2013(07)LCX0020

IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD [COURT NO. I]

S/Shri M.V. Ravindran, Member (J) and H.K. Thakur, Member (T)

Welspun Corporation Ltd.

Versus

Commissioner of Customs, Kandla

Misc. Order No. M/13027/2013-WZB/AHD, dated 9-7-2013 in Application No. C/S/10889/2013 in Appeal No. C/10991/2013

Cases Quoted -

Assistant Collector v. Dunlop India Ltd. -1984(11)LCX0003 Eq 1985 (019) ELT 0022 (S.C.) - Not Applicable [Para 7]

Atul Commodities Pvt. Ltd. v. Commissioner - 2009(02)LCX0009 Eq 2009 (235) ELT 0385 (S.C.) - Referred [Para 4]

Northern Plastic Ltd. v. Collector - 1998(07)LCX0097 Eq 1998 (101) ELT 0549 (S.C.) - Referred [Para 3]

Oblum Electrical Industries Ltd. v. Commissioner - 1997(09)LCX0087 Eq 1997 (094) ELT 0449 (S.C.) - Relied on {Para 4]

Pooja Exporters v. Asstt. Director, D.R.I. - 1988(04)LCX0016 Eq 1989 (041) ELT 0021 (Kar.) - Referred [Para 7]

Quality Exports v. Collector - 1999(11)LCX0238 Eq 2000 (116) ELT 0531 (Tribunal) - Referred [Para 3]

RBI v. Peerless General Finance - 1987 (1) SCC 424 - Referred [Para 4]

South India Exports v. Joint Director of Foreign Trade - 2003(12)LCX0333 Eq 2004 (177) ELT 0057 (Mad.)- Referred [Para 7]

Tata Motors Ltd. v. Commissioner - Misc. Order Nos. M/948-949/2013-WZB/CSTB/C-1,dated 17-6-2013, by CESTAT, Mumbai - Referred [Para 3]

Usha Thermosets Pvt. Ltd. v. Commissioner - 2010(01)LCX0169 Eq 2010 (254) ELT 0156 (Tribunal) - Referred [Para 3]

Advocated By -

S/Shri V.S. Nankani and Hardik Modh,
Advocates, for the Appellant.
Shri KM. Mondal, Special Counsel, for the Respondent.

[Order per : M.V. Ravindran, Member (J)]. -

This stay petition is filed for waiver of pre-deposit of amount that arises out of Order-in-Original No. KDL/COMMR/10/2013-14, dated 19-4-2013, whereby the Commissioner of Customs, Kandla has confirmed the demand for customs duty of about Rs. 860 crores, interest thereof with equivalent penalty, in addition to personal penalties on other noticees. The Commissioner has confirmed the demand for duty on the ground that the goods imported are "Non-Alloy Steel" falling under Tariff Heading 72.25 by virtue of Chapter Note 1(f) of Chapter 72 of Customs Tariff whereas the Advance Licences, against which goods were imported, were issued for duty free import of Non-Alloy Steel.


2. Mr. V.S. Nankani, learned Counsel appearing on behalf of applicant company made two broad propositions to show prima facie case. The first he submitted that steel imported by the company is non-alloy but the Commissioner has misconstrued Chapter Note 1(f). The second is regardless of the classification, the steel imported has been actually used in the export product and 100% export obligation has been completed and hence the language of the advance licence must be construed having regard to provisions of the Customs Notification and Foreign Trade Policy.


