1. Macnair Exports (P) Ltd., the respondent to this appeal, applied for and obtained an advance licence permitting it to import among other goods PVA 173. It imported 850 bags of this substance and cleared it without payment of duty in terms of Notification 159/90-Cus. The advance licence and exemption from notification was subject to the importer exporting goods specified in the DEEC Book, for leather goods.
The licence recognised that the respondent was not itself the manufacturer of these goods, being only an exporter what is commonly referred to merchant exporter. The manufacturer of the goods which the respondent has exported the "supporting manufacturer", was specified to be Watan Tanning Industries Pvt. Ltd., Kanpur (WTIPL for short). An investigation by the department showed that Watan Tanning Industries Pvt. Ltd. has not manufactured any goods at all during the relevant period and therefore could not supply any leather products of the respondent. The investigation began as a result of information that the respondent was selling the goods imported by it without payment of duty in the market, contrary to law. Shailesh Jobalia, a broker in dyes and chemicals, in his statement said that it sold the chemicals imported by the respondent, indicating how much money he made out. Notice was therefore issued to the respondent, Feroz Harjiyani, its Director, and others proposing recovery of duty of the goods sold in the market and imposition of penalty on it. After considering the replies and submissions at the hearing, the Commissioner passed orders in the matter. The Commissioner noted that "supporting manufacturers M/s.
WTIPL, Kanpur, shown as a supporting manufacturer was not functional at the given address since 1985. Therefore the goods could not have been manufactured at their declared premises." He however noted that the same evidence which impelled him to come to this conclusion indicated that whether goods have been supplied to the respondent, which exported them. He said, "There is no charge or any evidence that the export commitments have not been met, in fact the exports have been completely met and bank realisations made." After considering some evidence, he concluded, "I am led to believe that the material imported has been utilised in the manufacture of the export products, though may be not in the premises declared to the DGFT authorities." He found therefore that substantively, the conditions in the notification have been complied with and therefore the case resolved itself that the goods not having been manufactured in the premises of supporting manufacturer. In view of this; he dropped the demand for duty. He noted that the export obligations to the extent that value of the inputs had been made and the bank guarantee and the letter of undertaking that the respondent included before the licensing authority had been cancelled. He therefore said that the failure to take permission of the licensing authority before transferring the goods was only "minor technical lapse" and refrained from imposing penalty. He further found that the part of demand was barred by limitation. The extended period on limitation contained in the proviso under Sub-section (1) of Section 28 of the Act would not be available. The statement that the misdeclaration by WTIPL, the supporting manufacturer, would not be wilful mis-statement or suppression. These conclusions have been challenged in the department's appeal.
2. It is not possible to confirm the finding of the Commissioner that the conditions of notification have in substance been complied with.
Doubtless, the export obligation has been fulfilled. However, the evidence on the basis of which he concludes that the goods which were imported by the respondent company were utilised in the manufacture of products that it exported, is not, in our view, sufficient to confirm his conclusion. The statement of Shahzade Alam, the manager of Shiraz Exports, who was the director at the relevant time of WTIPL only says that, in response to Harjiyani's request, he sold leather bags valued at Rs. 50 lakhs, on behalf of Shiraz Exports and Kanpur Leather Industries. The Commissioner says, rightly, that Alam's statement indicates that the goods which were exported by the respondent company, were supplied by Shiraz Exports and Kanpur Leather Industries. He notes that Alam has denied not having received the imported goods and goes on to say "this denial has to be weighed against the plea on behalf of MEPL being made before me that there are entries in the diary recovered from MEPL and relied upon in the show cause notice about large sums of payments being made to Alam and/or delivery of the material (indigenous leather of imported goods). If the diary is being relied upon to establish certain facts, the other facts in the diary can be relied upon to establish that there was a delivery of money, the material (indigenous and imported) being effected to and by Alam." 3. We are of the view that the Commissioner has made an inference from these statements which is unjustified. The diary may perhaps have shown supply of material to Alam. That by itself could not establish that the material imported by the respondent company had been delivered, particularly, since Alam has denied having received it. If in fact he has received it, and utilised it, in the manufacture of export goods elsewhere than in the factory of WTIPL (that having been closed at the relevant time) he would not have said so. Such a fact could also be established from the records of these firms which, the Commissioner says, manufactured the goods. None of them has in fact come forward to say so. The Commissioner's conclusion that the exported goods were in fact manufactured out of the goods supplied by the respondent company has no sufficient basis and therefore cannot be accepted.
