THE HONBLE SRI JUSTICE V. RAMASUBRAMANIAN AND THE HONBLE SRI JUSTICE ABHINAND KUMAR SHAVILI
C.E.A.Nos.57 of 2017
12-10-2017
The Commissioner of Customs, Custom House, Port Area, Visakhapatnam, Andhra Pradesh Appellant
Gayatri Timbers Private Limited, Opp: Steel Plant Main Road, Kurmannapalem, Visakhapatnam, Andhra Pradesh .. Respondent
Counsel for Appellant: Mrs. Sundari R. Pisupati, Senior Standing counsel for the appellant
Counsel for respondent:Mr. K. Vijay Kumar
<Gist:
>Head Note:
?Cases referred:
HONBLE SRI JUSTICE V. RAMASUBRAMANIAN AND
HONBLE SRI JUSTICE ABHINAND KUMAR SHAVILI
C.E.A.Nos.57, 60, 61, 62, 66, 69, 71, 72, 74 and 75 of 2017
COMMON ORDER: (V. Ramasubramanian, J)
The Revenue has come up with the above appeals under
Section 130A of the Customs Act, 1962, challenging the orders of the
Customs, Excise and Service Tax Appellate Tribunal (CESTAT)
allowing the claims for refund made by the Assessee.
2. Heard Mrs. Sundari R. Pisupati, learned senior standing
counsel for the Appellant and Mr. K. Vijay Kumar, learned counsel for
the respondent-Assessee.
3. The respondent-Assessee imported timber logs under
various bills of entry. The material imported by the respondent-
assessee admittedly fall within the First Schedule to the Customs
Tariff Act, 1975.
4. By a Notification bearing No.102/2007-Customs issued on
14-09-2007 in exercise of the powers conferred by Section 25 (1) of
the Customs Act, 1962, the Government of India exempted the goods
falling within the First Schedule to the Customs Tariff Act, 1975, from
the whole of the additional duty of the customs leviable under Section
3 (5) of the Customs Tariff Act, 1975, when imported into India for
subsequent sale. Paragraph 2 of the said notification gave a list of
conditions to be fulfilled by the importer, for availing the benefit of
exemption.
5. The respondent-assessee filed claims for refund with the
jurisdictional Customs Officer. All the claims made by the respondent-
assessee were partially allowed by the jurisdictional Customs Officer.
For easy appreciation of the extent to which the claims for refund were
allowed, we are presenting in a tabular column, the details.
C.E.A.NO.
Arising out of the
Order-in-Original dtd
Amount of refund
claimed
Amount of
refund
sanctioned
57 of 2017
08-01-2013
Rs.4,85,325.10 ps.
Rs.3,10,220.00 ps
60 of 2017
28-09-2012
Rs.3,71,000.40 ps.
Rs.1,72,849.00 ps
61 of 2017
05-11-2012
Rs.5,18,367.20 ps.
Rs.2,77,617.00 ps
62 of 2017
20-12-2012
Rs.9,83,594.00 ps.
Rs.8,68,328.00 ps
66 of 2017
10-05-2013
Rs.8,78,126.92 ps.
Rs.5,86,004.00 ps
69 of 2017
20-12-2012
Rs.7,28,970.20 ps.
Rs.3,90,440.00 ps
71 of 2017
08-10-2012
Rs.3,85,709.80 ps
Rs.2,15,024.00 ps
72 of 2017
17-09-2012
Rs.8,82,612.10 ps.
Rs.6,58,667.00 ps
74 of 2017
24-09-2012
Rs.13,91,801.80ps
Rs.9,10,318.00 ps
75 of 2017
05-11-2012
Rs.7,84,837.00 ps
Rs.2,07,219.00 ps
6. The disallowance of a part of the refund claim was on two
grounds viz., (1) that the timber logs imported by the respondent-
assessee were not sold as such by them, but were sold locally after
sawning them and cutting them into smaller sizes; and (2) that the
logs cut into smaller sizes could not correlate to the items described
in the import packing list.
