2008(10)LCX0133

In the Customs, Excise & Service Tax Appellate Tribunal, Mumbai

Shri M.V. Ravindran, Member (Judicial) Shri K.K. Agarwal, Member (Technical)

Sterlite Industries India Ltd. & Ors.

Versus

Commissioner of Customs (I), Nhava Sheva, Raigad

Final Order Nos. A/561-564/WZB/2008-CII/CSTB dt. 14.10.2008 certified on 21.10.2008 in Appeal Nos. C/239-242/2008

Cases Quoted -

Delhi High Court judgement in the case of Vikram Industries - Referred [para 9]

Sterlite Industries (I) Ltd. 2001 (043) RLT 0386 (CEGAT-Mum.)Referred [para 9]

Hindustan Ferodo 1996 (017) RLT 0807 (SC) - Referred [para 9]

Advocated By -

Shri V.K. Jain, Adv. for Appellant
Shri B.K. Singh, JCDR for Respondent

Per M.V. Ravindran :

This appeal is directed against the order-in-original 39/2007 dated 24.12.2007 vide which the adjudicating authority confirmed demand of Customs duty, confiscated the goods imported with an option to redeem the same on payment of redemption fine, imposed penalties on the appellant company and three officers of the company.


2. The necessary facts those arise for consideration are:

Appellant filed B/E No. 779529 & 779739, on 18.5.2006, for provisional clearance of their consignment of Blister Copper which had arrived from Salvodor BA. The said goods were covered vide B/L No. MSCUSD 137879 dated 08.04.2006 & MSCUSD 138901 dated 14.04.2006. The said goods had earlier arrived per Vessel MSC ALPANA-657R and CVERONIQUE-074R. The clearance of the said goods was sought through their CHA Sri Radhakrishna Shipping Pvt. Ltd., CHA No. 11/4689 under Advance License No. 0310359987. For clearance of the said goods provisionally, appellants furnished a Xerox copy of sales contract dated 15.03.2006 (for 1000 mts. of Blister Copper) between them and the supplier, CARAIBA METAIS S/A, VIA, DO COBRE, 3700, AREA INDUSTRIAL OESTE, COPEC DIEAS D'AVILA, BAHIA, BRAZIL. Appellant through their CHA 11/468 had also submitted copies of provisional Commercial invoice No. 135-06 and 1356-06-A dated 13.03.06 and 18.04.2006 respectively, Bills of Lading and a copy of Advance License No. 0310359987 dated 19.12.2005 valid for the import of Blister Copper. The goods sought to be cleared (were declared to be valued al US $ 47,48,156.85 equivalent to Rs. 21,74,82,202/-) provisionally as the Commercial Invoice furnished by the importer was provisional due to the fact that the price payable was passed on percentage of copper, gold and Silver in the said consignment subject to the final analysis report by the importer.


3. The goods mentioned above were visually inspected by the Officers in presence of CHA and the representative of appellant. It was noticed that all the 38 containers containing the material are packed in the loose form of packages. Each package had a plate, the upper portion of which had an arm on top. The thickness of the arm portion was approx. 2 inches whereas the plate portion had a thickness of approx., 8 mm and approx., dimension of length and breadth of about 33' by 32'. It appeared that the goods were not Blister Copper and therefore it was decided to sent the goods for the purpose of chemical analysis. Two representative samples were drawn from the Central Portion of the plate and from the arm portion of the plate and were then sent for analysis of Copper and other elements to DYCC of Nhava Sheva Customs House. The samples were drawn by drilling the central as well as the arm part of the said plate with the help of a drilling machine. On 08.06.2006, Deputy Chief Chemist, (Dy. C C), Nhava Sheva forwarded the analysis report for the said sample which is as under:-

It was suggested by the DYCC that the representative samples should be forwarded to National Test House, Mumbai for determination of other elements and its composition. In view of the above analysis report furnished by DYCC, the goods were ordered for detailed examination. The weights of all the 20 containers covered vide B/E No. 779529 dated 18.05.2006 was found to be as per corresponding B/L MSCUSD 137879 dated 8.4.2006.


