2021 (1) TMI 152 - AT - Customs

Customs Tribunal partially allows appeal, sets aside penalties but upholds duty demand on raw materials.

The Tribunal partly allowed the appeal by setting aside the confiscation, redemption fine, and penalty. However, the demand for duty on the raw materials, ... Exemption to goods imported by EOUs from payment of Customs Duty - benefit of N/N. 52/2003-Cus dated 31.3.2003 - full exemption to goods procured by EOUs from DTA units from payment of Central Excise Duty - benefit of N/N. 22/03-CE dated 31.03.2003 - import of raw materials like fuses, resistors, gold wire, etc. for manufacture of electronic goods such as hybrid micro circuits, resistors, etc - Violation of condition of notifications or not - further allegation is that the Appellant did not have permission for DTA Clearances - main contention of the appellant appears to be that finished goods were taxable and Central Excise Duty was to be demanded on finished goods and not the Customs duty foregone on inputs imported by them - Confiscation - redemption fine - penalty. Whether the appellants are liable to pay duty on the raw materials which have been used in the manufacture of final products which have been cleared without payment of duty in DTA? HELD THAT:- The appellants have cleared hybrid micro circuits to M/s. ISRO at ‘Nil’ rate of duty claiming exemption under Notification No.21/2002-Cus. dated 1.3.2002 and have cleared crystal oscillators and crystals to M/s. BEL under Notification No.39/1996. In both cases, Customs duty is ‘Nil’ and CVD is exempt subject to the condition that the importer produces the required certificates from Department of Space or the competent authority. The adjudicating authority has given a clear finding that the appellants have produced the required certificates. These facts are not under dispute. As per the Notification, the Customs duty forgone on inputs required to be repaid by the importer under the two conditions: (i) if the finished goods are not excisable and (ii) the finished goods, if imported are liable to ‘Nil’ rate of Customs duty under First Schedule as well as the additional duty (CVD) under Section 3 of Customs Act, 1962. Now, it requires to be seen whether the final goods cleared by the appellant to M/s. BEL and ISRO fulfill the above conditions. The appellants have cleared hybrid micro circuits to M/s. ISRO at ‘Nil’ rate of duty under Notification No.21/2002-Cus. dated 01.03.2002 and have cleared crystal oscillators and crystals to M/s. BEL under Notification No.39/1996. In both cases, Customs duty is ‘Nil’ and CVD is exempt - the finished goods supplied by the appellants to M/s. BEL and ISRO are exempt from payment of customs duty as well as additional customs duty. Therefore, in terms of proviso to Para 3 of the Notification No.52/2003 and the CBEC Circular No.54/2004-Cus. dated 13.10.2004 the appellants are required to pay the duty foregone, on the inputs imported duty-free. There is no confusion in the wordings of either the notification or circular. The appellants argument that revenue should have demanded Central Excise Duty has no relevance as it is found that customs duty foregone at the time of import of raw material by the appellants was correctly demanded and confirmed. Similarly, it is found that the argument of the appellate authority that the appellants did not have the permission from the competent authority to clear the goods on DTA is not based on facts. It is found that the original authority has confirmed the fact of necessary permission being obtained. Imposition of redemption fine and penalty - HELD THAT:- The goods have been cleared after due filing of documents before the authorities. The goods have been cleared well before the issuance of show-cause notice. Goods were not physically available for confiscation - this Bench in the case of COMMISSIONER OF CUS., BANGALORE VERSUS MICROSOFT INDIA (R&D) PVT. LTD. [2014 (6) TMI 19 - CESTAT BANGALORE] held that in case of STPI units, confiscation and penalty are not sustainable as the goods were imported after necessary approvals by STPI - in the instant case too, the import of raw material, on which duty was demanded, was allowed by the customs authorities. We find that the show-cause notice seeks to invoke the provisions of warehousing saying that the imported bonded goods have been removed without payment of duty. The mistake or lapse on the part of the appellant is that they have not repaid the duty foregone on the imported raw materials at the time of clearance of duty-free final goods in the DTA. The proper course of action, in such violations, is to recovery duty along with interest. Duty has been paid along with interest on being pointed out - confiscation and imposition of penalty are not warranted in the instant case. The appeal is partly allowed by setting aside confiscation, redemption fine and penalty. Issues Involved:1. Violation of Notification No. 52/2003-Cus and Notification No. 22/03-CE conditions.2. Liability for customs duty on imported raw materials.3. Eligibility for exemption on finished goods cleared to ISRO and BEL.4. Confiscation of raw materials and imposition of redemption fine.5. Imposition of penalty under Section 112(a) of the Customs Act, 1962.Detailed Analysis:1. Violation of Notification No. 52/2003-Cus and Notification No. 22/03-CE Conditions:The primary issue was whether the appellants violated the conditions of Notification No. 52/2003-Cus dated 31.3.2003 and Notification No. 22/03-CE dated 31.03.2003. The appellants imported raw materials duty-free under these notifications and used them to manufacture finished goods, which were cleared to ISRO and BEL at nil rate of duty. The Revenue alleged that the appellants did not have permission for DTA clearances and thus violated the conditions of the notifications.2. Liability for Customs Duty on Imported Raw Materials:The appellants argued that they had achieved positive Net Foreign Exchange Earnings (NFE) and had obtained approval from the STPI, Bangalore, for making sales in DTA. They contended that the customs duty foregone on inputs should not be demanded as the finished goods were cleared under valid exemptions. However, the adjudicating authority and the appellate authority held that the customs duty foregone on inputs was payable because the finished goods, if imported, would attract nil customs duty under the relevant notifications.3. Eligibility for Exemption on Finished Goods Cleared to ISRO and BEL:The appellants claimed that the finished goods were not exempt from central excise duty unless certain conditions were met. They relied on various judgments and CBEC Circular No. 54/2004-Cus dated 13.10.2004 to argue that the exemption was conditional. However, the Tribunal found that the finished goods cleared to ISRO and BEL were indeed eligible for nil customs duty and additional duty, making the customs duty foregone on inputs payable.4. Confiscation of Raw Materials and Imposition of Redemption Fine:The appellants argued that the confiscation of raw materials was not sustainable as the goods were cleared by customs and were not available for seizure. The Tribunal agreed, citing previous judgments, and noted that the goods were imported with necessary approvals and were cleared before the issuance of the show-cause notice. Therefore, the confiscation and imposition of redemption fine were set aside.5. Imposition of Penalty under Section 112(a) of the Customs Act, 1962:The appellants contended that the penalty under Section 112(a) was not sustainable as the goods were not available for confiscation. The Tribunal held that since the goods were cleared with due approvals and the duty along with interest was paid upon being pointed out, the imposition of penalty was not warranted. The Tribunal referenced the case of Microsoft India (R & D) Pvt. Ltd., where it was held that confiscation and penalty are not sustainable when goods are imported after necessary approvals.Conclusion:The Tribunal partly allowed the appeal by setting aside the confiscation, redemption fine, and penalty. However, the demand for duty on the raw materials, which was paid along with interest, was upheld. The order emphasized that the customs duty foregone on inputs was payable due to the conditions of the relevant notifications being violated when the finished goods were cleared at nil duty. The order was pronounced in open court on 04.01.2021.