1. M/s. Suguna Foods Ltd., the Appellant in C/41075/2013 (hereinafter referred to as importer) has filed MA for change of their name in the cause title. Ld. Advocate submits that the impugned order was issued in the name of M/s.Suguna Poultry Farm Ltd. However, the name of the importer got changed to Suguna Foods Ltd. vide Tribunal Misc. Order No.42158/2013 dt. 03.09.2013.He submits that the name is further changed to Suguna Foods Private Ltd. vide Certificate of Incorporation Consequent upon conversion to Private Limited Company, dated 14.06.2015 issued by the Registrar of Companies, Tamil Nadu.

2. Heard Ld. A.R. In view of Certificate of Incorporation issued by the Registrar of Companies, Tamil Nadu, the Registry is directed to change the name of the importer as Suguna Foods Private Ltd. in all future proceedings. MA (CT) is allowed.

3. Suguna Foods private Ltd. imported Poultry Dry Mix with full exemption from Customs duties under Indo-Sri Lankan Free Trade Agreement (ISFTA) with Sri Lanka. The subject goods were imported from M/s. Ocean Feeds Pvt. Ltd., Sri Lanka, which is alleged to be a wholly owned subsidiary of the importer. Two such consignments were detained on the issue of discrepancy concerning date of issue of Certificate of Origin (hereinafter referred to as COO). During further investigation, it was observed that there was discrepancy in the quantity and description of raw materials between the Cost Statement submitted by the importer to Sri Lankan authorities in support of the claim for exemption under ISFTA and the actual Formulation and Consumption details of Ocean Feeds Pvt. Ltd. which was submitted to D.R.I by the importer. Based on the apparent evidences gathered during investigation, references were made to Sri Lankan authorities wherein, inter alia it was pointed out that taking into account the entire quantity of raw material imported from non-contracting parties, Sri Lankan authorities in turn confirmed that in case of two Certificates of Origin bearing Nos.CO/ISFTA/06/6523 dt. 10.8.2006 and CO/ISFTA/06/6661dt. 11.08.2006, the value of imported materials originating from non-contracting parties have exceeded 65%, due to use of different raw material, which have not been mentioned in the Cost Statement. Pursuant to another reference made by DRI on 28.12.2007, these two COOs were cancelled. The two said COOs covered goods imported in four containers. It appeared to the department that in respect of goods imported under another 25 Certificates of Origin covering 45 containers, either formulation and consumption details were found to be same or third country components was found to be same or higher. As per Rule 7 of the ISFTA Rules 2000 notified under Notification No.19./2000-Cus. (NT) dt. 1.3.2000, the total value of raw materials originating from countries other than contracting parties or of undetermined origin should not exceed 65% of the FOB value of the products produced or obtained. Department took the view that the remaining 25 consignments imported and cleared by producing the other COOs appear to have been obtained by suppression of facts and collusion between the importer and M/s.Ocean Feeds Pvt. Ltd. Sri Lanka, imported in violation of condition laid down under Rule 7 of the ISFTA Rules. Accordingly, a show cause notice dt. 08.06.2011 was issued to the importer, inter alia proposing denial of benefit of exemption under Notification No.26/2000-Cus.dt. 1.3.2000 in respect of the goods imported and cleared vide the said 25 Bills of Entry, demand of duty of Rs.2,26,50,335/- with applicable interest, confiscation of the goods imported, and imposition of penalties under Section 114A / 112 (a) and 114AA of the Customs Act, 1962. In adjudication, vide the impugned order dt.15.02.2013, the adjudicating authority inter alia held that in all the 25 Bills of Entry covering 45 containers, third country components are higher than the stipulated 65%, thereby violating Rule 7 of the ISFTA Rules, hence denied benefit of exemption, demanded differential duty of Rs.2,26,50,335/- with interest and imposed penalty of Rs.1 crore under Section 112 (a) of the Customs Act, 1962. Importer is aggrieved with this Order and has filed Appeal C/41075/2013. Revenue is aggrieved with non-imposition of equal penalty under Section 114A of the Customs Act and nonimposition of penalty under Section 114AA ibid by the adjudicating authority and have filed Appeal C/41122/2013.

