TaxTMI 
TaxTMI 
2013 (5) TMI 576
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....and violation of Sections 61 & 72 of the Customs Act, 1962 ?" 2. The appeal is admitted on the above question and taken up for hearing by consent of parties. 3. The relevant facts are that the appellant-assessee originally known as Krishna Filaments Ltd. carried on the business of manufacturing HDPE ropes. By a letter of permission (LOP), dated 9th September, 1998 the Government of India permitted the assessee to establish a 100% Export Oriented Unit (100% EOU) to manufacture HDPE ropes in their factory at Betegaon, Boisar (E), Thane, Maharashtra in terms of the Export-Import Policy, 1997-2002. The said unit at Betegaon was duly approved by the customs authorities as a private bonded warehouse under Section 58 of the Customs Act, 1962 on 22nd October, 1997. 4. The LOP dated 9th September, 1998 which was valid for three years stipulated that within the validity period of three years of the LOP, the assessee shall implement the project by importing capital goods/raw materials and on commencement of the commercial production export its entire production for a period of five years subject to achieving the minimum net Foreign Exchange Earnings as a percentage of Export (NFEP) a....
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....r extension of the private bonded warehouse licence but the same was not considered by the customs authorities probably because the unit was not functional at that time. 9. As regards extension of the LOP dated 9th September, 1998 is concerned, the assessee under the LOP was obliged to export all its products for a period of five years from the date of commercial production. Since the commercial production of the unit commenced on 27th April, 1999, the 100% EOU status of the assessee was to expire on completion of five years from the date of commercial production i.e. on 26th April, 2004. Before expiry of the said period, the assessee by its letter dated 20th April, 2004 had sought extension of the LOP so that on lifting the attachment, the balance export obligation under the LOP dated 9th September, 1998 could be achieved. Thus, the assessee while negotiating with IDBI for settlement of the Suit/lifting the attachment, took steps to keep the unit alive by seeking extension of the LOP as well as the private bonded warehouse licence in respect of the unit at Betegaon. 10. However, the Development Commissioner as also the customs authorities did not consider it proper to consid....
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....eceiver, the Board of Approval by its letter dated 9th March 2009 informed that the assessee cannot be considered as a sick unit and, hence, revival of the unit under Appendix X cannot be considered. However, by the said letter the assessee was directed to approach the Development Commissioner, SEEPZ, Mumbai, seeking extension of the LOP dated 9th September 1998 in the prescribed format. 16. Accordingly, on 10th March, 2009 the assessee applied for extension of LOP dated 9th September, 1998 in the prescribed format. On 27th April, 2009 the Assistant Development Commissioner, SEEPZ (SEZ), Mumbai granted extension of the LOP dated 9th September, 1998. The said letter dated 27th April, 2009 reads thus :- "Government of India Office of the Development Commissioner, SEEPZ, Special Economic Zone, Ministry of Commerce & Industry, Andheri (East), Mumbai - 400 096. No. SEEPZ-SEZ/EOU/ 28/44/98-99/Vol-II 14104 27th April, 2009 (27th March, 2009) M/s. Mavi Industries Ltd. Mahagaon Road, Betegaon, Near Guashala, Boisar (E) Thane-401 501. Subject : Your request for extension of Letter of Permission No. PER : 228(1998)/EOB/180/98, dated 9-9-1998 for manufacture and export ....
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....f Permission PER : 228(1998)/EOB/180/98, dated 9-9-1998 as amended and acknowledge the receipt. Yours faithfully, Sd/ (Alka G. Satghare) Asstt. Development Commissioner, SEEPZ, SEZ." 17. At this stage, we may note that by a letter dated 24th April, 2009, the office of the Development Officer, SEEPZ, Mumbai had approved the change in the name of the assessee company from Krishna Filaments Ltd. to Mavi Industries Ltd. in terms of para 6.34(6) of the Handbook of Procedure 2004-09 as amended. It was made clear in the said letter dated 24th April, 2009 that except the name, all other terms and conditions mentioned in the LOP dated 9th September, 1998 remain unchanged. 18. In terms of extension of LOP granted by letter dated 27th April 2009 the assessee on 10th June, 2009 executed a legal undertaking before the Development Commissioner, SEEPZ, Mumbai thereby agreeing to comply with the terms and conditions of the LOP as amended on 27th April, 2009. 19. Thereafter, on the basis of the extension of LOP granted by the Development Commissioner, the assessee once again addressed a letter on 12th June, 2009 seeking renewal of the private bonded warehouse licence from th....
