Customs, Excise and Gold Tribunal - Bangalore
Rks Agro Tech Ltd. vs Commissioner Of Customs on 23 May, 2006
ORDER T.K. Jayaraman, Member (T)
1. These appeals have been filed against the Order-in-Original No. 02/2005-Cus. Adjn (Commr.), dated 28-2-2005, passed by the Commissioner of Customs, Bangalore.
2. The appellants imported capital goods free of duty under 100% E.O.U. scheme. They completed the legal formalities. Under 100% E.O.U. scheme, the appellants were under an obligation to produce the goods and export them for realisation of foreign exchange. The Revenue conducted investigation and it was found that the capital goods imported duty free have not been installed within the stipulated period and utilised for the production of specified goods within the period stipulated by the Board of Approval. Certain goods were procured indigenously duty free under CT3 procedure. It was alleged that the appellants failed to prove that the indigenous capital goods procured duty free had been installed and utilised for production of specified goods within the period prescribed by the Board of Approval. Hence show cause notices were issued for confiscation the impugned goods and also demand of Customs duty and Central Excise duty on the impugned goods. The Adjudicating authority held that the imported goods are liable for confiscation under Section 111(o) of the Customs Act, 1962. However, he imposed redemption fine of Rs. 1,00,00,000/- under Section 125 of the Customs Act. Further the duty free capital goods procured indigenously were also confiscated under Rule 25 of the Central Excise Rules, 2002 read with Rule 173Q of the erstwhile Central Excise Rules, 1944. The redemption fine of Rs. 10,00,000/- was imposed. Customs duty of Rs. 3,95,43,239/- was demanded under Section 72(1) of the Customs Act, 1962. Central Excise duty of Rs. 12,89,102/- was also demanded under Notification No. 1/95-C.E., dated 4-1-95. Interest was also demanded. Penalty of Rs. 50,00,000/-was imposed on M/s. R.K.S. Agro Tech. Ltd. under Section 112(a) of Customs Act, 1962 and Rule 26 of the Central Excise Rules, 2002 read with Rule 173Q of the Central Excise Rules, 1944. A penalty of Rs. 10,00,000/- was imposed on Shri Rajendra Kumar Sethia, Chairman-Cum-Managing Director of M/s. R.K.S. Agro Tech. Ltd. under the relevant provisions of Customs Act and Central Excise Rules. A penalty of Rs. 1,00,000/- was imposed on Shri N. Sumukha, Technical Director of the Company. The appellants strongly challenge the impugned order.
3. Shri H.S. Ananda Padmanabha, the learned Advocate appeared for the appellants and Shri K. S. Reddy, the learned JDR for the Revenue.
4. The learned Advocate urged the following points :
(i) Due to various commercial constraints, the appellants could not commence commercial production within the period mentioned in the Letter of Permission. The Jurisdictional CSEZ office granted extension from time to time. The Ministry of Commerce and Industries, E.O.U. section, vide their letter dated 23-2-2002 extended the permission up to 30-4-2002. The appellants started production on 26-4-2002. This fact was communicated to the Development Commissioner and Jurisdictional Assistant Commissioner on 27-4-2002. The appellants in their letter dated 3-6-2002 informed the Assistant Commissioner, CSEZ, that the trial run of the plant on 26-4-2002 was actually commercial production. The Assistant Commissioner, CSEZ, in his letter dated 10-6-2002 communicated to the Deputy Commissioner of Customs Division that the company had declared commencement of commercial production on 26-4-2002.
(ii) Though commercial production commenced on 26-4-2002 and the appellants had exported 26 consignments of samples, certain electronic communication problems were observed in their plant software due to which they could not re-commission the plant. Thereafter, they got the software upgraded and the plant was re-commissioned in December, 2002.
(iii) On two occasions, the Assistant Development Commissioner in his letter dated 23-8-2002 and 07-7-2002 granted permission to the appellants for broad banding of the items of manufacture by including various items like grounded spices, agro products, sandal wood, etc.
(iv) The appellant in his letter dated 12-9-2003 to the Assistant Development Commissioner requested for renewal of Green Card issued to them. The Deputy Commissioner of Customs in his letter dated 18-9-2003, with reference to the appellant's application for extension recommended to the Commissioner for extension of their warehousing period.
(v) Later, the Department officers visited the unit and verified the records, recorded statements from Shri N. Sumukha, Technical Director. A show cause notice was issued for not commencing the production within the stipulated time. The show cause notice was adjudicated and the impugned order has been passed.
(vi) The Commissioner has ignored the preliminary objection raised by the Company that no show cause notice could be issued to an E.O.U. tor demanding duty or imposition of penalty without prior sanction of the Development Commissioner In-charge of the unit. The Board Circular No. 21/95, dated 10-3-95 was relied on. The above Circular is binding on the Department officers. In view of these reasons, the impugned order for demand of duty, confiscation of the impugned goods, imposition of penalty and interest is not sustainable.
(vii) The Commissioner has erred in holding that the appellants has misled or misdeclared. The appellants had correctly stated that the commercial production had started on 26-4-2002. The appellant was forced to say on being shown the annual reports that the commercial production started only in July/August, 2003. He had no intention to mislead the Department to avail undue benefits. Therefore there is no justification for the Commissioner to impose such harsh penalties.
