Tonira Pharma Ltd. vs Commissioner Of C. Ex. on 1 November, 2006

Customs, Excise and Gold Tribunal – Mumbai

Bench: R Abichandani, J Balasundaram, Vice-, S T Chittaranjan, A T K.K.

ORDER

Chittaranjan Satapathy, Member (T)

1. Heard both sides at length on 1-2-2006, 6-2-2006 and 7-2-2006. Under the impugned order, customs duty demand of Rs. 8,48,16,660/- and excise duty demand of Rs. 14,13,208/-have been confirmed and penalties amounting to Rs. 8,84,16,660/- and Rs. 14,13,208/- have also been imposed.

2. By written synopsis dated 24-3-2006, the Id. Advocate for the appellants has summarized his arguments as follows:

The imported Ascorbic Acid – FCC grade IV and TMBA were relabeled by the appellants.

A.1 The show cause notice (internal page 11, bottom page 318 of Vol.-II) reads as under:

It is noticed that Shri Lalit Modi in his statement dated 4-1-2001, categorically stated that Ascorbic Acid IP. and TMBA were not actually manufactured in their factory. He further stated that the company sold the said goods imported by them, as such without doing any processing, in the very same drums in which the raw materials were received, after replacing the outer labels….

A.2 The appellants had affixed a label on the drums of the Ascorbic Acid (bottom page 245 of Vol. II) to comply with the labeling requirements specified in Rule 96 of the Drugs and Cosmetics Rules, 1945 (pages 531-535 of Vol. III).

A.3 On the TMBA and Anilino compound also cleared from the factory, the appellants affixed their own labels similar to the one affixed on Ascorbic Acid.

The activity of relabelling amounts to manufacture in terms of EXIM policy.

B.1 Even if all the contentions of the department is assumed to be correct, no duty is payable since the activity of relabeling amounts to ‘manufacture’.

B.2 The EOU scheme is integrally connected to the EXIM Policy framed by the DGFT, Ministry of Commerce. In fact, customs and excise provisions are made to implement the scheme made out in EXIM Policy. Therefore, definition of ‘manufacture’ as contained in the Exim Policy-1997-02, is useful which is extracted below for ready reference:

3.31 “Manufacture” means to make, produce, fabricate, assemble process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes, such as refrigeration, repacking, polishing, labeling and segregation. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture poultry, sericulture, viticulture and mining.

B.3 From the above definition of ‘manufacture’ as contained in the policy, it will be seen that process of labeling per se also amounts to manufacture. The use of the expression “such as” is also significant. There is mandate to treat process of labeling as manufacture. In the context, labeling would include relabeling also. After all, relabeling is nothing but labeling once again.

B.4 Therefore, in terms of EXIM Policy, the activity of relabeling amounts to manufacture.

B.5 The concept of “manufacture” for an EOU has to be liberally construed. The CBEC in its Circular No. 314/3/97-CX dated 6-5-1997 held that galvanization amounts to manufacture as far as EOU is concerned even though it may not amount to manufacture to non-EOU units.

B.6 Once it is established that the process involved amounts to ‘manufacture’, then the condition made under Notification No. 53/97-Cus. stands satisfied and benefit of the exemption under Notification No. 53/97-Cus. is admissible. This is because definition of manufacture given in Section 2(f) of Central Excise Act is not relevant for the purposes of para 7 of Customs Notification No. 53/97. In fact, customs notification refers to Import and Export policy only:

The imported Ascorbic Acid – FCC grade IV and 345 TMBA were repacked by the appellants.

C.1 The details of packing adopted by the exporter while selling the Ascorbic Acid – FCC grade IV and that by the appellants while clearing the Ascorbic Acid – IP grade are as follows:

  

Packing material used by the Chinese exporter for Ascorbic Acid FCC grade IV
 Bags                    : HM/HD (WHITE) INNER & OUTER
Size                    : 26" X 40"
Thickness               : 0.2 mm
Weight                  : 41.5 gram
Fibre Drum              : 14" x 16"
Fibre Drum              : Plain paper
Seal                    : Wire seal only
 

Packing material used by the appellants for Ascorbic Acid IP, BP, USP
  Bags                    : LDPE - natural white (inner) & black (outer)
Size                    : 26" x 42"
Thickness               : 0.25 mm
Weight                  : 90 gram
Fibre Drum              : 14" x 18" or 16" x 20"
Fibre Drum              : Outside varnished with paper pasted on to and
                          bottom
HDPE Drum               : 14.5" x 22.5"
Seal                    : Wire seal with Tonira's logo on lead seal
 

C.2 Even otherwise, page 474, - 492 of Vol. Ill are copies of packing lists accompanying the imported Ascorbic Acid. Bottom pages 247 - 248 of Vol. III are invoice for purchase of packing material showing size of fibre drum which is used for packing of finished product.
 

C.3 The appellants had produced 12 photographs numbered from A to K before the Hon'ble CESTAT, to highlight the difference between the import packing and the export packing.

C.4 Batch No. 64 of Ascorbic Acid was in process when the department visited the factory on 4-1-2001. Page No. 434 of Vol. Ill is a document giving details of drums containing lying in packing department for the purpose of final packing. The panchas have signed this document. In other words, there is contemporaneous evidence to show that at least packing was indeed on the imported Ascorbic Acid – FCC grade IV.

C.5 From the above, it would be clear that the imported Ascorbic Acid was at least repacked in drums of sizes which were different from the import drums and such drums were labeled.

D.1 The Bills of Lading for import of TMBA would reveal the cubic metres of the packing adopted by the supplier while selling the 345 TMBA to the appellants.

 S. No.        B/E           Qty      No. of     Total     Total Cubic
                            (Kg.)    drums      Cubic     Metre for
                                                Metre     200 drums
1.   6564 dated 17-7-2000   7000      280        15.40       11
2.   6842 dated 9-8-2000    7000      280        15.40       11
3.   7191 dated 11-9-2000  10000      400        22.00       11
 

D.2 The details of packing in which the 345 TMBA (bromo free) cleared from the factory shows that cubic metre for 200 drums for sales would be 16.48 m3 and 28.61 m3. Similarly, for Anilino compound, cubic metre of 200 drums for sale would be 25.43 m3 and 28.61 m3.
 

D.3 From the above, it would be clear that 345 TMBA (bromo free) and the Anilino compound were at least were repacked in drums of sizes which were different from the import drums.
 

The activity of repacking amounts to manufacture in terms of EXIM Policy.

E. The submission made in B. 1 to B. 6 supra would apply mutatis mutandis to packing also. Once it is established that the process involved amounts to ‘manufacture’ then the condition made under Notification No. 53/97-Cus. stands satisfied and benefit of the exemption under Notification No. 53/97-Cus. is admissible.

The activity of relabelling amounts to manufacture in terms of Note 11 to Chapter 29.

F.1 Chapter Note 11 to Chapter 29 of Central Excise Tariff is extracted below:

11. In relation to the products of this Chapter, labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

F.2 From the perusal of Chapter Note 11 to Chapter 29 of the Central Excise Tariff, it is apparent that even the activity of relabelling of the containers amount, to ‘manufacture’.

F.3 The judgment of Supreme Court in CCE v. Johnson & Johnson 2005 (188) E.L.T. 467 (S.C.) cannot be taken advantage by the Revenue, since the Revenue is bound by CBEC Circular No. 576/13/2001-CX dated 16-5-2001 in the context of Note 5 to Chapter 30 holding that the Revenue is bound by this Circular and the Revenue is barred from arguing contrary to the Circular.

Life of the imported Ascorbic Acid is 24 month whereas the life of Ascorbic Acid cleared from the factory is 48 months. This is sufficient to prove that some processing was indeed carried out by the appellants.

G.1 The appellants imported Ascorbic Acid – FCC grade IV having life of 24 months. Page 496 – Vol. III is an illustrative test certificate issued by the Chinese exporter for Ascorbic Acid – FCC grade IV. The certificate enlists a table. Just before the table, the following expression appears: “Test date : July, 2001 Expiration date: July 2003”. Further, at the bottom of the certificate, the following expression appears : “Mfg. Dt. July, 2001; Expiry dt: July 2003”.

G.2 Undisputedly, the appellants have sold IP grade of Ascorbic Acid. Pages 438-439 of Vol.-III is illustrative copy of purchase order placed by major customer namely M/s. Natural Products, Baroda. The Purchase order mentions that the Ascorbic Acid should be IP grade.

G.3 Schedule “P” to Drugs and Cosmetics Act, 1940 stipulates the life period of drugs. Serial No. 18 (at page 573 of Vol. III) states that life of Vitamin C should be 48 months.

G.4 In other words, the Ascorbic Acid sold by the appellants had life of 48 months.

G.5 Some processing was indeed done on the imported Ascorbic Acid. Otherwise, there was no way in which the life of the drug could increase automatically. This documentary evidence will override any oral evidence. Such processing is detailed in appeal memorandum (refer para A. 1) and such process amounts to manufacture for an EOU.

G.6 The increase in life was primarily due to reduction of oxalic acid content from the imported food grade Ascorbic acid. Such reduction occurs by using chelating agent such EDTA. Refer note by Dr. Arvind A. Natu at pages 405-407 of Vol III. IP grade of Ascorbic Acid requires not more than (NMT, for short) 0.3% of Oxalic acid. Refer bottom, page 271 – Vol. II for the relevant IP grade. The Choksi Lab report (at bottom page 108 – Vol. I) states that FG-1 samples has complied meaning thereby that the sample contains NMT 0.3% oxalic acid. The Choksi Lab report (at bottom page 110 – Vol. I) states that RM-1 sample does not comply meaning that the sample has more than 0.3% of oxalic acid. The working sheets of the Choksi Lab report for RM-1 sample (at page 469 of Vol. III) state that oxalic acid is more than 0.4%

H.1 Apart from the regular procurement certificates and warehousing certificates issued by jurisdictional Deputy Commissioner, a random sampling method was applied for Bill of Entry No. 100081 dated 2-11-2001 – Sr. No. XV of annexure B1 to show cause notice – and the matter was referred to the Assistant Drug Controller by the customs authorities. The Assistant Controller checked the endorsed on the Bill of Entry that the goods are Ascorbic Acid – FCC grade and may be released accordingly. Refer bottom page 203 (backside) – Vol-I.

H.2 The department cannot now turnaround and allege that the imported Ascorbic Acid was not FCC grade or that the life of the imported Ascorbic Acid was not 24 months.

H.3 It has been held in following judgments that Bill of Entry cannot be amended after the goods have gone out of the customs charge:

(a) Steel Authority of India Ltd. v. CC

(b) Food Corporation of India v. CC

Also refer to Section 149 of the Customs Act which prohibits amendment of Bill of Entry after the imported goods have been allowed to be cleared for home consumption.

Manufacturing process was indeed carried out on imported Ascorbic Acid – FCC grade IV and 345 TMBA.

1.1 The appellants rely upon ground set out in para A. 1 to A. 12 of the appeal memo wherein positive evidences have been set out in detail which conclusively prove that the appellants had indeed engaged itself in the manufacture of (i) Ascorbic acid – IP grade; and (ii) 345 TMBA (bromo free) and Anilino.

1.2 The appellants also rely upon FDA audits carried out from time to time. FDA audit reports for the period 1997 to 2002 have been attached as Annexure 54 at page 447 – 463 in Vol. III.

1.3 Hence the allegations of non-manufacture are baseless.

In the present case, rate of duty prevailing at the time of payment of duty is relevant in view of Section 15(1)(c). At the time of payment of duty, rate of Antidumping duty is nil in view of Section 9A(2A).

J.1 The imported raw materials were warehoused. Clause (a) of Section 15(1) of the Customs Act, 1962 is not applicable. Clause (b) of Section 15(1) is not applicable since it is very case of the department that goods have not been cleared from a warehouse under Section 68. Hence, the residuary clause namely Clause (c) of Section 15 (1) is applicable.

J.2 In the present case, the date of payment of duty will be the date of show cause notice or impugned order, being the date on which duty ought to be paid. Section 9A(2A) introduced on 11-5-2001 stipulated that antidumping duty is not leviable on goods imported by an EOU. In view of Section 15(1)(c) which alone is relevant to the present case, even for imports made prior to 11-5-2001, anti-dumping duty would not leviable in view of Section 9A(2A). Hence entire demand pertaining to Anti-Dumping Duty is not maintainable on this ground.

J.3 In any event, no anti-dumping duty is leviable on import made after 11-5-2001 in view of Section 9A(2A). Hence, demand of Rs. 3,10,48,402/- as anti-dumping duty on ascorbic acid is not payable.

In any case, no Anti-Dumping Duty is imposable post – 11-5-2001 in view of introduction of Sub-section (2A) in Section 9A of the Customs Tariff Act.

JA.1 Section 118 of the Finance Act, 2001 introduced Sub-section (2A) to Section 9A in Customs Tariff Act, 1975 which is reproduced below:

(2A) Notwithstanding anything contained in Sub-section (1) and Sub-section (2). A notification issued under Sub-section (1) or any anti-dumping duty imposed under Sub-section (2), unless specifically made applicable in such notification or such imposition, as the case may be, shall not apply to articles imported by a hundred per cent, export-oriented undertaking or a unit in a free trade zone or in a special economic zone.

Explanation. – For the purposes of this section, the expressions “hundred per cent. Export-oriented undertaking”, “free trade zone” and “special economic zone” shall have the meanings assigned to them in Explanation 2 to Sub-section (1) of Section 3 of the Central Excise Act, 1944 (1 of 1944).

JA.2 In view of the above, no Anti-dumping Duty is imposable for imports made after 11-5-2001. Anti-dumping Duty on imports of Ascorbic Acid -FCC Grade IV made after 11-5-2001 is Rs. 3,10,48,402. Hence the demand of Rs. 3,10,48,402 is not maintainable.

Value of levy of CVD and SAD will not include Anti-dumping Duty – Excess demand on this score alone is Rs, 1,07,06,787/-.

K.1 While calculating the assessable value of levy of CVD and SAD, the show cause notice has taken into account Anti-Dumping Duty also as part of the value. This is patently incorrect.

K.2 Anti-Dumping Duty is neither a duty of customs levied under Section 12 of the Customs Act, 1962 nor a duty levied under Section 3 of the Customs Tariff Act. Hence, Anti-Dumping Duty will not form part of Value for levy of SAD under Section 3A.

