Adani Exports Ltd. v. Assistant Commissioner Of Customs, Cochin

[Order per : T.K. Jayaraman, Member (T)]. - The issue involved in all these appeals is one and the same. Hence, we are taking up these appeals for disposal. The appellants are engaged in the activity of procuring and processing Marine products and exporting the same. They are entitled to claim the benefit of Duty Entitlement Pass Book (DEPB for short) Scheme framed by the Ministry of Commerce, Government of India. According to the Scheme, an exporter can apply for a Pass Book. On the basis of his exports, the DGFT authorities give credit at specified rate mentioned in the DEPB Schedule. The idea is that the exporter uses various inputs, which have suffered duty in the manufacture of export product. Hence, after his export performance, he is given some credit, which is entered in the Pass Book. Later, this credit can be utilized by the exporter for payment of import duty on goods imported. There is also a provision to transfer the DEPB licence for consideration. The transferee, in that case, would be entitled to use the credit. The DEPB Scheme is also governed by a Notification No. 34/97-Cus., dated 7-4-1997. This is the gist of the DEPB Scheme. There is what is known as Standard Input-Output Norms (SION). Since the DEPB credit is meant for neutralizing the incidence of duty on the inputs used in the export product, norms have been fixed as to how much input should be used for a certain output. In the present case, the exporters/appellants exported Marine Products claiming classification under DEPB schedule D-2 @ 5%. Investigations revealed that chemicals and preservatives mentioned in SION have not at all been used in the export product. In such circumstance, the Customs authorities are of the view that the credit under DEPB Schedule D-2 at 5% would not be applicable. In other words, held that the impugned items would come under D-1 and carry lesser rate of credit at 2%.  On the basis of the investigation, proceedings were initiated. In the scheme of things, the DEPB credit is given by the DGFT authorities. Therefore, the exporters/appellants contended that Customs authorities exceeded their jurisdiction in limiting the credit given to them by the DGFT. The original authorities viz. Commissioners of Customs, apart from demanding the differential credit under Section 28 of the Customs Act, impose penalties on the appellants. The demand of duty on account of reduction of credit and the imposition of penalties are seriously challenged in these appeals.

2.  The learned Advocates who appeared on behalf of the appellants urged the following points:-

(i)      The Customs authorities have no jurisdiction to demand Customs duty under Section 28 of the Act since none of the ingredients of the said provision were attracted in the present appeals and there was no non-levy/short levy or erroneous refund of duty to warrant a demand against the appellant.

(ii)    No excess credit was claimed by the appellants to warrant action by Customs who have no jurisdiction in the matter.

(iii)`  The investigation was conducted by the DRI and they have issued the Show Cause Notices. The DRI has no jurisdiction to decide the rate at which DEPB credit was available to the appellant. Both the Commissioners who passed the impugned orders and the DRI have exceeded the jurisdiction in demand of Customs duty on the purported re-determination of DEPB credit.

(iv)   It is well settled that Customs authorities have no jurisdiction to determine the rates of DEPB, which can be claimed by a party who is an exporter. The following case laws were relied on :

(a)      (Tribunal) = 2004 (95) ECC 540 decided on 1-3-2004 (Bombay Bench)

(b)      (Tribunal) = 2004 (97) ECC 297 (Bombay Bench) decided on 10-9-2004

(c)      (Bombay Bench) decided on 4-9-2003

(d)     (Chennai Bench) decided on 30-6-1999.

(v)     In all the above decisions, it has been held that the Commissioner of Customs has no power to sit in judgment over the grant of DEPB or determine the entitlement of the same. The Customs authorities have limited role of verification of description and value at the time of exports and not to sanction the amount of credit in the Pass Book.

(vi)   The impugned orders of the Commissioners are contrary to Circular No. 15/97-Cus., dated 3-6-1997 issued by the Ministry of Finance (DR, GOI) in which it has been categorically stated in para-2 that “the role of the Customs authorities should be confined to verification of correctness of exporter's declaration regarding description, quantity and export value and it will be for the licensing authorities granting credit to ensure that credit is permitted by them at the correct rate notified by the DGFT.”

