2019 (6) TMI 1035 - AT - Customs

FIA - import of Ascorbic Acid as Corrosion Inhibitor - Benefit under N/N. 40/2006-Cus - Whether the learned Commissioner is justified in granting the benefit, under Notification No.40/2006-Cus, to the respondents, in respect of import of Ascorbic Acid as Corrosion Inhibitor under Duty Free Import Authorisation (DFIA)? - HELD THAT - The apprehension of the Revenue about misuse of DFIA scheme or material is also misplaced in view of the specific directions issued by the learned Commissioner to the Deputy Commissioner to release the goods only under customs/central excise escort to the factory of use of the respondent and that non-pharmaceutical use should be monitored by the jurisdictional central excise authorities and that any violation to this condition should be brought to the notice of the customs authorities for initiating appropriate action under the Customs Act or any other law for the time being in force. The respondents have not violated any provisions of Customs Act, 1962 or the Foreign Trade Policy, in as much as import of Ascorbic Acid under transferred DFIA. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Whether Ascorbic Acid can be considered a 'Corrosion Inhibitor' under the Duty Free Import Authorisation (DFIA) scheme.
2. Compliance with Standard Input Output Norms (SION) and the Foreign Trade Policy (FTP).
3. Applicability of Customs Notification No. 40/2006.
4. Requirement of NOC/waiver from the Ministry of Health & Family Welfare.
5. Actual use versus capability of being used in the export product.
6. Classification under ITC (HS) codes.
7. Alleged misuse of the DFIA scheme.

Detailed Analysis:

1. Whether Ascorbic Acid can be considered a 'Corrosion Inhibitor' under DFIA:
The core issue was whether Ascorbic Acid qualifies as a 'Corrosion Inhibitor' under the DFIA scheme. The Tribunal noted that Ascorbic Acid has multiple applications, including use as a corrosion inhibitor in industrial operations. The Joint Director, New Custom House Laboratory, confirmed that Ascorbic Acid can be used as a corrosion inhibitor. The Tribunal emphasized that this opinion, obtained at the instance of the revenue, cannot be ignored, citing the Supreme Court decision in Polyglass Acrylic Mfg. Co. Ltd. The Tribunal concluded that Ascorbic Acid qualifies as a 'Corrosion Inhibitor' under the DFIA scheme.

2. Compliance with SION and FTP:
The revenue argued that the value of imported Ascorbic Acid exceeded the limits set by SION. However, the Tribunal found that the relevant public notices had removed such restrictions before the issuance of the DFIA in question. The Tribunal agreed with the respondent's contention that the limiting factor of quantity and value applies only if SION explicitly provides for it, which was not the case here. Therefore, the Tribunal held that the respondents did not breach SION conditions.

3. Applicability of Customs Notification No. 40/2006:
The Tribunal held that the DFIA explicitly mentioned 'Corrosion Inhibitor,' and thus, the exemption under Notification No. 40/2006 could not be denied. The Tribunal found no basis for the revenue's contention that only ammonia could be used as a corrosion inhibitor. The Tribunal also noted that the DFIA did not restrict the use of Ascorbic Acid as a corrosion inhibitor in manufacturing Soda Ash.

4. Requirement of NOC/waiver from the Ministry of Health & Family Welfare:
The revenue argued that an NOC was required for importing Ascorbic Acid. The Tribunal found that the Drugs & Cosmetics Act, 1945 exempts substances not used for medicinal purposes from such requirements. The Tribunal held that no executive order or circular could override this statutory exemption. Therefore, the requirement of an NOC was deemed unnecessary.

5. Actual use versus capability of being used in the export product:
The Tribunal emphasized that the DFIA scheme allows for the import of items capable of being used in the export product, not necessarily those actually used. The Tribunal referenced the DGFT Policy Circular No. 72, which supports this interpretation. The Tribunal concluded that Ascorbic Acid, being capable of use as a corrosion inhibitor, met the DFIA requirements.

6. Classification under ITC (HS) codes:
The revenue contended that only goods classified under ITC (HS) 3800 0000 could be imported as corrosion inhibitors. The Tribunal disagreed, citing a co-ordinate Bench decision that the ITC (HS) code is not a criterion for DFIA benefits as long as the item falls under the description in the DFIA. The Tribunal held that Ascorbic Acid could be imported irrespective of its ITC (HS) code.

7. Alleged misuse of the DFIA scheme:
The Tribunal dismissed the revenue's apprehensions about misuse, noting the specific directions issued by the Commissioner to monitor the non-pharmaceutical use of Ascorbic Acid. The Tribunal found no evidence of misuse or diversion of the imported goods.

Conclusion:
The Tribunal concluded that the respondents were entitled to the benefit of Customs Notification No. 40/2006. The Tribunal found no violations of the Customs Act, 1962, or the Foreign Trade Policy by the respondents. The appeal filed by the revenue was dismissed, upholding the Commissioner's order to release the imported goods under the DFIA scheme.

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