Custom, Excise & Service Tax Tribunal
Toyota Kirloskar Auto Parts Pvt Ltd vs Bangalore-Ltu on 28 January, 2026
E/20372/2017
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No. 20372 of 2017
(Arising out of Order-in-Appeal No. 12 & 13/2017/LTU dated
16.01.2017 passed by the Commissioner of Central Excise (Appeals),
LTU, Bangalore.)
M/s. Toyota Kirloskar Auto
Parts Private Limited, Appellant(s)
Plot No. 21, Bidadi Industrial Area,
Bidadi, Bangalore - 562 109.
VERSUS
The Commissioner (LTU)
JSS Towers, 100ft Ring Road,
Respondent(s)
Banashankari 3rd Stage, Bangalore - 560 085.
APPEARANCE:
Mr. N. Anand, Advocate for the Appellant Mr. Maneesh Akhoury, Asst. Commissioner (AR) for the Respondent CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MR PULLELA NAGESWARA RAO, MEMBER (TECHNICAL) Final Order No. 20064 /2026 DATE OF HEARING: 29.07.2025 DATE OF DECISION: 28.01.2026 DR. D.M. MISRA This is an appeal filed against Order-in-Appeal No.12&13 /2017/LTU dated 16.01.2017 passed by the Commissioner(Appeals), LTU, Bangalore.
2. Briefly stated the facts of the case are that the appellant are engaged in the manufacture of Gear Boxes (Transmission Assembly Units) and their parts falling under Chapter 87 of the Page 1 of 13 E/20372/2017 Central Excise Tariff Act, 1985. By a letter dated 27.02.2012, the appellant had informed the Department that they have removed final products for export against invoice dated 19.02.2012 to M/s. Toyota Argentina S.A. Argentina through 3 rd party exporter, which met with an accident on 20.01.2012 and 288 nos. of Gear Boxes contained in the export container was brought back to the factory for quality inspection and later found to be damaged. Hence, they requested for permission for destruction of the said goods at their premises without payment of duty and for removal of the scrap/wastage on destruction of the said goods on payment of duty in terms of Para 6.8(f) of the Foreign Trade Policy (FTP) read with Para 8(ii) of Notification No.52/2003-Cus dated 31.03.2003 and Para 3(iii) of Notification No.22/2003-CE dated 31.03.2003. Consequently, they were directed to pay duty on the value of the goods damaged and not on the scrap value. As appellant has not paid the duty on the value of goods, information were called for from the appellant including the insurance claim on damaged goods in transit relating to the consignment in 2012 as well as the past consignment in February 2008. On the basis of the information submitted and later collected from the insurance company, show-cause notice was issued to the appellant on 20.02.2013 for recovery of the total duty of Rs.34,70,133/- against the value of the goods cleared vide invoice dated 19.01.2012 and 04.02.2008, which got damaged during the course of transit invoking extended period of limitation with interest and penalty. On adjudication, the demand was dropped by the adjudicating authority. Aggrieved by the said order, Revenue filed appeal before the learned Commissioner(Appeals) who in turn allowed the Revenue's appeal by setting aside the order of the adjudicating authority. Hence, the present appeal.
