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TMI Blog2011 (1) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and 570 kgs of Aromatic chemicals valued at Rs.3,15,644/- imported and cleared against advance licences as detailed in the Show Cause Notice are held liable to confiscation under Section lll(d) and lll(o) of the Customs Act 1962. However, as all these goods had already been cleared and are not available for confiscation I do not order confiscation of the same. ii) Demand of all the following Customs Duties are hereby confirmed in terms of provisions of Section 28 (1) read with the proviso there of and M/s Fresh Laboratories and Shri Bhupendra Jayantilal Shah are directed to pay the same forthwith :- a) Rs. 2,35,79,075/-( Rupees Two crores thirty five lacs seventy nine thousand and seventy five only) in respect of 528.4826 MTs of Glycerine valued at Rs.1,71,24,361/- b) Rs. 51,02,951/- ( Rupees Fifty one lakh two thousand nine hundred and fifty one only) in respect of 59.61 MTs of SLS valued at Rs.34,43,256/- c) Rs. 1,10,62,031/- (Rupees one crore ten lakhs sixty two thousand and thirty one only) in respect of 21.913 MTs of Irish Moss valued at Rs.86,75,961/- d) Rs. 1,36,959/- (Rupees one lakh thirty six thousand nine hundred and fifty nine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Paints, M/s VAM International Ltd and M/s Dolphin International. Some of the licences specified toothpaste as the export product, while others mentioned both toothpaste and shaving cream as export products. During the tenure of Exim Policy 1990-93, M/s Fresh Laboratories imported Glycerine, Sodium Lauryl Sulphate (SLS), Irish Moss, Sodium Mono Fluoro Phosphate (SMFP), Stearic Acid, Flavouring Compound and Aromatic Chemicals and cleared the same duty-free under Notification No. 159/90-Cus dated 30.3. 90. 4 of the 6 advance licences were used for these imports. The remaining two licences were used for duty-free import of some of the above raw materials under Notification No. 204/92-Cus dated 19.5.1992 during the tenure of Exim Policy, 1992-97. 5 out of the six advance licences , which belonged to the three merchant-exporters, were allowed to be used by M/s Fresh Laboratories under Letters of Authority issued by the merchant-exporters. 3. Notification 159/90-Cus, which superseded Notification 116/88-Cus dated 30.3. 88, enabled holders/transferees of advance licences to make duty-free imports of raw materials which were required for the purpose of manufacture of products to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the basis of results of certain investigations conducted by the department, the following allegations were mainly raised in the relevant show-cause notice viz: (i) Glycerine imported by M/s Fresh Laboratories was not liable to be exempted from payment of duty under any of the above notifications inasmuch as the input used in the export product was a different commodity, namely Sorbitol. This allegation is based on the premise that the imported raw material should be of the same specifications and technical characteristics as those of the input actually used in the resultant product (export product). A similar allegation was raised in relation to import of Irish Moss and Viscarine also inasmuch as a different material was found to have been used in the manufacture of export product. (ii) The importer availed MODVAT credit on indigenous inputs (Glycerine, Sorbitol and SLS) used in the manufacture of the export product and, therefore, the inputs subsequently imported as replenishment by them and sold in local market were not eligible for the benefit of Notification No. 204/92-Cus on account of breach of Condition No. (vi) thereof. 7. The show-cause notice, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest, and, therefore, M/s Fresh Laboratories are entitled to the benefit of the Amnesty Scheme covered by Circulars dated 3/1/97 and dated 10.1.97; (e) As per Public Notice No. 191 dated 14.8. 91, M/s Fresh Laboratories were entitled to sell the raw materials imported for replenishment purpose once the MODVAT credit availed on inputs contained in the exported product stood reversed and export obligation attached to the advance licence stood discharged; (f) The penalty of Rs 4 crores imposed on M/s Fresh Laboratories is not justifiable. The learned counsel made occasional references to the two notifications as also to case law in support of the above points. In the case of Metro Tyres Ltd vs Collector 1994 (74) ELT 964 (Tri) cited by him, synthetic rubber of the type of butyl rubber was imported under an advance licence claiming the benefit of Notification No.159/90-Cus. What was used in the exported product was synthetic rubber which was not of butyl rubber variety. The department noted this fact and proposed to deny the benefit of the above notification to the importer. This Tribunal examined the relevant condition of the notification which required impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be strictly construed and, therefore, the relevant condition attached to Notification No. 159/90-Cus or Notification No. 204/92-Cus cannot be relaxed. Replenishment per se means import of material of the same specifications and characteristics as those of the input used in the manufacture of the exported product. Indisputably, Sorbitol is different from Glycerine in all material