Holding

The exemption under Notification No. 208 of 1981 is unavailable for goods intended for export; the respondent’s wilful suppression triggers the proviso to Section 28(1), making the show‑cause notice valid despite the lapse of one year.

Summary

M.J. Exports Ltd imported 55 haemodialysers under the Open General Licence on 19 October 1988, claiming exemption from customs duty under Notification No. 208 of 1981 for life‑saving equipment and paid no duty. The goods were subsequently intended for export to the USSR. Customs authorities held that such life‑saving items imported under the OGL are meant for use in India and not for re‑export, issued a show‑cause notice under the proviso to Section 28(1) of the Customs Act for short‑charged duty and imposed a penalty. The CEGA Tribunal set aside the notice, but the Supreme Court held that the exemption does not apply when the importer intends to export, that the respondent wilfully suppressed this fact, and that the proviso to Section 28(1) (extended limitation) makes the notice valid despite being beyond one year. Consequently, the appeal was allowed, restoring the Collector’s order and setting aside the CEGA decision.

Issues considered

Whether a show‑cause notice issued after more than one year from the date of import falls within the extended limitation period under the proviso to Section 28(1) of the Customs Act, 1962.
Whether exemption from customs duty under Notification No. 208 of 1981 is available for life‑saving drugs or equipment that are intended for re‑export.
Whether the respondent’s omission of the intention to export constitutes wilful suppression attracting penalty.

Legislation cited

Customs Act, 1962s. 111(o), s. 11(1)(o), s. 112(a), s. 113(d), s. 28(1) proviso

Subjects

Customs dutyExemptionLife‑saving equipmentOpen General LicenceRe‑exportSection 28(1) provisoExtended limitation periodWilful suppressionPenalty

Judgment

A
COLLECTOR OF CUSTOMS, BOMBAY
v.
M/S. M.J. EXPORTS LTD.

B AUGUST 14, 2001

[B.N. KJRPAL AND SHIVARAJ Y. PATIL, JJ.]

Customs Act, 1962 :

c life saving drugs or medicines or equipment-Import of-Customs duty--
Exemption fi-om-Assessee imported life saving drug and paid no duty on it-
Assessee then sought to export the said item to another country-Entitlement
to exemption from duty-Held: Import of such item is only for use in India
and not meant for export to another country-Hence, assessee not entitled
D to exemption Ji-om customs duty-Customs Notification No. 208 of !981.

Section 28(1) proviso-Show cause notice-Issue of-Extended period
of limitation-Applicability of-Life saving drugs or medicines or equipment-
Import of-Customs duty-Exemption from-Assessee imported life saving
drug and paid no duty on it-Intention to export such item not disclosed-
E Show cause notice demanding duty and penalty issued beyond the period of
one year-Validity of-Held: By not disclosing the/act that the item is meant
for re-export benefit of exemption is availed of-It is a suppression of correct
fact-Therefore, extended period of limitation applicable-Hence, show cause
notice validly issued.

F The respondent imported and cleared life saving goods under the Open
General Licence and claimed the benefit of exemption under Customs
Notification No. 208of1981 and no duty was paid on the said import.

The said item was then sought to be exported to another country. The
G appellant was of the opinion that the item which had been imported from abroad
could not be so exported to another country and, therefore, issued a show cause
notice under the proviso to Section 28(1) of the Customs Act, 1962 for recovery
of short-charged customs duty and also imposed a penalty. The Customs, Excise
and Gold (Control) Appellate Tribunal set aside the aforesaid show cause
notice. Hence this appeal.
H 564
COLLECTOR or CUSTOMS V. M.J. EXPORTS LTD. 565

The following question arose before this Court A
Whether the show cause notice which was issued by the appellant to
the respondent beyond the period of one year of import of the items in question
is covered by the provisions of Section 28(1) proviso of the Customs Act, 1962
and, therefore, within time ?
B
Allowing the appeal, the Court

HELD: I. Any item which was imported under the Open General
Licence which fell in the category of life saving drugs or medicines or
equipment clearly implied that the import was for India and not for being
exported to another country. 1568-FI C
M.J Exports ltd v. CEGAT, (1992) 6 ELT 161 (SC), relied on.

Hansraj Gordhandas v. HH. Dave, Assistant Collector of Central Excise
and Customs, 11969] 2 SCR 253, referred to.

2. When import of life saving drugs or medicines or equipment is only D
for use in india then the exemption from payment ofcustoms duty necessarily
has to be of those items only, namely, those ·whii;_h are used in India. This
being the case, the respondent was not entitled to claim the benefit of exemption
as provided by Customs Notification No. 208of1981. 1570-B, q

3.1. There was an obligation on the respondent not to claim exemption E
on the import so made if the respondent intended to export the life saving
drugs to another country. If in law such exemption could not be claimed
because the goods were to be exported from India, then it is by suppressing
such a fact that the goods were cleared for export without payment of customs
duty. (570-F, G] F
Padmini Products v. CCE, (1989) 43 ELT 195 (SC) and CCE v. Chemphar
Drugs and Liniments, 1198912 SCC 127, held inapplicable.

