1999 (5) TMI 560 - AT - Customs

Issues Involved:
1. Extent of credit available under the Duty Credit Passbook Scheme.
2. Determination of the applicable input norms for the exported products.
3. Interpretation of the "route" in the norms.
4. Application of the exemption notification and selection of norms.
5. Consideration of the manufacturing process and starting point of manufacture.
6. Application of the circular issued by the Director General of Foreign Trade.

Detailed Analysis:

1. Extent of Credit Available Under the Duty Credit Passbook Scheme:
The appellant, a manufacturer of bulk drugs and formulations, exported consignments of various drugs under the Duty Credit Passbook Scheme, which was in force from 1-4-1995 to 31-3-1997. The scheme allowed exporters to receive credit of basic customs duty based on the deemed import content of the export product, as prescribed in the standard input/output norms. The dispute centered on the extent of credit available to the appellant for the exported products.

2. Determination of the Applicable Input Norms for the Exported Products:
The Handbook provided multiple sets of inputs for each exported product. For example, amoxycillin trihydrate had different inputs listed under Entry 41 and Entry 42. The Commissioner determined that the appellant's exports fell under Entry 42, which included Penicillin G as a major input. Since Penicillin G was exempt from duty, the available credit was nil. This determination posed a problem for the appellant, who argued that the norms should be based on the most beneficial option to the exporter.

3. Interpretation of the "Route" in the Norms:
The appellant contended that the reference to the "route" in the norms was unclear and misleading. They argued that the norms should not be applied based on the starting point of manufacture but rather on the option most beneficial to the exporter. The department, however, maintained that the norms were related to the process or technology employed in the manufacture.

4. Application of the Exemption Notification and Selection of Norms:
The Tribunal noted the difficulty in understanding the norms prescribed in the policy and emphasized that the scheme was a fictional one, not related to the actual import content in the export product. The Tribunal concluded that the norms should be determined in favor of the exporter, allowing them to claim the most beneficial set of norms. The Commissioner of Customs, Mumbai, had accepted that the norms were designed for the DEEC scheme, allowing exporters to claim any applicable norms.

5. Consideration of the Manufacturing Process and Starting Point of Manufacture:
The Tribunal acknowledged that the manufacturing process of the drugs began with Penicillin G, which was converted into 6-APA or 7-ADCA and then into finished drugs. However, it was possible to manufacture the final drugs without starting from Penicillin G. The Tribunal found that the distinction between Penicillin G route and other routes was difficult to accept and emphasized that the norms should not be based on the technology employed by a particular manufacturer.

6. Application of the Circular Issued by the Director General of Foreign Trade:
The Tribunal considered the circular dated 14-5-1996, which provided that if more than one input was allowed for the manufacture of a product, credit should be allowed for the item with the lowest duty incidence. However, the Tribunal concluded that this provision applied only when multiple alternative inputs were shown for the same export item. In cases where more than one set of inputs was allowed, the exporter could claim credit for one or more of these inputs.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order, and held that the appellant was entitled to claim credit based on the most beneficial set of norms. The Tribunal emphasized that the norms should be applied in favor of the exporter, and the selection of norms should not be based on the technology employed by the manufacturer.

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