Shipping Bills Cannot Be Finalized Based on Delayed CRCL Test Report (218 Days): Kolkata CESTAT

Commissioner of Customs (Preventive) Vs Vedanta Ltd. (CESTAT Kolkata)

Further we also find force in the Respondent’s argument that there has been an delay of 218 days, in the Test Report issued by the CRCL, received by the appellant through RTI, which is again is incomplete, since the date of testing and date of report is not given. This Bench, has in catena of decisions, including in the Respondent’s own case vide Final Order No.76352/2023 dated 18/08/2023 cited supra, has held that in case of huge delay between the collection of samples and testing of the same by CRCL, the Test Report cannot be relied upon for the results given therein, when the report is compared with the Test Report given by accredited agencies immediately after the export takes place.

In the same Final Order, this Bench has also held that the export realization value would be relevant, since the payments by the overseas importer is on the basis of the Fe content. In the present case, the Commissioner (Appeals) has verified the Bank Realization and found the same to be in order. The Revenue, in their present appeal, has not brought in any evidence to the effect that the respondent has realized any amount higher than what has been realized by the appellant through proper banking channels. Therefore, even on this ground, we find that the appeal filed by Revenue, is liable to be dismissed. We do so.

The Appeal filed by the Revenue stands dismissed thus.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The Respondent CompanyVedanta Ltd., was earlier known as Sesa Goa Ltd. Subsequent to by changing the name of ‘Sesa Goa Ltd.’, the Company came to be known as ‘Sesa Sterlite Limited’ and then ‘Vedanta Ltd.’, as is evidenced by the ROC Certificate provided by the appellant.

2. The Respondent Company have exported Iron Ore during the period 29.02.2008 to 26.03.2008, by way of below mentioned Two Shipping Bills through Paradeep Port-

During the relevant period, the prevailing rate of export dutywas Rs. 300/- PMT if the Fe content was more than 62%.Notification No. 62/2007-Cus dated 03.05.2007 provides thatwhere the Fe content on the iron ore fines is less than 62%, the rate of export duty shall be Rs. 50/- PMT.

3. The Respondent Company at the time of clearance, have indicated the DMT as 63.5% with moisture content of 9%, which would be less than 62%, requiring to pay export duty of Rs.50 PMT. But in order to avoid delay in exports, they have paid Export Duty @ 300 PMT on provisional assessment basis.

4. After this, the case had long history, with no order finalizing the assessment being passed. Finally, the OIO was passed on 25.01.2018 rejecting the Respondent’s stand on the Fe content.

5. On appeal the Commissioner (Appeals) vide OIA 104/CUS/CCP/2021 dated 29.09.2021 passed the order holding that since the Fe was less than 62% the Export Duty was payable @ Rs.50 PMT. Accordingly, he held that the appellant would be eligible for the refund for the excess Export paid. Being aggrieved, the Revenue has filed the present appeal.

6. The Revenue has filed the Appeal on the ground that the CRCL’s Test Report should have been considered, wherein the Fe is shown to be more than 62% in WET basis, because of which the applicable Export duty would be Rs 300/- per Ton. The Ld AR representing the Revenue, reiterates the detailed Grounds of Appeal and submits that the Commissioner (Appeals) is in error in ignoring the CRCL’s Test Report and to come to conclusion on basis of the Test Reports filed by the appellant.

7. The Ld Chartered Accountant appearing on behalf of the Respondent submits that in spite of the appellant filing all the necessary documents like Test Report, Invoices and Bank Realization Certificate etc., the assessment was kept pending for many years, till OIO dated 25.01.2018 was passed holding that Fe content was more than 62%. While passing this Order, the principles of natural justice was not followed and many of the documentary evidence provided by them were not considered. On the other hand, on appeal, the Commissioner (Appeals) has properly got all the documents verified and has gone through the Load Test Report, Discharge Port Test Report, Bank Realization statement etc and has finally correctly come to a conclusion that all these documents clearly point out that the Fe content was less than 62% and passed the OIA accordingly. Thus, he fully relies on the considered order passed by the Commissioner (Appeals).

8. He makes further submissions as under :

(a) In terms of the destination port certificate, the iron content is less than 62%. It is seen that in the test report given by the destination Port as well as by M/s. Mitra S.K. Pvt. Ltd., the Chemical composition in terms of iron and other impurities is also given. Particularly, the moisture content is given even in the certificate given at China, destination Port. The proportion of other impurities like Aluminium, Silica, Aluminium oxide. Phosphorous, Moisture is given, whereas when one sees the reports of the Chemical Examiner, he had given only the percentage of iron and the other percentage is not known.