(vii)  The Board Circulars are binding on the departmental authorities as per the following decisions :-

(a)      K.P. Verghese v. ITO, 1981 (131) ITR 597 (S.C.)

(b)      Ranadey Micronutrients v. CCE - (S.C.)

(c)      Paper Products Ltd. v. CCE- (S.C.)

(d)     CCE v. Dhiren Chemical Industries Ltd. - (S.C.)

(viii) Based on the DRI’s investigation, the matter was informed to the DGFT authorities. The DGFT initiated proceedings against the appellants and finally have dropped the proceedings against them. Once the DGFT has dropped the proceedings, no action can be taken by the Customs.

(ix)   Further, the DGFT has allowed the higher credit.

(x)     The Commissioner of Customs, Cochin, in the case of another party viz. M/s. Sterling Foods wherein the facts and circumstances were similar to the present appeals, has dropped the demands vide Order No. SIB/5/2003-Cus., dated 31-7-2003.

(xi)   Our attention was invited to Board's circular No. 45/2003-Cus., dated 4-6-2003 clarifying that where the exporter had used meager percentage of chemicals/preservatives in the export product, the exporter shall be allowed to avail 4% of DEPB, which is otherwise eligible for credit. However, action shall be initiated only where no chemicals/preservatives at all have been used in the export product.

(xii)  The learned Advocate Shri K.S. Ravi Shankar cited quite a few case-laws to buttress his point that DEPB is ’goods’ or 'property' liable for sales tax. Therefore, it cannot be considered as ‘duty’ and cannot be demanded under Section 28 of the Customs Act. The following case-laws were relied on -

(a)      Jindal Drugs Ltd. v. State of Maharashtra - (Bom.) wherein it is held that DEPB is ‘goods’ or property liable for sales tax.

(b)      Philco Exports v. Sales Tax Officer and Others - 2001 (124) STC 503 (Del.) - DEPB is freely tradable. When there is no restriction on the purchase and sale of DEPB freely and it has a value unrelated to the goods, DEPB is merchandise. DEPB is by itself property and these goods are subject to tax.

(xiii)       When this issue was raised by the Customs, the DGFT, on 11-11-1988, issued Public Notice No. 55 (RE98)/1997-2002 requiring the Marine exporters exporting the products falling under Sl. No. 2 to furnish a declaration in the Shipping Bill of the usage of chemicals and preservatives in the said export product. But, the said requirement of making the said declaration for SI. No. 2 has been dropped in the Export-Import Policy 2002-03 in view of the problems faced by the exporters as discussed in the minutes of the meeting held on 22nd October, 1998. This meeting was attended by the Exporters, Seafood Exporters Association, MPEDA Officials and DGFT Officials to discuss the problems faced by the exporters under the DEPB Scheme. To a specific query from the Deputy Commissioner, Kochi, regarding the usage of inputs as per SION for items under D-2 and D-3, it was clarified that all inputs were not necessary to be used in processing establishments and they would have been used at some stage after landing. After holding discussions at length, it was finally agreed that the Customs authorities would classify various products under D-2 and D-3 based on a declaration to be given by the exporter. In the EXJM Policy 2002-03, the requirement of declaration was dropped and status quo ante as it existed as on November 11, 1998 was restored.

(xiv) There is no condition either in the EXIM Policy or in the SION that the preservatives and chemicals have necessarily to be used by the processor/exporter in his factory. Sodium tripolyphosphate and Sodium metabisulphate are often used by the fishermen and aquaculture farmers, who supply the marine products to the exporters, including the appellants. Accordingly, the purchase and utilization of the preservatives and chemicals at the factory of the exporter is not reflected in the records maintained by them. These preservatives and chemicals are used at different stages of the value chain viz. before the raw materials reach the processing unit i.e. during fishing, at the landing centre, during transport, during preliminary sorting and grading, etc.

