Delhi High Court
M/S Sharma International vs Union Of India & Ors. on 22 November, 2024
Author: Yashwant Varma
Bench: Yashwant Varma
* 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
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By:KAMLESH KUMAR
Signing Date:22.11.2024
18:13:24
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
JUDGMENT
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
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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
1
MEIS
2
HSN
3
CBIC
4
CTH
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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,
5
Customs Act
6 ITC (HS)
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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.
7 FTP
8 FOB
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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 India’s 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
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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.
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(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
9 DGFT
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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 OF10 CGST Act, 2017
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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
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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. [email protected] ‖
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 DelhiShri 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
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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
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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 DGFT’s 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 exportsSignature Not Verified
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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.
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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 DelhiSubject: 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.
Your’s 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
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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- regAttention 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: [email protected], 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
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By:KAMLESH KUMAR
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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
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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
11
SCN
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placing the exported articles under ITC (HS) 68159990 without any
protest or objection being raised by the respondents. It was Mr. Gulati’s
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
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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 stoneThis 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
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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).
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(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
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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. Gulati’s
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
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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 we12 (2003) 2 SCC 36
13 (2014) 9 SCC 105Signature Not Verified
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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.
xxxx xxxx xxxx
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
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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 suchSignature Not Verified
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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.
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(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
14 FTDR Act
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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,
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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.‖Signature Not Verified
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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
15
DGFT
16
(2007) 14 SCC 614
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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 assessee’s 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.
xxxx xxxx xxxx
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)
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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 the
licence. The licensing authority has not claimed that there was any
misrepresentation. Once an advance licence was issued and not
questioned by the licensing authority, the Customs Authorities
cannot refuse exemption on an allegation that there was
misrepresentation. If there was any misrepresentation, it was for the
licensing authority to take steps in that behalf.‖
48. Proceeding then to the interplay between the FTDR Act and the
Customs Act as also the extent of the jurisdiction which authorities
independently empowered in terms of those statutes could exercise, Mr.
Gulati had submitted that absent any adverse finding with respect to
eligibility under the MEIS having been rendered by the competent
authorities under the FTDR Act, it would be wholly impermissible for
the customs authorities to draw the proceedings impugned before us.
49. In order to buttress the aforesaid submission, Mr. Gulati firstly
17
(2003) 9 SCC 133
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relied upon a decision of the Gujarat High Court in Alstom India Ltd.
v. Union of India and Another (No. 2)18 and where the said High
Court had held as follows:-
―31. On going through the provisions of the Foreign Trade
(Development and Regulation) Act, 1992, we find that those do not
grant power to the respondent No. 2 or its subordinates to
redetermine or reverify the deemed export benefits if such benefits
have been approved or granted as per the provisions of the Foreign
Trade (Development and Regulation) Act, 1992 except by way of
review as provided in Section 16. In the absence of any power under
Foreign Trade (Development and Regulation) Act, 1992, the
Respondent No. 2 or its subordinates cannot assume quasi-judicial
power for instance, the power to redetermine or reverify under the
administrative guidelines i.e. paragraph 7 of the ANF 8 Form.
Therefore, by virtue of paragraph 7 of the ANF 8, the respondent
No. 2 is deriving the quasi-judicial power which is beyond the
provisions of Foreign Trade (Development and Regulation) Act,
1992. We have already pointed out that according to section 6 of the
Foreign Trade (Development and Regulation) Act, 1992, the
respondent No. 2 or the officer subordinate to him cannot usurp the
power under sections 3, 5, 15, 16 and 19 of the FTDR Act.
According to section 3, it is for the Central Government which may,
by order published in the Official Gazette, make provision for the
development and regulation of foreign trade by facilitating imports
and increasing exports. 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. According to sub-section (3) of section 3 all goods to
which any order under sub section (2) of the said section applies
should be deemed to be goods the import or export of which has
been prohibited under section 11 of the Customs Act, 1962 and all
the provisions of that Act shall have effect accordingly. According to
section 5, it is for the Central Government which 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. The proviso to the said section provides 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.‖18
2014 SCC OnLine Guj 15952
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50. A more elaborate consideration on the interplay between the two
statutes with which we are concerned appears in a judgment rendered
by a Division Bench of our Court in Simplex Infrastructure Ltd. v.
Union of India and Others19. Mr. Gulati drew our attention to the
following passages of that decision and which had noticed the judgment
of the Gujarat High Court in Alstom:-
―6. At this juncture, the attention of the court is also drawn to the
decision of the Gujarat High Court in Alstom India Ltd. v. Union of
India (No. 2) [2014] 26 GSTR 449 (Guj), Special Civil Application
No. 11031 of 2013, where various provisions of the policy were
challenged. One of the ground of challenge in that case was that
(page 458 in 26 GSTR):
―The Foreign Trade (Development and Regulation) Act,
1992 or the Foreign Trade Policy does not grant power to
respondent No. 2 and its subordinates to redetermine or
reverify the deemed export benefits once such benefits have
been approved or granted as per the provisions of the
Foreign Trade Policy. In the absence of power under the
Foreign Trade (Development and Regulation) Act, 1992 or
the Foreign Trade Policy, respondent No. 2 and its
subordinates cannot assume quasi-judicial power such as
power to redetermine or reverify under administrative
guidelines, i.e., paragraph 7 of the ANF 8 Form. Therefore,
paragraph 7 of the ANF 8 is usurpation of quasi-judicial
power by respondent No. 2 and its subordinates and thus,
travels beyond the provisions of the Foreign Trade
(Development and Regulation) Act, 1992 as well as Foreign
Trade Policy and hence, liable to be struck down.‖
7. The court accepted the submission, and held that there is no power
to review previous refunds, otherwise than under section 16 of the
Foreign Trade (Development and Regulation) Act. The court held as
follows (page 512 in 26 GSTR) :
―We find that respondent No. 2, namely, the Director
General of Foreign Trade, through paragraph 8.3.6 of the
Handbook of Procedures has incorporated by reference the
provisions of the Duties Drawback Rules mutatis mutandis
to the Foreign Trade Policy and Handbook of Procedures.
We find substance in the contention of Mr. Ghosh that the
Handbook of Procedures is nothing but an administrative
guideline as would appear from a combined reading of
19
2014 SCC OnLine Del 7747
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paragraph 2.4 of the Foreign Trade Policy and section 6 of
the Foreign Trade (Development and Regulation) Act, 1992.
We have already pointed out that section 3 of the Foreign
Trade (Development and Regulation) Act, 1992 grants
power to respondent No. 1 to make provisions relating to
imports and exports and respondent No. 1 under section 5 of
the Foreign Trade (Development and Regulation) Act, 1992
can formulate and announce the Foreign Trade Policy. It
further appears from section 6(3) of the Foreign Trade
(Development and Regulation) Act, 1992 that of the powers
conferred upon respondent No. 1 under the Foreign Trade
(Development and Regulation) Act, 1992, except those
provided in sections 3, 5, 15, 16 and 19, all others can be
delegated to respondent No. 2 by order published in the
Official Gazette. We find that respondent No. 2 through
paragraph 8.3.6 of the Handbook of Procedures has sought
to incorporate the provisions of the Duties Drawback Rules
to deemed exports mutatis mutandis which is not
permissible in view of the fact that no power has been
granted to the Director General of Foreign Trade under the
Foreign Trade (Development and Regulation) Act, 1992 to
legislate either directly or by way of incorporation by
reference. It is now a settled law that the separation of
power between the Legislature and executive forms part of
the basic structure of the Constitution of India and any
attempts by the executives to legislate without appropriate
authority under the law would amount to violation of the
basic structure of the Constitution of India. The power to
legislate is incorporated under article 246 of the
Constitution of India and such power has been conferred on
Parliament and the State Legislature. Moreover, the power
to frame Duties Drawback Rules under the Foreign Trade
(Development and Regulation) Act, 1992 can be legislated
by the Central Government only in exercise of power
conferred under section 19 in the manner prescribed under
the Foreign Trade (Development and Regulation) Act, 1992
and the same cannot be delegated to respondent No. 2 as
expressly prohibited by section 6 (3) of the above Act.
We, thus, find that any attempt by the executives to legislate
without the authority of law should be branded as a
colourable device and therefore, the same is in violation of
article 246 of the Constitution of India. If we accept the
contention of Mr. Raval that respondent No. 2 is authorised
to incorporate the Duties Drawback Rules by reference, it
would amount to acceptance of the proposition that
respondent No. 2 is authorised to deal with under the
Foreign Trade (Development and Regulation) Act, 1992, the
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similar matters relating to duty and tax refunds as provided
under section 75 of the Customs Act, section 37 of the
Central Excise Act and section 93A read with section 94 of
the Finance Act, 1994 although not authorised under the
Foreign Trade (Development and Regulation) Act, 1992. We
are in agreement with Mr. Ghosh, the learned advocate for
the petitioner, that the conferment of such power to
respondent No. 2 to adopt the Duties Drawback Rules
without any power to legislate either expressly or otherwise
would amount to permitting the levy or collection of tax
without authority of law in violation of article 265 of the
Constitution of India …
On going through the provisions of the Foreign Trade
(Development and Regulation) Act, 1992, we find that those
do not grant power to respondent No. 2 or its subordinates
to redetermine or reverify the deemed export benefits if
such benefits have been approved or granted as per the
provisions of the Foreign Trade (Development and
Regulation) Act, 1992 except by way of review as provided
in section 16. In the absence of any power under the Foreign
Trade (Development and Regulation) Act, 1992, respondent
No. 2 or its subordinates cannot assume quasi-judicial
power for instance, the power to redetermine or reverify
under the administrative guidelines, i.e., paragraph 7 of the
ANF 8 Form. Therefore, by virtue of paragraph 7 of the
ANF 8, respondent No. 2 is deriving the quasi-judicial
power which is beyond the provisions of the Foreign Trade
(Development and Regulation) Act, 1992. We have already
pointed out that according to section 6 of the Foreign Trade
(Development and Regulation) Act, 1992, respondent No. 2
or the officer subordinate to him cannot usurp the power
under sections 3, 5, 15, 16 and 19 …
Section 15 of the Foreign Trade (Development and
Regulation) Act, 1992 provides for appeal and, according to
the said section, any person aggrieved by any decision or
order made by the adjudicating authority may prefer an
appeal where the decision or order has been made by the
Director General, to the Central Government; or where the
decision or order has been made by an officer subordinate to
the Director General, to the Director General or to any
officer superior to the adjudicating authority authorised by
the Director General to hear the appeal within a specified
period mentioned therein. The said section, however, gives
power to the appellate authority to condone the delay in
preferring the appeal on sufficient cause being shown. The
said section puts certain other restrictions on preferring the
appeal.
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Section 16, on the other hand, authorises the Central
Government, in the case of any decision or order made by
the Director General, or the Director General in the case of
any decision or order made by any officer subordinate to
him, to act on its own motion or otherwise, by calling for
and examining the records of any proceeding for the
purpose of satisfying itself or himself, as the case may be,
as to the correctness, legality or propriety of such decision
or order and make such orders thereon as may be deemed
fit. The proviso, however, says that no decision or order
shall be varied under section 16 so as to prejudicially affect
any person unless such person has, within a period of two
years from the date of such decision or order, received a
notice to show cause why such decision or order shall not
be varied and has been given a reasonable opportunity of
making representation and, if he so desires, of being heard
in defence.‖
8. In this case, the impugned order-in-original, which acted upon the
decision taken by the Policy Interpretation Committee, is of the Joint
Director General of Foreign Trade, dated March 30, 2012. Clearly, in
terms of the decision in Alstom (2014] 26 GSTR 449 (Guj), with
which this court concurs, there can be no review of an earlier refund
except in accordance with the provision of section 16 of the Foreign
Trade (Development and Regulation) Act which only permits the
Director General of Foreign Trade or the Central Government (in
case the original order was by the Director General of Foreign
Trade) to exercise the power of review. The declaration in paragraph
7 of ANF 8, that Simplex will return any excess duty refunded,
cannot eclipse the narrow statutory power to review provided under
the Act. Thus, the impugned order of March 30, 2012, and
subsequent recovery proceedings on the basis of this order, exceeds
the authority granted by law under the Foreign Trade (Development
and Regulation) Act. Taking this view of the matter, the court does
not return any findings as to the legality of the decisions of the
Policy Interpretation Committee, or the legality of paragraph 2.3 of
the Policy.‖
51. The authority and jurisdiction of customs authorities to question
a benefit claimed under the FTDR Act or to delve into issues of
classification then appears to have fallen for consideration of the
Allahabad High Court in PTC Industries Ltd. v. Union of India and
Others20. The said High Court, after noticing Para 2.3 of FTP 2004 –
2009 which vested DGFT with the authority to rule on all questions or
20 2009 SCC OnLine All 2138
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allay doubts with respect to the interpretation of any provision in the
FTP, had pertinently observed: –
―16. The scheme of the Customs Act, 1962 and the Foreign Trade
(Development and Regulation) Act, 1992, provide that whereas the
officers on the check-post or port and the point of entry and exit,
have powers to prevent or detect the illegal exports of goods, and
also confiscate the goods attempted to be improperly exported,
which includes dutiable or prohibited goods, they do not have
powers to question the classification of goods. If a dispute arises as
to classification of the goods entitled for the DEPB, the powers for
adjudication for penalty or confiscation, in the event of
contravention of the provisions of the Foreign Trade (Development
and Regulation) Act, 1992, or any Rules or order made thereunder, is
with DGFT. Section 12 of the Act provides that powers to impose
penalty or confiscation under section 11 of the Act does not prevent
the imposition of any other punishment, under any other law for the
time being in force. If a person is liable under any other law, which
may include the Customs Act, 1962 for levy of penalty or
confiscation, the same may be in addition to penalty or confiscation
provided under section 11 of the Foreign Trade (Development and
Regulation) Act, 1992 and is also in addition to the suspension or
cancellation of the licence under the Act.
