Full Judgment
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 29TH DAY OF AUGUST 2022 / 7TH BHADRA, 1944 AGAINST THE ORDER NO 23236/2017 OF CUSTOMS, EXCISE & SERVICE TAX APP.TRIBUNAL, BANGALORE APPELLANT THE COMMISSIONER OF CUSTOMS CUSTOMS HOUSE, COCHIN - 682 009, KERALA,. BY ADV SRI.THOMAS MATHEW NELLIMOOTTIL, SC, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS RESPONDENT: M/S. KERALA HORTICULTURAL DEVELOPMENT PROGRAMME MYTHRI BHAVAN, NEAR DOORDARSHAN KENDRA, KAKKANAD, KOCHI - 682 037. BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM SRI.RAJA KANNAN THIS CUSTOMS APPEAL HAVING COME UP FOR ADMISSION ON 29.08.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -2-
JUDGMENT
S.V.Bhatti, J.
Heard Mr Thomas Mathew Nellimoottil, Standing Counsel for the Central Board of Indirect Taxes and Customs and Mr Kuryan Thomas, learned counsel for the respondent.
2. Commissioner of Customs, Cochin, is the appellant. The
appeal is from the order dated 07.12.2017 in Appeal No.C-472/2007- DB passed by Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (for short, ‘the CESTAT’).
3. M/s. Kerala Horticultural Development Programme, Kakkanad, Kochi/respondent between 12.11.1996 and 09.01.1998
imported fruit processing plants from Italy. The appellant concerning the said import assessed and recovered the duty amounting to Rs.4,54,10,258/- from the respondent. The respondent relying on exemption available under notification No.148/94- Customs dated 13.07.1994 claimed a refund of Rs.4,54,10,258/-. For -3-
continuity, it is noted that on 19.01.2000, the claim for refund, on the ground, that the goods imported attracted exemption, was rejected, and rejection was confirmed in Appeal No.237/2001 dated 13.11.2001 by the CESTAT in order No.55/2002. The respondent filed Customs Appeal No.09/2005 before this Court, and this Court vide
order dated 22.02.2006 directed the appellant to pass final
assessment orders on goods imported by the respondent between 12.11.1996 and 09.01.1998. The Deputy Commissioner of Customs vide order dated 13.03.2006 made the final order and dealt with the claim ie. both exemption and refund of the respondent. The respondent filed appeal No.C27/AP(1)/68/2006 AU Cus. before the Commissioner of Customs (Appeals). On 12.04.2007, the
Commissioner of Customs (Appeals) dismissed the appeal. The respondent filed appeal No.C/472/2007-DB before the CESTAT, Bangalore. The CESTAT, through the order dated 07.12.2017, allowed the appeal. Hence the appeal under Section 130 of the Customs Act, 1962 (for short, ' the Act). The appeal is admitted on the following substantial questions of law:
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i) Was not the Tribunal wrong in holding that the 'Grant' received by the importer from the European Union would come within the preview of the term 'gift' or 'donation' under Notification No.148/1994 to get exemption from duty. ii) Whether the Tribunal was justified in giving a liberal interpretation to Notification No.148/1994 without following the principal of law that an exception notification has to be interpreted strictly.”
4. Adv. Thomas Mathew Nellimoottil contends that the
impugned order extending the benefit of exemption in notification No.148/94 dated 13.07.1994 to the plant imported by the respondent between 12.11.1996 and 09.01.1998, is entirely illegal. From a plain reading of the exemption notification, it would be demonstrably clear that circumstances in which the subject import is made, do not satisfy the exemption criteria. The finding of the Commissioner (Appeals) is under challenge before the CESTAT. The CESTAT, without testing the legality of a conclusion recorded by the Commissioner of Customs (Appeals), recorded an inchoate and inconclusive finding on the respondent's entitlement for exemption
under notification No.148/94. According to him, the crux of the matter is the import shall be gifted free of cost under a bilateral -5- agreement between the Government of India and the foreign Government. A combined reading of the findings recorded by the Commissioner of Customs (Appeals) and the Deputy Commissioner of Customs would disclose that the subject goods are not gifted free
of cost. The agreements under which the goods have been imported are not available with the Department, and the findings recorded by the CESTAT are without appreciating all the relevant documents on the issue of exemption claimed by the respondent. Stated simply, the CESTAT, in a superficial way, allowed the appeal. Therefore, the findings of the CESTAT are set aside by looking at the primary documents which constitute import, agreement, and whether the goods imported are free of cost. Alternatively, the counsel argued that the matter is remitted to the CESTAT, which can, within its jurisdiction, re-examine the issues of the exemption
applicable on this behalf. According to him, exemption from payment of customs duty must be read strictly. The construction now adopted by the CESTAT is very casual and, therefore, warrants interference of this Court. -6-
5. Adv Kuryan Thomas appearing for the respondent,
objects to the maintainability of the appeal in this Court under Section 130C of the Act on the ground that from the circumstances admitted or undisputed, the issue that arises for consideration is the exemption claimed of the respondent. The exemption is relatable to the duty payable on goods would be the crux of the issue; the appeal in this Court, therefore, is not maintainable. He relies on the
judgment of this Bench in Commissioner of Customs, Cochin v. Asean
Cableship Pvt. Ltd1. Therefore, the appeal is rejected, and the appellant is given the liberty to move the Supreme Court against the
order of CESTAT dated 07.12.2017.