(xv) The assumption that the exporter is the DEPB holder and hence, it makes him the 'importer' is not correct. There is no provision of a 'deemed importer' in the Customs Act, 1962. An importer is one who imports the goods and is covered by the definition of 'importer' given in Section 2(26) of the Customs Act, 1962. The definition of the importer as per the Customs Act, is as under:-

“Importer”, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer.

Both in law and fact, the appellants are not the importers and have not availed the duty exemption vide Notification No. 34/97 dated 7-4-1997. Hence, the question of violation of the said Notification does not arise. In the impugned Show Cause Notices, the details of the DEPB licences and its utilization have not been mentioned. The department has not furnished the details of the Bills of Entry under which the beneficiaries have utilized the DEPB licences or the details of imports made by them. Further, no evidence has been placed on record to show the alleged loss of duty. In the absence of such information, the loss of revenue on that count cannot be assumed or presumed.

(xvi) All the DEPB licences have been transferred to third parties and no imports were made by them availing duty exemption utilizing the said DEPB licences. The right to avail duty exemption benefits under the said DEPB licences has been transferred to third parties who are ultimately entitled to utilise the duty exemption while effecting imports. At the point of import of the goods by the “transferees” and payment of duty based on available credit under each DEPB licence, they were valid DEPB licences and the imports were legitimately made. Any subsequent action to recover duty in respect of the said licences is not in accordance with law, as laid down by the Apex Court in the following decisions.

(a)      East India Commercial Company Ltd., Calcutta v. CC, Calcutta - (S.C.)

(b)      The above decision was relied upon by the Hon’ble Supreme Court in the case of Union of India v. Sampat Raj Dugar - (S.C.)

(c)      CC, Bombay v. Sneha Sales Corpn. - (S.C.)

In view of the above, duty and interest demanded are not maintainable in law since the concept of ‘Deemed Importer’ is not tenable in law. Further, the provisions of Section 113 or Section 114 of the Customs Act, 1962 do not deal with DEPB and, therefore, cannot be invoked.

(xvii)      The Show Cause Notice alleges violation of Section 11 of Foreign Trade (Development and Regulation) (FTDR) Act, 1992. Under Section 2(g) of the said Act, “Licence” means a licence to import or export and includes Customs Clearance Permit and any other permission issued or granted under the Act. Under Section 3(3) of the said Act, “All goods to which any order under sub-section (2) of Section 3 applies shall be deemed to be goods, the import or export of which has been prohibited under Section 11 of the Customs Act, 1962 and all the provisions of that Act shall have effect accordingly. In the instant case, the DEPB Credits granted to the appellants do not come within the definition of a “Licence” under FTDR Act, 1992. Hence, the impugned goods exported by the appellants cannot be deemed to be prohibited under the provisions of Section 11 of the Customs Act, 1962.

(xviii)     The appellants submit that the impugned goods are not prohibited or restricted goods under any of the following enactments: -

The Customs Act, 1962

The Customs Tariff Act, 1975

The Foreign Trade (Development and Regulation) Act, 1992 or the Rules made thereunder, and

ITC(HS) Classifications of Export and Import Items 2002-2007.

(xix) In view of the above, the provisions of Section 113(d) and (i) as well as 114(i) of the Customs Act, 1962 are not applicable to the present case.

(xx) Section 28 of the Customs Act, 1962 provides demand of ‘duty’ levied under the above Act for the situations mentioned therein. Under Section 2(15), “duty” means a duty of Customs leviable under this Act. This is also made clear under Section 12 ibid, which is the charging section. The benefit of DEPB granted by the Licensing Authorities is not a ‘duty of Customs.’ In such circumstances, the Department has no jurisdiction to demand the alleged excess DEPB credit granted to the appellants by the JDGFT. Further, the Customs Act, 1962 does not empower the Commissioner or for that matter, any Officer of Customs to grant, modify or revoke an entitlement (Import Licences, Advance licences, DFRC, DEPB, EPCG, etc.) granted by the Licensing Authorities (DGFT/JDGFT) under the provisions of the Foreign Trade (Development & Regulation) Act, 1992 or the EXIM Policy notified from time to time. The proposal to reduce the entitlement of DEPB from 5% to 2% is the prerogative of the JDGFT only and not the Customs.

