Madras High Court
M/S.First Garments Manufacturing ... vs The Joint Secretary To The Government Of ... on 12 September, 2011
Author: Vinod K.Sharma
Bench: Vinod K.Sharma
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 12/09/2011 CORAM THE HONOURABLE MR.JUSTICE VINOD K.SHARMA W.P.(MD)No.5674 of 2007 and M.P.(MD)No.1 of 2007 M/s.First Garments Manufacturing (India) P Ltd., Represented by its Managing Director, C.Deenathayalapandian. ... Petitioner Vs. 1.The Joint Secretary to the Government of India, Ministry of Finance, 60, Hudco Vishal Building "B" Wing, 6th Floor, Vhikaji Cama Place, New Delhi-110 066. 2.The Commissioner of Customs & Central Excise (Appeals) No.1, Williams Road, Contonment Tiruchirappali 620 001. 3.The Deputy Commissioner of Customs (Export), Customs House, New Harbour Estate, Tuticorin-628 004. ... Respondents PRAYER Writ Petition is filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorari, to call for the records comprised in Order No.256/07, dated 10.05.2007, on the file of the first respondent, quash the same. !For Petitioner ... Mr.N.Venkatraman Senior Counsel For Mr.R.Karthikeyan ^For Respondents ... Mr.B.Vijay Karthikeyan Senior Standing Counsel for Customs & Central Excise :ORDER
The petitioner prays for issuance of a writ, in the nature of certiorari, to quash the order No.256/07, dated 10th May 2007, passed by the respondent No.1, in exercise of revisional jurisdiction.
2.The petitioner, M/s.First Garments Manufacturing Co. (India) Ltd., Madurai, are engaged in manufacturing and export of ready-made garments.
3.It has two Units at Madurai (100% EOU) & other unit at Tirupur (DTA).
4.The Officers of Directorate General of Central Excise, Intelligence, Madurai Region, searched the factory, and office premises of the petitioner, on the basis of intelligence report received, that the petitioner was availing 'All India rate of drawback' for goods belonging to Tirupur Unit, which were, in- fact, manufactured by the petitioner's Unit at Madurai, in 100% EOU.
5.It was, during the searches, that certain materials were detected showing that materials of Tirupur DTA Unit was in-fact processed at Madurai (100% EOU) Unit. The statements of Management/Officers were recorded, which revealed that the petitioner availed All Industry Rate of drawback' on the goods manufactured/processed at 100% EOU, Madurai. This prompted the Department to initiate proceedings for recovery of the custom duty and penalty.
6.The basis for initiating proceedings for recovery of amount was that the petitioner had failed to bring to the notice of the Department that:-
(i)they were bringing material of Tirupur DTA, to be processed at 100% EOU, at Madurai, and sent for export.
(ii)The petitioner mis-declared in the shipping bills about the processing of goods at 100% EOU.
(iii)As per the conditions in General Notes of Notification Nos.22/97-
Cus.(NT) dated 30.05.97, 67/97-Cus.(NT) dt.1.7.79, 31/99-Cus.(NT) dt.20.5.99, 41/2000-Cus.(NT), dt.1.6.2000, 29/2001-Cus(NT), dt. 1.6.2001 issued under Rule 3 and 4 of Customs and Central Excise Duty Drawback Rules, 1995. All industry rate is also not available to the exported product manufactured partly or wholly in a warehouse under Section 65 of Customs Act, 1962.
7.The stand of the respondents was that as per proviso to Rule 4(3) of Central Excise Rules 2002, in respect of readymade garments falling under Chapters 61 and 62 of the Central Excise Tariff Act and Customs Tariff Act, produced or manufactured as job work, at 100% EOU was not counted towards export performance of 100% EOU.
8.That, as per the provisions of Section 2(44) of Customs Act, the goods processed at Madurai 100% EOU were not covered under warehoused goods as per the provisions of Section 65 of Customs Act.