4. When the matter came up for hearing, on behalf of the importer, Ld. Advocates Shri Vipin Jain and Shri G. Krishnamoorthy made oral and written submissions which can be broadly summarized as under :

i) At the time of import, importer had placed on record with the Customs authorities COOs signed by the competent authority in Sri Lanka. Each of the 25 COOs which are the subject matter of these appeals certify the percentage value of raw material originating from non-contracting parties to be less than 65% of the FOB value of the export goods, thus implying satisfaction of the minimum value addition condition specified in Rule 7 of Notification No.19/2000-Cus (NT).

ii) DRI Chennai, based on a reference from Chennai Customs, commenced investigations sometime in November, 2006 and scrutinized all the documents pertaining to consignments imported from the beginning. On examination, DRI found that in respect of 2 COOs, bearing Nos.Co/ISFTA/06/6523 (hereinafter referred to as COO 6523) dated 10.8.2006 and Co/ISFTA/06/6661 (COO 6661 for short) dated 11.8.2006, by which 4 containers having 3 different formulations (referred to as AF, AH & AG in SCN) had been imported, the value of third country imports was more than 65% in two of the three formulations (AF & AH). While AF had Mycosorb and AH had L.Threonine, AG did not have any additional imported material when compared to the cost sheet approved by Sri Lankan Authorities. No discrepancy was detected in the consignment containing formulation AG. Notwithstanding the fact that formulation AG was satisfying the value addition condition, the importer paid differential duty with interest in respect of all 4 containers relating to the 2 COOs in dispute. A SCN was issued proposing imposition of penalty and the adjudicating authority confirmed the penalty proposed in the SCN. In appeal, the penalty was reduced to 25% and order in appeal was complied with by the importer. No further appeal was filed by any of the sides.

iii) The DRI, based mainly on the discrepancies noticed in the above 2 COOs, suspected similar discrepancies in the other COOs issued by the Sri Lankan authorities. Accordingly, DRI made reference to the Sri Lankan Government requesting for re-verification of all COOs issued by it. The correspondence went on till the middle of 2008. The Sri Lankan authorities, while recording withdrawal of the 2 COOs referred to above, refused to cancel the remaining 25 COOs. The Sri Lankan authorities justified their decision by informing the DRI that they have visited the exporters factory, examined the production processes and scrutinized the records and satisfied themselves that only in respect of the 2 COOs referred to above, there was a mistake on the part of exporters factory to have added Mycosorb and L-Threonine in the production of Poultry Feed Premix.

iv) Despite the Sri Lankan Authorities refusal to cancel the 25 COOs the Department issued a show cause notice to the importer demanding duties by proposing to deny the benefit of Exemption under Notification No.26/2000-Cus dated 1.3.2000.

v) The finding of the learned Commissioner, in para 34 of the impugned order that the benefit of Exemption under Notification No.26/2000 is not dependent on production of COOs, is legally incorrect as it overlooks the condition which mandates in clear terms that insofar as the question of origin of goods is concerned, the provisions of Notification No.19/2000-Cus (NT), which prescribed COOs as conclusive evidence of the origin of goods, had to be followed unhesitatingly. Since in the present case, the COOs for the 25 Bills of Entry had been issued by the competent authority in the Government of Sri Lanka and since their validity and genuineness had been confirmed and reaffirmed by the Sri Lankan Authorities by specifically dealing with all the objections and allegations made by the DRI, the learned Commissioner was not justified in ignoring the said COOs and in recording findings contrary to such subsisting and valid COOs.

vi) The goods imported in Container No.TAHU 2339356 were not covered by COO No.6523 dated 1.8.2006 as assumed by the Commissioner in para 32. This container was actually covered by the other COO 6661, which had 2 different formulations (Annexure AG and AH). In respect of Annexure AG, which specifically covered the goods in the Container No.TAHU 2339356, the DRI did not find any discrepancy. The discrepancy was noticed only in the second formulation (Annexure AH) imported in Container JPLU 8223708. The COO 6661 was however cancelled by the Sri Lankan Authorities as it was incorrect at least in part, to the extent of goods covered by Annexure AH (Container No.JPLU 8223708). The importer chose not to contest the issue further in view of the fact that the COO 6661 was wrong at least in part. The fact that there was no discrepancy existing, in regard to Container No.TAHU 233935 has been totally overlooked by the Commissioner, who, on the assumption that the said goods were covered by COO 6523, proceeded on the premise that the formulation in the said container was of Annexure AF. The entire finding on this aspect is therefore, premised on a factual error with regard to the correlation between the COO and the formulation and consumption data.