4. In these circumstances, the contention that the sale of the goods only resulted in a technical or procedural contravention because the export obligations have been fulfilled, cannot be accepted. If the respondent was able to fulfil the export obligation without import of these goods, it would then follow that it imported these goods only for the purpose of sale. That may be permitted by the notification in cases where the import is made after the goods have been exported. It is evidently contrary to the provisions of the notification requiring the imported goods to be utilised in the manufacture of exported goods.
5. We also note that the statements of Jobalia and Ashok Parekh clearly establish sale of dyes and chemicals imported by the respondent company. It is contended that these goods were other than those which are under consideration. This also strengthens the department's case.
6. It is therefore clear that the benefit of the notification will not be available to these goods and they were therefore liable to duty.
7. "Cross objections" filed by the respondent company are not really cross objections. They do not challenge the finding of the Commissioner, which is completely in its favour. They are written submissions in counter to the department's appeal. The emphasis in these submissions is that the diary maintained by Alam shows details of payments made by the respondent to him for purchase of raw animal skin and that it was therefore proved that Alam was therefore processing these skins and getting the export goods manufactured out of these. The diary has not been produced before us by either side, we are therefore unable to say it has contained these details. Even if it does, this does not help the respondent company. It in fact goes against it. It shows that the goods which were exported were animal skins which Alam purchased, for which he was reimbursed by the respondent. The exported goods therefore could not have been made out of the goods imported by the respondent. There would be no question of their paying Alam for supply of goods that they imported. It is further contended that Alam's statements were not voluntary and that this is made clear in the detailed reply filed on 30-5-1996. Alam's statement was recorded some time in October, 1993. Any retraction made, after three years, does not carry any weight and the claim has therefore to be dismissed.
8. It is contended that the order of the Board directing the Commissioner to appeal to the Tribunal has been made beyond the period of one year provided in law for this purpose. The appeal therefore is invalid. Hence the appeal failed. The decision of the Tribunal in CCE v. Fujitus India Telecom Ltd. (Appeal C/714-V/99) [2001 (138) E.L.T.878 (Tri.)] is relied upon in support.
9. The Commissioner's order was made on 11-7-1997. The order of the Board authorising review is dated 22-6-1998. In his appeal, the Commissioner says that this order was communicated to him on 4-8-1990.
The department's appeal has been filed on 21-9-1998. The contention is that the order should have been communicated within a period of one year from the date of the Commissioner's order.
"(1) The Board may, of its own motion, call for and examine the record of any proceeding in which a Commissioner of Customs as an adjudicating authority has passed any decision or order under this Act for the purpose of satisfying itself as to the legality or propriety of any such decision or order and may, by order, direct such Commissioner to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order." "The Commissioner of Customs may, of his own motion, call for and examine the record of any proceeding in which an adjudicating authority subordinate to him has passed any decision or order under this Act for the purpose of satisfying himself as to the legality or propriety of any such decision or order and may, by order, direct such authority to apply to the Commissioner (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Commissioner of Customs in his order." "No order shall be made under Sub-section (1) or Sub-section (2) after the expiry of one year from the date of the decision or order of the adjudicating authority." Sub-section (4) provides that the Tribunal or the Commissioner, as the case may be, shall dispose of an application made in pursuance of such an order 'within a period of three months from the date of communication of the Order'.
11. In its decision, the Tribunal has emphasized that Sub-section (2) directs the authority to apply to the Commissioner (Appeals). By necessary implication, these observations would apply to the Board's direction to the Commissioner in Sub-section (1). The Tribunal therefore says "in other words the direction is deemed to be made on the date of issue of the decision of the review in Commissioner." 12. The date of issue of the decision of the Commissioner, as we have stated above, was 10-6-1998. From the date of issue of the Assistant Commissioner's order i.e. 16-5-1997, this order was clearly passed beyond the period of one year. Therefore it suffers from the limitation laid down in Sub-section (3) of Section 129D.13. Now, if this logic was to be accepted, it would follow that the direction of the Board (or the Commissioner) must be made within one year from the date of the order. If the order was made on 1st January of 2000, the communication must be issued i.e., put into postal transmission not later than 1st January, 2001 for it not to suffer from limitation. Any order issued the day after would be barred by limitation. Now, it cannot be denied, even with the utmost speed, a day or two may be needed to issue the order. Therefore, the effect of applying this decision would be that period of one year provided in that Section is reduced. We do not find that it is permissible to little down the statutory provision in this manner. Further, the Tribunal's decision itself says that for fulfilling the condition contained in Sub-section (1) & (2) "a communication must be made to the officer who is to make an application to a Commissioner (Appeals). Now, communication is only made when it is received by the intended receiver. If it is not, there has been no communication. Suppose the envelope containing the Board's direction is lost in the post and never received by the Commissioner, can it be said because it has been given to the Postal authorities, the communication is complete? The answer, obviously, is in the negative.
