JUDGMENT
Jeet Ram Kait, Member (T)
1. The Revenue by this appeal challenges the Order-in-Original No. 151/97 dated 22.9.97 passed by the Commissioner of Customs, on a direction issued by the Central Board of Excise & Customs vide their Order No. 200-R/9B dated 15.9.98. The Commissioner by the impugned order had dropped the charges levelled against the respondents herein who are manufacturers and exporters of Cocoa and Chocolate products.
2. The assessee-respondents had obtained import licence No. P/CG/2127114 dated 6.3.91 under para 197 of the Import Export Policy 1990-93 read with Public Notice No. 101/PN/ITC-90-93 dated 26.4.90 as amended from time to time from the then Chief Controller of Imports and Exports New Delhi for importation of capital goods viz. machines forming cocoa beans processing line and chocolate making, finishing and packing line valued at Rs. 3,53,57,072 under concessional rate of duty of 25% with an obligation to export Cocoa and Chocolate products valued at Rs. 10,60,76,215 manufactured out of the said imported machinery within a period of four years from the date of first importation. The importation was in February 1992 through the Madras port. In terms of para 197 of the Import & Import policy for the period 1990-93 read with Notification No. 169/90-Cus dated 3.5.90, Registered manufacturers and Exporters are eligible to import capital goods at concessional rate of customs duty of 25% subject to the condition that the licence holder undertakes to fulfil the export obligation equal to three times the value of capital goods permitted for import within a periods of four years from the date of first import of capital goods by exporting the final products manufactured through the capital goods permitted to be imported. They have imported capital goods valued at Rs. 3,53,57,072 and out of this sum, the value of the imported chocolate making machinery alone works out to Rs. 2,42,97,852. At the time of importation the respondents-importers made a declaration/executed bonds before the Assistant Commissioner of Customs, Madras as under:
(i) Binding itself to pay on demand an amount equal to the duty leviable on imported capital goods but for the exemption contained in Notification 169/90-Cus dated 3.5.90 in respect of which the conditions specified in the said paragraph 197 of the import and Export Policy 1990-93 have not been complied with, and
(ii) Made themselves liable to pay such penalty as may be imposed by the Collector of Customs under the Act without prejudice to any other liability that may incur, if the goods are used by the importer for the purpose other than those specified in the bond.
3. Based on intelligence that the importers had mis-utilized the provisions of para 197 of the Import Policy, and not discharged the export obligations, the DR I officers visited the office and factory premises of the respondents-importers and it was observed that the importers had sought for import of two distinctly different sets of machinery i.e. one for the cocoa bean processing plant and another for chocolate making, finishing and packing plant. As per the condition (i) of Annexure A attached to the licence granted to the respondents, the export obligation has to be discharged by exporting cocoa and chocolate products. However, on a study of the process of manufacturer of cocoa and derivatives and chocolate products and the layouts of both the plants at the factory it was found that both plants are independent of each other and are able to function separately. Cocoa butter and cocoa powder are the finished products that come out of cocoa beans processing plant which are being utilized for discharging export obligation by the importers-respondents. These cocoa butter and cocoa powder are also the raw materials for the chocolate making plant which are taken manually from cocoa plant to chocolate plant. As against the export obligation to export within four years from the date of first importation of capital goods in February 1992, the importers had to export cocoa butter and cocoa powder manufactured through the imported cocoa beans processing plant to the tune of Rs. 10.71 crores i.e. cocoa products worth Rs. 3.50,00,000 and Chocolates worth Rs. 7,21,00,000). The importers were making representation to DGFT for extension of export obligation from time to time and their request was rejected. However, after repeated requests DGFT agreed to consider their request provided they agreed to increase the value of export obligation by 10% and extend the validity period of Bank Guarantee by one year i.e. till 30.11.1997.
4. The assessee-respondents had made some further export of Cocoa butter and powder but not even a kg of Chocolate manufactured out of the imported chocolate making machinery valued at Rs 2.42.97.582 was exported. The Importers were required to export Chocolate to the tune of Rs. 7,21,00,000 i.e. three times the value of the Chocolate making machinery imported worth Rs. 2,49,97,582. It is in these circumstances that show cause notice was issued to the Respondents calling upon them to show cause:
(i) as to why the benefit of Notification No. 169/90-Cus dated 3.5,90 in respect of Chocolate making machinery imported by them should not be denied to them and why duty short levied by reason of wilful misstatement and suppression of facts as aforesaid amounting to Rs. 3,19,03,077 should not be demanded from them under the proviso to Section 28(1) of the Customs Act, 1962 and also in terms of the Bonds executed by them in terms of the Notification 169/90.