9.That the raw material and final products are owned by Tiruppur DTA Unit and therefore, it was not covered under the scope of General Notes 2(a) and 2(c) of Notification 67/98-Cus dt.1.09.98.
10.That as the condition in General Notes are only applicable to goods warehoused as per the provisions of Customs Act, either at EOU or at warehouse and not to the goods belonging to DTA Unit, which were processed at 100% EOU.
11.That mere non-informing about the process of job work would not debar it from claiming the rightful benefit of drawback in absence of proof of misuse of the provisions of Act or Rules.
12.In Support of this contention, reliance was placed on the following judgments:-
1.M/s.Leela Scottish Lace Limited Vs. CC, Bangalore 2003(153)ELT 611.
2.M/s.Leela Scottish Lace Limited vs. CC, Bangalore 2003(156)ELT 548; and
3.M/s.Leela Scottish Lace Limited vs. CC, Bangalore 2003(159)ELT, 477.
13.The Deputy Commissioner (Export) Custom House, Tuticorin, adjudicated the matter, and came to the conclusion that the petitioner were not entitled to All Industry Drawback, but eligible to drawback to the tune of Rs.81,30,964/- [Rupees Eighty one Lakhs Thirty thousand Nine hundred and Sixty Four only] at 5% on FOB value of Rs.16,26,19,271/- [Rupees Sixteen crores Twenty Six lakhs Nineteen thousand Two hundred and Seventy one only].
14.The recovery of Rs.1,49,75,973/- [Rupees one crore Forty Nine thousand Seventy five thousand Nine hundred and Seventy three only] together with interest was accordingly ordered.
15.The petitioner preferred an appeal against the order passed by the Deputy Commissioner, [Export], Custom House, Tuticorin.
16.The appeal was accepted by recording as under:-
"a.the issue stand covered squarely by the decisions of the Hon'ble Tribunal in the case of three reported judgments relating to the same appellant i.e. M/s.Leela Scottish Lace Limited vs. Commissioner of Customs, reported in 2003(153)ELT.611 (T), 2003(156)ELT 548(T) and 2003(159)ELT 477. Appellants further submit the case reported in 2003(156)ELT 548 relates to export of ready made garments through Tuticorin Port itself.
(b)the goods produced in the 100% EOU and the goods produced by the DTA are totally distinct and not one and the same and further the 100% EOU, does not have any infrastructure whatsoever to convert cotton yarn into cotton fabric.
The assumption that all the ready made garments have emerged only at the 100% EOU by undergoing the process of cutting, making of trimming is factually incorrect and not supported by any evidence.
(c)the legal question as to whether, carrying a single or few processes by a 100% EOU would vitiate the right to claim All Industry Rate of drawback by a DTA Unit has been comprehensively answered by the Tribunal Rulings referred supra.
(d)the ultimate export has been done only by the DTA Unit through its shipping bills and not by the EOU and no benefits whatsoever have been claimed or availed by the EOU on these exports which fact has also not been disputed.
(e)the legal question of applicability of clause 2(a) of the general notes and Rules 3 and 4 of the Customs and Central Excise Drawback Rules, have again been answered squarely by these decisions referred above.
(f)the Hon'ble Tribunal in the case of L.T.Karle & Company Vs. Commissioner, 2004(172) ELT. 80(T) was pleased to hold that export goods of DTA Unit manufactured in a 100% EOU is permissible and mere non filing up of Col. No.7 of the shipping bill indicate that the goods were manufactured in 100% EOU would not amount to suppression.
(g)the Ministry vide drawback Circular No.63/98-Cus. Dt. 1.9.1998 (F.No.609/218/98-DBK) was pleased to clarify vide para 5 that the All Industry Rate of drawback in the case of export of garments from EOU/EPZ units are being restored which were earlier deleted during review in September 1997. When All Industry Rate of Drawback is allowable, in the case of export of garments, even from an EOU, rejection of the same from a DTA Unit is not permissible.
(h)the lower authority was wrong in holding that the appellants had accepted the fact that goods were manufactured in the 100% EOU. to the contrary, appellants had filed all the relevant documents and evidence which showed the place and the processes carried out in the different locations in and around Tirupur and at Madurai.
