2017 (11) TMI 953 - AT - Customs

Appeal Dismissed for Alleged Diversion of Imported Goods: Duty Demands Upheld

Morepen Laboratories Ltd Versus C.C., Kandla

Morepen Laboratories Ltd Versus C.C., Kandla - 2018 (360) E.L.T. 750 (Tri. - Ahmd.) Issues:- Alleged diversion of imported goods- Duty demand under Section 28 of the Customs Act- Violation of condition of exemption Notification- Applicability of penalty under Section 112 of the Customs Act- Direction of confiscation of imported goodsAlleged Diversion of Imported Goods:The case involved an appeal against an order passed by the Commissioner (Appeals) concerning the alleged diversion of imported goods by the Appellants, who were engaged in the manufacture of bulk drugs. The Appellants had imported ISO Propyl Alcohol and Methylene Chloride against an Advance Licence with actual user condition. The dispute arose when it was alleged that the imported goods were not brought to the factory or used in the manufacture of finished goods, leading to a demand for duty payment, interest, penalty, and confiscation of the duty-free goods. The Appellant argued that the diversion was not proven with sufficient evidence, citing the judgment in a specific case to support their contention.Duty Demand under Section 28 of the Customs Act:The Appellant contended that since they had fulfilled the export obligation, the duty demand under Section 28 of the Customs Act was not sustainable. They argued that the duty could not be demanded without proof of clandestine diversion of imported goods. Additionally, they claimed that the allegation of violating the exemption Notification meant that Section 28 of the Customs Act could not be applied, thereby negating the levy of interest under Section 28AB and penalty under Section 112 of the Customs Act.Violation of Condition of Exemption Notification:The Revenue argued that the Appellant, as a manufacturer of excisable goods with an advance licence for duty-free imports, had failed to provide evidence of receiving and utilizing the imported material in their manufacturing unit. The Revenue highlighted that the conditions of the Customs Notification and the Foreign Trade Policy were violated, necessitating the discharge of duty with interest. The Appellant's argument that they fulfilled the export obligation was countered by the requirement that duty-free imported goods must be used in the manufacture of finished goods for local market sale.Applicability of Penalty under Section 112 of the Customs Act:The ld. Commissioner (Appeals) extensively analyzed the provisions of the Exim Policy and relevant Notifications to establish that the Appellant had not maintained proper records to prove the utilization of imported goods in the manufacture of finished products. The Commissioner concluded that the duty-free exemption scheme was abused, leading to the sustained demand for customs duties, interest, and penalty under Section 112 of the Customs Act. The Commissioner referenced specific case law to support the imposition of penalty and confiscation of goods for non-fulfillment of post-importation conditions.Direction of Confiscation of Imported Goods:The ld. Commissioner upheld the direction of confiscation of the imported goods under Section 111(o) of the Customs Act due to the violation of post-import conditions. The Appellant's failure to challenge the confiscation order or provide evidence to the contrary led to the confirmation of duty, interest, and confiscation. The Commissioner rejected the Appellant's arguments and upheld the impugned order, ultimately dismissing the Appeal.This detailed analysis showcases the legal intricacies involved in the judgment, focusing on the alleged diversion of imported goods, duty demands, violation of exemption conditions, penalty applicability, and the direction of confiscation of goods.