TMI Blog1997 (2) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... . Declared value per unit of the goods was at US $ 1680 per metric tonne CIF Calcutta and the goods were declared as of CIS origin. Port of shipment of the goods as evident from the Bills of Entry was Rotterdam. 1.2 Acting on information that the value of the goods was under declared and that benefit of Notification 203/92-Cus. is not liable to be extended to the goods inasmuch as the original licence holder-VSP-has availed of Modvat credit of duty on inputs used for manufacture of the export product, investigations were carried out by Customs officers which resulted in show cause notice dated 17-4-1995. 1.3 Salient allegations made in the show cause notice are that - (a) VSP has availed of credit of duty paid on inputs under Rule 57A of the Central Excise Rules, 1944 used in manufacture of the Export products mentioned in the VBAL but they mis-represented this fact before the competent authority. As a result condition No. (v) of the Notification 203/92-Cus., dated 19-5-1992 is breached. Benefit of the said Notification cannot be extended. (b) Condition No. (vii) of the Notification, though applicable to the importer/appellant as a transferee of the VBAL, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Entry have been imported against a licence which has already expired. Therefore, importation of goods against these two Bills of Entry is unauthorised. Goods of the said two Bills of Entry are liable to confiscation. 1.4 It was therefore, proposed in the said show cause as to why - (a) The value of the goods as imported should not be fixed at U.S. $ 2675/m.t. CIF for the purpose of levy of Customs duty, (b) the goods valued at ₹ 8,09,79,467.81 should not be confiscated under Sections 111(m), 111(d) 111(o) of the Customs Act, 1962, (c) duty amounting to ₹ 5,92,97,215.29 should not be realised from the appellant; and (d) penal action should not be taken against the appellant under Section 112(a) ibid. 1.5 Commissioner of Customs, on the basis of his understanding of an interim order passed in January, 1995 by the High Court of Calcutta, did not allow the adjournment of hearing on 8-5-1995 asked for by the appellant and passed the impugned order dated 9-5-1995 ex-parte without any reply to the show cause notice and without any hearing to the appellant. 1.6 The impugned order dated 9-5-1995 has passed the following directions : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cus., dated 19-5-1992 by VSP as alleged. [Paras 13.1 to 13.17 in the Addl. D.G.F.T. s order point out the circumstances of bona fide belief, and the reasons why availment of Modvat credit at the stage of receipt of inputs and subsequent reversal was a necessary, on the part of VSP]. Fact of reversal of Modvat credit by VSP has been found by Addl. D.G.F.T. in his said order dated 28-9-1995 in para 66.13 thereof : It is clear from the records submitted by the party that reversal has been done with consultation and approval of Central Excise. 1.9 It is also appropriate to put on record here the strong objections taken by the ld. Advocate, Shri Kapoor on behalf of the appellant hat despite the knowledge of the Commissioner about the passing of this order cancelling the impugned licence, inasmuch as he received a fax message from DRI s office at Delhi in September/October, 1995 itself, this fact was not placed before the Tribunal when it heard the Stay Petition of the appellants, nor at any time before commencement of the arguments on appeal. He suggested to the extent that the said order should not be taken on record of the Tribunal at this stage of hearing of the appeal. While ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned licence from Calcutta Customs. He has submitted that since the Addl. D.G.F.T. did not issue show cause notice to the appellant herein despite his knowledge that the appellant was now the holder of the licence, Order-in-Original passed by him does not affect the appellant. The Addl. D.G.F.T. s order cannot be relied upon in present proceedings. For this proposition, he relies on AIR 1974 SC 1471. (ii) Ld. Advocates Shri Kapoor further submits that since Addl. D.G.F.T. passed his order without affording an opportunity of hearing to the appellant, this order is a nullity in the eyes of law. For this proposition, he relies upon a judgment reported in 1985 (22) E.L.T. 27 (Mad.) = 1986 (7) ECC 51 - para 4 [Gemini Metal v. Union of India (Mad.)]. 2.3 As against the aforesaid submissions of the appellant s Counsel, ld. Advocate, Shri Dutta for the Respondent Commissioner urges that Addl. D.G.F.T. has held that an opportunity of hearing against a show cause notice proposing cancellation of a licence can be given under the FT (DR) Act and the Rules thereunder to a holder of the licence and that expression means only the licensee to whom the licence has been issued. It doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct apply to the issue of a licence under the Act, a licence obtained by fraud is only voidable : it is good till avoided in the manner prescribed law ......... On a query from the Bench that East India s foregoing ratio applies to the validity of licence till it is cancelled, but it does not follow from it that an exemption Notification would be applicable, assuming that condition (v)(a) of Notification 203/92-Cus. is breached. Ld. Advocate, Shri Kapoor submits that in the instant scheme of duty exemption based on VBAL, grant of a licence gives exemption to goods subject to certain condition. On the assumption that VSP has taken Modvat credit at input stage and, therefore, licence has been cancelled with effect from 28-9-1995, an exemption granted under Notification 203/92-Cus. to sub-serve the duty exemption scheme under Chapter VII of the Exim Policy 1992-97 will ipso facto be applicable to all goods imported upto 27-9-1995. Nexus between VBAL and the exemption Notification is unbreakable. 