TMI Blog2016 (4) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... original exemption notification. There is considerable merit in the contention that this goes beyond the mandate of the Customs Tariff Origin Rules and constitutes an unreasonable and onerous condition as far as the importers are concerned. As far as the circular dated 20th January 2016 is concerned, Regulation 2 (2) of the CPDA Regulations provides for a maximum payment of only 20% of duty differential in the case of a provisional assessment. The insistence on a bank guarantee for the entire differential duty appears to be contrary to Regulation 2 (2). The Court is unable to accept the plea of Mr Dubey that the above Circular emerges from the Regulation 4 and is intended to adequately secure the Revenue and ensure uniformity of provisional assessments across all ports. The said Circular does not leave the issue of what conditions should be imposed for provisional assessment to the concerned customs officer. It requires the officer to demand 100% bank guarantee even in respect of those B/Es which have been provisionally assessed under Section 18 of the Act. It certainly is contrary to proviso (a) to Section 151A inasmuch it dictates to the customs officer in what manner he shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Government of India, New Delhi stating inter alia that the gold jewellery imported by the members of the Petitioner Association from Indonesia do not satisfy the original criteria and should be denied the benefit of preferential custom duty. The impugned Circular directs the Assessing Authority to disregard certificates issued by the statutory authorities in Indonesia and the confirmation given by the government-owned companies in Indonesia. 2. While issuing notice in this writ petition, the Court by its order dated 6th November 2015 directed the Respondents to clear the consignments of gold imported from Indonesia provisionally in accordance with law and, in particular, the Customs (Provisional Duty Assessment) Regulations, 2011 ( CPDA Regulations ). By a further order dated 14th December 2015, the Court directed that in respect of the demand-cum-show cause notices (SCNs) issued to the gold importers including M/s. J.B. Overseas [the Petitioner in W.P. (C) No. 936 of 2016], the dates for personal hearing would be fixed by the Custom authorities after the next date of hearing in the writ petition. The said interim order has been continued since then. W.P. (Civil) No. 936/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India through Ministry of Commerce and Industry (Respondent No. 4) entered into an Agreement on Trade in Goods under the Framework Agreement on the Comprehensive Economic Cooperation ('FTA') with the Association of Southeast Asian Nations ( ASEAN ), which includes the Government of Indonesia. In terms of the said FTA which was signed on 13th August 2009, the parties were to give preferential tariff treatment to products conforming with the origin requirements specified in the FTA. 8. In terms of the FTA, the Customs Tariff (Determination of Origin of Goods under Preferential Trade Agreement between the Government of Members Stats of the Association of South-East Asian Nations (ASEAN) and the Republic of India), Rules 2009 ( Customs Tariff Origin Rules ) were notified on 31st December 2009. In exercise of the powers under the said Origin Rules, Exemption Notification No. 46/2011-Cus dated 1st June 2011 and Notification No. 12/2012-CE dated 7th March 2012 (amended) (hereinafter referred to Exemption Notification ) were issued. In terms of the Exemption Notification Nos. 46/2011-Cus and 12/2012-CE, the benefit of NIL rate of Customs Duty was granted to the goods impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clauses (a) to (d), extracted or taken from the party's soil, water, seabed or beneath the seabed; (f) products taken from the water, seabed or beneath the seabed outside the territorial water of the party, provided that that party has the right to exploit such water, seabed and beneath the seabed in accordance with the United Nations Convention on the Law of the Sea, 1982; (g) products of sea-fishing and other marine products taken from the high seas by vessels registered with the party and entitled to fly the flag of that party; (h) products processed and/or made on board factory ships registered with the party and entitled to fly the flag of that party, exclusively from products referred to in clause (g); (i) articles collected in the party which can no longer perform their original purpose nor are capable of being restored or repaired and are fit only for disposal or recovery of parts of raw materials, or for recycling purposes; and Explanation.- For the purpose of this clause, article means all scrap and waste including scrap and waste resulting from manufacturing or processing operations or consumption in the same country, scrap machinery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able doubt as to the authenticity of the document or as to the accuracy of the information regarding the true origin of the good in question or of certain parts thereof. The Issuing Authority shall conduct a retroactive check on the producer/exporter's cost statement based on the current cost and prices within a six-months timeframe prior to the date of exportation subject to the following procedures : (i) the request for a retroactive check shall be accompanied by the AIFTA Certificate of Origin concerned and specify the reasons and any additional information suggesting that the particulars given in the said AIFTA Certificate of Origin may be inaccurate, unless the retroactive check is requested on a random basis; (ii) the Issuing Authority shall respond to the request promptly and reply within three months after receipt of the request for retroactive check; (iii) In