Customs, Excise and Gold Tribunal - Bangalore
Stumpp, Schuele And Somappa Ltd. vs Commr. Of Cus. (Exports) on 1 August, 2005
ORDER S.L. Peeran, Member (J)
1. Both these appeals arise from a common OIO No. 2668/2004, dated 14-9-2004 passed by the Commissioner of Customs, Chennai holding that the appellants had mis-declared the details in their documents, to avail the benefit of DEEC Scheme arid hence, larger period is available and as a result of denial of the scheme, they are required to pay duty and penalty. Several contentions were raised by the appellants, which are noted hereinbelow as found in para 34 of the impugned order :
34. The arguments advanced by SSS in support of their contention that they have not violated the conditions of advance licence and they have actually fulfilled the EO and fulfilled all the terms of notification are :-
(i) The description of the items imported and the product exported are strictly in accordance with the Standard Input-Output Norms (hereinafter referred to as SION);
(ii) Copy of the Purchase Order of the overseas buyers had been submitted to DGFT and DGFT did not seek additional information which shows that DGFT was satisfied;
(iii) The imported items were required for the manufacture of final products and the final products have actually been exported and in conformity with the Advance Licence/DEEC Book;
(iv) They have fulfilled the EO in terms of value, quantity, description, quality, technical characteristics, etc.
(v) Part (E) of the DEEC Book require helical coil springs to be exported and there is no dispute that the same item has been exported;
(vi) In respect of 18 Advance Licences, Export Obligation Discharge Certificate (hereinafter referred to as EODC) has been obtained and in re-
spect of the remaining six, EODC could not be obtained because of the case registered;
(vii) SSS have exported the goods valued at more than Rs. 6.16 Crores as against the requirement of Rs. 5.78 Crores;
(viii) No portion of the imported exempt materials have been sold/transferred or disposed of in any other manner;
(ix) Most of the materials have been imported post-export and are required as replenishment from the stock already utilised;
(x) 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 products but also includes the materials that are required to manufacture the resultant products.
(xi) It is settled law now that once EO is discharged and a Certificate to that effect is obtained from JDGFT, the Customs Officers cannot question or re-open such cases.
2. The Commissioner, in paras 34 and 35, has clearly admitted about the description of the items imported being strictly in accordance with the SION. He has also noted that exempt materials have not been sold or transferred or disposed of and that these were not questioned by the DRI in the Show Cause Notice. He has also admitted that the DGFT and the Customs Authorities have accepted the technical specifications furnished by the customer and the exporter and the export obligation had been fulfilled. However, as the DRI had investigated the matter and found some discrepancy, therefore, the benefit of DEEC Scheme has to be denied solely on the consideration that the imported raw material had not been used for manufacture of finished products and its mere capability of being used in the manufactured item is not the consideration. The findings recorded by him in paras 35 and 36 are noted herein below :
35. No doubt the description of the items imported are strictly in accordance with the SION. It is also correct that what has been imported and what has been exported tally with the description in the licence. It is also true that exempt materials have not been sold or transferred or disposed of. But, none of these aspects are questioned by the DRI in the SCN. The main point on the basis of which the case has been built has been dealt with in para 19 of the SCN wherein the material size of the finished product and the material size of the raw-material have been described as specimens to show how the material imported could not have been used in the finished product that has been exported. This aspect has not been disputed. It is true that the notification speaks of materials required for the manufacture. But, it is not deniable that the goods have been imported on the basis of actual user condition. The very fact that the actual user is required to give the technical specifications, characteristics and details in his declaration itself. So it is not sufficient, if the description alone tallies with SION. If that was the case, there was no need for SSS to give declaration in detail, why detail, no declaration would have been required at all since SION is in public domain. Unfortunately, both the DGFT and Customs Deptt. have accepted incomplete technical specifications and details and also have failed to compare the export product with the raw material that has been imported. Hence, the investigation by DRI and the case.
36. Admittedly, there are a number of types of springs made out of spring steel wire of different diameters. Spring steel wire of one diameter cannot be used to manufacture helical coil springs of another diameter since it is an admitted fact that no drawing of wire is done by SSS. Once this is established, it is quite clear that the raw-material diameter should tally with the diameter of the helical coil spring and then only the actual use of the imported material in the finished product exported can be established. Whether the licence is for replenishment of the raw-material or for future use is not relevant. In both the cases, once the actual user condition is put, it would mean that the raw-material imported has to be used for manufacture of finished product which is to be exported or the raw-material should have been capable of being used in the manufacture of item that has already been exported. Admittedly, both these conditions are not satisfied.
