By TIOL News Service

MUMBAI, MAR 02, 2017: THE Commissioner of Customs (Export), ACC, Mumbai passed an order denying DFIA benefits under Notifications 40/2006-Cus dated 01.05.2006 and 98/2009-Cus dated 11.09.2009.

Inter alia, orders were issued for confiscation of the goods imported by M/s. Dharampal Premchand Ltd. valued at Rs. 3,18,73,508/-. However, no Redemption Fine was imposed since the goods had already been cleared without any bond. The duty foregone of Rs. 1,15,17,810/- was confirmed and equal penalty was imposed along with interest. Penalties were also imposed u/s 112(a)/114AA/114(iii) of the Customs Act, 1962 on individuals/companies.

The appellant procured the DFIA Licenses (issued against the export of Biscuits as per the Standard Input Output Norms - (E-5)) for a consideration and utilised same for import clearance of Saffron [during the period from 20.04.2011 to 26.12.2012] by claiming exemption of duty under Custom Notification No. 40/2006-Cus dated 01.05.2006 and Notification No. 98/2009-Cus dated 11.09.2009.

It is the contention of the department that as per SION E-5 for the export of Biscuits to read with Public Notice No. 84 dated 23.07.2010 issued by DGFT, new Delhi, import of "Food Flavour" appearing against Serial No. 5 (d) was subject to Actual user condition and with accountability of actual use on the export side. These conditions are inserted/amended in the SION E-5 vide Public Notice No. 84/2009-14 dated 23.07.2010. These conditions were further deleted/amended vide Public Notice No. 93 (RE-2010)/2009-14 dated 01.02.2012. Therefore DFIA issued under SIION E-5 could not have been made transferable in terms of clause 4 (b) of Para 4.2.6 of the Foreign Trade Policy 2009-14.

The department further alleges that while applying for DFIA with DGFT, the exporters/license brokers misrepresented the facts and accordingly serial numbers were manipulated so as to take that particular item i.e. Food Flavour out of the purview of Actual users conditions and to enable transferability, for which Show Cause Notices have also been issued by concerned DGFT authorities to exporters in certain cases.

It is also contended that investigation reveals that duty exemption on import of Saffron was subject to Actual user condition as provided under SION E-5 prescribing actual user condition for items serial no. 1 to 5 of the raw material specified in the said norms. Since the importer is not the actual user of the exempt material (imported saffron), the claim of duty exemption under the said DFIAs was in breach of actual user conditions of the SION and thus knowingly suppressed the facts from customs at the time of claiming duty exemption which was admissible on fulfillment of Actual user condition.

Aggrieved by the order passed by the Commissioner, the appellants are before the CESTAT.

Making a detailed submission in the matter, the appellants concluded that the issue is squarely covered by the judgement of the Bombay High Court dated 15.02.2016 [2016-TIOL-3180-HC-MUM-CUS] in the case of USMS Saffron Co. Inc. and, therefore, the denial of exemption to Saffron is liable to be set aside and consequently the demand, interest and penalties are liable to be set aside.

The AR justified the demand and also submitted that against the order of the Bombay High Court in the cited case, the department has filed an appeal before the Supreme Court and hence the issue needs to be decided afresh on merits without being bound by the earlier orders on the issue.

The Bench observed -

Merits:

+ Once the DFIA is endorsed with transferability, there is no Actual user condition since the DFIA and inputs are freely transferable after the discharge of export obligation in terms of the DFIA notification No. 40/2006-Cus dated 01.05.2006 and Notification No. 98/2009-Cus dated 11.09.2009 which incorporates provisions of Para 4.2.6 read with Para 4.36A of Hand Book of Procedures. We agree with the contentions of the appellant, since the DGFT Policy Circular No. 72/2008 clarifies that the exporter has the flexibility to import alternative inputs either used or capable of using in the export product.

+ This Tribunal in the case of USMS Saffron Co. Vs. Commissioner of Customs, ACC [2015-TIOL-3039-CESTAT-MUM] which dealt with an identical import of Saffron under Food Flavour held that the appellant has not violated any conditions. The regional authorities did not put any conditions on the DFIA.

+ The High Court of Bombay [2016-TIOL-3180-HC-MUM-CUS] has dismissed the department appeal finding no perversity in the order passed by the Tribunal in the case of USMS Saffron Co. (supra), therefore, we find no merits in the argument of the department that Saffron is required to be physically incorporated in the export product, i.e. Biscuits.

+ Admittedly, Saffron is a well known Food flavour as held by the Commissioner of Customs (Appeal), ACC in OIA No. 131/Mumbai/2010/ dated 20.12.2010 after considering the opinion of Chemical Examiner, office of the Jt. Director, Custom House, Mumbai and Institute of Chemical Technology, University of Mumbai and permitted import of saffron against the DFIA issued against export of Biscuits.

+ The department has contended that the said order has been accepted by the Committee of Commissioners on monetary grounds. However, we find from the RTI information submitted by the appellant which evidently shows reasons for accepting the order of the Commissioner (appeals) by the Committee of Commissioners was on merits and not on monetary grounds.