case of reasonable doubt as to the authenticity or accuracy of the document, the Customs Authority of the importing party may suspend provision of preferential tariff treatment while awaiting the result of verification. However, it may release the goods to the importer subject to any administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment to the goods referred to in the said AIFTA Certificate of Origin that would have been subject to the verification visit; and (v) the Issuing Authority receiving the notification may postpone the proposed verification visit and notify the importing party of such intention within fifteen days from the date of receipt of the notification. Notwithstanding any postponement, any verification visit shall be carried out within sixty days from the date of such receipt, or for such longer period as the parties may agree. (b) The importing party conducting the verification visit shall provide the producer/exporter whose goods are subject to the verification and the relevant Issuing Authority with a written determination of whether that goods qualify as originating goods. (c) The determination of whether the goods qualify as originating goods shall be notified to the producer/exporter, and the relevant Issuing Authority. Any suspended preferential tariff treatment shall be reinstated upon a determination that the goods qualify as originating goods. (d) If the goods are determined to be non-originating, the producer/exporter shall be given thirty days from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Trade Ministry of Indonesia. It also confirmed that the COO certificates were genuine and had been issued in accordance with Rule 13 of the ASEAN-India Free Trade Agreement. The letter clarified that P-Antam is also engaged in refining of gold dore bars which are of Indonesia origin only and thus 100% of gold refined is of Indonesian Origin. It confirmed that no gold dore bars were imported from any country. Further P-Antam also imported refined gold on need basis , the inventory of which was recorded separately from the gold bars refined by P-Antam using Indonesian mined gold dore bars. It was confirmed that they keep an overall control in this regard wherein it issues certificate stating the percentage of gold used of Indonesian origin which is verifiable from the records. The letter further mentioned about the pre-exportation verification of the origin of the goods on 27th April 2015 and set out the findings, which are summarised as under: (i) P-Antam is a gold mining state-owned company in Indonesia and its sources of gold originate from the seven mines spread all over Indonesia owned by the different companies which were partly (whether in majority or minority) owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Within a week thereafter, on 6th October 2015, the CBEC issued the impugned Circular on the subject matter of the imports of gold jewellery both under India-ASEAN FTA as well as India-Malaysia CECA. The said Circular states that out of a large volume of 690 certificates of origin (COOs) involved, four representative COOs were picked for verification. The Circular then states that in response there to, the Issuing Authority had forwarded a letter from P-Antam that they do not maintain any inventory to indicate the origin of the gold ore or gold dore bars, which are smelted for the purpose of producing refined gold (raw material/input for the manufacture of gold jewellery) . The Circular further mentioned that the Issuing Authority has stated that the refinery annually produced 200 tons of refined gold whereas the mining capacity of Indonesia as per information in the public domain is no more than 65 tons. The Indian Embassy in Jakarta, Indonesia informed that 37 tons of gold (57%) mined in Indonesia was exported in the form of Gold Powder, Lumps and Cast Bars. It was further stated that in other words, the gold produced by the supplier in Indonesia has been made from mixing go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructions were issued in the teeth of Section 151A of the Act. Reliance was placed on the decisions in Shiva Taxfabs Ltd. v. Union of India 2011 (24) STR 525 (Del), Varsha Plastics Pvt. Ltd. v. Union of India 2009 (235) ELT 193 (SC) and Union of India v. Karvy Stock Broking Limited 2015 (39) STR 705 (SC). Mr. Chidambaram submitted that the consequential actions pursuant to the impugned Circular were thus legally unsustainable. There was a possibility that the adjudication proceedings consequent to the SCN issued would be a pointless exercise since the superior authority had already issued a direction without permitting the subordinate authority to exercise discretion and come to an independent conclusion. Reliance was placed on the decisions in Filterco v. CST, MP 1986 (24) ELT 180 (SC), TVL Pizzeria Fast Foods Pvt. Ltd. v. CCT Ezhilagam 2005 (192) ELT 52 (Mad) and Vistar Construction Pvt. Ltd. v. Union of India 2013 (31) STR 129 (Del). It was submitted that the members of the Petitioner Association had, in the present case, produced before the Respondents COOs issued by the competent authority, which had been duly accepted and verified by the Indonesian authorities. They had also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Operational Certification Procedures agreed to between Government of India and the Government of Indonesia and provided in Annexure III to the Customs Tariff Origin Rules. The Respondents had, in terms of Article 16 of the said procedures, requested for a retroactive check to the Indonesian authorities which had already been carried out and shared with the Respondents. In terms of Article 17, where the Respondents were not satisfied with the outcome of the retroactive check, there would be a request for verification visits. Instead, here the Respondents have disputed the explanations given