:1: bgp IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION CUSTOM REFERENCE NO.1 OF 1996 M/s.Mewati & Co. Harish Chambers, Samueal Street, Bombay – 400 003. ..Applicant Vs. The Commissioner of Customs ..Respondent Mr.Madhur Baya for applicant. Mr.R.B.Pardeshi for respondent. CORAM :- V.C.DAGA & K.K.TATED,JJ. JUDGMENT RESERVED ON : 23RD FEBRUARY, 2010 JUDGMENT DELIVERED ON : 12TH MARCH, 2010 JUDGMENT (PER : V.C.DAGA,J.) 1. Heard. Perused reference. This is a Reference arising out of common order dated 28th July, 1995 made by the Customs, Excise and Gold (Control) Appellate, Tribunal, Mumbai (“Tribunal” for short) in exercise of powers under Section 130-D of the customs Act,1962 (“the Customs Act” for short) to seek opinion of this Court on the following two substantial questions of law: (a) Whether in the facts and circumstances of the case the judgment of this Court in Bussa Overseas and Properties (Pvt) Ltd. Vs. Union of India (1991) 53 ELT 165 (“Bussa Overseas” for short) being a direct judgment on the issues involved in the present case prevails over the judgment of this Court in SVA Udyog Viniyog Ltd. Vs. Union of India (1993) 954 ELT 376 (“SVA Udyog” for short)? :2: (b) Having followed the judgment of this Court in Bussa Overseas (Supra) in the case of Busa Export Corporation Vs. Collector of Customs (1994) 950 ECR 256 when the judgment of this Court in SVA Udyog Viniyog Ltd. was available, whether the Tribunal was correct in preferring to follow the judgment of this Court in SVA Udyog Viniyog Ltd. and not the direct judgment of the issue in the case of Bussa Overseas (Supra)? INTRODUCTORY FACTS : 2. The clearance of two consignments of Neutral Malt Spirit i.e. concentrated whiskey consequent upon import thereof, was sought by the applicant M/s.Mewati & Co. against REP license held by them. The clearances thereof were objected to by the Customs for want of Licence to import these goods, as the items imported did not find use in manufacture of the export product for which the license was granted. 3. Show cause notice for illegal import was issued to the applicant. On adjudication, the import was held to be unauthorised, consequently goods were confiscated. In the appeal before the Collector (Appeals), the order of confiscation was confirmed. The matter was taken up before Tribunal in appeal. Tribunal was pleased to confirm the orders of the authorities below. 4. The issue raised before the Tribunal was whether in the facts and circumstances of the case, the legal issue involved was covered by the judgment of this Court in the case of Bussa Overseas and Properties (Pvt) Ltd. Vs. Union of India (1991) 53 ELT 165, Bombay or SVA Udyog Viniyog Ltd. Vs. Union of India (1993) 954 ELT 376 (Bom) which was later confirmed by the Division Bench of this Court in the appeal arising therefrom reported in 1993 (65) E.L.T.20 (Bom.) and further affirmed in the appeal by the Apex Court reported in 2001 (133) E.L.T.261 (SC). :3: 5. The Tribunal after threadbare discussion for the reasons recorded, relied upon the judgment of the S.V.Udyog Viniyog Ltd. (Supra) holding that the said judgment was more appropriate in the facts and circumstances of the case since it was in tune with the Import Export Policy. Thus the judgment in the case of S.V.Udyog was preferred over the judgment of this Court in the case of Bussa Overseas and Properties Pvt.Ltd. (Supra). The said view of the Tribunal as stated hereinabove, has given rise to the present Reference. 6. The questions referred revolve around the Exim Policy 1985-88, which is to be found in Volume-1 of the Exim Handbook published by the Ministry of Commerce, Government of India. 7. Admittedly, the licence held by the importer was issued for Product Group-B.16.1 shown in Appendix 17 of the Exim Policy 1985-88 relating to Synthetic Organic Dyes including organic pigments. EXIM POLICY 8. The provisions relating to the Exim policy for registered exporters are to be found in Chapter XIV of the Exim policy 1985-88. The clauses relevant for the purposes of deciding issues involved herein read as under: 188. The object is to provide to the Registered Exporters, by way of import replenishment, the materials (all or some) required in the manufacture of the products exported. 189(1) Exports made of products appearing in Appendix 17 will qualify for the grant of import replenishment only if such exports are made accordance with the export policy in force. 193(1) The extent of import replenishment permissible against each product enumerated in column 2 of Appendix 17 shall be that set out in column 3 thereof. These percentages will apply in the case of exports :4: made on or after 1-4-1985 except for registered contracts to which the relevant provisions would apply. 