M/s.Bank Of India vs Commissioner Of Customs (Chennai-VII)

The appellant, viz. M/s.Bank of India which is also a nominated agency of RBI filed Bill of Entry for warehousing goods imported (gold bars) availing benefit under Customs Notification No.12/2012 dt. 17.3.2012. Permission was granted by the Customs authorities for importing the said items after fulfilment of obligations mentioned in para 4 of Annexure to RBI Circular No.25 dt.14.8.2013. Bonds were executed in favour of the President of India for the said importation made and these bonds were accepted by the Assistant Commissioner of Customs.

After executing bond, the gold bars were bonded into Private Bonded Warehouse by M/s Bank of India for providing gold to different manufacturers of gold jewellery for exports by converting into jewellery and for home consumption after filing ex-bond Bill of Entry by paying appropriate duty under 20/80 scheme.

They imported gold bars vide 2 Bills of Entry dated 25.2.2014 and 16.10.2014. Out of 300 kgs of gold bars imported vide each Bill of Entry, 80% of the imported gold bars i.e.; 240 kgs. on each import was debonded on payment of sold to domestic buyers and balance 60 kgs on each Bill of Entry was available for export purpose.

Against the 60 kgs of gold available for export purpose, it was distributed to various Jewellery Manufacturers by M/s. Bank of India vide Different DC Nos. Against that distributed Gold, respective gold manufacturers had converted the distributed Gold Bars into Gold Jewellery and exported thereof vide different Shipping Bills. Later M/s.Bank of India had submitted Copies of Customs Attested Invoice, Copies of Shipping Bills, Copies of E-BRCs as proof of export to this office except for 20kg of Gold.

It was observed that M/s Bank of India had distributed gold to M/s.Atlas Jewellery Pvt Ltd. for export after conversion into jewellery. The said exporter had converted Gold Bars into Jewellery and exported. However, against Shipping Bill No.5612373 dated 20.10.2014, and Shipping Bill No.1451884 dt.07.03.2014, no e-BRC was produced. The department directed M/s Bank of India to furnish the e-BRC / BRCs as proof of export. The appellants M/s.Bank of India replied that the related exporter, namely M/s.Atlas Jewellery Pvt Ltd, has gone out of business and has shut shop vide their letter dated 14.07.2016. Again, M/s.Bank of India vide letter dated 09.08.2017 stated that this issue was reported to the Reserve Bank of India and that M/s.Bank of India had contacted the exporter; however no reply had been received. It has also been stated that the exporter / company has closed its offices in India and the Managing Director is kept under arrest in DUBAI.

It appeared to Department that appellant has violated Section 111(j) of Customs Act, 1962 by failing to furnish BRC or pay appropriate duty within 7 days of the stipulated period, also failed to monitor realisation of export proceeds and therefore liable to pay duty. SCN dt. 19.12.2017 and dt. 06.01.2018 were issued raising the above allegations and also alleging suppression of facts with intent to evade duty. The appellants were called upon to pay Customs duty of Rs.54,59,402/- & Rs.51,46,354/- on the assessable value of Rs.5,30,03,900/- (20 kg. Gold) & Rs.4,99,64,600 (20 kg. Gold) respectively along with interest. The SCNs also proposed to impose penalties.

After due process of law, the original authority confirmed the demand of duty, interest and imposed penalties. Aggrieved by the above orders, the appellant-bank is now before the Tribunal.

The Ld. Counsel Shri S. Murugappan appeared and argued for the appellant. After adverting to the relevant part of the FTP, Hand Book of Procedures, Public Notice issued under FTP and the Customs Notification he submitted that the order is passed contrary to the provisions contained in the above.

As per paragraph 4A.8 (a) of Handbook of Procedures, as proof of exports, the following documents are required to be filed :

4A.8 (a) Exporter has to furnish the proof of exports, wherever required for export of gold / silver / Platinum jewellery and articles thereof, by furnishing following documents :

(i) E.P.copy of the shipping bill;

(ii) Customs attested invoice;

(iii) Bank certificate of realisation in Appendix 22A

The Circular No.34/2013-Customs dated 04.09.2013 also stipulates the proof of exports as follows :

"xiv. proof of export by the exporter shall be furnished in accordance with para 4A.8(a) of HBP V.1, to the nominated agencies as a proof of having exported the jewellery made from the duty free gold released to them within the period prescribed in the Foreign Trade Policy. The Nominated Agency shall furnish a self-certified copy of the same to the customs officer where the gold was bonded;".

It is to be noted that these provisions were relaxed and a Public Notice No.25/(RE-2013)/2009-2014 dated 06.09.2013 was issued. Paragraphs 2,3 & 4 of the above Public Notice read as follows :

"2. Para 4A.8(a) stipulates what may constitute "Proof of Export" and lists three specific documents as under :

(i) E.P.copy of the shipping bill;

(ii) Customs attested invoice;

(iii) Bank certificate of realisation in Appendix 22A

Only in respect of export of gold jewellery and export of articles of gold, the document listed at (iii) above, namely "Bank certificate of realisation in Appendix 22A" will not be insisted upon so far as "proof of exports" is required as per RBI Circular No.25 dated 14.08.2013 or any other related guidelines issued by RBI or Ministry of Finance.

