2014 (1) TMI 67 - HC - Customs

Duty exemption - Exemption in terms of Notification No.38/96-Custom dated 23.07.1996 - Import of raw silk from China - Held that - entire goods reached at Delhi from China without paying any custom duty - trade between India and China through Gunji shall be the border trade as per the practice exchange of commodities (barter) by the residents along with the border of Tibet Autonomous Region of Chine and Pithoragarh (India) in the border trade market . The exemption under notification No.38/96-Cus is thus permissible only in respect of border trade in the true spirit of provisions of Memorandum of Understanding between two governments. In the instant case, the assessees have misused this provision just to evade the custom duty. Hence, we are of the view that the import of the raw silk from Gunji by M/s. Elegant Industries, Delhi through M/s. Krishna Enterprises is not in accordance with the aforementioned provision of law - it is evident that the transaction is misuse of the provision. Neither M/s. Krishna Enterprises nor M/s Elegant Industries, Delhi are entitled to import the raw silk without paying the custom duty in a huge quantity. The transaction was performed as per the MOU executed between the parties. The raw silk was transported to the main land of the country to earn profit. Intention for the import of these goods has nothing to do with the object of the treaty i.e. to promote the border trade between the local residents of India and China. Dharchula is located about 80 Kilometer from the Gunji, Indo China border. The exemption granted by both the Government of India was misused just to evade the custom duty - Order is set aside - Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Exemption Notification No.38/96-Cus dated 23.07.1996 regarding the import of raw silk from China.
2. Determination of ownership and legitimacy of import in the context of Border Trade provisions.

Issue 1: Interpretation of Exemption Notification No.38/96-Cus dated 23.07.1996 regarding the import of raw silk from China:

The appellant-Department challenged the Tribunal's decision allowing exemption under Notification No.38/96-Cus dated 23.07.1996 for the import of raw silk from China. The appellant contended that the exemption was meant for tribals in border areas but was misused as the goods were brought to Delhi. The appellant argued that the importer was a dummy entity, making the excise duty leviable. The respondent justified the exemption, citing provisions of the notification and past rulings. The respondent emphasized that the conditions of the notification were met, and previous imports under the same exemption supported their case. The High Court analyzed the facts, including the importer's role and the destination of goods, concluding that the import did not align with the spirit of the law. The Court found the exemption misused to evade customs duty, leading to the restoration of the First Appellate Authority's decision.

Issue 2: Determination of ownership and legitimacy of import in the context of Border Trade provisions:

The case involved assessing the ownership and legitimacy of the import under Border Trade provisions. The appellant argued that the importer was a dummy entity, and the import was not in line with the Border Trade provisions. The respondent defended the legitimacy of the import, highlighting the absence of specific residency requirements in the relevant notifications. The respondent also referred to an advance ruling stating the absence of an actual user condition. The High Court examined the importer's role, the nature of trade, and the destination of goods. It concluded that the import was a misuse of the exemption, not aligning with the intended purpose of promoting border trade. The Court found that the exemption was misused to avoid customs duty, leading to the allowance of the Department's appeal and setting aside the Tribunal's decision.

In summary, the High Court's judgment in this case revolved around interpreting the exemption notification for raw silk imports and determining the legitimacy of the import under Border Trade provisions. The Court found that the import did not align with the intended purpose of the law and was a misuse of the exemption to evade customs duty, leading to the restoration of the First Appellate Authority's decision.