Custom, Excise & Service Tax Tribunal
Sterlite Optical Technologies Ltd vs Commissioner Of Customs & Central ... on 30 March, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL No. C/668/06 (Arising out of Order-in-Original No. 01/CUS/2006 dated 28.2.2006 passed by Commissioner of Central Excise & Customs, Aurangabad) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. S.K. Gaule, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : Yes the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
====================================================== Sterlite Optical Technologies Ltd. Appellant Vs. Commissioner of Customs & Central Excise, Aurangabad Respondent Appearance: Shri V.S. Nankani, Advocate, for appellant Shri A.K. Prasad, Authorised Representative (JCDR), for respondent CORAM: Honble Mr. P.G. Chacko, Member (Judicial) and Honble Mr. S.K. Gaule, Member (Technical) Dates of Hearing: 4th, 11th & 12th November 2010 Date of Decision: 30.3.2011 ORDER NO Per: P.G. Chacko
This appeal was filed by a 100% export-oriented unit (EOU), aggrieved by a demand of duty of Rs.1,42,34,222/- and a penalty of Rs.10,00,000/-. The EOU was set up for manufacture of optical fibre in both cabled and uncabled form and for the export of these products. They executed a B-17 (general surety) bond on 14.3.2001. This bond encompassed the purposes of both Section 59 and Section 65 of the Customs Act. The EOU was procuring raw materials, capital goods, spares, consumables etc. both from indigenous sources and by way of importation without payment of duties of Central Excise/Customs, for use in the manufacture of their export products. Whilst so, the appellant applied for exit from the EOU scheme. The Development Commissioner of the Special Economic Zone allowed in-principle debonding of the EOU by an order dated 16.1.2003, which stipulated conditions including that the applicable duties of Customs/Central Excise be paid on the imported/indigenous capital goods, raw materials, components, consumables, spares and finished goods in stock. Accordingly, the appellant paid a total amount of duty of Rs.9,20,18,299/- on 22.5.2003 in respect of the imported raw materials in stock. The basic customs duty (BCD) component of this amount was calculated @ 5% (instead of the normal rate of 25%) in terms of Notification No.21/2002-Cus. dated 1.3.2002 (serial No.84). The Assistant Commissioner issued a certificate dated 28.5.2003 to the effect that the appellant had paid the applicable duties amounting to Rs.9,20,18,299/- on 22.5.2003 in connection with debonding of their unit in terms of the in-principle debonding permission given by the Development Commissioner on 16.1.2003. On 10.7.2003, the Development Commissioner issued final debonding order pursuant to directions of the Honble Bombay High Court in Writ Petition No.5884 of 2002. The final debonding order cancelled with immediate effect the letter of permission (LOP) dated 27.2.2001 and the green card dated 8.3.2001. It also noted the statement of the appellant that the Revenue should not cancel the B-17 bond.
2. The department issued a show-cause notice on 20.6.2005 to the appellant, demanding differential duty of Rs.1,42,34,222/- on the raw materials which were in stock on 22.5.2003 and not used in the manufacture of final products for export. According to the show-cause notice, the appellant was not entitled to the benefit of Notification 21/2002-Cus. and hence liable to pay Customs duty at the normal rate of 25%. The demand was quantified on this basis and the same was raised by invoking condition No.10 of the B-17 bond read with para 6.20(a) of EXIM Policy 2002-07. The show-cause notice also proposed penalties on the appellant under Sections 112 and 114A of the Customs Act. In their reply to the show-cause notice, the party submitted that no demand of Customs duty could be raised on them otherwise than under Section 28 of the Customs Act. The demand of duty raised in terms of the B-17 bond without invoking Section 28 of the Act was not sustainable in law, according to the appellant. They also contended that, had the above demand of duty been raised under Section 28 of the Act, it would have been barred by limitation. It was also submitted that what they paid on 22.5.2003 was applicable Customs duty which was the effective duty based on serial No.84 of Notification 21/2002-Cus. With regard to condition No.5 of Notification 21/2002-Cus., the appellant submitted that the condition was incapable of being followed on the date of payment of duty and, therefore, the benefit of the Notification could not be denied. Without prejudice to this submission, the appellant also contended that, as they had complied with the comparable conditions of Notification 53/97-Cus., they should be held to have substantially complied with condition No.5 of Notification 21/2002-Cus. In their reply to the show-cause notice, they also relied on certain decisions of the Honble Supreme Court and a circular of the CBEC and contended that the demand of duty was not sustainable. After hearing the party, the Commissioner of Customs passed the impugned order confirming the demand of duty (with interest) against the appellant in terms of the B-17 bond executed by them and imposing a penalty of Rs.10 lakhs on them.
