TaxTMI 
TaxTMI 
2001 (7) TMI 1105
X X X X Extracts X X X X
X X X X Extracts X X X X
.... with the permission of RBI on or after December '96 and is engaged in the manufacture of Precision components for watches and other electronic components for domestic market, is appellant No. 2 herein; (iii) M/s. Chirag Enterprises (hereinafter referred to as M/s. Chirag for short) is a proprietary firm of Smt. Jyoti Ramachandra, wife of Shri B. Ramachandra and is engaged in the manufacture of precision instruments is appellant No. 3; (iv) Shri B. Ramachandra is appellant No. 4; (v) Shri S.R. Damle, Chartered Accountant, who is a Manager of M/s. Chiramith & General Manager of M/s. TIPL is appellant No. 5, against the impugned order of Commissioner, who adjudicated a Show Cause Notice, issued pursuant to a visit and enquiries made by DRI Officers, who had found irregularities in the availment of the 100% EOU benefit by M/s. Chiramith and diversion of non duty paid spares imported for use of 100% EOU to M/s. TIPL & M/s. Chirag, use of Capital Goods machinery of 100% EOU for manufacture on job work goods of M/s. TIPL and M/s. Chirag; unrecorded exports made from the EOU; 'Systematic Diversion of Warehoused Raw Materials' to M/s. TIPL & M/s. Chirag; the notice ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n in reply to the show cause notice is that only certain goods were got manufactured by M/s. TIPL by supply of raw materials by M/s. Chiramith and resultant product returned to M/s. Chiramith along with the scrap generated in order to keep up the export tempo, since the machines available in Chiramith are not sufficient to complete the export obligation. In support of their contention they produced statement showing sales and job work by M/s. TIPL, from April 1997 onwards. But this statement is entirely false for the simple reason that these are not reflected in the audited balance sheet of M/s. TIPL for the year 1997-98. The contention that the stock register is only kaccha register and spares are issued only to the staff of M/s. Chiramith and that the register belongs to only M/s. Chiramith is not acceptable. On verification of the register it is seen that the entry "issued to Maroli" represents M/s. TIPL since TIPL is situated at Maroli. Hence it is proved that the stock register is commonly maintained for issue and receipts of bonded spares for all the 3 units. Further the use of imported spares by M/s. TIPL and M/s. Chirag Enterprises is admitted by Shri B. Ramachandra, Managi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... performed by M/s. TIPL, as produced, to arrive at findings suitable and acceptable to him. We also find that the Commissioner has found, after great deliberations, in paras 37, 38 & 39 of the impugned order, that M/s. Chirag did not have any machinery prior to 1996 and did not exist on the second floor of Shilpa complex up to 1995 and that M/s. Chirag was floated to 'show sales to domestic market'. Then how in para 40 of his findings, he is concluding the 'spares' were being diverted for use during 1992 to 1997 to the premises of M/s. Chirag is not understood. One of these findings of the learned Commissioner, would be false and not acceptable. Such contrary findings, as in paras 39 & 40 itself would indicate, non- application of mind and selfcontradiction. Therefore the findings of the 'Diversion of Spares', as arrived, during the period 1991 to 1997 with consequential liability of duty and interest thereon, needs to be set aside. Findings arrived at without application of mind, to somehow confirm pre-determined duties, based on selfcontradicting grounds in the very same order, cannot be upheld. To confirm the demands of duty on 'Diversion of Spares', for such demands and materia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h Precision for Indian Market will be transferred to M/s. Tavadec Industries and the balance debit or credit will be settled at the end of each month......" Thereafter he has recognized the furnishing of the re-conciliation statement for the period April 1997 to September 1997 regarding the implementation of the resolution. (iii) In para 30, he has relied on the statement dt. 8-7-98 of Shri B. Ramachandra to the effect - "28..... has categorically stated that all the machineries imported by M/s. Chiramith Precision were used for production of goods intended for the Indian Market and not only these machines referred to in the letters dt. 8-12-93 and 2-11-93 from Sh. S.R. Damle. He has also stated that depending upon the requirement and the operation condition of the machines, they were using the machines imported by M/s. Chiramith Precision when there were no export orders....." (iv) Thereafter in para 32, after considering Shri S.R. Damle's statement dt. 23-2-98 concluded - "....... Shri Damle's statement confirms the statements of Shri B. Ramachandra where he has admitted that the materials, machinery, etc. imported by