Custom, Excise & Service Tax Tribunal
Mavi Industries Ltd vs Commissioner Of Central Excise on 1 February, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.C/542 to 544/09 (Arising out of Order-in-Original No.04/PD/Th-II/2009 dated 16/03/2009 passed by Commissioner of Central Excise, Thane-II) For approval and signature: Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. P.R. Chandrasekharan, Member (Technical) 1. Whether Press Reporters may be allowed to see :No 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 : 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? ========================================
Mavi Industries Ltd., O.P.Agarwal Appellant K.K. Agarwal Vs. Commissioner of Central Excise, Respondent Thane-II Appearance:
Shri.T.Vishwanathan, Advocate for appellant Shri.V.K.Singh, Addl. Comm. (AR), for respondent CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. P.R.Chandrasekharan, Member (Technical) Date of Hearing : 01/02/2012 Date of Decision : /02/2012 ORDER NO Per: P.R. Chandrasekharan
1. These appeals are directed against the order-in-original No.04/PD/Th-II/2009 dated 16/03/2009 passed by the Commissioner of Central Excise, Thane-II
2. The facts arising for consideration of this case are as follows:-
2.1 The appellant, M/s.Mavi Industries Ltd., Boiser, (earlier known as Krishna Filaments Ltd.) are a 100% EOU engaged in the manufacture of HDPE/PP Yarn/Ropes falling under Chapter 54 of the Central Excise tariff. They were granted LOP for setting up a 100% EOU by the Ministry of Industry vide letter No.PER/228/(1998)/EOB/180/98 dated 09/09/1998. As per the said LOP, the appellants were required to achieve a minimum NFEP (Net Foreign Exchange Earnings as a percentage of Export) of 20% and also a minimum Export performance, within a period of five years, to the tune of US Dollar One Million or 5 times the CIF value of imported capital goods, whichever is higher. The appellant imported capital goods valued at Rs.120,29,60,194/- during the period 1999-2000 duty free under Notification No.53/97-Cus dated 03/06/1997. Accordingly, the appellants were required to achieve an export performance of Rs.601.48 crore in five years; however, during the period 1999-2000 and 2000-2001 the appellants could achieve an export obligation of only Rs.2.95 crore. The appellants also stopped the manufacturing activities in September, 2000.
2.2 Inasmuch as the appellants failed to fulfill the export obligation, a show-cause notice dated 27/02/2004 was issued demanding import duty of Rs.61,24,18,364/- under the provisions of Notification No.53/93-Cus read with Section 61 & 72 of the Customs Act, 1962 and also in terms of the bond executed by them. Interest on the said duty amount was also demanded. The show-cause notice also proposed to penalize the appellants under Section 112 (a), 117, Section 72 of the Customs Act and confiscate the imported goods under Section 111 (o) of the Customs Act. The show-cause notice also proposed to impose penalties on the Chairman and Managing Director of the appellant firm. In the meanwhile, the matter was also referred to Development Commissioner, who vide letter 26/08/2006 informed the department that the appellants failed to fulfill the export obligation and, therefore, the department was at liberty to proceed with the adjudication of the show-cause notice.
2.3 The notice was adjudicated vide order dated 29/09/2006 wherein the duty demand of Rs.61,24,18,364/- was confirmed along with interest thereon. Further, capital goods, spares and raw materials valued at Rs.126,59,47,384/- excepting raw materials used in the manufacture of goods valued at Rs.2,95,29,133/- exported out of India, were held liable for confiscation under Section111 (o) of the Customs Act, and an option was given to redeem the goods on payment of a fine of Rs.20 lakhs in lieu of confiscation. A penalty of Rs.6 crore was imposed on the appellant firm under Section 112 (a) of the Customs Act and a penalty of Rs.5 crore each was imposed on the Chairman and Managing Director of the appellant firm.
2.4 The appellants preferred an appeal before this Tribunal and vide order dated 10/07/2008 this Tribunal upheld the duty demand on capital goods and spares. However, the Tribunal set aside the demand on raw materials, consumed in the manufacture of export goods and remanded the case back to the Commissioner to ascertain whether any raw materials were lying unutilized on the date of closure of the unit and for re-determination of fine and penalty accordingly. The Tribunal also upheld the confiscation of the capital goods and spares under Section 111 (o). The liability of the appellants to penalty was also upheld subject to its re-determination.
