ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against Order-in-Original 43/2004 Cus. Adjn. dated 27.12.2004 passed by the Commissioner of Customs, Bangalore.
2. The appellants imported “Draw Frame-RSB-D 30 with Accessories and set of spares parts” valued at Rs. 24,02,497/- under the EPCG Scheme in terms of Notification No. 29/97-Cus dated 1.4.97. Revenue issued Show Cause Notice to the appellant for violation of the conditions prescribed at proviso (a) to the Condition No. 5 of the said Notification. In terms of the said condition, the EPCG licence holder should have imported minimum CIF value of Rs. 1/- crore within a period of two years. The Show Cause Notice proposed to confiscate the impugned goods Under Section 111(o) of the Customs Act. Penalty Under Section 112(a) was also proposed. An addendum to the Show Cause Notice was issued for demanding customs duty amounting to Rs. 10,52,673/-. Appropriate interest as provided in the Notification was also demanded. There was also a proposal to appropriate an amount of Rs. 11/- lakhs by invoking the bank guarantee towards the adjudication levies. After following the normal procedure, the Commissioner passed the impugned order confirming the proposals in the Show Cause Notice. The appellants are highly aggrieved over the impugned order.
3. Shri Rajesh C. Kumar, learned advocate appeared for the appellants and urged the following points.
(i) The appellants procured capital goods under EPCG licence within two years as detailed below.
Name of the Party (M/s.)
Details
of Machinery
Total value of machinery imported (in Rs.)
Reieter Ingol Stadt, Germany
Draw Frame RSB D-30 with accessories
Rs. 25,69,053/-
Veejay Lakshmi Engg. Works, Coimbatore
Savio Veejay Automatic Cone Winding Machine
Rs. 84,64,283/-
Total
Rs. 1,10,33,336/-
Thus the condition of import of goods to the tune of Rs. 1/- crore has been complied with.
(ii) The Department has not taken into account the goods procured indigenously for which the appellants had obtained invalidation of the EPCG licence vide amendment sheet No. 1 dated 14.12.2000 for direct imports as required by Chapter 6 of EPCG Scheme and stipulated in Clause 6.8 of the said chapter from M/s. Veejay Lakshmi Engg. Works, Coimbatore.
(iii) In respect of fulfillment of export obligation, the appellants had already fulfilled the export obligation to the extent of 50% of the total imports made by them for the block period ending 4.2.2004.
(iv) The total export obligation, to be fulfilled by the year 2006 was Rs. 6.4 crores and during the first two block years, only 50% of the this amount i.e. Rs. 3.2 crores was to be fulfilled, whereas they have fulfilled export obligation worth Rs. 4.28 crores.
(v) The EPCG scheme allows the licence holder to purchase capital goods covered under the licence from the domestic manufacturer instead of importing them. For this purpose, the licence is invalidated in respect of the goods to be procured domestically. In the present case, the invalidation is for “automatic cone winder”. The licence was amended to this extent. Under the said amendment, the licencing authority has categorically treated the CIF value of invalidation as utilization of EPCG licence and consequently, the balance CIF value is available under the licence after deducting the value of imported goods and indigenously procured goods. In these circumstances, the finding of the Adjudicating Authority that the goods procured indigenously on invalidation cannot be treated as goods procured under EPCG licence in untenable in law.
(vi) The Adjudicating Authority has erred in holding that there was no export obligation imposed under EPCG licence in respect of the goods indigenously procured after obtaining the invalidation from the licencing authority.
(vii) The Adjudicating Authority failed to appreciate that the domestic manufacturer supplying the capital goods to the holder of EPCG licence was entitled to the benefits of deemed exports under the EXIM policy. Therefore, the procurement of goods by EPCG licence holder from domestic manufacturer amounts to deemed imports in terms of the EXIM Policy.
(viii) In the above circumstances, there is violation of Condition 5 (a) of the Notification 29/97 Cus. and consequently the impugned goods are not liable for confiscation. The appellants are not liable for penalty Under Section 112(a) of the Customs Act.
4. The learned JCDR Shri R.K. Singla pointed out that the procurement of goods indigenously cannot be treated as imports. In that case the appellants have not fulfilled the condition of minimum import of Rs. 1/- crore within a period of two years. Therefore, the Commissioner was right in holding that the impugned goods are liable for confiscation. The duty demand is in order. The appellants are liable for penalty and payment of interest as provided in the Notification.
