Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, ... vs Ready Foods Ltd on 3 April, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL:SOUTH ZONAL BENCH : BANGALORE Final Order Nos. 20838-20842 / 2014 Appeal(s) Involved: C/806/2011, C/807/2011, C/808/2011, C/809/2011, C/810/2011-DB [Arising out of Order-in-Original (Denovo) No. 16/2010 dated 24/09/2010 passed by the Commissioner of Central Excise, Customs and Service Tax, Tirupati] Commissioner of Central Excise, Customs & Service Tax 9/86-A, Behind West Church Compound, Amaravathi Nagar, M.R. Palli, Tirupati - 517 502 Andhra Pradesh Appellant(s) Versus Ready Foods Ltd. 100% EOU, 5th Km, Bangalore Road, Madanapalle, Chittoor Dist. Andhra Pradesh. Respondent(s) T.V. Raja Reddy, Managing Director, M/s. Ready Foods Ltd. Respondent(s) K.V. Chandrasekharan, Ex-Senior Commercial Manager, M/s. Brooke Bond Lipton India Ltd. Frozen Foods Division, Marathahalli, Bangalore - 37 Respondent(s) Sandeep Kohli, Director, M/s. Tricon Restaurants International 12, Community Centre, Saket, New Delhi - 110 017 Respondent(s) David J Lobo, Managing Director, M/s. Glacier Frozen Foods Pvt. Ltd. St. Patricks Complex, Brigade Road, Bangalore - 25 Respondent(s) Appearance: Mr. P.R.V Ramanan, Special Counsel For the Appellant Mr. G. Shivadass, Advocate For the Respondent CORAM: HON'BLE SHRI B.S.V. MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 03/04/2014 Date of Decision: 03/04/2014 Order Per: B.S.V. MURTHY When the matter was called, the learned special consultant for the Revenue submitted a synopsis. After hearing both the sides and considering the submissions and going through the synopsis, we find that the synopsis reflects the facts correctly and also subsequently brings out the submissions in the case of the Revenue. Therefore we consider it appropriate that instead of dictating the facts and submissions, it would be more appropriate to reproduce the synopsis as such. 2. The present appeal filed by Revenue is against the Order of CCE, Tirupati dropping (a) demands of Customs and Central Excise duties amounting to Rs. 25.80 crores raised on account of violation of the conditions of Notifications No. 13/81-cus and 123/81-CE applicable to 100% EOUs and (b) proposals in respect of charging of interest and imposition of penalties on concerned individuals. Facts of the case
3.1. M/s. Ready Foods Ltd. (RFL), Madanapalle was set up as an 100% EOU for the manufacture of Frozen vegetables and delicacies in terms of an LOP issued in 1992. RFL imported capital goods valued at Rs. 21.81 crores and availed of Customs duty exemption under Notfn. 13/81-Cus. They also procured indigenous capital goods and availed of CX duty exemption to the tune of Rs. 5.96 lacs in terms of Notfn. 123/81-CE.
3.2. RFL manufactured frozen products and made exports to the tune of Rs. 3.46 crores. But, by May, 1998 the manufacturing operations at RFL were stopped.
3.3. A show-cause notice dated 9.2.1998 was issued to RFL for clandestine production and clearances of finished food products into the DTA and renting out of capital goods and cold storage facilities without informing or obtaining the permission of Development Commissioner, Vizag SEZ and the Department. RFL has not denied or disputed the aforesaid allegations. They were asked to show-cause as to why (i) the unit should not be de-bonded; (ii) duties foregone on the imported/indigenous capital goods should not be demanded and (iii) duty on the goods clandestinely cleared to the DTA should not be recovered.
3.4. The show-cause notice was adjudicated, vide Order dated 12/1/2000, by confirming duty demands amounting to Rs. 25.80 crores in respect of capital goods and Rs. 6.71 lacs in respect of clandestine clearances of finished goods into the DTA and imposing penalties on the company and individuals.
3.5. Upon appeal, vide Honble Tribunals Order dated 20.11.2000, the matter was remanded for de novo adjudication on the consideration that the DC, VSEZ had not taken a final view on the issue of extension of export period.
3.6. DC, VSEZ, by his letter dated 19/05/2006 cancelled the LOP and ordered for de-bonding of the unit.
3.7. Following the said letter of the DC, the CCE, Tirupati adjudicated the case afresh. He confirmed the duty demands along with interest as per the show-cause notice and also imposed penalties on the company and concerned individuals vide Order dated 28.09.2006.
3.8. RFL approached the Appellate Committee, Ministry of Commerce against the order of the DC and the DCs order was annulled by the Committee vide its Appellate Order dated 12.08.2008.
3.9. Subsequently, the DC issued a letter dated 15.05.2009 to RFL extending the LOP from 07.04.2009 to 6.04.2014. Based on the same, the permission for Customs Private bonded warehouse was extended up to 6.1.2014.
3.10. Order of CCE, Tirupati dated 28.09.2006 was appealed against and the Honble Tribunal, by its Order dated 07.10.2009, once again remanded the matter for fresh consideration in the light of the changed circumstances.
