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TMI Blog2009 (5) TMI 434X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to be doubting the scope and content of advance license in the question. Though the settled position of law has enunciated by several binding precedents, was in particular clear in the instant case, if at all the revenue had any doubts on the scope and contents of the license, the proper course would have been reference to DGFT. The Chapter 4 of EXIM Policy 1997-2002 which applies to the present case deals with the general position of exports and imports. Therefore, the entire proceedings against the appellant in the present case are liable to be set aside being premature in so far as they have been initiated contrary to the mandate of the above Para 4.13 of the EXIM Policy. In view of the above reasonings, the impugned order therefore, cannot sustain and is hereby set aside with consequential relief, to the appellant. - C/445/2008 - 682/2009 - Dated:- 27-5-2009 - S/Shri T.K. Jayaraman, Member (T) and M.V. Ravindran, Member (J) Shri G. Shiva Dass, Advocate, for the Appellant. Ms. Sudha Koka, SDR, for the Respondent. [Order per: M.V. Ravindran, Member (J)]. - This appeal is directed against impugned Order-in-Original No. 3/2008 Commr. dated 28-2-2008 passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary to mention (though these facts consciously find no place in the show cause notice issued to the appellant) that: (a) Insofar as the advance licence No. 07002638 was concerned, the DGFT issued Export Obligation Discharge Certificate (EODC) on 16-9-2002 certifying that the export obligation on the appellant under the said advance licence has been discharged by them. This EODC was submitted by the appellant to the Customs Authorities on 1-10-2002 with a request that the bond executed by them in connection with the said advance license be closed. (b) Insofar as advance license No. 0710000070 was concerned, the imports of 1,71,023 sq. mt (1,25,292 sq. yards) were affected under bills of entries thereby foregoing customs duty to the tune of Rs.77,34,945/-. As against this, the appellant claimed to have exported 36,696 Men's shirts between 19-3-1999 and 28-9-1999 valued at Rs.1,49,77,770.27 (US $ 3,51,379.90) under 40 shipping bills through ICD, Bangalore. The export proceeds in respect of 40 shipping bills were realized through normal banking channels. Admitting the fact that thereby there was shortfall of export obligation on their part, for these advance licence, the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant as well as the supporting manufacturers who have alleged to have manufactured the trousers out of the fabrics supplied by the appellant, admitting manufacturing of only trousers by using the inputs at job workers not mentioned in the licences; (b) The fact that the imported fabrics bore codes "AT, LT, VT, which were for "Allen Solly trousers, Louis Phillipe trousers and Van Heusen trousers;" (c) The cutting register maintained by one of the supporting manufacturers i.e., Classic Men's Wear Pvt. Ltd. showed issuance of the fabrics received from the appellant to the cutting section in further manufacture of trousers; (d) The fact that in their application for issuance of advance license No. 0710000070, the appellant had declared the consumption of fabrics per unit as 2.70 sq. metres (which corresponded to the SION norms of consumption in respect of shirts cloths instead of 2.25 sq. meters which corresponded to the SION norms in respect of trousers); and (e) The sample invoice showing the sale of sample by the appellant in the domestic/local market. 3.6 On the above said basis, confiscation of the goods imported duty free under the two licenses, though not avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinabove, attained finality. In the meanwhile 18-10-2004, the DGFT issued EODC in respect of even this licence. (c) Bonds were discharged after submission of EODC. On the above facts, the appellants also stressed the plea to adjudicate, contending that the proceedings by the Commissioner was not maintainable in view of the above proceedings which had attained finality, on the ground of constructive res judicata, and the same documents should not be subject to repeated scrutiny by reopening the same issue despite cancellation of bond and submission of EODC. (d) Stress was also laid by the appellant on the use of words "required for manufacture" under Notification No. 30/97-Cus., (supra) as well as various circulars issued by Central Board of Excise and Customs (CBEC) in this regard. It was submitted that words "required for" in the submission of the appellant, it contemplated possible use and not actual use, as clarified by the CBEC in Circular No. 36/1997 dated 16-9-97. The advance license issued to the appellant permitted import of polyester cotton fabrics. The actual usage of the said cotton fabrics in the manufacture of export product was not a mandatory condition specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against the appellant and confirmed the demand, etc., as already indicated hereinabove in paragraph-1. While coming to such a conclusion, the learned Commissioner relied upon the evidences cited in the show cause notice to hold that the imported material was used in the manufacture of trousers and was thus, never capable of being used in the manufacturing of men's shirt. Circulars and the citations relied upon by the appellant were not of any assistance and as they have failed to establish the imported duty free imports were even required for the purpose of manufacture of the product that is "full sleeved shirts" as specified in the DECC license, he held against the appellant. The affidavit dated 17-7-2007 of one Shri Jacob John confirmed that the shirts could be also manufactured out of the imported material, was disregarded, as an afterthought. As the trousers manufactured by the manufacturer were different from the supporting manufacturer, whose names have been mentioned in the advance license, contravention of Clause (viii) of Notification No. 30/97-Cus., was also held to have been taken place. Regarding the role of the DGFT, it