3. The learned Senior Advocate for the respondents urged the following points: -

(i)      The DEPB Scheme works like this :

- The exporter exports the product under a special Shipping Bill prescribed for the DEPB Scheme.

- After the export is made, on the basis of the Shipping Bill, they apply to the   DGFT for grant of DEPB credit/Licence.

- The DGFT grants the credit based on the details of exports in the Shipping Bill.

- The credit is made use for payment of import duty.

All the above steps constitute part of a single process of assessment of duty. For claiming credit, the exporter should have exported the product in accordance with the Customs Act and the DEPB Scheme. Hence, the Shipping Bills presented at the time of export constitute the foundation for claiming credit of duty at a later stage. If there is any misdeclaration at the time of export, then automatically the consequential benefits, based on the said exports, will also be nullified.

(ii)    As per para 7.43 of Handbook of Procedures, before allowing the exports against DEPB, the Customs shall verify that the details of the exports as given in the DEPB are as per the records. In the present case, the credit is available as under:-

For the product under Sl. No. 2, the rate was reduced to 4% from 1-4-2001. A reading of the entries reveal that if no preservatives are used, then the item would be classified under Sl. No. 1 and the rate of credit will be only 2%.

(iii)   It is the case of the department that in the present cases, the exporters have not used any preservatives while exporting the product, which will be clear from their own declaration. Where the department is satisfied that preservatives are used, then the department itself has permitted credit of duty at 5% of FOB value.

(iv)   The learned Senior Advocate cited from the records of the case, instances of various statements of the concerned persons and also certain documents such as their application for approval to Export Inspection Agency, as evidence for not using preservatives. All the export products are certified by the Veterinary Doctors stating that preservatives have not been used. Therefore, the Tribunal cannot permit the appellants to contend that they have used the preservatives by relying upon certain other documents.

(v)     The appellants have given a false declaration in the Shipping Bills stating that preservatives have been used. Since the declaration is false, the benefit availed on the basis of the said export stands nullified. Once the declaration is false, the foundation of the entire case of the exporters collapses. The export of the product under the DEPB Scheme, the issue of Pass Book, the availing of credit at the time of import constitute one comprehensive scheme. The exporter cannot escape from the liability of payment of duty as he has availed the benefit of duty credit by submitting false declaration.

(vi)   The decision of Gujarat High Court, in the case of Suresh Dhansiram Agarwal v. UOI - (Guj.) = 2002 (53) RLT 25 is relevant. In the said case, the Tribunal had found that the assessee therein cannot be fastened with the liability to pay the duty as they cannot be considered as importers. While referring to the said contention, the High Court observed as under:

“We are not in a position to agree with CEGAT as regards the said finding that the four firms cannot be said to be the importer.”

(vii)  Circular 45/2003, dt. 4-6-2003 states as under : -

“All DEPB scrips pending registration/verification against exporters covered (ii) above, should be completed immediately including finalization of exports allowed on provisional basis earlier.”

(viii) In the DEPB Scheme, DEPB credit is given only after export is made. The question whether the export has been correctly made or not and whether the Customs duty had been paid correctly or not, is a matter, which falls within the exclusive domain of the Customs Department. Moreover, the DGFT cannot examine the correctness of the entries made in the shipping bill presented at the time of export.

(ix)   The fact that the Customs Department has jurisdiction to initiate proceedings for recovery of duty is clear from the following judgments:-

(i)       Kamath Packaging Ltd. v. UOI - (Kar.)

(ii)     Kamath Packaging Ltd. v. UOI - (Kar.)

(iii)    Jacson Thavera v. Collector of Cus., Cochin -

(iv)    Jacson Thavera v. Collector of Customs & Central Excise - (S.C.)

(v)      Sheshank Sea Foods Pvt. Ltd. v. UOI - (S.C.)

(vi)    Raj Exports v. National Aluminium Co. Ltd. - (Ori.)

