Custom, Excise & Service Tax Tribunal
M/S Nava Bharat Enterprises Ltd vs The Commissioner Of Central Excise on 22 October, 2009
THE CUSTOMS EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, SOUTH ZONAL BENCH, WTC BUILDING, FKCCI COMPLX, K.G. ROAD, BANGALORE Date of hearing: 22.10.2009 Date of decision: Customs Appeal No: 662/2008 (Arising out of Order-in-Original No: 2/2008Cus (Denovo(Commr) dt 16.5.2008 passed by the Commissioner of Customs, Central Excise & Service Tax, Guntur) For approval and signature Honble Mr M.V. Ravindran, Member (Judicial) Honble Mr P. Karthikeyan, Member (Technical) 1. Whether Press Reporters 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 the 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 M/s Nava Bharat Enterprises Ltd., (Aqua Unit) .Appellant Vs The Commissioner of Central Excise, Guntur Respondent
Present for the Assessee: Shri Lalit Mohan Chandana, Adv Present for the Respondent: Shri M. Vivekananda, SDR Coram: Honble Mr M.V. Ravindran, Member (Judicial) Honble Mr P. Karthikeyan, Member (Technical) ORDER No______________________DATED PER SHRI P. KARTHIKEYAN M/s, Navabharat Enterprises Limited (Aqua Products Division),Gudur, Nellore District having their office at Door No.6-3-654/A, Somajigudda, Hyderabad (hereinafter referred to as the assessee or the Unit) are a 100% Exported Oriented Undertaking, The assessee had procured imported Capital goods valued at Rs.46,74,473 involving Customs duty of Rs.15,76,748 and raw materials valued at Rs.2,61,33,444 involving Customs duty of Rs.6,43,401. Thus, the total Customs duty foregone was Rs.22,20,149, as indicated in Annexure-I enclosed to the Show Cause Notice dated 24.04.2000, under Notification No. 196/94-Cus, dated 8.12.1994 as amended from time to time (earlier Notifications No. 13/81-Cus. dt. 9,2.1981 and 188/93-Cus, dt.27.12.93). The assessee had also procured various indigenous capital goods valued at Rs.72,68,549 involving excise duty of Rs.10,11,890 and indigenous raw materials valued at Rs.10,16,767 involving excise duty of Rs.2,03,353 without payment of excise duty totally involving a duty of Rs.12,15,243, by availing the conditional exemption under Notification No. 10/95-CE, dated 23.02.1995, as amended (earlier Notification Nos.123/81 CE dt-02.6.81; No.57/94 CE dt-1.3.94 and 136/94 CE dt-10.1 1.94).
2. As the EOU had failed to fulfill export obligation prescribed, a show cause notice was issued proposing to confiscate the capital goods under Section 111 (O) of the Customs Act, to recover the exemption availed along with interest and to penalize the EOU under the provisions of Central Excise Act and Rules. Allegations were adjudicated by the Commissioner ex-parte. Assessee approached the Honble High Court of Andhra Pradesh seeking relief against the liabilities confirmed against it in order-in-original 7/03 (Cus) dated 18.7.2003. The Honble High Court directed the assessee to file an appeal before the Tribunal. The Tribunal allowed the appeal filed by the assessee by way of remand to the adjudicating authority for taking a fresh decision. The impugned order has been passed in denovo proceedings.
3. While adjudicating the allegations, the Commissioner considered the following case laws cited by the appellants and observed as follows:-
(i.) Suvarna Aqua Farm & Exports Ltd. versus Commissioner of Cus.,Guntur -2005 (190) ELT 284 (Tn. - Bang.) In this. case, the Honble Tribunal held that on debonding, depreciation is to be given up to the date of duty payment and not till the date of debonding and set aside the Penalty, fine and confiscation for non fulfillment of export obligation due to production ban by the Apex Court, damage of plant by floods, etc., which were beyond the control of the importer whose bonafides were not doubted.
(ii,) Natural Stone Exports Limited Vs. CC (Appeals) Bangalore- 2006 (198) ELT 440 (Tri Bang) The South Zonal Bench of the Tribunal held in this case that duties on warehoused capital goods imported by 100% EOUs cannot be demanded till their clearance from the warehouse, besides findings of similar nature as above. However, the Honble Tribunal had also held that duty demand on un-utilised quantity of goods was right.
