TMI Blog2015 (2) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... est, hence there cannot be any penalty on the appellants. There is no dispute that the raw material imported was far in excess of that required by the appellant. This fact was not brought to the notice of the licensing authorities so that they could have issued the licence as per the actual requirement. Even after duty free importation, the appellants have neither made additional exports, nor paid the Customs duty. These details were suppressed and came to light during investigation. Accordingly, we hold that there is a violation of the provisions of Handbook read with Foreign Trade Policy and since the exemption is granted to raw materials imported against Advance Authorisation issued in terms of Foreign Trade Policy, the exemption is subject to limitation as provided in the Notification, Foreign Trade Policy/Handbook of Procedures. Appellant No. 1 has paid substantial amount to appellant No. 2 in respect of goods purchased from appellant No. 2 on high-sea sale basis. As per Section 14 of the Customs Act, 1962 it is the transaction value which is relevant for determining the assessable value. In the present case, the transaction value will include the amount so debited or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent : Mr. K.M. Mondal, Special Counsel ORDER Per: P.K. Jain 1. Keeping in view the nature of dispute, it was decided to hear the main appeals themselves. The appellants are manufacturers of bulk drugs such as Ampicillin Trihydrate, Amoxycillin Trihydrate, Cefadroxial Monohydrate etc. For the manufacture of the said bulk drugs, appellants require various inputs such as Pencillin-G, Ethyl Aceto Acetate and various other chemicals. The appellants manufacture the said drugs and are selling the same in the domestic market and also exporting the same. Some of the inputs are procured locally and majority of the inputs are imported. For the manufacture and thereafter export of such bulk drugs various inputs are being imported under Advance Licence Scheme which permits import of such inputs free of Customs duty. Appellant No. 2 was working as supporting manufacturers for Appellant No. 1 and they had strategic alliance and later on control of various activities. In fact, a case was booked against appellant No. 2, which was also heard alongwith this case as many issues are common and hence many of our observations in that case are also reproduced here. 2. Advance Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faclor, Cephalexin, 7 ADCA etc made out of raw material Pencillin-G which was imported free of Customs duty under Customs Notification No. 93/2004-Cus dated 10.9.2004 and Notification No. 94/2004-Cus dated 10.09.2004against the Advance Authorizations issued by the DGFT. In the said demand, 4 Advance Authorizations are covered. According to the Revenue, imported raw materials should have been used in the manufacture and thereafter export of goods for fulfilment of export obligation and before fulfilling the export obligation, the goods so produced could not have been cleared to the domestic market. During search operation on 30.08.2007, neither pencillin-G nor the final products (bulk drugs) were found in the manufacturing units even though export obligations were yet to be fulfilled. 5. The learned Advocate for the appellant s main contention is that as per Notification No. 93/2002-Cus and No. 94/2004-Cus there is no requirement that the duty free imports alone should be used in the resultant product exported out of India. The learned advocate for the appellant further contended that there are notifications specifically stipulating that the imported duty free inputs alone should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of the Policy provisions in the clearance of the resultant product in the domestic market before completion of export obligation especially when the manufacturing operations undertaken are in a continuous manner and the segregation of inputs vis-`-vis the final product is not possible or feasible. 7. The learned Special Counsel for the Revenue argued that during the visit of the said unit on 30.8.2007 no stock of Pencillin-G imported free of Customs duty was found. Similarly no stock of any of the export products such as 7ACCA, Cefaclor, Cephalexin monohydrate etc was found. There is no dispute on this factual position. Obviously the Pencillin-G imported by the appellant have been used in the manufacture of such products which had been cleared in the domestic market. This action of the appellant is in clear violation of the provisions of the FTP and the conditions of the aforementioned notifications. In terms of para 4.1.5 of the FTP 2004-09 advance licence and/or materials imported thereunder shall not be transferable even after completion of export obligation. However, the licencee will have the option to dispose of the product manufactured out of the duty free inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inputs which are physically incorporated in the export product and since the material imported was not physically incorporated in the export product, therefore there is violation of the conditions of Authorisation and hence the Notification. 