3.11. Following the remand order of the Tribunal, CCE, Tirupati, by her OIO dated 24.09.2010, dropped the duty demands and interest thereon as also the proposals to impose penalties relating to capital goods, but confirmed the duty demand in respect of clandestine clearances of finished goods. RFL paid the duty so adjudged. It is this OIO, which has been presently appealed against by Revenue.
3.12. In the meantime, the unit was purchased by M/s. Global Nutri Foods Pvt. Ltd. [GNFPL] through ARCIL (Assets Reconstruction Company Ltd.) under the SARFESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002. Since May, 2012, GNFPL is the occupier of the factory premises.
3.13. GNFPL has been permitted to function as a DTA unit subject to the condition that they would undertake to pay the duty, interest, fine, penalty etc., as determined by this Tribunal in the present appeal or as determined by the proper officer, whichever is higher. Such an undertaking has been executed on 21.05.2012 and is in operation.
3.14. Since May, 2012, the factory premises is being used as DTA unit, while at the same time, the LOP issued by the DC, Vizag is also in operation till 06.04.2014.
The case of Revenue as per the Appeal.
4.1. As may be gleaned from the Grounds of appeal, Revenues case is that as per Para 7 of the show-cause notice, the allegations against RFL were only for violation of the conditions of Notifications No. 13/81-cus and 123/81-CE applicable to 100% EOUs in regard to capital goods obtained duty free by RFL, clandestine clearances of finished goods into the DTA and failure to intimate commencement of manufacturing goods.
4.2. Revenue is of the view that the adjudicating authority has erred in coming to the conclusion that there is no ground for confirmation of demanding the duty foregone on the imported/indigenous goods obtained duty free since the DC has not come to any definite conclusions against the unit.
4.3. Revenue would point out that the show-cause notice is neither for non-fulfillment of export obligation by RFL nor for premature ceasing of production or failure to commence production or export within the stipulated period. The issue involved herein is violation of the conditions of Customs/Excise duty exemption notifications and in no way concerns exim policy matters. Recovery of duty foregone in the present case is squarely governed by the provisions of the Customs Act, 1962 and Central Excise Act, 1944 and is not related to the aspect of fulfillment of export obligation etc. To this extent, reliance placed by the adjudicating authority on the CBEC Circular No. 21/95 dated 10.03.1995 is not proper and correct.
4.4. As a consequence, Revenue is of the view that the dropping of the demand for interest and non-imposition of penalties on the company and concerned individuals is not legal and proper.
4.5. Revenue would like to rely on the following decision: 2009 (240) ELT 600 (Tri.-Del.) rendered in the case of Turnkey Software Solutions.
Prayer 5.1. As pointed out above, the premises which once belonged to RFL is now being used as a DTA unit by GNFPL for the past 22 months. Formal de-bonding is yet to be done. This underscores the urgent need for an early decision.
5.2. The question for determination is whether the duty demand should be placed at Rs. 25.80 crores as indicated in the show-cause notice or at Rs. 6.43 crores as on the date of undertaking executed by GNFPL in favour of Revenue.
5.3. Revenue would urge that demands of Customs and Central Excise duties amounting to Rs. 25.80 crores raised on account of violation of the conditions of Notifications No. 13/81-cus and 123/81-CE applicable to 100% EOUs and proposals in respect of charging of interest and imposition of penalties on individuals concerned in terms of the show-cause notice may be upheld in full. Honble Tribunal may order recovery on the above terms.
6. The learned counsel for the appellants contested the submission that Commissioner had erred in passing the impugned order dropping the demands in their entirety. It was his submission that Commissioner has implemented the remand order issued by the Tribunal correctly and properly and in the absence of any appeal filed against the Tribunals order by the Revenue, the orders of the Tribunal had attained finality and in both the orders, the Tribunal had taken a view that the decision of the Development Commissioner as regards validity of LOP is relevant and without taking that fact into account no conclusion should be reached and the learned Commissioner has rightly dropped the demand since LOP stands extended up to 06.04.2014 whereas the impugned order was passed by the Commissioner in 2010.
7. It would be appropriate at this stage to consider both the impugned orders of this Tribunal as to whether they can be considered as having attained finality and limit the role of the Commissioner to consider the validity of LOP for the purpose of demand or can the Commissioner go into other issues. The first remand order of the Tribunal was passed on 20.11.2000. The relevant portion of the Tribunal order in paragraph 5 reads as under:
We set aside the impugned order and allow the appeals as remand for reconsideration of the entire matter afresh in the light of the Boards instructions and the export which the appellants might have effected in and/or extension of the export period granted to them. This was done at the time of consideration of stay application itself. It can be seen that the remand is open remand and requires the entire matter to be reconsidered afresh. Thereafter the Commissioner passed an order in 2006 which considered the show-cause notice in detail and came to the conclusion that allegations made in the show-cause notice are proved and thereafter the Commissioner considered the remand order passed by the Tribunal and in view of the fact that at that time, the LOP had already been cancelled, passed an order against the appellant.