2.5 This order was challenged by the appellant before the honble High Court of Bombay, who vide order dated 17/12/2008 set aside the order of the original adjudicating authority as well as the Tribunal and remanded the case back to the adjudicating authority for deciding the case afresh on merits and in accordance with the law after hearing both sides. Thereafter, the impugned order has been passed wherein the adjudicating authority has confirmed the following demands.
2.6 Rs.61,24,18,364/- on the capital goods and spares in terms of the provisions of Notification No.53/97-Cus read with Section 61 and 72 of the Customs Act, 1962 and in terms of the bond executed by the appellants. He also confirmed the demand for interest on the above duty amount under the provisions of Section 72 & 61 of the Customs Act. He has further held that capital goods, spares and raw materials totally valued at Rs.126,59,47,384/- excepting raw materials used in the manufacture of goods valued at Rs.2,95,29,133/- are liable to confiscation under Section 111 (o) of the Customs Act and in lieu of confiscation, he has asked the appellants to pay a fine of Rs.20 crore. He has further confirmed the penalty of Rs.6 crore on the appellant firm and a penalty of Rs.5 crore each on the Chairman and Managing Director. The appellants are before us against this order.
3. The Ld. Counsel for the appellant submits that vide letter dated 27/03/2009 the Development Commissioner, SEEPZ has permitted them to function as an EOU for a period of 5 years effective from 01/04/2009 with an export obligation of US $ 5,06,07,290/- and they have been permitted to import raw materials and components of US $ 3,54,25,100 and spares and consumables valued US $ 20,24,290/- and net foreign exchange earnings to be achieved has been fixed at US $ 1,29,55,470/-. Inasmuch as their status as an EOU has been renewed by the Development Commissioner, the question of demanding any duty on the imported capital goods would not arise at all as the goods continue to remain in bond in the 100% EOU. Even if it is held that the goods have been removed from the 100% EOU, inasmuch as they have been allowed to continue as a 100% EOU effective from 01/04/2009, it should be considered as removal from one bonded premises to another bonded premises and viewed from this context, the question of duty demand on the capital goods will not arise.
4. The Ld. Counsel relies on the Board Circular No.11/96 dated 16/02/96, 31/96 dated 07/06/1996 and 47 of 2002 dated 29/02/2002 in support of his above contention. He also relies on the following judgements, namely:-
i) Paras Fab International Vs. CCE 2010 (100) RLT 116 (CESTAT-LB)
ii) Bee International Vs. CCE, 2007 (220) ELT 128 (Tri-Mumbai)
iii) Essar Oil Ltd., Vs. CC 205 (183) ELT 481 (Tri0Mumbai)
iv) Parsan Brothers Vs. UOI 2005 (68) RLR 113 (Guj)
v) CCE Vs Semco Electric Pvt Ltd., 2007 (215) ELT 253 (Tri-Mumbai) and
vi) Order dated 20/05/2010 in the case of Hindustan Agrigenetics Ltd., Vs. CCE Hyderabad.
5. The Ld. Additional Commissioner (AR) appearing for Revenue on the other hand contends that the findings of the adjudicating authority needs to be completely upheld. He points out that when the renewal was granted to the appellants to function as an EOU vide letter dated 27/03/2009 in para 2 (d) of the said letter it is clearly mentioned as follows:-
(d) This approval is without prejudice to any action that may be taken in respect of EOU operations prior to 01/04/2009 under Foreign Trade (Development & Regulation) Act, 1992, Customs Act, Central Excise & any other law for the time being in force.
5.1 Thus, the renewal is a conditional one and it does not affect the action taken for the period prior to 01/04/2009 in accordance with law. When the appellants functioned as a EOU during 1999-2000 the appellants were required to achieve an export obligation of Rs.648 crore. As against the said obligation, the appellant achieved export obligation of only Rs.2.95 crore. Before the show-cause notice was adjudicated the matter was referred to the Development Commissioner and the Development Commissioner vide letter dated 25/08/2006 informed the department as follows:-
In this connection, we write to inform you that M/s.Krishna Filaments Ltd., was granted letter of permission No.PER/228/(1998)/EOB/180/98 dated 09/09/1998 for establishment of new undertaking for manufacture of HDPE/PP Ropes at Betegaon, Thane. The unit was issued Green Card No.430 dated 21/10/1998, valid upto 30/09/2001.