3. The arguments were advanced by the learned Counsel at great length and he contended that the period in question is 1996 to 2000. The Show Cause Notice had been issued on 21-3-2003. All the details required had been furnished in the declarations. The same was pointed out to the Bench and submitted that when all the details had been furnished, the question of invoking larger period does not arise and the demands were barred by time. It was also pointed out that the assessees are manufacturers of various kinds of Springs and the main raw material used are "Spring Steel Wire". The main input viz. "Spring Steel Wire", required for the manufacture of "Helical Springs" is procured both from the domestic as well as overseas sources. They had obtained during the period 1996 to 2000, 24 Advance Licences whose details are not questioned. The goods were imported as replenishments against the raw material viz. Spring Steel Wires used in the manufacture of the resultant products, which had already been exported under the said scheme. The DRI's allegation in the Show Cause Notice is that the raw materials imported under the said Advance Licences as replenishments were different from the raw materials used in the manufacture of exported goods in terms of their diameter i.e. size (thickness) from the material used in the export product. The contention of the Counsel is that the relevant policy of the said order had defined the terms "Raw material" as - "Raw materials, components, intermediates, consumables, computer software and parts required for manufacture of resultant products specified in Part E of the said Certificate". As against this definition, the earlier definition of Raw material in 1998 Policy is "materials means goods which are raw materials, components, intermediate products or consumables used in the manufacture of resultant, products and their packings, or mandatory spares to be exported along with the resultant products". He pointed out that the Commissioner has followed the ratio of Zenith Tin Works v. CC, Bombay 1997 (93) E.L.T. A176 (S.C.) and that of Garment Craft v. CC 2001 (130) E.L.T. A271 (S.C.) which was in terms of the earlier definition of raw materials in the Policy and has failed to follow the judgments rendered subsequently under the later Policy under the definition of "Raw materials" which are required for manufacture of the resultant product. He submitted that the ratio of the judgment rendered by the Apex Court in the case of Oblum Electrical Industries Pvt. Ltd. v. CC and that of the Tribunal in the case of Jay Engineering Works Ltd. v. CC apply to the facts of this case. He further submitted that in terms of the later definition, the exact correlation need not be between the export product and the imported raw materials as held by the Tribunal in the following cases :
(a) Siddartha Tubes Ltd. v. CC, Mumbai 2001 (137) E.L.T. 269
(b) Kitply Industries Ltd. v. CC, Mumbai
(c) ITC Ltd. v. CC, Chennai
4. He further submitted that the proof of actual use is not a condition attached to the exemption notification and relied on the Tribunal ruling which has been upheld by the Apex Court as rendered in the case of Asean Trading Agency v. CC as affirmed by the Supreme Court in 1997 (94) E.L.T. A129 (S.C.) and that of Sha Harakchand Dharmaji v. CC, Madras .
5. He further submitted that once the export obligation has been fulfilled, then the raw materials imported for replenishments can be used in the manufacture of goods, which are sold in the domestic market and the Customs Authorities cannot demand duty on the ground that the goods have been imported have not been used in the export product. He relies on the following three ratios:
(a) Dolphin Drugs (P) Ltd. v. CC, Mumbai
(b) Standard Industries Ltd. v. CC, Trichy 2001 (136) E.L.T. 124
(c) CC v. Cheminor Drugs Ltd.
(d) Jay Engineering Works Ltd. v. CC, Chennai
6. The Counsel further submitted that the Customs authorities cannot question the validity of the import licence and the raw materials imported thereunder and relied on the ratio of the following rulings :
(a) UOI v. Oceanic Export Corporation
(b) CC v. Ryben Pharmaceutical
(c) Jaysynth Dyechem Ltd. v. CC 2001 (136) E.L.T. 1429 (T)
(d) Autolite (India) Ltd. v. UOI
(e) Titan Industries Ltd, v. ACC, Chennai 2003 (158) E.L.T. 437 (Mad.)
(f) Jay Engineering Works Ltd. (supra).
7. He further contended that the wordings in the Notification have to be construed strictly, keeping in mind the objectives and purpose of the exemption. In this regard, he relied on the following ratio of judgments :-
(a) CC v. United Electrical Industries Ltd.
(b) K.R. Steel Union Ltd. v. CC, Kandla
(c) Shriram Vinyl & Chemical Industries Ltd. v. CC, Mumbai .
8. He further contended that the larger period is not invokable as they had given the details of the imported goods by giving their correct classification as per the Advance Licence and claiming the benefit of Exemption Notification and it would not amount to mis-declaration or mis-statement and hence, extended period cannot be invoked. He relied on the following judgments:
(a) G.C. Jain v. CC, Calcutta
(b) Pushpam Pharmaceutical Co. v. CCE, Bombay
(c) Tamil Nadu Housing Board v. CCE, Madras .
9. The learned SDK defended the order and filed detailed parawise comments and relied on the judgment of the Tribunal rendered in the case of Zenith Tin Works , which has been upheld by the Apex Court. He contended that merely because the DGFT and Customs Authorities have accepted the exports, that by itself is no ground to grant the assessee the benefit of the scheme as they have imported raw material of different dimensions which cannot be considered as a replenishment item and, therefore, the denial of benefit is justified.