3. The learned counsel for the appellant reiterated the grounds of this appeal and submitted that the payment of duty made by them on 22.5.2003 was in terms of condition No.5 of Notification 53/97-Cus. He submitted that the impugned demand of duty is under condition No.6 of Notification 53/97-Cus. According to the learned counsel, condition 6 is not applicable to the facts of this case and, therefore, the demand of duty is not sustainable in law. According to him, the appellant was entitled to avail the benefit of Notification 21/2002-Cus. while paying duty on the raw material which was in stock on the date of payment of duty. Condition No.5 (which required the importer to follow the procedure set out in the Customs [Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods] Rules, 1996) of this Notification was substantially complied with by the appellant. In this connection, it was further submitted that the procedural requirements under Notification 53/97-Cus. were essentially similar to the procedure laid down under the above Rules and, therefore, the appellant, who had followed the procedure as above under Notification 53/97-Cus., should be held to have virtually complied with the above condition No.5 of Notification 21/2002-Cus. Conditions attached to Exemption Notifications were to be construed liberally as held by the Supreme Court in Compack Pvt. Ltd. vs. Commissioner 2005 (189) ELT 3 (SC). It was further submitted that the raw materials in stock, on which duty was paid on 22.5.2003, were subsequently used in the manufacture of final products and these products were cleared to the domestic tariff area (DTA). According to the counsel, these facts would also constitute ground for availing the benefit of Notification 21/2002-Cus. He also relied on Commissioner vs. Saritha Software & Industries Ltd. 2009 (237) ELT 350 (Tri.-Bang.) to argue that the appellant was entitled to pay duty at the effective rate prescribed under Notification 21/02-Cus. The learned counsel has also pleaded limitation against the demand of duty. He argued that every demand of Customs duty should be under Section 28 of the Customs Act. The department did not invoke this provision of law as they knew that the appellant would then contest the demand on the ground of limitation. The counsel argued that the B-17 bond was not enforceable against the appellant on the facts of this case. According to him, the department did not meet the requirements of condition No.10 of the B-17 bond.
4. The learned JCDR argued as follows: Condition No.5 of Notification 53/97-Cus. was not applicable inasmuch as there was no clearance of raw materials as such from the EOU when the duty of over Rs.9 crores was paid by the appellant on 22.5.2003. As per condition No.5(b), an EOU could be permitted to clear any raw materials (imported without payment of duty) on payment of Customs duty on the value at the time of import and at the rate in force on the date of payment of the duty, provided that the EOU was allowed by the Development Commissioner or the Board of Approvals to clear such goods for being taken to any other place in India. For the application of condition No.5(b), there must be physical clearance of the raw material from the EOU. It is not in dispute that, when the above duty was paid on 22.5.2003, the raw materials were not cleared from the factory. Therefore, condition No.5 is not applicable. But condition No.6 is squarely applicable inasmuch as the liability of the appellant to pay duty on demand in respect of any raw material not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the manufacture of final product for export out of India arose under the B-17 bond executed by them. The raw materials which were in stock on 22.5.2003 were not shown, to the satisfaction of the Assistant Commissioner, to have been used in the manufacture of final products for export out of India. Therefore, it was open to the Revenue to enforce the bond under condition No.6 of Notification 53/97-Cus. to recover the differential amount of Customs duty leviable on such raw materials. What was liable to be recovered from the appellant in respect of the imported raw materials was the amount of duty forgone at the time of importation. The entire BCD and CVD were forgone at the time of importation and, therefore, it was open to the Revenue to recover these duties from the EOU on the ground of violation of condition 6 of Notification 53/97-Cus. and by way of enforcement of the B-17 bond against them. Towards the duty forgone at the time of importation, the appellant paid only an amount of Rs.9,20,18,299/- on 22.5.2003 in connection with the debonding of the EOU. Hence they are liable to pay the differential amount of duty as demanded by the learned Commissioner.
