COMMISSIONER OF CUSTOMS, HYDERABADversusM/S. PENNAR INDUSTRIES LTD. &ANR.

                          [2015) 8 S.C.R. 728


A         COMMISSIONER OF CUSTOMS, HYDERABAD
                                    v.
              M/S. PENNAR INDUSTRIES LTD. &ANR.
                (Civil Appeal Nos. 4444-4445 of2005)
B                            JULY31,2015
                [A.K. SIKRI AND N.V. RAMA'NA, JJ.]
          Customs Act, 1962 - s. 25 - Exemption under
C   Notification No. 3011997 - Claim of- Import of goods against
    advance licence - However, non-fulfillment of export
    obligation under the licence - No exports effected by
    exporting tho~e goods so manufactured from the raw material
    that was imported duty free - Demand of duty by Revenue -
    Assessee's case that it had arranged for third party export,
0
    thus fulfilled its obligation and was entitled to duty free imports
    - Said demand confirmed - However, tribunal set aside the
    same holding that the Director General of Foreign Trade had
    amended the licence permitting such export through third
E   party, it amounted to fulfilling the export obligations - On
    appeal, held: Since the conditions of the exemption
    notification are not fulfilled and law requires strict compliance
    of the exemption notification, assessee becomes liable to
    pay the import duty which was payable, but for the benefit of
F   exemption Notification No 3011997, which was obtained by
    the assessee - Purport of the exemption notification is to
    advance the objectives of the EXIM Policy - When DGFT
    itself accepted the benefits of the assessee and carried out
    the amendment in the import licence and further that the
G   assessee could make the exports on the basis of the
    amendment,· albeit through third party, such person should
    not be left high and dry- Thus, necessary amendments are
    needed in such notifications making appropriate provisions

H                                  728
     COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                 729
                  INDUSTRIES LTD.

to meet these types of eventualities - As regards charge of · A
interest, as per the bond the assessee agreed to pay interest
@24% pa-In the peculiarfaCts of the case, rate of interest
reduced from 24% pa to 9% pa. - Qrder passed by the
tribunal set aside.
                                                              B
      Allowing the appeals, the Court
    HELD: 1.1 In the instant case, advance licence wu
issued to the assessee in terms of para 7.4 of the EXJM
Policy 1997-2000. It was in terms of this licence that the
import of the specified material was permitted on the         C
condition that the assessee is obligated to meet the
export obligation as contained in the licence issue~ by
the DGFT. No doubt, this obligation in the export licence,
read with conditions contained in Notification No. 30/        D
1997, puts the onus upon the assessee to make the
exports of the products produced from the material so
imported. However, it is the case of the assessee that
for certain bona fide reasons (as the bona fides of the
assessee have been accepted by the DGFT), as the              E
assessee was not able to export same very goods
produced by it from the material imported on which he
was given exemption from payment of the import duty,
the DGFT allowed the assessee to meet the export
obligation through third party. [Para 14] [739-H; 740-A-      F
D]
   · 1.2 Insofar as DGFT is concerned, it has passed
Order-in-Original dated 03.08.2011 holding that the
export through third party would tantamount to fulfilling
the export obligation contained in the licence. Howeve~. G
since the total import entitlement of the firm, as per the
amended licences, worked to 2123.1538 MTs and the
assessee had imported 2712.41 MTs, it resulted in excess
import of 589.26 MTs. Therefore, only on this excess H
import, customs duty was payable, which was directed
730         SUPREME COURT REPORTS              [2015] B S.C.R.


A to be paid along with interest calculated@ 15% from
  the date of first import to the date on which last
  consignment of exports were effected by the assessee
  through third party. The DG~T, in its order, also
  mentioned that there was no misutilization of the raw
B material imported by the assessee and there was no
  violation of any other conditions of the licence causing
  Revenue loss at the cost of exchequer. The said Order- .
  in-Original of DGFT was under the provisions of EXIM
  Policy. [Paras 15, 16) [740-D-H]
c
      1.3 Since the conditions of the exemption notification
  are not fulfilled and the law requires strict compliance of
  the ~xemption notification, the assessee becomes liable
  to pay the import duty which was payable, but for the
D benefit of exemption Notification No 30/1997, which was
  obtained by the assessee. [Para 19] [743-F-G]

