TMI Blog2019 (6) TMI 1426X X X X Extracts X X X X X X X X Extracts X X X X ..... was introduced, the demand for duty in the present case as well as consequential levies of interest and penalties cannot be sustained. Assuming that para 4.1.15 was applicable, even to Advance Authorization issued prior to 1.8.2013 whether, on its true and correct reading, the said para required export products to be manufactured only from permissible inputs? - HELD THAT:- Every holder of Advance Authorization will necessarily have to first import duty free materials, use the very same imported goods for production of export goods, and then export such goods. This is clearly not envisaged either in the FTP or in the Customs Notification, both of which allow exports to be made first by using indigenous raw materials and import to be made thereafter as replenishment entitlement which could then be used for domestic production. The above conclusion reached by the Adjudicating authority with respect to the meaning and effect of the DGFT Notification is therefore not correct. Assuming that para 4.1.15 was applicable and did require the export product to be manufactured only from permissible input, whether the Appellant had infact satisfied this requirement by using VGO for manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady held above that there was no mis-declaration on the Shipping Bill, the Appellant cannot be held liable for any penalty under Section 114 (iii) of the Customs Act. For the same reason, no basis exists for sustaining the invocation of the extended period of limitation in Section 28(4) of the Customs Act. These two issues are therefore decided in favour of the Appellant. Appeal allowed - decided in favor of appellant. - Customs Misc. (Ors.) Application No. 10847 of 2018 And Customs Cross Objection No. 10877 of 2018 in Customs Appeal No. 11674, 11391 of 2018 - A/10986-10987/2019 - Dated:- 4-6-2019 - MR. RAMESH NAIR, MEMBER (JUDICIAL) And MR. RAJU, MEMBER (TECHNICAL) Shri. V.K. Jain, Aqeel Sheeraji, Shilpa Balani, Dimple Gohil, Advocates for the Appellant Shri. Sameer Chitkara, Authorized Representative for the Respondent ORDER PER: RAMESH NAIR The present appeal has been filed against Order-in-Original No. JAM-CUSTM-PRV-COM-006-17-18 dt. 20.02.2018 passed by the Commissioner of Customs, Jamnagar. The brief facts of the case are that the Appellant are engaged in manufacture and export of various Petroleum products including Motor Spirit, LPG, SKO et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also imposed penalties under section 28AA and section 114A of the Customs Act. Aggrieved by the same, the Appellant has filed the present appeal. 2. Shri Vipin Jain, Ld. Counsel appearing for the Appellant submits that the exemption has been denied wrongly as there is no requirement in the Advance license or Notification that the imported LSFO should be used as an input in export product. He submit that the Appellant in their Oil refinery are manufacturing petroleum products viz. motor spirit, LPG, SKO etc using crude oil and condensates as the starting raw material. The Crude Oils are first distilled in distillation columns known as CDU (Crude Distillation Column) or VDU (Vacuum Distillation Column), and thereafter cracked in Fluidized Catalytic Cracking Unit (FCCU for short) for yielding the finished products. In between the two basic processes of distillation and cracking, the intermediate product streams emerging from the distillation columns also undergo further processing, including in particular, the process of hydro-treatment aimed at reducing the sulphur content which is an impurity. The intermediate products emerging from the distillation process include various kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or para of the relevant Customs exemption Notification No.96/2009-Cus dated 11.9.2009 which the Appellant had failed to satisfy. The duty has been demanded by denying the benefit of the said exemption notification solely on the basis that one of the requirements in the FTP, which came to be introduced on 1.8.2013 by insertion of para 4.1.15 in the policy had been infringed and violated. He submits that the conditions imposed in para 4.1.15 of the FTP were inapplicable in the present case as the Advance Authorization had been issued to the Appellant prior to 1.8.2013 when the said para 4.1.15 was inserted in the FTP. In any event the conditions imposed in para 4.1.15 of the FTP has not been incorporated in the Customs exemption Notification and therefore any perceived violation of that policy provision could not be a ground for denying duty exemption. Even though the restrictions imposed vide para 4.1.15 were inapplicable, its requirements nonetheless stood satisfied in the present case by them. The Motor Spirit exported by them was produced out of LSFO as declared in the Shipping Bill. The VGO is a variety of LSFO and therefore there was no substance in the finding of mis-declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. UOI 1997 (90) ELT 22 (Bom) wherein it was held that a restriction imposed later on cannot have retrospective effect. He also relies upon judgment of Hon ble Punjab and Haryana High Court in case of Pushpanjali Floriculture Pvt. Ltd 2016 (340) ELT 32 (P H) wherein the above principle was applied in the context of the very same DGFT Notification to hold that imports made after 1.8.2013 by using DFIA prior to 1.8.2013 could not