2023 (6) TMI 1062 - AT - Customs

Appeals allowed for re-adjudication due to lack of discussion on duty paid for job work

The Tribunal allowed the appeals by way of remand to the Adjudicating Authority for re-adjudication based on the observations made. The matter was ... 100% EOU - Permission for import and acquisition of the raw materials duty free, for use of the same in the manufacture of export products - mis-declaration - failure to declare whether the job worker declared by them for manufacture of intermediate product exist at the time declared manufacturing unit or not - N/N. 52/2003-Cus dated 31st March 2003 - HELD THAT:- With an objective to encourage exports, the Government of India has imposed lot of faith and has allowed import and acquisition of the raw materials duty free for use of the same in the manufacture of export products - The relevant notification No. 52/2003-Cus dated 31st March 2003 allowed import and acquisition of raw material without payment of any duty subject to certain undertakings and paper formalities. In this case, the appellant has violate the faith imposed in them in as much as they did not even bother to check whether the job worker declared by them for manufacture of intermediate product exist at the time declared manufacturing unit or not. It also shows the carelessness on the part of the manufacturer in failing to ensure as that the duty free import or acquired are being sent to the right place which have been declared by them for manufacture of the intermediate products. The declared job worker M/s. Heartwell Life Sciences was fully aware that the duty free raw materials sent by the appellant M/s. Sun Pharmaceuticals Industries Ltd. to them were not being put to the process at the declared address. If there was any difficulty in getting the duty free imported raw materials processed for the purpose of manufacture of intermediate products at the given address at plot no. A/1, 7304, GIDC Estate, Ankleshwar. They had enough time to come clean and inform the authorities that goods are being taken to M/s. Hemdeep Organics Pvt. Ltd. explaining the difficulties being faced by them to process the same on the declared address. There have been some procedural lapses in this matter however, the impugned order-in-original has confirmed duty and imposed redemption fine as well as penalties under various sections of Customs and Central Excise Acts. From the findings given in the impugned order, no discussion has been made as to the effect whether the duty free imported raw materials which were supplied to the job worker who did not exist at the given address, were received back after the processing or not - duty, redemption fine and penal action can be confirmed only if it is established that duty paid on raw material which was sent to the job workers have not been received by the 100% EOU of the appellant. Since the impugned orders are silent on this aspect, the matter need to be re-adjudicated - appeal disposed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether confiscation, duty recovery, redemption fine and penalties under the Customs Act and Central Excise Act can be sustained where duty-free raw materials were sent by a 100% EOU to a declared job worker who, at the declared address, did not exist. 2. Whether the principal manufacturer (100% EOU) is liable for violation of conditions of duty-free import/acquisition where the alleged misconduct (non-existence/misdeclaration by the job worker) is the immediate cause of non-compliance. 3. Whether confirmation of duty/penalties is permissible where adjudicating orders are silent on whether processed/returned goods were actually received back by the 100% EOU (i.e. whether non-receipt - the factual predicate for duty/penalty - was established). 4. Whether the appellate authority's order is vitiated for failure to be a speaking order by not addressing the appellants' submissions and relevant factual lacunae brought before it. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustainment of duty, confiscation, redemption fine and penalties where goods were sent to a declared job worker that did not exist at declared address Legal framework: Import/acquisition of raw material duty-free for 100% EOUs is governed by the relevant exemption notification and EXIM policy conditions; contravention attracts recovery of customs duty (proviso to Section 28(1)), central excise duty (proviso to Section 11A(1)/11AB/11AA), confiscation provisions (Sections 111(j) & (o) of the Customs Act read with Rules), redemption fine and penalties under Section 112/114A/117 of the Customs Act and corresponding central excise provisions. Precedent treatment: The appellants relied on a tribunal authority (cited by them) for support; the Tribunal noted the citation but did not adopt it as a controlling basis for reversal. Interpretation and reasoning: The Tribunal acknowledged that the statutory scheme places faith and statutory undertakings on 100% EOUs to ensure duty-free inputs are used for export production. Sending duty-free goods to a declared job worker who does not exist at the declared address constitutes violation of the undertaking and demonstrates carelessness in ensuring inputs are sent to the declared place of processing. The job worker's knowledge of diversion or processing elsewhere aggravates the breach. Ratio vs. Obiter: Ratio - sending duty-free inputs to a non-existent declared job worker indicates breach of the conditions of the duty-free regime and ground for investigation and action. Obiter - observations on the expectations of job workers to 'come clean' and procedural suggestions regarding monitoring are ancillary comments. Conclusions: The Tribunal concluded