The performance of the unit was monitored by this office for the period upto 1999-2000 based on quarterly reports (AJ 99, JS99 & OD99) submitted by the unit wherein they indicated the date of commencement of production as 27/04/1999 and export on 19/07/1999. The unit did not meet the obligations during the period for which they submitted the quarterly performance reports due to which, the performance of the unit as kept Under Watch Category during the first year i.e. 1999-2000 of the first block of five years period i.e. 1999-2000 to 2003-04. Subsequently, the unit did not submit performace report. The unit was issued show cause notice under FTDR Act on 13/07/2001 for non-submission of annual performance reports. In response, the unit vide their reply dated 20/05/2002 stated that they commenced Trial Production on 27/04/1999. They had further stated that their unit is under possession of High Court Receiver from 2000 (and therefore, they could not complete their Export Obligation and were unable to submit APRs) The units request for continuation of their EOU status for further period of five years 2004-05 to 2008-09 was not considered by this office and in the meantime, the unit referred the matter to BIFR. The Registrar, Board of Industrial and Finance Reconstruction, Deptt. Of Economic Affairs, New Delhi was requested vide this office letter dated 04/06/2004, 14/07/2004 & 13/03/2005 to submit the status report of the case so as to enable this office to take decision about continuation of EOU status or otherwise. There is no reply from the office of BIFR till day.
In view of the above, you may proceed with the adjudication of the show cause notice issued by your office, as the unit has not met the export obligations undertaken, till day.
5.2 From the said letter of the Development Commissioner, it is very clear that the appellant had failed to achieve the export obligation stipulated and the department was advised to proceed with the adjudication of the show-cause notice in accordance with law.
5.3 The Ld. AR also submits that though the initial LOP was for the years 1999-2004, the private bonded warehousing licence issued under the Customs Act, was kept alive only upto 2001 and it was not renewed thereafter, inasmuch as the appellant had stopped production and the factory of the appellant was taken over by the Court Receiver. Inasmuch as the private bonded warehousing licence expired in 2001, which was not renewed thereafter, the capital goods and spares installed therein should be deemed to have been removed in terms of the provisions of Section 72 of the Customs Act, 1962 and on such deemed removal, the appellant is liable to pay Customs duty and he relies on the judgement of the honble apex Court in the case of Kesoram Rayo Vs. CC, Calcutta, reported in 1996 (86) ELT 464 (SC) in support of this contention. He further submits that as per the judgement of the honble Supreme Court in the case of SBEC Sugar Ltd., Vs. UOI, reported in 2011 (264) ELT 492 (SC), the interest is liable to be paid on the duty amount from the date of expiry of the permissible period till the date of clearance from the warehouse. He also relies on the judgement of the honble Bombay High Court in the case of Suresh Chand & Sons Vs. UOI, reported in 2010 (254) ELT 421 (Bom) in support of his contention that when the warehousing period has expired duty and interest are recoverable under the provisions of Section 61 & 68 of the Customs Act, 1962. He has also relied on the judgement of this Tribunal in the case of Asian Alloys Ltd., Vs. CCE, Delhi reported in 2006 (203) ELT 252 wherein it was held that capital goods or raw materials procured by the 100% EOU, which are not used for the specified purpose and goods manufactured were cleared clandestinely into DTA, in such a case the question of allowing depreciation on the value of the goods does not arise and such capital goods are liable to confiscation under Section 111 (o) of the Customs Act. The said judgement of this Tribunal was also upheld by the honble Punjab & Haryana High Court reported in 2010 (252) ELT A-47 (P&H). The Ld. AR also relies on the decision of this Tribunal in the case of Stilbene Chemicals Ltd., Vs. CCE, Vishakhapatnam, reported in 2008 (224) ELT 110 (Tri-Bang) and the decision of the honble apex Court in the case of Medival Hospital Vs. UOI, 1997 (89) ELT 425 (SC).
