Exemption notification 146/94-Cus doesn’t impose ‘Actual User’ condition: CESTAT Delhi

National Rifle Association of India Vs Commissioner of Customs (CESTAT Delhi)

CESTAT Delhi held that exemption notification 146/94-Cus doesn’t state ‘Actual User’ condition. Accordingly, confiscation of imported arms and ammunitions is liable to be set aside.

Facts- The order dated 29.11.2013 passed by the Commissioner of Customs (Import & General) is assailed by the National Rifle Association of India in this appeal. In the impugned order, the Commissioner decided the proposals made in the show cause notice dated 28.9.2011 and denied the benefit of exemption Notification No. 146/94-Cus. dated 13.07.1994 (S.No.1) for the arms and ammunitions imported by the appellant during the period from November 2005 to December 2009 and consequently confirmed a demand of Rs. 3,45,35,591/- and imposed an equal amount as penalty u/s. 114A of the Customs Act, 1962. The impugned order is assailed both on merits and on limitation.

Conclusion- A plain reading of the notification nowhere shows that there is any “Actual User‟ condition. All that is stated is that the goods should be used for national or international championships or competitions. The notification does not say that the importer itself must use them for the purpose.

Held that there is, therefore, no violation of the exemption Notification 146/94-Cus by the appellant. The finding that the imported goods were liable to confiscation needs to be set aside.

FULL TEXT OF THE CESTAT DELHI ORDER

The order dated 29.11.2013 passed by the Commissioner of Customs (Import & General)¹ is assailed by the National Rifle Association of India² in this appeal. In the impugned order, the Commissioner decided the proposals made in the show cause notice dated 28.9.2011³ and denied the benefit of exemption Notification No. 146/94-Cus. dated 13.07.1994 (S.No.1) for the arms and ammunitions imported by the appellant during the period from November 2005 to December 2009 and consequently confirmed a demand of Rs. 3,45,35,591/- and imposed an equal amount as penalty under section 114A of the Customs Act, 1962⁴. The impugned order is assailed both on merits and on limitation.

2. The appellant claims to be a federation of affiliated State Rifle Shooting Associations, All India Board, Union Territories, District Rifle Shooting Rifle Associations, Rifle Shooting Clubs and that it regulates and coordinates their activities including securing and supplying arms, ammunition, shooting equipment and other accessories for them.

3. Import of arms and ammunition required for rifle shooting is restricted and hence they can be imported only on a license issued by the Director General of Foreign Trade⁵. They are also exempted from the whole of duty by Notification No. 164/94-Cus dated 13.7.1994 subject to some conditions. The appellant obtained the licenses as required from DGFT and also availed the benefit of exemption notification.

4. Notification No. 146/94-Cus was amended from time to time and it read as follows during the relevant period.

“In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods of the description specified in column (2) of the Table hereto annexed and falling within the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), when imported into India, from the whole of the duty of customs leviable thereon which is specified in the said First Schedule and from the whole of the additional duty leviable thereon under section 3 of the second mentioned Act subject to the conditions specified in column (3) against each serial number in column (1) of the said Table.

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5. It is not in dispute that the appellant is the National Sports Federation for rifle shooting and that it had produced a certificate from the Sports Authority of India regarding the requirement of the arms and ammunition as required in the notification. The appellant imported arms and ammunition and sold them to the State Rifle Associations and District Clubs after adding a mark up of 10% over the cost of import plus duty and it had paid VAT on such sales. While selling, the appellant also obtained affidavits from the State Rifle Associations and District clubs that the arms and ammunition will not be sold or transferred by them throughout their life.

6. The appellant has been importing and supplying arms and ammunition to the State Rifle Associations and District clubs as it is part of its mandate.

7. Forman earlier period in respect of the arms and ammunition imported between 1995 and 2005, Directorate General of Revenue Intelligence⁶initiated an investigation and came to the conclusion that the exemption notification was available only if the importer itself used the arms and ammunition in the championships and competitions indicated in the notification and that the exemption would not be available if the importer sells arms and ammunition to the State Rifle Associations or District clubs to use in competitions and championships. Accordingly, DRI issued an SCN dated 16.2.2009 demanding duty which proposals were confirmed by the Commissioner by an order dated 17.11.2009. On appeal, this Tribunal remanded the matter to the Commissioner who has yet to pass a de novo order.

8. This appeal pertains to subsequent period covering 2005 – 2009 and SCN dated 28.9.2011 which culminated in the impugned order, the operative part of which is as follows:

(i) I hold the firearms and ammunition imported by M/s National Rifle Association of India during the period November 2005 to December 2009, valued at Rs. 10,85,70,571/- (Rupees Ten Crore Eighty Five Lakhs Seventy Thousand Five Hundred Seventy One only) liable to confiscation under section 111 (d) & section 111 (o) of the Customs Act, 1962. Since the above said goods are not available for confiscation, no order imposing redemption fine can be passed at this stage.

