DESIGNCO vs UNION OF INDIA & ORS.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 14 August 2024
Judgment pronounced on: 22 November 2024
+ W.P.(C) 14477/2022 & CM APPL. 44224/2022 (Stay)
DESIGNCO …..Petitioner
Through: Mr. P. C. Patnaik, Mr. Hemant Mishra & Ms. Ankita Sarangi Advs.
versus
UNION OF INDIA & ORS. …..Respondents
Through: Mr. Rakesh Kumar, CGSC with Mr. Sunil and Mr. Rahul Kumar
Sharma, GP for UOI.
Mr. Jitesh Vikram Srivastava, SPC with Mr. Prajesh Vikram Srivastava, Adv.
Mr. Raghav Bakshi, Adv. for Mr. Aditya Singla, SSC for R-2, R-4 & R-5.
+ W.P.(C) 17314/2022 & CM APPL. 55055/2022 (Interim Relief)
M /S AMIT EXPORTS …..Petitioner
Through: Mr. Tarun Gulati, Sr. Adv. with Mr. Madhav Bhatia, Mr. Shreshth Arya, Mr. Shreuss Shankar Joshi and Mr. Rohan Anand, Advs.
versus
UNION OF INDIA & ORS. …..Respondents
Through: Mr. Rakesh Kumar, CGSC with Mr. Sunil and Mr. Rahul Kumar Sharma, GP for UOI.
Mr. Satish Aggarwala, SSC along with Mr. Aman Tripathi, Ms. Neha Aggarwala Ms. Pooja Bhaskar, Advs.
Mr. Rajeev Kumar Mishra and Mr. Apoorva Singh, Advs. for R-11.
+ W.P.(C) 17328/2022 & CM APPL. 55093/2022 (Interim Relief)
M/S SHARMA INTERNATIONAL …..Petitioner
Through: Mr. Tarun Gulati, Sr. Adv. with Mr. Madhav Bhatia, Mr. Shreshth Arya, Mr. Shreuss Shankar Joshi and Mr. Rohan Anand, Advs.
versus
UNION OF INDIA & ORS. …..Respondents
Through: Mr. Rakesh Kumar, CGSC with Mr. Sunil and Mr. Rahul Kumar Sharma, GP for UOI.
Mr. Rajeev Kumar Mishra and Mr. Apoorva Singh, Advs. for R-11.
Mr. Tribhuvan & Mr. Gokul Sharma, GP for R-2,4,5,8, 9 & 12.
CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
HON’BLE MR. JUSTICE RAVINDER DUDEJA
J U D G M E N T
YASHWANT VARMA, J.
TABLE OF CONTENTS
A. FACTUAL BACKGROUND 3
B. ARGUMENTS RENDERED BY THE PETITIONERS 18
C. SUBMISSIONS OF THE RESPONDENTS 43
D. ASSESSMENT UNDER THE CUSTOMS AND FTDR ACT 47
E. RECOVERY OF DUTY UNDER SECTION 28 AND 28AAA 59
F. SCOPE OF THE AUDIT POWER 68
G. THE POWERS OF THE DGFT 71
H. THE IMPUGNED AUDIT OBJECTION LETTER 76
I. THE PURVIEW OF SECTIONS 28(4) AND 28AAA 80
J. THE CUSTOMS AND THE DGFT CROSSROAD 82
K. PRE-REQUISITES UNDER SECTION 28AAA 86
L. DISPUTE OF CLASSIFICATION 88
M. DETERMINATION 90
A. FACTUAL BACKGROUND
1. This batch of writ petitions assail the action initiated by the respondents seeking to deprive the benefits claimed and derived by the writ petitioners under the Merchandise Exports from India Scheme1. The dispute itself emanates from the export of what the petitioners contend to be handcrafted articles of stone during the period in question and entitled to benefits under the MEIS by virtue of being classifiable under Harmonised System of Nomenclature2 Code 681599. The dispute appears to have arisen in the backdrop of a letter issued by the Central Board of Indirect Taxes and Customs3 dated 31 May 2019 alluding to a discrepancy in the HSN Code liable to be ascribed to stone and marble handicraft products. Based on a reading of that communication of the CBIC, the respondent No. 6, the Commissioner of Customs, appears to have issued a Public Notice No. 57/2019 in terms of which it was apprised to all that stone and marble handicraft products are liable to be classified under Custom Tariff Heading4 6802, subject to compliance being affected with the other conditions comprised in the various Explanatory Notes attached to that heading. It was on a purported reading of the aforesaid communications and the portend of the view taken by the CBIC that action appears to have been initiated against the petitioners. The principal allegation appears to be that the petitioners had illegally obtained benefits under the MEIS and were, therefore, liable to refund the amount of benefit claimed under that scheme. It is this action which also led to the issuance of various summons under Section 108 of the Customs Act, 19625 which are impugned before us.
2. In order to render a context to the issues that arise for our consideration we, for the sake of brevity, propose to take note of the facts as they obtain in W.P. (C) No. 17328 of 2022 and which was designated as the lead writ petition.
3. The petitioner, M/s Sharma International, claims to be a reputed exporter from Agra engaged in the export of handicraft articles made of marble and other material. It avers that it had been exporting those articles since 1991 treating them as classifiable under Indian Trade Classification (Harmonised System)6 68159990, including during the operation of the MEIS scheme, which held the field between 2015 upto 2020. The products themselves are described to be handcrafted articles of stone popularly known as Chakla Belan (Rolling Board and Rolling Pin), mortar and pestle and other allied articles. According to the writ petitioner, those products are prepared by combining marble and stone with steel, wood, glass and the composite material being thereafter bound together with the use of adhesives.
4. According to the disclosures made in the writ petition, the shipping bills of the petitioner submitted for the period 2007 to 2009, and in terms of which the products were classified under ITC(HS) 68159990, were duly accepted and cleared. Apart from the aforesaid exports, the petitioner had also exported those articles during the operation of the MEIS during the period 2015 and right up to 2020. It is asserted that various governmental organizations had, from time to time, duly certified the exported articles as being handicraft products and thus no question ever being raised with respect to their classification under CTH 6815.
5. Proceeding on that basis, shipping bills classifying the products under ITC(HS) 68159990 were duly submitted at the out ports and assessed by the customs authorities. Basis the above, the petitioners also claimed benefits under the MEIS and which were duly availed of. For the purposes of evaluating the controversy which arises, this would appear to be an appropriate juncture to briefly advert to the salient provisions of the MEIS.
6. Under the prevailing Foreign Trade Policy7 of 2015-20, the Union Government, in order to promote exports of Indian handicrafts, had introduced the MEIS. With the avowed objective of providing an impetus to such exports, the FTP provided incentives for the export of notified goods and products and the calculation of corresponding rewards being tagged to the realized Free On Board8 value of exports.
