2023 (12) TMI 1169 - AT - Customs

EOU wins appeal against duty recovery for alleged PVC resin diversion without proof of actual misuse

Responsive Industries Ltd, Atit Agarwal, Om Prakash Agarwal, RK Parsania, Rajesh Pandey, Ramesh J Mistry, Mehul Wala, Rangnath Shinde, Shree Mateshwari Transport, Jagtap Transport, Vaibhav Transport, Rishi Monga, Ambalal Shah Versus Commissioner of CGST & Central Excise Palghar (Vice-Versa)

CESTAT Mumbai allowed the appeal of a 100% EOU against recovery of customs duty, central excise duty, interest and penalty for alleged diversion of PVC ... 100% EOU - Recovery of Customs Duty, Central Excise Duty alongwith interest and penalty - standard input output norms (SION) - Diversion of polyvinyl chloride (PVC) resin, procured from abroad and sourced indigenously, without payment of duty in terms of notification no. 52/2003-Cus dated 31st March 2003 and notification no. 22/2003-CE dated 31st March 2003. HELD THAT:- The question that begs answer is the extent to which the ‘norms’, borrowed for its empirical acceptability and contextual validity, can be stretched to presume inclination to misuse exemption intended for fulfillment of ‘net foreign exchange (NFE)’ earning. As it is noticed, ‘standard input output norms (SION)’, designed for another and later scheme in the Foreign Trade Policy (FTP), was grafted into the already existing ‘export oriented unit (EOU)’ scheme in the same policy without any alterations in structuring. Again, the grafting narrowed down the existing latitude in empowering of customs authorities to track usage of ‘duty exempt’ materials and even to the extent of prescribing ‘tolerance’ for ‘waste’ arising in the production process. Once again, as we have noticed supra, the distinction lay in employing of the ‘norms’ to limit import of ‘raw materials’ physically at the threshold for the purpose of export promotion scheme while employing it as a template for determining deviations when ‘raw materials’ are not physically available any longer and, consequently, cannot be accorded the rigour, by subsequent adoption, for presumption of diversion with penal consequence in the case of ‘export oriented units (EOU)’ in the Foreign Trade Policy (FTP). A case of diversion cannot be made out without reference to the movement of the goods alleged to have been diverted. Recovery, intended by the impugned notifications, of duty liability, for non-conformity with the ‘standard input output norms (SION)’, on post-procurement evaluation - HELD THAT:- The ‘norms’ are an estimate of most commonly used ‘raw materials’ for a specific product; its utility did not lie in ‘mathematical precision’ which was not sine qua non for authorization of quantity limits for ‘duty exempt’ imports. Such precision, therefore, is not to be presumed for monitorial oversight and, concomitantly, such ‘intra mural’ correlation, between enumerations on one side of the ’norms’, cannot also be insinuated for any purpose whatsoever - recovery of duty in the event of excessive usage in comparison with actual production is also limited to each of the ‘raw materials’ on the logical premise of non-optimal deployment which the exchequer is not obliged to subsidize. The ascertaining of compliance with the second limb, of condition 3(d) of first paragraph of notification no. 52/2003-Cus dated 31st March 2003, as well as in condition 4(a) of first paragraph in notification no. 22/2003-CE dated 31st March 2003 is limited to each of the ‘raw materials’ in isolation from the rest of the mix. That, then, should be the test for allowing the relief sought by appellant-Commissioner. The adjudicating-Commissioner has, on the other hand, noted that ‘plasticizer’ imparts flexibility to products of resinous origin and that the manifold variations of goods, within the product groupings, manufactured by the appellant does not lend itself to acceptance of the proposition in the show cause notice that consumption of ‘plasticizer’ should govern restrictions on use of ‘polyvinyl chloride (PVC) resin’ for determining recovery of ‘duty foregone’ at the time of procurement. The grounds enumerated for relief sought by appellant-Commissioner have not put forth any contention to override this conclusion. Mere reproduction of extracts from the notification coupled with reiteration of the proposition in the notice is not tenable surrogate either - there are no valid ground to hold that any part of ‘duty foregone’ is recoverable for the reasons offered in the appeal of jurisdictional Commissioner of Customs. There is no evidence available, even remotely proximate, to suggest that ‘polyvinyl chloride (PVC) resin’ procured by the appellant-assessee had reached any user/trader. There is no ground to infer that ‘polyvinyl chloride (PVC) resin’ has been used in excess of that indicated in the ‘norms’, as adopted, for monitorial oversight of ‘actual user’ access to ‘duty exempt’ privilege. The pleas of appellant-Commissioner fail - appeal of M/s Responsive Industries Ltd is allowed. Issues Involved:1. Alleged diversion of duty-free imported and indigenously procured raw materials.2. Demand of customs and central excise duties for the period April 2010 to March 2016.3. Adherence to 'standard input output norms (SION)'.4. Legality of clearance of goods into the domestic tariff area (DTA) at concessional rates.5. Misclassification of export goods.6. Evidentiary support for the alleged diversion.Summary:1. Alleged Diversion of Raw Materials:The Department alleged that the appellant-assessee procured duty-free raw materials in excess of what was required for export production, resulting in clandestine sale/diversion in the domestic market. The demand covered customs duty of Rs. 678,85,68,924 and Rs. 12,58,94,577 for imported raw materials, and central excise duty of Rs. 55,75,39,599 and Rs. 4,08,13,609 for indigenously procured raw materials.2. Demand of Duties:The Commissioner of Central Excise & CGST, Palghar, confirmed recovery of Rs. 27,90,00,071 under section 11A of the Central Excise Act, 1944, with interest and penalty, and Rs. 28,247 under section 28 of the Customs Act, 1962, with interest and penalty. The jurisdictional Commissioner also appealed for the original proposal of higher recovery amounts.3. Adherence to SION:The Tribunal noted that the case against the appellant was not about finished goods but about the diversion of raw materials procured without payment of duties. The foundational logic of the charges was based on non-conformity with SION, which served both as justification for and computation of recovery.4. Clearance into DTA:The Tribunal examined the legality of the clearance of goods into the DTA at concessional rates. The adjudicating authority's determination of duty liability under section 3 of the Central Excise Act, 1944, was challenged for traversing beyond the show cause notice framework. The Tribunal found no evidence to support the claim that the goods cleared were not similar to those exported, thus invalidating the demand for differential duty.5. Misclassification of Export Goods:The Tribunal noted that the alleged misclassification of export goods based on procurement and consumption records was not supported by evidence. The adjudicating authority's findings on non-leviability of differential duty were upheld.6. Evidentiary Support for Diversion:The Tribunal found the evidence presented by the Department, including statements and documents, insufficient to prove the alleged diversion. The reliance on 'pen drives' and other records without forensic certification was deemed inappropriate. The Tribunal emphasized that the burden of proof for diversion rested on the Department, which failed to provide conclusive evidence.Conclusion:The Tribunal allowed the appeal of M/s Responsive Industries Ltd, dismissing the appeals of the Commissioner of CGST & Central Excise, Palghar, for lack of evidence and improper application of legal principles. The Tribunal held that the demands for recovery of duties were not substantiated by the facts and evidence presented.