+ As regards the issue of ITC (HS) classification we find merits in the argument of the appellant that neither the SION refer to any ITC (HS) Number nor the amendment sheets issued after the endorsement of transferability in the relevant DFIA License specify any ITC (HS) No. The case law relied upon by the appellant in the case of USMS Saffron (Final order No. A/3267/15/CB dated 08.10.2015 [2015-TIOL-2327-CESTAT-MUM]) is relevant wherein it was held that the appellant is entitled to import Saffron as a food flavour irrespective of ITC (HS) classification mentioned in DFIA.

+ We find that the out of 11 DFIA's, 7 DFIA's were issued prior to Public Notice No. 84/2010 dated 23.07.2010 and 1 DFIA was issued after the SION E-5 was amended vide PN 93 dated 01.02.2012. There is no actual user condition in existence prior to the issue of PN 84 dated 23.07.2010 and after 01.02.2012.

+ As regards the Balance 3 DFIA Licenses during the period on which Public Notice No. 84/2010 dated 23.07.2010, no such Actual user condition is mentioned even in these 3 DFIA Licenses. Out of the 3 DFIA Licenses, 1 DFIA License No. 310597237 dated 15.10.2010 issued to Laxmi International was one of the DFIA which was partly transferred to USMS Saffron co. for their import of Saffron. The Hon. Tribunal in the said case of USMS has allowed DFIA benefits for the import of Saffron on the very same DFIA No. 310597237 dated 15.10.2010. The revenue as evident from the judgement of Hon. High Court of Bombay did not allege any fraud or suppression of facts and the submissions of the revenue was restricted to the requirements in the norms namely SION. Therefore, we find no merits in the argument of revenue that the amendments in the DFIA licenses have been obtained through fraudulent means and suppression of facts before the licensing authorities.

+ The clarification dated 06.08.2015 of Jt. DGFT, Mumbai which clarifies that saffron is not allowed under the relevant DFIA is untenable. In the light of orders of the Tribunal and the Hon. Bombay High Court, the said opinion has no binding effect and in any event any clarification post the import is wholly irrelevant and the department is bound by the judicial orders and not by clarifications of DGFT.

+ The appellant was right in their contention that so long it is not in dispute that saffron imported by the appellant is food flavour, it qualifies for duty free import under DFIA. There is no further requirement that only food flavour which was actually used by the exporter can be imported by the transferee of DFIA. Such a restriction that only the input of the same specification, quality and technical characteristics as used in the export product should be imported under DFIA applies only to the sensitive item mentioned in para 4.32.2 of Hand Book. This also flows from the plain terms of Notification No. 40/2006 and 98/2009. Neither the Biscuits nor the saffron or Food Flavour fall in Para 4.32.2 of Hand Book. Therefore, it is not necessary to correlate the technical specification, quality and characteristics of the imported goods with those used in export product.

+ The revenue was unable to prove the allegation that license brokers and CHA were in collusion with the exporters and importers in obtaining amendments in DFIA Licenses by fraudulently getting the serial nos manipulated so as to escape the actual user conditions of SION E-5.

+ The exporters have discharged the stipulated export obligation as mentioned in the DFIA Licenses issued by several regional licensing authorities. Therefore the contention that the license brokers in collusion with exporters fraudulently obtained transferability endorsement from licensing authorities by manipulating serial nos. 5(d) to serial no 8 to escape the actual user condition is totally misplaced. The exporters have no role in the imports once the DFIA has been endorsed with transferability and sold in the market for a consideration. Therefore there is no justification in imposing penalty upon the exporters.

+ Similarly, the role of Customs Broker is only to present the documents as provided by the importer. It is an admitted fact that on each of the Bill of Entry there is an endorsement to the effect that "assessed as per Commissioner (Appeals) Order accepted by the Committee of Commissioners of Customs vide F.No. S/3-Misc-18/2010 DFIAACC (Para 7.9 of the impugned order). The endorsements were made by the assessing officer on the face of the Bill of Entry on the basis of the order which was later accepted by the Committee of Commissioners has become final. Therefore in the absence of any challenge on the said order the same became binding on all lower authorities including Customs officers and the Customs Brokers. Judicial discipline requires the department to follow rulings rendered by higher judicial forums. Therefore, no action is warranted against the CHA.

+ The amendments are made by the regional licensing authorities and, therefore, it cannot be alleged that license brokers, exporters and importers have fraudulently obtained transferability endorsements in the licenses to escape actual user conditions. Therefore there is no basis for imposing penalty on Shri NileshMota of Jash Mercantile Pvt. Ltd., and Mota Trading Pvt. Ltd., and partners of Global Exim.

Limitation:

++ The show cause notice (dated 7.3.2016 , seeking to demand the duty on the Saffron imported between April, 2011 to December, 2012) is issued admittedly beyond the normal period of one year from the relevant date. The revenue did not allege any fraud and suppression of facts which is evident from Para 11 of the judgement of High Court of Bombay. Therefore the demand for extended period is clearly unsustainable in law.

Binding precedent:

++ The Final Order No. 1134 to 1136/15-CB dated 20.03.2015 [2015-TIOL-3039-CESTAT-MUM] in the case of USMS Saffron Co. Inc Vs. Commissioner of Customs, ACC passed by this Hon'ble Tribunal and later upheld by the Hon. High Court of Bombay [2016-TIOL-3180-HC-MUM-CUS] is binding on the revenue.

The impugned order was set aside and the appeals were allowed.

(See 2017-TIOL-657-CESTAT-MUM)