BEFORE THE AUTHORITY FOR ADVANCE RULINGS
(CUSTOMS & CENTRAL EXCISE)
NEW DELHI
 

PRESENT

O R D E R
(By Mr. Justice Syed Shah Mohammed Quadri)

          The applicant, M/s. A. Tex (India) Private Limited, filed this application under section 28H of the Customs Act, 1962 (hereinafter referred to as "the Act")  seeking an advance ruling in respect of the following questions:

Question No.1:      Can (Standard and Additional) duty free clearance of the items detailed against serial Nos. 140, 167, 167A and 168 of the table read with condition Nos.21 and 21A in the Annexure to the Main Exemption Notification No.21 dated 1^st March 2002 as amended by Notification No.26 dated 1s^t March, 2003 issued by Department of Revenue, Ministry of Finance, Government of India, in exercise of the powers conferred by sub section (1) of Section 25 of the Customs Act, 1962 (52 of 1962) be allowed by the Customs from a Custom Bonded Private /Public Warehouse to bona fide and other eligible exporters, who are otherwise allowed to import the same items duty free (Standard and Additional Duty) as per Sl.Nos. and conditions of Main Exemption Notification of 2002 referred above?

Question No.2:          Are we (the applicant) allowed by the customs to get the items proposed to be imported by us as detailed against Sl.No.140, 167, 167A and 168 of the table read with condition Nos. 21, 21A in the Annexure to the Main Exemption Notification No. 21 dated 1^st March 2002 as amended by Notification No. 26 dated 1^st March 2003, issued by Department of Revenue, Ministry of Finance, Govt. of India cleared (Standard & Additional) duty free from the Custom Bonded Warehouse proposed to be set up by us to supply the same(items) to bona-fide and other eligible exporters who are otherwise allowed to import these very items duty free as per the Main Exemption Notification No.21 dated 1^st March 2002, its Sl.Nos. and condition Nos. mentioned above?

2.   It may be relevant to note here the factual background in which advance ruling is sought. The applicant and M/s. A.Tex Design (India) Private Limited are Indian subsidiaries of M/s. A. Tex A/S Denmark (a foreign company, hereinafter referred to as the 'Holding Company'). On the date of filing this application, M/s. A.Tex Design India Private Limited was importing the goods under consideration into India from the holding company.   It appears that the applicant and the Holding Company have entered to an arrangement under which the applicant will import the goods of the Holding Company into India and thereafter it sought advance ruling in regard to the aforementioned questions. 

3. When the case was placed before us for passing preliminary order under sub section 2 of section 28 I of the Act, having regard to the contents of the application and the comments  offered by the jurisdictional Commissioner, notice was ordered to the applicant to show cause as to why the application should not be rejected in view of proviso (a) to the said provision and also for the reasons that the applicant is said to have already commenced the activities of importing goods.

4. To appreciate the points raised in the notice, it is necessary to look into the relevant provisions of the Act.  Proviso (a), sub-section(2)  of section 28-I enjoins that the Authority shall not allow the application where the question raised in the application is already  pending  in the applicant's  case before any officer of Customs, the Appellate Tribunal or any Court.  On the grounds that another subsidiary (M/s A-Tex Design India Pvt. Ltd.) of the same foreign holding company is already importing the goods and the case is pending before Customs Officer, it was sought to be contended that the proviso would be attracted.  However, this plea was not pursued by the Revenue and in our view rightly so.

5.       To seek an advance ruling from the Authority under the Act, what is necessary is that the applicant must satisfy the requirement of definition of 'applicant' and 'advance ruling' which shall be in respect of matters enumerated in sub-section (2) of the section 28H.

The term  "applicant" is defined in clause (c ) of Section 28E thus:
    (c )       "applicant" means -

(i)                  a non-resident setting up a joint venture in India in collaboration with a non-resident or a resident; or

(ii)                a resident setting up a joint venture in India in collaboration with a non-resident; or

(iii)              a wholly owned subsidiary Indian company, of which the holding company is a foreign company,

who proposes to undertake any business activity in India and makes application for advance ruling under sub-section(1) of section 28H;

6.        From a perusal of definition extracted above, it is evident that  the term takes in its fold three categories of persons,  referred to in clauses (i) to (iii), who propose to undertake any business activities in India and make application for advance ruling under sub section (I) of section 28H. The first category is comprised of non-residents setting up a joint venture in India in collaboration with a non-resident or a resident; in the second fall residents setting up a joint venture in India in collaboration with a non-resident and the third takes in wholly owned subsidiary Indian Companies of which the holding company/companies are foreign companies.