be subjected to the additional restriction imposed by the said DGFT Notification. The High Court also struck down para 4 of the DGFT Notification dated 1.8.2013 by holding that it was manifestly absurd and unreasonable. That even if para 4.1.15 of FTP inserted w.e.f. 1.8.2013 is assumed to be applicable to imports made against an Advance Authorization issued before 1.8.2013 and even if para 4 of the Notification dated 1.8.2013 is assumed to be correctly reflecting the true effect of para 4.1.15, in that case the demand had been wrongly confirmed as the Appellant had infact satisfied the requirements of para 4 of the said DGFT Notification by actually using LSFO in the manufacture of motor spirit which was exported on 7.10.2013. VGO which is main component of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LSWR/LSFO, infact refers to the same product described differently by different refineries. The said SION norms is therefore not a SION norm providing for alternative inputs as wrongly assumed by the Commissioner while applying para 4.1.15 of the FTP to the present case. Within refinery various intermediate streams emerging from different processing units are given very specific names such as LVGO, HVGO, HHVGO, etc so as to enable identification of their sources and their internal separate storage, accountal, etc. The fact that these intermediate streams are known by such specific names as their refinery parlance does not change the fact that they are all otherwise covered by the generic description LSFO. Since a chapter note exists in the customs tariff giving a specific meaning to fuel oils as those conforming to IS 1593:1982, the lower authority has erred in overlooking the said statutory definition by giving a different meaning to LSFO by referring to the internal terminology and nomenclatures given to various types of LSFO streams emerging within the refinery. Explaining the use of the specific terminology VGO (as against LSFO) while exporting some consignments of VGO in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations and which are acceptable evidence as per Board Circular No.25/2005-Cus dated 6.5.2005, prove beyond doubt that the key parameters of IS 1593:1982 were satisfied. He also submits that when questioned by the investigating agency about the remaining parameters of ash, acidity, sediment and water content for which the inhouse test reports did not contain any readings, Mr Sreedhar Rudraraju, Chief Planning Officer of the Appellant company had clarified in his statement dated 8.8.2016 that these parameters also met the inferred or derived stream property calculations. The investigating officers or the SCN has not disputed the said testimony of Shri Rudraraju either by seeking further details of such calculations or by drawing and testing samples in the course of investigation. He also draws our attention to the note marked Annexure-A to his written submissions, explaining the inferred or derived stream property calculations with respect to parameters of acidity, ash, sediment and water content. 2.3 While assailing the Commissioner s approach that export product should be manufactured only by using permissible inputs, he pointed out that the said approach is based on an imprope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicating authority that Advance Authorization was misused by violating para 4.1.15 of the FTP was contrary to and, at any rate not supported by any action of the DGFT, who is competent authority to adjudge and adjudicate upon the alleged or perceived policy violation. He places reliance on judgment of Titan Medical Systems Pvt. Ltd 2003 (151) ELT 254 (SC). He also relies upon Hon ble High Court order in case of Rajnarayan Jwalaprasad 2014 (306) ELT 592 (Guj) to state that a license is valid till the licensing authorities take steps to suspend or cancel the same and unless such an action is taken their can be no question of payment of duty on goods imported under the said license. He submits that only such imports which are made subsequent to the cancellation of a license get disentitled to the exemption as a license even if obtained by mis-representation remains valid for imports already made. He also submits that demands are time barred as the provisions of Section 28(4) of the Customs Act were not invokable in the present case in the absence of their being any wilfull mis-declaration or suppression of facts. 3. Shri Sameer Chitkara, the Ld. Additional Commissioner (AR) appeari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le inputs? c) Assuming that para 4.1.15 was applicable and did require the export product to be manufactured only from permissible input, whether the Appellant had infact satisfied this requirement by using VGO for manufacture of motor spirit? d) Whether the customs had overstepped its jurisdiction by going beyond the terms of the exemption Notification and by acting contrary to a valid and subsisting authorization and EODC issued by DGFT? e) Whether the extended period of limitation in terms of Section 28(4) has rightly been invoked for demanding duty and imposing mandatory penalty. f) Whether there was any mis-declaration made by the Appellant on the Shipping Bill dated 7.10.2013 and consequently whether it had become liable to a penalty under Section 114(iii) of the Customs Act, 1962 as held in para 41.1 of the order. 