Exemption under Customs Notification allowable when the Export Obligation was Fulfilled: Madras HC sets aside Demand of Custom Duty [Read Order]

In a recent case, the Madras High Court (HC) held that the exemption under customs notification was allowable when the export obligation was fulfilled and set aside the demand of Customs Duty.

M/s.Xomox Sanmar Ltd, the petitioner challenged the order passed by the Director General of Foreign Trade/Respondent. The petitioner engaged in the manufacture of industrial valves and clears the final products both domestically as well as to the export market. The petitioner had received a purchase order from M/s.Thyssenkrupp on 22.06.2010 for the supply of 1451 numbers of Gate, Globe and Check valves (‘industrial valves’).

The supply was to be effected to Anrak Aluminium, a unit in a Special Economic Zone in Vizag and since Thyssenkrupp had an advance authorisation from the Customs Department, the import was made by the petitioner without payment of customs duty on 17.01.2011.

The stand of the petitioner was rejected by the respondent who held that the items imported and ultimately exported were the same and there was no manufacturing activity involved that brought into existence a new product with a distinctive identity and name.

The petitioner took the matter further before the Deputy Director of Foreign Trade and Convener Norms Committee I, which confirmed communication dated 15.09.2011 by way of its communication dated 06.09.2013. The respondents raised a demand of customs duty and interest amounting to Rs.20,04,068/- and Rs.9,99,182/- which the petitioner states that it has paid under protest.

Ms. Varshitha for Ms. Radhika Chandrasekaran, counsel, who appeared for the petitioner strenuously argues that after import, the valves undergo various processes in the petitioner’s factory including the fitting of indigenously procured actuators, gearboxes and subsequent assembly.

The petitioner has given a write-up elaborating on the process of manufacture setting out details of the processes such as fabrication of the body of the valve and the addition of components, like bonnet/yoke, flow closure elements, gaskets, fasteners, spindle and others to complete the assembling.

The Foreign Trade Policy for the period 27.08.2009 to 31.03.2014 as relevant to the petitioner’s case, in Chapter 8 deals with ‘Deemed Exports’. Clause 8.2 sets out various categories of supply in clauses (a) to (j). The supply in the present case would fall under a permissible category being supply to an export-oriented unit, provided that the goods supplied have been manufactured in India.

A single-judge bench comprising Dr Justice Anita Sumanth observed that by including processes such as refrigeration, re-packing, polishing, labelling, re-conditioning repair, remaking, refurbishing, testing, calibration and re-engineering within the ambit of manufacture itself, the legislature intended an expansive understanding of what constituted ‘manufacture’ for ‘deemed export’.

The argument that both the imported and sold product remains the same, that is, valves, is also liable to be rejected since the emergence of a commercially distinct commodity is satisfied in the present case by the requirement of inspection and testing which falls within the definition of ‘manufacture’.

Goods are not confiscable. The export obligation was fulfilled and there is no violation of Notification No.50/2003-Cus. If Section 111(o) of the Customs Act, 1962 is not invoked, then the SCN ought to have been issued invoking an extended period. Grounds for invoking the longer period in terms of Section 28 of the Customs Act is not available to the Revenue. Hence, the demand would be time-barred, the court held.

The Court set aside the impugned order and the matter remanded to the file of Respondent 1, to be decided afresh and in line with the discussion in this order after ascertaining if the petitioner has made any additions to the imported valves by procurement of indigenous products.

To Read the full text of the Order CLICK HERE

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