Customs, Excise and Gold Tribunal - Calcutta
M/S. Kitply Industries Ltd. vs Cc, New Kandla on 25 May, 2001
Equivalent citations: 2001(135)ELT786(TRI-KOLKATA)
ORDER
Lajja Ram
1. In this appeal filed by M/s. Kitply Industries Ltd. ('KIL' for short), the impugned order-in-original NO.KDL/Commissioner/54/97 dated 22.12.97 had been passed by the Commissioner of Customs, Kandla. The allegation against M/s. KIL as levelled in the show cause notice dated 26.3.97 was of mis-use of Duty Exemption Entitlement Certificate (DEEC) Scheme in as much as the imported Phenol Formaldehyde Resin had no nexus with the goods exported - the Commercial plywood. The Commissioner of Customs, Kandla had confirmed a demand of Rs. 17540932.95. A penalty of Rs. 35,00,000/- under Section 112(a) of the Customs Act, 1962 (hereinafter referred to as the 'Act'), and a further penalty of Rs. 35,00,000/- for wilful mis-representation and suppression of facts with intent to evade customs duty, was also imposed.
2. The matter was heard on 27.04.2001 at Kolkata. When Shri K.K. Banerjee, Advocate appearing for M/s. KIL submitted that M/s. KIL were an established exporter and had been exporting commercial plywood to different countries. They had already discharged their export obligations prior to the issuance of the advance licences in question. The raw material used in the exported commercial plywood was Phenol, and the statements of their suppliers on whom reliance has been placed to charge them with mis-utilisation of the imported duty free Phenol, had been obtained behind their back. No cross examination of these witnesses was allowed. They have pointed out a number of discrepancies in the statements of these witnesses and have submitted that the documents referred to in those statements had no relevancy to the exports made by them prior to the issuance of advance licences. Their export obligations had been duly fulfilled to the satisfaction of both the customs authorities and the licensing authorities. The goods exported had been examined by the Customs and no proceedings had been drawn by the licensing authorities as they had not violated any provisions of the law. It was his submission that the present case has been made out against them without appreciation of the facts and the legal provisions.
In reply, Shri A.K. Chattopadhyay, Departmental Representative re-iterated the grounds taken by the adjudicating authority to confirm the allegations as levelled in the show cause notice. It was his submissions that the appellants themselves had admitted that the Phenol imported duty free had no nexus with the exported goods which had already been cleared and exported before import of the Phenol.
3. We have carefully considered the matter. We have given our due thought and consideration to the submissions made by both the sides. M/s. KIL were engaged in the manufacture of Plywood. They were also holding the status of Export House as well as merchant exporter besides being manufacturer/exporter. The advance licenses under the DEEC Scheme had been issued to them by the licensing authorities treating them as an Export House.
In the show cause notice dated 26.03.97 the main charge levelled against M/s. KIL was that they had imported Phenol Formaldehyde Resin under the advance licenses issued under the DEEC Scheme, but the imported material was not actually used in the manufacture of the exported goods - commercial Plywood (refer para-6.9 of the show cause notice aforesaid). It was alleged that what was used in the manufacture of exported goods was the urea formaldehyde resin and not the phenol formaldehyde resin which had been subsequently imported duty free. In the show cause notice, it was alleged that such non-use of the imported duty free material was in violation of the condition as provided in Notification No. 203/92 Cus dated 19.05.92. The adjudicating authority had noted that the reference to Notification No. 203/92 Cus in the show cause notice was wrong and that the correct Notification was Notification No. 204/92 Cus dated 19.05.92.
4. The allegation that the imported material was not used in the manufacture of exported goods had been sought to be established on the basis of the statements of the suppliers of the goods exported by M/s. KIL after having been purchased from such suppliers. The goods exported were procured by KIL partly from other manufacturing units. In reply dated 11.08.97 to the show cause notice, the appellants had pleaded that with regard to the first consignment of 250 M.T. of imported material, the advance licenses were issued to them between 10.12.93 to 28.12.93 while the export obligations had already been fully met between 10.06.93 to 14.10.93. The due foreign exchange had been realised before 03.12.93. Similarly, with regard to the second consignment of 1050 M.T. of Hydrated Phenol, the export obligations had been fully met prior to the purchase/issuance of advance licences. It was submitted that the statements of different representatives of the manufacturing factories had not been recorded in the presence of the appellants. Further, they have prayed for the cross examination of such witnesses. It was further submitted that most of the AR 4A's mentioned in the statements of respective representatives did not relate to the relevant period of exports completed under the relevant advance licences. In the AR 4A's the resin used for bonding had not been mentioned. (refer page 983 of the paper book).