3.2 Ld. Advocate, Shri Dutta for the respondent Commissioner submits that while the aforesaid proposition of East India is not disputed, it is not applicable to the facts of this case. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Customs Act. Against these proceedings the appellant filed a writ petition seeking a writ of prohibition. Ld. Single Judge dismissed the petition as premature. Ld. Judge agreed with the earlier Division Bench but he observed that the Division Bench did not decide the question as to what was permitted to be imported. He drew a distinction between a licensee who imported goods perfectly bona fide for his own consumption but who later changed his mind and a licensee who, even from inception, knew that he did not require the goods for his own use, but entered into transaction fraudulently. In the second situation, the ld. Judge proceeded to state, the goods imported were never goods required for the petitioner s Company for its own use. The appellant preferred appeal to Division Bench which was dismissed. Hence the appeal to the Apex Court. (ii) In the foregoing facts, a plea [Plea No. (5) vide para 25] was taken by the respondents (i.e. Customs) that the appellants imported goods on a misrepresentation in law the import must be deemed to be one made without a licence and therefore, the goods imported are goods either prohibited or restricted within the meaning of Section 167 (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of exemption Notification 203/92-Cus. would also be available to the imports provided the relevant condition(s) of the Notification is/are fulfilled. 4.1 (i) Shri Kapoor, with regard to availability of exemption Notification 203/92-Cus., points out that the benefit of the said Notification is available to materials imported into India against a VBAL issued in terms of para 49 of the EXIM Policy 1992-97 subject to certain conditions mentioned therein. There is no dispute about fulfilment of conditions (i) to (iv) and (vi). Allegation is that condition No. (v)(a) has been breached by VSP, the original licensee inasmuch as it has taken input stage credit under Rule 57A of the Central Excise Rules, 1944. Therefore, the exports obligation cannot be said to have been discharged by VSP. Consequently, the endorsement of transferability obtained by VSP from the licensing authority on the impugned licence was by misrepresentation of the fact that it has not obtained Modvat credit on inputs used in export product while in reality it had taken such Modvat credit. Hence condition No. (vii), though normally applicable to a transferee, will not be available in respect of the goods under imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Tribunal) which has observed in para 4 as follows : Irrespective of whether further examination or formation of opinion is permissible in ordinary course, the importer cannot be required to prove once again the eligibility for duty free import of the permitted goods. (ii) As regards breach of condition (v)(a) of the Notification, he firstly submits that the appellant being a person other than the licensee in not concerned with that condition. Nevertheless, he submits that input stage credit, though initially taken by VSP, has since been reversed by it as admitted in Addl. D.G.F.T. s order mentioned earlier. In the face of this fact, there is no breach of condition (v)(a) by VSP and therefore, entire case of the Revenue falls through. (iii) Ld. Advocate, Shri Kapoor for the appellant points out that the Commissioner in the impugned order has denied the benefit of Notification 203/92-Cus. for yet another reason namely that the imported material - copper wire bar (electrolytic grade) - was not required for manufacture of export product as enjoined in the definition of the term material . For this finding, Commissioner has relied upon a statement of R. Srinivasulu, an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. This finding cannot be questioned, in view of there being no contrary judgment of any other High Court or of the Supreme Court. (ii) He submits that for breach of condition (v)(a), export obligation remains unfulfilled and consequently transferability endorsement becomes bad in law. Therefore, condition (vii) does not help the appellant. As regards use of copper wire bars (electrolytic grade), ld. Advocate submits that input-output standard norm, DGFT s letter dated 29-3-1994 and circular dated 27-4-1994 may help the appellant from the angle of admissibility of the VBAL, but these do not help the appellant for benefit of Notification 203/92-Cus., being a statutory in character, these letters cannot over-ride the effect of Notification 203/92-Cus. 4.3 In his rejoinder, ld. Advocate, Shri Kapoor for the appellant urges that Orissa High Court has not considered the effect of condition (vii) of the Notification. The judgment confines itself to the effect of breach of condition (v)(a) inspite of reversal of the Modvat credit. He further points out that the judgment leaves the question of liability - whether of the importer other than licensee, or of the licensee of the VBAL - o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the proper officer of customs at the time of clearance of imported goods out of customs control : Provided that no such imported