M/S. Mmtc Limited vs Commissioner Of Customs
2001 Latest Caselaw 588 Del

ORDER

Arjit Pasayat, C. J. (Oral)

1. This is an application under Section 130A(1) of the Customs Act, 1962 (in short the "Act"), which relates to the consolidated order dated 7th December 2000, passed by the Customs, Excise & Gold (control) Appellate Tribunal, New Delhi (in short "Tribunal") in Appeal Nos. C/50-53/98-NB(DB) & C/478/98-NB(DB).

2. The following questions have been proposed:

1. Whether the liability for payment of customs duty can at all be on MMTC which is canalizing agency, even though the conditions of fulfillment of export under the Custom Notification No. (sic) Exim Policy and Procedure, REP Circular No. 22/88, and the Customs Circular Nos. 10/88 and 2/92, all require the Gem and jewellery unit located in the EOU/EPZ, to fulfill the export obligation, and upon their failure to do so, to pay/suffer, duties, fines and penalties.

2. Whether, as a consequence of the appointment of MMTC as canalizing agency for the import of gold, MMTC can be made liable for payment of customs duty in the event the unit commits a breach of its obligation to export the jewellery made from such gold, and thereby allow all such defaulting units to escape scot free of any liabilities.

3. Whether the finding by the Hon'ble Tribunal that "the scheme provides for issuing of gold by M/s. MMTC to the unit only on the strength of Bill of Entry filed by the unit and duly assessed", does not lead to the conclusion that once the gold is issued to a unit, the liability for payment of duty in the event of default gets automatically transferred to the unit to whom the said gold is issued.

4. Whether there can be any requirement read into the REP Circular No. 22/98, as held so by the Hon'ble Tribunal, namely that "MMTC has a responsibility/continuing obligation to monitor the activities of the exporting unit and to ensue export of gold/jewellery within a stipulated period of time following which M/s. MMTC has to inform the customs authorities and to levy penalty on the unit for extension of period on expiry", when, in fact there is no such requirement laid down in the REP Circular itself.

5. Whether the finding by the Hon'ble Tribunal that "M/s. MMTC had also executed bond with NEPZ customs under the warehousing provisions of the "Customs Act, and had undertaken to satisfy the customs authorities that the gold imported by them will be utilized for export as per scheme of export of gold jewellery by units in the EPZ and they were also under an obligation to pay the customs duty and penalty chargeable on such goods, together with interest", is sustainable when in fact no such warehousing bond was before the Tribunal as part of record of the present case, and in fact no such condition can be prescribed in a warehousing bond in view of Section 59(3) of the Custom Act, 1962, which provides that where any goods are transferred by the owner of a bonded warehouse to another person, the authorities shall obtain a bond for the transferred goods from the transferee, and thereupon the bond executed by the transferor shall stand discharged to the extent of the goods transferred out of his charge.

6. Whether any penalty could be imposed upon M/s. MMTC in the absence of any evidence implicating MMTC with the breach of the scheme of the conditions of the notification, and in the absence of any finding that the import of gold was made pursuant to a conspiracy to illegally divert the gold.

7. Whether in the facts of the present case, any penalty could at all be imposed, in view of the decision of the Hon'ble Supreme Court in Indian Oil Corporation Ltd. vs. Chief Inspector of Factories (1999 (113) ELT 761), wherein it was held that IOCL, which was wholly owned and controlled by the Government was not "likely to evade" the law, while being engaged in the supply and distribution of petroleum and petroleum products, in order to ensure and effective and efficient supply system, mutates mutants, the same legal position should apply to the facts of the present case where, as a matter of governmental policy, it was decided to arrange the import of gold through M/s. MMTC, apparently with a view to ensure an effective an efficient supply system.

