Customs, Excise and Gold Tribunal - Mumbai
Krishna Filament Ltd. vs Commissioner Of C. Ex., Mumbai-Iii on 16 January, 2002
Equivalent citations: 2002(143)ELT100(TRI-MUMBAI)
ORDER S.S. Sekhon, Member (T)
1. Appeal No. C/1025/2001-Mum. & C/74/2000-Mum. are taken up for final decision by this common order as the issues are interrelated. The issues in brief are as follows :-
(a) The applicants herein are engaged in the manufacture of HDPE and Poly Propylene Ropes falling under Chapter 54 of the Schedule to the Central Excise Tariff Act, 1985 in their factory at Boisar, Thane District. They were required to import various machineries for the manufacture of the above goods and for this purpose they applied on 16-10-1997 for grant of licence under Section 58 of the Customs Act, 1962 to establish a Private Bonded Warehouse in their factory premises. A licence was issued to them, during the period 28-11-1997 to 17-8-1998 they imported 16 consignments of capital goods namely wire rope making machines, in knocked-down condition and the consignments were warehoused in the Customs Private Bonded Warehouse on execution of double duty bond. They applied for an EPCG licence for import of these goods, which was given to them on 13-2-1998. (As seen from Advocate V.M. Doiphode written synopsis dt. 22-10-2001.) On 6-1-1998 they applied to the Jurisdictional Assistant Commissioner for permission to assemble the machinery lying in their Customs Bonded Private Warehouse and the same was granted vide letter dt. 8-1-1998. On the objections raised by the Commr. of Customs House Bombay, regarding the assembly, the warehouse was sealed on 18-5-98 by the Jurisdictional Asstt. Commr. On 2-7-1998, Notification No. 44/98 was issued deleting inter alia Regulation 7 of the "Manufacture and Other Operations in Warehouse Regulations, 1966" (hereinafter referred to as MOOWR), according to which plant, machinery, fixtures and accessories, necessary for carrying on the manufacturing process or other operations in the warehouse and consumable stores required for the maintenance thereof must be duty paid. Thereafter on 17-8-1998 and 28-8-1998 the applicants applied for permission to manufacture their finished goods in Bond under Section 65 of the Customs Act, which permission was granted on 1-9-1998. On 9-9-1998 the applicants were issued with a letter of permission for setting up a 100% EOU in their Boisar factory premises, pursuance to which the Development Commissioner, SEEPZ attested the list of imported capital goods and the Assistant Commissioner of Customs (100% EOU), Mumbai, advised Jurisdictional Assistant Commissioner to re-assess the imported capital goods under Notification No. 53/97-Cus. Accordingly, the applicants filed 16 Bills of Entry on 2-11-1998 for the 16 consignments in question for assessment to duty claiming exemption under Notification No. 53/97-Cus. Between 7-11-1998 and 15-9-1999, 16 Show Cause-cum-Demand notices covering a total amount of Rs. 56,41,88,883.52 on the above 16 consignments were issued answerable to the Jurisdictional Deputy Commissioner on the ground that the applicants contravened the provisions of Sections 59 and 61 of the Customs Act, as they failed to pay Customs duty even after the expiry of the Double Duty Bond executed by them at the time of warehousing the imported goods. In the meanwhile the Jurisdictional Assistant Commissioner passed an order cancelling the Customs Private Bonded Warehouse Licence dt. 22-10-1997; the Commissioner (Appeals) rejected the applicants appeal against cancellation, and against this, Appeal No. C/74/2000-Mum. has been filed by the importers and is pending before this Tribunal.
(b) On 30-12-98, Commissioner of Central Excise Mumbai-III issued a Show Cause-cum-Demand notice proposing recovery of duty of Rs. 54,35,42,529/- on the imported goods on the ground of contravention of the provisions of Regulation 7 of the MOOWR, 1966. The applicants replied to this notice vide their letter dt. 15-3-1999. On 22-3-1999 they applied to the Jurisdictional Assistant Commissioner for grant of necessary permission to operate the 100% EOU and in April, 99 fresh licence was issued which is valid up to 31-10-2001. In August, 2000 they received notice of personal hearing before the Deputy Commissioner for the 16 show cause notices and they attended the hearing on 10-8-2000. They received another notice subsequently for personal hearing in the show cause notice dt. 30-12-1998 and the applicant attended before the Commissioner of Central Excise. On 4th May, 2001 another letter was issued to the applicants informing them that the Commissioner had fixed personal hearing on 25-5-2001 which was attended by them. Thereafter the present impugned order came to be passed confirming duty demand of Rs. 56,41,88,284/- and imposing penalty of equal amount and ordering recovery of interest and confiscating imported goods with option to redeem on payment of a fine of Rs. 64 Crores. This order reasoned, adjudication of total of 17 notices, one dt. 30-12-1998 answerable to the Commissioner and the other 16 notices issued by Jurisdictional Range Superintendent answerable to Deputy Commissioner. The thrust of the finding of the Commissioner is that the act of installation of imported goods amounts to illicit clearance of imported goods for home consumption. Appeal No. C/1025/2001-Mum. is against this order.
