[Order per : H.K. Thakur, Member (T)]. - Appeal No. C/69/2007 has been filed by M/s. BDB Exports Ltd. (Main Appellant) against Order-in-Original No. 07/CUS/CC(P)/WB/2007, dated 28-2-2007 passed by the Commissioner of Customs (Prev.), West Bengal, Kolkata as Adjudicating authority. Appeal No. C/70/2007 has been filed by Shri Nirmal Kumar Bhura, Director of the main Appellant, against the same Order-in-Original dated 28-2-2007 under which a penalty of Rs. 2.00 Lakh has been imposed upon the Director under Section 112(a) of the Customs Act, 1962.

2. Dr. Samir Chakraborty (Sr. Advocate), Shri Hasmukh Kundalia (Advocate) and Shri Arnab Chakraborty (Advocate) appeared on behalf of the Appellants. Dr. Samir Chakraborty submitted that main Appellant imported three consignments of processed cloves as detailed in Para 2 of the Order-in-Original dated 28-2-2007 and claimed the benefit of Notification No. 73/95-Cus. (N.T.), dated 7-12-2005 prescribing the Customs Tariff (Determination of Origin of Goods under Agreement on SAARC Preferential Trading Arrangements) Rules, 1995 (SAPTA Rules) read with Notification No. 105/99-Cus., dated 10-8-1999, as amended. That Adjudicating authority has denied the benefit of Notification No. 105/99-Cus. on the grounds that imported cloves are not of Bangladesh origin and have been mis-declared as ‘Processed Cloves’ by showing abnormally high value addition. That Appellant submitted the required certificates with respect to Bangladesh origin of cloves from prescribed authority in Bangladesh as per SAPTA Rules and that Revenue has not alleged that the said certificates of origin are forged. That so long as the certificate of origin continue to remain in force department cannot deny the benefit of Notification No. 105/99-Cus. Learned Sr. Advocate made the Bench go through the certificates of origin issued by the appropriate authority in Bangladesh. Learned Sr. Advocate also relied upon the following case laws in support of his arguments :-

(i)      Zuari Industries Ltd. v. Commissioner of C. Ex. & Customs - [ (S.C.)]

(ii)    Yellamma Dasappa v. Commissioner of Customs - [ (Kar.)]

(iii)   Bombay Chemicals Pvt. Ltd. v. Appellate Collector of Customs - [ (Bom.)]

(iv)   Bharat Heavy Electricals Ltd. v. UOI - [ (Cal.)]

(v)     Dhar Cement Ltd. v. Commissioner of Central Excise - [ (T)]

2.1 Learned Sr. Advocate further argued that Adjudicating authority has proceeded on an erroneous basis to examine as to what amounts to processing of cloves. That it now well settled by the superior courts, including Apex Court, as to what can constitute processing and manufacture. That every activity undertaken from Handling, Cleaning, sorting and upto packing will amount to process. He relied upon the following case laws :-

(i)      Servo-Med Industries Pvt. Ltd. v. CCE [ (S.C.)]

(ii)    Chandeswar Singh v. State of Assam [1978 (42) STC 424 (Gau.)]

2.2 That show cause notice also proceeds on a wrong notion that only extraction of oil from the cloves will make them ‘processed cloves’. That cloves, from which oil is extracted are available in the market at lower price and if Revenue’s view is upheld then there can never be value addition in cloves.

2.3 That value addition has been correctly reflected as ‘B’ in ‘Box 8’ of the certificates of origin as prescribed in Para 7 of the Schedule under SAPTA Rules, 1995. That the value addition percentage claimed by the supplier of cloves has been duly certified by the appropriate authority as required under SAPTA Rules. That neither Notification No. 73/75-Cus. (N.T.), dated 7-12-1995 nor Notification No. 105/99-Cus., dated 10-8-1999 authorize any officer/agency in India to question the genuineness of the certificates of origin except as provided in Para 9 of the Schedule to Notification No. 73/75-Cus. (N.T.)

2.4 That various statements and evidences of authorities in India by the department is a futile exercise as neither any such authority nor an individual in India can certify the value addition made by the supplier in Bangladesh. That cross-examination of the relied upon witnesses was not allowed in spite of specific request made.

2.5 That once the issue stands heavily in favour of the Appellant then no confiscation of goods under Section 111(n) & 111(o) of the Customs Act, 1962 is attracted and no penalty is imposable upon the appellants.