(i)after conceding the applicability of Board Circular 67/98-Cus. dt.14.09.1998 the Ld. Authority erred in disallowing the drawback on the ground that appellants have not obtained permission to utilize the capacity of the 100% EOU. The lapse, if any, is procedural and therefore curable.
(j)Circular No.31/2001 dt.20.04.2000 has no application to the facts of the case and further not correct in the light of several decisions of the Hon'ble Tribunal rendered under identical circumstances.
(k)The lower authority misapplied Circular 67/98-Cus, dt,14.09.1998 that claimant before the department in the instant proceedings is not the 100% EOU. These claimant is the DTA Unit and the submission placed was when All Industry rate of drawback to be granted to a 100% EOU dis-entitling the same for a DTA is clearly misconceived in law. The lower authority has not dealt this aspect in the order.
(l)the issue arising out of Rules 3 and 4 of the Customs and Central Excise duties and Drawback Rules, 1995 and the definition of "manufacture" has already been dealt under identical circumstances by the Hon'ble Tribunal through the above referred rulings and in the circumstances order is not maintainable in law.
(m)the references drawn by the ld. Authority vide Para 7.1 of the impugned order are clearly inconsistent both on fact and in law. Having conceded the fact that there is nothing on record to show or prove that the expenses relating to stitching etc. were incurred by the EOU to draw an adverse inference.
(n)the reasons furnished by the lower authority in seeking to distinguish the decision relied on the petitioners are bad in law. None of the reasons are either relevant or sustainable in law on or facts. After conceding the applicability of these rulings vide para 7.14 of the impugned order, the basis sought to be furnished in distinguishing these judgments in para 7.11 and 7.12 is clearly inconsistent. The stand of the lower authority on this issue is consummately contradictory. Once the decisions are made applicable, the findings in para 7.11 and 7.12 are liable to be set aside.
(o)Having concluded that no offence whatsoever has been committed by the appellants, to warrant imposition of penalty the ld. authority went wrong in confirming the demand on the basis of misstatement and suppression and dis- entitling drawback under the extended period of limitation.
17.In revision, order of the appellate authority has been reversed, and of the Deputy Commissioner restored, holding that the petitioner was entitled to the benefit only in terms of Circular 31/2000-Cus. dated 20th April 2000.
18.The order of appellate authority has been set aside, in exercise of revisional jurisdiction, by recording as under:-
"Govt. has carefully gone through the written and oral submissions along with the cited judgments/CBEC Circulars. Govt. has also gone through the order in-original and the impugned order-in-Appeal carefully. The Central Govt. framed the Customs and Central Excise Duties Drawback Rules, 1955 in exercise of power conferred upon it under section 75 of the Customs Act, 1962 and section 37 of the Central Excise, Act 1944 respectively. These are composite rules in terms of which Drawback is allowed in relation to customs duties as well as the duties of Central Excise. The definition of 'Drawback" in Rule 2(a) of the said Rules, makes it amply clear. It says, "Drawback" in relation to any goods manufactured in India and exported, means the rebate of duty chargeable on imported materials or excisable materials used in the manufacture of such goods. Similarly definition of manufacture is given in Rule 2(e) of the Drawback rules which reads as under:-
"Manufacturer' includes processing of or any other operation carried out on goods, and the term manufacture shall be construed accordingly."
In exercise of the powers conferred by rule 3 read with rule 4, of the Customs and Central Excise Duties Drawback Rules, 1955, Govt. of India, in the Ministry of Finance (Department of Revenue), the Central Government determined the rates of Drawback vides the Notification No.22/97, 67/98, 31/99, 41/2000 and 21/2001 during the period in which the respondents claimed and were sanctioned drawback on the exported goods. Gov. notes that as per the condition No.2 of the general notes of these notifications, All Industry rate of drawback is not available to the export goods manufactured and/or exported by a unit licensed as 100% EOU in terms of the relevant provisions of the Import and Export policy in force. For proper appreciation of the issue Govt. extracts condition No.2 of the general Notes of the notification.