5. We have gone through the records of the case carefully. The issue in the present appeal relates to the interpretation of Customs Notification No. 29/97 read with EXIM Policy.
5.1 The EPCG scheme provides for import of capital goods under concessional rate of duty subject to fulfillment of export obligation to be fulfilled over a period of eight years reckoned from the date of issue of licence. The export obligation is related to the value of capital goods imported. It may be 5 times the CIF value of capital goods on FOB basis or 4 times the CIF value of capital goods on NFB basis. Chapter 6 of the EXIM Policy 1997-2002 deals with various aspects of the EPCG scheme. The competent authority (DGFT) issues the EPCG licence. A person holding an EPCG licence may procure the capital goods indigenously instead of importing them. He may have a contract with an indigenous party and the indigenous manufacturer may apply for EPCG licence under the scheme for import of components required for the manufacture of the said capital goods to be supplied to an EPCG licence holder. The domestic manufacturer supplying capital goods to EPCG licence holder shall be eligible for deemed export benefit under Para 10.3 of the Policy. We have given the above provisions of the EXIM Policy for the purpose of proper interpretation of the said Customs Notification.
5.2 Notification No. 29/97 Cus. provides for exemption to capital goods, components and spares, etc., imported under EPCG scheme. What is of interest to us is condition 5 proviso (a) and (b), which are reproduced below.
(5) The importer shall, if he fails to import goods, including the spares…in this notification together with interest at the rate of 24% per annum from the date of clearance of the goods:
Provided that in case of licences issued:
(a) With an obligation to export products of electronics, food processing, garments, leather, sport goods, gem and jewellery, agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture, bio-tech, engineering, textile and chemical sectors, or
(b) To tourism industry for rendering services,
the minimum value together with the value of the spares specified in the Table annexed hereto shall be rupees one crore:
Provided further that in case of licences issued with an obligation to export products of software sector, the minimum value together with the value of the spares specified in the Table annexed hereto shall be rupees ten lakhs:
Provided also that the aforesaid conditions of minimum value of import which is rupees twenty crores, or rupees one crore, or rupees ten lakhs, as the case may be, shall be deemed to have been complied with where the shortfall in import is within 10% of the limits so prescribed.
In the present case, the value of the goods imported under the EPCG scheme from Germany comes to Rs. 25,69,053/-. The Adjudicating Authority holds the view that the appellant imported goods worth less than Rs. 1/- crore, therefore, they had violated the conditions of the Notification and would not be entitled for its benefit. However, the appellant contends that they had indigenously procured cone winding machine after the licencing authority invalidated the licence value to the extent of the value of the cone winding machine. When the value of the cone winding machine viz., Rs. 84,64,283/- is added to the value of the goods procured from Germany, the total value comes to Rs. 1,10,33,336/- which is more than Rs. 1/- crore. The Commissioner’s interpretation is that the value of the indigenously procured goods should not be taken into account for purposes of I condition 5 (a) of the Notification.
5.3 In our view, the Commissioner’s interpretation is not correct for the following reasons. When a domestic manufacturer supplies capital goods to EPCG licence holder, he would be eligible for deemed export benefit under Para 10.3 of the Policy. This provision is contained in Para 6.9 of the EXIM Policy. If a supply to, EPCG licence holder is considered as deemed export, logically it follows that as far as the EPCG licence holder is concerned the receipt of goods from domestic supplier amounts to deemed import. Moreover in terms of Para 6.8, there is a provision for sourcing the capital goods from a domestic manufacturer instead of importing them under the EPCG scheme. When such a provision is there, denial of benefit under the scheme on the ground that procurement from domestic supplier would not be considered for purposes of condition 5 (a) of the Notification renders the scheme meaningless. It should be borne in mind that if an EPCG licence holder has a contract with a domestic manufacturer for supply of capital goods, the domestic manufacturer himself can obtain EPCG licence for import of components required for the manufacturing of the said capital goods. In order to interpret condition 5 (a) of the Notification, all these provisions of EXIM policy have to be read together and a harmonious interpretation has to be given. In view of the above, we hold that the appellant has fulfilled the conditions of the said customs Notification. The impugned goods are not liable for confiscation. The appellants are not liable for any penalty. The demand of duty and interest are not sustainable. Hence, we set aside the impugned order and allow the appeal with consequential relief.
(Pronounced in open Court on 2 APR 2007)