The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that imports made under valid Advance Authorisations were entitled to exemption from Countervailing Duty (CVD) and Anti-Dumping Duty (ADD), while the Department also failed to establish, through cogent technical evidence, that the remaining disputed imported components were “castings” covered by the relevant levy notifications.
The bench of Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has referred to the Supreme Court’s decision in Nizam Sugar Factory v. Collector of Central Excise, observing that where the Department had already issued a Show Cause Notice concerning particular facts, it could not ordinarily invoke the extended period again on the basis of the same material by alleging suppression of facts already within its knowledge.
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The appellant/assessee engaged in the manufacture and supply of Wind Operated Electricity Generators (WOEGs), had imported various parts of wind-operated electricity generators from China through several Bills of Entry. The goods were classified under Customs Tariff Heading 85030090.
The Customs Department took the view that the imported goods constituted “castings for wind operated electricity generators” and were consequently covered by Notification No. 01/2016-Customs (Countervailing Duty) dated 19 January 2016 and Notification No. 42/2017-Customs (Anti-Dumping Duty) dated 30 August 2017.
On this basis, a Show Cause Notice was issued proposing recovery of differential duty under Section 28 of the Customs Act, 1962. The adjudicating authority ultimately confirmed a differential duty demand of ₹39,84,80,470, along with interest under Section 28AA, and held the goods liable to confiscation under Section 111(m), with redemption fine under Section 125. Penalties were also imposed under Section 114A of the Customs Act.
The assesse disputed the Department’s characterization of all the imported goods as castings.
The company contended that a substantial portion of the imports consisted of forged components, machined assemblies, fabricated structures, electrical systems and other non-casting products. According to Vestas, such products did not fall within the scope of the Product Under Consideration (PUC) specified in the CVD and ADD notifications.
The appellant relied upon technical catalogues, engineering literature and a report of the CSIR–National Metallurgical Laboratory, apart from component-wise material and technical specifications, to establish the manufacturing process and nature of the disputed products.
The Department, on the other hand, maintained that the imported goods fell within the description of “Castings for Wind Operated Electricity Generators”. It argued that machining, drilling or partial processing did not alter the essential character of the products as castings and that the burden of establishing exemption lay upon the importer.
The Designated Authority had defined the PUC as castings for wind-operated electricity generators, whether or not machined, in raw, finished or sub-assembled form, or as part of a sub-assembly or equipment/component meant for wind-operated electricity generators.
The Tribunal noted that the PUC was not defined as “all parts of Wind Operated Electricity Generators”. Instead, the definition specifically centred upon the essential character of the article as a casting.
Accordingly, the Tribunal held that the inclusion of expressions such as “sub-assembly”, “equipment” and “component” did not enlarge the levy to every part used in a wind turbine. Components manufactured through processes such as forging, fabrication, machining or assembly could not be brought within the PUC merely because they were ultimately used in a wind-operated electricity generator.
The Tribunal further emphasized that the levy was product-specific rather than merely end-use based. Therefore, merely because an imported product was intended for use in a wind-operated electricity generator was insufficient to attract CVD or ADD unless the product itself possessed the essential character of a casting.
The Tribunal placed particular emphasis on the evidentiary burden resting on the Revenue.
According to the Tribunal, where imports comprised technically different products manufactured through casting, forging, machining and fabrication processes, a general conclusion that all imported goods were castings could not be sustained.
The Department was required to establish, on the basis of cogent evidence, component-wise and Bill of Entry-wise, that each imported article answered the description of the PUC. In the absence of such evidence, duty liability could not be fastened merely on the basis of the intended end use of the goods or broad assumptions concerning their nature.
The Tribunal separately examined imports made under valid Advance Authorisations.
Vestas argued that the disputed imports had been made under valid Advance Authorisations and that the export obligations had subsequently been fulfilled. The appellant relied upon Export Obligation Discharge Certificates (EODCs), Redemption Certificates, Chartered Accountant’s Certificates and Customs bond discharge orders.
Notification No. 18/2015-Customs dated 1 April 2015 was central to the issue. The notification provides exemption for materials imported against a valid Advance Authorisation from specified customs duties, including Countervailing Duty under Section 9 and Anti-Dumping Duty under Section 9A of the Customs Tariff Act, 1975, subject to fulfilment of the prescribed conditions.