67/98-Customs (NT) dt 1.9.1998 as under:-
General Notes
1.............
2.The rates of drawback specified in the said Table shall not be applicable to export of a commodity of product if such commodity or product is-
(a)manufactured partly or wholly in a warehouses under section 65 of the Customs Act, 1962 (52 of 1962).
(b).....................
(c)manufactured or exported by a unit licensed as hundred percent. Export oriented unit in terms of the provisions of the relevant Import and Export Policy.
(d)Manufactured or exported by any of the units situated in Free Trade Zones of Export Processing Zones or Special Economic Zone.
(e)...............
(f)...............
(g)................
The Central Board of Excise & Customs, has vide Circular No.74/99-Cus, dt 5.11.99 clarified that drawback benefits shall be inadmissible either to EOU or to the DTA units for export of goods manufactured on job work basis for DTA by EOU units. From the above provisions of the CBEC Circular it is seen that the All Industry Rate are not applicable to products/goods manufactured/partly processed in a warehouse u/s.65 of the Customs Act, 1962. A 100% EOU is a warehouse declared u/s.65.
It is further admitted fact that the in the instant case, (the processing of fabric amounting to manufactured as given in the rule 2 in the Customs & Central Excise Drawback Rules, 1995), the export goods has been processed/manufactured as discussed above in the Order-in-Original, in a 100% EUO. The applicant Commissioner's main pleadings is that goods exported by the respondent, has been manufactured by a Unit, licensed as 100% EOU in terms of the relevant previsions of Export-Import Policy in force. Hence, All Industry Rate of Drawback, is not available to the respondent. On this contention Govt. would observe that it is admitted fact that in the 100% EOU Scheme all goods manufactured in a 100% EOU (a bonded warehouse under section 65 of the Customs Act, 1962), are made/processed from materials obtained without payment of duty. In this case there is no evidence contrary to prove that duly free-materials had not been used in the processing of fabrics. In a 100% EOU, as explained above only duty free materials are used and the onus, if at all, was on the party to provides evidences that duty paid materials were use. further, General note 2 of drawback Notification No.2 of drawback Notification No.31/99-Cus(Nt.) Dt.20.05.1999, specifically rules out the application of All Industry Rates to products manufactured partly or wholly in a warehouse u/s.65 of the Customs Act, 1962. Govt. further, notes that CBEC vide their Circular No.31/2000-Cus. dt 20.04.2000, clarifies that the DTA Units, are not eligible for All Industry Rate of Drawback for the goods processed by EOU units.
Govt. further notes that various circular have been issued from time to time by CBEC permitting utilisation of ideal capacity of the EOU units. Thus, in circular 67/98, dated 14.09.1998, it was specifically decided by CBEC that units in the EOU may be permitted to undertake job work from the DTA units provided the finished products produced by such EOU are exported directly. However, as per facts on record no permission was granted to the respondent or the 100% EOU to process or manufacture goods for or on behalf of the DTA Units. Moreover, even if there was any permission granted to EOU for job work, under the CBEC Circular mentioned above. Govt. is of the considered opinion that All Industry Rate of Drawback is not admissible on the export of the impugned goods, in view of above provisions contained in condition No.2 (a & c) of the general notes of the Govt. Notification No.22/97, 67/98, 39/99, 41/2000 and 21/2001, which clearly says that no drawback under All Industry Rate is admissible in case goods is manufactured/exported by a unit licensed as 100% export orient undertaking. In the instant case as discussed in foregoing paras the respondents have manufactured the export goods out of fabrics processed by a 100% export oriented unit. The CBEC vide their Circular No.74/99 dt. 5.11.1999, clarified that drawback benefits shall be inadmissible either to EOU or to the DTA units for export of goods manufactured on job work basis for DTA by EOU units. From the above it is seen that the specified rates are not applicable to products manufactured partly in a warehouse u/s.65 of the Customs Act, 1962. A 100% EOU is a warehouse declared u/s.65 Govt. has also gone through the judgments of the Hon'ble Supreme Court in the case of Collector of Central Excise, Vadodara, vs. Dhiren Chemicals Industries, 2002(143) E.L.T.19 (S.C) wherein Hon'ble Supreme Court has held that CBEC Circulars are binding on Revenue even if placing different interpretation that Hon'ble Supreme Court.
