TMI Blog2012 (11) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... s and specifications as the materials used in the resultant product. Having allowed export of motors with input specifications as bearing upto 50 mm bore, it may not be appropriate for the customs authorities to insist on technical specifications at the time of import of bearings. Fraud - in this case Shri. Lalit Jain, the broker, is seen to have used some forged letters for transferring the license from the exporter to the importer through the medium of shell firms, though the exporter does not appear to be complaining about it. The adjudicating authority has held that this issue is to be decided under laws other than Customs Act, it is not a matter to be adjudicated under the Customs Act. Such matter arises when agitated by any of the affected parties. He has held that the interest of Revenue has not been prejudiced by such impugned actions. We also note that DGFT which is concerned with the transfer of licenses has not taken cognizance of this matter. So we agree with the finding of the adjudicating officer. Revenue is directed to refund the amount and release the bank guarantee and bond to the respondents within four weeks of the communication of this order. - C/435- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Garg and Shri S.K. Valecha and Shri Lalit Jain, Proprietor of M/s. Bhagaya Laxmi Enterprises. The show-cause notice was contested by the respondents and by the impugned order the proceedings were dropped against all the respondents. Aggrieved by the order, the Revenue is in appeal before us. 3. Shri Sonal Bajaj, learned SDR appearing on behalf of the Revenue and argued the matter at length. During the course of arguments he submitted that the adjudicating authority has erred in his findings on the following issues listed by him for adjudication :- A. Whether the exporter while applying for DFIA had inflated the CIF Value of the printing ink so as to facilitate the imports of very high value printing ink, OVI, instead of the printing ink used in the export product. B. Whether the quantity of ink imported was disproportionate to that mentioned in SION E-38. C. Whether the Release Advices were got issued on the basis of fake and forged documents in a fraudulent manner. D. Whether the condition/provisions of policy and notifications and circulars issued thereunder regarding the nexus between export and import product had been fulfilled or not. E. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the adjudicating authority has extended the benefit of exemption under Notification No. 40/2006-Cus. without appreciating various conditions of the Notification which are required to be fulfilled. As clause (i) of the notification the description, quantity and value of the material imported should be covered by the Duty Free Import Authorisation (DFIA). Further the material has been clearly defined in the explanation to the said notification as raw materials, components, intermediates, consumables, catalysts and parts which are required for manufacture of resultant products. Therefore, the key words are required for manufacture of resultant product. Exemption would obviously be available only and only if the raw material, components, etc. imported is required for the manufacture of resultant product. Therefore, the material imported has to satisfy the test of requirement in the resultant product. In this case, the printing ink imported had no use or requirement in the production of the export product as the policy provisions cannot be interpreted in such a manner as to render the definition of materials given in the notification redundant. He further submitted that as per pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per bag of 50 Kg capacity and accordingly doubled the total quantity of ink than what was allowed even in case of a bags of 50 kg capacity. The manner of calculation does not appear to be correct because as per SION E-38, the quantity of ink allowed is 2 gms. for a sack of minimum 25 kg capacity. Accordingly, even the admissible quantity of printing ink would be 2 gms. only, as there are no pro-rata rates. These facts were in the knowledge of M/s. SRHI who requested with inflated prices and inflated utilization of printing ink to DGFT has been admitted by MD of SRHI and Director of SRHI, the MD of SICPA, GM of SICPA in their various statements. Shri Lalit Jain proprietor of M/s. Bhagyalaxmi who mediated the sale of DFIAs between SRHI and SICPA also admitted the same. In fact, he floated fake firms through which he routed the sale of such licences for such fake sales. The DIFA licences were sold by them to two firms M/s. Kannon Trading and M/s. Carrom Impex, both based at Chennai. However, from the records submitted by the importer, it appeared that the said licenses were shown to have been sold by M/s. SRHI to different firms namely M/s. Parasnath M/s. Navkar, who in turn had so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be