3. Backgrounds facts as noted by the Tribunal essentially are as follows:

Petitioner is a Public Sector Undertaking of the Government of India. Under the Export and Import Policy of the Government, as framed from time to time, Schemes were formulated whereby jewellery manufacturing units were permitted to import primary gold of 0.995 fineness for the purpose of manufacture and export of gold jewellery, subject to certain value addition norms. Such units were permitted to set up manufacturing facilities within the specified Export Processing Zones (in short "EPZ") or in Special Export Oriented Complexes subject to these units being 100% Export Oriented Units (in short "EOUs.). Para 88 of the Exim Policy 1992-97 deals with the schemes for export of gold/silver jewellery and articles. Para 88 is divided into Clauses A to G and each clause governs a different Scheme. The Broad outlines of the Scheme are as under:

A. Scheme for export of gold/silver jewellery and articles against gold/silver supplied by the foreign buyer.

B. Scheme for export of gold/silver jewellery and articles sale at approved exhibitions.

C. Gold/Silver and Platinum jewellery and articles Export Promotion and Replenishment Scheme.

D. Scheme for advance license for gold and silver jewellery and articles.

E. Scheme for export of gold/silver and platinum jewellery and articles from Export Oriented Unite complexes.

F. Scheme for import of gold of above 18 carats directly by units situated in DTA under replenishment.

G. Scheme for import of gold of above 18 carats on pre-export basis for export production by units situated in DTA under import license."

Pursuant to the above Scheme, a number of manufacturers/exporters set up units in the NOIDA EPZ. Under the Scheme, petitioner was a nominated agency which could also import goods including gold for supply of the same to exporting units of the EPZ for manufacture and export as per terms and conditions of the EXIM policy and as per Customs Notification No. 177/94 which granted exemption from payment of duty on goods such as raw materials, components, etc imported into India by Gem and Jewellery units for manufacture of gem and jewellery for export out of India or for the promotion of export of gems and jewellery, subject to certain conditions and the notification was also made applicable to silver and gold imported by petitioner and State Bank of India (in short "SBI") being supplied to Gem and Jewellery units in EPZ under the Scheme for export of gold and silver jewellery and articles. Petitioner filed bills of entry for import of gold which was issued to four units approved for manufacture and export of gold jewellery namely M/s. Amit Jewellers, M/s. Goldex, M/s. Zevart Overseas and M/s. Unique Jewellery. The gold imported by petitioner and supplied to the above mentioned four units was not utilised for manufacture and export of jewellery/articles which was in contravention of the condition of Notification No. 177/94 and the EXIM Policy and the bond executed both by petitioner as well as by the individual units. Therefore, show cause notices were issued proposing recovery of Customs duty from petitioner and proposing imposition of penalty on petitioner as well as penal action against the four units, the details of the notices are as under:

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Sr.    Appeal        Show cause       Quantity of        Unit to which         Duty demanded
No.   Nos.            notice dtd.    gold issued         gold was
         before                by petitioner       issued
         Tribunal
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1.      C/A 50/98  16.1.97    12 Kgs.               M/s.Amit         Rs. 34,80,000/-
     Jewellers

2.      C/A 51/98  Nil     8 Kgs.                 M/s.Goldex           Rs. 29,61,750/-

3.      C/A 52/98  16.1.95   9.986 Kgs.          M/s. Zevrat        Rs. 3674598.35p
                   Overseas  

4.      C/A 53/98  15.10.96  10 Kgs                  M/s.Unique           Rs. 29,00,000/-
                            read with                 Jewellers
            corr. dt
 26.8.97
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4. Four separate adjudication orders were passed and Commissioner of Customs (in short "Commissioner") confirmed duty demands and imposed penalties as detailed below (in respect to orders in appeals before Tribunal)

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Sl.No.     Appeal No.    Penalty
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  1.     50/98     Rs. 5,00,000/-

  2.     51/98     Rs. (sic)

  3.     52/98     Rs. 10,00,000/-

  4.     53/98     Rs. 2,00,000/-
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Revenue preferred appeal No. C/498/98-c against Commissioner's order in Original No. ACU/DS/13/97 dated 30th August 1997 whereby Commissioner waived duty demand and penal action against petitioner. By the order duty demand of Rs. 7,07,01,428/- was raised.

5. Tribunal inter alia held that (a) benefit of exemption from payment of duty is not available to gold imported by the petitioner, and (b) penalty was reduced. In essence Revenues' appeal was allowed by confirming duty demand of Rs. 7,07,01,428/-. Penalty of Rs. 25 lacs was imposed. Petitioner's appeals were allowed by partially reducing the quantum of penalty.

