2021 (2) TMI 93 - HC - Customs

Advance licence - advance licence had been obtained by misrepresentation or not - importing a different material than one permitted under the licence - violation of the conditions of licence or mis-utilization of the licence - whether mported material can be disposed of or utilized in any manner including local sale once the export obligations are fulfilled and if such view is not in the teeth of Condition No.7 imposed under the advance licence in terms of customs N/N. 30 of 1997 dated 1-4-1997? - HELD THAT - It is pertinent to note that none of the terms and conditions of Notification No.30/1997 envisgge physical incorporation of imported material in the goods that are exported towards fulfillment of export obligations. The aforesaid Notification grants exemption from the whole of the custom duty and whole of the additional duty to the 'materials' imported against an Advance Licence subject to conditions stipulated therein. The word 'material' has been defined in Explanation II to mean raw materials, components, intermediates, consumables, computer software and parts required for manufacture of resultant product specified in Part E of the said certificate. It is also pertinent to note that phrase 'required to manufacture' as stated in the Notification contemplates possible or intended use and not actual use as clarified in Circular No.36/97 dated 16.09.1997. Thus, the material need not be directly used in the manufacture of resultant product and proof of actual use is not a condition attached to the exemption Notification. The aforesaid position has been explained in the Circular 36/1997-Cus dated 16.09.1997 which was issued specifically in the context of difficulties faced by garment exporters as the custom field formations were insisting that nexus between export product and duty free material imported was required to be established. The imported goods need not be physically used in the manufacture of goods that are exported. Condition (vii) of Notification No.30/97-Cus permitted discharge of export obligation either by usage of imported duty free material or by replenishment material. The only requirement as per condition No.(vii) is that such inputs should not be sold or transferred in the market. In other words, the replenished inputs can be used in manufacture of other products and not necessarily incorporate in export of goods - thus, it is evident that the respondent has not violated the conditions of the Notification No.30/97-Cus and has rightly imported the material and has discharged its export obligations. From perusal of clause 3.4 and 3.45 of export import policy 1997-2002, it is evident that licence holder is free to get in the material processed through not just supporting manufacturers specified in the licence but also through other job workers as imported goods and exported goods are properly accounted for. This requirement has been duly fulfilled by the respondent inasmuch as there has been a proper account of imported material as well as exported goods details of which were furnished to the officer which were duly accepted. Therefore, there is no violation of actual user condition - In the instant case, the licensing authority competent to grant licences allowed the respondent to import polyester / cotton blended fabrics without payment of duty against the export of men's shirts. The Directorate General of Foreign Trade has issued the advance licence for duty free import after due Notification that materials can be used for production of export goods. The respondent fulfilled the export obligations in respect of exporting men's full sleeve shirts of specified value, which was examined by Joint Director of Foreign Trade and Export Obligation Discharge Certificate (EODC) was issued. Thereafter, it is not open for the officers of the customs department to contend that the imported material cannot be used for manufacture of shirts and that respondent has not discharged its export obligation by violating the conditions of the exemption Notification. The tribunal on the basis of meticulous appreciation of evidence on record has held that the respondent has not violated the conditions of exemption Notification No.30/97-Cus and has discharged its export obligations. It has further been held that there has been no violation of actual user condition. The findings recorded by the tribunal have been recorded after appreciation of evidence on record, by which no stretch of imagination can be said to be perverse. The substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee - appeal dismissed.

Summary

Issues Involved:
1. Whether the tribunal was right in its view regarding the advance licence and the necessity of seeking the opinion of the DGFT.
2. Whether the tribunal was right in its view on the importation of different materials than those permitted under the licence.
3. Whether the tribunal was right in its view on the disposal or utilization of imported material once export obligations are fulfilled.

Detailed Analysis:

Issue 1: Tribunal's View on Advance Licence and DGFT Opinion
The tribunal held that an advance licence creates rights in favor of the licensee and that the licensing authority cannot take action based on misrepresentation without seeking the opinion of the DGFT. The court examined whether the tribunal correctly interpreted the conditions under which the licensing authority could act without consulting the DGFT. The court found that the tribunal's interpretation aligned with the legal framework, emphasizing that the licensing authority's actions must be consistent with the conditions of the licence and the DGFT's oversight.

Issue 2: Importation of Different Materials
The tribunal concluded that importing different materials than those specified in the licence did not constitute a violation of the licence conditions. The court analyzed the terms of Notification No.30/97-Cus, which did not require physical incorporation of imported materials into the exported goods. The notification allowed for the replenishment of materials, meaning that the imported materials did not need to be directly used in the manufacture of the exported products. The court upheld the tribunal's view, noting that the respondent had fulfilled export obligations and complied with the notification's conditions.

Issue 3: Disposal or Utilization of Imported Material
The tribunal determined that once export obligations were fulfilled, the imported material could be disposed of or utilized in any manner, including local sale, without violating Condition No.7 of the advance licence. The court reviewed the relevant clauses of Notification No.30/97-Cus and Circular No.36/97, which clarified that the materials need not be physically used in the manufacture of exported goods. The replenished inputs could be used in other products, provided they were not sold or transferred in the market. The court agreed with the tribunal's interpretation, confirming that the respondent had not violated the notification's conditions.

Additional Considerations:
The court also addressed the appellant's arguments regarding the actual user condition and the role of job workers. It was noted that the respondent had properly accounted for the imported materials and exported goods, fulfilling the requirements of the export-import policy. The licensing authority's issuance of the Export Obligation Discharge Certificate (EODC) indicated compliance with the licence conditions, and the customs authorities could not challenge this compliance post-facto.

Conclusion:
The court upheld the tribunal's findings, concluding that the respondent had not violated the conditions of Notification No.30/97-Cus and had properly discharged its export obligations. The substantial questions of law were answered in favor of the assessee, and the appeal was dismissed.