Commissioner of Customs vs Shah Alloys Ltd.

H.N. Devani, J.—By this appeal u/s 130 of the Customs Act, 1962 (the Act), appellant-Revenue has challenged order dated 19th September, 2008 made by the 2008 (134) ECC 132 (Tribunal)] proposing the following two questions stated to be substantial questions of law :-

Whether in view of the above mentioned wrongful intention, connivance and mis-statement before the Director General of Foreign Trade (DGFT) Authority by the importer which was not revealed at the time of import but in the subsequent investigation, the subject license can be held as a valid license in terms of Customs Notification No. 55/2003 and, therefore, demand of duty may be issued under extended period u/s 28 of the Customs Act, 1962?

Whether the invocation of the extended period under provisions of Section 28 of the Customs Act, 1962 and imposition of penalty u/s 114A and 117 of the Customs Act, 1962, should not be sustainable due to the aforementioned wrongful intention, connivance and mis-statement?

The facts stated briefly are that the Director General of Foreign Trade (DGFT) was issuing Export Promotion Capital Goods (EPCG) licences in terms of Para 5.1 of Foreign Trade Policy 2002-03 and the imports were governed by exemption Notification dated 1st April, 2003 bearing No. 55/2003-Cus. DGFT issued a Public Notice dated 28th January, 2004 bearing No. 42 (RE-2003)/2002-2007 enabling "import of spares, including Refractories, Catalysts & Consumables" under EPCG licences. The respondent herein made applications before the DGFT pursuant to which 5 EPCG licences were issued to it under the 5% EPCG Scheme.

2.1 Under the said licences, the respondent herein imported furnace oil and filed 7 bills of entry for a total quantity of 8000 MTs claiming the furnace oil to be consumables covered under the EPCG scheme and cleared the same by paying concessional customs duty availing of the benefit of Notification No. 53/2003. The imported fuel was used for generating electricity. Based upon intelligence that the respondent company had wrongly availed the exemption for fuel as consumables, the officers of the DGCEI commenced investigation on 9-2-2005. During the course of investigation the respondent company deposited a sum of Rs. 2.11 crores (approximately) in March, 2005 with the Kandla Customs House under protest.

2.2 While the investigation by the DGCEI was in progress, 7 show cause notices, each show cause notice covering one bill of entry, came to be issued in May 2005 by the Appraiser Customs, answerable to the Assistant Commissioner of Customs. Kandla proposing to deny the benefit of exemption to furnace oil. Pursuant to the said show cause notices, the respondent filed its replies.

2.3 In the meanwhile, pursuant to the investigation by DGCEI authorities, a show-cause notice dated 30th November, 2005 answerable to the Commissioner of Customs, Kandla demanding differential customs duty of Rs. 2,11,47,947/- on 8000 MTs of imported oil came to be issued. The said show cause notice was adjudicated by the Commissioner of Customs vide Order-in-Original dated 4th December, 2006 whereby he confirmed the demand of duty of Rs. 2,11,47,947/- with interest and ordered appropriation of duty already deposited. He further imposed an equal amount of penalty on the respondent company. Penalty of Rs. 10,000/- came to be imposed upon Shri Deepak C. Shah, Chartered Engineer. The Commissioner also dropped the 7 show cause notices issued by the Assistant Commissioner in relation to the same issue.

2.4 Being aggrieved by the said Order-in-Original the respondent preferred an appeal before the Tribunal who, vide the impugned order, allowed the appeal on the ground of limitation.

Ms. Amee Yajnik, learned Senior Standing Counsel for the appellant-Revenue supported the order-in-original and submitted that on the facts of the case, the Tribunal was not justified in holding that the extended period of limitation u/s 28 of the Customs Act could not have been invoked.

As can be seen from the impugned order of the Tribunal, the Tribunal has recorded that the respondent herein had applied for issuance of Export Promotion Capital Goods (EPCG) licences before the Joint Director General of Foreign Trade, Ahmedabad with all the requisite documents in February, 2004. Licences were issued in favour of the respondent in March, 2004 under the EPCG Scheme with benefit of Notification dated 1st April, 2003 bearing No. 55/2003-Cus. Under the procedure prescribed for obtaining licences from DGFT, the applicant was required to furnish a certificate from an independent Chartered Engineer. In compliance with the said condition, the respondent had filed a certificate dated 14th February, 2004 issued by Shri Deepak C. Shah, independent Chartered Engineer along with the application before the DGFT which was to the following effect: "(further certify that essentiality of Furnace Oil as consumables to be imported under EPCG application dt. 6-2-2004 for generation of Electric Power from Captive Power Plants." The Tribunal was of the view that it was clear from the above certificate that the description of the goods to be imported was disclosed in unambiguous terms and the purpose for which the same was to be imported was also fully disclosed. The said certificate clearly mentions the product to be imported as ''Furnace Oil'' and used for generation of ''electric power'' from captive power plant. Licence, as such nothing had been suppressed by the respondent from the DGFT authorities. According to the Tribunal production of certificate was only a pre-requisite condition for issuance of licences by the DGFT authorities and that the same did not absolve them from the responsibility of checking and verifying the correctness of the nexus of the import and export items under EPCG Scheme. That the said authorities were not legally bound to issue EPCG licences just based upon the certificate of the Chartered Engineer produced by the importer. The Tribunal noted that this was not a case where something was suppressed in the certificate. All the details including the product to be imported and the use to which the same was to be put stood disclosed in the certificate and accordingly it was to be presumed that the DGFT authorities had issued licences with open eyes and due application of mind. That this was not a case where the DGFT authorities were misled into issuing licences on the basis of some wrong information given by the respondent.

