Karnataka High Court

The Commissioner Of Customs vs M/S Motorola India Limited on 6 January, 2021

Author: Alok Aradhe Rangaswamy

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 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 6TH DAY OF JANUARY 2021

                        PRESENT

        THE HON'BLE MR. JUSTICE ALOK ARADHE

                          AND

  THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                 C.S.T.A. NO.2 OF 2007
BETWEEN:

THE COMMISSIONER OF CUSTOMS
C.R. BUILDINGS, QUEEN'S ROAD
BANGALORE-560001.
                                             .... APPELLANT
(BY MR. K.V. ARAVIND, ADVOCATE)

AND:

M/S. MOTOROLA INDIA LIMITED
NO.88-A, ELECTRONICS CITY
HOSUR ROAD, BANGALORE
PRESENTLY AT
M/S. MOTOROLA INDIA PVT.LTD.,
415/2, MEHRAULI GURGAON ROAD
SECTOR 14, GURGAON-122001.
                                           ... RESPONDENT
(BY MR. K.S. RAVISHANKAR, ADVOCATE)
                           ---

      THIS C.S.T.A. IS FILED UNDER SEC. 130 OF THE CUSTOMS
ACT, 1962 ARISING OUT OF ORDER DATED 12-05-2006 & 30-04-
2002 PASSED IN FINAL ORDER NO.881/2006 & ORDER-IN-
ORIGINAL NO.25/2002 COMMR/CUS ADJN PRAYING TO
      (i) FORMULATE THE SUBSTANTIAL QUESTION OF LAW
STATED THEREIN.
      (ii) SET ASIDE THE FINAL ORDER NO.881/2006 DATED 12-
05-2006 PASSED BY THE CESTAT, SOUTH ZONAL BENCH AT
BANGALORE VIDE ANNEXURE-B.
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     (iii) RESTORE THE ORDER-IN-ORIGINAL NO.25/2002
CUMMR/CUS ADJN DATED 30-04-2002 PASSED BY THE
COMMISSIONER     OF  CUSTOMS,    BANGALORE     REGION,
BANGALORE, VIDE ANNEXURE-A, IN THE INTEREST OF JUSTICE
AND EQUITY.

     THIS C.S.T.A. COMING ON FOR FINAL HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                            JUDGMENT

This appeal under Section 130 of the Customs Act,

1962 (hereinafter referred to as the Act for short) has

been filed against the order dated 12.05.2006 passed by

Customs, Excise and Service Tax Appellate Tribunal,

Bangalore (hereinafter referred to as 'the tribunal' for

short). The appeal was admitted by a bench of this court

vide order dated 20.06.2007 on the following substantial

questions of law:

                "1.        Whether          writing     off     the
        imported      duty-free         materials from the
        books of accounts of the importer is

permissible in law and whether the same amounts to "disposed of" within the meaning of Customs Notification No.30/97-Cus dated 01.04.1997 under which the goods/materials are imported?

2. Whether it is permissible for an importer to 'write off' the duty free imported material from the books of accounts without paying duty and whether the same amounts to violation of norms of 'Actual User Condition', 'export obligation' and the prohibition 'not to dispose of or utilize in any manner except for utilization in discharge of export obligation or for replenishment' prescribed under Customs Notification No.30/97-Cus dated 1.4.1997??

3. Whether the importer could have written of the duty free imported material without complying with the condition of 'actual user' imposed in the exemption order by the Department and no observing the same by the importer as provided under Section 111 (o) of the Act and whether the said exempted duty free material could have been subject matter of confiscation under the aforesaid provision?"

2. The factual background, in which the

aforesaid questions of law arise for consideration in this

appeal needs mention. The respondent is a leading

manufacturer of pagers. The respondent imported

components for manufacture of pagers under the Duty

Exemption Entitlement Certificate scheme (hereinafter

referred to as 'the scheme' for short) in terms of

Notification No.30/97-Cus dated 01.04.1997 read with

para 7.4 of EXIM Policy 1997-2002. The Licencing

Authoirty had permitted the respondent to import

quantities to the extent of 2% in excess of their actual

requirement in respect of 13 out of 16 types of

components towards wastage etc. during the process of

manufacture of pagers. The respondent fulfilled the

export obligation, however, it was not able to utilize

some of the components imported under the scheme

and closed down its messaging products division before

April 2001. Due to the closure, some of the imported

components were rendered obsolete and therefore, they

were written off in books during the financial year

ending 31.03.2001.