They had re-iterated that the phenol had been generally used by them in the production of exported goods. The phenol subsequently imported was sent to the factories at different places and was subsequently used for production of commercial plywood. (refer page 984 of the paper book). Their exports have met the requirements of their foreign buyers. The Licensing authorities have found their export performance as satisfactory.
5. We find from the facts on record that the export obligations have already been discharged by KIL prior to the imports against advance licences. The licensing authorities have waived the conditions of executing LUT (Legal Undertaking) and the licences had been made transferable in view of fulfilment of export obligations. No objection was raised at the time of imports. The material had been imported after the fulfilment of export obligations. The adjudicating authority had agreed that the actual use of these imported goods was not relevant in the present case as it was a case where the material was imported subsequent to the exports.
6. The appellants had pleaded that there was no requirement under the Import and Export Policy 1992-97 that the material actually imported should be used in the goods exported. There could be a case of prior import of raw materials and there could be a case of post-import of the raw materials after the notified goods have already been exported.
Under para-47 of the Export & Import Policy 1992-97, under the Duty Exemption Scheme, import of raw materials, intermediates, components, consumable, parts, accessories, mandatory spares, etc. required for the product to be exported may be permitted duty free for processing and export. In para-66 of the said Policy, it was made clear that the exports could be made in anticipation of issue of advance licence. It was provided that exports/supplies made from the date of receipt of an application under the Duty Exemption scheme by the licensing authority were to be accepted towards discharge of export obligation. Thus, it is clear that in such case, there could no exact cor-relation between the exports already made and the imports of materials made subsequently. These provisions are in tune with the objectives of the above Policy as contained in para-6 of the said Policy.
We may also refer that the DEEC Scheme is a part of the package of incentives formulated by the Central Government for boosting the exports. It envisages the grant of import licences to exporters for import of those materials duty free which were required for manufacture of the goods exported. The sale of such import licence or the materials imported duty free in Indian market were other benefits to attract exporters to increase their exports (para-10 of Collector of Customs Vs. Pankaj V. Sheth -1997 (90) ELT 31 (Calcutta).
While dealing with the exports and alleging charges of non-use of import materials in the manufacture of export goods, as in the present case, it has also to be remembered that the policy adopted for the purpose of export or import is detected by the economic needs of the country, earning of foreign exchange, financial stability, etc. (refer para-13 of the bakul Cashew Co. Vs. Union of India represented by the Ministry of Finance, Department of Revenue - 1984 (15) ELT 379 (Madras).
7. While dealing with this aspect of the matter, we may also refer to the Supreme Court's decision in the case of Oblum Electrical Industries Pvt. Ltd. Vs. Collector of Customs, Mumbai - 1997 (94) ELT 449 (SC), wherein the Hon'ble Supreme Court had observed that the workings in the notification have to be construed keeping in view the objects and purpose of the exemption. Para-11 from that decision is extracted below:-
11. A perusal of Notification No. 116/88-Cus. shows that the object and purpose of the said notification is to encourage exports by granting exemption from customs duty on materials that are required to be imported for the purpose of manufacture of the resultant products or for replenishment of the material used in the manufacture of the resultant products, or both or for export as mandatory spares along with the resultant products. The manufacture of the resultant products has to be for execution of one or more export orders. In order to ensure that the exemption is availed only by deserving people, conditions have been laid down in clauses (a) to (g), which must be fulfilled for availing the exemption. One such condition, as laid down in clause (a), is that the material imported must be covered by a Duty Exemption Entitlement Certificate issued by the licensing authority. Under Clause (c) it is required that the goods corresponding to the resultant product and the mandatory spares should be exported within the tim specified in the DEEC or such extended period as may be granted by the licensing authority. The wordings in the notification have to be construed keeping in view the said object and purpose of the exemption. In the notification two different expressions have been used namely, materials required to be imported for the purpose of manufacture of products' and 'replenishment of materials used in the manufacture of resultant products' which indicates that the two expressions have not been used in the same sense. The expression 'materials required to be imported for the purpose of manufacture of products' cannot be construed as referring only to materials which are used in the manufacture of the products. The said exemption must be given its natural meaning to include materials that are required in order to manufacture the resultant products. On that view, the exemption cannot be confined to materials which are actually used in the manufacture of the resultant product but would also include materials which though not used in the manufacture of the resultant product but would also include materials which though not used in the manufacture of the resultant product are required in order to manufacture the resultant product. Crystar beams imported by the appellant are materials, which though not used in the manufacture of H.T. Porcelain insulators required for Lightening Arrestors, are materials which are required for producing the insulators in the kilns.
