Custom, Excise & Service Tax Tribunal
Cce, Meerut-Ii vs M/S J.S. Gupta & Sons on 21 July, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Date of Hearing : 21.7.2011 Custom Appeal No. 534 of 2007 with Misc. No. 471 of 2011 [Arising out of the Order-in-Original No. 10/Commr/MRT-II/2007 dated 30.4.2007 passed by the Commissioner, Customs & Central Excise, Meerut-II] Coram: Honble Shri Ashok Jindal, Member (Judicial) Honble Shri Mathew John, 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? 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Whether their Lordships wish to see the fair copy of the order? 4. Whether order is to be circulated to the Department Authorities? CCE, Meerut-II Appellant Vs. M/s J.S. Gupta & Sons Respondent
Appearance:
Appeared for Appellant : Shri R.K. Gupta, SDR
Appeared for Respondent : Shri Prabhat Kumar with Shri Bipin Garg,
Advocates
CORAM: Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri Mathew John, Member (Technical)
Order No.dated.
Per Mathew John:
The Appellant, M/s J.S. Gupta & Sons (hereinafter referred to as JSG) is a 100% EOU approved by GOI for manufacture of (1) Metal Wares, Glass Wares, Wooden Wares (2) Decorative clocks, Lamp Sheds, Upholstery (3) Corrugated Boxes (4) Sculptures and Statutory in stones, Cement and Other material.
2. The Department got information that M/s JSG was diverting the raw material imported duty free to their sister concern M/s C. L. Gupta and Sons (hereinafter referred to as CLG). So they conducted simultaneous searches on the premises of both JSG and CLG on 02-01-2004.
3. Shortages of imported goods were found in the premises of JSG as under:
Sl.No. Description of goods Quantity Value (Rs.) Duty Involved (Rs.)
1. Clock Movements (Foreign Origin) 33031 Pcs. 1008350.00 453760.00
2. Craft Paper (Indigenous) 109.475 MT 1478000.00 238314.00
3. Zinc Ingots (Foreign Origin) 381.84 Kgs. 17183.00 7797.00 Total 2503533.00 699871.00
4. The following materials were detected at the premises of CLG for which they were not able to show proper documents:
Sl.No. Description of goods Quantity Value (Rs.) Duty Involved (Rs.)
1. Zinc Ingots (Foreign Origin) 11.364 MT 852288.00 386683.00
2. Tin Ingots (Foreign Origin) 690.000 Kgs. 293250.00 131962.00
3. Clock Movements (Foreign Origin) 14180 Pcs. 583010.00 262354.00
4. Lamp Parts (Foreign Origin)
(i) Cords
(ii) Holders 2368 Pcs.
1272 Pcs.
49515.00
12720.00
22516.00
Total 1790783.00 806515.00
5. Truck No. UP-21D9111 200000.00
TOTAL 1990783.00
5. It was very evident that goods imported duty free by JSG were diverted to CLG. JSG had not followed the procedure prescribed in Circular No. 65/2002-Cus dated 07-10-2002 in the matter of sending out such material from an EOU. This procedure involved taking permission from the department, drawing sample of goods sent out and inspection of finished goods received back to ensure the finished goods are made from the raw materials send out.
6. In the facts of the case a Show Cause Notice dated 31-05-2005 demanding duty amount Rs. 3.31 crores, payable on goods seen from the records of JSG to have been removed to CLG and a few other units was issued. The SCN also proposed confiscation of goods seized at the premises of two units other than CLG, and penalties on various persons involved in the matter. The goods seized at the premises of CLG are not subject matter of this proceedings.
7. In reply to the SCN, JSG submitted that all what has happened is only a contravention of procedures and all goods sent out for job work to CLG was received back and properly accounted. The adjudicating authority constituted a committee of officers to look into the claim of JSG by inspecting all the documents produced. The Committee after examining all the records agreed with the contention of JSG in respect of the most of the goods allegedly diverted. Based on the report and after considering all other submissions made by JSG, the Commissioner confirmed duty demand only to the extent of Rs.1083063/-, which was in respect of goods not accounted to his satisfaction. Penalties based on such findings were also imposed and rest of the demands were dropped.