vii) Even otherwise, the basic approach of the Commissioner in disputing all imports made by the importer on the basis of a concession made by them in regard to one particular consignment is legally flawed as it is a settled position in law that in matters of taxation, there is no question of res judicata or estoppel. Therefore, the mere fact that for one particular Bill of Entry, the importer had accepted duty liability and deposited the same without protest is no ground for debarring the Importer from contesting the issue for other imports in the future. The Supreme Court in Municipal Corporation of City of Thane Vs. Vidyut Metallics Ltd.(2007) 8 SCC 688 [LQ/SC/2007/1104] and Instalment Supply Pvt. Ltd. Vs Union of India (1962) 2 SCR 644 [LQ/SC/1961/238] was held, that the principle of res judicata and estoppel do not apply in matters of taxation and that it is open to both sides to contest an issue for a subsequent period even if it had chosen not to contest it for the previous period. As such, the undue emphasis that the Commissioner has laid on the fact that the subject imports was similar to the imports covered by a particular container in respect of which Sri Lankan Authorities had withdrawn the COO 6661 is legally flawed and unsustainable.

viii) As regards the second finding on facts, as summarized in para 11(b), it is submitted that this very issue was specifically raised by the DRI with the Sri Lankan Authorities, who after conducting a factory visit in Sri Lanka, and after due verification of all records maintained there, sent in their response to the DRI vide letter dated 24.5.2007 wherein they found that as many as 5 different raw materials used by Ocean Feeds Pvt.Ltd. were being sourced from India. The said report appears at page 287 of the appeal and the relevant part of the finding can be found in para 4 on page 288 which in turn refers to Annexure 1 t the said report which can be seen at page 290 to 291. In view of the specific report issued by the Sri Lankan Customs Authorities on this very point, there was no justification for the learned Commissioner to record contrary findings merely on the basis of letters and statements of the importers employees who were not directly concerned with the procurement and production of Poultry Feed Premix in Sri Lanka.

ix) The Commissioner has failed to appreciate that all the allegations and charges levelled by the DRI against the importer were communicated to the Sri Lankan Authorities through various letters and reminders which are part of the appeal memorandum from page 279 onwards till page 308. The Sri Lankan Authorities conducted their own verification, in the manner prescribed by Notification No.19/2000-Cus (NT) and the ISFTA and responded to the DRI that only the only COOs that needed to be cancelled were Certificate No.6523 dated 10.8.2006 and No.6661 dated 11.8.2006 and that there was no justification for cancelling the remaining 25 which are subject matter of the present case.

x) Ld. Advocate handed over copies of Cost Sheet of the comparison between the Cost Sheet quantity and percentage as submitted to the Sri Lankan authorities and the corresponding quantity as per Formulation Sheet submitted to the DRI authorities. In respect of container IALU 2245133 and covered by COO 6523, Ld. Advocate pointed out that the ingredient Mycosorb had not been declared in the original Cost Sheet, however it was found in the Formulation Sheet. As a result of this, the percentage import from third countries which was declared as 63.62% to the Sri Lankan authorities has gone upto 72.49%. Similar discrepancy has arisen in respect of container IALU 2249967 as a result of this COO 6523 covering both these containers had been cancelled.

xi) In respect of container JPLU 8223708 relating to COO 6661 as per the Formulation Sheet, it was found that ingredient L-Threonine had been added as a result of which, the percentage value import from third countries which declared as 63.65% in the Cost Sheet submitted to Sri Lankan authorities had increased to 66.69%. Ld. Advocate also pointed out that the details of this container are also found in relied upon documents at Annexure AH to the Show Cause Notice. The second container, covered by the same COO 6661, was TAHU 2333935, for which imports from third countries as declared in the corresponding Cost Sheet was 63.62%. As per the Formulation Sheet (submitted to DRI authorities), the said percentage was only slightly different at 63.77%. Thus, the third country import percentage in both the Cost Sheet as well as the Formulation Sheet was less than the maximum prescribed 65%. There was also no allegation of any additional ingredients having been undeclared or added to in the related Formulation Sheet. All the same, the importer did not contest the issue further in view of the fact that COO 6661 was wrong at least in part, and only for this reason the entire COO was cancelled by the Sri Lankan authorities.

xii) Ld.Advocate drew our attention to page 63 of the Convenience Compilation submitted by him, which refers to letter dt.24.5.2007 by Sri Lankan Customs to the DRI Chennai. In the said letter, it has been inter alia clarified that discrepancy has been found only in respect of raw materials L-Threonine and Mycosorb. It was also specifically clarified by Sri Lankan Customs that there was no discrepancy concerning the commodity L-Lysine.

