1. Additional Collector (Customs), vide his Order-in-Original No. 44/89 dated 28.2.1989, ordered confiscation of the goods imported by the appellant, under provision of Section 11 l(d) and 11 l(m) of the Customs Act, 1962 with an option to the appellant to redeem the consignment on payment of fine of Rs. 50.000/-. Additional Collector also disallowed the benefit of concessional duty under Customs Notification No. 386/86 as claimed by the appellant. This order has given rise to this appeal.
The appellant imported 20 MTs of Tartaric acid from its foreign supplier and filed Bill of Entry at ICD, Delhi for clearance of the goods vide Bill of Entry dated 14.4.1988. The Customs authorities delayed clearance and, as alleged, had been making irrelevant inquiries, which were being replied by the appellant. During the course of time, the appellant came, to know about the Customs Notification No. 386/86 dt. 29.7.1986 (as amended) which exempts payment of basic customs duty over and above 20% and totally exempts payment of additional duty subject to the conditions stated therein.
The condition being production of a certificate issued by the Industrial Adviser in the office of Director General (Technical Development), Government of India, recommending exemption from payment of duty under provisions of the said notification.
3. The appellant obtained such certificate and submitted to the Customs authorities, but instead, a show cause notice was issued to the appellant as to why the goods should not be confiscated. Subsequently, after granting hearing, the impugned order was passed.
4. We have heard L.A., Sh. G.L. Rawal with L.A. Ms. Neerja Mehra for the appellant and Sh. A.S. Sunder Rajan, JDR for the respondent. It is not in dispute that the appellant has imported 20 MTs of Tartaric acid from a foreign supplier and has filed Bill of Entry at ICD, Delhi for clearance of the goods and it is also not in dispute that the appellant has submitted to the department a certificate issued by the Industrial Adviser in the office of the Director General (Technical Development), Leather and Leather Products Division, Government of India which is dated June 23, 1988, (copy of which is on record at page 22 of the paper book). On perusal of this certificate, it is clear that the issuing authority has specified that the above quantity 20 MTs. is to be used only in the end product--cream of tartar and other polishing salts which are used in leather polishing as required under Customs Notification No. 386/86 dated 29.7.1986 as amended by Notification No.89/87-Cus dated 1.3.1987 and has recommended grant of exemption (from the payment of duty) for the above quantity under the said notification. It has also been stated therein that the case has been examined in the said office and that the appellant firm can be allowed to import 20 MTs for the manufacture of polishing salts (leather chemicals).
5. From the copy of the above Notification, produced at page 129, it appears that the only condition for claiming exemption from payment of duty, basic as well as additional, as per the percentage stated in the notification, is as under: The importer produces a certificate from an officer not lower in rank than Industrial Adviser in the Directorate General of Technical Development of the Govt. of India, specifying in each case the description and quantity of each chemical in question and the description of the end product & recommends grant of the exemption.
6. So, the certificate, issued by the Industrial Adviser, is as per requirement of this Notification and the appellant has complied with the necessary condition of producing certificate. So, as per this Notification, the appellant is entitled to get clearance of imported goods on concessional rate of duty.
7. In his order at page 9, ld. Collector has raised the following issues for determination: Whether the importer is entitled for the benefit of 'COL' Appendix 6 List 8 Part I of ITC Policy 1985-88 AM. Whether the importer is entitled for the benefit of concessional rate of duty under Notification No. 386/86 dated 29.7.1986 on the subject consignment.
Whether goods under question are liable to confiscation under Section 111(d) & 111(m) of the Customs Act 1962 & Whether the importers are liable to a penal action under Section 112(a) of the Customs Act 1962.
8. The Collector has held (in para 20) that since the appellant has not satisfied the conditions of import of item placed under OGL (appendix list 8 part I), the import is not valid in terms of para 24 of Import Policy 1985-88. On perusal of the said appendix 6--list, it appears that items listed therein are allowed to be imported to actual users (industrial) and export house/trading houses. The appellant has produced, before the Collector, a certificate of registration as an industrial unit issued by Deputy Director of Industries, Delhi (copy of which is produced at page 6). This is issued on 22.4.1982 to the appellant for following manufacturing/processing activities: 4) A.R. Grade of Tartaric acid and re-packing of the tartaric acid (added on 9.5.1985 and amended on 15.10.1985). So from this certificate it can be seen that the appellant has been registered as a small scale industry for manufacture of A.R. grade of tartaric acid and also for repacking of tartaric acid. It is also registered for manufacture of polishing salt.
