2015 (2) TMI 824 - AT - Customs

Waiver of pre-deposit - Advance license for deemed export - Compacting process of bulk drugs is a manufacturing process or not - Denial of benefit of Notification No. 47/2002-Cus dated 22-4-2002 - Held that - From the Export and Import Policy 2002-2007, it is clear that advance licenses can be issued for duty free import of materials required for the manufacture and deemed export of final goods and supplies to 100% EOU would constitute deemed exports . Since the customs notification No. 47/2002 has been issued in the context of para 4.1 of the Exim Policy 2002-2007, the concept of manufacture and final goods have to be understood in terms of the said policy. The definition of manufacture under para 9.30 of the Exim Policy is very wide and any process which brings into existence a product having a distinctive name, character or use and even processes such as refrigeration, repacking, polishing and labelling would also come within the purview of the said definition. In other words, the expression manufacture used in the aforesaid exemption notification has to be understood in terms of the Exim Policy 2002-2007 and not in terms of the Central Excise Act or the definitions thereunder. The requirement of the notification is manufacture and export of goods and not repeat not manufacture of excisable goods . The definition of manufacture under section 2(f) of the Central Excise Act, 1944, applies when excisable goods are involved and not otherwise. We have also perused some of the advance licences issued to the appellant. Thus from the advance licences issued to the appellant importer, there is no violation of any of the conditions stipulated either in the licence or in notification No. 47/2002-Cus and therefore, denial of exemption to the appellant in the impugned order is prima facie unsustainable in law and we hold accordingly. We further notice that the issue whether compacting amounts to manufacture was specifically examined by a Committee consisting of officers from DGFT, Dept. of Industrial Promotion & Policy and Dept. of Pharmaceuticals. This Committee in the meeting held on 21-12-2010 concluded that the compacting process is a manufacturing process in itself which is intermediate stage before making a tablet. Thus when all the concerned authorities have held the process of compaction to be manufacture , we do not understand how the customs authorities can take a different view. The ration of decision Dina International 2003 (10) TMI 372 - CESTAT, MUMBAI is equally apply here. As regards the charge of aiding and abetting by the co-appellants, we do not find any evidence led by the Revenue in this regard. If payments have been adjusted against money due, it is only a normal commercial practice and cannot be attributed to aiding and abetment. In view of the factual and legal analysis as above, we are of the considered view that the appellants have made a strong prima facie case for grant of stay. - stay granted.

Issues Involved:
1. Denial of duty exemption under Notification No. 47/2002-Cus.
2. Whether the process of 'compaction' amounts to 'manufacture'.
3. Allegations of aiding and abetting duty evasion.
4. Validity of penalties imposed on the importer and its directors.
5. Commercial practices concerning payments and their relevance to the case.
6. Invocation of extended period for demand of duty.
7. Applicability of previous Tribunal decisions.

Detailed Analysis:

1. Denial of Duty Exemption under Notification No. 47/2002-Cus:
The core issue revolves around the denial of duty exemption benefits under Notification No. 47/2002-Cus dated 22-4-2002. The adjudicating authority confirmed customs duty demands on the importer by denying this exemption. The Tribunal noted that the conditions for the exemption were indeed met, as the imported goods were covered under Advance Licences for deemed exports, and the final goods were supplied to a 100% EOU, fulfilling the substantive conditions of the notification.

2. Whether the Process of 'Compaction' Amounts to 'Manufacture':
The Tribunal examined if the process of 'compaction' qualifies as 'manufacture'. The Revenue argued that compaction did not change the chemical composition of the bulk drugs, thus not amounting to manufacture. However, the Tribunal referred to technical literature and the definition of 'manufacture' under the Exim Policy 2002-2007, which includes processes bringing into existence a product with a distinctive name, character, or use. The Tribunal concluded that 'compaction' does amount to 'manufacture' as per the relevant policy and technical definitions.

3. Allegations of Aiding and Abetting Duty Evasion:
The Revenue alleged a conspiracy to evade duty involving the importer, a 100% EOU, and high seas sellers. The Tribunal found no concrete evidence supporting these allegations. The commercial practice of adjusting payments was deemed normal and not indicative of aiding or abetting duty evasion.

4. Validity of Penalties Imposed on the Importer and Its Directors:
Penalties were imposed on the importer and its directors, as well as other associated entities. Given the Tribunal's findings that the process undertaken did amount to 'manufacture' and that the exemption conditions were met, the basis for imposing penalties was undermined. The Tribunal did not find sufficient grounds for these penalties based on the presented facts and legal interpretations.

5. Commercial Practices Concerning Payments and Their Relevance to the Case:
The Tribunal addressed the practice of adjusting payments against dues as a normal commercial activity. This practice was not seen as violating any conditions of the duty exemption or as evidence of any wrongdoing.

6. Invocation of Extended Period for Demand of Duty:
The Tribunal noted that the entire activity was conducted with the knowledge and approval of the central excise department, negating any claims of suppression or willful misstatement of facts. Consequently, the invocation of the extended period for demanding duty was deemed inappropriate.

7. Applicability of Previous Tribunal Decisions:
The Tribunal referred to previous decisions, such as Dina International and Ramakrishna Exports, to support the interpretation that the definition of 'manufacture' under the Exim Policy should be applied. These precedents reinforced the Tribunal's conclusion that the appellant's activities qualified for the duty exemption.

Conclusion:
The Tribunal granted an unconditional waiver from pre-deposit of the dues adjudged against the appellants and stayed recovery thereof during the pendency of the appeals. The Tribunal's analysis emphasized that the appellant had complied with the conditions of the relevant notification and policy, and the process of 'compaction' was indeed a recognized manufacturing process. The penalties imposed were found to be unjustified, and the extended period for demand was not applicable due to the lack of suppression or misstatement of facts.

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