Mitsubishi Chem Embroiled In Row Over Vabal Benefit

An unusual war is being fought in the corridors of the Union finance ministry. At the centre of the battle are three different divisions of the ministry, two Mumbai-based companies and Japanese multinational Mitsubishi Chemical Corporation. The bone of contention is an order that favoured these companies.

It began in 1995, when the two Indian companies Candid Enterprises and Dimple Chemicals filed a claim for duty benefits under the value-based advanced licence (Vabal) scheme on imports of acrylamide-monomer from Mitsubishi Chemical Corporation.

The assistant commissioner of customs (Mumbai) rejected the claim on the ground that it did not carry specific end-use applications of the imported item. The companies then made an appeal to the commissioner, appeals, who over-ruled the order of the assistant commissioner of customs and granted the fiscal benefits, running into crores of rupees.

 

In November 1996, the central intelligence unit of Mumbai customs investigated the case and discovered that the documents submitted by the two companies to support the duty benefit claim were fraudulently obtained. This was followed by a registration of an appeal by commissioner customs, Mumbai, with the Central Excise and Gold Control Appellate Tribunal (Cegat) on February 19, 1997.

Since the appeal was filed after the expiry of three months from the date of the order of the commissioner, appeals, the customs commissioners office wanted the delay to be condoned.

But Cegat rejected the appeal on technical grounds that the application should have been filed within three months of the earlier order dated June 14 1995, pronounced by the commissioner, appeals. We are inclined to hold that this is not a fit case for condoning the delay of over one year in filing the appeal by the commissioner. The application is, therefore, rejected, the order states.

Consequently, the duty evasion case against the three companies was dismissed.

The Mumbai customs has now protested against the Cegat decision. It has asked the Central Board of Excise & Customs (CBEC) to appeal to the Supreme Court against the Cegat order and to decide the case on merit.

In a letter to CBEC, Mumbai customs has stated that Cegat has erred in law by rejecting the customs application.

Its decision, the letter reads, would set a bad precedence in providing immunity to fraudsters and manipulators on technical grounds seriously jeopardising the interests of revenue. The question of filing an appeal within three months of commissioner, appeals, order did not arise. The June 1995 order was implemented in good faith and in any absence of wrong doing.

Honourable Cegat has failed to appreciate the extraordinary situation involved in the case. In view of the facts of the case, it is humbly submitted that strictly speaking the delay in filing appeal to Cegat is not on account of any negligence on the part of the department, it adds. According to customs, the two companies had claimed that acrylamide is used in synthetic adhesive manufacture and is, thereby, entitled to duty-free benefits under the Vabal scheme.

But further investigations revealed that the order of the commissioner, appeals, granting the companies the duty benefit was obtained only after showing false documents.

An evidence in support of the customs armoury is a certificate from Mitsubishi Chemical Corporation stating that acrylamide is a synthetic adhesive and used in leather goods industry.

But leather and chemical experts hold that though acrylamide is used in manufacture of synthetic adhesive, it cannot function as synthetic adhesive.

The customs investigators questioned Mitsubishi Corporation about the authenticity of their certificate and the Japanese giant hastened to clarify that its statement had been wrongly interpreted.

Mitsubishis liaison agent in Mumbai, Jimmy Poonawala, stated to investigating officers under section 10B of the Customs Act, 1962, that the importers had induced him to obtain such a certificate with promise of substantial orders.

THE CHRONOLOGY

June 6, 1995: Commissioner, appeals, customs, permits Candid Enterprises and Dimple Chemicals to avail of duty-free benefits in import of chemical, acrylamide.

Companies import acrylamide from Japanese major, Mitsubishi Chemical Corporation.

November 1996: Central intelligence unit of Mumbai customs receives tip-off that all is not right with the imports. Investigation launched.

February 19, 1997: Case of illegal duty evasion filed with Cegat against Candid and Dimple. Mitsubishis name also mentioned. Mumbai customs requests that delay in filing case be condoned.

April 16, 1997: Cegat rejects condoning application. Case against the two companies rejected.

June 1997: Mumbai customs writes to CBEC, protesting Cegat decision. Customs wants CBEC to file appeal in Supreme Court against Cegat order. Revenue loss due to 1995 deal estimated at

Rs 7 crore. Recurring loss estimated at Rs 4 crore per annum.