We may also refere to the Andhra Pradesh High Court decision in the case of Dy. Chief controller of Import and Exports Vs. I.T.C. Ltd. - - 1998 (102) ELT 17 (A.P.). Para-13 from that decision is extracted below:-
13. The basis object of the Advance Licensing System and the Duty Exemption Scheme as contained in Chapter XIX of the Import-Export Policy 1990-93, is to ensure that Indian manufactures and business people should earn foreign exchange for the country by the promotion of exports and it is for that purpose the facility of securing imported raw materials duty free was made available. The basic concern and objective of such scheme is that of the material imported under the advance licensing system is utilised in the production of goods for exports and the manufacturers shall earn the prescribed or stipulated amount of foreign exchange from the export of the finished goods. Such objectives are duly fulfilled in the present case inasmuch as all the imported boxes were actually utilised for exporting the unmanufactured tobacco and the value of the exported commodity far exceeded the specified FOB value of such commodity. The only lapse on the part of the respondent in exporting the commodity is shortfall in the quantity of such exported commodity. The respondent cannot be said to be motivated for such shortfall, nor can it be said that such shortfall was on account of any gross negligence or indifference on the part of the respondent in sticking on to the terms and condition of the export policy. Each Corrugated Box had to be filed with 200 Kgs. of 'unmanufactured tobacco' with a variation of '+/-5%'. Such variation clause was introduced evidently on account of the fact that it may not always be possible to fill each Box with exact specified quantity of 200 Kgs. The weight of the 'unmanufactured tobacco' and the space that will be occupied by if when it is filled in a Corrugated Fibre board Box depends upon various factors, such as, the quality, moisture contents, etc. of such Tobacco. The value of the tobacco that was exported was more than three times of the specified FOX value, evidently on account of the fact that the said Tobacco was of high quality, which resulted in earning foreign exchange to an extent more than expected. under such circumstances, no mala fides can be attributed to the respondent on account of such shortfall in the weight of the commodity that was actually exported. Under those circumstances, it is not justifiable on the part of the first appellant in refusing to grant the Entitlement Certificate for claiming the benefits of Special REP facility in toto.
8. The ld. Departmental Representative had referred to the Standing Order No. 14/95 dated 10.04.95 of the Customs House, Calcutta. It has been provided in that Standing Order that the logging of the DEEC books for exports made in cases where advance licenses were issued was to be done after ensuring that the export products had the specific technical features/characteristics or had incorporated inputs of such technical features/characteristics as per endorsement in the DEEC books. It was to be ensured that the endorsement in the DEEC fully reflected the data in the application for advance licence. It was advised in that Standing Order that in case of any discrepancy the DEEC books submitted by the parties should be referred to the licensing authorities for re-conciliation.
In the present case, we find that the export obligations had already been discharged to the satisfaction of both the customs authorities and the licensing authorities. The licensing authorities had cancelled the LUT and the licenses had been made transferable. The case was booked subsequent to the completion of all formalities with regard to the exports and imports.
Further, we do not find anything in these instructions that the inputs imported should actually be used in the export goods. In fact in the present case, it could not be possible as the exports had already been completed before the import of the inputs. The import of inputs had been duty allowed. The licensing authority had raised no objection about the import of the inputs subsequent to the exports and the procedure adopted in this regard by KIL.