4. All the aforesaid goods, totally weighed 988,170 000 kgs. as per the declaration given in the two 13/L he MSCUSD 127879 dated 8.4.2006 and MSCUSD 138901 dated 14.4.2006 and declared value of Rs. 21,74,82,202/- in the B'S/E, were taken over and seized under a Panchnama on 13.06.2006 under Section 110 of the Customs Act, 1962 on reasonable belief that these were misdeclared as Blister Copper and, in fact, were found to be Copper Plates of refined copper and therefore, liable for confiscation under the provisions of Customs Act, 1962.


5. A seizure memo was issued to the custodian of the goods i.e. Balmer & Lawrie CFS in terms of Section 110 (a) of the Customs Act, 1962 directing the custodian not to part with, remove or deal with the goods under seizure".


6. The lower authorities recorded statements of various persons, including the employees of the appellant company. On completion of the investigation a show cause notice dated 12.07.2006 was issued to the appellants herein directing them to show cause as to why:-

A. The above said goods, totally valued at Rs. 27,72,68,266/- imported as Refined copper in the guise of Blister copper by them in violation of Advance License No. 0310359987 dated 19.12.2005 seized by Officer of Customs under Panchnama dated 13.06.2006 should not be held liable to confiscate under Section 111 (d) and (m) of the Customs Act, 1962 read with provisions of Foreign Trade Policy 1992 and Foreign Trade Regulation Rules, 1993.

B. Why the value of the goods the declared by the importer as US $ 47,48,156 equivalent to Rs. 21,74,82,202/- should not be rejected under Rule 4 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and re-determined in terms of Rule 6 of the Custom Valuation (Determination for Price of Imported Goods), Rules, 1988 read with Section 14 (1 A) of the Customs Act, 1962.

C. Why the duty of Rs. 8,47,51,690/- should not be charged and recovered from the importer, M/s. Sterlite Industries (I) Ltd., under Section 28 of the Customs Act, 1962.

D. Why Advance License No. 0310387463 dated 29.6.2006 should not be rejected for clearance of goods covered by B/E No. 775929 and 779739 both dated 18.5.2006.

E. Why penalty under Section 112 (A) of the Customs Act, 1962 should not be imposed on

1) M/s. Sterlite Industries (India) Ltd.,

2) Shri Jayesh Sargia, Associate General Manager, Copper Concentrate, M/s. Sterlite Industries (India) Ltd.,

3) Shri S. Vardharajan, Associate Vice President, M/s. Sterlite Industries (India) Ltd.,

4) Shri Shailesh Mittal - Associate, General Manager, Finance, M/s. Sterlite Industries (India) Ltd.".


7. Subsequently, the appellant sought provisional clearance of the consignments on furnishing of Bank Guarantee. All the appellants herein contested the show cause notice on the various grounds. The appellant company contested the show cause cum demand notice mainly on the ground that there is no evidence of misdeclaration of the consignments, that the goods imported were not refined copper as is sought to be classified by the revenue, that advance licenses covering the consignments were produced, the enhancement of the value based upon the prices prevailing on the LME is incorrect and that there cannot be any intention to evade the customs duty as the appellant had used the imported goods for exported goods. All the appellants requested to drop the proceedings initiated by the show cause notices. The adjudicating authority after considering submissions made by the appellants, came to the conclusion that there was mis-declaration, as the consignment was of refined copper, that the value as declared by the appellant company was incorrect hence liable to be rejected and valuation has to be done according to the prices prevalent at the LME, the advance license produced by the appellant company being after the consignment has been seized is not acceptable, passed the following order:-

ORDER

(i) The impugned goods valued at Rs. 27,72,68,266/- imported in the guise of Blister copper in violation of advance license No. 03103359987 dated 19.12.2005 are held liable for confiscation under Section 111 (d) and (m) of the Customs Act, 1962 and the same are accordingly confiscated. A redemption fine of Rs. 7,00,00,000/- (Rupees Seven Crores only) is imposed on the goods in lieu of confiscation under Section 125 of the Customs Act, 1962 and as the goods had already been released on Bank guarantee and PD Bond, M/s. Sterlite Industries (I) Ltd. is ordered to pay the redemption fine of Rs. 7,00,00,000/ - (Rupees Seven Crores only) in lieu of confiscation forthwith.