17. The Department of Revenue, Ministry of Finance, Government
of India in its circular dated June 3, 1997 had clarified that the role
of the Customs authorities in the matter of the DEPB scheme
introduced in the new export and import policy for the period 1997-
2002 was confined to verification of the correctness of exporter’s
declaration regarding description, quantity, and FOB value of the
export product. It is for the licensing authority to ensure that the
credit is permitted at the correct rate as notified by the DGFT. The
word “description” occurring in this circular, does not extend to
adjudication on description or classification. If there is any doubt as
to the description or classification at the time of verification, the
matter has to be referred to the DGFT for declaration under section
13 of the Foreign Trade (Development and Regulation) Act, 1992. If
the DGFT decides after giving an opportunity to the owners of the
goods that the goods do not meet the description and classification
for DEPB, the owner of the goods may, in addition to the
confiscation and penalty under the Foreign Trade (Development and
Regulation) Act, 1992, be punished with penalty under the Customs
Act, and that he may also be liable for suspension or cancellation of
the licence. The customs authority, however, are not entitled to
adjudicate over description and classification of the goods for
DEPB.
18. In Pradip Polyfils Pvt. Ltd. v. Union of India (2004) 173 ELT 3
(Bom) a somewhat similar question arose for consideration. The
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petitioner had exported filter plates and accessories made with
polypropylene under the DEPB Scheme through the Bombay coastal
area at Bombay for which DEPB licences were issued by the DGFT
Surat. The customs authorities rejected the claim for credit of duty
on the grounds that the goods exported did not fall under Chapter 39
of ITC (HS) classification of export import item, which is a
precondition for claiming credit under SI. No. 14, of Public Notice
No. 6, dated April 15, 1998. It was not in dispute that the DEPB
licences were issued against export of polypropylene filter plates and
accessories as contained in the shipping bills, which was required to
be forwarded to the customs for verification of the particular set out
in the shipping bills and necessary endorsements. The verification of
the customs authorities under Circular No. 15 of 1997 dated June 3,
1997 was restricted to the description, quantity, and FOB value of
the export products set out in the shipping bills. The customs
authorities did not allege that there was any discrepancy in the
description, quantity and FOB value. Under the circumstances, the
Bombay High Court held that when DEPB licence is issued, the
petitioners are entitled to DEPB in respect of polypropylene filter
plates and accessories. The customs authorities were not justified in
rejecting the claim on the ground that the articles exported were not
covered under Chapter 39 ITC (HS) classification. Whether an item
falls under Chapter 39 of ITC classification or not is for the licensing
authority to consider before issuing the licence. Even after issuance
of the licence the licensing authority has powers to decide if the
licenses were wrongly issued. The orders of the customs authorities
were quashed and set aside.
19. In this case the customs authorities alleged on the basis of a
report of CRCL that the goods produced for export were not
manufactured through forging process, but were welded or clipped.
The report of the CRCL was obtained ex parte without issuing notice
or associating the petitioner in the inspections. The report verifies
that the “sample” appears to be machine part made by different
components by welding or clipping. The different components of the
sample conform to the composition of stainless steel, 18/8, except
one component (nut part) ; one component (nut part) composition is
other than stainless steel. The carbon contained in sample is less than
1.2% by weight, in each component of the sample. The description
of the goods at the time of presenting them for export was not
reported by CRCL to be non-conforming to the classification of the
goods. The contents of the stainless steel was not in dispute. The
customs authorities were concerned with the fact whether the goods
meet the licence classification, namely, whether the DE-343-5, 19
inches raised hatch (SS) Code No. 74 964, was required to be a
forged machine part or a fabricated machine part in which different
components could be welded or clipped. The goods would not
become prescribed goods just because they did not meet the
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classification, which according to the customs authorities could only
be obtained by forging and not by welding or clipping. The customs
authorities have thus observed on their own satisfaction that the
goods do not meet the classification for which the petitioner was
given licence for DEBP credit.
20. It is not a case of misdescription or false declaration of goods. At
best it is case in which it was to be found whether the welding or
clipping could be included, or can be taken to be forging, when
according to the DGFT the hatch was to be made predominantly of
stainless steel of not less than 90 per cent. by weight. It is not the
case of the customs authorities that the item produced for
consideration before the DGFT and subjected to the DEPB
Committee (inter-ministerial committee) which discussed the
components was not the same, which was produced for export. The
Committee of Experts in the office of DGFT included the
representatives of Ministry of Steel; Joint DGFT Industrial Advisory,
Joint Industrial Advisor and DGFT and three other DGFT. The
representatives of Department of Steel explained the forging process
in general and that the committee opined that the item produced was
licensed item falling in the classification SI. No. 530B of the
Schedule of DEPB.
21. On the aforesaid discussion, we find from the scheme of the
Customs Act, 1962 and the Foreign Trade (Development and
Regulation) Act, 1992 that whenever a dispute may arise as to the
classification of the goods, other than its description, quantity and
FOB value, the customs authorities have to refer the dispute for
adjudication to DGFT under section 13 of the Act. It is only if the
DGFT as the licensing and also adjudicating authority decides
against the licensee, that the customs authorities will get jurisdiction
to confiscate and levy penalty on such goods.‖
52. The view which was expressed by the Allahabad High Court also
finds resonance in a decision handed down by the Bombay High Court
in Autolite (India) Ltd. v. Union of India21. Mr. Gulati relied upon the
following observations as appearing in that decision: –
―8. Having heard the Counsel on both the sides, we are of the
opinion that the Customs authorities below were not justified in
refusing to allow the duty free clearance of the goods on the ground
that die steel imported by the petitioner is capital goods and capital
goods did not fall within the scope of the Notification No. 116/1988.
Admittedly, under the advance licence issued, the petitioner was
entitled for duty free import of die steel as a material required in the21
2003 SCC OnLine Bom 1313
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manufacture of export product. Once the Licensing Authority has
accepted that die steel is a material required in the manufacture of
the export product, it is not open to the Customs Authorities to go
behind the licence and deny duty free clearance of the goods. The
exemption Notification No. 116/1988, dated 30th March, 1988
specifically states that the materials that are required to be imported
for the purpose of manufacture of resultant products shall include
such items as are imported into India against the advance licence for
subsequent exportation. In the instant case, the licence specifically
states that the petitioner is entitled to import die steel as a material
required for the manufacture of resultant products. The Apex Court
in the case of Titan Medical Systems Pvt. Ltd. v. Collector of
Customs reported in 2003 (151) E.L.T. 254 (S.C.) has held that once
an advance licence is issued and not questioned by the licensing
authority, the Customs authorities cannot refuse exemption on an
allegations that there was any misrepresentation. In the present case
also, the licensing authorities have not found fault with the statement
of the petitioner that the die steel is a material required in the
manufacture of resultant product and have granted advance licence
to the petitioner. Assuming that the licensing authorities have
wrongly accepted the statement of the petitioner, so long as the
licence is valid and subsisting the import of materials set out in the
advance licence are liable to be cleared duty free, under Notification
No. 116 of 1988 and the Customs authorities cannot deny duty free
clearance of the materials set out in the licence. It is open to the
Customs authorities to sit in appeal and hold that the licensing
authorities have erroneously endorsed advance licence to permit
import of die steel as a material required in the manufacture of the
resultant product. In this view of the matter, we are of the opinion
that the impugned orders passed by the Customs authorities below
cannot be sustained.‖
53. In yet another decision of the Bombay High Court in
Commissioner of Customs (E.P.) v. Jupiter Exports & Ors.22, the
following pertinent observations came to be rendered in the context of a
license issued by the DGFT and whether the same could be appraised
or inquired into by the authorities of customs. Answering the aforesaid
in the negative, the Bombay High Court had held as follows: –
―21. With regard to the issue as to whether a license issued by the
D.G.F.T. is valid on not is an issue that has to be determined by the
D.G.F.T. and not the Customs Authorities. It is now well settled that
until the licenses are cancelled by the licensing authority they are22
2007 SCC OnLine Bom 467
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deemed to be valid. The Hon’ble Supreme Court in case of (Titan
Medical System Pvt. Ltd. v. Collector of Customs, New Delhi) , 2002
DGLS 895 : 2003 (151) E.L.T. 254 (S.C.) has held that once an
advance licence was issued and not questioned by the licensing
authority, the Customs authorities cannot refuse exemption on an
allegation that there was no misrepresentation. If there was any
misrepresentation, it was for the licensing authorities to take steps in
that behalf. In the present case, the licensing authority sought to
cancel the licenses, but in appeal, the order was set aside and
remanded for denovo consideration. No further order has been passed
thereafter. In the circumstances, till today the licenses are valid. Even
if the license was subsequently cancelled, the Supreme Court in the
case of (Sampat Raj Duggar v. Union of India) , 1992 (58) E.L.T. 163
(S.C), following (East India Commercial Co. Ltd. v. Collector), 1962
DGLS 206 : 1963 (3) S.C.R. 338 has held that on the date of the
import the goods were covered by a valid import license. The
subsequent cancellation of a licence is of no relevance nor does it
retrospectively render the import illegal.‖C. SUBMISSIONS OF THE RESPONDENTS
54. Appearing for the respondents, learned counsels at the outset
drew our attention to the procedure of self-assessment under the
Customs Act, which finds place in Section 17, whereby importers and
exporters are required to self-assess the duty leviable on the goods so
imported or exported. In the event of any verification, examination or
testing of goods revealing that the self-assessment so done was
incorrect, Section 17(4) vests the ‗proper officer’ with the right to re-
assess the duty so leviable on such goods. Section 17 requires importers
and exporters to make a conscious effort to declare the correct
classification, applicable rate of duty, value, benefit of exemption
notification claimed, if any, in respect of imported or exported goods
while presenting their respective Bills of Entry or shipping bills.
However, according to the respondents, the petitioners have
deliberately run afoul of the requirement under Section 17 to correctly
self-assess their exported goods in order to obtain MEIS benefits that
they were not entitled to.
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55. According to learned counsel, MEIS was a scheme intended to
incentivise exporters of certain kinds of goods and the benefits whereof
would be accorded to products exported under a certain CTH and
calculated based on the FOB value of goods exported. The benefits
afforded to exporters under the MEIS was thus provided in the form of
scrips of a certain value, constituting a certain percentage of the FOB
value of the goods so exported. This scrip could thereafter be utilised
for the payment of duty on goods imported by the exporters of a value
equivalent to that of the scrip. In the alternative, the scrip could have
also been sold by exporters to other importers who are entitled to use
the same for payment of import duty.
56. The petitioners, according to learned counsel, had been exporting
handicraft articles of stone and marble classifying the same under CTH
6815 only with the intent of illegally obtaining benefits under the
MEIS. Learned counsel based his submission upon the purported
―intelligence‖ received by the respondents that ―certain unscrupulous
exporters‖ were deliberately misclassifying their export goods with the
view to obtain benefits under the MEIS scheme. It was therefore the
contention of learned counsel that the petitioner had, in contravention
of Section 17, deliberately misclassified their goods under ITC(HS)
68159990 so as to obtain reward rates under the MEIS that they were
not entitled to.
57. The factum of the stated misclassification being deliberate was
further corroborated, as per learned counsel, by the factum of the
petitioner classifying the exported goods ―correctly‖ at the Nhava
Sheva Port under CTH 6802. It was on the basis of this ―intelligence‖
that various summons had come to be issued to the writ petitioner.
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58. Learned counsel submitted that the challenge made to the legality
of the summons so issued should not be countenanced bearing in mind
the undisputed fact that the summons had been issued by gazetted
officers under Section 108. It was further contended that since the
summons so issued were not established to have transgressed any
statutory provision this Court would be justified in refusing to interfere
with the same.
59. Learned counsel additionally drew our attention to Section 97 of
the Finance Act, 2022 which had proposed changes in the Customs Act
and which essentially stated that ―anything done or any duty performed
or any action taken or purported to have been taken‖ under the
Customs Act as it stood prior to its amendment shall be ―deemed to
have been validly done‖ and that any notifications issued shall be
―deemed to have been validly issued for all purposes‖. The respondents
further contended that notwithstanding any challenge made to the
constitutional validity of the provisions of Finance Act, 2022, this
would not constitute a valid ground to prevent statutory authorities
from exercising their powers of enquiry and investigation.