5. We find that the first question is covered in favour of the Appellant by the judgment of the Hon ble Punjab and Haryana High Court in the case of Pushpanjali Floriculture Pvt Ltd 2016 (340) ELT 32 (P H) wherein the Hon ble High Court has held that para 4.1.15 could not be applied retrospectively to cover imports made after 1.8.2013 against a DFIA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The same position stands reflected in Para 4.2.2(b) of FTP, as amended w.e.f. June, 2012, which reads as under : DFIA shall be issued in accordance with Policy and procedure in force on the date of issue of Authorization. (Emphasis supplied) Though, undoubtedly, the specific stipulation to that effect was not contained in the FTP on the dates of issuance of DFIA to the petitioner, i.e., 28-3-2012 and 13-4-2012, introduction of the said stipulation, just 3 months thereafter, has to be regarded as clarificatory, especially in view of the fact that such stipulation did exist in the case of Advance Authorizations, in Para 4.1.7 of the FTP, which read thus : Advance Authorization shall be issued in accordance with Policy and procedure in force on Authorization issue date. There is no reason to believe that the framers of the FTP intended the FTP to apply differently, in the case of the DFIA Scheme, as compared to the Advance Authorization Scheme, especially in view of Para 4.1 of the FTP, which already stands extracted herein above, and which parenthesize the Advance Authorisation scheme and the DFIA Scheme into one bracket 33 .. 34 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1-8-2013, Clause 2 of Public Notice No. 35 (RE-2013)/2009-2014, dated 30-10-2013, and Clause 3 of Notification No. 90 (RE-2013)/2009-2014, dated 21-8-2014 are struck down. (ii) It is declared that the rest of the said impugned Notification No. 31 (RE-2013)/2009-2014, dated 1-8-2013, Public Notice No. 35 (RE-2013)/2009-2014, dated 30-10-2013, and Notification No. 90 (RE-2013)/2009-2014, dated 21-8-2014, would not apply to DFIAs issued prior to 1-8-2013, whether they be in the hands of the holders or of transferees thereof, provided, of course, that the transfer of the DFIAs has been effected after securing necessary permission of the DGFT therefor. The entitlement under the DFIA shall be as per the SION as it existed on the date of issuance of the DFIAs. (iii) Respondents 1 to 3 are directed to revalidate the DFIAs dated 28-3-2012 and 13-4-2012 which are the subject matter of the present proceedings. (iv) The Commissioner of Customs, ICD Ludhiana, is directed to allow exemption of basic customs duty in respect of the import of Soda Ash by the petitioner by debiting the DFIA licence under Bill of Entry No. 7080616, dated 16-10-2014. (v) The prayer for granting e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue s SLP has been admitted by the Hon ble Apex Court and since both sides have extensively argued on the other issues, we consider it appropriate to give our findings on those issues too. 5.3 As regards second issue we find that the same is also covered in Appellant s favour by the Pushpanjali Floriculture Pvt. Ltd judgment supra vide which para 4 of the DGFT Notification dt. 1.8.2013 seeking to explain the effect of para 4.1.15 was struck down as being manifestly absurd and unreasonable. A reading of the Show cause Notice and the impugned order shows that the entire emphasis of the Revenue is on para 4 of the DGFT Notification No.31/2009 dated 1.8.2009 which seeks to explain the effect of the said Notification and para 4.1.15 of the FTP in the following words : 4. Effect of the Notification: Inputs actually used in manufacture of the export product should only be imported under the authorization. Similarly inputs actually imported must be used in the export product. This has to be established in respect of every Advance Authorisation/DFIA. 6.1 Para 4.1.15 whose effect is sought to be explained in the above extracted passage reads as under: 4.1.15 Wherever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this issue, we may mention here that the applicability of para 4.1.15 to the present case was disputed by the Counsel for the Appellant on a third ground too by pointing out that the said para applied only in situations where the SION norm provides for alternative inputs or generic inputs, a situation which does not exist in the present case, as LSWR and LSFO are synonymous terms referring to the same product. We do not consider it necessary to go into the issue as this contention was never taken by the Appellant before the lower authority and there is insufficient material available on record to come to a conclusion on this point. Determination of this issue, in any case is not required in view of our findings above that para 4.1.15 was inapplicable otherwise. We accordingly hold the second issue also in favour of the Appellant without expressing any opinion, whether SION A3263 was at all a norm providing for alternative or generic inputs. 5.6 Coming now to the third issue, we find that there is no dispute on the fact that motor spirit which was exported by the Appellant was produced out of FCCU feed stock comprising mainly of sweet VGO, an intermediate product produced in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummarizes the specification of fuel oils in general with a separate reference to LSFO which is reproduced in para 38.1 of the impugned order. 