6. We have carefully considered the Rival submissions.
6.1 As regards the argument of the Ld. Advocate for the appellant that in view of the renewal of their LOP vide letter dated 27/03/2009 by the Development Commissioner, the appellant should be deemed to be a 100% EOU even now and accordingly, there has been no removal of capital goods from the bonded premises, the said argument is clearly untenable. In the said letter, in para 2 (d), it has been made abundantly clear that the extension of LOP is without prejudice to any action that may be taken in respect of EOU operations prior to 01/04/2009 under the Foreign Trade (Development and Regulation) Act, 1992, Customs Act or Central Excise Law or any other law for the time being in force. Thus, the said letter does not regularize the previous action of the appellant and has to be considered as a fresh LOP for all practical purposes. In the instant case, it is seen that original LOP was valid upto 30/09/2001 and the private bonded warehousing of the licence also expired in 2001; the appellant did not get the same renewed. Once the private bonded warehousing licence expired, the goods lying in the warehouse has to be deemed as goods improperly removed from the warehouse under Section 72 of the Customs Act, 1962. The honble apex Court in the Kesoram Rayon case cited (supra), has clearly held that the goods which are not removed from a warehouse within the permissible period are treated as goods improperly removed from the warehouse. Such improper removal takes place when the goods remain in the warehouse beyond the permitted period or its permitted extension. The importer of the goods may be called upon to pay Customs duty on them, and necessarily, it would be payable at the rate applicable on the date of their deemed removal from the warehouse, that is, the date on which the permitted period or its permitted extension came to an end. In the instant case, since the LOP and the private bonded warehouse licence expired in 2001, the deemed removal of goods deposited in the warehouse has taken place and the appellants are liable to discharge duty liability on the goods including capital goods on the date on which the warehousing period expired under the provisions of Section 72 of the Customs Act, 1962. In the instant case, the duty has been demanded on the total revenue foregone on the capital goods. This is not correct. The rate be applied for demand of duty is the rate prevailing of date of deemed removal and to that extent there is an error in the computation of duty demand, which needs to be rectified.
6.2 The next question for consideration is what should be the value on which duty can be demanded on the capital goods and whether the appellant would be eligible for any depreciation or not. In the instant case, the goods are imported under Notification No.53/97 dated 03/06/97. Condition No.5 of the said notification reads as follows:-
Where it is shown to the satisfaction of the Assistant Commissioner of Customs that the said unit has been allowed by the Development Commissioner or the said Board to clear any of the said goods for being taken to any other place in India in accordance with the Export and Import Policy.
(a) such clearance of capital goods, material handling equipment, office equipment and captive power plants may be allowed on payment of an amount equal to the customs duty leviable on such goods on depreciated value thereof and the rate in force on the date of payment of such duty;
(b) such clearance of goods (including container, suitable for repeated use) other than those specified in clause (a), may be allowed on payment of customs duty on the value at the time of import and at rates in force on the date of payment of such customs duty;
(c) such clearance of used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use may be allowed without payment of any customs duty.
6.3 A plain reading of the above condition makes it absolutely clear that depreciation is permissible only when the capital goods are cleared after getting approval from the Development Commissioner for being taken to any other place in India in accordance with the EXIM policy. In the instant case no such permission has been obtained by the appellant from the Development Commissioner and the Development Commissioner has also not renewed the LOP when it expired in September, 2001. In the absence of any such permission, the question of allowing any depreciation on the value of the capital goods does not arise. As regards the duty demand on raw materials, if the raw materials are consumed in the manufacture of goods exported, then the demand of duty will not arise at all. Only in respect of raw materials lying unutilized still remaining in the bonded premises, the question of demand on duty on raw materials would arise. In the case of raw materials the quantity and value lying unutilized on the date of export of warehousing period is not forthcoming from the records. If any such raw materials were lying unutilized on the date of deemed removal, they have to be assessed to Customs duty on the original value of the importation but at the rate prevailing on the date of deemed removal.
