Madras HC Remands Carl Zeiss Case for Advance Authorization Conversion

Carl Zeiss India (Bangalore) Pvt. Ltd. Vs Commissioner of Customs (CESTAT Bangalore)

This article explores the case of Carl Zeiss India (Bangalore) Pvt. Ltd. vs. Commissioner of Customs (CESTAT Bangalore), decided by the Madras High Court. The case deals with the conversion of shipping bills from a drawback scheme to an advance authorization scheme under Indian customs regulations.

Background:

• Carl Zeiss India, a manufacturer and exporter of spectacle lenses and industrial metrology equipment, held five advance authorizations from 2004 to 2016.
• During this period, the company inadvertently failed to endorse the advance authorizations on some shipping bills and opted for the drawback scheme instead.
• In 2020, Carl Zeiss sought to convert the affected shipping bills to the advance authorization scheme, but the authorities rejected their request due to a time limit in a circular.

Carl Zeiss India’s Arguments:

• The company argued that the time limit in the circular was not legally binding and should not prevent their request.
• They claimed genuine reasons for the delay and provided documentary evidence to support their claim to the benefits of the advance authorization scheme.
• Carl Zeiss cited previous court judgments allowing similar conversions outside the time limit in specific circumstances.

Authorities’ Arguments:

• The authorities relied on the circular’s time limit to justify their decision.
• They questioned Carl Zeiss’ diligence in maintaining records, citing some discrepancies discovered during the process.

Court’s Judgment:

• The Madras High Court found the time limit in the circular unsustainable, citing previous judgments from other High Courts.
• The court emphasized that the circular cannot override legal provisions like Section 149 of the Customs Act, which allows document amendments based on existing evidence.
• The court acknowledged Carl Zeiss’ efforts to rectify record discrepancies and found the authorities’ rejection based solely on the time limit to be unfair.
• The court remanded the case for “de novo” adjudication, directing the authorities to consider the company’s documents and decide on the merits of their conversion request.

Significance:

This judgment offers crucial takeaways for businesses dealing with Indian customs:

• Time limits in circulars: Circulars cannot override primary legislation like the Customs Act. Businesses should consult legal counsel when dealing with circulars and their potential limitations.
• Document amendments: Section 149 of the Customs Act allows document amendments based on existing evidence at the time of export. Companies should maintain proper records to support such amendments.
• Discretionary powers: Courts may exercise discretion in specific circumstances, even when authorities follow circulars. Companies facing rejections due to technicalities like time limits might consider legal recourse.

FULL TEXT OF THE CESTAT BANGALORE ORDER

Appellant is involved in manufacture and assembly of Spectacle Lens and industrial Metrology Equipment’s. One of the divisional of the appellant is imported “Semi Finished Spectacle lens” and manufacturing spectacle lens for exporting from 2015 to 2020. During the relevant period they have obtained 5 advance authorisation from 03.09.2004 to 09.03.2016.

2. Considering the volume of export, appellant converted the business to 100% EOU. Before converting into 100% EOU, internal audit was carried out and it is observed that they have failed to make endorsement regarding advance authorisation in the shipping bill from 03.09.2014 till 26.01.2015. Further from 18.11.2015 till 26.01.2016 they have opted for drawback scheme instead of endorsement of advance authorisation. Thus the appellant decided to make an adjustment in the document and made a request on 22.10.2020 seeking for letter of acceptance/NOC for converting shipping bill under drawback scheme to advance authorisation scheme. The request was supported with certificate issued by individual Chartered Accountant (CA) specifying the details of shipping bill wise details and advance authorisation against the each shipping bill. The appellant had also produced certificate dated 03.07.2020 and 15.12.2020 from concerned GST authority confirming that appellant had fulfilled all the condition of export promotion scheme to which conversion was sought. The certificate contain the endorsement from the jurisdiction GST authority that the appellant had exported the shipping bills under duty draw back scheme instead of DEEC scheme. Appellant had also requested to convert the shipping bill to DEEC Scheme [advance authorisation] with an undertaking that they are ready to pay duty drawback against said exports. However adjudicating authority vide impugned order dated 25.03.2022 rejected request on the ground that the appellant does not satisfy the condition 3 Board’s Circular No. 36/2010 dated 23.9.2010 and the request had been filed after 5-6 years from the date LEO. Aggrieved by said order, present appeal is filed.

3. When the appeal came up for hearing, Learned Counsel submits that as per the impugned order, the Appellant is liable to pay customs duties on goods exported under Advance Authorizations inspite of fulfilling substantial export obligation in respect of all license covered in the order. In appellant’s case, the request for amendment is denied basically on the ground that the Appellant failed to fulfill the condition No.3 of the Circular No.36/2010 dated 23.09.2010 related to conversion of shipping bills. Regarding circular No.36/2010 relied by the adjudicating authorities fixing the time limit for submitting an application for amendment of document under section 149 of the custom act 1962, the issue was considered by various authorities and as per the judgement of the Hon’ble High Court of Kerala in the matter of PARAYIL FOOD PRODUCTS PVT. LTD. (2021(375)E.L.T. 486(Ker.))