           1.4 The Government should bestow its consideration
      and make appropriate provision dealing with such
E     situations. After all, the Exemption Notification No. 30/
      1997 has been issued to implement and effect the EXIM
      Policy provisions. Therefore, the purport of the
      exemption notification is to advance the objectives of
      the EXIM Policy. When the DGFT has itself accepted the
F     benefits of the assessee and carried outthe amendment
      in the import licence and further that the assessee could
      make the exports on the basis of the amendment; albeit
      through third party, such person should not be left high
      and dry. Therefore, necessary amendments are needed
G     in such notifications making appropriate provisions to
      meet these types of eventualities. The C<rurt is hopeful
      that the competent authority would look into these
      aspects and cater for such situations as well so that
H     unnecessary hardship is not caused to the bona fide
  COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                    731
              INDUSTRIES LTD.

assessees as well. !Para 20] (7 43-H; 744-A-D]                A

     1.5 As regards charge of interest, as per the bond
the assessee had agreed to pay interest @ 24% per
annum. However, that would not take away the right to
reduce the rate of interest if the ends of justice so B
warrant. In the peculiar ·facts of the case, more so when
there was an amendment in the licence by the DGFT and
DGFT has taken the view that export obligation is fulfilled,
it is proper to reduce the rate of interest from 24% per
annum to 9% per annum. Further, there should not be C
any penalty. [Para 21] [744-D-F]

     Sheshank Sea Foods Pvt. Ltd., Kamataka v. Union of
India & Ors. 1996 (8) Suppl. seR 802: (1996) 11sec755
- relied on.                                            D

   Titan Medical Systems (P) Ltd. v. Collector of Customs,
New Delhi (2003) 9 sec 133 - distinguished.

                  Case Law Reference
                                                              E
  1996. (8) Suppl. SCR 802    relied on.         Para 17

  (2003) 9 SCC 133            distinguished.     Para 18

   CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.            F
4444-4445 of 2005.

     From the Judgment and Order Nos. A-304-305/WZB/
20051C-lll dated 11.03.2005 of the Customs, Excise and
Service Tax Appellate Tribunal, West Zonal Bench at Mumbai
in Appeal Nos. C/303 and Cl304 of 2004.                    G

     YashankAdhyaru, Rupesh Kumar, Rashmi Malhotra, B.
Krishna Prasad fortheAppellant.

    Gourab Banerji, Harsha Peechra, CharuAmbwani Vhom H
732         SUPREME COURT REPORTS                   (2015] 8 S.C.R.


A     Shah, Arjun Krishnan for the Respondents.

          The Judgment of the Court was delivered by

          A.K. SIKRI, J. 1. The respondent No.1 (hereinafter referred
  to as the 'assessee') had imported hot rolled non"alloy steel
8
  wide coils against an advance licence issued under the Duty
  Exemption Entitlement Certificate (DEEC) Scheme. The
  quantity of the said import was 2018.6 MTs. The imports were
  made on 03.03.1999 and 12.04.1999. Atthe time of imports,
c the assessee did not pay the import duty on the aforesaid
  materials taking umbrage under Notification No. 30/1997, as
  amended on 01.04.1997. This Notification allows actual users
  to import the raw material duty-free with the condition that the
  said material would be used by the importer itself and
o converted into specified finished goods and thereafter those
  goods would be exported as per the export obligations given
  in the advance licences. As per this obligation, the assessee
  was supposed to effect export of 1000 MTs cold rolled non-
  alloy steel (hard) coils and 1500 MTs of CRCA skin based
E steel strips/coils totalling 2500 MTs. The value pertaining to
  these export$ was also specified in the licences. The exports
  were to be effected within the time limits mentioned therein,
  which was 02.09.2001, but was extended up to 02.09.2004.

