Bonded warehouse operations outside designated area deemed valid after 30 years with revenue knowledge and no loss

CESTAT Ahmedabad allowed the appeal in a customs duty demand case. The appellant operated a bonded warehouse since 1986 but had insufficient bonded area for manufacturing large offshore oil exploration machinery, requiring operations outside the designated bonded space within their factory premises. Revenue authorities issued eight show cause notices during 2018-2019 demanding duty and denying benefits under Notification 12/2012-Cus. The tribunal held that the appellant's activities occurred with full revenue knowledge for over 30 years, no revenue loss occurred, and no diversion of goods was alleged. The 2017 license amendment enlarging the bonded area was treated as curative with retrospective effect from 2014, making the demands unsustainable.

---

---

Issues Involved:

1. Jurisdiction of customs authorities to demand duty.
2. Compliance with conditions of Notification No. 12/2012-Cus.
3. Retrospective effect of license amendment.
4. Revenue neutrality and duty demand.
5. Applicability of Sections 72, 73A, and 28(4) of the Customs Act.
6. Confiscation and penalties under Sections 111(j) and 111(o) of the Customs Act.

Detailed Analysis:

1. Jurisdiction of Customs Authorities to Demand Duty:

The appellant contended that the customs authorities at the port of import lacked jurisdiction to demand duty, as the assessment of warehoused goods occurs at the time of clearance from the warehouse, per Section 15(1)(b) of the Customs Act. They argued that only officers with territorial jurisdiction over the warehouse could demand duty. The appellant relied on precedents to support this claim, asserting that their activities were under the supervision of Central Excise Officers, who also acted as customs officers.

2. Compliance with Conditions of Notification No. 12/2012-Cus:

The appellant argued that the manufacturing activities outside the bonded warehouse were conducted with the knowledge and approval of the customs/excise authorities. They maintained that the conditions of the notification were fulfilled in spirit, as the goods were used for offshore petroleum operations, evidenced by certificates from the Director General of Hydrocarbon. The appellant contended that the end-use condition of the notification was met, and any procedural deviations were known and accepted by the authorities.

3. Retrospective Effect of License Amendment:

The appellant sought retrospective effect for the amendment of their warehouse license, arguing that the amendment should be effective from the original license date or at least from the date they requested the amendment. They cited case laws where courts held that amendments to licenses could have retrospective effect. The tribunal agreed, stating that the amendment was curative and should apply from the original license date, as the revenue had acknowledged the impracticality of the conditions and no diversion of goods was alleged.

4. Revenue Neutrality and Duty Demand:

The appellant claimed that the duty demand was revenue neutral, as they were eligible for various export benefits, including duty drawback and deemed export benefits. They argued that the demand should not be raised, as the ultimate purpose of the imported goods was fulfilled without any loss to the exchequer. The tribunal concurred, noting that the supplies to ONGC were deemed exports, and the demand was indeed revenue neutral.

5. Applicability of Sections 72, 73A, and 28(4) of the Customs Act:

The appellant argued that Sections 72 and 73A were inapplicable, as the goods were removed from the warehouse with the department's permission for further manufacture, not for home consumption. They contended that the extended period of limitation under Section 28(4) could not be invoked, as there was no suppression of facts or willful misstatement. The tribunal agreed, finding that the activities were conducted with the department's knowledge and permission, and thus, the extended period was not applicable.

6. Confiscation and Penalties under Sections 111(j) and 111(o) of the Customs Act:

The appellant argued that no wrong was committed, and the goods were not liable for confiscation under Sections 111(j) and 111(o), as the removal from the warehouse was sanctioned by the proper officer. They contended that the manufactured goods were supplied for petroleum operations under valid certification, fulfilling the post-import condition. The tribunal found no basis for confiscation or penalties, as the activities were conducted with the necessary approvals and knowledge of the authorities.

Conclusion:

The tribunal allowed the appeal, concluding that the amendment to the license should have retrospective effect, the conditions of the notification were substantially fulfilled, and the demand was revenue neutral. Consequently, the demands made did not survive, and the appeal was allowed.

---