Karnataka High Court
M/S Kalinga Commercial ... vs Commissioner Of Customs on 8 June, 2023
Bench: P.S.Dinesh Kumar Gowda, Tgsj
CSTA No.4/2019
C/W CSTA No.10/2019
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8th DAY OF JUNE, 2023
PRESENT
THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA
C.S.T.A No. 4 OF 2019
C/W
C.S.T.A No. 10 OF 2019
IN C.S.T.A. No. 4 OF 2019
BETWEEN:
M/S. KALINGA COMMERCIAL CORPORATION LTD
C-112, HIG HOUSING BOARD COLONY
BARAMUNDA, BHUBANESWAR
ODISHA-751 003
REPRESENTED BY ITS
MANAGING DIRECTOR
SRI. SOUMYA RAJAN SAMAL ...APPELLANT
(BY SHRI. G. SHIVADASS, SENIOR ADVOCATE FOR
SHRI. PRASHANTH S. SHIVADASS, ADVOCATE)
AND:
COMMISSIONER OF CUSTOMS
CENTRAL REVENUE BUILDING
QUEENS ROAD
BENGALURU-560 001
KARNATAKA ...RESPONDENT
(BY SHRI. M.B. NARAGUND, ASG FOR
SHRI. AMIT ANAND DESHPANDE, ADVOCATE)
CSTA No.4/2019
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2
THIS CSTA IS FILED UNDER SEC.130 OF THE CUSTOMS ACT,
1962 ARISING OUT OF ORDER DATED 06.12.2018
PASSED IN FINAL ORDER NO.21851/2018 PRAYING TO ADMIT THE
PRESENT APPEAL, ADJUDICATE UPON THE SAME IN TERMS OF
SECTION 130 OF THE CUSTOMS ACT, 1962 AND FURTHER BE
PLEASED TO SET ASIDE THE ORDER DATED 06.12.2018 IN FINAL
ORDER NO.21851/2018 PASSED BY THE HON'BLE TRIBUNAL AND
ETC.
IN C.S.T.A No. 10 OF 2019
BETWEEN:
COMMISSIONER OF CUSTOMS
OFFICE OF THE COMMISSIONER
OF CUSTOMS, BANGALORE CITY
COMMISSIONARATE, P.B.NO.5400
CENTRAL REVENUE BUILDING
QUEENS ROAD
BENGALURU-560 001 ...APPELLANT
(BY SHRI. M.B. NARAGUND, ASG FOR
SHRI. AMIT ANAND DESHPANDE, ADVOCATE)
AND:
1. M/S. KALINGA COMMERCIAL
CORPORATION, (PRESENTLY
KALINGA COMMERCIAL CORP. LTD)
C-112, H.I.C. HOUSING COLONY
BARAMUNDA
BHUBANESHWAR-715 003
ORISSA
2. P.K. BHATTACHARYA
ADDL. GENERAL MANAGER (MINING)
M/S. ORISSA MINING CORPORATION LTD.,
BHUBANESHWAR-715 003
ORISSA
3. S.K. MALL
M/S. BARELION INTERNATIONAL
PLOT NO.447/2167, SHREE VIHAR
BHUBANESHWAR-751 031 ...RESPONDENTS
(BY SHRI. G. SHIVADASS, SENIOR ADVOCATE FOR
SHRI. PRASHANTH S. SHIVADASS, ADVOCATE)