imported against the DFIA licenses could only be the one which is required for the production of export product i.e. printing of the PP bags in which the rice was exported. For printing of PP bags the exporter was admittedly using screen printing ink. The item of import on the other hand is OVI is something totally different, whose restricted exclusive use is in the printing of currency notes. The local purchase invoice of the exporter clearly indicated purchase and use of screen printing ink with the tariff sub-heading as 3215 11 90. Therefore, it is clear that OVI imported is a separate and distinct commodity and there is also a difference in the price of both the printing ink required for printing the rice bags i.e. screen printing ink ranged between Rs. 125/- to Rs. 140/- per k.g. whereas price of OVI imported ranged between Rs. 1,25,000/- to Rs. 1,33,000/- per kg. He also relied on the apex court decision in the case of Commissioner of Customs (Preventive) v. Aafloat Textiles (I) Pvt. Ltd. - 2009 (235) E.L.T. 587 (S.C.) wherein the it was held that since fraud was involved, in the eye of law such documents had no existence. Since the documents have been established to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f printing ink per 50 kg bag for printing ink, that only 50% value was paid to original license holder malafidely with knowledge of non entitlement to DFIA benefit and hence proviso to Section 28 of Customs Act was invokable and substantial part of the demand is within normal period limitation. 4.1 He strongly opposed the contentions of the learned DR in the above para and submitted that the adjudicating authority has relied on the Circular No. 46/07-Cus., dated 20-12-2007 which clearly lays down that correlation of the imported inputs to the export product is required only for products specified in para 4.55.3 of the Handbook. The same is spelt out also in the Notification No. 40/2006-Cus. in para 1(i), in the first proviso thereto, that only where the resultant product is specified in para 4.55.3 of the Handbook, materials have to be of the same quality, specifications etc. as used in the export product. Therefore, only in regard to 22 items specified in para 4.55.3 correlation is required of the imported inputs to be used in the exported product. He further submitted that there is no dispute that the value of DFIA granted is roughly 80% of the exports achieved in value, and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le scripts after exports is first completed. Thus there is no revenue loss since the rate of duty for OVI and the printing ink normally used in printing export packaging is the same under Chapter and one could import high quantity of low value ink or low quantity of high valued ink. Once there is cap on both the quantity and value of goods permitted to be imported under the license, an importer, within these limits, is free to import items of that description mentioned in the license within these limits. In fact even between the import of Polypropylene Granules and printing ink there are no restrictions imposed and the entire value can be used for importing only one product say ink subject to the quantity restrictions for ink. He further submitted that the transferability of DFIA after discharge of export obligation is part of the scheme to incentivize exporters. Such being the case, it would be well high impossible to ask an importer with a transferred DFIA to correlate the import made with the product exported. In the case of REP Licenses, the Bombay High Court turned down such demand by customs for correlation of the imported goods with the export product for like reasons in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency notes to be supplied to units of Bharatiya Reserve Bank Note Mudran Pvt. Ltd., owned by Government of India, under DFIA Licences availing exemption from payment of customs duty under Notification No. 40/2006-Cus. The said licences were obtained by M/s. Shri Nath Harinarain India Ltd. (SRHI) who is an exporter of rice which are packed in printed polypropylene bags. M/s. SRHI applied for DFIA license which are issued to them for duty free import of inputs i.e. printing ink used in the export product as per Standard Input Output Norms (SION) E-38 of the Foreign Trade Policy (2004-09). These authorization of DFIAs were made freely transferable by DGFT and were duly transferred in the name of the respondent SICPA. On the basis of investigations, a show-cause notice was issued to the respondent for denial of the benefit of DFIAs and Notification No. 40/2006-C.E., therefore demanding the customs duty on the imported OVI. During the course of adjudication the adjudicating authority has framed the following issues :- (i) Whether the exporter while applying for DFIA had inflated the CIF value of the printing ink so as to facilitate the imports of very high value printing ink, OVI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral of Foreign Trade, by means of Public Notice, may in public interest, exclude any product(s) from the purview of this scheme. This scheme will come into force from 1st May, 2006. 