8. While passing the order the Commissioner gave the following findings:
11.9 I find that all the duty free imports were through regular channels, and were duly assessed and cleared by proper customs officers. The assessed bills of entry have not been revised. Similarly in case of domestic tariff area (DTA) procurement, all the clearances were authorised/supervised by the proper central excise officers. The duty free imported and locally procured raw materials were brought to the private bonded warehouse after clearance. The Bond officer, Bond Superintendent and other officers noticee for most of the time. All the exports were effected under physical supervision of the jurisdictional central excise officers under the proper invoices, ARE-I forms and shipping bills after complying with the requisite formalities. The fact of export is established by the records of the Development Commissioner.
11.10 According to the Development Commissioner, Noida, Special Economic Zone, Noida F.No. 03/243/2000 100% EOU/11693 dated 18.10.2006, the noticee (now known as M/s C.L. Gupta & Exports Limited) have earned the foreign exchange, during the last five years as under :
Year Out flow In flow
(on account of imports) (On account of Exports)
(Rs. Lakh) (Rs. Lakh)
2001-02 225.92 2287.98
2002-03 550.84 4754.01
2003-04 1115.01 6686.18
2004-05 752.21 9715.13
2005-06 1554.03 10402.30
it is seen from the above figures that the EOU have fulfilled their export commitment/obligation by exporting a value far in excess of their value of imports.
11.11 Moradabad is a world renowned centre for manufacturing and export of handicrafts. A large variety of handicrafts are made in different stages. As is expected in a handicrafts industry, all the goods are made by hand based on traditional expertise of artisan. Different processes are undertaken by different hands, at scattered premises. A single item may comprise of different components/parts which are required to be assembled before despatch for export from the bonded area under the physical supervision of the Bond officer.
11.12 The industry being traditional and decentralised have adopted its own procedure for accountal, movement, job work, payment etc. As the livelihood of large number of artisans depend upon the industry, the system suited to the nature of job required has developed over a time.
11.13 It is alleged in the show cause notice that M/s JSG, through their sister unit namely M/s CLG instead of utilizing the duty free goods in the manufacture of the export goods, as laid down in condition No. 3 of Notification No. 52/2003-Cus. dated 22.4.2003 and condition No. (d) of Notification No. 1/95-CE dated 4.1.1995 (as amended) have diverted the same, without authority. On the other hand, it has been submitted before me by the notice EOU that all the material that was sent to the sister unit namely M/s CLG, after due processes undertaken therewith, were received back in the premises of the EOU, under the cover of inward gate passes, which were resumed by the officers during the course of search and seizure operations. The transfer of the goods on CLG-II gat passes was well within the knowledge of the Bond officer, Bond Superintendent and other officers who were posted at the factory on cost recovery basis and who were within their premises for most of the time. There is nothing on record to show that any discrepancy was pointed out by the officers at any stage of time.
The noticee has stated that the inward gate passes resumed by the department have not been correlated with the outward gate passes. They laid emphasis on the argument that any document should be considered in its entirety, and if demand has been raised on the basis of outward registers and gate passes, then the inward gate passes showing return of processed goods also had to be taken into account. Id do not find any reason to disagree with this argument and hence I found it appropriate and essential in the interest of justice to get the reconciliation/verification in respect of return of processed goods from M/s CLG to M/s JSG. Accordingly, the jurisdictional Assistant Commissioner, Central Excise was directed to get the necessary verification conducted.
11.14 A detailed verification regarding receipt back of processed materials out of duty free imported material from the sister concern M/s C.L. Gupta & Sons, which was sent for job work by the EOU M/s J.S. Gupta & Sons was got conducted through the jurisdictional Range Amroha/Division Hapur under the supervision and active participation of officers deputed from the Commissionerate Headquarters. Under letter C. No. 20-CE/100% EOU/ACL/Amroha/07/226 dated 8.4.2007, it has been reported that the verification of details of Annexures III, IV and V to the show cause notice was carried out on the basis of the gate passes of M/s C.L. Gupta & Sons Rampur Road, Moradabad, and the corresponding export invoices/packing list and other documents of M/s J.S. Gupta & Sons (now M/s C.L. Gupta Exports Limited, Village Jivai, J.P. Nagar). The serial number of invoices as mentioned on most of the gate passes were found to be the same as mentioned on the invoices/packing provided by the EOU. In cases where invoice numbers were not mentioned on the gate pass, the same were correlated/verified on the basis of details of gate passes provided by the party.