“It is trite law that circulars cannot assume the role of the Principal Act lest the provisions only a binding force. If at all the Revenue is facing difficulties in accepting and processing applications for amendment of bills of lading, an amendment to the Principal Act can be suggested in accordance with law and till the pendency of the same, an Ordinance can also be issued. No such stand is taken as evident from Ext. P10. I am afraid the action of the respondent cannot be accepted, for, it is an utter violation of statutory provision of Section 149 of the Customs Act. For the reasons assigned, the impugned order Ext. P10, dated 7-7-2020 is hereby quashed. The writ petition is allowed. Respondents are directed to issue no objection certification seeking amendment of the bill in accordance with law. Let this exercise be done within a period of one month from the date of receipt of a copy of this judgement”

4. The Learned Counsel of the appellant also relied large number of decisions in their support and submits that in appellant’s on case (Reported in 2018 (395) E.L.T 388 (Tri-Bang) this Tribunal even allowed conversion of free shipping bill to draw back shipping bill. Though the responded filed appeal before then Hon’ble High Court of Karnataka, Hon’ble High Court upheld order of this Tribunal (Reported in 2021 (376) E.L.T 457 (Kar.).

5. The Learned Counsel for the appellant also draw our attention to the judgement of the Hon’ble High court of Ahmadabad dated 02.03.2021 in C/SCA/21636/2009 in the matter of M/s. Mahalaxmi Rubtech Ltd. Vs. Union of India and submits that amendment as sought by the appellant is permissible. Learned counsel also draw our attention to the Final Order No. 20147-20148/2022 dated 29.03.2022 of this Tribunal in the matter of Bharat Timber and Construction Company Vs. CC Mangalore – Customs

“From the plain reading of the above Section 149, it is clear that even though, it is discretionary but on certain conditions, the document can be amended even after the goods have been exported on the basis of documentary evidence which was existence at the time of goods were cleared for export. In the present case, the appellant had in possession of Advance Authorisation No.0710065592 dt. 26/06/2009 and Advance Authorisation N.0710065655 dt. 26/11/2010 and the exports of goods have been taken place from 30/06/2009 to 18/11/2010 and 27/12/2010 to 19/10/2012 respectively. Accordingly at the time of export of goods, the advance authorisations were very much in existence. More over the appellant have been making repeated requests to the Department for export of goods from Karwar Port under the aforesaid advance authorisations. Therefore, there were all the documents existing at the time of export of goods. On this basis, the appellants are clearly entitled for amendment in the shipping bills by conversion of free shipping bills to shipping bills under advance authorisation. The judgments relied upon by the appellant directly support their case. In the identical facts, it has been decided that the conversion of free shipping bill to the shipping bill under various schemes is permitted”.

6. The Ld. Counsel for the Appellant also draw our attention to the certificate dated 01.12.2020 issued by the Chartered Accountant were certified that the inputs mentioned in the Annexure (consumption statement) have been used in the manufacturing of the resultant export product (finished spectacle lens). Shipping bill wise input consumption details are enclosed and further certify that the assessee has fulfilled the export obligation under the export promotion scheme to which they are seeking conversion.

7. The Ld. Counsel also draw our attention to the certificate issued by Superintendent of Central Tax Range on 01.07.2020. The Ld. Counsel for the Appellant also draw our attention to the communication dated 20.10.2021 and submits the details against each Advance Authorization from September, 2014 to March 2016. The Ld Counsel relied the following decisions in this regard:

i. M/s Man Industries (India) Ltd Vs CC (EP), Mumbai (2006 (202) E.L.T 433 (Tri.Mumbai)

ii. CC Vs M/s Man Industries (India) Ltd (2007 (216) E.L.T 15 (Bom)

iii. M/s Diamond Engineering (Chennai) Pvt Ltd Vs CC(Sea port-Export), Chennai (2013 (288) E.L.T 265 (Tri-Chennai)

iv. CC Vs, Tuticorin Vs M/s Tiru Arooran Sugar Ltd (2014 (307) E.L.T 248 (Mad.)

v. M/s Parayil Food Products Pvt Ltd (2021 (375) E.L.T 486 (Ker.)

vi. M/s Carl Zeiss India Pvt Ltd Vs Commr of Customs & ST, Bangalore (2018 (359) E.L.T 388 (Tri.)

