| SooperKanoon Citation | sooperkanoon.com/6294 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | Feb-27-1991 |
| Reported in | (1992)LC74Tri(Delhi) |
| Appellant | Indian Potash Ltd. |
| Respondent | Collector of Customs |
2. The miscellaneous applications filed by the appellants for permission for introduction of additional/supplementary grounds were taken up first. The Departmental Representative did not have any objection. After hearing both sides, we allowed the applications.
3. The arguments, in the main, were with reference to Appeal No. 647/87 which was stated to be a typical case. Only in Appeal No. 646/87-C certain additional submissions were made. Those will be dealt with at the appropriate stage.
4. We shall, therefore, consider Appeal No. 647/87-C to understand the issues involved and the submissions made.
5. M/s. Indian Potash Ltd. (the appellants), the agents appointed by the Ministry of Agriculture for handling and distribution of Muriate of Potash (M.O.P. for short) were importing (as recorded in the impugned order) the said item and clearing the same regularly through the Bombay Customs. The import of M.O.P. (Potassium Chloride, other than Industrial Grade) during the relevant period (April 1983 - March 1984 and April 1984 - March 1985 Import Trade Control Policy periods) was canalised through the Public Sector Undertaking, Minerals & Metals Trading Corporation (MMTC). Notification No. 146-Customs, dated 19-7-1980 and Notification No. 131-Customs, dated 11-5-1984 exempted M.O.P. from the whole of the duty leviable thereon subject to the condition that the goods shall be proved to the satisfaction of the Assistant Collector that the same is being imported for use as manure or in the production of complex fertilizers. Notification No. 131-Cus., dated 11-5-1984 exempted the goods from the whole of the auxiliary duty of customs and by virtue of Central Excise Notification No. 40/83 dated 1-3-1983, the goods were exempted from additional duty of customs as well. The goods imported were cleared free of duty on the basis of a declaration by the appellants that they would be used as manure. It appears that the Customs House received certain information that M.O.P.released free of duty for use as manure was finding its way to other industrial uses as raw material. A quick survey is said to have revealed that the misuse was widespread. The premises of M/s. Standard Alkali (Chemical Division, Standard Mills Company) were, among others, searched and 400 M.Ts of M.O.P. (Chemical Manure), some empty bags and documents were seized. Scrutiny of their pin (bin ?) card index showed that the goods were indexed as 'Refined Potassium Chloride', no other grade being found in the premises. Pending investigations, the seized goods were released on a bond. A statement was recorded from Shri D.M.Nadkarni, Works Manager in which he deposed that the factory manufactured Potassium Hydroxide and Potassium Carbonate using Potassium Chloride as raw material and that the goods seized had been supplied by M/s. VIP Chemical Private Ltd., M/s. Amar Trading Corporation and M/s. Vipul Chemicals. A statement was recorded from Shri V. Ramadurai, President of M/s. Standard Alkali in which he inter alia stated that the terms 'refined' and 'purified' used with reference to the Potassium Chloride signified Potassium Chloride 94-95%. On scrutiny of the documents, the Customs authorities were of the view that the Potassium Chloride purchased by M/s. Standard Alkali was other than refined potassium chloride or Technical Grade of potassium chloride but conformed to the specifications for M.O.P., fertilizer grade. Statements of several others including the persons connected with V.I.P. Chemicals Private Ltd. etc. were also recorded. Also, a statement was recorded from Shri M.A. Mhatre, Zonal Manager of the appellant Co.'s Bombay Office in which he deposed inter alia that the major portion of each shipment was given to Rastriya Chemicals & Fertilizers in bulk for manufacture of complex fertilizers, that the material was released only in favour of fertilizer dealers holding valid fertilizer dealer licence issued by the State Agriculture Authority for fertilizer use only and that to the best of his knowledge they had not sold any material to any party who was not a complex fertilizer mixing unit or who did not have a valid fertilizer dealer licence. Based on these investigations, it appeared to the Customs authorities that - "(i) M/s. Standard Alkali, M/s. Indian Potash Ltd. and its subsidiary D.M.O. Pune, M/s. Amar Trading Co., M/s. V.I.P. Chem Ltd., M/s. Vipul Dyes, M/s. Ashok Kumar Goods Transport Company had collaborated with each other for arranging for supplies of the item 'Muriate of Potash' imported for use as fertilizer and that 13,430 tonnes of Muriate of Potash (Fertilizer) imported and cleared duty free under a declaration that the same has been imported for use as fertilizer had in fact been used by M/s. Standard Alkali as an industrial raw material.