6.4 The appellants have relied on a number of judicial pronouncements in support of their contentions. It is appropriate to see whether these decisions have any relevance to the facts of the present case. In Paras Fab International case (cited supra) relied upon by the appellant, the issue for consideration was whether the entire premises of 100% EOU should be treated as a warehouse and whether the imported goods warehoused in the premises of 100% EOU is to be held to have been removed from the warehouse before the same is issued for manufacture/production by the 100% EOU. In that context, this Tribunal held that removal for captive use for manufacture of goods are not to be treated as removal for home consumption and no duty is payable on such removal. In the instant case the LOP as well as the private bonded warehousing licence expired in 2001 and the unit no longer had the status of EOU or a private bonded warehouse after the expiry. Therefore, the ratio of the decision of Paras Fab International case has no application to the facts obtaining in the present case. Similarly, in the case of Bee International relied upon by the appellant, the issue related to extension of warehousing period to be co-terminus with the export obligation period imposed under SIA and the Board vide Circular dated 03/12/85 had clarified that bonding/warehousing period should be liberally extended upto the validity period of the LOP. In the instant case, the LOP expired in September, 2001 and the bonding period was not extended thereafter. Therefore, the facts are clearly distinguishable. In the Essar Oil Ltd. case relied upon by the appellant, it was observed that in the case of Kesoram Rayon case decided by the honble apex Court, the deeming section was applied only to the limited extent of finding out the rate of duty applicable as provided under Section 15 of the Customs Act, 1962 and the said judgement did not have the effect of holding that warehoused goods after the expiry of the warehousing period would be regarded as cleared from the customs. In the case before us, the letter of permission allowing the appellant to function as a 100% EOU itself expired in September, 2001 and the same was not renewed. Consequently, the private bonded warehousing licence issued to the appellant was also not renewed. Inasmuch as the appellant lost its status as a 100% EOU and the premises no longer remained a warehouse, we are of the view that the judgement of the honble apex Court in the case of Kesoram Rayon case applies squarely to the facts of the present case. As regards the reliance placed on Parsan Brothers case, the issue dealt therein was when duty free imported beer became unfit for home consumption due to suspension and subsequent cancellation of warehousing licence whether duty can be demanded. This Tribunal held that in such a case, Section 23 of the Customs Act relating to remission of Customs duty will come into operation and the petitioner would be entitled to seek remission of duty on goods lost due to destruction. The facts in that case has no bearing whatsoever to the facts of the present case. Therefore, we hold that this decision of the honble High Court of Gujarat in the said case has no application whatsoever to the facts before us. Similarly, in the Semco Electric Pvt Ltd. case relied upon by the appellants, the issue related to the raw materials imported duty free and consumed in the manufacture of export goods. As already observed, in respect of raw materials, which are consumed in the manufacture of export goods there cannot be any duty demand and, therefore, there is no conflict between the said decision and our view in the subject case. Similarly, in the Hindustan Agrigenetics Ltd. case relied upon by the appellant, we find that the said decision has no application to the facts before us and the said decision pertained to Notification No.126/94 dated 03/06/94 wherein the conditions of installation of capital goods and use thereof in the manufacture of goods for export were to be satisfied. The question of removal/deemed removal of capital goods from the bonded premises was not an issue therein and, therefore, the decision of the said case cannot be applied to the facts of the present case. Thus, we see that the various judicial pronouncements relied upon by the appellant has no application whatsoever the facts involved in the present case and accordingly, we reject the contentions raised by the appellant in this regard.
6.5 Inasmuch as the appellants have failed to fulfill the terms and conditions of the exemption, the goods are liable to confiscation under the provisions of Section 111 (o) of the Customs Act, 1962. The Ld. Adjudicating authority has imposed a fine of Rs.20.00 crores in lieu of confiscation. Inasmuch as the appellant had been allowed to function as an EOU from April 2009 onwards, we are of the view that in the facts and the circumstances of the case, the imposition of a nominal fine in lieu of confiscation would suffice. Accordingly, we set aside the fine of Rs.20 crore imposed on the appellants and reduce the same to Rs.1 crore instead. A penalty of Rs.6 crore on the appellant and Rs.5 crore each on the Chairman and Managing Director has been imposed under the provisions of Section 112(a) of the Customs Act, 1962. Inasmuch as the appellant has failed to fulfill the export obligation and the goods are liable to confiscation, imposition of penalty is justified, but the question is whether any harsh penalty is required to be imposed. Considering the fact that the appellant is a sick company, which is being revived, we are of the view that a penalty of Rs.1.00 crore on the appellant will suffice and there is no need for any separate penalty on the Chairman and Managing Director. Accordingly, we reduce the penalty of Rs.6 crore to Rs.1 crore and set aside the penalties imposed on the Chairman and the Managing Director.
7. In sum, we hold that the appellant is liable to pay duty on the imported capital goods deemed tohave been removed at the rate of duty prevailing on the date of deemed removal. Interest is also leviable on such amount of duty. No duty liability would accrue on the raw materials and consumables already utilised in the manufacture of export goods. Only if any such materials were lying in stock on the date of deemed removal, duty liability will have to be discharged at the rate prevailing on the date of deemed removal. Confiscation of capital goods is upheld but the fine in lieu of confiscation is reduced to Rs.1 crore. The penalty on the appellant is reduced to Rs.1 crore and the penalty on the Chairman and Managing Director are set aside. Inasmuch as the duty liability has to be reworked as discussed above, we remand the case back to the adjudicating authority for re-computation of the demand as discussed above.
(Pronounced in Court on .) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 2