TMI Blog2010 (8) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... charging their export obligation - 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. - C/665-667/2006 - A/1061-1063/2010-WZB/AHD - Dated:- 5-8-2010 - Ms. Archana Wadhwa, Shri B.S.V. Murthy, JJ. REPRESENTED BY : Shri J.S. Negi, SDR, for the Appellant. Shri Hardik Modh, Advocate, for the Respondent. [Order per : B.S.V. Murthy, Member (T)]. M/s. Adani Exports Ltd. (hereinafter referred to as AEL ), were granted Quantity Based Advance Licence N. 01000837 dt. 11-3-97 by the DGFT, New Delhi as manufacturer Exporter in which the address was shown as M/s. Adani Exports Ltd., Asia House, Swastik Char Rasta, Ahmedabad and in other two Advance Licences No. P/L/0027174 dt.27-3-97and P/L/0027937 dt.29-3-97which were granted by DGFT,Hyderabadon the strength of applications of AEL address was shown as M/s. Adani Exports Ltd., Survey No. 185 to 188,MotupallyVilla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both sides. 7. Learned SDR submitted that the department s appeal is on the following main grounds :- (i) The learned Commissioner failed to appreciate the point that AEL obtained the said licences by fraudulent means resorting to mis-declaration and mis-representation of facts before the Licensing Authority in respect of having factory and actual user condition : (a) Address of the factory premises shown in the said Advance Licences was non-existent; (b) AEL claimed that AEL had taken fish pond on lease however, fish pond cannot be said to be factory for processing of fish; (c) It was declared that no SION norms existed for Processed, Preserved and Frozen Fish and Fish Products , whereas the products were covered under SION at Sr. No. 21. (ii) The learned Commissioner erred in coming to conclusion that AEL discharged their export obligations in absence of any documentary evidences as to consideration and acceptance of the exports by the Licensing Authority; (iii) The learned Commissioner failed to appreciate the fact that export goods as described in the Advance Licences and shipping bills were not one and the same but altogether different goods; (iv) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that requirement of inputs was indicated in the application based on the basis of data received from various suppliers. However, all the suppliers who made exports on behalf of AEL, have admitted that they never gave these details and they never obtained any of the raw materials from AEL. The respondents could not also explain how the quantities of inputs were worked out even though they had given specific quantity of inputs required while making application for advance licence. 9. Further, the respondents never declared either to the advance Licensing committee or DGFT that they were acting as merchant exporters. He drew our attention to the decision of the Hon ble High Court of Madras in the case of CC v. CESTAT Chennai - 2009 (240) E.L.T. 166 (Chennai), wherein it was held that when advance licences on actual user condition were obtained as manufacturer exporter without having any manufacturing unit, the basis for discharging export obligation is existence of the factory and when the particulars given are false, the whole edifice falls. Fulfillment of export obligations through job worker was also held not relevant. He submits that in view of the decision of Hon ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that manufacturer exporter is free to procure or source the export goods for discharge of export obligation, is not supported either by law or by judicial pronouncements. 14. Learned advocate on behalf of the appellant made detailed written submissions in the defence of the respondents. Details are as under : Mis-representation and misdeclaration for obtaining Advance Licences : 14.1 The respondent submits that they had obtained Aqua Culture Pond on lease, which fact is not in dispute. For manufacture of export product i.e. Frozen, Processed and Preserved Marine Products obtaining the pond was necessary. However, after they leased the pond the respondents were contacted by various manufacturers of frozen, processed and preserved marine products evincing interest in supplying the same to the respondents. Since there was nothing in either the said Notification No. 80/95 or the provisions of EXIM Policy debarring the manufacturer exporter M/s. AEL to procure or source export goods for discharging their export obligations, the respondents went ahead and carried out the exports accordingly. 