K.3 Section 3(2) of the Customs Tariff Act, 1975 relates to calculation of value or levy of Countervailing Duty (CVD) as it stood prior to 1-3-2002, reads as under:

(2) For the purpose of calculating under this section, the additional duty on any imported article, where such duty is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 (52 of 1962), be the aggregate of-

(i) the value of the imported article determined under Sub-section (1) of the said Section 14 or the tariff value of such article fixed under Sub-section (2) of that section, as the case may be; and

(ii) any duty of customs chargeable on that article under Section 12 of the Customs Act, 1962 (52 of 1962), and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs.

K.4 The said Section 3(2) as it stood amended by Finance Act, 2002 reads as under:

(2) For the purpose of calculating under this section, the additional duty on any imported articles, where such duty is leviable at any percentage of its value, the value of the imported articles shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 (52 of 1962), be the aggregate of-

(i) the value of the imported articles determined under Sub-section (1) of the said Section 14 or the tariff value of such article fixed under Sub-section (2) of that section, as the case may be; and

(a) the special additional duty referred to in Section 3A;

(b) the safeguard duty referred to in Sections 8B and 8C; the countervailing duty referred to in Section 9; the anti-dumping duty referred to in Section 9A; and

K.5 Relevant extract from the Budget circular of Finance Bill, 2002 – 2002 (49) RLT M95 at M1 12 is as below:

Miscellaneous

1. Doubts have been expressed about the method of computing the additional duty of customs (CVD) under Section 3 of the Customs Tariff Act, 1975. The doubt raised is on the point that whether anti-dumping duty, safeguard duty and other duties etc. should be taken into account while computing the CVD.

In this regard, it is clarified that for computing the CVD, only the value of the imported articles as determined under Section 14 of the Customs Act, 1962, including the landing charges, if any and the basic customs duty chargeable at the rates specified in the First Schedule to the said Customs Tariff Act (read with any notification for the time being in force in respect of the basic customs duty) needs to be taken into account. Other duties such as anti-dumping duty, safeguard duty, etc. should not be taken into account.

K.6 Budget circular of 2002, therefore expressly clarifies that while calculating the value for levy of CVD, Anti-dumping duty will not form part of the value.

K.7 Section 3A(2) of the Customs Tariff Act, 1975 as it stood prior to amendment by Finance Act, 2003 with effect from 1-3-2002 reads as under:

(2) For the purpose of calculating under this section special additional duty on any imported article, the value of the imported article shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 or Section 3 of this Act, be the aggregate of-

(i) the value of the imported article determined under Sub-section (1) of Section 14 of the Customs Act, 1962 (52 of 1962) or the tariff value of such article fixed under Sub-section (2) of that section, as the case may be;

(iii) additional duty of customs chargeable on that article under Section 3 of this Act.

K.8 Section 3A(2) as amended by Finance Act, 2003 reads as under:

(2) For the purpose of calculating under this section additional duty on any imported article, the value of the imported article shall, notwithstanding anything contained in Section 14 of the Customs Act, 1962 or Section 3 of this Act, be the aggregate of-

(a) the safeguard duty referred to in Section 8B and 8C;

(b) the countervailing duty referred to in Section 9;

(d) the special additional duty referred to in Sub-section (1);and

(iii) the additional duty of customs chargeable on that article under Section 3 of this Act.

K.9 Following is the relevant extract from the Budget Circular of Finance Bill, 2003 explaining the amendment in Section 3A [2003 (55) RLT M76 at M85]:

In the explanatory notes for the last year’s Budget it was clarified that for computing, the CVD, only the value of imported article as determined under Section 14 of the Customs Act, 1962, including the landing charges, if any and the basic customs duty chargeable at the rates specified in the First Schedule to the Customs Tariff Act (read with any notification for the time being in force in respect of the basic customs duty) needs to be taken into account. Other duties such as anti-dumping duty, safeguard duty, etc. should not be taken into account. A view has been expressed that Sections 3A of the Customs Tariff Act does not permit such interpretation. To place the matter beyond doubt, it is proposed to amend Section 3 and Section 3A of the Customs Tariff Act so as to make it very clear that for computation of additional duty of customs, only the c.i.f. price, landing charges, basic customs duty and the additional duty of customs, only the c.i.f. price, landing charges, basic customs duty and the additional duty of customs will be included. Similarly for determining special additional duty of customs (SAD), only the c.i.f. price, landing charges, basic customs duty and the additional duty of customs will be included. Other duties such as anti-dumping duty, safeguard duty, etc. shall not be taken into account. This amendment will effect from 1-3-2002.

K.10 The above Budget circular expressly clarifies that the amendment made in Finance Act, 2003 is purely clarificatory/declaratory/explanatory or otherwise obvious/applicable legal position. Hence, the amendment would apply for past period also right from 1998 when Section 3A was introduced. Therefore, Anti-dumping Duty cannot be part of the value for levy of SAD.

K.11 The above Budget circular expressly clarifies that the amendment made in Finance Act, 2003 is purely clarificatory/declaratory/explanatory or otherwise obvious/applicable legal position. Hence, the amendment would apply for past period also right from 1998 when Section 3A was introduced. Therefore, Anti-dumping duty cannot be part of the value for levy of SAD.

K.12 The unamended Section 3(2) has been extracted in para G. 3 supra. The unamended Section 3A(2) has been extracted in para G. 7 supra. The Sections are pari materia as far as present context is concerned. Therefore, the clarification in the Budget of 2002 vide para G. 5 supra that Antidumping duty will not form part of the value for levy of CVD has to only apply for calculation of value for levy of SAD as well.

K.13 Even otherwise, a plain construction of Section 3A(2) shows that Anti-dumping duty cannot be part of the value for levy of SAD.

K.14 Evidently anti-dumping duty is indeed a duty of customs since the taxable event is the importation. However, the charging Section for levy of anti-dumping duty is Section 9A. Anti-dumping duty is therefore levied under Section 9A of the Customs Tariff Act, 1975. It is not levied under Section 12 of the Customs Act, 1962. Therefore, though the antidumping duty is a duty of customs, it is not a duty of customs levied under Section 12. This also flows from the ratio of the judgment of the Supreme Court in Hyderabad Industires v. UOI wherein the Court declared that additional duty levied under Section 3 of the Customs Tariff Act, though a duty of customs, is not a duty levied under Section 12 of the Customs Act, 1962. The same principle equally applies to antidumping duty levied under Section 9A.

K.15 We may now examine unamended Section 3A(2)(ii) closely. For ease of reference the phrase “any duty of customs chargeable on that article under Section 12 of the Customs Act, 1962” appearing in Section 3A(2)(ii) can be referred to as to first leg of the Section. For ease of reference the phrase “any sum chargeable on that article under law for the time being in force as an addition to, and in the same manner as, a duty of customs” can be referred to as second leg of the Section.

K.16 Evidently, we are not concerned with the first leg since antidumping duty is not chargeable under Section 12. The second leg also would not take care of anti-dumping duty. The second leg will apply only when the sum is chargeable “as an addition to the duty of customs”. The expression “as an addition to” is most crucial Further, the requirement of second leg is that any sum chargeable should be in the same manner “as duty of customs”. In other words, two requirements have to be fulfilled for second leg to apply. The sum should be “as an addition to duty of customs” and should be in the same manner as the duty of customs. Anti-dumping duty is not chargeable as an addition to a duty of customs. “As an addition to duty of customs” is different from “in addition to a duty of customs”.

K.17 For example, if a duty is levied under Section 8A, that will be an increase in the import duty leviable under Section 12. That will be “as an addition to duty of Customs”. It would also be “chargeable in the same manner as a duty of customs”. In fact, since the duty under Section 8A is an addition to the duty leviable under Section 12, there is no sub-section in Section 8A borrowing provisions of the Customs Act on the line similar to Section 3(5) or Section 3A(4) or Section 8C(4) or Section 9A(8). Section 8A does not think it necessary to borrow the provision of Customs Act, 1962 for levy and collection of duty levied under Section 8A as the duty levied under Section 8A would be as an addition to the duty of customs.

K.18 Anti-Dumping Duty is not as an addition to the duty of customs. It is not as an addition to duty of customs. It is also chargeable in the same manner as a duty of customs. In fact, a separate and express provision in the form of Section 9A(8) was indeed necessary to borrow some of the machinery provisions of Customs Act, 1962. Therefore, anti-dumping duty is not covered by second leg of Section 3A(2)(ii).

K.19 It may be noted that though Section 3A is a new section introduced from 2-6-98, Section 3 has been there from 1975 onwards and Section 3(2)(ii) was similar to Section 3A(2)(ii). Ever since 1975, it was never suggested that Anti-Dumping Duty under Section 9A or Duty leviable under Section 9 should every form part of value for levy of CVD.

K.20 On this point, the Tribunal in Jayaswals Neco Ltd. v. CC has held against the appellants.

K.21 However, the following judgments are in favour of the assessee:

(a) Sneh Enterprises v. CC 2004 (178) E.L.T. 764 (T)

(b) Shivalaya Trading Corporation v. CC .

K.22 Commentary 3.1 by the Technical committee of Customs valuation (Customs Co-operation Council – CCC) is reproduced below:

1. Article VI of the General Agreement on Tariffs and Trade Defines dumping as the introduction of products of one country into the commerce of another country at less than the normal value of the products; it also provides that dumping is to be condemned and may be offset or prevented by anti-dumping duties if it causes or threatens material injury to an established industry in the territory of a Contracting Party or materially retards the establishment of a domestic industry.

2. According to the Preamble to the Valuation Agreement the Parties recognize “that valuation procedure should not be used to combat dumping.” Therefore, where the existence of dumping of any description is suspected or established, the correct procedure for combating it is by means of the anti-dumping rules in effect in the country of importation as they may be applicable. There can thus be no question of:

(a) rejecting the transaction value as a basis for valuing the dumped goods, unless one of the condition laid down in Article 1.1 is not fulfilled:

(b) adding to the transactions value an amount to take account of the margin of dumping.

3. It follows from the above that the treatment to be applied for the valuation of dumped goods is the same as that applied to goods imported at a price below prevailing market prices for identical goods.

K.23 It is clear from above that for the purposes of Basic Custom Duty, the import price is to be taken even though it is a dumped price and thus below the prevailing market price. Thus, where for the purpose of Basic Custom Duty a dumped price can be a transaction value, there is no reason to suggest that for levy of; CVD, dumped Import price should not be relevant but only the aggregate of dumped price plus Anti-Dumping Duty is relevant. Hence it is submitted that the fulcrum of Jayaswals Neco’s case supra is not accurate on this point.

K.24 In view of the above, the demand of CVD and SAD on Anti-Dumping Duty which is equal to Rs. 94,67,767 + Rs. 12,39,020 = Rs. 1,07,06,787 is not maintainable.

Demand of Anti-dumping Duty on Ascorbic Acid is bad in law since the demand is based on temporary statute namely Notification No. 104/2000-Cus. dated 21-7-2000 which has expired without any saving clause.

L.1 By the impugned order issued on 18-2-2005, anti-dumping Duty has been demanded on the import of 1,48,000 Kg. of Ascorbic Acid imported during the period July 2000 to November 2001.

L.2 Ascorbic Acid is a category of Vitamin-C used in food preparations as food additives. Following are the relevant dates and events in respect of import of Ascorbic acid:

 Date                                        Event
21-7-2000    Notification No. 104/2000-Cus. dated 21-7-2000 was
             introduced imposing Anti-dumping Duty on Vitamin C,
             falling under CSH 2936.27 originating from China and
             Japan. The said notification was effective up to and
             inclusive of the 15th day of April, 2003.
15-4-2003    Notification No. 104/2000-Cus. dated 21-7-2000 expired.
24-10-2003   Notification No. 159/2003-Cus dated 24-10-2003 was issued
             imposing definitive anti-dumping duty on all imports of 
             Vitamin C, originating from China.
18-2-2005    Impugned order dated 18-2-2005 issued by the Commissioner
             of Central Excise, Surat-II

L.3 Section 9A(1) of the Customs Tariff Act, 1975 empowers the Central Government for imposition of Anti-dumping Duty on any article exported from any country or territory to India by notification in the Official Gazette. The Anti-dumping Duty in the present case has been levied on Ascorbic Acid imported from china vide Notification No. 104/2000-Cus., dated 21-7-2000. The said notification imposing levy on the appellants is legislative in nature and not administrative or quasi-judicial decision.

L.4 The said Notification levying Anti-dumping Duty expires of its own i.e., on 15-4-2003 and it is not repealed. Section 6 of the General Clauses Act would not apply to such statutes, which expire of its own. Further, the aforesaid notification does not have saving clause of its own. Therefore, the impugned order dated 18-2-2005 confirming the demand of anti-dumping duty from the applicants, after the expiry of the aforesaid notification No. 104/2000-Cus. on 15-4-2003 is null and void and is unsustainable.

L.5 It is well settled that when a temporary statute expires, Section 6 of the General Clauses Act, 1897, which in terms is limited to repeals, has no application.

L.6 In S. Krishnan v. State of Madras , the petitioners were detained in pursuance or orders for detention made under Section 3(1)(a)(ii) of the Preventive Detention Act, 1950. This 1950-Act was to expire on 31-3-1952. The maximum period of detention the 1950-Act was one year. On 22-2-1951, while they were still under detention, the Preventive Detention (Amendment) Act, 1951 came into force. This 1951-Act, inter alia, continued the operation of the 1950 – Act until 31-3-1952. The Supreme Court dismissed the challenge of the petitioners and upheld the validity of the 1951-Act under Article 22(4)(b). While upholding the validity under Article 22(4)(b), the Supreme Court held that although the 1951-Act does not expressly provide for a period for which any person may be detained [which is a pre-requisite for Article 22(4)(b)], it fixes, by extending the duration of the 1950-Act, till 31-3-1952, an overall time limit beyond which preventive detention cannot be continued. The Supreme Court held that detention under the temporary statute after the expiry is illegal. The relevant portion of the judgment is reproduced below:

…The general rule in regard to a temporary statute is that, in the absence of special provision to the contrary, proceeding which are being taken against a person under it will ipso facto terminate as soon as the statute expires (Craies on Statutes, 4th Edn., p. 347). Preventive detention which would but for the Act authorizing it, be a continuing wrong, cannot, therefore, be continued beyond the expiry of the Act itself

L.7 The following portion of the judgment by the Constitutional Bench in Kolhapur Canesugar Works Ltd. v. Union of India is also relevant:

29. In the case of S. Krishnan v. State of Madras this Court held that the general rule in regard to a temporary statute is that in the absence of special provision to the contrary, proceedings which are being taken against a person under it will ipso facto terminate as soon as the statute expires….