60. We may note in this regard that although the writ petitioners had
questioned the authority of the respondents on grounds which are
refuted by learned counsel for the respondents and noticed above, the
same would no longer survive for consideration in light of the recent
decision of the Supreme Court in Commissioner of Customs Vs.
Canon India Pvt. Ltd23. We, therefore, do not propose to deal with this
aspect.
61. Learned counsel, in response to the arguments put forth by the
23
2024 SCC OnLine SC 3188
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petitioner with regard to the audit objection letter dated 18 November
2019 being ultra-vires Section 99A, contended that the legislative intent
behind the introduction of Section 99A was to provide a statutory
framework for the conduct of a post-clearance audit and that the
Customs Audit Regulations, 201824 were introduced appointing
customs officers of specified ranks for the purpose of carrying out
audits under Section 99A. The said officers are statutorily empowered
to send SCNs’ based on the findings of an audit conducted by a proper
officer. Learned counsel submitted that the proceedings initiated by
way of the audit objection and the enquiries made on the basis of
intelligence gathered by customs officials were distinct and
independent and ought not be conflated with the other. Accordingly,
learned counsel argued that the submissions addressed by the writ
petitioners with regards to the untenability of the audit objection letter
in the absence of any SCN is misconceived.
62. Turning then to the issue of the purported deliberate
misclassification of goods by the petitioner, learned counsel placed
reliance upon the CBIC communication dated 31 May 2019 and the
Public Notice No. 57/2019 to buttress his submissions. Learned counsel
submitted that since the exported goods of the petitioner were made of
natural stone, which is covered by CTH 6802, the classification of those
goods under CTH 6815 would be inevitably foreclosed, particularly
when CTH 6815 covers those articles of stone or other mineral
substances that are ―not covered by earlier headings and are not
included elsewhere in the nomenclature‖. Therefore, if articles of
natural stone as exported by the petitioner are in fact explicitly covered
under CTH 6802, it would necessarily follow that CTH 6815, which
24
Audit Regulations 2018
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encompasses substances that are not covered by any other
nomenclature, would not be applicable. It is in the aforesaid backdrop
that the respondents drew our attention to the powers vested in customs
officers under sub-section (4) of Section 17 to re-assess the duties on
the classified imported or exported goods in the event of the importer or
exporter failing to declare the correct classification in their respective
self-assessed shipping bills or bills of entry.
63. Learned counsel accordingly took the position that
notwithstanding the right of the petitioner to self-assess the goods to be
exported, the ultimate authority to adjudge the correct classification of
goods exported under the Customs Tariff Act, 197525 vests with the
customs officer and no other.
64. The role of Respondent No. 11, the Export Promotion Council
for Handicrafts26, was explained as being limited to providing its
members with guidance in respect of classification of goods imported
or exported. However, this according to learned counsel would not
detract from the authority of the customs officer to question the
classification of goods. That according to learned counsel is a power
which the statute places squarely within the domain of customs officers.
D. ASSESSMENT UNDER THE CUSTOMS AND FTDR ACT
65. In order to evaluate the rival submissions noticed above, it would
be appropriate to firstly deal with the scope of the assessment power
that stands conferred upon the competent authorities under the FTDR
Act and the Customs Act. While examining the ambit and reach of the
two statutes in question, if we were to turn our gaze firstly upon the
Customs Act, it would be important to firstly take note of how that
25
Tariff Act
26
EPCH
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statute proceeds to define the word ‗assessment’. Section 2(2) as it
stands presently reads as follows:-
―2. Definitions.
xxxx xxxx xxxx
[(2) ―assessment means determination of the dutiability of any
goods and the amount of duty, tax, cess or any other sum so payable,
if any, under this Act or under the Customs Tariff Act, 1975 (51 of
1975) (hereinafter referred to as the Customs Tariff Act) or under
any other law for the time being in force, with reference to–
(a) the tariff classification of such goods as determined in
accordance with the provisions of the Customs Tariff Act;
(b) the value of such goods as determined in accordance with the
provisions of this Act and the Customs Tariff Act;
(c) exemption or concession of duty, tax, cess or any other sum,
consequent upon any notification issued therefor under this
Act or under the Customs Tariff Act or under any other law
for the time being in force;
(d) the quantity, weight, volume, measurement or other specifics
where such duty, tax, cess or any other sum is leviable on the
basis of the quantity, weight, volume, measurement or other
specifics of such goods;
(e) the origin of such goods determined in accordance with the
provisions of the Customs Tariff Act or the rules made
thereunder, if the amount of duty, tax, cess or any other sum
is affected by the origin of such goods;
(f) any other specific factor which affects the duty, tax, cess or
any other sum payable on such goods,
and includes provisional assessment, self-assessment, re-assessment
and any assessment in which the duty assessed is nil;]‖
66. The provision as it exists in its present avatar came to be
introduced and inserted in the Customs Act by virtue of Finance Act,
2018. However and prior to those amendments being introduced, the
word ‗assessment’ was defined as follows: –
―(2) ―assessment‖ includes provisional assessment, self-assessment,
re-assessment and any assessment in which the duty assessed is nil;‖
67. As is manifest from the above, a process of ‗self-assessment’
was ordained to form part of an ‗assessment’ as contemplated under the
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Customs Act. This change had essentially come to be introduced in
2011 and pursuant to which self-assessment was acknowledged to be
one of the modes of assessment as contemplated under the Customs
Act. The procedure for assessment of duty is prescribed in Section 17
of that enactment. We deem it apposite to extract hereinbelow a table
which would highlight the various amendments which have been made
to that provision from time to time and as it has come to be modified
from 2011 and onwards: –
SECTION 17: PRE- SECTION 17: POST-
AMENDMENT AMENDMENT
Substituted by the Finance Act, [Assessment of duty.
2011, w.e.f. 8-4-2011. Prior to its 17. (1) An importer entering any
substitution, section 17, as amended imported goods under section 46, or
by the Taxation Laws (Amendment) an exporter entering any export
Act, 2006, w.e.f. 13-7-2006, read as goods under section 50, shall, save
under: as otherwise provided in section 85,
―17. Assessment of duty.- (1) After self-assess the duty, if any, leviable
an importer has entered any on such goods.
imported goods under section 46 or (2) The proper officer may verify
an exporter has entered any export [the entries made under section 46
goods under section 50 the imported or section 50 and the self-assessment
goods or the export goods, as the of goods referred to in sub-section
case may be, or such part thereof as (1)] and for this purpose, examine or
may be necessary may, without test any imported goods or export
undue delay, be examined and tested goods or such part thereof as may be
by the proper officer. necessary.
(2) After such examination and [Provided that the selection of cases
testing, the duty, if any, leviable on for verification shall primarily be on
such goods shall, save as otherwise the basis of risk evaluation through
provided in section 85, be assessed. appropriate selection criteria.]
(3) For the purpose of assessing duty [(3) For [the purposes of
under sub-section (2), the proper verification] under sub-section (2),
officer may require the importer, the proper officer may require the
exporter or any other person to importer, exporter or any other
produce any contract, broker’s note, person to produce any document or
policy of insurance, catalogue or information, whereby the duty
other document whereby the duty leviable on the imported goods or
leviable on the imported goods or export goods, as the case may be,
export goods, as the case may be, can be ascertained and thereupon,
can be ascertained, and to furnish the importer, exporter or such other
any information required for such person shall produce such document
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ascertainment which it is in his or furnish such information.]
power to produce or furnish, and (4) Where it is found on verification,
thereupon the importer, exporter or examination or testing of the goods
such other person shall produce such or otherwise that the self-
document and furnish such assessment is not done correctly, the
information. proper officer may, without
(4) Notwithstanding anything prejudice to any other action which
contained in this section, imported may be taken under this Act, re-
goods or export goods may, prior to assess the duty leviable on such
the examination or testing thereof, goods.
be permitted by the proper officer to (5) Where any re-assessment done
be assessed to duty on the basis of under sub-section (4) is contrary to
the statements made in the entry the self-assessment done by the
relating thereto and the documents importer or exporter [***] and in
produced and the information cases other than those where the
furnished under sub-section (3); but importer or exporter, as the case may
if it is found subsequently on be, confirms his acceptance of the
examination or testing of the goods said re-assessment in writing, the
or other wise that any statement in proper officer shall pass a speaking
such entry or document or any order on the re-assessment, within
information so furnished is not true fifteen days from the date of re-
in respect of any matter relevant to assessment of the bill of entry or the
the assessment, the goods may, shipping bill, as the case may be.
without prejudice to any other action (6) [***]
which may be taken under this Act, Explanation.–For the removal of
be re-assessed to duty. doubts, it is hereby declared that in
(5) Where any assessment done under cases where an importer has entered
sub-section (2) is contrary to the any imported goods under section 46
claim of the importer or exporter or an exporter has entered any export
regarding valuation of goods, goods under section 50 before the
classification, exemption or date on which the Finance Bill, 2011
concessions of duty availed receives the assent of the President,
consequent to any notification such imported goods or export goods
therefor under this Act, and in cases shall continue to be governed by the
other than those where the importer provisions of section 17 as it stood
or the exporter, as the case may be, immediately before the date on
confirms his acceptance of the said which such assent is received.]
assessment in writing, the proper
officer shall pass a speaking order
within fifteen days from the date of
assessment of the bill of entry or the
shipping bill, as the case may be.‖
68. For the purposes of the question which stands posited for our
consideration, suffice it to note that post the introduction of a system of
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self-assessment being adopted and thus a bill of entry as submitted
being liable to be accepted unless questioned in accordance with the
procedure stipulated in Section 17, the declaration as made by the
importer or the exporter, as the case may be, attains finality unless
refuted or reopened in accordance with the statutory provisions
enshrined in the Customs Act. It was in extension of the said power that
the proper officer stood empowered to require the importer or the
exporter to produce all relevant material and which may have a bearing
on the duty leviable for its consideration. Section 17 also confers a
power on the proper officer to subject the goods to verification and
testing and thus evaluate the correctness of the disclosures made in the
course of self-assessment. In terms of Section 17(4), if it were found on
verification, examination or testing that the self-assessment had not
been undertaken correctly, the proper officer stands empowered,
without prejudice to any other action that it could have taken, to
reassess the duty leviable on goods.
69. Prior to the amendments which came to be introduced in Section
17 by virtue of Finance Act, 2018, the Proviso to Section 17(2) while
identifying the criteria relevant for selection of cases for purposes of
verification, had recognised that power being guided by factors such as
the valuation of goods, classification, exemption or concessional duties
availed in terms of a notification issued under that Act. The Proviso had
at the relevant time and prior to the passing of Finance Act, 2018
included the following phraseology ―regarding valuation of goods,
classification, exemption or concessions of duty availed consequent to
any notification issued therefore under this Act‖.
70. Section 17 also included a sub-section (6) in terms of which a
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proper officer was empowered to undertake an audit in respect of duty
in case it had failed to undertake a reassessment or pass a speaking
order in respect thereof. The aforesaid sub-section (6) as it existed in
Section 17 came to be omitted by Finance Act, 2018. Parallelly,
Finance Act, 2018 inserted Section 99A and which is extracted
hereinbelow: –
―99A. Audit.
The proper officer may carry out the audit of assessment of
imported goods or export goods or of an auditee under this Act either
in his office or in the premises of the auditee in such manner as may
be prescribed.
Explanation: For the purposes of this section, ―auditee‖
means a person who is subject to an audit under this section and
includes an importer or exporter or custodian approved under section
45 or licensee of a warehouse and any other person concerned
directly or indirectly in clearing, forwarding, stocking, carrying,
selling or purchasing of imported goods or export goods or dutiable
goods.‖
71. The Supreme Court, in a batch of appeals in ITC Ltd. v.
Commissioner of Central Excise, Kolkata IV27 had an occasion to
deal with the issue of whether refund applications against assessed duty
could be entertained in the absence of any challenge made to an order
of assessment. The lead appellant was a paper manufacturer that had
been paying duty on the paper cleared from its factory and had filed a
refund claim in respect of duty paid by it during the period of July 2001
to March 2002 in light of the exemption Notification No. 67.95-CE,
which it had not been aware of at the relevant time. However, the said
refund application came to be rejected and which lead to the filing of an
appeal before the Supreme Court. The Supreme Court, while
deliberating whether self-assessment falls within the ambit of
assessment as envisaged under Sections 2(2) and 17(1) of the Customs
27
(2019) 17 SCC 46
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Act prior and post the amendment of 2011, rendered the following
pertinent observations:-
―32. Coming to the procedure of assessment of duty as prevailed
before the amendment of the Act prior to the amendment made in
Section 17(1) by the Finance Act of 2011, the imported goods or
exported goods were required to be examined and tested by the
proper officer. After such examination, he had to make an
assessment of the duty, if any, leviable on these goods. Under sub-
section (3) of Section 17, the proper officer was authorised to require
the importer, exporter or any other person to produce any contract,
broker’s note or any other document as specified in the proviso and
to furnish any required information. Notwithstanding that the
statements made in the bill of entry relating thereto and the
documents produced and the information furnished under sub-
section (3); but if it was found subsequently on examination or
testing of the goods or otherwise that any statement in such bill of
entry or document or any information so furnished was not true, he
could have proceeded to reassess the duty. Where the assessment
done under sub-section (2) is contrary to the claim of the importer or
exporter regarding valuation of the goods, classification, exemption
or concession, speaking order shall be passed within 15 days from
the date of assessment of the bill of entry or the shipping bill as the
case may be as provided in Section 17(5).