2. We have heard both sides and considered the submissions and find-
(a) The Commissioner (Appeals) in Order dt. 28-10-99 impugned in Appeal No. C/74/2001-Mum. has found as under -
"From the case records it is seen that the appellants were given a Customs Private Bonded Warehouse licence for warehousing dutiable goods imported by the appellants without payment of customs duty. However, appellants neither obtained EPCG licence for the said goods nor complied with Rule 7 of Manufacture and other operations in Warehouse Regulations, 1966. Therefore as required under Sub-section (2) of Section 58, the Assistant Commissioner has issued SCN dated 21-9-1998 proposing cancellation of CPBW licence by giving a reasonable opportunity of being heard. The appellants have not denied the facts of the case. Therefore, taking into view of all the above facts, the order dated 21-12-1998 passed by the lower authority cancelling the CPBW licence issued under Section 58 of Customs Act, 1962 appears to be legally proper, correct and sustainable. The appeal is disposed off accordingly."
(b) This reasoning of Commissioner (Appeals) appears to us, to be a result of total non application of mind and based on factually incorrect status of MOOWR and EPCG licences. Since Regulation 7 of MOOWR contemplating duty paid Capital goods only could be used in the warehouse, was totally repealed, vide Notification No. 44/98, dt. 2-7-98. There was no Regulation 7, existing; on the date of the alleged contravention as arrived at by the lower authority & EPCG licences are stated by Advocate to be issued on 13-2-98. The appellant had no reason to deny the obtaining of EPCG licence or the fact of repeal of Regulation 7. We find no reason to upheld the finding of the Commissioner (Appeals). Therefore appeal is required to be allowed after setting aside the orders of the lower authorities cancelling the licence based on a finding of contravention of Regulation 7 of MOOWR and the status of EPCG now submitted before us, which was not controverted by Revenue. We find that the thrust of the charge for cancellation of the Bond Warehouse licence is that the appellant had submitted and cleared the goods and warehoused them on EPCG licences which could not be produced. This could be no reason to cancel the warehouse licence since machinery imports could be made without an import licence and an Into Bond Bill of Entry could be presented at Port of Import and goods Bonded, pending obtaining EPCG licence or any other licence or without a specific licence, to clear the goods Ex-Bond for home consumption. Failure, if any, to obtain EPCG licence, cannot be a sinister cause to result in cancellation of Warehouse Licence. The appellant could seek a manufacture in Custom Bond Licence and such permission was granted. The capital goods used for such an activity were not required to be duty paid especially after 2-7-98, due to issue of Notification No. 44/98-Cus., dt. 2-7-98. Such imposts on capital goods machinery used, were not required, as these goods while in Bonded Warehouse premises could be without payment of duty. Goods while in Bond, whether in use or otherwise, cannot be levied to a duty of Customs, till they are cleared for consumption or the Bond Period Expires.
(c) We find that there is a letter permitting the appellant to assemble and install the imported machine, since no other contravention of Sec. 65, or other provisions of warehouse i.e. Chp. No. IX of the Customs Act, 1962 has been alleged to be violated. The Order of cancellation of warehouse licence as arrived at cannot be sustained and Appeal No. C/74/2000-Mum. has to be allowed.
(d) In appeal No. C/1025/2001, the impugned order also adjudicates 16 Show Cause Notices, demanding customs duty from the appellant, on the imported capital goods warehoused in the Customs Private Bonded Warehouse, on the ground that the Bond period executed by the appellant while warehousing the goods had expired. These demand notices were answerable before the Jurisdictional Deputy Commissioner. No corrigendum or communication was issued, regarding the change in the adjudicating authority, therefore the present order of the Commissioner deciding these 16 notices, suffers from the vice of denial of natural justice and the order need to be set aside on this account itself.