8. When the matter came up again before the Tribunal, while Reporting compliance with the direction to deposit an amount of Rs. 8 lakhs, the early hearing application was taken up, it was submitted and both sides confirmed that the impugned order of the Commissioner was based on cancellation of LOP granted to the appellant-EOU and condition under letter dated 12.08.2008. Taking note of the fact that the LOP has been extended up to 06.04.2014 by the Development Commissioner 02.07.2009, the Tribunal passed another order, the relevant portion of which is reproduced below:
As such, we set aside the impugned order and remand the matter to the adjudicating Commissioner to take into account the new developments including the validity of the LOP and pass a fresh order as deemed fit in accordance with law. The appellants will be given an adequate opportunity of hearing before passing a fresh order.
Normally when direction is given to pass a fresh order in accordance with law, it means it is an open remand. In this case an additional provision has been given to the Commissioner saying that the Commissioner should take into account the new developments including the validity of LOP. In fact another point which supports our view that the Tribunal wanted fresh consideration of all the issues is the fact that there was an observation that the impugned order was based on cancellation of LOP and there is a new development in the sense that the LOP has been extended up to 06.04.2014. If the Tribunal was convinced that the entire order was a result of cancellation of LOP, the moment the LOP was extended, normal course would have been to set aside the order and direct the department to take up the issue as and when LOP expires. If an order is passed on only cancellation of LOP, the moment the cancelled LOP gets reviewed and extended, naturally the obvious step when an appeal is filed is to set aside the order which is passed purely on the ground that LOP has been cancelled. The very fact that this was not done by this Tribunal but the matter was remanded to pass an order in accordance with law would show that that was an open remand. Therefore we are unable to agree with the learned counsel for the respondent that the order passed by this Tribunal was not an open remand and therefore the order passed by the Commissioner in terms of the impugned order does not require any interference.
9. Having considered the first objection raised by the learned counsel for the respondent and rejecting the same, now we come to the request made by the Revenue that the demand made in the show-cause notice should be restored and matter should be decided immediately in view of the fact that LOP expires on 06.04.2014 and the purchaser of the assets of the respondent has given an undertaking to pay the duty determined by the Tribunal or by the Assistant Commissioner whichever is higher. In our opinion such determination cannot be done by us at this stage in view of the following facts arrived at by us after hearing both the sides.
a) The Commissioner is still required to determine whether the demand proposed in the show-cause notice on the ground that the appellants had not utilized the capital goods for the purpose for which they were imported or not and whether the appellant would become liable to pay entire duty in view of the fact that appellants have fulfilled a portion of export obligation and it is appellants claim that permission had been received for renting out machinery or the cold warehouse.
b) It is yet to be determined whether the appellant should be required to pay duty in accordance with the show-cause notice or after allowing depreciation.
c) It is yet to be determined whether the duty liability can be passed on the purchaser of the assets based on the letter of undertaking or not.
d) It is yet to be determined whether the fact that respondents have applied for further extension of LOP would be relevant in view of the fact that appellants do not own any of the assets.
e) It is yet to be determined whether capital goods can be still said to be in the warehouse in accordance with the law or not.
9.1. These are all the questions which arise because of new developments that took place subsequent to issue of the impugned order. In our opinion, we need not have to go into all these aspects and we would not have gone into these aspects but for the request made by the Revenue and but for the fact that the undertaking given by the purchaser of assets has been placed before us and has become part of the record and the fact that CBEC has given permission for the purchaser of assets to convert the unit to DTA unit were not brought on record and brought to our notice. Once the facts are brought on record, we will be failing in our duty if we do not take them into account at all and pass an order keeping ourselves blind of these factors.
10. Suffice to say that the ground taken by the Revenue that Commissioner should have adjudicated the show-cause notice and should not have limited herself to the LOP acceptance granted by Development Commissioner alone has to be sustained and therefore the impugned order has to be set aside and we do so. At the same time as submitted by the learned counsel for the respondent, we cannot determine the duty liability especially in view of the contentious issues involved and summarized above by us at this stage. We have to leave it to the appropriate authority who should do so in accordance with law and therefore we do not accept this ground of the Revenue that we should determine the duty liability. We leave it to the Commissioner to pass a fresh order in terms of the show-cause notice. At this stage the learned special consultant submitted that extension or otherwise of the LOP is not relevant. We are unable to agree with this submission in view of the fact that in the earlier two orders we have already taken a view that LOPs are relevant. That being the position we are not in a position to stay or come to the conclusion that LOPs are irrelevant. Therefore we have to necessarily direct the Commissioner that while passing a fresh order afresh, Commissioner should consider the new developments. In view of the above observations, the impugned order is set aside and the matter is remanded to the learned Commissioner with a request to adjudicate the matter afresh taking new developments into account in accordance with law. Needless to say the respondents shall be given reasonable opportunity to present their case.
(Operative portion of the order has been pronounced in open court on 03.04.2014) (S.K. MOHANTY) JUDICIAL MEMBER (B.S.V. MURTHY) TECHNICAL MEMBER iss