3. Dealing with the first point, Mr Nankani submitted that before reading Note 1(f), we must read Note 1(d) and Note 1(e) which define "Steel" and "Stainless Steel" which reveal that all steel is an alloy of ferrous with varying percentage of elements. Note 1(f) uses the expression "containing by weight one or more of the following elements in the proportion shown". The learned Counsel submits that depending on the requirement of the end customer order for steel is placed to manufacture pipes. The company is a manufacturer exporter and engaged in the manufacture of Submerged Arc Welded pipes (SAW pipes) which are supplied to internationally reputed buyers in the oil and gas industry. These pipes, according to him, are manufactured out of steel for which special orders are placed with the manufacturers thereof based on the purchase orders received by the company from different buyers all over the world. The purchase orders contain specifications of the steel where including the range of chemical composition and the standards to which the same must conform and the grade which it must satisfy are mentioned as per buyer's requirements. He submitted that, in this case, the steel imported by the company confirms to API standards (American Petroleum Institute) and major quantity is that of grade X-70 and X-65. For this purpose, the company applied for advance licences to import duty free raw materials/inputs. He took us through Chapter 4 of Foreign Trade Policy (FTP) which deals with Duty Exemption and Remission Schemes, of which advance licences is one part. Mr. Nankani invited our attention to paragraph 4.1 which talks about inputs "required for" or inputs used in the export product. He further pointed out that paragraph 4.1.3 of FTP provides that an advance authorization is issued to allow duty free import of inputs which "physically incorporated" in export product. He therefore submitted that the object and purpose of advance licence scheme was to allow duty free import of inputs which are required for and physically incorporated in the export product and with this object they applied for the advance licence. With this objective they applied for advance licences. As per industry practice, they applied under entry C-593 of the Standard Input-Output Norms (SION) but whenever they wanted to import items not covered by SION, they applied under the ad hoc licensing procedure in terms of paragraph 4.4 read with paragraph 4.7 of the Handbook of Procedures (HBP). He relied upon one of the specimen licences to show how they had applied for 28 licences out of the total 52 licences on ad hoc basis wherein the company was eligible to apply for alloy steel as the item for import since alloy steel was not ex-cluded by the DGFT by a public notice in terms of para 4.1.3 of FTP. Mr. Nankani submitted customs duty on alloy and non-alloy steel was the same at all times except between 29-4-2008 and 18-11-2008 when non-alloy steel was exempted while alloy steel attracted 5% customs duty under Notification 21/2002-Cus., as amended but in so fa^r as advance licences are concerned the goods are wholly exempted at all times under Notification No. 93/2004-Cus. He invited our attention to the definition of "Materials" in the Explanation to the said Notification which contains the words "required for" which are wide enough to include all or any inputs for manufacture of export goods. He therefore submitted that when the company was qualified for and eligible to apply for advance licences for alloy steel there was no reason for the company to import alloy steel in the garb of non-alloy steel, more so when in so far as the export product is concerned, it does not matter whether the steel is called alloy or non-alloy so long the standards and the grade of the steel match with each other. According to the learned Counsel, when the law permitted the company to apply for alloy steel licences there was no intention to evade duty, especially, when duty outside advance licence scheme was also the same for the entire period from 1-4-2007 to 19-2-2010, except for the 7 month period mentioned above. Upon import, he also pointed out that in all the bills of entry the description is shown as "Hot Rolled Coils API 5L X-70" and the same description was also available in the invoices, packing list and bill of lading. However, they claimed classification under Heading 72.08 which is for Non-Alloy. The learned Counsel submits that Heading 72.08 is correct because as per Mills Test Certificate (MTQ (which were admittedly not produced by them at the time of clearance but seized during search) if the steel has more than one elements, then all the elements present in the steel must by weight be in the same proportion as shown in Note 1(f). As opposed to this interpretation, he submits, that according to the Revenue even if any one of the elements present is by weight as shown in Note 1(f), the steel becomes alloy steel. The learned Counsel submits that the interpretation by the Revenue renders the words "or more" in Note 1(f) redundant. He argues that if the intention was to cover steel with even one element by weight in the same proportion as shown in Note 1(f) it would have read as "any one