The Tribunal held that the exemption was a conditional exemption. The statutory scheme protected the Revenue by requiring execution of bonds and furnishing evidence of fulfilment of export obligations. Where the export obligation was not fulfilled, the duty foregone could be recovered along with applicable interest.
However, once the export obligations were fulfilled and the competent authorities issued the requisite certificates and discharged the statutory bonds, the contingency for recovery of the exempted duty ceased to exist.
The Tribunal found that Vestas had produced EODCs issued by the competent Regional Authority of the Directorate General of Foreign Trade (DGFT), along with Redemption Certificates and Chartered Accountant’s Certificates.
Importantly, the jurisdictional Customs authorities had also discharged and cancelled the statutory bonds after being satisfied about compliance with the conditions of Notification No. 18/2015-Customs.
The Tribunal observed that these documents constituted significant evidence that the conditions governing the Advance Authorisation Scheme had been fulfilled.
It further noted that the Revenue had not challenged the authenticity or validity of the Advance Authorisations, EODCs, Redemption Certificates or bond discharge orders. There was also no material showing that the competent authorities had cancelled, suspended or modified the authorisations or withdrawn the EODCs.
The Tribunal relied upon the principle laid down by the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs and Titan Medical Systems Pvt. Ltd. v. Collector of Customs, holding that Customs authorities cannot disregard valid licences and statutory authorisations issued by the competent licensing authority unless those documents have been cancelled, modified or otherwise invalidated in accordance with law.
Applying that principle, the Tribunal observed that the Advance Authorisations continued to remain valid and that the competent authorities had certified fulfilment of export obligations.
The Tribunal therefore concluded that the Customs authorities could not proceed on the assumption that the export obligations remained unfulfilled when the statutory authorities had already certified compliance and the Customs bonds had been discharged.
The Tribunal specifically noted the appellant’s submission that the differential duty involved in respect of imports made under Advance Authorisations amounted to approximately ₹18,40,04,330.
It held that where imports were effected under valid Advance Authorisations and the conditions of Notification No. 18/2015-Customs had been fulfilled, CVD and ADD exemption could not be denied.
Thus, even if particular imported goods were otherwise found to fall within the scope of the CVD and ADD notifications, no CVD or ADD would be payable in respect of those imports covered by valid Advance Authorisations.
The Tribunal then considered the imports which were not covered by valid Advance Authorisations or for which the exemption was otherwise unavailable.
The appellant had furnished component-wise bifurcation statements, product catalogues, engineering drawings, metallurgical reports and technical specifications. These materials were relied upon to demonstrate that several disputed components were manufactured through forging, fabrication or other processes rather than casting.
The Tribunal gave particular significance to the CSIR–National Metallurgical Laboratory report, which, according to the appellant, concluded that the examined articles were forged components and not castings.
The Tribunal observed that the Revenue had not produced any contrary metallurgical opinion, expert report or comparable technical evidence to rebut this material.
The Tribunal found that the Department’s case suffered from an evidentiary deficiency.
It observed that the appellant had produced detailed component-wise statements distinguishing castings from forged products, machined assemblies, fabricated structures and other non-casting items. However, the appellant’s evidence had not been adequately controverted by the adjudicating authority.
The Tribunal further observed that the Show Cause Notice had merely alleged that the goods declared as parts of WOEG/wind turbines were “casting parts” and consequently attracted CVD, without adducing supporting expert reports, test reports, statements or other adequate evidence.
Since the Department had failed to discharge its burden of establishing that the disputed imported goods answered the statutory description of the PUC, the Tribunal held that no duty liability survived on the imported goods in the case.
The Tribunal separately examined limitation under Section 28 of the Customs Act, 1962.
Vestas pointed out that an earlier Show Cause Notice dated 29 January 2018 had already covered substantially similar imports. Therefore, according to the appellant, the Department was already aware of the nature of the imported goods, the classification and the exemption claimed.
The Tribunal found considerable force in the appellant’s contention and held that the Department could not invoke the extended period of limitation in the circumstances of the case.
The Tribunal further found that part of the demand related to imports which had already crossed the statutory outer limit of five years when the present Show Cause Notice was issued.
It held that any demand travelling beyond the maximum period prescribed under Section 28(4) of the Customs Act was barred by limitation and could not be sustained.
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