3. On receipt of specific intelligence input and

on an enquiry being made, a summon dated 04.05.2001

was issued to the respondent to submit list of unutilized

items which were imported under Customs Notification

No.30/1997-Cus dated 01.04.1997. The respondent on

08.05.2001 submitted a list of unutilized items, which

were imported under the Duty Exemption Entitlement

Certificate scheme. The respondent on 23.05.2001,

submitted another list of all unutilized items. The

Directorate of Revenue Intelligence vide communication

dated 30.05.2001 sought for information pertaining to

complete stock list of unutilized components after due

certification by the auditors of the respondent or an

independent Chartered Accountant and to mention the

account under which the provision for writing off has

been made. The respondent by communication dated

26.07.2001 submitted a complete list of unutilized items

pertaining to imports made under the scheme along with

certificate of the auditor. Thereafter a show cause

notice was issued to the respondent, requiring it to show

cause as to why customs duty to the tune of

Rs.96,17,498/- should not be demanded from it in terms

of Notification No.30/1997-Cus dated 01.04.1997 as well

as to show cause as to why duty free imported raw

material be not confiscated and interest and penalty be

not recovered from respondent. The Commissioner of

Customs by an order dated 30.04.2002 held that the

respondent is liable to pay duty to the extent of

Rs.97,17,498/- as well as interest at the rate of 24% on

the duty. The impugned goods were also confiscated

under Section 111(o) of the Act and a penalty of

Rs.20,00,000/- was imposed on the respondent under

Section 112(a) of the Act. Being aggrieved, the

respondent filed an appeal before the tribunal. The

tribunal by an order dated 12.05.2006 inter alia held

that the respondent had fulfilled its export obligation

and it was not obligatory on the part of the respondent

to account for the wastage permitted. Accordingly, the

appeal preferred by the respondent was allowed. In the

aforesaid factual background, the revenue has filed this

appeal.

4. Learned counsel for the revenue while

inviting the attention of this court to clause (vii) of

Notification No.30/1997-Cus dated 01.04.1997

submitted that as per the aforesaid clause, exempt

materials shall not be disposed of or utilized in any

manner except for utilization in discharge of export

obligation or for replenishment of such materials and the

materials so replenished shall not be sold or transferred

to any other person. However, the respondent has

written off duty free imported material in the books of

accounts which is also a manner of disposal and

therefore, the respondent had violated clause (vii) of the

Notification. However, the aforesaid aspect of the matter

has not been appreciated by the tribunal. It is further

submitted that exemption Notification has to be

interpreted strictly and the burden of proving its

applicability is on the assessee. However, the tribunal

has also failed to take into account the aforesaid well

settled legal principle. In support of his submissions,

learned counsel for the revenue has placed reliance on

constitution bench decision of the Supreme Court in

'COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI

VS. DILIP KUMAR & COMPANY', (2018) 95

TAXMANN.COM 327 (SC).

5. On the other hand, learned Senior counsel for

the assessee while inviting the attention of this court to

the order passed by the adjudicating authority as well as

the tribunal submitted that concurrent findings of fact

have been recorded that the respondent has fulfilled its

export obligation. Learned Senior counsel has also

invited our attention to para 6 of the order passed by

the tribunal and has submitted that the tribunal has also

recorded the finding that all the materials imported were

put to use and the respondent was allowed to import 2%

in excess of their actual requirement to provide for

wastage and technical progress and development and

the fact that new products / innovations or type of

components may supersede earlier products cannot be

overlooked. It is also submitted that no option was given

to the respondent before confiscation of the duty free

imported material. In support of his submissions,

learned Senior counsel for the assessee has placed

reliance on decisions in 'CC VS. MOTOROLA INDIA

LTD', 2019 (368) ELT 3 (SC), 'GAGANDEEP SINGH

ANAND VS. CC (IMPORT)', 2019 (367) ELT 212

(BOM),'SANKAR SHASTYABDAPOORTHI MEMORIAL

HOSPITAL VS. UOI', 2017 (345) ELT 334 (KER),

'FORTIS HOSPITAL LTD. VS. CC, IMPORT', 2015

(318) ELT 551 (SC) 'CC & CE VS. LEKHRAJ

JESSUMAL & SONS', 1996 (82) ELT 162 (SC).

6. We have considered the submissions made

by learned counsel for the parties and have perused the

record. Before proceeding further, we deem it

appropriate to refer to clause (vii) of Notification

No.30/1997-Cus dated 01.04.1997, which reads as

under:

(vii) exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person.

7. The tribunal on the basis of advance licences

issued to the respondent and the standard input output

norms has recorded a finding that the respondent was

allowed to import 2% in excess to provide for the

wastage. It is also pertinent to mention here that since,

the respondent was allowed to import 2% in excess of

their actual requirement, it is the case of the respondent

that some of the components remained unutilized due to

closure of messaging products division as the

components were rendered obsolete. Admittedly, the

respondent has fulfilled the entire export obligation and

has realized the foreign exchange and has neither