TaxTMI 
TaxTMI 
2010 (12) TMI 673
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....000 to September 2000. (IIIA) Demand of duties on 489 MT jute yarn diverted from EOU to the DTA unit without payment of duty during July-August, 2001 & January 2002. (IIIB) Demand of duties on 160.612 MT of yarn manufactured in the EOU out of imported raw jute and cleared to two specified customers located in Alleppey market without payment of duty. 2. After due process, the Commissioner passed the following orders : (1) Demanded an amount of Rs. 28,95,628/- (Rupees twenty eight lakh ninety five thousand six hundred and twenty eight only) (2) Imposed a penalty of Rs. 28,95,628/- (Rupees twenty eight lakh ninety five thousand six hundred and twenty eight only) under Section 11AC of the Central Excise Act, 1944. (3) Ordered that the assessee shall pay interest on the amount of duty mentioned at (1) above at the applicable rates, under Section 11AB of the Central Excise Act, 1944. (4) Imposed a penalty of Rs. 2,00,000/- (Rupees two lakh only) on the assessee under Rule 25 of the Central Excise Rules, 2001/2002 read with Section 112 (a) of the Customs Act, 1962. (5)&n....
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.... production and also gave the total production during the month. There was no record of any rewound or reprocessed quantity in these statements. In fact, the production reports at the end of the month showed the average production per day arrived on the basis of the total production for the month. If the production reports included the reprocessed or rewound production too, the production reports would show such production. The manner in which the monthly abstract in the production reports was shown, did not admit of any chance for such inclusion. The production reports contained the details of the quality, the order No. etc. for each count produced, the spinning frames allotted for each count and the issue/consumption of raw jute and the wastage suffered after production. There were no details of any rewinding or reprocessing. Further, the details given by the assessee showed significant quantities of reprocessed/rewound yarn during the first five months only. In April, it was as high as 111MT against 364 MT recorded in the production report, 50 MT in May, 54 MT in June, 35 MT in July & 53 MT in August. After August, the quantity towards rewinding and reprocessing suddenly dropped....
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....unt under two different categories e.g. 8 lb & 8 lb SL. During the period April to August, 99 there was only export and no domestic clearances. The production trends showed that SL marked counts had been mostly manufactured in the period April to August (except for 21 lb) during which period there was no (recorded) DTA sale. Therefore, during the period April to August, the difference in these counts led to the logical conclusion that the excess unaccounted production indicated as SL had been removed in the domestic market without payment of duty by the EOU. 4.6 The DGM of the assessee, in his statements dated 7-11-2002 and 21-2-2003 admitted that the SL marked variety had been removed for local domestic areas as it was '3 ply and above 3 ply' which was not meant for export. The Commissioner found that during the period April to August, production marked SL had been removed in the local market without payment of duty as the same was admittedly not meant for export. After allowing the abatements, the Commissioner found that a quantity of 444.248 MTs of jute (SL marked) had been cleared clandestinely without payment of duty. 4.7 In his statement dated 21-11-2002, Shri....
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....the diversion of the production to the DTA unit by way of the group consumption reports for the months of June, 2000 to September, 2000. The production reports for the 100% EOU give the details of the Order No., as discussed in para 28 of the notice. The details reveal that the 100% EOU had manufactured 47.5 MT of 20 lbs/17.5 lbs during the period 1-6-2000 to 20-7-2000 for Alleppy Market/The Konchery Coir Factories and the same are indicated by marks like "Alle", "KON". The clearances made to the customers in the Alleppy market during this period by the DTA unit are also found to be 47 MT. Therefore, the production recorded in the RG-1 of the DTA unit for 20 lb (which includes 17.5 lb), obviously is diverted from the EOU to the DTA without payment of duty. The deposition made by the production personnel of the company (para 30 of the notice) have also confirmed that :- I. Production intended to Alleppy Market cannot be made on the frames located in the DTA unit; the same was made in the 100% EOU. II. 99.525 MT during June 2000 and 68.720 MT during the period 1-7-2000 to 20-7-2000 was produced on the 2 frames in the DTA unit and the yarn was of 28 lbs variety only (accoun....