(e) The ld. Commissioner, has recorded in findings, as in Para 18 of the impugned order, the submission on Regulation 7; but has failed to give any findings on the same. He has concluded as under :-
"......The fact that the imported machineries were unpacked, assembled, installed and used in the manufacture of goods without payment of Customs duty, amounted to Ex-Bonding of the warehoused goods without filing Ex-Bund Bill of Entry, and taking the same for home consumption, without payment of duty."
We find that his conclusion and as extracted hereinabove and the applicability of Regulation 7 as recorded by Commissioner; are incorrect. Since Regulation 7 was rescinded by Notification No. 44/98-Cus., dt. 2-7-98 and also while granting the permission of manufacture of final goods in Bond was granted on 17-8-98 i.e. about 6 weeks after this repeal, no such conditions of duty paid Capital goods was, stipulated therein by the jurisdictional officers. Therefore the findings that conditions in Section 65 of the Customs Act, 1962 read with Regulation 7, as arrived at on the impugned order are not correct positions in law. We find no stipulation or requirement of duty paid capital goods to be used on or after 2-9-98 for manufacture of goods in a Customs Bond under MOOWR 1966 (as amended) read with Section 65. The Commissioner has concluded and recorded in Para 20 of the impugned order as under :-
"20. ..... The allegation in the show cause notice is that, after obtaining the permission under Section 65 of the Customs Act, the imported machineries were installed without payment of import duties and the installation was done without the physical supervision of the Bond Officer or without any intimation that such installation was going to be carried out or has been carried out....."
And further in Para 19 has concluded :-
"19. ..... As already mentioned above, the Regulation 7 is applicable to plant and machinery necessary for carrying on manufacturing operations and it imposes the condition that these must be duty paid. The condition is that duty should be paid even before they are packed from their original packing with an intention of using these machineries for manufacturing. If they intended to use these machineries for manufacturing purposes they should have intimated the Bond Officer and should have filed Ex-bond Bill of entry. As the Ex-bond bill of entry was not filed and the machines were installed without discharge of duty liability it tantamounts to illicit clearance of imported goods from the warehouse without payment of duty."
Clearance of goods from a Bonded Warehouse on a Bill of Entry for Home Consumption or for other purposes is governed by Section 68 of the Customs Act, 1962. This section doesn't stipulate packing, assembling, installation or use in the manufacture of other goods to be clearance effected only after filing of Bill of Entry and on payment of duty or that such activities would amount to clearance, as arrived at by the ld. Commissioner in respect of Imported Capital Goods herein. The words "Home Consumption" have to be understood vis-a-vis, deposit in warehouse, when we read Sections 13 & 15 of the Customs Act, 1962. We do not find that there could be a deemed removal for Home Consumption, as is being concluded by the Commissioner. We, therefore, cannot upheld the conclusions arrived at by the Commissioner.
(f) From the Bill of Entries of import, on which the goods were imported and then warehoused and the classification of the goods therein, it is apparent that the assembly and installation undertaken did not bring into existence, any new machines, since the classification for assembly and installation at the time of import and erection after assembly remained the same. No new commercial item known came into existence. Therefore, no manufacture took place, by unpacking/assembly/erection of the Imported Goods. When no manufacture took place no duty could be charged. Similarly, there is no finding of the appellant having carried out the manufacture and or production of any commercial final product i.e. HDPE/PP Ropes, on or before 2-7-98. The finding arrived at Para 19 of the impugned order that the installation of machinery and its assembly were meant to use for manufacturing purpose and therefore duty liability arose, cannot therefore be appreciated in the facts of this case and the law as there is no evidence of manufacture of Ropes earlier to 2-7-98, the date of issue of Notification No. 44/98. Therefore, the payment of duty as determined by the ld. Commissioner on the grounds of intention or otherwise on Capital Goods is not called for, even if duty paid machines are only to be used as capital goods under MOOWR, even, as per contention of the Commissioner, since such use is not established prior to 2-7-98. We appreciate the arguments being advanced by the appellant that they had made an application for permission to manufacture finished goods much after the repeal of Regulation 7, i.e. when no condition of duty paid capital goods to be used existed in the statute book. The duty demands, therefore on the Capital goods as arrived at, cannot be upheld.