7. Contending that the grounds of rejection were not traceable
to the exemption notification and that the imported material did not
lose their character merely because of being cut into smaller pieces,
the respondent-assessee filed statutory appeals before the
Commissioner (Appeals). The Commissioner (Appeals), dismissed all
the appeals forcing the respondent-assessee to file second appeals
before CESTAT. The CESTAT allowed all the appeals relying upon
the decision of the Gujarat High Court in Commissioner of Customs
v. Variety Lumbers Private Limited (2012 TIOL-821-HC-AHM-CUS).
The Tribunal took note of the fact that as against the judgment of
Gujarat High Court, Special Leave Petitions were filed and that the
Supreme Court had already granted leave and issued notices, but did
not grant an interim stay of the judgment of Gujarat High Court.
8. As against the orders of the CESTAT, the Appellant/
Revenue did not choose to come up immediately with the statutory
appeals under Section 130 A of the Customs Act. On the contrary, the
Department filed Miscellaneous Applications before the CESTAT
seeking a modification of the order of the CESTAT on the short
ground that the CESTAT should have directed the respondent-
assessee to furnish bank guarantee at least to the extent of 50% of
the amount of refund ordered by the Tribunal, as per the interim order
passed by the Supreme Court in the appeals filed against the
judgment of the Gujarat High Court. These applications for
modifications were dismissed by the CESTAT on the ground that after
the disposal of the appeals, the Tribunal had become functus officio.
9. In the meantime, the respondent-assessee filed writ petitions
seeking a direction to the department to grant refund as per the orders
of the CESTAT. In the writ petitions, the department took a stand that
they had already filed appeals under Section 130A of the Act as
against the orders of the CESTAT. But after finding that there were
actually no appeals registered on the file of this Court, a Bench of this
Court to which one of us (VRSJ) was a party, allowed the writ petitions
and directed the refund to be made. It was recorded in the said order
that the order passed by the CESTAT, had attained finality as on the
date of disposal of the writ petitions and that therefore, the department
had no alternative but to refund the amount.
10. Thereafter, the appellant/revenue came up with the above
appeals with applications for condonation of delay. Despite stiff
opposition from the respondent-assessee, this Court allowed the delay
condonation applications, only in view of the fact that the matter
required examination, in view of the Supreme Court granting leave to
appeal against the judgment of Gujarat High Court. Thus, the above
appeals got numbered and were taken up for hearing.
11. The substantial questions of law with which the appellant/
revenue has come up with the above appeals are as follows:
1. Whether the CESTAT was justified in placing reliance on
Commissioner of Customs vs. M/s. Variety Lumbers Pvt. Ltd., and
C.C. Kandla vs. M/s. Agrawala Timbers Pvt. Ltd., (supra) where
the appellant Department had filed Appeal before the Supreme
Court and the same is pending for adjudication?
2. Whether the CESTAT was justified in allowing the respondents
appeal and declaring that the respondent is eligible for refund of
SAD relying on the judgment in Commissioner of Customs Vs.
M/s. Variety Lumbers Pvt. Ltd., and C.C. Kandla Vs. M/s.
Agarwala Timbers Pvt. Ltd., without imposing any condition to
protect the interests of the appellant and thereby departing from
the order of the Supreme Court wherein the Supreme Court
imposed a condition that the respondent should furnish bank
guarantee security for half of the amount to the satisfaction of the
appellant departments Assessing Officer?
12. A careful look at the above questions of law would show that
the first question of law revolves around the entitlement of the
respondent-assessee to refund. The second question of law, even if
answered in favour of the revenue, would still entitle the respondent-
assessee to receive the refund, but after furnishing bank guarantee to
the extent of 50% of the amount refunded, in the light of the interim
order passed by the Supreme Court in the appeal arising out of the
judgment of Gujarat High Court in Variety Lumbers Pvt. Ltd. In other
words, the first question of law is the real substantial question of law
into which the second question of law would get merged. Therefore,
we shall first take up the first question of law. The first question of law
raised by the Department is as to whether CESTAT was justified in
placing reliance on the decision of the Gujarat High Court in Variety
Lumbers Pvt. Ltd., especially when the appeal arising out of the same
is pending adjudication before the Supreme Court.