In the Directorate General of Foreign Trade Circular No. 17/94 dated 08.11.94, the same position had been explained and the emphasis was not on the use but on the nexus between the export products and the items imported with reference to their technical characteristics including grade, quality and specifications. This circular takes cognizance of the fact that the inputs could be imported subsequent to the exports when it states in para-3 as under:-
" It may also be noted that for the purposes of nexus between resultant products and imported inputs, the technical characteristics, grades, quality and specifications shall be equally relevant when the inputs are imported on pre-import basis or post-export basis as a replenishment either by the licensee or by the transferee."
It is clear from this circular that nexus between inputs and the export products does not mean that the same imported goods should have been used in the export products.
9. In the show cause notice, it has been alleged that what the appellants have done was in violation of the conditions as provided in Notification No. 203/92 Cus dated 19.05.92.
Under Notification No. 203/92 Cus dated 19.05.92, materials imported into India against a value based advance licence issued in terms of para-49 of the Export and Import Policy, 1st April, 1992- 31st March, 1997 were exempt subject to the conditions named in that notification from the whole of the duty of the customs leviable thereon. Para-49 of the Export and Import Policy aforesaid is extracted below:-
"49. Under a Value Based Advance Licence any of the inputs specified in the licence may be imported within the total CIF value indicated for those inputs, except inputs specified as sensitive items. If any sensitive item is not imported, the value indicated against the said item may be used for importing non-sensitive items. A sensitive item may be imported only to the extent of the quantity or value specified in the licence. However, the importer shall have the flexibility of importing a sensitive item in excess of the quantity or value limit indicated against it upto an extent of 20% of the quantity or value indicated, as the case may be, subject to the overall CIF value of the licence.
Under a value based advance licence, both the quantity and FOB value of the exports to be achieved shall be specified. it shall be obligatory on the part of the licence holder to achieve both the quantity and FOB value of the exports specified in the licence.
A Value based advance Licence shall specify:
(a) The name and description of items to be imported and exported;
(b) the CIF value of imports;
(c) the FOB value and quantity of exports;
(d) for sensitive items, where the competent authority considers it necessary to do so, quantity or CIF value or both of each sensitive item shall also be specified in the licence."
The Condition No. (I) in that notification was that the materials imported were covered by a value based Duty Exemption Entitlement Certificate issued by the licensing authority in the form specified in the schedule annexed to that notification. In Condition No. (II) while requirement for production of proof of having executed a bond or a legal undertaking before the licensing authority concerned for complying with the condition of that Notification and the requirement of making a declaration etc. were laid-down, it was provided that a bond or a legal undertaking and the declaration was not necessary in respect of the imports made after discharge of export obligation in full as evidenced by endorsement of licensing authority in the DEEC Certificate. In Condition no. (VI), it was provided that the exempt material was to be utilised for discharge of export obligation and no part thereof was to be disposed of in any other manner before export obligation under the said value based advance licence had been discharged in full and the export proceeds realised It is clear from the express language of the above notification dated 19.05.92; (i) imports could even be made after discharge of export obligation, (ii) while exempted materials were to be utilised for discharge of export obligation, there was no requirement that the exported materials in all cases were to be utilised in the exported goods.
It is clear from the condition no. (VI) that after discharge of export obligation, the exempted materials could be disposed of in any other manner. Although in the show cause notice the infringement of Notification No. 203/92 Cus dated 19.05.92 had been alleged, the adjudicating authority had noted that the relevant notification was Notification No. 204/92 Cus dated 19.05.92.
Under Notification No. 204/92 Cus dated 19.05.92, materials imported into india against an advance licence were provided exemption from the payment of customs duty subject to the various conditions as named therein. The governing condition of the quantity based Duty Exemption Entitlement Certificate (DEEC) were the value, quantity, description, quality and technical characteristics. This notification also takes cognizance of the fact that the imports could be made after dischange of export obligations when it was provided as under:-
" provided that a bond or a legal undertaking and the declaration shall not be necessary in respect of imports made after discharge of export obligation in full as evidenced by endorsement of licensing authority in the said certificate."
In Condition No. (VII) of that notification it was provided that the exempt materials were to be utilised for discharge of export obligation, and no part thereof was to be disposed of in any other manner before export obligation under the advance licence had been discharged in full and export proceeds realised. In other words, after the export obligations have been discharged in full and export proceeds realised, the exempt materials could even be disposed of in the open market.
