Excise Dept. cannot initiate proceedings for exemption notification violation

Rajhans Impex Pvt Ltd  Vs Union of India (Gujarat High Court)

Conclusion: Since Central Excise Department had not sanctioned any refund / rebate of the duty paid on the supplies to the EOUs by assessee-company  and the refund of TED was sanctioned by the DGFT thus, if DGFT had acted under the different provisions and the refund was sanctioned under those provisions, the proper authority was DGFT who could initiate proceedings against the assessee-company for violation of exemption notification and the Advance Authorization Licence not the Central Excise Department.

Held: Assessee-company was under the control of Superintendent of Central Excise, Jamnagar. It was regularly exporting its final product as also supplying to 100% EOU (Export Oriented Unit) by following the procedure prescribed under the law. During the period from May 2010 to January 2013, assessee – company supplied material to 100% EOU under the law against the application made for Advance Authorization with payment of duty and without Form CT-3 certificate. On completion of such deemed export and receipt of Export Obligation Discharged Certificate, a request was made to issue Advance Authorization with the office of Joint Director General of Foreign Trade. Assessee-company were granted the benefits of the advance authorization scheme which was issued to allow duty free import of inputs. During the investigation by the DRI, it was found that assessee had clandestinely, instead of actually exporting the goods to EOUs, disposed of the goods in the open market and the deemed exports which were shown to have been made by assessee was made without any CT-3 and on the basis of the payment of the central excise duty which was later claimed back by them through refund of the TED from the DGFT, Rajkot. Therefore, DRI had issued the notice proposing recovery of excise duty refunded by the department of DGFT by way of TED for the material supplied to 100% EOU (deemed export) as well as proposing recovery of interest and imposition of penalty on assessee, as also on the co- noticee. In the present case, Central Excise Department had not sanctioned any refund / rebate of the duty paid on the supplies to the EOUs. It also appeared that the refund of TED was sanctioned by the DGFT and if DGFT had acted under the different provisions and the refund was sanctioned under those provisions, the proper authority was DGFT who could initiate proceedings against the assessee-company for violation of exemption notification and the Advance Authorization Licence. It was an admitted fact that Advance Autorization Licence of assessee was still valid and no action was taken by the DGFT for breach of condition thereof. As such, initiation of proceedings by the customs was nothing but an exercise of power in excess of jurisdiction. When the Custom Department had exercised power in excess of jurisdiction, than, this Court could exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India. Therefore,  the order-in-original was required to be set aside.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. As all the three petitions are arising out of the same order which the same is challenged by the petitioners by filing
separate petitions, the matters were heard together and they are being disposed of by this common judgment.

2. Considering the facts that the order challenged in the matters are similar, the facts of Special Civil Application No.12550 of 2017 are taken as lead matter.

3. By way of present petitions under Article 226 of the Constitution of India, the petitioners seek a writ of mandamus quashing and setting aside the Order No.MUN- CUSM-000-COM-030-16-17 issued by respondent No.2 confirming duty with interest and imposing penalty, with the following prayers:-

a. Your Lordships be pleased to issue a writ mandamus of or in the nature of mandamus quashing and setting aside the order passed by the Respondent No. 2 bearing No.MUN-CUSTM-)))-COM030- 2016-17 Dated 31.03.2017 issued on 05.04.2017.

b. Your Lordships be pleased to issue a writ of Prohibition or in the nature of Prohibition thereby completely and permanently prohibiting Respondent No. 2 & its subordinate officers from taking any action against the petitioner, for disturbing the benefits allowed, in view of Order In Original No. MUN-CUSM-000-COM-030-16-17 dated 31.03.2017 issued on 05.04.2017.

c. Pending admission, hearing and final disposal of the petition Your Lordships be pleased to stay further proceedings pursuant to the Order No. MUN-CUSM-000-COM-030-16-17 dated 31.03.2017 issued on 05.04.2017 by the Respondents including therein the stay of recovery of duty confirmed and the penalty imposed.

d. Such other and further reliefs as deemed just and expedient be granted.

4. Brief facts of the present case are as under:-

4.1 The petitioner No.1 is engaged in manufacturing of brass rods / hollow rods etc. classified under Chapter 74 of the Schedule to the Central Excise Tariff Act and is under the control of Superintendent of Central Excise, Jamnagar. That the petitioner is regularly exporting its final product as also supplying to 100% EOU (Export Oriented Unit) by following the procedure prescribed under the law. That during the period from May 2010 to January 2013, the petitioner – company supplied material to 100% EOU under the law against the application made for Advance Authorization with payment of duty and without Form CT-3 certificate. That on completion of such deemed export and receipt of Export Obligation Discharged Certificate, a request was made to issue Advance Authorization with the office of Joint Director General of Foreign Trade.

4.2 That on receipt of such authorization, the petitioner – company imported material during the period from February 2011 to August 2013 without payment of duty against such authorization, by claiming an exemption under Notification No.96/2009 which was duly accounted for and utilized in manufacturing of final product and the same was cleared with payment of duty in domestic market in terms of para 4.1.5 of the Foreign Trade Policy. It is alleged that at the time of import, a copy of Advance Authorization was produced before the Customs Authority and had claimed benefit of Notification No.96/2009-CUS and No. 98/2009-CUS.

4.3 That the petitioner – company has supplied some material with payment of duty, over and above, the material supplied against CT-3 certificate to M/s. Apple International (100% EOU), Jamnagar, M/s. Jakap Metind Pvt. Ltd. (100% EOU), Jamnagar, M/s. Shriji Krupa Export (100% EOU), Surendranagar and M/s. Srijan Exports (100% EOU), Chandigardh during the period from May 2010 to January 2013. It is further alleged that the petitioner – company had prepared Form ARE 3 at the time of removal of duty paid goods to the said 100% EOU’s which were returned by the said recipient duly endorsed by their jurisdictional Range Superintendent.