13. Admittedly, the Supreme Court did not grant interim stay of
the judgment of the Gujarat High Court in Variety Lumbers Pvt. Ltd.
On the contrary, the Supreme Court directed the refund subject to the
assessee furnishing bank guarantee to the tune of 50% of the amount
of refund.
14. The grant of leave by the Supreme Court, as against the
judgment of a High Court, does not have the effect of wiping out any
principle of law laid down by the High Court. Even in cases where a
stay is granted by the Supreme court, the question would depend upon
whether an interim stay was granted of the operation of the judgment
of the High Court or of the further proceedings pursuant to the order of
the High Court. If an interim stay of operation of the judgment of the
High Court is granted by the Supreme Court, then it could possibly be
argued that the judgment of the High Court cannot be followed as a
precedent. Even in such cases, there is no embargo upon the other
High Courts to follow the reasoning adopted by the High Court whose
judgment was stayed by the Supreme Court, to come to the very
same conclusion.
15. In cases where an interim stay is granted by the Supreme
Court only in respect of further proceedings, the principle of law laid
down by the High Court does not get automatically suspended. In
cases where no stay is granted by the Supreme Court, the Tribunal is
entitled to follow the judgment of the High Court that is under appeal.
16. In the case on hand, the Supreme Court did not grant either
a stay of operation of the judgment or a stay of further proceedings
pursuant to the judgment of the Gujarat High Court. Therefore, the
Tribunal was bound to follow the judgment of the Gujarat High Court
and the first question of law has to be answered in favour of the
respondent-assessee.
17. Despite our above conclusion on first question of law, we
would also go into the more fundamental question, to test the
genuineness of the grievance of the appellant/revenue. The grievance
of the appellant/revenue is that a person not entitled to the benefit of
exemption notification, cannot walk away with a refund. According to
the appellant/revenue, the department was fair enough to order refund
of a portion of the claim, wherever the jurisdictional Customs Officer
noted that the imported timber logs were sold as such in the local
market without being cut into smaller sizes and wherever they
matched with the description contained in the packing list. The claim
of the department is that an importer is not entitled to exemption, if the
imported material was converted into something else and if the goods
sold locally do not match the description contained in the packing list.
18. But, unfortunately, for the appellant/revenue, the
requirement to sell the imported goods as such in the local market, is
not one of the conditions stipulated in the exemption notification. It will
be useful to extract the exemption notification dated 14-09-2007 as
follows:
In exercise of the powers conferred by sub-section (1) of Section 25 of
the Customs Act, 1962 (52 of 1962), the Central Government, on being
satisfied that it is necessary in the public interest so to do, hereby
exempts the goods falling within the First Schedule to the Customs
Tariff Act, 1975 (51 of 1975), when imported into India for subsequent
sale, from the whole of the additional duty of customs leviable thereon
under sub-section (5) of Section 3 of the said Customs Tariff Act
(hereinafter referred to as the said additional duty).
2. The exemption contained in this notification shall be given
effect if the following conditions are fulfilled:
(a) the importer of the said goods shall pay all duties, including
the said additional duty of customs leviable thereon, as applicable, at
the time of importation of the goods;
(b) the importer, while issuing the invoice for sale of the said
goods, shall specifically indicate in the invoice that in respect of the
goods covered therein, no credit of the additional duty of customs
levied under sub-section (5) of Section 3 of the Customs Tariff Act, 1975
shall be admissible;
(c) the importer shall file a claim for refund of the said additional
duty of customs paid on the imported goods with the jurisdictional
customs officer;
(d) the importer shall pay on sale of the said goods, appropriate
sales tax or value added tax, as the case may be;
(e) the importer shall, inter alia, provide copies of the following
documents along with the refund claim:
(i) document evidencing payment of the said additional duty;
(ii) invoices of sale of the imported goods in respect of which
refund of the said additional duty is claimed;
(iii) documents evidencing payment of appropriate sales tax or
value added tax, as the case may be, by the importer, on sale of such
imported goods.