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....ter of permission is granted by the Development Commissioner, the customs authorities are bound to grant extension of the private bonded warehouse licence so that within the extended period the assessee could fulfil the unfulfilled export obligation of the first block of five years as also the export obligation imposed while granting extension of the LOP. It is only if the assessee fails to fulfil the above obligation within the extended period, the customs authorities could initiate proceedings to enforce the duty demand on account of the non-fulfilment of the export obligation as it constitutes violation of the bond executed in terms of the Notification No. 53/97-Cus., dated 3rd June 1997. In the present case, even before the expiry of the extended period of LOP, the customs authorities have purported to demand duty which is totally improper and contrary to law. 25. It is further contended on behalf of the assessee that the CESTAT was in error in relying upon the decision of the Apex Court in the case of Kesoram Rayon v. Collector of Customs reported in 1996 (86) E.L.T. 464 (S.C.) and confirming the duty demand by holding that on expiry of the private bonded warehouse licence,....
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....EOU and, therefore, the custom authorities were justified in demanding the customs duty with interest and penalty on the assessee ceasing to be a 100% EOU after the expiry of five years i.e. on 26th April 2004. In other words, according to the revenue, the extension granted on 27th April 2009 amounts to issuing a fresh LOP from 1st April, 2009 and, therefore, the customs authorities were justified in enforcing the duty liability crystallised on expiry of the original LOP on 26th April, 2004. 28. It is further contended by the counsel for the customs authorities, that even the letter dated 27th April 2009 specifically records that the extension is granted without prejudice to any action that may be taken against the assessee in respect of the EOU operations prior to 1st April 2009 under the Foreign Trade (Development & Regulation) Act, 1992, Customs Act, Central Excise and any other law for the time being in force. Therefore, when the Development Commissioner while granting extension of LOP has specifically permitted the customs authorities to initiate proceedings for violation of the provisions of Customs Act, no fault can be found with the decision of the CESTAT in upholding th....
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....ported by a 100% EOU under a LOP granted by the Development Commissioner, subject to the importer executing a bond to the effect that the export obligation and conditions stipulated in the said notification as also under the said Export and Import Policy would be fulfilled. One of the specified conditions in the Notification No. 53 of 1997 is that the importer would carry out the manufacture of goods in a customs bond. Thus, it is evident from the Foreign Trade Policy and the exemption notification issued under the Customs Act, 1962 that a 100% EOU availing the duty free import facility must be set up in a bonded warehouse approved by the customs authorities. Consequently, where the 100% EOU status of an assessee set up in a private bonded warehouse valid for a period of five years is extended by the Development Commissioner for a further period of five years, it would be obligatory on the part of the customs authorities to extend the private bonded warehouse licence for a further period of five years unless the assessee has violated the provisions of the Customs Act in the first block of five years. 33. Various circulars issued by the C.B.E. & C. from time to time particularly ....
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.... the minimum NFEP/export obligation is shown and the Development Commissioner on noticing that there is no other violation committed by the assessee grants extension of the LOP, then, non-fulfilment of the export obligation in the first block of five years cannot be a ground for initiating action against the assessee, because, the very purpose of granting extension is to enable the assessee to make good the deficiency within the extended period. In other words, where on expiry of the first block of five years extension of LOP is granted, then, the balance export obligation, if any, remained to be fulfilled in the first block of five years has to be fulfilled within the extended period of LOP. On expiry of the extended period, if it is found that the assessee has not discharged its obligation, then it would amount to violating the terms of the bond executed by the assessee in favour of the Development Commissioner/customs authorities and accordingly it would be open to them to initiate penal action against the assessee. 36. If extension of the LOP is granted by the Development Commissioner subject to fulfilling the additional export obligation, then during the second block of fiv....