(ii) I confirm the demand of Customs duty amounting to Rs. 3,45,35,591/- (Rupees Three Crore Forty Five Lakhs Thirty Five Thousand Five Hundred Ninety One only) along with interest from the date of import under the said Notification No. 146/94-Cus dated 13.7.1994, as amended, till payment of duty, against M/s National Rifle Association of India, who have knowingly and fraudulently evaded duty in relation to the import of firearms and ammunition during the period from November 2005 to December 2009.

(iii) I impose a penalty of Rs. 3,45,35,591/- (Rupees Three Crore Forty Five Lakhs Thirty Five Thousand Five Hundred Ninety One only) on M/s NationalRifle Association of India under section 114A of the Customs Act, 1962. On a combined reading of section 112 and section 114A of the Customs Act, 1962 it is clear that penalty can be levied only under the provisions of one of the section. Since I have already imposed penalty under section 114A of the Customs Act, 1962, I refrain from imposing any penalty on M/s NRAI under section 112 (a) and (b) of the Customs Act, 1962”.

Submissions by the appellant

9. Learned counsel for the appellant made the following submissions:

(i) The appellant had correctly availed the benefit of exemption Notification No. 146/94- Cus as amended and did not violate any of its conditions.

(ii) The notification exempts arms and ammunition for use in national and international competitions and championships and it does not stipulate that the importer itself should use them for this purpose. The appellant supplied them to the State Rifle Associations and District clubs who used them for the purpose.

(iii) There are only two conditions in the notification- (a) that they are imported under a certificate issued by the Sports Authority of India; and (b) the certificates produced before the Assistant Commissioner or Deputy Commissioner of Customs at the time of clearance of goods. Both these conditions have been met by the appellant.

(iv) There is no “Actual User” condition nor is any requirement of producing evidence of actual use. No bond or legal undertaking was required under the notification and none was executed by the appellant.

(v) The imported goods were used for the intended purpose and there is no allegation in the SCN or finding in the impugned order that they have not been so used. The only allegation is that the appellant itself had not used them but sold them to the State Rifle Associations and District clubs (who used them for the purpose).

(vi) The entire demand of duty is time barred as DRI had earlier issued an SCN on the same issue for an earlier period which was adjudicated by the Commissioner and on appeal was remanded to the Commissioner for de-novo adjudication. Therefore, the department was fully aware of the functioning of the appellant and how it uses the imported goods. Therefore, for a subsequent period, a demand invoking extended period of limitation could not have been issued.

(vii) Import of arms and ammunition in dispute is restricted and an import license from DGFT is required. The appellant had applied to the Ministry of Sports and on their recommendation, the DGFT had issued the import license for import of arms and ammunition.

(viii) The letter recommending the issue of license issued by the Ministry of Sports specifically states that the import of the goods is for supply to the State Rifle Associations, etc.

(xi) the appellant had not violated any condition of the license issued by the DGFT as wrongly concluded by the Commissioner.

(xii) Once a certificate has been produced as per the notification, exemption cannot be denied by the customs authorities.

(xiii) Neither the Sports Authority of India who issued the certificate not the DGFT who issued the import license nor the Ministry of Sports who recommended issue of the import license cancelled the certificates or licenses issued by them.

Submissions by the Revenue

(10) Learned authorized representative for the Revenue vehemently supported the impugned order and submitted as follows:

(i) The appellant had violated the conditions of the Notification No. 146/94 by selling the imported arms and ammunition to the State Rifle Associations and District clubs instead of using them.

(ii) The notification does not provide exemption to goods for sale but only to those goods which are meant for the specific use, evidently means that the importer must use them for the purpose. Since the appellant had violated the conditions of the exemption notification, they were liable for confiscation under section 111(o).

(iii) The license issued by the DGFT for ammunition was for actual use and not for sale. By selling the ammunition so imported, the appellant violated the conditions of the license issued by DGFT and therefore the imported goods were liable for confiscation under section 111(d).

(iv) The exemption notification must be strictly interpreted as held by the Supreme Court in Commissioner of Customs (Import) Mumbai versus Dilip Kumar & Co. & others⁷and in case of any ambiguity, the benefit of doubt must go in favor of the Revenue and against the importer. Therefore, even if it is possible to take a view that the imported goods could be sold and the buyer can, in turn, use them for the competitions or championships, it is equally possible to interpret the notification plainly that the imported goods must be used (and not sold). Even if it is held that there is any ambiguity, it must be interpreted in favour of Revenue.

(v) The use of the imported goods is a continuous obligation since no time is specified within which they must be used. Until the goods are sold or diverted by the importer (instead of using them as required), there was no cause of The cause of action arose as soon as the goods are sold or diverted. The limitation in such a case arises on the date of violation of the condition of the notification as per the judgment of the Supreme Court in Mediwell Hospital & Health Centre Private Ltd. versus Union of India⁸. CBEC had issued a Circular No. 73/2000 dated 1.9.2000 following the judgment of the Supreme Court.

(vi) The general limitation under section 28(1) would not apply where there is a breach of condition of the exemption notification after import.

(vii) Submission of bond or legal undertaking is not required to demand duty.

