Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  GST registration cancellation without reasons amounts to ‘Economic Death’ of business: Supreme Court. *  No GST refund if appeal before GSTAT is filed late: Gujarat High Court. *  Mere upload of GST notice on portal not valid service, appeal limitation won’t start: Punjab & Haryana High Court. *  Taxpayer can’t be penalised for missing notices hidden under ‘Additional Notices/Orders’: Calcutta High Court allows fresh adjudication. *  State tax officer can’t issue GST SCN beyond CBIC-assigned jurisdiction: Bombay High Court stays recovery proceedings. *  Earlier 7.5% Pre-Deposit must count towards mandatory 10% for Appeal: Uttarakhand high court quashes CESTAT Order. *  Third Parties can’t challenge GST Advance Rulings merely due to financial impact: Karnataka HC *  GST SCN generated using AI tool quashed: Punjab & Haryana High Court *  Bank Attachment Quashed as Madras HC Quashes GST Order Issued Against Deceased Person *  ITC Blocking Order for Failure to Record ‘Reason to Believe’ U/R 86A Quashed: Allahabad High Court *  Govt Extends GSTAT Appeal Filing Deadline From 30 June to July 31, 2026 *  GST Demand on RWA Stayed: Allahabad High Court Questions Taxability of Electricity Distribution to Flat Owners *  CBIC Clarifies Jurisdiction After GST Registration Transfer: Earlier Proceedings Remain Valid, New Officer to Continue Action *  GST authorities’ certification not mandatory for reimbursement, but tax payment must be proven: Karnataka HC *  Contractor can’t seek gst reimbursement through writ when contract has arbitration clause: Karnataka HC *  Unsigned Order Is No Order in Law: AP HC Quashes GST Assessment Order for Want of Officer’s Signature *  Customs Can’t Levy Rs. 1.36 Crore Cost Recovery Charges Without Proof of Full-Day Officer Deployment: CESTAT  *  12% IGST Payable On Imported Dialysis Machine Parts: CESTAT *  Bombay High Court Admits Challenge to GST Limitation Extension Notifications; Grants Protection Against Coercive Recovery *  Criminal Case Can’t Run Parallel to GST Proceedings on Same Facts: Allahabad High Court *  Allahabad High Court Stays GST Detention Order; Directs Release of Vehicle and Goods on Deposit of Rs. 1.44 Lakh *  Service Tax Can’t Be Levied on Loss-Making Contracts: Gujarat High Court *  GSTN Mandates Ship-to GSTIN in e-Invoice and e-Way Bill APIs; Introduces Voluntary e-Way Bill Closure Facility from August 1, 2026 *  GST Appeal Can’t Be Rejected as Time-Barred When Taxpayer Was Pursuing Rectification Remedy: Telangana High Court *  Absence of E-Way Bill and Transport Documents Justifies Customs Seizure U/s 110: Gauhati HC *  Madras High Court Upholds GST Late Fee and Penalty for Non-Filing of Annual Return, Dismisses Challenge  *  GST Records, Purchase Documents Sufficient to Discharge Burden Under Customs Act: CESTAT Orders Release of 3.65 Kg Gold  *  No Sugar Cess Payable on Sugar Exported Out of India: CESTAT *  Road Construction Services Exempt and SCN Time-Barred: CESTAT Quashes Service Tax Demand Based Solely on Form 26AS  *  ITC Freeze Upheld After GST Dept Find Suppliers Were Allegedly Fake Bill-Trading Entities: Madras HC 
Subject News *  Input service benefits can’t be denied: CESTAT allows export refund despite MMTC acting as Canalising agency. *  No service tax demand without proof of service of SCN: CESTAT. *  Service tax demand quashed as dept. fails to prove service of SCN: CESTAT *  GST : Mere allegation of inadequate consideration of reply not enough to invoke writ jurisdiction: Delhi High Court *  Onerous conditions imposed for provisional release of seized imported goods shouldn’t amount to virtual denial of relief: CESTAT. *  GST SCN without alleging fraud cannot invoke sec. 74: Karnataka High Court quashes adjudication order. *  Extended Limitation Can’t Be Invoked Merely on Form 26AS Data: CESTAT *  Revenue-Sharing with Restaurants Not Taxable as Business Support Service: CESTAT *  R. 6(3) Option Can’t Be Forced on Taxpayer; CESTAT Quashes Rs. 12.36 Crore CENVAT Credit Demand *  Excise Duty | Power Consumption Alone Can’t Prove Clandestine Manufacture: Karnataka High Court *  Madras High Court Examines DGGI’s Authority to Issue GST Penalty Orders Under Section 122, Adds DGGI as Party *  Proceedings under omitted r. 96(10) can’t survive without saving clause: andhra pradesh high court quashes gst refund recovery *  Excise duty power consumption alone can’t prove clandestine manufacture: karnataka high court *  Madras high court rules GST show cause notices must disclose grounds for invoking extended limitation *  Court Can’t Direct Extension GST Return Deadlines or Waive Interest and Penalties: Karnataka High Court *  GST Notifications Can’t Go Beyond GST Council Recommendations: Madras High Court Quashes SCN on Branded Pulses *  Appeal Can’t Be Dismissed for Delay When Dept’s Own Order Mis-states Limitation Period: CESTAT *  No Evidence of KYC or Due Diligence Breach By Customs Broker: CESTAT Quashes Licence Revocation in Export Overvaluation Case *  Glucometers Are Chemical Analysis Instruments Classifiable Under Tariff Heading 9027: CESTAT *  Validity of Post-GST Service Tax Proceedings Upheld: Gujarat High Court Dismisses Challenge to S. 73 SCN *  Rectified GST Refund Applications Can’t Be Rejected as Time-Barred If Original Refund Claim Was Filed Within Limitation: Gujarat HC *  Service Tax Refund Can’t Be Denied as Time-Barred When Levy Itself Is Unconstitutional: Gujarat High Court *  Same Officer Can’t Act As Auditor & Adjudicator: Karnataka High Court *  Karnataka High Court Condones 324-Day Delay, Revives Customs Appeal in Jewellery Pilferage Case  *  Madras High Court Quashes GST Assessment Order Passed Ex Parte Despite Prior ITC Reversal; Lifts Bank Attachment *  Tobacco Process Doesn’t Amount to Manufacturing: Madras High Court Quashes Rs. 1.32 Crore Compensation Cess Demand  *  Recovery Notice Unsustainable After Voluntary Reversal of Unutilised Credit: CESTAT  *  GST | ‘System Generated’ SCN Without Officer Details Invalid: Allahabad HC  *  Electronic Records Without Statutory Certification Requirements Can’t Justify Undervaluation Allegations: CESTAT *  Madras High Court Stays GST Order, Finds Prima Facie Merit in Plea Against S. 74 Proceedings Based on S. 73 Intimation  

