1. The appellants are engaged in the manufacture of ceiling and table fans at their factory since 1970. The table fans and the ceiling fans so manufactured are exported as well as sold in the domestic market.
About 50% of the total quantity manufactured by the appellants is sold in the domestic market and the remaining 50% is exported. The models relevant during the disputed period are as follows: Out of the models mentioned above, viz, Astra, Huggar and Supra have top and bottom covers made of only aluminium, models Prima, Pulsar and KSD have either a combination of top and bottom covers of cast iron + cast iron or cast iron + aluminium or aluminium + cast iron. The use of aluminium as a material for the top or the bottom cover also resulted in reduction of the weight. While the fan with a cast iron/cast iron top and bottom has a weight of 3.70 kgs., a fan with a cast iron top and aluminium bottom had a weight of 2.15 kgs. Similarly, a fan with top and bottom aluminium cover weighs 0.90 kgs. Thus, a fan weighed less when Aluminium was used as a material for either the top or the bottom cover either exclusively or in combination with cast iron.
2.(a) The appellants were initially importing the raw materials for the manufacture of the top or the bottom covers on payment of duty. In and around 1993, the appellants desired to import the aluminium alloy for the manufacture of the aluminium top or bottom covers by availing the benefit of an Advance Licence on a prior export basis i.e., the import of the raw materials would be made after the export of the finished goods. The appellants, therefore, submitted documents like the shipping bill, the invoice raised on the foreign purchaser after the export of the goods to enable the authorities to issue the licence. The licences so issued were to replenish the raw materials used in the manufacture of the product exported.
(b) In the application submitted for the issue of the advance licence the appellants specifically indicated that the application was on the basis of the 'Standard Input Output Norms' as per EXIM Policy. They also indicated the export-product to be ceiling fan, one of the inputs as per norms was "Aluminium Alloy". They were issued with Advance Licences permitting them to import the various items mentioned therein including Aluminium alloy.
(c) In accordance with the Advance Licence issued by the DGFT authorities, the appellants imported various inputs, one of which was Aluminium Alloy.
(d)(i) The Aluminium Alloy after being imported was sent to various job workers for manufacture of ceiling fan top or bottom cover castings either exclusively or in combination with cast iron. The appellants also purchased cast iron top and bottom covers, iron castings from M/s Deccan Iron Manufacturing Works, Hyderabad.
(ii) The job workers or the ancillary units to whom the appellants sent the Aluminium Alloy, were as follows : (iii) The top or bottom covers, received by the appellants from the job workers, were thereafter used in the manufacture of fans exported.
3. (a) In November 1998, the officers of the Directors of Revenue Intelligence, Hyderabad, visited the factory premises of the appellants and conducted investigations. They recovered various documents from the appellants' factory like Kardex (Bin card), the delivery order-cum-issue slips etc. The officers also had recorded statements from the senior officials of the appellant company like Shri U.V.Anand, Senior General Manager, Shri Ajay Gupta, CEO etc.
(b) A show cause notice was thereafter issued proposing to demand duty and impose penalties on the ground that the appellants had not used the LM-24 Aluminium Alloy imported under the cover of an Advance Licence and had availed the benefit of the Notification without using the imported raw material in the export product.
(c) After the appellants submitted their replies to the show cause notice, the Commissioner has passed the impugned order rejecting the contentions of the appellants and confirming the demand of duty and imposing penalty, under Section 114 A of the Customs Act, 1962 and ordered the confiscation of Aluminium Alloy. The Commissioner has, however, reduced the demand of Special Additional Duty, holding that there was a discrepancy in the inclusion and has dropped demand of Rs. 3,29,243.
(a) The Commissioner relying upon the statements of Shri D.V. Anand, Sr. General Manager, the evidence collected from the factory of M/s Deccan Iron Manufacturers, Hyderabad and other job workers to the effect that imported Aluminium was converted into components or table fans and his inferences on instruction in correspondences from M/s Usha International, Delhi to importers not to use Aluminium alloy during 1997-98, concluded and held : (i) Aluminium Alloy imported under DEEC was not used in the export-product and it was not used for the purpose it was intended and was diverted for other uses.
(ii) He was not in agreement with the submission that 'intended use' and 'not actual use' only was contemplated under the scheme.
(iii) The CBEC circular relied upon by noticees [viz., 4/93 dtd.
