2025 (7) TMI 230 - AT - Customs

Denial of benefit of exemption under N/N. 84/97-Cus dated 11.11.1997 - Import of Asphalt Batch Mix Plant Model DG2000 160TPJ (impugned goods) along with accessories from China for home consumption - Validity of project authority certificate on date of import and its purported cancellation post the import does not affect the exemption claimed by the appellant - Purported admission of the officers of the appellant cannot be the basis to deny the exemption which is otherwise available in law - Entitlement to exemption under N/N. 84/97-Cus - Recovery of interest from the appellant under subsection 4 of Section 28 read with Section 28AA of the customs Act 1962 - invocation of extended period of limitation - levy of penalty. Denial of benefit of exemption on the ground that the machinery was intended to be withdrawn from the project which was in violation of the condition of the Notification - HELD THAT - N/N. 84/97-Cus dated 11.11.1997 exempts all the goods imported into India for execution of projects financed by the United Nations or an International Organisation and approved by the Government of India. These projects are time bound projects and do not run in perpetuity. The notification also does not state as to what should be done to the goods which have availed of the exemption after the completion of the project. There is also no requirement to re-export the goods after their use in the project. In the context of the situation the phrase goods brought into the project are not withdrawn by the supplier or contractor found in Explanation 2 has to be understood as not being withdrawn when the project is in operation. More so when it is followed by expression goods are required for the execution of the project shall be construed accordingly it further cements the meaning in the context of the goods being required for the execution of the project and not afterwards. However this conclusion is of not much importance to the issue here since as pointed out by revenue the appellant has admitted that the impugned goods were not supplied to the project and was not intended to be brought into the project on a permanent basis and accordingly the project certificate also came to be cancelled by the Project Authority which is a sine qua non for availing the exemption - the matter needs to be examined accordingly. Validity of project authority certificate on date of import and its purported cancellation post the import does not affect the exemption claimed by the appellant - HELD THAT - While it is true that once a project authority certificate is produced at the time of the import the appellant is eligible for the exemption claimed it is equally true that conditional exemptions cast a continuing obligation on the importer to fulfill the conditions of the exemption until the obligation is complete - merely because the project authority certificate was valid on date of import could not be the basis to hold that the duty has been discharged correctly without following the conditions of the exemption notification. The cancellation of the certificate post the import would affect the duty benefit claimed by the appellant and could lead to the denial of exemption under the said notification. The judgments cited by the appellant above relate to a case where scrips / licenses were procured by the original allottee fraudulently and then sold to the appellant which were subsequently cancelled. In such a situation it was held that the imports were made by the appellants on the bona fide belief of holding valid licenses hence the benefit was allowed. Purported admission of the officers of the appellant cannot be the basis to deny the exemption which is otherwise available in law - HELD THAT - Section 58 of the Indian Evidence Act 1872 as it stood at the relevant time states that a fact does not need to be proved in any proceeding if the parties or their agents admit it or if it is admitted by writing under their hands before the hearing or if it is deemed to have been admitted by their pleadings under any rule of pleading in force at the time. The principle behind this section was that a court only decides disputed facts so facts that are not in dispute need not be proved. If the appellant was found having violated the notification conditions of using the imported goods in the project funded by World Bank and approved by the Project Authority then not only did it violate the continuing obligation under the notification claimed but the intention showed that the attempt was to misuse the exemption and this fact was suppressed while claiming the exemption. This amounts to a fraud. It was clearly a suppression of fact from the department with the intention to fraudulently evade payment of duty - Hence due to the admission of the officers of the appellants company and the resultant cancellation of the project certificate by the Project Authority the benefit of the exemption notification has to be denied. Revenue has no choice in the matter. Entitlement to exemption under N/N. 84/97-Cus - HELD THAT - Fraud vitiates all solemn acts. Any advantage obtained by practicing fraud is a nullity. At this stage one cannot claim the benefit of another notification to get over the problem they find themselves in. When fraud is involved the parameters of consideration of any request will be different. In Ram Chandra Singh Vs Savitri Devi and Ors. 2003 (10) TMI 610 - SUPREME COURT the Apex Court held that fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. Further Sr. No. 230 of Notification No. 21/2002-cus. is a conditional notification which requires certain action to be undertaken and verified before the exemption is granted and cannot be done at this stage. Exemptions are an exception to the general rule hence if a notification requires a thing to be done in a particular manner it should be done in that manner or not at all. Recovery of interest from the appellant under subsection 4 of Section 28 read with Section 28AA of the customs Act 1962 - HELD THAT - Once the appellant is not eligible for the exemption notification duty not paid needs to be paid with interest. We find that interest is necessarily linked to the duty payable such liability arises automatically by operation of law. As per the Hon ble Supreme Court s judgment in Commissioner of Central Excise Pune Vs M/s SKF India 2009 (7) TMI 6 - SUPREME COURT interest is leviable on delayed or deferred payment of duty for whatever reasons. The same legal positions prevails under the Customs Act 1962 also. The appellant have voluntarily paid duty at the stage of investigation itself after accepting the non-eligibility of the impugned goods for exemption. The non-eligibility for exemption was also established by the cancellation of the project certificate and hence interest for the amount is also payable. Invocartion of extended period of limitation - Suppression of facts at the time of filing of the BE - Copliance with all the condition of the notification at the time of clearance of the goods for home consumption or not - applicability of section 28(4) of Customs Act 1962 - HELD THAT - The present case at the highest be covered by Section 28(1) of the Act. There was no suppression of facts at the time of filing of the BE and the case if at all is premature. The Appellant had admittedly complied with all the condition of the notification at the time of clearance of the goods for home consumption - The department was fully aware or deemed to fully aware of the fact that the imported goods were not to be permanently remain in the Project in view of its allegation that the nature of imported machinery is such that it would be removed from the project on completion of the project. The invocation of extended period is otherwise clearly not applicable in facts of the present case which involves interpretation of exemption notification and interpretation of the Appellants is in consonance with the orders of this Tribunal. The statements of company officials and the cancellation of project certificate disclosed the issue to be a case of deliberate deception with the design of securing something by taking unfair advantage which is a fraud. Hence the matter cannot be treated as premature and the extended period of time was correctly invocable. Imposition of penalty on the appellant - HELD THAT - The appellant has stated that the entire case is based on the interpretation of notification and understanding and belief of the Appellants. Further in the facts of the present case there can be no intent to evade the duty as not only the claim for exemption under notification 84/97-Cus was correct but the Appellants were also entitled to complete exemption under sr. no. 230 of notification no. 21/2002-Cus dated 01.03.2002 - the fact of having been involved in a blameworthy conduct has been admitted by the appellant and has resulted in their project certificate being cancelled by the Project Authority. Any breach of a civil obligation under the Act is a blameworthy conduct by the assessee. In this case mens rea is also established amounting to fraud - In the light of the admission made by the appellant company s officials it is clear that their actions were not guided by good faith. Hence no ground has been made out for setting aside the penalty. There are no de-merit in the impugned order and it merits to be upheld - appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the appellant was entitled to the benefit of exemption under Notification No. 84/97-Cus dated 11.11.1997, as amended, for the imported Asphalt Batch Mix Plant, given the alleged violation of the condition that the goods should not be withdrawn from the project during its execution.

