CBIC & DGFT: Manipulative Interpretation by JNCH Customs – Part 2  

In the intricate web of customs regulations, the nexus between CBIC, DGFT, and JNCH Customs has sparked controversies. Part 1 shed light on the binding CBIC Circular No. 58/2004-Cus and its clear directives. However, manipulative interpretations persist, raising questions of ulterior motives.

The government is paying very handsome salaries to the officials to ensure that the rule of law prevails & not for killing the exporters by deploying manipulative interpretations. However, despite judicial pronouncements & strictures & CBIC circulars, it is inexplicable that the whole bureaucracy still aligns to perpetuate illegality. From, the part 1, of the story, the following is conclusively established. Read: CBIC & DGFT: Manipulative Interpretation by JNCH Customs – Part 1

A. Binding CBIC Circular No. 58/2004-Cus dtd. 21.10.2004 

i. Para 3.2 (a) & (b) reads as under:

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Therefore, the two paragraphs are unambiguous & leave no room for any manipulative interpretation.

Furthermore, the paragraphs explicitly indicate that the Bank Guarantee (BG) exemption will be revoked if the exporter fails to fulfill their export obligation. It is crucial to note that this default must specifically pertain to the fulfillment of the export obligation and cannot be construed to include the submission of redemption letters from the Directorate General of Foreign Trade (DGFT), a notion deemed unacceptable due to its arbitrary nature. The Jawaharlal Nehru Custom House (JNCH) Customs was consequently tasked with providing substantial evidence of default as determined by the DGFT office, as per numerous judicial rulings, but failed to do so. Copies of these communications were furnished to the Regional Authority (RA), Mumbai; Additional Director General of Foreign Trade (DGFT), RA, Mumbai; and the DGFT for their scrutiny regarding any discrepancies in the exporter’s assertions vis-à-vis the legally binding circulars and judicial pronouncements. To date, no objections have been raised, indicating the absence of any default.

Nevertheless, the JNCH Customs is basing their demand for the Bank Guarantee on the subsequent paragraph, which they are interpreting in a manipulative manner to justify their request and potentially perpetuate corruption.

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5. In individual cases where the jurisdictional Commissioner of Customs/ DGFT authority /EPCG Committee/ALC/ is satisfied that a higher quantum of Bank Guarantee is justified on account of risk to revenue, 100% BG may be taken by the Customs after recording the reasons therefor in file.

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The pivotal issue here pertains to whether the Jawaharlal Nehru Custom House (JNCH) can selectively interpret a paragraph of the Central Board of Indirect Taxes and Customs (CBIC) circular out of context to engage in manipulative practices. Are the customs officials not bound by the substantive provisions outlined in paragraphs 3.2 (a) & (b) of the CBIC circular? Moreover, is it conceivable that the CBIC deliberately introduced discretion despite legal precedents to exploit and harass exporters for ulterior motives? Is the JNCH Customs implying that despite judicial admonitions and demands for unconditional apologies due to instances of double jeopardy and unilateral decisions regarding defaults, these do not impact their implementation of the law? Are they suggesting that because judicial rulings compelled the CBIC’s actions, the circular is merely for display, while paragraph 5 provides field formations with latitude for exploitation?

However, a straightforward analysis of the situation reveals the following:

It is evident that an exporter, in compliance with paragraphs 3.2 (a) & (b) of Circular 58/2004, qualifies for the Bank Guarantee exemption. Every exemption from the Bank Guarantee is granted based solely on this criterion. There is no justification for the JNCH Customs to selectively interpret paragraph 5 and arbitrarily impose a Bank Guarantee requirement. Such actions could potentially open avenues for corruption, which the CBIC has evidently sought to prevent.

Why would the CBIC exhibit leniency towards defaulting exporters while demanding Bank Guarantees from those fully compliant with exemption conditions? In cases of default, a 100% Bank Guarantee is rightfully demanded, with the possibility of its release upon remedying the default. Additionally, even paragraph 5 is conditional and emphasizes the risk to revenue, specifying a 100% Bank Guarantee. Without default, how can the perceived risk change arbitrarily? Why should strictly applicable exemptions under paragraph 3.2 (a) & (b) be disregarded? If such manipulative practices persist unchecked, it poses a severe threat to the survival of Micro, Small, and Medium Enterprises (MSMEs).