7. In terms of the MEIS, the exporters were also provided duty credit scrips which were transferable. Those duty credit scrips could be used for payment of basic customs duty, additional customs duty, payment of central excise duties on domestic procurement of inputs or goods.
8. The FTP made the following important provisions insofar as the MEIS is concerned: –
3.01 Exports from India Schemes
There shall be following two schemes for exports of Merchandise and Services respectively:
(i) Merchandise Exports from India Scheme (MEIS).
(ii) Service Exports from India Scheme (SEIS).
3.02 Nature of Rewards
Duty Credit Scrips shall be granted as rewards under MEIS and SEIS. The Duty Credit Scrips and goods imported/domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for :
(i) Payment of Customs Duties for import of inputs or goods, including capital goods as per DOR notification, except items listed in Appendix 3A. (Amended vide Notification No. 8/2015-20 dated 4th June 2015).
(ii) Payment of excise duties on domestic procurement of input or goods, including capital goods as per DoR notification.
(iii) Payment of service tax on procurement of services as per DoR notification.
(iv) Payment of Customs Duty and fee as per paragraph 3.18 of this Policy.
Merchandise Exports from India Scheme (MEIS)
3.03 Objective
Objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing Indias export competitiveness.
3.04 Entitlement under MEIS
Exports of notified goods/products with ITC[HS] code, to notified markets as listed in Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of rewards on various notified products [ITC (HS) code wise]. The basis of calculation of reward would be on realised FOB value of exports in free foreign exchange, or on FOB value of exports as given in the Shipping Bills in free foreign exchange, whichever is less, unless otherwise specified.
3.05 Export of goods through courier or foreign post offices using e-Commerce
(i) Exports of goods through courier or foreign post office using e-commerce, as notified in Appendix 3C, of FOB value upto Rs. 25000 per consignment shall be entitled for rewards under MEIS.
(ii) If the value of exports using e-commerce platform is more than Rs 25000 per consignment then MEIS reward would be limited to FOB value of Rs.25000 only
(iii) Such goods can be exported in manual mode through Foreign Post Offices at New Delhi, Mumbai and Chennai.
(iv) Export of such goods under Courier Regulations shall be allowed manually on pilot basis through Airports at Delhi, Mumbai and Chennai as per appropriate amendments in regulations to be made by Department of Revenue. Department of Revenue shall fast track the implementation of EDI mode at courier terminals.
3.06 Ineligible categories under MEIS
The following exports categories/sectors shall be ineligible for Duty Credit Scrip entitlement under MEIS
(i) EOUs/ EHTPs / BTPs/ STPs who are availing direct tax benefits / exemption.
(ii) Supplies made from DTA units to SEZ units
(iii) Export of imported goods covered under paragraph 2.46 of FTP;
(iv) Exports through trans-shipment, meaning thereby exports that are originating in third country but transshipped through India;
(v) Deemed Exports;
(vi) SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units;
(vii) Items, which are restricted for export under Schedule-2 of Export Policy in ITC (HS), unless specifically notified in Appendix 3B.
(viii) Service Export.
(ix) Red sanders and beach sand.
(x) Export products which are subject to Minimum export price or export duty
(xi) Diamond Gold, Silver, Platinum, other precious metal in any form including plain and studded jewellery and other precious and semi-precious stones.
(xii) Ores and concentrates of all types and in all formations.
(xiii) Cereals of all types.
(xiv) Sugar of all types and all forms, unless specifically notified in Appendix 3B.
(xv) Crude / petroleum oil and crude / primary and base products of all types and all formulations.
(xvi) Export of milk and milk products, unless specifically notified in Appendix 3B.
(xvii) Export of Meat and Meat Products, unless specifically notified in Appendix 3B.
(xviii) Products wherein precious metal/diamond are used or Articles which are studded with precious stones.
(xix) Exports made by units in FTWZ.
(xx) Items, which are prohibited for export under Schedule-2 of Export Policy in ITC (HS).
(Para 3.06 amended vide Notification No 8/2015-20 dated 4th June, 2015).
9. For the purposes of implementation of the MEIS, a Public Notice No. 02/2015-2020 was issued by the Director General of Foreign Trade9 specifying the eligible countries to which exports could be made for availing benefits under the scheme as well as the ITC(HS) code wise list of products with reward rates. Appendix 3B which formed a part thereof, listed out the products which were recognized to be eligible under the MEIS and included products classifiable under CTH 6815. CTH 6815 was concerned with articles of stone or of other mineral substances (including carbon fibres, articles of carbon fibres and articles of peat), not elsewhere specified or included.
10. The petitioners were classifying the exported article specifically under ITC(HS) 68159990 and which constituted the residual clause and read as others. By virtue of the inclusion of articles falling within the ambit of ITC(HS) 68159990, those products became entitled to claim MEIS rewards @ 5%. The aforenoted Public Notice No. 02/2015 was thereafter amended from time to time including by way of Public Notice No. 44/2015-2020 dated 05 December 2017 in terms of which the MEIS reward was increased from 5% to 7%.
11. The petitioners aver that on 26 July 2018 the Ministry of Finance, in exercise of powers conferred under Section 11 of the Central Goods and Services Tax Act, 201710 issued Notification No. 21/2018, which exempted the intra-state supply of handicraft goods from tax. Amongst the various goods which came to be included in that Notification were those which would be classifiable under CTH 6802 and ITC(HS) 68159990. The said Notification carried the following Explanation which defined handicraft goods as under:-
Explanation – For the purpose of this notification, the expression handicraft goods means Goods predominantly made by hand even though some tools or machinery may also have been used in the process; such goods are graced with visual appeal in the nature of ornamentation or in-lay work or some similar work of a substantial nature; possess distinctive features, which can be aesthetic, artistic, ethnic or culturally attached and are amply different from mechanically produced goods of similar utility.
12. On the basis of the aforesaid statutory regime which prevailed, the petitioners assert that they had continued to classify their products as falling under ITC(HS) 68159990 since 1991 and which practice continued right up to October 2018. However, in December 2018, the sixth respondent, the Commissioner of Customs, appears to have raised a question with respect to the classification of those goods. The said respondent took the position that the goods being exported by the petitioners were liable to be classified under CTH 6802. CTH 6802 deals with articles of stone, plaster, cement, asbestos, mica or similar materials and carries the following heading: –
WORKED MONUMENTAL OR BUILDING STONE (EXCEPT SLATE) AND ARTICLES THEREOF, OTHER THAN GOODS OF HEADING 6801; MOSAIC CUBES AND THE LIKE, OF NATURAL STONE (INCLUDING SLATE), WHETHER OR NOT ON A BACKING; ARTIFICIALLY COLOURED GRANULES, CHIPPINGS AND POWDER, OF NATURAL STONE (INCLUDING SLATE)
13. Aggrieved by the stand so taken, various representations appear to have been made by trade associations requesting the respondents to resolve the doubts which had come to be raised in respect of the classification of these handicraft articles. The matter is stated to have been escalated to various authorities up the policy chain including the Ministry of Textiles as well as the Office of the Development Commissioner (Handicrafts).