195(1) The items permissible for import against each export product covered by this policy are given in column 4 of the policy statement given in Appendix 17, read with column 5. 226. The transfer of the licence will not require any endorsement or permission from the licensing authority i.e., it will be governed by the ordinary law. Accordingly, clearance of the goods covered by a REP licence issued under this policy, will be allowed by the customs authorities on production by the transferee of only the document of transfer of the licence concerned in his name. Whenever an REP licence is transferred, the transferor should give a formal letter to the transferee, giving full particulars regarding number, date and value of the licence transferred and the name and address of the transferee, and complete description of the import items for which the licence is transferred. A copy of the transfer letter should be endorsed to the licensing authority who issued the REP licence, for record. This procedure will also apply to subsequent transfers of the same licence. 9. The extent of import replenishment permissible against each product enumerated in column 2 of Appendix 17 are set out in column 3 thereof [see Cl.193(1)]. This percentage was to apply to the exports made. With this, if one turns to clause 195(1), it lays down that the items permissible for import against each export product covered by the Exim policy is as given in column 4 of the policy statement appearing in Appendix 17 read with column 5. With this backdrop, now it is, necessary to turn to Appendix 17, Columns 2 to 5 thereof relating to the items styled as “dyes and dye intermediates” since the import licence related to the said export product. The relevant part of Appendix 17 with columns 2 to 5 are produced herein below: :5: Sl. No. Export Product Import replenish ment percentag e Materials permitted for import Remarks 1 2 3 4 5 III DYES AND DYE INTERMEDIATES B.16.1 Synthetic organic dyes including organic pigments 15% a) Dye Intermediates and chemicals in Appendix 3 and used in the manufacture of the product exported. (b)........ (c)........ (d)........ (e)........ (f)........ 1) In the case of item (a) in Column 4, please see para 8 of ‘General Conditions’ in this Appendix. 2) Import of Alpha Naphthylamine under item (a) in Column-4 will be allowed only upto 10% of the licence value within the overall value of the licence. 3) Import of item (q) 2:4 Dinitrochloro benzene in Col.4 will be allowed only against export of Sulphur black covered by Export product in Col.2 (Emphasis supplied) 10. The aforesaid Appendix 17 needs to be read in the light of para 8 of the general conditions of the import policy meant for registered exporters, which read as under: 8. Against certain export products, e.g. Sl.No.A.64, Sl.No.B.11.1 etc. Col.4 permits the import of items appearing in the Appendices 3 and 5 without mentioning the specific items. In such cases, the export product in Col.2 covers more than one product and it is difficult to mention in Col.4 itself the specific items of raw materials and components which go into the production of each of the export products covered by the particular Serial Number or Sub-Serial Number. :6: Therefore, in such cases, while applying for REP licence, each exporter should submit with the import application the list of such items as are actually used as raw materials/components in the manufacture of the product(s) exported except items which have been specifically excluded in Col.4 or Col.5. It should be also ensured that only those items are included in the list which are actually used as raw materials and components in the manufacture of the relevant product exported. The licensing authority may, after due scrutiny of the list, exclude therefrom any item which in his opinion is not actually used as raw material/component in the manufacture of product(s) exported. If at any time, it is found that an exporter obtained REP licence under this provision for an item which was not actually used as raw material/component for the manufacture of the product exported against which the REP licence was issued, the licence in question, shall be liable to cancellation. If the licence has been used by the time the irregularity comes to notice, the value of the licence shall be adjusted against the import entitlement of the exporter in any category. These actions will be without prejudice to any other action that may be taken in this behalf under the import and export control regulations. 