2011 (10) TMI 36 - AT - Customs

Import of excess quantity - Import of Palm Stearine - Import against Quantity Based Advance Licence Scheme - Export obligation - Confiscation - fraud - Held that - the allegation of misrepresentation before the licensing authority and consequent denial of Customs duty exemption under Notification No. 204/92-Cus and its successor notifications are not legally sustainable as in the instant case the licensing authority has not questioned the appellant with regard to the usage of various items in the manufacture of export products and have issued advance licences in accordance with the standard input/output norms prescribed in the policy. Once advance licences have been issued for a given quantity and for a given value, the Customs cannot deny benefit of Customs duty exemption in respect of such quantity and value of import on extraneous grounds for which they have no jurisdiction to investigate. Fulfillment of export obligation - held that - the licensing authority has accepted the fulfillment of export obligation and have issued export obligation discharge certificates and have discharged the appellants from any further obligation. That being the position, the Customs authorities cannot deny the benefit of Customs duty exemption under the notifications governing the advance licensing scheme. Diversion of imported material instead of using in manufacturing - Held that - it is clear that once the export obligation has been discharged, the importer, operating under the quantity based advance licensing scheme, can utilise the imported material under the said scheme for manufacture of other products in his factory and therefore, the allegation in the show cause notice in the present case that the appellant had utilised the imported product in the manufacture of other products for sale in the domestic market and therefore, they are not eligible for the benefit of Customs duty exemption does not have any legal basis. Appellant s eligibility to import crude Palm Stearine under the advance licences and consequent eligibility for Customs duty exemption thereon - Held that - crude palm stearine did not satisfy the definition/criterion of material which were permitted to be imported duty free both under the EXIM policy and the relevant customs notifications. The material imported should be capable of being used in the manufacture of the export product. Crude Palm Stearine did not also satisfy the criterion stipulated in the customs notification that the materials are required for the manufacture of export product . - Not eligible for customs duty exemption. Denial of DEPB credit in respect of inputs imported duty free under the DEEC scheme - Held that - The Customs, on their own cannot decide upon the issue of eligibility to DEPB benefits of exports made by an exporter. The ratio of the above judgment (2004 -TMI - 47056 - HIGH COURT BOMBAY) and (2009 -TMI - 76862 - ALLAHABAD HIGH COURT ) applies to the facts of the present case and accordingly the denial of DEPB credit amounting to Rs. 2,35,20,388/- on the ground of fraudulent availment can not be sustained for want of jurisdiction by the Customs authorities. The jurisdiction in this regard lies with the licensing authorities and the customs authorities, could, at best refer the matter to the licensing authority for necessary action.

Issues Involved:

1. Eligibility for customs duty exemption on Palm Stearine imported under DEEC licenses.
2. Eligibility to import crude Palm Stearine under advance licenses.
3. Legality of using duty-free imported Palm Stearine for manufacturing goods exported under DEPB scheme.
4. Demand of customs duty on Palm Stearine used in DEPB exports.
5. Penalty on the General Manager of the appellant firm.

Detailed Analysis:

1. Eligibility for Customs Duty Exemption on Palm Stearine Imported Under DEEC Licenses:

The appellant imported Palm Stearine under Quantity Based Advance Licence Scheme for manufacturing and exporting 'Pears' soap. The Department alleged misrepresentation, claiming the appellant imported excess quantities and used them for domestic production. The appellant argued that the licensing authority was informed about the reformulation of the soap, which included groundnut oil along with Palm Stearine. The Tribunal noted that the appellant had informed the DGFT about the reformulation and the use of groundnut oil. The licensing authority prescribed standard input/output norms, and the appellant fulfilled the export obligations. Therefore, the Customs authorities cannot deny the benefit of customs duty exemption under the relevant notifications. The Tribunal relied on the Supreme Court's decision in Titan Medical Systems Pvt. Ltd., which held that once an advance license is issued and not questioned by the licensing authority, Customs authorities cannot refuse exemption on allegations of misrepresentation.

2. Eligibility to Import Crude Palm Stearine Under Advance Licenses:

The appellant imported crude Palm Stearine, which the Department claimed was not required for manufacturing 'Pears' soap and was diverted for domestic production. The Tribunal found that crude Palm Stearine was not suitable for manufacturing 'Pears' soap due to its higher iodine value and free fatty acid content. The statements from the appellant's representatives confirmed that crude Palm Stearine was used for manufacturing domestic soaps. Therefore, crude Palm Stearine did not meet the criteria of 'materials required for the manufacture of export product' under the EXIM policy and customs notifications. The demand of customs duty of Rs. 66,71,998/- on crude Palm Stearine was upheld.

3. Legality of Using Duty-Free Imported Palm Stearine for Manufacturing Goods Exported Under DEPB Scheme:

The Department alleged that the appellant used duty-free imported Palm Stearine for manufacturing goods exported under the DEPB scheme, claiming double benefits. The Tribunal referred to the clarifications issued by the DGFT and CBEC, which allowed the use of duty-free imported materials for domestic production after fulfilling export obligations. The Tribunal held that once the export obligation is fulfilled, the importer can use the imported material for manufacturing other products. Therefore, the use of Palm Stearine for domestic production after fulfilling export obligations under DEEC was permissible.

4. Demand of Customs Duty on Palm Stearine Used in DEPB Exports:

The Tribunal noted that the DEPB scheme aims to neutralize the incidence of basic customs duty on the import content of the export product. Since the appellant imported Palm Stearine duty-free under the DEEC scheme and fulfilled export obligations, the demand of customs duty on Palm Stearine used in DEPB exports was not sustainable. The Tribunal held that no duty demand could be sustained under the customs notifications or DEEC licenses for Palm Stearine used in DEPB exports.

5. Penalty on the General Manager of the Appellant Firm:

The Tribunal considered that the bulk of the duty demand was not sustainable and that the General Manager did not personally benefit from the transactions. Therefore, the penalty of Rs. 10 lakhs imposed on the General Manager was set aside.

Conclusion:

The Tribunal upheld the demand of customs duty of Rs. 66,71,998/- on crude Palm Stearine along with interest and imposed a redemption fine of Rs. 37.50 lakhs. A penalty of Rs. 66,71,998/- was imposed on the appellant under section 112(a) of the Customs Act. All other dues adjudged against the appellant were set aside, and the penalty on the General Manager was also set aside.

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