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TMI Blog2018 (8) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Tariff Rules lays down identical provisions for cooperation between the contracting parties including the manner of addressing the problems arising from circumvention including facilitation of joint plant visits and contacts by representatives of both contracting parties upon request and on a case-by-case basis - N/N. 26/2000-Cus.dt. 1.3.2000 lists out the goods exempted and the quantum of corresponding exemption from customs duty, provided the importer is able to prove that the goods in respect of which exemption is claimed are of the origin of Sri Lanka as per the conditionalities contained in N/N. 19/2000-Cus. (NT). Thus, there is no lack of clarity in respect of meaning of goods not wholly produced or obtained from the contracting parties , as per the provisions of the ISFTA and the related Customs notifications. In particular, the total value of the materials, parts etc. originating from countries other than the contracting parties (India and Sri Lanka) or of undetermined origin, cannot exceed 65%. This is what primarily certified in the Certificates of Origin issued by the competent Sri Lankan authorities. All the very issues and allegations that have been ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anged to Suguna Foods Ltd. vide Tribunal Misc. Order No.42158/2013 dt. 03.09.2013.He submits that the name is further changed to Suguna Foods Private Ltd. vide Certificate of Incorporation Consequent upon conversion to Private Limited Company, dated 14.06.2015 issued by the Registrar of Companies, Tamil Nadu. 2. Heard Ld. A.R. In view of Certificate of Incorporation issued by the Registrar of Companies, Tamil Nadu, the Registry is directed to change the name of the importer as Suguna Foods Private Ltd. in all future proceedings. MA (CT) is allowed. 3. Suguna Foods private Ltd. imported Poultry Dry Mix with full exemption from Customs duties under Indo-Sri Lankan Free Trade Agreement (ISFTA) with Sri Lanka. The subject goods were imported from M/s. Ocean Feeds Pvt. Ltd., Sri Lanka, which is alleged to be a wholly owned subsidiary of the importer. Two such consignments were detained on the issue of discrepancy concerning date of issue of Certificate of Origin (hereinafter referred to as COO). During further investigation, it was observed that there was discrepancy in the quantity and description of raw materials between the Cost Statement submitted by the importer to Sri Lankan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird country components are higher than the stipulated 65%, thereby violating Rule 7 of the ISFTA Rules, hence denied benefit of exemption, demanded differential duty of ₹ 2,26,50,335/- with interest and imposed penalty of ₹ 1 crore under Section 112 (a) of the Customs Act, 1962. Importer is aggrieved with this Order and has filed Appeal C/41075/2013. Revenue is aggrieved with non-imposition of equal penalty under Section 114A of the Customs Act and non imposition of penalty under Section 114AA ibid by the adjudicating authority and have filed Appeal C/41122/2013. 4. When the matter came up for hearing, on behalf of the importer, Ld. Advocates Shri Vipin Jain and Shri G. Krishnamoorthy made oral and written submissions which can be broadly summarized as under : i) At the time of import, importer had placed on record with the Customs authorities COOs signed by the competent authority in Sri Lanka. Each of the 25 COOs which are the subject matter of these appeals certify the percentage value of raw material originating from non-contracting parties to be less than 65% of the FOB value of the export goods, thus implying satisfaction of the minimum value addition condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing to deny the benefit of Exemption under Notification No.26/2000-Cus dated 1.3.2000. v) The finding of the learned Commissioner, in para 34 of the impugned order that the benefit of Exemption under Notification No.26/2000 is not dependent on production of COOs, is legally incorrect as it overlooks the condition which mandates in clear terms that insofar as the question of origin of goods is concerned, the provisions of Notification No.19/2000-Cus (NT), which prescribed COOs as conclusive evidence of the origin of goods, had to be followed unhesitatingly. Since in the present case, the COOs for the 25 Bills of Entry had been issued by the competent authority in the Government of Sri Lanka and since their validity and genuineness had been confirmed and reaffirmed by the Sri Lankan Authorities by specifically dealing with all the objections and allegations made by the DRI, the learned Commissioner was not justified in ignoring the said COOs and in recording findings contrary to such subsisting and valid COOs. vi) The goods imported in Container No.TAHU 2339356 were not covered by COO No.6523 dated 1.8.2006 as assumed by the Commissioner in para 32. This container was actuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), it is submitted that this very issue was specifically raised by the DRI with the Sri Lankan Authorities, who after conducting a factory visit in Sri Lanka, and after due verification of all records maintained