M/s. Chiramith Precision were diverte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ara 32 of the order (extracted at iv supra) to be factually correct. Since the normal rule is that accomplice's evidence i.e. of co-accused statements, require corroboration (Haron Haj Abdulla - AIR 1968 SC 832). In the present case, the statement dt. 23-2-98 of Shri S.R. Damle does not corroborate the use of all machineries. We find that the letter dt. 8-12-93 of Shri S.R. Damle to Shri B. Ramachandra gives machine Nos. 364, 365 and 385; & in a letter dt. 2-1-95 gives machine Nos. 367, 380, 384, 386 & 382; while B. Ramachandra in his statement dt. 23-2-98 referring to letter dt. 2-1-95 has "admitted to an 'occasional use of 4 machines No. 367, 381, 382 & 384' for the manufacture of SPDT Pin, Baker Pins, GD Tube Terminal, etc. which were sold through Tavadec Industries Pvt. Ltd." This would indicate that there is no case of corroboration, at all, of all the machines of the EOU at all times exclusively for use in the DTA job work. Therefore we can conclude that there is no statement or material, other than the statements of Shri Ramachandra to corroborate the version recorded from him. The learned DR in the arguments had relied upon the case of K.I. Pavunny - 1997 (90) E.L.T. 241 (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oborated with documents of alleged occasional use of certain machines, only for DTA sales, is the true admission of facts and correct; the subsequent statements made are not corroborated and appear to be made to meet only the ends of the investigator's requirements and need to be rejected. We therefore do not rely on any subsequent statement of Shri Ramachandra, other than that dt. 23-2-98. Once that view is taken, we find no material for indicating the use of all the 29 machines at all the times for DTA job work use, as there is no corroboration for such a rampant extensive use. The evidence, on the other hand, is that M/s. TIPL came into effective existence only by mid 1997. Therefore, there could be no use of 100% EOU machinery for production of M/s. TIPL's end products in earlier years as the EOU was in existence since 1991. M/s. Chirag, by the ld. Commissioner, has been found to be only a paper tiger, a concern floated only to show production of the EOU. Therefore, if at all certain production has been sold in DTA as that of M/s. Chirag, it would be the production of Chiramith EOU on its machines; the goods produced might have or might have not violated the law by alleged remo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailable for DTA units job work. The nearest power to effectively exclude DTA units job work, if available, could be read only under Regulation 5 (a) or (b) or (d) of MOWR 66, which reads as - "5. Grant of Sanction : On execution of the bond, in the manner herein above provided, the Assistant Collector of Customs shall accord sanction to the applicant to carry on such manufacturing process or other operations specifying : (a) the manufacturing process or other operations permitted to be carried on in the warehouse. (b) the type and nature of imported and other goods permitted to be used. (d) the condition, if any, subject to which the manufacturing process or other operations may be carried out in warehouse..." Therefore, it was for the Asstt. Commissioner to spell out a restriction, if any, on use of DTA units raw material for job working on the Capital Goods of the EOU. No such specific restriction or/and ban on use of raw material of DTA units or their job work on Capital goods of 100% EOU has been shown to be prescribed by the Asstt. Commissioner, nor any such violation of specific ban as required to be prescribed has been observed and/or de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation under Section 111(o) of the Customs Act, 1962, as it appears to us on a plain reading of paras 7 & 8 of the conditions, in this notification, specify and permit the use of Capital Goods for manufacture of articles 'allowed to be sold in DTA'. If the 'DTA job work' has been removed and sold, without complying with the provision of the Policy, then such goods sold may be, if at all, liable for confiscation for violation of Policy; not the 'Capital Goods' used to make such goods. No such liability on job work goods has been alleged in the show cause notice or determined in the impugned order. 'Capital goods' therefore, in the facts of this case, cannot be made liable for confiscation, for an alleged and not established sins/violations of their products i.e. "DTA job work goods". We therefore cannot uphold an order of confiscation under Section 111(o) for 29 machines in this case for violation of Notification 13/81 (as amended). (g) A perusal of the Chapter IX of the EXIM POLICY for the relevant period, reveals that it provides for the import of all kinds of goods including Capital Goods, required by an EOU, for manufacture, production or processing provided they are not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lation of Import Policy provisions. (h) We find for EOU's, Board vide Circular No. 67/98-Cus., dt. 14-9-98 has ordered - ".....Further to utilise the idle capacity of EOU/EPZ units, it has been decided that the EOU/EPZ units in Textile, ready made garments, agro processing and granite sectors may be permitted to undertake job work from DTA units provided the finished product produced by such EOU/EPZ units will be exported ........ from EOU/EPZ units itself and these goods will not be sent back to DTA". Since Board has granted such permissions to selective industries there could be no violation of the Customs Act or the Foreign Trade (Development & Regulations) Act, 1992 or the notifications and Policy & Procedures issued under these Acts. Therefore, we cannot find any cause for confiscation of 29 machines under Section 111(o) of the Customs Act, 1962 on the charge of having been used for 'job working for DTA unit' occasionally on few machines in this case nor can we find any reason not to rely and to apply the Board's interpretation and orders to the EOU in appeal before us. (j) Now we proceed to determine the liability of certain Raw Materials, imported by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave illegally diverted the products to Indian market through their sister concern, viz. TIPL and Chirag." From the same, we find, that the Commissioner has blindly been led by an order of Addl. DGFT, who had penalised M/s. Chiramith, for not reaching prescribed Export Targets. However, the Commissioner has conveniently overlooked the fact, that this order of the Addl. DGFT was set aside in appeal by the Appellate Committee of Ministry of Commerce, Govt. of India vide order No. FN 120/3/45/97/AD1/AC, dt. 11-12-98, after considering the export performance presented before that Committee. Thus the Commissioner's reason for coming to a finding, "since they have not achieved the value additions, even though they had huge orders it is proved beyond doubt that they have illegally diverted the products to Indian Market" based on this Addl. DGFT's order, which had been set aside is not now available. We do not find any other reasons, in the impugned order for coming to the following conclusion and consequent orders, as regards confiscation of Rs. 7000/- worth of Raw Material seized at M/s. TIPL. "2.1 Order confiscation of spares and tools seized on 23-2-98 from the premises of M/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osed for information and necessary action had been issued by rescinding Notification 13/81 but retaining the basic features of 13/81 and incorporating additional features which are clarificatory and enabling. These are therefore in nature of retrospective amendments. The clarification even admit the Established Practice for DTA job working for EOU raw material therefore that activity does not ask for penal consequences. The Commissioner, who is bound by Boards' clarifications, should have kept this aspect in mind while determining confiscation and penal liabilities in this case. (n) We also find that vide Circular 59/98-Cus., dt. 12-8-98, the Board had permitted removal of moulds, tools, etc. by EOU to DTA units and very categorically have agreed to the practice of EOU subcontracting part of production, where raw material looses its identity. These relaxations of a procedural nature for a notification would be retrospective. Thus we find nothing amiss in spares/raw material being transferred to M/s. TIPL for production of EOUs final product. Confiscation of the Raw Material found lying in M/s. TIPL, therefore cannot be ordered under the Customs Act, 1962 for violation of Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Switzerland. This contention is not tenable in as much as Shri B. Ramachandra in his statement clearly stated that these screws were sent illegally in order to avoid receiving foreign exchange through bank as he has to settle some payment to one Mr. Didier who had come to their factory to set the machines and that he knew that exporting goods without following customs formalities is an offence. Hence it is proved beyond doubt that M/s. Chiramith have illegally exported screws worth Rs. 8,64,850/- which are liable for confiscation. Since the goods are not available for confiscation M/s. Chiramith liable for penalty under Section 114 of the Customs Act, 1962". As regards the allegation that M/s. Chiramith have not exported the entire production to M/s. Tavadec S.A. Switzerland the contention in the reply to show cause is that they have been permitted by EPZ Cochin to manufacture and export turned components and only these items were exported to others in Switzerland. This contention is not acceptable in as much as EPZ vide their letter 17-2-94 permitted production of turned components only and other terms and conditions remain unchanged which shows that they are