Comments

Print   |    |  Comment

PJ/Case Laws/2011-12/1192

Whether DFRC under the 2002-2007 policy was liable to be issued in respect of the inputs which are covered under the SION on the date of export or in respect of inputs covered under the SION on the date of issuing DFRC
Case: Piramal Glass Ltd v/s Union of India
 
Citation: 2011 (267) E.L.T. 175 (Bom.)
 
Issue:- Whether DFRC under the 2002-2007 policy was liable to be issued in respect of the inputs which are covered under the SION on the date of export or in respect of inputs covered under the SION on the date of issuing DFRC?
 
Brief Facts:- Petitioner was engaged in the business of manufacture and export of glass bottles, perfumery bottles, vials, etc. During the period 2004-05, they exported several consignments of glass bottles and opted for DFRC licences.
 
Under the EXIM Policy 2002-2007 the exporters were eligible for incentives by way of Advance Licence/DFRC/ DEPB. Advance Licence permitted duty free import of inputs which are physically incorporated in the export product. DFRC/ DEPB licences permitted duty free replenishment of inputs used in the export product. In the present case, the provisions of duty free import of inputs under DFRC’s are relevant which are given in Para’s 4.1, 4.2, 4.2.3 and 4.2.4 of 2002-2007.
 
From the aforesaid policy provisions it is clear that after export, the exporters are issued DFRC’s for import of inputs used in the export product, which are covered under the SION notified by the DGFT and also indicated in the shipping bills.
 