(ii) Why the machinery valued at Rs. 2,42,97,852 should not be confiscated under Section 111(o) of the Customs Act, 1962.
(iii) Why penalty should not be imposed under Section 112(a) of the Customs Act.
5. After considering the reply to the show cause notice and after granting personal hearing on 19.8.97 and 17.9.97, the matter was adjudicated by the adjudicating authority by the present impugned order, against which the Revenue has come in appeal on a direction from the Central Board of Excise & Customs, in terms of Section 129D(1) of the Customs Act, 1962. The Revenue has taken the following grounds in their appeal:
(1) The importer was issued with one licence for import of two different sets of machinery/plant under an obligation to export two different products i.e. Cocoa products and Chocolates but neither the products nor the machineries were integrated in reality. The plants were separately installed, commissioned and functioned independently.
(2) Exim policy clearly stipulated that end products manufactured out of the imported machineries shall be exported towards fulfilment of export obligation.
(3) Independent usage of the machinery and the actual sale of the resultant product i.e. Chocolate solely in the local market is not disputed by the importer.
(4) Commissioner failed to properly consider that the opinion given by DGFT, New Delhi cannot be construed as an interpretation placed by him on the words of the policy, but it amounts to altering the very meaning of the words of the policy. By the said interpretation the DGFT has attempted to enlarge the scope of the licence which is not expressly provided for in the policy.
(5) As per the conditions of the licence and the policy, the importer were to fulfil export obligation equal to three times of the capital goods permitted, within a period of four years from the date of first import and the importers were supposed to have exported cocoa products worth Rs 3.5 crores and cocoa products worth Rs 7.21 crores whereas they have exported only cocoa powder.
6. Shri G.S. Menon, learned SDR appeared for the Revenue, while reiterating the above grounds, submitted that the clarification given by the DGFT cannot be construed as interpretation placed by him on the words of the policy and his clarification over rides the policy provisions and enlarge the scope of the licence. He has invited our attention to page No. 9 of the paper book wherein under para 13, the respondents under heading “PROJECT ACCOUNTING” clearly stated that the Company’s plant facilities consist of two separately identifiable plants, one for the manufacture of Cocoa derivatives and the other for the manufacture of Chocolate products. He has also invited our attention to para 1 of the Show cause notice wherein details regarding importation of two types of machineries have been adverted to. He has also referred to page 14 of the paper book wherein para 197 of the policy regarding import of capital goods at concessional rates of Customs duty has been reproduced. He has also referred to para 5 of the impugned order dealing with import of capital goods for the manufacture and export of specified product. He has also referred to the statement given by Shri Shiv Kumar, General Manager, Finance & Company Secretary of the respondents wherein he has categorically stated that Cocoa Plant and Chocolate plants are installed separately. He has also referred to para 13(ii), (iii) and (iv) wherein it is clearly reported by the Original authority that the two types of machineries have been installed at two different sheds. He has also recorded a finding that not a single kg of Chocolate manufactured out of the Chocolate making Plant was utilized for discharging export obligation. He further submitted that the licence was issued for export of Cocoa powder and Chocolate, but no Chocolate has been exported. Therefore, post import conditions have been clearly violated by the assessee by not exporting the specified goods. It is not the case of the assessee that the conditions in the licence have been amended to provide for export of only one item i.e. Cocoa powder. Therefore the clarification issued by the DGFT that export of one item would suffice to fulfil the export obligation is not in consonance with the Exim Policy for the year 1990-93. He has also referred to the wording of the Notfn, 169/90 dt. 3.5.1990. He has further submitted that Cocoa butter plant requires heat treatment, whereas the Chocolate making plant needs air conditioning equipment. He has also relied upon the decision of the Tribunal in the case of General Traders v. CC, Cochin, 2000 (124) ELT 971 wherein it was held that any clarification given by the DGFT when found by Court or Tribunal to be in conflict with a clear provision of the Import & Export Policy is not binding on that Court or Tribunal. It was also held that while clarification given by the DGFT that licence not required was correct and acceptable, the rest of the clarification that import was subject to input output norms of Advance licence was not acceptable as input output norms of Advance licence is not applicable to para 7.12 of Export-Import Policy 1997-2002. In the circumstances he sought for setting aside the impugned order and allowing the Revenue appeal.
