Exports through merchant exporter is a proper discharge of export obligation under advance licence.

PJ/Case Law/2013-14/1829

Case:- COMMISSIONER OF CUSTOMS (SEA), CHENNAI Vs M/s PONNERI STEEL INDUSTRIES

Citation:-2013-TIOL-1185-CESTAT-MAD

Brief facts:-The applicant is a manufacturer of white sugar. The applicant had imported raw sugar under advance licenses claiming exemption from import duty under Notification No.93/2004-Cus. Dated 10.9.2004. They manufactured white sugar in their own factories out of the raw sugar imported and they exported the white sugar so manufactured through a merchant exporter by name M/s. Cargill India Pvt. Ltd. At the time of export the applicant paid excise duty on the final product and cleared the goods for export through a merchant exporter. The merchant exporter claimed rebate of such excise duty paid on the final product. Revenue was of the view that as per condition (v) of Notification No.93/2004, no rebate could have been claimed under Rule 18 of the Central Excise Rules, 2002 on goods exported in discharge of the export obligation imposed under Notification No. 93/2004-Cus. According to Revenue such rebate availed contravened post-import conditions in the notification and therefore Revenue proposed confiscation of the goods and denial of the exemption originally granted. A show-cause notice issued on such reasoning was adjudicated by the impugned order resulting in denial of the benefit of Notification No. 93/2004-Cus and confirmation of demand of customs duty amounting to Rs.43,02,11,310/-. Aggrieved by the order of the Commissioner, the applicant has filed this appeal before this Tribunal along with application for waiver of pre deposit of dues arising from the impugned order for admission of the appeal.

Appellants contention:- The learned senior counsel for applicant submits that initially when Notification No.93/2004- Cus was published Condition No. (v) did not specifically indicate that prohibition was only against claiming rebate of duty paid on raw materials used in the manufacture of product to be exported and not claiming rebate of excise duty paid on final products as claimed by the applicant. But the position was clarified issuing a Corrigendum issued vide F.No.60550/2005-DBK dated 17.5.2005. After such correction, the said condition reads as under:-

"That the export obligation as specified in the said licence (both in value and quantity terms) is discharged within the period specified in the said licence or within such extended period as may be granted by the licensing authority by exporting resultant products, manufactured in India which are specified in the said licence and in respect of which facility under rule 18 (rebate of duty paid on materials used in the manufacture of resultant product) or rule [19(2)] of the Central Excise Rules, 2002 has not been availed; (Provided that an Advance Intermediate Licence holder shall discharge export obligation by supplying the resultant products to ultimate exporter in terms of sub-para (b) of para 4.1.1. for the said Export and Import Policy."

(The portion as highlighted above has been incorporated through the corrigendumdated 17-05-2005)

According to the learned senior counsel, the rebate claimed is of the duty paid on the final product and not duty paid on raw material used in manufacture. He points out that they had paid such duty and there is nothing in the notification which prohibits claiming rebate of such duty paid. He also argues that there is nothing in the EXIM Policy either which would stand in the way of claiming such rebate.

The learned senior counsel also points out that the Central Excise authorities had initially issued show cause notices for denying the rebate claimed by the merchant exporter, but after taking into consideration the corrigendum issued and the clarification issued by the Board in this regard, the rebate on the final product was granted to the merchant exporter and according to him the principle adopted for settling the matter on excise side is applicable for deciding this dispute under the customs provisions also in respect of the same issue.

Respondents Contention:-The learned AR for Revenue submits that the applicant themselves should have exported the goods but they have exported through a merchant exporter. He argues that conditions (ii), (iii) and (v) of the said Notification would imply that the goods had to be exported by the actual user, that is the applicant and since in this case the goods were exported by a merchant exporter, the benefit of Notification No. 93/2004-Cus cannot be extended to them. He also relies on para 4.1.4 and 4.1.5 of Foreign Trade Policy 2004 - 09, according to which the actual user importing the material could dispose of the product manufactured out of the duty-free imports only after the export obligation was discharged. According to him, the applicant disposed of the goods manufactured to M/s. Cargill India Pvt. Ltd. before discharge of export obligation and therefore the said exemption is not available to the applicant. The learned AR for Revenue also submits that the goods exported were in packed condition and packing was done by the merchant exporter in his premises and for that reason also the benefit cannot be extended. Hence he argues that the applicant should be put to some terms of deposit for admission of the appeal. 5. The learned AR did not deny the issue of the Corrigendum which corrected clause (v) of Notification No. 93/2004.

Reasoning of Judgement:- Considered submissions on both sides. None of the provisions quoted by the learned AR shows any explicit condition that the goods should be exported by the person importing the goods himself. Even the definition of 'actual user' in the EXIM Policy does not have any such explicit condition. No such case is made out in the Show Cause Notice or the adjudication order either. In the adjudication order the exemption is denied only for the reason that they claimed rebate of duty paid on the final product. There is also an argument that the merchant exporter did manufacturing activity since he packed sugar supplied by the applicant into bags suitable for export. The fact that the goods manufactured out of raw sugar imported without payment of duty has been exported are not disputed is not disputed. Further, it is not clear how the rebate claimed by the merchant exporter is a benefit that would not have been available to the applicant if the applicant was to export the goods. There is no Chapter Note under Chapter 17 of the Central Excise Tariff in relation to Heading 1701 to the effect that packing of sugar in polythene bags will amount to manufacture. We also note that the ARE-1 was signed by both the applicant and the merchant exporter and thus it is not as if the goods were being disposed of in the domestic market. The goods were cleared under an undertaking to export the goods and such exports have taken place. We also find that the CBEC had issued clarification vide Circular No.120/95 dated 23.11.1995 to the effect that exports through merchant exporter is a proper discharge of export obligation under advance licence. Taking all these factors into consideration, we deem it proper to waive the requirement of pre deposit of dues arising from the impugned order for admission of the appeal. It is ordered accordingly. There shall be stay on collection of such dues during the pendency of the appeal.

Decision:-Dictated and pronounced in open Court

Comment:-The crux of this case is that when there is no condition mentioned in the EXIM Policy that exports done by Merchant Exporter would not be considered as proper discharge of the export obligation under the advance license, the benefit taken under advance license scheme cannot be denied on the sole ground that the export was not done by the actual importer of goods under this scheme but by a merchant exporter. Also, there is no bar in claiming rebate of duty paid on exported goods under this scheme and the only bar is in claiming the rebate of inputs used in the manufacture of the exported goods.

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PJ/Case Law/2013-14/1829

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