9. In the impugned order, at page 10, the total turnover of the appellant unit for the years 1986-87 and 1987-88 has been stated in a tabular form from which it can be seen that the appellant had manufactured cream of tartar of the value of Rs. 1,35,500/- in the year 1986-87. These figures have been taken from Central Excise returns/declarations maintained and submitted by the appellant from time to time. So, it is on record that the appellant is a manufacturer and that is why is an actual user. The Collector has held that the appellant is also selling tartaric acid without doing any manufacturing process, even though he admits that the appellant is allowed this activity as per registration certificate (referred to above), but according to the Collector, this activity does not entitle the registrant to import goods placed under OGL.
10. Now, this observation of the Collector is presumptive in as far as the industrial adviser has in his certificate (page 22) specifically stated that the appellant can be allowed the import of 40 MTs of tartaric acid for the manufacture of polishing salt (leather chemicals). So, if the importer does not fulfil this condition, suitable action can be taken by the appropriate authority. But, for the present, the appropriate question does not arise because as discussed above, the appellant company is engaged in the process of manufacturing and is an actual user and is entitled to import the goods in question under provisions of Import & Export Policy under OGL without obtaining any import licence.
11. The Collector did not stop at this, but he even doubted capacity of the appellant to manufacture polishing salt. He referred to several technical books on this subject and deduced requirements of machinery for the process of manufacture and went on to say that the appellant would not be in a position to undertake manufacture of polishing salts from the huge quantity of tartaric acid which is being imported. On the point of reselling, the Collector, relying upon the report of the chemical analyser, held that the consignment of tartaric acid is of 99.5% quality and so it is of A.R./Food Grade and so the appellant has filed wrong declaration of the goods. To say the least, this is merely an exercise in futility. Whether the appellant would be in a position to undertake manufacture is not to be looked into for the present. As we have stated earlier, if the appellant is unable to fulfil the condition imposed upon them, it will invite suitable action. As far as questions of purity and grades are concerned, it appears that Collector has mixed up the facts. It has been clearly contended by the appellant that they do not accept the report of the chemical analyser and that the description of the goods, in question, as commercial grade, is not correct because there is no such grade as commercial grade but that the appellant was asked to write this description by the Assistant Collector. It has also been contended that the goods are of technical grade and of 98% purity and that assuming for the sake of the arguments that purity of the goods is 99.5% and that that is also required purity in A.R. Grade then also that by itself would not prove that the goods are of A.R. Grade.
12. Learned Advocate, Shri G.L. Rawal has drawn our attention to the ISI specification for tartaric acid (copy of which is produced on record at page 15 & 16) and at back side of page 16, there is a table wherein requirements for different grades of tartaric acid are stated in a tabular form. On perusal, it can be seen that as far as pure and A.R. grades are concerned, even though standard of purity as shown for both these grades is 99.5%, there is difference as far as other components arc concerned and Id. Advocate submitted that assuming that they had, in fact, imported pure grade, it cannot be treated as A.R.grade and chemical process shall have to be undertaken for converting it into one.
13. So, observation of the Collector that the goods, being of pure grade straightaway can be marketed as A.R. Grade, is not correct and not warranted in the circumstances. It was contended before the Collector, by the appellant that what is being imported is in powder form and what is being marketed by the appellant is in crystallised form. The Collector has not taken this aspect into consideration. But apart from this, assuming that what has been observed by the Collector is correct, then also, no misdeclaration can be alleged against the appellant because neither in the Import-Export Policy nor in the Certificate issued by the Industrial Adviser, it is stated that the appellant will be required to import goods having particular percentage of purity. Secondly, here they have been granted permission with the specific condition that the goods will have to be utilised in manufacture of polishing salts. So, the questions whether the appellant would market the imported goods straightaway and in particular manner or form, do not arise at all.
14. Surprisingly, the Collector even went to the extent of observing "further the use of tartaric acid of such a high purity of 99.5% and above in making cream of tartar, polishing salts, etc. for leather industry is a misuse of AR grade tartaric acid when technical grade of 98% purity as per ISI specification is available." We are at a loss as to what we should say about this platitude indulged into by the Collector. So, we are convinced that the conclusion of the Collector that appellant is not entitled for the benefit of importing goods, in question, under OGL is totally unjustified.
15. On the second question as to whether importer is entitled to the benefit of concessional rate of duty under Notification 386/86, the Collector has decided in negative.