33. Under the provisions of Section 17 as amended by the Finance
Act of 2011, Section 17(1) has provided to self-assess the duty, if
any, leviable on such goods by importer or exporter, as the case may
be. Self-assessment is an assessment as per the amended definition
of Section 2(2). It is further provided that proper officer may verify
the self-assessment of such goods, and for this purpose, examine or
test any imported goods or exported goods or such part thereof as
may be necessary. The power to verify self-assessment lies with the
proper officer and for that purpose under Section 17(3), he may
require the importer, exporter or any other person to produce such
document and furnish such information, etc. If the proper officer on
verification has found on examination or testing of the goods or as
part thereof or otherwise that the self-assessment is not done
correctly, the proper officer may, without prejudice to any other
action which may be taken under the Act, may proceed to reassess
the duty leviable on such goods. Section 17(5) of the Act as
amended provides that where reassessment done under Section 17(4)
is contrary to the assessment done by the importer or exporter
regarding the matters specified therein, the proper officer has to pass
a speaking order on the reassessment, within 15 days from the date
of reassessment of the bill of entry or the shipping bill, as the case
may be. The Explanation to amended Section 17 has clarified that
import or export before the amendment by the Finance Act, 2011
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shall be governed by the unamended provisions of Section 17.
xxxx xxxx xxxx
41. It is apparent from the provisions of refund that it is more or less
in the nature of execution proceedings. It is not open to the authority
which processes the refund to make a fresh assessment on merits and
to correct assessment on the basis of mistake or otherwise.
xxxx xxxx xxxx
43. As the order of self-assessment is nonetheless an assessment
order passed under the Act, obviously it would be appealable by any
person aggrieved thereby. The expression “Any person” is of wider
amplitude. The Revenue, as well as the assessee, can also prefer an
appeal aggrieved by an order of assessment. It is not only the order
of reassessment which is appealable but the provisions of Section
128 make appealable any decision or order under the Act including
that of self-assessment. The order of self-assessment is an order of
assessment as per Section 2(2), as such, it is appealable in case any
person is aggrieved by it. There is a specific provision made in
Section 17 to pass a reasoned/speaking order in the situation in case
on verification, self-assessment is not found to be satisfactory, an
order of reassessment has to be passed under Section 17(4). Section
128 has not provided for an appeal against a speaking order but
against “any order” which is of wide amplitude. The reasoning
employed by the High Court is that since there is no lis, no speaking
order is passed, as such an appeal would not lie, is not sustainable in
law, is contrary to what has been held by this Court in Escorts‖
72. ITC Limited, while observing that an order of self-assessment
must follow in order for a claim of refund to be sustained, observed
thus:-
―44. The provisions under Section 27 cannot be invoked in the
absence of amendment or modification having been made in the bill
of entry on the basis of which self-assessment has been made. In
other words, the order of self-assessment is required to be followed
unless modified before the claim for refund is entertained under
Section 27. The refund proceedings are in the nature of execution for
refunding amount. It is not assessment or reassessment proceedings
at all. Apart from that, there are other conditions which are to be
satisfied for claiming exemption, as provided in the exemption
notification. Existence of those exigencies is also to be proved which
cannot be adjudicated within the scope of provisions as to refund.
While processing a refund application, reassessment is not permitted
nor conditions of exemption can be adjudicated. Reassessment is
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permitted only under Sections 17(3), (4) and (5) of the amended
provisions. Similar was the position prior to the amendment. It will
virtually amount to an order of assessment or reassessment in case
the Assistant Commissioner or Deputy Commissioner of Customs
while dealing with refund application is permitted to adjudicate upon
the entire issue which cannot be done in the ken of the refund
provisions under Section 27. In Hero Cycles Ltd. v. Union of India
though the High Court interfered to direct the entertainment of
refund application of the duty paid under the mistake of law.
However, it was observed that amendment to the original order of
assessment is necessary as the relief for a refund of claim is not
available as held by this Court in Priya Blue Industries Ltd.
xxxx xxxx xxxx
47. When we consider the overall effect of the provisions prior to
amendment and post-amendment under the Finance Act, 2011, we
are of the opinion that the claim for refund cannot be entertained
unless the order of assessment or self-assessment is modified in
accordance with law by taking recourse to the appropriate
proceedings and it would not be within the ken of Section 27 to set
aside the order of self-assessment and reassess the duty for making
refund; and in case any person is aggrieved by any order which
would include self-assessment, he has to get the order modified
under Section 128 or under other relevant provisions of the Act.
48. Resultantly, we find that the order(s) passed by the Customs,
Excise and Service Tax Appellate Tribunal are to be upheld and that
passed by the High Courts of Delhi and Madras 19 to the contrary,
deserve to be and are hereby set aside. We order accordingly. We
hold that the applications for refund were not maintainable. The
appeals are accordingly disposed of. Parties to bear their own costs
as incurred.‖
73. Subsequent to ITC Limited, this Court in BT (India) Private
Limited, v. Union of India and another28 had dealt with a challenge
to the rejection of refund claims and the self-assessment done by the
petitioners therein, albeit in the context of unutilised Central Value
Added Tax29 credit. While dealing with the challenge raised therein,
the Court upon noticing the decision in ITC Limited in extenso had
ultimately come to render the following pertinent findings:-
28
2023 SCC OnLine Del 7143
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―52. A comprehensive reading of the provisions of the Act would
thus establish that a self-assessed return stands placed on a pedestal
equivalent to that of an actual order of assessment, provisional or
best judgment assessment or a reassessment. This issue in any case
is liable to be answered against the respondent in light of the
decision in ITC Limited.
xxxx xxxx xxxx
57. It becomes pertinent to note that both the Customs as well as the
Excise Acts follow an identical procedure of self assessment. While
section 17 of the Customs Act enables an importer or an exporter, as
the case may be, to self-assess and pay the duty leviable on goods,
the said provision further empowers the proper officer to verify the
self assessed return that may be submitted. In terms of section 17( 4)
of the said enactment, if the proper officer on verification,
examination or testing of the goods comes to the conclusion that the
self assessment is incorrect, it becomes entitled to reassess the duty
leviable on goods. It is in extension of the aforesaid power that sub-
section (5) of section 17 speaks of reassessment and the obligation
of the proper officer to pass a speaking order in support of the
exercise of reassessment.
58. Section 27 enables a person to claim refund of duty or interest
which may have been either paid or borne by it. Section 27(2) of the
Customs Act, in terms identical to section 118(2) of the Excise Act,
speaks of refunds being effected upon the proper officer being
satisfied that the whole or any part of the duty paid is refundable.
Section 27(2) is thus a provision which is pari materia with section
118(2) of the Excise Act.
59. The Supreme Court in ITC Limited. notwithstanding section 27
(2) employing the expression “satisfied” held that unless a self
assessed return is revised or doubted in exercise of powers of
reassessment, best judgment assessment or where it be alleged that
duty had been short-levied, short- paid or erroneously refunded,
those powers would not be available to be exercised at the stage of
considering an application for refund. Having noticed the statutory
position which prevails, we turn then to the decisions which would
have a bearing on the question which stands posited.
60. Flock (India) was one of the earliest decisions which dealt with
the aspect of a claim for refund emanating from a return which had
been duly assessed. In Flock (India), the self-assessed returns had
been duly assessed by the Assistant Collector and the issue of
classification was answered against the assessee. The aforesaid order
of the Assistant Collector came to be affirmed by the Collector
(Appeals). It was thereafter and while seeking to prosecute a claim
for refund that the assessee sought a review of the aforesaid
decisions which had been rendered by the authorities. Negativing the
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said contention, the Supreme Court observed that once an
assessment filed had been duly adjudicated in accordance with the
procedure prescribed under the statute, it would be impermissible for
the said decision being reviewed or revisited at the stage of
consideration of a refund claim.
61. In Priya Blue Industries, the Supreme Court was faced with a
situation where a bill of entry had been duly assessed and the duty
payable in terms of that assessment deposited under protest. It was
thereafter that an application for refund came to be preferred. As
would be evident from the conclusions ultimately recorded in that
decision, the Supreme Court categorically held that once an order of
assessment came to be made, the duty was liable to be paid in
accordance with that order alone. Their Lordships pertinently
observed that unless such an order of assessment is reviewed or
modified in appeal, the duty as determined to be payable would
remain untouched and it would not be open for an assessee to seek a
review of the assessment order, bearing in mind the fact that the
claim for refund is not akin to proceedings in appeal. It was further
held that the authority which is enjoined to consider a refund claim
can neither sit in an appeal over an assessment made nor can it
review an order of assessment.
62. Both these decisions and the views expressed therein came to be
specifically noticed and reaffirmed by three learned Judges of the
Supreme Court in ITC Limited. The decision of the Supreme Court
in ITC Limited assumes added significance, in so far as the present
case is concerned, in light of it having found that a self-assessment
return, even in the absence of a formal order dealing with the same,
would nonetheless amount to an assessment. We had in this regard
and in the preceding parts of this decision noticed the definition of
the expression “assessment” as contained in rule 2(b) of the 1994
Rules which includes a self-assessment of service tax and thus being
evidence of a position similar and akin to that which obtains under
the Customs and Excise Acts.
63. Their Lordships in ITC Limited categorically held that
notwithstanding a self-assessed bill of entry having been merely
endorsed by the competent authority, the same would nonetheless
amount to an “assessment”. It was in that backdrop that it was held
that once a self-assessed return had been duly accepted, the same
could not be modified or varied by an authority while considering an
application for refund.
64. It becomes pertinent to note that the appellant before the
Supreme Court in that case, had sought to press the claim for refund
asserting that it had due to inadvertence failed to submit a self
assessment return taking into consideration an exemption
notification. It was this claim which came to be ultimately negatived
by the Supreme Court and which held that a claim for refund cannot
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be entertained unless the order of assessment, and which would
include a self-assessment return, is modified in accordance with the
procedure prescribed in the statute. In our considered opinion, it is
these principles enunciated in Flock (India), Priya Blue Industries
and ITC Limited, which compel and convince us to observe that the
impugned order is clearly rendered unsustainable.
65. Undisputedly, the petitioner had submitted self-assessment
returns proceeding on the basis that the output services rendered by
it would qualify as an “export of service” and thus it being not
exigible to service tax. The aforesaid self-assessment returns
remained untouched and had not been questioned by the respondents
either in terms of section 72 or 73 of the Act. The application for
refund of Cenvat credit was founded on the petitioner assessing that
it was not liable to pay service tax on services so exported. The
accumulation of Cenvat credit came about in light of the various
input services received by the petitioner and it having availed credit
of service tax paid thereon in terms of rule 3 of the CCR Rules. It
was in respect of the accumulated Cenvat credit that the application
for refund came to be made.
66. In our considered view, unless the self-assessed return, as
submitted had been questioned, re-opened or re-assessed and the
assertion of the petitioner of the services rendered by it qualifying as
an “export of service” questioned or negatived in accordance with
the procedure prescribed under the Act, its claim for refund could
not have been negated. As was observed by the Supreme Court in
ITC Limited, a self-assessed return also amounts to an “assessment”
and unless it is varied or modified in accordance with the procedure
prescribed under the relevant statute, the same cannot possibly be
questioned in refund proceedings. As the Supreme Court had held in
the decisions aforenoted, the authority while considering an
application for grant of refund neither sits in appeal nor is it entitled
to review an assessment deemed to have been made. In fact, the
Supreme Court in ITC Limited had described refund proceedings to
be akin to execution proceedings.
67. We thus come to the firm conclusion that in the absence of the
self- assessed return having been questioned, reviewed or re-
assessed, the claim for refund of Cenvat credit could not have been
denied by the respondents. When confronted with the application for
refund, all that the respondents could have possibly examined or
evaluated was whether the provisions of rule 5 read along with the
various prescriptions contained in the notification dated June 18,
2012 had been complied with. The respondents, at this stage of the
proceedings, could not have doubted, questioned or undertaken a
merit review of the self-assessed return which had been submitted.‖
74. The observations appearing in ITC Limited and BT India assume
significance when viewed in light of the various Bills of Entry as
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submitted by the writ petitioners on a self-assessment basis having been
duly accepted and no questions in respect thereof having been raised.
The Bills of Entry would thus be liable to be viewed as having been
duly assessed and accepted. Undisputedly, it is decades after those
exports had been affected and assessments completed that the
respondents now seek to reopen those transactions and seek to question
the benefits claimed by the writ petitioners.
75. Undisputedly, consequent to the self-assessed Bills of Entry
having been accepted and thus liable to be viewed as assessed, the stage
of enquiry contemplated in terms of Section 17 of the Customs Act has
clearly passed. That then leaves us to identify and determine the
avenues which would otherwise be available to the customs authorities
to reopen or review an assessment duly made.
