2018 (9) TMI 1290 - AT - Customs

Smuggling - import of Raw Cashew Nuts (RCN) without payment of Customs Duty - N/N. 18/2015-Cus. - Diversion to other units which have not been authorized for the purpose of processing RCN imported duty-free - The primary allegation of the Department is that RE have diverted/sold 2801.41 MTs of imported RCN out of a total of 3073.331 MTS imported by them. Held that - It is not known how in para 7.1 of the Show Cause Notice it has been alleged that RE had received only 81.05 MTs of RCN and hence it appears to reason that this conclusion may be a deduction arrived at from the documents seized - In the same para 7.1 it is alleged that RE used 190.48 MTs of RCN to process 47.62 MTs of cashew kernels for export. From para 5.4 of the Notice, we find that the quantity of 190.48 MTs of RCN receipts in RE is also a deduction based on quantity of 47.62 MTs of processed cashew kernels exported vide Shipping Bills 8243331/13.06.2016, 8317986/17.06.2016 and 8354161/18.06.2016 - these two allegations are at variance and are contradicting one another. Another allegation in the Notice is that RE were directly sending imported RCN to various units of RA or to other firms at Kollam/KK district directly from the port of import in violation of the procedures prescribed in para 4.35 of HBP and condition (x) of Notification 18/2015-Cus. At the same time, the Show Cause Notice elsewhere alleges that RE had sold the imported RCN to commission agents/other buyers. There is also an allegation that in some cases such sales have been effected under sales invoice and even payment of sales tax. There is a finding that RCN processed by processing units were sold in the local market; that RA have sold cashew kernels processed out of imported cashew nuts to different firms, etc. However, as in the other allegations of sale of imported RCN directly from the port, no evidences to corroborate these allegations have been brought forth or adduced. Credence is also found in the appellants submission that they regularly export pre-dominantly to the USA and the cashew kernels which are exported to that country have to meet the stringent USA Regulatory Approvals, apart from high quality specifications required by the customers. For this reason only the appellants are importing RCN in shell from abroad because the export orders require a better quality of cashew kernel which is not available in India. If this be the case, we wonder what the appellants would achieve by selling the imported RCN, since the cashew kernel of Indian origin would not be accepted by the buyers abroad. The non-inclusion of all the supporting manufacturers in the Advance Authorizations are then only a procedural aberration that can surely be condoned. The allegations raised in these proceedings and consequential demand and penalties confirmed by the impugned Order against RE cannot be sustained and will have to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Diversion of imported Raw Cashew Nuts (RCN) without payment of customs duty.
2. Violation of conditions under Notification No. 18/2015-Cus and FTP 2015-2020.
3. Imposition of penalties under Section 112(a), 112(b), and 114A of the Customs Act, 1962.
4. Confiscation of imported RCN under Section 111(d) and 111(o) of the Customs Act.

Issue-wise Detailed Analysis:

1. Diversion of Imported Raw Cashew Nuts (RCN) Without Payment of Customs Duty:
The Department of Revenue Intelligence (DRI) alleged that M/s. Regin Exports (RE) imported 3073.331 MTs of RCN without paying customs duty under seven advance authorizations. It was found that only 81.05 MTs were received at the authorized unit, and 190.48 MTs were used for export. The remaining 2801.47 MTs were allegedly diverted/sold to unauthorized units, violating Notification No. 18/2015-Cus and FTP 2015-2020. The appellants argued that the imported RCN was sent to job workers for processing and not sold, retaining ownership throughout. The Tribunal found no evidence of sale or transfer of ownership, concluding that the imported RCN was utilized as per the conditions of the advance authorizations.

2. Violation of Conditions Under Notification No. 18/2015-Cus and FTP 2015-2020:
The adjudicating authority held that RE violated the conditions of Notification No. 18/2015-Cus by diverting the imported RCN to unauthorized units. The appellants contended that the procedural lapse of not mentioning job workers' premises in the advance authorizations was the only mistake. The Tribunal noted that the imported RCN was sent to job workers for processing and returned to the authorized premises for final processing and export. The Tribunal found the procedural lapses condonable and concluded that the appellants complied with the actual user condition in letter and spirit.

3. Imposition of Penalties Under Section 112(a), 112(b), and 114A of the Customs Act, 1962:
The adjudicating authority imposed penalties on RE and other noticees under Sections 112(a), 112(b), and 114A of the Customs Act, 1962. The Tribunal, however, found that the appellants retained ownership of the imported RCN and used it for processing and export, fulfilling the export obligations. The Tribunal held that the procedural lapses did not warrant the imposition of penalties and set aside the penalties imposed on RE and other appellants.

4. Confiscation of Imported RCN Under Section 111(d) and 111(o) of the Customs Act:
The adjudicating authority ordered the confiscation of 2732.263 MTs of RCN and imposed a redemption fine. The Tribunal found that the imported RCN was not sold or transferred but sent to job workers for processing. The Tribunal held that the confiscation was not justified as the appellants complied with the actual user condition and fulfilled the export obligations.

Conclusion:
The Tribunal concluded that the allegations of diversion and sale of imported RCN were not substantiated by evidence. The procedural lapses were deemed condonable, and the appellants fulfilled the export obligations as per the advance authorizations. The Tribunal set aside the demand for customs duty, interest, penalties, and confiscation orders, allowing the appeals with consequential reliefs.