F      2) It is an admitted case that the raw material was used
  by the assessee itself for manufacturing the specified products.
  However, no exports were effected by exporting those goods
  so manufactured from the raw material that was imported duty-
  free. As per the assessee, after manufacturing of the goods
G from the raw material, it was found that quality of those goods
  was not good enough for the purposes of exports. Therefore,
  instead of exporting this material, the assessee disposed of
  the said manufactured gods in the domestic market. At the
  same time, in order to meet the export obligation under the
H said licences, it arranged the export through one Mis. Steel
  COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                      733
        INDUSTRIES LTD. [A.K. SIKRI, J.]

Company, Gujarat as its supporting manufacturer. M/s. Steel A
Company, Gujarat arranged the export performance through
their agents M/s. Shirdi Industries Ltd., Mumbai. M/s. Shirdi
Industries Limited in turn arranged for third party exports of
cold rolled non-alloy steel coils through M/s. Essar Steel Ltd.,
Hazira, Surat, a merchant manufacturer. A quantity of 58.865 B
MTs and 176.5 MTs were exported vide Shipping Bill Nos.
1000051316 dated 17.05.2000 and 1000048872 dated
10.05.2000. These exports were made to Bangladesh via
Mumbai Port. Further a quantity of 510.515 MTs was exported
to Nepal by M/s. Steel Company, Gujarat vide Shipping Bill C
No. 68/DEEC/2000 dated 23.02.2000. On that basis, the
assessee claimed that it had fulfilled its obligation ..

     3) The appellanURevenue was not amused with the
aforesaid manner of fulfilling the t!Xport obligation by the D
assessee. According to the appellant, conditions contained in
Notification No. 30/1997 had not been complied with, by the
aforesaid third party export, as the Notification in question
mandated the export of that very product which was to be
manufactured out of the imported raw material and, therefore, E
the exemption claimed under the aforesaid Notification was
unjustified. The Revenue, thus, issued show-cause notice
dated 30.03.2002 demanding the duty in the sum of
1,65,07,454 along with interest @ 24% from the date of F
clearance. The assessee submitted its reply bringing to the
notice of the Revenue authorities the facts which have already
been noted above. It was pleaded that the export through third
party was as per Export-Import (EXIM) Policy and third party
exports had not availed any of the export incentives. The G
aforesaid reply did not convince the Adjudicating Authority,
namely, the Commissioner of Customs, who passed orders .
dated 31.03.2004 confirming the demand made in the show-
cause notice. He also imposed a penalty of 10 lakhs.
                                                                H
    4) Aggrieved by the aforesaid order of the Commissioner,
734           SUPREME COURT REPORTS                 [2015] 8 S.C.R.


A     the assessee filed appeal before the Customs Excise &
      Service Tax Appellate Tribunal (for short, 'CESTAT'). The
      CESTAT has, vide order dated 11.03.2005, allowed the appeal
      by arriving at a conclusion that Director General of Foreign
      Trade (for short, 'DGFT') had passed an order making
B     amendment in the licence issued under the DEEC Scheme
      which effectively changed the products. Amendment was also
      made in respect of nature of exports to be effected through
      third party exports. Therefore, when the DGFT had amended
      the licence permitting such an export through third party, it
C     amounted to fulfilling the export obligations as this changed
      position had to be reckoned. On that basis, allowing the
      appeal, the order of the Commissioner has been set aside. It
      is this order of the CESTATwhich is under attack in the present
      appeals filed by the Revenue.
0
       5) The neat submission which is made by Mr. Yashank
  Adhyaru, learned senior counsel appearing for the Revenue,
  is that the amendment in the licences, as carried out by the
  DGFT, is totally inconsequential and extraneous to the issue
E at hand. He argued that the matter pertains to levy of import
  duty. The exemption from payment of export duty is provided
  by Notification No. 30/1997 dated 1.4.1997 where a specific
  condition is attached to the effect that 'exempt materials shall
F not be disposed of or utilized in any manner except for
      utilisation in discharge of export obligation or for
      replenishment of such materials and the materials so
      replenished shall not be sold or transferred to any other
      person'. He argued that when admittedly this condition has
G     not been fulfilled by the assessee, the assessee cannot be
      allowed the benefit of Notification No. 30/1997: In respect of
    . this plea, he referred to the judgment of this Court in Sheshank
      Sea Foods Pvt. Ltd., Karnataka v. Union of India & Ors. 1

H     1 (1996) 11   sec 755
   COMMNR OF CUSTOMS, HYDERABAD v. PENNAR                             735
         INDUSTRIES LTD. [A.K. SIKRI, J.]

