2017 (10) TMI 719 - HC - Customs

SAD Refund - N/N. 102/2007-Customs issued on 14-09-2007 - denial on the ground that the timber logs imported by the respondent-assessee were not sold as such by them but were sold locally after sawning them and cutting them into smaller sizes and also on the ground that the logs cut into smaller sizes could not correlate to the items described in the import packing list - Section 130 A of the Customs Act - The grievance of the appellant/revenue is that a person not entitled to the benefit of exemption notification cannot walk away with a refund - Whether the CESTAT was justified in placing reliance on Commissioner of Customs vs. M/s. Variety Lumbers Pvt. Ltd. 2013 (11) TMI 1013 - GUJARAT HIGH COURT where the appellant Department had filed Appeal before the Supreme Court and the same is pending for adjudication? Held that - It is not indicated anywhere in the notification that the imported goods should be sold as such so as to qualify for exemption. All that the notification says is that the imported goods should be sold locally and that the conditions stipulated in para-2 should be fulfilled - the timber logs imported by any one when cut into smaller logs do not lose the character of being timber logs. More over the size of timber logs that could be imported in huge ships will be so large that they cannot be transported locally in trucks on roads. What the department had done is to read one more condition into the exemption notification which is not found in the notification itself. It is not the case of the department that goods falling under one classification are entitled to exemption and the goods falling under another classification are not entitled to exemption. What is claimed is only the refund of the special additional duty. The special additional duty is payable on the goods that fall under the First Schedule to the Customs Tariff Act 1975 in terms of Section 3 (5) of the Act. The fact that the imported logs fall under the First Schedule to the said Act and the fact that as a consequence special additional duty was paid and the importer became entitled to refund are all not denied. It is not the case of the department that round/square logs falling under Heading 4403 alone are entitled to exemption and that sawn woods falling under Heading 4407 are not entitled to exemption. Both of them fall under the First Schedule. Therefore the argument sought to be advanced is completely meaningless. Circular No.15/2010 dated 29-06-2010 has virtually amended the exemption notification. It is needless to point out that by a Circular or executive fiat an exemption notification issued in exercise of the statutory power cannot be amended. Hence the reliance placed upon the circular is unfounded. No importer can claim refund of special additional duty that was not paid by him. No importer can claim refund of SAD (special additional duty) paid on the imported logs by showing the sale of locally purchased wood logs. This is in view of the fact that the imported timber logs may have to be sold in any case in the local market. If the Government of India wanted the importers of timber not to have the benefit of the exemption notification if they indulged in the sale of smaller pieces the Government could have said so in the notification itself - Once it is clear that by making a mismatch between the description contained in the original packing list and the description of the goods locally sold an importer may not be able to claim refund of more than what was paid then it would follow as a natural corollary that the second objection of the department is merely weaved out of imagination - decided against Revenue. Whether the CESTAT was justified in allowing the respondent s appeal and declaring that the respondent is eligible for refund of SAD relying on the judgment in Commissioner of Customs Vs. M/s. Variety Lumbers Pvt. Ltd. without imposing any condition to protect the interests of the appellant and thereby departing from the order of the Supreme Court wherein the Supreme Court imposed a condition that the respondent should furnish bank guarantee security for half of the amount to the satisfaction of the appellant department s Assessing Officer? - Held that - the orders-in-original out of which all the present appeals arise were passed long after the interim order of the Supreme Court dated 24-11-2011. Therefore the Jurisdictional Customs Officer instead of showing great valour in challenging the ratio laid down by the Gujarat High Court could have simply allowed all the refund claims with a brief order to the effect that the refund claims are allowed (i) subject to the outcome of the appeal before the Supreme Court and (ii) subject to the further condition that a bank guarantee is furnished for half of the amount claimed as refund. The Original Authority did not adopt such a course of action - As a matter of fact if the adjudicating authority had passed orders-in-original incorporating the same conditions as found in the interim order of the Supreme Court in Variety Lumbers Pvt. Ltd. incorporating a condition that the refund was ordered subject to the outcome of the decision before the Supreme Court the department would have been better of. If the original authority had passed such an order the department would have become entitled to recover the amount of refund in the event of their success before the Supreme Court in Variety Lumbers Pvt. Ltd. The department let go this opportunity and invited an order on merits from the Tribunal - the Tribunal was right in rejecting the Miscellaneous Applications - decided against the appellant/revenue. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Entitlement to refund of Special Additional Duty (SAD) under Notification No.102/2007-Customs.
2. Justification of CESTAT's reliance on the Gujarat High Court decision in Variety Lumbers Pvt. Ltd.
3. Imposition of conditions for refund similar to those imposed by the Supreme Court in the Variety Lumbers case.
4. Validity of the department's objections based on the transformation of imported goods and mismatch in descriptions.
5. Impact of Circular No.15/2010-Customs on the exemption notification.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of Special Additional Duty (SAD):
The respondent-assessee imported timber logs and claimed refunds under Notification No.102/2007-Customs, which exempts goods from additional duty if imported for subsequent sale. The jurisdictional Customs Officer partially allowed these claims, disallowing parts based on the transformation of logs and mismatches in descriptions. The CESTAT allowed the appeals, relying on the Gujarat High Court's decision in Commissioner of Customs v. Variety Lumbers Pvt. Ltd., which held that cutting timber logs into smaller pieces did not change their character for exemption purposes.

2. Justification of CESTAT's Reliance on the Gujarat High Court Decision:
The appellant/revenue contended that reliance on the Gujarat High Court decision was unjustified as the Supreme Court had granted leave to appeal against it. However, the Supreme Court had not stayed the judgment, only imposing a condition for furnishing a bank guarantee for half the refund amount. The High Court observed that the grant of leave does not nullify the principles laid down by the High Court. Therefore, CESTAT was justified in following the Gujarat High Court's decision.

3. Imposition of Conditions for Refund:
The appellant/revenue argued that CESTAT should have imposed conditions similar to those by the Supreme Court in the Variety Lumbers case. However, the High Court noted that the orders-in-original were passed after the Supreme Court's interim order, and the jurisdictional Customs Officer could have incorporated similar conditions but did not. Hence, the Tribunal's decision to grant refunds without such conditions was upheld.

4. Validity of the Department's Objections Based on Transformation and Mismatch:
The department's objections were based on the transformation of timber logs into smaller pieces and mismatches in descriptions between the import packing list and locally sold goods. The High Court found these objections unfounded, as the exemption notification did not require goods to be sold as such. The notification only stipulated conditions for local sale and documentation, which the respondent-assessee fulfilled. The transformation of logs did not alter their eligibility for exemption.

5. Impact of Circular No.15/2010-Customs:
The appellant/revenue relied on Circular No.15/2010-Customs, which imposed conditions to prevent fraudulent claims. However, the High Court held that a circular cannot amend an exemption notification issued under statutory power. The circular's conditions were not part of the original notification, and thus, reliance on it was unfounded.

Conclusion:
The High Court dismissed all appeals, affirming the CESTAT's decision to grant refunds to the respondent-assessee. The objections raised by the department were found to be without merit, and the reliance on the Gujarat High Court's decision was justified. The appeals were dismissed with no costs, and any pending miscellaneous petitions were closed.