was held that the customs authority had fundame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resultant export product manufactured in India and specified in the certificate. (e) Condition (vii) and (viii) of the Notification which are alleged to have been violated in the present case read as under: "(vii) Exempt material shall not be disposed off for in any manner except for realization in discharge of export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person; (viii) that the impact of the said advance license issued to merchandise exporter:- (a) the name and address of the supporting manufacturer is specified in the said license and the said certificate and the bond required to be executed by the importer in terms of condition (ii) shall be executed jointly by the Merchant Exporter and the supporting manufacturer binding themselves jointly and severally to comply with the conditions specified in this notification, and (b) exempt materials are utilized in the factory of such supporting manufacturer in terms of condition (vii)". (f) Further the materials used notification is defined in explanation to the Notification (ii) itself which is as under: (ii) "materials" means- (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leared for home consumption under advance license by extending benefit of exemption notification can subsequently be held to be not required for manufacture by the Customs authorities to invoke provisions of Section 111(o) for proposing confiscation? (c) Whether the appellant having discharged the export obligation was at fault in replenishing the inputs i.e., Duty free fabrics and disposing the trousers manufactured out of such exempted inputs? And whether it is open for the customs authorities to question the manner of disposal of such manufactured goods to deny exemptions of the replenished inputs contained therein? (d) Whether after completion of the export obligation stipulated in the advance license, can duty demand on the imported material sustain under Customs Notification? (e) Whether the existence Notification empowers the customs to go beyond the license? (f) Whether the proceedings were hit by the principles of constructive res judicata? (g) Whether the appellant has failed to establish nexus as envisaged in advance licensing scheme? (h) Whether the instant proceedings and the impugned order were legal and proper? 8. We now take up the issue which has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olyester/cotton blended fabrics" were properly cleared for home consumption under two advance licenses by extending benefit of Notification. Though the appellants during the course of adjudication have also produced an affidavit dated 17-7-2007 of one Shri Jacob John, Director - Product Development and Quality Assurance, affirming that from the exempted polyester/cotton blended fabrics, full sleeve shirts could also be manufactured, the same was rejected by the Adjudicating Authority as submitted belatedly, as an afterthought, contrary to the evidence on record which was in the form of statement of D. Krishnan who confirmed that imported fabrics were used in the manufacture of trousers. If the Adjudicating authority had any doubts regarding the affidavit, he should have called the deponent for cross-examination or could have allowed the cross-examination by the department. Moreover a statement that the fabrics were used in the manufacture of trousers is not contrary to the certificate to the effect that the shirts could also be manufactured on the same fabrics. We find that the reasons advanced for rejecting the affidavit are without any merits, especially when the affidavit corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 (189) E.L.T. 3 (S.C.), regarding strict construction of notification for eligible criteria does not support the Revenue's case, in the facts and circumstances of the instant case. We hold that Section 111(o) has no application in the facts of the instant case. 8.2 We now take up question (c) for discussion. (c) Whether the appellant having discharged the export obligation was at fault in replenishing the inputs i.e., duty free fabrics and disposing the trousers manufactured out of such exempted inputs? And whether it is open for the customs authorities to question the manner of disposal of such manufactured goods to deny exemptions of the replenished inputs contained therein? The appellant in the instant case had submitted that EODC in respect of both the licenses. Thus, it is not a disputed fact that the export obligation was discharged in the instant case. Thus, condition (v) of the exemption notification was also fulfilled. The imported goods were replenished for other goods used in the export of shirts. It was not mandatory to actually use the exempted goods in manufacturing of the export goods, as per exemption notification. The imported goods were utilized in the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We also hold that it is not open for the customs authorities to question the manner of disposal of such manufactured goods to deny exemption of the replenished inputs contained therein, because, the export product met the requirements mentioned in Part E of the DEEC book. Further, we find that in the matter of Navjyothi International v. CCE, Chennai - 2004 (177) E.L.T. 875, it was held by the Tribunal that: "6.............The findings recorded by the Commissioner with reference to the condition (viii) is not cogent. After reading the condition, the following condition (vii) he holds that it is quite clear that 53.060 metric tones of S.S utensils got manufactured by job workers not mentioned in the licenses and the exporter are not eligible for export benefits as claimed. This is against the obligations enforced by the DEEC license quoted therein. In any case, this finding is contradictory to JDGFT's findings. According to the letter, appellants could validly get the imported raw materials, processed into finished goods through non declared job workers. This is precisely what the appellants did for export of 53.060 metric tones of S.S utensils manufactured through job work out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above