materials shall be permitted clearance under this notification unless a debit entry has been made, in the said licence and the said certificate, by the proper officer of customs; (iv) that the imports and exports are undertaken from sea ports at Bombay, Calcutta, Cochin, Kandla, Mangalore, Marmagoa, Madras, Nhava Sheva, Paradeep, Tuticorin and Visakhapatnam, or through any of the airports at Ahmedabad, Bangalore, Bombay, Calcutta, Delhi, Jaipur, Varanasi, Srinagar, Trivandrum, Hyderabad and Madras or through any of the Inland Container Depots at Bangalore, Coimbatore, Delhi, New Gauhati Goods Shed, Moradabad, Ludhiana and Hyderabad : Provided that the Commissioner of Customs may by special order and subject to such conditions as may be specified by him, permit imports and exports from any other sea port, airport, land customs station or inland container depot; (v) that the export obligation is discharged, within the period specified in the said certificate or within such extended period as may be granted by the Licensing Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns an authority competent to grant a licence under Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 (18 of 1947). (iii) Materials means - (a) raw materials, components, intermediates, consumables, computer software and parts required for manufacture of export product : Provided that in the case of electronic goods and all kinds of writing instruments (including gift sets and refills/nibs), all export items covered by one serial number in the Standard Input Output and Value Addition norms as contained in Handbook of Procedures, 1992-97, Volume-II, published, vide Public Notice No. 121(PN)/92-97, dated the 31st March, 1993, of the Government of India in the Ministry of Commerce, shall be deemed to be single export product : Provided further that nothing contained in this notification shall apply to import of Acetic Anhydride against licences issued after 24th November, 1993, except where such licences together with the quantity required for manufacture of the export product mentioned therein have been issued with the approval of Advance Licensing Committee in the office of the Director General of Foreign Trade; (b) spares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. 47. Under the Duty Exemption Scheme, Import of raw materials, intermediates, components, consumables, parts, accessories, packing materials and computer software (hereinafter referred to as inputs ) required for direct use in the product to be exported may be permitted duty free by the competent authority under the categories of licences mentioned in this chapter. Advance Licence. 48. An Advance Licence is granted for the duty free import of inputs. Such licence shall be issued in accordance with the policy and procedure in force on the date of issue of the licence and shall be subject to the fulfilment of a time-bound export obligation and value addition as may be specified. Advance Licences may be either value based or quantity based. Licences issued under the Duty Exemption Scheme shall be regulated in freely convertible currency. The FOB value of exports and CIF value of imports in the licences shall be specified in freely convertible currency. The CIF value shall also be specified in bracket in Indian Rupees at the exchange rate on the date of issue of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under this scheme by the licensing authority may be accepted towards discharge of export obligation. If the application is approved, the licence shall be issued in accordance with the policy and procedures in force on the date of its issue. The conversion of duty free shipping bills to drawback shipping bills may also be permitted by the Customs authorities in case the application is rejected or modified by the licensing authority. Transferability of Advance Licence. 67. A value or qantity based Advance Licence (except Intermediate Advance Licence and a Special Imprest Licence) or the materials imported against them, may be freely transferable after the export obligation has been fulfilled, export proceeds realised and the bank guarantee/LUT redeemed. This facility shall not be available in cases where the Modvat/Proforma Credit facility or excise relief under Rule 191B of the Central Excise Rules has been availed of. Penalty. 71. If a holder of a duty free licence under the scheme violates any condition of the licence or fails to fulfil the export obligation, he shall be lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a person to whom the licence has been issued if there is an endorsement of transferability by the Licensing Authority both on the VBAL and the DEEC. Such an endorsement is not denied in the instant case. Benefit of Notification 203/92-Cus. cannot, therefore, be denied to the appellant on the ground (assuming it to be correct at this stage) of breach of condition (v)(a). If this is allowed to be done, it would mean allowing the Customs authorities to question the exercise of authority by the Licensing Authority. This is nowhere permitted either under Notification 203/92-Cus. or under the provisions of the Customs Act, 1962 or the Rules made thereunder. Hence, we hold that the appellant is entitled to the benefit of Notification 203/92-Cus. on the strength of condition (vii). (iii) Ld. Advocate for the respondent, however, draws attention of the Bench that despite the plea of the petitioner (Raj Exports), a transferee of VBAL, Hon ble Orissa High Court in the said case of Raj Exports (supra) held that duty will be payable on imports made by a transferee for violation of condition (v)(a). We