In a ruling in favour of Volvo India Pvt Ltd, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the appellant to import internal combustion engines in the absence of restriction in the Dutyfree Import Authorization (DFIA) License. The bench further viewed that the assessee cannot be expected to correlate its imports with the exports of the person to whom the license was originally issued.
The Appellant is an importer, who purchased a Dutyfree Import Authorization (DFIA) License which was originally issued to M/s.International Tractors Ltd. That entity secured the license to import parts of tractors covered under Standard Input Output Norms (SION) category C969 dealing with ‘Agricultural Tractors’ in various conditions. This license came to be sold after becoming transferrable first to M/s.Vivid Visions Trexim P. Ltd., who thereafter sold the same to the Appellant.
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The Appellant exports buses and vehicles falling under SION category C1059 in relation to which it made imports/ purchases of internal combustion engines under two Bills of Entry dated November 26, 2011 and November 24, 2011, which were classifiable under CTI 8408 2020, for use in the manufacture of various construction equipment. The Appellant made these imports against the above DFIA license and claimed the benefit of exemption from the payment of Basic Customs Duty under Notification No. 98/2009 dated 11.09.2009.
The benefit of this exemption was denied by the Adjudicating Authority on the ground that the items allowed to be imported under this DFIA license should be parts of tractors covered under SION category C969 whereas the appellant manufactured medium and heavy commercial vehicles covered under SION category C1059 for which it imported internal combustion engines.
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The finding of the Adjudicating authority was thus that the internal combustion engine which could be imported under the license were to be those used for agricultural tractors, and not those used for medium and heavy commercial vehicles. This action was upheld in first appeal.
The exemption from Customs duty in respect of imports against DFIA licences are governed by Notification No. 98/2009-Cus dated 11.09.2009. To the extent relevant, this notification stipulates that the exemption shall be granted provided that the description, value and quantity of materials imported are covered by the authorization, and the authorization is produced before the proper officer at the time of clearance. Certain additional restrictions are in place in respect of products specified in paragraph 4.32.3 of the Handbook of Procedures (Vol. I) of the Foreign Trade Policy (FTP).
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The tribunal found from the authorization, a copy of which is placed in the Memorandum of Appeal, at page 33 of the Memorandum of Appeal, that at Sl. No. 6 in the table titled “import item (s) details,” import of “internal combustion engine complete” to the extent of 181 units is permitted.
In the description of the product that may be imported in the authorization, the phrase ‘internal combustion engine complete’ is not qualified in any manner that would suggest that such engines must necessarily be used for tractors and not for other forms of equipment or automobiles.
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The SION category does not find any mention in the authorization at all. It is true that the export item name which is set out in a separate table titled “item(s) details” is identical to the description of the SION Category C969. However, the category code itself finds no mention in the authorization. Further, if anything, the category restriction is relevant only to the goods exported. There appears to be nothing on the authorization restricting the category of goods imported. It might be true, as the Revenue contends, that in the application for the authorization, the importer sets out the categories of goods to be exported and imported. However, the language or particulars of the application cannot be read into the authorization so as to restrict the scope of the authorization to a field narrower than that which the words of the authorization themselves contemplate.
Circular No. 46/2007 dated 20.12.2007 of the CBEC indicates that it is only in respect of product specified in paragraph 4.55.3 of the Handbook that a correlation of technical characteristics, quality and specification of the inputs with the export products is required to be established. The circular goes so far, as to say that such correlation is not required to be established in other cases unless the SION prescribe the same. The Tribunal found that the goods imported and exported (which are presently under consideration) by the Appellant do not fall in any of the categories listed in paragraph 4.55.3 of the handbook. To the same effect is Circular No. 50 (RE-08)/2004-2009 dated 06.01.2009.
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The two-member bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the Appellant cannot be expected to correlate its imports with the exports of the person to whom the license was originally issued. And there is nothing in the license which restricts the import of internal combustion engines only to such internal combustion engines as would have been used in the goods which are permitted to be exported by the authorization.
While allowing the appeal, the bench set aside the impugned order.Shri Rohan Muralidharan, Advocate appeared for the Appellant and Shri Anoop Singh,Joint Commissioner appeared for the Respondent.
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