of the following elements" and not as "one or more of the following elements". Consequently, according to the applicants, since the steel imported by them, admittedly contains more than one elements, and since all the elements present in the steel as per MTC are not in the same proportion as shown in Note 1(f), the goods are not "Other Alloy Steel" falling under Heading 72.25. The learned Counsel refers to observations of the Hon'ble Member (Judicial) in Tata Motors Ltd. v. CC [Order Nos. M/948-949/2013/CSTB/C-1, dated 17-6-2013] as his submissions. He fairly submits that this is not a precedent since there is a difference of opinion but said that when two views are possible, the applicant is entitled to waiver of pre-deposit as held in Usha Thermosets P. Ltd v. CCEx [2010 (254) ELT 156] and Quality Exports v. CCE [2000 (116) ELT 531]. In any event, he pointed out that mere claim for classification under Heading 72.08 as against Heading 72.25 of the Customs Tariff did not amount to misdeclaration relying on the judgment of the Hon'ble Supreme Court in Northern Plastics Ltd v. Collector -1998 (101) ELT 549.
4. Mr. Nankani further submitted that the expression Non-Alloy Steel must be given a contextual meaning in the background of the Advance Licence Scheme as held by the Apex Court in RBI v. Peerless General Finance [1987 (1) SCC 424]. He also said that due regard must be had to the object and purpose of the Scheme as held by the Hon'ble Supreme Court in Oblum Electrical Industries Ltd. v. CC [1997 (094) ELT 449] in which case it was also held that wider meaning is to be given to the definition of "materials" because of the use of the words "required for". He drew our attention to two Policy Circulars 30 dated 10-10-2005 and 72 dated 24-3-2009 issued by the DGFT/Ministry of Commerce in the con-text of DFRC and DFIA, which are also part of the Duty Exemption Schemes under Chapter 4 of FTP to show that duty free import of alternate inputs is also permissible since the basic idea is to provide export incentives under all these Schemes including advance licences. He pointed out that 36 licences were in fact redeemed by the licensing authorities. Accordingly, when dispute arose in this case, the company sought clarification from the DGFT/Norms Committee and by letter dated 16-5-2012, it was clarified that so long as the goods imported and exported are of the same grade, the import was permissible. He relied on the Apex Court judgment in Atul Commodities Pvt. Ltd. v. CC [2009 (235) ELT 385] and Para 2.3 of FTP to submit that clarification by DGFT on Policy interpretation is final and binding. Mr. Nankani refers to Policy Circular No. 22 dated 18-7-2008 to show that if the Customs had disputed the classification at the time of clearances, they could have got the advance licences amended. He also referred to Public Notice 51 dated 2-6-2011 whereby C-593 of SION was amended to include both alloy and non-alloy steel. On the issue of extended period of limitation, the learned Counsel submitted that there was no intention to mislead by producing 13 certificates from manufacturer of steel, namely, TISCO, China certifying the goods are Non-Alloy Steel when more than 100 consignments were imported. These certificates were produced to expedite clearances and are not false. The company bona fide believed that goods are classifiable under Heading 72.08 based on legal interpretation of Note 1(f). MTCs were not produced because as per Standing Order No. 7837, dated 5-2-2004 issued by Mumbai Customs, which ac-cording to him is also followed in Kandla Customs casts onus on the customs officer to call for the MTC, and that too when there is doubt whether steel is prime or defective/seconds, but not otherwise. The learned Counsel, on the other hand points out that in some cases along with the bill of entry, the country of origin certificate submitted by them in about 25 cases, shows the Tariff Heading as 72.25, and hence there was no intention to conceal. But even in those cases, the proper officer, accepted the classification under Heading 72.08. The bond/LUT given as per condition (iii) of Notification 93/2004 is not invocable as the goods had been used for the purpose for which they were imported. He submitted that since the entire quantity was used for export production, they could alternatively have claimed benefit under DEPB or Drawback, and hence there was no gain to the company to misdeclare the goods as non-alloy steel. He submits that on the contrary denial of duty benefit now will amount to taxing exports which is not the Government policy. Mr Nankani submitted that there was no suppression or wilful misstatement when the correct description of goods is declared in the bill of entry, and the properties /characteristics of API Grade X-65 or 70 are available in public domain. Besides, he refers to a list of 37 bills of entry duririg the same relevant period when X-70 grade from same manufacturer was found to be non-alloy steel and not covered by Note 1(f) even on Commissioner's findings. The ultimate object according to the company is to fulfil export obligation and for which purpose, whether the steel is classified as alloy or non-alloy is irrelevant.