CSTA No.4/2019
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3
THIS CSTA IS FILED UNDER SEC.130 OF THE CUSTOMS ACT,
1962 ARISING OUT OF ORDER DATED 06.12.2018 PASSED IN FINAL
ORDER NO.21851-21853/2018 PRAYING TO SET ASIDE FINAL
ORDER NO.21851-21853/2018 DATED 06.12.2018 PASSED BY THE
CESTAT, SOUTH ZONAL BENCH, BANGALORE INSOFAR AS SETTING
ASIDE THE PENALTY IMPOSED, VIDE ANNEXURE-A AND TO DIRECT
THE RESPONDENT KALINGA COMMERCIAL CORPORATION TO PAY
THE PENALTY AS DIRECTED IN ORDER-IN-ORIGINAL DATED
15.04.2011 AND ETC.
THESE CSTAs, HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 31.03.2023 COMING ON FOR PRONOUNCEMENT OF
JUDGMENT, THIS DAY, P.S. DINESH KUMAR J., PRONOUNCED
THE FOLLOWING:-
JUDGMENT
These two appeals by the assessee-appellant1 and
the Revenue (Customs Department)2 are directed against
the common order dated December 6, 2018 in Final Order
No. 21851-21853/2018 passed by the CESTAT3,
Bengaluru. Both these appeals have been admitted to
consider following common questions of law and are being
disposed of by this common order:
(i) Whether in the facts and circumstances of the case
the Tribunal was right in law to hold that, by having put to
use the mobile capital equipments, imported under Export
Promotion Capital Goods (EPCG) Scheme, for the declared
purpose, without parting with ownership, possession or
control of such equipments, the Appellant violated the
CSTA No.04/2019
CSTA No. 10/2019
Customs, Excise and Service Tax Appellate Tribunal
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actual user condition as contemplated in paragraph 9.5 &
9.6 of the Foreign Trade Policy 2004- 2009, for having
used those at a place other than declared to the Licensing
Authority?
(ii) Whether in the facts and circumstances of the case
the Tribunal was right in law to hold that the 'mines',
wherein the Appellant had deployed the imported capital
goods for rendering mining services upon being granted
exclusive permissive possession thereon, must necessarily
own the 'mines' so as to be covered under the expression
'own manufacturing unit' or 'manufacturing for his own
use' as used in paragraph 9.5 of the Foreign Trade Policy?
(iii) Whether in view of the provisions of the Foreign
Trade Policy, the Tribunal, constituted under Section 129
of the Act, has erred in assuming jurisdiction to examine
the eligibility criteria for grant of EPCG Authorization
under the provisions of Foreign Trade Policy, particularly
when import under the EPCG Authorizations were already
completed and the authorizations were still valid inasmuch
as the DGFT Authorities never cancelled the authorizations
despite having been seized of the proceedings initiated by
the DRI against the Appellants under the provisions of
Act?
(iv) Whether in the facts and circumstances of the case
and in view of the stare decisis of the Hon'ble Supreme
Court in the case of Titan Medical Systems Pvt. Ltd. Vs.
Collector of Customs, New Delhi [2003 (151) ELT 254
(S.C.)] that once a license was issued and not questioned
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by the licensing authority, the Customs authorities cannot
refuse exemption on an allegation that there was
misrepresentation before the Licensing Authority; the
Tribunal was right in taking a contrary view?
2. For the sake of the convenience, parties shall
be referred as per their status in CSTA 04/2019.
3. Heard Shri. G. Shivdass, learned Senior
Advocate for the appellant and Heard Shri. M.B. Nargund,
learned Additional Solicitor General for
respondent-Revenue.
4. Brief facts of the case are, Appellant,
M/s. Kalinga Commercial Corporation is a proprietorship
firm engaged in the mining activities for the Odisha
Mining Corporation Ltd.4, a Government owned
corporation. During the relevant period i.e., from
September 2005 to May 2008, appellant entered into
mining contracts with OMC for raising iron ore at three
mines belonging to the OMC in the State of Orissa
namely, Kurmitar Iron Ore Mines, Khandadhar;
'the OMC' for short
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Gandhamardhan Iron Ore Mines, Keonjhar; and Daitari
Iron Ore Mines, Keonjhar. For the purpose of raising iron
ore, OMC gave the possession of the mines to appellant.
Appellant was required to install the machineries and
other equipments out of its own funds for raising/
excavation of iron ore and processing the same.
5. Appellant had obtained 12 authorizations out
of which, 3 authorizations were issued by DGFT5 Cuttack
and 9 were issued by the DGFT Patna under Export
Promotion Capital Goods Scheme6 provided under the
Foreign Trade Policy7, 2004-2009. Appellant imported 33
numbers of capital goods under the 12 authorizations by
availing the exemption under Notification No. 97/2004
and installation certificates were issued by the Assistant
Commissioner of Central Excise, Customs & Sales Tax.
The capital goods imported by appellant were seized by
the DRI8 Kolkata on the ground of violation of 'Actual User
5 Directorate General of Foreign Trade India
'EPCG Scheme' for short
'the FTP' for short
Directorate of Revenue Intelligence
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Condition' i.e., the imported machines were used in
premises other than the ones mentioned in the
authorization.