xiii) Ld. Advocate also drew our attention in page 76 of the Convenience Compilation, to the letter dt. 28.3.2006 of Sri Lankan authorities clarifying that verifications carried out by them on the structure of cost relating to the COOs under reference have confirmed that the product complied with the Rules of Origin criteria set out in the ISFTA except the above mentioned two COOs (6523 and 6661); therefore the necessity to cancel the other COOs would not arise. It was clarified that there is no significant difference between the actual formulation and consumption details and the Cost Statement furnished to us except substitution of raw material (e.g. wheat bran to rice bran and Chloride to Sulphate); and that these substitutions have not resulted in altering the cost structure substantially causing the product not being eligible for tariff concessions available under ISFTA.

xiv) Ld. Advocate drew our attention to para-35 of the impugned order, where the adjudicating authority has placed reliance on the statement dt.13.11.2006 of Shri Ramasamy, General Manager (Feeds). The adjudicating authority has concluded from his reply to Question No.4, that imports of non-contracting parties which is shown below 65% in the Cost Sheet is incorrect. Ld. Advocate submitted that question No.4 put to Shri Ramasamy was specific namely whether the sources of supply for the various items mentioned in the certificate of quantities are only as mentioned in reply for Question No.2 . Ld. Advocate pointed out that the question No.2 referred to was only in respect of query on what were the sources for the products internationally. It is in this respect that Mr.Ramasamy has correctly mentioned the international suppliers of the products and for which reason there was no possibility for him to indicate the Indian suppliers to Ocean Feeds, Sri Lanka.

xv) Ld. Advocate also relied upon the following case laws :

(a) Minakshi Exports & Other Vs CC Jodhpur 2017-TIOL-3786-CESTAT-DEL

(b) BDB Exports Pvt. Ltd. Vs CC (Prev.) Kolkata 2017 (347) ELT 662 (Tri.-Kolkata)

5. On the other hand, Ld. A.R Shri K. Veerabhadra Reddy supports the impugned order. He too made various submissions which can be broadly summarized as under :

i) When the two COOs were cancelled, the importer having accepted the cancellation and paid duty on the same cannot now contest that the Country of Origin certificates issued for the very same products are in order.

ii) When COO 6661 which included the container TAHU 2333935 was cancelled, it would imply that all other containers with the same formulation as that of TAHU 2333935 will also require to be treated as not satisfying the ISFTA requirements. Hence the natural conclusion that will emerge is that in all the impugned containers also, the third countries components are higher than the stipulated 65% and hence benefit of ISFTA Notification will not be available for those imports also.

iii) Ld. AR drew our attention to para-33 of the impugned order wherein the adjudicating authority has pointed that the Sri Lankan authorities have withdrawn Certificate Nos.CO/ISFTA/06/6523 and CO/ISFTA/06/6661 and that the formulation and consumption details of the 45 containers which are the subject matter of the present dispute are exactly the same or higher as that of Container No.TAHU 2333935 for which the COO 6661 has been revoked.

iv) M/s.Ocean Feeds Ltd., Sri Lanka is a wholly owned and 100% subsidiary of the importer. By collusion between the importer and their Sri Lankan subsidiary, wrong Cost Sheets were submitted to the Sri Lankan authorities by suppressing the vital information, to obtain the COOs. From the details of the Formulation Statement obtained from the importers during the investigation, it has come to light that there are differences between the information contained therein and in the Cost Statement submitted to the Sri Lankan authorities.

v) Hence the Ld. Adjudicating authority is correct in concluding that once the COO 6661 was found not to satisfy the prescribed ratio of inputs of third country of origin as laid down in the Free Trade Agreement, it would naturally follow that in respect of the other imports of the said importer where the same formulation or composition of Poultry Feed Mix was followed, the related COOs should be treated as not complying to the ISFTA Rules and are required to be withdrawn.

vi) Ld. AR drew our attention to the decision of Tribunal in Surya Light Vs CC Bangalore - 2008 (226) ELT 74 (Tri. [LQ/CESTAT/2007/2583] -Bang.) where it has been held that as the certificate of origin was issued by Sri Lankan authority based on wrong information, the benefit of exemption will not be available.

6. Heard both sides and have gone through the facts.

7. The entire dispute that arises in these appeals is related to the alleged violation of Rule 7 of the Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and Republic of India) Rules, 2000. [hereinafter referred to as ISFTA Rules] .