5. The learned JCDR relied on the Tribunals decision in Samtel Color Ltd. vs. CCE, Meerut 2000 (126) ELT 1256 (T), wherein it was held that it was mandatory for the assessee to follow Rule 3 of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 and that, as they failed to obtain a registration certificate which was mandatory for availing the benefit of concessional rate of duty at the time of import of the subject-goods, they were liable to pay the differential amount of duty. It was also pointed out that the civil appeal filed by the party against the Tribunals order was dismissed by the Honble Supreme Court vide Samtel Color Ltd. vs. CCE 2006 (196) ELT A145 (SC). The learned JCDR also claimed support from the apex courts judgment in Mihir Textiles Ltd. vs. CC, Bombay 1997 (92) ELT 9 (SC), wherein it was held that the benefit of project import was not admissible to the company as their contract with the buyer was not registered with the Customs department. In the present case, the appellant did not follow the mandatory procedure laid down under the aforesaid Rules and hence cannot claim the benefit of concessional rate of duty under Notification 21/2002-Cus. The Supreme Courts decisions in the cases of Indian Aluminium Company Ltd. vs. Thane Municipal Corporation 1991 (55) ELT 454 (SC) and Eagle Flask Industries Ltd. vs. Commissioner 2004 (171) ELT 296 (SC) were cited in support of the point that strict compliance with conditions of Exemption Notifications was a sine qua non for the exemption claimed. The learned JCDR further submitted that it was open to the department to enforce condition No.10 of the B-17 bond against the appellant who could not satisfy the Assistant Commissioner that they used the raw material in the manufacture of finished goods for export out of India. It was submitted that Section 28 of the Customs Act was not invocable in the case. Relying on CBECs circular No.73/2000-Cus. dated 1.9.2000, he submitted that Section 28 did not cover cases where duty was not leviable at the time of import because of conditional exemption but became leviable subsequently by reason of subsequent breach of condition. In this context, reliance was placed, also, on the Supreme Courts decision in Commissioner vs. C.T. Scan Research Centre (P) Ltd. 2003 (155) ELT 3 (SC). The learned JCDR submitted that there was no period of limitation where the department chose to demand a duty in terms of the bond executed by the appellant. In this connection also, case law was cited, viz. Atlas Dye Chem Industries vs. CC, Ahmedabad 2008 (224) ELT 104 (Tri.-Ahmd.), Endress + Hauser Flowtec (I) Pvt. Ltd. vs. CCE, Aurangabad 2009 (237) ELT 598 (Tri.-Mumbai) etc.
6. The Bench queried the learned counsel as to (a) whether the payment of duty on 22.5.2003 was based on any assessment on ex-bond bill of entry, (b) when and where was the raw material used in the manufacture of finished goods and (c) when were such finished goods cleared from the EOU. The learned counsel could not give any categorical answer to these queries.
7. We have carefully considered the submissions. Mainly the following issues were agitated in this case:
(i) Whether the appellant is eligible for the benefit of concessional rate of duty under Notification No.21/2002-Cus. dated 1.3.2002 (Serial No.84) in respect of the imported raw materials found in stock at the stage of debonding of the EOU;
(ii) Whether the demand of customs duty raised on the appellant in respect of the said raw materials is liable to be set aside solely on the ground of non-invocation of Section 28 of the Customs Act;
(iii) Whether the said demand of duty is time-barred.
8.0 Issue No. (i):
As per para 6.20(a) of EXIM Policy/2002-07, an EOU could be debonded subject to the Development Commissioners approval and also to payment of duties of customs and excise. As per the STANDARD CONDITIONS FOR DEBONDING vide APPENDIX-14J to the Handbook of Procedures (Volume-I), the applicable customs and excise duties should be paid on the imported and indigenous capital goods, raw materials, components, consumables, spares and finished goods in stock. Alternatively, the EOU could be permitted to dispose of the raw material, components, consumables, etc. against duty-free licences or to export the capital goods, raw materials, components etc. Two NOTES to the said STANDARD CONDITIONS FOR DEBONDING are also relevant to the present case and the same read as under:
1. The unit would fulfill the above mentioned standard conditions in a period of six months from the date of issue of in principle debonding letter and obtain final debonding permission from the Development Commissioner/SIA (in case manufacturing of item requires Industrial Licence) failing which the approval granted would lapse automatically. DC may however allow a further extension for fulillment of the standard conditions in deserving cases.
2. Further, the unit would continue to be treated as EOU/EPZ/SEZ/EHTP/STP unit till the date of final debonding order or issue of fresh LOP under the new scheme in cases of conversion from one scheme to the other and subject to monitoring of the stipulated obligations under the relevant scheme.