there, sent in their response to the DRI vide letter dated 24.5.2007 wherein they found that as many as 5 different raw materials used by Ocean Feeds Pvt.Ltd. were being sourced from India. The said report appears at page 287 of the appeal and the relevant part of the finding can be found in para 4 on page 288 which in turn refers to Annexure 1 t the said report which can be seen at page 290 to 291. In view of the specific report issued by the Sri Lankan Customs Authorities on this very point, there was no justification for the learned Commissioner to record contrary findings merely on the basis of letters and statements of the importer s employees who were not directly concerned with the procurement and production of Poultry Feed Premix in Sri Lanka. ix) The Commissioner has failed to appreciate that all the allegations and charges levelled by the DRI against the importer were communicated to the Sri Lankan Authorities through various letters and reminders which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire COO was cancelled by the Sri Lankan authorities. xii) Ld.Advocate drew our attention to page 63 of the Convenience Compilation submitted by him, which refers to letter dt.24.5.2007 by Sri Lankan Customs to the DRI Chennai. In the said letter, it has been inter alia clarified that discrepancy has been found only in respect of raw materials L-Threonine and Mycosorb . It was also specifically clarified by Sri Lankan Customs that there was no discrepancy concerning the commodity L-Lysine . xiii) Ld. Advocate also drew our attention in page 76 of the Convenience Compilation, to the letter dt. 28.3.2006 of Sri Lankan authorities clarifying that verifications carried out by them on the structure of cost relating to the COOs under reference have confirmed that the product complied with the Rules of Origin criteria set out in the ISFTA except the above mentioned two COOs (6523 and 6661); therefore the necessity to cancel the other COOs would not arise. It was clarified that there is no significant difference between the actual formulation and consumption details and the Cost Statement furnished to us except substitution of raw material (e.g. wheat bran to rice bran and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an authorities have withdrawn Certificate Nos.CO/ISFTA/06/6523 and CO/ISFTA/06/6661 and that the formulation and consumption details of the 45 containers which are the subject matter of the present dispute are exactly the same or higher as that of Container No.TAHU 2333935 for which the COO 6661 has been revoked. iv) M/s.Ocean Feeds Ltd., Sri Lanka is a wholly owned and 100% subsidiary of the importer. By collusion between the importer and their Sri Lankan subsidiary, wrong Cost Sheets were submitted to the Sri Lankan authorities by suppressing the vital information, to obtain the COOs. From the details of the Formulation Statement obtained from the importers during the investigation, it has come to light that there are differences between the information contained therein and in the Cost Statement submitted to the Sri Lankan authorities. v) Hence the Ld. Adjudicating authority is correct in concluding that once the COO 6661 was found not to satisfy the prescribed ratio of inputs of third country of origin as laid down in the Free Trade Agreement, it would naturally follow that in respect of the other imports of the said importer where the same formulation or composition of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as insufficient working or processing to confer the status of originating products, whether or not there is a change of heading; 1. Operations to ensure the preservation of products in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations) 2. Simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting up; 3. (i) changes of packing and breaking up and assembly of consignments. (ii) simple slicing, cutting and repacking or placing in bottles, flasks, bags, boxes, fixing on cards or boards, etc., and all other simple packing operations. 4. the affixing of marks, labels or other like distinguishing signs on products or their packaging; 5. Simple mixing of products, whether or not of different kinds, where on or more components of the mixture do not meet the conditions laid down in these Rules to enable them to be considered as originating products; 6. simple assembly of parts of product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of origin are being circumvented, it may request consultation to address the matter or matters concerned with a view to seeking a mutually satisfactory solution. Each party will hold such consultations promptly. 8.5 Based on ratification, this ISFTA agreement was embedded / incorporated into the Customs Tariff (Determination of Origin of goods under the Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and the Republic of India) Rules, 2000 issued vide Customs Notification No.19/2000-Cus. (NT) dt. 06.03.2000. Rule 7 of the Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and Republic of India) Rules, 2000 mirror and reiterates the exact language of the Rule 7 of the Rules of Origin of ISFTA agreement reproduced above. Thus, Rule 13 of these Customs Tariff Rules lays down identical provisions for cooperation between the contracting parties including the manner of addressing the problems arising from circumvention including facilitation of joint plant visits and contacts by representatives of both contracting parties upon request and on a case-by-case basis. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Cost Statement. Reference is also made to import of large quantities of Luta E50, Luta A/D3 1000/200 Plus Feed Grade (both items of German Origin) Lutavit B2 SG 80 Feed Grade, Sewon L-Lysine HCL 99% Feed (both items of South Korean Origin) and Lutavit B1 Mononitrate and Lutavit B6 (both of Chinese Origin) from BASF South East Asia Pte Ltd., Singapore by M/s.Ocean Feeds Pvt. Ltd. and it is pointed out that these items have not been shown in the Cost Statements. In letters dt. 12/14.02/2007, 7.4.2007, 12.04.2007 and 30.04.2007, another doubt has been raised by DRI that other overheads mentioned in the cost statements are inflated figures in as much as the administrative functions have been performed in Coimbatore, India by, and at the cost of M/s.Suguna Poultry Farm Limited, Coimbatore. 8.9 The issues raised in all the above letters from DRI have been replied by Sri Lankan Customs in a communication dt. 24.05.2007 wherein it has been inter alia clarified that factory inspection of M/s.Ocean Feeds, Sri Lanka has been carried out by the Department of Commerce with a panel of officials from other relevant authorities and that the panel had been satisfied that the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also enclosed with the said letter. However, the Department of Commerce, Sri Lanka in the reply dt. 28.03.2008 while clarifying that the 2 COOs [6523 and 6661] have been cancelled, have also informed as under : We have been informed by Ocean Feeds (Pvt) Ltd. that it has already withdrawn the two Certificates of Origin (COO), and paid due customs duties on 30th January 2008. The Department, as the Issuing Authority, hereby cancels the relevant two Certificates of Origin, bearing Nos.Co/ISFTA/06/6523 dated 10th August 2006 and CO/ISFTA/06/6661 dated 11th August 2006 (Copies of COOs are attached. We will also notify our decision to the respective Indian Customs accordingly. The verifications carried out by us on the structure of cost pertaining to the COOs under reference confirmed that the product complies with the Rules of Origin criteria set out in the ISFTA except the above mentioned two Certificates. Therefore, the necessity to cancel the other COOs mentioned in your letter would not arise. (emphasis added) After setting to rest issues flagged by DRI relating to imports from China, Germany, South Korea, France and Indonesia, the letter has finally concluded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainer TAHU 2333935, al other containers having similar composition of ingredients will have to be treated as not satisfying the Rules of Origin to say the least, bordering on the peremptory. 9.3 We also do not find any controversy on the 9 items / ingredients related to the consignment of container TAHU 2333935 which have been imported from third countries. There is no mention of L-Threonine and Mycosorb which are the controversial items for which the disputed COOs have actually been cancelled. There is no allegation that the ingredients which make up the goods of container TAHU 2333935 include L-Threonine or Mycosorb . Even the doubt raised by DRI on the issue of L-Lysine which is an ingredient in the TAHU 2333935 consignment has been adequately looked into by the Sri Lankan authorities, and no discrepancy found with the same. 9.4 Free Trade Agreements are articles of faith between the Contracting Countries. The provisions and conditionalities governing such free trade agreements are clearly laid down therein. The basic philosophy underlining such trade agreements is trust and cooperation between the contracting countries, in an attempt to remove the trade barri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of impugned goods in Sri Lanka. Holding that one of the input and the final product fall under the same four digit classification, it was concluded that the provisions of the Rule 7 have not been fulfilled. More specifically, reference was made by the Original Authority to conditions (b) and (d) of the Rule 7. This is based on the certain reports received from Sri Lankan Customs. The Original Authority while conceding the point that the assessment made by Sri Lankan Customs at the time of import of non-originating goods from China cannot be put to question here in India, proceeded to consider certain reports given by Sri Lankan Customs with reference to classification of one of the non-originating inputs. The classification of such input is not in the domain of the assessing officer in India. No opinion or conclusion can be formed based on the assessment, if any, carried out by Sri Lankan Customs. Denial of concession even when valid certificates of origin were submitted (and reiterated) is not legally tenable. 9.8 We also note that the case law of Surya Light Vs CC Bangalore (supra) relied upon by Ld. A.R concerned facts wherein the original invoice was replac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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