8.1 To understand the controversy in a better perspective, it would be useful to toothcomb the relevant parts of said agreement. From page 137 of the appeal book, the Rules of Origin with respect to Not wholly produced or obtained which form part of Annexure-C of the Agreement and which is in the spotlight in this appeal, is reproduced as under :-

Not wholly produced or obtained

a. Within the meaning of rule 5(b), products worked on or processed as a result of which the total value of the materials, parts or produce originating from countries other than the Contracting Parties or of undetermined origin does not exceed 65% of the f.o.b. value of the products produced or obtained and the final process of manufacture is performed within the territory of the exporting Contracting Party shall be eligible for preferential treatment, subject to the provisions of clauses (b), (c), (d) and ( e) of rule 7 and rule 8.

b. Non-Originating materials shall be considered to be sufficiently worked or processed when the product obtained is classified in a heading, at the four digit level, of the Harmonised Commodity Description and Coding System different from those in which all the non-originating materials used in its manufacture are classified.

c. In order to determine whether a product originates in the territory of a Contracting Party, it shall not be necessary to establish whether the power and fuel, plant and equipment, and machines and tools used to obtain such products, originate in third countries or not.

d. The following shall in any event be considered as insufficient working or processing to confer the status of originating products, whether or not there is a change of heading;

1. Operations to ensure the preservation of products in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations)

2. Simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting up;

3. (i) changes of packing and breaking up and assembly of consignments. (ii) simple slicing, cutting and repacking or placing in bottles, flasks, bags, boxes, fixing on cards or boards, etc., and all other simple packing operations.

4. the affixing of marks, labels or other like distinguishing signs on products or their packaging;

5. Simple mixing of products, whether or not of different kinds, where on or more components of the mixture do not meet the conditions laid down in these Rules to enable them to be considered as originating products;

6. simple assembly of parts of products to constitute a complete product;

7. A combination of two or more operations specified in 9 (a) to (f);

8. slaughter of animals;

The value of the non-originating materials, parts or produce shall be :

i. The c.i.f value at the time of importation of the materials, parts or produce where this can be proven; or

ii. The earliest ascertainable price paid for the materials, parts or produce of undermined origin in the territory of the Contracting Parties where the working or processing takes place.

8.2 From the exchange of correspondence between the DRI and Sri Lankan Customs, it is but evident that the former harboured a view that total value of materials etc. originating from third countries had exceeded 65% of the FOB value of the products.

8.3 We find that Article XIII (2) of the ISFTA gives the procedure of Settlement of Disputes between the two as under : 2. Any dispute between the Contracting Parties regarding the interpretation and application of the provisions of this Agreement or any instrument adopted within its framework shall be amicably settled through negotiations failing which a notification may be made to the Committee by any one of the Contracting Parties.

8.4 Rule 13 of the ISFTA Rules, 2000 notified vide No.19/2000-Cus. (NT) contains a provision for Co-operation between Contracting parties and in particular, measures to be taken in the instance of circumvention or alleged circumvention of Rules of Origin as under :

13. Co-operation between contracting parties

a. The Contracting Parties will do their best to co-operate in order to specifyorigin of inputs in the Certificateof Origin.

b. The Contracting Parties will take measures necessary to address, to investigate and, where appropriate, to take legal and / or administrative action to prevent circumvention of this Agreement through false declaration concerning country of origin or falsification of original documents.

c. Both the Contracting Parties will co-operate fully, consistent with their domestic laws and procedures, in instances of circumvention or alleged circumvention of the Agreement to address problems arising from circumvention including facilitation of joint plant visits and contacts by representatives both Contracting Parties upon request and on a case-bycase basis.

d. If either Party believes that the rules of origin are being circumvented, it may request consultation to address the matter or matters concerned with a view to seeking a mutually satisfactory solution. Each party will hold such consultations promptly.

8.5 Based on ratification, this ISFTA agreement was embedded / incorporated into the Customs Tariff (Determination of Origin of goods under the Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and the Republic of India) Rules, 2000 issued vide Customs Notification No.19/2000-Cus. (NT) dt. 06.03.2000. Rule 7 of the Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement between the Democratic Socialistic Republic of Sri Lanka and Republic of India) Rules, 2000 mirror and reiterates the exact language of the Rule 7 of the Rules of Origin of ISFTA agreement reproduced above.

Thus, Rule 13 of these Customs Tariff Rules lays down identical provisions for cooperation between the contracting parties including the manner of addressing the problems arising from circumvention including facilitation of joint plant visits and contacts by representatives of both contracting parties upon request and on a case-by-case basis. Rule

13. Co-operation between contracting parties :-

.