(b) In any case, it is reitereated that when a reputed accredited company has given the test report and the test report is in variance with the report of Chemical Examiner, the request of the appellant for re-test ought to have been considered favourably, which has not been done in this case. This is utter denial of the Principles of ‘Natural Justice’. The evidence also has been produced that payment has been made based on the Final Invoice issued as per terms of contract i.e. test results at the destination Port.

(c) The CRCL Test Report, does not include other impurities like Sulphur etc.. The Test shows that it is without date and hence incomplete. The details of time taken for providing the Test Report is as per the following table :

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(d) It can be observed that the Test Report has been given after 218 days from the drawl of samples. In such case of huge delay, the moisture contents would have already evaporated and as a result the percentage of Fe content in Iron Ore will not remain constant consequent to evaporation and would be higher. Therefore, the testing results obtained after 218 days cannot be relied upon and basis for final assessment.

(e) He relies on the Tribunal’s decision in their own case decided vide Final Order NO.76352/2023 dated 18/08/2023 in the matter of Customs Appeal No.79383 of 2018, wherein it has been held as under :

20. It can be observed from the above decisions of the Tribunal that the Tribunal has been consistently holding that the moisture content has to be taken into account and the final Fe content of the DMT has to be arrived at. But for carrying out this exercise, the sample should be drawn and tested as early as possible. Such direction has been given by CBEC and BIS as seen as Para 3 above. As can be seen from the first table above, the Department has taken time between 105 days to 138 days to complete the sample testing and give the Report. On the other hand, the Government Recognized Private Laboratories engaged by the Respondents have taken just 6 to 9 days to complete this entire exercise. As there has been a huge delay between the date of collection of sample and testing of the sample by the CRCL and the number of days taken by the Private Labs are much lesser in the second case, the values arrived at by the Government Recognized Private Laboratories‟ Reports are likely to be  more accurate, since they had completed the Testing nearer to the date of drawing of samples. The decisions of the cited case law are squarely applicable to the fact of the present case.

21. The Adjudicating Authority was also bound to give proper consideration to the fact that the overseas importer has made the payment based on the DMT Fe content as given by the private labs, which was not done in this particular case.

24. In view of the foregoing, we set aside the impugned OIO and allow the Appeal of the Appellant with consequential relief if any, as per law.

9. In view of the above submissions, he prays that the appeal filed by the Revenue may be dismissed.

10. Heard both the sides and considered the documents placed before us.

11. On going through the impugned Order, we find that the Commissioner (Appeals) has passed a very detailed order. The relevant portions are extracted below :

6.The Customs Dept also drawn representative sample from the export consignment under No. T.M. No: 624/2007-08 dated 29.02.2008. The samples have been tested in Customs Lab, Kolkata, and as per Test Report without dated the FE-content has been mentioned as Fe content was 63.7% on dry basis and Moisture 0.8%.

7. The Appellant Exporter, since 18.05.2009, is continuously following for the final assessments of both the above said shipping bills vide its various reminder letters- dated 01.10.2009, 15.12.2009, 27.01.2010, 05.02.2010, 05.02.2014, 19.03.2014, 11.04.2014,  06.05.2014, 02.06.2014, 26.10.2016, 23.01.2017, 21.02.2017, 03.03.2017, 04.01.2018.

a) The Customs Test Report received through RTI is appended herewith:

As per above test results of T.M. No. 624/2008 dated 29.02.2008 of Customs Laboratory,

Kolkata showing Fe content 63.7% and Moisture 0.8% the Appellant submits as follows.

The Customs laboratory report is a cursory report and detailed conditions of moisture content and other impurities like silica and sulphur content of the cargo has not been  pointed out as has been clearly mentioned in the other two reports. It may be stated that the presence of the said impurities has a significance to determine the Fe contents.

The samples were drawn on 29-02-2008. There is no mention of date of sending and date  of examination by Chemical Examiners in the test report, so it is quite possible that substantial time have elapsed from the time of export to the date of testing. As moisture is not an inherent part of Iron ore hence moisture content of the iron Ore never remains constant, it varies from time to time depending on the atmospheric condition. Percentage of Iron Ore in the samples on “Samples as received basis” was not determined as the samples were travelled to Customs Lab situated to Kolkata after lapse of time, In such case there is much likelihood of evaporation of moisture and a test conducted after lapse of time would definitely will not give the same moisture content which was found at the time of export. This also proved with the factor that there are no major differences in Fe contents of all the reports whereas the moisture contents at load port and discharge ports are not in  very much difference.

m) Moreover, the certificate produced by the appellant has been issued by a very reputed  testing company. It is also to be mentioned that the learned AC has not challenged the validity of the Test Report of QSS, the fact that the sample was drawn in the presence of departmental officers, in such case there is no grounds of not accepting the test reports.

n) Besides this the sampling and testing of consignment was also done at the destination Port of China by Chinese Government agency (CIQ) on the lines of internationally accepted procedures, the test results of CIQ at the discharge port shown that the iron ore exported was 63.42% of Fe content and moisture @6.10%.

r) The analysis of the above export cargo has been done at the following agencies and at different points and the results are as follows.