(iii.) Premier Granites Ltd., Vs CC & CE, Tirupathi 2007(210) ELT 200 (Trib. Bang) Recording findings of the above nature, the South Zonal Bench, CESTAT, Bangalore held that duty was demandable on the depreciated value which will be till the date of payment of duty. It also held that demand of entire duty was not proper when partial fulfillment of Export Obligation was there.
4. The Commissioner found that the Development Commissioner, Visakhapatnam Export Processing Zone, Visakhapatnaan, in her Order-in-Original No. 8/EOU/ADJ-88/VEPZ dated 20.05.2002 passed on the issue of non-fulfillment of export obligation against the assessee under the provisions of the Imports & Exports(Control) Act, 1947 and the Foreign Trade (Development & Regulation) Act, 1992, observed that the unit started commercial production with effect from 27.05. 1994 and did reasonably well on the export front till it was affected by problems like virus etc. She also observed that due to the Supreme Courts directions, the unit could not operate from 1997-98 onwards. Under these circumstances, the Development Commissioner took a lenient view and dropped the proceedings and directed the assessee to debond their unit. Subsequently, the DC, VEPZ, Visakhapatnam issued Suo Moto Debonding Letter dated 31st October, 2002 and cancelled the LOP and directed M/s. Nava Bharat Enterprises Ltd to pay Customs and Excise duties to the jurisdictional Customs and Central Excise authorities before the goods were removed from the bonded premises.
5. She found that the EOU was entitled for depreciation on capital goods in cases of partial fulfillment of export obligation in the light of the following case law.
i) Meirs Pharma (India) Pvt. Ltd. Vs. CC - 2004 (167) ELT 53 (T) ii) Fal Industries Ltd. Vs. CC - 2003 (159) ELT 215 (T)
iii) Dyra Lamps and Glass Works Ltd. Vs. CC - 2003 (157) ELT 73 (T)
iv) CC & CCE, Vadodara Vs. Solitaire Machine Tools (P) Ltd. - 2003 (152) ELT 384 (T)
v) Taurus Novelties Ltd., Vs. CCL 2004 (173) ELT 100 (T) The Commissioner rendered the following finding:
The unit started commercial production from27.05.1994. As the non-duty paid capital goods were procured subsequent to the date of commencement of production (from 07/94 to 04/96), 1 take the date of installation of the respective capital goods as the date from which depreciation is to be calculated. According to the Boards instructions and the governing Notifications themselves, depreciation is to be allowed till the payment of duty. These instructions apply to a unit which applies for debonding in the normal course of business. But this yardstick cannot be applied to this unit as it became defunct from 1997-98 onward. The Suo Moto Debonding Letter was issued by the Development Commissioner, VEPZ on 31.10.2002 directing the unit to pay the duties before removing the goods from the bonded premises. As such, I take the date of Suo Moto Debonding Letter i.e., 31.10.2002 as the date up to which the depreciation can be allowed. In terms of the Boards Circular No. 43/98-Cus., dated 26-6-1998, which was in force at the time of sue moto debonding, I allow depreciation in straight line method at the rates prescribed therein for the period from the date of installation of the respective capital goods to 31.10.2002.The depreciated values and the corresponding duties payable have been arrived at as per the parameters mentioned above, and the worksheet is enclosed as Annexure to this Order. The depreciated value of the imported capital goods for charging customs duty works out to Rs.4,67,447 and that of indigenous capital goods for charging excise duty to Rs.9,08,099. As such, the customs duty payable (on the depreciated value of Rs.4,67,447) at the rates prevalent at the time of import will be Rs.l,57,675 and the excise duty payable (on the depreciated value of Rs.9,08,099) will be Rs.1,33,456. Thus, the total duties payable works out to Rs.2,91,131/-.