35. …If the case is covered by Section 6 of the General Clauses Act or there is a pari material provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provision in the statute or in the rule the pending proceedings would lapse on the rule under which the notice was issued or proceeding was initiated being deleted/omitted. It is relevant to note here that in the present case the question of divesting the Revenue of a vested right does not arise since no order directing refund of the amount had been passed on the date when Rule 10 was omitted.

…

38. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1). If a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position.

L.8 The decision of Supreme Court in State of Orissa v. Titaghur Paper Mills 1985 (supp) SCC 280 cited by the DR in the synopsis is not relevant. Firstly, the notifications considered in Titaghur Paper’s case were not notification having in-built date of expiry. Secondly, the notifications were not the self-contained code levying taxes. The notifications in that case were merely specifying the rate as stipulated by the main charging Section 5 of the Orissa Sales Tax Act. Suppose, the rate of Sales tax is mentioned in Section 5 itself and the rate is being amended from time to time. In such a situation, the assessee could not have contended that once the rate of tax is amended in the Section 5, taxes remaining unpaid for the period prior to the amendment cannot be levied and collected after the amendment. The Supreme Court held that the position was no different where the rate of tax is specified under a notification. Also, Section 5 of the Orissa Sales Tax Act itself referred to the rate as specified by notification issued from time to time.

L.9 Though Anti-Dumping Notification No. 104/2000-Cus. is issued under Section 9A(1), it is a notification which itself levies and imposed Anti-Dumping Duty and is thus self-contained/self operating code. Once such notification has an in-built expiry date with no saving clause and it expires by the efflux of time specified in the notification, it is as if the notification has never been issued except in respect of things passed and closed. Pending proceedings seeking to impose duty based on such Notification would automatically die. So also, no fresh proceedings can be initiated for imposing duty pursuant to that expiry notification. The true principle in this regard is already set out in para L. 6 supra. Section 159 A is not applicable for various reasons.

L.A.1 Section 159A is pari materia to Section 6 of the General Clauses Act, 1897. For the reasons submitted supra, Section 159A is also not applicable to the present case. – Even otherwise, Section 159A is applicable when any rule, regulations, notifications or order is amended, repealed, superseded or rescinded. It is not applicable to cases where any rule, regulations, notifications or order expire of its own.

L.A.2 Without prejudice to above and in any case, Section 159A would not apply to Anti-Dumping Duty levied by notification issued under Section 9A(1) of the Customs Tariff Act, 1975. Section 159A applies to any rule, regulations, notifications or order made or issued under the Customs Act.

L.A.3 Also, Section 9A(8) borrows only certain provisions of Customs Act, 1962 namely, provisions relating to short levy, non-levy, dare of determination of duty, refunds, appeals, offences, penalties and interest, Section 159A is not a provision relating to any of them. Hence, Section 159A is not relevant to save action after Notification No. 104/2000-Cus. has expired.

Ghaziabad Laboratory test report is not reliable. Cross-examination of Chief Chemist was not granted. Choksi Laboratory report totally ignored by Commissioner. Considering irrelevant evidence and ignoring relevant evidence vitiates the whole order.

M1. Test reports by CIPL, Ghaziabad (bottom page 1919 & 192 Vol. I) are not reliable for following reasons:

(a) Procedure prescribed under Schedule “U” to Drugs and Cosmetics (Control) Act, 1940 (bottom page 116-121 Vol. I) for testing raw material has not been followed.

(b) Although it is drug for human consumption, the samples were not tested for shelf-life.

(d) As regards levels of a very significant ingredient namely oxalic acid, the reports merely states “passes” which has no meaning. The test reports must specify as the actual levels vis-a-vis the IP standard.

(e) It does not specify the condition in which the sample was received by the laboratory. No test report is valid if this condition is not satisfied

M.2 The appellants had specifically requested for cross-examination of Mr. Santosh Talwar, Chief Chemist, CIPL, Ghaziabad, Refer bottom page 102 of Vol. I where in request for cross-examination was made. This cross-examination request has been denied.

M.3 The assay of FG-1 sample had substantially increased when compared with the assay of the sample RM-1. This itself shows that certain processing was carried out.

M.4 On the other hand, the test reports of FDA approved lab namely M/s. Choksi Laboratory (at bottom pages 107-111 of Vol. I) clearly state that the samples were received in sealed condition and that the test have been carried out as per IP standard. The test reports also state the standard levels of various ingredients and the actual levels of those ingredients in the samples. Apart from other ingredients and the actual levels of those ingredients in the samples. Apart from other ingredients, the appellants rely on the content levels of oxalic acid in the RG-1 sample vis-a-vis FG-1 sample. The oxalic acid contents in the RG-1 sample is not as per IP grade whereas oxalic acid levels in the FG-1 sample confirms the IP grade.

M.5 The impugned order relies upon irrelevant evidence viz., the CIPL, Ghaziabad test reports and totally ignores relevant evidence viz., the Choksi Lab report. Such an order is vitiated and hence liable to be set aside on this ground itself because it is well settled that where a fact finding authority acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of that authority was affected by the irrelevant material used by it in arriving at its finding. It was the duty of the fact finding authority to consider each and every material, whether for or against the assessee. Having failed in discharging this primary duty, the order is liable to be set aside. Refer:

(a) Omar Salay v. CIT 1952 (37) ITR 151 (SC)

(b) Dhirajlal Girdharilal v. CIT . Retracted statements cannot be relied upon.

N.1 The statements of following persons have been retracted by filing contemporaneous affidavits:

(a) Mr. S.K. Shah – Factory Manager;

(b) Mr. M.J. Patel – Works Manager;

(d) Mr. Shailesh Shah – Plant Incharge;

(e) Mr. Lalit Modi – Production Executive.

N.2 The affidavits retracting the statements have been sent by courier to (i) DGCEI, Vapi, (ii) DGCEI, Ahmedabad, and (iii) CCE, Surat, courier notes relating to all three consignments were produced before the Commissioner as well as before CESTAT. The authenticity of such courier notes has not been disputed by the ld. Commissioner and hence the authenticity of such courier notes is beyond any doubt.

N.3 The ld. Commissioner in the order has held that “it is gathered that no such affidavits have been received by DGCEI, Vapi or Ahmedabad”. Such a finding of the Id. Commissioner is perverse. Firstly, the appellants have produced courier notes evidencing a prima facie view that the retraction affidavits have been sent. The burden was on the department to prove that they have not been received. Mere so-called gathering of information without anything concrete on record is nothing but hearsay evidence. It is well settled that hearsay evidence are not standing in law. Secondly, even if it is assumed that DGCEI has not received the retraction affidavits, still it would not make any difference in law. The Commissioner has not disputed the receipt of such retraction affidavits by his office. Receipt by his office was sufficient for the purpose.

N.4 Hence the Commissioner’s reliance on retracted statements has vitiated the impugned order and therefore the impugned order is liable to be set aside.

Statement of various employees explained.

Statement dated 4-1-2001 of Mr. R.V. Singh – Stores officer.

O.1 Mr. R.V. Singh is not concerned with maintenance of Batch Manufacturing Record. An illustrative copy of BMR is at page 526-528 of Vol. III. Mr. Singh has not signed the BMR. Only his name is mentioned on BMR by the Production Executive.

O.2 The actual procedure being follower is as follows. The QA Chemist is the officer who is nominated under the FDA rules to issue, keep and maintain the BMRS. The QA Chemist issues blank BMR which is the first step for starting any batch. On the BMR, the QA chemist mentions the batch size and the quantity of various raw materials required for manufacturing that batch. Thereafter the Production Executive along with the Shift Chemist go to the stores along with the BMR. The Production Executive prepares the Raw material Issue Slip based on BMR and handover such Slip to the Stores Officer. The Stores Officer issues the raw material mentioned in the Slip to the Production Executive and signs the Slip. Such Slip is retained by the Stores Officer for his accounting purpose. The Production Executive does not give the BMR to the Stores Officer at all. The Production Executive mentions the name of the Stores Officer who issued the Raw Material. The Production Executive hands over the Raw Material to the Shift Chemist. After the batch is completely manufactured, the completed BMR is again handed over to the QA Chemist for future reference. Such BMRs stored in custody of QA Chemist are regularly audited by the FDA authorities.

O.3 The above procedure being followed in actual practice explains lot of statements.

O.4 In view of the above procedure, it is clear that Mr. Singh is not required to sign the BMR. The name of the Stores Officer appears on the BMR since the Production Executive mentions his name on the BMR. The BMR has got no connection with the Stores Officer. Therefore, Mr. Singh has stated that he is not aware as to how his name appears on the BMR. Mr. Singh has also stated that he has issued Raw Material based on Raw Material Issue Slip.

O.5 In fact, the statement of Mr. R.V. Singh is in favour of the appellants and sufficient to destroy the case of the department. It is clear from the statement of Mr. Singh that various Raw Materials have been issued by him. This totally disproves the statement dated 4-1-2001 of Lalit Modi that the imported goods were sold in the same drums without doing any processing after merely replacing the outer labels, is grossly incorrect and patently contrary to record. If there was no process carried out on imported Raw Material and that the imported drums were cleared as such from the factory, where was the need for Mr. R.V. Singh to issue various Raw materials required for manufacturing a batch?

Statement dated 4-1-2001 of Mr. Lalit Modi – Production Executive.

P.1 The Statement of Mr. Lalit Modi is contradictory and hence not reliable. On one hand, he states that merely labels are affixed on the imported drums. On the other hand, he states that the raw materials are repacked and thereafter labels are affixed.

P.2 The documentary evidence conclusively prove that there was an increase in life from 24 months to 48 months. Such increase in shelf life cannot be automatic and without any processing. Hence, the statement that no processing was carried is incorrect and contrary to documentary evidence.

P.3 Daily Shift Register is not intended to record the charging of raw materials. Daily Shift Register (refer page 509-518 & 519-524 of Vol. III) is not intended to record charging of raw material. It is a document merely to record the state in which the various processes were when one Shift chemist hands over the charge to the successor Shift chemist. If the process is complete before the handover takes place then there would not be any noting on DSR. Besides, DSR is relevant for multi-stage product like Athnolol, famatodine, Benzbromarone, etc. and not relevant for single stage product like Ascorbic Acid – IP or TMBA. Hence DSR is not at all relevant to conclude as to whether any manufacturing was carried out or not.

P.4 The actual document which records the manufacturing process is the Batch Manufacturing Record (BMR, for short). Refer page 526-528 of Vol. Ill for an illustrative BMR. This fact has been confirmed by statement of Mr. M.J. Patel, Works Manager who stated that BMR is used for recording production.

Statement dated 4-1-2001 of Mr. C.M. Pandya – Production Manager.

Q.1 The statement of Mr. Pandya that Daily shift Register records charging the Raw Material is factually incorrect. Even for products where no demand has been raised and which have been undisputedly manufactured, the DSR does not record the charging of raw material. As explained in para H. 3 & H. 4 supra, DSR does not record charging of Raw Materials.

Q.2 In view of the above, the subsequent portion of the statement that “batch process records of all products are fabricated” is also incorrect. There is no connection between Batch Manufacturing Record and Daily Shift Register. Therefore, finding the charging entry in DSR is out of question.

Q.3 Besides, any statement cannot be read in isolation. As per Mr. Pandya, the batch manufacturing records were fabricated meaning there by that actual processing details mentioned in the batch manufacturing record were altered so as to meet the ideal processing parameters set before the start of the manufacturing process. If the ideal processing parameters were not met, then the FDA audit would take adverse view. Suppose a particular process should take 2 hour to complete under given circumstances and suppose the process actually took 2 hours and 30 minutes to complete. What Mr. Pandya meant by fabrication was that, the batch manufacturing record, in the said example, would show 2 hours only despite the actual being 2 hours and 30 minutes. To infer from this statement that no manufacturing process was carried, would be travesty of justice. The revenue should have asked specific question as to whether any processing was carried out or not on the imported Ascorbic Acid and TMBA instead of interpreting statements and inferring wild conclusions.

Statement dated 5-1-2001 of Mr. M.J. Patel – Works Manager.

R.1 First of all, Mr. M.J. Patel’s statement that Daily Shift Register records reaction done on the Raw Material is factually incorrect. Even for product where no demand has been raised and which have been undisputedly manufactured, the DSR does not record the reaction done on raw materials. As explained in para H.3 & H.4 supra, DSR does not record charging of Raw Materials or reactions undergone by the raw material.

R.2 Further, when Mr. M.J. Patel stated that there is no record to prove manufacturing has been carried out, is incorrect since Batch Manufacturing Record (BMR) proves that manufacturing was indeed carried out. BMR lists the operations carried out on the raw materials to obtain Ascorbic Acid – IP and TMBA (bromine free) and Anilino compound. In the face of such a document, the statement does not reflect the true state of affairs. The appellants have obtained production register showing production with date from the records seized by the department.

Statement dated 26-12-2001 & 3-5-2002 of Mr. J.M. Patel – QA Chemist.

S.1 Ascorbic Acid – IP is a single process product i.e., there is no intermediate product emerging in between. Hence, there is no question of testing Ascorbic Acid while in process. Therefore, Mr. J.M. Patel stated in his statement dated 26-12-2001 that he has not tested Ascorbic Acid while in process.

S.2 On receipt of the raw material, the appellants take a sample and test it. Thereafter a Goods Receipt Note (GRN, for short) is prepared and this GRN give reference to the sample test. Refer GRN No. 231 dated 22-7-2000 at page 541 of Vol. III for receipt of 7000 Kg. of TMBA. This GRN refers to test sample certificate No. RM/QA/231/2000-01 dated 25-7-2000. Page 543 of Vol. III is copy of test sample certificate No. RM/QA/231/2000-01 dated 25-7-2000. This certificate, at Sr. No. 5, states that it contains bromo compound.

S.3 The manufacture of TMBA itself contains bromine compound. This bromine compound must be removed to manufacture final drug “Trimethoprim”. It is also strictly prohibited as per pharmacopoeial specification. The entire quantity of imported TMBA was sold to manufacturers of Trimethoprim drug.

S.4 Hence the input TMBA was subjected to de-bromination process. Hence the statement of Mr. J.M. Patel is not correct and contrary to documentary evidence.

Statement dated 3-10-2002 of Mr. Sanjay N. Shah – Shift Chemist.