14. The words used in the section are "direct" in Sub-section (1) & (2), "made" in Sub-section (3) and "communication" in Sub-section (4).
From a leading of this provision, it appears that Sub-section (1) and the communication under Sub-section (2) can be recorded and signed before the expiry of one year from the date of decision or order. It would then follow that it can be communicated later. However, the Commissioner or the other adjudicating authority must file his appeal within three months of the date of communication of that order to him.
15. We find that the judgments of the Supreme Court take the same view.
In its judgment in Upadhyaya (R.K.) v. Shanabhai P. Patel -1987 (166) ITR 0163, the Supreme Court was concerned with the provisions of Sections 148 and 149 of the Income-Tax Act. Sub-section (1) of Section 148 provided that before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice. Sub-section (1) of Section 149 provided that no notice under Section 148 shall be issued in cases falling under Clause (b) of Section 147 at any time after the expiry of four years from the end of the relevant assessment year. The notice was issued by registered post on 31-3-1970 and received by the assessee on 3-4-1970.
The Gujarat High Court had accepted the assessee's contention that the action of the Income-tax Authorities was barred by limitation. The Supreme Court found that the clear definition is made between issue and service of the notice. Once the notice is issued within the period of limitation, the jurisdiction becomes vested in Income-tax office to proceed to reassess. The requirement of issue of notice is satisfied when a notice is actually issued. In this case admittedly the notice was issued within the prescribed period of limitation as March 31.
Service under the new Act is not condition precedent to the confirmation of jurisdiction of Income-tax Officer to deal with the matter. But it is a condition precedent to making of the assessment.
16. In our view, this definition that has been made between issue and service squarely applies to the "making of the order and its communication". The order has to be made within the period of limitation of one year from the date of the Commissioner's order. There is no provision in the section specifying the period of communication.
The communication therefore can take place subsequent to the making of the notice within one year. The application to the Tribunal or the Commissioner (Appeals) must be made within three months from the date of receipt of such communication.
17. Penalty was also proposed on the importer, its director, manager, the two brokers, Jobalia and Parekh, and Kukreja, the purported buyer of these goods. So far as the company and its director and manager are concerned, we are of the view that they are liable to penalty. They have clearly, in contravention of the provisions of the notification, sold the goods and enriched themselves by originating a very large amount of money. The only possible extenuating factor is that they had actually made the exports and that if they had imported the goods subsequent to the export, they would have been entitled to the sale of the goods. The action in selling the goods would not have been contrary to law. In these circumstances, we are of the view that penalty of Rs. 25 lakhs on the company, Rs. 15 lakhs on H.R. Bhatt and Rs. 5 lakhs on Firoz Hajiyani under Section 112 of the Act will suffice.
18. So far as the other three persons are concerned, the Commissioner has found that there is no evidence of prior knowledge on the part of the brokers and assisting in the sale and purchase of goods. This was the common contention raised before him by each of these brokers and the purchasers. None of the grounds in the appeal seeks, in our view, to assail this finding. Every ground in the appeal emphasizes that the importer and its employee knowingly sold the goods. There is only a line that in view of the preceding consideration the Commissioner should have imposed penalty on all concerned. We therefore do not find any material in the appeal to justify the imposition of penalty on the others.
19. In the facts of this case, therefore, we do not find that the Board's order is barred by limitation. We would add a caution that it does not confer upon the board or the Commissioner power to make the order after the expiry of one year. It is possible that the Board or the Commissioner may in fact make the order in question after expiry of one year an anti-date so as to take advantage of this loophole in the law. Where there is inordinate delay between the date of the order and its communication, the ordinary presumption would be available, the notice has been communicated in time.
20. The importer had not at any stage informed the department's intention to sell the goods and not to utilise them in the manufacture of export products. No reason at all is forthcoming why the importer chose to sell the goods. The extended period was therefore available.
Another contention is that part of the goods, consisting of PVA, imported by the respondent, were a subject matter of adjudication earlier by the Deputy Commissioner of Customs and the goods had been ordered to be confiscated, cleared on payment of fine and duty was also demanded. These goods therefore have doubly been subjected to adjudication. This was the ground in the reply taken before the Commissioner. If in fact this is the case before the Commissioner, these goods once again do not become liable to duty and to confiscation. This aspect will have to be verified. We remand this aspect to the Commissioner for adjudication afresh in accordance will law of the liability to duty on these goods. We hold that duty was payable on the remaining goods as contended in the show cause notice.
The matter is remanded to the Commissioner for working out the duty payable on these goods and communicating it to the importer.