discloses, the Joint DGFT issued EODCs, certifying that the appellant had discharged export obligation which was cast on them in respect of the advance licenses. It has been contended by the appellant before the Commissioner, that, in view of the said EODC, the case against them, could not survive. However, it must be mentioned here that the Commissioner had failed in considering this effect of undisputed EODC issued by the DGFT in the context of this licenses acting upon which, even the bonds were already cancelled. Moreover, no condition of the exemption was violated and therefore, there cannot any liability of penalty, as well. 8.4 We now take up question No. (e)which we have framed above. (e) Whether the exemption Notification empowers the customs to go beyond the licence? We find that it is well settled law that customs authorities are bound by the licenses issued by the licensing authority. The Hon'ble Supreme Court in the case of Titan Medical Systems Pvt. Ltd. v. CCE - 2003 (151) E.L.T. 254 at Paragraph 13 held as under: "13............To be noted that licensing authority having taken no steps to cancel the license. The licensing authority have not claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse to permit import of the steel as a material required in the manufacture of resultant product. In this view of the matter, we are of the opinion that the impugned orders passed by the Customs Authorities below cannot be sustained". Further in the matter of Titan Industries Ltd. v. Addl. Commissioner of Customs - 2003 (158) E.L.T. 437 (Mad.), the Hon'ble Madras High Court held as under: "8 From the aforesaid decisions, it becomes clear that once export obligation has been met, it is not for the customs authority to insist for a nexus in respect of matters coming up under this Special Scheme. If any import is contravention of the license, it is for the licensing authorities to take action not the customs authorities. It is stated by the first respondent that the customs authorities have already made correspondence in a matter with the licensing authorities. Therefore, it is for the licensing authorities to take action, if it is so required under the law. But, the Customs Authorities cannot refuse to release the bank guarantee merely because the matter is under correspondence with the licensing authorities." In the case of UOI v. Tamil Nadu Dadha Pharmaceuticals Ltd. - 2008 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (116) E.L.T. A72 (S.C.) and Bramec Suri (P) Ltd. v. CCE, Kanpur - 1986 (25) E.L.T. 79 (Tri.). We find that none of the judgments led to the conclusion that the constructive res judicata is not applicable in tax matters. Para 47 of the judgment merits reproduction. "As per show cause notice the fresh facts have come to light and they had been taken on record. In the case of Bramec Surie (P) Ltd. v. CCE (supra), the Tribunal has held that issues already concluded in earlier proceedings could be reopened in subsequent proceedings for another period of time if emerging fresh materials give a new dimension to the matter." In CCE Kanpur v. Kothari Products Ltd. - 2008 (229) E.L.T. 12 (S.C.) the Hon'ble Apex Court dismissed the Revenue's appeal inter alia on the ground of res judicata. The fact of the instant case, even otherwise there is nothing on record, which would justify disregarding the satisfaction of the proper officer at the time of clearance of the goods regarding the nexus of the imported goods with the exported product mentioned in the license. Moreover, EODCs were issued. Penalty in the case of one license was imposed and paid. Excess interest paid was also refunded. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder in accordance with the notification. With this clear exposition, it is emphatically clear that in case of transferable license the nexus between the imported material and export product is not required to be proved afresh by the transferee/importer, once the imported material is otherwise covered by the advance license. In view of this authoritative judicial pronouncement, the department cannot now loosely interpret the provisions under scheme by reading several contrasting instructions issued from time to time in Notification as 4/93 4-3-1993, 1/94 dated 5-1-94, 34/94 12-12-94, 11/95 dated 15-2-1995 and thereafter superceded by 36/97-Cus., dated 16-9-1997, in a manner out of the context or contrary to these authoritative judicial pronouncement, only to deny the exemption benefit granted by the license. Merely because in the instant case, licenses are not transferable, it does not mean that the customs authorities are permitted to go beyond the license to deny exemption benefits. In the instant case, the specifications of the goods imported are squarely covered by the advance license issued by the licensing authority. The appellant has thus established a nexus as envisaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired in order to manufacture the resultant product. Crystar beams imported by the appellant are materials, which though not used in the manufacture of H. T. Porcelian Insulators required for Lightening ArrestorsTare materials which are required for producing the insulators in the kilns." As explained above in discussion to the issue in (a) raised above, the imported fabric in the facts of the instant case were covered by the licenses and could have been used in the manufacture of shirts as well as trousers. The conclusion drawn in the impugned order that the above ratio or judgment of the Supreme Court does not apply in this case is to our considered opinion, improper. (iii) It is further observed in the impugned order that: "142. I have examined all the case laws cited by the noticee and I find that in the case of M/s. Jay Engg. Works, the issue is about the non-fulfilment of export obligations. In case of M/s. Stumpp, Scheule Somappa and M/s. Rastriya Ispath Nigam Ltd., the issue is about the raw materials imported for replenishment used in the manufacture of goods which are sold in domestic market and the above issue cannot be equated with the present case. The above cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department's