2015 (8) TMI 56 - SC - Customs

Exemption claim - import of goods against an advance licence - export obligation - Exemption under Notification No. 30/1997 - It is an admitted case that the raw material was used by the assessee itself for manufacturing the specified products. However, no exports were effected by exporting those goods so manufactured from the raw material that was imported duty-free. - Held that - it is the case of the assessee that for certain bona fide reasons (as the bona fides of the assessee have been accepted by the DGFT), as the assessee was not able to export same very goods produced by it from the material imported on which he was given exemption from payment of the import duty, the DGFT allowed the assessee to meet the export obligation through third party. Since the conditions of the exemption notification are not fulfilled and the law requires strict compliance of the exemption notification, the assessee becomes liable to pay the import duty which was payable, but for the benefit of exemption Notification No 30/1997, which was obtained by the assessee. - Decision in the case of Sheshank Sea Foods Pvt. Ltd. (1996 (11) TMI 67 - SUPREME COURT OF INDIA) followed. - Decided against the assessee. It necessary to observe that the Government should bestow its consideration and make appropriate provision dealing with such situations. After all, the Exemption Notification No. 30/1997 has been issued to implement and effect the EXIM Policy provisions. Therefore, the purport of the exemption notification is to advance the objectives of the EXIM Policy. When the DGFT has itself accepted the benefits of the assessee and carried out the amendment in the import licence and further that the assessee could make the exports on the basis of the amendment; albeit through third party, such person should not be left high and dry. Therefore, necessary amendments are needed in such notifications making appropriate provisions to meet these types of eventualities. We are hopeful that the competent authority shall look into these aspects and cater for such situations as well so that unnecessary hardship is not caused to the bona fide assessees as well. Insofar as charge of interest is concerned, we are conscious of the fact that as per the bond the assessee had agreed to pay interest @ 24% per annum. However, that would not take away our right to reduce the rate of interest if the ends of justice so warrant. In the peculiar facts of this case, more so when there was an amendment in the licence by the DGFT and DGFT has taken the view that export obligation is fulfilled, we deem it proper to reduce the rate of interest from 24% per annum to 9% per annum. Further, there shall not be any penalty. - Decided in favour of Revenue.

Summary

Issues Involved:
1. Compliance with Notification No. 30/1997 regarding duty-free import of raw materials.
2. Fulfillment of export obligations under the DEEC Scheme.
3. Validity of third-party exports to meet export obligations.
4. Applicability of customs duty and interest for non-compliance.
5. Relevance of amendments made by the DGFT to the import licence.

Issue-wise Detailed Analysis:

1. Compliance with Notification No. 30/1997 regarding duty-free import of raw materials:
The assessee imported hot rolled non-alloy steel wide coils duty-free under Notification No. 30/1997, which required that the imported materials be used by the importer to manufacture specified finished goods for export. The assessee did use the raw material for manufacturing but did not export the manufactured goods, claiming the quality was not export-worthy. Instead, the goods were sold in the domestic market, and the assessee arranged for third-party exports to fulfill the export obligation.

2. Fulfillment of export obligations under the DEEC Scheme:
The DEEC Scheme required the assessee to export 1000 MTs of cold rolled non-alloy steel (hard) coils and 1500 MTs of CRCA skin based steel strips/coils. The assessee failed to export the manufactured goods directly but arranged for third-party exports through M/s. Steel Company, Gujarat, and others. The Revenue contended that this did not meet the conditions of Notification No. 30/1997, which mandated the export of products manufactured from the imported raw materials.

3. Validity of third-party exports to meet export obligations:
The DGFT amended the import licence to allow third-party exports, which the CESTAT accepted as fulfilling the export obligation. However, the Supreme Court noted that the Notification required the export of goods manufactured from the imported raw materials by the importer itself, and third-party exports did not meet this condition. The Court emphasized that strict compliance with the Notification was necessary.

4. Applicability of customs duty and interest for non-compliance:
Since the conditions of Notification No. 30/1997 were not met, the assessee was liable to pay the import duty that was exempted. The Court referenced the case of Sheshank Sea Foods Pvt. Ltd., which established that customs authorities could enforce compliance with exemption conditions independently of the DGFT's decisions. The Court reduced the interest rate from 24% to 9% per annum, considering the DGFT's amendment and the partial fulfillment of export obligations.

5. Relevance of amendments made by the DGFT to the import licence:
The DGFT's amendment allowed third-party exports, which the DGFT considered as fulfilling the export obligation. However, the Supreme Court held that this amendment did not alter the conditions of the customs exemption notification, which required direct exports by the importer. The Court suggested that the government should consider amending such notifications to accommodate similar situations in the future to prevent undue hardship to bona fide assessees.

Conclusion:
The Supreme Court set aside the CESTAT's order, holding the assessee liable for customs duty due to non-compliance with Notification No. 30/1997. The interest rate was reduced to 9% per annum, and no penalty was imposed. The Court urged the government to amend relevant notifications to address such issues in the future.