No. 605/140/95-DBK dated 3.1.97) reads:
...The Government, therefore, deems it expedient to relax the relevant condition of Customs Notification No. 203/92-Cus., ex-post facto on compliance of following conditions:
(a) The concerned exporters reverse the Modvat Credit, incorrectly availed of by them on the goods exported under the Scheme, together with interest at the rate of 20% on the said amount of Modvat credit retained by them between the date of export and the date of reversal.
(b) If reversal of Modvat credit and payment of interest as contemplated in condition (a) is completed by 31st January, 1997 and thereupon no demand of Customs duty leviable on goods imported against the Value Based Advance Licence in question shall be payable.
(c) The proposed relaxation will, however, not cover such merchant-exporters who had not declared the details of their supporting manufacturers and, consequently, in whose cases the reversal of Modvat is not practicable.
(d) In all cases where Modvat credit is reversed and the amount of interest is also paid before 31.1.1997, no penal action or prosecution proceedings shall be initiated against the Value Based Advance Licence holder.
(e) The Value Based Advance Licence holders who fail to reverse the Modvat credit in full before 31st January, 1997 shall not be exempt from penal proceedings under the law.
The formula for determining the amount of Modvat credit to be reversed for the purpose of the above circular was provided by Circular No. 285/1/97-CX dated 10.1.97. These circulars, by and large, were advancing the very object of the scheme introduced by the earlier circulars dt. 13.2.95 and 2.3.95, which object was relaxation of condition v(a) of Notification No. 203/92-Cus. In the case of Bharti Telecom (supra), the Hon'ble Supreme Court noticed this object of the amnesty scheme and, further, held that the scheme recognized the Modvat credit reversals made prior to its introduction also. Therefore, the scheme covered under the circulars dated 3.1.97 and 10.1.97 [hereinafter referred to as "1997 circulars"] has to be seen as continuation of the scheme covered under the circulars dt. 13.2.95 & 2.3.95. In other words, an integral scheme of amnesty was in place. To vivisect it into one scheme falling under the 1995 circulars and another falling under the 1997 circulars will not be in accord with the rule of harmonious interpretation. Of course, we have also noted the differences between the 1995 circulars and the 1997 circulars. While the former required proportionate reversal of Modvat credit on the basis of input-output norms prescribed in the Hand Book of Procedures 1992-97 issued by the DGFT (Ministry of Commerce) and did not require any interest to be paid, the latter prescribed a different formula for quantification of the Modvat credit to be reversed and also charged interest. When construed harmoniously, the scheme formulated in the 1997 circulars would be seen as the second leg of the integral scheme of amnesty, wherein those exporters like the appellants who had availed the first leg of the integral scheme by making Modvat credit reversals on the basis of SION (Standard input-output norms prescribed in the Handbook of Procedures, 1992-97) were given an opportunity to have complete amnesty by making good the shortages of Modvat credit reversals on the basis of the correct formula provided for the purpose. As regards the provision for interest, it is not difficult to find the same to be a condition attached to amnesty by the State in its eminent domain. After all, conditions to exemptions and amnesties are not uncommon in taxation matters.
7.8 In any case, takers of amnesty cannot assail it (qui approbat non reprobat). We have perused the correspondence between the appellants and the department. Many of the letters written by MRF to the department after the notification of the amnesty scheme indicate that the scheme was acceptable to them. MRF's letter dt. 20.1.97 to the Asst.Commissioner of Central Excise, Madras VIII Division reads thus : "...if you decide that MRF should pay interest at 20% as per the Scheme announced by the Govt. of India and communicated to us vide your letter dt. 9.1.97, we will not stand on formalities and will oblige you by making the payment of interest at 20% as soon as we receive your confirmation as mentioned below in this letter, for the period between the date of exports and the date of reversal of Modvat and will deposit the said amount on or before 31.1.1997 through our Personal Ledger Account (PLA)." This letter relates to the Thiruvottiyur factory. A few letters sent by MRF contemporaneously to the Asst.Commissioners of Central Excise having jurisdiction over Arkonam, Goa and Medak factories also seem to be worthy of mention here. MRF's letter dt. 31.1.97 to the Asst.Commissioner of Central Excise in respect of their Arkonam factory is intimation of payment of interest of an amount @ 20% on an amount of Modvat credit (Rs. 5,22,542/-) reversed earlier. This letter reads thus : "By this payment of Interest, we are glad to inform you that we have fully complied with the special scheme announced by the Government of India in the said circular (circular dt. 10.1.97)". Another letter dt. 4.2.97 of MRF addressed to the Asst.Commissioner of Central Excise in respect of their Goa unit also reads likewise. MRF's letter dt. 5.2.97 to the Commissioner of Customs, Custom House, Madras refers to amnesty scheme and, in respect of all the factories, reads further thus : "As per the above Amnesty Scheme, we are glad to inform you that we have reversed Modvat Credit in full as per the formula contained in Ministry of Finance Letter F.No. 285/1/97 dt. 10.1.97 and also interest at 20% as detailed below, on 30.1.97". The letter further reads : "By the above reversal of Modvat credit and payment of interest made before 31.1.97, we have fully complied with the conditions of the Amnesty Scheme...". Copies of several letters sent by MRF to the department subsequently from time to time are also available on record, which stated that the company had reversed Modvat credit and paid interest before 31.1.97 in accordance with the amnesty scheme of the Ministry of Finance as contained in circular dt. 10.1.97 and requested that certificates of compliance be issued. It is, thus, borne on record that the appellants were acquiescing in, and claiming under, the amnesty scheme, though, in respect of quantification of Modvat credit to be reversed, they chose to adopt the SION formula prescribed under the 1995 circulars.
7.9 In the amnesty scheme, the proportionate amount of input stage credit to be reversed in respect of the exported goods was to be calculated on the basis of the formula:
B x C A = ------ where, D + B A = Modvat Credit to be reversed.
B = Total value of exports under VABAL during the financial year, as declared in AR-4 (Section 4 Value).
C = Total credit availed in RG-23A during the financial year on all inputs.
D = Total value of goods cleared for home consumption during the financial year arrived at under Section 4.
Admittedly the Modvat credit reversals made by MRF were not on the basis of the above formula but on the basis of SION (standard input-output norms prescribed in the Hand Book of Procedures 1992-97). In the integral amnesty scheme concept, the above formula for quantification of Modvat credit for reversal should be held to have retrospective applicability and, accordingly, for the entire period of dispute, the amount of Modvat credit to be reversed should have been quantified on the basis of that formula, which alone could be called "amnesty formula". The credit reversals made by MRF factory-wise on the basis of SION fell much short of what was required to be reversed on the 'basis of the amnesty formula. This shortfall was not made up before the deadline (31.1.97). There was a consequent shortfall in payment of interest as well, which was also not made good before the deadline. The differential amount of credit was reversed only after 31.1.97 and the differential amount of interest was also paid likewise as found by the Commissioner. A Note to the statement of "SUBSEQUENT REVERSALS OF MODVAT/PAYMENTS TOWARDS MODVAT TAKEN" furnished to the Bench at hearing stage says that these additional payments (post-31.1.97) were made also to cover the additional amount of Modvat credit reversal which was required to be made by reason of application of the formula communicated under the Amnesty Scheme. In the circumstances, factorywise, it cannot be held that the appellants complied with the amnesty scheme or fulfilled condition v(a) of Notification 203/92.
7.10 In the case of Bharati Telecom (supra), the advance licence was obtained on 1.6.93 and export obligation in relation to the inputs imported under such licence was completed in July 1993. The party had availed Modvat credit on the indigenous inputs used in the manufacture of the exported goods. But this credit was reversed subsequently in Jan-Feb'94. However, the interest on this amount @ 20% for the period from the date of export to the date of credit reversal had not been paid by the party and the same was paid only after 31.1.97, the deadline prescribed under the amnesty scheme. After examining the provisions of the amnesty scheme, the apex court held that the assessee, having committed breach of condition v(a) of the Notification (as relaxed under the amnesty scheme) by not paying interest on or before 31.1.97, was not eligible for the benefit of exemption under Notification No. 203/92 in respect of the inputs-imported by them under DEEC scheme. The ratio decidendi of the apex court's judgment is contained in paragraphs 7 & 8 thereof. Para-7 and the relevant part of paragraph 8 are extracted below:
7. Challenging the order of the Tribunal, learned Counsel for the appellant contends that the respondent was not justified in denying the benefit of the Amnesty Scheme to its client on the ground that it had reversed the modvat credit earlier to the enforcement of the scheme. There is considerable force in the contention. The Amnesty Scheme recognizes the already reversed modvat credits. The reversal of credit made by the appellant in 1994 has to be treated at par with the reversal of credits made by exporters after coming into force of the Amnesty Scheme.
