TMI Blog2011 (3) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... y the licensing authorities and the said items have even now continue to remain in the DFRC's issued to the petitioner, the question of demanding any duty on the 'Formers / packing materials' imported under the said DFRC's issued by the licensing authorities does not arise at all. - 10079 OF 2010 - - - Dated:- 3-3-2011 - J.P. DEVADHAR, MRS. MRIDULA BHATKAR, JJ. Mr. V. Sridharan with Mr. Prakash Shah and Mr. Jas Sanghvi i/b. PDS Legal for the appellant. Mr. D.J. Khambata, Additional Solicitor General with Mr. Rui Rodriques and Mr.A.S. Rao for the respondents. JUDGMENT (PER J.P. DEVEDHAR, J.) 1) Rule, returnable forthwith. By consent, the petition is taken up for final hearing. 2) The petitioner is aggrieved by the communication dated 03/05/2010 issued by the Director General of Foreign Trade (DGFT) as also 11 orders in original all dated 26/11/2010 passed by the Jt. DGFT, Mumbai. 3) By communication dated 03/05/2010 the DGFT has informed the Jt. DGFT, Mumbai that during the period 2004-05, Duty Free Replenishment Certificates ('DFRC' for short) ought to have been issued to the petitioner, for import of duty free inputs which were set out in the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of inputs used in the manufacture of goods without payment of basis customs duty, and special additional duty. However, such inputs shall be subject to the payment of additional customs duty equal to the excise duty at the time of import. 4.2.3 DFRC shall be issued only in respect of products covered under the Standard Input Output Norms as notified by DGFT. However, in respect of Standard Input Output Norms which are subject to "actual user" condition or where the input(s) is allowed with prior import condition or for import of fuel under the general norms, DFRC shall be issued with actual user condition for these inputs. In cases where Standard Input Output Norms allow import of Acetic Anhydride, Ephedrine and Pseudo Ephedrine, DFRC shall be issued provided these items are specifically deleted from the list of import items. 4.2.4 DFRC shall be issued for import of inputs as per SION as indicated in the shipping bills. The validity of such licences shall be 18 months. DFRC and or the material(s) imported against it shall be freely transferable. However, DFRC with actual user condition or the material(s) imported against it shall not be transferable. " 7) From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to this office letter of even number dated 26-4-2010 on the above mentioned subject, I am directed to further clarify that SION available on the date of export is required to be taken into consideration and not that as per SION modified subsequent to exports. DFRC being cost export replenishment scheme has to be linked to the date of exports. " 12) Accordingly, 11 show cause notices were issued in January- February, 2010 calling upon the petitioner to show cause as to why customs duty with interest and penalty should not recovered from the petitioner in respect of Formers Packing materials imported under the DFRC's issued to the petitioner during the period 2004-2005, because 'Formers / packing materials' were included in the SION on 12/4/2004, whereas the exports were made prior to 12/4/2004 and in such cases formers / packing materials could not be allowed duty free import under the DFRC's issued to the petitioner. 13) The petitioner objected to the issuance of the show cause notices as also the claim to recover duty with interest and penalty. However, rejecting the contentions of the petitioner, 11 impugned orders in original were passed on 26/11/2010 confirming duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the policy provisions to the effect that the inputs covered under the SION as on the date of issuing the licence is relevant. On the basis of the validly issued DFRC's duty free imports have been made by the third parties to whom the said DFRC's were legally transferred. Assuming that the authorities issuing the DFRC's had wrongly construed the provisions of the policy, the imports already made as per the DFRC's cannot be faulted and the DGFT cannot issue a clarification so as to adversly affect the imports already made pursuant to the validly issued DFRC's. In the present cas , neither the DFRC's are cancelled nor the items specifically included in the DFRC's have been deleted. Relying on the decision of this Court in the case of A.V. Industries V/s. Union of India reported in (2005) 187 ELT 9 (Bom), it is contended that even if there is any bonafide mistake on the part of the authority issuing the DFRC's, the petitioner cannot be penalised for that bonafide mistake committed by the licensing authorities. The alleged mistake in the DFRC's, if any, were corrected in time by deleting the two items, the importers to whom DFRC's were sold would have imported items other than Forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneously included in the DFRC's, it does not mean that the said two items could be imported duty free, especially when the said two items were not included in SION on the date of export and the said two items were not declared in the shipping bills. The submission is that in respect of the exports effected upto 11/4/2004 DFRC's could not be issued for duty free import of 'Formers / packing materials' and, therefore, duty with interest would be recovered even if the said items were cleared duty free under the DFRC's wrongly issued to the petitioner. 