       6) Mr. Gourab Banerji, learned senior counsel appearing         A
for the assessee, refuted the aforesaid submission and
supported the orders by arguing that the obligation to effect
the export stood fulfilled by the assessee and since it was in
terms of EXIM Policy, the assessee could not be fastened with
any such liability. He also drew our attention to the proceedings      B
which were taken out by the DGFT in this behalf. It was pointed
out that DGFT had issued show-cause notice dated
20.10.2010 for initiating action for failure to complete the export
obligation/failure to submit relevant information/documents. In
this show--cause notice, the proceedings initiated by the              C
appellant herein were also mentioned. The assessee had filed
reply to the same and thereafter matter was adjudicated upon
by the DGFT. After hearing, the Order-in-Original dated
03.08.2011 was passed by the DGFT. In this order, the DGFT             D
has accepted that export through third party amounted to
fulfilling the export obligation contained in the said licences.
However, since the total import entitlement of the firm, as per
the amended licences, worked to 2123.1538 MTs and the
assessee had imported 271.2.41 MTs, it resulted in excess              E
import of 589.26 MTs. Therefore, only on this excess import,
customs duty was payable, which was directed to be paid
along with interest calculated @ 15% from tHe date of first
import to the date on which last consignment of exports were
effected by the assessee through third party. Predicated on            F
this order, submission of Mr. Banerji was that since DGFT has
also accepted the fulfiliment of export obligation under the
licences, there is no question of payment of any further import
duties.
                                                                 G
     7) Another submission of Mr. Banerjee was that non-export
of product manufactured from the said material was bona fide
as it was found to be of inferior quality, not worthy of export,
which bona tides was accepted by the DGFT as well, thereby
permitting the amendment in the licence. Therefore, H
736            SUPREME COURT REPORTS                 [2015] 8 S.C.R.


A     obligations under Notification No. 30/1997 should also be
      treated as fulfilled when the matter is to be looked into from
      this angle as well. Insofar as judgment in the case of Sheshank
      Sea Foods Pvt. Ltd. (supra) is concerned, Mr. Banerji argued
      that the said case pertains to the period prior to 1992 and
B     there is a change in EXIM Policy now. On the other hand, he
      referred to another decision of this Court in Titan Medical
      Systems (P) Ltd. v. Collector of Customs, New DelhP. to
      submit that it should be treated as a case of sufficient
      compliance.
c
           8) We have given our serious consideration to the
      respective submissions made by the learned counsel for the
      parties on either side.

o       9) Notification No. 30/1997 provides for 'Exemption to
  materials imported against advance licence with actual user
  condition'. It is issued by.the Central Government in exercise
  of powers conferred by sub-section ( 1) of Section 25 of the
  Customs Act, 1962 after arriving at a satisfaction that it is
E necessary in the public interest so to do. It exempts materials
  imported in India, against the advance licence with actual user
  condition in terms of para 7.4 of the EXIM Policy 1997-2000,
  from the whole of the duty of customs leviable thereon, including
  the additional duty leviable thereon under the Customs Tariff
F Act, subject to certain conditions mentioned in this Notification.
  In this behalf, we are concerned with condition Nos. (v) to (viii)
  as there is no dispute that other conditions have been satisfied.
  These conditions are reproduced below:

G            "(v) that the export obligation is discharged within the
             period specified in the said certificate or within such
             extended period as may be granted by the Licensing
             Authority by exporting resultants products manufactured

H     2
          c2003J g sec 133
   COMMNR. OF CUSTOMS, HYDERABAD~J. PENNAR                           737
         IN[;USTRIES LTD. [AK. SIKRI, J.]

     in India which are specified in Part "E" of the said certificate A
     (hereinafter referred to as resultant products) and in
     respect of which facility under rule 12(1))b) or rule 13(1)(b)
     of the Central Excise Rules, 1944 has not been availed in
     respect of materials permitted under the said license;
                                                                      B
     (vi) that the importer produces evidence of discharge of
     export obligation to the satisfaction of the Assistant
     Commissioner of Customs within a period of 30 days of ·
     the expiry of period allowed for fulfillment of export
     obligation, o(within such extended period as the said C
     Assistant Commissioner of Customs may allow;

