2010 (6) TMI 184 - AT - Customs

EOU premises equal warehouse for Customs Act, duty-free manufacturing.

The Tribunal ruled in favor of the appellants, holding that the entire premises of a 100% Export Oriented Unit (EOU) can be considered a warehouse under ... 100% EOU treated as a customs bonded warehouse - manufacture in bond under Section 65 of the Customs Act, 1962 - warehoused goods used for manufacture in bond not deemed removal for home consumption - no requirement to file ex-bond bill of entry for in bond use - STI India precedent upheld100% EOU treated as a customs bonded warehouse - Whether the entire premises of a 100% EOU should be treated as a warehouse - HELD THAT: - On reading the warehousing provisions of the Customs Act, 1962 and the Customs Manual for the EOU Scheme, the Bench found that where a licence under Section 58 is granted in respect of the entire unit, the whole premises is required to be licensed as a customs bonded warehouse and imports are to be brought directly into those bonded premises. The Manual expressly contemplates approval of EOU premises as bonded warehouses and manufacturing under customs bond. This supports treating the entire licensed premises of a 100% EOU as a warehouse. [Paras 10, 12]The entire premises of a 100% EOU is to be treated as a warehouse if the Section 58 licence covers the entire premises.Manufacture in bond under Section 65 of the Customs Act, 1962 - warehoused goods used for manufacture in bond not deemed removal for home consumption - Whether imported goods warehoused in the premises of a 100% EOU are to be held to have been removed from the warehouse before being issued for manufacture/production/processing by the 100% EOU - HELD THAT: - The Bench contrasted the distinct warehousing regime under the Customs Act with excise concepts of captive consumption. Section 65 expressly authorises manufacturing and operations in relation to warehoused goods within bonded premises, and Section 66 enables exemption of such material. Sections dealing with clearance for home consumption (including filing of ex bond Bill of Entry) are separate. There is no provision treating authorised in bond use under Section 65 as a deemed removal for home consumption, nor a requirement to pay duty at the point of in bond use. Treating such use as removal would defeat the statutory scheme and policy underlying EOUs. [Paras 10, 11, 12]Imported goods warehoused in a 100% EOU and used for manufacture in bond under Section 65 are not to be treated as removed for home consumption.No requirement to file ex-bond bill of entry for in bond use - warehoused goods used for manufacture in bond not deemed removal for home consumption - Whether filing of an ex bond Bill of Entry is required before using warehoused goods by a 100% EOU, and whether non filing makes the goods treated as not cleared for home consumption - HELD THAT: - Section 68 prescribes filing an ex bond Bill of Entry for formal clearance for home consumption; however Section 65 (manufacture in bond) does not require filing of ex bond Bills of Entry or payment of duty prior to using warehoused goods within bonded premises. The statutory scheme therefore does not regard non filing, at the stage of authorised in bond manufacture, as conversion into clearance for home consumption. Improper removals are addressed separately by Section 72. [Paras 10, 12]There is no requirement to file an ex bond Bill of Entry before using warehoused goods for authorised manufacture in bond, and non filing does not convert such use into clearance for home consumption.Warehoused goods used for manufacture in bond not deemed removal for home consumption - distinction between Customs warehousing regime and excise captive consumption - Whether issue for use by 100% EOU would amount to clearance for home consumption - HELD THAT: - The Bench observed that the Supreme Court decision on captive consumption in the excise context (Kohinoor Mills) concerned excise law and cannot be transplanted to the Customs warehousing regime which contains specific provisions for in bond manufacture. The Customs Act does not stipulate that authorised in bond use constitutes deemed removal for home consumption, and recognising such a doctrine would negate the purpose of the EOU scheme and the statutory incentives for manufacturing for export. [Paras 11, 12]Issue of warehoused goods for use by a 100% EOU for manufacture in bond does not amount to clearance for home consumption.STI India precedent upheld - warehoused goods used for manufacture in bond not deemed removal for home consumption - Whether the Tribunal's decision in STI India Ltd. enunciates the correct position of law - HELD THAT: - The Bench examined the STI India decision which held that goods imported on into bond Bills of Entry and used in production without being cleared from the warehouse do not attract duty under Section 28 and do not attract confiscation or penalty absent acts making them liable. Having construed the Customs Act and the EOU Manual to reach the same legal conclusion on in bond manufacture and absence of deemed clearance, the Bench held that the STI India view reflects the correct position of law. [Paras 4, 12]The Tribunal's decision in STI India Ltd. is the correct view in law and is upheld.Final Conclusion: The reference is answered by holding that (i) where the Section 58 licence covers the unit, the entire premises of a 100% EOU is a customs bonded warehouse; (ii) goods imported into such premises and used for authorised manufacture in bond under Section 65 are not to be treated as removed for home consumption, and no ex bond Bill of Entry or payment of duty is required at the point of in bond use; and (iii) the Tribunal's decision in STI India Ltd. correctly states the law. Both appeals are returned to the Division Bench for determination on merits consistent with these conclusions. Issues:1. Whether the entire premises of 100% EOU should be treated as a warehouseRs.2. Whether the imported goods warehoused in the premises of 100% EOU is to be held to have been removed from the warehouse before the same is issued for manufacture/production/processing by the 100% EOURs.3. Whether issue for use by 100% EOU would amount to clearance for home consumptionRs.4. Whether non-filing of ex-bond bill of entry before using the goods by the 100% EOU makes the goods as not cleared for home consumptionRs.5. Whether the decision of the Tribunal in the case of STI India Ltd. enunciates the correct position of lawRs.Analysis:Issue 1: The case involves a 100% EOU importing goods and using them within their premises for manufacturing finished goods. The contention is whether the entire EOU premises can be considered a warehouse. The Tribunal found support for the appellants' argument that the entire EOU premises is a bonded warehouse under the Customs Act and the EOU Scheme. The Customs Manual and provisions of the Customs Act require the premises to be licensed as a customs bonded warehouse, and imported goods are to be utilized within the bonded premises without any duty payment or filing of ex-bond bills of entry at that stage.Issue 2, 3, 4: The Tribunal held that imported goods warehoused in a 100% EOU and used for manufacturing in bond, as authorized under Section 65 of the Customs Act, cannot be considered as removed for home consumption. The Tribunal emphasized that the act of using imported warehoused material for manufacturing in bond within the same warehouse does not trigger duty payment requirements or clearance for home consumption obligations.Issue 5: The Tribunal referenced a previous decision in STI India Ltd. where it was held that imported goods not cleared from the warehouse do not attract duty demand. The Tribunal concluded that the decision in STI India Ltd. correctly interprets the law, supporting the appellants' arguments in the present case.The Tribunal's detailed analysis covered the relevant provisions of the Customs Act, the EOU Scheme, and the specific requirements for warehousing and manufacturing in bond. The judgment clarified the treatment of imported goods within a 100% EOU, affirming that duty demands do not apply when goods are utilized for manufacturing in bond within the licensed premises of the EOU.