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2025 (6) TMI 1855 - HC - CustomsClassification of imported goods under cover of an advance authorization - fish protein obtained by decalcification of fish scales - classifiable under Customs Tariff Heading 0511 9190 or under chapter heading 3504 0099? - mis-description of the inputs imported under cover of an advance authorization is really relevant for the purposes of levy and collection of import duty under the Customs Act read with the Customs Tariff Act or not. HELD THAT - It is significant that under the Foreign Trade (Development and Regulation) Act the issuance of advance authorization and monitoring of the imports effected under cover of such advance authorization is within the regulatory jurisdiction of the DGFT. In the instant case the authorities entrusted with the administration of the advance authorization scheme do not have a case that there was a breach of any of the conditions of the advance authorization issued to the assessee. That apart it is noted from the provisions of the Foreign Trade Policy 2009 to 2014 issued by the Central Government under Section 4 of the Foreign Trade (Development and Regulation) Act that the object of the advance authorization scheme is only to ensure that what is imported is an input that is used for the manufacture of a final product that is exported. It is not in dispute in the instant case that the advance authorization was in fact granted to the assessee and under cover of the same the assessee had imported the very same item albeit under different names for many years. For the period between 2012 and 2016 the very same product was imported as fish protein whereas it is only in respect of 9 Bills of Entry filed thereafter that the item imported was shown as decalcified fish scale . The Revenue does not have a contention that the items imported earlier and now were in any manner different except for the differential description of the same in the import documents. It is presumably by noting that the item imported was the same that the authorities under the advance authorization scheme did not view the imports of the same goods under a different name as a breach by the assessee of any of the conditions of the advance authorization granted to them. It is also found that in view of the fact that it is not in dispute that the assessee has been importing the same product during the previous transactions covered by 42 Bills of Entry in respect of which the Tribunal had set aside the demand of differential duty and the subsequent transactions covered by 9 Bills of entry which are under provisional assessment there is no justification for demanding a differential duty payment for the latter transactions alone. The imports effected by the assessee had to be seen as covered by the notification aforementioned that permitted an import at nil rate of duty so long as the goods were imported in terms of the advance authorization scheme. In the absence of any objection by the licensing authority or cancellation of the advance authorization the Department could not have denied the benefit of the notification to the assessee. Appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were: (i) Whether the imported item was correctly declared as 'fish protein' by the appellant or was it actually processed/demineralised fish scales as per test reports? (ii) Whether the product should be classified under Customs Tariff Heading 0511 9190 (demineralised fish scales) or under Chapter Heading 3504 0099 (protein), as claimed by the appellant? (iii) Whether the appellant had mis-declared the description of the product to claim the benefit of the advance authorization scheme? (iv) Whether there was any willful mis-declaration by the appellant that would justify invocation of the extended period under the Customs Act, 1962, and warrant imposition of penalties? (v) Whether mis-description of inputs imported under an advance authorization scheme affects the entitlement to duty exemptions under the Customs Act and Customs Tariff Act? 2. ISSUE-WISE DETAILED ANALYSIS Issue (i) and (ii): Classification and Description of Imported Goods The relevant legal framework involved classification under the Customs Tariff Act and the Customs Act, 1962, with reference to the specific tariff headings: 0511 9190 (processed/demineralised fish scales) and 3504 0099 (fish protein). The classification determines the applicable duty rate and eligibility for exemptions. The Court noted that test reports and investigations by the Customs authorities found that the imported goods were not fish protein per se but were processed/demineralised fish scales. The Tribunal had earlier held that the goods fell under Chapter 0511 9190, rejecting the appellant's claim of classification under Chapter 3504 0099. However, the Tribunal also distinguished between past imports and live transactions. For past imports, which were declared as 'fish protein' and covered by advance authorizations, the Tribunal found no misclassification. For live transactions, the differential duty demand was sustained. The Court accepted the Tribunal's factual finding that the goods were processed fish scales rather than pure protein, but recognized that the description used in import documentation for past consignments was consistent with what was declared under the advance authorization scheme. The Court emphasized that the physical nature of the goods remained the same throughout the period, only the nomenclature differed. Issue (iii): Mis-declaration to Claim Advance Authorization Benefits The advance authorization scheme under the Foreign Trade (Development and Regulation) Act and Foreign Trade Policy allows duty-free import of inputs used in manufacture of export goods. The scheme requires the applicant to specify the inputs and export products, and the DGFT issues authorization accordingly. The Court observed that the DGFT, responsible for regulating the advance authorization scheme, had not found any breach of conditions by the appellant despite the different descriptions ('fish protein' and later 'decalcified fish scale') used over time. The Court noted that the scheme's objective is to ensure imported inputs are used for export manufacture, not to scrutinize tariff classification per se. Therefore, the Court held that the differing descriptions did not amount to mis-declaration for the purpose of the advance authorization scheme. The appellant's entitlement to duty exemption under the scheme was not affected by the nomenclature used, as the physical goods were the same and authorized. Issue (iv): Willful Mis-declaration and Penalties The Revenue contended that the appellant's mis-description constituted willful mis-declaration attracting extended limitation period and penalties under Sections 112(a), 114A, and 114AA of the Customs Act, 1962. The Court found no evidence of willful mis-declaration or suppression of facts. It emphasized that the licensing authority (DGFT) had not cancelled or questioned the advance authorization, nor alleged any misrepresentation. The Court relied on precedent where the Supreme Court held that Customs authorities cannot deny exemption on allegations of misrepresentation not questioned by the licensing authority. Accordingly, the Court held that penalties and extended period invocation were not justified. Issue (v): Relevance of Mis-description to Duty Exemption under Customs Law The Court examined whether classification or description discrepancies affect entitlement to duty exemption under Notification No. 96/2009, which grants nil duty on inputs imported under the advance authorization scheme. The Court noted that both Chapters 5 and 35 items are restricted imports under the Foreign Trade Policy and require advance authorization. The appellant had valid authorizations covering the imported goods, regardless of the description used. The Court held that since the DGFT did not object to the description differences and the physical goods remained consistent, the Revenue could not deny the benefit of the nil duty notification. The Court emphasized that the Customs authorities' demand for differential duty based solely on a change in description was unsustainable. The Court cited a Supreme Court precedent which clarified that once an advance license is issued and not cancelled or questioned by the licensing authority, Customs cannot refuse exemption on grounds of alleged misrepresentation to the licensing authority. 3. SIGNIFICANT HOLDINGS "As regards the contention that the appellants were not entitled to the benefit of the exemption notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement, for issuance of a licence, that an applicant set out the quantity or value of the indigenous components which would be used in the manufacture. Undoubtedly, while applying for a licence, the appellants set out the components they would use and their value. However, the value was only an estimate. It is not the respondents' case that the components were not used. The only case is that the value which had been indicated in the application was very large whereas what was actually spent was a paltry amount. To be noted that the licensing authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf." The Court established the principle that the Customs authorities cannot deny the benefit of duty exemption notifications based on alleged mis-description or mis-declaration of imported goods when the licensing authority responsible for the advance authorization scheme has not found any breach or misrepresentation. The Court concluded that the appellant was entitled to the benefit of the nil rate of duty under Notification No. 96/2009 for all imports covered by valid advance authorizations, irrespective of the description used, so long as the physical goods remained the same and the licensing authority did not object. The Court allowed the appellant's appeal against the demand of differential duty, redemption fine, and penalties for past consignments and dismissed the Revenue's appeal against the rejection of such demand for those consignments. The Court also held that the demand for differential duty on live transactions was not sustainable where the goods and authorizations were consistent, and the appellant had already paid the duty under protest.
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