     (vii) exempt materials shall not be disposed of or utilized
     in any manner except for utilization in discharge of export
     obligation or for replenishment of such materials and the D
     materials so replenished shall not be sold or transferred
     to any other person;
                                                          .
     (viii) that in relation to an Advance Licence issued to a
     Merchant Ex-porter -                                      E

      (a) the name and address of the supporting manufactu~er
      is specified in the said licence and the bond required to·
      be executed by the importer in terms of condition (ii) shall
      be executed jointly by the Merchant Ex-porter and the
    · supporting manufacturer binding themselves jointly and F
      severally to comply with the conditions specified in this
      notification; and

    (b) exempt materials are utilized in the factory of such
    supporting manufacturer in terms of condition (vii)."             G

    10) This Notification also contains definition of 'materials',
which reads as under:

    "(i) "Materials" means -                                          H
738          SUPREME COURT REPORTS                    (2015] 8 S.C.R.


A          (a) raw materials components, intermediates,
           consumables, computer software and parts required for
           manufacture of resultant product specified in Part-E of the
           said certificate:

B          Provided that the benefit of this notification shall apply to
           import of Acetic Anhydride, Ephedrine and
           Pseudoephedrine only against licences issued with the
           approval of Advance Licensing Committee in the office of
           the Director General of Foreign Trade~
c
          (b) mandatory spares within the value limft of (10%) of
          the value of the licence which are required to be exported
          along with the licence which are required to be exported
          along with the resultant product; and
D
           (c) packing materials required for packing of resultant
           product."
            .
           11) From the reading of this Notification, it becomes clear
      thatthe material which is imported has to be against an
E     advance licence with actual user condition in terms of para
      7.4 of the EXIM Policy 1997-2000. It is not in dispute thatthe
      assessee was in possession of such an advance licence
      issued by DGFT and this licence was with actual user condition,
F     namely, the material so imported was to be used by the
      assessee itself in its factory for manufacturing the items
      specified therein. As per Condition No.(ii), the assessee was
      required to execute a bond at the time of clearance of the
      imported materials to pay on demand an amount equal to the
G     duty leviable, but for the exemption, on the imported materials
      in respect of which the conditions specified in this Notification
      have not been complied with, together with interest @ 24 %
      per annum from the date of clearance of the said materials.
      The export obligation was contained in the licence issued by
H     the DGFT, which was to be adjusted during the period specified
   COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                         739
         INDUSTRIES LTD. [AK. SIKRI, J.]

in the said certificate or within such extended period, as may A
be granted by the licensing aut~ority (DGFT in this case). The
assessee was supposed to produce evidence of discharge
of export obligation to the satisfaction of the Assistant
Commissioner of Customs within a period of30 days of the
expiry of the period allowed for fulfillment of the export obligation B
or within extended period as allowed. Stringent stipulation is
contained in Condition (vii), which is very significant and
relevant for our purposes. The respondent was not supposed
to dispose of or utilize the exempt materials .in any manner
except for utilization in discharge of the export obligation.         c
       12) It would mean that not only the raw material imported          "'
                                                                          '
(in respect of which exemption from duty is sought) is to be
utilised in the manner mentioned, namely, for manufacture of
specified products by the importer/assessee itself, this very D
material has to be utilised in discharge of export obligation. It,
thus, becomes abundantly clear that as per this Notification, in
order to avail the exemption from import duty, it is necessary
to make export of the product manufactured from that very raw
material which is imported. This condition is admittedly not E
fulfilled by the assessee as there is no export of the goods
from the raw material so utilised. Instead, export is cit the
product manufactured from other material, that too through third
party. Therefore, in stricto senso, the mandate of the said
                                                                   F
Notification has not been fulfilled by the assessee.