10. Viewed in this light, we find that M/s. KIL had dischaged their export obligations. The export proceeds had been fully realised and the necessary endorsement had been made on the relevant documents after the customs authorities and the licensing authorities were satisfied about the fulfilment of obligation on the part of KIL. In the impugned order, the ld. Commissioner of Customs had noted that the advance licences were issued to the importers as import house; the export obligations had been discharged prior to imports under the relevant advance licences; the licences had been duly endorsed by the concerned customs authorities; the licensing authorities had waived the condition of legal undertaking, and the licences were made transferable in view of fulfilment of export obligations. he had correctly noted that the actual use of the imported goods in the goods already exported was not relevant.
11. The allegations regarding non-use of phenol had been made after the matter had been settled by the customs authorities and the licensing authorities. There is nothing on record to show that the goods exported did not meet the requirements of the exemption notification. The case had been made on the basis of the statements of the suppliers and the employees of the appellants' company. The appellants have pleaded that the statements of their employees had been recorded without fully explaining the implication of the questions and that these persons were not concerned with the activities with regard to which the questions had been asked. The statements of their suppliers had also been obtained behind their back and they were not allowed cross examination. The AR 4A's mentioned by the suppliers were not for the relevant period. We also find that there is no test report for the goods exported and there is no independent evidence with regard to the use or no use of phenol in the goods exported. The submissions of appellants have not been discussed and a view had been taken that the goods cleared from kandla Customs viz. Phenol against the advance licences were not covered by those licences for the reasons that they did not find use in the manufacturing of the exported goods. We have already noted that the adjudicating authority had agreed (refer pages 1004 - 1005 of the paper book) that the actual use of the imported goods was not relevant in this case.
12. On careful consideration of the matter, we find that the view taken by the ld. Commissioner of Customs in this regard does not flow from the facts on record.
13. In the case of East India Transformers & Switchgear (P) Ltd. & Another Vs. Collector of Customs & Another - 1988 (35) ELT (Calcutta). the contention of the customs authorities was that the raw materials and goods, which had been imported should be actually used as materials and components and that the goods must not lost its identity and the self same goods which are imported should be used as raw materials, and there could not be any question of any re-imbursement or replacement of the raw materials and components after the same were used from the old stock. The facts were mentioned in para-2 of the judgement as under:-
2. In this case the admitted position is that the petitioners are entitled to import duty-free materials for the purpose of manufacture of the items in the projects aided by IBRD and IDA but in the instant case what has happened is that before the actual import or the transformer took place, the petitioners from their stock supplied to the manufacturers raw materials and components. Subsequently when the goods arrived, the petitioner wanted the said goods to be released on the basis of the said duty-free exemption which was not acceded to by the Customs Authorities. The contention of the Customs Authorities was that the raw materials and goods which had been imported should be actually used as materials and components, in other words, the goods must not lost its identity and the self same goods which are imported should be used as raw materials and there could not be any question of any re-imbursement or replacement of the raw materials and components after the same was used from the old stock as has been done in this case. The petitioners claim that the purpose for which they were imported had been fulfilled and it is immaterial whether the petitioners had supplied the goods in advance from his old stock or not. According to the petitioners, the respondents are bound to release the same without payment of any Duty as the goods had already been used as raw materials and components for manufacture. The relevant notification in this connection did not in so many words clearly permit the petitioners to import goods which had already been used for the very purpose for which such importation had been made. Here is a case where the petitioner could get the exemption from Customs Duty if the goods were imported and used as raw materials and components by the said manufactures. But in the instant case the petitioners already supplied the good for being used as components and raw materials in advance and there after sought to replace the same by the goods so imported.
The Hon'ble Calcutta High Court referred to the amending Notification No. 235/87 Cus dated 5.6.87 (amending Notification No. 210/82 Cus dated 10.09.82) and held that the appellants in that case were entitled to get the benefit of duty free importation of goods which have already been used as components and raw materials for manufacture, for the purpose of replacement or replenishment.
14. After taking into consideration all the facts and circumstances of the present case, we do not agree with the view taken by the ld. commissioner of Customs in the present case. We set aside the said impugned order and the appeal filed by M/s. Kitply Industries Ltd. is allowed. Ordered accordingly.