Circular cannot impose new condition and restrict scope of exemption notification

Bank of Nova Scotia Vs Commissioner of Customs (CESTAT Kolkata)

CESTAT Kolkata held that circular cannot impose new condition and restrict scope of the exemption notification. Accordingly, demand of customs duty based on condition imposed vide circular no. 24/98- Cus unjustified.

Facts-

The Appellant is a ‘Nominated Agency’ in accordance with the Foreign Policy. As per the scheme introduced by the Government of India – ‘Export against supply by Nominated Agency’, the Appellant imported gold/silver/platinum (The goods) without payment of customs duty and supplied the same to various exporters for the manufacture of jewelry and subsequent export. The Exemption Notification No. 57/2000 dated 08.05.2000 gives effect to this export promotion scheme, subject to fulfillment of conditions mentioned therein.

In the present case goods were imported during November 2011 to October 2013 and supplied to Ganesh Jewellery House (I) Ltd. (SGJHIL), involving customs duty of Rs.13,53,67,882/-.Similarly goods imported during the period December 2008 to November 2012 were supplied to Enfield Gems and Jewellery Limited (EGJL) involving customs duty of Rs.2,44,32,057/-.

Investigation was initiated by Directorate of Revenue Intelligence (DRI), wherein it was alleged that SGJHIL and EGJL have not fulfilled their export obligations, as they have not submitted the bank realization certificate to the Appellant. Customs Circular No.77 (RE-2008)/2004-09 dated 31.03.2009, issued by DGFT provides that Nominated Agencies shall follow the procedure and fulfill the conditions specified in the Customs circulars. As per para 4 (xii) of circular no. 24/98- Cus , “The exporters shall furnish the EP copy of Shipping Bill and BRC to the Nominated Agencies as a proof of having exported the jewellery from the duty free goods released to them within the prescribed period in FTP”. Since the Nominated Agency has not submitted the BRC as prescribed in the Circular 28/2009, the customs duties foregone on the goods supplied to the exporters were demanded from the Nominated Agency and confirmed vide the impugned order.

Conclusion-

Held that the provisions of the Exemption Notification 57/2000 read with erstwhile circular no. 24/98- Cus nowhere states that non-realization of sales proceeds by Exporters will result in demand of Customs duty foregone from the Nominated Agency.

Hon’ble Supreme Court in the case of Sandur Micro Circuits Ltd Vs CCE has held that by issuing a circular a new condition thereby restricting the scope of the exemption or restricting or whittling it down cannot be imposed.

FULL TEXT OF THE CESTAT KOLKATA ORDER

The appeals 76963 and 76965 of 2019 were filed by the Bank of Novo Scotia (herein after referred as the Appellant) against the impugned order dated 11.04.2019, wherein the demand of Customs duty of Rs.13,53,67,882/- and Rs.2,44,32,057/-respectively were confirmed, along with interest, in terms of Bonds executed under Notification No. 57/2000-Cus dated 08.05.2000 and appropriated the said confirmed duty and interest from Rs.25,25,02,220/- deposited by the Appellant. Appeal Nos 77203-277205 of 2019 were filed by the Department ( herein after referred as Respondent) against non imposition of redemption fine and penalty under Section 112(a) and 114A of the Customs Act, 1962 by the adjudicating authority in the impugned order. As the issue involved in all the four appeals emanate from the common Order-in-Original dated 11.04.2019, they are taken up together for disposal by a common order.

2. The Appellant is a ‘Nominated Agency’ in accordance with the Foreign Policy. As per the scheme introduced by Government of India – ‘Export against supply by Nominated Agency’, the Appellant imported gold/silver/platinum (The goods) without payment of customs duty and supplied the same to various exporters for manufacture of jewellery and subsequent export. The Exemption Notification No. 57/2000 dated 08.05.2000 gives effect to this export promotion scheme, subject to fulfillment of conditions mentioned therein.