It is reiterated that in respect of all other exports, all the 3 documents listed above will continue to be required for establishment of proof of export. Similarly against export of gold jewellery and export of articles of gold, if any claim of export benefit like drawback, etc., is considered then Bank certificate of realisation in Appendix 22A would be required.

Effect of this Public Notice : The exporters/importers can import/get their 20% gold consignment (under customs bond) released without waiting for the realization, if the other two requirement of para 4A.8(a) are satisfied".

In other words, subsequent to issue of the above Public Notice with effect from 06.09.2013, it is sufficient that only Export Promotion copy of the shipping bill and customs attested invoice is to be furnished for establishing the export of gold jewellery and export of articles of gold. It was specifically mentioned that the bank certificate of realization will not be insisted upon for proof of export. It was further clarified that in case the exporter claimed drawback, then, for granting drawback, bank realization certificate will be required.

In the light of the amendment provided in terms of the above public notice, there is no basis whatsoever for the respondent to hold that the nominated agency is under an obligation to provide Bank Realization Certificate as part of proof of exports. On this very ground, the impugned orders passed by the respondent are liable to be set aside.

In paragraph 9.3 of the impugned orders, the respondent has referred to the bond executed by the appellants and therefore, on the basis of such bond, the SCNs have been issued alleging that it is obligatory for appellants to submit bank realization certificate as part of proof of exports.

At the outset, it is submitted that the notification requires execution of bond binding the importer to pay on demand the duty on the quantity of the goods representing the difference between the quantity issued and contained in the exported jewellery. The notification also refers to the applicable provisions of the Foreign Trade Policy and the instructions referred to in that regard. Therefore, the department cannot stretch the conditions of the notification beyond what is required under law. Secondly, upon submission of export documents, the customs authorities were satisfied with the evidence regarding compliance with the conditions of notification and accordingly, cancelled the bond after due verification and returned the same. Under such circumstances, it is not open to the respondent to rely on the cancelled bond and confirm demand for duty.

The Ld. Counsel relied upon the decision in the case of Bank of Nova Scotia Vs CCE (Adj.) Bangalore 2009 (233) ELT 260 (Tri.-Bang.) and submitted that the Tribunal in identical set of facts has held that it is not obligatory for the nominated agency to file BRC. He prayed that appeal may be allowed.

The Ld. A.R. Ms. K. Komathi supported the findings in the impugned order.

Heard both sides.

At the outset, it has to be stated that the demand of duty is raised alleging violation of conditions of the Customs Notification and thereupon invoking the liability under the bonds executed by the appellant. After the appellant furnished export details, the bonds executed have been cancelled. The bonds were cancelled only after due verification of the same. The undertaking as per the bond is to comply with conditions of the Notification. As discussed above, the public notice require the appellant to furnish proof of export only. The export is by a third person. As per Public Notice dt. 6.9.2013 it is specifically stated that in respect of export of gold jewellery and export of articles of gold, the Bank Realization Certificate shall not be insisted to be produced as proof of export. The appellant has furnished E.P copy of the shipping bill as proof of export. The appellant therefore has complied with conditions of notification read along with Circular / Public Notice / Hand Book of Procedure. The department accepted the same as fulfilment of obligations as per the bond executed by them. Being satisfied of the same, the bond has been cancelled, after which no demand can be raised alleging violation of conditions of bond.

Similar issue was addressed by the Tribunal in the case of Bank of Nova Scotia (supra). The Tribunal also looked into the issue of non-production of BRC and held that the liability, if any, would be on the exporter. The relevant paras read as under :

"15. We have gone through the records of the case carefully. The Government of India brought out various schemes for the promotion of gold, silver and platinum jewellery. In terms of the scheme, the nominated agency can import gold duty free in terms of the relevant Customs Notification. The imported gold can be given on loan basis or sale to various jewellers on condition that they would export the jewellery or the value added product within a period of 120 days of the release of the gold by the nominated agency. Elaborate procedures have been devised by the department's concerned. As far as the present appeals are concerned, the following provisions are relevant.

(a) Notification No. 57/2000-Cus., dated 8-5-2000

(b) CBEC Circular No. 24/1998-Cus., dated 20-4-1998

(c) Reserve Bank of India's letter DBOD No. IBS 1519/23.67.001/98-99 dated 31-12-1998 read with Circular A.D. (G.P Series) No. 7 dated 6-3-1998

(d) Para 4.62, 4.77, 4.77.3 and 4.79 of the Hand Book of Procedures to the EXIM Policy 2002-2007

(e) Section 8 of Foreign Exchange Management Act, 1999 and

(f) Regulation 8, 9 & 13 of the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000.

The nominated agency can import gold duty free subject to the conditions of notification 57/2000. The said condition is given in Proviso to the notification and we are reproducing the said notification.