4.4 It is alleged that on 05.09.2013, the officers from the Office of Directorate of Revenue Intelligence (hereinafter be referred to as “DRI”) visited the factory premises and impounded certain documents including statutory record, copy of ARE 3 etc. That DRI recorded statement of authorized persons of the aforesaid 100% EOU as well as Director. It is alleged that the EOUs have accepted the fact of receipt of material in their factory premises and recorded that the said material is duly accounted for in their statutory record. It is contended that the transporters and the truck owners have also supported the same. It is alleged that the DRI had also requested jurisdictional Assistant Commissioner’s to certify whether the material covered under the respective ARE 3 were physically verified by the Range Officer or not. That in response to the same, respective jurisdictional Assistant Commissioner certified that the goods were covered under the respective ARE 3’s are received by the said 100% EOU but have not been physically verified. It is further contended that the goods sold to respective units were brass rods / hollow rods of various length which cannot be packed in the box but can only be covered by jute clothes and supplied to the respective 100% EOU. It is contended that the DRI has, on relying on statements of the some owners of the truck, issued show-cause notice proposing confiscation of goods exported under Section 111(o) of the Customs Act, 1962 in addition to the recovery of custom duty on imported material as also Central Excise Duty on the material cleared with payment of duty under valid duty paying documents to the tune of Rs.1,26,99,092/- and Rs.90,59,957/- along with interest and penalty. The said show-cause notice was also proposed penalty on the Director as well as respective EOUs.

4.5 It is contended that such show-cause notice was replied and requested to cross-examine the owners of the trucks and cross-examination was carried out and during the course of such cross-examination, the transporters have accepted that the material was transported.

4.6 It is contended that during the course of personal hearing attention was drawn to various evidence regarding transportation of the goods and receipt of the goods by 100% EOU and the entry thereof is in the statutory record and regarding payment of material is also made by account payee cheque. On the issue of demand of Central Excise Duty attention was drawn to the fact that the department has demanded duty equivalent to the amount claimed as refund from the office of Joint Director General of Foreign Trade and not on the transaction value and since, such refund is not sanctioned either by Custom Department or by Central Excise Department, such proposal is without jurisdiction. It is further alleged that the attention was also drawn to the letter dated 27.12.2013 issued by the Assistant Commissioner of Central Excise, Jamnagar wherein it is clarified that no refund / rebate of duty paid on supplies to the EOU is sanctioned by them.

4.7 It is further submitted that the attention was also drawn to the fact that the petitioner had also cleared goods to M/s.Labotech Miscroscopes India (P) Ltd and M/s. Labotorn Instruments Ltd. Ambala, 100% EOU under cover of CT 3 or without CT 3 but with payment of duty. According to the petitioners, the show-cause notice under consideration is issued only because the concerned Range Officer has not physically verified the goods and for such fault on the part of the department, the petitioners cannot be penalized. It is also alleged that the attention of the adjudicating authority was also drawn to the fact that the material imported is against valid authorization issued by the DGFT and none of the authorization are declared as invalid or cancelled. That neither the custom department nor the department of DGFT has ever raised any objection or has ever stated that the petitioner has violated any of the condition of the Notification No. 96/2009 – CUS availed and, therefore, the demand of custom duty is also not sustainable and is bad in law. It is also contended that adjudicating authority has confirmed the show-cause notice without considering the submissions made and as also the documentary evidence produced and the order passed by the adjudicating authority is bad in law and without jurisdiction. It is submitted that the duty of the Central Excise demanded is equal to the duty refunded by the department of DGFT and is not based on transaction value and since the refund is neither issued by Customs Department nor by Central Excise Department, the demand raised is bad in law and without jurisdiction. It is contended that the show-cause notice clarifies that the refund is of the CENVAT paid and hence, recovery of Central Excise Duty would amount to double recovery of duty and is without jurisdiction and bad in law. On all these grounds, the petitioners have challenged the impugned order passed by respondent No.2.

5. The respondent No.2 has filed affidavit-in-reply refuting the claim of the petitioner – company in toto and has stated that there is alternative remedy available to the petitioners and, therefore, on this ground, the present petition deserves to be dismissed. It is also stated that respondent – department is well within the jurisdiction to issue show-cause notice. The main contention of the respondent is that the petitioners have shown clearance of 248204 kilogram brass rods / brass hollow rods / copper alloys ingots totally valued at Rs.8,27,36,245/- to four 100% EOUs on payment of Central Excise Duty from CENVAT account totally valued at Rs.90,59,957/- was claimed back through refund of TED (Terminal Excise Duty) from the DGFT based on the declaration that the goods were cleared to 100% EOUs. According to respondent No.2, all such clearances appeared not genuine and RIPL in the guise of deemed export clearance to 100% EOUs removed all such goods to the local market clandestinely. According to respondent – authority, the amount debited by them from CENVAT account of the aforesaid amount has already been refunded in form of TED from the DGFT and, therefore, demand of Central Excise Duty would not amount to double recovery of duty. It is stated that M/s.RIPL has shown in the invoices the duty payment but not collected the same from the buyer and subsequently, the same was claimed as refund from DGFT as TED. According to respondents, this has been done to avoid the physical verification of the receipt of the goods by the Central Excise Officers. According to respondent No.2, if the supplies is made without payment of duty under CT 3, the physical supervision of the Central Excise Officers is mandatorily required so that they can send the re-warehousing certificate to the supplier Range Office. According to respondent, since, the supplies were shown as duty paid, it is not mandatory for physical verification and even accompany ARE 3 is also not required. According to respondent, all the documentary evidence have been examined and after verifying everything, the demand has been confirmed and merely tendering of the affidavit of 100% EOU is not enough.