5.8 It appears from the said table that out of the nine parameters, two are merely to be reported and no limitation has been prescribed. Effectively thus there are seven parameters which needs to be satisfied. These parameters are acidity, ash, flash point, kinematic viscosity, sediment, sulphur and water content. Note 3 in the above table deals with Low-Sulphur Fuel Oils and can be regarded as imposing an additional requirement of sulphur content being low. How low the sulphur content should be has not been specified in the BIS Standards and the same has been left to the contracting parties to decide. In the above context we find that the in house test reports of the Appellant, which were collected in the course of investigation show that the VGO s emerging within the refinery as intermediate streams were routinely tested as part of the Appellants regular refinery operations. The laboratory of the Appellant is ISO 9000 certified and as per Board circular 25/2005 dated 6.5.2005, test results given by such a laboratory are acceptable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claims put forth by the Appellant s above employees either by producing technical literature or by conducting further investigations, including if necessary the withdrawal or testing of samples. No such verification is shown to have been conducted, thus leaving the crucial statement of Mr Shreedhar Rudraraju unrebutted. 5.10 The Appellant submitted a technical note, explaining how compliance with the remaining four parameters of ash, acidity, sediment and water content can be inferred or derived from property stream calculations. This note is as under: 5.11 In the absence of any contrary technical material or evidence produced from the Revenue, we have no reasons to disbelieve the correctness of the explanations given above more so when neither the Show Cause Notice nor the order of the Commissioner has referred to any technical material or evidence to rebut the statements of Mr Shreedhar Rudraraju and Mr Chakrapany Manoharan. As such, we accept the claim of the Appellant that VGO complied with all the specifications of LSFO in IS 1593:1982. 5.12 We also note that the approach adopted by the adjudicating authority in expecting the Appellant to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and reads as under: Q1. Your statement referred to LSFO (FCC Feed) and VGO. Can you explain the difference between the two? A1. LSFO is a generic term wide enough to cover VGO. VGO meets the specification of LSFO. VGO is the higher end in the LSFO family. Q2. If VGO is only a variety of LSFO, why is it so described separately in refinery records, process charts etc? Can you please explain? A2. Within the refinery, we need to give specific names to differentiate different intermediate streams which arise within the refinery for e.g. from the CDU itself, we have HVGO, LVGO; Sweet VGO from VGOHT unit; cracked VGO from cracker Unit. These are all different members of VGO family and the VGO itself is a member of the larger family of LSFO. Q3. What if the penultimate intermediate product from which Motor Spirit is manufactured ?. A3. One of the most critical components of Motor Spirit comes from the Fluid Catalytic Cracking Unit (FCCU) whose raw material is called FCC feed. Q4. What is the FCC feed comprising of ? A4. The FCC feed comprise of various kinds of VGOs some of which are described above. These streams comes from different process unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The record of Cross examination of Shri Shyama Sadan Maji, Senior Vice President and Head of Operations is also relevant and reads as under: Q1. In your statement dated 26.07.2016 you have given answers with reference to stock report contained in a ROM CD and have referred to four tanks nos. 503A to 503D. Are these the only tanks from which FCC Feed is made. A1. No. These are not the only tanks from which FCC feed is made. These four tanks are connected to FCC unit of which one tank i.e 503C was used for different service (Vacuum Residue). FCC feed is having different components and some of them are coming directly from other processing units and balance comes from storage tank. Q2. In your statement, you have stated that LSFO is not there amongst all the feeds. A2. Yes. I did made this statement because on perusing the documents shown to me the word LSFO was not appearing in the list. Q3. What was the names of the feed that were appearing in that list ?. A3. It was CDU, LVGO to FCCU, CDU HVGO to FCCU, CDU_HHVGO_FCCU, VGOHT_Sweet VGO_FCC, CDU2_Hot VGO_FCCU, CDU2 AR, VGO_PIT_FCC. Q4. Is it correct to infer from the list that LSFO was not used f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked. 5.15 The above record of cross examination shows that within the refinery different intermediate streams emerging from different processing units were given specific abbreviated names such as LVGO, HVGO, HHVGO, VGOHT, Sweet VGO, etc. It was clarified by the refinery personnel that the internal records maintained by the refinery used the above specific names which are abbreviations of individual feed components of FCCU feedstock. It was further clarified that these abbreviations are only internal names given for operational convenience and better internal communication to differentiate different intermediate streams arising within the refinery. The Commissioner has, while relying upon the statements, recorded in the course of investigations for drawing an adverse conclusion against the Appellant has