(b) Whether the purported cancellation of the Project Authority Certificate after the import affects the exemption claimed by the appellant.

(c) Whether the admissions made by the appellant's officials regarding non-permanent use of the imported goods in the project can be the basis to deny the exemption.

(d) Whether the appellant is entitled to claim exemption under an alternate notification (Sr. No. 230 of Notification No. 21/2002-Cus) if not entitled under Notification No. 84/97-Cus.

(e) Whether interest under subsection 4 of Section 28 read with Section 28AA of the Customs Act, 1962, can be levied on the appellant.

(f) Whether the demand raised is barred by limitation and the proceedings are premature, given the appellant's compliance at the time of clearance.

(g) Whether the imposition of penalty on the appellant and its official is justified.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Entitlement to Exemption under Notification No. 84/97-Cus and Interpretation of "Withdrawal"

The legal framework involves Notification No. 84/97-Cus dated 11.11.1997, which exempts goods imported for execution of projects financed by international organizations and approved by the Government of India, subject to the condition that the goods are not withdrawn from the project during its execution. Explanation 2 inserted on 01.03.2008 clarifies that the benefit is available only if the goods brought into the project are not withdrawn by the supplier or contractor during the execution.

The appellant contended that "withdrawal" means removal during the course of the project and that after project completion, withdrawal is permissible without affecting exemption. They relied on precedents from this Tribunal and others supporting this interpretation.

The Tribunal examined the dictionary meanings of "withdraw" from Black's Law Dictionary, Cambridge Dictionary, and Merriam-Webster Dictionary, noting the word generally means "to take back," "remove," or "retreat." The Tribunal emphasized that dictionary meanings must be applied in context, citing Supreme Court authority that the context determines the meaning of a word in a statute.

Applying this principle, the Tribunal held that the phrase "goods brought into the project are not withdrawn" must be understood in the context of the goods being required for the execution of the project. Since projects are time-bound, the prohibition on withdrawal applies during the project's operation, not after its completion. This aligns with the appellant's interpretation and the cited precedents.

However, this interpretation was rendered immaterial because the appellant's own officials admitted that the imported goods were not supplied to the project and were not intended to remain permanently. The Project Authority subsequently cancelled the certificate on this ground, which is a sine qua non for exemption. Therefore, the Tribunal treated the matter as involving fraud and suppression of facts to gain an unfair tax advantage.

The Tribunal relied on Supreme Court rulings defining fraud as deliberate deception to secure unfair advantage, which vitiates all solemn acts. The Tribunal found the appellant's conduct amounted to fraud, negating entitlement to exemption.

(b) Effect of Post-import Cancellation of Project Authority Certificate

The appellant argued that the certificate was valid at the time of import and its subsequent cancellation cannot affect the exemption already claimed.