It is found that the Exporter has raised the Final Invoice based on Fe contents as Analysis Report at discharged port i.e. 63.42% on DMT, Moisure-6.10%, which is also below 62% in WET basis. The Exporter has also submitted CA Certificate in this regard certifying the receipt of payments as per Fe contents at Discharge Port.

25. I also have observed that the Appellants has received the Final Payments as per Test report issued by CIQ at destination Port, the Appellants have submitted the BRC and CA Certificate from an Independent Chartered Accountant confirming the same. The Fe contents at declared by CIQ are 63.42% on DMT, Moisure-6.10%, which is also below 62% in WET basis as mentioned in Para 25.

26. Also, the Board has issued guidelines videCircular No. 12/2014 dated 17.11.2014, specific to bring in uniformity, transparency and consistency in assessment of export of Iron Ore, fines and pellets-

2 (c) Upon receipt of the load port test report and discharge port test report the proper officer shall compare the two reports with the terms set out in the contract. Where variations in the two test reports are within tolerance limits provided in the contract and do not impinge upon the declared price, the proper officer may proceed to finalize the provisionally assessed shipping bill in terms of the provisions of Section 14 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007.

….

4. The Custom Houses shall monitor receipt of Bank Realisation Certificates for the purposes of comparison with the final invoices submitted by the exporter to satisfy the accuracy of assessed values.

It is observed that the three is not much difference in Test Reports of Load Port and Discharge Port and the export proceed has been received as per Test Reports results of Discharge Port which is as per terms mentioned in contract. In such case non-acceptance of Test Certificates, issued by the Surveyor/ Assayer Quality Services and Solutions Pvt. Ltd. under certificate No. QSS/02/01/01406 dated 31.03.2008 at Load Port and inspection certificate of Quality dated 16 May 2008 issued by the Quarantine of the Republic of China at discharge port in China, are not justified.

In terms of the destination port certificate the iron content is less than 62%. It is seen that in the test report given by the destination Port as well as by M/s. Mitra S.K. Pvt. Ltd., the Chemical composition in terms of iron and other impurities is also given. Particularly, the moisture content is given even in the certificate given at China, destination Port. The proportion of other impurities like Aluminium, Silica, Aluminium oxide. Phosphorous, Moisture is given, whereas when one sees the reports of the Chemical Examiner, he had given only the percentage of iron and the other percentage is not known. It is not known how the percentage was calculated as to whether it was calculated after the moisture was removed or not or whether moisture was taken into account while calculating the percentage of iron. In any case, when a reputed company which has also been recognized by the Ministry of Commerce and Industries has given the test report and when that test report is in variance with the report of Chemical Examiner, the request of the appellant for re-test ought to have been considered favourably. This has not been done. This is utterly a denial of the Principles of ‘Natural Justice’. In any case, we do not find any strong reason for rejecting the test report produced by the appellant from two sources, one from reputed testing organization and the other from the destination Port. The evidence also has been produced that payment has been made based on the test results at the destination Port. When it is less than 62% depending upon the shortage, the penalties have been paid by the exporter. In view of these factors, we find that the impugned order which has been passed in a very cursory manner without taking into account the submission of the party is liable to be set aside. In other words, the impugned order has no merits. Hence, we allow the appeal with consequential relief. Thus the appeal and the cross objection are disposed of.

29. It is also observed that the Appellants has received the Custom Test Report through RTI only and Department has never shared the Customs laboratory Test Report or results of Custom Test Report to the Appellants, in such case the Appellants never had any opportunity to request for retest of the test samples.

