2017 (3) TMI 629 - AT - Customs

DFIA benefits - validity of transfer of DFIA issued under SION E-5 (Biscuits) - Revenue contended that, since the importer is not the actual user of the exempt material (imported saffron), the claim of duty exemption under the said DFIAs was in breach of actual user conditions of the SION - N/N. 40/2006-Cus dated 01.05.2006 - N/N. 98/2009-Cus dated 11.09.2009 Held that - neither the SION refer to any ITC (HS) Number nor the amendment sheets issued after the endorsement of transferability in the relevant DFIA License specify any ITC (HS) No. - out of 11 DFIA s, 7 DFIA s were issued prior to Public Notice No. 84/2010 dated 23.07.2010 and 1 DFIA was issued after the SION E-5 was amended vide PN 93 dated 01.02.2012. There is no actual user condition in existence prior to the issue of PN 84 dated 23.07.2010 and after 01.02.2012. - As regards the Balance 3 DFIA Licenses during the period on which Public Notice No. 84/2010 dated 23.07.2010, no such Actual user condition is mentioned even in these 3 DFIA Licenses. - There is no merits in the arguement of revenue that the amendments in the DFIA licenses have been obtained through fraudulent means and suppression of facts before the licensing authorities. The duty exemption cannot be denied by construing Para 4.1.3 of the FTP to mean that only food flavour was actually used in the export product is allowed for import. Even the RTI information reveals that in the absence of specification of saffron under Para 4.32.2 of HBP means no nexus is required to be established with earlier exported products - The exporter have discharged the stipulated export obligation as mentioned in the DFIA Licenses issued by several regional licensing authorities. Therefore the contention that the license brokers in collusion with exporters fraudulently obtained transferability endorsement from licensing authorities by manipulating serial nos. 5 (d) to serial no 8 to escape the actual user condition is totally misplaced. The exporters have no role in the imports once the DFIA has been endorsed with transferability and sold in the market for a consideration. Therefore there is no justification in imposing penalty upon the exporters. Extended period of limitation - Held that - the SCN issued admittedly beyond the normal period of one year from the relevant date. The revenue did not allege any fraud and suppression of facts - the demand for extended period is clearly unsustainable in law. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Denial of DFIA benefits under DFIA Notifications.
2. Confiscation of goods and imposition of penalties.
3. Actual user condition and accountability of actual use.
4. Validity of transferability endorsement on DFIA Licenses.
5. Allegations of fraud and suppression.
6. Invocation of extended period for demand.

Detailed Analysis:

1. Denial of DFIA Benefits Under DFIA Notifications:
The main contention of the department was that the import of saffron under DFIA licenses was subject to actual user conditions and accountability of actual use as per DGFT Public Notice No. 84/2009 dated 23.07.2010. The appellant argued that once the DFIA is endorsed with transferability, there is no actual user condition since the DFIA and inputs are freely transferable. The Tribunal agreed with the appellant, stating that the DGFT Policy Circular No. 72/2008 clarifies that the exporter has the flexibility to import alternative inputs either used or capable of being used in the export product. The Tribunal referenced several case laws supporting this view.

2. Confiscation of Goods and Imposition of Penalties:
The Commissioner of Customs (Export) had ordered the confiscation of goods and imposed various penalties on the appellants and other parties involved. The Tribunal found no merits in the department's argument that saffron is required to be physically incorporated in the export product (biscuits). The Tribunal also noted that saffron is a well-known food flavor and permitted for import against the DFIA issued for export of biscuits, as held by the Commissioner of Customs (Appeal) in a previous order.

3. Actual User Condition and Accountability of Actual Use:
The department argued that the import of saffron was subject to actual user conditions as per SION E-5. However, the Tribunal found that the DFIA licenses did not incorporate any actual user condition at the time of import. The Tribunal held that the only requirement of the notifications is that the imported goods must answer the description of the item mentioned in the DFIA. The Tribunal also referenced the RTI information revealing that no nexus is required to be established with earlier exported products in the absence of specification of saffron under Para 4.32.2 of HBP.

4. Validity of Transferability Endorsement on DFIA Licenses:
The Tribunal found no merits in the department's argument that the amendments in the DFIA licenses were obtained through fraudulent means and suppression of facts before the licensing authorities. The Tribunal noted that the exporters had discharged their export obligation and obtained the endorsement of transferability in terms of the provision of Para 4.36A of the Hand Book of Procedures. The Tribunal referenced the case of USMS Saffron Co., where similar arguments were rejected.

5. Allegations of Fraud and Suppression:
The department alleged that license brokers and CHA were in collusion with the exporters and importers in obtaining amendments in DFIA licenses by fraudulently getting the serial numbers manipulated. The Tribunal found no basis for these allegations, noting that the amendments were made by the regional licensing authorities. The Tribunal also referenced the case of USMS Saffron Co., where the department did not allege any fraud or suppression before the High Court of Bombay.

6. Invocation of Extended Period for Demand:
The show cause notice was issued beyond the normal period of one year from the relevant date, and the department sought to invoke the extended period. The Tribunal found that the revenue did not allege any fraud or suppression of facts, which is evident from the judgment of the High Court of Bombay. Therefore, the demand for the extended period was clearly unsustainable in law. The Tribunal held that the entire demand is barred under Section 28 of the Customs Act and the invocation of the extended period is untenable.

Conclusion:
The Tribunal set aside the impugned order, holding that the denial of DFIA benefits, confiscation of goods, and imposition of penalties were not justified. The appeals were allowed, and the Tribunal emphasized the binding nature of the previous judgments and orders on the revenue.

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