(4) If either Party believes that the rules of origin are being circumvented, it may request consultation to address the matter or matters concerned with a view to seeking a mutually satisfactory solution. Each party will hold such consultations promptly.

8.6 Notification No.26/2000-Cus.dt. 1.3.2000 lists out the goods exempted and the quantum of corresponding exemption from customs duty, provided the importer is able to prove that the goods in respect of which exemption is claimed are of the origin of Sri Lanka as per the conditionalities contained in Notification No.19/2000-Cus. (NT).

8.7 We thus find that there is no lack of clarity in respect of meaning of goods not wholly produced or obtained from the contracting parties, as per the aforesaid provisions of the ISFTA and the related Customs notifications. In particular, the total value of the materials, parts etc. originating from countries other than the contracting parties (India and Sri Lanka) or of undetermined origin, cannot exceed 65%. This is what primarily certified in the Certificates of Origin issued by the competent Sri Lankan authorities.

8.8 We find that the DRI, pursuant to their investigations, felt that the Cost Sheets submitted by the Ocean Feeds Ltd., Sri Lanka to the Sri Lankan authorities were different from the quantities as found by the DRI in the Formulation Sheets obtained from the officers of the Indian importers. A series of communications and references have been made by the DRI to Sri Lankan Customs, for example on 3.11.2006, 15.12.2006, 12/14.02/2007, 7.4.2007 and 12.04.2007. These letters have requested the Sri Lankan authorities to examine the eligibility of the consignments of Poultry Feeds Premix imported in 25 Bills of Entry / 45 containers, for eligibility under ISFTA. It appears to reason that such assistance was being requested from Sri Lankan Customs in line with the provisions for mutual assistance in case of any instance of suspected circumvention of the Agreement contained in the ISFTA and in the related Customs Notification No.19/2000-Cus. In fact, in the letter of DRI dt. 15.12.2006, it is pointed out that actual formulation and consumption details in respect of few containers L-Lysine Sulphate, Mycosorb, L-Threonine have not been declared in the Cost Statement. Reference is also made to import of large quantities of Luta E50, Luta A/D3 1000/200 Plus Feed Grade (both items of German Origin) Lutavit B2 SG 80 Feed Grade, Sewon L-Lysine HCL 99% Feed (both items of South Korean Origin) and Lutavit B1 Mononitrate and Lutavit B6 (both of Chinese Origin) from BASF South East Asia Pte Ltd., Singapore by M/s.Ocean Feeds Pvt. Ltd. and it is pointed out that these items have not been shown in the Cost Statements. In letters dt. 12/14.02/2007, 7.4.2007, 12.04.2007 and 30.04.2007, another doubt has been raised by DRI that other overheads mentioned in the cost statements are inflated figures in as much as the administrative functions have been performed in Coimbatore, India by, and at the cost of M/s.Suguna Poultry Farm Limited, Coimbatore.

8.9 The issues raised in all the above letters from DRI have been replied by Sri Lankan Customs in a communication dt. 24.05.2007 wherein it has been inter alia clarified that factory inspection of M/s.Ocean Feeds, Sri Lanka has been carried out by the Department of Commerce with a panel of officials from other relevant authorities and that the panel had been satisfied that the production process of the company performs the substantial operation which fulfils the rules of Origin regulations stipulated under ISFTA.

8.10 Regarding on the doubt raised by DRI on the item L-Lysine, the Sri Lankan authorities clarified that the said commodity has been imported from different companies in different trade names, but it was declared under the common name as L-Lysine in the Cost Statement which has been approved. In response to another letter of DRI dt. 13.08.2007, the Sri Lankan Customs forwarded the reply from Department of Commerce, Sri Lanka dt. 20.08.2007 wherein inter alia it has been found that overhead charges mentioned in the Cost Statement are reasonable. Reference has also been made to nine formulas due to substitution of domestic raw material (e.g wheat bran with rice bran), and it is clarified that there has been no significant alteration in the cost structure due to such substitutes except for two Certificates of Origin [CO/ISFTA/06/6523 & CO/ISFTA/06/6661]. That value of imported materials have exceeded in the case of these two COOs due to usage of different material which have not been mentioned in the Cost Statement. It is further informed that the Suguna Poultry has undertaken to withdraw two COOs in respect of those shipments submitted by them.