Government notes that the Commissioner (Appeals) has set aside the order in-original and allowed the appeal by applying ratio of judgment of Honourable Tribunal (Bangalore) in case of M/s.Leela Scootish Lace Ltd., vs. CC Bangalore (2003)(159) ELT 477 as mentioned in the impugned order in appeal. Government however feels that facts of the cited judgment are distinguishable as much as the provision to rule 4(3) of the Central Excise Rules 2002 which reads as follows:-
"Notwithstanding anything contained in sub-rule (1), every person who gets the goods, falling under Chapter 61 or 62 of the first schedule the Tariff Act, produced or manufactured on his account in Job work, shall pay the duty leviable on such goods, at such time and in such manner as may be specified under these rules. Whether the payment of such duty be secured by bond or otherwise, as if such goods have been manufactured by such person."
It is pertinent to note that the central rules came into existence w.e.f. 1/3/2001 and were further amended by Central Excise Rules 2002 w.e.f. 1/3/2002. By the time of this amendment only, proviso to rule 4(1) and its explanation and rule 4(3) and its explanation were brought into force for the first time in line with the removal of unconditional exemption and charging of duty on ready made garments falling under chapter 61 and 62 of the Central Excise Tariff Act 1985 w.e.f. 1/3/2002. The demand/recovery of drawback in the instant case is between the period from 1998 to 2001 hence the insertion of a new rule necessitated owing to emerging situations. In this case, the dutiability of ready made garments to Central Excise w.e.f. 1.3.02 and its expounding of the same by the Hon'ble tribunal in the case of M/s.Leela Scotish Lace Ltd, cannot be made applicable.
In the instant case it is admitted fact that impugned goods has been manufactured in FGM Madurai (100% EOU). Government further notes that Ministry of Finance vide circular No.31/2000 (F.No.609/41/2000-DBK dated 20th April 2000) has clarified that in case goods are manufactured and exported from EOU no drawback rate under all industry rate is admissible. However, on such goods brand rate @ 5% has been allowed. Government therefore of the considered opinion that the ratio of the cited judgment is not applicable in the instant case.
Govt. notes that it is settled law that CBEC circulars are binding on 100% Revenue/Departmental officers as held by the Hon'ble Supreme Court in the case Paper Products Ltd., Vs. Commissioner of Customs 1992(112)E.L.T.765 and in the case Collector of Central Excise, vadodara vs. Dhiren Chemicals Industries Ltd., reported in 2002(143)E.L.T.19 (S.C).
In view of the above facts and circumstances Govt., feels that impugned order-in-Appeal, passed by the Commissioner(Appeals), is not maintainable. Govt., accordingly, set aside the impugned order-in-appeal and allows the Revision Application.
19.The learned counsel for the petitioner challenged the impugned order, by contending that the petitioner is entitled to drawback benefits in totality, under Rule 3 of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995
20.The petitioner made reference to Rule 3, which reads as under:-
"Provided that where any goods are produced or manufactured from imported materials or excisable materials or by using taxable services as input services, on some of which only the duty or tax chargeable thereon has been paid and not on the rest, or only a part of the duty or tax chargeable has been paid; or the duty or tax paid has been rebated or refunded in whole or in part or given as credit, under any of the provisions of the customs Act, 1962 (52 of 1962) and the rules made thereunder, or of the Central Excise Act, 1944(1 of 1944) and the rules made thereunder, or of the Finance Act, 1994(32 of 1994) and the rules made thereunder, the drawback admissible on the said goods shall be reduced taking into account the lesser duty or tax paid or the rebate, refund or credit obtained.