5. Lastly Mr. Nankani referred to the Consolidated Accounts for the year ended 31-3-2013 to show that there is a Post Tax loss of about Rs. 88 crore, and hence any order of pre-deposit would cause the company undue hardship.


6. Mr. K.M. Mondal, learned Counsel for the respondent submitted that on a plain reading of Note 1(f) when the steel has an element which by weight conforms to the proportions shown thereunder, the steel ceases to be non-alloy steel and merits classification under Heading 72.25. He vehemently submitted that the company knew the truth as has been admitted in the statements of the Chairman and other senior officers of the company recorded under Section 108 of the Customs Act that the steel imported by them was alloy steel and yet they cleared them duty free as non-alloy because the advance licences were for non-alloy steel falling under Heading 72.08. He also invited our attention to the various representations made by the company during investigations in which the company accepted that it made a mistake by applying for licences for non-alloy steel and erroneously imported the goods. Mr. Mondal submitted that the advance licences not only describe the goods as "non-Alloy Steel" but also indicate the ITC (HS) Code as 72.08 which corresponds to Customs Tariff 72.08 meaning thereby that unless the goods imported are classified under the same heading, duty free benefit is not available. Referring to Tata Motors, he submitted that the observations of Hon'ble Member Technical supported his case.


7. Mr. Mondal placed on record the affidavit dated October, 2012 filed by Shri R.C. Kalra, Deputy Director of Foreign Trade in Writ Petition No. 2031 of 2012 filed by the applicant company to show that even the licensing authority agreed with the Customs interpretation that company was not permitted to import alloy steel against the licences issued to them. Mr Mondal pleaded that redemption of licences was not conclusive and does not debar Customs Authorities from re-opening the cases for demanding duty. He submits that the company deliberately did not disclose the MTCs as they knew from the beginning that the goods are alloy steel. He further submitted that MTC is received for all consign-ments along with other documents, and the company produced all other documents except MTCs with the bills of entry filed by them. Instead the company produced false certificates and one blank one was found during search and some were obtained through the manufacturers, agents. For this reason, he also submitted that the proviso to Section 28(1) was available to demand duty for the extended period. Relying on the judgment of the Hon'ble Supreme Court in Assistant Collector of Central Excise v. Dunlop India Ltd. [1985 (019) ELT 22], Mr. Mondal fairly pressed only for securing at least the duty amount. He also relied on the judgments of Hon'ble Karnataka High Court in Pooja Exporters v. Asstt. Director, DRI [1989 (041) ELT 21] and that of Hon'ble Madras High Court in South India Exports v. Joint Director of Foreign Trade [2004 (177) ELT 57] to show that Customs authorities have jurisdiction to demand duty in case of misuse of advance licences.


8. We have given our anxious considerations to submissions made by both sides. We firstly set out the uncontroverted facts. The advance licence scheme is to encourage exports and allow import of duty free inputs required for manufacture of export goods. There is no dispute that the entire quantity imported has been used in accordance with FTP and Customs Notification for export production. There is also no dispute that whatever be the goods alloy or non-alloy steel after using the final products have been exported and export obligation is 100% completed. We find there is no allegation of diversion of goods imported duty free in the market or mis-utilisation for some other purpose. There appears also no dispute that API standard X-70 grade can be either alloy or non-alloy in terms of Note 1(f) as applied by the Commissioner. Equally well, it is not in dispute that MTCs were not filed with the bills of entry.


9. We now take the classification issue. Here too, two things are not in dispute. Atiy type of steel is an alloy and there is no definition of Non-Alloy Steel in the Customs Tariff. If steel by itself as seen from Note 1(d) and (e) to Chapter 72 is an alloy, normally, it would be incorrigible to conceive of non-alloy steel. But Note 1(f) defines "Other Alloy steel". Neither the assessee nor the Department has thrown light on the word "Other". Note 1(f) starts with the words

"Steel not complying with the definition of stainless steel ". Note 1(f) follows definition of Steel and Stainless Steel in Note 1(d) and (e). As such, on plain reading it appears that Note 1(f) covers all types of steel except stainless steel and not just confined to alloy steel as contended by Mr. Mondal because if it is accepted that all steel is an ferrous based alloy, there is no need of definition of alloy steel. The use of the word "Other" and the absence of definition of non-alloy steel, at this stage, subject to detailed further hearing, prima facie indicates that Note 1(f) covers all forms of steel. If that be so, what distinguishes alloy from non-alloy steel, and for this, the test, prima facie, appears to be presence all the elements in a given batch of steel in the same proportion by weight as shown in Note 1(f) when there are more than one elements to make it alloy steel but if all the elements are in different proportions, it would be non-alloy steel. If this interpretation is accepted then even as per MTC, the steel imported by the applicants cannot fall under Note 1(f). We are conscious of the division of Chapter 72 into Parts I to IV where Part II is for Non-Alloy and part IV is for Other Alloy Steel but Note 1(f) is not restricted to Part IV only and as per the opening part of Note 1 to Chapter 72 applicable to the whole Schedule. Prima facie it does appear that even if interpretation by both sides is considered, when two views are possible, on first principles, and without any reference to the case of Tata Motors, the one in^favour of assessee must be preferred in matters of classification where as is the settled law, the burden to prove is on the Department.