9. Aggrieved by the order of the Commissioner, Revenue has filed this Appeal. In the Appeal, the facts stated by the adjudicating authority regarding supervisions of each of the removals by Central Excise officers posted in the factory is not challenged. The only challenge is that the procedure prescribed in Para 6.15 of the Exim Policy and in Boards Circular 65/2002-Cus dated 07-10-2002 was not followed. Further it is also contended that the documents maintained by JSG were not properly written and the verification got done during the adjudication proceedings, using records submitted by JSG is not good enough to prove that the goods received back were made from goods sent out.
10. During the hearing the Ld. DR submits that JSG was well aware of the procedures to be followed in respect of removal of raw materials from an EOU and JSG had followed such procedures for removals to all other units other than CLG. So the Ld. DR contests that the failure on the part of JSG was not bonafide but was intended to gain advantage by selling imported goods in the local market to get undue advantage. He also argued that a verification with reference to documents conducted much after the removal of goods cannot in any way show that the goods received back were made from the goods sent out from the EOU. He further relies on the decision of the Apex Court in CCE Vs. Hari Chand Shri Gopal-2010 (260) ELT 3 SC.
11. The Ld. Advocates for the Appellants admit that there has been contravention of the procedures prescribed but contests that this has been a bonafide mistake and no loss has been caused to Revenue even in the case of goods for which duty demand has been confirmed by the Commissioner. But they did not argue in detail on the demand confirmed by the Commissioner because they are not in appeal against the impugned order. It is their contention that the type of minor infractions of procedures involved cannot be reason to confirm duty on all goods imported by them for three years when the entire operations of the unit was under close supervision of officers posted in their factory by recovering their salaries from the Appellant. They content that the officers were duty bound to point out omissions on their part and correct the procedural mistakes.
12. They also give a background of facts that resulted in the contraventions involved. These are recorded as their submissions before the adjudicating authority in paras 8.8 to 8.14 in the adjudication order which are reproduced below:
8.8 M/s JSG came into existence in 2000 and was established as a 100% EOU under LOP dated 15.12.2000 issued by the Development commissioner, NSEZ and on creation of JSG, a part of the CLG-II factory at Jiwai was transferred to JSG which was later appointed as a private bonded warehouse and manufacturing unit under Section 58 and Section 65 of the Customs Act, 1962 vide a warehousing Licence No. EOU/17/2001 dated 18.1.2001 issued by the Jurisdictional Central Excise Division, Moradabad. Though on creation of the JSG, the larger part of the unit at Jiwai was converted into 100% EOU and declared a bonded area, a part comprising a two storey building was retained by the CLG, Unit-II and was not bonded.
8.9 On creation of JSG, most of the staff, artisans and workers working at CLG-II, were absorbed in JSG with effect from January 2001 and thereafter they were engaged in the manufacturing of the products for JSG. In addition, further labour force was augmented from CLG (HQ) and new recruitment. However, some of the experienced and old job workers especially ladies and aged ones found it more convenient to operate from Rampur Road premises which is situated in Moradabad town and refused to relocate themselves to Jiwai factory.
8.10 Most of the fittings and fixtures, office equipments and furniture of the erstwhile unit i.e. CLG Unit-II were also retained by JSG. Besides, the erstwhile unit also left behind a huge quantum of stationary which was printed while CLG-II was in operation including the Gate Passes of CLG-II which were later inadvertently used by the staff for the purpose of transferring material from JSG to CLG (HQ) and also the registers etc. maintained by the erstwhile unit.
8.11 As regards the material in stock prior to bonding, the raw material belonging to erstwhile CLG Unit-II was transferred to CLG (HQ) whereas the finished stock was inventorised and stored in the building retained by erstwhile unit. Copies of the Audit Report for the financial year 2001-2002, a copy of which was submitted to the Income Tax Authorities along with the Income Tax Returns was submitted along with reply and marked as Annexure A-7 to prove that huge stock of finished goods belonging to CLG was stored at Jiwai. The aforesaid finished goods belonging to the CLG-II were dispatched/exported subsequently as and when requirement arose which has been misconstrued and mis-interpreted in the impugned Show Cause Notice.