(ii) The value of the impugned goods declared by the importer as US $ 47,48,156, equivalent to as Rs. 21,74,82,202/- is rejected under Rule 4 of Customs Valuation (Determination of price of imported goods) Rules, 1988. The value is re-determined in terms of Rule 6 of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988 read with Section 14 (1A) of Customs Act, 1962 to be Rs. 27,72,68,266/-.

(iii) Demand of Customs Duty of Rs. 8,47,51,690/- is confirmed under Section 28 of Customs Act, 1962 and the importer M/s. Sterlite Industries (I) Ltd. is ordered to pay it forthwith, failing which the same shall be recovered by enforcing the PD Bond and the Bank guarantee executed by M/s. Sterlite Industries (I) Ltd. with the Asstt. Commissioner of Customs, Nhava Sheva, at the time of provisional clearance of the goods.

(iv) Advance License No. 0310387463 dated 29.06.2006 is rejected for clearance of goods covered by B/E 775929 and 779739 both dated 18.05.2006.

(v) Demand of Custom Duty of Rs. 8,74,51,690/- is confirmed under Section 28 of Customs Act, 1962 and the importer M/s. Sterlite Industries (I) Ltd., is ordered to pay it forthwith, falling which the same shall be recovered by enforcing the PD Bond and the Bank guarantee executed by M/s. Sterlite Industries (I) Ltd. with the Asstt. Commissioner of Customs, Nhava Sheva, at the time of provisional clearance of the goods.

(vi) Advance License No. 0310387463 dated 29.06.2006 is rejected for clearance of goods covered by B/E 775929 and 779739 both dated 18.05.2006.

(vii) I impose a penalty of

(a) Rs. 1,70,00,000/- (Rupees One Crore Seventy Lakhs only) on M/s. Sterlite Industries (I) Ltd.

(b) Rs. 20,00,000/- (Rupees Twenty Lakhs only) on Shri Jayesh Sargia, Associate General Manager - Copper concentrate, M/s. Sterlite Industries (I) Ltd.

(c) Rs. 20,00,000/- (Rupees Twenty Lakhs only) on Shri S. Vardharajan, Associate Vice President, M/s. Sterlite Industries (I) Ltd.

(d) Rs. 10,00,000/- (Rupees Ten Lakhs only) on Shri Shailesh Mittal, Associate General Manager, Finance, M/s. Sterlite Industries (I) Ltd. under Section 112 (ii) read with Section 112 (a) of the Customs Act, 1962.

Aggrieved by such an order the appellants have preferred these appeals.


8. Learned counsel appearing for all the appellants submits that the impugned order is wrong and has not considered the facts in proper perspective. It was submitted that the factual matrix of the case is -

"Appellant has manufacturing facilities at Tuticorin, where refined copper which has minimum copper content of 99.99% is manufactured from copper concentrates, which has copper content of approximately 30%. For manufacturing refined copper the copper concentrate is first smelted in a ISA Furnace. In this process copper matte and slag is generated, in a liquid form, the copper content in the copper matte is about 60%. This mixture of copper matte and slag is further processed in rotary holding furnace where the slag in the copper matte is separated from the slag. The copper matte thereafter obtained has copper content of 60 to 65% purity. The same is put in a converter and is further processed to obtain blister copper (liquid form) which has 98.5% to 99.5% copper content. The blister copper is processed in an anode furnace by preliminary fire refining and preliminary refined blister copper (liquid form) having copper content of 99.5 to 99.7% is obtained. The same is then cast in as a blister copper anode, which are contains 99.5 to 99.7% copper. These anodes are thereafter electrolytically refined and refined copper cathodes which has purity of 99.99% is obtained. In the process of electrolytic refining not all the blister copper anode is refined and some portion of the said blister copper anode cannot be electrolytic refined due to technical reason and is taken back to the anode furnace, this spent blister copper anode is melted and is again cast into a blister copper anode, which is again subject to the process of electrolytic refining.

