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TMI Blog1997 (2) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Notification 203/92-Cus. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 : (i) goods import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [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 we appreciated his objections, and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutta 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 does not mean transferee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue 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. In the instant cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst 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) of the Sea Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 import. Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 engineer in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... he 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 Authority, by exporting goods manufactured in India in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 and mandatory spares, within a value limit of 5% of the value of the licence issued upto the 31st March, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware (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 the licence. However, in the case of Advance Intermediate Licence and Special Imprest Licence where the payment for the goods supplied is to be received in Indian Rupees, the FOB value shall be specified in Indian Rupees and the CIF value of imports shall be specified in fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 liable to action in accordance with the Foreign Trade (Development and Regulation) Act, 1992, Orders/Rules made under the said Act, Export & Import Policy, Handbook of Procedures and other laws in force. 4.5 (i) We, therefore, observe from the previous para 4.4 that Duty Exemption Scheme is a part of Exim Policy 1992-97 which is administered by the Directorate General of Foreign Trade. Main and primary responsibility for administering this Scheme rests with the competent officers in the said Directorate. Notification 203/92-Cus. has been issued to effectuate the Duty Exemption Scheme laid down in Chapter VII of the Exim Policy. For this reason issuing VBAL or QBAL, DEEC, execution of bond, legal undertaking, monitoring of import and export items, fulfilment of export obligations, realisation of export proceeds, dischar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgment of Orissa High Court, benefit on the strength of condition No. (vii) was neither canvassed by the petitioner Raj Exports in that case nor it has been specifically noticed by the Court. Plea made before the Court and issue as posed by the Court itself is set out in para 36 and decision thereon is given in para 37 of the judgment of the Court. Both paras 36 and 37 of the said report are reproduced below : "36. The second aspect of the dispute is that there is a claim by the petitioners against NALCO on the ground, inter alia, that the petitioners are bona fide transferees for the value. On the face value of the licences the same appear to be transferable and since they have purchased the aforesaid transferable licences and acted bona fide, equity stands in their favour and an appropriate writ may be issued to command NAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure 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 record by the Revenue. Accordingly, we reproduce paras 13.1 to 13.17 of the said order dated 28-9-1995 : "13.1 There was all round confusion prevailing in the country regarding taking of Modvat credit on inputs used for export product under Value Based Advance Licensing Scheme and VSP was no exception to this confusion. It further stated that practical problem defying any solution in an integrated steel plant like VSP for the following reasons : (a) VSP is a manufacturer selling the goods both in the domestic market as also in the export market. As a Central Excise licencee VSP is entitled to avail Modvat credit on the eligible inputs used in the manufacture of the final product. (b) The Modvat Rules clearly stipulated that there is no need for any one-to-one co-relation. (c) Rule 57F(3) of the Modvat Rules pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is evident from the notes contained in the files maintained by the marketing/Finance Departments of VSP which have been relied upon in the present show cause notice. 13.4 By an Office Memorandum dated 15-3-1993, the Marketing Manager of VSP forwarded a copy of Notification No. 203/92 to the Finance Department with the request to them to comply with the conditions of Notification especially condition No. V(a). A copy of this Office Memorandum dated 15-3-1993 was attached in reply to the SCN. In continuation thereof, the Marketing Department in their note dated 3-4-1993 to the Finance Department pointed out that VSP has fulfilled the export obligations and have to get the Legal Undertaking (LUT) discharged which requires giving of a declaration to the effect that VSP has not availed the benefit of Modvat. Hence, a request was made to the Finance Department to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 inputs permitted against the Advance Licence, basing on certificate 126(ii)(b) of the same Notification. The notification amendment how made does not alter the position stated above. We may continue to give declaration as in the past." 13.8 It is evident from the above that the Dy. Chief Finance Manager of VSP genuinely believed that in view of the provisions contained in Rule 57F(3), the certificate required under Para 126(ii)(b) of the Handbook of Procedures is contrary to the Central Excise Rules. 