E. RECOVERY OF DUTY UNDER SECTION 28 AND 28AAA
76. This leads us firstly to Section 28 of the Customs Act and which
deals with recovery of duties either not levied or paid, short levied or
short paid or erroneously refunded. Section 28 reads thus: –
―28. Recovery of [duties not levied or not paid or short-levied or
short-paid] or erroneously refunded.
(1) Where any [duty has not been levied or not paid or short-
levied or short-paid] or erroneously refunded, or any interest payable
has not been paid, part-paid or erroneously refunded, for any reason
other than the reasons of collusion or any wilful mis-statement or
suppression of facts, —
(a) the proper officer shall, within [two years] from the relevant
date, serve notice on the person chargeable with the duty or
interest which has not been so levied [or paid] or which has
been short-levied or short-paid or to whom the refund has
erroneously been made, requiring him to show cause why he
should not pay the amount specified in the notice:
[PROVIDED that before issuing notice, the proper officer
shall hold pre-notice consultation with the person chargeable
with duty or interest in such manner as may be prescribed;]
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(b) the person chargeable with the duty or interest, may pay
before service of notice under clause (a) on the basis of, —
(i) his own ascertainment of such duty; or
(ii) the duty ascertained by the proper officer,
the amount of duty along with the interest payable thereon under
section 28AA or the amount of interest which has not been so paid
or part-paid:
[PROVIDED that the proper officer shall not serve such
show cause notice, where the amount involved is less than rupees
one hundred.]
(2) The person who has paid the duty along with interest or
amount of interest under clause (b) of sub-section (1) shall inform
the proper officer of such payment in writing, who, on receipt of
such information, shall not serve any notice under clause (a) of that
sub-section in respect of the duty or interest so paid or any penalty
leviable under the provisions of this Act or the rules made
thereunder in respect of such duty or interest:
[PROVIDED that where notice under clause (a) of sub-
section (1) has been served and the proper officer is of the opinion
that the amount of duty along with interest payable thereon under
section 28AA or the amount of interest, as the case may be, as
specified in the notice, has been paid in full within thirty days from
the date of receipt of the notice, no penalty shall be levied and the
proceedings against such person or other persons to whom the said
notice is served under clause (a) of sub-section (1) shall be deemed
to be concluded.]
(3) Where the proper officer is of the opinion that the amount
paid under clause (b) of sub-section (1) falls short of the amount
actually payable, then, he shall proceed to issue the notice as
provided for in clause (a) of that sub-section in respect of such
amount which falls short of the amount actually payable in the
manner specified under that sub-section and the period of 2 [two
years] shall be computed from the date of receipt of information
under sub-section (2).
(4) Where any duty has not been [levied or not paid or has been
short-levied or short-paid] or erroneously refunded, or interest
payable has not been paid, part-paid or erroneously refunded, by
reason of,–
(a) collusion; or
(b) any wilful mis-statement; or
(c) suppression of facts,
by the importer or the exporter or the agent or employee of the
importer or exporter, the proper officer shall, within five years from
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the relevant date, serve notice on the person chargeable with duty or
interest which has not been [so levied or not paid] or which has been
so short-levied or short-paid or to whom the the refund has
erroneously been made, requiring him to show cause why he should
not pay the amount specified in the notice.
(5) Where any [duty has not been levied or not paid or has
been short-levied or short paid] or the interest has not been charged
or has been part-paid or the duty or interest has been erroneously
refunded by reason of collusion or any wilful mis-statement or
suppression of facts by the importer or the exporter or the agent or
the employee of the importer or the exporter, to whom a notice has
been served under sub- section (4) by the proper officer, such person
may pay the duty in full or in part, as may be accepted by him, and
the interest payable thereon under section 28AA and the penalty
equal to [fifteen per cent.] of the duty specified in the notice or the
duty so accepted by that person, within thirty days of the receipt of
the notice and inform the proper officer of such payment in writing.
(6) Where the importer or the exporter or the agent or the
employee of the importer or the exporter, as the case may be, has
paid duty with interest and penalty under sub-section (5), the proper
officer shall determine the amount of duty or interest and on
determination, if the proper officer is of the opinion —
(i) that the duty with interest and penalty has been paid in
full, then, the proceedings in respect of such person or
other persons to whom the notice is served under sub-
section (1) or sub- section (4), shall, without prejudice to
the provisions of sections 135, 135A and 140 be deemed
to be conclusive as to the matters stated therein; or
(ii) that the duty with interest and penalty that has been paid
falls short of the amount actually payable, then, the
proper officer shall proceed to issue the notice as
provided for in clause (a) of sub-section (1) in respect of
such amount which falls short of the amount actually
payable in the manner specified under that sub-section
and the period of [two years] shall be computed from the
date of receipt of information under sub-section (5).
(7) In computing the period of [two years] referred to in
clause (a) of sub-section (1) or five years referred to in sub-section
(4), the period during which there was any stay by an order of a
court or tribunal in respect of payment of such duty or interest shall
be excluded.
[(7A) Save as otherwise provided in clause (a) of sub-section
(1) or in sub-section (4), the proper officer may issue a
supplementary notice under such circumstances and in such manner
as may be prescribed, and the provisions of this section shall apply
to such supplementary notice as if it was issued under the said sub-
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section (1) or sub-section (4).]
(8) The proper officer shall, after allowing the concerned
person an opportunity of being heard and after considering the
representation, if any, made by such person, determine the amount of
duty or interest due from such person not being in excess of the
amount specified in the notice.
(9) The proper officer shall determine the amount of duty or
interest under sub-section (8),–
(a) within six months from the date of notice, [***] in
respect of cases falling under clause (a) of sub- section
(1);
(b) within one year from the date of notice, [***] in respect
of cases falling under sub-section (4):
[PROVIDED that where the proper officer fails to so
determine within the specified period, any officer senior
in rank to the proper officer may, having regard to the
circumstances under which the proper officer was
prevented from determining the amount of duty or
interest under sub-section (8), extend the period
specified in clause (a) to a further period of six months
and the period specified in clause (b) to a further period
of one year:
PROVIDED FURTHER that where the proper officer
fails to determine within such extended period, such
proceeding shall be deemed to have concluded as if no
notice had been issued;]
[(9A) Notwithstanding anything contained in sub-section (9),
where the proper officer is unable to
determine the amount of duty or interest under sub-section (8) for
the reason that–
(a) an appeal in a similar matter of the same person or any
other person is pending before the
(b) Appellate Tribunal or the High Court or the Supreme
Court; or
(c) an interim order of stay has been issued by the Appellate
Tribunal or the High Court or the Supreme Court; or
(d) the Board has, in a similar matter, issued specific
direction or order to keep such matter
(e) pending; or
(f) the Settlement Commission has admitted an application
made by the person concerned,
the proper officer shall inform the person concerned the reason for
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non-determination of the amount of
duty or interest under sub-section (8) and in such case, the time
specified in sub-section (9) shall apply
not from the date of notice, but from the date when such reason
ceases to exist.]
(10) Where an order determining the duty is passed by the
proper officer under this section, the person liable to pay the said
duty shall pay the amount so determined along with the interest due
on such amount whether or not the amount of interest is specified
separately.
[(10A) Notwithstanding anything contained in this Act,
where an order for refund under sub-section (2) of section 27 is
modified in any appeal and the amount of refund so determined is
less than the amount refunded under said sub-section, the excess
amount so refunded shall be recovered along with interest thereon at
the rate fixed by the Central Government under section 28AA, from
the date of refund up to the date of recovery, as a sum due to the
Government.
(10B) A notice issued under sub-section (4) shall be deemed
to have been issued under sub-section (1), if such notice demanding
duty is held not sustainable in any proceeding under this Act,
including at any stage of appeal, for the reason that the charges of
collusion or any wilful mis-statement or suppression of facts to
evade duty has not been established against the person to whom such
notice was issued and the amount of duty and the interest thereon
shall be computed accordingly.]
[(11) Notwithstanding anything to the contrary contained in
any judgment, decree or order of any court of law, tribunal or other
authority, all persons appointed as officers of Customs under sub-
section (1) of section 4 before the 6th day of July, 2011 shall be
deemed to have and always had the power of assessment under
section 17 and shall be deemed to have been and always had been
the proper officers for the purposes of this section.]
Explanation 1: For the purposes of this section, ―relevant
date‖ means, —
(a) in a case where duty is [not levied or not paid or short-
levied or short-paid], or interest is not charged, the date
on which the proper officer makes an order for the
clearance of goods;
(b) in a case where duty is provisionally assessed under
section 18, the date of adjustment of duty after the final
assessment thereof or re-assessment, as the case may be;
(c) in a case where duty or interest has been erroneously
refunded, the date of refund;
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(d) in any other case, the date of payment of duty or interest.
Explanation 2: For the removal of doubts, it is hereby
declared that any non-levy, short-levy or erroneous refund before the
date on which the Finance Bill, 2011 receives the assent of the
President, shall continue to be governed by the provisions of section
28 as it stood immediately before the date on which such assent is
received.]
[Explanation 3: For the removal of doubts, it is hereby
declared that the proceedings in respect of any case of non-levy,
short-levy, non-payment, short-payment or erroneous refund where
show cause notice has been issued under sub-section (1) or sub-
section (4), as the case may be, but an order determining duty under
sub-section (8) has not been passed before the date on which the
Finance Bill, 2015 receives the assent of the President, shall, without
prejudice to the provisions of sections 135, 135A and 140, as may be
applicable, be deemed to be concluded, if the payment of duty,
interest and penalty under the proviso to sub-section (2) or under
sub-section (5), as the case may be, is made in full within thirty days
from the date on which such assent is received.]
[Explanation 4: For the removal of doubts, it is hereby
declared that in cases where notice has been issued for non-levy, not
paid, short-levy or short-paid or erroneous refund after the 14th day
of May, 2015, but before the date on which the Finance Bill, 2018
receives the assent of the President, they shall continue to be
governed by the provisions of section 28 as it stood immediately
before the date on which such assent is received.] ‖
77. As would be manifest from a reading of that provision, it creates
two separate and independent streams of investigation and enquiry
based upon whether, and in the opinion of the customs authorities, the
transactions suffer from the vice of misdeclaration, misclassification or
whether the declarations are tainted by suppression and wilful
misrepresentation.
78. The authority of the respondents to demand a return of the
amounts derived as benefits under the MEIS from the petitioners when
tested on the anvil of Section 28(1) falters and disintegrates for two
reasons. Firstly, Section 28(1) applies to cases where a reassessment or
reopening is sought to be initiated for reasons other than collusion,
wilful misstatement or suppression of facts and which is the suggestion
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underlying the allegations levelled against the petitioners. Secondly, the
action under Section 28(1) postulates action being initiated within two
years from the ―relevant date‖ and which expression stands defined in
the provision itself. Undisputedly, the impugned action would fail to
meet this threshold requirement.
79. That then takes us to examine the case set up by the respondents
on the anvil of sub-section (2) of Section 28. Sub-section (2) enables
demand of duty notwithstanding an assessment having been made in
cases of collusion, wilful misstatement and suppression of facts. Those
allegations would sustain only if we were to find that the respondents
assert that the MEIS scrips are tainted by the aforenoted factors.
However, the respondents do not even suggest or lay that charge against
the writ petitioners at least in explicit terms. The respondents stop short
of laying this allegation since that would necessarily entail it being
urged that the DGFT office had colluded with the petitioners.
80. The invocation of Section 28 in the context of an MEIS scrip
would also not sustain in light of the ambivalent stand taken by the
DGFT who despite being a party to these proceedings has refrained
from filing any affidavit or striking a principled stand. We take note of
the following instructions that were provided by the DGFT to its
counsel dated 11 January 2023 and which was placed on the record of
these proceedings for our consideration: –
―OFFICE MEMORANDUM
Subject: – W.P (C) No. l7314 of 2022 in the matter of M/s Amit
Exports v/s UOl & Others. filed before the Hon’ble High Court
of Delhi.
Please refer to writ petition in the above mentioned subject matter,
wherein, UOI, Through Ministry of Finance, Department of
Revenue, CBIC is Respondent No. 1.
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2. The matter pertains to Merchandise Export from India Scheme
(MEIS) under FTP 2015-20, wherein petitioner firm had apparently
exported under HSN Code 6815 9990 instead of HSN Code 6802
2190.
3. The correct classification of exported products are being
examined at the relevant port of exports and is in the domain of
Customs, CBIC. Therefore, DGFT Hqrs. May have no comments to
offer in this writ. Therefore, it is requested that Respondent No. 1
(CBIC) may kindly file a counter affidavit on behalf of DGFT Hqrs
also, with a view to protect the interest of the Consolidated Fund of
India.
4. This is issued with the approval of Additional, DGFT.
(Shri Ramesh KumarVerma)
Deputy Director General of Foreign Trade
Tel. No. 23068767*8767‖
81. We are thus faced with a situation where the DGFT has chosen to
desist from even expressing its stand with respect to the validity of the
MEIS scrips that had been issued in favour of the petitioners. We are
thus constrained to proceed on the basis that at least the DGFT does not
doubt the validity of the scrips which were issued and as of now has
failed to initiate any action seeking to question the imports that were
affected or the benefits that were derived by the petitioners under the
MEIS.