(ii) that M/s. Standard Alkali were aware of the fact that Potassium Chloride was not available indigenously and that the goods purchased were imported Muriate of Potash, (Chemical Manure) and these goods were indexed as 'Refined Potassium Chloride' in order to avoid suspicion from any agency.
(iii) that M/s. Standard Alkali in collaboration with their suppliers M/s. Amar Trading Co., M/s. VIP Chem and M/s. Vipul Dyes had intentionally arranged to show the sale/purchase of these goods as a chemical - 'Potassium Chloride' by referring to the same as Refined/Purified. The chemical analysis conducted by either of them clearly show that the goods could not be considered even as Industrial grade 'Potassium Chloride' (98%) and the description in the involved was misdeclared as Potassium Chloride (Purified).
(iv) that the onus lay on M/s. India Potash Ltd., and its distribution agencies to take necessary safeguard to avoid use of the imported goods as other than fertilizer.
(v) that no specific guidelines were given to the fertilizer dealers by the importing Authority or the Distributing Agencies for sale of these goods the use of which other than fertilizer was prohibited.
(vi) that in view of the easy availability of 'Muriate of Potash' (Fertilizer) even though of lesser purity than Technical grade 'Potassium Chloride' at substantially cheaper than M/s. Standard Alkali had totally stopped importing Potassium Chloride (industrial grade) and used these goods in their industry which goods in fact were to be used as fertilizer only.
(vii) that taking the average import duty leviable on such goods during the year 1984 as Rs. 1200 per M.T. the total duty evaded on account of the use of 13430 tonnes of 'Muriate of Potash' (Chemical Manure) for other than Agricultural purposes, amounts Rs. 1,61,16,000/- (Rs. One crore sixty-one lakhs and sixteen thousand only)." (The above is a reproduction from the impugned order, with all its obvious errors).
A notice was issued to the appellants asking them to show cause why the aforesaid amount of duty evaded on account of the violation of the end-use conditions of the relevant notifications (referred to earlier) should not be recovered from them under the Customs Act, 1962. The appellant company, Standard Alkali Ltd. and others were called upon to show cause why the goods should not be confiscated under Section 111(o) of the Customs Act and why penal action should not be taken against them under Section 112. The appellants denied any liability to pay duty or to any penalty. The impugned order succinctly records the appellants' defence in the following words :- "M/s. I.P.L. in their reply pointed out that they have distributed this item after import at the Government fixed rate to authorised fertiliser dealers and that their obligations under the exemption notifications were completed with that. They went through the notification in detail and on comparison with the earlier notification on the subject, pointed out that the present exemption notifications do not envisage any post-importations conditions.
Since they have acted only as agents in the imports and distribution they stated that they are not liable for either payment of duty or penalty." The others (including M/s. Standard Alkali) to whom notices were issued also denied the charges against them. In due course, the Collector adjudicated the case by his order dated 9-10-1986 which is under challenge before us. The Collector's findings were :- "(a) Once it is proved that the MOP cleared without payment of duty under the said exemption notification has been used for purpose other than for use as manure or in production of complex fertilizer, the said MOP becomes liable to Customs Duty and the exemption in the said notification would not be available.
(b) The contention that in view of the changes in the notification, and the wording of the notification in force during the material period, the Asstt. Collector's satisfaction was to be the pre-clearance stage only and no duty liability arose if the imported M.O.P. was found to be used for other purposes by third parties, was not tenable. The changes in the notification only meant dispensing with end-uses bond and production of proof of end-use.
(c) The importers (the appellants) were, therefore, liable to pay the duty involved on M.O.P. diverted to non-fertilizer use.