In this case, in-principle debonding was allowed by the Development Commissioner on 16.1.2003 and the final debonding order was issued on 10.7.2003. As per the above NOTES, the appellant continued to be treated as EOU till 10.7.2003, whereafter they could function as a normal DTA (Domestic Tariff Area) Unit. During the debonding period, the stock of raw materials including partly processed materials [also called work-in-progress or WIP] was verified by the Bond Officer and the total assessable value of the imported raw materials so found in stock was estimated to be Rs.5,84,50,380/-, on which the appellant paid Rs.1,54,58,571/- towards Basic Customs Duty (BCD), Countervailing Duty (CVD) and Special Additional Duty (SAD) on 22.5.2003. (This payment of customs duty was certified by the jurisdictional Assistant Commissioner on 28.5.2003). The amount of BCD was calculated at the concessional rate (5%) in terms of Notification 21/02-Cus. (Serial No.84) as against the normal rate (25%). In the show-cause notice dated 20.6.2005, it was alleged that the appellant was liable to pay BCD at the normal rate and to pay proportionately higher amounts of CVD and SAD. Accordingly, the appellant had to pay total duty of Rs.2,96,92,793/- (BCD + CVD + SAD). Hence the demand of differential duty of Rs.1,42,34,222/- proposed in the show-cause notice.
8.1 The appellants claim for the benefit of concessional rate of duty under Notification 21/02-Cus. is linked to condition 5(b) of Notification 53/97-Cus. It has been argued that the payment of duty made by them on 22.5.2003 was in terms of condition No.5(b) of Notification 53/97-Cus. and similar condition of Notification 52/03-Cus. We find it difficult to accept this argument of the appellant inasmuch as, as rightly submitted by the learned JCDR, the said condition was applicable only where the EOU was allowed by the Development Commissioner to clear any of the imported capital goods or raw materials to the DTA on payment of appropriate duty of customs. The said condition No.5(b) stipulated that such clearance of raw material be allowed on payment of customs duty on the value at the time of import and at the rate in force on the date of payment of such duty. Notification 52/03-Cus. also stipulated likewise. The condition cannot operate without clearance of the goods to the DTA. In the instant case, it is not in dispute that there was no clearance of any raw material from the Unit when duty of over Rs.9 crores was paid by the appellant on 22.5.2003 as per para 6.20(a) of the EXIM Policy 2002-07. Neither the EXIM Policy nor any of the above Notifications stipulated that, when the appropriate amount of duty was paid in connection with debonding of EOU, the goods on which the duty was paid should be removed from the factory. It would follow that the aforesaid payment of duty made by the appellant on 22.5.2003 in connection with debonding of the Unit did not have anything to do with condition No.5(b) of Notification 53/97-Cus. and similar condition of Notification 52/03-Cus. Conversely, such condition is not applicable to any raw material which is present in stock at the time of debonding of EOU and on which duty is paid as per para 6.20(a) of the EXIM Policy.
8.2 It was argued by the counsel that the appellant, having complied with condition 5(b) of Notification 53/97-Cus., should be held to have substantially complied with condition 5 of Notification 21/02-Cus. [which reads thus: If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996] and, accordingly, the benefit of concessional rate of duty in terms of serial No.84 in the Table annexed to the latter Notification should be allowed. We have already held that condition No.5(b) of Notification 53/97-Cus. was not applicable to any raw material which was available in stock with an EOU at the time of its debonding and on which duty was liable to be paid as per para 6.20(a) of the EXIM Policy. That condition was applicable only where any raw material imported duty-free by the EOU under the Notification was cleared as such to the DTA with the Development Commissioners prior permission. As regards condition (5) of Notification 21/02-Cus., it was applicable only to import of raw materials. Therefore there is no question of the appellant complying with condition 5(b) of Notification 53/97-Cus. or condition 5 of Notification 21/02-Cus. and consequently the plea made by the counsel for liberal construction of such conditions in view of the apex courts decision in Compacks case has no relevance. For the same reason, neither the Tribunals decision in the case of Samtel Color Ltd. relied on by JCDR nor the Supreme Courts judgment in the case of Thermax Ltd. vs. Collector [1992 (61) ELT 352] cited in the memo of appeal is relevant. (The learned counsel has not pressed into service the Thermax judgment which is said to be under review by a larger bench of the apex court). In the result, the appellants claim for the benefit of concessional rate of duty under Notification 21/02-Cus. read with condition 5(b) of Notification 53/97-Cus. is ill-conceived and unsustainable.