82. Of pivotal significance to the challenge which the writ petitioners
raise are the provisions enshrined in Section 28AAA. As was contended
by Mr. Gulati, Section 28AAA clearly brings within its ambit situations
where the statutory authorities may harbour a doubt with respect to the
benefit that an exporter or importer may have claimed by virtue of an
instrument. Explanation 1 to Section 28AAAA, in clear and
unambiguous terms, while defining that expression had explained it to
mean any scrip, authorization, license, certificate or other document by
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whatever name called issued under the FTDR Act. Section 28AAA is
thus clearly concerned with the validity of a scrip or certificate which
may have been issued under the FTDR Act and on the basis of which a
benefit may have been obtained. It thus now enables the respondents to
cast aside the instrument issued under the FTDR Act and to initiate
steps for recovery of duty benefits that may have been claimed by the
person concerned while holding the instrument so issued. Section
28AAA thus and in furtherance of the aforesaid legislative objective,
introduces a legal fiction by employing the phrase ―shall be deemed
never to have been exempted or debited……‖.
83. The provisions of Section 28AAA are attracted where it is found
that an instrument issued to a person under the FTDR Act was obtained
by means of collusion, wilful misstatement or suppression of facts.
While Section 28AAA does undoubtedly statutorily empower the
respondents to recover duty benefits illegitimately claimed by virtue of
an instrument, the larger question which merits consideration is of
identifying the authority which could be recognized in law to undertake
a determination with respect to whether an instrument could be said to
have been obtained by way of collusion, wilful misstatement or
suppression of facts.
84. While we propose to return to this principal question a little later
and in the subsequent parts of this decision, suffice it to note that
Section 28AAA is a provision which stands at the crossroads of the
Customs Act and the FTDR Act. It constitutes, in that sense, a junction
or an intersection where the two statutes meet. Section 28AAA deals
with situations of convergence and where a demand of duty is
predicated upon a doubt being raised with respect to an instrument
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issued under the FTDR Act. Of critical significance, therefore, would
be the issue of which authority should be recognised to have the
jurisdiction to undertake the adjudication contemplated under that
provision.
85. That an adjudication is warranted for the purposes of invoking
Section 28AAA cannot possibly be doubted. This since the provision
itself contemplates the withdrawal and reversal of a benefit that may
have been obtained by an entity by usage of an instrument issued under
the FTDR Act. Any doubt that could have been possibly harboured in
this respect stands dispelled by sub-section (3) and which stipulates that
before a demand relating to duty recoverable is raised, the proper
officer would have to place the concerned entity on notice and provide
an opportunity of hearing before the amount of duty and interest or both
is determined. The usage of the expression “proper officer”, and which
is defined in Section 2(34) of the Customs Act to mean an officer of
customs, also cannot be accorded undue significance when one bears in
mind Section 28AAA (1) speaking of an instrument issued to a person
“…..for the purposes of this Act” or the FTDR Act. The former
undoubtedly is a reference to the Customs Act. Thus, Section 28AAA is
clearly intended to encompass all contingencies arising out of or
relating to an instrument issued for the purposes of the Customs Act or
the FTDR Act as the case may be.
F. SCOPE OF THE AUDIT POWER
86. Let us then proceed to consider the scope of the audit power
which came to be independently incorporated in the Customs Act.
Section 99A, as noticed hereinabove, embodies the power conferred on
the customs authorities to undertake an audit in respect of an
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assessment of imported or exported goods. The power that stands
enshrined in Section 99A stands further articulated in the Audit
Regulations which have come to be framed. Those regulations define
the word ‗audit’ as follows:-
―2. Definitions
xxxx xxxx xxxx
(b) ―audit‖ includes examination or verification of declaration,
record, entry, document, import or export licence, authorisation,
scrip, certificate, permission, etc., books of account, test or analysis
reports, and any other document relating to imported goods or export
goods or dutiable goods, and may include inspection of sample and
goods, if such sample or goods are available and where necessary,
drawl of samples;‖
87. The procedure for the conduct of an audit is set out in some
detail in Audit Regulation 5 and which reads thus: –
―5. Manner of conducting audit.
(1) The proper officer may conduct audit either in his office
or in certain cases at the premises of an auditee.
(2) The proper officer may, where considered necessary,
request the auditee to furnish documents, information or record
including electronic record, as may be relevant to audit.
(3) The proper officer shall give not less than fifteen days
advance notice to the auditee to conduct audit at the premises of the
auditee.
(4) The proper officer may, where considered necessary,
inspect the imported goods or export goods or dutiable goods at the
premises of the auditee or request the auditee to produce sample, if
available with him.
(5) The proper officer shall inform the auditee of the
objections, if any, before preparing the audit report to provide him
an opportunity to offer clarifications with supporting documents.
(6) Where the auditee is in agreement with the audit findings,
he may make voluntary payments of duty, interest or other sums,
due, if any, in part or in full and the proper officer shall record the
same in the audit report.
(7) Where the proper office has asked the auditee to furnish
information, document, record or sample for the purposes of audit, it
shall be mandatory for the proper officer to inform outcome of such
audit to the auditee.
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(8) The proper officer shall complete audit in cases where it
is conducted at the premises of the auditee within thirty days from
the date of starting of the audit.
PROVIDED that the jurisdictional Commissioner of Customs may
extend the period of completion of audit from thirty days to sixty
days, by an order in writing.‖
88. The power to undertake an audit, as is evident from the language
in which Section 99A stands couched, is in respect of an assessment of
imported or exported goods. Pursuant to the exercise so undertaken, the
proper officer is liable to apprise the auditee of the objections which
according to it arise in respect of the assessment undertaken. By virtue
of Audit Regulation 5(6), if the auditee be in agreement with the audit
findings, it could voluntarily make additional payments of duty, interest
or other sums that are found due and payable. However, and before
such a report is finally drawn or issued, the proper officer by virtue of
Audit Regulation 5(3) is obliged to place the auditee on notice of its
intent to conduct such an audit. This is followed by the proper officer
requiring the auditee to furnish requisite information, documents or for
that matter even samples of the goods imported or exported. It is only
thereafter and in terms of Audit Regulation 5(5) that the proper officer
would proceed to formalise the objections in respect of the assessment.
89. As we read Audit Regulation 5, it becomes apparent that it is
only after the disposal of any such objections that may have been
invited that a final report containing the audit findings would come to
be drawn. What however needs to be borne in mind is that the family of
provisions pertaining to audit do not, at least in explicit terms, include a
power to review, suspend or cancel an instrument issued either under
the Customs or the FTDR Act. While hypothetically speaking an audit
could contain findings or observations doubting a benefit or exemption
claimed, we find ourselves unable to construe those provisions as
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enabling the customs authorities to suspend or cancel an instrument
itself, be it under the Customs or the FTDR Act.
G. THE POWERS OF THE DGFT
90. This then takes us to the provisions contained in the FTDR Act
and which we had an occasion to review while noticing the submissions
which were addressed by Mr. Gulati. Undoubtedly, it is the DGFT who
is liable to be recognized as the pivotal authority and one who is
enjoined to administer the provisions of that statute. With a view to
develop and regulate foreign trade, the Union stands conferred with the
power to issue appropriate orders prohibiting, restricting or regulating
the import or export of goods. An order referable to Section 3(2) of the
FDTR Act and all goods to which that statutory instrument may extend
leads to those goods being deemed to be goods the import or export of
which is prohibited under Section 11 of the Customs Act. As was noted
by us hereinbefore, the FTP itself is a statutory instrument and derives
that status by virtue of Section 5 of the FTDR Act. The word ‗license’
has been defined in the FTDR Act to mean a license to import or export
as also to include within its ambit a customs clearance permit as well as
any other permission issued or granted under that statute. The DGFT or
an officer authorized by it further stands conferred with the jurisdiction
to issue, suspend or cancel a license as defined. This becomes apparent
from a reading of Section 9 of the FDTR Act and which reads thus: –
―9. Issue, suspension and cancellation of licence.– (1) The
Central Government may levy fees, subject to such exceptions, in
respect of such person or class of persons making an application for
[licence, certificate, scrip or any instrument bestowing financial or
fiscal benefits] of in respect of any [licence, certificate, scrip or any
instrument bestowing financial or fiscal benefits] granted or renewed
in such manner as may be prescribed.
[(2) The Director General or an officer authorised by him may,
on an application and after making such inquiry as he may think fit,
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grant or renew or refuse to grant or renew a licence to import or
export such class or classes of goods or services or technology as
may be prescribed and, grant or renew or refuse to grant or renew a
certificate, scrip or any instrument bestowing financial or fiscal
benefit, after recording in writing his reasons for such refusal.]
(3) A [licence, certificate, scrip or any instrument bestowing
financial or fiscal benefits] granted or renewed under this section
shall–
(a) be in such form as may be prescribed;
(b) be valid for such period as may be specified therein; and
(c) be subject to such terms, conditions and restrictions as may
be prescribed or as specified in the [licence, certificate, scrip
or any instrument bestowing financial or fiscal benefits] with
reference to the terms, conditions and restrictions so
prescribed.
(4) The Director General or the officer authorised under sub-
section (2) may, subject to such conditions as may be prescribed, for
good and sufficient reasons, to be recorded in writing, suspend or
cancel any [licence, certificate, scrip or any instrument bestowing
financial or fiscal benefits] granted under this Act:
Provided that no such suspension or cancellation shall be made
except after giving the holder of the [licence, certificate, scrip or any
instrument bestowing financial or fiscal benefits] a reasonable
opportunity of being heard.
(5) An appeal against an order refusing to grant, or renew or
suspending or cancelling, a [licence, certificate, scrip or any
instrument bestowing financial or fiscal benefits] shall lie in like
manner as an appeal against an order would lie under section 15.‖
91. By virtue of amendments which came to be introduced by Act 25
of 2010, sub-section (3) of Section 9 came to be amended with the
Legislature extending the width of its applicability beyond a mere
license and thus including within its ambit a certificate, script or any
instrument “bestowing financial or fiscal benefits”. Corresponding
amendments are also found in Section 9(1) and which too added
certificates, scrips and instruments bestowing fiscal benefits as falling
within the ambit of that provision.
92. The power to suspend or cancel any of those instruments is then
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spoken of in the Foreign Trade (Regulation) Rules, 199330. It would
thus be pertinent to notice Rules 7, 9 and 10 thereof and which are
reproduced hereinbelow: –
―7. [Refusal to grant licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits and recovery of benefits].–
(1) The Director-General or the licensing authority may for reasons
to be recorded in writing, refuse to grant or renew a [licence,
certificate, scrip or any instrument bestowing financial or fiscal
benefits] if–
(a) the applicant has contravened any law relating to customs or
foreign exchange;
(b) the application for the 43[licence, certificate, scrip or any
instrument bestowing financial or fiscal benefits] does not
substantially conform to any provision of these rules;
(c) the application or any document used in support thereof
contains any false or fraudulent or misleading statement [or
where any person makes or abets or attempts to make any
export or import in contravention of any provision of the Act
or any rules and orders made thereunder or the Policy];
(d) it has been decided by the Central Government to canalise
the export or import of 45[goods or services or technology]
and distribution thereof, as the case may be, through special
or specialised agencies;
(e) any action against the applicant is for the time being pending
under the Act or rules and orders made thereunder;
[(f) the applicant is or was a partner in a partnership firm
(including a limited liability partnership) or is or was a
Director or a company or a proprietor of a proprietor ship
firm having controlling interest against which any action is
for the time being pending under the Act or rules and Orders
made thereunder;]
(g) the applicant fails to pay any penalty imposed on him under
the Act;
(h) the applicant has tampered with a [licence, certificate, scrip
or any instrument bestowing financial or fiscal benefits];
(i) the applicant or any agent or employee of the applicant with
his consent has been a party to any corrupt or fraudulent
practice for the purposes of obtaining any other [licence,
certificate, scrip or any instrument bestowing financial or
fiscal benefits];
30
FTDR Rules
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(j) the applicant is not eligible for a [licence, certificate, scrip or
any instrument bestowing financial or fiscal benefits] in
accordance with any provision of the policy;
(k) the applicant fails to produce any document called for by the
Director-General or the licensing authority;
(l) in the case of a [licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits] for import, no foreign
exchange is available for the purpose;
(m) the application has been signed by a person other than a
person duly authorised by the applicant under the provisions
of the policy;
[(n) the applicant has attempted to obtain or has obtained or has
erroneously claimed Terminal Excise Duty, duty drawback,
cash assistance benefits admissible to Importer-exporter Code
holder or any other similar benefits from the Central
Government or any agency authorised by the Central
Government in relation to exports made by him on the basis
of any false, fraudulent or misleading statement or any
document which is false or fabricated or tampered with.]
(2) The refusal of a 52[licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits] under sub-rule (1) shall be
without prejudice to any other action that may be taken against an
applicant by the licensing authority under the Act.