8. According to the Amnesty Scheme, the interest for the period between the date of export, and the date of reversal has to be deposited by 31st January, 1997. There is no provision for relaxation or extension of time to deposit the amount of interest. Such schemes or exemption notifications have to be strictly construed. The provision in the notification dated 10th January, 1997 for deposit of interest by a specified date has to be interpreted strictly in the manner stated in the notification and on no other basis. It is well settled that in a taxing statue, there is no room for any intendment and regard must be had to the clear meaning of the words and that the matter should be governed only by the language of the notification, i.e. by the plain terms of the exemption....
(emphasis added) The amnesty scheme was held applicable to a case where the reversal of Modvat credit had been done in 1994, i.e., prior to introduction of the amnesty scheme. In other words, the scheme was given retrospective effect. The apex court's ruling demolishes MRF's argument that, as they had completed reversals of Modvat credits on the basis of input-output norms prior to the introduction of the amnesty scheme, the scheme was not applicable to them. On the other hand, it can be held on the basis of para-7 of the court's judgment that the provisions of the amnesty circulars dated 3.1.97 and 10.1.97 were applicable to all Modvat credit reversals made earlier under circulars dated 13.2.95 and 2.3.95. It is noteworthy that para-8 of the apex court's judgment treated the provisions of the amnesty scheme on par with those of an exemption notification and, accordingly, gave strict interpretation to them. Their lordships held clearly that, as the amnesty scheme required payment of interest by 31.1.97, any deposit of interest after that date was not condonable under the scheme. Accordingly, M/s. Bharti Telecom Ltd. were held to have violated condition No. v(a) (as relaxed) of Notification 203/92 and the demand of Customs duty on them was upheld. The decision of the apex court is applicable to the instant case, wherein, admittedly, a part of the Modvat credit reversal and a part of the interest payment were made long after 31.1.97. Ld.Sr.Advocate for the appellants has urged us to follow the interpretation given to the amnesty provisions by the Hon'ble High Court in Shasun Drugs & Chemicals (supra). We note that, whereas the apex court in Bharti Telecom (supra) had interpreted those provisions and given effect thereto in the aforesaid manner, the High Court interpreted the provisions differently. Indubitably, to understand the scope of the amnesty scheme, we must follow the apex court's decision in preference (with great respect) to the High Court's decision. The decision in Bharti Telecom cannot be held inapplicable to the instant case on the ground that the Board's circulars dt. 13.2.95 & 2.3.95 cited in this case had not been considered by the apex court. All subordinate courts/tribunals and authorities are bound by the apex court's decision unless it is reviewed or corrected by the same court, as rightly submitted by ld.counsel for the Revenue relying on the Supreme Court's judgment in the case of Suganthi Suresh Kumar (supra). However, we have noticed a significant ruling of the High Court (on an issue which had not arisen before the Supreme Court on the facts of Bharti Telecom), which is applicable to the instant case and will be considered later in this order.
7.11 It was also argued by ld.counsel for the appellants (relying on the apex court's judgments in Dhiren Chemical Industries and a few other cases) that the Board's circulars dt. 13.2.95 & 2.3.95, which were not withdrawn or rescinded or superseded at any subsequent point of time, were binding on the Revenue and should be given effect to in this case. We have already noted that there was no self-contained scheme under the said circulars inasmuch as no deadline was fixed thereunder for reversal of Modvat credits. Such a deadline was fixed for the first time under the circular dt. 3.1.97. The 1995 circulars required exporters (who had not fulfilled condition v(a) of the Notification) to reverse input stage credit taken in respect of the exported goods, but without prescribing the last date for such reversal. The 1997 circulars also required such parties to reverse input stage credit taken in respect of exported goods and, further, appointed 31st January 1997 as the last date for compliance. Thus the relaxation (to condition v(a) of Notification 203/92) provided under the 1995 circulars was continued upto 31.1.97 under the 1997 circulars. Further, the 1997 circulars also required interest to be paid on the Modvat credit amount (for the period from the date of export to the date of payment) on or before the appointed date (31.1.97). The 1995 circulars required the reversals of credit to be made on the basis of the input-output norms prescribed by DGFT. The 1997 circulars provided a different formula for quantification of the Modvat credit to be reversed. The 1997 circulars, thus, had the effect of retrospectively amending the basis of quantification of Modvat credit to be reversed, without altering the object of the scheme viz. relaxation of condition v(a) of Notification 203/92-Cus. Therefore, the plea for giving effect to the 1995 circulars as regards quantum of Modvat credit for reversal has to be repelled. Effect has got to be given to the 1995 scheme as retrospectively amended by the 1997 circulars i.e., to what is called "the amnesty scheme".
7.12 As to the quantum of Modvat credit to be reversed the 1995 circulars laid down that, where the actual amount of input duty credit was not known, the reversal be done on the basis of SION. Admittedly, in this case, MRF made their reversals on SION basis as, obviously, they were not aware of "actuals" in respect of the four factories. The 1997 circulars which did not refer to "actuals" required the reversal to be done as per a different formula. The later circular No. 318/34/97-CX dated 26.6.97 of CBEC instructed the field officers on who, when and how to certify that an exporter (under DEEC scheme) had made full reversal of Modvat credit in terms of the circular dated 10.1.97. It did not lay down any "parallel scheme" as visualised by ld.Sr.counsel for the appellants. The parallel scheme theory is apparently based on para (4) of the circular dated 26.6.97 reading In the cases where credit is reversed on actual basis, such Certificates should be issued only after verification of the records of the exporter by a Cost Accountant nominated by the Chief Commissioner under Section 14A of the Central Excise Act, 1944.
This provision of the circular dated 26.6.97 is not applicable to the appellants' four factories inasmuch as they reversed input duty credit on SION basis only and not on actual basis unlike in the case of their factory at Kottayam where, apparently, they were aware and possessed of the "actuals". In the result, we find no substance in the plea made by the appellants with reference to the circular dated 26.6.97.
7.13 It was pointed out by ld.counsel for the appellants that the amnesty scheme was not in force when the relevant SCNs were issued and, therefore, by invoking that scheme, the adjudicating authority was travelling beyond the scope of the SCNs. We observe that the demand of duty raised in the SCNs was indisputably based on the alleged breach of condition v(a) of the Notification. Hence the primary question before the adjudicating authority was whether the said condition had been violated by MRF, which called for interpretation of the said condition. Having found that the said condition was relaxed by the amnesty circulars, it was incumbent on the Commissioner to interpret the condition with reference to the amnesty scheme. Hence he cannot be said to have gone beyond the scope of the SCNs. In this view of the matter, we are not persuaded by the prima facie view (that adjudication order which relied on the amnesty scheme went beyond the scope of the SCN wherein non-compliance with that scheme was not a ground for denying the benefit of Notification 203/92-Cus. to the assessee) taken by the coordinate bench in NOCIL v. Commissioner 2004 (177) ELT 404 (Tri-Mumbai) cited by ld.counsel for the appellants.
7.14 Reverting to the question whether MRF can be held to have fulfilled condition v(a) of Notification 203/92-Cus. in respect of their factories at Goa, Arkonam and Medak, we find that the Commissioner dealt with this question factorywise and answered it in the negative following Bharti Telecom (supra). In the case of Bharti Telecom Ltd. the Supreme Court was handling a situation involving only one VABAL whereas, in the case of Shasun Drugs & Chemicals (supra), the High Court was dealing with a case involving several Advance Licences. The High Court held that the question whether the importer (under the DEEC scheme) had complied with the above condition of the Notification required to be considered in respect of each licence. Accordingly, the court remanded the case to the adjudicating authority to reassess the Modvat credit reversals licencewise. We have been told that the Commissioner concerned has done the job vide Order-in-Original No. 4221/05 dated 7.10.2005 in Shasun Chemicals & Drugs case. The Commissioner found that, in respect of 12 licences (out of 14), the party had complied with condition v(a) ibid by making full reversal of credit and paying interest by 31.1.97 and, accordingly, the demand of duty on the inputs imported under the 12 licences was dropped. In respect of the remaining 2 licences, no such compliance was found and, accordingly, the demand of duty on the inputs imported under these licences was confirmed. Nobody has claimed that the Department has not accepted the above order in Shasun Drugs & Chemicals case. Therefore, we are of the view that, in the present case also, the Modvat credit reversals and interest payments need to be verified licencewise. [That a few licences are yet to be redeemed on account of non-logging of DEEC book will have no bearing on such verification inasmuch as the Revenue has no case that the appellants did not fulfil their export obligation under any of the twelve licences. The Revenue cannot take advantage of the Customs authorities' inaction in the matter of logging necessary entries in DEEC book]. If it is found that full Modvat credit reversals and interest payments in terms of the amnesty scheme were not made on or before 31.1.97 in relation to the exports made under any of the VABALs, the appellants will be held to have committed breach of condition v(a) of the Notification in respect of the inputs imported under such VABAL.