(d) The goods so diverted were liable to confiscation under Section 111(o) of the Customs Act, for non-fulfilment of the post-importation conditions. The Collector further observed :- "However, in view of the procedure regarding import and distribution of MOP as explained by the Advocates and the fact that importers have followed the prescribed procedure, I am convinced that the importers had no knowledge or intention to divert these goods for uses other than those specified in the Exemption Notification. Since the importers are not directly responsible for diversion of these imported goods, I refrain from taking any action under Section 111(o) or 112 of the Customs Act, 1962." (b) dropped the proceedings under Sections 111 and 112 of the Customs Act against the appellants as well as others.
6. The submissions of Shri K. Narasimhan, learned Counsel for the appellants, and the learned D.R.'s reply are dealt with below :- (i) The appellants were only handling agents for M.M.T.C. who was the actual importer. Though some of the bills of entry might have been filed in the name of the appellants, the actual importer was M.M.T.C. In this connection, he drew our attention to the opening para in the impugned order reading thus :- "M/s. Indian Potash Ltd., the agents appointed by the Ministry of Agriculture for handling, and distribution of the item 'Muriate of Potash' have been importing the said item and clearing the same through this Custom House regularly." The fact that the consignments were released by the Customs authorities under Open General Licence would itself show that M.M.T.C. was the importer because only imports by M.M.T.C. were eligible for the O.G.L. The appellants never held themselves out as the importers. Demands for duty, if at all, must, therefore, have been on the M.M.T.C. Only in the event of it not being possible to recover the duty from the importers (M.M.T.C.), could the Customs authorities realise it from the agent, in terms of Section 147 of the Customs Act.
(ii) Shri M. Jayaraman, learned Senior Departmental Representative, for the respondent-Collector, submitted that the arrangements between the Agriculture Ministry, M.M.T.C. and the appellants were of no concern to the Customs House. He stated that in the opening para of his order (extracted earlier), the Collector had noted that the appellants "have been importing the said item". It was not correct to say that unless the owner of the goods was identified, one holding himself out to be the importer was not concerned in the matter. Some of the bills of entry were filed by the appellants.
Even in respect of the others, the requisite declarations (in terms of Section 46 of the Customs Act) were made by them. Therefore, for the purposes of the Customs Act, the appellants were the importers.
As regards the O.G.L. facility, Shri Jayaraman submitted that the imports were made by the appellants in terms of valid letters of authority issued in their favour by the M.M.T.C. It was, therefore, that the goods were cleared under O.G.L. The appellants were not an agent, a Customs House Agent, as envisaged in Section 147 of the Customs Act and Sub-section (3) for recovery of duty from the agent was not applicable to the instant cases. The Customs' case was not that the appellants were owners of the goods but that they were the importers.
7. We have given careful consideration to the above submissions. We have also perused the bills of entry available on record. Some of these show the importers' name as "M/s. Indian Potash Ltd., Bombay" and the declarations required to be made by the importer have also been made by the appellants. Some others were filed in the name of the Under Secretary, Ministry of Agriculture A/c. M/s. Indian Potash Ltd., or M.M.T.C. of India Ltd., Ministry of Agriculture A/c. M/s. Indian Potash Ltd. At least in one instance the bill of entry has been filed in the name of Indian Potash Ltd. handling agents for Ministry of Agriculture.
We have to also assess the other evidence available on record before concluding whether or not the appellants were the actual importers. The record shows that Open General Licence No. 6/84 dated 12-4-1984, read with Appendix 5 of the Import & Export Policy, 1984-85 (Vol. I) gave general permission for import into India from any country other than South Africa any of the specified goods by designated Public Sector (canalising) Agencies. The O.G.L. also laid down that the imported goods shall be distributed by the canalising Agency concerned in accordance with the policy and procedure laid down. In respect of specified fertilizers, it was laid down that imports would be made by the M.M.T.C. on behalf of the Government of India in the Ministry of Agriculture under O.G.L. Foreign Exchange required for the purpose would be released by the Govt. in favour of M.M.T.C. The imports, distribution and their pricing would be made by the M.M.T.C. as per the connected policy of the Government in the Ministry of Agriculture.