19. It is not indicated anywhere in the notification extracted
above, that the imported goods should be sold as such, so as to
qualify for exemption. All that the notification says is that the imported
goods should be sold locally and that the conditions stipulated in para-
2 should be fulfilled.
20. As rightly observed by the Gujarat High Court, the timber
logs imported by any one, when cut into smaller logs, do not lose the
character of being timber logs. More over, the size of timber logs that
could be imported in huge ships, will be so large that they cannot be
transported locally in trucks on roads. What the department had done,
is to read one more condition into the exemption notification, which is
not found in the notification itself.
21. Mrs. Sundari R. Pisupati, learned senior standing counsel
placed heavy reliance upon a Circular bearing No.15/2010-Customs,
dated 29-6-2010, wherein the Government imposed certain conditions
in order to prevent fraudulent claims by unscrupulous importers.
Paragraphs 2 to 4 of the said circular read as follows:
2. Instances have come to notice of the Board where some importers
of timber logs have undertaken certain processes and subsequently
sold sawn or cut logs after payment of VAT. These importers are
claiming the refund of 4% SAD paid at the time of importation of goods
in terms of Notification No.102/2007-Customs dated 14.09.2007. As per
the said Notification, refund of SAD is available only in case the
imported goods are subsequently sold on payment of VAT, without
carrying out any process. However, at the time of claiming refund of
4% SAD, these importers have manipulated the facts by showing that
goods sold were imported timber logs only and not sawn or cut logs.
In terms of the classification of the First Schedule to Customs Tariff
Act, 1975, round logs/round squares are classified under the heading
4403 wherein the sawn woods are classified separately under the
heading 4407. Thus, there is distinct classification for the imported and
the final products that are sold in the market on which VAT is paid.
Hence, since the goods imported and subsequently sold were different
goods falling under different tariff headings, the benefit of Notification
No.102/2007-Customs dated 14.09.2007 by way of refund of 4% SAD is
not available to importers.
3. In certain other cases, refund claims have been filed with the
department wherein forged documents were submitted for availing the
refund envisaged in the notification No.102/2007-Customs dated
14.09.2007. In such cases, it is reported that the importers were
preparing duplicate set of invoices of the same serial number. Scrutiny
of these two sets of invoices establishes that the invoice submitted to
the department shows description of goods as Malaysian round logs
whereas the invoices obtained from the buyer shows the description of
goods as Imported timber. The other difference is that in the invoice
submitted to the department the quantity of goods in number/pieces are
not mentioned whereas in the invoices of the buyer the quantity in
number/pieces is clearly mentioned. This fact of preparing duplicate
invoices is further substantiated by the other documents such as related
transit passes and lorry receipt. These importers are thus defrauding the
government revenue by resorting to this modus operandi of submitting
the forged documents for claiming refund fraudulently.
4. It is apprehended that above mentioned modus operandi may
have all India ramifications and may be prevalent in other field
formations and are not limited only to a few cases. In view of the
above, all field formations are directed to be alert and vigilant to ensure
that unscrupulous importers do not avail fraudulent refunds of 4% SAD
in terms of Notification No.102/2007-Customs dated 14.09.2007 by
resorting to the above mentioned modus operandi.
22. On the basis of the above circular, it is contended by the
learned senior standing counsel for the department that the moment
the imported goods undergo some change, they would lose the benefit
of the exemption notification, since the goods originally imported may
fall under one classification while those that are obtained after a
process, may fall under a different classification. In the case of the
assessee itself, the round and square logs of wood come under
classification Heading 4403, whereas sawn wood falls under
classification Heading 4407. Therefore, it is contended by the learned
senior standing counsel for the department that the moment the
imported goods are subjected to some process, they would go out of
the purview of the exemption notification.