8. Issue (b): Whether, in respect of the Thiruvottiyur factory, the appellants can be held to have fulfilled condition v(a) of Notification 203/92.
8.1 What was expunged in Thiruvottiyur factory which received duty-paid compounded rubber from Kottayam factory and used the same in the manufacture of tyres and tubes for export under the DEEC scheme was not the amount of Modvat credit taken (at Thiruvottiyur) of the duty paid on compounded rubber but an amount equal to the amount of credit taken (at Kottayam) of the duty paid on the inputs used in the manufacture of compounded rubber. Ld.counsel for the appellants argued that, as the VABALs were issued to MRF and not to individual factories of theirs, the scheme should be applied manufacturer-wise rather than factory-wise. The compounded rubber which was manufactured by MRF in their Kottayam factory and captively used in their Thiruvottiyur factory should be treated as an 'in-process material' rather than as an 'input' for the final products. Moreover, it was not an input specified in the standard input-output norms of the Commerce Ministry. Therefore, any credit of duty paid on compounded rubber was only 'intermediate stage credit' and not 'input stage credit' as far as MRF was concerned. Input stage credit was the credit taken, at Kottayam, of the duty paid on the inputs used there in the manufacture of compounded rubber which was supplied to the Thiruvottiyur factory. Therefore, it was argued, the appellants were right in 'reducing' the 'intermediate stage credit' to 'input stage credit' for the purpose of reversal in the Modvat account of their Thiruvottiyur factory. Ld.counsel claimed support from Order-in-Appeal dated 26.2.98 of the Commissioner (Appeals), Chennai, wherein the appellate authority had accepted the above argument in respect of Thiruvottiyur factory. It was also pointed out that, while the department's appeal against the said Order-in-Appeal was pending before this Tribunal, the dispute was settled under the KVS scheme and this Bench dismissed the appeal as settled under KVS scheme. Therefore, it was not open to the adjudicating authority in this case to revive the dispute in respect of Thiruvottiyur factory. Further, ld.counsel also submitted that, in an order dated 4.9.98 of the Commissioner of Central Excise, Goa, in respect of the Goa factory (which also had received compounded rubber from the Kottayam factory), the Cost Accountant's determination of input stage credit with reference to the inputs used at Kottayam in the manufacture of compounded rubber was accepted for reversal at Goa. The department should not deny to the appellants' Thiruvottiyur factory a benefit which was allowed to their Goa factory, Contextually, reliance was placed on the Supreme Court's judgment in Telco Ltd. v. Collector 1997 (94) ELT 4 (SC), wherein the court had noticed that the department was denying to the Pune factory of the company a benefit (Modvat credit on inputs used in the manufacture of sand moulds for production of iron castings) which had been allowed to their Jamshedpur factory and it was held that there was no justification for denial of the benefit to the Pune factory. Ld.counsel for the respondent argued that, notwithstanding the settlement of "tax arrear" under KVS scheme, the legal question as to violation of condition v(a) of Notification 203/92 survived for consideration in respect of the appellants' Thiruvottiyur factory also and that this question was correctly decided in the impugned order.
8.2 We have considered the 'Thiruvottiyur'-related submissions. The Commissioner (Appeals), Chennai vide Order-in-Appeal dated 26.2.98 took the view that input stage credit, for purposes of the DEEC scheme, should be reckoned with reference to the VABAL-holder/manufacturer rather than to a particular factory of theirs; that credit of duty paid on compounded rubber was 'intermediate stage credit' and not 'input stage credit' and therefore in respect of the compounded rubber received by the Thiruvottiyur factory from the Kottayam factory and used in the manufacture of final products for export under the said scheme, the Modvat credit to be reversed at Thiruvottiyur was only to an extent equivalent to the credit taken at Kottayam on the inputs used in the manufacture of compounded rubber. On this basis, ld.Commissioner (Appeals) remanded the matter to the original authority for re-quantification of the credit to be reversed by the Thiruvottiyur unit. It was this order dated 26.2.98 of the Commissioner (Appeals) that was taken in appeal to this Tribunal by the department (appeal No. E/1707/98). It was during the pendency of this appeal that the dispute was settled under the KVS Scheme. Consequent upon such settlement, this Tribunal vide Final order No. 1839/99 dated 27.7.99 ordered as under:
2. The learned Counsel for the respondents submits that notwithstanding the impugned order being in their favour they opted for settlement under KVSS and deposited the duty amount determined by the Designated Authority to an extent of Rs. 2,93,40,449/-. He submits that the amount is not Rs. 10 crores as indicated in the application but it was only Rs. 5,86,80,834/-. He contends that the Designated Authority has accepted their deposits and has issued form 3 under the said scheme in full and final settlement of the arrears. He, therefore, submits that the revenue appeal is required to be rejected. He files a copy of form 3 issued by the Commissioner.
3. The learned D.R., on perusal, confirms the settlement of the matter.
4. In view of the matter having been settled, the revenue appeal has become infructuous. Hence, the Miscellaneous application and the appeal of the revenue are disposed of, as settled under the KVS scheme.
(emphasis added) 8.3 The question to be looked into, at the outset, is whether, on account of the settlement of dispute under the KVS scheme and the consequential order passed by this bench, the Revenue's stand in support of the view taken by the adjudicating authority in this case is correct. It was argued by Shri Nariman that, as the Revenue's appeal was dismissed as infructuous, the order passed by the Commissioner (Appeals) continued to be in force. On the other hand, it was argued by Shri Chandrasekharan that, as the assessee had got the dispute settled on payment of 50% of the dues worked out in accordance with the stand taken by the department, it was the department's stand which was virtually conceded by MRF and, therefore, the view taken by the Commissioner in the impugned order with regard to the Thiruvottiyur factory required to be sustained. These submissions have thrown up before us the question whether the "settlement of dispute" between the parties under the KVS scheme is survived by any issue relating to the dispute. In our view, Section 92 of the Finance (No. 2) Act, 1998 would directly answer this question. Parliament had also enacted a proviso to this Section. The section (as enacted) reads as under :
92. Appellate authority not to proceed in certain cases.
- No appellate authority shall proceed to decide any issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arrear specified in the declaration and in respect of which an order had been made under Section 90 by the designated authority or the payment of the sum determined under that section:
Provided that in case an appeal is filed by a Department of the Central Government in respect of such issue relating to the disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arrears (except where the tax arrear comprises only penalty, fine or interest), the appellate authority shall decide the appeal irrespective of such declaration.