As per the SION notified by the DGFT, originally six inputs were eligible for duty free import under heading ‘Chemical & Allied Product Sl. No. A3016, in respect of the products exported by the petitioner. By a Public Notice dated 12-4-2004, DGFT amended the SION and included two more inputs viz. “Formers” & ‘Packing Material’ under Sl. No. A3016. Thus, as per the amended SION, an exporter of glass bottles became entitled to import of eight inputs enumerated in entry A3016 of SION without payment of duty.
 
The petitioner had applied for DFRC’s from time to time after the SION was amended. In the said applications, petitioner claimed DFRC’s for duty free import of all the eight inputs used in the products exported prior to 12-4-2004 as also exported subsequent to the said date. The Licensing Authority under the DGFT accordingly issued several DFRC’s during the period 2004-05. The said DFRC’s specifically permitted duty free import of all the eight items including Formers & Packing materials irrespective of the fact that the petitioner had exported goods prior to 12-4-2004 or subsequent to the above date.
 
As the DFRC’s were freely transferable under the EXIM Policy 2002-07, the petitioner transferred the DFRC’s to third parties for consideration. Those third parties have imported inputs including formers & packing materials duty free against the DFRC’s issued to the petitioner by DGFT within the validity period i.e. within 24 months from the issuance of DFRC’s.
 
Subsequently, the Audit Authority raised objection that Formers & packing materials which were included in the SION by Public Notice dated 12-4-2004 could not be allowed to be imported under DFRC’s where the exports were made prior to the above date. Thereupon the Jt. DGFT sought clarification in that behalf from the DGFT.
 
Accordingly, 11 show cause notices were issued in January-February, 2010 to the petitioner raising demand for recovery of customs duty with interest and penalty should not recovered from the petitioner in respect of Formers & Packing materials imported under the DFRC’s issued to the petitioner during the period 2004-2005, because ‘Formers/packing materials’ were included in the SION on 12-4-2004, whereas the exports were made prior to the same date and in such cases formers/packing materials could not be allowed duty free import under the DFRC’s issued to the Petitioner.
 
The petitioner objected to the issuance of the show cause notices as also the claim to recover duty with interest and penalty. However, rejecting the contentions of the petitioner, impugned orders were passed confirming duty, interest and penalty was also imposed upon the petitioner and its Directors. Challenging the communication dated 3-5-2010 and also 11 OIO the present petition is filed.
 
Appellants Contention:- Appellant submitted that the communication is contrary to the Exim policy because the policy provides for duty free importation of inputs used in the export product and it is not in dispute that formers & packing materials are inputs used in the product exported by the petitioner. It was also submitted that Para 4.2.3 of the policy ensures that the DGFT verifies the inputs used in the export product and notifies the same in the SION so that the DFRC is issued only for import of inputs used in the export product and notifies the same in the SION so that the DFRC is issued only for import of inputs used in the export product and not any other inputs. Similarly, Para 4.2.4 of the policy requires that the DFRC’s are issued for duty free import of inputs used in the export product which are notified in the SION and indicated in the shipping bills. The object is to ensure that the exporter in the shipping bills submitted to the customs authorities declares that the exports are made with a view to import inputs used in the export product which are covered under the SION notified by the DGFT. In the present case, it is not in dispute that the Formers & packing materials are inputs used in the manufacture of glass bottles and, therefore, the petitioner was entitled to and in fact allowed to import the same duty free under the DFRC’s issued to the petitioner. The fact that the DGFT recognized that the Former/packing materials are inputs used in the export product and notified the same in the SION on 12-4-2004, it does not mean that prior to the date the Formers/packing materials were not inputs used in the export products.
 
Appellant further submitted that the inputs covered under the SION as on the date of issuance of DFRC and not on the date of export are relevant. In support of the above contention, reliance is placed on the decision of the Apex Court in the case of S.B. International Ltd. V. Asstt. Director General Foreign Trade reported in 1996 (82) E.L.T. 164 (S.C) and a decision of this court in the case of Sonia Fisheries v. Union of India reported in 1997 (90) E.L.T. 22 (Bom.)
 