Page 2 of 13E/20372/2017 3.1. At the outset, the learned advocate for the appellant has submitted that they had cleared their final goods for export through merchant exporter viz. M/s. Toyota Kirloskar Motor Private Limited (TKML) to M/s. Toyoka Motor Thailand Co. Ltd., vide Export invoice dated 04.02.2008 and cleared 1152 nos. of gear assembly. Out of the said goods meant for export, a consignment of 288 units met with an accident and were brought back to the factory after filing Form D-3 declaration in terms of Rule 16 of Central Excise Rules, 2002 (CER, 2002) and also an FIR was filed with the Police authorities. After verification of the returned goods by the Departmental authorities, the goods were re-warehoused. Consequently, quality of the accident-damaged goods was carried out and it revealed that the same became unfit for re-work or refurbishing. Consequently, they sought permission for destruction of the goods in terms of Para 3(iii) of Notification No.22/03-CE and Para 8(i) of Notification No.52/03- Cus. read with Para 6.8(f) of the FTP. The Deputy Commissioner, LTU, Bangalore vide order dated 26.03.2008 granted permission for destruction of 288 nos. of goods within the appellant's EOU premises and to discharge duty on the scrap generated and cleared into DTA. On the basis of the said permission, they have destroyed the goods and scrap generated was sold into DTA after payment of applicable duty. The Department has never objected to such clearances. Further he has submitted in January 2012, similar accident occurred while effecting clearance against export invoice dated 19.01.2012 wherein they cleared 576 nos. of finished goods valued at Rs.1,54,37,496/-. 288 nos. of final goods were damaged during the course of transit and necessary FIR was filed with Police on 23.01.2012 and the damaged goods were brought back to the factory and they filed declaration in Form D-3 under Rule 16 of CER, 2002 and requested for physical verification. After verification done by the LTU authorities, the goods were re-
Page 3 of 13E/20372/2017 warehoused. When they sought permission of the Department for destruction of the goods as the same could not be repaired or reconditioned, permission was not accorded and show-cause notice was issued demanding duty of Rs.34,70,133/- for both the consignments i.e. clearances made during February 2008 as well as January 2012. He has submitted that the adjudicating authority has dropped the demand after taking note of the fact that they have correctly followed the procedure availing benefit of Notification No.22/2003-CE. On an appeal filed by the Revenue, the learned Commissioner(Appeals) set aside the order by travelling beyond the scope of the show-cause notice and made out entirely a new case which was never alleged in the show-cause notice. In their appeal, the Revenue raised the issue of availing the benefit of Notification No.22/2003-CE dated 31.03.2003 and when the goods were not exported, demand of duty on the goods imported used in the manufacture of final products would arise; hence, the appellant was to discharge duty as required under Notification No.22/2003-CE dated 31.03.2003. But the impugned order travelling beyond the scope of the notice and referring to certain judgments which have already been overruled / distinguished by the Larger Bench of the CESTAT in Honest Bio-Vet Pvt. Ltd. Vs. CCE [2014((310) ELT 526 (Tri. LB)], set aside the adjudication order and allowed the Revenue's appeal. In the Revenue's appeal, there was no ground on the issue of invocation of extended period of limitation and the learned Commissioner(Appeals) travelled beyond the grounds of appeal in confirming the demand invoking extended period of limitation. He has submitted that in the impugned order, it has recorded findings relating to sale of goods by the appellant and receipt of sale value / consideration from the merchant exporter and consequently held that duty is payable in terms of proviso to Section 3(1) of the Act. He has submitted that the findings raised on assumption and presumption inasmuch as there is no Page 4 of 13 E/20372/2017 sale of goods till port of export at Chennai. Further, it is undisputed fact that the damaged goods were brought back to the factory and re-warehoused after physical verification by the Department. Referring to the provisions of Para 6.15(b) of the FTP read with Notification No.52/2003-Cus dated 31.03.2003, it is submitted that the learned Commissioner(Appeals) has passed the order which is contrary to the policy of the Government of India. Further, he has submitted that inasmuch as the accident occurred in February 2008, by letter dated 26.03.2008, the Deputy Commissioner has allowed by passing a quasi-judicial order for destruction of goods on payment of duty on scrap value; accordingly, they have paid duty on the scrap value. The said permission attained finality and was accepted by the Department without filing any appeal against the said order; hence, binding on the Department. Therefore, invocation of extended period of limitation for recovery of the duty for the said goods is bad in law.
3.2. Learned advocate has further submitted that the appellant are entitled to the benefit of Notification No.24/2003-CE dated 31.03.2003 as the disputed goods which were cleared for export met with accident and returned back to the factory of the appellant and the goods were re-warehoused in the factory under the supervision of the LTU authority. Since the goods were not cleared for home-consumption, they are entitled to the benefit of the said notification. In support, they have relied upon the following decisions:-
i. Madhav Marbels and Granites Ltd. Vs. CCE [2009(239) ELT 120 (Tri. Chennai)] ii. TAB India Granites (P) Ltd. Vs. CCE [2017(8) TMI 1161 -
CESTAT Chennai] iii. LA Mansion Granites Ltd. Vs. CCE [2003(157) ELT 115 (Tri.