T.1 The statement of Mr. Sanjay N. Shah (page 418-419 of Vol. III) is most relevant because a shift chemist is a person who is most appropriate person. Shift Chemist is a person actually present when manufacture takes place and who is responsible for product manufactured in each shift. Mr. Sanjay Shah has stated that Ascorbic Acid – IP grade was manufactured by the appellants.

T.2 Mr. Sanjay N. Shah has not stated that he has not tested Ascorbic Acid as alleged in the show cause notice. He merely stated that he is not aware about the tests carried out in the laboratory by QA chemist. Since he is not concerned about the activities carried out in the testing laboratory, Mr. Sanjay Shah has correctly stated that he is not aware about the tests carried out in the laboratory. Nothing against the appellants can be inferred from this statement.

No penalty on demand pertaining Anti-dumping Duty.

U. At the material time, Section 9A(8) did not borrow provisions relating to confiscation and penalty. Hence penalty on Anti-dumping Duty is not imposable. Refer:

(a) Supreme Woollen Mills v. CC

(b) IK International v. CC

(d) Nagarjuna Enterprises v. CC

(e) Bajaj Health & Nutrition v. CC 2004 (166) E.L.T. 189 (T) Quantification of demand incorrect.

V.1 The appellants had paid the duty amount of Rs. 15,82,296/- under Notification No. 2/95-C.E. on TMBA intermediate in respect of the goods cleared in DTA. The aforesaid duty amount already paid by the appellants needs to be abated from the total duty demand. The appellants have enclosed copies of PLA showing the payment of duty amount of Rs. 15,82,968 as Annexure-38, bottom page 36-45 of Vol. I.

V.2 The appellants have paid duty amounting to Rs. 1,05,97,114 in terms of Notification No. 2/95-C.E. on Ascorbic ACID IP grade cleared in DTA. The aforesaid amount of duty already paid by the Appellants is to be abated from the total duty demand. The details of duty paid by the applicants in terms of notification No. 2/95 along with documentary evidence showing payment of duty are enclosed as Annexure-33, bottom page 57-90 of Vol. I.

No duty demand in respect of the material imported subsequent to the initiation of investigation.

V.3 The appellants processed about 30 MT of Ascorbic Acid – FCC grade IV up to time of visit of the Central Excise Officer in their factory (January, 2001). Rest of the material (about 118 MTs) has been imported and used subsequent to the investigations initiated by the department as is evident from the copies of B/E’s itself. It is astonishing to note that the department has presumed ‘no manufacture’ even in respect of the goods imported subsequent to the investigations. Statements made by the functionaries in the unit of the appellants about the ‘no manufacture’ of ascorbic acid may be relevant for the past clearances but cannot be made statements. The appellants had imported one consignment of 3,4,5 TMBA and nine consignments of ascorbic acid after the visit of the central excise officers in their factory. Details of such imported materials were furnished by the appellants vide letter dated 19-9-2002 to the DGCEI (Annexure-34, bottom page 55-56 of Vol. I) i.e., much later than the visit of the central excise officers in the factory. In the show cause notice no duty was demanded in respect of one consignment of TMBA imported after the visit of the central excise officers but duty demand has been made in respect of the nine consignments of ascorbic acid. This shows the apparent contradiction in the stand of the Revenue.

No duty demand on Ascorbic Acid – IP grads exported outside India.

V.4 No demand of duty should be made on 3700 Kg. of Ascorbic Acid exported through merchant-exporter.

No duty demand on Anilino compound.

V.5 No demand can be raised on the quantity of 345 TMBA imported which has been converted into Anilino compound since there can be no dispute such Anilino compound is result of manufacture.

Entire demands barred by limitation.

W. All the activities were in the notice of the department. It was in the notice of the department that the Appellants are 100% EOU. Department itself has issued the licence as a private bonded warehouse as well as permission for undertaking manufacturing operations in the year 1999 itself. Appellants were paying the cost recovery charges for supervision of their activities by the department. From the perusal of permission granted by the department as well as the legal provisions contained under Chapter X of the Customs Act, it will be seen that all the activities right from setting up, procurement of the materials, processing, dispatches, etc. are undertaken in the direct and active supervision of the department. Every time the goods are to be imported, procurement certificates are issued by the department. On importation, into-bond bills of entry are filed with the department. Entire process of manufacture was duly submitted to the department. Since the entire activities were within the notice of the department, therefore, charge of any fraud or misrepresentation or suppression, is totally baseless. Needless to say that in order to invoke the extended period either under the Customs Act or under the Excise act, it is must that charge of suppression coupled with intention to evade payment of duty should be established. In view of this, entire demand amount, whether pertaining to customs or excise, is time-barred and, therefore, liable to be dropped forthwith on this ground itself.

No penalty imposable under the Customs Act.

X.1 Penalty under Section 114A of the Customs Act can be imposed only when the demand is confirmed under proviso to Section 28 of the Customs Act. Appellants crave leave to refer to and rely upon the submissions made in the foregoing para relating to demand of customs duties. It has been submitted that no duty demand can be made under proviso to Section 28 of the Customs Act in view of the factual and legal background of the case. Accordingly, no penalty under Section 114A of the Customs Act is imposable. Therefore, the imposition of penalty under Section 114A of the Act is liable to be set aside.

X.2 Penalty on an EOU is not imposable for one more reason. In terms of the Bond executed by the EOU, it undertakes to be liable to pay duty and interest in case the imported materials are not used for the intended purpose. Notification No. 53/97 also provides that the unit shall be liable to pay duty in case the materials are not used for intended purposes. Therefore, in the case of EOU only duty demand can be made even if the materials are not used for intended purpose. No Penalty under the Central Excise Act.

Y.1 It is submitted that penalty under Section 11AC can be imposed only when there is a demand determined under proviso to Section 11A of the Central Excise Act. It has been submitted in detail that no excise duty is payable by the Appellants. Accordingly, no penalty under Section 11 AC or Rule 25 of the Central Excise Rules, 2001 is imposable.

Y.2 Penalty on an EOU is not imposable for one more reason. In terms of the Bond executed by the EOU, it undertakes to be liable to pay duty and interest in case the imported materials are not used for the intended purpose. Notification No. 1/95-C.E. also provided that the unit shall be liable to pay duty in case the material are not used for intended purposes. Therefore, in the case of EOU only duty demand can be made even if the materials are not used for intended purpose.

3. The ld. SDR appearing on behalf of the department supports the order of the original authority. He has also submitted a synopsis dated 9-3-2006 of his arguments which is as under:

1. The case of the Department in brief is that Tonira Pharma a 100% EOU imported Ascorbic Acid, LP Grade and 3, 4, 5 TriMethoxy Benzaldehyde (TMBA) from China, free of customs duty under Notfn No. 53/97-Cus. dtd. 3-6-1997. These goods were not used for the manufacture of any final products but were sold in DTA as such. Therefore customs duty is liable to be recovered. Further, it was noticed that the said goods were imported from China and therefore attract Anti-Dumping duty under provision of Notfn No. 5/94-Cus. as amended.

2. The following evidences would buttress the department’s case-

(A) During the search of the Factory on 4th and 5th January, 2001, it was found that Tonira is purportedly importing Ascorbic Acid FCC grade and after supposedly multi-step processing clearing the same as Ascorbic Acid IP. in DTA, but no entries for the said production of the Final Product were shown in the Daily Shift Report Register. (Panchnama Pg. 505). No TBMA was available in the Factory.

(B) The samples marked Ascorbic Acid FCC Grade (INPUT) & Ascorbic Acid IP (Final Product) were got tested from Central Indian Pharmacopoeia Laboratory, (CIPL) Ghaziabad. The CIPL vide Test Reports dated 29-11-2001 reported that both Ascorbic Acid FCC Grade (Raw Material) as well as Ascorbic Acid IP (Final Product) -“conforms to the Requirement of IP” (Pages 191 and 192 bottom numbering). Since both the samples Raw material and Final Products, conforms to IP. Grade, it is confirmed that no processing was done and same IP Grade Ascorbic Acid was imported and cleared to DTA.

(C) APPELLANTS CONTENTIONS regarding the cited reports of Private Laboratory of M/s. Choksi Laboratories Ltd. (at Pg 106 to 110 bottom Numbers) and incompetency of CIPL, Ghaziabad to conduct such test is untenable because of following reasons-

(I) Samples were drawn on 4-1-2001. CIPL Lab Test Reports are dated 29-11-01. CIPLL Test Reports were on of Relied upon documents in Annexure to the SCN dtd. 26-8-2003 (See pg 53 of Appeal Memo Book). However, the CHOKSHI LAB’S REPORTS are dtd. 29-3-2004. Therefore, the Chokshi Lab Report is more than 6 months after the issuance of SCN, when the appellants were aware of the contents of CIPL Test Reports.

(II) It has been admitted that at no point of time the appellant has requested for RETEST as envisaged under Rule 56(4) of Central Excise Rules, 1944 or Section 17 of Customs Act, 1962. When NO RETEST is requested, the Test Report of Govt. Alab becomes final, Private Laboratory Test Report of Chokshi Lab dtd. 29-3-2004 is an afterthought.

(III) Supreme Court in Bombay Oil Industry [Annexure-A] has held that if no retest has been requested by the assessee under Rule 56(4) of CE Rules, 1944 or Under Section 17 of Customs Act, 1962, then it becomes final and binding on the importer and the same is not challengable in appeal proceedings later, there the EOU has not requested for Retest, but have only doubted the test report and placed a Pvt. Lab Test Report after 6 months of issue of SCN. In Kalpana Chemicals 12TE(A165)SC Supreme Court have held that Test Report of Govt. Lab is to be preferred over Pvt. Lab same is taken in CCE v. Cellulose Product of India 2000 (124) E.L.T. 33 (T).

(IV) CIPL is the Apex Laboratory of Central Govt. for testing of Pharmaceuticals. This laboratory helps formulate the IP Standard in India. It is also seen that T/Rs of CIPL were also endorsed to the Drug Controller General. (See Page No. 191 bottom no.). Thus submissions regarding in competency of CIPL of conduct Test are not tenable.

3. STATEMENTS OE FACTORY OFFICIALS

(i) Statement of Shri R.V. Singh, Stores Officer dtd. 4-1-2001 (Para 3, Pg 2 of SCN).

There were no entries of the charging and the reaction of Ascorbic Acid and TMBA in the daily Shift Register (which contains the records of all the activities of each plant of a day to day basis) but here were some entries in Raw Material Issue Register.

Shri R.V. Singh, Stores Officer said in his statement that the statement titled ‘Manufacturing Process’ for Ascorbic Acid was never received by him and that he has not issued any raw material on the basis of R.M. Issue Slip received by him. He also stated that he has never received back any Ascorbic Acid or TMBA as ‘Recovered from Process’. This shows that no manufacturing process was carried out on Ascorbic Acid and TMBA.

(ii) Statement of Shri Lalit D. Modi, Production Executive dtd. 4-1-2001. (Para, Pg 3 of SCN) – He states that a document called ‘Manufacturing Process’ of Ascorbic Acid and stage-wise batch process records of temperature, date sheets and packing details for Ascorbic Acid IP was prepared. These statements are prepared by him and signed by Shri L.M. Pandya, Production Manager and Shift Chemist. He stated that all the above entries were made by him as per the instructions received by him from M.J. Patel and the said entries are fictitious. Regarding the Register showing production of Ascorbic Acid and TMBA he said that the entries being made only for record purpose. He also stated that same drums were used in which the two chemicals are received and only relabelling is done. He stated only fake production Record were created but no manufacturing activity or processing was done on Ascorbic Acid and TMBA. He sated that these goods were sold after replacing the labels on Raw Material drums.

(iii) Statement of Shri Shailesh J. Shah, Plant Incharge, Tonira (Para 6 of page 4 & 5 of SCN), dated 4-1-2001.

Regarding Ascorbic Acid and TMBA he stated he does not know whether these are manufactured in TP2 Plant (he is Plant Incharge). That he has signed Batch Sheets only as per directions of Shri Modi. That he does not know the manufacturing process of two products.

(iv) Statement of Shri CM. Pandya, Production Manager of Tonira dtd. 4-1-2001 (page 5 Para 7 of SCN) – He stated that batch process records are fabricated and it is only on the basis of daily shift report one can ascertain that a product is manufactured in their factory. He agreed that there is no entry in daily shift Register regarding any process done for the manufacture of Ascorbic Acid and TMBA.

(v) Statement of Madhubahi J. Patel, Works Manager of M/s. Tonira Pharma dtd. 5-1-2001. (Para 8 page 6 of SCN) – He stated that there was no production of these two final products. He also stated that the two materials were cleared after relabelling in DTA/Local Market.

(vi) First Statement of J.M. Patel, Q.A. Chemist dtd. 26-12-2001 (Para 10 Pg 7 of SCN) – He stated that he has not checked or inspected or verified the entries relating to production of Ascorbic Acid and TMBA and just signed on instructions. He stated that he has never tested Ascorbic Acid.

Second Statement of Sim J.M. Patel Q.A. Chemist dtd. 3-5-2002 (Page 7 para 11 of SCN) – He stated that TMBA was never processed in their factory. He has never seen or supervised the packing of said 2 products. He said on receipt of TMBA from outside he has tested for presence of Bromo Compound (Impurity). After conducting Thin Layer Chromatography (T.L.C.), solubility test, he found that the Receipted TBMA was Bromo Compound free. He also stated that he has signed the Packing Statement without checking or verifying anything.

This clearly shows that no processing was done by Tonira on Imported TMBA as throughout the contention of appellant was that the Debromination process was done on TMBA. This statement establish that Bromo Compound Free TMBA was received and no debromination process was undertaken on TMBA.

(vii) Statement of M.C. Shriraman, Director, Technical of Tonira dtd. 22-4-2002 (Para 14 Pg 8 of SCN) – On being asked whether he is aware of TMBA manufactured at their factory and its uses, he stated that he is not aware of the process carried out on these.

(viii) Statement of Mahesh N. Shah, Managing Director of Tonira Pharma dtd. 6-5-2002 – He was shown statements of R.V. Singh, Lalit D. Modi, Shailelsh Shah, S.K. Shah, M.J. Patel, J.M. Patel, which were read and understood by him. In token of having read the statements he put his dated signature of these statements on 6-5-2002. He stated that Lalit Modi was responsible for these two products.

(ix) Statement of Sanjay Shah, Shift Chemist dtd. 3-10-2002 (Para 17 Pg 9 of SCN) – He stated that he has tested other final products but has only tested inputs only in respect of TMBA and has never tested Ascorbic Acid.