8.11 However, these clarifications were found fault with by the DRI, who in their letter dt.28.12.2007, pointed out as under :

The final sentence of your letter that We understand from the exporter that the Suguna Poultry has undertaken to withdraw the two Certificates of Origin in respect of these shipments submitted by them and pay the import duty, cannot lead to any actionable legal process for recovery of duties of Customs and other action as may be applicable under the Indian laws. You would appreciate that this kind of statement in the nature of statement / mediation which is beyond the realm of the bilateral agreement. The vitiated Certificates of Origin have to be withdrawn so that any legal action can be initiated at our end. DRI also sought to impress that Once the two COOs are found not to satisfy the prescribed ratio of inputs of third country origin as laid down in the Free Trade Agreement, it follows that all the other exports of the exporter have also to be treated as not complying to the Rules of Origin and needs to be withdrawn. A list of such COOs was also enclosed with the said letter. However, the Department of Commerce, Sri Lanka in the reply dt. 28.03.2008 while clarifying that the 2 COOs [6523 and 6661] have been cancelled, have also informed as under :

We have been informed by Ocean Feeds (Pvt) Ltd. that it has already withdrawn the two Certificates of Origin (COO), and paid due customs duties on 30th January 2008. The Department, as the Issuing Authority, hereby cancels the relevant two Certificates of Origin, bearing Nos.Co/ISFTA/06/6523 dated 10th August 2006 and CO/ISFTA/06/6661 dated 11th August 2006 (Copies of COOs are attached. We will also notify our decision to the respective Indian Customs accordingly.

The verifications carried out by us on the structure of cost pertaining to the COOs under reference confirmed that the product complies with the Rules of Origin criteria set out in the ISFTA except the above mentioned two Certificates. Therefore, the necessity to cancel the other COOs mentioned in your letter would not arise. (emphasis added)

After setting to rest issues flagged by DRI relating to imports from China, Germany, South Korea, France and Indonesia, the letter has finally concluded as under :

There is no significant difference between the actual formulation & consumption details and the Cost Statement furnished to us except substitution of raw material (e.g. wheat bran to rice bran and Chloride to Sulphate). These substitutions have not resulted in altering the cost structure substantially causing the product not being eligible for tariff concessions available under ISFTA.

(emphasis supplied)

9.1 The combined takeaway from the above discussions is that all the very issues and allegations that have been raised in the impugned SCN were also flagged to the Sri Lankan authorities, in particular, the Sri Lankan Customs and the Department of Commerce (Sri Lanka). Both these authorities from Sri Lanka have unequivocally clarified and reiterated in all their letters that except for the two COOs (6523 and 6661), the product complied with the Rules of Origin criteria set out in the ISFTA in respect of the remaining COOs and a categorical emphasis has been made that there is no necessity to cancel the other COOs. It is also relevant to note that at the initial stage, the two COOs (6523 and 6661) had been withdrawn by Suguna Poultry which was apparently deemed as sufficient action in the matter by the Sri Lankan Customs. Only after insistence by the DRI were these two COOs were cancelled by the Sri Lankan authorities. Discernably, we find that the Ld. Advocate is correct in his assertion that the discrepancies in respect of the two COOs (6523 and 6661) were only related to the addition of ingredient Mycosorb (Containers IALU 2245133 and IALU 2249967 - related COO 6523) and ingredient L-Threonine (Container JPLU 8223708 - related COO 6661). No doubt, the second container which was covered by the COO 6661 was TAHU 2333935, but as exhibited by the Ld. Advocate, there was no allegation of addition of any ingredient / commodity in excess of what was declared in the Cost Sheet submitted to the Sri Lankan authorities. In fact, in both the Formulation Sheet and the Cost Sheet, the very same nine items of ingredients have been declared. The cost of these items are almost identical, for which reason the value in percentage terms as declared in the Cost Sheet is 63.62% and that of Formulation Sheet 63.77%, both of which are anyway below the maximum prescribed limit of 65%.

9.2 In the circumstances, any argument that since COO 6661 covered the container TAHU 2333935, al other containers having similar composition of ingredients will have to be treated as not satisfying the Rules of Origin to say the least, bordering on the peremptory.

9.3 We also do not find any controversy on the 9 items / ingredients related to the consignment of container TAHU 2333935 which have been imported from third countries. There is no mention of L-Threonine and Mycosorb which are the controversial items for which the disputed COOs have actually been cancelled. There is no allegation that the ingredients which make up the goods of container TAHU 2333935 include L-Threonine or Mycosorb. Even the doubt raised by DRI on the issue of L-Lysine which is an ingredient in the TAHU 2333935 consignment has been adequately looked into by the Sri Lankan authorities, and no discrepancy found with the same.