7. The Respondents have filed cross objection wherein they assailed the grounds taken by the Revenue on the following grounds:
(a) machinery for manufacture of Cocoa products and the machinery for the manufacture of Chocolates are for an integrated plant. The two lines of machines that Cocoa Plant and Chocolate plant are not two separate entities. The two lines of machines located in adjoining buildings are due to technical and operational requirements.
(b) Extended period is not invocable as there was no suppression. However, the impugned order has dropped the entire proceedings against the Respondents.
(c) The bond executed by the respondents clearly shown that heading as “Cocoa and Chocolate products”. This established that the products are not entirely two separate lines of production. The cocoa powder and liquid chocolate produced by one set of machines are also the feed stock for manufacture of chocolates.
(d) The EPCG licence itself is issued for the total value and also for the total export obligation as a combined figure.
(e) Licence issued by the competent authority shows the total value of the machine as Rs. 3,53,57,072 and it has not separated a value of Rs. 2,42,97,852 as mentioned in the show cause notice.
(f) If the intention of the licensing authority was to make a distinction between export obligation in respect of Cocoa products and Chocolates, it should have mentioned so. The licence does not show the export obligation item-wise. It only mentions the period of export and the quantum of the goods to be exported.
(g) The Respondents have not contravened the provisions of Notification No. 169/90-Cus and they have fulfilled the export obligation cast upon them. Further the Notification does not also contemplate that the goods to be exported is in proportion of the capital goods imported.
(h) The DGFT is the competent authority to give interpretation of the Policy and the Revenue Department is bound by such interpretation and clarification. This position has been settled by a catena of judgments.
(i) In the present case The Director General of Foreign Trade, Ministry of Commerce, vide letter F. No. 20/1036/92/EPCG III/365 dated 15.9.99 addressed to the Respondents have clearly stated that since the Respondents have fulfilled the entire export obligation imposed on the above EPCG licence, the Respondents are free from Bank Guarantee No. LG-37/65 dated 13.12.91 for Rs 2,36,10,453. Further the DGFT has also informed the State Bank of India that Respondents have fulfilled the entire export obligation on the above EPCG licence and the Government has no claim against the Bank Guarantee and the original Bank guarantee has been cancelled and kept on record.
The Respondents also relied upon various case laws some of which are:
(1) 1988 (14) ECR 522 in the case of Southern Sea Foods Pvt Ltd. v. CCE, Madras wherein it was held that Para 274 (2) of the Policy AM 1994-85 (sic) is to the effect that any interpretation of Import and Export Policy or procedure given by the Chief Controller of Imports and Exports, New Delhi shall prevail over any other clarification in the same matter given by any other authority or person.
(2) 1988 (17) ECC 255 (T) : 1988 (18) ECR 283 in the case of MM Exports v. CC wherein also similar view as noted above, has been taken.
(3) 1988 (18) ECR (sic) in the case of Richardson Hindustan Limited v. The UOI wherein it was held that the interpretation given by Joint Chief Controller of Imports and Exports cannot be challenged by the Customs authority.
(4) 1989 (22) ECR 444 in the case of CC v. OswalAgro Mills Ltd. wherein it was held that the binding nature of the clarification given by CCIE cannot be brushed aside. In holding so, the CEGAT has relied upon the decision of the Bombay High Court 1988 (37) ELT 496 (Bom) wherein it was held that the interpretation given by CCIE is final and in case of doubt regarding these matters, the Customs authorities should consult the Import Trade Control authorities before clearance of the goods.
(5) 1992 (58) ELT 248 in the case of Overseas Cycle Co. v. CC, wherein it was held that….if a licence is granted in respect of a particular item by the licensing authority, the Customs authorities have no jurisdiction to shift over the licence so granted by the licensing authority and they have no power to go beyond the licence and determine as to whether the said licence related to prohibited item.