4.3.93. and 1.94 dtd. 5.6.94] were issued relating to a Value Based Advance Licencing Scheme and Notfn. No. 203/92 while the impugned imports were under Quantity Based Licence and Notfn. No. 204/92 and there was no strict parallel between them, therefore circulars cannot be applied in this case.
(iv) Since the Notification benefit was wrongfully availed, since Aluminium Alloy was used in the manufacture of table fans and ceiling fans, which were locally marketed, instead of using the material in the manufacture of export products. Thus, the Aluminium Alloy imported was liable for confiscation under Section 111 (o) of the Customs Act, 1962 and fine therein, even if goods were not available for confiscation. The importers were liable for a penalty under Section 114A and duly and interest was demanded under Section 28 & 28 AB of the Customs Act, 1962.
(b) From a perusal of Shri D.V. Anand's statement, especially answers to Q.3, 8 and 12, which are as follows: A.3 There are three areas where Aluminium is used viz, 1. Die Cast Rotor-Electrolylic grade ingots of Aluminium. 2. Blades-made out of Aluminium Cold Roiled Products. 3. Top & Bottom covers of Ceiling Fan Aluminium Alloy. Electrolytic grade of Aluminium and CR Products are procured from BALCO, where Alum Alloy in addition to BALCO is procured from other local sources apart from direct imports.
Q.8 Since the fact of not using aluminium Alloy in the Ceiling Fans for export on prior export basic, was HEI justified in the imports duty-free of Aluminium ingots LM. 24? A.8 Though we have not used fully Aluminium Alloy LM-24 in our export of Pulsar, prima & KSD fans currently, the duty-free imports are as per the standard Import-Export Norms permissible. However, the actual regality of imports made will be discussed with my seniors. 'Should there be any contravention of EXIM Policy/Customs Law, the appropriate Customs Duty will paid by HEI. (emphasis supplied) Q.12 Are there any models, which have Top & Bottom covers made of Aluminium Alloy? How often is the frequency of export A. 12 The fans which have Aluminium Die Cast Top and Bottom covers are Astra, Supra, Lulminaire, Astra Hugger which were exported to Singapore and Egypt normally. The exports of these models are comparatively less, however, the actual details will be furnished separately." ".... M/s Jay Engg Works Ltd (JEWL) has been customer for us, who are the manufacturers of ceiling and table fans. M/s JEWL duly sends us LM. 24 Aluminium Alloy Ingots imported in nature under 57 F (4) Challan with a clear cut instructions for the further pressure Die Castings. On being specifically asked, I state that with the receipt of LM-24 Aluminium Ingot (Imported we manufacture table fan back cover and ceiling fan Astra top, bottom covers and occasionally for Kohinoor Super Deluxe (KSD) top &: bottom cover." The Panchanama recorded at the premises of M/s Tyche Diecast Pvt. Ltd. and Shri Srinu Vasantha's explanation therein : ".... Shri Srinu Vasantha explained and on being specifically asked that they receive imported LM-24 Aluminium Alloy Metal from M/s Jay Engg Works, Hyderabad and the same are used in the pressure Die-casting for Table Fan-front and back cover. He further explained that they received LM-24 Aluminium Alloy Metal of M/s Venkateswara Non-ferrous Foundery through M/s Jay Engg. Works, Hyderabad, which are used in the manufacture of bottom cover for magnetic ceiling fan..." And Commissioner's conclusions arrived at in the impugned order that the Aluminium Alloy under import was used in fabricating components for fans (both table and ceiling) and they have not been diverted for any other use and that whatever Aluminium Alloy which could be used was also used in the brands of fans exported will be conclusions that could be drawn from this material on record. However, that in itself cannot be a cause to deny the benefits availed. A complete reading of the statements of Shri D.V. Anand indicates that Anand has stated, that apart from the fact that in three models the appellants had exclusively used Aluminium top and bottom covering, there has been a combined use of aluminium/cast iron top and bottom covers in respect of the other models as well as in other components of the fans. The Commissioner has relied on the evidence collected by M/s Deccan Iron Manufacturing Works, Hyderabad, to come to the conclusion that the Aluminium was not used in the manufacture of the top and bottom cover of the goods exported by the appellants. Reliance on this evidence is misplaced for the simple reason that M/s Deccan Iron Manufacturing Works was not an ancillary unit to whom the Appellants had supplied the imported Aluminium. The said unit was engaged in the sale of cast iron top and bottom covers out of the cast iron purchased by them. Consequently, the deposition of the authorized signatory of M/s Deccan Iron Manufacturing Works does not advance the case of the Department, as regards the utilization of Aluminium Alloy. The statements recorded from the various job workers like M/s Rashmi Die Casting, M/s Tyche Die Casting Pvt Ltd, Aluminium ancillaries, indicate that they had used the LM-24 Aluminium ingots for die-casting the top and bottom covers of the ceiling fans of the appellants. This material is conveniently overlooked by the Ld, Commissioner, which goes to prove that Aluminium Alloy was converted into components.