totally brushed aside and discarded the averments made by these persons in their cross examination. The reasons given by the Commissioner in para 39 of the order for disregarding the record of cross examination are three fold. Firstly, the Commissioner claims that the Appellant s stance that VGO is LSFO as per BIS Standards is a new contention taken only in the reply. As we hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses chose to resile from their statements, the evidentiary value of the original statements become weak and questionable and it is then left to the adjudicating authorities to appraise and weigh to come to a proper conclusion. A blanket brushing aside of the record of cross examination is not justified in any case. We therefore cannot accept the finding of the Commissioner in para 39 on the issue of cross examination. 6.1 In the impugned order, the adjudicating authority has laid a lot of emphasis on the fact that the Appellant itself was classifying LSFO and VGO under two different headings. It is stated that in the Central Excise Registration obtained by the Appellant, as well as in certain export shipments, VGO was classified under CET 2710 1990 as Other while LSFO was classified in the Bill of Entry under 2710 1950, thus proving that the two products were differently classified both by the department as well as by the Appellant. The Adjudicating authority has stated that the above classifications have never been disputed by the Appellant at any stage. The Appellant on the other hand has submitted that an erroneous classification of VGO claimed by the Appellant in the pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection that the ratios in the SIONS do not necessarily represent the actual material balance equation in which inputs are used for producing a particular final product. The report of Dr. S. Ganguly which was submitted by the Appellant shows that in cases of petrochemical products where the starting material necessarily yield many co-products and by-products, SION for one particular export product is worked out by first ascertaining the realisable economic value of each such product and then reducing the entitlement pro-rata to the extent of the economic value of co-products/by-products, which though emerging alongwith the export product in question, are not exported. We take note of the Appellant s submission that in actual practice, the quantity of LSFO required for producing 1 MT of motor spirit can be as high as 5 MT, even though the duty free entitlement as per SION is only 1.265 MT which obviously means that the remainder quantity of LSFO and other inputs used in export production are not granted duty free entitlement so as to factor in the fact that all end products arising from processing of LSFO are not being exported. The scaling down of the quantity entitlement thus compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le part of the discussion in the impugned order is devoted to the question of how low the sulphur content should be in LSFO. While the Revenue has claimed that the maximum sulphur content in LSFO should be one percent in view of BIS standards of heavy petroleum stock in 11489-1985, the Appellant has contended that the one percent criteria cannot be applied as BIS 11489-1985 applies only to heavy petroleum stock and not to fuel oils. We do not find this controversy to be relevant for the present purposes as it is an admitted position that the sulphur content of LSFO imported in the present case as well as in the VGO was less than 1%. As such, for the purpose of present appeal there is no need for us to decide the question whether the upper threshold for sulphur content is 1% as claimed by the Revenue or 2 % or more as claimed by the Appellant. Insofar as the BIS standards are concerned, no upper threshold for low sulphur varieties of fuel oil has been specified. Since we are not dealing with this issue, we are also not expressing any opinion on the statements and cross-examination of Shri Rajaraman Dhasarathan, Joint Director, Customs Laboratory, Kandla which have been relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom LSFO. As such the case laws cited by the Appellant before the Commissioner on the point that a license obtained through mis-representation remains valid unless revoked by the licensing authorities was not relevant. What applies to a license cannot be equally applicable to a redemption letter issued by the licensing authorities, more so when the redemption letter does not contain an unqualified acceptance of fulfillment of export obligation by the licensing authorities. The last para of the said redemption letter reads as under: This EO discharge /redemption certificate is issued without prejudice and will not preclude custom authority to take action against the licensee at any stage, in case any fraud or mis-declaration/misrepresentation or mis-use of the scheme is noticed. Apart from the above the reliance placed by the Adjudicating authority in para 4.5.7 of the Handbook of Procedures and para 2.15 of the FTP, in paras 34.4.1 and 34.4.2 of the order is opposite. In any case an act of misdeclaration on the shipping bill, which is a Customs document is certainly actionable under the Customs law. We therefore hold that the Customs did not act beyond its jurisdiction in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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