     13) In such a scenario, whether amendment cit the licence
by the DGFT allowing export obligation to be fulfilled through
third party would tantamount to meeting the requirement of the
                                                               G
Notification becomes the central issue which needs to be
answered. Some developments which have taken place,
highlighted by the respondent, need to be mentioned at this
stage.

    14) In the present case, advance licence was issued to          H
740       SUPREME COURT REPORTS                   [2015) 8 S.C.R.


A  the assessee in terms of para 7.4 of the EXIM Policy 1997-
   2000. It was in terms of this licence that the import of the
  specified material was permitted on the condition that the
  assessee is obligated to meet the export obligation as
  contained in the licence issued by the DGFT. No'doubt, this
B obligation in the export licence, read with conditions contained
  in Notification No. 30/1997, puts the onus upon the assessee
  to make the exports of the products produced from the material
  so imported. However, it is the case of the assessee that for
  certain bona fide reasons (as the bona tides of the assessee
C have been accepted by the DGFT), as the asses see was not
  able to export same very goods produced by it from the
  material imported on which he was given exemption from
  payment of the import duty, the DGFT allowed the assessee
  to meet the export obligation through third party.
0
       15) It is also correct that insofar as DGFT is concerned, it
  has passed Order-in-Original dated 03.08.2011 holding that
  the export through third party would tantamount to fulfilling the
  export obligation contained in the licence. However, since the
E total import entitlement of the firm, as per the amended
  licences, worked to 2123.1538 MTs and the assessee had
  imported 2712.41 MTs, it resulted in excess import of 589.26
  MTs. Therefore, only on this excess import, customs duty was
F payable, which was directed to be paid along with interest
  calculated @ 15% from the date of first import to the date on
  which last consignment of exports were effected by the
  assessee through third party. The DGFT, in its order, also
  mentioned that there was no misutilization of the raw material
G imported by the assessee and there was no violation of any
  other conditions of the licence causing Revenue loss at the
  cost of exchequer.

      16) The aforesaid Order-in-Original of DGFTwas under
H the provisions of EXIM Policy. It is held by this Court in
   COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                          741
         INDUSTRIES LTD. [AK. SIKRI, J.]
                                                  :--Jr:.
Sheshank Sea Foods Pvt. Ltd. (supra) that the same would A
not be binding on the customs authorities and as far as action
taken under the Customs Actis concerned, the same is to be
covered by the provisions of the Customs Act. The relevant
discussion thereupon which takes note of the concerned
provisions of the Act as well is reproduced below:             B

     "6. Learned counsel placed re·liance upon a
     communication to all Collectors of Central Excise issued
     by the Central Board of Excise and Customs on 13-5-
     1969, on the subject of whether, in the everit of the           C
     contravention of a post-importation condition of an import
     licence, it was open to the Customs authorities to
     confiscate imported goods under Section 111(0) of the
     Customs Act. The said communication stated that before
     Section 111 (o) could be attracted there had "to be an          D
     exemption, subject to a condition, from "!prohibition:.
     Where a valid licence has beeri issued, it is not a case
     of an exemption from the prohibition. Therefore, if a post-
     importation condition of a licence is contravened, it
     cannot be said. that any condition of e"xemption is             E
     contravened. For the reasons stated above,.the Ministry
                                                   '.          .
     of Law have advised that it may not be possible to take
     action under Section 111 (o) with respect to fh'e conditions
     of the licence relating to the use of goods after they are      F
     cleared from the customs charge.

    7. Section 111 (o) is the sheet-anchor of the respondents'
case. It reads thus:

    "111. Confiscation of improperly imported goods, etc. -          G
    The following goods brought from a place outside India
    shall be liable to confiscation -

    xx                          xx                          xx
                                                                     H
742      SUPREME COURT REPORTS                    [2015] 8 S.C.R.


A      (o) any goods exempted, subject to any condition, from
       duty or any prohibition in respect of the import thereof
       under this Act or any other law for the time being in force,
       in respect of which the condition is not observed unless
       the non-observance of the condition was sanctioned by
B      the proper officer."