(6) 2001 (75) ECR 874, in case of U-Foam Put Ltd. v. CC, Hyderabad wherein it was held if there was fulfilment of the export obligation and the DGFT has granted extension of time, the Commissioner has no power to challenge the said decision of the DGFT because the reference was made by the Commissioner himself.
8. Shri Rajeswara Sastry and Shri MS Nagarajan, learned Counsels for the Respondents reiterated the grounds taken in the Cross Objection and submitted that once a clarification has been given by the competent authority the same is binding on the Customs Department. They also referred to page 95 of the paper book wherein they have mentioned that “as it is an integrated plant, ascertainment of installed capacity is not possible”. They have also referred to the letter dated 11.4.97, at page 77 of the paper book issued by the DGFT wherein it is clearly stated that Export of either Cocoa products or Chocolate would alone suffice for fulfilment of Export Obligation, against the said licence. They also invited our attention to the ruling given by CEGAT, SRB in the matter of MM Exports v. CC, 1988 (17) ECC 255 (T) : 1988 (18) ECR 283. They have also referred to the DGFT’s letter dated 15,9.99 wherein the DGFT has requested the State Bank of India, Hyderabad to release Bank Guarantee executed by the assessee, as the assessee has fulfilled the export obligations. They further submitted that there was only one obligation i.e. export of either Cocoa Powder or Chocolate and the Respondents have fully complied with the export obligation cast on them. He has also invited to the finding recorded by the lower authority in para 23 of the impugned order wherein he has recorded that so far as the policy relating to exports and imports are concerned it is the role of the DGFT which matters more and in the present case, there are a number of decisions of the Tribunal, High Court and the Supreme Court in this regard which supports the plea taken by the respondents. He therefore submitted that the lower authority had correctly dropped the proceedings against them and he prays for upholding the order impugned and dismissal of the Revenue as being devoid of merits.
9. We have carefully considered the rival submissions and gone through the case records. The gravamen of the department is that the clarification given by the DGFT over-rides the policy provisions to enlarge the scope of the licence and hence the said clarification cannot be construed as an interpretation placed by him on the policy and inasmuch as the impugned order proceeded on the basis of the said clarification, given by the DGFT, the same is not binding on the department. In order to have a better appreciation of the case, it is necessary to examine the policy provisions, the terms of the licence and the clarification issued by the DGFT. The policy provisions under para 197(1) reads as under:
Import of Capital Goods at concessional rate of duty against rate of Customs duty.
197.(1) With a view to reduce the incidence of high capital cost on export prices and thereby making exports competitive in the international market, import of capital goods up to a maximum CIF value of Rs 10 crores will be permitted at concessional rate of Customs Duty of 25% of CIF value of the Capital Goods imported. The applications for this purpose shall be considered by an Inter-Ministerial Committee headed by the CCI&E
The above facility will be available to registered manufacturer, exporters who have been regularly exporting for a period of not less than three years. The applicant will have to undertake an export obligation equivalent to three times the value of the capital goods permitted for import and the obligation will have to be fulfilled within a period of four years from the date of import of the capital goods…..”
The Terms of the licence reads as under:
(i) “This licence has issued under para 197 of the Import & Export Policy 1990-93 (Vol-I) and carries a obligation to export Cocoa & Chocolate
(ii) The additional value of export obligation to be fulfilled by the firm is Rs. 10,60,71,215
(iii) The total value of export obligation to be fulfilled under the scheme will be equal to three times the CIF value of machinery imported plus four times the average of best two years annual export performance during the preceding three years i.e. Rs. 10,60,71,215. The EO is to be discharged within a period of four years from the date of first import.
(iv) Before clearance of the first consignment the firm will execute the requisite indemnity-cum-surety bond with bank guarantee with the EO Cell in the Office of CCI&E. Udyog Bhavan, New Delhi or concerned licensing authority.
(v) The export obligation is subject to re-fixation by the EO Cell of this office or the concerned licensing authority.