by the Indonesian Authorities and not even requested for verification visits, thus not following the Operating Procedures. In any event, any issue or dispute between the two countries with respect to the correctness of explanations given by the Indonesian authorities, could not be the basis to deny preferential customs duty treatment to the members of the Petitioner Association. On their part, the members of the Petitioner Association had produced the necessary COOs which were also verified by the Respondent authorities at the time of clearance of imported goods. It was reiterated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents to demand 100% bank guarantee even in respect of those B/Es which had already been provisionally assessed under Section 18 of the Act. Reliance was placed on the decision in TVL Pizzeria Fast Foods Pvt. Ltd. v. CCT, Ezhilagam (supra). It was submitted that this is also contrary to the Exemption Notification which provides for the manner in which the Customs Officers ought to exercise their satisfaction for the purpose of ascertaining the Country of Origin of the imported goods. 27. It was also pointed out that the Respondents ought to have followed the provisions of the CPDA Regulations. Regulation 2 (2) thereof provides for maximum payment of only 20% of duty differential under Provisional Assessment. Therefore, the insistence on furnishing a bank guarantee for the entire differential duty was illegal and was liable to be quashed. Reliance was placed on the decision in Bhaiya Fibres v. ADGRI (2012) 281 ELT 396 (Del) and Rashmi Metallaiks v. Union of India 2015 (316) ELT 455 (Cal). It was finally submitted that since the impugned SCN was on the basis of an invalid instruction, the bar of the existence of an alternative remedy would not apply. Reliance was placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation 2(2) is based on a erroneous reading of the said Regulation. The Circular dated 6th October 2015 stipulating the obtaining of a bank guarantee of 100% of the duty differential emerges from the Regulation 4 so as to adequately secure the revenue and ensure uniformity of provisional assessment across all ports. There are separate requirements under Regulation 2(2) and Regulation 4. 30. Mr. Dubey then referred to the relevant rules and to the annual report of P-Antam wherein the production of gold in 2014 was noted as 2342 kg and claim 9% compared to 2013. The actual quantity of gold sales was in the range of 9978 kg. A reference was made in the additional affidavit dated 20th February 2016 of the Respondents in Writ Petition (Civil) No. 936 of 2016 to the affidavit dated 2nd November 2015 of Mr. Naresh Sharma, Director of M/s. J.B. Overseas wherein a Mr. Umed Singh was named as the other Director. Further reference was made the statement of Mr. Umed Singh under Section 108 of the Act dated 23rd December 2015 wherein he denied knowledge of M/s. J.B. Overseas or that he was its Director. However in the reply-affidavit filed by the Petitioner in Writ Petition (Civil) No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducts not wholly produced or obtained in the exporting Party provided that the said products are eligible under Rule 4 or 5 or 6. 34. Rule 3 set out what can be construed as wholly produced or obtained products . Rule 4 specifies what can be not wholly produced or obtained products . Under Rule 4 (a) a product shall be deemed to be originating if the AIFTA content is not less than 35 per cent of the FOB value ; and the non-originating materials have undergone at least a change in tariff sub-heading (CTSH) level of the harmonized system , provided that the final process of the manufacture is performed within the territory of the exporting party. The formula of calculating 35 per cent AIFTA content has been set out in Rule 4 (b) of the AIFTA Origin Rules. The method of calculating the AIFTA content is also set out in Appendix A to the ASEAN-FTA. Operational Certification Procedures for AIFTA Rules of Origin 35. Appendix D to the ASEAN FTA sets out the Operational Certification Procedures for the Rules of Origin for the AIFTA. Inter alia it envisages the pre-exportation examination and the issuance of AIFTA Certificate of Origin (Article 7 therein). Article 7 (c) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not subject to import prohibition or restriction and there is no suspicion of fraud . 39. If the importing party is unhappy with the outcome of the retroactive check, then in terms of Article 17 (a) it may, under exceptional circumstances, request the exporting party and seek permission to make verification visits. However, prior to conducting a verification visit, the importing party has to deliver a written notification in terms thereof. The written notification has to be as comprehensive as possible and has to include the name of the customs authority issuing the notification, name of the producer/exporter whose premises are to be visited, the proposed date of the verification visit, the names and designation of the officials performing the verification visit. The very purpose of Article 17 is to give an opportunity to the country of the importing party to satisfy itself as to whether the goods are actually originating in the country of its export. Even where the goods are determined as non-originating, in terms of Article 17 (d), the producer/exporter is to be given 30 days from the date of receipt of the written determination to provide any written comments or addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Certification Procedures as set out in Annexure III annexed to these rules. 