"Provided that in the case of import of gold/silver/platinum as replenishment under the scheme for 'Export through Exhibitions/ Export Promotion Tours/Export of Branded Jewellery', the importer undertakes to fulfill the conditions of Export and Import Policy and relevant provisions of the Handbook of Procedures, Volume-1 and produces such documents as stipulated in the Export and Import Policy and the Handbook of Procedures, Volume-1 and produces such proof of exports made through exhibitions/export promotion tours etc., as may be required by the Assistant Commissioner of Customs or the Deputy Commissioner of Customs to satisfy himself with regard to eligibility of the importer for the duty free import of replenishment material."

A close reading of the above proviso shows that the nominated agency who is the importer, executes a bond undertaking to export the jewellery containing gold equal to the imported gold. In case, the jewellery is not exported within the stipulated period, the importer is under an obligation to pay the Customs duties foregone on the imported gold. This notification does not impose any condition on the importer to ensure realization of the foreign exchange for the jewellery exported. The fact that the gold imported free of duty was given to the second appellant is also not disputed by the Revenue. The second appellant Rajesh Exporters Ltd. had also exported the goods. There is ample evidence to show that the jewellery containing gold equal to the quantity imported had indeed been exported. This fact is also not under dispute. The learned Special Counsel was at pains to convince us that the non-realization of sale proceeds of the exported goods amounts to violation of the conditions of the notification, because the notification has to be read harmoniously along with export/import policy and also the relevant provisions of Hand Book of Procedures. We do not agree with the contentions of the learned special Counsel. On a plain reading of the notification, we do not think that non-realization of sale proceeds amounts to violation of the conditions of notification by the first appellant. There is no allegation that the first appellant colluded with the second appellant and as a result of such collusion the sale proceeds were not realized. In other words, when the notification has not stipulated any condition to the effect that the nominated agency should ensure the realization of sale proceeds of the exported goods. We cannot read such a meaning into the said notification. Consequently, we do not hold that the first appellant has violated the conditions of the notification. Therefore, in our view the first appellant is not liable to pay the Customs duty demanded in the impugned order. Further, we reproduce Para (xiii) of Circular No. 24/1998-Cus., dated 20-4-1998 :

"Wherever such proof of export is not produced within the period prescribed in the EXIM Policy the Nominated Agencies, shall (without waiting for its recovery from the exporter) deposit the amount of duty calculated at the effective rate leviable on the quantity gold/silver not exported within 7 days of expiry of the period within which the jewellery manufactured out of the said gold/silver was supposed to be exported. The duty so paid by the Nominated Agency shall be reflected in the monthly statement prescribed in Para (x) above. The Nominated Agencies will settle their claim with the exporter at their own level;"

A close reading of the above provision shows that nowhere it is stated that non-realization of sale proceeds will result in demand of Customs duty foregone from the nominated agency.

It should be borne in mind that even though the first appellant is the importer, the exporter is different. In this case, the exporter is the second appellant. All goods exported from India result in realization of foreign exchange as sale proceeds. Matters relating to foreign exchange are governed by Foreign Exchange Management Act (FEMA). The Customs Authorities are not enforcing the provisions relating to non-realization of foreign exchange. If at all there is violation of FEMA and the related regulations, the liability would be on the exporter, suitable action lies with the enforcement authorities and Reserve Bank of India. With regard to the violations of exim policy, adjudication can be done only by authorities notified under Section 13 of Foreign Trade (Development & Regulation Act) 1992. The first appellant imported the goods and warehoused the same. Duty can be demanded from the first appellant only in respect of the situations enumerated in Section 72 of the Customs Act. Revenue has not shown that there exist any of the situations contemplated in Section 72 of the Customs Act. Hence, no duty can be demanded from the first appellant under Section 72 of the Customs Act. As far as the second appellant is concerned, they are not the importers of gold. They purchased on loan basis gold from the first appellant. They had also fulfilled the export obligations. In other words, the goods have been physically exported in the light of the Apex Court's decision cited by the learned Advocate, export has taken place. The non-realization of foreign exchange will be governed by FEMA and also the circulars issued by Reserve Bank of India. There is no legal sanction for imposition of any penalty on them under Section 112 (a) of the Customs Act, 1962. In view of the above findings, we do not hold that the impugned goods are liable for confiscation under the Customs Act. The first appellant is not liable to discharge duty liability for the impugned gold. Both appellants are not liable for penalty under Section 112 (a) of the Customs Act, 1962. Hence, we allow the appeals of both the appellants with consequential relief."

From the foregoing, after appreciating the facts and evidence placed before us and following the decision in the case of Bank of Nova Scotia (supra) we are of the considered view that the demand of duty cannot sustain. The issue on merits is answered in favour of the appellant.

The appellant has argued on the ground of limitation also. The SCNs have alleged suppression of fact with intent to evade Customs duty. The appellant-bank has furnished details of exports and the bond was cancelled by the department after verification of the same. On such score, the SCNs issued much later alleging suppression of facts is without any factual basis. The issue on limitation is also found in favour of appellant.

We set aside the impugned orders. The appeals are allowed with consequential reliefs, if any.

(Operative part of the order pronounced in court on 24.08.2021)