Export-Oriented Unit: Customs vs. Excise Duty Ruling

The Appellate Tribunal CEGAT, Mumbai, held that demanding customs duty on goods manufactured by a 100% export-oriented unit in India and sold domestically was not justified under the Customs Act, 1962. The Tribunal ruled that excise duty, not customs duty, was applicable in such cases, as per the Central Excise Act, 1944. Consequently, the duty demand notice under the Customs Act and proposed penalties were set aside. The department was permitted to recover any excise duty owed and take actions for contraventions of the Central Excise Act in accordance with the law.

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Issues involved:
The issues involved in the judgment are the demand of duty under Section 28 of the Customs Act, 1962 on processed fabrics removed to the domestic tariff area without payment of duty, the short payment of customs on sold quantities, and the proposed penalties under Section 112 of the Act on the appellant and other entities.

Judgment Details:

Issue 1: Demand of Duty under Customs Act, 1962
The appellant, a 100% export-oriented unit engaged in printing and dyeing of fabrics, was issued a notice demanding duty under Section 28 of the Customs Act, 1962 for removing processed fabrics to the domestic tariff area without payment of duty. The appellant contended that no duty could be demanded on goods manufactured in India and sold domestically, arguing that excise duty, not customs duty, was applicable in such cases. The Tribunal agreed, stating that the demand for customs duty on goods sold domestically by a 100% export-oriented unit in India was not justified under the Customs Act, 1962. The Tribunal held that excise duty, not customs duty, was correctly payable on such goods, as per the provisions of the Central Excise Act, 1944. Therefore, the show cause notice demanding duty under the Customs Act was deemed not maintainable, and the order confirming the notice was set aside.

Issue 2: Proposed Penalties
In addition to the duty demand, penalties under Section 112 of the Customs Act were proposed on the appellant and other entities for contraventions related to the sale and purchase of processed fabrics. However, since the demand for duty under the Customs Act was found to be not maintainable, the Tribunal did not delve into the merits of the penalty issue. The Tribunal set aside the order confirming the notice proposing penalties under the Customs Act, while clarifying that the department could proceed to recover any excise duty payable on the goods and take actions for contraventions of the Central Excise Act and its rules in accordance with the law.

This judgment by the Appellate Tribunal CEGAT, Mumbai, clarified the applicability of customs duty and excise duty in the context of goods manufactured by a 100% export-oriented unit in India and sold domestically. The Tribunal held that demanding customs duty on such goods sold domestically was not justified under the Customs Act, 1962, and excise duty was the correct levy. The Tribunal set aside the duty demand notice and the proposed penalties under the Customs Act, allowing the department to pursue recovery of excise duty if applicable.

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