23. But, we do not agree. It is not the case of the department
that goods falling under one classification are entitled to exemption
and the goods falling under another classification are not entitled to
exemption. What is claimed is only the refund of the special additional
duty. The special additional duty is payable on the goods that fall
under the First Schedule to the Customs Tariff Act 1975, in terms of
Section 3 (5) of the Act. The fact that the imported logs fall under the
First Schedule to the said Act and the fact that as a consequence
special additional duty was paid and the importer became entitled to
refund, are all not denied. It is not the case of the department that
round/square logs falling under Heading 4403 alone are entitled to
exemption and that sawn woods falling under Heading 4407 are not
entitled to exemption. Both of them fall under the First Schedule.
Therefore, the argument sought to be advanced is completely
meaningless.
24. As a matter of fact, Circular No.15/2010, dated 29-06-2010
has virtually amended the exemption notification. It is needless to
point out that by a Circular or executive fiat, an exemption notification
issued in exercise of the statutory power, cannot be amended. Hence,
the reliance placed upon the circular is unfounded.
25. The next argument of the learned senior standing counsel
for the department is that no claim for refund can be allowed, if there
was a mismatch between the description contained in the packing list
and the description of goods sold locally. But the explanation given by
the assessee is that the moment huge wooden logs that arrived in
ships are cut into smaller sizes, the description contained in the
original packing list will lose its efficacy.
26. A closer examination of this issue would show that the fears
expressed by the department are illusory. There are only two possible
scenarios, after the timber logs are imported into India. The first is
that after import, the logs are cut into smaller sizes and sold in
entirety. The second scenario is that only a part of the logs of smaller
sizes are sold. In either of these two scenarios, what can be claimed
by the importer is only the refund of the duty actually paid on the
import. No importer can claim refund of special additional duty that
was not paid by him. No importer can claim refund of SAD (special
additional duty) paid on the imported logs, by showing the sale of
locally purchased wood logs. This is in view of the fact that the
imported timber logs may have to be sold in any case in the local
market. If the Government of India wanted the importers of timber not
to have the benefit of the exemption notification, if they indulged in the
sale of smaller pieces, the Government could have said so in the
notification itself.
27. Once it is clear that by making a mismatch between the
description contained in the original packing list and the description of
the goods locally sold, an importer may not be able to claim refund of
more than what was paid, then it would follow as a natural corollary
that the second objection of the department is merely weaved out of
imagination. Hence, even on merits, we find that the ultimate
conclusion reached by the Gujarat High Court in Variety Lumbers Pvt.
Ltd., appears to be the probable view.
28. In fact, we have chosen to go into the merits, despite the
department not raising the aforesaid two issues as substantial
questions of law before us. This was just to ensure that the assessee
does not walk away with a payment that they are not entitled to.
29. We should also add that today the department is not even
entitled to raise the first substantial question of law before us. If the
department wanted to raise the first substantial question of law, they
should have come up with the appeals under Section 130A of the Act
immediately after the CESTAT disposed of the appeals, but the
department did not do so. On the contrary, they moved the Tribunal
with Miscellaneous Applications for modification. What was prayed for
in the Miscellaneous Applications for modification was only to impose
a condition that the assessee should furnish bank guarantee for 50%
of the amount of refund. It is only after the Miscellaneous Applications
were dismissed by the Tribunal that the department has chosen to
come up with the substantial appeals as against the original order of
the Tribunal.
30. Let us assume for a minute that the Miscellaneous
Applications filed by the Department were allowed by the Tribunal and
the original order of the Tribunal passed in the appeals modified. In
such an event, the department could not have challenged, the original
order of the Tribunal, on the principle of waiver. Therefore, we could
have dismissed all these appeals on the first substantial question of
law, as not maintainable, in view of the department going before the
Tribunal with a limited grievance. However, we chose to take the bull
by its horns.