there was a prima facie breach of the statutory undertaking by sending goods to a declared address where the job worker did not exist; this supports initiating recovery/penal proceedings, subject to the factual inquiry noted under Issue 3. Issue 2 - Liability of the principal manufacturer where the job worker misdeclared address or committed lapses Legal framework: Liability under the exemption notification and related penal provisions extends to the principal manufacturer where conditions of exemption are violated; officers may invoke penalties against both principals and job workers under relevant sections of the Customs and Central Excise Acts. Precedent treatment: The appellants' submission that lapses were solely on the job worker was considered but not determinative; no precedent was relied upon by the Tribunal to absolve principals in similar circumstances. Interpretation and reasoning: The Tribunal emphasized that the statutory regime confers responsibility on the principal to ensure that duty-free inputs are sent to the declared job worker address and used for permitted purposes. Mere lack of intent to evade duty does not absolve the principal where reasonable care to verify the job worker's existence and capacity was lacking. The principal's admission of ignorance does not negate regulatory responsibility under the scheme. Ratio vs. Obiter: Ratio - principals have an onus to verify the existence and suitability of declared job workers; failure to do so can attract recovery and penalties. Obiter - the Tribunal's remarks attributing primary blame to the job worker while still holding the principal accountable are explanatory but not binding on subsequent factfinding. Conclusions: The principal cannot escape scrutiny or liability solely because the job worker misdeclared; however, assessment of quantum of duty/penalty requires factual determination whether inputs were returned/used as declared (see Issue 3). Issue 3 - Necessity of proof of non-receipt/ non-return of processed goods before confirming duty/penalties Legal framework: Recovery of duty, confiscation and imposition of penalties presuppose factual proof that duty-free inputs were diverted or not accounted for; the adjudicator must determine whether duty-free inputs were received back after processing or were otherwise misused. Precedent treatment: The Tribunal required that confirmation of demand and penal consequences be grounded on an explicit finding that the duty-free materials were not received back by the principal; the impugned orders were found silent on this central factual element. Interpretation and reasoning: The Tribunal held that the impugned adjudicating order and the appellate order failed to address whether processed/returned goods were received by the 100% EOU. Without such a finding, confirmation of duty, confiscation in personam (or fine in lieu) and penalties cannot be sustained. The Tribunal thus framed a legal requirement that the existence of breach must be tied to evidentiary proof of non-return/non-utilisation before final imposition of fiscal consequences. Ratio vs. Obiter: Ratio - fiscal demands and penalties premised on diversion must be founded on adjudicated findings that duty-free inputs did not return to the principal or were otherwise diverted; absence of such findings renders confirmation unsustainable and requires re-adjudication. Obiter - observations about procedural lapses and expectations regarding job worker disclosures are supplementary. Conclusions: The Tribunal remanded the matter for re-adjudication because the adjudicating authority's order was silent on whether the duty-free materials were returned to the principal after processing - a determinative fact for confirming duty and penalties. Issue 4 - Adequacy of appellate order as a speaking order Legal framework: Appellate orders are required to be speaking and address the contentions and evidence presented by the parties; failure to do so may vitiate the decision. Precedent treatment: The appellants argued the appellate order failed to address their submissions; the Tribunal examined the record and found that the Commissioner (Appeals) did not adequately deal with key factual contentions including the critical point of receipt/return of goods. Interpretation and reasoning: The Tribunal observed that the Commissioner (Appeals) did not accept or explicitly deal with the appellants' submissions and that the appellate order lacked discussion on the crucial factual lacunae identified by the Tribunal (non-return of goods). This absence undermines the appellate adjudication and supports remand for de novo consideration. Ratio vs. Obiter: Ratio - appellate authority must give reasoned findings on material submissions; failure to do so warrants remand. Obiter - critiques of the form of reasoning beyond the material omissions are illustrative. Conclusions: The Tribunal found the appellate order deficient as a speaking order on material issues and therefore remanded the matter for fresh adjudication in light of the observations recorded. Overall Disposition The Tribunal allowed the appeal to the extent of remanding the matter to the Adjudicating Authority for re-adjudication on the specific factual issue whether duty-free raw materials sent to the declared job worker (who did not exist at the declared address) were returned or accounted for by the 100% EOU; until that factual predicate is adjudicated, confirmation of duty, confiscation/redemption fine and imposition of penalties cannot be sustained. The Tribunal upheld that there was prima facie breach and carelessness but required explicit factual findings before final fiscal consequences are imposed. Cross-reference: see Issues 1-3 above.