10. The learned Special Counsel also drew support for his contention from the decision of the Hon ble Supreme Court in the case of Sheshank Sea Foods Pvt Ltd vs UOI 1996 (88) ELT 626 (SC). 11. We have considered the rival submissions. The dispute here is that the appellant imported Pencillin-G free of Customs duty. During visit to the said unit, no Pencillin-G or goods manufactured from the said Pencillin-G were found in the manufacturing unit. This implied that the goods manufactured out of the said Pencillin-G have been sold in the domestic market. This fact has also not been disputed by the appellant. It is also not under dispute that export obligation was yet to be fulfilled. The main contention of the appellant is that the Customs Notification relating to Advance Authorization do not require that the duty free imports alone should be used in the resultant products exported. We find that the objection of the Revenue is not that the du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Pencillin-G is required to be used by the appellant himself in the manufacture of goods. Further, the product manufactured out of duty free inputs can be disposed of only after export obligation is completed. There is no dispute whatsoever that the appellant have sold the product so manufactured in domestic market before export obligation was complete. We are unable to agree with the contention that there is no violation of the FTP in clearing the resultant product in the domestic market before completion of the export obligation. In fact in the present case neither Pencillin-G nor the goods manufactured from the Pencillin-G were found in the factory during the visit to the unit and export obligation in number of such Advance Authorisations were yet to be fulfilled. 14. We have gone through the case law quoted by the learned counsel for the appellant. In the case of Zincollied, export obligation was first completed and thereafter goods manufactured out of duty free material was sold in domestic market.The case of M/s Dophin Drugs Pvt Ltd (supra), was relating to VABAL Scheme covered under Notification No. 203/1992-Cus. In the said case export obligation though not fulfille ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut should be actually used in the resultant product exported out of India. We find substance in appellant s contention. In our view, term physically incorporated only implies that such items are required for the manufacture and have been used so. It is not necessary that only imported exempt material is incorporated. 16. Another contention of the learned advocate for the appellant is that in the absence of a condition in Notification No. 93/2004-Cus or in Notification 94/2004-Cus to the effect that imported inputs alone should be used in the manufacture of resultant product to be exported or that the inputs should not be used for domestic production prior to fulfillment of export obligation, insisting that export obligation should be completed using the imported inputs alone is not sustainable. 17. As observed earlier, it is not the case of Revenue that export obligation should be completed using the imported inputs alone. Case of Revenue is that appellant cannot use the raw material for domestic production before completion of export obligation. We note that every authorization has a condition sheet attached. In a case of appellant No. 2 where appellant No. 1 is supporting m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngalore, Marmagoa, Chennai, Nhava Sheva, Paradeep, Pipavav, Sikka, Tuticorin, Visakhapatnam, Dahej, Mundhra, Nagapattinam, Okha, Jamnagar and Muldwarka or through any of the airports at Ahmedabad, Bangalore, Bhubaneswar, Mumbai, Kolkata, Coimbatore, Delhi, Hyderabad, Jaipur, Chennai, Srinagar, Trivandrum, Varanasi, Nagpur and Cochin or through any of the Inland Container Depots at Agra, Bangalore, Coimbatore, Delhi, Faridabad, Gauhati, Guntur, Hyderabad, Jaipur, Jallandhar, Kanpur, Ludhiana, Moradabad, Nagpur, Pimpri (Pune), Pitampur (Indore), Surat, Tirupur, Varanasi, Nasik, Rudrapur (Nainital), Dighi (Pune), Vadodara, Daulatabad (Wanjarwadi and Maliwada), Waluj (Aurangabad), Anaparthy (Andhra Pradesh), Salem, Malanpur, Singanalur, Jodhpur, Kota, Udaipur, Ahmedabad, Bhiwadi, Madurai, Bhilwara, Pondicherry, Garhi Harsaru, Bhatinda, Dappar (Dera Bassi), Chheharata (Amritsar), Karur, Miraj, Rewari, Bhusawal, Jamshedpur, Surajpur and Dadri or through the Land Customs Station at Ranaghat, Singhabad, Raxaul, Jogbani, Nautanva (Sonauli), Petrapole and Mahadipur. Provided that the Commissioner of Customs may, by special order, or by a Public Notice, and subject to such conditions as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials which were imported. Explanation . For the purposes of this notification,- (i) Foreign Trade Policy means the Foreign Trade Policy 2004-2009 published vide notification of the Government of India in the Ministry of Commerce and Industry, No.1/2004 dated the 31st August, 2004 : (ii) Licensing Authority means the Director General of Foreign Trade appointed under section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorized by him to grant a licence under the said Act; (iii) Materials means - (a) raw materials, components, intermediates, consumables, catalysts