(c) The instructions, received from M/s Usha International, Delhi, directing the appellants, not to use Aluminium Alloy during the period 1997-98 and that these instructions to be pointers to the fact that, only cast-iron was used in the manufacture of the export products, as held by the Commissioner cannot be a unbiased conclusion. In fact this correspondence demolishes the case of Revenue. The letters by themselves would indicate that there has been receipt of a number of complaints from the overseas customers on account of the fans-exported having a lesser weight. The reduction in the weight, would be only when Aluminium Alloy was used in the manufacture of top or bottom cover. In fact, the letter dtd. 4.2.97 from M/s Usha International, Delhi, requests the appellants to refrain from supplying the Aluminium covers in the export market i.e., the supplies being effected were with Aluminium covers used as received from the ancillaries. The fax message dtd. 13.11.97 from M/s Ashema Link Trading Co., LLC also refers to the fact of receipt of two consignments of Pulsar ceiling fans one with motor weighing 6 kgs., and other weighing 4.5 kgs. The message also refers to the fact that the heavier model of the ceiling fan did not have a problem since it had a normal cast-iron cover. These messages very clearly indicate that the lighter ceiling fan could have only top or the bottom cover made of aluminium. The appellants placed on record a statement indicating the quantities of the aluminium alloy that were issued to the ancillary units and the aluminium covers received from them and a reading of the same was made by the Ld. Advocate, in conjunction with the total quantities of the licence-wise, model-wise exports of different fans, to indicate that if the total number of fans exported during a particular period is considered, as made of cast-iron covers, there would still exist a difference; since the number of cast-iron covers received from the ancillary units is less than the number of fans exported to submit that the differential quantity of covers could have come only from the aluminium alloy imported by the appellants. This statement deserved to be considered neither the investigators nor the Adjudicator appears to have considered this vital correlation, on record.
(d) Considering the plea that the EXIM Policy and corresponding customs notifications do not contemplate actual use, it is found : (i) The licences covered by the present proceedings have been issued between 1 March 1994 and 30 June 1998. The advance licences and the connected DEEC books have been issued under Notfn. Nos. 204/92, 80/95 and 149/95.
(ii) Notfn. No. 204/92-Cus dtd. 19 May 1992, grants exemption from the whole of the customs duty and the whole of additional duty to materials imported against an advance licence issued on or before 31 March 1995, subject to the conditions stipulated therein.
Explanation (iv) to the Notification defines the term 'material' to mean raw materials, components, intermediates, consumables, computer software and parts required for manufacture of export product. The key words to be noted in the said Notification are 'required for manufacture of the export product'.
(iii) Notfn. No. 80/95-Cus exempts materials imported against an advance licence issued on or after 1 April 1995 from the whole of the duty of customs leviable under the First Schedule. Here again, the term 'materials' has been defined to mean raw materials, components etc., 'required for manufacture of export product specified in Part E of the said Certificate.' (iv) Notfn. No. 149/95 applies to imports under advance licence applied for and issue on or after 19 September, 1995. The definition of the term 'materials' is identical to the definition in Notfn. No. 80/95.
(v) The appellant submits that the term 'required for use in the manufacture of export products' contemplates an intended use and not an actual use, So long as the material is figuring in the Input/Output norms and is specified in the licence issued by the licensing authority, the item will be deemed to be material required for the manufacture of export product. The licence-holder is not required to prove further that the said material has actually been used in the manufacture of the export product.
