2018 (2) TMI 247 - AT - Customs

Import of base paper by availing DEEC exemption - It was alleged that no nexus in the imported goods and exported goods - demand only on the ground that material use for export was white base paper whereas the material imported the paper was having design/colour - Held that - Circular No. 39/97-Cus. dated 16.09.1997 clearly prescribed that it is not necessary that the goods imported should match exactly those used in the export product provided that the inputs are commercially known to be useable in the product exported. The adjudicating authority has held that the requirement of nexus is limited to the extent it is appearing in the relevant licence. In the subject case the licence does not qualify the base paper with any particular colour. Hence the contention in the SCN that the noticee should have imported a particular colour of base paper only, does not appear to be legally sustainable. Demand set aside - appeal allowed.

Summary

Issues:
Demand of Customs duty on imports made under DEEC license, invocation of extended period of limitation, interpretation of technical characteristics and quality in relation to imported goods, applicability of CBEC circulars and judicial pronouncements, nexus between imported goods and exported products.

Analysis:

The appeal before the Appellate Tribunal CESTAT MUMBAI involved a dispute regarding the demand of Customs duty on imports made under a DEEC license. The appellant, M/s Alfa Ica (India) Ltd., had imported base paper under DEEC exemption but faced a show-cause notice demanding duty, confiscating goods, and imposing penalties. The lower authorities contended that the imported base paper did not match the base paper used in the export product, alleging a lack of nexus between the two. The Original Adjudicating Authority confirmed the demand, leading to subsequent appeals and confirmations by higher authorities. The issue of extended period of limitation was raised by the appellant, highlighting a similar matter where the demand was dropped just one day prior to the issuance of the show-cause notice in the present case.

The learned Counsel for the appellant relied on a CBEC clarification (Circular No. 36/97-Cus.) emphasizing that the imported goods need not exactly match those used in the export product, as long as they are commercially known to be usable in the exported product. The impugned order was challenged on the grounds that it was solely based on the discrepancy between the white base paper used for export and the imported paper with design/color. The Tribunal, after reviewing the submissions, noted Circular No. 39/97-Cus. which clarified that a close nexus between imported inputs and exported products need not be established, emphasizing commercial usability of the inputs in the export product.

The Tribunal further referenced various CBEC circulars and judicial pronouncements to support its decision, highlighting the interpretation of technical characteristics and quality in the context of DEEC/Advance License Scheme. It was emphasized that the requirement of nexus is limited to the extent specified in the relevant license, and in this case, the license did not specify any particular color for the base paper. Therefore, the contention that a specific color of base paper should have been imported was deemed legally unsustainable. Ultimately, the Tribunal agreed with the joint Commissioner's argument and held that the demand was not maintainable on merits, consequently allowing the appeal.

In conclusion, the judgment provides a comprehensive analysis of the issues involved, including the interpretation of technical characteristics, the applicability of CBEC circulars, and the necessity of establishing a nexus between imported goods and exported products. The decision underscores the importance of commercial usability of inputs in the export product, rather than exact matching, in determining the duty liability on imports made under DEEC licenses.