2016 (11) TMI 465 - HC - Customs

Status holder in Star Export House - Whether the Appellate Tribunal is correct in holding that in terms of para 4.1.3 and para 4.1.5 of the Foreign Trade Policy 2004-2009 the appellants could have cleared the resultant products manufactured out of duty free inputs in the domestic market before fulfillment of the export obligation? - import of raw materials against advance licences - N/N. 43/2002-Cus dated 19th April, 2002 and 93/2004-Cus dated 10th September, 2004 - Held that - provisions relating to advance licence under the FTP do not require that the export obligation should be completed out of imported duty free raw materials alone. In other words the licence holder is free to fulfill the export obligation out of indigenous raw materials. The goods are liable to confiscation when they are imported relying on exemption notification, but that exemption is subject to a condition. If that condition is not observed, the Hon ble Supreme Court held that the goods are liable to confiscation. The power of the customs authorities is held to be absolute. Imposition of penalty u/s 114A - export obligation under the advance authorisation - Held that - the assessee suppressed the actual consumption of raw-materials and undeclared consumption norms while applying for licences on ad-hoc norm basis. The allegation is of diversion of raw-materials imported duty free for the manufacture of finished goods in domestic market before fulfillment of export obligation. This is one violation or breach alleged or attributed. The tribunal, in para 39 also holds that in some cases, raw-materials imported were not utilised or physically incorporated in the production of goods exported. The declarations given for obtaining the licences were false. It is also held that export obligation in large number of licences is yet to be completely fulfilled even though the period is over long back - penalty upheld. No interest is payable on any of the customs duties that are due from the appellant. Appeal dismissed - decided partly in favor of appellant.

Issues Involved:
1. Whether the Appellate Tribunal is correct in holding that the appellants could not have cleared the resultant products manufactured out of duty-free inputs in the domestic market before fulfilling the export obligation.
2. Whether the appellants violated sub-para (v) of para 4.28 of the Handbook of Procedures.
3. Whether the Handbook of Procedures can go beyond the provisions of the Foreign Trade Policy and customs notifications relating to advance authorisation.
4. Whether the provisions specified in the Customs Appraisal Manual are applicable in relation to debiting of the licence.
5. Whether the Tribunal correctly quantified the demand without considering the request of clubbing of advance authorisations pending before the DGFT.
6. Whether the goods are liable for confiscation and whether redemption fine can be imposed even if the goods are not available for confiscation.
7. Whether the hefty penalty imposed by the Tribunal was justified.

Detailed Analysis:

Issue 1: Clearing Resultant Products Before Fulfilling Export Obligation
The Tribunal held that the appellants could not clear the resultant products manufactured out of duty-free inputs in the domestic market before fulfilling the export obligation. The Tribunal noted that the appellants imported Penicillin-G duty-free but sold the goods manufactured from it in the domestic market before fulfilling the export obligation, which is a violation of the Foreign Trade Policy (FTP). The Tribunal's decision was based on the understanding that the duty-free materials should be used for manufacturing export products before being sold domestically.

Issue 2: Violation of Sub-Para (v) of Para 4.28 of the Handbook of Procedures
The Tribunal found that the appellants violated sub-para (v) of para 4.28 of the Handbook of Procedures by not declaring the actual consumption of raw materials and by importing raw materials in excess of their requirements. The Tribunal noted that the appellants did not make additional exports or pay customs duty on the excess imports, which was a violation of the Handbook of Procedures.

Issue 3: Handbook of Procedures vs. Foreign Trade Policy
The Tribunal held that the Handbook of Procedures could not restrict the scope of the Foreign Trade Policy or the Customs notifications. The Tribunal found that the Handbook of Procedures is an integral part of the scheme and cannot be separated from the FTP and Customs notifications.

Issue 4: Applicability of Customs Appraisal Manual
The Tribunal found that the provisions specified in the Customs Appraisal Manual were not applicable in the instant case relating to the debiting of the licence. The Tribunal noted that the appellants' request to debit the imported raw materials against other licences was not acceptable as the advance licences were issued for specific export orders.

Issue 5: Quantification of Demand Without Considering Clubbing Request
The Tribunal quantified the demand without considering the appellants' request for clubbing of advance authorisations pending before the DGFT. The Tribunal found that the appellants had imported raw materials far in excess of their requirements and did not fulfill the export obligations, justifying the demand raised.

Issue 6: Confiscation and Redemption Fine
The Tribunal upheld the confiscation of goods and imposition of redemption fine under section 111(o) of the Customs Act, 1962, even though the goods were not available for confiscation. The Tribunal noted that the appellants had imported goods under advance licences with specific conditions and had violated these conditions, making the goods liable for confiscation.

Issue 7: Imposition of Hefty Penalty
The Tribunal upheld the imposition of penalties on the appellants and their directors under section 112(a) of the Customs Act, 1962. The Tribunal found that the appellants had violated the conditions of the advance licences and had not fulfilled the export obligations, justifying the penalties imposed.

Conclusion:
The Tribunal's decisions on the issues were largely upheld, with modifications regarding the applicability of amendments to advance authorisations issued after April 2005 and the setting aside of the penalty imposed on the assessee under section 114A of the Customs Act, 1962. The penalties on the directors were maintained under section 112(a) of the Customs Act, 1962.

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