(x)      The appellants have stated in the Shipping bills that they have used preservatives as per SION. In that case, they should have used Sodium tripolyphosphate and Sodium metabisulphate. Documentary evidence reveals that they have not used. Hence, the issue of Pass Book on the basis of the export shipping bills and the consequential allowing of credit of customs duty at the time of import are liable to be set aside.

4. We have gone through the records of the case carefully. All the appellants exported marine products under Sl. No. 2 of the list by claiming DEPB at the rate of 5% of the FOB value. There cannot be any dispute that the description given against the Sl. No. 2 should be in conformity with the goods actually exported. It is very necessary that the Customs officials examine the goods at the time of export and their examination is very important. The learned Senior Counsel, appearing for the respondents, strenuously argued that no one can take away the jurisdiction of the Customs as far as certifying the description of the goods exported. We fully endorse his view. Suppose, the description in the shipping bill is readymade garments and the actual item exported are rags, the exporter cannot be given the export benefit. To be sure, the report of the Customs that the description given in the shipping bill does not conform to what was actually found at the time of examination will be crucial for the DGFT authorities to grant or not to grant the DEPB benefit. But, let us see the position in the instant cases. Sl. No. 2 of the DEPB schedule reads as follows:-

“Processed, preserved and frozen fish and crustaceans, mollusks and other aquatic invertebrates (excluding those covered under Sl. No. 1)”

It is not the case of the Revenue that the appellants have not shipped processed and frozen fish etc. as given in Sl. No. 2. The only quarrel is about the term “preserved”. These goods were generally exported to European countries and Japan. It is also a fact that these are all marine products. To put it differently, they are all of animal origin and are supposed to be consumed by human beings. Even for layman, it is unthinkable that they are not preserved. But for preservation, the items would have deteriorated and would have become unfit for human consumption. The method of preservation may be different. Even, the Ministry of Commerce and the DGFT who are the Policy makers were not very clear on the issue. When the Customs Department and DRI investigated the matter and found that no preservatives and chemicals mentioned in the SION have been used, they initiated action against all the appellants and informed the DGFT also. It is seen that the DGFT authorities are having powers under the Foreign Trade (Development and Regulation) Act and exercise quasi-judicial powers. In other words, the issue of reducing the DEPB credit from 5% to 2% on account of the facts revealed in the DRI investigation was very much before the DGFT authorities and the said authorities, after examining the entire issue, have dropped the proceedings against the appellants. As far as the present appeals are concerned, it was learnt during the hearing before the Tribunal that excepting in one case, the proceedings have been dropped. Let us see the findings of the DGFT in respect of one such case. The JDGFT, Cochin, has passed an OIO dated 7th December 2005, in respect of M/s. Baby Marine Products. The following observations in the said order are relevant :-

“Normally, DEPB rate is fixed in respect of the export products covered by SION. However, in certain cases, the DEPB rates have been fixed for certain categories of export products broadly classifying the items into 2 or 3 categories. In case of fish and fish products, only broad classifications are given. Therefore, a one to one co-relation in respect of individual items of export may not be possible and perhaps may not be required also. (Emphasis supplied). The standard input-output norms for a particular product are fixed by DGFT after taking into account all aspects of utilization of the specified inputs at various stages, which go into the production, in consultation with the concerned technical authorities. Basically, the SION is published to enable the exporter to obtain advance licences under the Duty Exemption Scheme. The quantity specified in the SION are the maximum upper limit. The rate of duty credit for a particular product or category of products under the DEPB Scheme is calculated by taking into account the deemed import content of a particular product as per SION and the basic customs duty payable on such deemed inputs. Apart from this, the value addition achieved by export of such product is also taken into account while determining the rate of duty credit under the scheme as laid down in the relevant Handbook of Procedures. (Para 4.37 of current Handbook of Procedures 2004-2009 also refers). It is a well known fact that fish and fish products are a very high value added item. Therefore, the main point to be verified before grant of DEPB is to check up and confirm that the applicant had exported goods which are in conformity with the description given in the DEPB rate schedule, (emphasis supplied)”

From the above, it is seen that the DGFT is of the view that the main point is to check up and confirm that the applicant had exported goods, which are in conformity with the description given in the DEPB rate schedule. In the present cases, we cannot say that the appellants exported some other product other than what is mentioned in Sl. No. 2. The point of contention is only with regard to the use of the preservatives mentioned in SION. The JDGFT himself has said in the above mentioned order that the DEPB Scheme has not put any condition that the exporter should produce evidence for having used chemicals/preservatives in the proportion given in the SION.