Among the specified fertilizers was "Muriate of Potash (Potassium Chloride other than industrial grade)". The M.M.T.C., authorised inter alia M/s. Indian Potash Ltd. (the appellants) to handle the imported fertilizers and arrange clearance through Customs. Letters from the Ministry of Agriculture - one dated 6/9-1-1974 to the appellants, the Food Corporation of India and the Regional Director, (Food), and the other dated 13-3-1974 to the Member (Customs), C.B.E.C. indicate that it had been decided to entrust the work relating to handling of potassic fertilizers to M/s. Indian Potash Ltd., a Joint Sector Undertaking. From a letter dated 30-3-1987 from the Secretary, Department of Fertilizers to the Secretary, Department of Revenue, it is seen that Indian Potash Ltd. was only an agent of the Govt. of India in the Ministry of Agriculture and that the importer was the Ministry of Agriculture and that Indian Potash Ltd. had complied with all the requirements under the Fertilizer (Control) Order for the sale of M.O.P.8. Having regard to the above narration, it is evident that the appellants were not the actual importers. The importer was the Ministry of Agriculture and later, the imports were canalised through the M.M.T.C. The appellants were merely handling agents for potassic fertilizer and for clearance of M.O.P. through Customs. The fact that some bills of entry had been filed by the appellants and that the requisite declarations were made by them would not, in itself, be conclusive of their status as importers. On the other hand, the evidence on record indisputably points to their status as handling agents, the actual importees being the Ministry of Agriculture/M.M.T.C.9. The conclusion of the Collector that the appellants were the importers of the subject consignments cannot, therefore, be sustained.
10. The learned Departmental Representative has drawn our attention to the definition of 'importer' in Section 2(26) of the Customs Act which reads as follows :- 2(26)" 'importer', in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer." The Revenue's contention appears to be that since some of the bills of entry have been filed in the name of the appellants, it must be deemed that they have held themselves out to be the importers. We cannot accept this simplistic view. The mere act of filing a bill of entry in one's name cannot, without other considerations, be taken, in itself, to mean that the person who has filed the bill of entry is the importer. He must have participated in one or several steps which have led to the importation of the goods. The inclusive part of the definition appears to have been designed to cover a situation when the actual importer may not show up having refused to retire the documents from the bank and the bank is asked by the overseas supplier to assign the goods to another person in India. In such an event, the second person would become the de facto importer and would be liable to pay duty etc. In any event, having regard to the arrangements entered into between the Ministry of Agriculture, M.M.T.C. and the appellants, it is clear that the appellants are only handling agents. They are not the importers. The Departmental Representative has drawn our attention to sub-sections (1) and (4) of Section 46 of the Customs Act which deals with entry of goods on importation. The said section deals inter alia with the duties of the importer. The considerations which have led us to the conclusion that the appellants are not the importers apply with regard to these provisions also. Reference was made by Shri Jayaraman, SDR, to the letter of authority issued by M.M.T.C. to the appellants.
