HUFFAZ SEAMLESS PIPE INDUSTRIES LTD. VS COLLECTOR OF CUSTOMS, 2016 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1644 (2015)

Customs Rules, 2001---

----R. 350(4)---Customs Act (IV of 1969), S.194-A---Warehousing period---Interpretation and scope of R. 350(4) of Customs Rules, 2001---Importer imported a consignment of hot rolled bars which were to be used for manufacturing of pipes within a period of three years---Department contended that importer was obliged to manufacture and export finished goods within the stipulated period of three years in terms of R.350(4) of Customs Rules, 2001---Held, that once whole raw material was consumed and new product was formed, question of non-consumption ended---According to R.350(4) of Customs Rules, 2001, importer was not bound to export his imported consignment within three years from the date of import---Rule 350(4) of Customs Rules, 2001, provided that material should be consumed within the period of three years of its import and said rule was silent regarding the time period in which consumed material would be exported.

Nasir Ahmad Malik for Appellant.

Nawabzadi Aliya Khanji-Deputy Collector and Abdul Latif Shar Inspector for Respondents.

Date of hearing: 5th May, 2015.

JUDGMENT

CH. MUHAMMAD TARIQ (CHAIRMAN).---This appeal has been directed under section 194-A of the Customs Act, 1969, against Order-in-Original No.1 of 2015, dated 03-02-2015, passed by the Collector of Customs, Model Customs Collectorate, Hyderabad.

2. Brief facts of the case as narrated in the memo. of appeal are that the appellants are a limited company engaged in the manufacture and supply of seamless pipes in the local as well as in the international market. The company is contributing millions of rupees to the exchequer in form of direct and indirect taxes besides earning much needed foreign exchange for the country. The appellants had imported hot rolled bars weighing 357.7 M. Tons bonded them in the manufacturing bond No.08/98 vide GD St No. 1335 dated 03-11-2003 for manufacture of seamless pipes and their export. The goods were required to be consumed within three years at that time in terms of Rule-350(4) of Customs Rules, 2001, which were duly consumed latest by March 2006. The goods so consumed in the manufacturing of finished goods were subsequently exported during the period 2007 to 2010. A show cause notice bearing C. No. 56- Cus/Adj/Adc/Huffaz/DP/2011/2861 dated 17-11-2011 was issued by the Additional Collector of Customs, MCC Hyderabad alleging therein that the appellants have violated Rule-350(4) of Customs Rules, 2001 by not exporting the goods within stipulated time of three years. A detailed reply to the show cause notice was given, mentioning therein that the goods were duly consumed within three years of time period as required under Rule 350(4), however, the same were exported during the period 2007 to 2010. It was also explained to the respondent No.1 that despite the fact that there were no legal requirements to export the goods within three years, the reason of delayed exports was, that the prices in the international market were substantially lower than the cost of production and due to this reason speedy exports of goods could not be affected, which, in any case, is not the violation of the Manufacturing Bond Rules as contained in Rule 350(4) of the Customs Rules, 2001.

3. The Additional Collector of Customs passed the Order-in- Original No.20 of 2012 dated 09-06-2012 by vacating the show cause notice on the ground that Rule 350(4) requires consumption of bonded goods within three years and does not impose any condition for the export of finished goods within three years. The Collector of Customs, Hyderabad reopened the case by issuing a show cause notice No. 08-Int-Audit/DP/Hyd/2011/5464 dated 26-05-2014 in pursuance of a meeting of Internal Audit Customs on the ground that consumption also includes export, therefore, the adjudicating officer erred in his judgment. The show cause notice was duly replied to vide appellant's letter dated 10-06-2014 wherein it was reiterated by the appellants that the fresh show cause notice had travelled beyond the scope of first show cause notice as the first notice contained only the charge of violation of Rule 350(4) whereas no demand for duty/ taxes had been invoked. Moreover, in terms of Section 195 the Collector was empowered to examine the legality or impropriety of the order passed by his subordinate but has no power to frame a new charge/liability not mentioned in the first show cause notice. The new show cause notice was required to be issued on the basis of illegality or impropriety of the Order-in-Original and any demand of short levy arising out of that illegality or impropriety.

4. The learned Collector of Customs passed the Order-in-Original No. 01/2014 whereby the charge for recovery of duty and taxes was withdrawn, however, a new demand for payment of penal surcharge to the tune of Rs. 4,163,388/- was raised which was not alleged in either of the show Cause notices along with payment of penalty under Clause-1 of Section 156(1) of the Customs Act, 1969.