8.3 Let us now approach the issue from a different angle and see what would be the result. The appellant would not have chosen to pay duty on the raw materials at concessional rate of duty under Notification 21/02-Cus. at the time of import not because they had the better option of clearing the goods duty-free under Notification 53/97-Cus. at that time but because, as an EOU, they were bound to clear the goods in terms of the latter (EOU-specific) notification. They did not have the option to avail the benefit of any General Exemption Notification like 21/02-Cus. even if the benefit was full exemption from duty. It was part of the EOU scheme for the appellant to procure raw materials either by way of duty-free import or by way of duty-free purchase from indigenous sources. In either case, they were liable to comply with the conditions laid down in the relevant EOU-specific Notification. Therefore, at the time of import of raw materials, the appellant qua EOU could not have chosen to avail the benefit of Notification 21/02-Cus. At the time of payment of duty on the raw materials present in stock during the period of debonding (16.1.2003 10.7.2003), the appellant was still an EOU and, therefore, they were not entitled to claim such benefit at that time too.
8.4 The Tribunals decision in Sarita Software case (vide supra) is of no aid to the appellant. In that case, the question was whether the assessee (100% EOU) was entitled to pay central excise duty on final product cleared to DTA, at the effective rate prescribed under an Exemption Notification. The Tribunal held in their favour. We are afraid, we shall have to dismiss the reliance placed on this decision as, in the present case, we are not dealing with any DTA clearance.
8.5 The issue is, therefore, held in favour of the Revenue.
9.0 Issue No.(ii) The question to be considered is whether the differential amount of Customs duty was sought to be collected in the manner authorized by law. The supreme law in this domain is Article 265 of the Constitution of India, which forbids levy and collection of taxes except by authority of law. The statutory provision which authorizes collection of Customs duty not levied or short-levied or erroneously refunded is Section 28 of the Customs Act. Under sub-section (1), the proper officer may serve notice on the person chargeable with the duty requiring him to show cause why he should not pay the amount specified in the notice. Proper officer stands defined under Section 2(34) of the Act thus: 'Proper officer, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the Commissioner of Customs. The period of limitation for service of the show-cause notice has also been laid down under sub-section (1) of Section 28. Where the amount of duty is rupees one crore or less, the show-cause notice has to be served by the Commissioner of Customs or, with his prior approval, by any officer subordinate to him. Where the amount is more than one crore rupees, the show-cause notice has to be served only with the prior approval of the Chief Commissioner of Customs. It is under sub-section (2) that the proper officer, after considering the reply (if any) to the notice, determines the amount of duty due from the person concerned. This sub-section also requires such person to pay the amount determined by the proper officer. Thus Section 28 of the Customs Act is the only provision for collection, from a person through a process of adjudication, any amount of customs duty which has not been levied or has been short-levied or erroneously refunded. Therefore, for recovery of customs duty from a person without doing violence to Article 265 of the Constitution, the proper officer of Customs has to issue a show-cause notice to that person under sub-section (1) of Section 28 of the Customs Act within the period of limitation prescribed thereunder and, after considering his representation, if any, the duty recoverable has to be determined under sub-section (2) of the said Section. The same is the statutory mechanism for collection of interest on customs duty as well.
9.1 Parliament has not enacted any special provision for collection of duty from any person by way of enforcement of bond executed by that person. A bond executed by an importer at the time of clearance of the imported goods, as a condition for total or partial exemption from payment of customs duty under a notification issued under Section 25 of the Customs Act, is the importers covenant to pay the duty or the differential duty, as the case may be, in the event of breach of mandatory post-import conditions of such notification. When such post-import condition of the notification is violated by the importer, the duty or the differential duty, as the case may be, becomes leviable and, ipso facto, the provisions of Section 28 get attracted for collection of such duty. Of course, it can be rightly said that, in the process of collection of the duty amount, the bond is enforced against the importer. To put it differently, Section 28 of the Act is the provision for enforcing the bond executed by the importer. Case law cited for and against this proposition will be discussed later.
