2025 (11) TMI 594 - AT - Central Excise

Orders set aside; transfers of duty-free goods within same factory for repair deemed procedural lapse, confiscation disproportionate

M/s. Biocon Limited (SAP Division), (IFP Division), (RHI Division), (Shri. BSV Prasad, Vice President, M/s. Biocon Limited (IFP Division), (RHI Division), (SAP Division) Versus Commissioner of Central Tax, Bangaluru

CESTAT set aside impugned orders and allowed the appeals, holding that transfers of duty-free goods between EOU and DTA units within the same factory for ... Confiscation of goods - goods transferred by the Appellant from EOU to DTA within the same factory premises for repair or maintenance of the EOU area - violation of provisions of Section 72(1)(b) of Customs Act, 1962 or Section 11A of the Central Excise Act, 1944 or Rule 14 of the CENVAT Credit Rules, 2004 - HELD THAT:- It is found that it is an admitted fact that the Appellant were carrying out manufacturing activity in a single premises were 3(three) EOU and DTA were working. Further it is also an admitted fact that most of the goods are fragile or volatile, which require special storage facilities and were stored in DTA area since beginning of the activity and is very well-known to the concerned authorities. There was no objection by any of the authority regarding storage of such goods in common area, since it is within the premises of the Appellant. As regards omission of the Appellant in taking permission while shifting the goods, though it is an omission as per the Notification, the issue was considered by this Tribunal in the matter of M/s Honeywell Technology Vs. Commissioner of Customs, Bangalore [2008 (6) TMI 124 - CESTAT BANGALORE] wherein it is held that 'when appellants got approval for the same from STPI Director then it is not open to customs to demand duty mere for technical violation.' As regards Reliance of the Revenue in the matter of M/s Big Bags India Pvt. Ltd. [2007 (8) TMI 276 - CESTAT BANGALORE], the issue in the above matter was regarding diverting duty free raw material to the local market from their bonded warehouses and DRI had intercepted two vehicles with duty free imported goods being diverted to another buyer and SEZ Authorities also issued notice. In present case, though there is an allegation that the appellant had started shifting goods since October 2009 and till 19th December 2009, it was not brought to the notice of the concerned authority. However, there is no allegation that any part of the duty-free import was removed or sold to any other entity and the appellant had taken a consistent stand since beginning of the investigation that such transfer of goods within the premises is due to repair undertaken by the appellant - Thus, though there is an omission on the part of the appellant in strictly following the conditions of the relevant Notifications and considering the above facts that the appellant had paid duty for the goods which were found missing/misplaced, the alleged offence is only a procedure lapse and does not warrant stringent action of denying the entire benefit of such beneficial notifications. Thus, following the ratio of the decision of the Tribunal in the matter of M/s Honeywell Technology, the impugned orders are liable to be set aside, The impugned orders are set side and the appeals are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether movement of duty-free/warehoused goods by a unit operating export-oriented undertaking (EOU) to the domestic tariff area (DTA) within the same factory premises for repair, maintenance or consolidated storage amounts to clandestine removal attracting confiscation and duty under Section 72(1)(b) of the Customs Act, Section 11A of the Central Excise Act or Rule 14 of the CENVAT Credit Rules. 2. Whether procedural omission - failure to obtain prior permission from the proper officer for inter-unit transfer of duty-free/warehoused goods within contiguous premises - justifies imposition of duty, confiscation, redemption fine and penalties where goods remain within bonded/firm premises and export obligations are met. 3. Whether confirmation of demand of customs/central excise duty under Section 72 (or alternatively Section 28) is legally sustainable where there is no proven diversion out of bonded premises or sale to third parties, and where some missing items were subsequently accounted for and duty remitted. 4. Whether imposition of confiscation/redemption fine is sustainable where adjudicating authority itself finds that goods were not physically available for confiscation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability for confiscation/duty for intra-premises movement of warehoused/duty-free goods Legal framework: Provisions governing warehoused goods and removal are found in Chapter IX of the Customs Act (including Sections 64 and 72), notifications permitting duty-free import subject to conditions, and rules/circulars permitting movement between bonded premises subject to conditions. Rule 20 (Warehousing Provisions) and Section 64 recognize certain rights of owners to inspect, sort, deal with containers and move goods between warehouses subject to conditions. Notifications governing duty-free imports impose conditions that goods must be used in manufacture of specified final products and removed under prescribed procedure. Precedent treatment: The Tribunal in Honeywell Technology (Tri.-Bang.) was followed - there the Tribunal declined to treat procedural non-compliance as warranting confiscation/duty where goods remained in bonded premises, the irregularity was regularised and bonding/authority approvals existed. The Tribunal distinguished Big Bags (Tri.-Bang./Karnataka HC) where clandestine diversion to local market and interception outside premises was proved. Interpretation and reasoning: The Court found the movement was intra-premises (EOU to DTA within same factory complex) largely for repair/maintenance, consolidation and storage of volatile/fragile goods in specialised facilities. Most goods were known to be stored in DTA areas since inception and that fact was within the knowledge of authorities. There was no evidence of removal beyond the factory premises, no sale or diversion to third parties, and export obligations under FTP were satisfied (positive NFE). Subsequent administrative regularisation (inclusion of entire area as Private Bonded Warehouse and amendment of PBW licence by relevant authorities) supported the conclusion that the omission was procedural and later remedied. Ratio vs. Obiter: Ratio - where intra-premises transfer between bonded/DTA areas of the same legal entity is a procedural omission without evidence of diversion outside