6. On behalf of the petitioners, the Director of the petitioner company has filed affidavit-in-rejoinder wherein it has refuted the facts narrated by the respondents and has stated that the show-cause notice has only been issued on the basis of the statement of the some of truck drivers and has stated that the Investigating Agency has ignored the statement of the transporter who had admitted that the materials physically transported and has produced relevant documents. The petitioner reiterated his contention that the advance authorizations issued by the department of DGFT are still valid and are neither declared as void nor cancelled by the authority. It is also stated that the authority has ignored the fact that the said authorizations are used to importation of material only after obligations are complied with. It is further stated that the department has ignored the fact that the Central Excise Duty demanded on the so-called clandestine clearance is nothing but duty paid clearance and hence, no duty can be demanded and, therefore, it is beyond jurisdiction of the respondents.

7. Heard Mr.Mihir Joshi, learned senior counsel with Mr.Paresh Sheth, learned counsel for the petitioners and Ms.Shruti Pathak, learned counsel for respondent No.2 at length. Perused the materials placed on record and the decisions cited at the Bar.

8. Mr.Mihir Joshi, learned senior counsel with Mr.Paresh Sheth, learned counsel for the petitioners has submitted the same facts which are narrated in the petition and has submitted that the Custom Authority passed the order for recovery of duty which was availed by the petitioners from DGFT and the Custom Authority has also sought for confiscation of the goods. He has submitted that the petitioners have imported goods under the advance authorization and they have exported the goods and discharged their liability. He has submitted that the petitioners have sold the goods through CTC procedure and payment of duty i.e. Terminal Excise Duty.

8.1 Mr.Mihir Joshi, learned senior counsel has submitted that on 05.09.2013, the officer from the Director of Revenue Intelligence visited the factory premises and started investigation on system of clearance from the factory and impounded certain documents. He has submitted that on 10.04.2015, the department has issued show-cause notice proposing (a) recovery of custom duty on the material imported through the port of Mundra as well as Kandla; (b) recovery of excise duty refunded by the department of DGFT by way of Terminal Excuse Duty for the material supplied to 100% EOU (deemed export) and (c) recovery of interest and imposition of penalty on the petitioners as also on the co- noticee. The actions so proposed are for clearances made to 100% EOU’s to Apple International, Jamnagar, Jakap Metind Pvt. Ltd., Jamnagar, Shrijan Exports, Chandigarh and Shrijikrupa Exports, Surendranagar. He has further submitted that the hearing was fixed on 05.10.2015 by the adjudicating  authority and during such proceedings, an attention was drawn to the fact that the transportation of goods to Shrijikrupa Export and to Srijan Export were through the transport agency and the authorized person of the said agency has accepted transportation of goods and has also produced relevant evidence before the investigation agency, but are not relied upon in show-cause notice. He has also submitted that the attention was also drawn to the endorsement made by the Superintendent of Central Excise, Surendragar on the body of Form No. ARE 3, wherein it is stated that in terms of Circular No.88/89-CUS physical verification is not required.

8.2 While referring to the communication and the proceedings of hearing by the adjudicating authority, Mr.Joshi, learned senior counsel has also submitted that the adjudicating authority has ignored the fact that they are demanding duty on the goods cleared under proper invoice and on which, duty is physically paid and is accepted by the department as duty. He has submitted that the DGFT has also accepted the fact that as the duty is physically paid, it has refunded such payment by way of Terminal Excise Duty Refund.

8.3 Mr.Joshi, learned senior counsel has submitted that the alleged demand of Rs.90,59,957/- under the provisions of Section 11A(4) of Central Excise Act is challenged on the  ground that the same is without jurisdiction in as much as said amount is nothing but refund sanctioned by DGFT and the Customs department has no jurisdiction to recover such amount. He has submitted that the demand of Rs.1,26,99,092/- which is confirmed under Section 28(4) of the Customs Act, 1962 is challenged on the ground that the exemption availed is against valid advance authorization which are still not challenged or cancelled by DGFT.

8.4 Regarding TED, Mr.Joshi, learned senior counsel has submitted that so far as the recovery of TED is concerned, the clearances are with payment of Central Excise Duty and, therefore, the allegation of clandestine clearance cannot be sustained and as admitted by the department, the refund is not sanctioned by the Central Excise Department. According to him, since the refund of TED is sanctioned by DGFT and since controlled under the different provisions, the refund sanctioned under the said provisions cannot be recovered by the Custom Department.

8.5 Mr.Mihir Joshi, learned senior counsel has also submitted that the custom duty is not recoverable on the grounds that the licenses issued are still valid and in terms of the decisions cited by him, no demand can be raised. While referring to the decisions in the case of C. C. (Export Promotion), Mumbai Vs. Koatex Infrastructure Ltd., 2015 (323) E.L.T. 169 (Tri.-Mumbai), Mr.Joshi, learned senior counsel has also submitted that when EODC is still valid and is not cancelled, the benefit of exemption notification is available.

8.6 Mr.Mihir Joshi, learned senior counsel has relied upon the following decisions and while submitting written submission, has submitted that the Custom Authority has no jurisdiction for issuing any notice or adjudicate as refund was given by the DGFT and advance authorization  licence is still in  existence and he has prayed to allow the present petitions.

(i) Collector of Customs, Bombay Vs. Sneha Sales Corporation, 2000 (121) E.L.T. 577 (S.C.);

(ii) Titan Medical Systems Pvt. Ltd. Vs. Collector of Customs, New Delhi, 2003 (151) E.L.T. 254 (S.C.);

(iii) Joint Director General of Foreign Trade Vs. IFGL Refractories Ltd., 2002 (143) E.L.T. 294 (Cal.)