10. Mr. Mondal heavily relied on statements of the Chairman and other officers of the company and the representations made to DRI to contend that the company has accepted that what was imported by them was alloy steel but in matters of classification what needs to be followed are the provisions of the Tariff and the relevant Chapter Notes and not the individual's understanding of the same. There is also no estoppels in matters of classification, and therefore while these statements and representations shall be considered in detail at the final hearing, for the hearing of the stay petitions, suffice is to say that without an unequivocal determination on the correct scope and ambit of Note 1(f) these cannot be considered in isolation. We also take note of the fact that Customs Notification refers to materials required for manufacture of goods for export which expression must be given a wide meaning as per the law laid down in Oblum Electrical (supra) and therefore regardless of the classification under 72.08 or 72.25, so long as the steel imported was required to manufacture goods for export and has in fact been so used as stated, benefit of Customs Exemption Notification cannot be denied.


11. Mr. Mondal did not oppose that the company is eligible to apply for both non-alloy and alloy steel for import under advance licence and also the fact that X-70 grade can be both alloy or non-alloy based on Department's case but he relied on the affidavit filed by Deputy Director before the High Court to contend that as per DGFT also the company could not import alloy steel against licences for non-alloy steel and that alloy and non-alloy steel are distinct items. We find that the affidavit of the Deputy Director does not deal with the clarification dated 16-5-2012 issued by DGFT/Norms Committee which is prior in time. Undoubtedly the Deputy Director is subordinate to DGFT and Norms Committee and clarification is binding as per para 2.3 of FTP and hence as there is no dispute that same grade of steel was imported and exported, prima facie, we hold that the applicants have made out a prima facie case on merits. It is to be noted that in appellant's application for advance licence, they had sought for import of an item which was not mentioned SION Norms allowed by DGFT authorities.


12. On limitation, it does appear that manufacturer's certificates were obtained instead of producing the MTCs for clearance. But as aforesaid, even on the basis of the chemical composition in the MTC if the goods merit classification under Heading 72.08, the non-disclosure of MTCs would not amounf to wilful conduct or concealment on the part of the applicant particularly when description in the bill of entry is not disputed. Even the few country of origin certificates with heading 72.25 did not raise any query or objection from the assessing officer since the goods were meant for manufacture of export goods. We find prima facie no illegal illegible benefit or gain to the applicant, if all goods are exported and hence prima facie no case of intention to evade duty, given the absence of diversion or misutilisation is made out.


13. On the balance of convenience we find that since all duty free inputs as imported in this case'are required for manufacture of goods for export and have in fact as claimed and not disputed, actually so used, there is no question of passing of the incidence of duty and therefore, respectfully hold that the judgment of the Hon'ble Supreme Court in Dunlop (supra) cited by Mr. Mondal may not be applicable. We have also taken note of the financial statement of the applicants and deposit of Rs. 1.5 crore made during investigations. It is also undisputed that clarifications given by Norms Committee of Ministry of Commerce, specifically states that import alloy/non-alloy steel, is permitted as long as it can be shown that imported goods are consumed in manufacture of export goods.


14. In the circumstances, we are of considered view that the appellant has made out a prima facie case for waiver of pre-deposit of duty, interest thereof and penalty. Accordingly, the applications for waiver of pre-deposit of the amounts involved is allowed and recovery thereof until the final disposal of the appeal.


15. As the amount of duty involved is high, both sides at the conclusion of the hearing, requested for early hearing, preferably in September, 2013. The request is accepted, early hearing is allowed and appeal fixed for final hearing on 23rd September, 2013 and if required to continue the next day.

(Pronounced in Court on 9-7-2013)

Equivalent 2013 (296) ELT 0385 (Tri. - Ahmd.)