14. A detailed representation is also stated to have been made in this regard on 11 February 2019 by the Handicraft Exporter Association Agra to the Department of Commerce and Industry. In terms of the said representation, that Association asserted that if the stand of the respondents were to be accepted, it would become ineligible to claim the benefits of the MEIS and which had already been passed on to the buyers. This, according to the Association, would inevitably cause grave hardship and financial loss to its members-exporters.
15. The representation of the Association is stated to have been taken up for consideration in the third meeting of the Board of Trade which was chaired by the Minister of Commerce and Industries and was convened on 15 February 2019. Pursuant to the discussion which ensued in that meeting, the Joint Director of Foreign Trade issued an Office Memorandum dated 26 February 2019 requesting the Department of Revenue as well as other concerned stakeholders in the Union Government to furnish their comments and views. This is evident from a reading of the said Office Memorandum and which enclosed with it a gist of the minutes of the discussion which had been held by the Board of Trade. The said Office Memorandum reads thus: –
OFFICE MEMORANDUM
Subject: Minutes of the 3rd meeting of the Board of Trade chaired by Hon’ble Minister of Commerce and Industry held on 15.2.2019 at Vigyan Bhawan, New Delhi.
The undersigned is directed to forward herewith a copy of minutes of the 3rd Board of Trade meeting held on 15.2.2019 under the Chairmanship of Hon’ble Minister of Commerce & Industry
2. It is requested to furnish comments/views of the concerned Ministry/Departments on the issues raised by the participant in the said meeting by 8th March, 2019 for the preparation of the Action Taken Report.
(Soumya Chattopadhyay)
Joint Director General of Foreign Trade
Tel: 011-23061562 Ext.391
E-mail. soumya.c@nic.in
16. Insofar as the export of the goods in question is concerned, the minutes of the aforenoted meeting dated 15 February 2019 which was appended to the aforenoted Office Memorandum carried the following pertinent observations: –
Minutes of the 3rd meeting of the Board of Trade chaired by Hon’ble Minister of Commerce and Industries Shri Suresh Prabhu held on 15.2.2019 at Vigvan Bhawan, New Delhi
Shri Suresh Prabhu, Minister for Commerce and Industry chaired the 3rd meeting of Board of Trade (BOT) on 15 02.2019 at Vigyan Bhawan. The meeting was attended by Secretaries and other senior officials of key line ministries including, Commerce and Industry, External Affairs, Chemicals & Petro-Chemicals, Posts. CBIC, EXIM ECGC, all major trade and industry bodies, Export Promotion Councils and industrialists. List of Participants is at Annexure A.
xxxx xxxx xxxx
DGFT, Shri Alok Chaturvedi, made a detailed presentation explaining the present trade scenario, existing export promotion schemes, and measures taken since last Board of Trade Meeting in consultation with various stakeholders including exporters and industry association to address the issues of exporters. Few notable measures taken since last BoT meetings are as follows
* Interest Equalization rate increased from 3% to 5% w.e.f 2nd November, 2018 for exports being made by MSME sector.
* From 2nd January 2019 merchant exporters have been included under the Interest Equalisation Scheme @ 3% subvention
* In January, 2019, Pre-Import condition on advance authorization licenses to avail exemption of IGST was removed and exemption of Integrated Tax and Compensation Cess extended to deemed supplies.
* Exemption granted on 3% IGST on gold sourced by exporters from nominated agency w.e.f. 1.1.2019 to help Gems and Jewellery sector by freeing blocked capital.
* Freight subsidy for exports of agricultural and marine products.
* In the Mid-Term Review MEIS rates increased by 2% for MSMEs/labour intensive industries involving an additional outlay of Rs. 7310 crore per annum.
* SEIS (Service Export from India Scheme) incentive rate was increased by 2% for all notified services amounting to Rs 1140 crore of additional reward per annum.
* MEIS allocation enhanced from 21000 Crorcs in 2014-15 to 39000 Crores in 2018-19
* GST exemption was restored in October 2017 under the Advance Authorization Scheme, Export Promotion Capital Goods Scheme and 100% Export Oriented Unit for sourcing inputs from abroad without payment of IGST.
* GST refunds were expedited through several rounds of Refund Fortnight
* The validity period or the Duty Credit Scrips was increased from 18 months to 24 months to enhance their utility in the GST framework
o The upper limit of FOB value of goods for exports through courier or foreign post office for obtaining benefits enhanced from Rs. 25,000 to Rs. 5,00,000 in July 2018
o The restriction that benefits would be granted to e-commerce exports only from 3 airports has been removed in July 2018.
* Exports of Religious Gold idols of 22k and above allowed by modifying restriction on export of gold articles of more than 22 carats.
* Exports of Gold findings of 3k and above allowed
* Engaging states for promotion of India’s trade. Through coordination with States, State Export Promotion Committees and State specific Export Promotion Strategies are in place.
* Additional Towns of Export Excellence: Bhadohi (UP) and Panipat (Haryana) announced for carpets and related products.
* Exports of all agricultural commodities (except mustard oil) made free without any restrictions. Earlier. export of pulses and edible oils were prohibited.
* Export incentives under MEIS increased in respect of certain agricultural items:
* Non Basmati: 5% tor four months in Nov 2018
* Milk products: 10% increased to 20% in September 2018
* Onions: 5% for six months in July 2018; enhanced on 28 12.2018 to 10% for exports up to 30th June 2019
* De-oiled soya cake 7% enhanced in July 2018 lo 10%
* New Agricultural Export Policy Issued and initial outreach with Slates done.
He emphasised that Government is committed to end to end IT enablement and make all processes completely paperless. In this regard, Department of Commerce has approved a project for the revamp of entire IT system of DGFT. He slated that however, in the meanwhile, DGFT has taken many measures lo bring ease of doing business with DGFT like
* Same day issue of IEC (Importer Exporter Code) online.
* Auto approval or MEIS scripts within 24 hours
* Contact @ DGFT grievance redressal service for Exporters/Importers
* Redemption of Export Obligation of Exporters expedited through a drive.
* Consequently over 13000 Advance Authorisation and 9500 EPCG cases have been redeemed.
* Revamp of DGFTs IT System initiated to make all DGFT processes paperless and provide end-to-end IT enablement for all services.
DGFT highlighted that due to these initiatives of the Government, India has jumped to 30th place in 2018 from 1146th place in Trading across Borders Ranking as released by the World Bank.