3. Shri K.C. Jena, ADC (AR) appearing on behalf of the Revenue argued that processes of cleaning, grading, packing, etc. does not amount to processing of cloves. That processed cloves will be only those cloves from which oil has been extracted. That even the Appellant has accepted activities of drying, grading and packing cannot lead to value addition of 69%. He made the Bench go through Q. No. 22 of the statement dated 1-6-2005 of Shri Nirmal Kumar Bhura, Director of the main appellant. That Chairman of Spices Board of India vide letter dated 12-7-2005 has opined that processes carried out by the supplier will not make the cloves as processed cloves which are called ‘exhausted cloves’ or ‘spent cloves’ and will also not make the goods of Bangledesh origin. Learned AR thus strongly defended the Order-in-Original dated 28-2-2007 passed by the adjudicating authority.

4. Heard both sides and perused the records of the case. The issue involved in the present appeal is whether the main appellant is eligible to avail partial exemption under Notification No. 105/99-Cus., dated 10-8-1999 when read with SAPTA Rules. As per the first proviso to this Notification, the Assistant Commissioner/Deputy Commissioner/Joint Commissioner has to be satisfied that imported goods are in accordance with the Customs Tariff (Determination of Origin of Goods under the Agreement on SAARC Preferential Trading Arrangement) Rules, 1955 (SAPTA Rules). As per Rule 4 of the SAPTA Rules read with its Schedule even products processed in the member countries are eligible for concessions under SAPTA Rules when the base goods are not produced/manufactured in the contracting countries. The only requirement under these Rules is that a certification of origin has to be produced for availing concessions as issued by the designated authority of Govt. of exporting contracting State and notified to the other contracting States in accordance with the certification procedures mentioned in the form annexed to SAPTA Rules. Required certificates of origin with respect to imported goods were furnished by the appellant where percentage of value addition as per SAPTA Rules was also indicated. Adjudicating authority has not accepted the value addition indicated in the certificate of origin but has gone with the investigation indigenously to allege that value addition cannot be to the extent claimed by the Appellant and also that activities undertaken by the supplier of cloves does not amount to ‘processing’ of cloves. It is observed from various provisions of SAPTA Rules and Notification No. 105/99-Cus., dated 10-8-1999 that there is no discretion or power with the Customs authorities to reject the certificate of origin given by the concerned contracting State. Para 9 of the same Schedule does give power to the contracting States to review/modify the said Rules.

4.1 It is also observed that Hon’ble Apex Court in the case of Zuari Industries Ltd. v. CCE & Cus. (supra) held as follows :-

“9. Firstly, on the facts we find that the assessee had given to the Sponsoring Ministry its entire Project Report. In that report they had indicated that for the expansion of the fertilizer project they needed an extra item of capital goods, namely, 6MW Captive Power Plant. In their application, the assessee had made it clear that the fertilizer project was dependant on continuous flow of electricity, which could be provided by such Captive Power Plant. Therefore, it was not open to the Revenue to reject the assessee’s case for nil rate of duty on the said item, particularly when the certificate says so. In the judgment of this Court in the case of Tullow India Operations Ltd. (supra), this Court held that essentiality certificate must be treated as a proof of fulfilment of the eligibility conditions by the importer for obtaining the benefit of the exemption notification. We may add that, the essentiality certificate is also a proof that an item like Captive Power Plant in a given case could be treated as a capital goods for the fertilizer project. It would depend upon the facts of each case. If a project is to be installed in an area where there is shortage of electricity supply and if the project needs continuous flow of electricity and if that project is approved by the Sponsoring Ministry saying that such supply is needed then the Revenue cannot go behind such certificate and deny the benefit of exemption from payment of duty or deny nil rate of duty. To the said effect is the judgment of the Calcutta High Court in the case of Asiatic Oxygen Ltd. (supra) in which it was held that the object behind the specific Heading 98.01 in Customs Tariff Act, 1975 was to promote industrialization and, therefore, the heading was required to be interpreted liberally. It was further held that, once an essentiality certificate was issued by the Sponsoring authority, it was mandatory for the Revenue to register the contract.”

4.2 Karnataka High Court in the case of Yellamma Dasappa v. Commissioner of Customs, Bangalore (supra) also observed as follows :-

“9. A valid certificate has been issued and the said certificate, even as on date, has not been withdrawn or cancelled for any alleged violation of the condition by the appellant. Unless the said certificate is cancelled, the Customs Authorities cannot impose customs duty. The seizure of the equipment is only a consequential act that would follow the cancellation of the certificate issued in favour of the appellant. So long as the certificate is not cancelled, the respondents could not, in our opinion, have initiated seizure proceedings in the case on hand. Petitioner-appellant was sent only a questionnaire and the said questionnaire has been answered by the appellant herein. No further action has been taken by the respondents. The Director General of Health Services has also not issued any cancellation of certificate as on date. In these circumstances, we are clearly of the view that without withdrawing or cancelling the certificate already issued, the present seizure cannot stand. Therefore we hold that the seizure effected by the respondents is not in accordance with law. The impugned order of the learned Single Judge, in these circumstances, requires to be set aside and accordingly the same is set aside.”