[(3) In case of any erroneous payment of Terminal Excise Duty, duty
drawback, cash assistance benefits admissible to importer-exporter
Code holder or any other similar benefits from the Central
Government or any agency authorised by the Central Government in
relation to exports made by him, the Director General or the
licensing authority may, after giving to that person a notice in
writing informing him of the details of erroneous payment for which
recovery or adjustment of arrears or claims is to be made and after
giving a reasonable opportunity of making a representation in
writing within such time, as specified therein and, if that person so
desires, of being heard, authorise:
(a) recovery of benefits as arrears of land revenue; or
(b) by adjustment against future claims
after recording reasons in writing, provided the Adjudicating
Authority is satisfied with the facts relating to erroneous payment.]
9. Suspension of a [licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits].– (1) The Director-General
or the licensing authority may by order in writing, suspend the
operation of a [licence, certificate, scrip or any instrument bestowing
financial or fiscal benefits] granted to–
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[(a) any person, if an order of detention or conviction has been
made against such person under the provisions of the
Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974 (52 of 1974) or the
Prevention of Money Laundering Act, 2002 (15 of 2003) or
Foreign Exchange Management Act, 1999 (42 of 1999);]
[(b) a partnership firm (including a limited liability partnership)
or a company or a firm or any other entity, if the person
referred to in clause (a) is a partner or a whole time director
or managing director or a proprietor, as the case may be, of
such firm or company:]
Provided that the order of suspension shall cease to have
effect in respect of the aforesaid person or, as the case may be, [a
partnership firm (including a limited liability partnership) or
company or a firm or any other entity], when the order of detention
made against such person,–
(i) being an order of detention to which the provisions of
section 9 of the Conservation of Foreign Exchange
and Prevention of Smuggling Activities Act, 1974 (52
of 1974) do not apply, has been revoked on the report
of Advisory Board under Section 8 of that Act or
before receipt of the report of the Advisory Board or
before making a reference to the Advisory Board; or
(ii) being an order of detention to which the provisions of
Section 9 of the Conservation of Foreign Exchange
and Prevention of Smuggling Activities Act, 1974 (52
of 1974) apply, has been revoked on the report of the
Advisory Board under Section 8 read with sub-section
(2) of Section 9 of that Act or before receipt of such
report;
(iii) has been set aside by a court of competent
jurisdiction.
(2) The Director-General or the licensing authority may by
an order in writing suspend the operation of any 62[licence,
certificate, scrip or any instrument bestowing financial or fiscal
benefits] granted under these rules, where proceedings for
cancellation of such [licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits] has been initiated under rule
10.
10. Cancellation of a [licence, certificate, scrip or any instrument
bestowing financial or fiscal benefits].–The Director- General or
the licensing authority may by an order in writing cancel any
[licence, certificate, scrip or any instrument bestowing financial or
fiscal benefits] granted under these rules, if–
(a) the [licence, certificate, scrip or any instrument bestowing
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financial or fiscal benefits] has been obtained by fraud,
suppression of facts or misrepresentation; or
(b) the [licensee or transferee] has committed a breach of any of
the conditions of the [licence, certificate, scrip or any
instrument bestowing financial or fiscal benefits]; or
(c) the [licensee or transferee] has tampered with the [licence,
certificate, scrip or any instrument bestowing financial or
fiscal benefits] in any manner; or
(d) the [licensee or transferee] has contravened any law relating
to customs or foreign exchange or the rules and regulations
relating thereto.‖
93. The FDTR Rules thus confer a power on the DGFT or the
licensing authority to regulate the grant, renewal, suspension and
cancellation of licenses, certificates, scrips or any other instrument
―bestowing financial or fiscal benefits‖. The MEIS certificate would
undoubtedly be an instrument which bestows a fiscal benefit. What we
seek to emphasize and highlight is Rules 7, 9 and 10, embody in clear
and unequivocal terms, a conferral of jurisdiction and power to
commence an adjudicatory process that the DGFT could undertake
while evaluating whether a license, certificate, scrip or instrument was
liable to be suspended or cancelled.
H. THE IMPUGNED AUDIT OBJECTION LETTER
94. Having outlined the statutory regime which prevails, we then and
at the outset firstly take up for consideration the audit objection letter
which has come to be drawn by the respondents and which stands
impugned before us. As is manifest from the relevant parts of the audit
objection letter, we find that the respondent has come to a definitive
conclusion that the exported articles were liable to be classified under
CTH 6802 as opposed to ITC(HS) 68159990. This conclusion is
prefaced by the Assistant Commissioner holding that the goods had
been ―wrongly classified‖ and ―misclassified‖ by the petitioners, with
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an intent to claim higher benefits. A reading of the audit objection letter
constrains us to observe that it clearly does not read as being the
embodiment of the intent of the Assistant Commissioner to apprise the
writ petitioners of any tentative conclusion that it may have arrived at.
On the contrary, the audit objection letter is replete with definitive
conclusions and thus clearly deprives the writ petitioners of the right to
represent or establish that the issue of classification or the view
harboured is incorrect or untenable. The petitioners would thus be
clearly justified in asserting that they are essentially faced with a
determination already made and a conclusion reached.
95. The tone and tenor of the audit objection letter and the language
in which it is framed could legitimately be construed by the noticee of
the issue having been predetermined and no useful purpose being
served by representing or responding to the same. This we observe
notwithstanding the audit objection letter neither feigning nor posturing
itself to be a notice to show cause. This is evident from the said
communication advising the petitioners to pay the amount as
determined and thus closing all avenues of contestation.
96. The Supreme Court in Oryx Fisheries Private Limited v. Union
of India and Others31 while dealing with a challenge to the
cancellation of the registration certificate of the appellant, had rendered
the following illuminating observations with regard to the need for
notices issued by any statutory authority to consist of reasoning as
opposed to a simpliciter recordal of definitive conclusions and which
would thus lead the noticee to arrive at the inevitable conclusion that a
right of representation would be an empty formality. This becomes
31 (2010) 13 SCC 427
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evident from a reading of the following passages of that decision:-
―23. Relying on the underlined portions in the show-cause notice,
the learned counsel for the appellant urged that even at the stage of
the show-cause notice the third respondent has completely made up
his mind and reached a definite conclusion about the alleged guilt of
the appellant. This has rendered the subsequent proceedings an
empty ritual and an idle formality.
24. This Court finds that there is a lot of substance in the aforesaid
contention. It is well settled that a quasi-judicial authority, while
acting in exercise of its statutory power must act fairly and must act
with an open mind while initiating a show-cause proceeding. A
show-cause proceeding is meant to give the person proceeded
against a reasonable opportunity of making his objection against the
proposed charges indicated in the notice.
25. Expressions like ―a reasonable opportunity of making objection‖
or ―a reasonable opportunity of defence” have come up for
consideration before this Court in the context of several statutes. A
Constitution Bench of this Court in Khem Chand v. Union of lndia,
of course in the context of service jurisprudence, reiterated certain
principles which are applicable in the present case also.
xxxx xxxx xxxx
27. It is no doubt true that at the stage of show cause, the person
proceeded against must be told the charges against him so that he
can take his defence and prove his innocence. It is obvious that at
that stage the authority issuing the charge-sheet, cannot, instead of
telling him the charges, confront him with definite conclusions of his
alleged guilt. If that is done, as has been done in this instant case, the
entire proceeding initiated by the show-cause notice gets vitiated by
unfairness and bias and the subsequent proceedings become an idle
ceremony.
28. Justice is rooted in confidence and justice is the goal of a quasi-
judicial proceeding also. If the functioning of a quasi-judicial
authority has to inspire confidence in the minds of those subjected to
its jurisdiction, such authority must act with utmost fairness. Its
fairness is obviously to be manifested by the language in which
charges are couched and conveyed to the person proceeded against.
xxxx xxxx xxxx
31. It is of course true that the show-cause notice cannot be read
hypertechnically and it is well settled that it is to be read reasonably.
But one thing is clear that while reading a show-cause notice the
person who is subject to it must get an impression that he will get an
effective opportunity to rebut the allegations contained in the show-
cause notice and prove his innocence. If on a reasonable reading of a
show-cause notice a person of ordinary prudence gets the feeling
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that his reply to the show-cause notice will be an empty ceremony
and he will merely knock his head against the impenetrable wall of
prejudged opinion, such a show-cause notice does not commence a
fair procedure especially when it is issued in a quasi-judicial
proceeding under a statutory regulation which promises to give the
person proceeded against a reasonable opportunity of defence.
32. Therefore, while issuing a show-cause notice, the authorities
must take care to manifestly keep an open mind as they are to act
fairly in adjudging the guilt or otherwise of the person proceeded
against and specially when he has the power to take a punitive step
against the person after giving him a show-cause notice.
xxxx xxxx xxxx
37. Therefore, the bias of the third respondent which was latent in
the show-cause notice became patent in the order of cancellation of
the registration certificate. The cancellation order quotes the show-
cause notice and is a non-speaking one and is virtually no order in
the eye of the law. Since the same order is an appealable one it is
incumbent on the third respondent to give adequate reasons.‖
Tested on the aforesaid precepts, it becomes apparent that the
audit objection letter teems with definitive and predetermined
conclusions and would not sustain when tested on the principles
enunciated by the Supreme Court in Oryx Fisheries.
97. We then find ourselves unable to sustain the audit objection letter
even when tested on the anvil of the Audit Regulations which may be
said to have been applied or invoked. As is evident from a reading of
Regulation 5, the proper officer, after having apprised the exporter or
the importer, as the case may be, of its intent to initiate an audit, is
obliged to apprise the auditee of the objections before preparing the
audit report. In case the auditee disagrees with the findings that appear
in that report, a demand could be validly raised or created.
Undisputedly, no such procedure appears to have been followed by the
respondents in the facts of the present case. In fact, and contrary to the
mandate of Regulation 5, the Assistant Commissioner has required the
petitioners to pay sums representing amounts which according to that
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authority had been wrongly claimed under the MEIS and having clearly
failed to abide by the statutory procedure prescribed.
I. THE PURVIEW OF SECTIONS 28(4) AND 28AAA
98. It becomes pertinent to note that while the said audit objection
letter dated 18 November 2019 is described to be a ―post clearance
audit objection‖, the Assistant Commissioner also alludes to the
provisions of Sections 28(4) and 28AAA of the Act to sustain the
direction for deposit as framed. Section 28(4) of the Act, as noted
above, could have been invoked only if the Assistant Commissioner had
come to the conclusion that the goods had escaped duty by reason of
collusion, wilful misstatement or suppression of facts. It is only in those
contingencies that Section 28(4) could have enabled the proper officer
to reopen an assessment. However, all that is alleged in this respect is
that the petitioners had failed to make a correct and truthful declaration
and thereby mis-classified the goods with the avowed objective of
claiming benefits under the MEIS.
99. We find ourselves unable to appreciate how the petitioners could
have been charged of having failed to make a ―correct and truthful‖
declaration when the imports were affected under the cover of MEIS
certificates granted by the DGFT and which had never been questioned.
In fact, the DGFT has not even and till date initiated any action against
the writ petitioners alleging that the MEIS Certificate had been wrongly
obtained. This too leads us to conclude that the impugned action is
rendered wholly illegal, arbitrary and unsustainable.
100. Regard must also be had to the fact that the power under Section
28(4) additionally could have been invoked only within a period of five
years from the relevant date, an expression which stands duly defined
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in that provision by virtue of the Explanations appended to that section.
The aforesaid provisions assume significance when we view the power
that is sought to be invoked with the assistance of sub-section (4) of
Section 28 in juxtaposition with the period during which the exports
were affected and which in the facts of these cases was between 1991 to
2018. The earliest proceedings which appear to have been initiated by
the respondents from the disclosures made in the writ petitions appears
to be the issuance of the post clearance audit objection on 18 November
2019. The impugned action is thus rendered untenable on this score
also.
101. While on Section 28(4), it becomes relevant to note that the said
provision could have been invoked only if the statutory preconditions
embodied therein were satisfied. As is manifest from a reading of sub-
section (4), the exercise of power is predicated upon the respondents
finding that an assessment made under the Customs Act suffered from
the vice of collusion, wilful misstatement, or suppression of facts.
However, the audit objection employs the expressions ―misclassified
and wrongly classified‖. Those are factors which could have been
possibly countenanced to be relevant for the purposes of sub-section (1)
of Section 28 alone. A misclassification or an incorrect classification
would also not and ipso facto amount to collusion, wilful misstatement,
or suppression of facts. The impugned proceedings are thus rendered
untenable even when viewed in the aforesaid light.
102. We then proceed to consider whether the action of the
respondents would sustain under Section 28AAA. We have already
found that the respondents have failed to lay any foundation which may
have established a charge of collusion, wilful misstatement, or
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suppression of facts. However, and since they do advert to Section
28AAA, we propose to examine whether the view as expressed would
sustain even if one were to proceed on the assumption that the
preconditions which are envisaged by Section 28AAA existed.
103. Section 28AAA is principally concerned with the right vested in
the respondents to initiate action for recovery of duty and interest where
an instrument issued to a person is found to have been obtained by
means of collusion, wilful misstatement, or suppression of facts. The
word ―instrument‖ is defined by Explanation 1 to Section 28AAA to
include any scrip, authorization, license, certificate, or any other
document by whatever name called issued under the FTDR Act. We
have already held that the MEIS certificate would clearly fall within the
ambit of that expression in the preceding parts of this decision.
