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2011 (3) TMI 113 - HC - CustomsDFRC - DFRC licences permit duty free replenishment of inputs used in the export product - It is an admitted fact that Formers / packing materials are inputs used in the export products not only confirmed by the Central Excise authorities but also by the DGFT - Held that - assuming the revenue is right in contending that Formers / packing materials could not be imported duty free in respect of exports effected prior to 12/4/2004 then firstly the licensing authorities could not to have issued DFRC s permitting duty free import of inputs including formers / packing materials - Having issued DFRC and having allowed duty free import of Formers under DFRC it is not open to the revenue to contend that the duty free import is unauthorized Again; if the petitioner was intimated about the alleged mistake in the DFRC s then the parties to whom the DFRC s were sold would have imported only those inputs which are permissible for duty free import - Once the Formers / packing materials have been imported duty free as per the DFRC s validity issued by the licensing authorities and the said items have even now continue to remain in the DFRC s issued to the petitioner the question of demanding any duty on the Formers / packing materials imported under the said DFRC s issued by the licensing authorities does not arise at all.
Issues Involved:
1. Validity of the communication dated 03/05/2010 issued by the DGFT. 2. Legality of the 11 orders in original dated 26/11/2010 issued by the Jt. DGFT, Mumbai. 3. Interpretation of the EXIM Policy 2002-2007 regarding DFRC issuance. 4. Relevance of the date of export vs. the date of DFRC issuance for duty-free import eligibility. 5. Liability for duty, interest, and penalty on inputs imported under DFRC. Detailed Analysis: Validity of the Communication dated 03/05/2010: The petitioner challenged the communication dated 03/05/2010 from the DGFT, which stated that the SION available on the date of export should be considered for DFRC issuance, not the SION modified after the exports. The court found that the DGFT's communication was contrary to the EXIM policy, which allows duty-free import of inputs used in the export product, irrespective of the date of their inclusion in SION. The court emphasized that the policy's objective is to permit duty-free import of inputs used in the export product, not restricted to those notified on the date of export. Legality of the 11 Orders in Original dated 26/11/2010: The petitioner contested the orders demanding duty with penalty for importing 'Formers' under DFRCs issued for exports made prior to their inclusion in SION. The court held that the orders were based on an incorrect interpretation of the policy and the DGFT's erroneous communication. The court quashed the orders, stating that the petitioner was entitled to import 'Formers' duty-free under validly issued DFRCs, regardless of the export date. Interpretation of the EXIM Policy 2002-2007: The court analyzed the relevant provisions of the EXIM Policy, particularly paras 4.1, 4.2, 4.2.3, and 4.2.4, which outline the conditions for DFRC issuance. The court concluded that DFRCs should be issued for inputs used in the export product and notified under SION, without restricting to the date of export. The policy's intent is to facilitate duty-free import of inputs used in exported products, and the DGFT's notification of inputs under SION should apply retroactively. Relevance of the Date of Export vs. Date of DFRC Issuance: The court rejected the argument that DFRCs should be based on the SION as of the export date. It held that once an input is notified under SION, it should be eligible for duty-free import under DFRCs, even for exports made before the notification. The court emphasized that the policy aims to allow duty-free import of all inputs used in the export product, as recognized by the DGFT. Liability for Duty, Interest, and Penalty: The court found no merit in the revenue's contention that the petitioner should pay duty, interest, and penalty for importing 'Formers' under DFRCs. It noted that the DFRCs were validly issued, allowing duty-free import of 'Formers,' and there was no fraud or misrepresentation by the petitioner. The court ruled that the petitioner should not be penalized for the licensing authorities' interpretation of the policy. The court also highlighted that the DFRCs in question were neither invalidated nor had 'Formers' been deleted from the list of permissible imports. Conclusion: The court quashed the DGFT's communication dated 03/05/2010 and the 11 orders in original dated 26/11/2010. It ruled that the petitioner was entitled to import 'Formers' duty-free under the DFRCs issued, irrespective of the export date. The court emphasized that the policy's objective is to facilitate duty-free import of inputs used in exported products, and any subsequent notification of inputs under SION should apply retroactively.
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