4. Regarding the contention Retraction of Statements on 9-1-2001, SDR submitted that-

(i) During the hearing it was contended that the statements of Modi, S.J. Shah etc. dtd 4-1-2001. and 5-1-2001 were retracted by them on 8 & (1-2001. Commissioner in the Order-in Original has observed that the letters of retraction is belated and afterthought.

(ii) In support of their contention appellant has shown Pvt. Courier challans. However they failed to show the receipt of any such letter at the office of DGAE or the Commissioner. It is common knowledge that no courier company delivers a letter without taking acknowledgement along with stamp and phone number of receiver. Here the appellant has failed to show that any such letter of retraction was received by the authorities.

(iii) Importantly, the alleged retractions were on 8th and 9th January, 2001, however, statements of J.M. Patel, Q.A. Chemist dtd. 26-12-2001 and 3-5-2002 M.C. Shriraman, Director (Tech) on 22-4-2002, Mahesh N. Shah, Managing Director dtd. 6-5-2002 and Sanjay Shah on 3-10-2002 are all subsequent to 9-1-2001 and have not been retracted.

(iv) Mahesh N. Shah, Managing Director on 6-5-2002 during his statement has seen/read/understood all the statements and signed them. He does not dispute these statements or says that these were retracted. On the other hand he says Lalit Modi was responsible for these two products. Therefore, the retractions are belated, afterthought and would net vitiates the statements.

These statement prove that no manufacturing process was conducted by the factory on these two chemicals.

5. Regarding Appellant’s contention that Relabelling amounts to manufacture.

(a) Appellant has contended that in view of Chapter Note 11 to Chapter 29 of CETA which states that – labelling or relabelling of container and repacking from bulk packs to retail packs or the adoption of any other treatment to render the goods marketable to the consumer shall amount to ‘manufacture’. They also cited Board Circular No. 576/13/2001-CX dtd. 16- 5-2003.

It is submitted that Supreme Court in case of CCE v. Johnson and Johnson Ltd. 2005 (188) E.L.T. 467 (S.C.) [Annexure-A] at Para 6 has held in the context of similar Chapter Note 5 to Chapter 30 that “merely packing for being marketed would not do. The re-packing would have to be from bulk packs to ‘retail packs’ so as to render the product marketable directly to the consumer”. Thus to be covered by the chapter note’s deemed manufacture definition relabelling has to be accompanied by repacking from bulk to retail. CCE v. Panchsheel Soap Factory held that stickers indicating MRP & Importers’ name with a view to comply with Weight & Measures Act and not to make the product marketable would not amount to manufacture. The Board Circular No. 567/13/2001 dtd. 16-5-2001 is in context of stamping/affixing of stickers on the imported medicine as per requirement of Drugs and Cosmetics Act. There the goods were already in retail pack and there was no issue of further breaking of any bulk pack to retail.

In the present case 25 Kg drums of Ascorbic Acid and TMBA (both falling under Chapter 29) were cleared in same 25 kg drums by changing only paper labels. Therefore, the Supreme Court judgment supra would apply and it is clear that there is no manufacture as per Section Note 11 to Chapter 29. Also 25 kg drums for Ascorbic Acid and TMBA cannot be said to be rendering the same marketable to the consumer.

(b) Also the Board Circular No. 576/2001 is in regard to Pharmaceuticals whereas the impugned goods are Drug Intermediated.

6. Regarding appellant’s contention of Definition of Manufacture as per EXIM policy 1997-02 which lists ‘labelling’ as a process amounting to manufacture, the following was submitted by the SDR.

(i) The notice sought permission of C. Ex. Department for addition of Ascorbic Acid giving flow sheet, multistep manufacturing process and consumption norm of various inputs (kindly see pages 215 to 226 bottom of page numbering).

(ii) Drug Controller gave them permission to manufacture Ascorbic Acid as per multistep manufacturing process (pages 238 to 240 bottom no.) through EDTA Route.

This manufacturing process was approved by the Development Commissioner also. The assessee during personal hearing contended that they have relabelled and repacked the material. It is submitted that what was received in factory was in 25 Kg pack drums and what was cleared was also same 25 kg pack drums. Shri Lalit Modi and others in their statements have stated that only paper labels were changed. The photographs of empty drums shown by the appellants were taken in February 2006 does not in any way prove that repacking was ever done. The contention raised after 5 years is clearly a case of constructing a foot to fit a shoe.

(iii) It is submitted that from Definition of Manufacture as per EXIM Policy … include processes, such as refrigeration, repacking, polishing, labeling and segregation,” it is clear that labeling is mentioned but process of relabelling is absent. Use of words ‘such as’ also would not cover/bring in process of relabelling because the definition includes only refrigeration, repacking, polishing labeling and segregation and nothing.

It may be seen that note to Chapter 29 and Note 5 Chapter 30 list both processes – relabelling as well as labeling as amounting to manufacture. Also absence of process of relabelling in EXIM policy definition is because of the fact that in Export/Import context labelling connotes ‘Branding’. It is clear that what assessee is doing is only changing paper labels, which does not amount to manufacture. It may be seen that 100% clearances of Ascorbic Acid and TMBA is to DTA.

7. Regarding contention of appellant that Anti-Dumping Duty of Rs. 4,58,70,959/- out of total duty demand of Rs. 7,49,07,092/- on Ascorbic Acid on the ground Anti-Dumping Notification on Ascorbic Acid from China i.e. Notf. No 104/2000-Cus. dtd. 21-7-2000 was effective up to 15-4-2003 when the notification expired. Therefore, no demand can be raised after 15-4-2003.

It is submitted as follows:

(a) The dispute is only in regard to Ascorbic Acid.

(b) The demand is in respect of import of 1,48,000 kg of Ascorbic Acid imported during the period July, 2001 to November, 2001. During this period of importation the Anti-Dumping Notfn. No. 104/2000-Cus., dtd. 21-7-2000 was very much in operation.

(c) As per Section 9A(8) of Customs Tariff Act – The provisions of the Customs Act, 1962 and the rules and regulations made thereunder relating to non-levy, short-levy shall apply to the duty chargeable under this Section. It was submitted that since provisions of Short-levy and non-levy of Customs Act are applicable here by implication the provision of Section 159A of Customs Act shall be applicable here.

II(a) Hon’ble Supreme Court in case of Mediwell Hospital and Health Care v. UOI has held that the exemption notification imposed a continuing obligation on the part of those who obtained certificated of exemption for import without duty payment.

(b) Hon’ble Karnataka High Court in Chaparral Health Services Ltd. v. UOI [Annexure-I] held that, the power to recover duty does not flow from the notification so as to render any such recovery proceedings incompetent only because of repeal of notification.

(c) The effect of repeal of the notification has been elaborately dealt with by Hon’ble Madras High Court in case of Apollo Hospital Enterprises v. UOI , wherein relying on – (i) Mediwell Hospital (ii) State of Orissa v. Titaghar Paper Mills (1985) Supp SCC 280 (SC), and (iii) State of Rajasthan v. Mangilal Pindwal (SC), it was held that repeal of a statute does not affect the previous operation of the law which has been repealed during the period it was operative prior to the date of such repeal. Paragraphs 32 to 37 of Apollo Hospital, are extracted below:

The effect of repeal of the notification:

32. It is contention of the learned Counsel for the petitioners that the Notification 64/88, where the benefit of exemption of the Customs Duty was granted to the hospital like the petitioners and the obligation of the free treatment and reservation of bed had been imposed on the petitioners, had been rescinded by the subsequent Notification No. 99/94, dated 1-3-1994 which is follows:

Notification…

No. 99/94-Customs

New Delhi, dated the 1st March,1994
10 Phalguna, 1915 (Saka)

G.S.R. (E) – In exercise of the powers conferred by Sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby rescinds the following notification of the Government of India in the Ministry of Finance in the Department of revenue and Banking or the Department of Revenue and Insurance or the Department of Revenue, as the case may be, namely:

171. No. 64/88-Customs, dated the 1st March, 1988.

Since several other notifications from the years 1957 to 1993 had been rescinded, it is unnecessary to extract the entire details, as they are not concerned for the cases on hand.

33. On the basis of this notification, it is contended that the Notification No. 64/88 is no longer in force and as such the authorities cannot cancel the certificates already or reject the pending applications. When once the notification is repealed, it has to be held that it is no longer a valid notification for any punitive action. Hence on this ground also the impugned proceedings are liable to be set aside.

34. However, the learned Additional Solicitor General contended that when once certain benefits were conferred and obligations imposed under the notification and such notification is rescinded or repealed, the law is clear on this aspect that the benefits accrued on the persons cannot be taken away and similarly the liabilities arising out of such notification can be enforced. The petitioners having the benefit of the exemption of Customs Duty, it is not open to them to plead that they are not liable to discharge the obligation contemplated under the said Notification 64/88. Since the Apex Court in the Mediwell Hospital case held that the obligation being a continuous one, it is always open to the authorities to take against the petitioners for the violation of such conditions. Hence the impugned proceedings are quite valid.

35. While considering this question, it is worthwhile to refer the two judgments of the Supreme Court. In the case of State of Orissa v. Titaghur Paper Mills Co. Ltd. (1985) Supp SCC 280 it has been held as follows:

Yet another contention raised by the contesting respondents with respect to the impugned provisions was that the two notifications dated December 29, 1977 having been made in “supersession” of all previous notification dated May 23, 1977. The High Court held that to hold that the liability which had accrued under the notifications dated May 23, 1977. The High Court held that to hold that the liability was so wiped out would amount to giving a retrospective effect to the notification dated December 29, 1977, and as the Legislature had not conferred upon the State Government the power to issue notification having retrospective effect, to so hold would be to render the said notification void. The High Court referred to a number of decisions on the question of the power to make subordinate legislation having retrospective effect. We find it unnecessary for the purpose of deciding this point to refer to any of the authorities cited by the High Court. Both the notification dated December 29, 1977, are in express terms made with effect from January 1, 1978. They do not at all purport to have any retrospective effect and, therefore they could not affect the operation of the earlier notifications dated May 23, 1977, until they came into force on January 1, 1978. Further, both Section 3B and Section 5(1) in express terms confer power upon the State Government to issue notification “from time to time”. Section 3B provides that “the State may, from time to time by notification, declare” goods liable to purchase tax. Prior to January 1,1978, the provision to Sub-section (1) of Section 5 provided that “The State Government may, from time to time by notification…fix a higher rate not exceeding thirteen per cent or any lower rate of tax.” Section 5(1) as amended with effect from January, 1978, provides that “the tax shall be levied, at such rate, not exceeding thirteen per cent… as the State Government may, from time to time by notification, specify”. Thus, the power of the State Government to issue notifications under these two sections is to be exercised by it “from time to timer and, therefore, the State Government can under Section 5(1) issue a notification and repeal and replace it by another notification enhancing or lowering the rate of tax and similarly it can issue a notification under Section 3B declaring particular goods or class of goods to be liable to tax on the turnover of purchases and subsequently by another notification repeal that notification with the result that the particular goods or class of goods will from the date of such repeal be again liable to pay tax on the turnover of sales. In the notifications dated December 29, 1977, the word ‘supersession’ is used in the same sense as the word ‘repeal’ or rather the words “repeal and replacement”. The shorter Oxford English Dictionary, third edition, at page 2084, defines the word “supersession” as meaning “The action of superseding or condition of being superseded”. Some of the meanings given to the word ‘supersede’ on the same page in that dictionary which are relevant, which are relevant for our purpose are “to put a stop to render superfluous or unnecessary to make of no effect to annul to take the place of (something set aside or abandoned); to succeed to the place occupied by; to supply the place of a thing”. Webster’s Third New International Dictionary at page 2296 defines the word “supersession” as the “the state of being superseded removal and replacement”. Thus, by using in the notifications dated December 29,1977, the expression “in supersession of all previous notifications” all that was done was to repeal and replace the previous notifications by new notifications. By repealing and replacing the previous notifications by other notifications, the result was not to wipe out any liability accrued under the previous notifications. If this contention of the respondents were to be accepted, the result would be starting. It would mean, for example, that when a notification has been issued under Section 5(1) prescribing a rate of tax, and that notification is later superseded by another notification further enhancing the rate of tax, all tax liability under the earlier notification is wiped out and no tax can be collected by the State Government in respect of any transactions effected during the period when the earlier notification was in force.

36. In State of Rajasthan v. Mangilal Pindwal the Supreme Court has held as follows:

As pointed out by this Court, the process of a substitution of statutory provisions consists of two steps; first, the old rule is made to cease to exist and, next the new rule is brought into existence in its place. See : Koteewar Vittal Karrnath v. K. Rangappa Baliga and Co. . In other words, the substitution of a provision results in repeal of the earlier provision and its replacement by the new provision. As regards repeal of a statute the law is thus stated in Sutherland on Statutory Construction:

The effect of the repeal of a statute where neither a saving clause nor a general saving statute exists to prescribe the governing rule for the effect of the repeal, is to destroy the effectiveness of the repealed Act in future and to divest the right to proceed under the statute, which, except as to proceedings past and closed, is considered as if it had never existed.

(Col. 1, para 2042, pp. 522-523)

37. From the above principle laid down by the Apex Court, it is clear that the result of repeal of a statute, the statute as repealed ceased to exist with effect from the date of such repeal. But at the same time the repeal does not affect the previous operation of the law which has been repealed during the period it was operative prior to the date of such repeal.

(i) Gajraj Sing State Transport 1997 (84) AIR 412 (S.C.)

(ii) Apollo Hospital v. State of Orissa (Tritagarh) 1985 SCC 280 (SC)

(d) CESTAT in Jaya Nursing Home v. CC 2004 (177) E.L.T. 766 (T) held that liability to fulfil conditions to subsist beyond recession of Notfn. in view of Section 159A of Customs Act, 1962.

(e) Settlement Commission in case of Santogen Textile Mill 2002 (140) E.L.T. 558 has held that when Raw material cleared as such to DTA without using same in manufacture of finished product exemption is not available. This matter has been affirmed by Bombay High Court in and affirmed by SC

(f) It may be mentioned that the EOU has executed a Bond and is under obligation to fulfil all the conditions imposed.

4. We have carefully considered all the arguments from both sides and perused the case records as well as the cited case laws. As regards the demand of excise duty of Rs. 14,13,208/-, the ld Advocate for the appellants does not press his appeal due to the amount being small. However, he prays for setting aside the penalty of equal amount imposed on the appellants. Considering the fact that the appeal against the excise duty demand is not being pressed, we uphold confirmation of excise duty demand of Rs. 14,13,208/-. As regards the penalty amount, we are of the view that in the circumstances of the case, imposition of penalty of Rs. 14,13,208/- equal to the duty amount is not warranted in this case. As such, we reduce the penalty to 10% of duty amount.