Bang.)] Page 5 of 13 E/20372/2017 3.3. He has further submitted that the impugned order is contrary to the Rule 21 of CER, 2002 as the appellant are entitled for remission of duty on goods destroyed lying within the factory premises. In support, they have referred to the following judgments:-
i. Kuntal Granites Ltd. Vs. CCE [2007(215) ELT 515 (Tri.
Bang.)] ii. Honest Bio-Vet Pvt. Ltd. Vs. CCE [2014(310) ELT 526 (Tri.
LB)] iii. Tata Coffee Ltd. Vs. CCE [2007(219) ELT 551 (Tri. Bang.)] iv. CCE Vs. Sree Narasimha Textiles Ltd. [2009(239) ELT 86 (Tri. Chennai)] 3.4. Further, he has submitted that invocation of extended period of limitation is bad in law since the goods were destroyed in the presence of the Departmental officers after taking due permission and all their actions were bona fide and not misdeclared or misstated.
4.1. Learned AR for the Revenue has reiterated the findings of the learned Commissioner(Appeals). Distinguishing the judgment of the Larger Bench in the case of Honest Bio-Vet Pvt.
Ltd.(supra) and Kuntal Granites Ltd. (supra), he has submitted that in those cases, the issue relates to claiming of remission of Central Excise duty under Rule 21 of the CER, 2002 whereas the present case relates to demand of duty on the manufactured goods and not remission of duty. Further, he has submitted that in the above stated case, the transfer of ownership / title of goods from the Indian exporter to the customer / recipient of goods, placed abroad whereas in the present case, it relates to transfer of ownership of goods from an EOU to the merchant manufacturer, the recipient of goods in DTA and the insurer of the export consignment. Thus, being an EOU, the demand of duty has been issued for non-export of the goods. Further referring to Para 6.15(b) of the FTP, he has submitted that the Page 6 of 13 E/20372/2017 Department is governed by Customs laws and the invoices notifications issued from time to time prescribed as to how the provisions of FTP would be implemented under Customs law. The said provisions of FTP are incorporated in the Customs Notification No.52/2003-Cus. dated 31.03.2003. Referring to the said notification, he has submitted that both the FTP and Customs notification provide for non-payment of duty on destruction of manufactured goods in the EOU but do not provide / prescribe exemption from payment of duty for destruction of manufactured goods on return to the bonded premises after clearances for export by a 3rd party. Since benefit of a notification is involved, its implementation should be strict in view of the judgment of the Apex Court in the cases of Shri Hari Chand Shri Gopal [2010(260) ELT 3 (SC)] and Dilip Kumar & Company [2018(361) ELT 577 (SC)].
4.2. Learned AR for the Revenue has further submitted that the clearances of goods were ex-works and once it is made available to the merchant exporter / buyer at the factory gate, the ownership of the goods has been transferred to the buyer / merchant exporter who is responsible for all other risks of transportation. The merchant exporter vide letter dated 18.01.2013 confirmed the making of the payment towards the transaction vide invoices dated 04.02.2008 and 19.01.2012. As per Section 2(h) of the Central Excise Act, 1944 read with Section 39 of Sale of Goods Act, 1930, the transfer of ownership of the goods in consideration took place at the factory gate. Since the ownership has been changed at the factory gate and the goods have not been exported, its clearance to DTA is beyond doubt. Further, the appellant have realised that the total consideration towards the clearance of impugned goods and the transaction for clearance to DTA attained finality; hence, they are required to pay applicable duty as per Section 3(1) of Central Page 7 of 13 E/20372/2017 Excise Act, 1944 read with Rule 17 of CER, 2002. Further, he has submitted that the permission allowed in 26.03.2008 is not a quasi-judicial order and it is a communication by the Superintendent of Central Excise and Service Tax; hence, no appeal is required to be filed against the said permission. Further, he has submitted that invocation of extended period of limitation is justified as the appellant has not disclosed all the facts.