(emphasis added) The proviso was struck down as unconstitutional by the Delhi High Court in All India Federation of Tax Practitioners v. UOI . Section 92 (without the proviso) forbade appellate authorities (including the Tribunal) from proceeding to decide any issue relating to the "tax arrear" specified in the assessee's declaration (filed under Section 88(f) of the Finance Act) in respect of which an order had been made (under Section 90 of the Act) by the designated authority, irrespective of whether an appeal had been filed by the assessee or by the department. In the present case, admittedly, the department's appeal was pending before this Tribunal, when the designated authority under the KVS scheme passed an order of settlement under Section 90 ibid. According to the above provision, the order of the designated authority placed an embargo on the Tribunal in the matter of proceeding to decide "any issue relating to tax arrear". "Tax arrear" was defined under Section 87(m) of the Finance Act, 1998, which definition was modified by the Hon'ble High Court (by application of the theory of 'reading down') in the case of All India Federation of Tax Practitioners (supra) so as to mean the amount of tax, penalty or interest determined by any competent authority on or before 31.3.98 though such determination might have been set aside at a later stage, such setting aside having not been accepted by the department and remaining under challenge before a Court or Tribunal. In respect of the Thiruvottiyur factory, the order was passed by the Commissioner (Appeals) before 31.3.98. The amount of tax arrear declared by MRF in Form-1B prescribed under the KVSS Rules was "amount of tax arrear as per SCN/demand notice or as already determined (due or payable) as per last order (as on the date of declaration)" vide column "No. 4 of Form-1B. Obviously, the "last order" was the order passed on 26.2.98 by the Commissioner (Appeals), Chennai, which was taken in appeal to this Tribunal by the department. On these facts, we find that the question whether the Thiruvottiyur unit of the appellants should reverse Modvat credit of the duty paid on the compounded rubber received from the Kottayam unit or an amount equivalent to the credit taken by the Kottayam unit on the inputs used in the manufacture of the compounded rubber, for the purpose of satisfying condition v(a) of Notification No. 203/92, is an "issue relating to tax arrear" within the meaning of Section 90 ibid. Because of the aforesaid embargo, this Tribunal could not proceed to decide such issue. The Tribunal's final order, which we have already extracted, should be construed in view of this legal position. Accordingly, the Tribunal's order cannot be held to have decided the above issue. In other words, the decision of the Commissioner (Appeals) on the issue survived KVSS settlement of "tax arrear' and continued to be in force. What survived was not the issue but the appellate authority's decision thereon. Hence, as rightly contended by Shri Nariman, it was not open to the adjudicating authority in this case to reopen the issue, for, to do so would be doing violence to the very object of the statutory scheme of settlement made by Parliament. We have also seen a letter dt. 2.4.98 (erroneously referred to as "order", by the appellants) of the Commissioner of Customs, Goa to the Asst.Commissioner of Customs, Panaji Division indicating acceptance of an amount (determined by Cost Accountant) of Modvat credit to be reversed by the Goa unit which had received compounded rubber from a sister unit and used the same in the manufacture of goods for export. It appears, this amount of 'input stage credit' to be reversed by the Goa unit was determined in the same method as adopted by the Commissioner of Central Excise (Appeals), Chennai in respect of the Thiruvottiyur unit vide Order-in-Appeal dt. 26.2.98. This position has not been disputed by the Revenue. The Goa Commissioner's letter, though only an intra-departmental correspondence, seems to support the appellants' case as regards their Thiruvottiyur unit. (It is, noteworthy, in this context that MRF had also received a copy of that letter issued by the Commissioner). Why deny to Thiruvottiyur unit a benefit given to its sister unit? We think, this poser of Shri Nariman is well-founded on the apex court's judgment in Telco case (supra).
8.4 For the reasons recorded by us, it is held that the appellants fulfilled condition v(a) of Notification No. 203/92 in respect of the raw materials imported by them and used in Thiruvottiyur factory in the manufacture of goods for export under the DEEC scheme. The issue is held in favour of the appellants. Consequently, the imported inputs used in the Thiruvottiyur factory must be spared while demanding duty from the appellants as, on account of the above settlement of dispute, there is no outstanding breach of condition v(a) of the Notification in respect of the exports made in discharge of export obligation for such inputs. Further, such exports will stand outside the purview of the verification contemplated in para (7.14) of this order.
9. Issue (c) : Whether Section 28 of the Customs Act was invocable in this case.
9.1 Both the SCNs in this case invoked Section 28 of the Customs Act for demanding duty from the appellants. However, the endeavour of ld.Sr.Advocate for the Revenue was to rule out the applicability of Section 28 on the strength of Hon'ble Supreme Court's judgments in Commissioner of Customs v. Jagdish Cancer & Research Centre and Commissioner v. C.T. Scan Research Centre (P) Ltd. as also the Tribunal's Larger Bench decision in Bombay Hospital Trust v. Commissioner . He hastened to add that mere mention of a wrong provision of law (said to be Section 28 in the present case) in a SCN issued in exercise of power available under a different provision was not, by itself, sufficient to invalidate the notice. For this point, ld.counsel claimed support from the Supreme Court's judgments in N.B. Sanjana, Asst.Collector of Central Excise v. The Elphinstone Spinning and Weaving Mills Co. Ltd. and Collector v. Pradyumna Steel Ltd. . Ld.counsel also submitted that the Hon'ble Supreme Court's decision in Jagdish Cancer & Research Centre (supra) was squarely applicable to the facts of the present case. ld.Sr.Advocate for the appellants referred to certain facts on record for countering the above arguments. Out of the total number of 366 Bills of Entry covering all the DEEC imports in question, 319 Bills of Entry were finally assessed and 47 Bills of Entry provisionally assessed. Ld.counsel pointed out that there was no provision, other than Section 28, authorizing reopening of the completed assessments. The cases of Jagdish Cancer & Research Centre (supra) and C.T. Scan Research Centre (supra) were factually distinguishable from MRF's case. The duty demands in those cases were made under Section 125(2) of the Customs Act, which provision had no application to MRF's case. The Tribunal's Larger Bench decision in Bombay Hospital Trust case was applicable only to a demand raised on the ground of violation of post-importation condition of an Exemption Notification. Condition v(a) of Notification 203/92 was not a post-importation condition, whereas the conditions prescribed under Notification No. 64/88 considered by the Tribunal in Bombay Hospital Trust case were post-importation conditions. Further, relying on the apex court's decision in Saci Allied Products Ltd. v. Commissioner , ld.counsel argued that it was not permissible for the Tribunal to sustain a case of the Revenue not raised in the SCN or in the order of adjudication. He pointed out that the plea against Section 28 was an entirely new case of the respondent which was liable to be rejected.
9.2 To decide on the present issue, we have got to decipher the purport of the show-cause notices. The SCNs dealt with three categories of goods viz. (1) inputs imported (ii) inputs indigenous and (iii) final products exported. The cause of action for the notices was of the alleged breach, by MRF, of condition v(a) of Customs Notification No. 203/92. The notices proposed to levy duty on the inputs imported, by denying the benefit of the exemption notification to the importer on the ground of violation of the said condition which was to the effect that, in respect of the final products exported in discharge of export obligation attached to the inputs imported, any input stage credit was not to be obtained, i.e., any MODVAT credit was not to be availed on the (duty-paid) indigenous inputs. While the levy was proposed on the first category of goods (inputs imported), its ground, i.e., violation of condition v(a) ibid, was relatable to the second and third categories (indigenous inputs and final products exported). The SCN proposed to confiscate the first category of goods only, the reason being that condition v(a) subject to which such goods were exempted from duty was violated thereby attracting Section 111(o) of the Customs Act. The further proposal to impose penalty on the importer under Section 112 of the Act emanated from the confiscability of such goods. Thus all actions proposed in the two SCNs against MRF pertain to the imported goods. The demand is admittedly of duty not levied on the goods at the time of its clearance. Indisputably, Section 28 of the Customs Act is the provision for demanding Customs duty not levied. Where the non-levy of duty is due to collusion, wilful misstatement or suppression of facts by the assessee, the extended period of limitation prescribed under the proviso to Sub-section (1) of Section 28 can be invoked. In this case, both wilful misdeclaration and suppression of facts were alleged against the appellants. Hence the provisions of Section 28 were appropriately invoked by the Department in this case.
