Full Judgment
2. The appellants who are Letter of Authority holders for M/s.
Universal Footwear, Mumbai filed Bs/E on 7-11-85 for clearance of 'Dodecyl Benzene' under REP licence No. 3079561 dated 29-9-84 and Automatic supplementary licence No. 1989052 dated 28-3-1985. The licences were valid for import of items mentioned in Col. 4 read with Col. 5 against product group D. 2.1(ii) of Appendix 17 of AM-85 Policy with face value restrictions if any provided therein. The end product was leather and rubber footwear. The REP licence dated 29-9-84 also bore the following endorsement: "This licence will also be valid for import of items permissible under sub para 138(13)(ii) for a value of Rs. 2,47,650/-. The value of a single item not to exceed Rs. 2,47,650/- under para 138 of Import Export Policy 1984-85 and shall be separately as per App. 3-A & 5-A subject to A.U. Conditions as laid down in Schedule V to the Import Control Order, 1955." 3. The department was of the view that since the imported item appears at Sr. No. 24 of Appendix 5 Part-A of Import Policy AM 1984-85 and does not appear either under Col. 4 or under Col. 5 against product group D.2.1 (ii) of Appendix 17 of the relevant Import Policy, it cannot be imported under cover of the licence produced. It further appeared that Dodecyl Benzene was used in the manufacture of detergents and not in the Leather Industry or Footwear Industry. In this situation, show cause notices dated 19-6-86 were issued to the appellants proposing confiscation of the goods under Section 111(d) and proposing imposition of penalties under Section 112 of the Customs Act, for contravention of Section 11 of the Act read with Section 3(2) of the Imports & Exports (Control) Act, 1947. The Commissioner held that the item is mainly used for manufacture of detergents and further it was not directly used in the manufacture of footwear but only for degreasing of leather after sulphonation and conversion to surface active agent and, therefore, he held that the import was unauthorised, confiscated the goods with option to redeem the same on payment of fine of Rs. 2,75,000/- (in the case of goods for which REP licence was tendered) and Rs. 5,50,000/- (in the case of goods for which Automatic supplementary licence was tendered). Penalty of Rs. 25,000/- was imposed in the first case and in the second case he imposed a penalty of Rs. 50,000/-. Hence these appeals.
4. We have heard Shri Anil Balani, Advocate for the appellants and Shri Uma Shankar, SDR for the department.
5. In the case of REP licence para 138(1) of the Import Policy AM 1984-85 is relevant. This para reads as under :- " 138(1) REP licences issued to manufacturer exporters, against their export of select products manufactured by them, will be valid within their overall value, for import of items of raw materials, components, consumables, spares and packing materials as are related to the products exported or manufactured by the exporters concerned whether manufactured in the same factory as the one from which the goods were exported or some other factory of the same manufacturer subject to 'Actual user' condition. This special facility will be subject to the conditions laid down hereunder." In the case of Automatic supplementary licence, Para 38(1) of AM 1984-85 Policy is relevant. It reads as under :- "Actual users (Industrial) who exported at least 50 per cent of their production of select products (vide Appendix 16) in any of the two previous financial years and obtained Export performance certificate from the Export Commissioner in the office of the Chief Controller of Imports & Exports, New Delhi in the manner laid down in Chapter 20 will be eligible to the following :- (d) In lieu of the facility of repeat operation referred to in (b) above, it will be open to such units to obtain supplementary licence without the recommendation of the sponsoring authority; for a value up to 50 per cent of the value of their automatic licence issued for the preceding licensing period, such supplementary licence will also be valid, within its overall value, for the import of canalised items appearing in Appendix - 5, Part -- A, excluding flint buttons and required by the Actual users as raw material in his factory".
6. From the above it is seen that the licences are valid for import of raw materials related to the products exported. In this case, footwear is the end product exported. Therefore, what is to be seen is whether Dodecyl Benzene is related to the product exported i.e. footwear. In our opinion, the expression " related to the goods exported" is wide enough to cover the imported item. The manufacture of footwear starts from preparation of leather. Since, admittedly, Dodecyl Benzene is used for degreasing the leather, it is to be treated as related to the product exported.
7. We note that in the case of Collector of Customs v. Agarwal - 1996 (87) E.L.T. 336 (S.C.) the Apex Court extended the benefit of Notification dated 10-11-79 to stamping foils in the form of roils or pieces thereof which had to be attached to the footwear by heating and pressing, by treating them as "buckles and other embellishments for footwear" covered by the Notification. We also note that in the case of Collector of Customs v. Chaganlal and Sons [1996 (88) E.L.T. 310 (S.C.)] PVC leather cloth imported to provide embellishment to footwear was held eligible to exemption under Notification 29/79-Cus. In the light of the above decisions, and in the light of our finding that imported item can definitely be said to be related to the export product, we hold that the confiscation and penalty is not sustainable and accordingly set aside the same and allow the appeals.