In view of the above, we understand that the DEPB rate is fixed not only on account of the use of the inputs mentioned in SION but also on account of value addition. The Government of India has also not issued any instructions to strictly verify whether inputs have been used in the proportion indicated in the SION. When this issue was raised by the Customs, a meeting was held by the DGFT in Cochin. The learned Advocates have referred to this meeting in their submission before the Tribunal. It is learnt that the preservatives are normally used at various stages right from the catching of the fish. Moreover, the Government of India has considerably diluted the requirement of the use of the items according to SION. In fact, they had gone to the extent of saying that even if a meager percentage of chemicals/preservatives are used, that is sufficient. The stand of the Government is very clear as can be seen from the Circular No. 45/2003-Cus., dated 4-6-2003. Even the requirement for giving declaration about the usage of chemicals/preservatives in the shipping bill has been withdrawn w.e.f. 1-4-2002 under DEPB Scheme. The Circular 45/2003 is reproduced below :-

Fish (processed, preserved and frozen) and fish products — Exports under DEPB — Clarifications Circular No. 45/2003-Cus., dated 4-6-2003 F.No. 605/19/2002-DBK

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject : Investigation against exports of processed, preserved and frozen fish and fish products under DEPB Scheme (S. No. 2 of Product Group 66 of DEPB Schedule) by DGRI/Customs authorities - Regarding.

DGRI/Customs had started investigations against exporters of processed, preserved and frozen fish and fish products in 2001 on the basis of an intelligence that such exporters, who were availing 4% DEPB benefit under Entry S. No. 2 of Product Group 66 of DEPB Schedule were resorting to manipulation of export documents so as to avail higher DEPB benefit. In this regard DGRI had issued modus operandi Circular No. 91/2001, dated 24-11-2001. It was alleged that such exporters were raising two sets of invoices, one set for customs with the endorsement that Chemicals and preservatives specified in relevant SION D. 2 are used in the export product and the other set for the foreign buyer and bank which did not contain such a declaration. It was also reported by DRI that many such exporters did not have any evidence showing procurement of preservatives/chemicals claimed to have been used in the export product.

2. As a result of the aforesaid investigation by DRI and Customs, Customs at Mumbai and Ahmedabad stopped verifying/debiting of DEPB scrips issued in respect of processed, preserved and frozen fish and fish products and started resorting to provisional assessment in respect of fresh export consignments.

3. Marine Products Export Development Authority (MPEDA) and Seafood Exporters Association of India (SEAI) represented to Board that as a result of investigation by DGRI/Customs, export of fish and fish products had suffered and many genuine exporters were facing difficulties in meeting their export schedule. Further, the delay in registration of DEPB scrips was causing delay in clearance of import consignments.

4. The issue was discussed in the full Board meeting and vide this Office letter of even number dated 6-9-2002 it was conveyed that verification/registration of DEPB scrips may be withheld only in respect of those cases where investigations are going on or are contemplated; all other cases should be finalized and DEPB scrips verified/registered. Later on, MPEDA, SEAI and DGFT requested for early final decision in the matter. This issue was, therefore, discussed with DGRI, DGFT and Associations in details. In this regard, investigations conducted so far by DGRI/Customs has revealed two types of situations. Whereas in some cases DRI/Customs has completed investigations and issued show cause notices on the basis of their findings, in other cases the investigations are nearing completion. The two types of situations are :-

(i)      where no preservatives/chemicals were actually used by the preserving unit or anybody else in the export product; and

(ii)     where only a meagre percentage of chemicals/preservatives were used.

