2004 (2) TMI 646 - AT - Customs

Issues Involved:
1. Misuse of Pass Book Scheme by mis-declaration.
2. Determination of correct Standard Input-Output Norms (SION) for exported products.
3. Eligibility for duty credit under specific SION entries.
4. Admissibility of credit based on actual inputs used versus inputs declared.
5. Liability for duty recovery, interest, and penalties under various sections of the Customs Act, 1962.

Detailed Analysis:

1. Misuse of Pass Book Scheme by Mis-declaration:
The Directorate of Revenue Intelligence (DRI) initiated investigations based on specific information that exporters of bed linen items made out of 100% cotton were misusing the Pass Book Scheme. The exporters allegedly opted for a generic norm instead of a specific one to avail higher credit. They also misdeclared input items used as processed cotton fabrics, although they had acquired grey cotton fabrics and manufactured export products from them. Statements recorded under Section 108 of the Customs Act, 1962, revealed that the exporters had obtained Pass Books and submitted documents related to the purchase and processing of grey cotton fabrics.

2. Determination of Correct Standard Input-Output Norms (SION) for Exported Products:
The Government of India introduced the Pass Book Scheme effective from 1-4-1995, allowing duty-free import of goods against credit available in the Pass Book. The scheme required the export product to be covered by SION as contained in the Hand Book of Procedures. The SIONs for textile products were amended on 16-12-1996, adding a new norm and specifying that grey cotton fabrics were to be treated as inputs unless mentioned otherwise. The investigation revealed that the exporters had purchased grey fabrics, got them dyed/printed, and then converted them into export products, thus misdeclaring the SION applicable to get higher credit.

3. Eligibility for Duty Credit under Specific SION Entries:
The appeals related to export shipments made prior to and after 16-12-1996. For the period before 16-12-1996, the dispute was whether the export goods were entitled to duty credit under SION serial No. 133 or 109. For the period after 16-12-1996, the dispute was whether the export goods were covered by SION serial No. 321 or 133. The relevant SION entries specified different norms for various textile products, and the analysis showed that certain products should have been covered by specific norms rather than the generic ones declared by the exporters.

4. Admissibility of Credit Based on Actual Inputs Used versus Inputs Declared:
The investigation and subsequent adjudication revealed that the exporters had purchased grey fabrics, processed them, and then used them in export products. The adjudicating authority held that the fact that the exporters purchased grey fabrics and not processed fabrics did not disqualify them from claiming credit under SION serial No. 133, as the actual input used was processed before being converted into made-up articles. The Tribunal agreed with this view, stating that the purchase of actual input used was not a requirement under the EXIM Policy or Notification 104/95.

5. Liability for Duty Recovery, Interest, and Penalties:
The Commissioner of Customs adjudicated multiple Show Cause Notices (SCNs) against various exporters, disallowing excess credit, demanding duty not paid along with interest, and imposing penalties under Sections 114A and 114(i) of the Customs Act, 1962. The impugned orders also held the imported and exported goods liable to confiscation under Sections 111(o) and 113(d) of the Customs Act, respectively. However, the Tribunal held that the exporters were eligible for the exemption under Notification 104/95, set aside the impugned orders, and allowed the appeals, thus negating the liabilities imposed by the Commissioner.

Conclusion:
The Tribunal concluded that the exporters were entitled to the duty credit under the Pass Book Scheme as per the applicable SION entries and that the customs authorities could not question the grant of credit once verified and granted by the designated authority. The appeals were allowed, and the impugned orders were set aside.

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