(iv) Commissioner of Customs Vs. Rajnarayan Jwalaprasad, 2014 (306) E.L.T. 592 (Guj.);

(v) C. (Export Promotion), Mumbai Vs. Koatex Infrastructure Ltd., 2015 (323) E.L.T. 169 (Tri.-Mumbai);

(vi) Simplex Infrastructure Ltd. Vs. Union of India, 2016 (342) E.L.T. 59 (Del.);

9. Ms.Shruti Pathak, learned counsel for respondent No.2 has vehemently submitted that primary objection is regarding maintainability of the petitions as the petitioners have challenged the order passed by the Custom Authority and at this stage, this Court may not entertain the present petitions. According to her, there is an alternative efficacious remedy available to the petitioners available under the Central Excise Act before the Customs, Excise and Service Tax Appellate Tribunal. She has submitted that the petitioners have not availed alternative remedy and directly approached this Court. While referring to the decision in the case of Panoli Intermediate (India) Pvt. Ltd. Vs. Union of India, 2015 (326) E.L.T. 532 (Guj.), she has submitted that in the said decision also, this Court has held that the writ petition is maintainable but the grounds mentioned therein are that when the authority has passed the order without jurisdiction and by assuming jurisdiction    and by overstepping or crossing the limits of jurisdiction or acting in flagrant disregard to law or rules or procedure or acting in violation of the principles of natural justice where no procedure is specified and accordingly, the said decision will not be applicable in this case.

9.1 Ms.Shruti Pathak, learned counsel for respondent No.2 has submitted that the petitioners were granted the benefits of the advance authorization scheme which was issued to allow duty free import of inputs. According to her submission, the petitioners were required to fulfill the criteria which includes (i) physical exports (including exports to SEZ); (ii)  intermediate supply and/or (iii) supply of goods mentioned in the categories mentioned in Foreign Trade Policy, (iv) supply of stores on board for foreign going vessels / aircraft. According to her submission, during the investigation by the DRI, it was found that the petitioners had clandestinely, instead of actually exporting the goods to EOUs, disposed of the goods in the open market. She has submitted that during investigation by the DRI, it reveals that the petitioners have showed clearance of brass and copper alloys rod to 100% EOUs and SEZ and availed benefit of deemed exports thereon and they have also obtained the benefit of the advance authorization scheme from the DGFT, Rajkot for duty free import of raw material i.e. brass/ copper scrap / zinc scrap. She has submitted that the petitioners have also availed refund from the DGFT, Rajkot under the scheme of rebate.

9.2 Ms.Shruti Pathak, learned counsel for respondent No.2 has submitted that the deemed exports which were shown to have been made by the petitioners was made without any CT-3 and on the basis of the payment of the central excise duty which was later claimed back by them through refund of the TED from the DGFT, Rajkot. She has submitted that as all these facts came to the knowledge of the DRI, the show-cause notice was issued to the petitioners and opportunity was given. During such investigation, it was found that the deemed export clearances, which were made by the petitioners, were not even genuine and were shown only on papers. According to her version, the provisions of the Foreign Trade Policy, para 8.3(c) provides that the refund of the TED not available to the will be given, if exemption is supplies having been made to 100% EOUs and, therefore, the refund of TED was not admissible to the petitioners. She has submitted that the petitioners have grossly misused Customs Notification No.98 of 2009 and for the purpose of availing benefit of the advance authorization scheme in connivance with 4 EOUs. While relying on the various decisions, she has submitted that the Custom Authority has properly passed the order and it has jurisdiction to take action within the powers conferred upon it under Section 111 of the Customs Act. She has submitted that the jurisdiction and powers of the licensing authority stand on a different footings which mainly have the duty cast upon them to monitor and to see that the provisions with respect to the license are duly complied with and in case of breach of the provisions contemplated under the said section, the powers are also conferred with the authority to confiscate the goods. According to her submissions, the contentions of the petitioners that the advance authorization has not been cancelled and that the license is not cancelled by the authority is not justified. According to her submissions, there were misused of the advance authorization scheme which was made by the petitioners and, therefore, the EODC stipulates and provides that the custom authority is empowered to take action against the licensee at any stage for misuse of the scheme.

9.3 Ms.Shruti Pathak, learned counsel for respondent No.2 has submitted that during the course of investigation, it was  found that there is difference in daily stock production and clearance statement and physical verification was also not done by the concerned officers and they did not give any intimation of the receipt of the goods without CT-3 to the Central Excise Officer.

9.4 Ms.Shruti Pathak, learned counsel for respondent No.2 has submitted that the duty which is demanded by the custom authority is on different footing then the refund from the TED. She has submitted that the custom duty has been demanded on the goods which were imported by wrongly availing custom exemption notification and the Central Excise Duty has been demanded on clandestine clearance of the furnished goods in the open market.

9.5 Regarding decisions relied upon by learned senior counsel for the petitioners, Ms.Shruti Pathak, learned Assistant Government Pleader has submitted that those decisions are not applicable in the present case and the decision of the Delhi High Court has been stayed by the Supreme Court. On all these grounds, Ms.Shruti Pathak, learned counsel has urged to dismiss the present petitions as there is alternative efficacious remedy available to the petitioners.

9.6 Ms.Shruti Pathak, learned counsel for respondent No.2, while submitting written submission, has relied upon the following decisions.