30. The Customs, Excise & Service Tax Appellate Tribunal, Bangalore, in the matter of Steer Overseas Pvt. Ltd. Versus Commissioner of Customs, Central Excise, Visakhapatnam Final Order No. 905/2009, dated 2-4-2009 in Appeal No. C/600/2008 Equivalent 2010 (250) ELT 0308 (Tri. – Bang.) pronounced as below-

5. We have gone through the records of the case carefully. The iron content in the goods exported is 62% according to the Certificate produced by the appellant. The Inspection Certificate of Quality has also indicated the iron content less than 62% namely it is 60%. Only the test conducted by Custom House Laboratory indicated more than 62%. When the appellant requested for re-test of the sample, it should have been immediately acceded to. This was not done. This amounts to denial of the Principles of Natural Justice. Moreover, in testing samples of these types, time factor is important. If there is a long delay in testing the sample, due to evaporation of moisture, the test results would show increase in iron content, which will be unfavorable to the party. In these circumstances, we have to hold that the percentage declared by the appellant and confirmed at the destination port has to be taken as valid. Hence, we allow the appeal with consequential relief.

31. I found that both of above case law are applicable in current matter. The appellant Exporter have submitted various other case law in similar line.

35. Based on above, the Final Fe contents to be arrived by adopting the Test Certificate issued by the Surveyor/ Assayer – Quality Services and Solutions Pvt. Ltd. under certificate No. QSS/02/01/01406 dated 31.03.2008 at Load Port and inspection certificate of Quality dated 16 May 2008 by the Quarantine of the Republic of China discharge port at discharged Port in China and then converting the same in wet condition by adopting the mathematical formula as below-

Iron Content in Moist Condition = Fe X (100-M)

100

Where Fe is %age of Iron content on dry basis, M is the moisture content in the Sample.

The same is calculated as below-

36. As in both the cases, the Fe contents in moist / wet condition comes to below 60%, in such case the Exporter is eligible to claim exemption under Notification No 62/2007-Cus dated 03.05.07, and the applicable rate of export duty would be Rs. 50/- PMT. As the Exporter has already been paid Rs. 300/- PMT, he is eligible to get refund of Rs. 250/-PMT, which come to Rs. 1,07,91,250/-. The detailed refund calculation is attached herewith as Annexure-I.

12. We find that the Commissioner (Appeals) has gone into the complete details of the Test Reports submitted by the appellant in respect of the Load Port and well as Test Reports of the Discharge Port. He has also applied the formula given by the Hon’ble Supreme Court in the case of Gangadhar Narsingdas. He has gone through the Bank Realization statement towards the remittance received by the appellant confirming the amount received is towards the Iron Ore Fe content of less than 62%. He has made clear reference to the delay in getting the Testing completed by the Revenue through CRCL and also has noted that the relevant Test Reports of CRCL were never shared with the appellant, till the appellant got hold the same through the means of RTI. He has faulted the Revenue for this lapse and has cited case law to the effect that the non-supply of CRCL reply has effectively closed the door for the appellant to seek any re-test. Keeping in view all the detailed analysis, he has held that the provisional assessment is required to be finalized taking the Fe content has less than 62% and he has held that the Export Duty payable would @ Rs.50 PMT and not Rs.300 PMT.

13. We do not find any reason to interfere with the above detailed and considered order passed by the Commissioner (Appeals). On this count itself, the Revenue’s appeal stands dismissed.

14. We have also gone through the other submissions made by the Respondent. We find that the Commissioner (Appeals) himself has noted that the CRCL’s Report is incomplete in many ways and was not made available to the Respondent [the appellant in that case], till it was obtained by them by way of RTI. The Commissioner (Appeals) has held that the principles of natural justice were not followed, since the appellant therein could not have asked for re-testing in the absence of CRCL’s test report.

15. Further we also find force in the Respondent’s argument that there has been an delay of 218 days, in the Test Report issued by the CRCL, received by the appellant through RTI, which is again is incomplete, since the date of testing and date of report is not given. This Bench, has in catena of decisions, including in the Respondent’s own case vide Final Order No.76352/2023 dated 18/08/2023 cited supra, has held that in case of huge delay between the collection of samples and testing of the same by CRCL, the Test Report cannot be relied upon for the results given therein, when the report is compared with the Test Report given by accredited agencies immediately after the export takes place.

16. In the same Final Order, this Bench has also held that the export realization value would be relevant, since the payments by the overseas importer is on the basis of the Fe content. In the present case, the Commissioner (Appeals) has verified the Bank Realization and found the same to be in order. The Revenue, in their present appeal, has not brought in any evidence to the effect that the respondent has realized any amount higher than what has been realized by the appellant through proper banking channels. Therefore, even on this ground, we find that the appeal filed by Revenue, is liable to be dismissed. We do so.

17. The Appeal filed by the Revenue stands dismissed thus.

(Operative part of the order was pronounced in the open court.)