5. As regards the customs duty demand, we find that there are two products involved : Ascorbic Acid and TMBA. We take up the case of Ascorbic Acid first. It is the charge of the department that the appellants have imported ascorbic acid of IP grade and removed the same for home consumption without undertaking any manufacturing activity. The total duty demand on ascorbic acid is Rs. 7,49,07,092/-. The main argument on behalf of the appellants is that they imported ascorbic acid of FCC grade-IV and converted the same to ascorbic acid of IP grade and also sold these in relabeled containers. Hence, it is argued by them that no duty is payable on the imported ascorbic acid. The appellants have also claimed that no anti-dumping duty is chargeable on the same on the ground that the relevant notification imposing anti-dumping duty had lapsed and was not in force at the time of issue of show cause notice as well as the confirmation of demand.

6. After considering all the arguments advanced by both sides, we are of the view that the adjudicating Commissioner has rightly placed reliance upon the test report from the CIPL, Ghaziabad, which is a laboratory for testing pharmacopeial products and the said laboratory’s findings are authoritative for the purpose of designating a product to be confirming to IP grade. We also do not think it is fatal to the finding that the adjudicating Commissioner has not taken into account the test reports obtained by the appellants from a private laboratory after issue of show cause notice. We also note in this regard that the appellants had not taken recourse to the procedure laid down of re-testing in case they doubted the initial test report. We are also of the view that the adjudicating Commissioner not allowing cross-examination of the Chemist of the CIPL is not fatal to the conclusion drawn by him. We find that the adjudicating Commissioner has also relied on the statements from the Chemists employed by the appellants in their factory who have stated that no manufacturing activity was undertaken in the premises of the appellants and hence the conclusion of the adjudicating Commissioner that the appellants initially imported ascorbic acid of IP grade and sold the same without further manufacturing in the domestic market is well founded.

7. The arguments that the appellants had relabelled the product and hence satisfied the condition of manufacturing as per the relevant Chapter Note under the Excise Law and also under the EX1M Policy is also not tenable and we do not find any evidence to suggest that they have repacked from bulk containers into retail containers/packs as they have imported the materials in 25 kg packs and sold the same in 25 kg packs. We are of the view that the appellants have merely done relabelling and the same does not amount to manufacture under the Excise Law in the absence of repacking and such relabeling also cannot be considered to meet the criteria under the EX1M Policy. It is also dear that the appellants have not undertaken the multi-stage manufacturing process, which Ihey have projected before the Excise authorities as well as before the Drugs Control authorities and the Development Commissioner in-charge of their EOU.

8. As regards the imposition of anti-dumping duty, the appellants have argued that once the anti-dumping notification has lapsed, such duty cannot be demanded and recovered subsequently even for the earlier period. Such arguments, if allowed, will amount to circumvention of the anti-dumping duty and will defeat the very purpose of its imposition as a trade remedies measure designed to curb dumping of imported goods, which is a measure permitted under the WTO Rules. Anti-dumping notifications are always issued for a specified period unless they are reviewed and continued for a subsequent period. The arguments advanced by the appellants would result in collection of anti-dumping duty from honest tax payers who paid the duty on time and those importers who evade the payment of anti-dumping duty would escape from paying the same just because evasion is detected afterwards and the show cause notice and the adjudication order are issued subsequently after lapse of the anti-dumping duty notification. Such an outcome collecting tax from honest tax payers and allowing the evaders to escape the tax cannot be a just and fair outcome and therefore the interpretation sought to be placed by the appellants on the effect of lapsing of an anti-dumping notification cannot be approved.

9. In view of our findings as above, we uphold the customs duty demand including the demand of anti-dumping duty on ascorbic acid imported by the appellants amounting to Rs. 7,49,07,092/-. However, as regards the penalty amount is concerned, we are of the view that the penalty imposed, which is equal to duty amount is excessive and we reduce it to 10% of the duty amount.

10. As regards TMBA is concerned, the charge against the appellants is similar to that for ascorbic acid, the only difference is that the anti-dumping notification was in force in this case. Hence, the appellants cannot claim that the said duty is not payable on the ground of the notification having lapsed.

11. As regards the charge of no manufacturing activity undertaken by the appellants, the adjudicating Commissioner has relied on the statements of employees of the appellants and has come to the conclusion that the appellants have carried out no manufacturing. The contention of the appellants that they were making the imported TMBA Bromine free has also been found to be incorrect by the adjudicating Commissioner based on statements recorded from the employees of the appellants. We are of the view that the conclusions drawn by the adjudicating Commissioner is well reasoned and the same do not require any interference. Accordingly, we also uphold the duty demand of Rs. 1,35,09,568/- in respect of TMBA. As regards the penalty, we are of the view that the penalty imposed equal to duty amount is excessive and we reduce the same to 10% of the duty amount.

12. While confirming the duty demands as above, we have duly considered the ground of limitation taken by the appellants. In view of the fact that the appellants have not undertaken any manufacturing activity in regard to the impugned goods as held by us and they have suppressed the fact of non-manufacturing and consequent infraction of the conditions of the Customs Notification under which they had obtained duty free goods, we hold that the finding of the lower authority applying extended period of limitation is correct in law. As regards interest, we are of the view that the same is payable in accordance with law at appropriate rates as held by the lower authority.

14. In view of our findings as above, the duty demands are confirmed but the penalties are reduced to the extent of 10% of duty amount confirmed. The appeals are dismissed except for reduction in the penalty amounts.

(Pronounced in Court on….)

Sd/-

(Chittaranjan Satapathy)
Member (Technical)
Dated : 20-4-2006

Jyoti Balasundaram, Vice-President.

15. I have carefully perused the order recorded by the learned Member (Technical) and while agreeing with his finding regarding levy of customs duty and excise duty, I regret that I am unable to persuade myself to agree to the finding regarding levy of antidumping duty and hence I am recording my separate order on this aspect.

16. Levy of anti-dumping duty has been confirmed on 1,48,000 kgs of ascorbic acid imported during the period from July 2000 to November 2001. On 21-7-2000, Notification 104/2000-Cus. was issued imposing anti-damping duty on Vitamin C falling under Customs Tariff Heading 2936.27 originating from China and Japan (ascorbic acid is a category of Vitamin C used in food preparations as food additives). This notification was effective up to 15th April, 2003 on which date the notification expired. On 24-10-2003, Notification 159/2003-Cus. was issued imposing definitive anti-dumping duty on all imports of Vitamin C originating from China. Section 9A(1) of the Customs Tariff Act, 1975 empowers the Central Government to impose anti-dumping duty on any article exported from any country or territory to India, by notification in the Official Gazette. The relevant notification as regards ascorbic acid from China is Notification 104/2000-Cus. dated 21-7-2000. This notification expired suo motu on 15-4-2003, by efflux of time and not by way of repeal. Section 6 of the General Clauses Act does not apply to statutes which expire own their own and further the above notification does not incorporate a saving clause. Therefore, the demand of antidumping duly by the impugned order which has been passed after the expiry of notification 104/2000 cannot be sustained. I find support for my view in the decision of the Apex Court in Kolhapur Canesugar Works Ltd. v. UOI . The relevant extracts from paragraphs 35 and 38 of the above judgment are reproduced herein below:

35. … If the case is covered by Section 6 of the General Clauses Act or there is a pari material provision in the statute under which the rule has been framed in that case also the pending proceeding will not be affected by omission of the rule. In the absence of any such provision in the statute or in the rule the pending proceedings would lapse on the rule under which the notice wan issued or proceeding was initiated being deleted/omitted. It is relevant to note here that in the present case the question of divesting the Revenue of a vested right does not arise since no order directing refund of the amount had been passed on the date when Rule 10 was omitted.

38. The position is well known that at common law, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed, and the statute must be considered as a law that never existed. To this rule, an exception is engrafted by the provisions of Section 6(1). if a provision of a statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, it cannot be granted afterwards. Savings of the nature contained in Section 6 or in special Acts may modify the position.

17. The decision of the Apex Court in State of Orissa v. Titaghur Paper Mills 1985 (Supp) SCC 280 cited by the learned DR is not relevant for the reasons that the notifications considered in the Titaghur case were not those having a built-in expiry date and further the notifications were not a self-contained code levying taxes but only specify the rate stipulated by the main charging section, viz. Section 5 of the Orissa Sales Tax Act. Although notification 104/2000-Cus. has been issued under the provisions of Section 9A(1), it is the notification which both levies and imposes anti-dumping duty and is thus a self-contained code and since it has a built-in expiry date with no saving clause and expires by efflux of time specified therein, pending proceedings seeking to demand duty based on such notification, would automatically come to an end. Section 159A of the Customs Act which is pari materia to Section 6 of the General Clauses Act, 1897 will not apply so as to save the levy of anti-dumping duty under the notification for the reason that Section 6 would not apply Further, this section would not apply to anti-dumping duty levied by a notification issued under the Customs Tariff Act as it applies only to any rule, regulation, notification or order made or issued under the Customs Act, 1962. Therefore, die demand of anti-dumping duty of Rs. 1,80,80,457/- on ascorbic acid imported up to 11-5-2001 and Rs. 60,03,000/- on 3,4,5 TMBA imported between February and September, 2000 (total Rs. 2,40,83,457/-) is required to be set aside.

18. In any event, no anti-dumping duty can be levied for the period subsequent to 11-5-2001 in view of the introduction of Sub-section (2A) in Section 9A of the Customs Act (sic) [Customs Tariff Act]. Section 9A(2A) provides that “Notwithstanding anything contained in Sub-section (1) and Sub-section (2), a notification issued under Sub-section (1) or any anti-dumping duty imposed under Sub-section (2), shall not apply to articles imported by a hundred per cent export-oriented undertaking or a unit in a free trade zone or in a special economic zone.” The Explanation sets out that “For the purposes of this section, the expressions “hundred per cent export-oriented undertaking”, “free trade zone” and “special economic zone” shall have the meanings assigned to them in Explanation 2 to Sub-section (1) of Section 3 of the Central Excise Act, 1944.” Admittedly, the appellant is a 100% EOU and therefore, in view of the above, no anti-dumping duty can be imposed for imports made after 11-5-2001, as held by the Tribunal in Salasar Fortune Marketing Ltd. v. CC dealing with an identical question relating to a unit in a special economic zone. The anti-dumping duty on imports of ascorbic acid after 11-5-2001 is Rs. 3,10,48,402/- which is required to be set aside. I also see force in the submission of the appellants that the value for levy of CVD and SAD will not include anti-dumping duty as it is neither a duty of customs levied under Section 12 of the Customs Act, 1962 nor a duty levied under Section 3 of the Customs Tariff Act. The Budget circular of Union Budget 2002-2003 also expressly clarifies that while calculating the value for levy of CVD, anti-dumping duty will not form part thereof. The circular expressly clarifies that the amendment made in Finance Act, 2003 is purely clarificatory and declares the applicable legal position and hence the amendment would apply even for the period prior to 2003. Therefore, the demand of Rs. 94,67,767/- CVD and Rs. 12,39,020 SAD (total Rs. 1,07,06,787/-) by including the amount of anti-dumping duty is not sustainable.

19. In the result, I hold that the demand of anti-dumping duty for the entire period in dispute, i.e. Rs. 5,51,31,859/- and the demand of Rs. 1,07,06,787/- by including anti-dumping duty in the calculation of the assessable value for levy of CVD and SAD cannot be sustained and is required to be set aside.

Sd/-

(Jyoti Balasundaram)
Vice-President
Dated : 28-6-2006

DEFFERENCE OF OPINION

20. The following difference of opinion is hereby referred to Hon’ble President Third Member for his decision:

(1) Whether the demand of anti-dumping duty for the period prior to and subsequent to 11-5-2001 is required to be sustained, as held by the learned Member (Technical), or to be set aside as held by the learned Vice-President?

(2) Whether the anti-dumping duty forms part of the assessable value of goods for the purpose of levy of CVD and SAD, as held by the learned Member (Technical), or anti-dumping duty will not form part of the assessable value for this purpose, as held by the learned Vice-President.

          Sd/-                                 Sd/-
(Chittaranjan Satapathy)            (Jyoti Balasundaram)
Member (Technical)                      Vice-President
Dated : 6-7-2006                      Dated : 28-6-2006
 

R.K. Abichandani, J. (President)

21. Due to difference of opinion between Hon’ble the Vice-President, Mumbai and Hon’ble the Member (Technical) who had heard these appeals, the following points have been referred for being heard by the third Member, as contemplated by Section 129C(5) of the Customs Act, 1962:

22. The appellant Tonira Pharma Ltd., a 100% Export-Oriented Unit (EOU) was engaged in the manufacture of various bulk drugs, such as, farmotidine, atrenolol, nifidipine etc. and were procuring various raw materials duty free by way of import as well as from indigenous manufacturers. The appellant had imported ascorbic acid and trimethoxy benzadehyde (TMBA) duty free under Notification No. 53/97-Cus. dated 3-6-1997 as amended and cleared the said goods, being subjected to any processing, to buyers in the domestic tariff area (DTA), without discharging appropriate customs duty, thereby contravening the provisions of the said notification. The appellants were clearing atrenolol and farmotidine manufactured by them in DTA by availing the concessional rate of duty in terms of Notification No. 8/97-C.E. dated 1-3-1997, as amended, which was not admissible to them as they did not maintain separate records regarding the receipt, issue etc. of the imported and indigenous raw material procured by them for the said finished products. A show cause notice came to be issued on 20-8-2003 to the appellants by the Additional Director General, DGCEI to show cause as to why the duty of Customs totaling at Rs. 8,85,41,522/-, as detailed in Annexure ‘B’ to the show cause notice, involved in the clearance of ascorbic acid and benzaldehyde imported duty free by them without any processing and without payment of appropriate duty, should not be demanded and recovered from them under Section 28 of the said Act. The appellant was also called upon to show cause why duty of excise to the tune of Rs. 14,13,208/- short paid in the clearance of atenolol and fanotidine in the DTA by wrongly availing the benefit of Notification No. 8/97 dated 1-3-1997, should not be demanded and recovered from them under Section 11A of the Central Excise Act, 1944. Annexure ‘B1’ of the show cause notice was a statement showing the details of imports of ascorbic acid by the appellant under various bills of entry indicating basic customs duty, surcharge, anti-dumping duty, CVD and SAD, the total of these customs duties being Rs. 7,49,07,092/-. Similarly, Annexure ‘B2’ was the statement showing the details of import of 3/4/6 trimethoxy benzaldehyde by the appellant under various bills of entry showing the basic customs duty, surcharge, anti-dumping duty CVD and SAD and the total of these customs duties was Rs. 1,36,34,430/-.

