2016 (9) TMI 1087 - AT - Customs

Denial of benefit of Notification No.105/99-CUS dated 10.08.1999, as amended - imposition of penalty under Section 112(a) of the Customs Act, 1962 - confiscation of imported goods - classification - processed cloves - Notification No.73/95-CUS(NT) dated 07.12.2005 - The Customs Tariff (Determination of Origin of Goods under Agreement on SAARC Preferential Trading Arrangements) Rules, 1995 (SAPTA Rules) - Bangladesh origin - valuation of cloves - whether the main appellant is eligible to avail partial exemption under Notification No.105/99-CUS dated 10.08.1999 when read with SAPTA Rules? Held that - As per the first Proviso to this Notification, the Assistant Commissioner/Deputy Commissioner/Joint Commissioner has to be satisfied that imported goods are in accordance with the Customs Tariff (Determination of Origin of Goods under the Agreement on SAARC Preferential Trading Arrangement) Rules, 1955- SAPTA Rules . As per Rule 4 of the SAPTA Rules read with its Schedule even products processed in the member countries are eligible for concessions under SAPTA Rules when the base goods are not produced/manufactured in the contracting countries. The only requirement under these Rules is that a certification of origin has to be produced for availing concessions as issued by the designated authority of Govt. of exporting contracting state and notified to the other contracting states in accordance with the certification procedures mentioned in the form annexed to SAPTA Rules. It is observed from various provisions of SAPTA Rules and Notification No.105/99-Cus dated 10.08.1999 that there is no discretion or power with the Customs authorities to reject the certificate of origin given by the concerned contracting state. Para 9 of the same Schedule does give power to the contracting states to review/modify the said Rules. The decision the case ZUARI INDUSTRIES LTD. Versus COMMISSIONER OF C. EX. & CUSTOMS 2007 (3) TMI 12 - SUPREME COURT OF INDIA is relied upon - Certificates of origin produced by the Appellant cannot be discounted. There is no evidence on record that designated authority of Bangladesh under SAPTA Rules was maliciously involved with the supplier of cloves and the Appellant. Processing of cloves - Held that - minor activities done by the supplier will not make the goods as processed cloves and that such processed cloves come into existence only when oil is extracted from natural cloves. Only an appropriate authority of Bangladesh can certify as to what would be the value addition, after satisfying about the nature of processing activities done by the supplier and the extent of expenses incurred by such supplier in carrying out the activities of cleaning, handling, storage, sorting, packing etc. The decision in the case Chandreswar Singh v. State of Assam 1978 (8) TMI 190 - GAUHATI HIGH COURT is relied upon. Certificates of origin issued by the designated authority under SAPTA cannot be rejected which is the only requirement for the satisfaction of the Customs department under Notification No.105/99-Cus dated 10.08.1999 - confiscation of goods and imposition of penalties fails - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Eligibility for partial exemption under Notification No.105/99-CUS dated 10.08.1999.
2. Validity of the certificates of origin under SAPTA Rules.
3. Definition and extent of processing for cloves.
4. Authority of Indian customs to question the value addition certified by the Bangladesh authority.
5. Right to cross-examine witnesses relied upon by the adjudicating authority.
6. Legality of confiscation and penalties imposed under Section 112(a) of the Customs Act, 1962.

Detailed Analysis:

1. Eligibility for Partial Exemption under Notification No.105/99-CUS:
The main appellant, M/s. BDB Exports Ltd., claimed the benefit of Notification No.105/99-CUS for importing processed cloves from Bangladesh, asserting compliance with SAPTA Rules. The adjudicating authority denied this benefit, alleging mis-declaration of the origin and value addition of the cloves.

2. Validity of Certificates of Origin under SAPTA Rules:
The appellant provided certificates of origin from the designated authority in Bangladesh, which were not alleged to be forged. The adjudicating authority questioned the value addition and the processing status of the cloves. However, the tribunal emphasized that as per SAPTA Rules, once a certificate of origin is issued by the designated authority of the exporting state, it should be accepted unless proven otherwise by the same authority.

3. Definition and Extent of Processing for Cloves:
The department argued that only cloves from which oil has been extracted qualify as processed cloves. The appellant contended that various activities like cleaning, sorting, and packing constitute processing. The tribunal referred to case laws, including the Gauhati High Court's decision, which held that even minor activities like removing leaves and roots from onions constitute processing. Therefore, the tribunal concluded that the activities performed on cloves by the supplier in Bangladesh qualify as processing.

4. Authority of Indian Customs to Question the Value Addition Certified by the Bangladesh Authority:
The tribunal observed that Indian customs authorities do not have the discretion to reject the certificate of origin issued by the designated authority of Bangladesh. The tribunal cited several judgments, including Zuari Industries Ltd. v. CCE & Cus and Yellamma Dasappa v. Commissioner of Customs, Bangalore, which established that the customs authorities must accept certificates of origin unless they are withdrawn or canceled by the issuing authority.

5. Right to Cross-Examine Witnesses:
The appellant's request to cross-examine witnesses relied upon by the adjudicating authority was denied without justification. The tribunal held that the denial of cross-examination diminishes the evidentiary value of the statements made by these witnesses. Moreover, one of the witnesses was an interested party, further reducing the reliability of his testimony.

6. Legality of Confiscation and Penalties:
Given that the certificates of origin were valid and the processing of cloves was legitimate, the tribunal concluded that the confiscation of goods under Section 111(n) & 111(o) of the Customs Act, 1962, and the imposition of penalties were unwarranted. The tribunal emphasized that the customs department could not invalidate the certificates of origin based on local investigations.

Conclusion:
The tribunal allowed the appeals filed by the appellants, granting them consequential relief. The tribunal underscored the binding nature of certificates of origin issued under SAPTA Rules and the lack of authority of Indian customs to question these certificates without proper cancellation by the issuing authority. The tribunal also highlighted the importance of cross-examination in upholding the principles of natural justice.