2017 (10) TMI 303 - AT - Customs

Appellate Tribunal rules for EOU against Customs Duty demand; clarifies duty liability under Customs Act

The Appellate Tribunal CESTAT Bangalore ruled in favor of M/s. Aditya Auto Products & Engineering India Pvt. Ltd., an Export Oriented Unit, in their ... 100% EOU - clearance of scrap - fixation of SION - The Department found that percentage of scrap generated and cleared is more than SION - Held that: - this is not a case where the appellant has unauthorisedly removed the inputs from their EOU. The period involved is from April 2005 to January 2007, whereas SION have been fixed by the DGFT Committee only on 3.10.2006. In the present case, thus at the most SION fixed could be made applicable only for about four-month period. In the present case, the appellant has paid the duty on the scrap which has been found in excess of Norms fixed. It is pointed out that when the Norms have been fixed in the month of October, there cannot be any demand for the period prior to 3.10.2006, the date when the Norms were fixed by the DGFT Committee. When the appellant has already paid the duty of Central Excise on the scrap arising out of the manufacturing process under Section 3 of the Central Excise Act, there is no justification for demanding Customs Duty on the raw material which they say has been consumed in excess of SION and has gone into the scrap on which duty of Central Excise has been paid by the appellant. The Department is demanding Customs duty under Section 72, whereas there is no proof that the appellant improperly removed the goods from their 100% EOU. Considering the ratio of the Tribunal s decision in the case of Cosco Blossoms Pvt. Ltd. vs. CC, Delhi [2003 (12) TMI 114 - CESTAT, NEW DELHI], we do not find any justification for the present demand of Customs duty from the appellant. Appeal allowed - decided in favor of appellant. Issues:1. Demand of Customs Duty on excess raw material consumed in the manufacture of finished goods.2. Applicability of Standard Input Output Norms (SION) fixed by the Norms Committee.3. Payment of Central Excise duty on scrap generated in the manufacturing process.4. Justification for demanding Customs Duty on raw material consumed in excess of SION.5. Allegations of diversion or unauthorized removal of raw material from the Export Oriented Unit (EOU).6. Interpretation of Section 72 of the Customs Act and its applicability in the case.7. Comparison with relevant legal precedents and tribunal decisions.Analysis:The judgment by the Appellate Tribunal CESTAT Bangalore involved an appeal by M/s. Aditya Auto Products & Engineering India Pvt. Ltd. against the demand of Customs Duty amounting to Rs. 26,37,569/- confirmed in Order-in-Appeal No.126/2008. The appellant, a 100% Export Oriented Unit, had imported duty-free inputs for manufacturing automotive components and informed the Department about high scrap generation. The Department allowed the clearance of excess scrap on payment of duty pending fixation of Standard Input Output Norms (SION). However, a subsequent show-cause notice was issued for excess scrap generation, leading to the duty demand upheld in the impugned order.The appellant contended that SION was fixed after the period in question and Central Excise duty was paid on the scrap, questioning the Customs Duty demand. The Tribunal noted that the appellant did not remove inputs unauthorizedly and had paid duty on excess scrap. Referring to legal precedents, the Tribunal emphasized that goods produced in an EOU are not subject to Customs Duty but to Central Excise duty. The judgment highlighted that Section 72 of the Customs Act pertains to goods improperly removed from a warehouse, which was not the case here. Citing past decisions, the Tribunal concluded that there was no justification for the Customs Duty demand on excess raw material consumption, setting aside the impugned order and allowing the appeal.In the detailed analysis, the Tribunal considered the timing of SION fixation, payment of Central Excise duty on scrap, absence of unauthorized removal of inputs, and the legal interpretation of Section 72 of the Customs Act. By referencing relevant legal precedents, the Tribunal clarified the duty liability of an EOU and the inapplicability of Customs Duty in cases of proper duty payment and absence of unauthorized removal. The judgment emphasized the distinction between Customs Duty and Central Excise duty, ultimately ruling in favor of the appellant based on legal principles and past tribunal decisions.