The representatives of industry, while welcoming steps taken by the Government proposed many constructive measures to boost exports The issues/suggestions put forth by the members of Board of Trade are as under·
1. President, FIEO Shri G.K.Gupta :
* A new Incentive scheme may be introduced for branded exports-both at country level and Company level
* Budget for MAI and TIES may be increased significantly for promoting trade in new countries.
* The scheme for sales to foreign tourist must be started immediately for handicrafts and textiles items Foreign tourist sale for allowed 20-25 years back. Now if a person is making counter sale to foreign tourist he must get MEIS and GST refund
* Interest Equalization Scheme must be introduced for every sector at least for all agricultural commodities
* FIEO must continue to be recognized as EPC for service exports other than the 13 services earmarked for SEPC
* E-wallet facility may be provided from 01.04.2019.
* ITC refund mechanism may be made completely online to save time and cost
* Pre import condition should be resolved and uniformity in views 1s expected from the RAs of DGFT
* MEIS benefits should be granted as per the Trade Circular released by DGFT to similarly placed exporters and lastly
* ECGC may be requested to pursue a liberal view while processing and sanctioning claims of exporters and DGFT may a proposal/policy accordingly
xxxx xxxx xxxx
18. Shri Sagar Mehta, Chairman, EPCH
* He requested for enhancing the MEIS limit for the handicraft sector and propose that the MEIS benefits should be granted as per the export performance of the EPCs.
* Since they promote reverse buyer seller meet and as per the prevailing provisions of the MAI scheme cost of air tickets hotel accommodation are not reimbursed for the traditional markets such as EU, America, Japan and their request is that MAI benefits be granted for partIc1pants from these countries as well.
* Further, he pointed out that exporters exporting to Iran are facing problems and no EBRC is being released to the exporters in absence of which the exporter is unable to claim the MEIS and other benefits.
* Due to introduction of GST the duty drawback rates on handicraft items have been reduced by 50 to 70% To compensate the loss the handicraft sector may be included in the ROSL scheme and 2 to 4% may be refunded.
* He also pointed out that members from Agra are facing difficulties in obtaining MEIS benefits with reference to specific codes namely 6802 21 90 and 6815 99 90 as there are certain ambiguities. Customs is denying MEIS benefits of 7% on 6815 99 90 and insisting on putting 6802 21 90 on the shipping bills.
17. It is, however, the case of the writ petitioners that till date no concrete action has been taken despite the issuance of the aforenoted Office Memorandum dated 26 February 2019 and the opinion which was voiced by various parties as recorded in the minutes of the meeting held on 15 February 2019. This led to the Association addressing further communications to the CBIC as well as the Ministry of Finance to accord clarification.
18. On 31 May 2019, the CBIC acting through its Tariff Unit issued the following communication:-
To
Chairman, EPCH, EPCH House Pocket 6 & 7,
Sector-C, L.S.C., Vasant Kunj,
New Delhi
Subject: Discrepancy in the HSN Code Classification of Stone & Marble Handicrafts:-
reg.
Sir,
Undersigned is directed to refer your letter no. EPCH- 3/1(3)/2018-19 Customs, dated 05.02.2019 wherein while referring to the discrepancy in the classification of Stone & Marble Handicrafts under CTH 6802 or 6815, it has been emphasized that MEIS @ 7% is available under HS Code 6845 99 90 whereas the benefit is not available on HS Code 6802 21 90
2. Issue has been examined in detail in this office. It has been concluded that the said item is rightly classifiable u/h 6802 subject to compliance to other conditions given in the ENs to this heading, however, classification at 8-digit level will be decided by the concerned Customs formation in light of the factual specifications of individual items at hand. This clarification is formation in light of the factual specifications of individual items at hand. This clarification is germane as far as the classification choice was between CTH, i.e., 6802 and 6815 is concerned.
3. DGFT is also being requested in review the MEIS schedule with regard to above said items.
Yours sincerely,
Rachna Tanwar
OSD, Tariff Unit
19. The CBIC, while taking note of the conflicting stand taken by parties pertaining to the classification of stone and marble handicrafts under CTH 6802 or 6815 observed that those items would be classifiable under CTH 6802. However, and as is evident from a reading of that communication, the aforesaid conclusion was itself hedged by various caveats. The clarification was firstly qualified with the CBIC observing that its view would be subject to compliance with the other conditions given in the Explanatory Notes accompanying that heading. It was further observed that classification would be decided by the concerned customs formations in light of the factual specifications of individual items.
20. It was pursuant to the said communication of the CBIC that Public Notice No. 57/2019 dated 19 June 2019 came to be issued and which is reproduced hereinbelow in its entirety: –
PUBLIC NOTICE NO. 57/2019
Subject: Discrepancy in the HSN Code Classification of Stone & Marble Handicrafts- reg
Attention of all exporters, custom brokers and all other stakeholders is invited to the Board Letter F. No. 528/24/2017-S.T.O.(TU)(Vol.II) dated 31.05.2019 on the above mentioned subject.
2. In pursuance of Board Letter F. No. 528/24/2017-S.T.O.(TU) (Vol.II) dated 31.05.2019, wherein, while referring to the discrepancy in the classification of Stone & Marble Handicrafts under CTH 6802 or 6815, it has been concluded that the said items are rightly classifiable under heading 6802 subject to compliance to other conditions given in the explanatory notes to this heading. However, classification at 8-digit level shall be decided by the concerned Customs Officers in light of the factual specification of individual items at hand. This clarification is germane as far as the classification choice between CTH, i.e. 6802 and 6815 is concerned.
3. Difficulty, if any, may also be brought to the notice of the Deputy/ Assistant Commissioner in charge of Appraising Main (Export) through mail/ Phones (email address: apmainexp@jawaharcustoms.gov.in, Phone No. : 022-27244959).
-Sd-
(Sunil Kumar Mall)
Commissioner of Customs, NS-II,
JNCH, Nhava Sheva
21. On the basis of the aforesaid, the respondents proceeded to issue the audit objection letter dated 18 November 2019 which is impugned before us. It becomes relevant to extract the following passages from that communication:-
2. The items Artistic & Decorative Stone products (Handicraft) which had been exported under various Shipping Bills to US, Denmark, etc. should have been rightly classified under CTH 68022190 / 68029900 wherein the MEIS benefits is prescribed @ 0% of FOB value (From 01.04.2015 till date). However, it has been observed that the goods had been wrongly classified by you under CTH 68159990 with an intention to claim higher MEIS benefit@ 5% of FOB value (From 01.04.2015 to 31.10.2017) instead
of 0%; @ 7% of FOB value (From 1.11.2017 till date) instead of 0%. Therefore, it appears that the goods had been mis-classified by you under CTH 68159990 with an intention to claim higher MEIS benefit instead of correct classification under CTH 68022190 or 68029900.
xxxx xxxx xxxx
4. It is informed that after introduction of self-assessment vide Finance Act, 2011, it is the onus on the Exporter/Importer to make true and correct declaration in all aspects like classification, valuation, including calculation of duty & claim of benefit, etc. Further, as per provisions of section 50(2) of the Customs Act, 1962, the Exporter of any goods, while presenting a shipping bill or bill of export, shall make and subscribe to a declaration as to the truth of its contents. As per substantive provisions of section 50(3) of the Customs Act, 1962, the exporter who presents a shipping bill or bill of export under this section shall ensure the following, namely;
(a) the accuracy and completeness of the information given therein;
(b) the authenticity and validity of any document supporting it, and
(c) compliance with the restrictions or prohibition, if any, relating to the goods under this Act or under any other law for the time being in force.