(i) Sheshank Sea Foods Private Limited Vs. Union of India, (1996) 11 SCC 755;

(ii) Panoli Intermediate (India) Pvt. Ltd. Vs. Union of India, 2015 (326) E.L.T. 532 (Guj.);

(iii) Mangali Impex Ltd Vs. Union of India, 2016 (335) E.L.T. 605 (Del.);

(iv) Deepak Bajaj Vs. The Commissioner of Customs, Madras High Court rendered in W.P. (MD) No.20021 of 2018 dated 13.12.2018;

(v) Commissioner of Customs Vs. TL Verma, Punjab Haryana High Court rendered in CUSAP No.20 of 2018 dated 28.08.2018;

10. In rejoinder, Mr.Mihir Joshi, learned senior counsel for the petitioners has submitted that in the present case, the DGFT has issued certificate and advance authorization is still not cancelled. He has submitted that the demand of excise duty is unwarranted as the chapter of excise duty is already closed. He has submitted that the refund has been given by the DGFT after due verification and the powers of suspension and cancellation is with DGFT under Section 9 of the Foreign Trade Act, 1992. While referring to Rule 10 of the Foreign Trade (Regulation) Rules 1993, he has submitted that the Director General or the Licensing Authority has enough power to cancel the licensse in the eventuality which are narrated therein. While referring to Form ARE-3 at page No.112 of the paper-book, Mr.Joshi, learned senior counsel has submitted that this form has been counter signed by the authority and after due verification of the documents, the DGFT has issued EODC certificate. According to him, the Custom Authority may inform DGFT regarding fraud, but the Custom Authority itself cannot initiate any proceedings. He has submitted that at the relevant point of time, there was valid Advance Authorization in favour of the petitioner and, therefore, the issuance of the notice is without jurisdiction.

11. In the case of Commissioner of Customs Vs. Rajnarayan Jwalaprasad (supra), this Court while relying on the decision of the Supreme Court in the case of Titan Medical Systems Pvt. Ltd. Vs. Collector of Customs (supra) has observed that once an advance licence is issued and not questioned by the licensing authority, the customs authority cannot refuse exemption on an allegation that there was any misrepresentation. That if there was any misrepresentation, it was for the licensing authority to take steps on that behalf.

12. In the case of C. C. (Export Promotion), Mumbai Vs. Koatex Infrastructure Ltd (supra), it is observed therein that when EODC has neither been suspended nor cancelled, the parties are entitled for the exemption.

13. In the case of Simplex Infrastructure Ltd Vs. Union of  India (supra), where the case was that the Terminal Excise Duty was granted and the refund thereof was ordered which was challenged before the High Court, wherein it was held that there can be no review of earlier refund except in accordance with Section 16 of Foreign Trade (Development and Regulation) Act, 1992, which only permits Director General of Foreign Trade or Central Government to exercise power of review.

14. In the case of Sheshank Sea Foods Private Limited (supra), while referring to Section 111(o) of the Customs Act, 1962, the Apex Court has held and observed in paras 8 and 9 as under:-

“8. Section 111(o) states that when goods are exempted from customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation. The case of the respondents is that the goods imported by the appellants, which availed of the said exemption subject to the condition that they would not be sold, loaned, transferred or disposed of in any other manner, had been disposed of by the appellants. The Customs authorities, therefore, clearly had the power to take action under the provisions of Section 111(o).

9. We do not find in the provisions of the Import and Export Policy or the Handbook of Procedures issued by the Ministry of Commerce, government of India, anything that even remotely suggests that the aforesaid powers of the Customs authorities had been taken away or abridged or that an investigation into such alleged breach could be conducted only by the licensing authority. That the licensing authority is empowered to conduct such an investigation does not by itself preclude the Customs authorities from doing so.”

14.1 While considering the factual aspect thereof, it was observed in the said decision that the breach was not only of the terms of the licence; it was also a breach of the condition in the exemption notification upon which the appellants therein obtained exemption from payment of customs duty and, therefore, the terms of Section 111(o) enable the Customs authorities to investigate.

15. In the case of Panoli Intermediate (India) Pvt. Ltd. (supra), while referring to the various decisions of the Apex Court, this Court has observed that “no legislation can whittle down or dilute or nullify the power of the constitutional Court under Article 226 of the Constitution of India, but the parameter for exercise of the writ of certiorari would be in a case where the Tribunal or the Authority has acted without jurisdiction or in excess of jurisdiction or acted in flagrant disregard of the law or the rules of procedure or have acted in violation to the principles of natural justice and thereby resulting into failure of justice”. It is further observed therein that “certiorari jurisdiction may be exercised when the error if not corrected at the very moment may become incapable of correction at the later stage and refusal to intervene would result travesty of justice”. It is further observed that “such jurisdiction of writ of certiorari should not be converted into the Court of appeal or indulge into re-appreciation of the evidence or evaluation of the evidence or correction of the errors were two views are possible. The High Court while exercising the jurisdiction of writ of certiorari may annul or set aside the act or set aside the proceeding, but cannot substitute its own decision in question thereof.

16. In the case of Mangali Impex Ltd (supra), while dealing with Section 28(11) of the Customs Act, 1962, the Delhi High Court has observed that “the department cannot seek to rely upon the said section for the proposition that it was authorised of customs, DRI, DGCEI etc. to exercise powers in relation to non-levy, short-levy or erroneous refund for period prior to 08.04.2011”. It is also observed regarding validation legislation that “the legislature has power to remove defect pointed out by Court which examines and pronounces on constitutional validity of statute”.

17. In the case of Deepak Bajaj (supra), which also deals with Section 28(11) of the Customs Act, 1962, the judgment of the Delhi High Court has been referred to and it is observed that the judgment of the Delhi High Court has been stayed by the Supreme Court in Special Leave Petition (C) No.20453 of 2016. In the said decision, it has been held and observed in para-5 as under:

“5. No doubt, as rightly contended by the learned counsel appearing for the petitioner, the grant of an interim order of stay in a pending appeal before the Apex Court does not amount to any declaration of law and that it is only binding upon the parties to the said proceedings. It also does not destroy the precedential value of the judgment of the High Court. Because, while granting the interim order, the Apex Court had no occasion to lay down any proposition of law inconsistent with the one declared by the High Court”.