16. Now, as reproduced above, the only condition for such concession is obtaining of certificate from the Industrial Adviser, which in the present case, the appellant did obtain and submitted before the department. For reasons best known to him, the Collector raised doubt about this certificate in following words: However, while examining the certificate issued by the Industrial Adviser, I find that the Industrial Adviser has gone beyond his role as recommendatory authority for extending the benefits of concessional rate of duty as the Industrial Adviser will only recommend the case of importation at concessional rate of duty for consideration by the competent authority. The recommendation given by the DGTD cannot be binding on the Customs authorities and cannot be construed as obligatory to be accepted. Benefit of concessional duty cannot be extended only on the basis of this recommendation without examining other facts of import and use of the material as such.
However, there need not be a bar in claiming benefit of exemption notification, if the importers arc satisfactorily able to account for the material used in the manufacture of leather chemicals.
17. From above, it is clear that the Collector has exceeded his authority and has transgressed into the field of other authority. It has been stated in the order itself that the appellant has cited Union of India v. Tara Chand Gupta and Bros. wherein it has been held as under: When the Collector examines goods imported under a licence in respect of goods covered by entry 295 what he has to ascertain is whether the goods are parts and accessories, and not whether the goods, though parts and accessories, are so comprehensive that if put together would constitute motor cycles and scooters in C.K.D. condition. Were he to adopt such an approach, he would be acting contrary to and beyond entry 295 under which he had to find out whether the goods imported were of the description in that entry.
Such an approach would, in other words, be in non-compliance of entry 295.
18. The Collector did not rely upon this stating that the facts were different. Ld. advocate, Sh. Rawal also cited following cases:Lokash Chemical Works v. M.S. Mehta, Collector of Customs (Preventive) Bombay and Ors. 1981 E.L.T 235 (Bom.)--wherein it has been held as under: Licence--Duties of Customs Authority--Sections 47 and 2(33) of the Customs Act, 1962--Scope--Under Section 47 read with Section 2(33) of the Customs Act, 1962 once licence is granted, the proper officer has to satisfy whether goods mentioned in the licence tally with the description of goods imported and the conditions imposed in the licence are complied with by the importer. If the proper officer is so satisfied, he is bound to allow the clearance of the goods on payment of duty.
Licence--Validity cannot be questioned by customs authorities--Clause IOC of Import (Control) Order, 1955. The validity of the licence for importation of goods cannot be questioned by the customs authorities. Nor Customs authority can sit in appeal on the liceising authority, as it has no right to go beyond the terms of licence because it would amount to cancellation of licence which is not permissible under the provisions of Clause IOC of the Import (Control) Order, 1955.
2. Bombay Chemicals Pvt. Ltd. v. Union of India and 14 Ors. 1982 E.L.T. 171 (Bom.) : 1992 (40) ECR 278 (Bombay) wherein it has been held as under: The Customs authorities were bound to accept the certificate issued by the Directorate General and it is not permissible to go behind it merely because the Customs authorities feel that the contents of the certificate were disproved by some other material. There is a great danger in accepting the submission of the Department that the authorities can brush aside the certificate and determine whether the assessee is entitled to the exemption or not.
19. L.A., Sh. Rawal has also argued that Notification No. 386/86-Cus as amended by Notification 89/87, as issued by the Government of India, under powers conferred under Sub-section 1 of Section 25 of the Customs Act, 1962 is issued in exercise of legislative powers and cannot be challenged by subordinate authorities. In support of this contention, he has cited Bombay Conductors and Electricals Ltd. and Anr. v.Government of India and Ors. : 1983 ECR 315D (Delhi) wherein it has been held as under: Section 25(1) of the Customs Act, 1962 delegates power to the Central Government to grant exemption from duty whenever it finds necessary so to do in the public interest and shall be laid before Parliament as soon as may be after their issue and the Parliament may amend or reject them. This shows that notifications issued under Section 25(1) are in exercise of 'sovereignty' i.e. legislative power.
20. So, it is evident from the above discussion that it is not open to the Collector to challenge the certificate issued by the Industrial Adviser or to disregard it. He is bound to accept it as it is and has to act in accordance with the same. So, conclusion of the Collector that the importer is not entitled to the benefit of concessional rate of duty under Notification 386/86 (as amended) is not correct.
21. In view of our findings on the above two points, the question of confiscating goods by the customs authorities and initiating any penal action against the appellant, does not arise. So, we pass the following final order: The appeal is allowed. Impugned order passed by the Collector (Customs), New Delhi is set aside with all consequential relief to the appellant.
