2019 (3) TMI 1450 - AT - Customs

Advance Authorisation Scheme - non-fulfillment of export obligation - import of duty free material against advance licence for manufacture of goods for export or deemed export - It was alleged that the materials imported duty free but which were in excess of the actual requirement were not exempted from payment of duty and were required to suffer custom duty - Held that - It is not in dispute that the appellant assessee had procured the goods under Advance authorisations as per SION Norms. The imported material was used/ consumed in manufacture of export goods and the export obligations against the Advance authorisations stands fulfilled. The SION Norms has been promulgated in order to ward off the disputes pertaining to consumption of inputs. Once the norms are fixed, it is imperative for the assessee to follow such norms. If the assessee is not able to produce the goods as per the said norms and fails to fulfil the export obligation, he is liable to pay the customs duty covered by the advance authorisations. Once the SION Norms are fixed and the manufacturer has manufactured goods under the said norms and the export obligation stands fulfilled the revenue cannot demand duty on the ground that the actual consumption was less than SION. If such practice is adopted, it will lead to SION becoming redundant and it will open Pandora box of disputes. The SION Norms has been fixed after taking into consideration all the relevant factors and the overlooking of the same is not permissible. The whole purpose of fixing the SION norms is to avoid physical check of actual consumption of inputs in the manufacture of final products. For that very reason there is no mechanism provided for check or audit of actual consumption of imported goods if the same is covered under the SION norms. Once the importation of goods was permitted in terms of SION Norms and the export obligation stands fulfilled, the appellant were entitled to use the remaining goods in manufacture of goods which were cleared into DTA. We also find that the appellant have not suppressed any fact and the utilisation of the imported material and manufacture of finished goods stands recorded in their records as well as shown in monthly returns - the demands raised against the appellant are also hit by limitation of time. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Demand for customs duty on duty-free imported material
2. Interpretation of SION norms and export obligations
3. Allegations of diversion of raw material in DTA
4. Imposition of penalty against the assesses under Section 112(a) of the Customs Act, 1962
5. Redemption fine in lieu of confiscation of imported goods

Issue 1: Demand for customs duty on duty-free imported material
The case involves appeals by M/s KLJ Organics Ltd, KLJ Plasticizers Ltd., and KLJ Polymers & Chemicals Ltd. against an Order-in-Original passed by the Commissioner of Customs, Kandla. The dispute arises from the import of duty-free material against advance licenses for export, which was also used in the domestic market. The revenue alleged that excess duty-free imported material not used for export was liable for customs duty. The adjudicating authority confirmed the demands, penalties, and imposed redemption fine. The appellants contended that goods were used as per SION norms and after fulfilling export obligations, no duty should be demanded for goods cleared into DTA.

Issue 2: Interpretation of SION norms and export obligations
The advocate for the appellants argued that the demand was erroneous as the revenue focused on actual consumption in export products, ignoring raw material in off-grade production and wastage. They emphasized that the imported goods were used in manufacturing both export and off-grade goods, which were cleared into DTA after fulfilling export obligations. The SION norms and Advance Authorization scheme were highlighted to support the contention that duty should not be demanded if the export obligation is met.

Issue 3: Allegations of diversion of raw material in DTA
The revenue reiterated that since actual material use in export products was less, the surplus material used in goods cleared into DTA should attract customs duty. However, the tribunal found that the imported goods were used in accordance with SION norms, and the export obligations were fulfilled, rejecting the revenue's demand for duty based on actual consumption being less than SION norms.

Issue 4: Imposition of penalty against the assesses under Section 112(a) of the Customs Act, 1962
The revenue was aggrieved by the absence of penalties against the assesses under Section 112(a) of the Customs Act, 1962. However, the tribunal found in favor of the appellants, emphasizing compliance with SION norms and the fulfillment of export obligations as per the Advance Authorization scheme.

Issue 5: Redemption fine in lieu of confiscation of imported goods
The adjudicating authority imposed a redemption fine in lieu of confiscation of imported goods due to their unavailability. The tribunal, after considering relevant judgments, allowed the appeals filed by the appellants, dismissing the revenue's appeals and providing consequential reliefs.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the tribunal's findings, ensuring a comprehensive understanding of the legal aspects involved in the case.