11. Having taken survey of the relevant terms of the Exim policy, if one turns to column 4 of Appendix 17 (supra) relating to the “dyes and dye intermediate”, it specifically lays down material permitted for import is: dye intermediate and chemicals in Appendix 3 used in the manufacture of product exported. Now, in order to find out the nature of the product manufactured and required for export, one has to turn to appendix 3 annexed to the compilation. Number of items are shown in the said appendix. One of them is at Sr.No.179, Ethyl Alcohol. The relevant entry thereof is as under: APPENDIX 3 RAW MATERIALS, COMPONENTS, CONSUMABLES, TOOLS & SPARES LIST OF LIMTIED PERMISSIBLE ITEMS, PART – A RAW MATERIALS, COMPONENTS, CONSUMABLES, TOOLS AND SPARES (OTHER THAN IRON & STEEL & FERRO ALLOYS) 179. Ethyl Alcohol – 512.1601 | |-- 22.08 512.1602 | :7: 12. Having extracted the relevant part of the Exim policy around which the answer to the above legal questions revolve, we may now turn to the rival contentions advanced by the parties. RIVAL SUBMISSIONS : 13. Mr.Baya, learned Counsel for the applicant urged that the transferee is not required to satisfy nexus test. According to him, under the REP Licence scheme, the registered exporter had an obligation to actually use the articles permitted for import under the REP Licence, and therefore, it was required to satisfy the “nexus” test. Upon the completion of the export obligation, the REP Licence became freely transferable, and the transferee was not bound by any of the conditions imposed on the original lilcencee, inter alia; as to “nexus”. In his submission, the transferee could import any article that was mentioned in the list of raw material / components. The underlying principle for not imposing the nexus condition vis-à-vis the transferee emanates from Para 225 of the EXIM Policy, which states that the REP Licence shall not be subject to an “actual user” condition. According to him, the scheme of REP Licence inherently assumes transferability and an import by a transferee. The transferee may or may not be a manufacturer of the very product, and it may have been exported by the original licencee but once the licence is transferred, the transferee need not manufacture or export any article. It may merely be a trader. It follows that the transferee importer cannot be required to satisfy the nexus test, i.e., the test of use of the imported goods in the product exported by the original licencee. He submits that this principle is judicially recognised through the Hon'ble Supreme Court upholding the decision of the Tribunal in Goodluck Industries v/s Commissioner of Customs [1999 (108) ELT 818 (Tri.)], as reported at [2000 (120) ELT A66 (SC)] and the Hon'ble Madras High Court in Commissioner of Customs v/s Salem Stainless Steel [2001 (131) ELT 30 (Mad.)]. :8: 14. Mr.Baya submits that as a corollary, the only requirement qua the transferee is that the goods under import must be covered by the REP Licence,i.e., it must be included in the list of items permitted to be imported against the said licence. He submits that it is not in dispute that the REP Licence in question covers “Ethyl Alcohol”, without any words of qualification or restriction, either as to its concentration or nature. That it is an admitted position that the ‘Neutral Malt Spirit’ falls within the meaning of the term “Ethyl Alcohol”. ‘Neutral Malt Spirit’ can therefore, validly and lawfully be imported against the said REP Licence by the Applicant as the transferee. This has judicially been recognized by the judgment of this Hon'ble High Court in Bussa Overseas, which according to him is directly on the issue, being a judgment rendered in the case of the import of whiskey, gin and brandy concentrates by a transferee of an REP Licence issued to an exporter of dyes and dye intermediates, falling under Product Groups B.16.1 / B.16.2 under Appendix 17, the licence covering the import of “Ethyl Alcohol”. The said judgment has since been upheld by the Hon'ble Supreme Court and has therefore, attained finality. The Applicants are therefore, entitled to import ‘Neutral Malt Spirit’ against the said REP Licence. 15. Mr.Baya further states that the judgment in the case of SVA Udyog Viniyog (supra) does not apply to the present case. He submits that the said judgment was rendered in a different factual scenario. In that case, the original licencee was seeking to import almonds-in-shell as “seeds” against an REP Licence issued to it against the export of fresh fruits, vegetables and flowers. Column-4 in Appendix-17 permitted the import, inter alia, of “seeds / bulbs / mother plant / germ plasm”. The learned Single Judge of this Court has held that almonds-in-shell were not seeds, as they could not be used to grow fresh fruits or vegetables or flowers, which was the intent of the legislature in using the word ‘seeds’ in the company of such other words as bulbs, mother plant, and germ plasm. It is on this