We have already referred to this document. It authories inter alia the appellants to handle fertilizer consignments and arrange their clearances through the Customs. This authorisation would not have the effect of making the appellants the importers. Next, Shri Jayaraman referred to the provisions of Section 147 of the Customs Act which deals with the liability of the principal and the agent. The provision referred to by Shri Jayaraman is Sub-section (3) which reads as follows :- "(3) When any person is expressly or impliedly authorised by the owner, importer or exporter of any goods to be his agent in respect of such goods for all or any of the purposes of this Act, such person shall, without prejudice to the liability of the owner, importer or exporter, be deemed to be the owner, importer or exporter of such goods for such purposes : Provided that where any duty is not levied or is short-levied or erroneously refunded on account of any reason other than any wilful act, negligence or default of the agent, such duty shall not be recovered from the agent unless in the opinion of Assistant Collector of Customs the same cannot be recovered from the owner, importer or exporter." The submission of the learned SDR, Shri Jayaraman, was that the aforesaid proviso was not applicable to the facts of the present case inasmuch as the appellants were the importer and the Custom House was not proceeding against the Custom House Agent. The Revenue's contention, according to Shri Javaraman, was that the appellants were the importer and not that they were the owners of the goods. We have already taken the view that the appellants were not the importers. In that view of the matter, the question of proceeding against the appellants for recovery of duty from them in their capacity as agent would arise only if the Assistant Collector forms an opinion that the same cannot be recovered from the owner or importer of the goods. In the present case, the demand for duty should have been made, in the first instance, on the canalising agency i.e., the M.M.T.C. and, this, the record does not show has been done. The question of proceeding against the appellants who were only handling agents does not, in our view, arise. Further, even going by the words used in Sub-section (3) of Section 147, all that can be said in the instant cases is that the appellants having been authorised by M.M.T.C./Ministry of Agriculture to handle and clear through Customs M.O.P. consignments, may be deemed to be the importer of the present goods but without prejudice to the liability of the importer. If the short-levy or non-levy of duty is on account of any reason other than any wilful act, negligence or default of the agent (the deemed importer), such duty shall not be recovered from the agent unless the Assistant Collector is of the opinion that the duty cannot be recovered from the importer. In the present instance, the Collector has recorded a clear finding that the importers had "no knowledge or intention to divert these goods for uses other than those specified in the exemption notification" and that they were "not directly responsible for diversion of the imported goods".
Therefore, the appellants could be saddled with the duty liability only in the event of the duty not being found to be recoverable from the importer. We do not see from the record that duty has been demanded from the M.M.T.C. The question of invoking the aid of the aforesaid provisions, therefore, does not arise.
11. The next submission of the Learned Counsel for the appellants was that the condition of the Assistant Collector's satisfaction was relatable to the stage prior to clearance of the goods. Section 25(1) of the Customs Act, under which the relevant notifications have been issued, reads as follows :- (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification goods of any specified description from the whole or any part of the duty of Customs leviable thereon." We are concerned in the present cases with Notifications 180-Cus., dated 2-8-1976; No. 21-Cus., dated 7-2-1977 and 146-Cus., dated 19-7-1980. Notification No, 180-Cus., dated 2-8-1976 reads as follows :- "Muriate of potash and falling under sub-heading No. (5) of Heading No. 31.02/05 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), is exempt from the whole of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975, subject to the following conditions that :- (1) the said goods shall be proved to the satisfaction of the Assistant Collector of Customs that the same are being imported for use as manure; and (2) the said goods shall not be used for any purpose other than as manure." "Potassium Chloride - (Muriate of Potash) and falling under sub-heading No. (5) of Heading No. 31.02/05 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), is exempt from the whole of the additional duty leviable thereon under Section 3 of the First Schedule to the Customs Tariff Act, 1975, subject to the following conditions that - (1) the said goods shall be proved to the satisfaction of the Assistant Collector of Customs that the same are being imported for use as manure; and (2) the said goods shall not be used for any purpose other than as manure." "Exemption to Muriate of Potash :- In exercise of the powers conferred by Sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), and in supersession of the notification of the Government of India in the Department of Revenue and Banking Nos.
180-Customs, dated 2nd August, 1976 and 21-Customs, dated 7th February, 1977, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts muriate of potash falling within Chapter 31 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), from the whole of the duty of customs leviable thereon which is specified in the said First Schedule subject to the condition that the said goods shall be proved to the satisfaction of the Assistant Collector of Customs that the same are being imported for use as manure or in the production of complex fertiliser." One Central Excise Notification is also relevant, that is, Notification No. 40/83-C.E., dated 1-3-1983 reading as follows :- "In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts fertilizers, all sorts, falling under Item No. 14HH of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from the whole of the duty of excise leviable thereon under Section 3 of the said Act." 12. It may be seen from the above that the Notifications 180-Cus., dated 2-8-1976 and 21-Cus., dated 7-2-1977 imposed not only the condition that the goods shall be proved to the satisfaction of the Assistant Collector of Customs that they were being imported for use as manure but also laid down that the imported goods shall not be used for any purpose other than as manure. In other words, the Assistant Collector was to be satisfied that the goods were being imported for use as manure. He was also required to satisfy himself that the imported goods were used only as manure and not for any other purpose.