5. An appeal was filed against the said Order-in-Original with this Tribunal and after hearing the case on merits, the case was remanded back to respondent No.1 for decision afresh with the direction to pass afresh order in the light of the sub-rule (4) of Rule 350 of the Customs Rules, 2001, after providing opportunity of hearing to both the sides. The operative part of the impugned order-in-original has been reproduced as under:-

"I, therefore, do not find any lapse in my previous Order-in-Original No.01 of 2014 dated 30.08.2014. I, therefore, order for recovery of adjudged amount Rs.4,163,388/ -, as pointed out by audit authorities, for violating the Rule 350(4) of Customs Rules, 2001 notified vide SR0.450(1)/2001 dated 18.06.2001 and also imposes penalty of Rs. 50,000/- in terms of clause 1 of Section 156(1) of the Customs Act, 1969."

6. Hence this appeal.

7. Learned counsel for the appellant contended that the impugned - Order-in-Original has been passed in a perfunctory mariner not only arbitrarily travelling beyond the scope of show cause notice and raising a demand, which was not invoked in the Show cause notice but also retrospectively applying the provisions of the Rule 350(4) of the Customs Rules, 2001. The sub-rule (4) of Rule 350, as it was then in vogue in the year 2003, did not provide any time limitation for export of goods manufactured from the imported raw material.

8. Learned counsel further argued that a bare reading of the above rule reveals that there was no obligation about the time period for export of goods. On the other side it only refers to consumption of the in-bonded input goods which should have been consumed within a period of three years. In fact, the entire lot of good in-bonded had been consumed within the stipulated time period of three years as required under Rule 350(4) of Customs Rules, 2001, Therefore, there was no violation of the said Rule by the appellants. The goods manufactured from the raw material though consumed within the prescribed time period of three years, could not be exported due to acute decrease in international market prices of seamless pipes. It was only when the prices touched the peak of US$ 628 per metric ton, the pipes were exported which earned huge foreign exchange to the national exchequer as well. The Customs would have been justified in their stance had there been no export and the raw material would not have been consumed in manufacturing of finished goods within the stipulated time period. Once the whole raw material was consumed and new produce was formed, the question of non-consumption does not arise at all, and he further prayed that the appeal be accepted and impugned order be set aside.

9. Conversely, the D/R appearing on behalf of the respondent vehemently opposed the grounds of the appeal and contended that the amended S.R.O. No.601(I)/2010 dated 28-06-2010, is very much applicable and the Collector has rightly dismissed the appeal and imposed the penalty.

10. Arguments heard, record perused.

11. Scan of record highlights that the appellant imported a consignment of hot rolled round bars on 03-11-2003, which were to be used for the manufacturing of pipes within a period of three years i.e. upto 03-11-2006. However, the appellant exported the finished goods during the period 2007 to 2010.

12. Sub-rule (4) of Rule 350 of the Customs Rules, 2001 has been reproduced as under:--

"(4) Input goods imported or procured locally by a manufacturing bond licensee shall be consumed within a period of three years from the date of filing of bill of entry or procurement of locally purchased goods."

13. The above rule was amended on 28-06-2010 by S.R.O. 601(1)/ 2010 the amended Sub-rule for comparison is also reproduced hereunder:--

"(4) Input goods imported or procured locally by a manufacturing bond licensee shall he consumed within a period which shall run from the date on which the imported goods are placed under the manufacturing bond procedure. The period will be established by the Collectorate concerned on the basis of the time required to carry out the processing operations and dispose of the compensating products, as established in the Analysis Certificate. The period will not in any event exceed two years from the date of in-bonding or procurement of locally put-chased goods. For duly justified reasons, extension may be granted for another one year by special written approval of an officer not below the rank of Additional Collector of Customs:"

14. The stance of the respondent is that the appellants were obliged to manufacture and subsequently export the finished goods within the stipulated period of three years in terms of Rule 350(4) of the Customs Rules, 2001. The D/R further emphasized that the provisions of amended sub-rule (4) will be applicable in the case of appellant.

15. The bare reading of old Sub-rule (4) of Customs Rules, 2001 and amended rule, there is no mention that the importer shall be bound to export his imported consignment within the period of three years from the date of import, rather the Sub-rule provide that the material shall be consumed within the period of three years of its import. Thereafter, Sub-rule (4) is silent as to within how much period the consumed material will be exported. The fact of the matter is that once whole raw material was consumed and now product was formed, the question of non-consumption ends.

16. This Tribunal also do not agree with the arguments of the learned D/R that the amended Sub-rule (4) will apply to the appellants case retrospectively.

17. There is not an iota of evidence available on the record that the appellant/importer did not consume the impugned hot rolled round bars within period of limitation or he exported the furnished goods after amendment of Sub-rule (4) of the Rule 350 of the Customs Rules, 2001.

18. The upshot of the above discussion is that the appellant has successfully proved his case. As a result, this appeal is accepted and the impugned Order-in-Original is set aside.

RR/74/Tax(Trib.)Appeal accepted