13.9 However, the matter was continuously discussed and by a further note dated 5-3-1994 the Dy. Chief Finance Manager of VSP expressed a view that VSP has to forego one benefit either of Modvat or Advance Licence depending upon whichever is lower with the suggestion that VSP may consult DGFT or an expert in the field on this issue. The note also mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 materials, a belief entertained and reinforced in the note dated 6-4-1993 of the Dy. Chief Finance Manager. 13.16 In respect of the ten licences in question the revised declaration was filed by VSP with Dy. DGFT, Visakhapatnam for the purpose of redemption of LUT/Bond for permitting transfer on or around 14-3-1994. In these revised declarations, VSP had no doubt indicated that Modvat credit has not been taken. However, this was based on the decision already taken by the Executive Director (Commercial) and Dy. General Manager (F&A) on 12-3-1994 that Modvat credit taken in the past would be reversed which was also subsequently done. In fact, VSP was the first unit in Visakhapatnam to voluntarily undertake reversal of Modvat credit. Only subsequently other units in Visakhapatnam started reversing Modvat. 13.17 Issue regarding reversal of Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LCO 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 reliefs as they deserve. 47. Nor the forgoing reasons, we hold that the petitioners are not entitled to the reliefs as prayed for. On the same ratio, the other writ petition which was heard simultaneously is disposed of. Both the writ petitions fail and hence are rejected. There will be, however, no order as to costs." Learned Advocate, Shri Kapoor in his rejoinder submits that it is a fallacy to say that Raj Exports decides in favour of Revenue. While paras 45 & 46 (sic) seem to say so in the judgment of the ld. Acting Chief Justice, the other ld. Judge comprising the Division Bench is not so categorical, if para 54 of the Report is perused. For better appreciation, it is reproduced below : "54. The matter of leviability of duty and the liability of the party to pay the duty and get the goods released is with opposite par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade 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 by the ld. Judge in para 52, we observe from para 50 that D.G.F.T. in his counter admits regularisation of transferability of licence after reversal of Modvat credit. Once the transferability of licence stands regularised by the D.G.F.T.; condition (vii) of Notification 203/92-Cus. will automatically operate to give benefit of the said Notification to the appellant who is different from the person to whom the VBAL has been issued. To read the Notification 203/92-Cus. independently, in isolation from the Duty Exemption Scheme as outlined in Chapter VII of EXIM Policy is to ignore the origin of the said Notification which, as we said earlier, is to effectuate the Duty Exemption Scheme in the EXIM Policy. (d) With respect, we may further point out that para 46 of the Report of Raj Exports proceeds on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 Manufacturer - exporter working under the Duty Exemption Scheme. Both these purposes are served and harmonised by accepting reversal of the Modvat credit as complying with condition (v) (a). Otherwise, process of manufacture of VSP is sought to be ignored for which there is no warrant in the Notification. Apex Court's ruling in the case of Chandrapur Magnets [1996 (81) E.L.T. 3] accepts reversal of Modvat credit as a satisfaction of exemption Notification when the appellant's manufacturing process was such that taking of Modvat credit at the initial stage could not be avoided. In view of the foregoing discussion, we hold that there has been no breach of condition (v)(a) of the Notification by VSP. (vi) Next comes the question of denial of the Notification on the ground that copper wire bars (electrolytic grade) are not required for m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lading (Bs/L) obtained by Customs from the shippers. According to the Revenue, these two Bs/L are the genuine ones. Bills of Lading produced by the appellant are not the real ones. Ld. Advocate, Shri Kapoor has submitted that the statement recorded from a representative of the shipper referred to in the show-cause notice does not indicate that Bills of Lading produced by the appellant were ever confronted to the representative and as to what was his reaction. In the absence of such an exercise required to be undertaken by the Customs, Commissioner has gone wrong in discarding the contract on the basis of Bills of Lading, submits the ld. Advocate. We agree with the submissions of the ld. Advocate. Apart from that we are unable to understand that shipments got made through an intermediary Company whose director is even if assumed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is that materials imported are not covered against the advance licence No. P/L 1523922 produced by the appellant. There are two parts of this allegation, namely, (i) shipments covered by Bills of Entry Sl. Nos. 1770 & 1771 both dated 28-9-1994 were shipped sometime in September, 1994 under fresh Bills of Lading from Singapore whereas the licence had expired on 31-8-1994. As against this allegation, the appellant submits that the goods in some cases were transhipped at Singapore. This is proved by non-issue of a fresh Bills of Lading at Singapore. Originally the goods were shipped from Rotterdam within the validity period of the licence. We agree with the plea of the appellant in the absence of adequate evidence from Revenue to the effect that goods were discharged at Singapore and then again re-shipped under fresh Bills of Lading ..... X X X X Extracts X X X X X X X X Extracts X X X X
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