(g) The appellants have placed on record an application made and permission granted by the jurisdictional officers for assembly and installation. The Bonded Warehouses under the Customs Act Chp. IX are only to operate with double lock system (i.e. one Lock & Key with licencee and other in the custody of the Department and under physical supervision of the Bond Officers. The case of the Revenue is not, that the operations in the Bond were committed without seeking the necessary permissions. Therefore we cannot understand, as to how, it can be said or found, that the assembly and the installation of the imported machine were without the knowledge of the Bond Officers/Department. The findings arrived at para 21 of the impugned order that the Bond Officers were not aware of the assembly of the machines cannot be accepted. Even assuming that the operations were conducted without permission, Penalty under Section 117 of the Customs Act could only be imposed. The duty demands could not be made. However, no penalty under Section 117 has been found to be levied in this case.
(h) The appellant had filed 16 Ex. Bond B/E, under the provisions of Section 68 of the Customs Act, 1962 for assessment under Notification No. 53/97. These Bill of Entries are still pending assessment and finalization. The non assessments and sealing of the warehouse had contributed to the goods not being cleared from the Bonded Warehouse. The goods could not be debonded due to this non-assessment and it is not a result due to a failure or desire on part of the appellant, to exceed the Bond Warehousing period or not to clear the goods. They have made efforts to clear the Imported Goods under EPCG, then under MOOWR, or 100% EOU, but it appears to us that the efforts have been frustrated due to delay and an incorrect appreciation of the provision of the Customs Act, 1962 as regard Imported Goods deposited in a Private Bonded Warehouse. We find that the Import Policy has totally liberalized and permits manufacturer exporter to switch from one Export Scheme to another, and in the case of Prathibha Processors v. Union of India -1996 (88) E.L.T. (12) Supreme Court, has held as follows :-
"12. On a fair reading of the relevant provisions of the Act and in particular Sections 15, 25, 59, 61 and 68 and the General Exemption granted by the Notification (Pages 169-170 of the paper book) and the Import-Export (Trade) Policy, 1990-93 (Blue Book) (Page 176 of the paper book), we are of the opinion that the entire Scheme is in a 'package'. In allowing exemption to imported goods the Government had made it clear that goods imported into India against the Advance Licence includes goods imported under any licence (including Open General Licence for which at the time of clearance out of Customs control a valid Advance Licence is produced by the importer. It is open to the importer to import the items in advance under Open General Licence and keep the same in Customs Bond for getting a clearance against the valid Licence issued subsequently under Duty Exemption Scheme. When the notification granting the exemption and also the Import Policy has totally liberalized the entire process the mere fact of warehousing the goods on an anterior date and clearing the same on the basis of a subsequent Advance Licence, validly obtained under Duty Exemption Scheme, cannot by any stretch of imagination import the idea of levy of interest for the period the goods were kept in the warehouse. The liability of the assessee to pay the duty arises only on clearance of the goods from a warehouse. The assesses has no obligation to pay duty as long as the goods were kept or remained in the warehouse. It is only in cases where the goods kept in the warehouse are exigible to duty, and they are so kept in the warehouse for more than the permitted period, and the said goods are cleared subsequently and duty paid, interest is chargeable for the period of delay in the clearance of the goods. Since the goods warehoused are kept for a longer period such delay entails delayed payment of duty payable and so interest is charged for such delayed payment of duty."
Following the same, we find no reason to deny the exBond removal of the goods under Notification 53/97 at NIL rate of duty, as sought, for removal from the bonded Warehouse. We, therefore, do not accept the following finding of the ld. Commissioner in Paragraph 25 of the Order impugned herein :-
"25 ....Therefore, I do not find any force in the submissions made by the party. M/s. KFL were required to file Ex-bond Bills of Entry, pay the applicable duties etc. as laid down under Section 68 ibid. Since the same was not done the contravention's as charged in the Show Cause Notice is established. As such the demand is sustainable and subject machines, being non duty paid, are liable for confiscation. M/s. KFL, are also liable for penalty."
(i) Since we cannot find any contravention of the warehousing conditions or of the Bond or of Regulation 7 read with Section 65; & B/E for home consumption under benefit of Notification 53/97 presented are pending assessment, we cannot find any reason to determine the demands of duty under Section 28(2) as arrived at by the ld. Commissioner or of Penalty under Section 114A and interest under Section 28AA or a liability for confiscation under provisions of the Customs Act, 1962. Therefore we cannot upheld the orders of duty demand, interest and penalty as arrived at.
(j) In view of above findings Appeal No. C/1025/2001 is to be allowed. The orders impugned are set aside with directions that the Ex Bond Bill of Entries pending should be assessed, as per law, without any further delay.
3. In view of our findings, the impugned orders are set aside and appeals allowed.