9.3 The question which arose in the case of Jagdish Cancer & Research Centre (supra) was whether the demand of duty raised on the assessee was under Section 28(1) or under Section 125(2). The assessee had imported a medical apparatus and obtained its clearance duty-free on 23.8.1989 under Customs Notification No. 64/88 dated 1.3.88 which offered 'nil' rate of duty to essential hospital equipments subject to certain post-importation conditions intended to benefit indoor and outdoor patients. After some years, the Department detected non-observance of these conditions and therefore seized the above apparatus on 22.1.98. An Assistant Commissioner of Customs issued a show-cause notice to the party proposing recovery of customs duty, confiscation of the seized goods in terms of Section 111(o) of the Customs Act and imposition of penalty on the noticee. The demand of duty was resisted by the party who contended that it was time-barred in terms of Section 28(1). The other proposals in the SCN were also contested. The adjudicating authority ordered confiscation of the goods with option for redemption thereof on payment of a fine under Section 125(2) and imposed a penalty on the party, besides holding them liable to pay the duty. In appeal, this Tribunal accepted the assessee's contention that, as Section 28 was involved in the demand of duty, the Asst.Commissioner had no jurisdiction to issue the SCN. Before the Supreme Court, the Department as appellant submitted that Section 28 had not been invoked, nor even mentioned, in the SCN. It was further contended that, in terms of Section 125(2), the assessee was liable to pay the duty without raising any plea of limitation. This argument of the department was accepted by the court which held as under:
Whenever an order confiscating the imported goods is passed, an option, as provided under Sub-section (1) of Section 125 of the Customs Act, is to be given to the person to pay fine in lieu of the confiscation and on such an order being passed according to Sub-section (2) of Section 125, the person "shall in addition be liable to any duty and charges payable in respect of such goods". A reading of Sub-sections (1) and (2) of Section 125 together makes it clear that liability to pay duty arises under Sub-section (2) in addition to the fine under Sub-section (1). Therefore, where an order is passed for payment of customs duty along with an order of imposition of fine in lieu of confiscation of goods, it shall only be referable to Sub-section (2) of Section 125 of the Customs Act. It would not attract Section 28(1) of the Customs Act which covers the cases of duty not levied, short levied or erroneously refunded etc. In the case of C.T. Scan Research Centre (supra), the court, on similar facts, followed the above decision. But the ruling is not applicable to the facts of the present case as it can be applied only where goods imported and cleared duty-free subject to post-importation condition prescribed (in the public interest) under an exemption notification are confiscated in terms of Section 111(o) on the ground of violation of such condition and are allowed to be redeemed on payment of a fine in terms of Section 125(1). The ruling mandates that, where the goods are so redeemed, duty leviable thereon but for the exemption shall be paid without resort to the provisions of Section 28. The ruling cannot apply where the goods are not physically available to be confiscated and redeemed as in the present case. When the two SCNs in question were issued, the imported goods (inputs) were not physically available for confiscation/redemption.
9.4 In Bombay Hospital Trust (supra), a 5-Member Bench of this Tribunal, dealing with the same notification (64/88), did not have to decide on the applicability of Section 28 thanks to consensus between the parties to the case vide para (12) of the Tribunal's order, the relevant part of which reads :
As regards the time limits under Section 28, both sides have agreed that since the duty demand does not relate to short levy or non levy at the time of initial assessment on importation, but has arisen subsequently on account of failure to fulfil the post-importation conditions under the Notification No. 64/88, the said Section 28 has no application to a duty demand of this kind. We do not, therefore, wish to dwell further on the inapplicability of Section 28 to such demands.
(emphasis added) The Larger Bench proceeded to hold that Section 12 of the Customs Act was invocable without time-bar for demanding duty on medical equipment imported and cleared duty-free in terms of the above notification if it be found that any of the post-importation conditions laid down under the notification was violated by the importer. Ld.Sr.Advocate for the respondent, in the instant case, made an endeavour to resist the appellants' plea of limitation, on the strength of this decision of the Larger Bench. His arguments in this behalf cannot be accepted for the simple reason that Notification 203/92 is ex facie different from Notification 64/88 in so many respects, the prominent difference being that the latter, unlike the former, created a continuing liability for the importer by laying down post-importation conditions which were to be observed continuously by the importer (hospital) in the public interest.
9.5 It will be interesting to examine (with reference to the facts pleaded by MRF in their affidavits) as to how condition v(a) of Notification 203/92 operated for the appellants. We have already drawn a chart on the basis of such facts vide para (5). Shri S. Narayanaswamy, Manager-Export Finance of the appellants, in his affidavit dated 6.4.2002 filed with this appeal stated that MRF's first application for VABAL was filed with Jt.DGFT on 1.6.92 and a file number was assigned thereto on the same day by the said authority. The first export was made on 3.6.92 under Shipping Bill No. 1010. The Advance Licence (No. 1521859 dt. 12.8.92) applied for was received by MRF on 24.8.92. In terms of this licence, imports were made and cleared at Customs under 111 Bills of Entry from 15.10.92 to 28.9.93. The export obligation in respect of these imports was discharged by way of exports made upto 22.4.93. The file number assigned by JDGFT as above was entered on each of the Shipping Bills covering these exports. These facts stated in the affidavit are also borne on record and, in any case, not in dispute. We have already made a tabulation of the imports and exports (broadly in chronological order with reference to date of issue of VABAL) vide para (5). Since condition v(a) of Notification 203/92-Cus. forbade availment of input stage credit in respect of goods exported under the DEEC scheme, MRF was liable to ensure, at the time of export, that no input stage credit had been obtained in respect of the finished goods exported in discharge of export obligation under the relevant VABAL. As was permissible under the said scheme, all the imports in relation to which export obligation had been discharged under shipping bill dt. 3.6.92 were effected only from 15.10.92. Exemption from payment of Customs duty on these imports was available to MRF under Notification 203/92 only on condition that no input stage credit was obtained on the goods exported in discharge of export obligation in relation such imports. But obviously these exports had already been effected. It would follow that condition No. v(a) should have been fulfilled at the time of export itself. In other words, in respect of the imports made under VABAL No. 1521859 dt. 12.8.92, condition v(a) of Notification 203/92 operated as pre-importation condition. It would appear from our tabular statement vide para (5) that a few exports were made after the corresponding imports. For instance, in respect of licence No. 30311 dated 19.10.92, the last import was on 10.5.93 and some exports were effected beyond that date, the last of these exports being on 3.8.93. Obviously, in respect of the said licence, there were exports which took place subsequent to the corresponding imports. In such cases, condition v(a) of the Notification operated as a post-importation condition. Thus condition v(a) could operate pre-importation or post-importation depending on the chronology of events. This is characteristic of the DEEC scheme and, by no means, analoguous to the straitjacket way the conditions of Notification 64/88 worked, post-importation always. Unlike in the Bombay Hospital Trust case, there is no agreement between the two sides in this case on the applicability of Section 28, nor can the applicability of a provision of law to a given set of facts be ousted by agreement between the parties to 'lis'. For this reason also, we consider the Larger Bench decision to be inapplicable to the instant case. Issue (c) stands answered in the affirmative.
9.6 Before parting with this aspect of the case, we would like to express our view with regard to an "account of import and export" placed before us on behalf of the appellants at the final hearing stage. The "MEMORANDUM ACCOUNT OF IMPORT AND EXPORT" was filed to show that, in respect of each import, they had discharged their export obligation prior to the date of import and not subsequent to the date of import. This "MEMORANDUM" (29 foolscap pages) is a combined chronological list of Shipping Bills and Bills of Entry showing also particulars such as value of exports (FOB value), value of inputs incorporated in value of exports (2/3rd of FOB value), value of imports etc. A few entries are extracted from it, below:
_________________________________________________________________________________________ S.No. FOB Value Shipping Bill / Bill of of exports CIF Value of inputs (Rs.) Entry (Rs.) _________________________________________________________________________________________ No. Date Credit Debit Balance 1 1012 03.06.92 1949048 1299365 1299365 2 1010 03.06.92 735717 490478 1789843 3 1013 03.06.92 661356 440904 2230747 * * * * * * * 230 3018 15.10.92 1167797 778531 169667543 1 35286 15.10.92 4033232 165634311 231 581455 16.10.92 4445741 2963827 168598138 232 3469 16.10.92 861928 574619 169172757 * * * * * * * 238 4700 20.10.92 691230 460820 171649591 2 1000498 20.10.92 5166163 166483428 239 583258 21.10.92 2895303 1930202 168413630 240 5042 21.10.92 1060408 706939 169120568 * * * * * * * 251 5760 23.10.92 101749 67833 172289448 3 36444 23.10.92 104633 172184815 4 36367 26.10.92 2583082 169601733 252 6407 27.10.92 1450244 966829 170568562 253 6405 27.10.92 1450244 966829 171535391 * * * * * * * 260 6659 28.10.92 180700 120467 174193832 5 36975 28.10.92 3019940 171173892 261 7136 29.10.92 494018 329345 171503237 262 7121 29.10.92 1447700 965133 172468371 * * * * * * * 996 14339 30.03.95 1093238 728825 100731084 363 15605 31.03.95 592932 100138152 364 15605 31.03.95 76843 100061309 365 15783 31.03.95 648471 99412838 366 15788 31.03.95 3866730 95546108 997 2554 07.04.95 2316103 1544069 97090176 998 8710 25.04.95 276030 184020 97274196 * * * * * * * 1036 12360 29.01.96 311923 207949 125201350 _________________________________________________________________________________________ • 2/3rd of FOB value of export Note : In the first column, the straight figures are serial numbers of Shipping Bills and those in italics are serial numbers of Bills of Entry.