The second condition would naturally have entailed appropriate follow-up action even after the goods were released free of duty in terms of the notification on the satisfaction of the Assistant Collector that they were being imported for use as manure. The two conditions are separate though the underlying object might be the same.
Now, we are concerned in these proceedings not with these notifications but with Notification 146-Cus., dated 19-7-1980 and 40/83-C.E., dated 1-3-1983. While the Central Excise Notification exempted fertilizers, all sorts, from the whole of the excise duty (and, therefore, had the effect of exempting like imported goods from the whole of the additional duty of customs) leviable thereon, the Customs Notification exempted M.O.P. from the whole of the customs duty leviable thereon subject to the condition that the goods shall be proved to the satisfaction of the Assistant Collector of Customs that the same were being imported for use as manure or in the production of complex fertilizer. In terms, the satisfaction is one which is to be derived prior to the removal of the goods from the control of the Customs. This conclusion flows from two circumstances :- (a) the words used are "that the same are being imported" (underlining ours); and (b) the same words as used in the Customs Notifications of 1976 and 1977.
Significantly, the second condition in the Customs Notifications of 1976 and 1977, namely, that the imported fertilizer shall not be used for any purpose other than as manure is absent in the Customs Notification 146-Cus., dated 19-7-1980. It is Shri Narsimhan's contention, based on these circumstances, that the Customs Notification of 1980 only lays down as a condition the pre-clearance satisfaction of the Assistant Collector. If this was not so, the condition regarding satisfaction that the goods are actually used only as manure and not for any other purpose would not have been omitted. Shri Jayaraman, on the other hand, contends that, in a sense, the substance of the exemption continues to be the same, namely, exemption from duty to fertilizers imported for use as manure and if, as in these cases, there is evidence to show that fertilizers imported and allowed duty free clearance on the basis that they were being imported for use as manure or in the production of complex fertilizer has been diverted for other purpose, the exemption would cease to apply and the importer would be liable to pay the duty which was exempted in the first instance on a wrong premise.
13. We have considered the above submissions. We are inclined to agree with the submissions of the learned Counsel for the appellants. The absence of the condition regarding the nature of post-clearance used in the 1980 notification is significant and, therefore, we have to conclude that the exemption applies if the Assistant Collector is satisfied that the goods are being imported for use as manure or in the production of complex fertilizer. This conclusion is also fortified by our findings in the subsequent paragraphs of this order.
14. The appellants, according to the learned Counsel, are obliged to distribute the imported M.O.P. to manufacturers of complex fertilizers and to dealers in fertilizers registered by State Government authorities in accordance with the regulatory mechanism contained in the Fertilizer Control Order. That this is so is borne out by the letter dated 25-11-1986 from the Secretary, Ministry of Agriculture, Department of Fertilizers to the Secretary, Department of Revenue, Ministry of Finance, New Delhi (referred to earlier). It has been stated therein that Government of India imports M.O.P. and I.P.L. (the appellants) works as the sole agent for its handling and distribution.
A part of the material is handed over by I.P.L. to complex fertilizers manufacturing units in the country and the remaining quantity is sold by I.P.L. to farmers through the institutional agencies of the State Governments and private retail traders registered by the State Governments. The letter adds that the diversion of M.O.P. for non-agricultural purposes does not take place at the first stage of allocation/distribution made by the I.P.L. We may, for our present purpose, ignore the last sentence which we may assume to be only an expression of opinion by the Ministry of Agriculture. Going purely by the other relevant facts and circumstances, it is not possible to conclude that the appellants obtained clearance of the M.O.P. free of duty in terms of the 1980 Customs Notification knowing fully well that it was not going to be used as manure or in the production of complex fertilizer but was going to be diverted to other purposes. A contrary conclusion could have been possible only if it could be established by acceptable evidence that the appellants acted in concert, or collusion, with the manufacturers of complex fertilizers, the institutional agencies of the State Governments and the registered dealers to whom the appellants were obliged, in terms, to distribute or sell the imported M.O.P. No such evidence has been placed before us. In fact, as Shri Narasimhan points out, the Collector in para 28 of the impugned order observed as follows :- "However, in view of the procedure regarding import and distribution of M.O.P. as explained by the Advocates and the fact that importers have followed the prescribed procedure I am convinced that the importers had no knowledge or intention to divert these goods for uses other than those specified in the exemption notification. Since the importers are not directly responsible for diversion of the imported goods I refrain from taking any action under Section 111(o) or 112 of the Customs Act, 1962." Not only is there evidence on record which directly or indirectly implicates the appellants but also our attention has not been drawn to any such evidence. In this connection, it is relevant to note that in para 19 of the impugned order the Collector observes as follows :- (i) M/s. Indian Potash Ltd. and its subsidiary D.M.O., Pune, M/s.