(vi) The provisions in Notfn. Nos. 80/95 and 204/95 are in contrast with the provisions of Notfn. No. 116/88-Cus dtd. 30.3.88 issued in furtherance of the Import and Export Policy for the period April 1988 to March 1991. These Notifications exempted materials imported against an advance licence issued under the Imports (Control) Order, 1955. Explanation (viii) to this Notification defines material' to mean goods which are raw materials, components etc., used in the manufacture of the resultant export products. These, Notifications contemplated duty exemption only to those materials, which are used in the manufacture of the resultant products. Thus, on clearances made under these notifications, actual use of the imported inputs for the manufacture of the resultant product was a precondition for grant of exemption.
(vii) The above position continued under the EXIM Policy 1990-93.
Para 231 of the said Policy stated the scope of the advance licence in the following words: "231. Advance licences are issued to Registered Exporters for import of duty exempt materials in terms of the relevant Department of Revenue Customs Notification for manufacture and export of the resultant product or to replenish the materials, which have gone into the production of the resultant product..." (viii) Para 236 of the said Policy which deals with "item permissible for exports" provided as follows : "236. Only those items of raw material, components, consumables, as are relevant and actually required for manufacture of the resultant product for export...:" (ix) It will be clear from a combined reading of Paras 231 and 236 that duty free benefit was available only to raw materials, etc.
actually required for the manufacture of the resultant product.
(x) Notfn. No. 159/90 was issued in furtherance of the 1990-93 Policy defining the term 'material' to mean the goods, which are raw material, components, intermediate products or consumables used in the manufacture of the resultant product. Thus, actual use of the inputs in the export product was a mandatory requirement under the advance licences issued in the Policy period 1990-93.
(xi) There was a perceptible policy change when the new EXIM Policy 1992-97 was issued. Para 47 of this Policy permitted duty free import of inputs required for the product to be exported. The said Policy provided for specifying the name and description of the item to be imported, the quantity of each item to be imported etc. The Standard Input/Output Norms for the imports and the value addition norms were published. The licences were issued in accordance with the Standard Input/Output Norms. Consequently, when the corresponding Customs Notification was issued vide No. 204/92, the definition of the term 'material' underwent a change whereby raw materials, components etc., required for the manufacture of the exported product were permitted to be imported duty free.
(xii) The EXIM Policy for 1992-97 was replaced with a new Policy for the period 1 April 1997 to 31 March 2002. Para 7.3 of this Policy provided duty-free benefit to imported inputs required for the manufacture of the goods. In other words, the words 'required for the manufacture' were retained in this Policy as well. Notification No. 31/97-Cus dtd. 1.4.97 issued in furtherance of the EXIM Policy 1997-2002, accordingly, retained the same definition for the term 'material'. In other words, raw materials, components, etc., required for the manufacture of the resultant product were permitted to be imported duty free.
(xiii) From the above, it is apparent that during 1994-98, and period covered by the Show Cause Notice, the EXIM Policy and the corresponding Customs Notifications permitted duty free import of materials required for the manufacture of the export product. The actual use of the imported input in the export product was not a condition under these Notifications unlike the earlier Notification such as 116/88 and 159/90.
(xiv) The words 'required for manufacture of export product' have, therefore, to be interpreted keeping in view the fact that the inputs permitted under the Standard Input/Output Norms and in the Import licences are inputs required for manufacture of the corresponding export product. The Notification places no restriction on actual use. Once Aluminium Alloy is specified as a standard input for manufacture of ceiling fans and an advance licence has been issued for the import of the said Aluminium Alloy, it is a material required for the manufacture of ceiling fans.
(xv) The Revenue's contention that the goods imported are not eligible to the Notification on the ground that the said goods do not satisfy the definition of 'materials' in the Notification cannot be upheld as the use of the goods in the goods exported is not a condition precedent in the Notification. The use of the imported raw materials is the option of the importer.' He can either use it in the export product or import it and keep it in the factory, manufacture the export product using inputs procured from other sources, fulfil the export obligation and thereafter dispose of the raw materials imported as per Standard Input/Output Norms. If the Customs authorities take a view that certain materials are not required for the manufacture, contrary to the view of the Standards Input/Output Norms of the EXIM Policy, it would lead to disharmonious situation, as while import licences granted will entitle the Import under DEEC Scheme while the clearances of the same into the country would not be in conformity with the DEEC Scheme. The EXIM Policy of the Government has to be harmoniously interpreted and no discordant notes be made. If Input/Output Norms permit, clearance as per policy have to be allowed by Customs. If the norms are not correct, the norms could be changed not the clearances effected.