Ld.Sr.Advocate for the appellants strenuously argued on the basis of the above account that export obligation was discharged, always, prior to import. We have not accepted this argument for the simple reason that the above "account of imports and exports" does not fit into the edifice of MRF's case which is built mainly on Annexure-B to Sh. Mammen Mathew's affidavit and Annexure-C to Sh. Narayanaswamy's affidavit (Paper Book-II) on which is based our chart (tabular statement) in para (5). These affidavits treat imports and exports licencewise as required in the DEEC scheme vide Shasun Drugs & Chemicals (supra). The above "MEMORANDUM ACCOUNT" ignores this basic requirement of the scheme.
10. Issue (d): Whether the extended period of limitation was invocable for recovering from the appellants Customs duty on the raw materials imported by them under the subject VABALs.
10.1 The two grounds raised in the SCNs for invoking the extended period of limitation are (i) wilful misdeclaration that the export goods had been manufactured without availing input stage credit under Rule 57A of the Central Excise Rules, 1944 and (ii) suppression of the fact that MRF had availed such credit on the inputs used in the goods exported, with intention to evade payment of Customs duty on the materials imported under the 12 VABALs. According to the appellants, during the period from June 1992 to October 1994, they were not required to furnish any declaration and hence did not furnish declaration on AR.4 Forms in respect of their exports of the said period. From October to December'94, they had declared that the export goods had been manufactured without availing credit under Rule 56A/57A in respect of DEEC inputs. From Jan'95 to Jan'96, they had furnished declarations on AR.4 Forms to the effect that the exports were being made without availing Modvat credit. On these facts, the appellants have claimed (a) that, in respect of the first period of export (June'92-October'94), there was no question of misdeclaration as there was no requirement of declaration (b) that, in respect of the second period (November-December'94), they had made a "limited declaration" which was accepted and (c) that, in respect of the remaining period (January'95 to January'96), they had correctly declared that they had not availed Modvat credit on inputs used in the export goods as the exports were made only after reversal of the credits taken on such inputs. Thus, MRF claimed, there was neither any misdeclaration nor any suppression of fact with intent to evade payment of duty. It is also their case that, as their factories were under physical control of the department, all the relevant facts were known to the department and, therefore, the extended period of limitation was not invocable against them. In support of this argument, ld.counsel has relied on the Tribunal's orders in the cases of Balkrishna Industries Ltd. v. Collector ; LML Limited v. Collector and ITC Ltd. v. Commissioner and the Madras High Court's decision in Norton Intec Rubbers (P). Ltd. v. Collector . Yet another ground raised by the appellants is that they were entertaining a bona fide belief that they were not liable to reverse the credit taken on inputs while exporting final products under the DEEC scheme. Such belief was said to be based on Rule 57F(3) of the Central Excise Rules, 1944. It has also been submitted that, on the question whether Modvat credit taken on inputs was liable to be expunged at the time of export, there were doubts in the minds of both the appellants and the departmental authorities and that, at one point of time, the CBEC Member (Customs) had suggested reference of the matter to the Law Ministry. As there was scope for doubt, it was not correct to invoke the extended period of limitation for demanding duty from the appellants. In support of these contentions of the appellants, ld.counsel has relied on the Supreme Court's judgment in Padmini Products Ltd. v. Collector .
10.2 Ld.counsel for the Revenue has argued that no plea of limitation can survive in this case. It was pointed out that a plea of bona fide belief was raised before the Tribunal by M/s. Bharti Telecom Ltd. and the same was rejected. The Tribunal's decision in that case was upheld by the Supreme Court. Ld.counsel, further, pointed out that, at the time of making the exports towards fulfilment of export obligation in relation to imports under the DEEC scheme, the appellants were aware of the fact that they had availed input duty credit on the indigenous inputs used in the export goods. However, duty-free clearance of imported goods was claimed under Notification No. 203/92-Cus. without disclosing such availment of input duty credit. Hence there was suppression of a material fact by MRF. For a part of the export period, their declaration was to the effect that no credit had been taken in respect of DEEC inputs. When such declaration was made, the appellants were fully aware of the fact that DEEC inputs (i.e. inputs imported under the DEEC scheme) cleared under the above Exemption Notification had suffered no duty and hence there was no question of taking credit on DEEC inputs. Hence MRF had misdeclared a material fact. Invocation of the extended period of limitation could not be resisted on the ground of department's knowledge inasmuch as it was only on 11.11.93 that the department was told (MRF's reply to the department's questionnaire) that they were availing input stage credit on all indigenous inputs used in the manufacture of final products exported under the DEEC scheme. Therefore, in any case, for all imports upto 10.11.93, the extended period would be applicable. Ld.counsel has also brought on record copies of (1) Circular No. 3/92 dt. 1.6.1992 (2) Circular No. 34/92-Cx.6 dt. 5.10.1992 and (3) Public Notice No. 36/94 issued by the Collector of Customs, Kochi to show that, during the early part of the period of dispute also, there was the requirement of declaration by exporters under the DEEC scheme. Ld. Counsel for the appellants has pointed out that none of these circulars/public notice had been brought to the notice of MRF at any time.
10.3 The appellants' case is that, for the period upto Oct'04, there was no requirement of filing any declaration with Shipping Bills and that it was front Nov'94 that they were required to do so. Countering this plea, ld.counsel for the department has brought on record two circulars and a public notice to show that, right from June'92, the exporters under the DEEC scheme were required to declare that they had not availed input stage credit under Rule 57A in respect of the export goods. We have perused these documents. Ministry of Finance Circular No. 3/92 dt. 1.6.92 (F.No. 605/58/92-DBK) contains guidelines to be followed by Collectors of Central Excise & Customs in the matter of dealing with imports and exports under the DEEC scheme. This circular provided, inter alia, that exports in respect of which input stage credit under Rule 56A/57A of the Central Excise Rules, 1944 had been taken shall not be counted towards discharge of export obligation under the scheme. It, further, provided that exports under the scheme shall be accompanied by a declaration that "the export goods have been manufactured without availing the facility of input stage credit under Rule 56A/57A of the Central Excise Rules, 1944." CBEC's Circular No. 34/82-CX.6 dated 5th October 1982 [F.No. 224/8/82-CX.6], which contains a reference to the Ministry's Circular No. 3/92 dt. 1st June 1992, was issued on 5.10.92. (the year mentioned in the title of the circular as 1982 to be read as 1992 as corrected by ld.counsel for the department). This circular also stated, inter alia, that, in case the exporter was availing Modvat credit or any other facility which was debarred in Customs Notification No. 203/92, the Shipping Bills should not be entertained for purposes of export under Value-Based Advance Licensing scheme and such exports should not be entered in the DEEC book. The circular proceeded to say that the Shipping Bills would have to be returned to the CHA/exporter for the purpose of indicating clearly the alternate scheme under which they would like to export. Where, however, the requisite conditions of the Notification were met, then, for entries in the DEEC book, a cross-reference of the relevant AR.4/AR.4A should also be made. Similar entries should also be made in the register maintained under Ministry's Circular No. 3/92 dated 1st June 1992. These two circulars obviously were issued to guide the officers of the department and were not intended to be read by the trade. However, it appears, Public Notice No. 36/94 issued by the Collector of Customs, Kochi was meant for exporters under the VABAL scheme. The following is the text of this Public Notice:
OFFICE OF THE COLLECTOR OF CUSTOMS.
CUSTOM HOUSE, KOCHI PUBLIC NOTICE No. 36/94 Sub : Value Based Advance Licensing Scheme - Double benefits -
--------------------------------------------------
Reg.:
1. According to the Value Based Advance Licensing Scheme, exports in respect of which any of the following benefits have been taken / claimed, shall not be counted for discharge of export obligation under the scheme.
(i) Db. Under Section 74 of Customs Act'62.
(ii) Drawback under Customs and Central Excise Duties Drawback Rules, 1971.
(iii) Input stage credit under Rule 56A/57A of Central Excise Rules, 1944.
(iv) Manufacture by following procedure under Rule 191A/191B of Central Excise Rules, 1944.
2. The export should be accompanied by the following declarations:
I/We,... (name of the exporter) do hereby declare as follows:
(a) that this shipment is in discharge of export obligation under Value Based Advance Licence No....Dt.... (DEEC No...dt...) issued by... (name of licensing authority), - or I / We request for registration of the shipping bill in anticipation of the grant of a Value Based Advance Licence for which we have already applied vide our application No.... dt...and for which I / We have obtained acknowledgement No.... dt... from the ... (name of the Licensing authority) (Strike out inapplicable portion)
(b) I / We are not claiming nor shall claim drawback either under Section 74 of the Customs Act, 1962 or under Customs and Central Excise Duties Drawback Rules, 1971 in respect of these exports.
