1998 (4) TMI 233 - Commissioner - Customs

Summary

Issues:
Demand confirmation under Section 28(2) for incorrect credit given against export. Determination of credit eligibility based on denatured alcohol usage. Interpretation of Input-Output norms for industrial use. Applicability of Pass Book Credit Scheme. Consideration of State Government laws on denaturation. Legal tenability of Lower Authority's arguments. Relevance of DGFT clarification. Credit amount limitation in relation to exported product cost.

Issue 1: Demand Confirmation under Section 28(2)
The case involved a demand confirmation of Rs. 3,01,20,951 with interest against the appellants for wrongly given credit under the Pass Book Scheme for the export of Glacial Acetic Acid. The demand was due to a downward revision in the credit amount, leading to the shortfall.

Issue 2: Determination of Credit Eligibility
The Lower Authority held that the appellants used denatured alcohol instead of undenatured ethyl alcohol for manufacturing, affecting the credit eligibility. The decision was based on the classification of ethyl alcohol under different headings and its industrial use requirements.

Issue 3: Interpretation of Input-Output Norms
The Lower Authority's determination was grounded on the interpretation that industrial-grade ethyl alcohol, specifically denatured alcohol, should be used as input for manufacturing glacial acetic acid, a chemical product. The relevance of denatured alcohol for industrial purposes was emphasized.

Issue 4: Applicability of Pass Book Credit Scheme
The appellants argued that they should be allowed duty credit based on the rate applicable to ethyl alcohol, not denatured alcohol, as they denatured ethyl alcohol due to State Government requirements. They referenced a DGFT letter recommending credit for ethyl alcohol as per norms.

Issue 5: Consideration of State Government Laws
The appellants highlighted that the denaturation of ethyl alcohol was a legal requirement imposed by the State Government, and they would have used undenatured ethyl alcohol for manufacturing acetic acid if not for this obligation. They contended that the denaturation did not alter the manufacturing process.

Issue 6: Legal Tenability of Lower Authority's Arguments
The judgment scrutinized the Lower Authority's arguments regarding the use of denatured alcohol, emphasizing the lack of evidence supporting the claim that pure alcohol could not be used for manufacturing glacial acetic acid. The absence of evidence rendered the arguments legally untenable.

Issue 7: Relevance of DGFT Clarification
The DGFT clarification was considered relevant, indicating that credit could be allowed for ethyl alcohol based on norms, even if not explicitly denatured. The judgment emphasized that the benefit should go to the appellants if ethyl alcohol was not specified.

Issue 8: Credit Amount Limitation
The Lower Authority's assertion that credit should not exceed the cost of the exported product was challenged, as no legal basis for such a limitation was found in the EXIM Policy or relevant notifications. The judgment concluded that this restriction lacked legal validity.

In conclusion, the appeal was allowed, emphasizing the appellants' compliance with norms and the legal requirements of denaturation imposed by the State Government. The judgment clarified the applicability of input norms, the relevance of DGFT clarification, and the absence of legal barriers to credit amount based on the exported product cost.