The Tribunal referred to Supreme Court authority holding that conditional exemptions impose continuing obligations on the importer. If these obligations are not fulfilled, the exemption can be denied and duty recovered even after import. The Tribunal distinguished the appellant's case from precedents where licenses were fraudulently procured and sold to bona fide importers; here, the appellant itself was involved in the misrepresentation.

The Tribunal further held that the cancellation of the certificate, even if done without a personal hearing, is binding unless challenged before the appropriate authority. Reliance was placed on Supreme Court precedent that decisions by taxing authorities, even if erroneous, bind parties unless set aside by competent authority. Since the appellant did not challenge the cancellation, it is final and affects the exemption.

(c) Admissibility and Effect of Admissions by Appellant's Officials

The statements of senior officials admitting that the goods were not permanently supplied to the project and the acceptance of duty liability were held to be effective admissions under Section 58 of the Indian Evidence Act, 1872. The appellant did not retract these statements.

The Tribunal noted that such admissions create an estoppel and shift the burden of proof. The conduct amounted to deliberate deception and suppression of material facts, constituting fraud. The Tribunal cited Supreme Court and High Court rulings confirming that suppression or misrepresentation to obtain exemption constitutes fraud, vitiating the claim.

(d) Claim for Exemption under Alternate Notification No. 21/2002-Cus

The appellant contended that even if not entitled under Notification No. 84/97-Cus, they are entitled to exemption under Sr. No. 230 of Notification No. 21/2002-Cus. They relied on Supreme Court and Tribunal rulings that an assessee can claim exemption at any stage.

The Tribunal rejected this claim on the ground that fraud vitiates all acts and no exemption can be allowed when fraud is involved. The Tribunal relied on Supreme Court authority stating that fraud is anathema to equitable principles and cannot be cured by invoking other notifications. Further, Sr. No. 230 is a conditional exemption requiring verification and cannot be granted post-facto without compliance. Exemptions being exceptions to the general rule must be strictly construed.

(e) Liability to Pay Interest under Section 28(4) and Section 28AA of the Customs Act

Once the appellant was found not eligible for exemption, the duty unpaid attracts interest automatically by operation of law. The Tribunal referred to Supreme Court decisions under Central Excise law, which apply mutatis mutandis to Customs, holding that interest is leviable on delayed or deferred payment of duty for whatever reason, including fraud.

The appellant had voluntarily paid part of the duty during investigation, but interest liability remains. The Tribunal held interest is payable on the entire duty demand.

(f) Limitation and Prematurity of the Case

The appellant argued that there was no suppression at the time of filing the Bill of Entry and that the case is barred by limitation under Section 28(1) as the Show Cause Notice was issued beyond one year.

The Tribunal found that the case involves fraud and suppression, which invokes the extended limitation period under Section 28(4). The admissions by the appellant's officials and cancellation of the project certificate support the invocation of extended period. The Tribunal rejected the plea of prematurity.

(g) Imposition of Penalty

The appellant contended that there was no intent to evade duty and that the case is based on interpretation of notification.

The Tribunal found that the appellant's officials admitted blameworthy conduct amounting to fraud, negating good faith. Reliance was placed on a High Court decision defining good faith as an honest effort to ascertain facts and excluding deceit or negligence. Since the appellant's conduct lacked good faith and involved deliberate deception, the penalty imposed under the Customs Act was justified and no ground existed to set it aside.

3. SIGNIFICANT HOLDINGS

"The phrase 'goods brought into the project are not withdrawn by the supplier or contractor' found in Explanation 2 has to be understood as not being withdrawn when the project is in operation... This view is also supported by the judgments cited by the appellant."

"Fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another... Fraud vitiates all solemn acts. Any advantage obtained by practicing fraud is a nullity."

"Conditional exemptions cast a continuing obligation on the importer to fulfill the conditions of the exemption until the obligation is complete... If on enquiry the authorities are satisfied that the continuing obligations are not being carried out, then it would be fully open to the authority to ask the person who have availed of the benefit of exemption to pay the duty payable."

"Decisions of taxing authorities, though erroneous, must bind the assessee unless modified or annulled by the jurisdictional appellate forum."

"Admissions made by the parties or their agents create an estoppel and shift the burden of proof. Unless shown incorrect, they serve as effective proof of the facts admitted."

"No exemption can be granted when fraud is involved. Fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine."

"Interest is leviable on delayed or deferred payment of duty for whatever reasons, including fraud."

"The extended period of limitation under Section 28(4) is invocable in cases involving suppression or fraud."

"Good faith contemplates an honest effort to ascertain the facts... Good faith precludes pretence or deceit and also negligence and recklessness."

Final determinations:

- The appellant was not entitled to exemption under Notification No. 84/97-Cus due to non-fulfillment of conditions and fraud.

- The post-import cancellation of the Project Authority Certificate is binding and affects the exemption.

- Admissions by the appellant's officials are binding and constitute evidence of suppression and fraud.

- The appellant cannot claim exemption under an alternate notification when fraud is involved.

- Interest is payable on the unpaid duty.

- The extended limitation period under Section 28(4) applies.

- Penalty imposed on the appellant and its official is justified.

- The appeals are dismissed and the impugned order upheld.