7.        Now we may advert to the definition of expression of 'advance ruling' incorporated in clause (b) of section 28E which reads as under:

(b)       "advance ruling' means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity which is proposed to be undertaken, by the applicant;"

It means determination by the Authority on a question of law or fact, specified in the application,  regarding the liability to pay duty in relation to an activity which is proposed to be undertaken by the applicant. The term 'activity' is defined in clause (a) to mean import or export.

8.        Sub-section (2) of Section 28H is as follows:-

"(2)      The question  on which the advance ruling is sought shall be in respect of, -

(a)                classification of goods under the Customs Tariff Act, 1975 (51 of 1975);

(b)                applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty;

(c)                the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act;

(d)                applicability of notifications issued in respect of duties under this Act, the Customs Tariff Act, 1975 (51 of 1975) and any duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act."

Admittedly the aforementioned questions fall in clause (b).

9.        Merely because another subsidiary (M/s. A. Tex Design Private Limited) is importing the same goods it cannot be said that the applicant is ineligible to seek advance ruling from the Authority.   Having regard to the scheme of Ch. V B of the Act incorporating the beneficial provisions of advance ruling, a liberal interpretation has to be placed to extend rather than withhold the benefit of the chapter, of course, without doing any violence to those provisions inasmuch as there is no adversarial litigation.    The applicant is a wholly owned subsidiary Indian company of M/s. A. Tex Denmark which is a foreign company and it is seeking advance ruling in respect of its liability to pay duty in relation to import of goods  - an activity proposed to be undertaken by it under the notification referred to in the questions. It is not disputed before us that the applicant has  not commenced importing the  goods.  As such, it is end to seek advance ruling.   We, therefore, discharge show cause notice.

11.      Now coming to the merits of the case, the questions referred to above, in short, means whether the benefit of Notification No.21/2002 dated 1.3.2002 as amended by Notification No.26/2003 dated 1.3.2003 would be available to a purchaser of  goods sought to be imported by the applicant, at time of ex-bond clearance from the Bonded Warehouse when such a purchaser is a bona fide exporter and is otherwise allowed to import the goods duty free.It would be apt to read the said Notification here:

Text of the main Exemption Notification

Notification No. 21/2002 dated 1.3.2002.

(As Amended by Notification 26 dated 01 March 2003; Sl.Nos. 416 to 433 inserted by 28/01.03.2003)

Ntfn 21

01.03.2002

In exercise of the powers conferred by  sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and in supercession  of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.17/2001-Customs, dated the 1^st March, 2001 [G.S.R. 116(E) dated the 1^st March,2001], the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods of the description specified  in column (3) of the Table below or column (3) of the said Table read with the relevant List appended hereto, as the case may be, and falling within the Chapter, heading or sub-heading of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the corresponding entry in column (2) of the said Table, when imported into India;

(a)                from so much of the duty of customs leviable thereon under the said First Schedule as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table;

(b)                from so much of the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act, as is in excess of the rate specified in the corresponding entry in column (5) of the said Table.Subject to any of the conditions, specified in the Annexure to this notification, the condition No. of which is mentioned in the corresponding entry in column (6) of the said Table:Provided that nothing contained in this notification shall apply to -

a)         the goods specified against serial Nos. 239, 240, 241 and 242 of the said Table on or after the 1^st day of April, 2004;

b)                  the goods specified against serial Nos. 250, 251, 252 and 415 of the said Table on or after the 1^st day of March, 2005.

Explanation:- For the purposes of this notification, the rate specified in column (4) or column (5) is ad valorem rate, unless otherwise specified."