9.2 The demand of duty in this case is on raw materials which were imported duty-free under Customs Notifications 53/97 and 52/2003 and remained in stock (either as such or as WIP) at the stage of debonding of the Unit. The show-cause notice, which raised the demand, sought to enforce condition No.10 of the B-17 Bond (General Bond with Surety) dated 13.3.2001 executed by the EOU. This condition reads:
We, the obligors, shall fulfill the export obligation and conditions stipulated in Customs/Central Excise Notifications, as amended, under which the specified goods have been imported/sourced, as well as the Import-Export Policy for April, 1997 to 2002, as amended from time to time and pay on demand an amount equal to the Customs and Central Excise duties leviable on the goods as are not proved to the satisfaction of Assistant Commissioner of Customs/Central Excise to have been used in the manufacture of articles for export and any penalty imposed under Customs Act, 1962 or Central Excise Act, 1944 and rules or regulations made thereunder as the case may be. The bond was executed in terms of condition No.6 of Customs Notification 53/97 which required every EOU to execute a bond binding itself to fulfil export obligation and other conditions stipulated in the Notification and also to pay on demand an amount equal to the duty leviable on the goods (imported by the EOU) as are not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the manufacture of finished goods for export. A similar bond was required as per condition No.3 of Customs Notification 52/2003 also. Therefore the show-cause notice was demanding duty in terms of condition (10) of the aforesaid B-17 Bond read with condition (6) of Notification 53/97-Cus. and condition (3) of Notification 52/2003-Cus.
9.3 It is not in dispute that what was demanded from the appellant was an amount of customs duty which the EXIM Policy required them to pay on the raw materials in stock at the time of debonding vide para 6.20(a) of EXIM Policy/2002-07. The Revenue has no case that payment of duty by the EOU in May 2003 during the interregnum between the date of in-principle debonding order (16.1.2003) and the date of final debonding order (10.7.2003) was not made at the time of debonding. Indisputably, both the orders were passed under the relevant provisions of the EXIM Policy. Therefore the Policy recognized every point of time between 16.1.2003 and 10.7.2003 as time of debonding in the case of the appellant. (Needless to say that the period from 16.1.2003 to 10.7.2003 can be appropriately called the period of debonding). The Unit ceased to be an EOU on the date on which the final debonding order was passed vide the second NOTE to STANDARD CONDITIONS FOR DEBONDING.
9.4 In our view, a demand of customs duty on raw material found in physical stock at the time of debonding of an EOU would not attract condition No.6 of Notification 53/97-Cus./condition No.3 of Notification 52/03-Cus. and, for that matter, would not attract condition No.10 of the B-17 Bond. The reason is that condition No.10 of the B-17 Bond read with condition No.6 of Notification 53/97-Cus. and condition No.3 of Notification 52/03-Cus. only purport to make the EOU liable to pay, on demand, an amount equal to the duty of customs leviable on the goods as are not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the manufacture of articles for export. In respect of the goods (raw materials) present in physical stock (verified by the Bond Officer) at the time of debonding of the Unit, the question of proving to the satisfaction of the Assistant Commissioner of Customs that such goods have not been used in the manufacture of articles for export does not arise. The very physical presence of the goods with the EOU as verified by the Bond Officer is per se evidence of the goods having not been used in the manufacture of finished goods for export. Obviously, the phrase goods as are not proved to the satisfaction of the Assistant Commissioner of Customs/Central Excise to have been used in the manufacture of articles for export found in the text of condition No.10 of the B-17 Bond can only mean goods which are neither present in stock nor duly accounted for by the EOU. Any raw material imported duty-free but diverted instead of being brought into the factory for use in the manufacture of articles for export can fall in this category. Similarly, any raw material imported duty-free and brought into the factory but clandestinely disposed of instead of being used in the manufacture of articles for export may also fall in the same category. Any duty-free imported raw material cleared from the Unit for job work but not returned after job work might also get covered in the same category. Thus raw materials which were imported by an EOU and cleared duty-free under any of the aforesaid Notifications but not physically available, nor duly accounted for by the Unit, would be covered by the above italicized phrase and, therefore, if the Unit fails to prove to the satisfaction of the Assistant Commissioner that such goods were used in the manufacture of articles for export, it would be liable to pay, on demand, an amount equal to the customs duty leviable on such goods. No such eventuality can arise in the case of raw materials imported by the EOU duty-free, duly received in the factory, duly accounted for in the records and physically present in stock (verified by the Bond Officer) on the date of debonding of the Unit. Therefore, we hold that the raw material found in physical stock with the Unit at the time of its debonding would not attract condition No.6 of Notification 53/97-Cus. or condition No.3 of Notification 52/03-Cus. and, for that matter, would not attract condition No.10 of the B-17 Bond.