vii. Commr of Customs & ST, Bangalore Vs M/s Carl Zeiss India Pvt Ltd (2021 (376) E.L.t 45 (Kar)

viii. M/s Mahalaxmi Rubtech Ltd Vs Union of India

ix. M/s Parayil Food Products Pvt Ltd Vs Union of India (2021 (375) E.L.t 486 (Ker)

x. M/s Gokul Overseas (2020 (373) E.L.T 49 (Guj)

xi M/s E.S Lighting Technologies (P) Ltd (2020 (371) E.L.T 369 (Del)

xii. M/s Bharat Timber & Construction Co.Vs CCE, Bangalore

8. Learned AR relied the judgement of the Hon’ble High court of Gujarat in the matter of Anil Sharma Vs. Union of India (2017 (350) E.L.T.332 (Guj.)), Suzlon Energy Ltd. Vs. Commissioner of Cus. (SEAPORT-EXPORT), Chennai (2013 (293) E.L.T.3 (Mad.)), Terra Films Pvt Ltd. Vs. Commissioner of Customs (2011 (268) E.L.T.443 (Del.), Autotech Industries(India) Pvt. Ltd. Vs. Commr. of Cus., Chennai-IV) and submits that amendment sought at a belated state cannot be considered as held by Adjudication authority.

9. We have considered the submissions made by the both sides. As per the impugned order, the adjudicating authority rejected the request of the appellant to convert shipping bill under drawback scheme to advance authorisation scheme on the ground that the appellant does not satisfy the condition 3 Board’s Circular No. 36/2010 dated 23.9.2010. There is no allegation that on the basis of Shipping Bill/export documents, the exporter has not fulfilled any of the conditions of the export promotion scheme to which he is seeking conversion. Further there is no allegation that the examination report and other endorsements made on the shipping bill/export documents is not sufficient prove the fact of export and the export product is clearly covered under relevant drawback Schedule. Further there is no allegation of fraud/ misdeclaration/manipulation against the appellant.

10. As per Section 149 of the Customs Act, 1962 amendment of document is permitted subject to condition that such amendment is allowed on the basis of documentary evidence which was in existence at the time the goods were cleared, deposited or exported as the cases may be. In Appellant’s case, the adjudication authority has not considered whether the documents produced by Appellant are sufficient enough to comply with the provisions under Section 149 of the Customs Act, 1962. The documents which were available on record at the time of export such as Advance Authorization, shipping bills, invoices, input conception certificate…etc were all produced by the Appellant while requesting for permission. The time limit in the Circular No.36/2010 dated 23.09.2010 was found unsustainable by the Hon’ble High Court of Gujrat in the matter of M/s Mahalaxmi Rubtech India Ltd(supra) and Hon’ble High Court of Kerala in the matter of M/s Parayil Food Products Ltd (supra). Moreover, even as per Para 5 of the Circular No.36/2010 dated 23.09.2010, the Adjudicating authority is instructed to take due care while allowing conversion to ensure that exporters does not take any benefit of both the schemes. Even as per the decision relied by learned AR in the matter of Anil Sharma(supra) it is held that “So far as Advance Authorization Scheme is concerned, the appropriate authority is required to consider after holding appropriate inquiry that the raw material which was imported has only been used in the manufacture of final product and that final product has been actually exported”.

11. Similarly, as per the judgement relied by learned AR in the matter of Suzlon Energy Ltd.(supra) it is held that “It is purely a matter of fact as to whether the exporter is entitled to the benefit of Scheme to which he wants to convert his claim. It is for the Authorities concerned to look into those facts and thereafter permit conversion or deny. In the present case, the materials given in the declaration have not been verified, since shipping bills were not filed under DEEC Scheme and the same cannot be verified at this stage, since the materials are not available”. However, in the present case, Appellant had clearly undertaken to payback the drawback amount received in respect of few of exports and in respect of substantial portion of other exports. From the documents available on record, no other benefit has been obtained by the Appellant other than the import of duty free inputs under Advance Authorization. In Appellant’s case, genuine reasons and circumstances for not making request for amendment within reasonable time is well explained and in such cases, the Adjudicating authority ought to have considered the issue on merit rather than rejecting the request just on the ground that limitation prescribed under the Circular which is held unsustainable by various High Courts.

12. On merit, for conversion of the drawback scheme to Advance Authorization to 81,654 numbers, as per Para 22 of the impugned order, certain observations were made and the adjudicating authority concluded that the Appellant was not diligent in maintaining the records and on that ground, the request for amendment is denied. However as per the finding in the above order, when certain omissions were brought to the notice of the Appellant, they have verified the records and rectified the same and therefore it cannot be concluded as they are not diligent in maintaining the records.

13. Considering the above, the impugned order rejecting the request for conversion of the shipping bill based on the Circular No.36/2010 dated 23.09.2010 is set aside. The issue is remanded for De-novo adjudication and adjudicating authority is directed to consider the documents produced by the appellant and to decide whether the appellant is entitled to the benefit of Scheme to which they want to convert their claim. Needless to say before, considering the issue, reasonable opportunity should be extended to the appellant for personal hearing.

14. Appeal is allowed by way of remand.

(Order pronounced in open court on 20.02.2024.)