3.2. When in law benefit of exemption notification can only be availed
of if the goods are to be used in India, then by claiming the exemption what is G
given out to the customs authorities is that the goods are not going to be
exported. That was a suppression of correct fact, namely, that in fact the goods
were to be exported. If this fact had been known, import duty would have been
levied and benefit of exemption notification would not have been allowed.
Therefore, the provisions of the proviso to Section 28(1) of the Customs Act,
· 1962 was applicable and the show cause notice issued by the Customs H
566 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

A authorities was valid. [570-H; 571-A, B, C, DI
4. This is not a case of mere failure or negligence on the part of the
respondent, it was clearly a design on its part to import and then export. [571-DI

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6069 of
B 1999.

From the Judgment and Order dated 20.5.99 of the Customs Excise and
Gold (Control) Appellate Tribunal, New Delhi in A.No. C/327/94/B-2 in O.No.
!09 of 1999/B-2.

C A.K. Ganguli, K. Swami, K.C. Kaushik and B.K. Prasad for the Appellant.

T.R. Andhyarujina, Pramod B. Agarwala and Ms. Praveena Gautam for
the Respondent.

The Judgment of the Court was delivered by
D
KIRPAL, J. The main question which arises for consideration in the
present case is whether the show cause notice which was issued by the
appellant to the respondent beyond the period of one year of the import of
the items in question is covered by the provisions of Section 28(1) proviso
of the Customs Act, 1962 (for short "the Act") and, therefore, within time.
E
Briefly stated the facts are that on 19th October, 1988 the respondent
imported and cleared 55 units of Haemodialysers under the Open General
Licence (OGL). It claimed the benefit of Customs Notification No. 208of1981
and no duty was paid on the said import.

F The goods were then taken to Kandla and were sought to be exported
to USSR. On 2nd December, 1988, the customs authorities at Kandla were of
the opinion that the goods which had been imported from abroad could not
be so exported to Russia. On advice having been received from Joint Chief
Controller of Import & Export, a show cause notice on 25th March, 1989 was
G issued by the Deputy Collector of Custom Kandla for confiscation of the
goods under Section 113(d) of the Act. The respondent was also asked to
show cause why short charged customs duty of Rs. 2,94,42,867 should not
be recovered since the goods had been cleared at NIL rate of duty claiming
the benefit of Customs Notification No. 208 of 1981. It may here be stated that
on a bond being executed, the goods in question were in fact allowed to be
H exported to Russia.
COLLECTOR OF <CUSTOMS v. M.J. EXPORTS LTD. [KIRPAL, J.] 567
On 22nd October, 1990, the Collector of Customs, Kandla, ordered A
confiscation of goods under Section 113(d) and imposed a penalty of Rs. 50
Lakhs. As regards the recovery of short duty, the Collector observed that the
counsel for the respondent had submitted that Collector of Customs, Kandla,
had no jurisdiction to demand duty for the goods imported through Bombay.
The Collector agreed with this contention but added that even otherwise
Notification No. 208/198 l exempted the goods unconditionally from import B
duty. The demand of duty was, therefore, dropped.

The decision of the Collector of Customs, Kandla imposing the penalty
of Rs. 50 lakhs was challenged in appeal before the CEGA T but without
success. Appeal was then filed to th is Court and was contended by the C
respondent that under the OGL the goods could be imported and cleared and
thereafter there was no prohibition in re-exporting the same. By judgment
dated 14th May, 1992 reported as M.J Exports Ltd. v. CEGAT, (1992) 6 ELT
161 (SC), this court while dismissing the appeal of the respondent, inter alia,
came to the conclusion that in the OGL List 2 of the Schedule permitted import
of life saving equipment. The court interpreted this to mean that the life D
saving equipment appearing in List No. 2 of Appendix 6 of the Import &
Export Policy had to be such as for use in India. It was on this basis that the
court came to the conclusion that .the goods could not have been validly
exported and the penalty levied was upheld. The Court also noticed the
contentions on behalf of the Revenue regarding the import of goods free of E
duty by relying on the said Notification and in this respect it observed as
follows:

"25 .......

(1) Much emphasis has been laid by the counsel for the Revenue
on the circumstance that the appellant had obtained the import of the F
goods free of duty b; relying on the notification granting exemption
from customs duty. It is obvious that it could not have been the
intention of the legislature to grant exemption from customs duty in
respect of vital goods of the nature in question in order that an
importer may make profit by selling them abroad. The notification is, G
therefore, relevant for the issue before us to the limited extent that it
lends supports to the construction of List 2 of Appendix 6 in the
manner we have interpreted it. Th is apart, we are not concerned here
with the questions whether the attempt of the assessee to export the
goods (which has, in the event, been successful) would amount to an
infringement of the conditions permitting the import so as to re11der H
568 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A either the import itself [vide S. l 11 (o) of the Act] or the exemption from
import duty or both illegal and invalid and, if so, the consequences
thereof."

