2014 (11) TMI 567 - AT - Customs

Court upholds penalties for export obligations failure, dismisses excise duty arguments. Partial pre-deposit ordered.

HIRENHARAKCHAND SHAH, JAYESHHARAKCHAND SHAH, M/s PEL INDUSTRIES LTD Versus COMMISSIONER OF CUSTOMS (EXPORT), NHAVA SHEVA

The court upheld the penalties and confiscation of goods due to the applicants' failure to fulfill export obligations, divert imported goods, and lack of ... Waiver of pre deposit - Clandestine removal of goods - raw materials were imported but at the time of visit neither the raw material nor any finished product was found - Held that:- There is no dispute that the raw materials were imported and at the time of visit neither the raw material nor any finished product was found. This obviously implies that either the imported goods have been diverted somewhere or cleared from the factory or the said goods might have been used in the production of finished goods which have been cleared either clandestinely or on payment of duty. There was no possibility of getting any such extension. Similarly, we find that during the arguments they have produced a letter purportedly to have been written to the Policy Relaxation Committee. This letter is dated 26.8.2013 while the present appeal has been field on 26.3.2013. We have also gone through the said application. Prima facie we do not find any merit in the said application (though it is within the jurisdiction of the Policy Relaxation Committee). There are no cases of relaxation period where the applicants have made higher imports and requires clubbing. There is no question of basic customs duty being available as credit. Even credit of CVD will not be available as the goods have been diverted against the provisions the Customs Notification read with Foreign Trade Policy. Thus it is a case of fraud, suppression of facts. Prima facie no applicants have any case on merits - Partial stay granted. Issues Involved:1. Non-fulfillment of export obligations under DEEC and DFIA licenses.2. Alleged violation of principles of natural justice.3. Utilization of imported raw materials and payment of excise duty.4. Request for adjournment pending DGFT application.5. Imposition of penalties and confiscation of goods.Detailed Analysis:1. Non-fulfillment of Export Obligations:The applicants were granted 20 licenses (19 DEEC and 1 DFIA) to import aluminum scrap duty-free with the condition to convert it into aluminum alloy extruded products for export. During an investigation, it was found that for 4 licenses, the applicants imported aluminum scrap but did not export the finished products. No imported scrap or finished products were found in their factory. The applicants admitted to diverting the goods and failing to maintain required records. Consequently, a demand of Rs. 3,26,69,523/- was confirmed, and the raw material was confiscated under Sec. 111(o) of the Customs Act. A redemption fine of Rs. 1 crore and penalties under Sec. 114A and Sec. 112(a) of the Customs Act were also imposed.2. Alleged Violation of Principles of Natural Justice:The applicants contended that the principles of natural justice were not followed as their request for adjournment pending a DGFT application was denied. However, the court found this argument without merit. The applicants were issued a show-cause notice, given the opportunity to reply, and granted three personal hearings. The court noted that the export obligation periods had expired years before the application for extension was made, and no extension had been granted even after considerable time had passed.3. Utilization of Imported Raw Materials and Payment of Excise Duty:The applicants argued that they had paid more than Rs. 4 crores in excise duty, which exceeded the duty liability in the present case, implying the raw material was used to manufacture finished goods cleared on payment of duty. The court found this argument unconvincing, noting that the excise duty paid was for domestic clearances and not related to the imported raw materials under the advance licenses. The court emphasized that the duty paid could not be adjusted against the customs duty demand.4. Request for Adjournment Pending DGFT Application:The applicants requested that the matter be adjourned until the Policy Relaxation Committee of DGFT decided on their application for clubbing of licenses. The court observed that the application was made after the adjudicating order and the filing of the present appeal, and found no merit in this request. The court noted that the application for extension was made long after the export obligation periods had expired and the raw materials had already been disposed of domestically, making any extension unlikely.5. Imposition of Penalties and Confiscation of Goods:The court upheld the penalties and confiscation of goods, noting the applicants' failure to fulfill export obligations and maintain proper records. The court found no merit in the applicants' arguments and directed them to deposit 50% of the confirmed duty, reduced by Rs. 31 lakhs already paid during the investigation, within eight weeks. Upon deposit, the court granted a waiver of pre-deposit for the remaining amounts and stayed the recovery until the disposal of the appeals.Conclusion:The court found that the applicants failed to meet their export obligations, diverted imported goods, and did not maintain required records. The principles of natural justice were deemed followed, and the applicants' arguments regarding excise duty payments and pending DGFT applications were dismissed. The court directed a partial pre-deposit and granted a stay on the remaining recovery pending appeal disposal.