3.In the present case goods were imported during November 2011 to October 2013 and supplied to Ganesh Jewellery House (I) Ltd. (SGJHIL), involving customs duty of Rs.13,53,67,882/-.Similarly goods imported during the period December 2008 to November 2012 were supplied to Enfield Gems and Jewellery Limited (EGJL) involving customs duty of Rs.2,44,32,057/-

4. The primary condition of the Exemption Notification 57/2000 required the Appellant to issue a Bond undertaking to export either by itself or through the exporter the manufactured goods within 120 days from the date of issue of the goods to the exporter. The Appellant claimed that they have duly satisfied this condition by obtaining the Shipping Bills from SGJHIL and EGJL, as proof of exports within the prescribed period.

5. Investigation was initiated by Directorate of Revenue Intelligence (DRI), wherein it was alleged that SGJHIL and EGJL have not fulfilled their export obligations, as they have not submitted the bank realization certificate to the Appellant. Customs Circular No.77 (RE-2008)/2004-09 dated 31.03.20099 (herein after referred as ‘Policy Circular’), issued by DGFT provides that Nominated Agencies shall follow the procedure and fulfill the conditions specified in the Customs circulars. As per para 4 (xii) of Customs Circular 28/2009, ” The exporters shall furnish the EP copy of Shipping Bill and BRC to the Nominated Agencies as a proof of having exported the jewellery from the duty free goods released to them within the prescribed period in FTP”. Since the Nominated Agency has not submitted the BRC as prescribed in the circular no. 24/98- Cus , the customs duties foregone on the goods supplied to the exporters were demanded from the Nominated Agency and confirmed vide the impugned order.

6. In their submissions, the Appellant stated that Notification 57/2000 prescribes the following conditions to be fulfilled under the scheme:

(i) A bond is executed by the Appellant to undertake the export of goods within the prescribed period of 120 days from the issue of the goods.

(ii) Such export has been undertaken within the said prescribed period for which copies of Shipping Bills have been duly received from the exporters and submitted.

7. There is no condition in the Notification 57/2000 that the Nominated Agency should obtain the BRC from the exporters within the prescribed period , for availing the benefit of the exemption notification. Such condition was prescribed only in the Circular 28/2009. It is a settled position in law that a new condition which does not form part of the Notification cannot be introduced through a Circular . In support of this view, they cited the following decisions:

(i) Sandur Micro Circuits Ltd Vs CCE, Belgaum reported in 2008(229)ELT 641 (SC)

(ii) CCE, Allahabad Vs Sangam Structural Ltd. 2015(39)STR 1034 (Tri-Del)

8. The Appellant stated that an identical issue for the period 2008 has been decided in their favour by the CESTAT, Bangalore in their own case reported in 2009 (233) ELT 260 wherein it has been categorically held that the provisions of the Exemption Notification 57/2000 read with erstwhile Circular No. 24/98- Cus dated 24.04.1998 nowhere states that non-realization of sales proceeds by Exporters will result in demand of Customs duty foregone from the Nominated Agency. Accordingly, they contended that no duty can be demanded from them.

9. The Ld. A.R stated that Circular 28/2009 clearly states that the nominated Agency should produce the BRC from the exporters within the prescribed period , for availing the benefit of the exemption notification 57/2000. If the Nominated Agency fails to submit the BRC as prescribed in the Circular 28/2009, then the customs duties foregone on the goods supplied can be demanded from the Nominated Agency. Accordingly, he supported the impugned order.

10. Heard both sides and perused the appeal documents.

11. We observe that the Appellant is a Nominated Agency imported the goods without payment of customs duty and supplied the same to various exporters for the manufacture of jewellery and subsequent export. The Exemption Notification No. 57/2000 dated 08.05.2000 prescribes certain conditions to avail the benefit of this notification. The Appellant has to execute a bond undertaking to the export of goods within the prescribed period of 120 days from the issue of the goods. The Appellant contends that they have fulfilled this condition as they have submitted copies of Shipping Bills received from the exporters evidencing exports. It is their contention that there is no condition in the Notification 57/2000 that the Nominated Agency should obtain the BRC from the exporters within the prescribed period, for availing the benefit of the exemption notification. Such condition was prescribed only in the Circular 28/2009, which is not binding on the assessees. It is a settled position in law that a new condition which does not form part of the Notification cannot be introduced through a Circular. Accordingly they contended that the demand of duty from them is against the conditions of the notification.