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....fied counts being fixed and in the absence of any evidence of any change in the allocation, the Commissioner relied on the spinning working reports for finding use of specific spinning frames in the EOU. He noted that the spinning working reports for the various dates for the period 25-5-2002 to 31-7-2002 contained details of counts produced on each of the 18 frames maintained on hourly basis. The Commissioner found that these reports indicated that SVJT consistently utilized frames 9 to 18 in the EOU. Rebutting the argument with reference to the ground plan etc., the Commissioner found as follows : "Their contention that the statements given by their production staff were factually incorrect, is also not acceptable as the persons who were directly involved in the production and use of the spinning machines for over 4-6 years have been categorical that the spinning frames 1 to 8 were used for DTA production for lower counts and frames 9 to 18 in the EOU for production of higher counts. The statements of the senior personnel also cannot be brushed aside as factually incorrect as these are the people who dealt with the machines and knew their exact location and working. The ground....
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.... the manufacture of the goods exported by them. As per para 6.9 of the EXIM Policy 2002-07, supply of goods from one EOU to another EOU is accorded deemed export status. Therefore, in the present case, since the supply is by the 100% SYJT to another 100% EOU, but under the invoices of the DTA unit of SYJT, I hold that the clearances to that extent i.e. 122.479 MT shall not be liable to duty. However, for removal of the goods to the DTA unit in gross violation of the procedure for the 100% EOU, they shall be liable for penal action." 7.1 The Commissioner found that a quantity of 38.133 MTs was manufactured also using imported raw jute rejecting their claim that their liability was limited to 2.8 MTs and 3.5 MTs covered by invoice 247 dated 30-7-2002 and 281 dated 28-2-2002 respectively. Accordingly, he confirmed demand of Rs. 11,77,200/- relatable to 38.133 MTs of jute yarn. 7.2 In quantifying the clearances of jute yarn manufactured using also imported raw jute, the Commissioner relied on the statutory Raw Material Register Annexure-118. This Register indicated particulars of issue of raw jute for manufacture on a daily basis. The relevant quantity of production was....
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....ed these quantities also as fresh production which did not get reflected in the RG-1. It was claimed that shortage of a total 343.23 MTs was on account of quantity of yarn rewound and reprocessed without there being fresh production of the said quantity. About 0.5% of the production reflected in DPRs was attributed to variation in weighment. Another 0.5% loss was associated with packing. This accounted for 59 tonnes each during the material period. 28 MTs. were claimed to be cleared in excess when duty paid clearances were made. This was at the rate of 1.5 kg. for every 50 kgs. Assessee's quality policy and instances of rejection of consignments for poor quality by its customers are cited to claim that RG-1 showed true figures of production. There was loss due to driage. No reasons were attributed for shortage of a quantity of 171 tonnes. The demand is assailed also on the ground that there is no evidence of production, clearance and transport of the goods found to have been clandestinely cleared. There was no evidence of receipt of sale proceeds towards these clearances. (II) Under this head, duty was confirmed following the finding that the production of the EOU was accou....
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....mmissioner had found that 11.74 MTs of imported raw jute was diverted to the DTA and directed the Assistant Commissioner to demand appropriate duty on this quantity. This direction is challenged as being in violation of natural justice. (IIIB) Demand pertains to clearances of the EOU to customers based in Alleppey. The Commissioner wrongly relied on the statement made by Shri L. Seetharamaiah in arriving at the finding of diversion. They had maintained a register titled 'RPM Report' for recording spinning frame-wise production for each day. As per these reports, only 19.047 MTs had been manufactured in the DTA unit. The Commissioner had ignored the RPM reports and quality control reports submitted by the assessee. 10. The appellant assessee has challenged the demands on several grounds. One of the arguments raised is that the jute yarn involved was made out of indigenous raw materials. Unless such jute yarn manufactured and cleared by DTA units was exempted from payment of duty, DTA clearances by an EOU would attract nil rate of duty under Notification No. 8/97-C.E., dated 1-3-1997. It is claimed that during the material period, though jute yarn was chargeable to ni....