basis that the importer, who as the original :9: licencee, was required to meet the nexus test, was held ineligible to import the almonds-in-shell. According to him, the facts of the present case are different, inasmuch as the Applicant is a transferee and the words “Ethyl Alcohol” used in the licence are not qualified or restricted. According to him, this distinction, in fact, was noticed by the Division Bench of this Hon'ble High Court in SVA Udyog Viniyog Limited (supra) wherein in para 5 of the judgment, it was held that the decision in Bussa Overseas would not apply in the facts of SVA Udyog Viniyog as in the case of Bussa, the licence “…was issued simpliciter for Ethyl Alcohol without restricting its meaning or scope, the import for whatever purposes cannot be faulted. In the present case, the expression ‘seeds’ though is a generic term, the plain reading of item G-2 under Appendix 17 establishes that the expression is used for restricting its meaning.”. The Applicant submits, that the Division Bench of this Court has therefore, reconciled the judgments in Bussa Overseas and SVA Udyog Viniyog. 16. On the above premise, Mr.Baya submits that the Tribunal was in error in not following Bussa Overseas, which was a judgment directly on the issue before it, and misdirected itself by following SVA Udyog Viniyog, which is distinguishable in the facts of the present case. PER CONTRA: 17. Mr.Pardeshi, learned Counsel for the Revenue urged that the provisions of Exim Policy for the Replenishment licence expressly prescribed in column 4 of Appendix 17, items to be imported for manufacturing export product. According to him, the export product is a Dye intermediate and chemicals which is used for colouring fabrics. In his submission, the object of policy of replenishment licence is enunciated in paragraph 188 of the policy (extracted supra), whereas, clause 193(1) and 195(1) (supra) clearly state that the input required to be used in export product and the items thereof are prescribed in column 4 of Appendix 17. Column 5 thereof refers to para 8 of the General :10: conditions incorporated in the Appendix 17. Subject clause 8 lays down that in case of item of export in column 2 covers more than 1 product and not specified in column 4 then in such cases the import of item will be on the basis of actual use. This submission advanced is based on paragraph 8 of Appendix 7 extracted in para 8 (supra). The submission is that actual used condition is essential in such cases as laid down by the Exim Policy. Mr.Pardeshi submits that whiskey imported by the applicant has no use in manufacture of Dye intermediates and chemicals. 18. Mr.Pardeshi was fair enough to admit that the description ‘Ethyl Alcohol’ takes within its fold Whiskey. However, according to him, the said description is not to be found in column 4 though other 20 items are specifically specified in column 4 of Appendix 17 marked by alphabets “a” to “u”. He, thus, submits that, had “Ethyl Alcohol” been described in column 4 of Appendix 17, then the Importer (applicant) would have been entitled to import the said specific item. On the contrary column 5 read with para 8 of Appendix 17 clearly excludes import of such items. 19. Mr.Pardeshi further submits that Ethyl Alcohol is of two types, viz; (a) Ethyl Alcohol Denatured and (b) Ethyl Alcohol of undenatured. The Denatured Ethyl Alcohol is for industrial use and undenatured is for the human consumption. The Ethyl Alcohol is made denatured by putting poisonous substance, that is how it becomes unfit for human consumption. In his submission, the process to make denatured i.e. poisonous is required to be supervised by the Customs Authorities. Reliance is placed on Chapter Heading 2207 to justify two categories i.e. denatured and undenatured Etyhyl Alcohol. He also placed reliance on the rules framed by the Ministry of Finance, Government of India in exercise of powers under Section 24 and 158 of the Customs Act,1962 so as to demonstrate two categories of of ethyl Alcohol. He submits that the use of Whiskey is not at all economically viable for use in manufacturing dye. :11: 20. Mr.Pardeshi further submits that the statutory provision in para No.8 of the Appendix 17 of the Exim Policy clearly states that such goods have to be actually used in the export product. According to Mr.Pardeshi, the whiskey sought to be imported under name Malt Spirit against REP licence cannot be and could not be allowed to be imported against the said REP licence held by importer for want of its use in export product. Reliance is placed on the judgment of S.V.Udgyog (Supra). 