10. On a careful consideration of the submissions made, it is very clear from the record that the definition of the word 'Materials' and 'Raw materials' as in the Notification Nos. 116/88-Cus, dated 30-3-1988 and 159/90-Cus, dated 30-3-1990 has been amended in the subsequent Notification of 204/92-Cus, dated 19-5-1992 because on 30-3-1988, the definition of "materials" meant "Goods which are raw materials, components, intermediate products or consumables used in the manufacture of resultant products...." This has been amended to mean "Raw Materials, components, intermediates, consumables, and parts required for manufacture of resultant products". The appellants have contended that the Commissioner has applied the ratio of Zenith Tin Works, which interpreted the term 'Raw materials' as applicable in the earlier Notification 116/88 which stated that the "materials" means raw materials used in the manufacture of resultant products which is subsequently been altered to mean "raw materials required for manufacture of resultant products". In this connection, the subsequent judgment of the Apex Court in the case of Oblum Electrical Industries Pvt. Ltd., and Jay Engineering Works Ltd. (cited supra) has been relied. In the case of Oblum Electrical Industries Pvt. Ltd. (supra), the Apex Court has clearly held that in the Notification, two different expressions have been used namely, 'materials required to be imported for the purpose of manufacture of products' and 'replenishments of materials used in the manufacture of resultant products' which indicates that the two expressions have not been used in the same sense. The Apex Court further clarifies that 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 products. It is further held that the exemption must be given its natural meaning to include materials that are required in order to manufacture the resultant products. On that view, the Court further clarified that 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 are required in order to manufacture the resultant product. Similarly, in the case of Jay Engineering Works Ltd. (supra), the Tribunal again went into the definition of the term "required for manufacture of the export product" and have clarified that the Notification places no restrictions on actual use. It clarifies that once a specified item has a standard input (aluminium alloy) for manufacture of ceiling fans and an Advance Licence has been issued for the import of the said aluminium alloy, it is a material required for the manufacture of ceiling fans. It has been held in dealing with the Revenue's contention that the use of the imported raw materials is the option of the importer. He can either use it in the export product or import it and keep it in the factory, manufacture the export product using inputs procured from other sources, fulfil the export obligation and, thereafter, dispose off the raw materials imported as per Standard Input/Output Norms. It has been held that if the Customs authorities take a view that certain materials are not required for the manufacture, contrary to the view of the Standard Input/Output Norms of the EXIM Policy, it would lead to disharmonious situation, as while import licences granted will entitle the import under DEEC Scheme while the clearances of the same into the country would not be in conformity with the DEEC Scheme. It has been held that the EXIM Policy of the Government has to be harmoniously interpreted and no discordant notes be made. It has been further held that if Input/Output Norms permit, clearance as per Policy have to be allowed by the Customs. If the norms are not correct, the norms could be changed not the clearances effected. In a like situation, the Tribunal, in the said case, has held that once export obligations have been fulfilled, then the raw materials imported for replenishment be used in the manufacture of the goods, which are sold in the domestic market and that the Customs authorities cannot demand duty on the ground that the goods imported have not been used in the exported goods. The Tribunal has relied on the judgments of Dolphin Drugs (P) Ltd, Standard Industries Ltd. and CC, Hyderabad v. Cheminor Drugs Ltd. (supra).
11. On a careful consideration of the judgment of the Apex Court ruling in the case of CC, Kolkata v. Rupa and Co. Ltd. (supra), we find that the Apex Court's explanation of the term 'Goods required for manufacture' to mean to include materials not directly used in the manufacture of resultant product but still required therein, also applies to the facts of the case. The Apex Court has relied on the earlier ruling rendered in the case of Oblum Electrical Industries Pvt. Ltd. We find that a similar view was expressed by the Tribunal in the case of Siddhartha Tubes Ltd. and in the case of Kitply Industries Ltd. (supra). In the ITC Ltd. (supra) case also, a similar view has been expressed by the Tribunal. All these judgments clearly apply to the facts of the case and the appellants' contention that the replenishment materials are required for manufacture of resultant products and they have been used so and it satisfies the Notification, should be accepted. The judgments relied by the Revenue in the case of Zenith Tin Works (supra) is clearly distinguishable as the terms of the Notifications have changed thereafter. The further case of the assessee that the demands are barred by time is a well taken ground for the reason that all the details and particulars have been mentioned in the records and on our perusal of the entire records, including the licence and the documents furnished at the time of export and at the time of import of the raw materials for replenishment, we find that the details had been furnished. Licence, DEEC passbook and other documents had been scrutinized by the DGFT and the Customs Authorities and there was no details which had not been declared was discovered by the DRI in the investigation. There was no suppression or mis-declaration of facts. Therefore, in the light of the judgment cited by the Counsel, the demands are clearly barred by time. The appellants succeed on both grounds and the appeals are allowed with consequential relief if any.
(Pronounced in open Court on 1st August, 2005)