2001 (5) TMI 104 - AT - Customs

Summary

Issues Involved:
1. Misuse of Duty Exemption Entitlement Certificate (DEEC) Scheme.
2. Nexus between imported Phenol Formaldehyde Resin and exported commercial plywood.
3. Allegations of misrepresentation and suppression of facts.
4. Compliance with Notification No. 203/92 Cus. and Notification No. 204/92 Cus.
5. Procedural fairness regarding cross-examination of witnesses.
6. Interpretation of Import and Export Policy, 1992-97.

Detailed Analysis:

1. Misuse of Duty Exemption Entitlement Certificate (DEEC) Scheme:
The primary allegation against M/s. Kitply Industries Ltd. (KIL) was the misuse of the DEEC Scheme, as the imported Phenol Formaldehyde Resin was claimed to have no nexus with the goods exported, i.e., commercial plywood. The Commissioner of Customs, Kandla, confirmed a demand of Rs. 1,75,40,932.95 and imposed penalties totaling Rs. 70,00,000/- for alleged misrepresentation and suppression of facts with intent to evade customs duty.

2. Nexus between imported Phenol Formaldehyde Resin and exported commercial plywood:
The show cause notice dated 26-3-1997 charged that the imported resin was not used in manufacturing the exported plywood. The adjudicating authority noted a wrong reference to Notification No. 203/92 Cus. instead of Notification No. 204/92 Cus. KIL argued that their export obligations were fulfilled before the issuance of the advance licenses, and the imported Phenol was used generally in production. The tribunal found that the export obligations were discharged before the imports, and the licensing authorities had waived the conditions of executing a Legal Undertaking (LUT), making the licenses transferable.

3. Allegations of misrepresentation and suppression of facts:
The allegations were based on statements from suppliers and employees, which KIL claimed were obtained without their knowledge and without allowing cross-examination. The tribunal noted the discrepancies in the statements and the lack of independent evidence regarding the use of phenol in the exported goods. The adjudicating authority agreed that the actual use of imported goods was not relevant as the exports were completed before the imports.

4. Compliance with Notification No. 203/92 Cus. and Notification No. 204/92 Cus.:
The tribunal examined the conditions under both notifications. Notification No. 203/92 Cus. allowed imports after discharge of export obligations, and Notification No. 204/92 Cus. provided similar provisions. The tribunal concluded that the imported materials need not be used in the exported goods, and post-export imports were permissible.

5. Procedural fairness regarding cross-examination of witnesses:
KIL's request for cross-examination of witnesses was denied, and the statements were recorded behind their back. The tribunal found this procedurally unfair and noted that the statements of employees and suppliers were not corroborated by independent evidence.

6. Interpretation of Import and Export Policy, 1992-97:
The tribunal referred to various judgments and policies, emphasizing that the DEEC Scheme aimed to boost exports by allowing duty-free imports for manufacturing export goods. The policy permitted both pre-import and post-export of raw materials. The tribunal cited the Supreme Court and High Court decisions, which supported the view that the imported materials need not be used in the exported goods but should have a nexus with the export products.

Conclusion:
The tribunal set aside the impugned order, allowing the appeal by M/s. Kitply Industries Ltd. It concluded that KIL had fulfilled their export obligations, and the imported materials were permissible under the DEEC Scheme and relevant notifications. The allegations of misuse, misrepresentation, and suppression of facts were not substantiated by the evidence on record.