12.           A plain reading of the Notification extracted above shows that the Central Government has exempted the goods of the description specified  in Col.3 of the Table read with the relevant list appended thereto and falling within the Chapter, heading or sub-heading of the     first schedule to the Customs Tariff Act, 1975 as specified in the corresponding entry in Col.2 of the said Table when imported into India.   The exemption is in respect of so much of the duty of customs leviable thereon under the said first schedule as is in excess of the amount calculated at the rate in the corresponding col.4 of the said Table and also so much of the additional duty leviable thereon under sub-section (1) of section 3 of the Customs Tariff Act as is in excess the rate specified in the corresponding Col.5 of the said Table.   It is to be noted that the exemption is subject to any of the conditions specified in the Annexure to the Notification, (the condition number is mentioned in the corresponding entry in Col. 6 of the said Table).   The goods  which are  sought to be imported are at No. 140, 167, 167A and 168. As against item 140 no condition is mentioned but the entry itself contains the phrase 'imported by bonafide exporters'.     In respect of items 167 and 168 exemption under the notification would be available provided the requirements of condition No. 21 and in respect of item 167A the requirement  of condition 21A are  fulfilled.   The said conditions read as follows: 
 

21. If, -

"(a) the goods are imported by a manufacturer of textile garments or leather for use in the manufacture of said goods for export by that manufacturer and the said manufacturer is registered with the Apparel Export Promotion Council or Council for Leather Exports, as the case may be,-

(b)   the total value of goods imported shall not exceed 3 per cent of the FOB value of textile garments or leather garments exported during the preceding financial year, however, the value of lining, and inter-lining materials imported shall not exceed 2 per cent of the said total value";

(c)                 the importer produces a certificate from the Apparel Export Promotion Council or Council for Leather Exports, as the case may be, certifying the value of exports made during the financial year mentioned in clause (b) above, and also the value and quantity of goods already imported under this notification during the current financial year;

(d)                the importer produces a certificate from Apparel Export Promotion Council or Council for Leather Exports, as the case may be, certifying that the lining and inter-lining materials shall not be put to any other use or sold in the market except in the manufacture of textile garments or leather garments; and (e) there is a doubt as to the useability of lining and interlining materials in relation to the export product, the Commissioner of Customs, for reasons to be recorded in writing, orders drawal of sample at the time of export to verify such use;"

21A.   If.-

(a)      The goods are imported by a manufacturer of leather footwears, leather gloves, or travel goods, hand bags and similar containers all made of leather, for use in the manufacture of said goods, for export by that manufacturer and the said manufacturer is registered with the Council for Leather Exports:

(b)      The total value of goods imported shall not exceed 1 percent of the FOB value of leather footwear, leather gloves, or travel goods, hand bags and similar containers all made of leather exported during the preceding financial year;

(c)      The importer produces a certificate from the Council for Leather Exports certifying the value of exports made during the financial year mentioned in sub-condition (b), and also the value and quantity of goods already imported under this notification during the current financial year."

It is not necessary to delve into these conditions.  Suffice it to say that unless the respective condition is satisfied, the benefit of the notification cannot be availed.

         It is fairly conceded before us by the applicant that none of these conditions are satisfied in this case.   If this be so, the benefit of the notification is not available to the applicant who is not a bonafide exporter and is not using the imported goods as inputs to manufacture goods for export; nor will it be available to purchasers from the applicant even though they may be utilizing the imported goods in manufacturing other goods for exporting the same for the simple reason that admittedly they have not imported the goods in question.

13.      Accordingly, on the aforementioned questions we rule as follows:

(1)            that duty free clearance of the items detailed therein, proposed to be imported by the applicant,  cannot be allowed by Customs from a Customs Bonded Private/Public Warehouse to purchasers of imported goods from the applicant even if they are  bona fide  and  eligible exporters and even though they are eligible to import the said goods duty free;  and

(2)            that the applicant cannot be allowed to clear items detailed in the question,  proposed to be imported, by the customs duty free from Customs Bonded  Warehouse so as to supply the same to bona fide and other eligible exporters who are end  to import those items duty free.

NEW Delhi
Dated: 16.3.2004

F.No. AAR/44/102/2003/