18. In the case of Commissioner of Customs Vs. T. L. Verma (supra), it has been observed that the Supreme Court has stayed operation of the judgment of the Delhi High Court in Mangali Impex Limited (supra).

19. At this stage, it is worthwhile to referred to the Foreign Trade Chapter 4 of the Policy provides for duty exemption and remission scheme, especially para 4.1 and 4.1.3 which reads as under:-

“4.1 Duty Exemption and Remission Schemes–

Duty exemption schemes enable duty free import of inputs required for export production. Duty Exemption Schemes consist of (a) Advance Autorisation Scheme and (b) Duty Free Import Authorisation (DFIA) scheme. A Duty Remission Scheme enables post export replenishment / remission of duty on inputs used in export product. Duty remission schemes consist of (a) Duty Entitlement Passbook (DEPB) Scheme and (b) Duty Drawback (DBK) Scheme.

4.1.3 Advance Authorisation

An Advance Authorisation is issued to allow duty free import of imputs, which are physically incorporated in export product (making normal allowance for wastage). In addition, fuel, oil, energy, catalysts which are consumed / utilised to obtain export product, may also be allowed. DGFT, by means of Public Notice, may exclude any product(s) from purview of Advance Authorisation.

Duty free import of mandatory spares upto 10% of CIF valuation of Authorisation which are required to be exported / supplied with resultant product are allowed under Advance Authorisation. Advance Authorisations are issued for imputs and export items given under SION. These can also be issued on the basis of Adhoc norms or self declared norms as per para 4.7 of HEP.

[Advance Authorisation can be issued either to a manufacturer exporter or a merchant exporter tied to supporting manufacturer(s). However, advance authorisation under paragraph 4.7A of HBP. V1 (for pharmaceutical products manufactured through Non-Infringing (NI) process) shall be issued to Manufacturer exporter only.

Advance Authorisation shall be issued for :

(i) Physical exports (including exports to SEZ); and/or

(ii) Intermediate supplies; and/or

(iii) Supply of goods to the categories mentioned in paragraph 8.2(b), (c), (d), (e), (f), (g), (I) and (j) of FTP;

(iv) Supply of ‘stores’ on board of foreign going vessel / aircraft subject to condition that there is specific SION in respect of item(s) supplied.]

In addition, in respect of supply of goods to specified projects mentioned in paragraph 8.2 (d), (e), (f), (g) and (j) of FTP, an Advance Authorization can also be availed by sub-contractor to such project provided name of sub-contractor(s) appears in main contract.

Such Authorization can also be issued for supplies made to United Nations Organisations or under Aid Programme of the United Nations or other multilateral agencies and which are paid for in free foreign exchange.

However, Advance Authorization for import of raw sugar, can be issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s). Exports can also be made by procurement of white sugar from any other factory(ies). This provision shall be applicable for exports from 17-2-2009.”

19.1 Further, chapter 4 of the Hand Book also provides relating to the duty exemption / remission scheme. Para 4.12 reads as under:-

“4.12 Exports in Anticipation of Authorisation

Exports / supplies made from the date of ED! generated file number for an Advance Authorisation, may be accepted towards discharge of EO. Shipping / Supply document(s) should be endorsed with File Number or Authorisation Number to establish co-relation of exports / supplies with Authorisation issued. The requirement of endorsement of file number or authorisation number on the shipping bill would be dispensed with once the ED! Data Transmission System for the shipments becomes operational.

If application is approved, authorisation shall be issued based on input / output norms in force on the date of receipt of application by RA in proportion to provisional exports / supplies already made till any amendment in norms is notified. For remaining exports, Policy / Procedures in force on authorisation issue date shall be applicable.

20. Chapter 8 of the Hand Book which deals with the deemed exports provides in para – 8.3.1 as under:-

“8.3.1 Procedure for claiming Deemed Export Drawback & Terminal Excise Duty Refund / Exemption

Procedure for claiming benefits under paragraphs 8.3(b) and (c) of FTP shall be as under:-

[(i) An application in ANF 8, along with prescribed documens, shall be made by Registered office or Head office or a branch office or manufacturing unit of supplier to RA concerned. Where applicant is branch office or manufacturing unit of a supplier, it shall furnish self certified copy of valid RCMC. Recipient may also claim drawback benefits on production of a suitable declaration from supplier, in the format given in Annexure III of ANF 8. In case of TED refund, a declaration, in the format given in Annexure II of ANF 8, regarding non-availment of CENVAT credit, shall be given, by the recipient of goods, in addition to other prescribed documents.]

(ii) In case of supplies under paragraphs 8.2(a), (b) & (c) of FTP, claim shall be filed against receipt of payment through normal banking channel as in Appendix 22B. Claims should be filed within a period of twelve months from the date of payment. In cases where payment is received in advance, last date for submission of application may be correlated with date of supply instead of date of receipt of payment. Claim can be filed ‘Invalidation Letter / ARO wise’ against individual authorisations within the time limit as specified above. 100% TED refund any be allowed after 100% supplies have been made physically and payment received at least up to 90%. However, grant of deemed export duty drawback will be limited to the extent of payment received.

(iii) In respect of supplies under paragraph 8.2(b) of FTP, where supplier wants to claim benefits from RA, Ra shall allow deemed export benefits to DTA supplier, on receipt of certified copies of Central Excise attested invoice as proof of supplies made and/or Central Excise attested CT3 form and proof of validity of LOP.

