2018 (9) TMI 97 - HC - Customs

Customs duty upheld for EOU non-compliance with NFEP requirements

The High Court upheld the Customs department's authority to recover short levy of duty from an Export Oriented Unit (EOU) for non-compliance with Net ... Recovery of Short Levy - Is the finding of the CESTAT that the finding of the Commissioner (Appeals) is not correct in terms of the Board's circular as the Development Commissioner has satisfied himself with regard to the export obligation, legally sustainable in the facts and circumstances of the case especially when the customs department confirmed the demand only after getting the written approval from the Development Commissioner on 06.03.2002? Held that:- The unit had achieved export of ₹ 375.25 lakhs by 31.03.2000, but it did not achieve the stipulated NFEP by that date and therefore was not able to acquire the DTA sale entitlement. Upon which, the short levy was sought to be recovered from the respondent. The Commissioner of Appeals had also specifically spoken of the Development Commissioner's order dated 08.03.2002 dropping proceedings, which proceedings is stated to be confined to the review of export obligation of the applicant up to 31.03.2004. Despite the said finding, the Tribunal has not cared to examine the order of the Development Commissioner and has merely relied on the fact that there was dropping of the proceedings without verifying as to which proceeding was dropped by the Development Commissioner. The Tribunal had relied on Notification No.13/1981 to find that, without the Development Commissioner's sanction, there could be no levy of short duty collected by the Customs authorities. We do not see applicability of Notification at 31/1981 to Notification No.2/1995 and in any event, the Deputy Commissioner, who passed the original order, has by way of abundant caution ensured that the Development Commissioner's permission was obtained, as is evident from Annexure H - the order of the Tribunal is liable to be interfered with. Appeal allowed - decided in favor of Revenue. Issues:1. Interpretation of customs duty concession conditions for Export Oriented Units (EOUs).2. Compliance with Net Foreign Tariff Earning as a Percentage of Exports (NFEP) requirements.3. Authority of Customs department to recover short levy of duty based on non-compliance with export obligations.4. Jurisdiction of High Court in appeals related to customs duty rates and permissions.Issue 1: Interpretation of customs duty concession conditions for Export Oriented Units (EOUs)The case involved an EOU granted permission for advance Domestic Tariff Area (DTA) sale under Notification No.2/1995, which permitted customs duty concessions on domestic sales within specific zones. The EOU failed to fulfill the minimum Net Foreign Tariff Earning as a Percentage of Exports (NFEP) by the stipulated deadline, leading to notices of short duty collection. The Tribunal set aside the demand, citing extended export fulfillment, but the High Court found errors in the Tribunal's interpretation. The High Court emphasized that the concession was contingent on satisfying NFEP within the specified time frame, without provisions for extensions. The Development Commissioner's order dropping proceedings only pertained to a review until 31.03.2004, indicating no extension for meeting export obligations.Issue 2: Compliance with Net Foreign Tariff Earning as a Percentage of Exports (NFEP) requirementsThe EOU admitted non-compliance with NFEP even after the extended period, with hopes for future satisfaction. However, the absence of extension provisions in Notification No.2/1995 rendered the non-compliance as a breach of conditions for customs duty concessions. The High Court highlighted the EOU's failure to achieve NFEP within the specified time, leading to the Customs department's pursuit of short levy recovery. Despite the Development Commissioner's order dropping proceedings, the High Court clarified that it did not grant an extension for meeting export obligations, reinforcing the necessity for timely compliance with NFEP requirements.Issue 3: Authority of Customs department to recover short levy of duty based on non-compliance with export obligationsThe Customs department sought short levy recovery due to the EOU's failure to meet NFEP within the prescribed period, as mandated by the Development Commissioner's order. The High Court noted that the Deputy Commissioner sought the Development Commissioner's permission before initiating recovery actions. The High Court rejected the Tribunal's reliance on Notification No.13/1981, emphasizing the Deputy Commissioner's caution in obtaining the Development Commissioner's approval. The High Court deemed the Tribunal's order erroneous, lacking proper consideration of relevant materials and contradicting the EOU's admission of non-compliance with NFEP requirements.Issue 4: Jurisdiction of High Court in appeals related to customs duty rates and permissionsThe High Court addressed the jurisdictional challenge raised by the respondent, asserting that the appeal concerned short levy recovery rather than rate differences, thus falling within the High Court's purview under Section 130 of the Customs Act, 1962. The High Court clarified that the appeal focused on the EOU's failure to satisfy export obligations, triggering the reversal of customs duty concessions. By framing questions of law related to NFEP compliance and Development Commissioner's permissions, the High Court resolved the dispute in favor of the Revenue, allowing the appeal and overturning the Tribunal's decision.This detailed analysis of the judgment from the Kerala High Court underscores the critical legal issues surrounding customs duty concessions, export obligation compliance, authority for duty recovery, and the jurisdiction of appellate courts in customs-related matters.