eligible to manu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....toms. So long as goods have not been sent to DTA, but Exported out of India by an EOU, the act of imposition of penalty under Section 114 of the Customs Act on such successful Exports, is uncalled for and not upheld. The penalties under Section 114 are for confiscation of goods 'attempted to be exported' and not for goods 'successfully exported'. We find penalties under Section 112(b)(i) are five times the value or Rs. 1000/- whichever is greater depending on a value or duty involved. Penalties under Section 114 are related the value or the duty or amount of drawback claimed or Rupees one thousand which ever is greater. The ld. Commissioner has not determined the value of the goods, the duty or the drawback amount if any, which is involved in the goods exported in contravention. He has proceeded to impose a penalty of Rs. 50 lakhs on M/s. Chiramith under Sections 112 and 114 of Customs Act, 1962, and Rs. 20 lakhs on Shri B. Ramachandra under Sections 112(b)(i) and Section 114 of the Customs Act, 1962 and Rs. 1 lakh under Sections 112(b)(i) and 114 of the Customs Act, 1962 on Shri S.R. Damle, without indicating any spilt up of the amounts of penalty imposed under Section 112 and sep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urned component for export to Switzerland. The required raw material for this product is 4.00 mm brass rods. Prior to export of this product, the Appellants were importing raw materials viz., High Carbon Steel Rods and Nickel Silver rods of 1.00 mm to 1.60 mm diameter. Further, the percentage of wastage in respect of cannon is about 94% and the percentage of waste in the manufacture of the other goods is also very high. In support of this, the Appellants have obtained a Summary Report of Scrap estimated during manufacture, certified by Department of Mechanical Engineering, Karnataka Regional Engineering College, Suratkal which was annexed to the Reply to the Show Cause Notice filed before the ld. Commissioner. In the said Report, after conducting the tests on the goods viz. Watch Pinion, Watch Revets and Watch Screws, manufactured by the Appellants, it was certified that, in the case of Watch Pinion, the average percentage of waste is 92.72%, in the case of Watch Rivets it is 79.24% and in Watch Screws it is 82.66%. We find that the ld. Commissioner completely ignored this certificate and arrived at the above conclusions in his findings in para 43. We cannot uphold such findings ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terials of the Chiramith were used by Chirag Enterprises for undertaking job work for the domestic market is incorrect and not true. This clearly emerges from the following statements of the customers of Chirag Enterprises, recorded during the investigation, by the investigating officers : (i) Statement dt. 1-6-98 of Shri Anil Kumar K.R., Manager Commercial of Protectron Electromech Pvt. Ltd. (ii) Statement dt. 8-6-98 of Shri Anil Kumar K.R., Manager Commercial of Protectron Electromech Pvt. Ltd. (iii) Statement dt. 2-6-98 of Shri R. Gurumurthy, Manager - Finance & Admn. of Dolan Technocrafts Pvt. Ltd., Bangalore. which categorically demolish the Revenue's allegations made in the Show Cause Notice. Further, no evidence has been brought on record, to show that, Chirag Enterprises have manufactured goods using the raw materials imported by the Appellants and sold the same to their customers. On the contrary, the evidence on record shows that Chirag Enterprises carried out the job work with the raw materials given by their customers and were paid job work charges. The finding of the Commissioner based on ratio of Capital goods value to turn over, is disregar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e therefore, bound by this observation of the Constitutional Bench of Apex Court, would consider ordering the relief, by a refund of the amounts paid, during the enquiries being made by DRI, by the 100% EOU on making prescribed application for the same. (t) To sum up, we find that - (i) The Order of the ld. Commissioner demanding duly on spares imported by the Appellant's Unit viz., Chiramith Precision (India) during the period 1992 to 1997, on the ground that the same were diverted for being used for the machinery installed at Tavadec Industries Pvt. Ltd. and Chirag Enterprises, is not sustainable in law, in the light of the facts explained and findings arrived in the foregoing paras. (ii) The ld. Commissioner erred in holding that, the Appellants viz., Chiramith Precision (India) diverted raw materials imported by them to Tavadec Industries Pvt. Ltd., for being used in the products for being manufactured and sold to customers in the domestic market without adducing any proper evidence to support the same. (iii) The ld. Commissioner has erred in holding that, the Appellants viz., Chiramith Precision (India) illegally exported spares to Mr. Didier of....