bonded premises or misuse, confiscation and demand of duty under Section 72 is not justified; administrative regularisation and continued fulfilment of export obligations are relevant mitigating factors. Obiter - observations on policy rationale favouring pragmatic relaxation for adjacent units and reference to circulars and proviso (dispensing with permission in certain inter-unit transfers) are persuasive but ancillary. Conclusion: Movement of goods within the same factory premises for repair/maintenance/consolidation, without proof of diversion outside premises and with subsequent regularisation and compliance with export obligations, does not attract confiscation or demand of duty as stringent penalty for mere procedural lapse. Issue 2 - Effect of procedural omission (failure to obtain permission) on liability to duty/penalty Legal framework: Notifications/conditions governing duty-free imports require compliance with procedural obligations; failure may prima facie attract consequences. However, statutory provisions and administrative instructions (e.g., amendments and circulars simplifying inter-unit transfers) provide for limited relaxation for transfers among proximate units of same manufacturer. Precedent treatment: Honeywell (Tri.-Bang.) was followed to hold that technical violation of licence/permission provisions does not automatically justify demanding duty/confiscation where authorities responsible for export/bonding have regularised or certified availability; Big Bags was distinguished where diversion outside premises was established. Interpretation and reasoning: The Tribunal emphasised the distinction between substantive evasion (diversion/sale to third parties) and procedural lapses. The Appellant paid duty on the missing items when discovered, maintained consistent explanation (repairs/renovation/centralised storage), and had subsequent approval expanding bonded area. There was no adverse action by FTP/SEZ authorities. The Tribunal observed that demanding duty and confiscation for mere technical non-compliance, particularly when remedial steps and regulatory approvals followed, would be disproportionate. Ratio vs. Obiter: Ratio - procedural non-compliance alone, in absence of intent to evade duty or evidence of diversion beyond bonded premises, does not justify confiscation/duty and punitive measures; remedial action and regulatory ratification are material. Obiter - commentary on practical difficulties in segregating volatile stocks and necessity for pragmatic administration. Conclusion: The omission to obtain prior permission was a procedural lapse; in the factual matrix (goods retained within premises, export compliance, remedial regularisation and duty remitted for missing items) it did not warrant imposition of duty/confiscation/penalties upheld by the adjudicating authority. Issue 3 - Appropriateness of invoking Section 28 vs. Section 72 and demand of duty Legal framework: Section 72 deals with confiscation/duty for warehoused goods in certain circumstances; Section 28 addresses non-levy/short levy/mis-levy of customs duty. Chapter IX (warehousing) contains specific mechanisms and responsibilities for consignor/consignee in inter-warehouse movement. Precedent treatment: Tribunal and authorities have applied warehousing provisions where movement and shortage relate to bonded operations; reliance on Section 28 is inappropriate where no non-levy/short-levy is proved and issue relates to warehousing/duty-free import conditions. Interpretation and reasoning: The Court accepted Appellant's submission that the primary issue falls within warehousing/notification framework (Chapter IX) and that Revenue cannot invoke Section 28 merely because of a procedural omission. There was no finding of non-levy/short levy of customs or central excise duty. The admitted intra-premises movement and later regularisation weigh against treating the case as one of evasive levy under Section 28. Ratio vs. Obiter: Ratio - where shortages/discrepancies concern warehoused/duty-free goods within bonded premises and no short-levy is established, invoking Section 28 is not appropriate; Chapter IX/Section 72 framework governs. Obiter - notes on responsibilities of consignor/consignee under Rule 20. Conclusion: Demand framed under Section 72 (warehousing regime) - not Section 28 - is the relevant statutory framework; in present facts, invoking heavy duty/penalty provisions was unwarranted. Issue 4 - Confiscation/redemption fine where adjudicating authority found goods not physically available Legal framework: Confiscation principles require availability of goods or proof of contravention warranting confiscation; redemption fine (Section 125) presumes confiscable goods. Precedent treatment: Several Supreme Court and Tribunal decisions (cited by Appellant before the Court) hold that confiscation cannot be sustained where goods are not available or no willful suppression/evasion is established. Interpretation and reasoning: The adjudicating authority itself recorded that the goods were not physically available for confiscation. In that factual context, confirming confiscation and a redemption fine was inconsistent. The Tribunal relied on precedents to the effect that absence of goods or absence of mens rea/intent to evade duty precludes confiscation/ redemption fine. Where duty was remitted for missing items and goods later regularised within bonded area, confiscation/ redemption fine is disproportionate. Ratio vs. Obiter: Ratio - confiscation and redemption fine cannot be sustained where goods are not physically available and where no deliberate diversion or suppression for evasion is established; such measures require concrete proof. Obiter - references to the suite of authorities supporting this approach. Conclusion: Imposition of confiscation and redemption fine was unsustainable where the adjudicating authority found goods not physically available and no intent to evade duty was proved; consequent confiscation/fining orders were set aside. Overall Disposition and Consequential Reasoning The Tribunal applied the principle that procedural lapses in inter-unit transfer of duty-free/warehoused goods, without evidence of diversion outside premises, sale to third parties, or intention to evade, and where remedial steps and regulatory ratification followed and export obligations were met, do not justify confiscation, imposition of duty or severe penalties. The Tribunal followed Honeywell (Tri.-Bang.) and distinguished authorities where clandestine diversion was proved (Big Bags). On these grounds the impugned orders confirming duty, confiscation and penalties were set aside and appeals allowed with consequential relief.