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....at period, so that the assessee does not get depreciation on the imported capital goods for that period and in the event of the assessee not fulfilling the export obligation at the end of the extended period, the assessee pays the customs duty on the depreciated value of the capital goods except for the period from 2004 to 2009. Therefore, not granting approval for the period from 2004-2009 is with a view to deprive depreciation to the assessee during that period and not with a view to deny the 100% EOU status during that period. 39. The very fact that the Development Commissioner has on 27th April, 2009 granted extension of the LOP dated 9th September, 1998 which admittedly expired on 26th April, 2004 clearly shows that the extension has been granted to a 100% EOU which is required to fulfil the entire export obligation i.e. balance export obligation of the first block of five years and the additional export obligation of the second block of five years within the five years commencing from 1st April, 2009. Since the extension was granted in the year 2009, the balance export obligation of the first block of five years could be fulfilled only in the second block of five years com....
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....mproper on the part of the customs authorities to treat that the assessee had ceased to be a 100% EOU during the period 2004-2009 and take penal action against the assessee on the ground that the assessee has failed to fulfil the export obligation during the first block of five years. 42. It is true that the show cause notice issued by the customs authorities on 27th February, 2004 was adjudicated after receiving approval from the Development Commissioner and on the date of passing the order-in-original on 16th March, 2009, extension of LOP was not granted by the Development Commissioner. However, once extension of LOP was granted on 27th April, 2009, the Tribunal ought to have held that the customs duty could be demanded on the depreciated value of the capital goods at the time of debonding and that penal action could be taken against the assessee only if there was failure to fulfil the export obligation at the time of ex-bonding. 43. The argument that in spite of the extension of LOP granted by the Development Commissioner, the customs authorities could take penal action for non-fulfilment of the export obligation is accepted it would lead to an anomalous situations because....
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....ause, the assessee had shown bona fides/reasonable cause for non-fulfilment of the export obligation, the Development Commissioner had considered it proper to grant extension so that during the extended period the assessee could fulfil the balance export obligation as also the additional export obligation imposed while granting the extension. In other words, clause 3(d) is inserted with a view to ensure that on account of granting extension to fulfil the balance export obligation/performance, in the second block of five years, the assessee does not escape the penal liability for violating any other provisions of law committed by the assessee during the first block of five years or upto 1st April, 2009. Thus, clause 3(d) is intended to preserve the right of the Development Commissioner and customs/excise authorities to impose penal liability if the assessee has violated any provision of law other than the non-fulfilment of the export obligation for which extension has been granted. If the extension granted on 27th April, 2009 was not to operate as continuation of the 100% EOU status of the assessee, then, on expiry of the first block of five years, the development Commissioner would....
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.... the Foreign Trade (Development & Regulation) Act, 1992 or the Customs Act or the Central Excise Act. Admittedly, save and except the non-fulfilment of the export obligation on account of the Court receiver taking over possession of the unit pursuant to an attachment order passed by this Court in a Suit filed by IDBI, there is no allegation whatsoever that the assessee has violated any of the provisions of the aforesaid Acts. Therefore, once the Development Commissioner on consideration of the facts of the case comes to a conclusion that non-fulfilment of the export obligation was on account of bona fide reasons and accordingly permits the assessee to continue to function as a 100% EOU for a further period of five years, the customs authorities were not justified in refusing to renew the warehouse licence and enforcing the duty demand on the ground that the assessee has failed to fulfil the export obligation within the first block of five years. 48. Strong reliance was placed by the counsel for the customs on the decision of the Apex Court in the case of Kesoram Rayon (supra) in support of his contention that in the present case, Section 61 read with Section 72 of the Customs Ac....