(viii) The impugned order may be upheld and the appeal may be dismissed.

Findings

11. We have considered the submissions advanced on behalf of the appellant and on behalf of the Revenue and perused the records.

12. The SCN proposed a demand under Section 28(1) of the Customs Act of the duty foregone under Notification No. 146/94- Cus dated 13.7.1994, as amended, on the ground that the post importation conditions were violated inasmuch as the appellant had not used the imported arms and ammunition but sold them tothe State Rifle Associations and District Relying on the judgment of the Supreme Court in Mediwell and the consequent Circular No. 73/2000-Cus dated 1.9.2000, the SCN reasoned that if post importation conditions are violated, in every such violation the date of violation must be reckoned as the beginning of the limitation.

13. The SCN further alleged that the appellant had knowingly and willfully suppressed facts. It proposed confiscation of the goods under sections 111(d) and (o) and imposition of penalty under section 112/114A of the Customs Act.

14. In the impugned order, the Commissioner held that the imported goods valued at Rs.10,85,70,571/- were liable for confiscation under sections 111(d) and (o); confirmed the demand of duty of 3,45,45,35,591/- along with interest under Notification No. 146/94-Cus dated 13.7.1994 as amended, on the goods imported from November 2005 to December 2009; and also imposed penalty equal to the duty under section 114A of the Customs Act.

Confiscation under section 111(d)

15. The Commissioner held that the goods were liable to confiscation under section 111(d), which reads as follows:

111. Confiscation of improperly imported goods, etc. The following goods brought from a place outside India shall be liable to confiscation:-

(d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force;

16. The Commissioner found that the goods were liable to confiscation under section 111(d) for the reason that the appellant had, in violation of the conditions of the import license issued by the DGFT, sold the imported arms and ammunition after their import. Learned counsel for the appellant placed several licenses issued by DGFT where no „actual user condition‟ was imposed. On the contrary, according to the learned counsel, the licenses were issued by DGFT based on a recommendation by the Ministry of Sports which clearly specified that the goods were meant for supply to the State Rifle Associations and to the District clubs.

17. A plain reading of section 111(d) shows that only such goods which are imported in violation of any prohibition are liable for confiscation. As per the Foreign Trade Policy, arms and ammunition could be imported on a license issued by the DGFT and undisputedly, they were imported on the strength of a licenses. If, after import, some of the conditions of import licenses are violated, section 111(d) does not render them liable for confiscation because the import was as per the license.

18. At any rate, it is for the DGFT who issued the license to determine if any of the conditions of license were violated or not and take action, if necessary.

19. For both these reasons, goods which were imported as per the licenses issued by DGFT but which were thereafter suspected to be used in violation of the conditions of the licenses, will not be liable for confiscation under section 111(d).

Confiscation under section 111(o)

20. The Commissioner held that the goods were liable to confiscation under section 111(o) which reads as follows:

111. Confiscation of improperly imported goods, etc. The following goods brought from a place outside India shall be liable to confiscation:-

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(o) any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer;

21. The Commissioner recorded that the exemption notification was subject to actual user condition and since the appellant had not used the imported goods for national or international championship or competition to be held in India or abroad, but had sold them to the State Rifle Associations and to District clubs, the actual user condition was not fulfilled and, therefore, the imported goods were liable for confiscation under section 111(o).

22. A plain reading of the notification nowhere shows that there is any „Actual User‟ condition. All that is stated is that the goods should be used for national or international championships or competitions. The notification does not say that the importer itself must use them for the purpose. Evidently, when a National Sports Federation imports goods, it does not itself conduct all the championships and competitions It will work through its constituent State and District bodies. There is nothing in the notification which even remotely suggests that such use is not acceptable. There is no finding in the impugned order that they have not been used for the purpose, but there is only a finding that they were not used by the appellant itself. It would have been a different case if the appellant had sold the imported goods in the market or to individuals. The use of the arms and ammunition in such a case could have been doubted. To accept the Commissioners reasoning one would have to read in the notification after the words „use‟, the words ‟by the importer‟ which cannot be permitted.

23. As submitted by the learned authorized representative, any exemption notification must be strictly interpreted and there is no scope for intendment or reading words into it.

24. There is, therefore, no violation of the exemption Notification 146/94-Cus by the appellant. The finding that the imported goods were liable to confiscation needs to be set aside.

Demand of duty and interest

25. The basis of the demand of duty is also that the appellant had violated the conditions of the Notification No. 146/94-Cus which have been found to be not correct. Consequently, the demand of duty and interest need to be set aside and we do so.

Penalty under section 114A

26. Penalty under section 114A of the Customs Act can imposed if duty is not paid or short paid by reason of fraud, collusion or willful misstatement. Since it has been found that the demand of duty is not sustainable, penalty under section 114A also needs to be set aside.

27. In view of the above findings, other submissions made by both sides need not be considered.

28. The appealis, accordingly, allowed and the impugned order is set aside with consequential relief to the appellant.

(Order pronounced in open court on 03/01/2025.)