31. In fine, the first substantial question of law is answered
against the appellant/revenue.
32. The second question of law raised by the appellant is as to
whether the Tribunal could have granted refund without imposing a
condition, as imposed by the Supreme Court in the appeals arising out
of the decision of the Gujarat High Court in Variety Lumbers Pvt. Ltd.
33. The brief interim order passed by the Supreme Court on 24-
11-2011 while granting leave to the Commissioner of Customs in
Variety Lumbers, reads as follows:
In the meanwhile, the claims of the respondents for refund of Special
Countervailing Duty, shall be processed by the Assessing Officer and
the amount so due to them shall be refunded within four weeks from
today, subject to the respondents furnishing bank guarantees for half of
the amount to be refunded, to the satisfaction of the Assessing Officer.
The guarantees shall be kept alive till disposal of these appeals. The
quantum of payment of interest to the successful party shall be
considered at the time of final disposal of the appeals.
34. As rightly contended by Mr. K. Vijay Kumar, learned counsel
for the respondent-assessee, the interim order of the Supreme Court
extracted above, is dated 24-11-2011. The orders-in-original were
passed in all these appeals, on 08-01-2013, 28-09-2012, 05-11-2012,
20-12-2012, 10-05-2013, 20-12-2012, 08-10-2012, 17-09-2012, 24-09-
2012 and 05-11-2012.
35. In other words, the orders-in-original, out of which all the
present appeals arise, were passed long after the interim order of the
Supreme Court dated 24-11-2011. Therefore, the Jurisdictional
Customs Officer, instead of showing great valour in challenging the
ratio laid down by the Gujarat High Court, could have simply allowed
all the refund claims with a brief order to the effect that the refund
claims are allowed (i) subject to the outcome of the appeal before the
Supreme Court and (ii) subject to the further condition that a bank
guarantee is furnished for half of the amount claimed as refund. The
Original Authority did not adopt such a course of action, despite
having the benefit of the interim order of the Supreme Court passed in
Variety Lumbers Pvt. Ltd. Even the Commissioner (Appeals) did not
take recourse to such an option. Therefore, today the department
cannot find fault with the CESTAT not passing a similar order as
passed by the Supreme Court in Variety Lumbers Pvt. Ltd., especially
when the Original Authority as well as the Appellate Authority
themselves did not choose to follow the interim order of the Supreme
Court.
36. As a matter of fact, if the adjudicating authority had passed
orders-in-original incorporating the same conditions as found in the
interim order of the Supreme Court in Variety Lumbers Pvt. Ltd.,
incorporating a condition that the refund was ordered subject to the
outcome of the decision before the Supreme Court, the department
would have been better of. If the original authority had passed such an
order, the department would have become entitled to recover the
amount of refund, in the event of their success before the Supreme
Court in Variety Lumbers Pvt. Ltd. The department let go this
opportunity and invited an order on merits from the Tribunal. After
suffering an order on merits from the Tribunal and without challenging
the same, the department went before the Tribunal requesting them to
incorporate the conditions as found in the interim order of the Supreme
court. This is why the Tribunal rejected the Miscellaneous
Applications.
37. Even if the Tribunal had allowed the Miscellaneous
Applications, the department could not have achieved anything, in the
event of their success before the Supreme Court. Unless the
department itself had ordered refund subject to the outcome of the
appeal before the Supreme Court, the department could not have
achieved anything merely by making the Tribunal incorporate a
condition for furnishing of bank guarantee to the extent of 50%.
Therefore, the Tribunal was right in rejecting the Miscellaneous
Applications and hence, the second substantial of law is answered
against the appellant/revenue.
As a consequence, all the appeals are dismissed. No costs.
As a sequel thereto, miscellaneous petitions, if any, pending
shall stand closed.
________________________
V. RAMASUBRAMANIAN, J
___________________________
ABHINAND KUMAR SHAVILI, J
Date: 12-10-2017