23. The Commissioner of Central Excise and Customs, Surat-II confirmed the demand of customs duty amounting to Rs. 8,84,16,660/- and the excise duty of Rs. 14,13,208/- and imposed penalty of Rs. 8,84,16,660/- on the appellant under Section 114A, and other penalties as well as interest as indicated in the order. On the question whether or not anti-dumping duty was imposable or exempt under Notification No. 5/94-Cus. dated 18-1-1994, the appellant had pleaded that no anti-dumping duty was imposable as the goods imported by a 100% EOU were exempt from the whole of the anti-dumping duty, under the Notification No. 5/94-Cus. dated 18-1-1994 unconditionally. According to the appellant, the only requirement to avail the benefit of the said notification was that the unit must be an EOU. The Commissioner, however, rejected this contention on the ground that the exemption from anti-dumping duty under the said notification was available if such goods were wholly exempted from duty of customs in the First Schedule to the Customs Tariff Act, 1975 by virtue of notification issued by the Government of India. It was held that though the appellant was eligible to avail this benefit as they were exempt from payment of duty under Notification No. 53/97-Cus. dated 3-6-1997, the said benefit was not available to the appellant by virtue of the findings given by the Commissioner in paragraph 32 of the said order in which it was held for cogent reasons that, since no manufacture/process had been carried out as required by the Notification No. 53/97-Cus. dated 3-6-1997, the appellant was not entitled to the benefit of the said notification and, therefore, not eligible for exemption from anti-dumping duty under Notification No. 53/97-Cus. dated 3-6-1997. As regards the CVD and SAD, the contention raised before the Commissioner was that, the calculation made by the department by adding the amount of anti-dumping duty was patently incorrect. The Commissioner rejected this contention on the ground that the anti-dumping duty had been imposed with a view to protect the domestic industry from injury and that the calculations were correctly made.

24. After hearing the appellants, the learned Member (Technical) in his opinion dated 7-2-2006 verbatim set out the written synopsis given by the learned advocate for the appellants in paragraph 2 of the order and the synopsis given by the learned SDR in paragraph 3 of the order. The challenge against the demand of Rs. 14,13,208/- was given up by the learned advocate for the appellants as recorded in paragraph 4 of the opinion by the learned Member (Technical). It was then held that the conclusion of the adjudicating Commissioner that the appellants initially imported ascorbic acid of IP grade and sold the same without further manufacturing process in the domestic market was well founded. It was held that the appellants did not undertake any manufacturing process as projected before the Excise authorities, the Drug Control authorities and the Development Commissioner in-charge of EOU.

24.1 As regards the imposition of anti-dumping duty, the learned Member (Technical), dealing with the contention that once the anti-dumping notification had lapsed, such duty cannot be demanded and recovered subsequently even for the earlier period, held that, if such an argument was accepted, it will amount to circumvention of the anti-dumping duty provisions and will defeat the very purpose of its imposition as a trade remedial measure designed to curb dumping of imported goods, which was a measure permitted under the WTO Rules. It was opined that anti-dumping duty notifications were always issued for a specified period unless they were reviewed and continued for a subsequent period. It was also held that collecting tax from honest tax payers and allowing evaders to escape the tax cannot be a just and fair outcome and therefore, the interpretation sought to be placed by the appellants on the effect of lapsing of an anti-dumping notification cannot be accepted. While upholding the customs duty demand including the demand of anti-dumping duty on ascorbic acid imported by the appellants amounting to Rs. 7,49,07,092/-, the learned Member (Technical) was of the view that the penalty imposed, which was equal to the duty amount, was excessive, and reduced it to 10% of the duty amount. It appears from his order that the learned Member (Technical) did not give opinion on the contention raised by the appellants to the effect that the value for levy of CVD and SAD will not include anti-dumping duty and that there was excess demand on this score of Rs. 1,07,06,787/- though the contention was reproduced in paragraph 2 (ground k). As regards TMBA, it was observed that since the antidumping duty notification was in force when the said product was imported, the appellants could not claim that duty was not payable on the ground of the notification having lapsed. He agreed with the conclusion drawn by the adjudicating Commissioner and upheld the duty demand of Rs. 1,36,09,668/- in respect of TMBA while reducing the penalty to 10% of the duty amount. It was found that the appellants had not undertaken any manufacturing activity in regard to the impugned goods and they had suppressed the fact of “non-manufacturing” and consequent infraction of the conditions of the notification under which they obtained duty free goods and, therefore, the extended period of limitation was correctly invoked.

25. The learned Vice-President while agreeing with the findings of the learned Member (Technical) regarding levy of customs duty and excise duty, could not agree with the finding regarding levy of anti-dumping duty and therefore, gave a separate order on 28-6-2006, for holding that since the Notification dated 21-7-2000 imposing anti-dumping duty on vitamin-C (ascorbic acid is a category of vitamin-C) originating from China and Japan had expired on 15-4-2003 by efflux of time and not by way of repeal, and that Section 6 of the General Clauses Act could not be invoked, and further that there being no saving clause incorporated in the said notification, a demand of anti-dumping duty by the impugned order which was made after expiry of the Notification No. 104/2000 dated 21-7-2000, cannot be sustained. The learned Vice-President placed reliance on the decision of the Apex Court in Kolhapur Canesugar Works Ltd. v. UOI , in which it was held that an exception engrafted, in the provisions of Section 6(1) of the General Clauses Act, to the common law rule that, the normal effect of repealing a statute or deleting a provision is to obliterate it from the statute book as completely as if it had never been passed and the statute must be considered as a law that never existed. It was held that Section 159A of the Customs Act, which was pari materia to Section 6 of the General Clauses Act, 1897, did not apply so as to save the levy of antidumping duty after the expiry of the notification. Moreover, the said provision did not apply to anti-dumping duty levied by a notification issued under the Customs Tariff Act, as it applied only to any rule, regulation, notification or order made or issued under the Customs Act. The learned Vice-President, therefore opined that the demand of anti-dumping duty of Rs. 1,80,80,457/- on ascorbic acid imported up to 11-5-2001 and Rs. 60,03,000/- on 3/4/5 TMBA imported between February and September 2001 (out of the total of Rs. 2,40,83,457/-) was required to be set aside. It was further opined that in any event no anti-dumping duty could be levied for the period subsequent to 11-5-2001 in view of the insertion of Sub-section (2A) in Section 9A of the Customs Tariff Act, which provided that a notification issued under Section 9A(1) and (3) shall not apply to articles imported by a 100% Export-Oriented Unit or a unit in a free trade zone or in a special economic zone. Since admittedly the appellant was a 100% EOU, no antidumping duty could be imposed for imports made after 11-5-2001. The antidumping duty on import of ascorbic acid after 11-5-2001 of Rs. 3,10,48,402/-, was required to be set aside, as opined by the learned Vice-President. The learned Vice-President found force in the submission of the appellants that the levy of CVD and SAD would not include anti-dumping duty as it was neither duty of customs levied under Section 12 of the Customs Act, 1962, nor a duty levied under Section 3 of the Customs Tariff Act. Reference was made to the budget circular of Union Budget 2002-2003, which expressly clarified that while calculating the value of levy of CVD and SAD, anti-dumping duty will not form part thereof. It was clarified in the circular that the amendment made in Finance Act, 2003 was purely clarificatory and declared the applicable legal position and, therefore, the amendment was applicable even for the period prior to 2003. It was, therefore, opined that the demand of Rs. 94,67,767/- CVD and Rs. 12,39,020/- SAD (total Rs. 1,07,06,787/-) by including the amount of anti-dumping duty, was not sustainable. The learned Vice-President, therefore, held that the demand of antidumping duty for the entire period in dispute, of Rs. 5,51,31,859/- and the demand of Rs. l,07,06,787/- by including anti-dumping duty in the calculation of the assessable value for levy of CVD and SAD cannot be sustained and was required to be set aside.

26. The learned Counsel appearing for the appellants contended that notification imposing anti-dumping duty under Section 9A(1) of the Customs Tariff Act did not have any independent existence, but Section 9A(1) itself did not impose any duty. He submitted that chargeability/leviability of antidumping duty was directly linked to Section 9A(1) coupled with the notification imposing such duty and if anyone of them expired without a self-contained saving clause, then notwithstanding the fact that the other survives, no duty could be collected. It was submitted that once the notification expire, no proceeding could be commenced for collecting the anti-dumping duty thereafter because the duty ceases to be chargeable except for the past and closed transaction, “as though it never existed from the day it was issued”. He contended that neither Section 6 of the General Clauses Act, which was inapplicable to notification, nor Section 9A of the Customs Act [(sic) Customs Tariff] could authorize recovery of the anti-dumping after the expiry of the notification on 15-4-2003 on the aspect of calculation CVD and SAD by including anti-dumping duty. It was submitted that the Government recognized this position and the doubts were clarified by the circular issued in 2002 with effect from 1-3-2002. It was further contended that whenever the Legislature intended that any additional duty should be treated as duty of customs, it used the expression “in addition to” but when the duty was to be treated as part of the customs duty, it had used the expression as “an addition to”. Whenever the type of Customs duty sought to be levied was to be treated differently, provisions were made by borrowing the provisions of the Customs Act for recovery etc. It was submitted that an additional duty was not mere addition to the basic customs duty but it was over and above such basic duty as a distinct customs duty of a different type and, therefore, could not be included as part of the value under Section 3 of the Customs Tariff Act. It was submitted that the levy of anti-dumping duty was not as “addition to” to the duty of customs, but it was in addition to such other duties of customs. He submitted that it is evident from the legislative history regarding surcharge and special duties of customs, as reflected from various Finance Acts in which there was direct increase in the rates of duties of customs. In the context of Article 271 of the Constitution of India, it was submitted that the anti-dumping duty did not automatically effect any increase in the other customs duties and, therefore, it was as in addition to other duties. Referring to the provisions of Section 9A(4)(8), it was submitted that these provisions indicated that anti-dumping duty was in addition to other duties and therefore, could not have been added in the value of goods for working out CVD and SAD. It was further contended that after the expiry of the notification imposing anti-dumping duty, there remained no provision to enforce recovery of such duty, because, chargeability would vanish from the beginning. It was then argued that for the period after 11-5-2001, due to amendment under Section 11A by insertion of Sub-section (2A), no antidumping duty was leviable from the appellants-EOU. It was submitted that the imported raw materials were warehoused and therefore, Clause (a) of Section 15(1) of the Customs Act, 1962, was not applicable. Moreover, Clause (b) of Section 16(1) was also not applicable since the goods had not been cleared from a warehouse under Section 68. Therefore, the residuary Clause 15(1)(c) was applicable. Even for imports prior to 11-5-2001, no anti-dumping duty could be leviable under Section 9A(1). Therefore, the entire demand of anti-dumping duty was not sustainable.

26. 1 The learned Counsel for the appellant relied upon the following decisions in support of his contentions:

(1) S. Krishnan v. State of Madras

(2) State v. Gian Singh reported in 1999 (9) SC 312

(3) Salasar Fortune Marketing (I) Ltd. v. CC

(4) State of Uttar Pradesh v. Kasturilal Harlal reported in 1988 (Supp.) SCC 302

(5) Commissioner of Income Tax Madras v. Indian Bank Ltd.

(6) Innamuri Gopalan and Ors. v. State of Andhra Pradesh and Anr.

(7) Sneh Enterprises v. CC reported in 2004 (178) E.L.T. 764 (T).

27. The learned authorized representative for the department supported the reasoning adopted by the Commissioner (Appeals) and contended that since the appellant had admittedly not fulfilled the conditions of manufacture and disposed of the imported goods “as such” in the DTA, it could not be treated as EOU for the purpose of benefit under Sub-section (2A) of Section 9A of the Customs Tariff Act, because the post-importation condition was not fulfilled. He submitted that by virtue of Section 9A(8) all the relevant provisions of the Customs Act including Section 28 which had a bearing on non-levy, short levy etc. were incorporated and, therefore, even Section 159A of the Customs Act applied and the liability arising under the notification imposing anti-dumping duty continued even after the expiry of the notification in respect of the imports already made during the currency of the notification. Since the export obligations were not fulfilled as per the EOU scheme, no benefit could be claimed by the appellant for relief against the imposition of anti-dumping duty after 11-5-2001. It was submitted that the Commissioner had rightly found, which finding was accepted by the division Bench, that no such manufacturing activity was undertaken as contemplated by Chapter 9 of the EXIM Policy and the record was fabricated. He submitted that fraud vitiates everything the appellant EOU was not entitled to the benefit of the EXIM Policy, which was also reflected in Section 9A(2A) of the Act. He also submitted that intent of Section 9A of the Tariff Act was to save the domestic industry from injury and the effect of a notification issued under Section 9A(1) was for a full period of five years. The liability to pay anti-dumping duty that arose during the period of notification could be enforced even after its expiry and no saving clause for the purpose was required to be incorporated in the notification because expiry of a notification by efflux of time did not repeal any provision of the statute under which the liability arose and could be enforced. The learned authorized representative for the department also supported the finding of the Commissioner to the effect that anti-dumping duty could be considered for working out the value for the purpose of CVD and SAD under Section 3 of the Tariff Act.

27.1 The learned authorized representative for the department placed reliance on the following decisions in support of his contentions:

(1) Jayaswals Neco Ltd.

(2) Nitco Tiles Ltd. v. Designated Authority

(3) Vetcare Alltech Pvt. Ltd. reported in 2004 (178) E.L.T. 874

(4) Torrent Laboratories v. UOI

(5) Chaparral Health Services Ltd.

(6) Apollo Hospital Enterprises Ltd.

(7) Mediwell Hospital and Health Care Pvt. Ltd. v. Union of India

(8) Bombay Hospital Trust (Bombay HC)

(9) Sterlite Optical Technology

(10) Commissioner of Customs Kandla v. Essar Oil Ltd.