J. THE CUSTOMS AND THE DGFT CROSSROAD
104. As we read the various provisions enshrined in the FTDR Act
alongside the FTP as well as the FTDR Rules, we find ourselves unable
to recognize a right that may be said to inhere in the customs authorities
to doubt the issuance of an instrument. We, in the preceding parts of
this decision, had an occasion to notice the relevant provisions
contained in the FTDR Act and which anoint the DGFT as the central
authority for the purposes of administering the provisions of that statute
and regulating the subject of import and exports. The FTP 2015-20 in
unequivocal terms provides in para 2.57 that it would be the decision of
the DGFT on all matters pertaining to interpretation of policy,
provisions in the Handbook of Procedures, Appendices, and more
importantly, classification of any item for import/export in the ITC
(HS) which would be final and binding. The FTP undoubtedly stands
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imbued with statutory authority by virtue of Section 5 of the FTDR Act.
105. Of equal importance are the FTDR Rules and which too
incorporate provisions conferring an authority on the Director General
or the licensing authority to suspend or cancel a license, certificate,
scrip or any instrument bestowing financial or fiscal benefits. Once it is
held that the MEIS would clearly qualify as an instrument bestowing
financial or fiscal benefits, the power to cancel or suspend would be
liable to be recognized as being exercisable by the Director General on
the licensing authority alone. It would thus be wholly impermissible
for the customs authorities to either ignore the MEIS certificate or
deprive a holder thereof of benefits that could be claimed under that
scheme absent any adjudication or declaration of invalidity being
rendered by the DGFT in exercise of powers conferred by either Rules
8, 9 or 10 of the FTDR Rules. The customs authorities cannot be
recognised to have the power or the authority to either question or go
behind an instrument issued under the FTDR in law.
106. Taking any other view would result in us recognizing a parallel
or a contemporaneous power inhering in two separate sets of authorities
with respect to the same subject. That clearly is not the position which
emerges from a reading of Section 28AAA. Quite apart from the
deleterious effect which may ensue if such a position were
countenanced, in our considered opinion, if the validity of an
instrument issued under the FTDR Act were to be doubted on the basis
of it having been obtained by collusion, wilful misstatement or
concealment of facts, any action under Section 28AAA would have to
be preceded by the competent authority under the FTDR Act having
come to the conclusion that the instrument had come to be incorrectly
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issued or illegally obtained. The procedure for recovery of duties and
interest would have to be preceded by the competent authority under
the FTDR Act having so found and the power to recover duty being
liable to be exercised only thereafter.
107. Section 28AAA would thus have to be interpreted as
contemplating a prior determination on the issue of collusion, wilful
misstatement or suppression of facts tainting an instrument issued under
the FTDR Act before action relating to recovery of duty could be
possibly initiated. A harmonious interpretation of the two statutes,
namely, the Customs and the FTDR Acts leads us to the inescapable
conclusion that the law neither envisages nor sanctions a duality of
authority inhering in a separate set of officers and agents
simultaneously evaluating and adjudging the validity of an instrument
which owes its origin to the FTDR Act alone. It is these factors, as well
as the role assigned to the DGFT which perhaps weighed upon courts to
acknowledge its position of primacy when it come to the interpretation
of policy measures referable to the FTDR Act as well as issues of
classification emanating therefrom.
108. This clearly flows from what our High Court held in Simplex
Infrastructure when it approved the view expressed by the Gujarat High
Court in Alstom India and which had held that export benefits claimed
and enjoyed pursuant to approvals granted as per the provisions of the
FTDR Act could not be reviewed or redetermined except in accordance
with the procedure prescribed therein. A similar view came to be
expressed by the Allahabad High Court in PTC Industries and where it
was held that any doubt with respect to the description or classification
of exported goods would have to be referred for the consideration of the
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DGFT. The Allahabad High Court had thus concurred with the view
expressed by the Bombay High Court and which too had observed that
benefits which could be claimed under a Duty Entitlement Pass Book
license could not be denied by the customs authorities on the basis of
their own perception on the subject of appropriate classification. The
Bombay High Court had held that as long as the licensing authority had
desisted from either reviewing the grant or cancelling the license, it
would be wholly impermissible for the customs authorities to deprive
the importer or the exporter of benefits. The view expressed by the
Gujarat, Allahabad and the Bombay High Courts stands reiterated in the
two subsequent decisions of Autolite and Jupiter Exports. The
principles culled out in the aforenoted decisions are in line with what
the Supreme Court had succinctly observed in Titan Medical Systems
(P) Ltd. Vs. Collector of Customs32. We are thus of the firm opinion
that it would be impermissible for the customs authorities to either
doubt the validity of an instrument issued under the FTDR Act or go
behind benefits availed pursuant thereto absent any adjudication having
been undertaken by the DGFT. An action for recovery of benefits
claimed and availed would have to necessarily be preceded by the
competent authority under the FTDR Act having found that the
certificate or scrip had been illegally obtained. We have already held
that the reference to a proper officer in Section 28AAA is for the
limited purpose of ensuring that a certificate wrongly obtained under
the Customs Act could also be evaluated on parameters specified in that
provision. However, the said stipulation cannot be construed as
conferring authority on the proper officer to question the validity of a
certificate or scrip referable to the FTDR Act.
32 (2003) 9 SCC 133
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K. PRE-REQUISITES UNDER SECTION 28AAA
109. We then find ourselves unable to countenance the invocation of
Section 28AAA on a more fundamental ground. As was noticed by us
earlier, action under Section 28AAA is to be founded upon a
determination of an instrument having been obtained by means of
collusion, wilful misstatement or suppression of facts. However, and as
is evident from the stand taken by the respondents not just in these
proceedings but as evidenced from the commencement of the audit
proceedings itself, the solitary charge that stood laid against the writ
petitioners was with respect to the alleged incorrect classification of the
exported items. The petitioners had consistently taken the position that
the exported articles were classifiable under ITC (HS) 68159990 and
not CTH 6802.
110. It is this controversy which appears to have been raised from
time to time with the respondents being urged by the writ petitioners as
well as industry associations to lend clarity and lay all doubts at rest.
The record further bears out that taking cognizance of the issues which
were arising at different customs outposts, the industry associations had
also approached the Ministry of Commerce and Industry and which had
in turn convened a meeting of all concerned stakeholders so as to elicit
their views. That process of deliberation, however, has yet not
translated into a stated or principled view being expressed by that
Ministry.
111. It is only much later and on 31 May 2019 that the CBIC issued a
communication attempting to resolve questions pertaining to the
classification of stone and marble handicraft items which were being
exported. While that communication did hold that stone and marble
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handicrafts were liable to be classified under CTH 6802, it too left
various aspects pertaining to classification subject to verification and
examination of individual items. As we read this communication of the
CBIC, we find ourselves unable to construe the same as conclusively
determining all possible issues concerned with the classification of
stone and marble handicraft products. This since the communication
itself is caveated and leaves various issues open to examination in
individual cases. It is this communication of the CBIC which appears to
have led to respondent no. 6 issuing Public Notice No. 57/2019.
112. Without going into the merits or otherwise of the position
expressed by the CBIC at this stage, it is pertinent to note that the
classification of the exported articles under ITC(HS) 68159990 has
nowhere been alleged to have been prompted by collusion, wilful
misstatement or suppression of facts. Regard must also be had to the
undisputed provision which emerges from the record namely of these
articles having been consistently placed under ITC(HS) 68159990 right
from 1991 without any demur or protest being raised by the
respondents.
113. The controversy with respect to classification appears to have
been raised for the first time in December of 2018 when the respondent
no. 6 raised a doubt as to whether the stone and marble handicraft
articles were liable to be placed under ITC(HS) 68159990. As was
noted hereinabove, the sine qua non for Section 28AAA getting
attracted is the triumvirate of collusion, suppression and wilful
misstatement which are spoken of in sub-section (1) being attracted.
Even if it were assumed for the sake of argument that the writ
petitioners had wrongly classified or placed articles in question under
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ITC(HS) 68159990, the same would clearly not amount to it being ipso
facto assumed that the same amounted to an act of suppression or wilful
misstatement.
114. The rendering of a finding in favour of the respondents on the
issue of collusion would have far greater ramifications. A finding on
that score, if returned against the writ petitioners, would essentially
require us to hold that the MEIS certificates had been obtained by the
writ petitioners in collusion with the officers working under the DGFT.
That too is not the allegation which is levelled by the respondents
against the writ petitioners. The controversy, therefore, as to whether
the subject articles were liable to be classified under CTH 6802 or
6815, would clearly not qualify the tests constructed by Section
28AAA.
L. DISPUTE OF CLASSIFICATION
115. Let us then proceed to briefly touch upon the issue of
classification itself. Chapter 68 is principally concerned with articles of
stone, plaster, cement, asbestos mica or similar materials. CTH 6802
deals with ―Worked Monumental or Building Stone‖. CTH 6815, on the
other hand, pertains to articles of stone or of other mineral substances
―not specified or included elsewhere‖. As CTH 6815 stands, it clearly
does not appear to be associated with stone that may be used in a
monument or a building. Of equal significance are the Explanatory
Notes which stand appended to CTH 6802 and which explain the scope
of that entry as being intended to cover all natural, monumental or
building stone which may have been worked upon beyond the stage at
which they would be found at the mouth of a quarry. The Explanatory
Notes proceed further to explain the width of that entry as being not
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only confined to construction stone but also to articles such as steps,
cornices, pediments balustrades and others.
116. CTH 6815 is the residual entry falling in Chapter 68. Although it
too relates to articles of stone or of other minerals substances, it is
clearly distinct and separate from what could be said to possibly fall
under CTH 6802. The various products, minerals and materials which
are spoken often in CTH 6802 appear to be those which would be found
in buildings and monuments or used in the course of construction. It is
perhaps on this reasoning, and since the articles were handicraft
products that the writ petitioners chose to classify the exported articles
under CTH 6815. The petitioners also appear to have borne in
consideration the contents of Public Notice No. 02/2015, as well as
subsequent notices issued for implementation of the MEIS Scheme and
which had continued to include articles falling under CTH 6815.
117. Though not necessarily binding, the petitioners had also relied
upon Notification No. 21/2018 issued by the Ministry of Finance, and
which had exempted handicraft goods from the scope of intra-state
supplies insofar as tax under the CGST Act was concerned. All of the
above appears to have persuaded the writ petitioners to be confident in
their stand of handicraft articles being liable to be classified as falling
under HSN 6815.
118. The issue of classification was indelibly connected with the right
of the writ petitioners to avail benefits under the MEIS. The MEIS scrip
was issued by the office of the DGFT. The issuance of the MEIS scrip
was dependent upon the exported article falling in the detailed list of
products which came to be published by the DGFT on 01 April 2015.
Table 2 set out the code wise list of products, as well as corresponding
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reward rates under the MEIS Scheme. There was undisputedly a
reference to CTH 6815 as well as ITC(HS) 68159990 in that table.
119. Once the DGFT had proceeded to issue the MEIS scrip to the
writ petitioners, they would have been justified in assuming that the
issue of classification was neither questioned nor doubted. It is on the
aforesaid basis that exports were affected between the period 1991 to
2018.
120. In our considered opinion, in the absence of the DGFT having
ruled upon the issue of classification or having expressed any doubt
with respect to the eligibility of the writ petitioners to claim benefits
under the MEIS, it would be wholly impermissible for the respondents
to take punitive action against the writ petitioners. The subject of
classification stands explicitly reserved for the consideration of the
DGFT in terms of Para 2.57 of the FTP. This too convinces us to
conclude that the action as initiated by the respondents is rendered
arbitrary.
M. DETERMINATION
121. Accordingly, and for all the aforesaid reasons, we allow the
present writ petitions on the following terms. We hereby quash the audit
objection letters dated 27 August 2019 [W.P.(C) 17314/2022] and 18
November 2019 [W.P.(C) 17328/2022]. We consequently also quash the
summons dated 07 October 2022 and 14 October 2022 [W.P.(C)
14477/2022]; 15 November 2021, 13 January 2022, 24 January 2022,
17 May 2022 and 30 September 2022 [W.P.(C) 17314/2022]; 15
November 2021, 24 January 2022, 17 May 2022, 06 June 2022 and 30
September 2022 [W.P.(C) 17328/2022].
122. As a consequence of the above and absent an adjudication
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sustainable in law, we direct the respondents to refund the amounts
collected from the writ petitioners being INR 5,47,000/- [W.P.(C)
17314/2022] and INR 5,00,000/- [W.P.(C) 17328/2022] forthwith.
123. Since we have desisted from rendering any final opinion on the
aspect of classification, the present decision shall be without prejudice
to the right of the DGFT to initiate proceedings pertaining to the
validity of the MEIS certificates issued to the writ petitioners if so
chosen and advised and if otherwise permissible in law.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
NOVEMBER 22, 2024/neha/RW/DR
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By:KAMLESH KUMAR
Signing Date:22.11.2024
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