14.2 In this connection, it is relevant to note that while exporting the goods, the shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at till date the Licensing authorities have not cancelled the Advance Lincence. It may not be out of place to mention herein that the said licences were issued by the DGFT who are the competent authority. If at all the respondents had mis-declared and/or mis-represented any facts while obtaining the said Advance Licences, it is for the DGFT to have cancelled the Advance Licences for mis-representation or mis-declaration of AEL. It is not open to the Customs authorities to take action against AEL in the absence of any order from the Licensing authority. During the course of hearing, the Department Representative did not produce a single evidence to show that Licensing authority declared that AEL had obtained the said Advance Licences by mis-declaring the facts. In the case of Titan System v. CCE - 2003 (151) E.L.T. 254 (S.C.), the Hon ble Supreme Court held that once Advance Lincence was issued and not questioned by the Licensing authority, the Customs authorities cannot refuse the exemption on allegation that there was mis-representation. It was further held that if the assessee misrepresented, it was for the Licensing authority to take steps in that behalf. In the following case-l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been rejected. In the present case, there is no communication of the DGFT for cancellation of the said Advance Licences nor any order in respect of mis-declaration or mis-representation of the facts for procurement of the said Advance Licences have been issued to AEL. 14.9 Without prejudice to the aforesaid, it is submitted that AEL has not got any undue benefit by mis-declaring the fact about not being actual user. Advance Licence can also be issued to merchant exporter in terms of Export-Import Policy. Non existence of the factory : 14.10 It is submitted that the decision of the Hon ble Madras High Court in the case of CC v. CESTAT - 2009 (240) E.L.T. 166 (Madras) is entirely different in respect of the factual matrix involved in the said case. It is relevant to note that in the above case the facts as found were that the name and address of the factory given by the assessee therein was found to be non-existent and the building was never used for any manufacture of copper items. Even the job-workers premises wherein the inputs were claimed to have been sent were on enquiry found not to have any manufacturing facility. The transporters through whom the inputs were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said Advance Licence, is factually incorrect. During the course of investigation, statements of various manufacturers were recorded wherein all the manufacturers stated that they supplied the processed and frozen fish to AEL. They also stated that the process of preservation was undertaken whenever it was required. The Learned Commissioner after consideration of statements of various suppliers held that export goods were processed and chemicals were used as preservatives and same were frozen and packed accordingly for export. The department has not produced any evidence rebutting statements of the suppliers. Merely because suppliers stated in the invoices frozen marine products , it does not mean that AEL did not export the goods as per Advance Licence. Moreover, the export goods at the time of export were examined by the proper officer and no objections at all were raised qua the quantity, value and/or description thereof. Since the the Processed, Preserved and Frozen Fish is commonly known as frozen marine products , the suppliers in their respective invoices used the same to describe the same. Otherwise, two expressions in commercial parlance and as per trade understan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of value, description and quantity the import of the said goods by AEL and duty clearance thereof in terms of the said Notification was in accordance with law. AEL relied upon the terms and conditions of the said Notification to determine its true meaning and legal effect. They submit that the condition No. (vi) of the said Notification cannot be read in isolation and in particular and must be read along with the condition No. (vii) of the said Notification, which reads as under : Where benefit of the Notification is sought by a person other than the licencee, such benefit shall be allowed against the said licence and the said certificate only if it bears endorsement of transferability by the Licensing Authority. 14.15 Further, it is submitted that a plain reading of the aforesaid condition (vii) of the said Notification shows that the exempt material can be disposed of subject to fulfillment of the two conditions viz. (i) the export obligations must be completed and (ii) export proceeds must be realized. AEL completed the export obligation as required under the said Licences and AEL realized the export proceeds in full and there is no dispute and thus AEL satisfied b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification No. 80/95 provides that the bond shall not be necessary in respect of imports made after discharge of export obligation in full. As a necessary corollary, it would mean that in the case of export obligation is completed, fastening of any duty liability is not contemplated by notification. As AEL completed export obligation, duty liability cannot be fastened. 15. We have considered the submissions made by both sides and perused the records and considered judicial pronouncements mentioned by both sides. The issues are proposed to be discussed on the basis of in the order of the grounds of appeal of the department as explained in Para Nos. 7 (i) to 7(v). 15.1 The first ground of appeal by the Revenue is that the respondents made mis-representations and mis-declarations for obtaining advance licences. 