5. However, in the instant case, you have not fulfilled your statutory obligation of correct and truthful declaration of the material facts of the export document i.e. shipping bills, and thereby mis-classified the gcods with an intention to claim higher export benefits in the form of the MEIS as explained above.
6. Therefore, in terms of the provisions of section 28(4) or 28AAA of the Customs Act, 1962, you are advised to pay the undue MEIS benefit amounting to INR 1,23,99,605/- (Rupees One Crore Twenty Three Lakh Ninety Nine Thousand Six Hundred and Five) as detailed in Annexure-A, which has been wrongly claimed by you along with applicable interest within 15 days of receipt of this letter.
7. Further, you are also advised not to apply to DGFT for issuance of MEIS Scrips (if not already issued) in respect of all such Shipping Bills, wherein exports have already been done by you in similar manner by wrongly classifying the goods to avail ineligible higher MEIS benefit.
22. Close on the heels of that communication, the petitioner also received summons purporting to be under Section 108 of the Customs Act requiring it to appear and lead evidence. The petitioner is thereafter stated to have been served with yet another summons on 24 January 2022 followed by another summons requiring the representative of the petitioner to appear before the respondents on 17 May 2022. The petitioner further alleges that during the course of those proceedings it was also forced to pay an amount of INR 5,00,000/- to the ninth respondent under duress and threat. This deposit is stated to have been made even though no Show Cause Notice11 or adjudicatory proceedings had been commenced. It is in the aforesaid backdrop that the petitioners had approached this Court for a declaration classifying handicraft articles made of stone and marble under ITC(HS) 68159990 as well as to hold the petitioner to be a valid beneficiary under the MEIS. The petitioners also raise a challenge to the letter of the CBIC dated 31 May 2019 as well as the Public Notice No. 57/2019 dated 19 June 2019 issued by respondent no. 6. A direction is also sought for quashing of the summons which have been issued and are dated 15 November 2021, 24 January 2022, 17 May 2022, 06 June 22 and 30 September 2022.
B. ARGUMENTS RENDERED BY THE PETITIONERS
23. Appearing in support of the writ petitions, Mr. Gulati, learned senior counsel, addressed the following submissions. At the outset, it was submitted that admittedly the petitioners had right from 1991 been placing the exported articles under ITC (HS) 68159990 without any protest or objection being raised by the respondents. It was Mr. Gulatis contention that the validity of the MEIS scrips which were issued had never been questioned by the respondents at any point of time. In fact, according to learned senior counsel, the record would bear out that the self-declarations as made by the petitioner had been duly accepted by the respondents consistently right from 1991.
24. Turning then to the issue of classification itself, Mr. Gulati submitted that the goods were liable to be legitimately placed under the broad generic heading of articles of stone and which formed the subject matter of CTH 6815. Mr. Gulati submitted that apart from the specific articles which are noticed in CTH 6815, handicraft articles made of stone were liable to be placed in the residuary entry represented by ITC(HS) 68159990.
25. According to Mr. Gulati, CTH 6802 principally relates to stone and articles thereof which are used or liable to be employed in monuments and buildings. This since according to learned senior counsel the entry uses the expression worked monumental or building stone.
26. Our attention was also drawn to the Chapter Notes which find place in Chapter 68 and specifically to Note 2 which reads as follows:-
2.- In heading 68.02 the expression worked monumental or building stone applies not only to the varieties of stone referred to in heading 25.12. or 25.16 but also to all other natural stone (for example, quartzite, flint, dolomite and stealite) similarly worked; it does not, however, apply to slate.
27. The Explanatory Notes to CTH 6802 as it stood at the relevant time are extracted hereinbelow: –
68.02 – Worked monumental or building stone (except slate) and articles thereof, other than goods of heading 68.01; mosaic cubes and the like, of natural stone (including slate), whether or not on a backing; artificially coloured granules, chippings and powder,. of natural stone (including slate).
6802.10 – Tiles, cubes and similar articles, whether or not rectangular (including square), the largest surface area of which is capable of being enclosed in a square the side of which is less than 7 cm; artificially coloured granules, chippings and powder
– Other monumental or building stone and articles thereof, cut or sawn, with a flat or even surface:
6802.21 – – Marble, travertine and alabaster
6802.23 – – Granite
6802.29 – – Other stone
– Other:
6802.91 — Marble, travertine and alabaster
6802.92 – – Other calcareous stone
6802.93 – – Granite
6802.99 – -Other stone
This heading covers natural monumental or building stone (except slate) which has been worked beyond the stage of the normal quarry products of Chapter 25. There are, however, certain exceptions where goods are covered more specifically by other headings of the Nomenclature and examples of these are given at the end of this Explanatory Note and in the General Note to the Chapter.
The heading therefore covers stone which has been further processed than mere shaping into blocks, sheets or slabs by splitting, roughly cutting or squaring, or squaring by sawing (square or rectangular faces).
The heading thus covers stone in the forms produced by the stone-mason, sculptor, etc., viz.:
(A) Roughly sawn blanks; also non-rectangular sheets (one or more faces triangular, hexagonal, trapezoidal, circular, etc.).
(B) Stone-of any shape (including blocks, slabs or sheets), whether or not in the form of finished articles, which has been bossed (i.e., stone which has been given a rock faced finish by smoothing along the edges while leaving rough protuberant faces), dressed with the pick, bushing hammer, or chisel, etc., furrowed with the drag-comb, etc., planed, sand dressed, ground, polished, chamfered, moulded, turned, ornamented, carved, etc.
28. Mr. Gulati, while taking us through those Explanatory Notes laid emphasis on that heading being intended to cover natural monumental or building stone which may have been worked upon beyond the stage of normal quarry products. Learned senior counsel also laid emphasis on the Explanatory Notes speaking of stone which may have been further processed therefrom by mere shaping into blocks, sheets or slabs. According to Mr. Gulati, all of the above when examined holistically would lead one to the irresistible conclusion of CTH 6802 being confined to stone which is used for purposes of construction and erection of monuments and buildings.