       8. Section 11-190) states that when goods are exempted
       from customs duty subject to a condition and the condition
       is not observed, the goods are liable to confiscation. The
c      case of the respondents is that the goods imported by the
       appellants, which availed of the said exemption subject
       to the condition that they would not be sold, loaned,
       transferred or disposed of in any other manner, had been
       disposed of by the appellants. The Customs authorities,
D      therefore, clearly had th.e power to take action under the
       provisions of Section 111 (o).

       9. We do not find in the provisions of the Import and Export
       Policy or the Handbook of Procedures issued by the
E      Ministry of Commerce, Government of India, anything that
       even remotely suggests that the aforesaid power of the
       Customs authorities had been taken away or abridged or
       that an investigation into such alleged breach could be
       conducted only by the licensing authority. That the
F      licensing authority is empowered to conduct such an
       investigation does not by itself preclude the Customs
       authorities from doing so.

        10. The communication of the Central Board of Excise
G       and Customs dated 13-5-1969, refers to the breach of
        the condition of a licence and suggests that it may not be
      . possible to take action under Section 111(0) in respect
        thereof. It is true that the terms of the said exemption
        notification were made part of the appellants' licences
H       and, in that sense, a breach of the terms of the said
   COMMNR. OF CUSTOMS, HYDERABAD v. PENNAR                     743
         INDUSTRIES LTD. [AK. SIKRI, J.]

    exemption notification is also a breach of the terms of the A
    licence, entitling the licensing authority to investigate. But
    the breach is not only of the terms of the licence; it is also
    a breach of the condition in the exemption notification upon
    which the appellants obtained exemption from payment
    of customs duty and, therefore, the terms of Section 111(0) B
    enable the Customs authoritie_s to investigate ...

   17) The decision in the aforesaid case, which is of the
Coordinate Bench, binds us.
                                                                c
     18) Judgment in the case of Titan Medical Systems (P)
Ltd. (supra), which was referred to by Mr. Banerji , has no
relevance at all. In that case, one of the conditions of duty
exemption scheme contained in Notification No, 116/88-CUS
was for conversion of raw material into the resultant product D
involving substantial manufacturing activity. The Court
considered the scope of 'substantial manufacture' and held
that assembly of various components into finished machines
(ultrasound scanners in that case) amounted to substantial.
manufacture and it was not necessary that manufacturing of E
substantial amount of component is required. Obviously, the
issue was altogether different which has no bearing on the
controversy involved in the present case.

     19) Since the conditions of the exemption notification are F
not fulfilled and the law requires strict compliance of the.
exemption notification, the assessee becomes liable to pay
the import duty which was payable, but for the benefit of
exemption Notification No 30/1997, which was obtained by
the assessee.                                                   G

    20) Though we have rendered this decision keeping in
view the legal position discussed above, atthe same time, we
deem it necessary to observe that the Government should
bestow its consideration and make appropriate provision         H




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744          SUPREME COURT REPORTS                 (2015] 8 S.C.R.


A dealing with such situations. After all, the Exemption
  Notification No. 30/1997 has been issued to implement and
  effect the EXIM Policy provisions. Therefore, the purport of
  the exemption notification is to advance the objectives of the
  EXIM Policy. When the DGFT has itself accepted the benefits
B of the assessee and carried out the amendment in the import
  licence and further that the assessee could make the exports
  on the basis of the amendment; albeit through third party, such
  person should not be left high and dry. Therefore, necessary
  amendments are needed in such notifications making
C appropriate provisions to meet these types of eventualities.
  We are hopeful that the competent authority shall look into these
  aspects and cater for such situations as well so that
  unnecessary hardship is not caused to the bona fide
  assessees as well.
0
       21) Insofar as charge of interest is concerned, we are
  conscious of the fact that as per the bond the assessee had
  agreed to pay interest@24% per annum. However, that would
  not take away our right to reduce the rate of interest if the ends
E of justice so warrant. In the peculiar facts of this case, more
  so when there was an amendment in the licence by the DGFT
  and DGFT has taken the view that export obligation is fulfilled,
  we deem it proper to reduce the rate of interest from 24% per
F annum to 9% per annum. Further, there shall not be any penalty.

          22) Setting aside the order of the Tribunal, the appeals
      are allowed in the aforesaid terms with no order as to costs.

      NidhiJain                                     Appeals allowed.