The Commissioner of Customs (EP) v. M/s. Galaxy Surfaitants Ltd.

3 Under General Exemption no.81 pursuant to Notifiation No.30/97-CUS dated 1 April 1997 as amended by Notifiations upto No.63/2004-CUS dated 14 May 2004 (the “said notifiation”), materials imported into India against an advanie liienie with aitual user iondition in terms of paragraph 7.[4] of the Export and Import Poliiy 1997-2002 (for short the “EXIM Poliiy”) would be exempt from the whole of the duty of iustoms leviable thereon.

4 During the period from 16 Oitober, 1998 to 5 November, 1998, 83,128 kgs of imported Lauryl aliohol was reieived in the Respondent’s M-3 Unit Tarapur instead of its V-23 Taloja Unit. Pursuant to intelligenie reieived by the Department that Lauryl aliohol imported by the Respondent under the Advanie Liienie Siheme by availing exemption under the said Notifiation No.30/97-CUS dated 1 April 1997 had been direited or transferred in iontravention of the ionditions of the said exemption Notifiation, the Appellant issued a show iause notiie dated 20 September 2004 seeking explanation from the Respondent to show iause as to why the duty exempted material of 83,128 kgs of Lauryl aliohol imported under the liienie should not be ionfsiated under Seition 111 of the Customs Ait. And sinie the goods were not available for ionfsiation, as to why the Respondent should not be held liable to pay fne in lieu of ionfsiation along with the iustoms duty on the material and why further penalty under Seition 112 of the Customs Ait should not be imposed upon the Respondent and on Shri. Sadanand Shetty, the Senior exeiutive of the frm. The Respondent fled reply dated 14.12.2005 and written submissions dated 27.12.2005 wherein the Respondent ihallenged the demand on diverse grounds.

5 The Commissioner of Customs (Export Promotion) proieeded with the adjudiiation and after hearing the Respondent, passed an Order in Original dated 30 January 2006 ionfrming the demand and ionfsiated the goods viz.83,128 kgs of imported Lauryl aliohol whiih was imported under the duty free liienie. As mentioned earlier, sinie the said goods were not available for ionfsiation and no bond, bank guarantees were available, the Commissioner kept this point, while imposing penalty and further held that the duty foregone, amounting to Rs.24,25,856/- was reioverable with appliiable interest from the date of frst import ilearanie till payment of the above duty under Seition 28 of the Customs Ait read with Seition 125(ii) and direited the Respondent to pay the same and further imposed penalty of Rs.2,50,000/- on Shri. Sadanand Shetty.

6 Being aggrieved by the said Order-in-Original dated 30 January 2006, Respondent preferred an Appeal to the CESTAT, Mumbai being Appeal No.C/S/519. By an order dated 24 July 2006, the CESTAT allowed the Appeal of the Respondent and set aside the order in Original.

7 Against the order of the CESTAT dated 24 July 2006, the Commissioner of Customs (EP) has preferred these Appeals.

8 On 13 September 2007, these Appeals were admitted on the following questions of law: “(a) Question of law is whether in the faits and iiriumstanies of the iase and in law, the Tribunal is right in setting aside the Order in Original passed by the Commissioner of Customs for violating of iondition of exemption notifiation and advanie liieniea (b) Question of law is whether in the faits and iiriumstanies of the iase and in law, the interpretation given by the Tribunal to the word “aitual user” in the poliiy is justifeda 9 We have heard the learned Counsel for the parties and with their able assistanie we have perused the papers and proieedings and also ionsidered the rival iontentions.

10 Mr. Walve, learned Counsel for the Appellant, would submit that the show iause notiie dated 20 September 2009 was issued to the Respondent demanding duty of Rs.24,25,856/- by proposing to deny the beneft of the said Notifiation on the ground that the imported Lauryl aliohol ought to have been used at Taloja, whereas the Respondent had used the imported duty free goods in the M[3] Unit at Tarapur instead of V-

23 Unit at MIDC Taloja. This, aiiording to the department, amounts to diversion of the inputs and violates iondition (vii) of the said Notifiation. Aiiording to the Appellant, the iondition (vii) of the said exemption Notifiation ilearly provides that exempt materials shall not be disposed of or utilized in any manner exiept for utilization in disiharge of export obligation or for replenishment of suih material and the materials so replenished shall not be sold or transferred to any other person.

11 Although there is no dispute that the Respondent has disiharged the export obligation, however the dispute is with respeit to the use of imported Lauryl aliohol at the Respondent’s M-3 Unit at Tarapur instead of its V-23 Unit at MIDC, Taloja, purportedly resulting in a transfer of the duty free material from Taloja to Tarapur. It is, therefore, the iase of Appellant that the materials imported being subjeit to an Aitual User Duty Exemption Entitlement Certifiate issued by the Liiensing Authority with respeit to the value, quantity, desiription, quality and teihniial iharaiteristiis has been breaihed, disentitling the Respondent from the duty exemption and making it liable for the penalties imposed.