characteristics, including chemical composition, physical properties, use etc. Therefore, duty-free import of Glycerine could not have been allowed where the input contained in the exported product was Sorbitol; (ii) The Amnesty Scheme was specific to Notification No. 203/92-Cus and the same cannot be applied to the present case involving other notifications. For this reason, the apex court's judgment in Bharti Telecom case is inapplicable. (iii) Even otherwise, reversal of MODVAT credit after the crucial event (export of resultant product) cannot be accepted as a ground for relaxing the relevant condition of Notification No. 204/92-Cus; (iv) M/s Fresh Laboratories deliberately disposed of the imported materials with the knowledge that such disposal was barred under both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shment could not be sold if MODVAT credit had been taken on the inputs used in the exported goods. Thus the breach of a condition of the above notification was found and the duty foregone was demanded. The learned Special Consultant has also relied on Raj Exports vs National Aluminium Co Ltd 1996 (87) ELT 349 (Ori), wherein certain imports made under DEEC Scheme claiming the benefit of Notification No. 203/93-Cus were considered. In that case also, MODVAT Credit had been availed on the inputs used in the production of the export goods but this credit was subsequently reversed. The Hon'ble High Court held that a breach of condition of the above notification could not be restored by reversal of the MODVAT credit. The Hon'ble High Court also contextually held that every word used in an exemption notification should be strictly construed and no liberal interpretation with greater flexibility could be given. In this connection, the learned Special Consultant has further pointed out that, though the Supreme Court disposed of on merits certain Special Leave Petitions filed against the Orissa High Court's judgment, giving liberty to the importer (National Aluminium Co) to reverse MODVAT cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the benefit of exemption notification was allowed by the apex court to the assessee by holding that the relevant condition (which required the assessee not to avail MODVAT Credit on any input used in the manufacture of the exempted final product) stood complied with inasmuch as the credit so availed had been reversed prior to clearance of the exempted final product. It is submitted that this ruling cannot be applied to the present case. In this connection, the learned Special Consultant has also referred to Kamra Bottling Companies 2003 (160) ELT 487 (Tri-Del), wherein the benefit of SSI exemption under Notification No. 1/93-CE dated 28.2.1993 was denied to the assessee after noting that the MODVAT Credit taken on inputs had been reversed only after clearance of the final product. The Tribunal s decision was affirmed by the High Court in Kamra Bottling Co 2009 (233) ELT 329 (Raj). Thus, claiming support from case law, the learned Special Consultant has argued that any reversal of MODVAT credit subsequent to the export of the resultant product would not have the effect of erasing the breach of the relevant conditions of notifications No. 159/90-Cus and No. 204/92-Cus. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that Mr. Yogesh Korani cannot claim innocence and was rightly penalized by the adjudicating authority. 13. We have given careful consideration to the submissions. The main issue arising for consideration is whether the benefit of Notification No. 159/90-Cus and No. 204/92-Cus is liable to be granted to M/s Fresh Laboratories in respect of the raw materials imported by them under the six advance licences during the material period. We have already indicated the salient conditions of the notifications. The show-cause notice issued by the department proposed to deny the benefit of the notifications to M/s Fresh Laboratories by alleging (a) that the raw materials imported by them were different from those used in the manufacture of the exported product, and (b) that the raw materials imported by them were disposed of by sale in local market in breach of condition (vi) of Notification No. 204/92-Cus after having availed MODVAT credit on indigenous inputs used in the manufacture of the exported product. The imported goods relevant to the first leg of this allegation are Glycerine, Irish Moss and Viscarine. Glycerine was imported as replenishment for Sorbitol used in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issible to the importer who used Sorbitol in the manufacture of toothpaste and imported Glycerine as replenishment claiming duty-free clearance under the Notification and further that they used gum in the manufacture of the resultant product and imported Irish Moss/Viscarine as replenishment. It is not in dispute that Glycerine is different from Sorbitol in material characteristics including chemical composition, physical properties, uses etc. It is again not in dispute Irish Moss or Viscarine is not the same as gum. The only case of the importer is that all these items are covered by the advance licences and, therefore, one material should be allowed as replenishment for the other. In this scenario, the Tribunal's decision in Metro Tyres (supra) is not applicable to the present case. On the other hand, the learned Special Consultant for the Revenue has specifically argued that the imported input cannot be materially different from the one used actually in the manufacture of the resultant product so as to attract the exemption notification. In this connection, he has usefully relied on a few decisions, which we have already referred to in an earlier part of this order. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance duty-free under the notification, cannot sell or transfer the material if he has availed MODVAT credit of Central Excise duty or Additional Customs duty paid on any indigenous or imported input contained in the exported goods. It would mean that any sale or transfer of raw material imported duty-free under the above Notification would be a breach of condition no. (vi), if MODVT credit has been taken on the input which was used in the exported product and against which the import was made as replenishment. In the instant case, the learned counsel for the importer has submitted that demand of duty on five raw materials imported by them cannot be sustained inasmuch as no MODVAT credit had been taken on the corresponding inputs used in the exported product. These are items mentioned at clauses (c) Irish Moss, (d) (SMFP), (e) Flavouring Compound, (h) Stearic Acid (i) Aromatic Chemicals, of para (ii) of the operative part of the Commissioner's order. In the case of other raw materials imported by M/s Fresh Laboratories, the learned counsel has submitted that whatever MODVAT credit had been taken on the corresponding inputs contained in the exported final product was reversed with in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation No. 159/90-Cus. Those goods were imported as replenishment for the use in exported product. It was found that the party had availed MODVAT credit on the input used in the production of the resultant product. Under para 250- (2) of the relevant Exim Policy, there was a bar against sale of the imported goods if MODVAT credit had been taken on the inputs used in the exported product. As the party had sold the raw material imported by them, the benefit of the above Notification was denied to them inasmuch as one of the conditions of the Notification barred availment of MODVAT credit on inputs used in the export product if the raw material imported by way of replenishment under the advance licence was to be disposed of by sale. In the case of Bharat Pulvarising Mills (supra), the benefit of notification No. 204/92-Cus was denied to the importer on the ground that condition (vi) was violated by them by availing MODVAT credit on the inputs used in the manufacture of the exported goods. In the said case, this Tribunal followed the Orissa High Court s judgment in Raj Exports case. The Hon'ble High Court ruled out liberal interpretation of expressions used in Exemption Notification. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered the goods liable to confiscation, thereby attracting penalty under Section 112 (a) and (b) of the Act. However, nothing contained in para 35 of the impugned order brings forth any penal liability of these parties. This para says that most of the imported materials were sold by M/s Fresh Laboratories but does not specifically state that this activity amounted to breach of any particular condition of any Notification. On the other hand, it has been acknowledged that para 250 (2) of the Exim Policy 1990-93 allowed disposal of replenished exempt material to any person without permission of the licensing authority. It has also been noted that the importer reversed MODVAT credit amounting to Rs 18.8 lakhs and paid interest of Rs 3.6 lakhs thereon. In any case, the penal liability of M/s Fresh Laboratories under Section 111 (o) of the Customs Act cannot be refuted by them inasmuch as it has already been found that they committed breach of certain conditions of the two Notifications leading to demand of duty and confiscation of the goods. However, we have found no material on record in support of invocation of Section 111 (d) of the Act. All the goods imported by them were admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been established. Under Section 112 (a) of the Act, any person abetting the offence of the importer can also be penalized. Mr. Yogesh Korani appears to have abetted the offence committed by M/s Fresh Laboratories in relation to the import of 60 MT of Glycerine. Under Section 112 (b) of the Act, any person who acquired possession of, or otherwise physically dealt with, any imported goods with the knowledge or belief that such goods was liable to confiscation under the Act is liable to be penalized. The records indicate that 60 MT of Glycerine imported by M/s Fresh Laboratories were sold to Mahavir Export and Import Company, of which Mr. Yogesh Korani was the proprietor. The learned Commissioner has imposed a penalty of Rs 10 lakhs on M/s Mahavir Export & Import Co and equal penalty on Mr. Yogesh Korani. No adverse findings have been recorded against them in relation to any other goods sold to them by M/s Fresh Laboratories. In this scenario, the penalty of Rs 10 lakhs is excessive. Further, there cannot be separate penalties on M/s Mahavir Export & Import Co and its proprietor. In the result, we set aside the penalty imposed on Mr. Yogesh Korani and reduce the quantum of penal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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