It also observed that such goods which were imported had to be for use
in this country and not in another.
B
After the aforesaid decision, on 6th April, 1993, a show cause notice
was issued by the Collector of Customs, Bombay, under Section 11 l(o) of the
Act for recovering duty of Rs. 2,94,42,867 under Section 28(1) of the Act read
with proviso to the said Section. After giving an opportunity to the respondent
of being heard, on 28th January, 1994, the Coliector of Customs, Bombay
C ordered confiscation under Section 111 (o) of the Act and imposed a penalty
of Rs. 1 crore under Section l 12(a) and further ordered payment of duty of
Rs. 2,94,42,867.

The said decision of the Collector was challenged before the CEGA T.
D On a difference of opinion with regard to the question as to whether the
extended period of limitation of five years could be invoked in the present
case, the matter was referred to a third Member. The third Member agreed with
the Judicial Members and came to the conclusion that there was no wilful
suppression on the part of the respondent and, therefore, the extended period
of limitation did not apply. The order of the Collector of Customs was,
E accordingly, set aside. Hence, this appeal.

After hearing the counsel for the parties, we are of the opinion that in
view of the decision of this court in M.J. Exports case (supra) there can be
no doubt that any item which was imported under OGL which fell in the
category of life saving drugs or medicines or equipment clearly implied that
F the import was for India and not for being exported to another country. Mr.
Andhyarujina, learned senior counsel for the respondent referred to Hansraj
Gordhandas v. H.H. Dave, Assistant Collector ofCentral Excise and Customs,
Surat and Two Ors., [1969] 2 SCR 253 and submitted that it is well established
that in a taxing statute there is no rule for any intendment but regard must
G be had to the clear meaning of the words. While there can be no quarrel with
this proposition in Hansraj's case, the Court did observe at page 259 as
follows:

" ...... If the tax-payer is within the plain terms of the exemption it
cannot be denied its benefit by calling in aid any supposed intention
H of the exempting authority. If such intention can be gathered from the
COLLECTOR 0' CUSTOMS v. M..l. EXPORTS LTD. [K!RPAL, J.) 569
construction of the words of the notification or by necessary A
implication therefrom the matter is different, but that is not the case
here ........ "
(Emphasis added)

It is, therefore, clear that if on construction it necessarily follows that
the goods though imported under OGL were to be used only in India then B
such a construction could be properly placed. In this regard, it will be useful
to refer to the observations of this Court in MJ. Exports' case (supra) at page
171 which are as follows :

"22. We are, therefore, of the opinion that, although there is no
express prohibition, the re-export as such of items of goods specified c
in List 2 and imported into India is prohibited by necessary implication
by the language of; and the scheme underlying, the grant of OGL in
regard to them. It is difficult to agree that the import-export policy
envisages the re-export of goods belonging to this category. The
opinion of the CCIE is also to the same effect. The opinion also D
derives some binding effect from Para 24(1) of the Import Policy read
with Paras 22 & 23 of the Export Policy, which say :

Para 24(1) : The interpretation given by the Chief Controller of
Imports and Exports, New Delhi in the matter of interpretation of
Import Policy and procedures shall be final and will prevail over E
any clarification given by any other authority and person in the
same matter.

Para 22: Cases for relaxation of existing policy and procedures
where it creates genuine hardship or where a strict application
of the existing policy is likely to affect exports adversely may be p
considered by the Chief Controller of Imports and Exports.

Para 23 : Jn matters relating to export, as well as the interpretation
of expo1i policy and procedures, the person concerned may
address the Chief Controller of Imports and Exports, New Delhi
for necessary advice. Any interpretation of the export policy G
given in any other manner or by any other person will not be
binding on the Chief Controller of Imports and Exports, or in
law."

It is, however, contended by the. learned senior counsel for the
respondent that notwithstanding the aforesaid decision of this Court, in the H
570 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A present case the Exemption Notification No. 20811981 does not contain any
condition that exemption will not be granted if the goods imported are not
used in India. The notification of exemption has been issued under Section
25 of the Customs Act. The heading of the Schedule indicates that the
exemption relates to life saving drugs or medicines as well as to life saving
B equipments. Just as this Court in MJ Exports' case has observed that inherent
in the import for life saving drugs or medicines as per List 2 of Appendix is the
condition that the goods imported must be for use in India, similarly when
the exemption is granted under Section 25 from the total amount of customs
duty in respect of life saving drugs or medicines, it necessarily implies that
it is only with respect to those life saving drugs or medicines which are used
C in India. Furthermore, the notification under Section 25 has to be read along
with the OGL permitting such import of life saving drugs or medicines and
equipments and reading the two together it would follow that when import
of such items is only for use in India then the exemption from payment of
customs duty necessarily has to be of those items only, namely, those which
are used in India. This being the case, the respondent was not entitled to
D claim the benefit of exemption as provided by Notification No. 208 of 1981.

