COMMISSIONER OF CUS. Vs. TRICHY DISTILLERIES & CHEMICALS

JUDGEMENT

(1.) The Revenue is aggrieved with the order -in -appeal No. C. Cus. 286/98, dt. 24 -98 by which the Commissioner (Appeals) has set aside the order -in -original and held that the importer/ respondents had not committed any contravention under the Pass Book Scheme (C. No. 104/95) and the credit given to them against the export of 815.10 M.T. of Glacial Acetic Acid was properly given. The findings recorded by him on the issue is noted herein below : -

(2.) Revenue's contention in this appeal is fthat Undenatured Ethyl Alcohol and Denatured Ethyl Alcohol are distinct items in trade and industry. It is stated that this fact is evident from Customs Tariff Schedule ITC(HS) classification of Export and Import item and pricing of those goods. It is contended that the Respondents had not produced any documentary evidence in support of their claim. While, on the contrary, there is price variation and the items are being marketed at different prices internationally and also locally. The statement of the importer that the process of Denaturing is done only on account of State Government's law and its requirement is also not correct. So also, the observation of the Commissioner (Appeals) that the process of the Denaturing does not affect the requirement of Pass Book Scheme. It is stated that the Pass Book Scheme as defined in Export and Import Policy in Para 54 states that Pass Book Scheme shall apply only to export of products where the standard input -output norms have been published. Upon the export goods by Pass Book holder the designated authority shall calculate, on the basis of the standard input -output norms, including packing materials as provided in general note for packing material in the Handbook of Procedures (Vol. II) the deemed import content of the said exports and determine the basic customs duty payable on such deemed imports he shall credit the said amount in the Pass Book Scheme. Any goods which are not included in the negative list of imports may be imported under the scheme. It is stated that the Pass Book Scheme is to neutralise the duty incidence of basic customs duty on the import contains deemed import or of the export product. In the subject case, export product is a Glacial Acetic Acid and the input material is "Ethyl Alcohol". The nature of Ethyl Alcohol is to be decided on the concept of import content "Deemed Import Content" for the purpose of Pass Book Scheme. As per the Exim Policy, Ethyl Alcohol Denatured is only allowed for import (freely importable). Undenatured ethyl alcohol is a negative list of item and it is not allowed for import. Besides, the Pass Book Scheme does not allow the import of negative list of items, such as undenatured Ethyl Alcohol In such a situation, the import content under the deemed import concept, should be the denatured ethyl alcohol which is freely importable for which the Government wants to give the benefit of customs duty, incidence under the pass book scheme. It is stated that the item which is not eligible for import or which is not allowed for import or cannot be termed as deemed import contents under the Pass Book Scheme and therefore, undenatured Ethyl Alcohol cannot be considered as proper import/input material under this context, it is stated that the undenatured Ethyl Alcohol will not be called as ethyl alcohol. In other words Denatured Ethyl Alcohol is not known as Ethyl Alcohol and this fact is evident from the classification of the item under Customs Tariff ITC (HS) as relied. It is stated that undenatured ethyl alcohol is not used directly for the manufacture of Acetic Acid. It should be denatured from the undenatured Ethyl Alcohol, Acetaldehyde is manufactured. From Acetaldehyde, Glacial Acetic Acid is manufactured. It is stated that undenatured Ethyl Alcohol is used for potable purpose whereas denatured Ethyl Alcohol is for industrial purpose. It is also stated that when the item is not allowed for import it cannot be considered as deemed import content of export product. It is further, stated that Glacial Acetic Acid is the industrial chemical, relatable input material should also be of industrial grade. Denatured Ethyl Alcohol is the industrial grade whereas undenatured Ethyl alcohol is for making potable drinks beverages. It is, further, stated that undenatured Ethyl Alcohol can be considered as input or import material only if export product is beverages. It is stated that only reliable input materials are to be seen for the purpose of nexus. Undenatured Ethyl Alcohol is the first stage and denatured is second stage in the process. It is stated that only after denatured Ethyl Alcohol is used for manufacturing Acetaldehyde and acetic acid. Considering the process involved denatured ethyl alcohol is the direct input material, used for the manufacture of glacial Acetic Acid. Therefore, it is stated that there is no necessity to go in for raw material which is the earlier stage. It is stated that from the clarification given by DGFT vide F.No. 17/3/97 -98/PL/II/59, dt. 13 -6 -97, it is seen that this clarification is very vague and it clarifies that Ethyl Alcohol is allowed as input as per the norm and undenatured Ethyl Alcohol and, therefore, credit should be available for Ethyl alcohol. It is stated that this clarification has also failed to note that there is another description by name undenatured ethyl alcohol under the Customs Tariff Heading 2207.10 where under which the claim has been made. Therefore, the DGFT clarification is silent on the question of considering the input description as "undenatured ethyl alcohol of 80% volume or higher and it does not recommend credit under Heading 2207.10. It is stated that, besides, as per the Exim Policy and Customs Notification No. 104/95, the Customs authorities are empowered to make verification and recommend as to the amount of the credit equivalent to basic customs duty and as the input used in the product manufactured and exported. Therefore, it stated that the determination of customs duty with reference to the input description has been assigned to customs authorities and not to the licensing authorities. Therefore, it is contended that judgments cited by the Respondents are not relevant to the subject goods. It is stated that if the DGFT clarification is to be acted upon, they should recommended that the input item as "Undenatured ethyl alcohol" of 80% volume or higher and hence the clarification given by the DGFT cannot be taken as a ruling.

(3.) We have heard Shri A. Jayachandran, ld. DR, for the Revenue and Shri P.C. Anand, C.A., for the Respondents in the matter.