12. We observe that the issue is no longer res integra as the CESTAT, Bangalore in Appellant’s own case reported in 2009 (233) ELT 260 categorically held that the provisions of the Exemption Notification 57/2000 read with erstwhile Circular No. 24/98- Cus dated 24.04.1998 nowhere states that non-realization of sales proceeds by Exporters will result in demand of Customs duty foregone from the Nominated Agency. Accordingly, the Tribunal has held that no duty can be demanded from them. We observe that the ratio of this decision is squarely applicable in this case. The relevant para of the decision is reproduced below:

”16. The nominated agency can import gold duty free subject to the conditions of notification 57/2000. The said condition is given in Proviso to the notification and we are reproducing the said notification.

“Provided that in the case of import of gold/silver/platinum as replenishment under the scheme for ‘Export through Exhibitions/ Export Promotion Tours/Export of Branded Jewellery’, the importer undertakes to fulfill the conditions of Export and Import Policy and relevant provisions of the Handbook of Procedures, Volume-1 and produces such documents as stipulated in the Export and Import Policy and the Handbook of Procedures, Volume-1 and produces such proof of exports made through exhibitions/export promotion tours etc., as may be required by the Assistant Commissioner of Customs or the Deputy Commissioner of Customs to satisfy himself with regard to eligibility of the importer for the duty free import of replenishment material.”

17. A close reading of the above proviso shows that the nominated agency who is the importer, executes a bond undertaking to export the jewellery containing gold equal to the imported gold. In case, the jewellery is not exported within the stipulated period, the importer is under an obligation to pay the Customs duties foregone on the imported gold. This notification does not impose any condition on the importer to ensure realization of the foreign exchange for the jewellery exported. The fact that the gold imported free of duty was given to the second appellant is also not disputed by the Revenue. The second appellant Rajesh Exporters Ltd. had also exported the goods. There is ample evidence to show that the jewellery containing gold equal to the quantity imported had indeed been exported. This fact is also not under dispute. The learned Special Counsel was at pains to convince us that the non-realization of sale proceeds of the exported goods amounts to violation of the conditions of the notification, because the notification has to be read harmoniously along with export/import policy and also the relevant provisions of Hand Book of Procedures. We do not agree with the contentions of the learned special Counsel. On a plain reading of the notification, we do not think that non-realization of sale proceeds amounts to violation of the conditions of notification by the first appellant. There is no allegation that the first appellant colluded with the second appellant and as a result of such collusion the sale proceeds were not realized. In other words, when the notification has not stipulated any condition to the effect that the nominated agency should ensure the realization of sale proceeds of the exported goods. We cannot read such a meaning into the said notification. Consequently, we do not hold that the first appellant has violated the conditions of the notification. Therefore, in our view the first appellant is not liable to pay the Customs duty demanded in the impugned order. Further, we reproduce Para (xiii) of circular no. 24/98- Cus :

“Wherever such proof of export is not produced within the period prescribed in the EXIM Policy the Nominated Agencies, shall (without waiting for its recovery from the exporter) deposit the amount of duty calculated at the effective rate leviable on the quantity gold/silver not exported within 7 days of expiry of the period within which the jewellery manufactured out of the said gold/silver was supposed to be exported. The duty so paid by the Nominated Agency shall be reflected in the monthly statement prescribed in Para (x) above. The Nominated Agencies will settle their claim with the exporter at their own level;”

18. A close reading of the above provision shows that nowhere it is stated that non-realization of sale proceeds will result in demand of Customs duty foregone from the nominated agency.