42. Annexure III to the Customs Tariff Origin Rules sets out the Operational Certificate Procedures ( OCP ). Rule 7 (c) of the OCP mirrors what is provided in the ASEAN-FTA itself. It also sets out more or less the same time limitation within which the disputes need to be resolved. Rule 7 (c) of the OCP reads as under: 7 (c) In case where an AIFTA Certificate of Origin is not accepted by the Customs Authority of the Importing party, such AIFTA Certificate of Origin shall be marked accordingly in box 4 and the original AIFTA Certificate of Origin shall be returned to the Issuing Authority within a reasonable period but not to exceed two months. The Issuing Authority shall be duly notified of the grounds for the denial of preferential tariff treatment. 43. The procedure for verification stated in Rule 16 to the OCP is identical to that provided in the ASEAN-FTA. In other words there has been a whole scale adoption of the provisions set out in Appendix D to the ASEAN-FTA into the domestic law. Failure by Respondents to resort the detailed verification procedure 44. In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al that the export of mining ore from Indonesia is prohibited. It was added that P-Antam had recorded the previous processing of about 200 MT of gold dore. Therefore, a clear distinction was made from the beginning between refined gold and gold dore. 46. It appears that an erroneous interpretation of the above clarification issued by P-Antam has led to the impugned Circular dated 6th October 2015 being issued. The impugned Circular does appear to proceed on surmises which do not find support in any of the material that has been produced by the Respondents before the Court. For e.g., the impugned Circular proceeds on the basis that in the letter dated 12th June 2015 it was stated that as mined gold is used in manufacturing jewellery of aforementioned COO, so the origin of goods is easily verified and hence no pre-exportation verification has been done. Further, in the letter dated 27th April 2015 it was stated that the gold has been sourced substantially from mine PT ANTAM (Pesero) Tbk Gold Mining. It was further stated that once the material is arrived in refinery it becomes a single inventory and difficult to ascertain exactly the flow of gold. 47. In the considered vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Association 2012 (supra) explains that the CBEC is empowered to issue Circulars for the 'guidance of quasi-judicial authorities'. Also in CCE, Vadodara v. Dhiren Chemical Industries (supra) it was explained that the CBEC could disseminate interpretative findings or procedures or such other instructions to its officers for 'ensuring equity and uniformity in assessment practices'. However, on that pretext the power under Section 151A cannot be used to whittle down the scope of an exemption. This has been explained in a large number of decisions which will be discussed hereafter. 50. In Union of India v. Karvy Stock Broking Limited (supra) a circular was issued by the CBEC interpreting a notification issued by the Government exempting 'Business auxiliary services provided by a commission agent' from the levy of service tax under sub-Section (2) of Section 66 of the Finance Act, 1994. The said circular clarified that the commission received by distributors on mutual fund distribution would be liable to service tax as it would not fall within the expression 'business auxiliary services'. That circular was struck down on the ground that it amounts to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision does not envisage any amendment being made to an exemption notification that may have been issued in exercise of powers under Section 25 (1) of the Act. This Court in the above decision also referred to the decision in Modi Rubber Limited v. The Board of Central Excise and Customs1978 (2) ELT 127 (Del.) wherein it was held that CBEC cannot impose any condition for availing exemption without amending the original exemption notification. The impugned circulars are ultra vires Section 151A 54. Examined in light of the legal position explained in the above decisions, it is plain that the impugned Circulars dated 6th October 2015 and 20th January 2016 do in fact whittle down the scope of the exemption available for import of gold jewellery from Indonesia, across the board, only because, according to the Department, the COOs issued by the Issuing Authority in Indonesia could not be verified. The Circular dated 6th October 2015 requires an Officer of the Customs who has issued a SCN not to pass orders of provisional assessments. It requires the original COOs along with appealable orders to be sent to the CBEC. Clearly the Circular does not, as was sought to be explained by M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and quasi judicial function. The authority exercising such powers cannot be influenced by any directions, instructions or the Circulars that may be issued by any other agency. Consequently, the Circular issued by the Respondents cannot be permitted to interfere with the discretion of the judicial and quasi judicial authorities. 58. Apart from the fact that the SCN suffers from the above fatal flaw, it has been issued overlooking the COOs produced by the said importer verified by Issuing Authority. Therefore, the said SCN and the proceedings consequent thereto are held to be invalid and unsustainable in law. 59. In view of the above conclusions and, in particular, since the SCN has been issued on the basis of an invalid Circular, relegating the Petitioners to the alternative remedy of statutory adjudication and consequent appeal would be a pointless exercise. The decisions in Filterco v. CST (supra), TVL Pizzeria Fast Foods Pvt. Ltd. v. CCT Ezhilagam (supra) and Vistar Construction Pvt. Ltd. v. Union of India (supra) support the case of the Petitioners in this regard. Conclusions 60. For all the aforesaid reasons, the Court holds that the Circular dated 6th October 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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