(xvi) In fact, condition No. 1 of the Notification read with the DEEC certificate and Part 'C thereof represents a solemn assurance of the Government that the goods covered therein would be exempt from duty. An interpretation that thwarts this assurance is not permissible.
(xvii) In almost an identical situation, this Tribunal in the case of Jaysynth Dyechem Ltd., v. CC (Export Promotion), Mumbai, 2001 (136) ELT 1429 has taken a view that Customs authorities are bound by the licence issued by the licensing authorities, following the same, the impugned order cannot be upheld. These findings would lead to a conclusion that Commissioner has not appreciated the EXIM Policy and notification provisions correctly.
(e)(i) The question whether the materials permitted for import should be physically incorporated in the export product was examined by the Central Board of Excise & Customs. In particular, the extent of nexus between the input and the export product was examined. This issue was examined by the CBEC in the context of the Value Based Advance Licence Scheme and the corresponding Customs Notifications No. 203/92-Cus dtd. 19.5.1992.
The said Notification exempted materials imported into India against a Value Based Advance Licence from the basic and additional duty of customs subject-to the conditions specified therein. Explanation (iii) to the said Notification defined the term 'materials' to mean raw materials, components, intermediates, consumables, computer software and parts required for manufacture of export product. The definition of the term 'materials' in Notfn. No. 203/92-Cus is identical to the definition of the said term in Notfn. No. 204/92-Cus applicable to Quantity Based Advance Licences. CBEC issued another Circular vide Circular No. 4/93 dtd. 4.3.93 in the context of Notfn. No. 203/92. This Circular was issued in the context of the insistence of Customs field formations 'seeking to establish a detailed nexus of inputs with reference to export product' and insisting 'that the material imported must be actually utilized in the manufacture of the goods to be exported', clarified as under : "The materials permitted import are those which are required for a particular class of export. That does not mean that the goods imported must be physically incorporated in the exported product. It only implies that the goods imported must be of a category that could have been used for the export product." (ii) The appellants further submit that the clarification contained in Circular No. 4/93 was again amplified and re-iterated in Circular No. 1/94 dtd. 5.1.94. Paras 2 & 4 of this Circular, which are very relevant, are reproduced below: "2. Notfn. No. 203/92-Cus, relating to the Value Based Advance Licensing Scheme, allows import of raw materials, components, consumables, etc., required for use in the manufacture of export product -- Explanation (iii) of the Notification. It was clarified that the word 'required' does not mean that goods imported must be physically incorporated in the export product, as the export product be manufactured from inputs procured outside the Duty Exemption Scheme. However, the goods imported should be those which could have been used in the export product, i.e. goods of a kind which are commercially known to he used in the export product and are covered by the description of inputs in the licence. Consequently, as plastic moulded goods are a class of export product which are manufactured basically out of HOPE (moulding grade) it would, therefore, not be correct to allow import of HOPE (film grade) against such exports even when the licence does not specify the grade.
4. It is, therefore, once again re-iterated that whereas minute details of the kind indicated in the preceding para may not be gone into to establish a close nexus, it will be necessary to establish a nexus between the inputs and the export product keeping in view the commercial use of the inputs imported and the normal manufacturing process for the product exported." (iii) It is, thus, clear that duly free clearance cannot be denied, so long as the materials permitted to be imported duty free are those which are required for the manufacture of the export product, Further, the fact that the word 'required' indicates only an intention or capability of being used in the export product as contra-distinct to actual use contemplated in earlier Notifications such as No. 116/88 and 159/90 supports the above conclusion.
(iv) The Commissioner has observed that the condition in the Notfn.
No. 204/92 that the imported material 'shall be utilized in discharge of the export obligation' to mean that the material imported shall be incorporated in the export product. This observation is directly in contradiction to the Circular dtd. 4.3.93 and Circular No. 1/94 dtd. 5.1.94 issued by the Central Board of Excise & Customs, therefore it cannot be upheld. (v) The Commissioner's finding, by referring to the Schedule of Quantity Based Advance Licence Part-II annexed to the Notification, to come to the conclusion, that the imported items and the resultant products are required to match is considered. That such a 'matching' has already been done by means of the 'Standard Input/Output Norms' in the EXIM Policy, itself. It is only after taking into consideration the above situation that the Board appears to have issued the Circulars clarifying that the physical incorporation of the input in the export product is not required. The conclusion of the Commissioner cannot be upheld. (vi) The Commissioner has also held that the expression used in the explanation to the Notification 'required for the manufacture of the export product' clearly confirms the actual use. This conclusion of the Commissioner cannot to upheld in view of the amendments and changes in the EXIM Policy and the wordings used in the Notifications found hereinabove.