6. The essence of questions which have been pressed for consideration are (a) denial of exemption under Notification No. 177/94 dated 21st October 1994 and subsequent amendment thereto read with notification No. 3/88, and (b) legality of penalty imposed.

7. So far as the first question is concerned, we find that the proviso to the conditions stipulated in the notification No. 3/88 require fulfillment of two conditions. The tribunal has recorded a positive finding of facts that the conditions of the notification had not been complied with. The notification reads, so far as relevant, as follows:

"Notwithstanding anything contained in paragraph 1 of this notification, the exemption contained therein shall also apply to silver and gold falling under Heading 71.08 imported by the Minerals and Metals Trading Corporation of India Ltd. and the State Bank of India for being supplied to the gem and jewellery units in the said zone under the scheme for export of gold/silver and platinum jewellery and articles from Export Processing Zones (EPZs) and from Export Oriented Unit (EOU) complexes specified in paragraph 88 of the Export and Import Policy, 1st April, 1992-93 March 1977 read with Chapter VIII of the Handbook of Procedure Volume I, 1st April, 1992 - 31st March, 1997, of the Government of India, in the Ministry of Commerce.

Provided that where gold or silver is imported on behalf of a jewellery unit, the exemption shall apply only if -

(a) the procedure as may be specified by the Collector of Customs is followed by such a jewellery unit; and

(b) the conditions stipulated in paragraph 1 of this notification are complied with by such a jewellery unit."

8. It was urged by learned counsel for the petitioner that though the conditions stipulated in the notification are not complied with, that cannot be a ground for denying exemption to the petitioner. It has been rightly observed by the Tribunal as follows:

"A plain reading of the above notification makes it clear that the benefit of exemption from payment of duty is not available to gold imported by M/s.MMTC Ltd if conditions of the proviso to para 2 of the Notification are not complied with . It is nobody's case that gem and jewellery units fulfillled the requirement of manufacture and export of gold and jewellery articles from the export processing zones. Therefore, duty liability definitely arises".

9. A bare reading of the notification makes the position clear that unless the procedure and the conditions stipulated are complied with exemption shall not be extended. It is trite law that in order to merit exemption, it has to be show that the claim clearly comes within the provisions providing for exemption. Provisions of this nature must receive strict construction. There is consensus of judicial opinion that exemptions from taxation have a tendency to increase the burden on the other unexempted class of tax-payers, and should be construed against the subject in case of ambiguity. It is a well-known principle that a person who claims an exemption has to establish his case. In Collector of Central Excise, Bombay-I and another v. M/s. Parle Exports (P) Ltd; , it was observed by the Apex Court that while interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided. The choice between a strict and liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It is the true rule of construction of a provision as to exemption, as stated by the Apex Court in Union of India and others v.M/s. Wood Papers Ltd., and others . In the said case it was observed by the Apex Court as follows:

"....Truly, speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for wider and liberal construction...."

In Kedarnath Jute Manufacturing Co. v. Commercial Tax Officer, Calcutta and others: , and M/s. Parle Exports (P) Ltd., cases (supra), it was observed that where exemptions were concerned, the conditions thereof ought to be strictly construed and strict compliance with them exacted before a person could lay claim to the benefit of the exemptions. Above being the position, and in view of the clear finding of fact that the conditions were not complied with, the order of the Tribunal suffers from no infirmity on the issue relating the exemptions.

10. So far as the question regarding levy of penalty is concerned, it was urged that conditions under Section 112 of the Act were not complied with. We find that in the grounds of appeal before the Tribunal which were filed before Tribunal no specific stand was taken except generally stating that imposition of penalty was harsh, illegal and arbitrary. We find that no finding was recorded on this aspect. Similarly in respect of Revenues' appeal the desirability of levy of penalty or otherwise even if the same was accepted does not appear to have been canvassed before Tribunal. It is not the cased of the petitioner that these points were urged and the Tribunal has not recorded any finding. That being the position, proposes questions relating to penalty do not arise out of the order of the Tribunal.

11. Petition is accordingly not entertaine and is dismissed.