For supply of High Speed Diesel / Furnace Oil from Depots of domestic oil Public Sector Undertakings under Para 8.2(b) of FTP, terminal excise duty shall be refunded on the basis of duty paid certificate issued by concerned domestic oil Public Sector Undertaking in the format given in Annexure I to ANF 8. Duty refund will be allowed for quantity of HSD / Furnace oil procured by EOU / EHTP / STP / BTP unit for its production activities, as certified by concerned DA / Bond authorities.

(iv) In respect of supplies under categories mentioned in paragraphs 8.2 (d), (e), (f), (g), (h), (i) & (j) of FTP, claim may be filed either on the basis of proof of supplies effected or payment received. Claims should be filed within a period of twelve months from date of receipt of supplies by project authority or from date of receipt of the payment as per the option of applicant, either against a particular project or all the projects. Claims may also be filed where part payments have been received. 100% TED refund may be allowed after 100% supplies have been made physically and payment received at least upto 90%. However, grant of deemed export duty drawback will be limited to the extent of payment received.

21. Chapter 8 of the Foreign Trade Policy deals with deemed exports. Para 8.2(b) and 8.3 provides as under:-

“8.2 Categories of Supply.

(a) xxx xxx

(b) Supply of goods to EOU / STP / EHTP / BTP;

(c) xxx xxx

8.3 Benefits for Deemed Exports

Deemed exports shall be eligible for any / all of following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to terms and conditions as in HBP :-

(a) Advance Authorisation / Advance Authorisation for annual requirement / DFIA.

(b) Deemed Export Drawback.

(c) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given. Exemption from TED shall also be available for supplies made by an Advance Authorisation holder to a manufacturer holding another Advance Authorisation if such manufacturer, in turn, supplies the product(s) to an ultimate exporter.

22. It is worthwhile to refer to Section 9 of the Foreign Trade (Development and Regulation) Act, 1992. Section 9 reads as under:-

9. Issue, suspension and cancellation of licence. –

(1) The Central Government may levy fees, subject to such exceptions, in respect of such person or class of persons making an application for [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] of in respect of any [licence, certificate or any instrument bestowing financial or fiscal benefits] granted or renewed in such manner as may be prescribed.

[(2) The Director General or an officer authorised by him may, on an application and after making such inquiry as he may think fit, grant or renew or refuse to grant or renew a licence to import or export such class or classes of goods or services or technology as may be prescribed and grant or renew or refuse to grant or renew a certificate, scrip or any instrument bestowing financial or fiscal benefit, after recording in writing his reasons for such refusal].

(3) A [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] granted or renewed under this section shall :

(a) be in such form as may be prescribed;

(b) be valid for such period as may be specified therein; and

(c) be subject to such terms, conditions and restrictions as may be prescribed or as specified in the [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] with reference to the terms, conditions and restrictions so prescribed.

(4) The Director General or the officer authorised under sub-section (2) may, subject to such conditions as may be prescribed, for good and sufficient reasons, to be recorded in writing, suspend or cancel any [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] granted under this Act:

Provided that no such suspension or cancellation shall be made except after giving the holder of the [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] a reasonable opportunity of being heard.

(5) An appeal against an order refusing to grant, or renew or suspending or cancelling, a [licence, certificate, scrip or any instrument bestowing financial or fiscal benefits] shall lie in like manner as an appeal against an order would lie under section 15.

23. Rule 10 of the Foreign Trade (Regulation) Rules, 1993 for cancellation of licence which reads as under:-

“10. Cancellation of a licence. – The Director General or the licensing authority may, by an order in writing, cancel any licence granted under these rules if –

(a) the licence has been obtained by fraud, suppression of facts or misrepresentation; or

(b) the licensee has committed a breach of any of the conditions of the licensee; or

(c) the licensee has tampered with the licence in any manner, or

(d) the licensee has contravened any law relating to customs or foreign exchange or the rules and regulations relating thereto.

24. Section 24 of the Customs Act, 1962 provides as under:-

“24. Power to make rules for denaturing or mutilation of goods. — The Central Government may make rules for permitting at the request of the owner the denaturing or mutilation of imported goods which are ordinarily used for more than one purpose so as to render them unfit for one or more of such purposes; and where any goods are so denatured or mutilated they shall be chargeable to duty at such rate as would be applicable if the goods had been imported in the denatured or mutilated form.

25. Section 28(4) of the Customs Act, 1962 provides as under:-

“28(4) Where any duty has not been [levied or not paid or has been short-levied or short-paid] or erroneously refunded, or interest payable has not been paid, part-paid or erroneously refunded, by reasons of, –

(a) collusion; or

(b) any wilful mis-statement; or

(c) suppression of facts, by the importer or the exporter or the agent or employee of the importer or exporter, the proper officer shall, within five years from the relevant date, serve notice on the person chargeable with duty or interest which has not been [so levied or not paid] or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

26. Section 111(o) of the Customs Act, 1962 provides as under:-

“111(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.”

27. Rules 25 and 26 of the Central Excise Rules, 2002 provides as under:-

“25. Confiscation and penalty. – (1) Subject to the provisions of section 11 AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer, –

(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or

(b) does not account for any excisable goods produced or manufactured or stored by him; or

(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or

(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty, then, all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer , as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or [rupees two thousand], whichever is greater.

(2) An order under sub-rule (1) shall be issued by the Central Excise Officer, following the principles of natural justice.

26. Penalty for certain offences.- (1) Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or two thousand rupees, whichever is greater.]

(2) Any person, who issues-

(i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or

(ii) any other document or abets in making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit of five thousand rupees, whichever is greater]

28. It is an admitted fact that the petitioners had instead of availing alternative remedy straightway approached this Court seeking extraordinary writ jurisdiction under Article 226 of the Constitution of India. However, in certain circumstances, the High Court can exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India, if the following circumstances exists.