(vii) The Commissioner has also held that both the Central Board of Excise & Customs Circulars dtd. 4.3.1993 and 5.1.1994 are issued with reference to the Notifications which relate to Value Based Advance Licencing Scheme, whereas the Notification in question viz.
No. 204/92 is Quantity Based Licence, and therefore, there is no direct parallel between them. This distinction is irrelevant, the interpretation of the Notifications is not based on whether the Advance Licence is value based or quantity based. The Circulars are with reference to the interpretation of the wording in a Notification. An interpretation for terms used therein would hold good, both for Value Based Advance Licence as well as for Quantity Based Advance Licence, if terms and wordings are parameters. The wordings/definition of 'materials' in both the notification is the same. Therefore, distinction drawn by the Commissioner and rejection of application of Circular Instructions is not upheld. (viii) The appellants' reliance on the following decisions in support of their submission that the expression 'for use' would only mean intended purpose and not 'actual use',State of Haryana v. Dalmia Dadri Cement Ltd., 1998 (14) ECR 292 (SC)CCE, Bangalore v. ITC Ltd., is relied upon, to reject the finding of the Commissioner in the impugned order.
(f) All licences in this case have been issued on prior export basis and are replenishment licences, in nature. Policy and Notification do not place any restriction on the use of the imported raw materials. While issuing the said Replenishment Advance Licences, the licensing authority has permitted imports of raw materials on the basis of the Standard Input/Output Norms. Once an export obligation has been fulfilled, then neither the policy nor the Notification places any restriction on the disposal of the imported raw materials, at least till 1997. On and after 1997, the disposal of the raw materials imported under the advance licence is subject to actual user condition. A comparison of the wordings in the Notification and the Policy indicates that both the Policy and the Notification placed a restriction on the disposal of the raw materials imported under the Advance Licence only till the fulfilment of the export obligation. In other words, once an export obligation is fulfilled, then both the policy and the Notification permit disposal of the raw materials. On and from 97-98, the disposal of the raw materials was subject to the actual user condition i.e., the manufacturer-importer was required to use the imported raw materials in his factory. Such a use can also be for the manufacture of the finished goods which need not be exported but which could be sold in the local market. In this case, it is the contention of the Revenue that the licences have been obtained on prior export basis and that the imported raw material has been utilized for manufacture of fans locally sold. Once it is accepted that the licences are for replenishment and that the export obligations have been fulfilled, then the appellants are permitted to use the said imported materials for manufacture of their other goods, cleared in the domestic market.
(g) The Tribunal has consistently held that once export obligations have been fulfilled, then the raw materials imported for replenishment be used in the manufacture of the goods, which are sold in domestic market and that the customs authorities cannot demand duty on the ground that the goods imported have not been used in the exported goods:Dolphin Drugs (P) Ltd v. CC, Mumbai, (iii) CC, Hyderabad v. Chemmor Drugs Ltd., 2003 (85) ECC 555 (T) : 2003 (54) RLT 311 The CBEC has also issued a Circular No. 108/95-Cus dtd. 13.10.1995 in which it has been stressed that in the case of goods imported as replenishment, the spirit of the scheme and the intention of the wordings is that the imported goods shall be subjected to the actual user condition. Therefore, following the same, there is no cause to uphold the impugned order.
(h) The proviso to Section 28 (1) of the Customs Act, 1962 has been invoked on the ground that the appellants have wilfully misdeclared the Aluminium Alloy as a material required for import even though the same has not been used in the manufacture of the export product.
The allegation of wilful mis-declaration is contrary to the facts on record. The appellants had applied for the advance licence for the Standard Inputs as identified by the Standard Input/Output Norms against exports already made of ceiling fans. Aluminium Alloy is one of the items, permitted by EXIM Policy Norms, to be imported as an input. Aluminium Alloy has actually been used for the manufacture of top and bottom covers and fans have been found to be exported, as having Aluminium Alloy parts. Consequently, the allegation that the Aluminium Alloy has been imported and that the same has not been used in the manufacture of the export product is contrary to facts.