4.3 CESTAT, Delhi in the case of Dhar Cement Ltd. v. CCE Indore (supra) after relying upon case laws of Supreme Court and Karnataka High Court, held as follows :-

“7. We have heard both sides and examined the appeal records. This is the third round of litigation in the present case. The issue involved is the installed capacity of the appellant vis-à-vis their eligibility to Notification Nos. 24/91 and 5/93-C.E. The concession of notification is available when the installed capacity is not exceeding 1,98,000 T.P.A. It is admitted fact that the Director of Industries, Madhya Pradesh, who is designated as a competent authority in the Notification itself has more than once certified the installed capacity of the appellant to be 1,98,000 T.P.A. As observed by the Hon’ble Supreme Court in normal circumstances such a certificate is to be acted upon. The Hon’ble Supreme Court directed this Tribunal to examine the various material relied on by the Revenue to contest the appellant’s claim for exemption. We perused of the impugned order which was passed after the specific direction of this Tribunal to approach the competent authority for re-examining all the facts, material, evidence, furnished by both the sides to certify the installed capacity. As per the direction of this Tribunal the Director of Industries was addressed by the Adjudicating Authority on 5-9-2002 along with copies of 11 documents (Para 12 of the impugned order) which are relied upon by the Revenue to contest the correctness of certificate issued by the competent authority. In response, the Commissioner of Industries vide his letter dated 17-6-2003 categorically stated that the installed capacity of the appellant unit is 1,98,000 T.P.A. during the impugned period. He also observed that with reference to the various evidences submitted by the Revenue his office is in agreement with the clarification given by the appellant that their annual installed capacity was 1,98,000 M.T. and they were capable to produce 25% extra, which comes to 2,47,500 T.P.A., for which there was no restriction from the Government end. We have noted that all the evidences available with the Department have been submitted to the Commissioner of Industries who reiterated the certificate already issued. In spite of such confirmation by Commissioner of Industries, Madhya Pradesh, the original authority examined the issue of appellants’ eligibility and held that the appellants have deliberately misdeclared the installed capacity to the Central Excise Department to avail the concessional rate of duty under Notification No. 24/91. The Original Authority observed that the very basis of installed capacity certificate is not correct especially when the capacity of individual machinery/equipment and the various other documents of the appellants themselves suggest that installed capacity of their plant was much more than 1,98,000 T.P.A. Accordingly, he held the appellant is not eligible for the concession. We find that while coming to such conclusion he has acted apparently, as appellate authority with reference to certificate issued by the competent authority in terms of the notification. We find the original authority has no such legal powers to sit on judgment on the certificate issued by the competent authority designated by the Government. In case the certificate was obtained by misrepresentation or not presenting full facts the only option left to the Department is to approach the competent authority with all the evidences to modify/cancel the certificate issued already. The Department did approach not only the Director of Industries but also Commissioner of Industries with all the evidences which were examined and the certificate was reiterated by the competent authority. As already noted, no other evidence was left to be considered.”

4.4 In view of the above observations and the ratios laid down by the Courts certificates of origin produced by the Appellant cannot be discounted. There is no evidence on record that designated authority of Bangladesh under SAPTA Rules was maliciously involved with the supplier of cloves and the Appellant.

5. Adjudicating authority has relied upon some indigenous sources to conclude that neither the imported goods are ‘processed cloves’ nor the value addition to extent claimed is justified. Appellant asked for the cross-examination of Shri Sunil Doletram Chhabria, Shri C.J. Jose, Dr. J. Chakraborty and Shri Pratab Chakroborty as per Para 18 of Appellants’ reply dated 5-12-2005 to the show cause notice dated 26-8-2005. These facts have been duly reflected in the submissions of the main appellant in the Order-in-Original dated 28-2-2007 but the request of cross-examination of the witnesses has been conveniently avoided by the Adjudicating Authority and no observations are given as to why request of the appellant for cross-examination is not acceptable. In the absence of cross-examination the evidentiary value of the relied upon witnesses is lost. Secondly, Shri Doletram T. Chhabria is also an exporter and importer of spices whose business is threatened by concessional rate on cloves under SAPTA Rules. Being an interested party his statement otherwise also cannot be relied upon and used against the Appellants. It is observed from the SAPTA Rules that the concessions to member countries are as a result of commitments amongst the SAARC countries for enhancing, inter alia, the trade between the members contracting countries. Great trust is imposed under SAPTA Rules upon the designated authority of Govt. of the Exporting Contracting State as per Para 7 of the Schedule to SAPTA Rules. To fulfil the commitments to SAARC nations a certificate of origin given by exporting contracting State cannot be scuttled by the department by conducting some local investigation creating confusion in extending the exemption benefits. As already observed a certificate of origin issued by the designated authority cannot be dishonoured unless cancelled by the same authority.

