CESTAT allows appeal on customs duty remission for goods lost in fire at SEZ unit

CESTAT Ahmedabad allowed the appeal regarding remission of customs duty on goods lost in fire accident at SEZ unit. The appellant disputed quantum of goods lost while revenue demanded duty on entire stock. Tribunal held that goods destroyed in SEZ (deemed foreign territory) cannot attract customs duty demand, following precedent in Satguru Polyfab case. Revenue's demand on entire stock was baseless as no evidence showed complete destruction of raw materials, in-process goods, and finished goods despite fire incident and insurance assessment. Impugned order set aside.

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Issues Involved:
1. Demand of Customs Duty on Goods Lost in Fire Accident.
2. Applicability of SEZ Rules and Customs Act for Remission of Duty.
3. Quantum of Goods Lost and Corresponding Remission.

Summary:

1. Demand of Customs Duty on Goods Lost in Fire Accident:
The appeal was filed by P I Industries against the demand of customs duty on goods lost in a fire accident. The appellant, a unit in a Special Economic Zone (SEZ), experienced a fire on 05.06.2018, destroying raw materials and semi-finished goods. The Preventive Officer of SEZ conducted an investigation and stock verification, and a show cause notice was issued on 06.06.2020 demanding customs duty on the entire stock valued at Rs. 16,54,77,557/-, ignoring the actual loss reported by the appellant at Rs. 7,95,76,996/-. The Principal Commissioner confirmed the demand, leading to the appeal.

2. Applicability of SEZ Rules and Customs Act for Remission of Duty:
The appellant argued that no customs duty is payable on material destroyed in a fire accident, citing Section 23 of the Customs Act which provides for remission of duty on goods lost or destroyed. The Commissioner had relied on Rule 22(2) read with Rules 25 and 34 of SEZ Rules, asserting that the goods were not accounted for as per these rules. However, the appellant contended that the material lost in the fire was duly explained and should be treated as accounted for.

3. Quantum of Goods Lost and Corresponding Remission:
The Tribunal referenced previous cases, such as ONGC Petro Additions Ltd [2023 (12) TMI 530 (Tri. Amd)] and Satguru Polyfab Pvt. Limited [2011 (267) ELT 273(Tri.)], where remission was granted under similar circumstances. It was noted that the SEZ is deemed a foreign territory, and customs duty can only be demanded if goods are moved from this territory to the domestic area. The Tribunal found no evidence suggesting negligence or unauthorized use of goods by the appellant. The insurance claim settled at Rs. 5,45,11,492/- further supported the appellant's reported loss.

Conclusion:
The Tribunal concluded that the goods destroyed in the fire were still in the deemed foreign territory of the SEZ, and no customs duty could be demanded. It set aside the impugned order and allowed the appeal, emphasizing that the demand for the entire stock was without basis.

Order Pronounced:
The order was pronounced in the open court on 05.06.2024.

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