While the aforesaid facility for manufacturing refined copper cathode from copper concentrate is available at Tuticorin. The appellant also has facilities for manufacturing refined copper cathode at Chinchpada, Silvassa. At Chinchpada it however starts from the stage where spent blister copper anode is charged in the anode furnace and melted (preliminary fire refining) and is cast into blister copper anode, which is electrolytically refined to obtain refined copper cathode.

Appellant had planned a preventive shut down of its smelting facilities at Tuticorin sometime in the month of April 2006 and had accordingly placed an order for import of 1000 MT of blister copper on M/s. Caraiba Metais, Brazil. As per agreement which had been entered into, the price for the imported goods was to be arrived at by adopting the average price prevailing in the London Metal Exchange during the corresponding Q/P based on the actual copper content, gold content and silver content, in the imported goods. Since the goods to be manufactured from the imported material were to be exported, appellant applied for and was issued Advance Licence No. 0310372484 dated 21.3.2006. This licence specifically covered import of blister copper".

It was submitted that goods imported was blister copper falling under chapter heading No. 74.02, as they were not refined copper falling under chapter heading No. 74.03. It was submitted that the goods imported were internationally known as blister copper and merit classification under 74.02 as the said goods are not of 99.99% purity. Learned counsel would draw our attention to the rival entries. It was submitted that the appellants had specifically sought retest of the consignments, which according to him is in appellants' favour. He takes us through the entire OIO and submits that adjudicating authority has held that the goods imported were spent anodes. Learned counsel takes us through the process flow chart and submits that the goods imported are first melted in the furnace, casted and then taken to electrolytic refining, for further manufacture of copper cathodes. It is the submission that there is no dispute as to the fact that imported blister copper was taken to appellant's Silvassa factory and used in the manufacture of copper cathode. It was submitted that appellant's produced a valid Advance license for the consignment of blister copper, but noticing that the revenue is disputing the said consignments as being of refined copper, the appellant produced another advance license (issued by DGFT) for refined copper. It is the submission that it is undisputed that appellant was exporting copper cathodes manufactured out of imported consignment of blister copper. It is the submission that the adjudicating authority has not accepted the second advance license on the ground that the said license was procured after the consignment was seized. He would assail these findings on the ground that the EXIM policy and the Handbook thereto clearly envisage for procurement of the advance licenses for the consignment under clearance. He would draws our attention to the said provisions. He would also point out that the report of National Metallurgical Laboratory analysed the sample in scientific manner and the results would indicate that the copper content of imported consignment is 99.7% and not 99.9% as claimed by the revenue.


9. Learned Jt. CDR arguing for the revenue would support the impugned order. It is submitted that goods imported by the appellant is not blister copper but copper plates and blocks. He would draws our attention to the Metallurgy of blister copper (as downloaded from the net) to submit that blister copper arises due to bubbling of air in melted copper ore, and the resultant product is blister copper which is further purified to form refined copper. He would read that blister copper should essentially have blisters on its surface, while what is imported is spent copper anode plates. It is the submission that blister copper should come from the smelter and not in form of spent copper anode plates. It is his submission that test report of Dy. CC and NML is accepted by appellant, which would mean, that it is accepted that goods imported is of 99.7% purity, that is nothing but refined copper. He would submit that this is mis-declaration in itself. It was submitted that appellant has not led any evidence that goods imported are defined as blister copper. He would submit that blister copper and refined copper are different commodity and are traded differently in LME. It is his submission that advance license as submitted by the appellant for the first time was for covering the item falling under chapter heading No. 74.02, and is not valid for the imported consignment as the classification of the consignment is under chapter heading No. 74.03. It is the submissions that there is huge difference in the value hence the both goods are different. It is the submission that production of second advance license is of no avail as the said license is issued after the seizure of the goods. He would draw our attention to Section 149 to submit that even this section will not help the appellant, as it is in regards to the amendment to the BOE. He would submit that license should be valid on the date of imports, and submits that Hon'ble High Court of Delhi, in the case of Vikratn Industries has held that DGFT has no power to amend license retrospectively. It is the submission that DGFT cannot issue another license for the goods imported in violation of conditions of first license. For this proposition he would rely on the case law reported at 2001 (137) ELT 61. It is the submission that second license may be a valid license for the goods that has arrived but may not be valid for the goods that has arrived and were seized. He would submit that there is mis-declaration as there is difference in value. It is the submission that valuation as is done by the adjudicating authority is correct and is based on the LME price range during the relevant period.