It is further submitted on behalf of the petitioner that in the present case the DFRC’s were issued by construing the policy provisions to the effect that the inputs covered under the SION as on the date of issuing the licence is relevant. On the basis of the validly issued DFRC’s duty free imports have been made by the third parties to whom the said DFRC’s were legally transferred. Assuming that the authorities issuing the DFRC’s had wrongly construed the provisions of the policy, the imports already made as per the DFRC’s. In the present case, neither the DFRC’s are cancelled nor, the items specifically included in the DFRC’s have been deleted.
 
Appellants Relying on the decision in the case of A.V. Industries v. Union of India reported in 2005 (187) E.L.T. 9 (Bom.)
 
Respondents Contention:- Respondents contended that the communication dated 3-5-2010 merely clarifies the policy provisions as they stood at the relevant time and, therefore, no fault can be found with the communication. As regards the validity of the OIO, they submitted that the petitioner must be directed to avail the statutory remedy of appeal provided under the Act.
 
On the merits of the case relating to the issuance of DFRC’s permitting the duty free import of ‘Formers/packing materials’, the respondent submitted that admittedly on the dates on which exports were made ‘Formers/Packing Materials’ were not included in the SION. As per para 4.2.3 of the 2002-2007 policy, DFRC’s have to be issued only in respect of those inputs which are included in the SION. Unlike Advance Licences, the DFRC’s are issued for import of inputs used in the Product which are already exported. Therefore, it is the date of export which is relevant for issuing DFRC and on the date of export if the input is not covered under SION, the said input cannot be allowed to be imported duty free under the DFRC. In other words, since ‘Formers’ were not included in the SION on the date of export DFRC could not be issued to the petitioner for import of ‘Formers’.
 
Also contended that para 4.2.4 of the 2002-2007 policy clearly provides that the DFRC shall be issued for import of inputs as per SION as indicated in the shipping bills. The petitioner had indicated in the shipping bills that six items are inputs which are used in the export product and the petitioner had not included ‘Formers/packing materials’ as inputs used in the export product. Therefore, DFRC’s could not be issued for duty free import of ‘Formers packing materials’ as they were not indicated in the shipping bills. The fact that the said two items were erroneously included in the DFRC’s, it does not mean that the said two items could not be imported duty free, especially when the said two items were not included in SION on the date of export and the said two items were not declared in the shipping bills. The submission is that in respect of the exports affected could not be issued for the duty free import of ‘Former/Packing materials’ and, therefore, duty with interest would be recovered even if the said items were cleared duty free under the DFRC’s wrongly issued to the petitioner.
 
Respondent relied upon the decision of the Madras High Court in the case of Adani exports Ltd. V. Union of india in 2003 (151) E.L.T 520 (Mad.)
 
Reasoning of Judgment:- The High Court held that the fact that the ‘Formers/Packing Materials’ are inputs used in the product exported by the petitioner is confirmed by the Central Excise authorities. Even the DGFT has confirmed, though belatedly, that ‘Formers/packing material’ are inputs used in the product exported by the petitioner. There is nothing in the policy to suggest that DFRC has to be issued in respect of the inputs notified under the SION on the date of export. Even the public notice dated 12-4-2004. Therefore, the petitioner was entitled to seek DFRC for duty free import of ‘Formers/Packing materials’ along with other inputs set out in the SION and consequently, issuance of DFRC’s for duty free import of ‘Formers/packing materials’ in respect of exports affected prior to 12-4-2004 cannot be faulted.
 
It is contended by the revenue that the date of export is not the relevant date for issuing DFRC is accepted, then, it would mean that where subsequent to the export an input is deleted from SION, then, DFRC cannot be issued in respect of that input even though the said input was covered under the SION on the date of export. There is no merit in this argument, because, the DGFT can delete an input covered under the SION only if the DGFT comes to the conclusion that its earlier decision to include that input under SION was erroneous. In such a case, if the DFRC was not issued in respect of the exports effected prior to the deletion, then the question of issuing DFRC after the deletion of the input does not arise at all. In the present case, it is not in dispute that the Formers/Packing materials are inputs used in the product exported by the petitioner. The fact that the DGFT notified the same on 12-4-2004 does not mean that prior to the said date the items were not inputs used in the export product. When the object of DFRC is to permit duty free import of inputs used in the export product, that object cannot be defeated on the ground that the input was notified under the SION subsequently and the same was not indicated in the shipping bills submitted at the time of export.
 
