2006 (5) TMI 210 - AT - Customs

Demand of duty on account of reduction of credit - imposition of penalties - EXIM - Activity of procuring and processing Marine products and exporting - Use of preservatives - DEPB Scheme - HELD THAT - In the present cases, although the Customs have permitted the exports of the impugned products, a doubt arose as to the proper use of preservatives/chemicals as per SION. The DRI conducted investigations and issued Show Cause Notices. The Show Cause Notices were sent to the DGFT authorities for taking appropriate action under Foreign Trade (Development and Regulation) Act. The DGFT, after giving an opportunity of personal hearing to the appellants, have passed orders dropping the cases. In other words, DGFT have decided not to reduce the credit given to the appellants. Thus, we are of the opinion that the determination of the DEPB credit and its subsequent modification are entirely within the competency of the DGFT and the Customs authorities cannot commit an act of usurpation by appropriating those powers to themselves. Only in a case where the DGFT modifies the credit given on account of the malpractices of the appellant, the Customs can initiate further proceedings as per law. In these circumstances, in the present appeals, it was submitted that the DGFT had dropped the proceedings in all cases excepting in the case of M/s. Blue Water Foods and Exports Pvt. Ltd. Therefore, we have no other option but to allow all these appeals with consequential relief, if any. As regards the cases pending before the DGFT, any action taken by the Customs is rather premature. Summing up, we allow all these appeals without prejudice to the right of the Customs authorities to take appropriate action in respect of cases pending before DGFT.

Issues Involved:
1. Jurisdiction of Customs Authorities under Section 28 of the Customs Act.
2. Validity of DEPB credit claimed by appellants.
3. Role of DGFT and Customs in determining DEPB credit.
4. Applicability of penalties imposed by Customs authorities.
5. Use of preservatives and chemicals as per SION in marine products.

Detailed Analysis:

1. Jurisdiction of Customs Authorities under Section 28 of the Customs Act:
The appellants contended that the Customs authorities have no jurisdiction to demand Customs duty under Section 28 of the Act since none of the ingredients of the said provision were attracted. They argued that there was no non-levy, short levy, or erroneous refund of duty to warrant a demand. The Customs authorities, however, initiated proceedings based on their investigation, which revealed discrepancies in the use of preservatives and chemicals as per SION. The Tribunal concluded that the Customs authorities cannot usurp the powers of the DGFT in determining DEPB credit.

2. Validity of DEPB Credit Claimed by Appellants:
The appellants claimed DEPB credit at 5% under DEPB schedule D-2 for exporting processed and preserved marine products. The Customs authorities argued that the appellants did not use the required preservatives and chemicals, thus should only be entitled to 2% credit under D-1. The Tribunal noted that the DGFT, after its investigation and hearings, decided not to reduce the DEPB credit given to the appellants, thus validating the higher credit claimed.

3. Role of DGFT and Customs in Determining DEPB Credit:
The Tribunal emphasized that the power to grant and modify DEPB credit lies with the DGFT, not the Customs authorities. The Customs' role is limited to verifying the correctness of the exporter's declaration regarding description, quantity, and value of the exported product. The Tribunal highlighted that contradictory actions by different wings of the Government (DGFT and Customs) could lead to confusion and difficulties for exporters.

4. Applicability of Penalties Imposed by Customs Authorities:
The Customs authorities imposed penalties on the appellants for allegedly claiming excess DEPB credit. The Tribunal found that since the DGFT had dropped the proceedings against the appellants, the basis for the Customs authorities' demand and penalties was invalid. Consequently, the penalties imposed were not maintainable.

5. Use of Preservatives and Chemicals as per SION in Marine Products:
The Customs authorities argued that the appellants did not use the required preservatives and chemicals as per SION, thus should not be entitled to the higher DEPB credit. The Tribunal noted that the DGFT had clarified that the DEPB Scheme does not mandate strict adherence to the use of inputs as per SION. The Government had also relaxed the requirement for declaring the use of preservatives in the shipping bill. The Tribunal concluded that the DGFT's decision to drop the proceedings against the appellants was based on a broader understanding of the DEPB Scheme, which includes value addition and not just the use of specific inputs.

Conclusion:
The Tribunal allowed all the appeals, stating that the Customs authorities had no jurisdiction to demand duty or impose penalties based on the DEPB credit granted by the DGFT. The determination and modification of DEPB credit are within the exclusive domain of the DGFT. The Tribunal emphasized that the Government should not take contradictory stands through different wings, as it could lead to confusion and difficulties for exporters. The appeals were allowed with consequential relief, and any action by Customs in cases pending before the DGFT was deemed premature.

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