28. The Notification No. 105/2000-Cus. dated 21-7-2000 was issued under Section 9A(1) read with Sub-sections (5) and (6) thereof and Rule 23 of the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 by the Central Government after a mid-term review of the earlier notification dated 24-7-1998. In paragraph 2 of the said Notification it was stated that “the antidumping duty imposed under this notification shall be effective up to and inclusive 15th day of April 2003 unless the time limit is extended or the notification is revoked before such time the notification published in the Official Gazette”. Admittedly, the said notification was not revoked prior to 15-3-2003 and, therefore, it remained effective up to and inclusive of 15th of April 2003 creating liability in respect of the imports made during the period of its operation. Admittedly, the imports made by the appellant were covered under the period of effectiveness of this levy of anti-dumping duty.

29. Anti-dumping duty is a duty which becomes payable on the importation of the articles covered by a notification imposing such duty under Section 9A of the Customs Tariff Act, 1975, the relevant portion of which is reproduced hereunder:

Section 9A. Anti-dumping duty on dumped articles. – (1) Where any article is exported from any country or territory (hereinafter in this section referred to as the exporting country or territory) to India at less than its normal, value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article.

Such anti-dumping duty is a duty in addition to any other duty imposed under the Customs Tariff Act or any other law for the time being in force, as specifically laid down in Sub-section (5) of Section 9A, which provides for the duration of the impost reads as under:

9A. (5) The anti-dumping imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of five years from the date of such imposition:

Provided that if the Central Government, in a review, is of the opinion that the cessation of such is likely to lead to continuation or recurrence of dumping and injury, it may, from time to time, extend the period of such imposition for a further period of five years and such further period shall commence from the date of order of such extension:

Provided further that where a review initiated before the expiry of the aforesaid period of five years has not come to a conclusion before such expiry, the anti-dumping duty may continue to remain in force pending the outcome of such a review for a further period not exceeding one year.

It will thus be seen that the uninterrupted period of imposition of anti-dumping duty upon importation of the article in respect of which notification under Section 9A(1) is issued is full five years. As per the second proviso to Sub-section (5), in cases where a review is initiated before the expiry of the period of five years, but not concluded, the anti-dumping duty may continue to remain in force pending the outcome of such review for a further period not exceeding one year. It appears that review of imposition of duty, which was started during the currency of the said notification before it expired on 15-4-2003, was concluded on 31-7-2003 and a notification imposing anti-dumping duty was issued on 21-10-2003. However, on these facts, when both the sides were asked to produce any orders that may have been passed under the second proviso to Sub-section (5) of Section 9A which would have had effect of continuing the anti-dumping duty for a further period of one year from 15-4-2003, they stated that no such orders were made. The learned authorized representative was asked to verify this fact and he also stated that no such orders appeared to have been made, as a result of which the imposition of duty under the said notification ceased from 15-4-2003 till it came to be re-imposed under the Notification dated 21-10-2003. On being asked, it was also stated by the learned authorized representative for the department that usually a separate order is made under the second proviso to Sub-section (5) of Section 9 A for continuing the anti-dumping duty after expiry of five years for a further period not exceeding one year and no such orders were forthcoming in the present case. The contention that after expiry of the notification imposing duty on 15-4-2003, no duty could thereafter be recovered even in respect of five years covered by the notification, therefore, survives for consideration.

30. Since Section 6 of the General Clauses Act cannot be invoked in respect of notifications, it is futile to consider the contentions canvassed on the basis of that proviso. However, Section 159A of the Customs Act, 1962, which, inter alia, provides for the effect of amendments etc. of notifications and laid down that unless a different intention appeared, such amendment, repeal, suppression or rescinding thereof shall not affect its previous operation or anything duly done or suffered thereunder or affect any right, privilege, obligation or liability acquired, accrued or incurred thereunder or any penalty, forfeiture or punishment incurred thereunder and legal proceeding, may be instituted, continued or enforced in relation to such notification as if it had not been repealed, superseded or rescinded. This Section was introduced with effect from 11-5-2001 by the Finance Act, 2001. By Section 114 of the Finance Act, 2001 it was also, inter alia, provided that any action or omission under any notification etc. shall be deemed to be and to have always been for all purposes as validly and effectively taken or done as if the amendment by Section 113 of the Finance Act, 2001 have been enforced at all material time and that recovery shall be made of all such amounts of duty or interest or penalty or fine or other charges which have not been collected, as if the amendment made by Section 113 of the Finance Act, 2001 had been inforceat all material time. Thus, any obligation or liability that was incurred under the notification imposing anti-dumping duty prior to the expiry of the notification on 15-4-2003 continued to remain enforceable against the appellant in respect of the imports made during the currency of the notification. The contention that Section 159A of the Customs Act, 1962 was inapplicable because it was not a notification under the Customs Tariff Act, 1975 and therefore, cannot apply to notifications issued under Section 9A of the Tariff Act is without any substance for the simple reason that Sub-section (8) of Section 9A of the Customs Tariff Act has specifically incorporated all the provisions of the Customs Act, 1962 and the rules and regulations made thereunder relating to non-levy, short levy, refunds and appeals, as far as may be applicable, to the duty chargeable under Section 9A as they apply in relation to duties leviable under the Customs Act, 1962. Section 28 of the Customs Act, provides for recovery mechanism when any duty had not been levied or had been short levied or erroneously refunded or when any interest payable had not been paid or part paid or erroneously refunded. Basic customs duties are leviable under Section 12 of the Customs Act at such rates as may be specified in the Customs Tariff Act, 1975. The Central Government has power to grant exemption from duty by issuing notification in the Official Gazette under Section 25 of the Customs Act. Even in such cases, questions about the liability to pay duty would arise when the exemption notifications are issued and withdrawn and such liability for non-levy, short-levy etc. could be enforced under Section 159A of the Act which specifically lays down that the obligation or liability accrued or incorporated, inter alia, under a notification is not affected after the notification is repealed, superseded or rescinded and that it could be enforced. Same will be the position even prior to 11-5-2003 when Section 159A was inserted because of the provisions of Section 114 of the Finance Act, 2001, which saves recoveries of all amounts under any notification, which had not been collected, as provided in Clause (c) of Section 114.

30.1 In any event, the expiry of notification imposing anti-dumping duty did not at all obliterate the liability that had already arisen upon importation of the articles under the notification by virtue of Section 9A(1)(5) of the Act which continued to remain in force to create and continue the liability arising under the notification which could be enforced under Section 28 of the Customs Act by virtue of Sub-section (8) of Section 9A, which incorporated the provisions of the Customs Act, having bearing on non-levy, short levy, refunds etc. The case of the appellant, who did not pay the anti-dumping duty was clearly a case of non-levy and therefore, recovery could be affected under the provisions of Section 28 of the Customs Act read with Section 9A(1)(5)(8) of the Customs Tariff Act in respect of the liability to pay anti-dumping duty that had arisen upon importation of the articles on which the duty was imposed and had remained operative till 15-4-2003. Since the liability arising under the provisions of the statute which continued to remain operative could be enforced under Section 28 of the Customs Act read with Section 9A(1)(5) of the Customs Tariff Act, it would not be open for the appellant to argue that the liability incurred, which was enforceable till 15-4-2003, suddenly become unenforceable on dis-continuance of the duty from that date. It is thus clear that the recovery proceedings were correctly initiated in respect of the liability to pay anti-dumping duty upon the imports made during the period of currency of the said notification till 15-4-2003 and the order recovering anti-dumping duty cannot be challenged on the ground that the notification expired from 15-4-2003.

31. As regards the contention that the anti-dumping additional duty could not have been included for calculating the additional duty under Section 3 of the Customs Tariff Act, 1975, it appears that the aggregate value of the imported article, duty of customs chargeable under Section 12 of the Customs Act, and any sum chargeable on the article imported under any law for the time being in force, “as an addition to” and in the same manner as a duty of customs, were includible in the value of imported article for calculating the additional duty payable under Section 3 of the Tariff Act. The words “as an addition to” a duty of customs apply to a situation where duty of customs stands enhanced by such addition without changing the nature of such duty. The anti-dumping duty chargeable under Section 9A, though in the nature of customs duty is not the basic customs duty chargeable under Section 12 of the Customs Act. Therefore, it could not be considered “as an addition to” the basic duty of customs and would be chargeable “in addition to” any other duty of customs imposed under the Tariff Act, as specifically stated in Sub-section (4) of Section 9A of the Act. In cases where any sum is chargeable “as an addition to” any duty of customs chargeable on that article under Section 12, then it would be included in the value of the imported article for calculating the additional duty. Therefore, since anti-dumping duty is not imposed as an addition to the existing customs duty under Section 12 of the Customs Act, but is imposed over and above such basic customs duty as is clarified by the expression “in addition to” occurring in Sub-section (4) of Section 9A of the Tariff Act, it would not be includible in the aggregates indicated in Section 3 of the Tariff Act for the purpose of computing additional duty imposed thereunder. It, therefore follows that the demand of Rs. 94,67,767/- CVD and Rs. 12,39,020/- SAD (total Rs. 1,07,06,787/-), by including the amount of antidumping duty in the aggregate was not sustainable.

32. It is contended that with effect from 11-5-2001 when Sub-section (2A) was introduced in Section 9A of the Tariff Act by Section 118 of the Finance Act, 2001, no anti-dumping duty remained imposable on a 100% EOU under the said notification. By Sub-section (2A) of Section 9A of the Tariff Act it is provided that notwithstanding anything contained in Sub-sections (1) and (2) of Section 9A of the Tariff Act, a notification issued thereunder, unless specifically made applicable in such notification or such imposition, as the case may be, shall not apply to articles imported by a 100% Expert-Oriented Undertaking or a Unit in a free trade zone or in special economic zone. This provision requires that when anti-dumping duty is intended to apply to articles imported by 100% EOU, it should be specifically made applicable. In other words, if it is not specifically made applicable, no anti-dumping duty imposed thereunder will apply to such article imported by a 100% EOU. Thus, in such cases there will not be any imposition of anti-dumping duty on the articles imported by the EOU even during the currency of the notification. The provision of Sub-section (2A) of Section 9A is not made dependent upon any exemption from paying customs duty on imports made by EOU under the EXIM Policy. No provision was pointed out from the Exim Policy which could have a bearing on the blanket exemption conferred on the imports made by 100% EOU by Sub-section (2A) of Section 9A and, therefore, an incongruous situation would necessarily arise, where 100% EOU who does not fulfil the conditions of the Exim Policy and therefore, would not be entitled to exemption of customs duty can nonetheless, with impunity, claim exemption from payment of anti-dumping duty on the ground that the notification was not specifically made applicable to articles imported by a 100% EOU in view of Sub-section (2A) of Section 9A of the Tariff Act. No orders making the notification imposing antidumping duty specifically applicable to articles imported by 100% EOU have been produced, and it is stated that no such orders were made. This situation whether attributable to non-applicability of mind of the concerned authorities to Sub-section (2A) of Section 9 A, which would protect, in absence of the notification being specifically made applicable, the defaulting 100% EOUs against imposition of anti-dumping duty even when they would not be entitled to the benefits of the Exim Policy by virtue of their defaults, or to the lacuna in the provision of Sub-section (2A) of Section 9A, has resulted in an unintended benefit to a defaulting 100% EOU, of not paying anti-dumping duty despite the fact that this exemption reflected in Sub-section (2A) of Section 9A of the Tariff Act was clearly relatable to the provisions of the Exim Policy, the benefit of which to the appellant stood forfeited by its not manufacturing any goods which it was obliged to do under the Exim Policy and fraudulently diverting imported articles in the DTA.

32.1 However, for the period prior to 11-5-2001, the appellant-EOU was not entitled to the benefit of the provisions of Sub-section (2A) of Section 9A because, the Notification No. 5/94-Cus. dated 18-1-1994, under which the appellant had claimed the benefit, contemplated that the exemption from additional duty of customs specified in the First Schedule to the Customs Tariff Act to 100% EOU was applicable only when such goods are fully exempted from the duty of customs by virtue of any notification issued by the Government of India from the whole of customs duty leviable thereon under Section 9A of the Customs Tariff Act. Therefore, mere being 100% EOU was not sufficient to earn the exemption under the notification dated 18-1-1994 (reproduced hereunder), but it was also necessary that there should be exemption from the duty of customs by virtue of any notification of the Government of India from the whole of additional duty leviable thereon under Section 9A of the Customs Tariff Act:

Notification No. 5/94-Cus. dated 18 Jan. 1994

All goods imported into India by a 100% EOU or a unit working in a free trade zone and exempted from basic customs duty are also exempt from additional duty

In exercise of the powers conferred by Sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all goods falling under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India by a hundred percent export oriented unit or a unit working in a free trade zone and when such goods are wholly exempted from the ditty of customs specified in the said First Schedule to the Customs Tariff Act, 1975 (51 of 1975) by virtue of any notification of the Government of India in the Department of Revenue and Banking or in the Ministry of Finance (Department of Revenue), from the whole of the additional duty leviable thereon under Section 9A of the said Customs Tariff Act.

[emphasis added]

32.2 It is, therefore, clear that the demand of anti-dumping duty for the period prior to 11-5-2001 is required to be sustained and the demand subsequent to 11-5-2001 is required to be set aside.

33. For the foregoing reasons, the opinion on the points referred by Hon’ble the Vice-President and Hon’ble the Member (Technical) for decision of third Member is recorded as under:

(1) The demand of anti-dumping duty for the period prior to 11-5-2001 is required to be sustained and the demand of anti-dumping for the period subsequent to 11-5-2001, is required to be set aside.

(2) the anti-dumping duty does not form part of the assessable value of the goods for the purpose of levy of CVD and SAD.

34. The matter will now be placed before the division bench which has referred the above points, for passing an appropriate order. The reference stands disposed of accordingly.

(Pronounced on 20-10-2006)

Sd/-

(Justice R.K. Abichandani)
President

35. In the result the demands of Customs duty and Excise duty are upheld, penalties both under the Customs Act and Central Excise Rules are reduced to 10% of the duty amount confirmed, demand of anti-dumping duty for the period prior to 11-5-2001 is sustained, while such demand for the period subsequent thereto is set aside and anti-dumping duty is held not to form part of the assessable value of goods for the purpose of levy of CVD and SAD.

The appeals are disposed of as above.

         Sd/-                                 Sd/-
   {K.K. Agarwal)                     (Jyoti Balasundaram)
   Member (Technical)                    Vice-President
   Dated : 31-10-2006                  Dated : 31-10-2006
 

(Pronounced in Court on 1-11-2006)

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Tonira Pharma Ltd. vs Commissioner Of C. Ex. on 1 November, 2006

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