(viii) The learned Advocate relied on the following citations :
(a) Indian Furniture Works v. Commissioner of Customs, Bangalore 2000 (126) E.L.T. 722 (Tribunal)
(b) T. Gayathri Reddy v. Commissioner of Customs, Guntur
(c) Grapco Industries Ltd. v. Commissioner of Customs, Jaipur 2002 (149) E.L.T. 932 (Tri.-Del.)
(d) Vishal Footwear Ltd. v. Commissioner of Customs, New Delhi
(e) Teg's Masrado Ltd. v. Commissioner of Central Excise, Chandigarh
5. The learned JDR urged the following points :
(i) The order of the Commissioner is legal and proper as the machinery imported and procured indigenously free of cost have not been installed within the prescribed period. There was no necessity for the adjudicating authority to consider the plea of the appellants with regard to the Board's Circular No. 21/95, dated 10-3-95.
(ii) The appellant's unit has been proceeded against as per the direction of the Central Board of Excise and Customs vide their letter dated 15-4-2002. Besides the Board, vide Circular No. 12.2/95, dated 28-11-95, instructed that prompt action should be taken against gross violation of law while passing the Order-in-Original. Moreover, the Ivlinistry of Commerce and Industry, in its letter dated 20-3-2002 has communicated that the Board of Approval has extended the LOP up to 30-4-2002 only and no further extension would be granted. It is also proved beyond doubt that the appellant's unit has not been able to achieve the minimum value addition and fulfil export obligation.
(iii) It has been rightly held vide Paras 55 to 67 of the impugned order that what was started on 26-4-2002 is only trial run and no commercial production. The export of 26 consignments of samples having no commercial value to various countries can by no stretch of imagination be considered as proof of commencement of commercial production.
(iv) The annual report of the appellant unit for the year ending 31-3-2002 and 31-3-2003 mentioned that the commercial production is expected to commence shortly- The allegation that the statement of Shri Sethia of 4-2-2004 was given under pressure, is not correct. The facts stated by Shri Sethia are true and supported by the facts.
6. We have gone through the records of the case carefully. The adjudicating authority has taken severe punitive action against the appellants for not installing the machinery procured duty free within the stipulated period. There is also an allegation that the unit has misled the Department regarding commencement of commercial production on 26-4-2002 whereas as per the annual reports ending 2002 and 2003, the unit had not commenced the commercial production. Even though the impugned order of the Commissioner strictly follows the legal provisions, the instructions issued by the Government of India under Notification No. 21/95-Cus., dated 10-3-95 have been ignored. The violation of conditions of Notifications under which goods have been procured duty free by E.O.U. are normally viewed sympathetically. No doubt, an E.O.U. has to instal the machinery within the stipulated period and commence commercial production. However, E.O.U. experience many hurdles before commencing commercial production. That is why, the Circular 21/95 has been issued. According to the above mentioned Circular, when an E.O.U. fails to commence production, the Development Commissioner should be informed. It has been emphasised that the demand of duty should be confirmed only after a definite conclusion has been arrived at by the Development Commissioner. The Circular No. 21/95-Cus., dated 10-3-95 is reproduced below :
Demand - Show cause notice for recovery of customs duty on goods imported by 100% EOU - Clarification Circular No. 21/95-Cus., dated 10-3-1995 From F. No. 307-2-91-FTT Government of India Ministry of Finance (Department of Revenue) New Delhi.
Subject: Issue of show cause notice for recovery of Customs duty on goods imported by 100% EOU - Regarding.
A number of instances have come to the notice of the Board where 100% EOU's had imported capital goods, raw materials and other permissible items under Notification No. 13/81-Cus., dated 9-2-1981 but have failed to export any goods or have closed down after exporting a few consignments. A question has been raised as to the stage at which the customs authorities should proceed to recover duties on imported goods and other goods lying in the factory premises of the 100% EOU.
2. The matter has been examined by the Board in the context of an Audit Objection and I am directed to say that the Board has taken a view that liability of customs duties on goods imported by 100% EOUs arises either at stage of the unit being debonded or if any of the conditions of the exemption Notification No. 13/81, dated 9-2-1981 has been violated or remains unfulfilled. In this regard, it is seen that one of the conditions of the exemption notification is that the importer exports out of India 100% or such other percentage, as may be fixed by the said Board, or articles manufactured wholly or partly from the goods for the period stipulated by the Board or such extended period as may be specified by the said Board. It is, thus, clear that if the competent authority namely the Board of Approval or the Development Commissioner concerned determines that the unit has failed to export the fixed percentage of articles for the specified period, then in such case it may be held that the conditions of the exemption notification has been violated. As this stage, it will be open for this Department to issue a show cause notice to the Unit for demanding the due duty on the imported goods.
3. Normally the Customs authorities should immediately inform the Development Commissioner in case a 100% EOU ceases production prematurely or fails to commence production or export within the stipulated period. In case the Development Commissioner initiates action against the unit for non-fulfillment of export obligation etc. simultaneously the Customs authorities should issue show cause notice for failure to comply which conditions of Notification 13/81-Cus., dated 9-2-1981 - The demand of duty should be confirmed only after a definite conclusion has been arrived at by the Development Commissioner.
In the present case, there is nothing on record to show that the duty has been confirmed after a definite conclusion has been arrived at by the Development Commissioner. In these circumstances, we do not find any merit in the Order-in-Original. Therefore, we set aside the Order-in-Original and allow the appeals by way of remanding the entire case to the Original authority for de novo decision after complying with the provisions of Board's Circular No. 21/95-Cusv dated 10-3-95.
(Operative portion of the order has been pronounced in the open court on completion of hearing)