Legal principle

A person invoking an exemption notification must strictly comply with and clearly establish every condition of the notification, and in case of doubt or ambiguity the benefit goes to the State, not the assessee.

Court decision

The Karnataka High Court allowed the Civil Petition filed by the Principal Commissioner and set aside the CEGAT final order dated 10.01.2003. It held that the exemption from customs duty (Notification No.1/95-CE dated 04.01.1995; conditions of Notification 51/2000 dated 27.04.2000) was unavailable because actual value addition was only 5.18% against the required minimum of 33%, and that non-compliance with the licence and notification conditions, coupled with misrepresentation to the JDGFT, rendered the goods liable to confiscation under Sections 111(m), 111(o) and 111(4) of the Customs Act.

Facts

M/s. Lucky Exports, a Government-recognised export house, contracted with the Russian Ministry of Defence to supply 255 Complete Electronic Ventilation Systems and obtained a DGFT advance licence to import components on condition that their specifications conformed to those used in the resultant export product. DRI seized the second consignment, finding the firm had actually imported complete equipment in CKD-SKD condition, that the claimed manufacture in India was a facade, and that the supporting manufacturer had no manufacturing facilities. A show-cause notice dated 30.07.2001 alleged the assembly and testing undertaken was inadequate to constitute 'manufacture' and that the firm misrepresented facts to the JDGFT to obtain the advance licence. The Commissioner, by Order-in-Original No.5/2002 dated 30.01.2002, held the goods liable to confiscation under Section 113(b) and imposed penalty under Section 114 on the partners, the supporting manufacturer and Sri Ashok Murthy, finding value addition far below the 33% mandated under paragraph 11.7 of the EXIM Policy 1997-2002.

Key provisions

• Section 130, Customs Act, 1962 —  Appeal to High Court
• Section 111(o), Customs Act, 1962 — Confiscation of improperly imported goods etc
• Section 130A, Customs Act, 1962 — Application to High Court
• Section 114, Customs Act, 1962 — Penalty for attempt to export goods improperly etc
• Section 130E, Customs Act, 1962 — Appeal to Supreme Court
• Section 113(d), Customs Act, 1962 — Confiscation of goods attempted to be improperly exported
• Section 112, Customs Act, 1962 — Penalty for improper importation of goods