and parts which are required for manufacture of resultant product; (b) mandatory spares within a value limit of ten per cent. of the value of the licence which are required to be exported alongwith the resultant product; (c) fuel required for manufacture of resultant product; and (d) packaging materials required for packing of resultant product; (iv) manufacture has the same meaning as assigned to it in paragraph 9.37 of the Foreign Trade Policy. Thus it is clear from the condition sheet attached to the Advance Authorisation that exempt material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the terms or the said Exemption Notification were made part of the appellants' licences and, in that sense, a breach of the terms of the said Exemption Notification is also a breach of the terms of the license, entitling the licensing authority to investigate. But the breach is not only of the terms of the license; it is also a breach of the condition in the Exemption Notification upon which the appellants obtained exemption from payment of Customs duty and, therefore, the terms of Section 111 (o) enable the Customs authorities to investigate. 19. In view of the above analysis, we hold that demand is correctly made and dismiss the appeal on the said issue. 20. The second issue in the present case is relating to demand of ₹ 19,13,968/- as detailed in Annexure B of the demand notice on the ground that the appellant had made excess import of duty free materials on the basis of self declared norms in respect of 11 Advance Authorisations. The norms fixed by DGFT were lower than self declared norms. The appellant failed to meet the export obligation on the excess imports. Instead the appellant disposed of the finished goods out of the excess duty free materials in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e yield of the existing product manufactured by them and the Revenue cannot deny benefit of such R D. The learned counsel also stated that there may be some manufacturers who may require more inputs then the one specified in the SION but in such cases the benefit is limited to the SION. Hence in the cases where the raw material consumed is less than the benefit has to go to the authorization holder. The learned counsel also stated that similar situation arises in the case of all industry rate of drawback. Even when an exporter does not use any imported raw material, he is entitled to get all industry rates. This has been clarified by the Board number of times and he placed reliance on the decision of the Hon ble Supreme Court in the case of Chemical Fibres of India Ltd reported in 1991 (54) ELT 3 (SC). The learned counsel further stated that para 4.28 (v) of the Hand Book of Procedure does not advance the case of the department and even if it does, it is contrary to the Policy and the Customs Notification. His main contention was that the Hand Book of Procedure cannot restrict the scope of the Policy. As the Hand Book of Procedure is issued by the DGFT while the Import Policy i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case of SION the normal norms are liberal and it is in view of the liberal norms that a provision has been made that in case the raw material consumed is less than what is prescribed under SION than authorization holder is required to either make additional exports or pay Customs duty on the excess material. 27. We have considered the submissions. There is no dispute that the raw material imported was far in excess of that required by the appellant. This fact was not brought to the notice of the licensing authorities so that they could have issued the licence as per the actual requirement. Even after duty free importation, the appellants have neither made additional exports, nor paid the Customs duty. These details were suppressed and came to light during investigation. Accordingly, we hold that there is a violation of the provisions of Handbook read with Foreign Trade Policy and since the exemption is granted to raw materials imported against Advance Authorisation issued in terms of Foreign Trade Policy, the exemption is subject to limitation as provided in the Notification, Foreign Trade Policy/Handbook of Procedures. We are not impressed with the argument of the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Pencillin-G and were selling to appellant No. 1 on high-sea basis. Appellant No. 1 was declaring the price based upon the import price of appellant No. 2 plus nominal commission. However, on investigation, it was found that Appellant No. 1 was selling Pencillin-G on the prevailing price in international market on the date of high-sea sale. Investigation revealed that in addition to the amount declared at the time of clearance appellant No. 2 has raised debit note for the additional amounts. Department s contention is that assessable value will be the total value i.e. declared at the time of clearance plus the amount of debit notes raised. The learned advocate for the appellant stated that in view of the Hon ble Supreme Court s decision in the case of Ispat Industries reported in 2006 (202) ELT 561 (SC) one has to see the value of goods not for each specific transaction, but the ordinary value at which it would have been sold in the course of