6. As regards the payment of duty on raw material procured under the EOU scheme, the Commissioner found that the appellant had fulfilled export obligation to the extent of about 60%. She presumed that, therefore 40% of the raw material procured was not entitled to exemption and accordingly demanded customs and excise duties to the tune of Rs 3,38,701/- and 40% of the value of the raw materials procured by the appellants. She further found that:
The unit could not operate from 1997-98 onwards because of the Supreme Courts directions banning aqua culture. In other words, the unit could not carry on the aquaculture activities due to reasons beyond its control. Further, it was also submitted by the unit that most of the capital goods, both imported and procured indigenously, were washed away during the cyclone followed by heavy floods in the year 1997 and the remnants, if any, were reduced to scrap over the past decade and as such there is no disposal value by sale. But these have not been substantiated by the Unit.
7. The EOU did not pay duties due on the capital goods on 31.10.2002, when Development Commissioner VEPZ had ordered suo moto debonding of the EOU. Accordingly, the Commissioner passed the order-in-original No.2/08-Cus. (Denovo) (Commr.) dated 16-05-2008, inter-alia, demanding Customs duty of Rs.1.57,675/-, and Rs.1,33,456/- Excise Duty, on the capital goods; Customs & Excise duties of Rs.3,38,701/- on the raw materials not utilized; and also imposed penalty of Rs.6.00,000/- besides confiscation of capital goods raw materials etc. She also demanded interest for the delay in payment of duties confirmed from 31.10.2002 till the day of payment. She ordered confiscation of capital goods of value of Rs 13,17,546/-and offered redemption on payment of fine of Rs 3,00,000/-. Raw materials of value of Rs 1,08,60,084/- were confiscated and offered an option to redeem them on payment of fine of Rs 3.5 lakhs.
8. Appeal filed by the assessee assails the impugned order on the following issues:
1. Non allowance of Depreciation on capital goods upto the date of payment of duty or upto the date, on which capital goods were confiscated by the department.
2. Confirmation of duty without giving allowance for exports made.
3. Wrong demand of duty on raw materials (both imported and indigenous) on the ground that only 60% of the raw material were consumed.
4. Illegal confiscation of capital goods as well as raw materials (both imported & indigenous)
5. Wrong imposition of penalty and Redemption fine, which are totally not sustainable under the law.
9. We have heard both sides. We find that in the instant case, the appellants were forced to close down the EOU owing to the Supreme Courts direction banning aqua culture. Appellants are not found to have tried to evade duty of customs or excise or to have tried to avail undue exemption. In the circumstances, we find that the order of confiscation of the capital goods and raw material procured by the appellant do not appear justified. So also the penalty imposed on the appellants. In this connection we find that the appellants have rightly relied on the decision of this Tribunal in Fal Industries Ltd. (supra) wherein the Tribunal has observed as follows:
B. Confiscation of the goods & imposition of penalty.
We observe that in this case the appellants have come clean before the authorities that it was beyond their control to fulfill the export obligations because of various reasons and they could export only a negligible quantity of 1%. Further, there is no allegation in the show cause that the appellants-importer willfully sought to avail of the benefit of Notification with a view to gain any benefit. It is not the case of the department that there was deliberate attempt to avail of the notification by making any mis-declaration. The extent of the failure to fulfill the export obligation does not matter in a situation, as seen from the records that in this case, in fact the appellants had filed bank guarantee and sought for extension of time to fulfill the export obligation. But in spite of their efforts, they could not succeed. We observe that identical case came up for consideration before the CEGAT, West Regional Bench, in the case of Philips India Ltd. v. CC, Mumbai - reported in 2001 (137) E.L.T. 697 wherein the confiscation of the goods and imposition of penalty was set aside. In that case also the same Notification i.e. No. 160/92-Cus. and Para 38 of the EXIM Policy was dealt with. We would also like to observe that the Honble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa, has held that penalty will not also be imposed merely because it is lawful to do so. Where penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Following the ratio of the above decisions, we set aside the confiscation of the goods and imposition of penalty on the appellants. We also find that in the case of Taurus Novelties Ltd., Vs CC Bangalore (supra), where the appellant therein had failed to fulfill the export obligation, owing to collapse of Courian Economy, the Tribunal ordered as follows:
.In a like situation, the Tribunal, in the citations referred to by the Counsel, has held that confiscation cannot be ordered in a circumstance when the export obligation became an impossibility. Further it has been held that when the Bank Guarantee has been realized before the issue of Show Cause Notice, then in such a circumstance, the redemption fine, penalty and interest is not imposable. We have perused these judgments and find that the appellants prayer for setting aside the redemption fine, penalty and interest, in terms of these judgments, is justified. The ratio of the judgments clearly applies to the facts and circumstances of this case. Respectfully following the same, the impugned order, confiscating the machinery and imposing redemption fine and penalty on the Company and the Directors including the levy of interest, is set aside by allowing the appeal.