6. Pursuant to the compliant received from the
DRI, the Deputy DGFT Patna issued a show cause notice
dated July 10, 2008 to appellant proposing to cancel
nine EPCG licenses already issued and place the appellant
under Denied Entity List. Similarly, show cause notice
dated August 05, 2008 was issued by the Deputy DGFT
Cuttack proposing to cancel three EPCG licenses.
Thereafter, the DRI, Kolkata Zonal unit issued a show
cause notice proposing to recover the amount of duty
saved at the time of import of Capital Goods, along with
interest and penalty. While adjudicating the show cause
notices, the Deputy DGFT Patna issued a Blacklisting
Order refusing to grant and renew further licenses to
appellant or its proprietor. The Deputy DGFT Cuttack
further issued a 'Refusal of License' order, refusing to
issue any license to appellant and its Proprietor. Appellant
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preferred an appeal against the Refusal of License order
and the Blacklisting order before the ADGFT9, New Delhi.
The ADGFT allowed appellant's appeal and set-aside the
order. The said order was not challenged by the Revenue
and has thus attained finality. Appellant filed its reply to
show cause notice dated 08.05.2009 issued by the ADG &
DRI10, Kolkata Zonal Unit before the CoC11, Bangalore.
7. The Respondent passed an OIO12 dated March
31, 2011 confirming the proposal made in show cause
notice and whereby, inter alia:
confiscated the Capital Goods valued at
Rs.33,47,03,410/- imported by appellant through
Mumbai Customs, Bangalore Customs and Nhava
Sheva Customs under Section 111(o) of the
Customs Act, 196213
9 Additional Directorate General of Foreign Trade India
Addl. Director General, Directorate of Revenue Intelligence
Commissioner of Customs
Order-In-Original
'the Act' for short
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imposed redemption fine of Rs. 15,00,000/- in
lieu of confiscation under Section 125 of the Act;
demanded and confirmed differential Customs
duty amounting to Rs.9,05,96,540/- with interest
under Section 28 & Section 28AB of the Act;
imposed equal penalty of Rs.9,05,96,540/- under
Section 114A & 114AA of the Act; and
directed to encash/invoke the Bank Guarantees
and Bonds executed by Appellant before the
Customs Authorities at the respective ports of
importation and to be adjusted/appropriated
towards the differential duty demand/
interest/penalty/redemption fine as above.
8. Aggrieved by the said OIO, appellant preferred
an appeal before CESTAT, Bangalore. The CESTAT partly
allowed appellant's appeal and upheld the demand of duty
and interest, however, the penalty imposed was set aside.
Hence, these appeals.
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9. Shri. G. Shivadass, for the appellant, praying
to allow appellant's appeal and to dismiss the appeal
preferred by the Revenue, submitted that:
appellant being engaged in the execution of
Mining contract for the OMC was in sole
permissive possession of all the mines for which
the Appellant had entered into agreements with
the OMC;
in the application for EPCG authorization,
appellant had declared these mines as the place
of installation of the capital goods imported
under EPCG licenses;
the DGFT being fully aware that mines cannot be
owned by the private parties and are only leased
by the State owned entities, have issued the
licenses;
once the licensing authorities have considered
the permissive use of the mines as relevant for
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the activity, then it is not open to the Customs
Authority to take a different view;
appellant falls within the definition of 'actual user
(Industrial)' as defined in para 9.5 of the FTP
which does not specifically state that the place of
installation (mines, in this case) must be owned
by the importer;
the contention urged on behalf of the Revenue
that the capital goods imported by appellant
were not found in the places declared in the
EPCG License, is incorrect as the imported goods
are movable in nature. Further, these goods
were found in other mines owned by OMC,
wherein the appellant had undertaken the mining
activities;
the Policy circular No. 26/2009-2014 dated
17.03.2010 has been issued by the JDGFT
clarifying the requirement of installation
certificate with respect to movable goods,
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wherein it has been clarified that the installation
certificate is not required in case of movable
goods;
further, the ADGFT in its order has held that
there is no misuse of imported goods and the
appellant had satisfied the actual user condition;
appellant is eligible for the benefit in terms of
Chapter 5 of the FTP 2004-2009 wherein, para
9.37 of the FTP recognizes mining as
'manufacturing' and appellant was engaged in
the mining activities using the goods imported
under the EPCG Licenses as recorded by the
ADGFT in his Order-in-Appeal dated 03.01.2011;
as recorded by the CESTAT at para 3.11, the
DDGFT, Cuttack has clarified that where some
doubt had arisen in earlier cases regarding
installation certificate, the same was regularized
by the Appellate Authority. Further, in the
present case, there is no dispute over installation
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certificate issued by the Central Excise Officers.