15.2 The licences were obtained by the appellant as a manufacturer exporter. The factory address mentioned in the application for advance licences was Survey No. 185 to 188,MotupallyVillage, Chinnaganjam Mandal, Prakasham Dist., Andhra Pradesh. The investigations conducted by the DRI revealed that there was no factory for processing, preservation of marine products at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigating officers that he was not looking after the matter related to the said two licences, but Shri Saurin Shah was the person who was concerned with the same even though he had signed the application and was corresponding with DGFT. Shri Saurin Shah Sr. General Manager (Imports) in his statement submitted that the data of input required for manufacture of export products in the application was filled in, but he could not explain the rationale or logic for the same nor the source of information in the industry from where they had obtained the information. Further, all the suppliers who exported the goods on behalf of the respondents clearly stated that they had not obtained any raw materials or capital goods from the respondent and they had only obtained the commission for passing on the credit of making exports to the respondent excepting benefits under Income Tax Act. While the licences have been obtained on11-3-97and27-3-97, the exports which have been shown against advance licences have started from10-1-97itself. This once again clearly shows the intention to mis-representation of the facts to Licensing authority. Even before issue of licences as manufacturer exporter, respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the description of the goods in the shipping bills is not based on the facts. In fact, shipping bills clearly show that the goods exported were merely frozen marine products. 15.5 While the respondents have claimed that the advance licence dt. 29-3-97 which is not the subject matter of proceedings, has been cancelled and bond and LUT have been returned, a similar claim has not been made in respect of other two advance licences being the subject matter of these proceedings. In respect of one licence, dt.27-3-97, the respondent submitted that they had applied for duplicate DEEC book since the original was lost in 1999 but even in 2002 when the statement of the Sr. General Manager was recorded, the appellant had neither got the duplicate DEEC book nor had they got export obligation discharge certificate. There is not even a word as to what happened to the second licence. Customs authorities are required to treat the obligations of the exporter as completed only when the Licensing authority cancels the bond and LUT is returned to the respondent. The respondent has submitted that till date the licences have not been cancelled or suspended and hence the order of the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds given in the shipping bills above. This is further supported by the statements of the manufacturers who exported the goods and allowed the respondent to claim the benefits of such exports. What they have manufactured and exported was frozen marine products only and they had used preservative in limited quantities and none of the materials imported and the subject matter of proceedings were ever used by them. Admittedly, the respondents were to export processed and preserved marine products after using preservatives and chemicals and vitamins etc. They simply obtained marine products and exported the same. This was a deliberate action in view of the fact that without giving wrong description of the product and wrong declaration in the application about SION, the respondent could not have imported the goods which they imported and sold in the local market since these goods were not available as per SION norms. 15.8 The next point of the department is that the Commissioner s observations that the respondents were free to dispose of the imported material in the market is wrong. We find that the Commissioner completely failed to take note of the details inPara3.2.2 of the show caus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering these goods liable to confiscation under Section 111(o) of Customs Act, 1962. 15.10 The respondents have contended that the goods can be disposed of once export obligations are fulfilled and export proceeds are realized. They have also stated in written submission that there is no dispute that AEL satisfied both the conditions viz. fulfillment of export obligations and realisation of export proceedings. This statement is totally incorrect. The export obligation can be said to have been fulfilled only when the exports are made in accordance with law, conditions in the advance licences and conditions in the notification. In this case, the advance licences had a condition that the goods are required to be used by the respondent and they have to maintain proper accounts and retain the same for three years. There is no evidence that this has been done. Very fact that respondents claimed that relevant records were not available in 2002 shows that this condition was never fulfilled. Since the lincence was obtained as manufacturer exporter, the respondent should have manufactured goods themselves whereas they did not even have a factory. Admittedly, no aqua culture was carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their export obligation. This is totally contrary to the provisions of Foreign Trade Policy, conditions of advance licences and condition in the exemption notification, all