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....reme Court has set aside the decision of the Larger Bench in Himalaya International. Hence, the reliance on the Larger Bench decision in Himalaya International was clearly misplaced. For the same reasoning, the reliance on Circular dated 13-2-2002 issued by the Board is also not applicable since the said Circular is based on the decision of the Larger Bench in Himalaya International. 11. The learned SDR had cited the judgment of the Tribunal in Himalaya International Ltd. v. CCE, Chandigarh [2003 (154) E.L.T. 580(Tri.-LB)] and Jaipur Golden Transport Co. Pvt. Ltd. v. CCE, Surat [2007 (215) E.L.T. 503 (Tri.-LB)] in support of the plea that the impugned clandestine clearances attracted duty liability as per proviso to Section 3(1) of the Central Excise Act. She defended the impugned order and reiterated the grounds raised in the Revenue appeal. 11.1 We discuss the impugned demands seriatim as follows : (I) On examination of the claims of the asessee and the findings, we find that the Commissioner relied on the DPRs maintained by the assessee and the statements of its various executives in arriving at the finding of clandestine removal. He held that during investiga....
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....vered in a later part of the order. We find that SVJT claims to have installed the system of recording performance of the mill in DPRs to monitor its efficiency. Assessee had submitted that the rejections entailing reprocessing and rewinding reduced after it had taken over the mill and managed it for some time. However, we find from records that during the period 1999, the mill had output of 91 to 95% whereas in the subsequent years, the output has fallen to around 71-75%. This exposes the weakness of the argument that DPRs were instituted to monitor efficiency of the mill and over a period, efficiency had improved. In the circumstances, we uphold the finding of the Commissioner as regards the unaccounted production and clandestine clearance of the 444.248 MTs of jute yarn. (II) The demand of duty under this head is raised on quantity found to have been manufactured in the EOU and diverted to DTA. The assessee argued that the Commissioner had wrongly relied on its private record, 'group consumption report' to find diversion of production from EOU to DTA. The main challenge is to the quantification of yarn manufactured using imported jute. On a perusal of the findings of the....
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....ported raw jute. It was argued before the Commissioner that only 35.813 MTs of jute yarn were manufactured using imported jute. We note that the Commissioner relied on the assessee's correspondence with its buyers in Alleppey, statements of its own personnel and the customers to find that clearances to Alleppey market were of imported jute mix. We are not able to accept the appellant's claim before us that such yarn manufactured in the EOU did not exceed 6.3 MTs. We uphold the finding as regards clearances impugned under this head and sustain the demand. 12. As per the alternative argument advanced, the appellants submitted that the jute yarn 'allowed to be sold in India' were covered by exemption Notification No. 6/97-C.E. from 22-9-2000 and by exemption Notification No. 8/97-C.E., dated 1-3-97 during its currency. Other clearances made clandestinely were to be treated as not 'allowed to be sold in India' and were therefore subject to duty equal to the duty liable to be paid on like goods manufactured in India by DTA units under Section 3(1) of the Central Excise Act. In the case of jute yarn such excise duty was only the jute cess as jute yarn was chargeable to 'nil' duty....
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....), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the Export and Import Policy, 1st April 1997 - 31 March 2002, from so much of the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), as is in excess of an amount equal to the duty of excise leviable under the said section 3 of the Central Excise Act or under any other law for the time being in force on like goods, produced or manufactured in India other than in a hundred per cent export-oriented undertaking or a free trade zone, if sold in India. Provided that nothing contained in this notification shall apply where such finished products, if manufactured and cleared by a unit other than a hundred per cent export-oriented undertaking or a unit in a free trade zone, are wholly exempt from the duties of excise or are chargeable to Nil rate of duty." 13.1 The assessee has established that during the material period jute yarn was subject to cess and that cess is a duty of excise. The Apex Court in the case of MRF and Barnagore cases (supra) held that jute cess was a duty of excise. As the jute yarn manufactured using indigenous raw materials and cleared to DTA was subj....