Therefore, the view taken by DRI that appellant
had violated the condition is untenable;
the customs authorities have no jurisdiction to
question the wrongful availment of benefit in
terms of EPCG license.
10. In support of his contentions, Shri. Shivadass
has placed reliance on the following authorities:
Titan Medical Systems Pvt. Ltd. v. Collector of
Customs, New Delhi14;
Commissioner of Central Excise, Nagpur V.
Universal Ferro & Allied Chemicals Ltd.15;
Commissioner of Customs, Bangalore v. Aditya
Birla Nuvo Ltd.16;
Central Warehousing Corporation v. Adani Ports
Special Economic Zone Limited and Ors17.
2003 (151) ELT 254 SC
2020 (372) ELT 14(SC)
2021(378) E.L.T. 42 (Kar)
MANU/SC/1319/2022
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11. Shri. Shri. M.B. Nargund, for the Revenue,
submitted that:
the CESTAT in para No. 6.11 has held that
appellant has violated the eligibility criterion of
the license and consequently violated the
provision of the Notification No. 97/2004.
Therefore, the CESTAT has erred in setting aside
the imposition of the penalty under Sections
114A and 114AA of the Act;
appellant is not the owner of the product even if
they manufacture the same as job worker;
installation certificates were issued by the
Chartered Engineers without physically
inspecting the machines in the place of its
installation and the certificates were undated and
consequently the installation certificates are
invalid;
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appellant was engaged by OMC at the rate of
Rs.265/- per Metric Tonne. Therefore, it is a work
contract;
OMC's name has never been entered in the
records. It is mandatory that the importer should
be a manufacturer - exporter;
appellant's main contention that ADGFT by his
order dated 20.4.2011 had allowed appeal and
remitted the matter to DDGFT Patna does not
support appellant's case because no further
orders were passed after the remand. Therefore,
the appellant cannot get the benefit of ADGFT's
order;
the EODC18 was not granted by the DGFT. Hence,
the appellant's contention that they have been
given a clean certificate by DGFT is untenable;
both the DGFT and the customs authorities are
duty bound to verify and decide the conditions of
the license. Customs authority is also empowered
Export Obligation Discharge Certificate
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to demand the duty for violation of the terms and
conditions imposed on appellant;
appellant has not only violated the conditions of
license but also not fulfilled the export
obligations as a manufacturer-exporter and as a
merchant-exporter;
once the goods are confiscated under Section
10(o) of the Act, the penalty under Section 114 A
and 114 AA of the Act ought to have been
imposed automatically.
12. With these submissions, Shri. Nargund prayed
to allow the Revenue's appeal with regard to the penalty
and to dismiss appellant's appeal.
13. We have carefully considered rival contentions
and perused the records.
14. Undisputed facts of the case are, appellant is
engaged in the mining activities. It uses capital goods
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imported under the EPCG License. Appellant was granted
permission by OMC to carry out its mining activities.
15. In sum and substance, Revenue's case is, the
machines have been given by appellant on hire to OMC
and the same have not been kept in the mines mentioned
in the license. The installation certificate is issued without
verification and appellant has diverted some machines
imported to other mines. Thereby, appellant has violated
the terms and conditions of EPCG scheme.
16. Appellant's case is, it has not used the capital
goods for any other purpose other than for which they
were imported. In the application for EPCG authorization,
appellant had declared all the mines as the place of
installation of the capital goods imported under EPCG
licenses. Appellant is covered under the definition of
'Actual User (Industrial)' as defined in para 9.5 of the FTP.
The goods imported by the appellant are movable
equipments.
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17. It is also not in dispute that the Deputy DGFT
Patna had issued a show cause notice19 proposing to
cancel the license and to put appellant in the denied
entity list. This notice was issued based on the complaint
made by DRI. The Deputy DGFT Cuttak had also issued a
notice20 proposing to cancel three licenses issued to the
appellant.
