Customs duty demand under extended limitation period quashed for life-saving drug manufacturer under N/N. 52/2003-Cus exemption

CESTAT Mumbai held that customs duty demand under extended limitation period was unsustainable where appellant imported inputs for manufacturing life-saving drugs exempted from duty under N/N. 52/2003-Cus. The tribunal found no evidence of intentional duty evasion or suppression of facts by appellant, who held bonafide belief regarding exemption eligibility. Following coordinate bench precedent in appellant's own case, demand beyond normal limitation period was set aside. Penalty under Section 114A was also quashed. Appeal allowed.

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Issues Involved:
1. Legality of the demand of duty on import of inputs used for final products which are exempted from payment of duty.
2. Eligibility of the appellant to pay the duty foregone through Cenvat credit.
3. Applicability of extended period for demand under Section 28(4) of the Customs Act, 1962.
4. Imposition of penalty under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Legality of the demand of duty on import of inputs used for final products which are exempted from payment of duty:
The core issue is whether the demand of duty on import of inputs used for final products, which are exempted from payment of duty, is legally sustainable under Section 28(4) of the Customs Act, 1962. The relevant portion of Notification No.52/2003-Cus. dated 31.03.2003 indicates a restriction on availing duty exemption when imported inputs are used for finished goods that are non-excisable or exempted. It was determined that the appellant may not have been aware that the imported inputs would be used in exempted lifesaving drugs, and there was no evidence of intent to evade duty. Therefore, the demand of duty under Section 28(4) invoking the extended period was not sustainable.

2. Eligibility of the appellant to pay the duty foregone through Cenvat credit:
The appellant argued that they had rightly paid the duty foregone using Cenvat credit, citing previous Tribunal orders in their favor. The Tribunal previously allowed such payments in the appellant's own case. However, the Department contended that the appellant was not eligible to pay the duty foregone through Cenvat credit as the duty to be paid was customs duty. The Tribunal reiterated that for imported inputs, the duty foregone must be paid in cash, not through Cenvat credit, aligning with the decision in the appellant's own case and other similar cases.

3. Applicability of extended period for demand under Section 28(4) of the Customs Act, 1962:
The Tribunal found that the appellant had kept the Department informed about their clearances and paid the requisite duty by Cenvat debit. There was no evidence of evasion or suppression of facts, and the appellant had a bona fide belief, supported by previous Tribunal decisions, that they could utilize Cenvat credit. Therefore, the demand for the extended period was set aside, and only the normal period demand was sustained.

4. Imposition of penalty under Section 114A of the Customs Act, 1962:
Given the findings that the appellant did not intend to evade duty and had a bona fide belief supported by previous Tribunal decisions, the imposition of penalty under Section 114A was not legally sustainable. Consequently, the penalty was set aside.

Conclusion:
The Tribunal set aside the impugned order dated 19.11.2019, allowing the appeal in favor of the appellant with consequential relief. The appellant was required to pay the duty for the normal period in cash for imported inputs, while no demand sustained for indigenous items where Cenvat credit was utilized. The demand for the extended period and the penalty imposed were both set aside.

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