only allegation is that they have used coking coal for manufacture of major portion of the exports. Therefore, they can import coking coal free of duty only for replenishment against the exports. We find that this stand of the department is not correct as under Standard Input-Output norms, appellants have been permitted either to import coking coal or lam coke. Therefore, both of these are covered by the words 'such material' in Para VII of Notification No. 30/97-Cus. These goods were imported under valid license. There is no allegation that they have violated the standard input-output norms given in the Import/Export policy. It is also not alleged that they have diverted the imported Lam coke to somebody else or sold in the market. Since, they continuously manufacturing the export products and utilized the same for the manufacture of export products, the allegation of the department that the lam coke could not have replaced the coking coal is not correct. We are of the view that there is no violation of any condition of the Notification No. 30/97-Cus., by the appellants." The goods imported in the instant case before us were covered by a valid advance license iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n we look into the findings of both the authorities, we cannot find fault with the impugned order. The license does not specify the nature of the sewing thread allowed to be imported. In other words, it does not prohibit importation of the silk swing thread of Chinese origin. The license, as admitted by both sides before us, states that sewing thread in a generic way would be allowed to be imported. In the absence of importation of particular variety and of the origin, we cannot accept arguments made by the learned SDR which he tried to effectively put on behalf of the department as much as possible. Moreover the precedent decision cited by the learned counsel for the importer, viz., Alfa Exim and Sandeep Impex Pvt. Ltd - 1997 (95) E.L.T. 366 clearly clinches the issue in favour of the respondent. Therefore, we are of the view that the department has not made out any case, hence the appeal stands dismissed." It can be seen that the ratio of this decision was that so long as the imported goods conform to the descriptions mentioned in the license, importation thereof, cannot be held contrary to the license. In the instant case, the imported goods were conforming to the description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a violation." The above cited judgments were totally in favour of the appellant and supported that the condition (viii) of the license was also not violated. Despite citing relevant and binding judgments, the same had been ignored by the Adjudicating Authority without giving any justification. (vi) The learned SDR's reliance on the judgment of the Hon'ble Supreme Court in the Sheshank Sea Foods Pvt. Ltd. v. UOI (supra) Hon'ble High Court of Bombay in the case of Bombay Hospital Trust v. CC, Mumbai - 2006 (201) E.L.T. 555, and of the Tribunal in the case of Moser Baer India Ltd. v. CC, Noida - 2006 (204) E.L.T. 590 (Tri.-Del.) and DSL software v. Commissioner - 2005 (181) E.L.T. 250 in the facts of the instant case are totally out of place. The Adjudicating Authority observes that the appellant has not mentioned in the license details specification of the product to be imported and cleared fabrics imported for manufacturing of the trousers instead of shirts. It is further observed that not only the customs but even the licensing authorities have been sought to be linked by the modus operandi. The case thus being made out by the Adjudicating Authority is that the fabrics impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt arises that a license has been issued in accordance with this policy of if any question or doubt arises touching upon the scope and contents of the license, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding". (emphasis supplied) There does not seem to be any ambiguity in the above Paragraph 4.13 of the EXIM Policy. Wherever any question arose as to whether license has been issued in accordance with the EXIM Policy, or which touches upon the scope and contents of the license, the same has to be mandatorily required to be referred to the DGFT whose decision thereon shall be final and binding. The words 'touches upon' are even etymological of extremely wide import and cover the cases in which directly or indirectly the scope or content of any license issued under the EXIM Policy arises for consideration. There can be no gain saying that, in the present case the scope and content of the advance licenses has issued to the appellant arose for consideration, indeed the entire case turns upon whether appellant have fulfilled the export obligation cast on them under the said license, and whether the goods imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the license, correctness of SION or ad hoc norms, insufficiency of specifications or detailed particulars of export/import items, etc. It is not possible to delineate exhaustively every issue where the case may involve legibility for exemption as per the scope and content of the license. Surprise to say that, where such issues arose, directly or indirectly, they have to be referred to and to be adjudicated upon by the DGFT in the first instance, as the order passed by the DGFT would be final and binding. This exercise should precede even before the issuance of show cause notice by the Customs Authorities. The Hon'ble Supreme Court in the case of Baraka Overseas Traders v. Director General of Foreign Trade - 2006 (202) E.L.T. 3 (S.C.) held that: "19......The stand of the respondent is that the grant of a license does not confer any vested right in favour of the licensee, if the license has been obtained by misrepresentation. We do not agree. The grant of the incense certainly creates certain right in favour of the licensee, and if the licensing authority was of the opinion that the license was obtained by misrepresentation then a show cause notice should have been given to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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