5.1 On the issue of processing of cloves it is the case of the department that minor activities done by the supplier will not make the goods as processed cloves and that such processed cloves come into existence only when oil is extracted from natural cloves. It is correctly argued by the Senior Advocate arguing on behalf of the Appellants that ‘exhausted cloves’ or ‘spent cloves’, from which clove oil has been extracted, will be cheaper than the natural cloves. If the argument of the department on this account is accepted then there cannot be value addition in the making of processed cloves and Notification No. 105-99-Cus., dated 10-8-1999 will become redundant, so far as concession/exemption to imported cloves from SAPTA countries is concerned.

5.1.1 On this issue of processing Gauhati High Court vide Order dated 30-8-1978, in the case of Chandeswar Singh v. State of Assam [1978 (42) STC 424 (Gau.)], held that when leaves and roots are removed from the onions then such onions become processed onions. Following observations were made by Hon’ble Gauhati High Court :-

“To put the argument of the learned counsel in nutshell, his contention is that a person who sells onion produced in Assam is not a dealer inasmuch as onion is neither manufactured nor made nor processed. On this assumption, contends the learned counsel, that levy of sales tax on onion imported from outside the State of Assam is hit by article 301 of the Constitution which deals with freedom of trade, commerce and intercourse throughout the territory of India. It is argued that article 304(a) cannot come to the rescue of the State for justifying this levy inasmuch as article 304(a) provides that the legislature of a State may by law impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced. In support of this contention, the learned counsel has relied on State of Madhya Pradesh v. Bhailal Bhai, Firm A.T.B. Mehtab Majid and Company v. State of Madras and State of Rajasthan v. Ghasiram Mangilal. On the other hand, Mr. Goswami, learned counsel for the State of Assam, contends that there is no discrimination between onion imported from outside and onion grown in the State of Assam inasmuch as both are subjected to levy of sales tax. The argument in this connection has centred round the definition of the word “processed”. It is urged by the learned counsel for the petitioner that onion cannot be processed inasmuch as it is not subjected to any mechanical process after it has been removed from the earth.

The word “process’ used as transitive word means according to Webster’s New International Dictionary “to prepare by or subject to treatment or process”. In Nilgri Ceylon Tea Co. v. State of Bombay, Shah, J. as he then was, observed as follows :

“The expression ‘process’ has not been defined in the Act. According to Webster’s Dictionary ‘process’ means ‘to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development or preparation for the market, etc., to convert into marketable form, as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurising, fruits and vegetables by sorting and repacking.”

(1)     [1964] 15 S.T.C. 450 (S.C.); A.I.R. 1964 S.C. 1006.

(2)     [1963] 14 S.T.C. 355 (S.C.); A.I.R. 1963 S.C. 928.

(3)     [1969] 2. S.C.C. 710

(4)     [1959] 10 S.T.C. 500.

According to Chambers’s Twentieth Century Dictionary, “process”, inter alia, means to prepare, (e.g., agricultural product) for marketing. In the Oxford English Dictionary, Vol. VIII, “process” has been defined to mean besides other things, “to preserve fruit, vegetable, etc. by some process”. In Webster’s New International Dictionary, Vol. II, besides other things, process has been defined to mean “a course of procedure, something that occurs in the series of actions”.

Now, it is common knowledge that the onion has its roots under the earth with coats of bulbs also and its leaves sprout on the surface of the earth. It is removed along with the root, the leaves are dried up, and the main part which may be called bulb is exposed in the sunshine and after the leaves have dried up and have been removed from the bulb, the bulb, i.e., the edible round article is taken to the market for sale. From this it will be clear that the commodity is subjected to a treatment or process. It does not remain in the same condition in which it was when embedded to the earth or as initially harvested. Looked at from this angle, we are inclined to hold that onion is processed and that is why the onion grown in the State of Assam has been rightly subjected to a levy of sales tax by the Government.”

5.2 In view of the above case law of Gauhati High Court department cannot sit as on Adjudicator over the certificate of origin given by the designated authority under SAPTA Rules. Only an appropriate authority of Bangladesh could have certified as to what could be the value addition, after satisfying about the nature of processing activities done by the supplier and the extent of expenses incurred by such supplier in carrying out the activities of cleaning, handling, storage, sorting, packing, etc.

6. In view of the above observations and the settled proposition of law certificates of origin issued by the designated authority under SAPTA cannot be rejected which is the only requirement for the satisfaction of the Customs department under Notification No. 105/99-Cus., dated 10-8-1999. Once on merit the case goes in favour of the main appellant, there is no question of confiscation of imported goods and imposition of penalties upon the appellants.

7. Appeals filed by the Appellants are allowed with consequential relief, if any.

(Dictated and pronounced in the open Court)