(i) when the authority has passed the order without jurisdiction and by assuming jurisdiction which there exist none;

(ii) has exercised power in excess of jurisdiction and by overstepping or crossing the limits of jurisdiction; or

(iii) has acted in flagrant disregard to law or rules or procedure or has acted in violation of the principles of natural justice where no procedure is specified.

29. Having considered the contentions of both the sides and the material placed on record and the decisions cited at the Bar, and the legal provisions as above, it is an admitted fact that the DRI has issued the impugned notice proposing recovery of excise duty refunded by the department of DGFT by way of TED for the material supplied to 100% EOU (deemed export) as well as proposing recovery of interest and imposition of penalty on the petitioners, as also on the co- noticee. It also appears that during the adjudication proceedings, the department has sought for information from the concerned department Central Excise regarding examination of goods by it. It also appears that the Assistant Commissioner, Jamnagar vide his letter dated 27.10.2013 (page No.167 of the petition) has categorically stated that the receipt of the goods has been physically verified, during the period February 2009. However, it is stated therein that during June, 2010 M/s. Apple Internation (100% EOU) has received copper Alloy Ingots from M/s. Rajhans Impex Pvt. Ltd. under ARE-3 No. 09/02.06.2010, 14/19.06.2010 and 15/19.06.2010 without CT-3 certificate and the receipt of the goods has not been physically verified. It is further stated therein that no refund / rebate of the duty paid on their supplies to the EOUS has been granted to M/s. Rajhans Impex Pvt. Ltd., Jamnagar. It also reveals from the letter dated 28.08.2014 of the Superintendent (PI), Central Excise Division, Surendranagar that the goods were sent to M/s.Shrikrupa Exports and as per the affidavit filed on behalf of Srijan Exports, Chandigrh (page Nos.173-174 of the petition), the firm has received the consignment with form No. ARE-3 and the same has been examined by the jurisdictional Superintendent of Central Excise and the officer has visited the factory premises after verifying the contentions of the documents and the material received, has certified the facts of receipt of the goods.

30. It appears from ARE-3 (page No. 23 onwards of the petition) that there is signature of the Superintendent of the Central Excise, ARE – 2, Surendranagar and it also appears from the remarks column thereof that the clearance is against Advance Authorization and duty debited in CENVAT.

31. It also appears from the impugned order-in-original (page No.204 of the petition) that the date of order is shown as 31.03.2017 and date of issuance is 05.04.2017. While referring to the letters of jurisdictional Central Excise Offices of recipient EOUs, it has been observed therein that the concerned authority has stated that in certain transactions, the officer has physically verified the goods. So far as other transactions are concerned, it was not physically verified. It also appears from the impugned order that while referring to the various documents and statements of truck owners, the authority has come to the conclusion that the petitioners have clandestinely disposed of the goods in local market and proposed confiscation of the goods and the penalty and the interest thereof.

32. It is one of the contention of the respondent that the physical verification of the goods was not done and that EOUs were not subject to the physical verification by the Central Excise Officer as well as they did not give any intimation of the receipt of the goods without CT-3 to the Central Excise Officer. It appears that the Custom Department’s stand is that due to non-verification of the goods by the concerned officer, the petitioners have clandestinely disposed of the goods in the local market. Now, it is pertinent to note that for non-performance of the official duty by the officer of the Excise Department cannot be a ground to initiate the action against the petitioner – company who is holding valid Advance Authorization and has claimed benefit of deemed export in view of para 8.3 of FTP. Under the provisions contained in the FTP, especially para 8.3, entitles the petitioners to get benefit of deemed export.

33. It is pertinent to note that in view of Rules 25 and 26 of the Central Excise Rules referred to hereinabove, it is admitted legal position that if there is any breach under the said Rules, the Central Excise Department has an authority to confiscate and impose penalty upon defaulting individual or the firm. Now, in this case, it is an admitted fact that the Excise Department has clearly informed the Custom Department that no refund was extended by it to the petitioners herein. At this juncture, it is pertinent to note that for certain goods, the different authorities have been empowered to investigate and to take necessary action. In this case, the question is relating to the refund of the excise duty by the DGFT. As such, the authority which may take action against the petitioners is DGFT. Of course, DRI can, after investigation, inform the concerned DGFT to take action against the present petitioners for breach of condition of Advance Authorization or deemed export or for wrongful taking TED.

34. Now, admittedly, the petitioner is holding Advance Authorization and that Advance Authorization has not been cancelled by the competent authority. It is also admitted fact that whatever refund has been granted, is issued by the DGFT. It also appears from the correspondence between other department that the jurisdictional Excise Offices have certified the facts of receipt of the goods though the material was not physically verified. It also appears that DRI is demanding the amount which has been refunded by the DGFT.

35. It also reveals from the letter dated 27.10.2013 (page No.167 of the petition) that the Central Excise Department has not sanctioned any refund / rebate of the duty paid on the supplies to the EOUs. It also appears that the refund of TED is sanctioned by the DGFT and if DGFT has acted under the different provisions and the refund is sanctioned under those provisions, the proper authority is DGFT who can initiate proceedings against the petitioners for violation of exemption notification and the Advance Authorization Licence. Now, it is an admitted fact that the Advance Autorization Licence of the petitioners is still valid and no action is taken by the DGFT for breach of condition thereof. As such, initiation of proceedings by the customs is nothing but an exercise of power in excess of jurisdiction. When the Custom Department has exercised power in excess of jurisdiction, than, this Court can exercise its extraordinary writ jurisdiction under Article 226 of the Constitution of India. Therefore, considering peculiar facts of this case, the impugned order-in-original is required to be set aside.

36. In view of the above, the present petitions deserve to be allowed. Accordingly, the petitions are allowed. The impugned order-in-original No.MUN-CUSM-000-COM-030-16- 17 dated 31.03.2017 passed by respondent No.2 is hereby quashed and set aside.