5. The issue has been examined afresh in the Board and it has   been decided that in cases where the investigations carried out by DRI/Customs clearly prove that no chemicals/preservatives were at all used in the export product at any stage, in all such cases proceedings against the exporters shall continue and the matter would be adjudicated as usual on merits. In cases where there is evidence that the sea-food exporter had used only a meagre percentage of chemicals/preservatives in the export product, keeping in mind the general practice being followed by sea-food industry and the fact that requirement for giving declaration about usage of chemicals/ preservatives in the shipping bill has been withdrawn with effect from 1-4-2002 under DEPB Scheme it has been decided that in such cases the exporter shall be allowed to avail 4% DEPB benefit if he is otherwise eligible of such benefit. All DEPB scrips pending registration/verification, against exporters covered under (ii) above should be completed immediately including finalization of exports allowed on provisional basis earlier.

6. Suitable Standing Order for the guidance of Departmental Officers and Trade Notice for the information of trade may be issued.

7. Receipt of the Circular may kindly be acknowledged.

The Government of India, in its Circular No. 15/99, dated 3-6-1999, has clarified in para 2 that the role of the Customs authorities should be confined to verification of correctness of exporter’s declaration regarding description, quantity and FOB value of the exported product. It will be for the licensing authorities granting credit, to ensure that credit is permitted by them at the correct rate as notified by the DGFT. It may be worthwhile to note that in cases of exports under claim of All Industry Drawback, GOI have issued instructions that the Customs are not required to verify use of inputs on a case to case basis. The DEPB Scheme was introduced in 1997. Even at that time, the Government of India has clarified the role of the Customs and the DGFT. It is abundantly clear that the power to grant appropriate DEPB credit is with the DGFT. As regards the examination of the goods to be exported, the Customs have all jurisdictions and nobody has questioned that part of the jurisdiction of the Customs. If the Customs authorities are of the view that the description given in the shipping bill does not conform to what is found during examination, it is for them to inform the DGFT and later it is for the DGFT to take appropriate action. In the present cases, although the Customs have permitted the exports of the impugned products, a doubt arose as to the proper use of preservatives/chemicals as per SION. The DRI conducted investigations and issued Show Cause Notices. The Show Cause Notices were sent to the DGFT authorities for taking appropriate action under Foreign Trade (Development and Regulation) Act. The DGFT, after giving an opportunity of personal hearing to the appellants, have passed orders dropping the cases. In other words, DGFT have decided not to reduce the credit given to the appellants. In these circumstances, while deciding these appeals, we have necessarily to take into account the fact of DGFT dropping the cases against the appellants. Once the cases against them are dropped by the Competent Authority, there is no basis for the Customs authorities to demand any duty under Section 28 of the Customs Act, 1962. As per the Policy, the DEPB credit is freely transferable. In all these cases, the DEPB scrips have been transferred/sold to others for consideration. Thereafter, the credit has been utilized by the importers for payment of customs duty. When the DGFT, one wing of the Government of India, holds that the credits given are legitimate and cannot be reduced, the Customs Department, another wing of the Government of India cannot simultaneously issue demand. The Government of India cannot speak with forked tongues. Contradictory stands taken by two wings of the Government, especially in a matter like this, would put the community of exporters into great difficulties. Therefore, we are of the opinion that the determination of the DEPB credit and its subsequent modification are entirely within the competency of the DGFT and the Customs authorities cannot commit an act of usurpation by appropriating those powers to themselves. Only in a case where the DGFT modifies the credit given on account of the malpractices of the appellant, the Customs can initiate further proceedings as per law. In these circumstances, in the present appeals, it was submitted that the DGFT had dropped the proceedings in all cases excepting in the case of M/s. Blue Water Foods and Exports Pvt. Ltd. Therefore, we have no other option but to allow all these appeals with consequential relief, if any. As regards the cases pending before the DGFT, any action taken by the Customs is rather premature. Summing up, we allow all these appeals without prejudice to the right of the Customs authorities to take appropriate action in respect of cases pending before DGFT.

(Pronounced in open Court on 12-5-2006)