5.5 The next objection is that the substantial questions of law now canvassed do not satisfy the requirement of Section 130C of the Act. The findings recorded by the CESTAT are findings of fact and binding on this Court. Referring to the merits, it is argued that the respondent imported plant and machinery under an agreement; 2022 (380) E.L.T 11 (Ker.) -7- the respondent did not pay the consideration for the goods imported; therefore, the exemption provided in notification No.148/94 is attracted and he prays for dismissing the appeal.
6. We have noted the contentions canvassed by the counsel appearing for the parties and perused the record. 6.1 The first objection of Adv. Kuryan Thomas is on the
maintainability of the appeal under Section 130C of the Act. He refers to the ratio considered by this Court in Asean Cableship Pvt. Ltd case and commends to this Court to return the appeal. This Bench on 17.12.2021 decided Asean Cable Pvt case, but the circumstances considered in the said case and the core issue for a decision was ‘whether the Asean Cableship is a foreign going vessel or not’ and the totality of circumstances considered in Asean Cableship Pvt. Ltd case is fresh in our mind and we can preface the view at this stage that the said decision is distinguishable. Quickly we can examine this objection as follows:
a) Section 130 deals with the ‘appeal to High Court’, and the -8- Section reads thus:
“(1) An appeal shall lie to the High Court from every order
passed in appeal by the Appellate Tribunal on or after the 1st day of July 2003 (not being on order relating, among other things, to the determination of any questions having a relation to the rate of duty of customs or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.”
A plain reading of the Section discloses that on or after the 1st day
of July 2003, an appeal shall lie to the High Court from every order
passed in appeal by the Appellate Tribunal. In the case on hand, the appellant challenges the legality of the order passed by the CESTAT in appeal No.C-472/2007-DB dated 07.12.2017. So the first condition
is satisfied, and the order under appeal shall not be an order
relating, among other things, to the rate of customs duty or the value of goods for assessment. The argument of Adv. Kuryan Thomas is that a rate payable as duty of customs is attracted on a finding being recorded on the applicability of exemption notification No. 148/94. Since the duty rate is the core issue, the appeal against the order of CESTAT dated 07.12.2017 is not maintainable. We are afraid the said contention ignores the primary
-9- circumstance in which the parties are litigating, viz., the respondent has asked for a refund of the full duty paid on the plant imported on 12.11.1996 and 09.01.1998 for the import attracts exemption. The duty refund is claimed, because exemption notification No. 148/94
is attracted. Whether the goods imported attracts a specific exemption or not, has nothing to do with the final customs duty payable by an importer in a case dealing with the applicability of exemption notification. The principal consideration is whether the goods or plant imported by the respondent would satisfy the requirement of exemption notification or not. Once exemption notification is attracted, the obligation to pay customs duty does not attract. Therefore, the issue is whether the respondent's exemption claim on the import of plant is tenable or not. It has nothing to do with the rate or the value of the goods imported by the respondent. Therefore, we are of the view that the appeal is rightly filed before this Court under Section 130C of the Act and is maintainable. The first objection raised by the respondent for the above reasons has been rejected.
-10- 6.2 The next contention is that the CESTAT in para 5 of the
order under appeal has considered the circumstances and recorded
findings of fact. Therefore, these findings are binding on this Court, and this Court ought not to re-examine the issues, and no substantial question of law is made out.
7. Per contra, Adv. Thomas Mathew argues that a
comparative reading of the findings recorded by the statutory authorities and the CESTAT would disclose that the CESTAT has not examined whether the plant imported is gifted free of cost. There is no future liability to pay for the plant imported by the respondent. In other words, it is argued that at the time of import, the cost of the plant imported may not suffer cash outflow at the hands of the respondent. But the purchase money is made available by the European Union. The said assistance is a long-term loan, and the respondent has to repay the said amount. Therefore, the findings recorded by the CESTAT are in ignorance of the material considered by the authority hence perverse and not binding on this Court.