The relevant portion of the Clarification given on behalf of the DGFT by the Dy. Director General of Foreign Trade Development Officer, New Delhi vide letter F No. 20/1036/92/EOCII/322 dated 11.4.1997 (filed at page 77 of the paper book) reads as under:
“The issue regarding fulfilment of export obligation by export of either Cocoa Products or Chocolates as against the above mentioned licence was considered. It has been decided to clarify that export of either Cocoa products or Chocolate would alone suffice for fulfilment of Export Obligation, as against the said licence”
10. We observe that in this case even though the licence provided for export of both in cocoa and chocolate, the respondents have exported only cocoa powder, a raw material for manufacture of Chocolate. The contention of the Revenue is that by exporting cocoa powder alone, the assessee cannot be taken to have fulfilled the export obligation of exporting Cocoa Powder & Chocolate and they should have exported chocolate also without which the export obligation cannot be taken to have been fulfilled. The respondents have taken the plea that the competent authority to interpret the Exim policy is the CCI&E (now DGFT) and the said authority has clarified to the assessee that the assessee has completed the export obligation cast on them in respect of the licence issued. It is this clarification which the Revenue is challenging. The assessee has relied upon a number of judgments including the judgment of the Hon’ble Supreme Court in the case of UOI v. Oswal Agro Mills Ltd. The Hon‘ble Apex Court while dismissing the appeal filed against the decision of the CEGAT reported in 1989(41) ELT 104 has held that the Collector of Customs cannot ignore the clarification received from the licensing authority and take a view of his own. The question posed before the Hon’ble Apex Court was whether the Collector is justified in ignoring the clarification given by the CCI&E and whether the department’s grievance on that ground is justified. We observe that all the case laws cited by the Respondents-importers are centered on one issue i.e. whether the clarification given by the DGFT is binding on the Customs authorities and the view taken in those case laws including in the judgment of the Hon’ble Supreme Court cited supra. We are of the considered view that the clarification given by or on behalf of the DGFT has to be in consonance with the policy provisions and the licence issued. This import licence was issued by a High Power Committee consisting of DGFT, a representative of the Revenue department and a nominee of the nodal Ministry, as a result of the decision of the 14th meeting of the C.C. main committee held on 6.12.90 as could be seen from the licence in question. Therefore, any decision to amend the licence could only be taken by the said High Power Committee and the decision of the said Committee also has to be consistent with the policy framed by the Government of India. The power to amend the Exim policy is vested with the Govt. of India. As against this, in the present case, the clarification to the effect, that export of either Cocoa products or Chocolate would suffice for fulfilment of the export obligation has been issued by the Dy. Director General of Foreign Trade Foreign in the Ministry of Commerce who has signed the clarification on behalf of the “Director General of Foreign Trade”. In the present case, the licence was issued casting an obligation on the part of the importer to export two items viz. Cocoa and Chocolate to the tune of Rs. 10,60,76,215 (Rs. 7,21,00,000 for chocolate and Rs. 3,50,00,000 for Cocoa powder) whereas the Respondents-importers have exported only one item i.e. Cocoa and in spite of the fact that in terms of the licence granted to them they were required to have exported the two items viz. Cocoa and Chocolate, the Dy. DGFT has issued a clarification on behalf of the DGFT that the Respondents have complied with the terms of the licence. Therefore, what is to be examined is whether clarification issued by the Dy. DGFT on behalf of the DGFT is in accordance with the policy provisions framed by the Govt. of India in their wisdom.
11. We observe that Cocoa powder is a raw material whereas Chocolate is a finished value added final product and according to the terms of the licence, they were under an obligation to export finished goods also viz. Chocolate. The respondents have taken a further plea that they have an integrated plant. We are not able to countenance this plea inasmuch as we observe that in the cross objection filed by the Respondents, under Heading ‘Project Accounting’ what is stated is:
“The company’s plant facilities consist of two separate identifiable plants, one for manufacture of Cocoa derivatives and the other for manufacture of Finished Chocolates”.