Indian Dyes-tuff Industries, M/s. Vijaya Chemicals, M/s. Gajanan Chemicals, M/s. Bhagwati Enterprises and M/s. Naresh Kumar & Co. had collaborated with each other for arranging for supplies of the item 'Muriate of Potash' imported for use as Fertilizer and that 475 tonnes of Muriate of Potash (Fertilizer) imported and cleared duty free under a declaration that the same has been imported for use as fertilizer had in fact been used by M/s. Indian Dyestuff Industries as an Industrial Raw Material for manufacturing Dye/Dye intermediate." There is no evidence on record that any of the aforesaid entities were the subsidiaries of the appellant company. In fact, in the reply on 14-10-1.985 to the show cause notice dated 16-7-1985, the appellants had specifically denied having any dealings or connection with any of the parties named in the show cause notice except D.M.O., Pune who, according to the appellants, was not their subsidiary but a dealer who dealt with the appellants on a buyer-seller relationship and who were licensed dealers in fertilizers. In the light of the clear findings of the Collector that the appellant company had "no knowledge or intention to divert" the imported M.O.P. for non-permissible uses, it has to be held, as indeed the Collector has held, that the appellant company had nothing to do, and had no hand in the diversion of the imported M.O.P.after its distribution or sale to manufacturers of complex fertilizers/registered dealers/institutional agencies of State Governments.
15. Shri K. Narasimhan contended that if the persons or organisations to whom the appellants were obliged to sell/distribute the imported M.O.P. had diverted the M.O.P. and used it for non-permitted uses, the Collector should not have allowed them to go scot-free. The Collector should have confiscated the goods which he had not done. He should have imposed penalties on them, which again, he had not done. He could have even sought to recover duty from them or, if this was not possible, imposed penalties keeping in mind, inter alia, the quantum of duty involved.
16. Shri Narasimhan further contended that apart from the aforesaid considerations, there has been no attempt on the part of the Collector to establish any link between the duty demands and particular clearances on specified bills of entry. Unless this was done, it would not be possible to say whether the demands were made within the limitation contained in Section 28 of the Customs Act. In response to a query from the Bench, the learned D.R. fairly stated that on the basis of the material on record, it was not possible for him to connect the demands with any particular bills of entry. We note in this connection that the authority, that is to say, the particular section or sections of the Customs Act under which the demands were made has/have not been cited in the show cause notice and in the impugned order. If Section 28 was being invoked, the limitation therein would come into play and the demand notice to be valid should be shown to have been issued within the period of limitation from the "relevant date" as defined in the said section. Evidently, these demands are not in terms of any bond executed by the appellant since the execution of bond for production of end-use certificates was apparently dispensed with on the issue of Notification 146-Cus., dated 19-7-1980. The appellants' contention that prior to this and during the currency of the preceding notifications such end-use bonds were being executed and this practice was discontinued with the issue of Notification 146/80 has not been disputed or controverted before us.
17. Shri Jayaraman contended that the Fertilizer Control Order and the enforcement mechanism laid down therein was not the concern of the Collector of Customs. It was not the case of the Department that the seized goods had been illegally or improperly imported and duty could not have been demanded and recovered from the parties from whose possession the goods were seized. He further contended that the consequence of non-observance of the conditions could be visited only on the importer i.e., the appellants and not the other parties and there was no time-limit for making demands. He submitted that the Collector had not fully exonerated the appellants. He only held them to be not directly responsible and had merely dropped the penal action proposed in the show cause notices.
