Once The Export Obligation Is Discharged, Customs Dept. Could Not Initiate Proceedings Against Assessee: Punjab & Haryana High Court

The Punjab and Haryana High Court has held that once the export obligation is discharged, the customs department cannot initiate proceedings against the assessee.

The bench of Justice Ritu Behari and Justice Manisha Batra observed that 50 MT of Coco Butter was lost during transit from the port to the factory, and this information was given to the department. But the lost quantity had been replaced by the respondent by purchasing the Cocoa Paste from the local market to fulfill its export obligation. The respondent-assessee did not claim any rebate or drawback in respect of the locally procured Coco Butter. The advance authorization has been discharged by DGFT (the licensing authority) as the export obligation has been fulfilled by the respondent.

The respondent/assessee is in the business of manufacturing of excisable goods, i.e., Coco butter, and its factory is situated in the State of Jammu and Kashmir. The Joint Director, DGFT, had issued advance authorization dated January 24, 2007 for duty-free clearance of Cocoa Paste. A total of 1 lakh MT of Cocoa Butter was required to be exported. Against the advance authorization, the respondent imported 100 MT of Cocoa Paste vide two bills of entry duty-free in terms of a notification dated September 10, 2004. Due to an accident beyond the control of the appellant, 50 MT of coco paste imported against one bill of entry dated April 26, 2007 was lost due to melting in transit, as a result of which some leaked cartons were unusable. The quantity was reduced in the balance of imported Cocoa Paste stock records. The loss of Cocoa Paste was explained by the surveyor.

During the course of the audit, the respondent company intimated to the department that 50 MT of Cocoa Paste imported had been damaged in transit, and the quantity lost was written off and reduced from the material import record.

The respondent purchased a lost quantity of cocoa Butter from the open market and exported the same for fulfillment of an export obligation. The appellant claimed no rebate or duty drawback while exporting locally procured Coco Butter.

The advance license was redeemed in terms of Paragraph 4.26 of the HBP, and the redemption letter dated June 24, 2011, along with no bond certificate, was issued to the respondent.

The respondent requested that the Deputy Commissioner of Customs, Ludhiana, cancel the bond. A show cause notice was issued to the respondent to explain why bond No. 41 dated April 23, 2007 furnished by them should not be enforced for violating condition 5, duty should not be demanded along with interest, the quantity of one lakh kgs. of Cocoa Paste should not be confiscated, and a penalty is to be imposed on the ground that 50 MT of cocoa Paste imported against a bill of entry dated April 26, 2007 was lost. It was alleged in the show cause notice that 100 MT of Coco Butter paste (50 MT of each against the bill of entry dated April 26, 2007 and the bill of entry dated May 9, 2007) were shown as lost without providing any basis for the same. As the imported goods were not used for manufacturing the goods, which were to be exported, duty was sought to be demanded. By way of order, the demand for duty was confirmed on the ground that imported goods were not used in the manufacture of goods exported.

The respondent was liable to pay duty on the imported goods along with interest, and it was ordered for confiscation of the Cocoa Paste imported by the appellant, and a redemption fine of Rs. 75,00,000 was imposed. A penalty of Rs. 25,00,000 was also imposed. On appeal against the order, the Commissioner (Appeals) reduced the redemption fine, but the rest of the adjudication order was confirmed.

The court held that since the export obligation was fulfilled, it was not open for the Revenue to initiate proceedings against the respondent-assessee on the ground that it had not fulfilled the condition of the advance authorization. The assessee had not violated any of the conditions of the notification dated September 10, 2004. As per the notification, the assessee could not transfer or sell the imported goods. The assessee had discharged its export obligation and redeemed its bond executed with the licensing authorities.

Case Title: Commissioner of Customs, Ludhiana Versus M/s Jindal Drugs Ltd.

Citation: 2023 LiveLaw (PH) 120

Case No.: 24.05.2023

Date: 24.05.2023

Counsel For Petitioner: T.K. Joshi, Ram Pal Kohli

Counsel For Respondent: Amar Partap Singh

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