It was contended that there has been no wilful suppression on the part
of the respondent. The law as it then stood enabled the importer to take the
benefit of the exemption notification and the larger period of limitation would,
E therefore, not be applicable. In support of this contention, reliance was placed
on the decisions of this Court in Padmini Products v. Collector of C. Ex.,
(1989) 43 EL T 195 (SC) and Collector of Central Excise, Hyderabad v. Mis.
Chemphar Drugs and Liniments, Hyderabad, (1989] 2 SCC 127. We are of the
opinion that these decisions can be of little assistance to the respondent.
From what has been stated hereinabove, it must follow, logically, that inherent
F in the import of the life saving equipment was the condition that the same
had to be used only in India. That condition also stood attached to the terms
of Exemption Notification No. 208/1981. There was an obligation on the
respondent intended to export the life saving equipment to Russia. There can
be little doubt, and the examination of the respondent's Director makes it very
-
G clear, that the equipments were imported from abroad solely with the intention
of exporting the same to Russia. This being the position, the respondent
could not have claimed exemption under the said Notification No. 208/1981.
If in law such exemption could not be claimed because the goods were to be··
exported from India, then it is by suppressing such a fact that the goods were
cleared at Bombay without payment of customs duty. It is contended by Mr.
H Andhyarujina that the bill of entry does not require the importer to indicate
COLLECTOR OF CUSTOMS v. M.J. EXPORTS LTD. (KIRPAL, J.] 571
the purpose for, which the goods were being imported. That may be so but A
when in law benefit of exemption notification can only be availed of if the
goods are to be used in India, then by claiming the exemption what is given
out to the customs authorities is that the goods are not going to be exported.
That was a suppression of correct fact, namely, that in fact the goods were
to be exported. If this fact had been known, import duty would have been B
levied and benefit of exemption notification would not have been allowed. It
is to be seen that when the imported items were sought to be exported merely
within two months of the import, the goods were detained at Kandla. The
customs authorities were, therefore, quite clear in their mind that such life
saving equipments when imported under the OGL could not be re-exported.
This was the correct position in law as has been upheld by this Court. If at C
the time of import on 19th October, 1988, it had been known that the goods
imported are not to be used in India but are to be exported, then the benefit
of exemption notification would not have been granted. By not disclosing the
correct fact that the goods were meant for re-export, the benefit of exemption
was availed of. In our opinion, therefore, the provisions of the proviso to
Section 28(1) was applicable and the show cause notice issued by the customs D
authorities on 6th April, 1993 was valid.

Further this is not a case of mere failure or negligence on the part of
the exporter, it was clearly a design on its part to import and then export as
is evident from the following passage at page 174 of the judgment in M.J. E
Exports' case (supra) wherein with regard to the conduct of the respondent
in relation to the export to Russia the Court observed as follows :

"Learned counsel for the Revenue also pointed out that the shipping
bills called for a mention as to whether the goods of which export was
sought were "free goods or India produce to be exported or India F
. produce". The appellant did not strike off any of these descriptions
as inappropriate. The customs authorities were given the impression
that these were Indian goods that were being exported. Indeed, the
appellant itself well knew that goods imported could not be exported
as such without the performance of some operation of processing or G
manufacture in regard to them. That is why it put up a facade of taking
the goods to Ankleshwar after their import allegedly for being
subjected to some processes. The customs officers, on verification,
found that all this was untrue and that the appellant was surreptitiously
trying to export imported goods, after just repack.ing them as goods
of Indian manufacture. The appellant had adopted a similar subterfuge H
572 SUPREME COURT REPORTS [2001] SUPP. I s.c:~.

A on the earlier occasion in December 1987 and succeeded in exporting
like goods by not striking out the appropriate columns of a shipping
bill proforma which required the exporter to specify whether the goods
were "Indian produce or foreign produce to be re-exported". It is,
therefore, urged that the goods sought to be exported do not conform
to the description in the bill of entry for export, attracting the provisions
B of clause 3(3) of the Export Control Order and, in turn, S. l 13(d) of the
Act. There is some force in this contention but we express no opinion
thereon as this was not the ground on which action was taken and
it is a new ground, involving investigation of facts, taken for the first
time before us."
c For the aforesaid reasons, this appeal is allowed and the decision of
CEGA T is set aside and that of the Collector of Customs is restored.

V.S.S. Appeal allowed.

•