29. Contrary to the above Mr. Gulati took us through the Explanatory Notes of CTH 6815 and as that article stood at the relevant time and is reproduced hereunder: –
68.15 – Articles of stone or of other mineral substances (including carbon fibres, articles of carbon fibres and articles of peat), not elsewhere specified or included.
6815.10 – Non-electrical articles of graphite or other carbon ^
6815.20 – Articles of peat ; .
– Other articles:
6815.91 – Containing magnesite, dolomite or chromite
6815.99 Other.
This heading covers articles of stone or of other mineral substances, not covered by the earlier headings bf this Chapter and not included elsewhere in the Nomenclature; it therefore excludes, for example, ceramic products of Chapter 69.
The heading covers, inter alia:
(1) Non-electrical articles of natural or artificial graphite (including nuclear grade), or other carbons for example: filters; discs; bearings; tubes and sheaths; worked bricks and tiles; moulds for the manufacture of small articles of delicate, design (e.g., coins, medals, lead soldiers for collections).
(2) Carbon fibres and articles of carbon fibres. Carbon fibres are commonly, produced by carbonising organic polymers in filamentary forms. The products are used; for example, for reinforcement.
(3) Articles made of peat (for example, sheets, cylinder shells, pots for raising plants). Textile articles of peat fibre are, however, excluded (Section XI).
(4) Unfired bricks made of dolomite agglomerated with tar.
(5) Bricks and other shapes (in particular magnesite or chrorne-magnesite products), chemically bonded but not yet fired. These articles are fired during the first heating of the furnace in which they are installed. Similar products presented after firing are excluded (heading 69.02 or 69.03),
(6) Unfired silica or alumina vats (e.g., as used for melting glass).
(7) Touchstones for testing precious metal; these may be of natural stone (e.g.; lyddite, a hard, fine-grained dark stone resistant to acids).
(8) Paving blocks and slabs obtained by moulding fused slag without a binder, but excluding those having the character of heat-insulating goods of heading 68.06.
(9) Filter tubes of finely crushed and agglomerated quartz or flint.
(10) Blocks, slabs, sheets and other articles of fused basalt; these are used, because of their great resistance to wear, as linings for pipes, belt-conveyors, chutes for coke, coal, ores, gravel, stone, etc.
30. It was submitted that the first Explanatory Note itself prescribes that the said heading would not cover articles of stone or of other mineral substances which may be covered by the earlier headings of that Chapter. According to learned senior counsel, this itself is indicative of articles of stone falling within the ambit of CTH 6815 being those which are not used in monuments or buildings. Viewed in the aforesaid light, it was his submission that the stand as taken by the respondents is rendered wholly untenable, since handicraft articles sculpted out of stone and of the kind exported by the petitioner cannot possibly be countenanced as answering to the description of articles which are spoken of in CTH 6802.
31. Mr. Gulati then questioned the view that was expressed by the CBIC and which, according to learned senior counsel, made a broad and sweeping declaration that stone and marble handicrafts were classifiable under CTH 6802. This, according to Mr. Gulati, is an opinion expressed by the Board which is not supported by any reasoning or detailed analysis of the two competing entries falling in Chapter 68.
32. Insofar as the Public Notice is concerned, Mr. Gulati submitted that respondent No. 6 has blindly followed and reproduced the contents of the communication of the Board dated 31 May 2019 while issuing Public Notice No. 57/2019. It was submitted that the aforesaid exercise of classification of handicrafted articles runs contrary to the consistent stand which had been taken by the respondents themselves right from 1991 and had continued even during the currency of the MEIS.
33. Mr. Gulati submitted that the stand as taken is also contrary to Notification No. 21/2018 issued by the Department of Revenue and which had defined handicraft goods as those made predominantly by hand, although they may have been worked upon to some extent by tools or machinery. It was submitted that the aforesaid notification was a clear and categorical acceptance and affirmation of the stand of the writ petitioners that stone handicraft products exported by them would fall under ITC(HS) 68159990. It was submitted that the aforesaid Notification had come to be issued after the matter had been duly discussed by the Goods and Service Tax Council and was based upon its recommendations. According to Mr. Gulati, that explanation clearly dispels all doubts that may have been possibly harboured insofar as handcrafted products were concerned.
34. Proceeding then to the audit objection itself, it was Mr. Gulatis contention that the said communication proceeds on the basis that the petitioners had wrongly classified the exported articles under ITC(HS) 68159990 with an intent to claim higher MEIS benefits. Mr. Gulati submitted that without affording even a rudimentary opportunity of hearing, the audit objections proceed to hold the petitioners liable to refund what is described to be the undue benefits which were claimed by them under the MEIS. It is in aforesaid light that it was submitted that the audit objection clearly deprives the petitioner of even contesting the position that has been taken and the view as expressed.
35. According to learned senior counsel, the impugned communication and which is described to be a post clearance audit objection is also contrary to the spirit of Section 99A of the Customs Act. It is in the aforesaid context that Mr. Gulati drew our attention to the decisions of the Supreme Court in Metal Forgings and Another v. Union of India and Others12 and Gorkha Security Services v. Government (NCT of Delhi) and Others13 and where the following pertinent observations came to be rendered with respect to the ingredients of a SCN. Drawing our attention firstly to the decision in Metal Forgings, Mr. Gulati placed reliance upon paras 12 and 20 of the report and which are reproduced hereinbelow:-
12. It is an admitted fact that a show-cause notice as required in law has not been issued by the Revenue. The first contention of the Revenue in this regard is that since the necessary information required to be given in the show-cause notice was made available to the appellants in the form of various letters and orders, issuance of such demand notice in a specified manner is not required in law. We do think that we cannot accede to this argument of the learned counsel for the Revenue. Herein we may also notice that the learned technical member of the Tribunal has rightly come to the conclusion that the various documents and orders which were sought to be treated as show-cause notices by the Appellate Authority are inadequate to be treated as show-cause notices contemplated under Rule 10 of the Rules or Section 11-A of the Act. Even the judicial member in his order has taken almost a similar view by holding that letters either in the form of a suggestion or advice or deemed notice issued prior to the finalisation of the classification cannot be taken note of as show-cause notices for the recovery of demand, and we are in agreement with the said findings of the two members of the Tribunal. This is because of the fact that issuance of a show-cause notice in a particular format is a mandatory requirement of law. The law requires the said notice to be issued under a specific provision of law and not as a correspondence or part of an order. The said notice must also indicate the amount demanded and call upon the assessee to show cause if he has any objection such demand. The said notice also will have to be served on the assessee within the said period which is either 6 months or 5 years as the facts demand. Therefore, it will be futile to contend that each and every communication or order could be construed as a show-cause notice. For this reason the above argument of the Revenue must fail.
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20. For the reasons stated above, we are of the opinion that in the absence of a show-cause notice it is not open to the Revenue to make a demand on the appellants even assuming that the contention of the Revenue in regard to classification as held by the Tribunal is correct.