10. In rejoinder learned counsel would submit that there is no mis-declaration, the appellant has declared the goods as blister copper which is what is the finding of the adjudicating authority i.e. the goods imported are spent copper anodes. He would submit that chapter heading No. 74.03 would not cover anodes as the said heading is clearly for cathodes. He would submit that chapter heading No. 74.02 specifically covers anodes. It is the submission that chapter heading No. 74.03 will only cover cathodes those are obtained after electrolysis and copper anodes will not be covered under the said chapter heading. It was submitted that clearances were sought provisionally on the basis of proforma-invoice raised by the supplier and the final payment of consignment was done after completion of the analysis and the value paid by the appellant to the supplier is far more than the value as is arrived by the adjudicating authority and the appellant has discharged the duty as per the final bill raised. He would submit that the document relied upon by the Jt. CDR would support their case. It is the submission that if a classification is sought to be changed by the revenue, then it was for them to adduce evidence to that effect. For this proposition he relied on the decision of the Hon'ble Supreme Court in the case of Hindustan Ferodo,1996 (017) RLT 0807 (SC)=1996(12)LCX0029 Eq 1997 (089) ELT 0016 (SC).


11. We have considered the submissions made at length by both sides and perused the records. Undisputed facts are that the goods imported and provisionally cleared, are utilized by the appellant in the manufacture of copper cathodes (refined copper) falling under chapter heading No. 74.03. This fact is evident from the certificates issued by the Revenue authorities having jurisdiction over the factory of the appellant. It is also undisputed that appellants have capacity to manufacture refined copper from the consignments imported by them, as indicated by them from the manufacturing flow chart. It is also undisputed that the appellant had advance license for the import of blister copper falling chapter heading No. 74.02, they also procured further advance license for the goods imported after revenue disputed the classification of the goods imported. With this factual matrix we have look in to the issue involved. Appellant has classified the imported consignment of "Blister copper" and filed provisional BOE under chapter heading No. 74.02 while revenue seeks to classify the consignment under chapter heading No. 74.03. Revenue seeks classification under chapter heading No. 74.03 based on the report of the Deputy Chief Chemist, who, on analysis of the samples, opined that imported consignment of copper is of refined nature as it contains 99.90% copper. The appellant's request for retesting the sample was granted and the samples were sent for testing to National Metallurgical Laboratory. The analysis report opined that the samples contained 99.7% of copper and the NML also gave the contents of other metals.

12. At this stage it is necessary to consider the rival entries, they are:-

It can be noticed from the above reproduced chapter heading, that heading number 74.02 covers "refined copper; copper anodes for electrolytic refining" and also covers blister copper. There is no explanation given as to what is blister copper. In the absence of any explanation, the word blister copper has to be understood, as it is known in the trade. Learned Jt. CDR has produced a print out from Internet i.e. "Metallurgy of copper" wherein what is blister copper is detailed. We may read the same.

"BESSEMERIZATION

Copper metal is extracted from molten matte through bessemerization. The matter is introduced into Bessemer converter which uphold by tuyers. The air is blown through the molten matte. Blast of air converts Cu2S partly into Cu20 which reacts with remaining Cu2S to give molten copper.

The copper so obtained is called "Blister copper" because, as it solidifies, S02 hidden in it escapes out producing blister on its surface.

IMPURITIES IN BLISTER

COPPER AND THEIR EFFECTS

Blister copper is 99% pure. It contains impurities mainly iron but little amount of As, Zn, Pb, Ag, and Au may also be present. These impurities adversely affect the electrical as well as mechanical properties of copper. Therefore, they must be removed.