9.5 Insofar as the raw materials (as such or in partly processed condition) in stock at the time of debonding are concerned, we are of the view that the liability of the Unit to pay customs duty arises out of non-compliance with condition No.3 of Notification 53/97-Cus. and condition No.2 of Notification 52/03-Cus. read with the opening paragraphs of the respective Notifications. The opening paragraph and condition (3) of Notification 53/97-Cus. read as follows:
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India for the purpose of manufacture of articles for export out of India, or for being used in connection with the production or packaging or job work for export of goods or services out of India by hundred per cent Export Oriented Units approved by the Board of Approvals for hundred per cent Export Oriented Units appointed by the notification of the Government of India in the Ministry of Industry, Department of Industrial Policy and Promotion for this purpose, (hereinafter referred to as the said Board), from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act subject to the following conditions, namely:-
(1) (2) (3) The importer carries out the manufacture, production, packaging or job work or service in Customs bond and subject to such other conditions as may be specified by the Commissioner of Customs in this behalf. It was on account of its debonding that the appellant-Unit could not carry out the manufacture, in Customs bond, of export product by using the imported raw material which was available in stock at the time of debonding and could not accomplish the purpose for which the raw material was imported duty-free under Notification No.53/97-Cus. The same can be said about the appellant with reference to Notification No.52/03-Cus. also. Thus debonding of the Unit rendered it liable to pay the customs duty which was forgone at the time of import of the above raw material. This liability to pay the duty is in tandem with para 6.20(a) of the EXIM Policy/2002-07 also. Suppose the Unit does not pay the above duty at the appropriate stage of debonding, or short-pays it, a cause of action arises for the department to issue a demand notice to the Unit under Section 28(1) of the Customs Act.
9.6 The B-17 Bond executed by the appellant contains provisions which appear to indicate that Section 28 of the Act could be invoked for the above purpose. Condition No.2 of the bond refers to a notice of demand of duties, rent and charges claimable under the Customs Act, Central Excise Act and rules/regulations made thereunder. This condition reads thus:
We, the obligors, shall pay on or before a date specified in a notice of demand all duties, rent and charges claimable on account of the said goods under the Customs Act, 1962, Central Excise Act, 1944 and rules/regulations made thereunder together with interest on the same from the date so specified at the rate applicable. Condition No.14(3) of the bond authorized the Government (through the Commissioner or other officer of Customs/Central Excise) to recover the sums due from the EOU in the manner laid down in sub-section (1) of Section 142 of the Customs Act. This condition reads thus:
The Government through the Commissioner of Customs/Central Excise or any other Officer of Customs/Central Excise recover the sums due from the obligors in the manner laid down in sub-section (1) of Section 142 of the Customs Act, 1962 or sub-section (1) of Section 11A of the Central Excise Act, 1944. A conjoint reading of condition No.2 and condition No.14(3) of the B-17 Bond would indicate that an amount of customs duty (with interest) leviable from the appellant could be demanded through a show-cause notice under Section 28 of the Customs Act and, in the event of default, could be recovered in the manner laid down in sub-section (1) of Section 142 of the Act. In our view, therefore, the department should have issued a show-cause notice to the appellant under Section 28(1) of the Customs Act demanding customs duty on the raw materials in question as per condition No.2 of the B-17 Bond. In that event, the Commissioner of Customs would have determined the correct amount of duty under sub-section (2) of Section 28 and demanded the same from the appellant. If the appellant does not honour the demand, the remedy for the Revenue is under Section 142(1) of the Act. In this case, there is no demand of duty under Section 28 of the Customs Act. What is fatal to the Revenue is not the non-mention of Section 28 in the show-cause notice but the absence of the essential ingredients of the said Section in the notice. The demand of duty without invoking Section 28 of the Act, i.e., without alleging the necessary ingredients thereof, is not sustainable.