22. I have read the order prepared by my Learned Brother Shri Vasavada.
While I agree with his conclusion, I would like to add a few words.
23. The Additional Collector has, in my opinion, gone wrong in concluding from the purity (not less than 99.5%, as reported by the Chemical Examiner) of the imported Tartaric Acid that the goods must be of AR (Analytical Reagent) Grade. While the Indian Standards Specification 880-1956 no doubt lays down the minimum purity of pure/AR grade of Tartaric Acid as 99.5%, it also lays down that the pure and AR grades must have Arsenic (As2 O3) present only to the maximum extent of 1 part per million (PPM) as against 18 PPM for the technical grade.
Again, the Standard prescribes a purity of 98.0% of Tartaric Acid content by weight on dry weight basis as the minimum for the technical grade. If, therefore, a sample shows on test the presence of 99.5% of Tartaric Acid (i.e., over 98.0%), it would not follow ipso facto that the sample is necessarily of AR grade Tartaric Acid. The other parameters laid down for AR grade Tartaric Acid should also be checked by test. No such test seems to have been conducted in the present instance and the Additional Collector has erroneously jumped to the conclusion based only on the presence of Tartaric Acid to the extent of not less that 99.5% (i.e., over 98.0%) that the goods must be AR grade Tartaric Acid.
24. In this connection, it is seen from the copy of the test memo prepared by the Customs authorities (page 41 of the Paper Book) made a query of the Chemical Examiner as to whether the sample is of technical grade as per Indian Standard. The Chemical Examiner's report, however, does not answer this query but requests that the purpose of the query may be clarified. It adds that the importer may be advised to forward authentic literature containing physical and chemical composition and the intended use. The Chemical Examiner, it may be seen, has thus not expressed any opinion as to whether the sample conforms to the technical grade or the AP grade.
25. The appellants, in their letter dated 21.1.1989 (copy at pages 101 to 103 of the Paper Book) had furnished a flow-chart of the processing of the imported Tartaric Acid to cream of tartar on the basis of 500 Kgs of Tartaric Acid in a single shift of 8 hours per day. The letter had enclosed also details of machinery required for manufacture of cream of tartar from Tartaric Acid and the machinery installed at the appellants' premises. In the said letter it has been stated that the appellants have an installed capacity to process more than 150 metric tons of Tartaric Acid per year for the manufacture of cream of tartar on a single shift basis. The claims made in this letter and the details of the machinery stated to have been installed in the appellants' premises for the manufacture of cream of tartar from Tartaric Acid do not seem to have been verified by the Additional Collector who, however, seems to have come to the conclusion that the process of manufacture set out by the appellants was not the one employed for manufacture of cream of tartar from Tartaric Acid by reference to certain books. This, in my opinion, was an erroneous approach to the matter. It is well known that manufacturing processes keep on evolving and changing all the time. They may differ depending upon the raw materials and the techniques employed. When the appellants had stated in precise detail the machinery claimed to have been installed at their premises for the purpose of manufacture of cream of tartar from Tartaric Acid, it was the duty of the Additional Collector to verify the claim before rejecting it. If he had any difficulty in verifying the claim himself or through his officers, he should have enlisted the help of the Directorate General of Technical Development whose Industrial Adviser had clearly certified in his letter dated 23.6.1988 to the Assistant Collector that the appellant firm had been using Tartaric Acid for manufacture of cream of tartar and other polishing salts used as leather chemicals and the quantity of imported Tartaric Acid would be used only in the manufacture of the said products as required under Notification No. 386/86 Customs dated 29.7.1986. The impugned order itself recognises the fact that the appellants had been manufacturing cream of tartar. All this, of course, is without prejudice to the position in law as set out in the order prepared by Brother Vasavada, with reference to the authorities referred to therein that it was not open to the Additional Collector to go behind and question the correctness of the certificate issued by the Industrial Adviser in the Directorate General of Technical Development which was the condition for claiming exemption from payment of duty in terms of the said notification.
26. It is not as if the Customs authorities are entirely helpless in the matter. Section 111(o) of the Customs Act, 1962 provides that any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under the Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer, shall be liable to confiscation, and in terms of Section 112 of the Act, any person who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under Section 111, or abets the doing or omission of such an act, shall be liable to penalties provided in the section. The Customs authorities have thus adequate powers to deal with any violation of the conditions subject to which exemption from duty and from prohibition on import have been authorised by law.
27. In the light of the foregoing discussions, I agree that the appeal is to be allowed and the impugned order to be set aside with consequential relief to the appellants.