18. The Deputy DGFT Patna issued a blacklisting
order. The Deputy DGFT Cuttak issued a 'refusal of
license' order and refused to issue any license to the
appellant.
19. Appellant has challenged the orders passed by
Deputy DGFT Patna and Cuttak before ADGFT Delhi and
the said appeal has been allowed and attained finality.
20. It was argued by Shri. Shivadass that this
Court in CIT, Bengaluru Vs. Aditya Birla21 has held that
once the issue is examined by the Joint Director of
Dated 10.07.2008
Dated 08.05.2010
Para 9
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Foreign Trade, it not open to the Customs Authorities to
take a different stand. We are in respectful agreement
with the view taken by this Court in the said authority.
21. In support of Revenue's contentions, Shri.
Nargund has placed reliance upon the following
authorities:
Commr of Customs Vs. Indian Rayon &
Industries Ltd.22;
Commr of Customs Vs. Pennar Industries Ltd.23;
Sheshank Sea Foods Vs. Union of India24;
Sushant Minerals (P) Ltd. Vs. Commissioner of
Customs (Export Promotion), Mumbai25;
Prakash Roadlines Corporation Vs. CC (Export
Promotion), Mumbai26.
22. With regard to the first authority in Indian
Rayon's Case, it was argued by Shri. Shivadass that the
2008(14) SCC 228
(2015) 10 SCC 581
(1996) 11 SCC 755
2013-TIOL- 1533-CESTAT-Mum decided on 27.05.2013
CESTAT Mumbai Appeals No. C/302 303/2011
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Supreme Court was examining as to whether the
assessee therein could shift his stand after failing to re-
export the goods. We may record that the assessee
therein had initially claimed the benefit of notification No.
158/95-cus. The goods were rejected by the foreign
buyer. The assessee could not re-export the goods. At
that point of time assessee sought to claim benefit under
Notification No.94/96-cus. In those circumstances the
Apex Court has held that assessee cannot approbate and
reprobate. Hence on facts, the said authority does not
support Revenue's case.
23. With regard to the second authority in Pennar
Industries, Shri. Shivadass urged that appellant does not
deny the power of the customs authority to initiate action.
However, once at the instance of the customs authority,
the Licensing authority initiates action, examines the
factual position and holds the issue in favour of appellant;
such finding is binding on the Customs authorities.
Further, in the case of Pennar Industries, the goods were
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raw material and not capital goods. Hence, the ratio of
the said authority is applicable to the facts of this case.
We have followed the decision of this Court in Aditya Birla
Nuvo and held that the decision of ADGFT is final.
Therefore, the authority relied upon by the Revenue does
not support its contention.
24. With regard to the third authority in Sheshank
Sea Foods, it is held that the provisions of import-export
policy do not take away the power of Customs Authority.
In that case, the assessee had approached this Court
seeking a Writ of Prohibition restraining the Customs
Authorities from proceeding with search and seizure
operations. The writ petition was dismissed by the Hon'ble
Single Judge and the writ appeal by the Division Bench. In
such circumstances, the Apex Court has held as aforesaid.
In contradistinction, in the case on hand the ADGFT has
adjudicated the matter and allowed the appeal. Therefore,
the said authority does not support Revenue's case in any
manner.
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25. The last two authorities namely Sushant
Minerals (P) Ltd. and Prakash Roadlines are the orders
passed by the CESTAT on the facts of those cases and
cannot be considered as authorities.
26. In view of the above discussion, assessee's
appeal merits consideration. Revenue has challenged
CESTAT's order setting aside penalty. We have held that
assessee's appeal merits consideration consequently,
Revenue's appeal fails.
27. Hence the following:
ORDER
i) CSTA 4/2019 is allowed.
ii) Final Order No. 21851-21853/2018 order
dated December 12, 2018 passed by the CESTAT27,
Bengaluru confirming the OIO, so far as imposing
the duty and interest on the assessee is set-aside.
Customs, Excise and Service Tax Appellate Tribunal
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iii) The substantial questions of law are answered
in favour of the assessee and against the Revenue.
iv) CSTA 10/2019 is dismissed.
Sd/-
JUDGE
Sd/-
JUDGE
SPS