4.1 The Tribunal has further placed reliance upon a letter dated 18th April, 2005 of the Deputy Director General of foreign Trade addressed to DGCEI wherein he has given a detailed explanation that in view of Public Notice No. 42 dated 28th January, 2004 which extended the scope of imports to consumables also, the live EPCG licences for import of furnace Oil were in order. The said letter clarified that the Chartered Engineer had disclosed Furnace Oil as the product to be imported which was a consumable to be used in the captive power plant. The Tribunal, accordingly, held that in the facts and circumstances of the case, no suppression or mis-statement could be attributed to the respondent so as to justify invocation of the extended period of limitation, and allowed the appeals on the ground of limitation.

From the facts noted hereinabove it is apparent that the Public Notice dated 21-1-2004 permitted import of spares including refractories and consumables. As per the procedure for obtaining EPCG licences, the applications were supported by certificates issued by Chartered Engineer. Shri Deepak C. Shah which clearly indicated the respondent''s intention to import furnace oil for its captive power plant under HPCG scheme and also specifically mentioned the name of the end products as "electric power for making various stainless steel products and mild steel products". The licences issued by the DGFT authorities also indicated that the import of fuel was for production of electric power for making stainless steel products and that the licences had been issued under the EPCG scheme and the Notification No. 55/2003 governing the import was also mentioned. Thus, nothing had been suppressed from the DGFT authorities, who after having the benefit of perusing the said certificate had issued EPCG licences. The Tribunal has, therefore, rightly held that once all the details including the product to be imported and the use to which it was to be put was disclosed, there is a presumption that the DGFT authorities have issued the licences with open eyes and after due application of mind. That this is not a case where the DGFT authorities have been misled into issuing licence on the basis of some wrong information given by the respondent. Thus, the Tribunal has upon appreciation of the evidence on record, come to the conclusion that there is no material on record to suggest wilful mis-statement of facts or suppression of facts as envisaged under the proviso to Section 28(1) of the Act so as to attract the said provision. The Tribunal was, accordingly, justified in holding that as no suppression or misstatement could be attributed to the respondent, the extended period of limitation could not have been invoked u/s 28 of the Act.

Examining the facts of the case from another angle, Section 28 of the Customs Act provides for issuance of show-cause notice when any duty has not been levied or has been short-levied or erroneously refunded or when any interest payable has not been paid, part paid or erroneously refunded (a) in case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year; (b) in any other case within six months from the relevant date on the person chargeable with duty or interest. The proviso to sub-section (1) of Section 28 lays down that where any duty has not been levied or has been short-levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of the sub-section shall have effect as if for the words ''one year'' and ''six months'' the words ''five years'', were substituted. Thus, the proviso to sub-section (1) of Section 28 provides for an extended period of limitation in ease of collusion or any wilful mis-statement or suppression of facts.

6.1 In the facts of the present case, it is the case of appellant-revenue that the respondent has imported furnace Oil by making a wilful mis-statement before the Licensing Authority on the basis of a certificate issued by a Chartered Engineer which led to the issuance of EPCG licences for import of Furnace Oil as consumables in its favour. In this regard, it may be pertinent to refer to the definition of ''importer'' as defined under sub-section (26) of Section 2 of the Act, which provides that ''importer'' in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer. On a plain reading of the said provision, it is apparent that the expression ''importer'' would operate only in relation to the point at which the goods are imported and till the time they are cleared for home consumption. Whereas in the facts of the present case, it is an admitted position that the suppression, wilful mis-statement etc. are alleged at the stage of issuance of licences which is prior to importing of the goods in question. In the circumstances, in view of the definition of ''importer'' any suppression, collusion or wilful mis-statement at a stage prior to importation of the goods in question, would not fall within the ambit of the proviso to subsection (1) of Section 28 inasmuch as at that stage, the person who applies for the licence cannot be said to be an importer within the meaning of Section 2(26) of the Act. In the circumstances, in connection with alleged suppression, wilful misstatement made at the stage of issuance of licences, prior to importing the goods, the proviso to sub-section (1) of Section 28 could not have been invoked. Hence, the entire proceeding right from the stage of issuance of show cause notice would stand vitiated.

In the light of the above discussion, the impugned order of the Tribunal cannot be stated to suffer from any legal infirmity so as to warrant interference. In absence of any question of law as proposed or otherwise, much less any substantial question of law, the appeal is dismissed.