10. In the circumstances we find that order of confiscation of capital goods and raw materials and imposition of penalty imposed on the appellants is not sustainable. We vacate the same. As regards the depreciation admissible, on the value of capital goods, the appellants rely on Board Circular No 27/98 Cus dated 21.4.1998 which prescribed admissible depreciation and the period of computation.The period of depreciation as per the circular would be counted from the date the capital goods have been put into the manufacturing process in the EOU up to the date they are sought to be cleared to DTA. We find that in the case of Suvarna Aqua Farm and Exports Ltd., (supra), the Tribunal held as follows:
6.On a careful consideration of the submission, we notice that the only question required to be considered in this case is as to whether the appellants are entitled to depreciation on the goods imported and not fully used, for the purpose of calculating the duty and as to whether RF and penalty is imposable. This very issue was considered by the Presidents Bench in the case of CCE v. Solitaire Machine Tools P. Ltd. (supra) wherein, after due consideration, the Bench held that the depreciation has to be granted till the date of payment of duty in terms of Notifications. Again, the Tribunal, in the case of Khabros Steels (I) Ltd. v. CCE, Jaipur - 2002 (141) E.L.T. 257 (Tri.-Del.) on this very issue, held that the depreciation has to be granted till the date of payment of duty. The JCDR does not dispute the fact of grant of depreciation, but only submits that the depreciation has to be calculated only up to the date of de-bonding. On our consideration, we find that this was the question, which was before the Bench in the case of CCE v. Solitaire Machine Tools P. Ltd., wherein the Tribunal, on due consideration of this very point, held that the depreciation has to be given up to the date of payment of duty and not up to the date of de-bonding. The same finding was recorded also in Khabros Steel (I) Ltd. The learned JCDR relied on Kesoram Rayon case. The Kesoram Rayon case deals with the rate of duty to be fixed on the de-bonding and not on the aspect pertaining to depreciation. Hence, the reliance on the Kesoram Rayons case by the JCDR is misplaced.
11. We find that in the instant case, the capital goods were confiscated by the order of the Commissioner dated 18.7.2003. Therefore, the goods should be deemed to have been taken from the possession of the assessee on that date. Since the goods had been warehoused, this date has to be treated as date of clearance of the goods. As per the Boards Circular, these goods are entitled to clearance on payment of duty after following depreciation from the date they were installed in the appellants unit till the date of clearance. The depreciation admissible shall be worked out in terms of the Circular No 46/98 which was current during the material period.
12. We find that the appellants claim this benefit in proportion to the percentage of export obligation fulfilled by it relying on a decision of this Tribunal in the case of Premier Granite (supra) wherein the Tribunal had held that as the appellants have put the goods imported to use and have partially fulfilled the export obligations, denial of benefit of exemption notifications and demanding entire duty is not proper. Such a view was also taken by the Tribunal in the case of Natural Stone Exports Ltd., Vs Commr (2006 (198) ELT 440). Revenue has no case that the decisions of the Tribunal in Premier Granite case and Natural Stone Export case have been challenged before Competent Court. In the circumstances, we order that the admissible depreciation shall be computed in the light of the ratio of these decisions. As regards duty due on the raw material, the Commissioner has presumed that the raw materials procured had been consumed only to the extent of 60%, as the EOU had fulfilled its export obligation to that extent. The impugned order does not record any evidence to counter the argument of the assessee that the entire raw materials had been consumed in the production of goods already exported. In the circumstances, we find that the demand on this count cannot be sustained. Demand of customs and excise duties on the 40% of the value of the raw material procured by the assessee during the materials period is set aside. In fine we allow the appeal and remand the matter to the Commissioner for deciding the liability of the assessee on clearance of the capital goods from its warehouse redetermining the assessable value in the manner indicated by us. The appeal is allowed by way of remand.
(Pronounced in the open court on )
(P. KARTHIKEYAN)
Member(Technical) (M.V. RAVINDRAN)
Member (Judicial)
/pnr/