(c) that the export goods have been manufactured without availing facility of input stage credit under Rule 56A/57A of Central Excise Rules, 1944.
(d) That the export goods have not been manufactured by availing procedure under Rule 191A/191B of Central Excise Rules, 1944.
(e) That following materials have been used for manufacturers of goods covered under this shipment, namely :
Sl.No. Description Quality Technical Characteristics
Name and Signature of the Exporter
--------------------------------------------------------------------------
For use by the Customs Authorities.
Shipping Bill No. and date....
Name and Signature of Customs Officer....
3. In case the exporter is availing MODVAT or any other facility which is debarred in the Customs Notification 203/92 Cus. (Reproduced by this Custom House as Public Notice 128/92), the Shipping Bill will not be entertained for purposes of export under VABAL Scheme and such exports will not be entered in the DEEC Book.
4. In case exports are made by Merchant Exporters / Trading houses (other than manufacturers themselves), such exporters also should declare on the Shipping Bills that the goods sought to be exported by them have been got manufactured through supporting manufacturers who have not availed such benefits as indicated in para (1) of this Public Notice.
5. Where the export products are exempted from Central Excise, the condition that the exporter should make a declaration with regard to non-availment of aforesaid benefits under Central Excise Rules shall continue to be applicable, whether the said exporter is a manufacturer exporter or merchant exporter.
However, Central Excise registration particulars or exemption category of the exporter/supporting manufacturer is required to be indicated on all import/export document sunder DEEC Scheme.
Sd./-
(T.R. RADHAKRISHNAN) COLLECTOR OF CUSTOMS As it is on record that a few imports under one of the 12 Advance Licences were made through Cochin port, MRF as licence holder/importer cannot plead ignorance of the above Public Notice issued by the Collector of Customs, Kochi. But the copy of the said notice shown to us does not contain any mention of the date of its issue, nor has such date been furnished to us by the respondent. However, we have reason to believe that the Public Notice was issued some time in Oct'94. It was on 24.10.94 that their CHA communicated to the appellants the requirement of filing declaration with Shipping Bill under the DEEC scheme. The CHA's letter is also part of the record. In the circumstances, we find that it was only on 24.10.94 that MRF came to know that there was the requirement of declaring, while exporting under DEEC scheme, that no input stage credit under Rule 57A had been availed in respect of any inputs used in the manufacture of the export goods. They were not required to file such declaration till Oct'94 and, therefore, the allegation of misdeclaration against the appellants cannot be sustained for the period upto Oct'94. But 'suppression' is a different thing. When the appellants made the very first export on 3.6.92 in anticipation of the first VABAL, they were consciously doing so towards discharge of export obligation in respect of duty-free imports of inputs to be made in future under such licence. Obviously, they were looking forward to duty-free clearance of such inputs under Notification 203/92 and were aware of condition v(a) of the Notification forbidding availment of input stage credit in respect of final products exported under the scheme. But, on 3.6.92, while exporting their products, they chose not to disclose the fact that they had availed credit on the indigenous inputs used in the manufacture of the export goods. It was only on 11.11.93 that they disclosed the fact to the department and, that too, only when pointedly queried. Nondisclosure (of a material fact which, if disclosed, would adversely affect one's claim for exemption from payment of duty) is a synonym for suppression (with intent to evade payment of duty). Therefore, we are of the view that the appellants suppressed the aforesaid fact before the department till 11.11.93.
10.4 It was argued to the effect that, as the factories were under physical control of the department, there was no scope for suppression of facts by the appellants. Certain decisions of the Tribunal and a High Court decision were relied on, in this connection, by ld.counsel for the appellants. In all those cases, the manufacturing units were under physical control of Central Excise authorities and it was held that, as the authorities were aware of the movement of goods into/within/from factory, the parties could not be held to have suppressed anything so as to attract the extended period of limitation under Section 11A of the Central Excise Act. In the present case, the relevant allegation in the SCNs was that the appellants had suppressed the fact that they had availed credit on the indigenous inputs used in the manufacture of the export goods. The appellants cited "physical control of factories by the Department" as a reason for denying the allegation. It is not in dispute that their factories were under physical control of Central Excise authorities during the material period. The appellants, however, have no case that Customs authorities were also exercising similar control over the factories. What was alleged against them for invoking the extended period of limitation under Section 28 of the Customs Act to demand Customs duty was suppression of a fact before Customs authorities. It was open to the party to meet this allegation by establishing that the officers of Customs having to deal with their Shipping Bills in Customs Houses had effective means to get to know as to what had happened in the factories under Central Excise control during the material period. Physical control should have been shown to be extensive enough to make Customs authorities aware of the operations and procedures (such as maintenance of Modvat account) in the factory. Having failed to establish this, the appellants cannot be held to have shown that Customs authorities were aware of the fact (which was allegedly suppressed) by reason of physical control of factories by Central Excise authorities. Contextually, it is pertinent to note that, in the case of Norton Intec Rubbers (supra) cited by ld.counsel for the appellants, the Hon'ble High Court noticed the physical control of the "Excise Department" over the factory and rejected the Excise authorities' charge of clandestine removal of goods from the factory.
10.5 From Nov'94, the appellants declared on the face of the Shipping Bills to the effect that Modvat credit had not been availed in respect of "DEEC inputs". The question now to be examined is whether any suppression or misdeclaration is involved in this statement. The declaration which was required under Public Notice No. 36/94 was as under:
I/We ... do hereby declare as follows :
(a) ....
(b) ....
(c) that the export goods have been manufactured without availing facility of input stage credit under Rule 56A/57A of Central Excise Rules, 1944.
(d) ....
(e) ....
Such was not the declaration given by MRF. They declared that Modvat credit had not been availed in respect of DEEC inputs. One would say, without resort to semantics, that "DEEC input" can mean only input imported under the DEEC scheme. Such inputs imported by MRF were without payment of any kind of duty and hence there was no question of availing Modvat credit on such inputs. It appears to us that the appellants, who cannot be expected to be oblivious of the fact that they were importing inputs duty-free under the scheme, chose to declare as above deliberately, for, even in this appeal, they have not pleaded that the declaration was given by mistake. What was required of MRF was a declaration in relation to duty-paid inputs. The above declaration pertained to non-duty-paid inputs ('DEEC inputs') and had nothing to do with the duty-paid inputs (indigenous inputs) on which MRF had availed credit. It was a typical case of misdeclaration wilful and skilful. It would also have amounted to suppression as regards duty-paid inputs had MRF not disclosed the material fact on 11.11.93. The Asst.Collector of Central Excise, Madras VIII Division issued a questionnaire dated 29.9.93 to MRF and the latter replied on 11.11.93. Query No. 9 of the Asst.Collector and MRF's reply thereto are extracted hereunder:
Query No. 9 : Are you availing Modvat Credit on the inputs going into the manufacture of finished products exported under DEEC?
Reply : We are not availing any Modvat for the materials imported under DEEC Scheme as no Countervailing Duty is paid for the imported material. However, we are utilising some inputs procured indigenously on payment of duty, which are not imported by us, like Bead Wire. In respect of these items also, we are entitled to retain the Modvat in terms of Rule 57F(3).
It was in the above reply to the department's query that the appellants for the first time disclosed that they were "taking and retaining" Modvat credit on indigenous inputs used in the manufacture of finished products exported under the DEEC scheme. They also claimed to be entitled to "retain" such credit in terms of Rule 57F(3), a claim which was reiterated by them in some of the subsequent correspondences with the department, notably in their letter dated 4.2.94. We will deal with this aspect in detail in a later context. Right now, we observe that, even after admitting (in reply to the department's query) that they were retaining Modvat credit on indigenous inputs used in the manufacture of finished products exported under the DEEC scheme, MRF continued to misdeclare on their Shipping Bills that Modvat credit had not been availed in respect of "DEEC inputs" and continued not to declare that they were availing Modvat credit under Rule 57A on duty-paid inputs used in the manufacture of finished products exported under the DEEC scheme. In our opinion, this act of the party could be considered as misdeclaration of fact with intent to avail the benefit of exemption under Notification No. 203/92-Cus.