12. From the above it is clear that two types of capital goods were imported for manufacture and export of Cocoa Powder and Chocolate. The above factual position is also supported by the statement of Shri S. Raghu, Manager-Materials of the respondents who vide his statement dated 5.7.96 given under Section 108 of the Customs Act, clearly stated that the manufacturing divisions were broadly categorised into two distinct separate divisions namely cocoa plant and chocolate plant; that in respect of these two plants, the company had approached the CCI&E New Delhi (now DGFT) for allowing concessional rate of duty under EPCG scheme vide their application dated 27.9.90 enclosing two separate lists of capital goods for chocolate making plant and cocoa beans processing plant and accordingly the CCI & E granted them the licence. He has also stated that initially Chocolate plant was commissioned and later on only Cocoa plant was commissioned and that no exports were made out of chocolate plant. Shri R. Shiva Kumar, General Manager, Finance of the Respondents also gave statement under Section 108 of the Customs Act, 1962 on 6.7.96 wherein he has corroborated the statement given by Shri S. Raghu. He has also clearly stated that cocoa plant and Chocolate plants are installed separately. Another Senior Officer viz. Shri P.A. Duraiswamy, General Managar (Operations) of the Respondents while corroborating the statement given by the other two officers noted above, has also stated that Chocolate manufactured out of the Chocolate making plant imported, were sold in the domestic market. Yet another senior Officer of the Respondents viz. Shri R. Badrinarayan, Managing Director, has also given corroborative statement. All these four officers have given clear cut statement that Chocolate making plant and Cocoa making plant are separate plants. In the face of these clear cut statements given by the Senior and responsible officers of Respondents, we are not able to agree to the contention of the respondents that the plants for manufacture of Cocoa powder and Chocolate are integrated plants. Hence we reject the contention of the appellants in this regard. Inasmuch as these two distinctively different machineries were installed separately at two different plants, independent of each other, in two different sheds and they were required to export Cocoa powder worth Rs. 3.5 crores and Chocolates worth Rs. 7.21 crores and as against that they have exported only one item i.e. Cocoa products, it cannot be said that they have fulfilled the export obligation fully. In fact, the major item which was required to have been exported was Chocolate inasmuch as the value of the Chocolate making plant was Rs. 2,42,97,852 while the value of Cocoa plant was Rs. 1.10 crores. Correspondingly they were under an obligation to export Chocolate worth Rs. 7.21 crores and Cocoa powder worth Rs. 3.5 crores i.e. three times the value of the capital goods imported. The Exim policy stipulates that the end products manufactured out of the imported machineries shall be exported towards fulfilment of export obligation which in the present case cannot be taken to have been fulfilled as discussed above. Further, the fact of independent usage of machinery and the actual sale of resultant product viz. Chocolate solely in the local market and not even a kg of Chocolate was exported out of the Country, is not disputed by the Respondents. The value of the product viz. chocolate which should have been exported by them is not disputed by them either. The Revenue has pressed into service the decision of the Tribunal in the case of General Traders v. CC, Cochin, 2000 (124) ELT 971 wherein it has been held that any clarification issued by the DGFT, when found by a Court or Tribunal to be in conflict with a clear provisions of the Import Policy is not binding on that Court or Tribunal. As noted above, in the present case, the licence has been endorsed for import of two items viz. Cocoa & Chocolate and not repeat not for Cocoa or Chocolate whereas only Cocoa has been exported. While we agree that clarification issued by the DGFT is binding on the Custom Department, such clarification has to be within the framework of the policy and the licence and the DGFT cannot over-ride the policy provisions and the terms of the licence as the power of the DGFT is not unfettered. As rightly contended by the learned SDR, it is not the case of the respondents-assessee that the licence which provided for export of cocoa and chocolate has been amended to provide for export of only Cocoa powder. The clarification issued on behalf of the DGFT in the present case is wholly inconsistent with the Exim policy framed by the Central Government and the said clarification in fact purport to amend the Exim policy provisions itself and the licence issued under such policy. The power to amend the policy is exclusively vested with the Central Govt. and not with the DGFT, Any Clarification which is not inconsistent with the Exim Policy is neither binding on the Custom authorities nor on the Tribunal or Court. We are therefore, of the considered opinion that decision cited by the Revenue in the matter of General Traders v. CC (supra) squarely applies to the facts of the case inasmuch as the clarification issued by the DGFT is clearly in conflict with the provisions contained in para 197(1) of the Policy read with the licence issued. We, therefore, set aside the impugned order dropping the charge against the assessee-importers and remand the matter to the original authority for de novo consideration and passing a speaking order dealing with all the allegations set out in the show cause notice, after affording an effective opportunity of being heard to the Respondents in accordance with law. The appeal of the Revenue therefore succeeds by way of remand. The Cross Objection also stands disposed of accordingly.
