No violation of advance authorisation scheme if goods imported after fulfilling export obligation are used in DTA clearances.

PJ/Case Law/2014-15/2184

Case:- COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI Vs ZINCOLLIED (IND) LTD.

Citation:- 2014 (300) E.L.T. 475 (Tri. - Mumbai)

Brief facts:- The Revenue was in appeals against the impugned order wherein the adjudicating authority allowed the benefit of Notification No. 93/2004-Cus., dated 10-9-2004 to the respondents.
The facts in brief were that during the course of investigation it was revealed that the respondents imported 43 consignments of zinc dross under 8 different Advance Licence and these imported materials were not solely used in the manufacture of resultant product to be exported outside India. A larger part of the finished goods made out of the raw materials imported duty-free against these licences were sold in the domestic market thus violating the condition laid down in the advance licences and Customs Notification No. 93/2004-Cus., dated 10-9-2004 and 94/2004, dated 10-9-2004. Accordingly, show cause notice was issued for demand of duty on the goods imported duty-free along with interest and various penalties. The respondent contested the show cause notice and after considering the contention of the respondent the adjudicating authority dropped the proceedings in the show cause notice. Aggrieved by the said order, the Revenue was in appeal.

Appellant’s contentions:- Learned A.R. appearing for the Revenue submitted that in this case it was an admitted fact that the raw material had been imported duty-free against advance authorization and resultant product were not fully exported by the respondent. As per the Condition No. (vii) of Notification No. 93/2004 the said license and material shall not be transferred or sold to any other person. Therefore, the raw material which was required to manufacture of resultant product cannot be sold in the domestic market. As the respondent had violated the condition of the Notification, therefore the impugned order was to be set aside.

Respondent’s contentions:- On the other hand, Shri T. Viswanathan, learned Advocate submitted that in this case the respondent had procured indigenous raw material and manufacture the finished goods i.e. zinc dross which were exported. On exportation of the said goods, they got advance license to import raw material duty-free. Therefore, as per the condition No. 2 of the said Notification, where the imports take place after fulfilment of export obligation, the Shipping Bill particulars including the No. and date, quantity and FOB value of the resultant product were required to be endorsed on the licence. As the respondent had already exported the goods and they had obtained advance licence to import raw material duty-free therefore, the condition that the respondents were required to export the resultant product is not violated. It was a general principle that the goods were not required to be exported twice against one duty-free import. Therefore, the Revenue's appeal was required to be dismissed.

Reasons of judgment:- The issue before the Tribunal was that where any provision in the Customs Notifications 93/2004 and 94/2004 were in the policy prevalent in the relevant time makes it mandatory resultant product had to be manufactured out of duty-free imported raw material only or where the goods manufactured out of duty-free imported raw material can be dealt with differently provided the export obligation were made. They found that in this case the respondent had first exported the goods. Against the said export, the respondent obtained advance license for import the raw material duty-free and as per the Condition No. (ii) of the Notification which reveals that if the import took place after fulfilment of export obligation then the shipping bill No., date and quantity and FOB value of the resultant product were to be endorsed in the license. But if in a case where the import took place before the fulfilment of export obligation then resultant product was to be exported. Therefore it specifies that if the resultant product was exported first and advance license obtained later on for duty-free import of the raw material that does not bar the respondent to clear the goods in DTA. Further they did agree with the arguments advanced by the learned Counsel that for duty-free import of the raw material the assessee was not required to export resultant product twice. The Board’s Circular No. 4/93, dated 4-9-1993 clarified that word ‘required’ does not mean that goods imported must be physically incorporated in the export product as export product could be manufactured from inputs procured outside the DEEC scheme. However, the goods should be those which could have been used in the export product i.e. goods of a kind which were commercially known to be used in the export product and were covered by the description of inputs in the licence. They further found that in the case of Jay Engineering Works Ltd. v. Commissioner of Customs, Chennai - 2003 (162)E.L.T.680 (Tri.-Bang.)had observed that “the Revenue’s contention that the goods imported were not eligible to the notification on the ground that the said goods did not satisfy the definition of ‘materials’ in the Notification could not be upheld as the use of the goods in the goods exported was not a condition precedent in the notification. The use of the imported raw materials was 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, fulfill the export obligation and thereafter dispose off the raw materials imported as per Standard Input/ Output Norms. If the Customs authorities take a view that certain materials were not required for the manufacture, contrary to the view of the Standard 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.” In this case also, it was in the condition precedent of the Notification that the respondent were required to import raw material first and same was to be used in manufacture of the resultant product. Therefore the respondents had fulfilled the condition of the Notification 93/2004 and 94/2004 as they have already discharged the export obligation and EODC had been issued by D.G.F.T. In these circumstances, we hold that the respondents were entitled for benefit of the above said notification. Therefore, we do not find any infirmity in the impugned order and the same was upheld.

Decision:- Appeals dismissed.

Comment:- The analogy drawn from the case is that if the resultant product was exported first and advance license obtained later on for duty-free import of the raw material, that does not bar the respondent to clear the goods in DTA. Board’s Circular No. 4/93, dated 4-9-1993 clarified that word ‘required’ does not mean that goods imported must be physically incorporated in the export product as export product could be manufactured from inputs procured outside the DEEC scheme. However, the goods should be those which could have been used in the export product i.e. goods of a kind which were commercially known to be used in the export product and were covered by the description of inputs in the licence. The use of the goods in the goods exported was not a condition precedent in the notification hence the use of the imported raw materials was the option of the importer.

Prepared by:- Ranu Dhoot

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PJ/Case Law/2014-15/2184

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