In the present case, even the authorized officer interpreted the policy to mean that irrespective of the date of export once the Formers/packing materials were notified as inputs used in the export product DFRC licences have to be issued irrespective of the date of export, and accordingly issued the DFRC’s in favour of the petitioner. The very fact that even after the Audit Authority raised objection, the jt. DGFT deemed it fit to seek clarification from the DGFT clearly shows that the issue was debatable and was not free from doubt. Therefore, the DGFT could not have issued clarification on 3-5-2010 so as to prejudicially affect the interests of the exporters/ third parties, who had imported ‘Former/ packing materials’ on the basis of the DFRC’s issued by the office of the Jt. DGFT several years ago. In other words, even if it is held that the licensing authorities were in error in interpreting the provisions of the policy, in the facts of the present case, since the DFRC’s have been fully utilized much prior to the realization of the mistake committed by the licensing authority, the petitioner cannot be saddled with any liability in respect of imports already made.
 
It is not the case of the revenue that the DFRC’s have been issued on account of fraud or misrepresentation on the part of the petitioner. The only grievance of the revenue is that the petitioner ought not to have included ‘Formers/packing materials’ in the applications seeking DFRC’s because on the date of export, neither the said items were included in the SION nor the said items were indicated by the petitioner in the shipping bills and, therefore, in terms of the undertaking given at the time of export, the petitioner is liable to pay duty with interest and also liable for penalty for importing ‘Formers’ duty free, because ‘Formers/packing materials’ were not included in the SION on the date on which the petitioner exported the manufactured products.
 
High Court held that there is no merit in the above contentions, because, the requirement of the policy that the DFRC has to be issued in respect of inputs used in the export product which are covered under the SION and indicated in the shipping bills is to ensure that inputs other than those inputs used in the present case, it is an admitted fact that ‘Formers/packing materials’ are inputs used in the export products not only by the Central Excise authorities but also by the DGFT. Since these inputs were not notified on the date of export, the same could not be indicated in the shipping bills. But, as soon as these inputs were notified under the SION, the petitioner became entitled to import the same under the DFRC. Therefore, the petitioner cannot be accused of being guilty of mis-declaring the items for import in the applications seeking DFRC’s. Neither the bona fides of the petitioner in making application seeking to import ‘Former/packing materials’ under the DFRC’s are in doubt nor the bona fides of the officers in issuing DFRC’s to the petitioner allowing duty free import of ‘Former/packing materials’ are in doubt. In such a case, the action of the respondents in seeking to recover duty from the petitioner on the ground that the import of those items, were erroneously allowed under the DFRC’s cannot be sustained. Reliance was placed on the decision of Madras High Court in the case of Adani Exports (supra).
 
High Court found merit in the argument of the petitioner that assuming the revenue is right in contending that ‘Former/packing materials’ could not be imported duty free in respect of exports effected prior to 12-4-2004, then firstly, the licensing authorities could not to have issued DFRC’s permitting duty free import of inputs including formers/packing materials. Having issued DFRC and having allowed duty free import of ‘Formers’ under DFRC, it is not open to the revenue to contend that the duty free import is unauthorized. Secondly, if the petitioner was intimated about the alleged mistake in the DFRC’s, then the parties to whom the DFRC’s were sold would have imported only those inputs which are permissible for duty free as per the DFRC’s validity issued by the licensing authorities and the said items have even now continue to remain in the DFRC’s issued to the petitioner, the question of demanding and duty on the ‘Formers/packing materials’ imported under the said DFRC’s issued by the licensing authorities does not arise at all.
 
Decision:- As a result, the communication dated 3-5-2010 as also the 11 OIO are quashed and set aside. Rule is made absolute in the above terms with no order as to cost.
 
Comment:- Very detailed and good decision.
 

************

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com