2013 (9) TMI 387 - AT - Customs

Nature of the goods whether the imported items on chemically test were found to be Naphtha and were imported in contravention of policy provisions since during the relevant period Naphtha was a canalized item Held that - Benefit of doubt had given to the assessee - items restricted/ prohibited as far as imports during the Policy period 1990-92 - the importation and subsequent utilisation by the assessee were viewed as in contravention of policy provisions during the relevant period - the policy restrictions were imposed by the Commerce Ministry and Commerce Ministry generally acts on the basis of Ministry of Petro-chemicals as well as Ministry of Finance, deliberate violation of policy prohibitions cannot be laid at the doors of the assessee especially in view of the fact that there was no allegation of mis-declaration of description of the goods by the assessee at all. Confiscation of goods u/s 111(o) Penalty u/s 112 Held that - Goods were not liable to confiscation - penalty cannot be imposed - the show cause notice did not propose confiscation u/s111(o) nor did the Commissioner in the order hold that the goods were liable to confiscation - observation of the Commissioner that the goods were liable to confiscation are wrong and penalty u/s112 can be imposed only when a person rendered the goods liable to confiscation Following the judgement of Akbar Badruddin Jiwani vs. CC. 1990 (2) TMI 50 - SUPREME COURT OF INDIA - the burden lies on the department to show that the assesse had acted dishonestly or contumaciously or with a deliberate or distinct object of breaching the law. Assesse s imports cannot be considered to be against the policy at the time of import nor can be considered to have been prohibited - The relevant provisions which renders the goods imported by the appellant liable to be confiscation is Section 111(o) and according to which any goods exempted subject to any condition from duty or any prohibition in respect of the import thereof in respect of which condition was not observed unless the non-observance of the condition was sanctioned by the proper officer were liable to confiscation decided in favor of assesse.

Issues Involved:
1. Legality of imports under the Exim Policy 1990-92.
2. Legality of imports under the Exim Policy 1992-97.
3. Imposition of penalty under Section 112A of the Customs Act, 1962.
4. Confiscation of goods under Section 111(d) and Section 111(o) of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Legality of Imports under the Exim Policy 1990-92:
The assessee imported Heptane and Nonene during the period 27.3.1991 to 27.6.1991 under two bills of entry, which were covered by the Exim Policy 1990-92. The Revenue classified these items as Naphtha, a canalized item that could only be imported through Indian Oil Corporation Limited (IOCL). However, the assessee argued that various statutory authorities, including the Directorate General of Technical Development (DGTD) and the Joint Chief Controller of Imports and Exports, had previously clarified that Heptene and Nonene were covered under the Open General License (OGL) and did not require an import license. Additionally, BPCL and HPCL informed the appellant that the imported product was not Naphtha according to the Ministry of Petroleum and Natural Gas guidelines. The Tribunal found considerable force in the assessee's arguments, noting the possibility of two views regarding the classification of the items under OGL during the 1990-92 policy period. The benefit of doubt was given to the assessee, considering the long-standing litigation and the absence of any mis-declaration of goods.

2. Legality of Imports under the Exim Policy 1992-97:
For the period 1992-97, Naphtha was under a restricted category, with specific conditions for its import and use. The assessee argued that they had obtained various clarifications from statutory authorities and public sector companies indicating that the imported product was not Naphtha. The Tribunal noted that the DGFT had permitted the use of the return stream as feed stock/fuel and that the assessee had provided end-use certificates. However, the Commissioner found that the assessee could not account for the full quantity of by-products as having been used as feed stock/fuel, leading to the imposition of a penalty. The Tribunal observed contradictions between different certificates and noted that the Commissioner had relied solely on certificates showing the quantity used as fuel, without considering the use of by-products as feed stock. Given the long-standing litigation and the possibility that the imported product was not Naphtha, the Tribunal held that the benefit of doubt should be given to the assessee, especially in the absence of any deliberate diversion of by-products.

3. Imposition of Penalty under Section 112A of the Customs Act, 1962:
The Tribunal referred to the Supreme Court's decision in Akbar Badruddin Jiwani vs. CC, which held that the burden lies on the department to prove that the appellant acted dishonestly or with the intent to breach the law. The Tribunal found no reference to mala fides in the show cause notice or the adjudication orders. Additionally, the Tribunal cited the case of Universal Steel Agencies vs. Commissioner of Customs, Kandla, which held that penalty cannot be imposed in lieu of redemption fine where the goods are not available for confiscation. The Tribunal concluded that no penalty could be imposed in this case, as the requisite mens rea was not established.

4. Confiscation of Goods under Section 111(d) and Section 111(o) of the Customs Act, 1962:
The Tribunal observed that the appellant was entitled to a bona fide belief regarding the importability of goods under the 1990-92 policy period, and therefore, the goods could not be held liable to confiscation under Section 111(d). For the 1992-97 policy period, the Tribunal noted that the appellant was entitled to import the goods as an actual user, and the subsequent clarification by the DGFT allowed the use of the return stream as fuel. The Tribunal concluded that the goods could not be considered prohibited at the time of import and were not liable to confiscation under Section 111(d). The Tribunal also noted that the show cause notice did not propose confiscation under Section 111(o), and the Commissioner did not hold the goods liable to confiscation under this section. Since the correct section was not quoted, and the goods were not liable to confiscation, the penalty under Section 112A could not be sustained.

Conclusion:
The Tribunal allowed the appeal, providing consequential relief to the appellant, and concluded that no penalty could be imposed under Section 112A of the Customs Act, 1962, as the goods were not liable to confiscation under the relevant sections.

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