9.7 CBECs circular No.73/2000-Cus. dated 1.9.2000 was relied on by the learned JCDR to argue that Section 28 of the Customs Act could not be applicable to cases where duty was not leviable at the time of import because of conditional exemption but became leviable subsequently by reason of subsequent breach of condition. The Boards clarification to this effect was in the context of considering the effect of violation of post-import conditions of Customs Notification 64/88 which, as part of the Central Governments Public Health Scheme, imposed stringent poor-people-friendly conditions to be complied with by a hospital importing medical equipments and seeking duty-free clearance under the Notification. It cannot be applicable to an EOU having to pay customs duty on its stock of imported raw materials by reason of its debonding as per the EXIM Policy provisions. The EOUs case is clearly distinguishable from the case of a hospital having to pay customs duty on a medical equipment imported by it duty-free in the past under Notification 64/88-Cus., on account of breach of continuing obligations imposed by the Notification. For this reason, the Supreme Courts decision in C.T. Scan Research Centre case is also not applicable. In that case, the apex court followed its own earlier decision in Jagdish Cancer and Research Centre case [(2001) 6 SCC 483]. In both the judgments, the court was dealing with cases of duty-free import of medical equipments under Customs Notification No.64/88 which imposed on importer-hospitals continuing obligations such as providing free medical treatment to not less than 40% of outdoor patients, reserving not less than 10% of beds for poor patients etc. The apex court held that, in the event of breach of such obligations by the hospital, the department was entitled to levy duty on the imported goods without invoking Section 28 of the Customs Act. The department has no case that the appellants liability to pay duty on their stock of raw materials at the time of debonding arose out of breach of any continuing obligation. Such liability, indeed, was a one-time liability of the EOU under the EXIM Policy.
9.8 Before us, there was also a debate on whether there was a relevant date for computing the period of limitation for demanding the above duty from the appellant under Section 28(1) of the Customs Act. Drawing support from the Boards circular ibid. and the apex courts judgment in C.T. Scan Research Centre case, the learned JCDR has argued that Section 28 of the Customs Act would be applicable only to those cases where duty of customs was not levied or short-levied on any goods at the time of importation. When the appellant imported the raw materials, any amount of customs duty was not leviable thereon on account of full exemption from duty available to the EOU under Customs Notifications 53/97 and 52/03. It was only at a later stage (at the time of debonding of the Unit) that duty of customs became leviable on the raw materials in stock as such or in partly processed condition. In such a case, according to the learned JCDR, Section 28 of the Customs Act would not be applicable. He argued that the case would not fit in the definition of relevant date under Section 28. The learned counsel contested this proposition. Though the JCDRs submission that the duty became leviable only at the time of debonding of the Unit is acceptable, we cannot agree with the view he expressed with reference to relevant date. Sub-section (3) of Section 28 of the Act reads as follows:
(3) For the purposes of sub-section (1), the expression relevant date means
(a) in a case where duty is not levied, or interest is not charged, the date on which the proper officer makes an order for the clearance of the goods;
(b) in a case where duty is provisionally assessed under section 18, the date of adjustment of duty after the final assessment thereof;
(c) in a case where duty or interest has been erroneously refunded, the date of refund;
(d) in any other case, the date of payment of duty or interest. In the present case, the appellant paid duty on 22.5.2003 in respect of the raw materials in stock at the time of debonding. The Assistant Commissioner exercising jurisdiction over the EOU certified on 28.5.2003 that the Unit paid the applicable Customs & Central Excise duties in connection with its debonding. The show-cause notice dated 20.6.2005 demanded a further amount of duty in respect of the same goods, which was nothing but a demand of duty short-levied at the time of debonding. The residuary clause (d) of Section 28(3) of the Act was easily applicable to this case.
10. Issue No.(iii) The duty on the stock of raw materials available at the time of debonding of the EOU was paid on 22.5.2003. The show-cause notice was issued on 20.6.2005 beyond the normal period of limitation prescribed under Section 28(1) of the Customs Act without even invoking this statutory provision, let alone the first proviso thereto which provided an extended period of limitation for demand of duty short-levied by reason of collusion or willful misstatement or suppression of facts. Needless to say that none of these grounds for invoking the extended period of limitation was alleged in the show-cause notice. Therefore, the demand of duty is time-barred.
11. The adjudicating authority imposed a penalty on the appellant under Section 112(a) of the Customs Act for their omissions & commissions whereas the show-cause notice had proposed it on the alleged ground that the appellant misled the department by not discharging duty properly. There is neither any allegation nor any finding that the appellant rendered the goods (raw materials on which duty was demanded) liable to confiscation. The show-cause notice did not even allege that the goods were liable to confiscation. For these reasons and for the reason that the demand of duty on the appellant is not sustainable in law, the above penalty is also liable to be vacated.
12. The appeal is allowed for the reasons stated.
(Pronounced in Court on 30.3.2011) (S.K. Gaule) Member (Technical) (P.G. Chacko) Member (Judicial) tvu 1 2