2018 (2) TMI 851 - AT - Customs

Tribunal rules in favor of EOU in Cotton Yarn duty dispute

The Tribunal ruled in favor of the appellant, a 100% EOU engaged in Cotton Yarn manufacturing, in a dispute over duty demand on imported raw cotton waste ... Exemption under Notification No.53/97-Cus. with respect to goods imported for manufacture in 100% EOUs - application of clause (7) of Notification No.53/97-Cus. to rejects, waste and scrap arising in the course of manufacture - distinction between customs duty and excise duty on goods cleared to DTA from EOUs - permissible limit of wastage under the Exim Policy / Handbook of Procedure - computation of permissible waste on imported goods versus on imported goods consumed - effect of absence of SION or specific wastage percentage in governing import policy - inadmissibility of arbitrary adjudication in absence of malafide or deliberate pilferage - inapplicability of an administrative circular to override a statutory notificationExemption under Notification No.53/97-Cus. with respect to goods imported for manufacture in 100% EOUs - application of clause (7) of Notification No.53/97-Cus. to rejects, waste and scrap arising in the course of manufacture - distinction between customs duty and excise duty on goods cleared to DTA from EOUs - permissible limit of wastage under the Exim Policy / Handbook of Procedure - computation of permissible waste on imported goods versus on imported goods consumed - inapplicability of an administrative circular to override a statutory notification - inadmissibility of arbitrary adjudication in absence of malafide or deliberate pilferage - Whether the demand of customs duty on account of alleged excess cotton waste arising from duty free imported raw cotton is sustainable where the goods and resultant waste fall within the scope of Notification No.53/97-Cus. and the Exim Policy permits clearance of waste to DTA on payment of excise duty - HELD THAT: - The Tribunal examined clause (7) of Notification No.53/97-Cus. and held that where goods imported into India are used for manufacture within a 100% EOU and the manufactured articles (including rejects, waste and scrap) are excisable and are cleared to DTA in accordance with the Exim Policy, no demand of customs duty can be raised; instead the statutory mechanism contemplates payment of excise duty. The cotton waste in the present case falls under an excisable chapter and its clearance to DTA is permissible under the Exim Policy (para 6.8(d)) within the prescribed limits. The Tribunal further noted that the permissible percentage of waste relevant for combed cotton yarn is governed by the Handbook of Procedure (Appendix 14L) and must be computed on imported goods as such, rather than on imported cotton consumed as was done in the show cause notice. The attempt to displace the benefit of the Notification by invoking CBEC circular F.No.305/117/85/FTT dated 29.12.1986 was rejected as a circular cannot render a notification ineffective. Finally, on facts, there was no material to establish deliberate pilferage or malafide on the part of the appellant; absent such malafide, arbitrary adjudication and imposition of duty could not be sustained. Applying these legal principles to the present case, the demand was unsustainable and the impugned order was set aside. [Paras 3, 5]Demand of customs duty quashed; impugned order set aside and appeal allowed with consequential reliefsFinal Conclusion: The Tribunal allowed the appeal, holding that the exemption under Notification No.53/97-Cus. (clause 7) and the provisions of the Exim Policy governing clearance of excisable waste to DTA precluded the demand of customs duty; the assessment was therefore set aside and consequential reliefs granted. Issues:Confirmation of demand, interest, and penalties under Order-in-Appeal No. 7/2006-Cus regarding duty on imported raw cotton exceeding permissible limit.Analysis:The appellant, a 100% EOU engaged in the manufacture of Cotton Yarn, contested the duty demand on cotton waste generated from duty-free imported raw cotton exceeding the permissible limit of 25%. The appellant relied on Notification No. 53/97-Cus. dated 03.06.1997, which exempts imported cotton used for manufacturing articles within EOUs. The issue revolved around the interpretation of the notification, which allows the sale of manufactured goods in India without customs duty if they are excisable and cleared in accordance with the Exim Policy. The Tribunal noted that the clearance of waste falls under excisable goods and is permissible under the Exim Policy within the overall limit of 50% of the FOB value, rendering the duty demand untenable under the notification.The appellant argued that the permissible limit for waste on imported goods is 30% for combed cotton yarn as per Appendix 14L of the Handbook of Procedure, not 25%. Additionally, the waste percentage should be computed on imported cotton, not on the consumed cotton. The appellant challenged the rejection of the notification's benefit based on a CBEC circular, asserting that the circular cannot override the notification's provisions. The Tribunal agreed with the appellant's interpretation, emphasizing that the circular cannot render the notification redundant, thereby invalidating the duty demand.In a related appeal by another appellant, the Tribunal observed that without specific provisions in the EXIM Policy or the notification regarding wastage percentage, arbitrary adjudication is impermissible. The Tribunal noted that the waste was not deliberate, and the appellant had paid excise duty on the cleared waste, without evidence of malafide intentions. Consequently, the Tribunal allowed the appeal, emphasizing that arbitrary treatment based on undeclared provisions is unjustifiable. Given the consistent interpretation in favor of the assessee in similar cases, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs, if any, as per law.