As the application made to the licencing authority is in accordance with the Standard Input/Output Norms and Aluminium Alloy has, indeed, actually been used in the manufacture of top and bottom covers and other parts, of the exported models of ceiling fans, there is no mis-declaration, leave alone a mis-declaration which is wilful. Consequently, the extended period of five years cannot be invoked under Proviso to Section 28 (1). Suppression, mis-declaration, if any, has to be with reference to the imported goods and at the time of import. In the present case, the Show Cause Notice does not even allege suppression of facts at the time of import. Thus, proviso to Section 28 (1) cannot be invoked for this reason also. The Commissioner invoking the larger period of limitation under Section 28 (1) on the ground that the appellants had wilfully mis-declared the consumption of the Aluminium Alloy even though the same were never used or intended to be used in the manufacture of the export product, cannot be a cause to be upheld since, the appellants had applied for the issue of an Advance Licence on the basis of the Standard Input-Output Norms, which recognizes a class, of inputs as required for the manufacture of an export product. The appellants were under the bona fide belief that in view of the fact that the Advance Licence has been granted to them based on an application made by them; as such an Advance Licence was based on Standard Input-Output Norms, the physical incorporation of the input in the export product was not required.
Therefore, that there was no mid-declaration of the consumption of the Aluminium Alloy since the said Aluminium Alloy was used, in fact in few of the models, which the appellants exported and in respect of the three models in combination with the other parts, the bar of limitation will operate in favour of appellants.
(i) Examining the conditions of exemption to the Notifications, it is found: (i) Condition (i) provides that the exempted materials should be covered by a quantity based DEEC issued by the licensing authority.
There is no dispute that Aluminium Alloy is covered by the DEEC issued by the licensing authority in all the licences under consideration.
(ii) Condition (ii) requires the appellants to produce proof of having executed a bond/legal undertaking before the licensing authority and to make a declaration of the Customs authority to pay duty leviable but for the exemption if the conditions specified in the Notification have not been complied with. The bond/legal undertaking and the necessary declaration have been made. Condition (ii), therefore, has been observed.
(iii) Condition (iii) requires that the licence and the DEEC are to be produced at the time of clearance of goods. This has also been done.
(iv) Condition (iv) provides that the import and export should be undertaken through the specified ports, This has also been observed.
In fact, it is an accepted position that all the licences in question have been obtained only after export of goods.
(v) Condition (v) provides that the export obligation should be discharged; within the period specified or within such extended period as may be granted by the licensing authority. It is not in dispute that the export obligation has been fulfilled in all these licences.
(vi) Condition (vi) provides that the sale or transfer of the materials or the licence shall not be available if the benefit under Rule 56A or 57A of the Central Excise Rules, 1944 has been availed.
It is an admitted position in the Show Cause Notice that the imported materials have been used by the appellants only. This condition has, therefore, been observed.
(vii) Condition (vii) provides that the exempt material shall not be disposed of or utilized in any manner before discharging the export obligation and realization of the export proceeds. It is not the case in the Show Cause Notice that the materials had been utilized in a manner contrary to condition (vii).
(viii) Condition (viii) is about transferability of the licence. The licences under consideration have been used by the appellants and have not been transferred. This is also an admitted fact.
(ix) It will be observed from the above factual position that all the eight conditions specified in the Notification have been observed fully. Consequently, Section 111 (o) is not at all attracted in this case. The confiscation of the goods is, therefore, not correct. Since all the conditions are fulfilled, there cannot be any confiscation of goods under Section 111 (o) of the Customs Act, 1962. Reliance is placed on the decision of the Tribunal in the case of VBC Industries Ltd. Hyderabad v. CC vide Final Order No, 911/2003 dtd. 11.7.2003.
(j) Section 114A dealing with mandatory penalty is attracted only in cases where the non-levy or short levy of duty is by reason of collusion or wilful mis-statement or suppression of facts. The appellants had demonstrated very clearly that there is no mis-declaration at all and hence, the proviso to Section 28(1) is not attracted. Consequently, the levy of penalty under Section 114A fails.
Further and in any case, for the imports effected prior to 28.9.96, penalty cannot be imposed under Section 114A. This same therefore, as imposed, cannot be upheld.5. In view of the findings, the order is required to be set aside and appeal allowed.