2013 (5) TMI 576 - HC - Customs

High Court overturns CESTAT decision on warehouse license renewal, sets new export obligation period

The High Court set aside the CESTAT and Order-in-Original dated 16th March 2009. The Development Commissioner was directed to pass a fresh order ... Fulfillment of export obligation – Extension of LOP of 100% EOU status of an assessee for a further period of five years, by Development Commissioner, SEEPZ – Held that:- where the 100% EOU status of an assessee set up in a private bonded warehouse valid for a period of five years is extended by the Development Commissioner for a further period of five years, it would be obligatory on the part of the customs authorities to extend the private bonded warehouse licence for a further period of five years unless the assessee has violated the provisions of the Customs Act in the first block of five years. Once the LOP is extended, it is neither open to the Development Commissioner nor it is open to the customs authorities to initiate penal action against the assessee before the expiry of the extended period of the LOP, on the ground that the assessee has failed to fulfil the export obligation in the first block of five years. The apprehension of the customs authorities that the assessee may seek extension at the end of each block of five years with a view to evade payment of customs duty is without any basis, because, the Development Commissioner would grant extension of LOP only if he is satisfied that non-fulfilment of the export obligation, if any, is on account of genuine reasons. - it is not open to the customs authorities to presume that extension of the LOP would be granted by the Development Commissioner to facilitate evasion of duty. Since the assessee could not resume its operations even after extension of the LOP on 27th April, 2009 on account of the customs authorities not renewing the private bonded warehouse licence, we direct the Development Commissioner to pass a fresh order within eight weeks from today, specifically stating therein the date on which the extended period of LOP for five years would commence and the mimumum export obligation/NFEP required to be achieved by the assessee in the said extended period of five years. - order of tribunal set aside - decided in favor of assessee. Issues Involved:1. Extension of 100% Export Oriented Unit (EOU) status.2. Recovery of customs duty, interest, penalty, and fine.3. Non-fulfillment of export obligations.4. Validity and extension of private bonded warehouse license.5. Applicability of Sections 61 and 72 of the Customs Act, 1962.6. Legal implications of the Development Commissioner's decisions.Issue-wise Detailed Analysis:1. Extension of 100% Export Oriented Unit (EOU) Status:The appellant, originally known as Krishna Filaments Ltd., was granted a Letter of Permission (LOP) on 9th September 1998 to establish a 100% EOU for manufacturing HDPE ropes. The commercial production commenced on 27th April 1999, and the EOU status was valid for five years. Due to the attachment of the unit by the Court Receiver in September 2000, the operations were halted. The Development Commissioner granted an extension of the LOP on 27th April 2009 for a further period of five years effective from 1st April 2009.2. Recovery of Customs Duty, Interest, Penalty, and Fine:The customs authorities issued a show cause notice on 27th February 2004 for non-fulfillment of the export obligation. The Order-in-Original dated 29th September 2006 confirmed the customs duty demand with interest and penalty. The appeal against this order was dismissed by CESTAT on 14th August 2008. The High Court set aside these orders and restored the matter for fresh adjudication, leading to a fresh Order-in-Original dated 16th March 2009, which again confirmed the duty demand. The CESTAT upheld this decision on 1st March 2012 but reduced the penalty and fine.3. Non-fulfillment of Export Obligations:The appellant argued that the non-fulfillment of the export obligation was due to the attachment of the unit by the Court Receiver. The Development Commissioner, recognizing the bona fide reasons, granted an extension of the LOP. The customs authorities, however, insisted on enforcing the duty demand for the non-fulfillment of the export obligation during the first block of five years.4. Validity and Extension of Private Bonded Warehouse License:The private bonded warehouse license, initially granted on 22nd October 1997, was extended until 31st December 2001. The appellant sought further extension, but it was not considered by the customs authorities as the unit was not operational. The appellant contended that once the LOP was extended, the customs authorities were bound to extend the private bonded warehouse license to allow fulfillment of the export obligation within the extended period.5. Applicability of Sections 61 and 72 of the Customs Act, 1962:The customs authorities argued that the non-fulfillment of the export obligation constituted a violation of Sections 61 and 72 of the Customs Act, leading to the demand for customs duty. The appellant contended that Section 72 was not applicable as the extension of the LOP implied that the customs authorities were bound to extend the warehouse license, and duty could only be demanded at the time of debonding.6. Legal Implications of the Development Commissioner's Decisions:The Development Commissioner's decision to extend the LOP was based on the bona fide reasons provided by the appellant for the non-fulfillment of the export obligation. The customs authorities' refusal to extend the warehouse license and insistence on enforcing the duty demand was deemed improper. The High Court held that the customs authorities were bound to grant the extension of the warehouse license and could only initiate penal action if the export obligations were not fulfilled within the extended period.Conclusion:The High Court set aside the CESTAT and Order-in-Original dated 16th March 2009. The Development Commissioner was directed to pass a fresh order specifying the extended period of the LOP and the minimum export obligation. The customs authorities were instructed to renew the private bonded warehouse license accordingly. Penal action could only be initiated if the appellant violated any provisions of the relevant laws during the extended period. The appeal was allowed with no order as to costs.