2015 (2) TMI 552 - AT - Customs

Excess import of goods against advance licence - Pencillin-G which was imported free of Customs duty - Confiscation of goods - Notification No. 94/2004-Cus dated 10.09.2004 - According to the Revenue, imported raw materials should have been used in the manufacture and thereafter export of goods for fulfilment of export obligation and before fulfilling the export obligation, the goods so produced could not have been cleared to the domestic market - During search operation on 30.08.2007, neither pencillin-G nor the final products (bulk drugs) were found in the manufacturing units even though export obligations were yet to be fulfilled. Held that - During the hearing the learned advocate for the appellant did not press for this issue and stated that they have already paid duty alongwith interest, hence there cannot be any penalty on the appellants. There is no dispute that the raw material imported was far in excess of that required by the appellant. This fact was not brought to the notice of the licensing authorities so that they could have issued the licence as per the actual requirement. Even after duty free importation, the appellants have neither made additional exports, nor paid the Customs duty. These details were suppressed and came to light during investigation. Accordingly, we hold that there is a violation of the provisions of Handbook read with Foreign Trade Policy and since the exemption is granted to raw materials imported against Advance Authorisation issued in terms of Foreign Trade Policy, the exemption is subject to limitation as provided in the Notification, Foreign Trade Policy/Handbook of Procedures. Appellant No. 1 has paid substantial amount to appellant No. 2 in respect of goods purchased from appellant No. 2 on high-sea sale basis. As per Section 14 of the Customs Act, 1962 it is the transaction value which is relevant for determining the assessable value. In the present case, the transaction value will include the amount so debited or paid after the clearance of the goods. In view of this position, we hold that the additional amount paid will be subject to duty. Goods are confiscated both under Section 111 (d) and Section 111 (o) of the Customs Act, 1962. We do not find any force in the argument of learned advocate for the appellant that goods are freely importable and hence there is no restriction for imports and Section 111 (d) is applicable only when the imported goods are prohibited. It may be true that goods are freely importable. However, in that situation full Customs duty is chargeable. Moreover, appellants have not imported the goods under the said provision of free importability. Appellants have imported the goods under Advance Authorisation which have its own benefits and obligations, restriction and prohibitions. Both benefits and obligations, restrictions and prohibitions are interlinked. Appellants cannot be permitted to avail the benefits and when it comes to obligations, restrictions and prohibition to say that goods are freely importable. We therefore hold that confiscation under Section 111 (d) is correct. As far as confiscation under Section 111 (o) is concerned, we find that imported duty free material were meant for manufacture of the resultant product and export, thereby contravening the provisions of relevant notifications and condition of the Advance Advance Authorisation. Confiscation under Section 111 (d) and Section 111 (o) of the Customs Act, 1962 is correct and redemption fine is also correctly imposed. In addition, Section 111 (m) will be applicable in case of undervalued Pencillin-G and is accordingly upheld. Appellants who were directly responsible for evasion of duty are to penalty and the same is upheld against them. However, the appellants who did not have direct connection are liable for reduced penalty - and the rest of the appellants who did not have any connection are not liable for penalty - Decided partly in favour of appellants.

Issues Involved:
1. Violation of Advance Licensing Scheme conditions.
2. Excess import of duty-free materials.
3. Usage of surplus raw materials.
4. Shortfall in fulfilling export obligations.
5. Undervaluation of imported materials.
6. Confiscation of goods and imposition of penalties.

Detailed Analysis:

1. Violation of Advance Licensing Scheme Conditions:
The appellants imported raw materials duty-free under the Advance Licensing Scheme but used these materials to manufacture goods sold in the domestic market before fulfilling export obligations. This action was in clear violation of the Foreign Trade Policy (FTP) and Customs Notifications No. 93/2004-Cus and 94/2004-Cus. The court found that the appellants' main contention that duty-free imports need not be used in the resultant export products was without substance. The court emphasized that the scheme did not allow the use of imported duty-free materials for domestic production before fulfilling export obligations.

2. Excess Import of Duty-Free Materials:
A demand of Rs. 19,13,968/- was confirmed due to excess import of duty-free materials based on self-declared norms, which were higher than the norms fixed by DGFT. The appellant had already paid the duty along with interest, and thus, the court did not impose any additional penalty on this issue.

3. Usage of Surplus Raw Materials:
A demand of Rs. 2,80,07,763/- was confirmed for importing raw materials far in excess of the actual requirement for manufacturing Amoxicillin Trihydrate. The court held that the appellants violated para 4.28 (v) of the Handbook of Procedures by not paying duty on the excess materials or fulfilling additional export obligations. The court rejected the argument that the Handbook of Procedures restricted the scope of the Foreign Trade Policy, stating that it only clarified the position relating to Standard Input Output Norms (SION).

4. Shortfall in Fulfilling Export Obligations:
The appellants accepted liability for a demand of Rs. 49,364/- due to a shortfall in fulfilling export obligations and had already paid the duty along with interest. The court did not further examine this issue but stated that penalties would be dealt with later.

5. Undervaluation of Imported Materials:
A demand of Rs. 96,60,662/- was confirmed due to undervaluation of Pencillin-G imported on a high-sea sale basis. The court held that the transaction value should include the amount paid after the clearance of goods. The court rejected the appellants' reliance on the Bombay High Court judgment in UOI vs Glaxo Laboratories (India) Ltd, stating that the judgment was not applicable to the facts of the present case.

6. Confiscation of Goods and Imposition of Penalties:
The court upheld the confiscation of goods under Sections 111(d), 111(m), and 111(o) of the Customs Act, 1962, and imposed penalties under Section 114A on Appellant No. 1, and under Section 112(a) on other appellants involved. The court reduced penalties for some appellants based on their roles and statuses within the organizations but upheld penalties for key individuals responsible for the violations.

Conclusion:
The court dismissed the appeals except for modifications in penalty amounts for certain appellants. Appeals for Appellant Nos. 4, 12, and 14 were allowed, and penalties for other appellants were either upheld or reduced based on their involvement and roles in the violations.

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