of which have been discussed earlier in this order. Further, condition sheet attached to the advance licences itself provides that exempted goods imported against the licences are to be utilized in accordance with the provisions of Export-Import policy 1997 and concerned customs notification No. 80/95-Cus., dt.31-3-95as amended. This condition makes it very clear that the imported goods are to be utilized in the manufacture of export goods and therefore the procurement or sourcing of the export goods without getting the licence amended is totally against the provisions of law. The respondents also have not fulfilled another condition of maintenance of proper accounts of imported goods and utilisation of imported goods itself is another condition in the condition sheet attached to the advance licences. The description above clearly shows that the appellants resorted to suppression of facts and mis-declaration at various stages. 16. Several decisions were cited by both sides and it will be necessary to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they would use indigenous components of the value of Rs. 2,32,69,200/- and that labour, packing and other charges would be to an extent of Rs. 2,07,89,447/-, whereas in actual facts they used components only to the extent of Rs. 8 lakhs and paid approximately only Rs. 5 lakhs towards labour charges. It is also held that neither M/s. Nicolian Brothers nor M/s. Titan Medical Systems Pvt. Ltd. had undertaken any manufacturing activity at all. 13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted extension of time for fulfillment of export obligations. In this case, the respondents have not been able to show any such grant of extension of time or acceptance of the exports made by the respondent by DGFT even though in view of the settled law, this is not required. 16.10 Revalidation and transfer by Jt. DGFT was held to be improper and the Tribunal in the case of Marmo Classic - 2002 (143) E.L.T. 153 (Tri.-Mum.) held that the Commissioner has no right to go behind the licence and sit in judgment over the Licensing authority. Here, the issue is eligibility of imported goods for exemption which is under the exclusive jurisdiction of Customs. 16.11 Similarly, the decision of the Tribunal in the case of Durgadatta Mishra - 2007 (214) E.L.T. 356 (Tri.-Mum.) is also not applicable to the present case. In that case, the proceedings had been dropped by Addl. DGFT holding that there was no mis-declaration or mis-representation. That is not the situation in this case. 16.12 In the case of Aditya Birla Nuvo Ltd. - 2010 (249) E.L.T. 273 (Tri.-Bang.), according to the facts, the imported goods were found to be incapable of being used in goods exported and exported goods manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ni. Further, correspondence with DGFT were also made under the signatures of Shri Vasant S. Adani and therefore he was definitely aware of all the developments and was involved in day to day affairs. In any case, Shri Saurin Shah was also ignorant. Therefore, he is liable to penalty under Section 112(a) of Customs Act, 1962 since he was involved in importation of the goods liable to confiscation under Section 111(o) of Customs Act, 1962. 19. As regards Shri Saurin Shah, Sr. General Manager (Imports) of the respondent company, he has admitted that the data was incorporated in the application without any basis; the goods were sold in the local market for which there was no record; there was no factory but existence of factory was claimed; that imported goods involved in this case were not supplied to the manufacturer. Thus, he has totally involved himself in mis-representation and mis-declaration of facts and actively involved himself in illegal diversion of the imported goods, thereby rendering the same liable to confiscation under Section 111(o) of the Act. Therefore, he is also liable to penalty under Section 112(a) of the Customs Act, 1962. 20. In view of the above discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gated. 22.3 Even though the appellant had imported several items like LDPE film, Poly-propylene, Nylon fishing net etc, the show cause notice was issued only in respect of Tetracycline HCL and Vitamins. The total duty involved on the imported inputs foregone was Rs. 2.76 crores whereas the show cause notice came to be issued only for Rs. 86.85 lakhs. This is inspite of the fact that the imports were made as a manufacturer exporter and the goods were not to be disposed of before fulfillment of export obligations and there was evidence that none of the imported goods were either used by the exporter or supplied to the manufacturer as all goods were sold before full discharge of export obligations. 22.4 No verification was conducted with DGFT as to what action was taken by them either before show cause notice was issued or thereafter. 22.5 Even though in at least two shipping bills it was clearly mentioned that logging should be done only after verification of actual use, there is no evidence to show that whether this has been done by any one in the Customs department. 22.6 The Commissioner has accepted the export made by the appellant by sourcing the goods from suppliers who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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