5. Heard both sides and perused the records.
6. The limited issue involved in the present appeal for consideration is whether the appellant is required to discharge duty on the returned goods received in the factory after being damaged during the course of transit to the Chennai Port for export.
7. Undisputed facts of the case are that the appellant had cleared 576 nos. of finished goods for export in January 2012. However, out of the said lot, 288 nos. were damaged on the way for export and brought back to the factory for repair / reconditioning in terms of Rule 16 of CER, 2002. All the laid down procedures like filing of D3 intimation, physical verification of the returned damaged goods etc. had been carried out in the factory of the appellant by the Department. A request was advanced by the appellant for destruction of the goods since irreparable damage had occurred and to discharge duty on the scrap value on the basis of a permission granted earlier in the year 2008. However, instead of acceding to the request of the appellant, demand notice was issued and later confirmed by the learned Commissioner with interest and penalty.
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8. The main argument of the Revenue is that since the goods cleared from the factory even though on the way to port of export, the place of removal be considered as the factory gate, where the goods were handed over to 3rd party export. On the other hand, the appellant has vehemently argued that since the goods have been returned after being damaged on the way to export and they have complied with all the formalities prescribed under Rule 16 of the CER, 2002 before the goods being exported from the port; hence duty cannot be demanded on the value of the goods as the place of removal ought to be considered as the port. The appellant has agreed to discharge duty on the scrap value of the returned 288 nos. of finished goods after being destroyed in the premises which they did in similar circumstances in the year 2008.
9. We find that the understanding of the Revenue rests on a wrong premise. The 'place of removal' in case of export of goods has been considered to be at the port in a series of cases. The Larger Bench of this Tribunal in the case of Honest Bio-Vet Pvt. Ltd. Vs. CCE (supra) confronted with conflicting views on the subject and set at rest the controversy after following the judgment of the Hon'ble Gujarat High Court that the 'place of removal' in such cases would be the port of export. The Larger Bench observed as under:-
10. It is clear from section 3 & 4 of Central Excise Act 1944 that duty is levied on manufacture and collected on removal of goods on the value of the goods on date, time and place from where such goods are sold for consideration. As duty is on 'manufacture', and collected on "removal", the term 'removal' is more relevant, which would apply to place from where the sale takes place or the ownership of goods transferred from seller to buyer at the time of removal from such place. The provisions of Rule 21 of the Central Excise Rule 2002 provides that Remission can be allowed when goods in question have been lost or destroyed by natural causes or by unavoidable Page 9 of 13 E/20372/2017 accident or are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal. Hence, in absence of any clear definition of 'Removal', in our considered view, the phrase "place of removal" is an important expression/factor, which has to be decided first for charging duty or considering Application for Remission of duty. In the present case, question of Remission of duty is under consideration, we will confine our views only to the question of Remission of duty. The Appellant claims that they had cleared goods on CIF sale basis for export, but such sale would be completed at the port of shipment because in terms of CIF Sale Contract, (i) the ownership of goods and the property in the goods remained with the seller [appellant] of the goods till the delivery of the goods in acceptable condition to the purchaser (ii) the seller [Appellant] has borne the risk of loss of or damage to the goods during transit to the destination, and (iii) freight charges were an integral part of the price of goods. As the goods in question were destroyed before sale was completed i.e. goods have to be treated as destroyed in the hands of appellant before its removal.
11. ... ....