Provided further that no drawback shall be allowed.
(i)If the said goods, except tea chests used as packing material for export of blended tea, have been taken into use after manufacture;
(ii)if the said goods are produced or manufactured, using imported materials or excisable materials or taxable services in respect of which duties or taxes have not been paid; or
(iii)on jute batching oil used in the manufacture of export goods, namely, jute (including Bimlipatam jute or mesta fibre), yam, twine, thread, cords and ropes;
(iv)if the said goods, being packing materials have been used in or in relation to the export of -
(1)jute yarn (including Bimipatam jute or mesta fibre), twist, twine, thread and ropes in which jute yam predominates in weight:
(2)jute fabrics (including Bimlipatam jute or mesta fibre), in which jute predominates in weight;
(3)jute manufactures not elsewhere specified (including Bimlipatam jute or mesta fibre) in which jute predominates in weight.
(v)on any of the goods falling within Chapter 72 heading 1006 or 2523 of the of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975)
21.The reference is also made to the notification No.22/97, Cus. (NT) 30th May 1997, to claim that the petitioner was entitled to full drawback, as specified in the table attached to the notification.
22.It is the contention of the learned counsel for the petitioner that the circular 67/98 Cus., dated 14th September 1998, circular 74/99, dated 5.1.99 and circular No.31/2000-Cus. dated 20th April 2000, in denying the relief of drawback, deserves to be ignored being contrary to the statutory rules, and notification issued in exercise of statutory powers, under the Act.
23.It is also the contention of the learned counsel for the petitioner, that reading of rules and circulars as well the notifications, leave no manner of doubt that the petitioner is entitled to draw back benefits.
24.In support of this contention, the learned counsel for the petitioner placed reliance on the judgment of the Division Bench of this Court, in the case of Commissioner of Customs, Tuticorin vs. L.T.Karle [2007(207) E.L.T. 358(Mad)], wherein this court has been pleased to lay down as under:-
"The harmonious reading of Circular No.67 of 1998, dated 14.09.1998 and Circular No.31 of 2000, dated 20.04.2000 in the light of clause 2(c) of the Notification No.67 of 1998, dated 1.9.1998 and the proviso mentioned therein, therefore, makes it clear that the DTA units are eligible to sent out the goods to the 100% EOUs for job work outside the DTA units and they are also eligible for the grant of duty drawback against the duties suffered on their inputs, which are processed by 100% EOUs for manufacturing the finished goods, which are exported directly from the 100% EOUs, without sending them back to the DTA unit."
25.The learned counsel for the respondents, on the other hand, contends, that the revisional order is in consonance with the circulars issued by the Department, which are binding on the Department Officers.
26.The learned counsel for the respondents made special reference to the circular, 74/99 Customs, dated 5th April 1999 to contend that no drawback/DTA benefits were admissible, either to EOU or to the DTA units for export, therefore the order impugned does not call for any interference by this court.
27.The contention of the learned counsel for the respondents, therefore, is that it was only in pursuance of Circular No.31/2000-Cus. dated 20th April 2000 that the petitioner was made eligible to part benefits of drawback, which has been granted.
28.The learned counsel for the respondents also contends that the order of the Hon'ble Division Bench of this court is subject matter of appeal before the Hon'ble Supreme Court.
29.It is not disputed that no stay has been granted by the Hon'ble Supreme Court, therefore, mere pendency of a lis, in the Hon'ble Supreme Court, cannot be a ground for this court not to proceed with the matter, or dismissing the petition, which is squarely covered by the Hon'ble Division Bench of this court, which is binding on this court.
30.In view of the authoritative pronouncement by the Hon'ble Division Bench of this court, holding that, on harmonious reading of the rules and circulars, the DTA is entitled 100% draw-back. The impugned order, of revisional authority, cannot be sustained.
31.Consequently, the writ petition is allowed, the impugned order is set aside, and that of the appellate authority is restored.
32.Connected Miscellaneous Petition is closed.
No costs.
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