Custom, Excise & Service Tax Tribunal
Yes vs Represented By : Shri P.M. Dave, Adv on 12 June, 2012
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Zonal Bench, Ahmedabad COURT-II Appeal No.C/1104/06 Arising out of OIA No.455/2006/373 (RAJ)/Commr.(A)/RP/Raj, dt.28.07.06 Passed by Commissioner of Central Excise & Customs (Appeals), Rajkot For approval and signature : Hon'ble Mr. M.V. Ravindran, Member (Judicial) Hon'ble Mr. B.S.V. Murthy, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? No 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Appellant (s) : M/s. Varsha Exports Represented by : Shri P.M. Dave, Adv Respondent (s) : CC Kandla
Represented by : Shri R. Nagar, A.R. CORAM :
Hon'ble Mr. M.V. Ravindran, Member (Judicial) Hon'ble Mr. B.S.V. Murthy, Member (Technical) Date of Hearing/Decision : 12.06.12 ORDER No. _____________ /WZB/AHD/2012 Per : Mr. M.V. Ravindran;
This appeal is directed against order in appeal No.455/2006/373 (RAJ)/Commr.(A)/RP/Raj, dt.28.07.06.
2. The relevant facts that arise for consideration are the appellant herein is situated in Kandla free trade zone or Kandla Special Economic Zone (hereinafter referred to as KASEZ) for manufacture of plastic goods and started the commercial production from April 1998 onwards, in accordance with export-import policy in force. They were required to achieve minimum 20% net foreign exchange as percentage of export during the relevant period. They obtained permission from Development Commissioner, KASEZ for clearance of 25% of their production into domestic tariff area subject to the condition that same will be adjusted against their future entitlements and also that if the appellant failed to fulfil this requirement action would be initiated against them to enforce the undertaking/declaration given by them in this regard vide points dated 23.2.98 and 6.4.98. Lower authorities directed the appellant to produce the statement showing the calculated of value addition, in accordance with the provisions of para 9.29 of the policy on noticing that the appellant had not achieved the NFEP by 0.033% which indicated that they have not achieved 20% NFEP as undertaken by them, they were liable to pay the duty for the clearances made into DTA by availing the benefit of Notification No.02/95-CE dated 4.1.95. Show cause notice was issued to the appellant. The appellant filed a petition before the Honble High Court of Gujarat questioning the alleged liability of the duty worked out by the customs as being arbitrary and unreasonable without appealable order. Honble High Court directed the Revenue Authorities to consider the representation made and pass a reasoned order as early as possible after following the principles of natural justice. On such specific directions of Honble High Court of Gujarat, the adjudicating authority after granting a personal hearing to the appellant herein and considering the submissions made by them confirmed the demand by denying the benefit of Notification No.02/95-CE dated 4.1.95. Aggrieved by such an order, the appellant preferred an appeal before the first appellate authority who also agreed with the views of the adjudicating authority and upheld the order and rejected the appeal filed by the assessee.
3. Ld. counsel appearing on behalf of the appellant would take us through the dates and events. It is his submission that whether there is any shortfall in achieving the required NFEP or not, the Customs Authorities would not be the correct authorities and the proper authority would be the Development Commissioner who can initiate proceedings against the appellant. It is his submission that no proceedings have been initiated against the appellant by the Development Commissioner even after completion of five years. He would submit that various benches of the Tribunal have held categorically that only when Development Commissioner arrives at clear finding that there has been a shortfall in fulfilment of export obligation, demands can be confirmed by the Customs Authorities and demands if any raised and confirmed in absence of any such findings by the Development Commissioner are pre-matured and liable to be set aside. He relies on the following case laws:
1. Vishal Footwear Ltd. Vs. Commissioner of Customs [1999 (114) ELT 60 para 4 & 7]
2. L.R. Brother Indo Flora Ltd. Vs. Commissioner of Customs [2008 (232) ELT 77 para 3(i), 5 & 6]
3. Sarita Software Industries Ltd. Vs. Commissioner of C.Ex [2010 (262) ELT 1025 para 6 & 7]
4. Kaatyayini Exports Vs. Commissioner of C.Ex [2003 (156) ELT 497 para 7 & 8]
4. It is his further submission the calculation of NFEP as per para 9.29 of the policy is required to be calculated for the block period for five years beginning from the date of commencement of production while in this case the appellant had commenced the commercial production only in April 1998 and therefore present action of the authorities in considering the period prior to the date of commencement of commercial production while calculating the NFEP is wholly illegal and arbitrary. It is his submission that even the calculation of NFEP is erroneous as export-import policy under para 9.29 categorically talks about calculation of NFEP for a period of five years cumulatively and this can be done so only on completion five years. Hence the show cause notice issued for the demand of the duty in this case, before the expiry of five years is pre-matured. It is his submission that the entire proceedings initiated against the appellant was without jurisdiction and without authority of law and no show cause notice was issued to the appellant by the JDGFT authorities in this case.