18. We are unable to agree with the learned D.R. We have already taken the view that the appellants were not the importers of the goods for the purposes of the Customs Act, the real importers being the M.M.T.C., the canalising agent. The consignments were released by the Assistant Collector, indeed he could not have released them otherwise, after being satisfied that they were being imported for use as manure or in the production of complex fertilizer. We find nothing wrong in this in view of the circumstances of the imports. The Ministry of Agriculture had appointed the appellants as the handling agent for clearance of the goods through Customs. In terms of the Imports Control Order, M.M.T.C.was the canalising agent for import. The appellants were obliged to sell the imported M.O.P. to manufacturers of complex fertilizers/registered dealers/institutional agencies of State Governments. Therefore, there was nothing improper in the Assistant Collector being satisfied that the M.O.P. was being imported for use as manure or in the production of complex fertilizers. Apparently, after the M.O.P. was handed over to the concerned entities diversions have taken place. Now, the question is whether the appellants could be visited with the liability to pay duty. In our opinion, once the condition laid down in Notification No. 146-Cus., dated 19-7-1980 was satisfied, the appellants who were not the importers could not be visited with this liability. Goods which were diverted to unauthorised uses could, in terms of Section 111(o) of the Customs Act, have been confiscated. This provision reads : The following goods brought from a place outside India shall be liable to confiscation - (o) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this 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;" Similarly, action under Section 1.12 of the Act could have been taken for imposition of penalty on the persons concerned. Section 112 (the relevant portion) reads as follows : "Section 112. Penalty for improper importation of goods, etc. - Any person, - (a) 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 Sec-lion 111, or abets the doing or omission of such an act, or (b) who acquires possession of or is in way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111, (ii) in the case of dutiable goods, other than prohibited goods, to a penalty not exceeding five times the duty sought to be evaded on such goods or one thousand rupees, whichever is the greater;" It is not clear from the impugned order as to why the Collector did not proceed under Section 111(o) and Section 112 of the Act. In terms of Section 112, the amount of penalty that could have been levied had a relation to the duty sought to be evaded. Such penalty could have been imposed only on a person who fell within Sub-section (a) or Sub-section (b) of Section 11.2. It is not the Collector's case that the appellants fell within the purview of these sub-sections.
19. In any view of the matter, assuming for the sake of argument that the appellants were liable to pay duty leviable on the goods, resort has not been taken to Section 112 of the Act. If resort must be had to Section 28, it must then be shown that the demands are within time.
Here, there is a difficulty and that is that none of the demands are linked with or connected to any specific importation. Therefore, there is no knowing whether the demands were made within the period of limitation in Section 28. We do not agree with the learned D.R. that there is no limitation for issue of demand. We are of the opinion that if Section 112 is not resorted to, the other recourse, in the absence of any legally valid bond, would be to Section 28 and demand under this section had to be made within the prescribed limitation. While on this aspect Shri Narasimhan pointed out that in C/Appeal No. 646/87-C the show cause notice was issued on 17-2-1986 (the other party involved being M/s. Hindustan Organic Chemicals Ltd.) when the amendment to Section 28, with effect from 27-12-1985, requiring the Collector to issue show cause notices under Section 28 if the longer period of limitation was sought to be invoked or if suppression of material facts etc. were alleged on the part of the importer, had already come into force. The show cause notice could not have been issued by the Assistant Collector on 17-2-1986. The earliest show cause notice in these proceedings was issued on 13-7-1985. The imports were all of 1982, 1983 and 1984 and, therefore, in any view of the matter, the demand notices were hopelessly barred by limitation under Section 28.
20. Another point made by Shri Narasimhan is that the Collector had improperly quantified the duty. For the purpose of calculating the duty liability, he should have taken the relevant dates of import and the rates of duty in force at the material times instead of which he has averaged the value and averaged the duty element. Such course is impermissible. We agree.
21. In the light of the foregoing discussion, we hold that the Collector's order is not supportable. Hence it is set aside. The appeals are allowed with consequential relief to the appellants.