12. As goods in question were cleared under ARE-1 for export under bond, in our view the sale would be completed at load port only as per definition of 'Place of Removal' given u/s 4(3)(c)(iii) of the Central Excise Act 1944. Under these circumstances, ownership of the goods and duty liability is also extended upto the load port and if, the goods are not exported, concerned manufacturer will be required to discharge the duty liability. Therefore, 'removal' also gets extended upto the port of shipment from where the sale would be completed and when the goods were to be exported. Hence, if the goods cleared for export under Bond are destroyed before the export, ownership of the said goods and also duty liability, if any, would be always to the account of appellant assessee and that the said goods could be considered having been destroyed before removal and the benefit of Remission of duty is allowable in such an exceptional situation in terms of Rule 21 of Central Excise Rules 2002. Clause (iii) in Section 4 (3) (C) for 'Place of Page 10 of 13 E/20372/2017 removal' was inserted w.e.f. 14.05.2003 vide section 136 of the Finance Act 2003 which has stipulated as under:-
(iii) depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory Hence, the provision under clause (iii) in Section 4 (3) (C) for "Place of Removal" will be applicable in the case under consideration.
13. By referring to section 5 of Central Sales Tax Act, we also find that sale of goods can be deemed to take place in the course of Export of goods out of the territory of India only if the sale for such export is effected by a 'transfer of documents of title to the goods, have crossed the custom frontier of India'. It is settled position of law, in view of the decisions placed before us, that in case of exports the 'place of removal' is the port of shipment. Accordingly, we have no hesitation in following the recent decision of the Hon'ble Gujarat High Court in case of Commissioner v/s Dynamic Industries Ltd in the Tax Appeal No. 912 of 2012 decided on 25.07.2014, wherein the Hon'ble High Court has also upheld view taken by CESTAT to the effect that 'port of shipment is the 'place of Removal' in the cases of exports'. Once such a view is taken, we find that the decisions in case of Kuntal Granites ltd v/s C.C.E reported at 2007 (215) ELT.515 (Tri-Bang.) and followed in subsequent decisions like in case of Liva Healthcare Ltd v/s CCE, Nasik - 2008 (222) ELT 243 (Tri. Mum.) and others is a good law, and requires to be upheld. There is no reason to take a different view.
14. We are of the view that the goods cleared for export under Bond which were destroyed before the same could be exported, can be treated as having been destroyed before removal only. This would be the fair interpretation of the Rule 21 of the Central Excise rule 2002. Thus, primary condition of eligibility of Remission of duty on the destroyed goods is fulfilled as required u/r 21 of Excise Rules 2002. Appellant is eligible for the Remission of duty in respect of goods for export under Bond which were destroyed before the same could be exported.
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15. We find that the issue as referred to the Larger Bench, is now decided by the Hon'ble High Court of Gujarat in Tax Appeal No. 912 of 2012 decided on 25.07.2014. Accordingly reference to the several precedents by the ld. counsel for the assessee and by the SDR, would be of academic interest, since the judgment of the Hon'ble High Court of Gujarat in the case of Commissioner v/s Dynamic Industries Ltd has considered the very same point which is in favour of the appellant.
16. In view of the foregoing, we hold that in cases where goods removed from factory for export under Bond are destroyed before export, due to unavoidable accident, then in such situation the goods destroyed are to be treated as having been destroyed before removal in terms of Rule 21 of Central Excise Rules 2002.
10. Learned AR for the Revenue made an attempt to distinguish the applicability of the said judgment submitting that the ratio of the said judgment is applicable only to cases involving remission of duty whereas in the present case, no application for remission has been advanced by the appellant. We do not find merit in the said argument since the issue relates to recovery of duty of damaged goods in transit to port of export and the claim of the Revenue that the place of removal is the factory gate and not the place of export. This issue has been settled in the said case by the Larger Bench.
11. Besides, we find that the present demand notice also comprises of the clearances made in the year 2008 where the goods meant for export were returned to the factory being damaged during the course of transit. The appellant approached the Department for destruction of the returned goods damaged since it became irreparable and the Department accorded permission; accordingly under the physical supervision of the Departmental officers, the goods were scrapped and applicable duty on the scrap value had been discharged on its clearance to Page 12 of 13 E/20372/2017 DTA. The said assessment discharging duty on the scrap has been accepted by the Department. Now, demanding duty on the said damaged goods invoking extended period of limitation cannot be sustained.
12. In view of the above, we do not find merit in the impugned order. Consequently, the same is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Order pronounced in Open Court on 28.01.2026) (D.M. MISRA) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) Raja...
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