4.55.3 However in respect of following items, exporter shall be required to give declaration with regard to technical characteristics, quality and specification in shipping bill. RA while issuing DFIA shall mention technical characteristics, quality and specification in respect of such inputs : Alloy steel including Stainless Steel, Copper Alloy, Synthetic Rubber, Bearings, Solvent, Perfumes/Essential Oil/Aromatic Chemicals, Surfactants, Relevant Fabrics, Marble, Articles made of polypropylene. Articles made of Paper and Paper Board, Insecticides, Lead Ingots, Zinc Ingots, Citric Acid, Relevant Glass fibre reinforcement (Glass fibre. Chopped/Stranded Mat, Roving Woven Surfacing Mat), Relevant Synthetic Resin (unsaturated polyester resin, Epoxy Resin, Vinyl Ester Resin, Hydroxy Ethyl Cellulose). Lining Material. Provisio in Notification 40/2006-Cus. Proviso to the very first condition to Notification No. 40/2006-Cus. under which printing ink has been imported under the DFIA scheme too provides a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in printed polypropylene bags which is not covered under the items specified in para 4.55.3 of the Handbook. 6.5 As per para 4.4.4 a minimum 20% value addition shall be required for issuance of DFIA. There is no doubt, in this case that this condition is satisfied. However initially there was a mistake in calculating the quantity restriction on the basis, of calculation of 4 gm of printing ink for a 50 kg bag whereas it should have been for 2 gm per bag. When the issue came in the knowledge of DGFT, the Jt. DGFT reduced the quantity of ink to that extent and the excess quantity was adjusted in subsequent licences issued. The DRI referred the matter to the DGFT regarding the applicability of the benefit under DFIA and the DGFT has passed an order in favour of the respondents. We have also found that for the earlier imports in the case of respondent, themselves the Commissioner (Appeals) vide his order dated 21-2-2008 allowed the benefit of DFIA to the respondents for identical import of the goods against identical DFIAs. The said order has not been challenged by the department and the same has attained finality. The objection taken by the learned SDR is that the order of Jt. DG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me quality, technical characteristics and specifications as the materials used in the said resultant product. It is also provided that in respect of these resultant products, the exporter is required to give declaration with regard to the quality, technical characteristics and specifications of materials used in the shipping bill. Gemi Motors India Pvt. Ltd. from whom the appellant obtained the DFIA, had exported electric motors and obtained DFIA in respect of seven items such as aluminum sheets, aluminum ingots CRNO steel ball bearings etc. In the list of resultant products in paragraph 4.55.3, electric motors do not figure. However, bearings are listed. However, the paragraph 4.55.3 starts with the following paragraph before listing the resultant products however in respect of the following items, the exporter shall be required to give declaration with regard to technical characteristics, quality and specification in the shipping bill. The Regional Authority while issuing DFIA shall mention the technical characteristics, quality and specification in respect of such inputs. 6. This paragraph gives an impression that the exporter is required to give the technical characteristics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is supposed to ensure that all the requirements have been fulfilled before allowing transferability. On these grounds also we find that the department has not been able to make out a case. Further, as regards CIF value of bearings and the submissions made by DR, we find considerable force in the arguments advanced by the learned advocate and also find that his reliance on the decision of the Madras High Court in Tamilnadu Dadha Pharmaceuticals Ltd., Harison Chemicals appropriate. Further, we also note that the decisions of the Tribunal cited by the learned advocate that if the license is based on sign, physical incorporation of the input in the export of product is not required. In view of the above discussion, we find that appellants are eligible for the benefit of Notification No. 40/2006-NT and accordingly we allow the appeal. 6.7 In case of Titan Medical Systems Pvt. Ltd. v. Commissioner of Customs, Delhi - 2003 (151) E.L.T. 254 (S.C.), the Hon ble Apex Court has held that once an advance license was issued and not questioned by the licensing authority, customs cannot say that there was misrepresentation and only the Licensing Authority can take steps in any alleged misrepres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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