10.6 The appellants have also raised the plea of bona fide belief. They have claimed that, in view of Rule 57F(3), they had believed that they were entitled to "take and retain" Modvat credit on inputs used in final products cleared for export under bond and to utilize such credit for payment of duty on similar products cleared for home consumption. We have examined the provision relied on by them, which is the first proviso to Sub-rule (3) of Rule 57F, which is reproduced below:
Provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond or used in the intermediate products cleared for export in accordance with Sub-rule (2) shall be allowed to be utilized towards payment of duty of excise on similar final products cleared for home consumption or for export on payment of duty and, where for any reason, such adjustment is not possible, by refund to the manufacturer subject to such safeguards, conditions and limitations as may be specified by the Central Government in the Official Gazette.
The appellants' claim is that, as they were clearing their final products for export under bond, the credit of duty paid on indigenous inputs used in the manufacture of such products was available to them for utilizing towards payment of duty on similar final products cleared for home consumption. The above provision is a general provision benefiting all manufacturer-exporters. In respect of those manufacturer-exporters, like MRF, who opted to import and export under the special scheme viz. DEEC scheme, the rule-making authority (Central Govt.) stipulated through Notification No. 203/92-Cus that the final product be exported without availing credit on inputs used in its manufacture. The appellants, admittedly, chose to work under this special scheme and hence it was not open to them to claim under the general scheme. [Contextually, we have noticed the view taken by the coordinate bench in CCE v. Oswal Agro Mills Ltd. 1997 (18) RLT 607 (CEGAT-NB): wherein, after noting that the assessee had imported inputs duty-free under the DEEC scheme, Modvat credit was allowed to them under Rule 57F(3) in respect of duty-paid inputs used in final product exported under the said scheme. We consider that view as having been taken per incuriam]. In other words, the DEEC scheme debarred them from claiming the benefit of the above proviso to Rule 57F(3) in respect of exports made under the said scheme. To believe, while availing the benefit of the special scheme, that the benefit of the general scheme is still available cannot be considered as a "bona fide belief". Such a belief, prompted by intent to avail double benefit, is bereft of bona fides. We perceive a connection between their plea of bona fide belief and their submission that there was "scope for doubt" as to whether Modvat credit on inputs used in the manufacture of final products exported under the DEEC scheme could be taken and retained by the manufacturer. Where a general provision of law and a special provision of law could be applied to a given set of facts, the special provision would prevail over the general. This is a well-established principle recognized and proclaimed by judicial authorities long before MRF started the exports in question. Hence there was hardly any scope for doubt as to whether the benefit of the first proviso to Rule 57F(3) [general provision] was available to them in respect of inputs to which condition v(a) of Notification No. 203/92-Cus. [special provision prescribed by the rule-making authority (Central Govt.)] was applicable. We have not come across any evidence of the Law Ministry having entertained any such doubt raised by CBEC. It was beyond doubt that the appellants were not entitled to the benefit of the general provision in respect of their final products exported under the special scheme (DEEC scheme). Hence their plea of "scope for doubt" must fail along with that of "bona fide" belief. In the circumstances, we need not examine the decisions which were cited by ld.counsel for the appellants in the context of arguing that, on account of "bona fide belief" and "scope for doubt", the extended period of limitation was not invocable for demanding duty from them.
10.7 It is on record that, from Jan'95, the appellants exported their final products after reversing input stage credit and declaring that they had not obtained such credit. What condition v(a) of Notification 203/92 stipulated was that no input stage credit should have been obtained under Rule 56A/57A in respect of goods manufactured in India and exported towards discharge of export obligation in relation to raw materials imported under a VABAL. In our view, this condition can only be construed to mean that if any credit had been taken on duty-paid inputs used in the manufacture of finished goods to be exported in discharge of export obligation under a VABAL, the same should be reversed before the exportation. It appears from the records that, from Jan'95, MRF was effecting such reversals of credit in their RG.23A-Part II before removing finished goods from their factory for export under the scheme. The appellants have claimed that, from 1.1.95, they declared that they had not availed the facility of Modvat credit under Rule 57A in respect of inputs used in the export goods. Pursuant to our order dated 28-4-2004, the appellants filed all the Shipping Bills barring a few and AR.4/AR.4A forms and supplied copies thereof to the SDR representing the respondent. On the basis of these documents, it was submitted by ld.Sr.Advocate for the appellants that, in respect of all exports made from 1.1.95, declaration to the effect that Modvat credit under Rule 57A had not been availed on inputs used in the manufacture of the export goods had been furnished either with the Shipping Bills or with the connected AR.4/AR.4A Forms or with both. This submission was not contested. Hence we find that, in respect of all exports made from 1.1.95, MRF had duly declared that they had not availed Modvat credit on inputs used in the manufacture of the export goods and, accordingly, we hold that the larger period of limitation is not invocable on the ground of suppression/misdeclaration to demand duty from them on the imported inputs used in the manufacture of finished goods exported from 1.1.95 in discharge of export obligation under the relevant VABALs.
10.8 Pursuant to our interim order dated 28.4.2004, the department filed a total number of 233 Bills of Entry (out of 366 Bills of Entry involved in the case). 197 of these Bills of Entry were finally assessed and the remaining 36 provisionally. 366 (-) 233 = 133 Bills of Entry were not produced by the department. However, 117 of these Bills of Entry were produced by the appellants, 109 of these 117 Bills, of Entry were finally assessed and the rest provisionally assessed. Thus, on the whole, out of 366 Bills of Entry, 319 were finally assessed and 47 were provisionally assessed. Ld.Sr.Advocate for the appellants has not pressed the plea of limitation in respect of the amounts of duty covered by these 47 Bills of Entry provisionally assessed. If any of the exports from 11.11.93 upto the end of October'94 and from 1.1.95 was made in discharge of export obligation under the relevant VABALs in relation to the inputs cleared under these 47 Bills of Entry which were provisionally assessed, then the demand of duty on such inputs will also not be barred by limitation.
10.9 To put our findings on the limitation issue in a nutshell:
(a) Export period June'92-October'94:
There was no misdeclaration of fact by the appellants in respect of exports made under the DEEC scheme upto the end of October 1994, but there was suppression of fact by them upto 10.11.1993. Hence the demand of duty on imported inputs in relation to which exports were made upto 10.11.93 is not time-barred but the demand of duty on imported inputs in relation to which exports were made from 11.11.93 to the end of October 1994 is time-barred except where the inputs were cleared under any of the 47 provisionally assessed Bills of Entry.
(b) Export period Nov-Dec'94:
There was misdeclaration of fact by the appellants in respect of exports made under the DEEC scheme during Nov-Dec.1994, though there was no suppression of fact by them during this period. Hence the demand of duty on imported inputs in relation to which exports were made during Nov-Dec 1994 is not time-barred.
(c) Export period Jan'95-Jan'96:
There was no suppression or misdeclaration of fact by the appellants in respect of exports made under the DEEC scheme from 1.1.1995. Hence the demand of duty on imported inputs in relation to which exports were made from 1.1.1995 is barred by limitation except where the inputs were cleared under any of the 47 provisionally assessed Bills of Entry.
11. Issue (e): Whether any penalty was liable to be imposed on the appellants under Section 112 of the Customs Act in the facts of this case.
11.1 Ld.Commissioner of Customs held the imported goods liable for confiscation under Section 111(o) of the Customs Act and, further, imposed on the appellants a penalty under Section 112(a) of the Act. If, in respect of any import, any substantive condition of exemption Notification is found to have been violated, the goods imported would become liable for confiscation under Section 111(o) and its importer can be penalised under Section 112(a) if he is found to have rendered the goods so liable by his commission or omission. We have already held that, in respect of the imports effected by the appellants under the DEEC scheme for their Thiruvottiyur unit, condition v(a) of Notification 203/92-Cus. cannot be considered to have been violated. Hence the goods imported for that unit were not liable to confiscation in terms of Clause (o) of Section 111. As regards the other units, the question whether the said condition was violated by the appellants requires to be decided upon licencewise by the adjudicating authority. Hence the ancillary question relating to penal liability will also be dealt with by that authority.
12. In the impugned order, ld.Commissioner demanded duty after finding factorywise breach of condition v(a) of Notification 203/92 by the appellants. She ought to have gone in for a licencewise enquiry. Of course, most of the materials which are before us and are essential for such enquiry were not available to ld.Commissioner. Hence we set aside the impugned order and direct de novo adjudication of the case in terms of the findings recorded herein on the relevant issues. Needless to say that the appellants shall be given a reasonable opportunity of being heard. The appeal stands allowed by remand.
(pronounced in open court on 29.3.06)