international trade at the time of its import. The learned advocate further stated that for debiting the value in the Advance Authorisation the price paid by URL to the foreign supplier alone is relevant. Therefore even if URL has raised debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such goods is specified. Since the quantity and value is with reference to duty free goods the quantity and value to be debited in such advance authorization is required to be as per Section 14 of the Customs Act, 1962. Under the circumstances, in our view the said judgment of the Hon ble Bombay High Court is not applicable to the facts of present case. 35. The impugned order also confiscates the goods under Section 111 (d) and (o) of the Customs Act, 1962 and imposed fine and penalties. The case of the Revenue is that the duty free materials meant for manufacture of the resultant export product were used for manufacture of sale of finished goods in the domestic market whereby they have contravened the provisions of Section 111 (d) and Section 111 (o) of the Customs Act, 1962 and the goods are therefore liable to confiscation for violation of post importation condition. 36. The learned advocate for the appellants stated that the impugned order invoked Section 111 (d) and Section 111 (o) for purpose of confiscating the exported goods on the ground that the appellants have violated condition No. (vii) of Notification No. 93/2004-Cus. The said condition provides that the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants obtained raw material more than their requirement on the basis of adhoc/self declared norms or SION. In view of these facts, penalties are justified on the main appellant as also other individuals who aided and abetted in the evasion of duties. 39. We have considered the rival submissions. We note that goods are confiscated both under Section 111 (d) and Section 111 (o) of the Customs Act, 1962. We do not find any force in the argument of learned advocate for the appellant that goods are freely importable and hence there is no restriction for imports and Section 111 (d) is applicable only when the imported goods are prohibited. It may be true that goods are freely importable. However, in that situation full Customs duty is chargeable. Moreover, appellants have not imported the goods under the said provision of free importability. Appellants have imported the goods under Advance Authorisation which have its own benefits and obligations, restriction and prohibitions. Both benefits and obligations, restrictions and prohibitions are interlinked. Appellants cannot be permitted to avail the benefits and when it comes to obligations, restrictions and prohibition to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce no penalty can be imposed under Section 114A. It is also contended that individuals/employees have not abetted in the non payment of duty by the appellant. Non fulfilment of export obligation cannot be a reason to impose penalty on individuals. We note that the raw material was diverted for production of goods which in turn were cleared in domestic market before fulfilment of export obligation, input-output norms were misdeclared as also in other cases where raw material consumption was far lower than imported, these facts were suppressed and no duty on excess raw material was paid. The value of the goods purchased on the high-sea sale were misdeclared etc. We have already upheld that the goods have been correctly confiscated under Section 111 (d), Section 111 (m) and Section 111 (o) of the Customs Act, 1962. The various acts clearly indicate mala fide intention to evade the duty and therefore in our view the penalty under Section 114A is correctly imposed on appellant No. 1. 41. In the case of Appellant No. 2, primarily Appellant No. 2 took over the administration of Appellant No. 1. They were controlling the supply of raw materials to Appellant No. 1 and the goods so manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n him is upheld. 45. Similar is the position in respect of Appellant No. 6 who was looking after the Finance, Accounts and Strategy. The various diversion of the goods, undervaluation etc has been done under his directions and supervision. The penalty imposed is also upheld. 46. Appellant No. 7 was the Vice President Operations of Appellant No. 1. He was in-charge of the factory including the storage of imported goods, delivery of manufactured goods etc. He failed to carry out his activity in line with the provisions of duty-free import scheme which led to confiscation under Sections 111 (d), (m) and (o) of the Customs Act, 1962 and is therefore liable to penalty. However, keeping in view his role and status in the organization, we reduce the penalty on appellant No. 7 to ₹ 10.00 lakhs. 47. Similarly appellant No. 8 was Vice President Accounts and Commercial in Appellant No. 1. The reasons for imposing penalties are upheld. However, the penalty amount is reduced to ₹ 5.00 lakhs, keeping in view his role and status in the organization. 48. Appellant No. 9 was the general Manager Finance of Appellant No. 1. He was aware of the Advance Authorisation Scheme and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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