36. In Gorkha Security Services, the Supreme Court had made the following observations, albeit in the context of blacklisting: –
27. We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show-cause notice that the competent authority intended to impose such a penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show-cause notice, it can be clearly inferred that such an action was proposed, that would fulfil this requirement. In the present case, however, reading of the show-cause notice does not suggest that noticee could find out that such an action could also be taken. We say so for the reasons that are recorded hereinafter.
28. In the instant case, no doubt the show-cause notice dated 6-2-2013 was served upon the appellant. Relevant portion thereof has already been extracted above (see para 5). This show-cause notice is conspicuously silent about the blacklisting action. On the contrary, after stating in detail the nature of alleged defaults and breaches of the agreement committed by the appellant the notice specifically mentions that because of the said defaults the appellant was as such liable to be levied the cost accordingly. It further says why the action as mentioned above may not be taken against the firm, besides other action as deemed fit by the competent authority. It follows from the above that main action which the respondents wanted to take was to levy the cost. No doubt, the notice further mentions that the competent authority could take other actions as deemed fit. However, that may not fulfil the requirement of putting the defaulter to the notice that action of blacklisting was also in the mind of the competent authority. Mere existence of Clause 27 in the agreement entered into between the parties, would not suffice the aforesaid mandatory requirement by vaguely mentioning other actions as deemed fit. As already pointed out above insofar as penalty of blacklisting and forfeiture of earnest money/security deposit is concerned it can be imposed only, if so warranted. Therefore, without any specific stipulation in this behalf, the respondent could not have imposed the penalty of blacklisting.
29. No doubt, rules of natural justice are not embodied rules nor can they be lifted to the position of fundamental rights. However, their aim is to secure justice and to prevent miscarriage of justice. It is now well-established proposition of law that unless a statutory provision either specifically or by necessary implication excludes the application of any rules of natural justice, in exercise of power prejudicially affecting another must be in conformity with the rules of natural justice.
37. We then proceed to take note of the more fundamental challenge which was mounted by Mr. Gulati insofar as the impugned action of the respondents seeking to review the benefits which were claimed under the MEIS was concerned. Mr. Gulati firstly took us through the provisions contained in Section 28AAA of the Customs Act and which came to be introduced in the statute by virtue of Finance Act, 2012 w.e.f. 28 May 2012. That provision is extracted hereinbelow: –
28AAA. Recovery of duties in certain cases.
(1) Where an instrument issued to a person has been obtained by him by means of
(a) collusion; or
(b) wilful mis-statement; or
(c) suppression of facts,
for the purposes of this Act or the Foreign Trade (Development and Regulation) Act, 1992, [or any other law, or any scheme of the Central Government, for the time being in force, by such person] or his agent or employee and such instrument is utilised under the provisions of this Act or the rules [or regulations] made or notifications issued thereunder, by a person other than the person to whom the instrument was issued, the duty relatable to such utilisation of instrument shall be deemed never to have been exempted or debited and such duty shall be recovered from the person to whom the said instrument was issued:
PROVIDED that the action relating to recovery of duty under this section against the person to whom the instrument was issued shall be without prejudice to an action against the importer under section 28.
Explanation 1: For the purposes of this sub-section, instrument means any scrip or authorisation or licence or certificate or such other document, by whatever name called, issued under the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992), with respect to a reward or incentive scheme or duty exemption scheme or duty remission scheme or such other scheme bestowing financial or fiscal benefits, which may be utilised under the provisions of this Act or the rules made or notifications issued thereunder.
Explanation 2: The provisions of this sub-section shall apply to any utilisation of instrument so obtained by the person referred to in this sub-section on or after the date on which the Finance Bill, 2012 receives the assent of the President, whether or not such instrument is issued to him prior to the date of the assent.
(2) Where the duty becomes recoverable in accordance with the provisions of sub-section (1), the person from whom such duty is to be recovered, shall, in addition to such duty, be liable to pay interest at the rate fixed by the Central Government under section 28AA and the amount of such interest shall be calculated for the period beginning from the date of utilisation of the instrument till the date of recovery of such duty.
(3) For the purposes of recovery under sub-section (2), the proper officer shall serve notice on the person to whom the instrument was issued requiring him to show cause, within a period of thirty days from the date of receipt of the notice, as to why the amount specified in the notice (excluding the interest) should not be recovered from him, and after giving that person an opportunity of being heard, and after considering the representation, if any, made by such person, determine the amount of duty or interest or both to be recovered from such person, not being in excess of the amount specified in the notice, and pass order to recover the amount of duty or interest or both and the person to whom the instrument was issued shall repay the amount so specified in the notice within a period of thirty days from the date of receipt of the said order, along with the interest due on such amount, whether or not the amount of interest is specified separately.
(4) Where an order determining the duty has been passed under section 28, no order to recover that duty shall be passed under this section.
(5) Where the person referred to in sub-section (3) fails to repay the amount within the period of thirty days specified therein, it shall be recovered in the manner laid down in sub-section (1) of section 142.
38. Mr. Gulati would contend that an instrument as defined, would include the MEIS authorization or certificate that was issued to the writ petitioners under the MEIS and the provisions of the Foreign Trade (Development and Regulation) Act, 199214. According to Mr. Gulati, it is only in a case where the respondents had found that the MEIS scrip had been obtained by the petitioners by way of collusion, wilful misstatement or suppression of facts, that the proceedings impugned before us could have sustained. According to Mr. Gulati, there is no allegation laid against the writ petitioners which would evidence collusion, wilful misstatement or suppression of facts. In view of the aforesaid, learned senior counsel submitted that the entire action as initiated by the respondents is liable to be quashed on this ground alone.
39. Mr. Gulati then submitted that in the absence of any determination by a competent authority on the issue of whether the MEIS scrip could be said to have been obtained by way of collusion, wilful misstatement or suppression, the action as initiated by the respondents cannot be sustained. Learned senior counsel submitted that even the audit objection letter as issued would not be liable to be viewed as referable to Section 28AAA, since the same in any event would be traceable only to the power to conduct an audit and which stands embodied in Section 99A. An audit, according to Mr. Gulati, would inherently be guided by considerations which would be wholly independent and distinct from those which could form the subject matter of an inquiry or determination under Section 28AAA. Tested on that score also the petitioners, according to Mr. Gulati, are entitled to succeed.
40. It was then submitted that the MEIS scheme and the benefits claimed by the writ petitioners thereunder is traceable to the provisions made by the Union under the provisions of the FTDR Act. Mr. Gulati firstly took us through the provisions embodied in Sections 3 and 5 of the FTDR Act and which are extracted hereinbelow: –
3. Powers to make provisions relating to imports and exports.(1) The Central Government may, by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports.