8.12 Due to the compulsion that JSG was a nascent unit and workers were also not willing to relocate themselves to a far off area, the unit was constrained to outsource certain operations to CLG(HQ) premises and for the aforesaid purpose, a number of independent job work contractors and salaried employees of JSG were deployed at CLG (HQ) premises who carried out the manufacturing operations for JSG from the material supplied by JSG. Besides two senior employees of JSG were also stationed at the aforesaid premises for the supervision of receipt, dispatch and manufacturing, inventory control and accounting of payments made to the employees/job workers of JSG stationed at CLG premises.
8.13 The manufacturing space and equipments to JSGs contractual job workers also known as Karkhanedars were provided at both the premises by the JSG so also the power connections. The material for job working was issued to them through Lal Bahi and the material received from them was also entered into the same. The payments to job workers were thereafter made after deduction of TDS.
8.14 The manufacturing of brass artware and the allied products is basically a labour intensive manufacturing process carried out by individual artisans having expertise in various aspects of manufacturing such as casting, carving, polishing, art work etc. which are basically handicrafts. Due to this peculiar nature of operations, an inventory control system and issue, receipt system have been devised and developed over decades to suit the peculiar operations of the industry which is prevalent in most of the manufacturing units at Moradabad.
13. To prove that their actions were bonafide they further drew attention to their submissions before adjudicating authority recorded in para 8.4 of the impugned order:
8.4 M/s J.S. Gupta & Sons, the 100% EOU, commenced commercial production with effect from 19.5.2001 and performed extremely well on export front and achieved commendable Net Foreign Exchange Earnings. The particulars of export, import and Net Foreign Exchange Earnings during the last 5 years were detailed as below Foreign Exchange Outflow & Inflow Year Outflow:
CIF value of imports of Raw Material & Capital goods (Rs. In lacs) Inflow FOB value of Exports (Rs. In lacs) NFE (Rs. In lacs) NFE in times with reference to outflow 1st year 2001-2002 225.92 2287.98 2062.06 9.13 times 2nd year 2002-2003 550.87 4754.01 4203.14 7.63 times 3rd year 2003-2004 1115.01 6686.18 5571.17 5.00 times 4th year 2004-2005 752.21 9715.13 8962.92 11.92 times 5th year 2005-2006 1554.03 10402.30 8848.27 5.69 times Total 4298.04 33845.60 29647.56 7.06
14. They rely on the following decisions to buttress their argument that procedural infractions can be condoned.
(i) Mangalore Chemicals and Fertilizers Vs. Deputy Commissioner-1991 (55) ELT 437 (SC);
(ii) UOI Vs. A. V. Narasimhan- 1983 (13) ELT 1534 (SC);
(iii) Formica India Vs. CCE 1995 (77) ELT 511.
15. We have considered the arguments on both sides. In principle we are in agreement with the argument of revenue that verifications conducted with reference to documents when the goods are not available cannot in most situations identify the goods as the ones manufactured using imported raw material. But we are of the view that the whole facts have to be seen together before coming to a final conclusion. This is a factory which worked under the supervisions of two Central Excise officers posted in the factory. All documents relating to removals were under scrutiny by these officers. Further the returns filed by the unit also were to be scrutinized. The department did not point out any contraventions. So issuing a demand in the year 2005 for non-compliance with procedural rules for the years 2001-02 to 2003-04 is not justified. In such a situation the verification got done by the adjudicating authority based on records has to be respected. In the facts of the case such as that the officers were supervising the clearances and the Respondent had documents showing satisfactory accounting of the goods and that they had exported goods earning sufficient foreign exchange, the case made out by Revenue cannot be sustained in the absence of evidence showing sale of the imported goods in the local market. No such evidence has been produced by Revenue.
16. The decision of the Apex Court in the case of Hari Chand Shri Gopal (Supra) is with reference to the facts of that case where there were no mitigating factors as pointed out by us above and therefore we cannot apply the decision in that case to the facts of this case.
17. In the facts and circumstances of this case we do not see any merit in the appeal filed by Revenue and we approve of the very detailed and well reasoned order passed by the adjudicating authority. So the Appeal filed by Revenue is rejected. Misc. application is also disposed of accordingly.
(Pronounced in Open Court) (Ashok Jindal) Member (Judicial) (Mathew John) Member (Technical) RM