REFINING OF COPPER

Blister copper is refined by electrolysis. Blocks of blister copper are used as anodes and thin sheets of pure copper act as cathodes. The plates are coated with graphite in order to remove depositing copper. The electrolyte is copper sulphate (CuS04) mixed with a little amount of H2S04 to increase the electrical conductivity. Optimum potential difference is 1.3 volt for this electrolytic process. During electrolysis, pure copper is deposited on the cathode plates and impurities which are soluble and fall to the bottom of the cell as anode mud or sludge".

It can be noted that blister copper can have 99% copper content in them, but still they are not called as refined copper. It also further states that this blister copper contains impurities that have to be removed in order to make the refined copper useful for electrical purposes, and such refining can be only done by electrolysis. It also further states that blister copper is also in the form of blocks and is called anodes. We find in the case before us, the adjudicating authority after relying on various explanatory notes and definitions held that "Blister copper is an intermediate product arrived at before extraction the refined copper and the two are entirely different products of copper obtained during the refining process. Physically, Blister copper is generally in lumps or crude mass characterized by blisters on their surface formed by escape of gases." It can be seen that these findings of the adjudicating authority are incorrect, as the description given in the paper produced by the learned Jt. CDR indicates that the Blister copper can have 99% as copper content, can be in the form of blocks which are generally called as anodes. It is admitted and undisputed in this case that consignments in dispute, in the words of adjudicating authority (at internal Page 22 of the impugned order). "From the description given in the SCN, the impugned goods appear to be spent anodes obtained from electrolytic refining of Copper". This would mean that the goods imported were in anode form and were obtained after electrolytic refining of copper. It is seen from the reproduced chapter headings that the word "anode" specifically finds mention at chapter heading number 74.02. Further in the case before us, it on record and undisputed, that imported consignments in question were first melted and further made in to blocks of anodes, further used to make copper cathodes. It is also evident that refined copper is known as cathodes and falls under heading number 74.03. In view of the foregoing reasons we are of the considered view that the consignments imported by the appellant are classifiable under chapter heading number 74.02.


13. We find that, on the aspect of valuation of the consignments, it is on record and undisputed that the initially at the time of provisional clearances the appellant had discharged duty liability on the basis of proforma invoice of the supplier. It is also on record and undisputed that as per the contract between the appellant and the supplier, the final consideration of the imported goods has to be made after ascertaining the exact contents of the copper. The appellant while clearing the consignment provisionally, had declared the value as US $ 47,48,156 equivalent to Rs. 21,74,82,202/-. This value was rejected by the adjudicating authority and re-determined the value as Rs. 27,72,68,266/- (i.e. US $ 60,53,892/- approx.). The learned counsel draws our attention to page 255 in the appeal memoranda and submits this is the final payment made by the appellant in respect of the disputed consignment. We find from the invoice, that appellant has determined the final value to be paid to the supplier as US $ 70,20,188.33, less the advances paid. It is evident that the appellant has himself re-determined the value as per the contract (which is far more than the value as arrived at by the adjudicating authority) with the supplier and has produced the invoice of final payment. If that be so, then there cannot be any quarrel of under-valuation of the consignments in dispute.


14. As we have already held that the classification of the disputed consignments, merits classification under chapter heading No. 74.02, also that there is no mis-declaration of value, we find that the impugned order confiscating the consignments under Section 111 (d) and 111 (m) of the Customs Act, 1962 is not sustainable and is liable to be set aside and we do so.


15. As we have already held that the correct classification of the disputed consignment being 74.02, it is held that the advance license produced by the appellant will cover the imports and lower authorities are directed to make appropriate entries in the license produced by the appellant. As we have held mat the imported consignments are covered by the advance license, there cannot be any confirmation of duty on these consignments. The impugned order to the extent it confirms the demand of Custom duty is also liable to be set aside and we do so.


16. As we have already set aside the confiscation of the disputed consignments, there cannot be any penalty under Section 112 (ii) read with Section 112 (a) of the Customs Act, 1962 on any of the appellants.


17. is set aside and the appeals are allowed

Pronounced in Court on 14.10.2008.In view of the foregoing the impugned order

Equivalent 2009 (090) RLT 0641 (CESTAT-Mum.)

Equivalent 2009 (237) ELT 0609 (Tri. - Mumbai)