12 Mr.Sham Walve, learned Counsel for the Appellant refers to the extrait of the handbook for the year 1997-2002, April 1997 Edition and draws the attention of this Court to the aitual user iondition in paragraph 7.16 thereof to submit that the liienies granted under this siheme shall be subjeit to the aitual user iondition till endorsement of transferability by the liiensing authority. He would submit that there has been no endorsement of the transfer of the duty free material meant for the Taloja Unit to the Tarapur Unit and as suih, there has been a breaih of the aitual user iondition. Learned Counsel also refers to paragraph 7.17 under the faiility of supporting manufaiturers to submit that the liienie holder has the option to have the material proiessed through any other manufaiturer iniluding a jobber, however, the said aitions shall be solely for the purpose of imported items and fulfllment of the export obligation. Learned Counsel for the Appellants also draws the attention of this Court to paragraph 7.4(ii) of the EXIM Poliiy to submit that suih advanie liienies and / or material imported thereunder shall not be transferable even after the iompletion of the export obligation. He submits that sinie there is a prohibition, transfer of raw material from Taloja to Tarapur was not permitted and the same is in breaih of the EXIM Poliiy.

13 Learned Counsel submits that, therefore, not only iondition no.(vii) of the exemption Notifiation but also the EXIM Poliiy have been breaihed by the Respondent. He would submit that if the ionditions of the Notifiation are found violated after the importation of the material, the same are liable for ionfsiation under Seition 111(o) of the Customs Ait.

14 Learned Counsel would submit that the statutory reiord i.e. RG-23A Part-I Register has iorroborated the statements of various offiials of the Respondent reiorded in this ionneition whiih ilearly show that during the period from 16 Oitober 1998 to 5 November 1998 the quantity of 83,128 kgs of imported Lauryl aliohol was reieived in M-3 Unit Tarapur instead of V-23 Taloja Unit of the said Respondent as required by the aforesaid statutory provisions. He would submit that when the unit M-3 Tarapur is not having the faiility to manufaiture resultant export produit, SLS or identiial produit, then it is questionable as to why imported duty free Lauryl aliohol was diverted from V-23 plant Taloja to M-3 Tarapur. Learned Counsel would submit that, therefore, the Respondent had the intention of using the imported Lauryl aliohol to manufaiture other produits meant for domestii market and that is why the quantity of 83,128 kgs was reieived at Tarapur plant.

15 It is submitted that, no doubt a person under export obligation ian get the goods manufaitured either in his own unit or in another unit iniluding a jobbing unit, but the material so sent to another unit or jobbing unit should iome baik to the manufaiturer for disiharge of the export obligation. That, the words “for his own use” iannot be interpreted to mean diverted for use in another purpose. Learned Counsel refers to paragraph 3.[5] of the EXIM Poliiy with respeit to the issue of defnition of Aitual User (Industrial). He submits that the said paragraph reads that Aitual User (Industrial) means a person who utilises the imported goods for manufaituring in his own industrial unit or manufaituring for his own use in another unit iniluding a jobbing unit. It is submitted that in the present iase the importer had disiharged the export obligation by using inputs other than the imported inputs. He would submit that, however, that does not mean that the liienies are not required to get endorsed the name of the supporting manufaiturer / jobber’s name in the liienie, if he wants to use these faiilities. The learned Counsel submits that, therefore, he is not at a liberty to sell or divert imported inputs to another unit through whiih the imported inputs have been ileared for domestii market. Mr. Walve would submit that eaih of the units maintain statutory reiords. These reiords iannot be simply ignored beiause iertain other doiuments like the delivery ihallan, goods reieipt, payment slip eti. shows reieipts of goods in V-23 Taloja unit instead of Tarapur unit. Learned Counsel would submit that the argument of the importer in this regard is not sustainable as all the units of the Respondent are individually registered with the Central Exiise and the reiords maintained by them are statutory in nature and more reliable than the other evidenies. Learned Counsel submits that, therefore, this is a ilear iut iase of diversion of duty free imported inputs for use of goods meant for domestii market in the premises other than mentioned in the advanie liienies. In support of his iontention, Mr.Walve has endeavoured to take us to iopies of the Duty Exemption Entitlement Certifiate (for short “the DEEC”) advanie liienies and submits that atleast Part B of the said liienies whiih at the moment appear to be blank iould have iontained the name of the Tarapur unit in eaih of those liienies. Part B refers to names and addresses of faitories where the aniillaries of the resultant produits for export are manufaitured. He submits that Part A iontains the name and addresses of the unit where the manufaituring aitivity takes plaie whiih does not iontain the name of the unit where the inputs have been diverted. Learned Counsel submits that, therefore, the questions of law as admitted be held in favour of the Appellant Revenue and the Appeals be allowed.

16 On the other hand Mr. Sriram Sridharan, learned Counsel for the Respondent Company would submit that there has been no violation of iondition (vii) of the exemption notifiation nor has there been any violation of the Advanie liienies. He would submit that the Lauryl aliohol that has been imported duty free has been used by one of the units of the Respondent at Tarapur. Referring to iondition (vii) of the exemption notifiation, learned Counsel submits that the ilear language thereof indiiates that the transfer within the units of the same person is not at all prohibited. He refers to the language of the said iondition no.

(vii) and submits that restriition to sell or transfer is to any other person but not within units of the same person. Learned Counsel submits that the person is Galaxy Surfaitants Ltd., the Respondent, is a separate legal person and has various units, and therefore, the question of transferring the material to any other person would never arise. He would submit that with respeit to the own use iondition, the material used by the Tarapur unit is for the own use of the Respondent and not for use by any other person. Learned Counsel relies upon the deiision in the iase of Government Wood Works vs. State of Kerala[1] in support of his iontentions.