observe that although Notification 203/92-Cus. as a whole has been set out in the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) regarding payment of duty on imports by transferee is sub silentio vis-a-vis condition (vii) of the Notification 203/92-Cus. It is a settled law that a decision rendered sub silentio on an issue is not of binding nature with reference to that issue. (iv) Strictly speaking, after our finding in sub-para (ii) above, it is not necessary to consider whether condition No. (v)(a) has been violated or not by VSP. Nevertheless, we would proceed to deal with it because of the allegations made by the Authority below and therefore, a controversy before us. We may mention at the out-set that VSP has not been made a party to the proceedings initiated by the Customs in this matter and, therefore, we are handicapped in arriving at our finding on breach of condition (v)(a). Had the proceedings been governed by the Civil Procedure Code, the show cause notice, being in the nature of a plaint, would have been faulted because of non-joinder of a necessary party i.e. VSP, to consider the main allegation regarding breach of condition (v)(a). (v) (a) We would, therefore, indirectly take the version of VSP from the Addl. D.G.F.T. s order dated 28-9-1995 which has already been brought on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee should take Modvat credit at the time of receipt of the inputs in the factory. The CEGAT in Mahindra Mahindra Ltd. v. CCE, 1990 (50) E.L.T. 55 (Tribunal) vide para 9 thereof has taken a view that taking of the credit in Modvat is to be simultaneous with the receipt of inputs in the factory. (h) Further, in terms of Para 67 of the Policy as originally introduced, the stipulation regarding non-availment of Modvat credit was indicated to be only in respect of VBAL/QBAL which are to be transferred. Therefore, even after the export VSP could not have anticipated as to whether the licences would be used for its own imports or would be ultimately successfully transferred. 13.2 The above practical difficulties apply to any manufacturer in the country and in particular to a large integrated continuous process unit like VSP. It is on this basis that VSP was continuing to take Modvat credit as and when the raw material was received by them in the factory even though some of the final product may be ultimately exported. 13.3 Apart from the above, there was a case of bona fide and genuine mis-interpretation of Notification No. 203/92, dated 19-5-1992 by VSP. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en modified and accordingly declaration to be submitted by VSP has undergone some change. The Dy. General Manager (Finance) was, therefore, requested to examine the amendment from VSP s point of view so as to submit revised declaration to the concerned officer of DGFT. 13.7 The views of the Dy. Chief Finance Manager in relation to the above as recorded in his note dated 24-2-1994 in the file is reproduced below :- Rule 57(3) provision reads as below :- provided that the credit of specified duty in respect of inputs used in the final products cleared for export under bond shall be allowed to be utilised towards payment of duty of excise on similar final products. But the certificate as per Para 126(ii)(a), no input stage credit under Rules 56A or 57A of said Central Excise Rules has been claimed or availed in respect of any of the inputs used in the manufacture of export product is required to be certified. This certificate is contradictory to the provision of Rule 57F(3) of Central Excise Rules. In the past we have been issuing a certificate that no input stage credit under Rule 56A or 57A of said Central Excise Rules has been claimed or availed in respect of any inp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been availed. 13.13 A separate list of dates enclosing the relevant correspondence exchanged with Central Excise Deptt. which showed that the procedure and modality regarding quantification of Modvat credit to be reversed was arrived at in consultation with the Central Excise Deptt. and was enclosed as Annexure II with the reply to the SCN. 13.14 Since the Modvat credit has been reversed and there was no dispute about the quantification of the reversal, the Superintendent of Central Excise, Rang-I, Visakhapatnam also issued a certificate dated 27-8-1994, last para of which reads as under : It has been recorded that M/s. Visakhapatnam Steel Plant, Visakhapatnam has not availed statutory input stage credit under Rule 56A/57A of the Central Excise Rules, 1944 for the manufacture of export products for above mentioned period. 13.15 It is true that in the shipping bills for export from time to time VSP has given a declaration to the effect that input stage credit has not been availed. This was a routine declaration given based on the belief that condition (v)(a) of Notification No. 203/92 would apply only if credit is being availed in respect of imported materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpret fiscal laws, each and every word expressed in the statute has to be construed strictly and there cannot be any liberal interpretation with greater flexibility. The text and the context, are very important. The canons of law as to the interpretation of revenue statute are well guided and we find that if the conditions to avail the exemption have not been fulfilled by the original licence holder and/or the subsequent licence holder, it is obviously open to the customs authorities to demand duty by strict reference to exemption notification. In this regard, it is found that Hindustan Lever appreciating