Appellant liable for customs duty on steel grits exceeding SION norms, interest imposed, penalty set aside

The appellant was found liable to pay customs duty on steel grits imported in excess of SION norms as they were considered consumables subject to SION norms. The appellant was also held liable to pay interest under Section 28AB for failing to fulfill duty payment obligations. However, the penalty under Section 112(a) was set aside as there was no order of confiscation. The matter was remanded for recalculating duty as per SION norms and DGFT Circular.

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Issues Involved:
1. Liability of the appellant to pay customs duty on the steel grits imported in excess of SION norms.
2. Liability of the appellant to pay interest under Section 28AB.
3. Liability of the appellant for penalty under Section 112(a).

Issue-wise
Detailed Analysis:

1. Liability to Pay Customs Duty on Steel Grits Imported in Excess of SION Norms:
The first issue addressed is whether the appellant is liable to pay duty on the steel grits and saw blades consumed in excess of the Standard Input Output Norms (SION). The exemption Notification 22/2003-CUS, applicable during the relevant period, was subject to conditions including the use of consumables as per SION norms. The SION A1833 was applicable to the goods in question, limiting the quantity of grits and saw blades to 5% of the FOB value of exports. The appellant had executed a bond agreeing to pay duty along with interest if conditions were not fulfilled.

The appellant argued that grits and saw blades should be considered as capital goods or parts of capital goods, not consumables. However, the Tribunal found that these items are consumables used in the process of manufacture and do not form part of the final product. The Tribunal concluded that the appellant is liable to pay the duty on the excess consumption of steel grits and saw blades as they are consumables subject to SION norms.

2. Liability to Pay Interest Under Section 28AB:
The Tribunal held that the appellant is liable to pay interest under Section 28AB of the Customs Act. The duty demand arose only after the appellant completed its exports and the value of such exports was known. The appellant failed to fulfill its obligation under the bond to pay the duty and interest, prompting the issuance of the show cause notice under Section 28 read with the bond and legal undertaking.

3. Liability for Penalty Under Section 112(a):
The Tribunal examined whether the penalty under Section 112(a) was justifiable. While the show cause notice proposed that the imported goods were liable for confiscation under Section 111(o), neither the Order-in-Original nor the impugned order held that the goods were liable for confiscation. Section 112(a) requires that the goods be liable for confiscation under Section 111 for a penalty to be imposed. Since there was no order of confiscation, the penalty under Section 112(a) was set aside.

Additional Grounds and Miscellaneous Applications:
The appellant raised additional grounds, including that the penalty under Section 112(a) is not imposable as the goods were not confiscated, and that the calculation of SION should be over three years. The Tribunal allowed the miscellaneous applications to place these additional grounds on record.

The Tribunal also addressed the appellant's contention regarding the availability of CENVAT credit if customs duty was paid. It clarified that the availability of CENVAT credit does not negate the taxability of the duty. The appellant may take CENVAT credit as per the CENVAT Credit Rules if eligible.

Remand for Duty Calculation:
The Tribunal found it appropriate to remit the matter to the original authority for the limited purpose of recalculating the duty payable as per the SION norms read with DGFT Circular No. 10-2009/14 dated 12.10.2009.

Conclusion:
1. The penalties imposed under Section 112(a) are set aside.
2. The confirmation of duty and interest in the impugned order is upheld.
3. The matter is remanded to the original authority for recalculating the duty in terms of DGFT Circular read with SION norms.

[Order pronounced on 17.02.2023]

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