19. It should be borne in mind that even though the first appellant is the importer, the exporter is different. In this case, the exporter is the second appellant. All goods exported from India result in realization of foreign exchange as sale proceeds. Matters relating to foreign exchange are governed by Foreign Exchange Management Act (FEMA). The Customs Authorities are not enforcing the provisions relating to non-realization of foreign exchange. If at all there is violation of FEMA and the related regulations, the liability would be on the exporter, suitable action lies with the enforcement authorities and Reserve Bank of India. With regard to the violations of exim policy, adjudication can be done only by authorities notified under Section 13 of Foreign Trade (Development & Regulation Act) 1992. The first appellant imported the goods and warehoused the same. Duty can be demanded from the first appellant only in respect of the situations enumerated in Section 72 of the Customs Act. Revenue has not shown that there exist any of the situations contemplated in Section 72 of the Customs Act. Hence, no duty can be demanded from the first appellant under Section 72 of the Customs Act. As far as the second appellant is concerned, they are not the importers of gold. They purchased on loan basis gold from the first appellant. They had also fulfilled the export obligations. In other words, the goods have been physically exported in the light of the Apex Court’s decision cited by the learned Advocate, export has taken place. The non-realization of foreign exchange will be governed by FEMA and also the circulars issued by Reserve Bank of India. There is no legal sanction for imposition of any penalty on them under Section 112 (a) of the Customs Act, 1962. In view of the above findings, we do not hold that the impugned goods are liable for confiscation under the Customs Act. The first appellant is not liable to discharge duty liability for the impugned gold. Both appellants are not liable for penalty under Section 112 (a) of the Customs Act, 1962 Hence, we allow the appeals of both the appellants with consequential relief.”

13. In respect of Circulars specifying the conditions which are not there in the Notification, we find that the Hon’ble Supreme Court has decided in the case of Sandur Micro Circuits Ltd Vs CCE, Belgaum reported in 2008(229)ELT 641 (SC). The relevant part of the decision is reproduced below:

“2. In all these appeals common questions are involved and are directed against the judgment and final order passed by the Customs, Excise and Service Tax Appellate Tribunal (in short the Tribunal). Since in appeals filed by the appellants common question of law is involved, there is no need to elaborately deal with the factual aspects. Question is the effect of a circular issued by Central Board of Excise and Custom (in short the ‘Board’) i.e. Circular No. 42 of 1997 dated 19-1997. The CESTAT held that the Notification No. 2/95-C.E., dated 4-1-1995 as amended by Notifications Nos. 21/97-C.E., dated 11-4-1997, 100/95-C.E., dated 2-6-1995 and 7/96-C.E., dated 1-7-1996 shall have overriding effect over the Circular. It held that there is no manner of doubt that the appellant’s claim of liability to pay 50% of the aggregated customs duty on the goods cleared to the Domestic Tariff Area (in short the ‘DTA’) is not legally tenable. It was held that the Circular was in direct conflict with the Notification No. 2/95.

3. Learned counsel for the appellant in each case submitted that the Circular was issued on the basis of representations made by various assessees and therefore the Notification cannot stand on the way of relief being granted.

4. Learned counsel for the respondent on the other hand submitted that the Notification which is statutorily issued has overriding effect because the Notifications are issued in exercise of powers conferred by sub-section (1) of Section 5A of the Central Excises and Salt Act, 1944 (in short the ‘Act’).

5. The issue relating to effectiveness of a Circular contrary to a Notification statutorily issued has been examined by this Court in several cases. A Circular cannot take away the effect of Notifications statutorily issued. In fact in certain cases it has been held that the Circular cannot whittle down the Exemption Notification and restrict the scope of the Exemption Notification or hit it down. In other words it was held that by issuing a circular a new condition thereby restricting the scope of the exemption or restricting or whittling it down cannot be imposed. The principle is applicable to the instant cases also, though the controversy is of different nature.

6. The appeals fail and are dismissed.”

14. In the case of CCE Allahabad Vs Sangam structurals Ltd. 2015(39)STR 1034 (Tri- Del), it has been held as under:

“4. We also note in passing that the conditions prescribed by the CBEC circular dated 27-7-2005 seem to go beyond the requirement of the exemption notification. It is settled law that CBEC circulars cannot restrict or expand the amplitude of an exemption notification nor can they add/subtract conditionality’s thereto/there from. However, this point is not being laboured here as the decision in the case is not predicated thereon.”

15. By following the decision of the Hon’ble Supreme Court and the Tribunal cited above, we hold that the demand of customs duty from the Appellant is not sustainable. Accordingly we set aside the demand of duty confirmed in the impugned order.

16. The Department has filed the appeals against non imposition of redemption fine and penalty under Section 112(a) and 114A of the Customs Act, 1962. Since the demand of duty itself is not sustainable, the question of demanding redemption fine and imposing penalty does not arise. Accordingly, the department’s appeals are rejected.

17. In view of the above discussion, we allow the appeals filed by the Appellant and reject the appeals filed by the department.

(Dictated and pronounced in the open Court)