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8. To appreciate whether a finding of fact is correctly recorded and binding on this Court, we would prefer to excerpt the following operative portion of the orders:
Finding of the Commissioner of Customs (Appeals) “I have gone through the facts of the case and have carefully considered the grounds of appeal. The short question for consideration is whether the project import of the appellant fulfils the criterion "goods, gifted free of cost under a bilateral agreement between the Government of India and a Foreign Government". It is true that the cost of the imported plant was not remitted from India to the foreign supplier but was paid by the European Economic Community directly from Brussels out of the grant envisaged to the appellant. But going through the techno-commercial feasibility of the project submitted by the appellant at the time of importation, it is seen that cost of plant and machinery, cost of building and working capital were raised as a long term loan from EEC which is to be re- payed in ten installments with interest. Other than this Equity shares will be allotted to the EEC as per the agreement. Hence simply because the cost of plant and machinery were not paid by the appellant to the supplier but by a third party and which amount is accounted as a long term loan liability of the appellant, I am of the considered view that the impugned import cannot be treated as free gift and the lower authority is right in denying the benefit of notification 148/94 to the appellant.” Findings of the CESTAT “5. We have perused the appeal record and considered the submissions made by both sides. In terms of the Notification No. 148/1994 dated 13.07.1994 (Sl. No. 8), the only condition which needs to be satisfied for the goods to be eligible for duty free clearance is that the goods should be gifted free of cost -12-
under a bilateral agreement between Government of India and the Foreign Government. In this regard we have perused the certificate issued by the European Union dated 09.11.1999. The certificate categorically states the plant and machinery under import is meant for the pilot project being set up by the appellant at Muvattupuzha, Ernakulam, Kerala and further that the equipments were supplied free of cost in terms of the bilateral agreement between the Government of India and European Union. After perusal of the said certificate, we are of the view that the goods under import by the appellant satisfied the condition specified in the Notification No. clearance under the Notification and we order accordingly.” 8.1 The Primary Authority and the Commissioner of
Customs, from the record available, noted that the plant imported was under an agreement with European Union. The finance for purchasing the plant has been made available by the European Union, which is repaid as a long-term loan by the respondent. Whether the repayment in future as a lump sum or in instalments etc., is a crucial factor for deciding whether the goods are imported free of cost or not. The appellant's grievance is that the documents which have bearing on the import and the implication on cost contributed by the European Union can be found out from the primary documents. The primary documents are not available with the Department, and the CESTAT still recorded a finding in favour
-13- of the respondent by relying on the statement of the respondent.
9. After appreciating the totality of circumstances, we are
of the view that the CESTAT has not appreciated the sequence of circumstances culminate in the import of plant and whether a future obligation is fastened on the respondent for repayment of the cost incurred for the purchase of the plant or not. Therefore, the finding is recorded by not considering the circumstances and documents which have a bearing on the issue. For the above reasons, we are of the view that the findings of fact recorded are perverse and unavailable and therefore, not binding on this Court. Hence the second objection raised is also without merit, accordingly rejected.
10. Thirdly, it is argued exemption notification is attracted to the circumstances of the case and that the appeal at the instance of the Revenue must fail. The exemption notification reads thus:
Exemption to specified free gifts, donations, relief and rehabilitation material imported by charitable organisations, Red Cross Society, CARE and Government -14-
of India. Notification No.148/94-Customs 13.07.1994 In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods (hereinafter referred to as the said goods) of the description specified in column (2) of the Table hereto annexed and falling within the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), from the whole of the duty of customs leviable thereon under the said First Schedule and from the whole of the additional duty leviable thereon under section 3 of the second mentioned Act subject to the conditions specified in column (3) against each serial number in column (1) of the said Table. Sl. Description of goods Conditions No.
(1) (2) (3)
8. Goods, gifted free of cost under a bilateral agreement between the Government of India and a Foreign Government. -
The case of the respondent is that the plant imported is free of cost under a bilateral agreement. Therefore, the respondent enjoys exemption from payment of customs duty. -15-
11. The case of the appellant is that the respondent may not
be paying the consideration, but the consideration payable by the respondent is paid by a third party and the amount so paid is treated as a long-term loan. Therefore, the import of plant may not be treated as free of cost.
12. We have appreciated the distinction on which the
exemption is claimed and also the findings recorded by the CESTAT. Prima facie, we are of the view that the findings recorded in para 5 of the order under appeal are certainly unsustainable, for it has been recorded by the CESTAT as a general application of the exemption notification. The relevant circumstances should have been placed before the CESTAT before inviting the findings in this behalf. We believe that the CESTAT ought to be called upon to decide the merits of the appeal filed by the respondent herein and decide the core issue.
13. For the above purpose, the order under appeal is set
aside, and the matter is remitted to CESTAT for consideration and -16- disposal afresh as per law within four months from the date of receipt of copy of the judgment. The appeal is allowed, and the matter is remanded as indicated above. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- BASANT BALAJI JUDGE JS -17- APPENDIX OF CUS.APPEAL 25/2018 APPELLANT’S ANNEXURES ANNEXURE A TRUE COPY OF THE ORDER-IN-ORIGINAL NO.20/2006 DATED 13.03.2006. ANNEXURE B TRUE COPY OF THE ORDER-IN-APPEAL NO.280/2007 DATED 12.04.2007.