20) Relying on a Division Bench decision of the Madras High Court in the case of Adani Exports Ltd. V/s. Union of India reported in (2003) 151 ELT 520 (Mad) which is upheld by the Apex Court, the learned ASG submitted that DFRC's could be issued for import of duty free inputs which are specifically set out in the SION on the date of exports and not on the date of issuance of DFRC's. In the present case, the petitioner in his application had erroneously claimed DFRC on 'Formers / Packing materials' even though the same were not covered under SION on the date of export. The DFRC's were granted on the basis of the application made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty free import to the extent permitted under the DFRC, however, the said inputs must be noticed by the DGFT. 24) Since the exports as well as the imports are regulated by the customs authorities, para 4.2.4 of the policy provides that DFRC shall be issued for import of inputs as per SION as indicated in the shipping bills. This para further ensures that the exporter while submitting shipping bills to the customs authorities declares that the exports are effected with a view to import inputs used in the export product which are notified in the SION. 25) Where the DGFT by a public notice amends the existing SION by adding an input used in the export product, then the exporter is entitled to import that input duty free to the extent permitted under the DFRC. No doubt that until an input is is notified under the SION, DFRC cannot be issued in respect of the input. But once the DGFT notifies an input under the SION as an input used in the export product, then there is no reason as to why DFRC cannot be issued in respect of that input, even if the product was exported prior to the issuance of the public notice by the DGFT. In other words, for issuing DFRC what is relevant is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct exported by the petitioner. The fact that the DGFT notified the same on 12/4/2004 does not mean that prior to 12/4/2004 the said items were not inputs used in the export product. When the object of DFRC is to permit duty free import of inputs used in the export product, that object cannot be defeated on the ground that the input was notified under the SION subsequently and the same was not indicated in the shipping bills submitted at the time of export. 28) In the present case, even the authorised officer interpreted the policy to mean that irrespective of the date of export once the Formers / packing materials were notified as inputs used in the export product DFRC licences have to be issued irrespective of the date of export, and accordingly issued the DFRC's in favour of the petitioner. The very fact that even after the Audit Authority raised objection, the Jt. DGFT deemed it fit to seek clarification from the DGFT clearly shows that the issue was debatable and was not free from doubt. Therefore, the DGFT could not have issued clarification on 3/5/2010 so as to prejudicially affect the interests of the exporters / third parties, who had imported 'Formers / packing materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cking materials' are in doubt. In such a case, the action of the respondents in seeking to recover duty from the petitioner on the ground that the import of those items, were erroneously allowed under the DFRC's cannot be sustained. 31) It is surprising to note that even after the Audit objection and clarification issued by the DGFT, till date the DFRC's in question have neither been declared to be invalid nor the items 'Formers / packing materials' contained in the said DFRC's have been deleted. So long as the 'Formers / packing materials' continue to be covered under the DFRC's in question, the duty free imports under the DFRC's cannot be said to be contrary to law and consequently recovering any duty on import of 'Formers / packing materials' under the said DFRC's does not arise at all. 32) Strong reliance was placed by the counsel for the revenue on the decision of the Madras High Court in the case of Adani Exports (supra) wherein it is held that in the case of pass book scheme, the credits have to be calculated only on the basis of the norms as they were existing on the date of exports. In that case, Adani Exports had availed the pass book scheme under the 1992-1997 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Madras High Court does not in any way prejudice the case of the petitioner. 34. We find merit in the argument of the petitioner that assuming the revenue is right in contending that 'Formers / packing materials' could not be imported duty free in respect of exports effected prior to 12/4/2004, then firstly, the licensing authorities could not to have issued DFRC's permitting duty free import of inputs including formers / packing materials. Having issued DFRC and having allowed duty free import of 'Formers' under DFRC, it is not open to the revenue to contend that the duty free import is unauthorised. Secondly, if the petitioner was intimated about the alleged mistake in the DFRC's, then the parties to whom the DFRC's were sold would have imported only those inputswhich are permissible for duty free import. Once the 'Formers / packing materials' have been imported duty free as per the DFRC's validity issued by the licensing authorities and the said items have even now continue to remain in the DFRC's issued to the petitioner, the question of demanding any duty on the 'Formers / packing materials' imported under the said DFRC's issued by the licensing authorities does not aris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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