I have previously highlighted numerous instances of manipulation and harassment at the FIEO Open House in Mumbai, prompting the Chief Commissioner (later the Chairman of the CBIC) to invite further discussion. However, bureaucratic layers often hinder swift resolution. Deception is intolerable and must be addressed promptly. The JNCH Customs cannot exploit loopholes, and authorities cannot turn a blind eye, as this would perpetuate systemic corruption, rendering it dysfunctional. The bureaucratic hierarchy, from Inspectors to Chairpersons, seems excessive in a modern, software-oriented approach, providing ample opportunity for manipulative practices. If officials perceive themselves as untouchable, the purpose of their positions becomes futile. In the past, direct communication with officials allowed for efficient issue resolution. Even if the JNCH Customs claims benefit of the doubt, the CBIC’s reiterated stance against unilateral coercive actions by Customs reinforces the imperative for fair and transparent practices.

Binding CBIC Circular No.16/2017-Customs dtd. 02.05.2017

The issuance of another Circular by the Central Board of Indirect Taxes and Customs (CBIC) was necessitated by the persistent harassment faced by exporters due to delays in the issuance of redemption letters. This Circular was issued subsequent to discussions held during the Chief Commissioner’s conference. It succinctly addresses the actions to be taken in cases where there are delays in issuing redemption letters.

Paragraph 2 of the Circular provides a summary of the pertinent issues, while paragraph 5, in its conclusion, states the following:

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5. In view of the above, the field formations may issue simple notice to the licence/authorization holders for submission of proof of discharge of export obligation. *In case where the licence/authorization holder submits proof of their application having been submitted to DGFT, the matter may be kept in abeyance till the same is decided by DGFT. Institutional mechanism set up in terms of Instruction F. No. 609/119/2010-DBK dated 18.1.2011 for regular interaction with RA’s of DGFT should be used to pursue such cases. However, in cases where the licence/authorization holder fails to submit proof of their application for EODC/Redemption Certificate, extension/clubbing etc., action for recovery may be initiated by enforcement of Bond/Bank Guarantee. In cases of fraud, outright evasion, etc., field formations shall continue to take necessary action in terms of the relevant provisions.

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Therefore, in cases where there is a delay in the submission of redemption letters by the exporter, Customs authorities are mandated to address the issue with DGFT officials to expedite the determination of export obligation defaults. They are advised to issue a simple Show Cause Notice (SCN) and keep it in abeyance. Despite repeated directives for the JNCH authorities to expedite the determination of defaults through the Regional Authority (RA) in Mumbai, it seems no effective action has been taken.

The issuance of binding CBIC circulars stems from numerous complaints regarding widespread corruption and exploitation arising from delays in redemption letters due to arbitrary deficiencies cited by DGFT officials. Exporters were forced to resort to legal recourse, wherein courts consistently ruled in favor of exporters, recognizing the common-sense principle that exporters should not endure harassment post-completion of export obligations due to delays caused by DGFT inefficiencies. Several judicial decisions support this stance:

In the case of VERIFONE INDIA PVT. LTD. vs. COMMISSIONER OF CUSTOMS, BANGALORE 2005 (192) E.L.T. 327 (Tri. – Bang.), the CESTAT, South Zonal Bench, Bangalore, unequivocally ruled that the determination of export obligations falls under the purview of DGFT authorities, being the monitoring authorities.

Likewise, in SHRIMANDHAR FABRICS P. LTD vs. COMMR. OF CUS., AHMEDABAD 2008 (231) E.L.T. 641 (Tri. – Ahmd.), it was reiterated that DGFT is the nodal authority for determining fulfillment of export obligations.

Furthermore, in HY-GRADE PELLETS LTD. vs. COMMISSIONER OF CUSTOMS, VISAKHAPATNAM 2004 (171) E.L.T. 177 (Tri. – Del.), it was ruled that exporters cannot be subjected to double jeopardy. This decision was deemed significant enough to warrant notification to Revenue and the Commerce Secretary, emphasizing strict compliance with delineated authority. Thus, it is evident that Customs departments must adhere strictly to legal provisions.

These judicial pronouncements conclusively establish that unilateral actions by Customs departments are unacceptable. Moreover, if exporters are in default, the relevant DGFT office would cease issuing authorizations to them. Until a default occurs, the exporter cannot be placed on the Denied Entities List (DEL) by the DGFT.

In conclusion, whether analyzed through binding circulars, DGFT’s continued issuance of authorizations, or judicial pronouncements, there is no legal basis for coercive actions or demands for Bank Guarantees from exporters. However, the relentless pursuit of misery inflicted upon exporters by the JNCH Customs for undisclosed motives must be halted. In the subsequent section, we highlight two instances underscoring the entrenched corruption and the elusive nature of justice despite an abundance of laws.

Conclusion

The saga reveals a systemic flaw where bureaucratic layers obscure accountability. Despite legal safeguards, JNCH Customs’ actions persist unchecked, fostering a culture of manipulation and harassment. The judiciary’s stance underscores the imperative of adherence to law, yet bureaucratic inertia prevails.

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