Ld. departmental representative on the other hand would reiterate the findings of both the lower authorities.
6. We have considered the submissions made by both sides and perused the records.
7. On perusal of the records, we find that the issue involved in this case is regarding the demand of the duty liability on the goods cleared to DTA by the appellant by denying him the concessional duty under Notification No.02/95-CE dated 4.1.95 for not achieving NFEP as has been undertaken by them.
8. It is undisputed in this case that the appellant is a 100% EOU and as per para 9.29 of the policy, NFEP has to be calculated in accordance with the policy. It is also undisputed that the Development Commissioner has to calculate the NFEP, which as submitted by the ld. counsel, till today is undisputed and no notices are issued by Development Commissioner. It is also undisputed that appellant was not issued any show cause notice by the lower authorities.
9. Be that as it may, the entire case revolves around the fact that whether the appellant is not eligible for the benefit of Notification No.02/95-CE is based upon whether the appellant has completed or has achieved the positive NFEP or not. In our considered view, the provisions of para 9.29 of export-import policy 1997-2002 needs to be appreciated which is as under:
9.29 Net Foreign Exchange Earnings as a Percentage of exports (NFEP). Net Foreign Exchange Earning as a percentage of export (NFEP) shall be calculated annually and cumulatively for a period of five years from the commencement of commercial production according to the following formula:
NFEP = A-B where B NFEP is Net Foreign Exchange Earning as a percentage of exports, A is the FOB value of exports by the EOU/EPZ/EHTP unit; and B is the sum total of the CIF value of all imported inputs, the CIF value of all imported capital goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends interest on external borrowings during the first five years period or any other charges. Inputs mean raw materials, intermediates, components, consumables, parts and packing materials.
10. It can be seen from the above reproduced para of Exmport-Import policy that the said policy talks about calculation of NFEP annually and cumulatively for a period of five years from the commencement of commercial production based upon the formula. In the case in hand, it is undisputed that five years have not been completed after the start of commercial production by the appellant. We find that in the case of Vishal Footwear Ltd. (supra) this bench has considered the issue in detail and with respect we may reproduce the ratio of the said decision.
6. We have? carefully considered the rival submissions and we see great force in the submissions of the appellants. Extract from the Ministry of Finance Circular is reproduced below :
Issue of show cause notice for recovery of customs duty on goods imported by 100% EOU :
A number of instances have come to the notice of the Board where 100% EOUs 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.
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 the stage of the unit being de-bonded 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 Board of 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 Board of Approval or the Development Commissioner concerned determines that the units 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. At 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.
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 with 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."
7. The above? circular makes it very clear that even in the event of failure to make or continue exports, the Development Commissioner s recommendation is required before duty demands can be confirmed by the Customs authorities. In this case, there is no definite conclusion arrived at by the concerned authority namely the Development Commissioner. On the other hand, the Development Commissioner has vide its letter dated 22-12-1998 extended the period of validity for a further period upto 31-3-1999 and the importers have further requested for further extension. Therefore, in the present case, the duty demand is premature and we see no option but to set aside the same. The penalty imposed on the appellants is also set aside. The order of confiscation is also set aside. Needles to say, it will be open to the Adjudicating authority to take appropriate action for recovery of duties in the event of the recommendations of the Development Commissioner in this regard, in accordance with law.
The impugned order is set aside and the appeals are allowed.
The Misc. application is dismissed as not pressed.
11. The above said ratio has been followed by the various decisions of this bench as has been correctly pointed out by the ld. counsel. The case in hand, in our considered view, is squarely covered by the above reproduced ratio.
12. Accordingly, in view of the foregoing, in the facts and circumstances of this case, we hold that the impugned order is liable to be set aside as per the ratio laid down by the coordinate benches and we do so.
13. The impugned order is set aside and the appeal is allowed.
(Operative portion of order pronounced in open Court after conclusion of hearing) (B.S.V. Murthy) (M.V. Ravindran) Member (Technical) Member (Judicial) .JK 7