Whether import of “Saffron” allowed by claiming benefit of DFRC by appellant exporting confectionary items?

PJ/Case Law/2013-14/1944

Case:-COMMISSIONER OF CUS., NEW DELHI VERSUSUTTAM SINGH MANOHAR SINGH

Citation:-2013 (295) E.L.T. 409 (Tri. – Del.)

Brief facts:-During July, 2006, the Respondent had imported Saffron and filed a Bill of Entry claiming exemption for the goods under Notification 90/2004-Cus by presenting a DFRC License. The License was issued against export of confectionary items covered under Sr. No. E1 of Standard Input-Output Norms notified by Commerce Ministry. Items allowed for import under the said license were Flavours/Essential Oil. The Respondent was claiming saffron to be a flavouring agent for food items.
Revenue was of the view that the item imported is too expensive a material to be used in the manufacture of the goods exported and Revenue proposed to deny exemption under Notification 90/2004-Cus. An adjudication order issued denying such benefit was challenged by the Respondent before the Commissioner (Appeals). The Commissioner (Appeals), based on clarification issued by DGFT and other technical opinions, decided that the Respondent is eligible to import saffron under the impugned license and to claim the exemption under the notification. Aggrieved by the order of the Commissioner (Appeals) Revenue has filed this appeal.

Appellant’s contention:- The Revenue submits that as per Para 4.31 of the Handbook of Procedures (Vol-I) notified by Commerce Ministry, the material imported under DFRC should be of the same quality and technical characteristics and specifications as the material used in the product exported. The clarification in Circular No. 24/2002-Cus.was issued with reference to Export-Import Policy 2002-2007 whereas the impugned DFRC was issued under Export Import Policy 2004-2009.
Revenue also relies on the fact in the case of another exporter, namely, M/s. Lakhsmi International for export of identical goods the license indicated the classification of goods that could be imported as 33010391. Since saffron falls under a different Tariff Item Revenue contests that there was no intention to allow import of saffron by the present appellant who was also exporting assorted confectionery items.
The Revenue also relies on the fact that in Rule 26 of Food Adulteration Rules, 1955 saffron is mentioned in the category of natural colours and it is not mentioned or referred to as a flavouring substance.

Respondent’s contention:- The Counsel for the Respondent drew our attention to Policy Circular No. 30 (RE-05)/2004-2009, dated 10-10-2005 which clarifies that the exporter has the flexibility to import any alternative input fitting into the Standard Input Output Norms (SION) even if exactly the same input has not been used in the manufacture of exported product.
The Counsel also submitted a letter addressed by Prof. K.D. Deodhar, Department of Chemistry, IIT Mumbai to the Deputy Commissioner of Customs, Customs House Mumbai clarifying that saffron is a natural colouring and flavouring material used as additives in culinary, bakery and confectionary items and sweets and he argues that it is obvious that the license in question can be used for importing saffron. He further points out that Customs Authorities in Mumbai had been allowing import of saffron against such licensees.
The Counsel also relies on para 2.2 of Circular No. 24/2002-Cus., dated 6-5-2002 issued by C.B.E. & C., which reads as under :
“2.2 DFRC Scheme
DFRC Scheme was first announced in Exim Policy 2000-2001 with effect from 1-4-2000 DFRC Scheme has been continued in Exim Policy 2002-2007 with some minor changes. The earlier DFRC Scheme announced in 2000-2001 Exim Policy required that for the purpose of allowing DFRC benefit to imported inputs used in the resultant export product, the quality, technical characteristics and specifications of the inputs under import should be the same as those used in the resultant export product. For this purpose the quality, technical characteristics and specifications of each input used in the resultant export product were required to be specified on the shipping bill and at the time of import Customs was required to co-relate it with the input under import so as to allow DFRC benefit to those inputs which were of the same quality, technical characteristic and specifications. Under the new DFRC scheme such co-relation of quality, technical characteristic and specifications has been done away except in the case of items were which are listed in para 4.31 of the Hand Book of Procedure Volume 1 as amended by DGFT/Notice No. 4/2002-2007, dated 1-4-2002. In respect of such items customs shall continue to ascertain the quality, technical characteristics and specifications of the inputs under import with reference to the quality, technical characteristics and specifications of the inputs used in the export product as declared on the shipping bill. Quantity of each input shall be permitted in the DFRC license in terms of SION for the relevant export product as earlier. License issued under DFRC scheme are freely transferable as earlier.
Other procedural requirements of DFRC Scheme as specified in DOR’s earlier Circular Nos. 33/2000-Cus., dated 2-5-2000 [2000 (118) E.L.T. T27], 42/2000-Cus., dated 2-5-2000 [2000 (118) E.L.T. T20] and 59/2000-Cus., dated 11-5-2000 [2000 (119) E.L.T. T74] shall continue to be followed with the aforesaid modifications.
Customs Notification No. 46/2002-Cus., dated 22-4-2002 has been issued to operationalise this Scheme.”
Since the goods in question is not one of the items specified in Para 4.31 of the Hand Book of Procedures, the argument of Revenue that the goods imported should be of the same quality and Technical characteristic as the inputs used in goods exported is not a valid objection.

Reasoning of judgment:- From condition 2(c) of Notification 46/2002-Cus. it is very clear that the need to ensure that the goods imported under a DFRC is of the same technical characteristics, quality and specification as the inputs used in the goods exported applied only to goods specified in para 4.31 of Hand Book of Export Import Procedures. Admittedly saffron is not one such item. That being the case all what is required to be ensured is the goods imported fits into the description, value and quantity of materials specified in the license. We see that no case is made out that such requirements are not met. The Revenue’s objection that saffron is a high value item is of no consequence because when per unit value is high the quantity that can be imported gets restricted on account of the value restriction of the license. Further when the matter stands clarified by both DGFT and C.B.E. & C. supporting the case made out by the Respondent we do not see any merit in the appeal filed by Revenue. We find that there is a cross objection filed by the Respondent. This is in the nature of written submissions to support the impugned order and there is no separate relief prayed for. So the cross objection also is disposed of by this order.

Decision:- Appeal dismissed.

Comment:-In this case, import of “saffron” was denied under DFRC by the department on the contention that the item is high value item and not allowable under DFRC. However, the contention that the item is of high value is of no consequence because when per unit value is high, the quantity that can be imported gets restricted on account of the value restriction of the license. For an item to be imported under DFRC, it is to be only ensured that whether the item so imported is of the same technical characteristics, quality and specification as the inputs used in the goods exported. As there was no doubt of saffron being used in the confectionary items being exported, the same was held to be allowable for import under DFRC.

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PJ/Case Law/2013-14/1944

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