9.4 Free Trade Agreements are articles of faith between the Contracting Countries. The provisions and conditionalities governing such free trade agreements are clearly laid down therein. The basic philosophy underlining such trade agreements is trust and cooperation between the contracting countries, in an attempt to remove the trade barriers and strengthen harmonious trade of goods and services with each other. All such Free Trade Agreements including the ISFTA between India and Sri Lanka, have provisions for consultation in case when there is any doubt that Rules of Origin may have been circumvented.

9.5 Surely, there has been more than enough consultations between DRI and the Sri Lankan authorities in this case. Each of the doubts and allegations emanating from trade circumventions have been looked into and except for two ingredients, the Sri Lankan authorities have passed muster in respect of the remaining the COOs. In our view, as per the trade agreement the final outcome of the bilateral consultations should be accepted and the benefit under ISFTA should have been extended to the impugned imports.

9.6 We also find that this is also the view as expounded by the Tribunal in the case of BDB Exports Pvt. Ltd. Vs CC (Prev.) Kolkata - 2017 (347) ELT 662 (Tri.- Kolkata) which has been relied upon by the Ld. Advocate .the relevant portion of the said order is reproduced herein below :

5.2 In view of the above case law of Gauhati High Court department cannot sit as on Adjudicator over the certificate of origin given by the designated authority under SAPTA Rules. Only an appropriate authority of Bangladesh could have certified as to what could be the value addition, after satisfying about the nature of processing activities done by the supplier and the extent of expenses incurred by such supplier in carrying out the activities of cleaning, handling, storage, sorting, packing, etc.

6. In view of the above observations and the settled proposition of law certificates of origin issued by the designated authority under SAPTA cannot be rejected which is the only requirement for the satisfaction of the Customs department under Notification No. 105/99-Cus., dated 10-8-1999. Once on merit the case goes in favour of the main appellant, there is no question of confiscation of imported goods and imposition of penalties upon the appellants.

9.7 So also, in the case of Minakshi Exports and Other - 2017-TIOL-3786- CESTAT-DEL = 2018 (359) ELT 689 (Tri.-Del), also relied upon by the Ld. Advocate, the Tribunal inter alia held as under :

8. The Original Authority has apparently exceeded the jurisdiction in going into the aspects of possible classification of inputs used by the supplier in the manufacture of impugned goods in Sri Lanka. Holding that one of the input and the final product fall under the same four digit classification, it was concluded that the provisions of the Rule 7 have not been fulfilled. More specifically, reference was made by the Original Authority to conditions (b) and (d) of the Rule 7. This is based on the certain reports received from Sri Lankan Customs. The Original Authority while conceding the point that the assessment made by Sri Lankan Customs at the time of import of non-originating goods from China cannot be put to question here in India, proceeded to consider certain reports given by Sri Lankan Customs with reference to classification of one of the non-originating inputs. The classification of such input is not in the domain of the assessing officer in India. No opinion or conclusion can be formed based on the assessment, if any, carried out by Sri Lankan Customs. Denial of concession even when valid certificates of origin were submitted (and reiterated) is not legally tenable.

9.8 We also note that the case law of Surya Light Vs CC Bangalore (supra) relied upon by Ld. A.R concerned facts wherein the original invoice was replaced with fake invoice which was fabricated to show that origin of goods was Sri Lanka. Quite obviously, the said case law will be of no use to Revenue.

10. In the result, we hold that since all the remaining COOs have been recertified and found as being in order by the Sri Lankan authorities and also in view of the discussions herein above, the impugned order rejecting the impugned COOs, denying the benefit of exemption under Notification No.26/2000-Cus. in respect of the impugned goods, demanding differential duty with interest and imposing penalty under Section 112 (a) of the Customs Act, 1962, cannot sustain and therefore will have to be set aside, which we hereby do. In consequence Appeal C/41075/2013 is allowed, with consequential benefits, if any, as per law.

11. For the same reasons, Revenue appeal C/41122/2013 praying for imposition of penalty under Section 114 and 114AA of theis found to be without merit and is therefore dismissed.

To sum up,

the Appeal No. C/41075/2013 of Suguna Foods Private Ltd is allowed,with consequential benefits, if any, as per law.

Revenue Appeal No.C/41122/2013 is dismissed.