(2) The Central Government may also, by Order published in the Official Gazette, make provision for prohibiting, restricting or otherwise regulating, in all cases or in specified classes of cases and subject to such exceptions, if any, as may be made by or under the Order, the [import or export of goods or services or technology]:
[Provided that the provisions of this sub-section shall be applicable, in case of import or export of services or technology, only when the service or technology provider is availing benefits under the foreign trade policy or is dealing with specified services or specified technologies.]
(3) All goods to which any Order under sub-section (2) applies shall be deemed to be goods the import or export of which has been prohibited under section 11 of the Customs Act, 1962 (52 of 1962) and all the provisions of that Act shall have effect accordingly.
[(4) Without prejudice to anything contained in any other law, rule, regulation, notification or order, no permit or licence shall be necessary for import or export of any goods, nor any goods shall be prohibited for import or export except, as may be required under this Act, or rules or orders made thereunder.
[5. Foreign Trade Policy.The Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy:
Provided that the Central Government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notification in the Official Gazette.
41. It was contended by Mr. Gulati that a prohibition, restriction or regulation of import or export of goods would be primarily governed by the orders which the Union may promulgate under the FTDR Act. According to Mr. Gulati, as long as the export is shown to be compliant with the regulations as framed under the FTDR Act, there would exist no jurisdiction for the customs authorities to question the classification of goods or the claim of benefits under a particular scheme formulated in terms thereof.
42. Mr. Gulati submitted that as would be evident from a reading of Section 5, the FTP which the Union Government frames is clearly imbued with statutory flavour and thus all provisions forming part thereof being liable to be viewed as prescriptions standing at par with those which may otherwise and ordinarily form part of any statutory enactment or subordinate legislation.
43. Taking us through the FTP 2015-2020 itself, Mr. Gulati invited our attention to Para 2.57 thereof and which reads as follows:-
2.57 Interpretation of Policy
(a) The decision of DGFT shall be final and binding on all matters relating to interpretation of Policy, or provision in Handbook of Procedures, Appendices and Aayat Niryat Forms or classification of any item for import export in the ITC (HS).
(b) A Policy Interpretation Committee (PIC) may be constituted to aid and advise DGFT. The composition of the PIC would be as follows:
(i) DGFT: Chairman
(ii) All Additional DGFTs in Headquarters : Members
(iii) All Joint DGFTs in Headquarters looking after Policy matters: Members
(iv) Joint DGFT (PRC/PIC): Member Secretary
(v) Any other person/representative of the concerned Ministry / Department, to be co-opted by the Chairman.
44. According to learned senior counsel, Para 2.57 of the FTP 2015-2020 is a recognition and acknowledgement of the well-settled position of eminence which stands conferred upon the Director General of Foreign Trade15 and other officers and authorities enjoined with administering and regulating all aspects pertaining to the FTP as statutorily framed. The submission in essence was that in the absence of the DGFT having raised any doubt or having questioned the eligibility of the writ petitioners to claim benefits under the MEIS, it would be wholly impermissible for the customs authorities to undertake such an inquiry. In support of the aforesaid submission, Mr. Gulati relied upon various decisions which are noticed hereinafter.
45. Mr. Gulati firstly referred to the decision of the Supreme Court in Zuari Industries Limited vs Commissioner of Central Excise & Customs16. Zuari Industries was a case where the Supreme Court was called upon to evaluate the stand of the customs authorities who had sought to question the essentiality certificate which had been granted to the importer in terms of the then existing Project Import Regulations, 1986. The essentiality certificate was, in terms of those Regulations, required to be issued by the appropriate Ministry in the Union Government enabling a person to claim benefits of project import assessment and in the facts of that case claim a right to import goods required for establishment of a fertilizer plant at a nil rate of duty. The customs authorities in Zuari Industries had sought to doubt whether a power plant which had been imported by virtue of the recognition accorded to that import in terms of the essentiality certificate would be eligible for benefits. The customs authorities had sought to contend that the import of a power plant would not constitute an integral part of a fertilizer project and thus not entitled to the benefits of project import assessment.
46. While negating that contention, the Supreme Court had pertinently observed as follows: –
13. Firstly, on the facts we find that the assessee had given to the sponsoring Ministry its entire project report. In that report they had indicated that for the expansion of the fertilizer project they needed an extra item of capital goods, namely, 6 MW captive power plant. In their application, the assessee had made it clear that the fertilizer project was dependent on continuous flow of electricity, which could be provided by such captive power plant. Therefore, it was not open to the Revenue to reject the assessees case for nil rate of duty on the said item, particularly when the certificate says so. In the judgment of this Court in Tullow India Operations Ltd. this Court held that essentiality certificate must be treated as a proof of fulfilment of the eligibility conditions by the importer for obtaining the benefit of the exemption notification. We may add that, the essentiality certificate is also a proof that an item like captive power plant in a given case could be treated as a capital goods for the fertilizer project. It would depend upon the facts of each case. If a project is to be installed in an area where there is shortage of electricity supply and if the project needs continuous flow of electricity and if that project is approved by the sponsoring Ministry saying that such supply is needed then the Revenue cannot go behind such certificate and deny the benefit of exemption from payment of duty or deny nil rate of duty.
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17. The essentiality certificate given by the sponsoring Ministry has treated captive power plant, in this case, as “capital goods” along with 13 other items. The assessee has also treated the captive power plant as one of the capital goods required for the expansion of the fertilizer project. In the above circumstances, all the items in the list annexed to the certificate have been certified and recommended by the sponsoring Ministry as the entire capital goods required for the substantial expansion of the fertilizer project. Therefore, in our view, the assessee is right in its contention that, in this case, 6 MW captive power plant is one of the items out of 14 items constituting capital goods required for the substantial expansion of the fertilizer project and, therefore, it fell under Serial No. 226(i) as goods required for the fertilizer project entitled to the benefit of nil rate of duty.
47. Proceeding along this line, Mr. Gulati then invited our attention to the decision of the Supreme Court in Titan Medical Systems (P) Ltd. v. Collector of Customs, New Delhi17. Titan Medical was a decision rendered in the context of an advance license for import which was held by the appellant assessee and its claim for the grant of protection in terms of an exemption notification. The authorities of customs appear to have doubted the eligibility of the appellant assessee to claim those exemptions and thus question the grant of the license itself. Negating that stand, the Supreme Court in Titan Medical Systems held thus: –
12. As regards the contention that the appellants were not entitled to the benefit of the exemption notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement for issuance of a licence that an applicant set out the quantity or value of the indigenous components which would be used in the manufacture. Undoubtedly, while applying for a licence, the appellants set out the components they would use and their value. However, the value was only an estimate. It is not the respondents’ case that the components were not used. The only case is that the value which had been indicated in the application was very large whereas what was actually spent was a paltry amount. To be, noted that the licensing authority has taken no steps to cancel