21. Mr.Pardeshi urged that the Apex Court has confirmed the judgment of this Court in S.V.Udyog (Supra). According to him, the said judgment is the only judgment which is applicable to the facts of the present case. He submits that the judgment in the case of M/s.Bussa Overseas (supra) does not take into account the statutory conditions laid down in the Exim Policy, especially, paragraph 8 thereof, wherein actual use in the export product was insisted upon. While emphasising this submission, he submits that the judgment of this Court in the case of Bussa Overseas (Supra) is inconsistent with the statutory provisions, whereas the judgment in SVA Udyog (supra) directly deals with the question sought to be debated. He, thus, contends that the judgment of this Court in Bussa Overseas (supra) is not at all applicable. 22. Mr.Pardeshi, in order to counter the submissions advanced by the petitioner that the transferee is not liable to fulfill actual user condition of the Exim policy, submits that the transferee steps into the shoes of the transferor and that the transferee can not have better right than the transferor. The transferor was not entitled to the import of whiskey required for manufacture of Dye Fabric which was unsuitable for human consumption. As against this, the transferee has imported whiskey not used or required for manufacture of Dye Fabric. He placed reliance on the judgment in the case of Rico Gems Corporation Vs. Chief Controller of Imports & Exports 1992 (58) E.L.T.390 (Bom.) to support his contention. :12: 23. Mr.Pardeshi submits that the judgment relied upon by Mr.Baya, learned Counsel for the petitioner, relates to DEEC licence. It does not apply to REP licence. According to him, the present issues relate to (REP) replenishment licence and not advance licences under DEEC Scheme. In his submission, DEEC licences are required to be endorsed after verification by DGFT, whereas in the case of REP licences no such verification or consequent endorsement is required to be done. That, the transferor of REP licences is governed by Ordinary Law. As per Ordinary Law, the transferee steps into the shoes of the transferor and bound by the terms and conditions, which were binding on the transferor. With these submissions, Mr.Pardeshi submits that the aforesaid two questions referred for the opinion of this Court are liable to be answered in favour of the Revenue. REJOINDER 24. Mr.Baya submits that in the present case, the Revenue has laboured to show that the ‘Neutral Malt Spirit’ imported by the Applicants, though ‘Ethyl Alcohol’ was ‘Undenatured’ and not of a kind as could be used in the manufacture of dyes and dye intermediates. According to him, the Revenue is proceeding on an erroneous construction of the REP Licence scheme as it then was in vogue as also the law laid down by this Court in both Bussa Overseas and SVA Udyog Viniyog. He submits that the technical documentation as regards ‘denaturing’ ethyl alcohol is entirely irrelevant, for the reasons stated above. CONSIDERATION: 25. Having heard both parties at length, perusal of Clause 1(iii) relating to Dye and Dye intermediates, makes it clear that the material permitted for import under clause 4 are those which had nexus to the goods which were exported and for the export of which REP licence was granted. Each of the item covered under (a) to (u) leaves no manner of doubt that it had direct nexus or relation to the export product of synthetic organic dyes including :13: organic pigments. Clause (a) under Item 4 refers to Dye Intermediate and Chemicals in Appendix 3 and use in manufacture of products exported. It is, thus, obvious that the expression dye intermediate and chemical shown in Appendix 3 must be used or capable of being use in manufacture of product exported. 26. The submission of Mr.Baya that ethyl Alcohol shown in Appendix-3 at Item 179 is a generic term and it need not have any nexus to the export product under clause 1 cannot be accepted. The contention that once the item falls under the generic term ethyl Alcohol then the imported goods are in accordance with the licence condition cannot be accepted. Assuming for the sake of argument that the Natural Malt Spirit (whiskey) is covered by Ethyl Alcohol in a generic term but that would not entitle the applicant to claim benefits of licence as it was never used for the purposes of manufacturing items covered under – B.16.1. Unless it is shown that the said imported product was used in manufacture of the product exported the import cannot be held under the umbrella of REP licence. 27. Mr.Baya fairly admitted that the Natural Malt Spirit (Whiskey) cannot be used in manufacture of dyes or dyes intermediate. The contention canvassed by Mr.Pardeshi finds further support, if one carefully reads paragraph No.5 of the Appendix 17. If one turns to Clause 8 of the general conditions extracted in paragraph 6