the difficulties did not come forward to get release of the goods, in another case. Be that as it may, we find that the stand taken by the Customs authorities to demand duty is lawful and justified. Either the petitioners or the NALCO cannot ask for relief for issuance [of] any writ to get the imported goods released without payment of lawful duty. The bona fide nature of transfer of licences as claimed by the petitioners is not considered by this Court on merit. It is open to the petitioners to take proper steps if they are entitled to sue NALCO in the proper forum to get the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and detain the goods in question if there has been any violation of the conditions of the licences under the Export and Import policy. The Joint Director of Foreign Trade under Annexure-7 on 30-3-1995 addressed to the opposite party NALCO stated that since the latter had reversed the credit availed under Section 57A of the Central Excise Rules, 1944, the transferability of the licence so granted had been regularised. 51. Annexure K/2, at page 192 of the brief, is the letter dated 21-8-1995 of the Director General, Foreign Trade addressed to the Commissioner of Customs, Bombay stating that to him it appeared that transferability of the licence granted to NALCO was irregular since the power to grant such permission under the provisions of para 21 of the EXIM policy vested with the Director General of Foreign Trade and not the Joint Director. 52. Thus, it is abundantly clear that one officer of the same department questions the authority of another officer and the action taken by it as irregular. This itself manifests an unhappy state of affairs creating utter confusion. This has resulted in unnecessary litigation, wastage of public money and time. Apart from the criticism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Excise [1990 (47) E.L.T. 491 (S.C.) - Para 11], after relying on Parle Exports and Tata Oil Mills (supra), the Court held that : in interpreting the scope of any Notification, the Court has first to keep in mind the object and purpose of the Notification. All parts of it should be read harmoniously in aid of, and not in derogation of that purpose. We respectfully note that these subsequent judgments of the Apex Court were not brought to the notice of the High Court in Raj Exports. Now going by the guidelines laid down by the highest Court of the country, no doubt is left that reversal of the modvat credit would satisfy condition (v) (a), particularly having regard to the practical difficulties in view of the continuous process of manufacture of their products prevalent in VSP as opposed to batchwise production system and that VSP was simultaneously catering to domestic market as well as export market. Their difficulties have already been brought on record as set out above. Larger purpose of the exemption Notification, as already held, is in aid of Duty Exemption Scheme of the Exim Policy. Immediate purpose of condition (v) (a) is to avoid double benefit to the Manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds. Revenue has discarded the contract dated 1-12-1993 entered into by the appellant with M/s. Indo-Asian (P) Ltd. on the ground that it cannot be genuine because the date of establishment of the appellant firm itself is August 1994, as shown in the application of the proprietor Navneet Kumar for getting I.E. Code. Ld. Advocate, Shri Kapoor submits that this was a clerical mistake. No question was put to him to explain it when Navneet Kumar s statement was recorded. The Commissioner did not give them an adequate opportunity of hearing. Otherwise, they would have explained it. They have now produced substantial correspondence on record from Indo-Asian Development (Inc) prior to entering in contract with that Company on 1-12-1993 as well as after that proving thereby that Hanuman Trading Corporation was very much in existence at the time of striking the deal on 1st December, 1993. We have perused the correspondence. There is nothing fake about. All this correspondence appear to be genuine. Flimsy piece of evidence relied upon by the Commissioner in the impugned order cannot cast doubt on the genuineness of the contract. (b) Next ground for discarding the contract are two bills of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed upon by the parties and the same cannot invalidate a contract in any way. The purported findings to the contrary in the said order of the Collector cannot be sustained being perverse. The Collector has not taken into account the facts and circumstances of International Trade and Commerce. The findings have been arrived at on a complete non-application of mind and by totally ignoring the relevant provisions of law including those relating to contracts. In the instant case also, contract had been settled at the London Metal Exchange price plus a premium thereon as stipulated in the contract. In order to substantiate their claim, the appellant has produced a copy thereof to Commissioner of Customs in the instant case has adopted the price of London Metal Exchange as prevailing around the time of shipment as had been done by the Collector in Sneha Traders (supra). We have, therefore, no reason to discard the transaction value since no evidence of relationship between the appellant and the supplier Indo-Asian Development (Inc) has been brought on record by the Revenue. We accordingly, hold that there is no misdeclaration of value by the appellant. 4.7 (a) Next allegation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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