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....he Central Excise Act and not its proviso. As the jute yarn was chargeable to nil rate of duty under the main Section 3(1) of the Central Excise Act, the impugned clearances did not attract any duty of excise. The impugned demand and penalty are therefore not sustainable. The Notification No. 125/84 reads as follows :- "Exemption to goods produced in a hundred per cent export-oriented undertaking : In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all excisable goods produced or manufactured in a hundred per cent export-oriented undertaking from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944) : Provided that the exemption contained in this notification shall not apply to such goods if allowed to be sold in India. [Notification No. 125/84-C.E., dated 26-5-1984] 14.1 We find that the very same question was considered by the Hon'ble Apex Court in the case of Commissioner of Central Excise, Visakhapatnam v. NCC Blue Water Products Ltd. [2010-TIOL-73-SC-CX = 2010 (258) E.L.T. 161 (S.C.)]. In the order of the Tribu....
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....ed to be sold in India" appearing in the said proviso. Interpreting the said expression, this Court held that the expression "allowed to be sold in India" used in the proviso to Section 3(1) of the Act is applicable only to sale made in DTA up to 25% of the production by 100% EOU, which are allowed to be sold into India as per the provisions of the Exim Policy. No permission was required to sell the goods manufactured by 100% EOU lying with it at the time the approval is accorded to debond. The court opined that the goods having been sold without permission of the Central Government to debond the unit, the duty on the goods sold by the assessee was leviable under main Section 3(1) of the Act." 19. In the instant case, admittedly at the time of sales of shrimps and shrimp seeds by the assessee in DTA, the Development Commissioner had not issued the requisite removal authorization. Therefore, in view of the dictum of this Court in SIV Industries (supra), with which we are in respectful agreement, and the afore-extracted Circular issued by the Board following the said decision, Excise Duty on such sales is chargeable under main Section 3(1) of the Act. 14.3 Their lords....
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....d in India with or without permission of the Development Commissioner, the assessment shall be made under proviso to Section 3(1) of the Central Excise Act and the exemption under Notification 125/84 shall not be applicable. As regards the claim of the assessee that the Tribunal's decision in the Himalaya International Ltd. case was overruled by the Apex Court, we note that the judgment referred to was made in an appeal filed by the Commissioner against the decision of the Division Bench of the Tribunal in the Himalaya International case. The appeal had challenged grant of lower effective rate under Notification No. 13/98-C.E. to DTA clearances. The Court had remanded the dispute to decide the applicable rate of duty and to examine if the goods involved had been manufactured from indigenous raw materials for the purpose. 14.6 SVJT had claimed that DTA clearances made without appropriate permission in the case on hand were exempt under Notification 125/84 C.E., dated 26-5-84 in view of the decision of the Tribunal in Maruti Cottex v. CCE [2005 (183) E.L.T. 393] upheld by the Apex Court as reported at [2007 (215) E.L.T. A102]. We find that in the Maruti Cottex v. CCE case (su....
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....aw jute consumption for 1999-2000. The output for 2000-2001 and 2001-2002 was respectively 71% and 75% of the raw jute. The assessee could not explain with material how 13557.3 MTs was not the actual raw material consumed. We find that the Commissioner relied on the DPR figures for finding short accountal with reference to RG-1 figures. He had taken the actual production for the material period and the corresponding data in the RG1. He accepted the explanation of the staff of the assessee that DPR figures represented the actual figures of production. As against the claim of the said personnel that the yarn produced suffered 3% weight loss, the Commissioner allowed an abatement of 1% from the DPR figure of production. The balance sheet figures were corrected by the assessee. The Commissioner noted the absence of any other evidence for consumption of 13557.3 MTs of raw jute. We find that the Commissioner's decision is inherently sound. We reject this part of the appeal filed by the Revenue. (II) The Commissioner allowed abatement of 13.695 MTs from a quantity of 209.905 MTs alleged to have been diverted to DTA finding that the above quantity representing 14 lbs yarn was actua....