TaxTMI 
TaxTMI 
TaxTMI 
2023 (12) TMI 1169
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....gic of the charges urged for our approval of the demand proposed in the notice impugned here - the mundane world of tax levy may no longer remain out of that. On behalf of the appellant-assessee, M/s Responsive Industries Ltd, it has been submitted that the case of diversion of 'polyvinyl chloride (PVC) resin', procured by them - from abroad and sourced indigenously - without payment of duty in terms of notification no. 52/2003-Cus dated 31st March 2003 and notification no. 22/2003-CE dated 31st March 2003, rests on peripheral factors sparked by presumption of falsified records without any reasons to even suspect so. Attention was drawn to '1i. After completing the investigations, the Department wasof the view that RIL-EOU had imported and also procured duty-free indigenous raw materials in excess of what was required for export production and the allegation is that such excess procured duty-free raw materials has been clandestinely sold / diverted in the domestic market, before and after bringing them to the factory. The demand of duty covering April 2010 to March 2016, are on the following: (i) Demand of customs duty of Rs.678,85,68,924 /- in respect of duty-free imported raw....
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....led by such units, through exemptions accorded under section 5A of Central Excise Act, 1944 and Customs Act, 1962 now rests upon presumption and not on subjective satisfaction as it did earlier. Such units undertake manufacture of goods and, though considered to be factory with dutiability arising on manufacture under section 3 of Central Excise Act, 1944, are under joint regulatory control of inter-departmental Approval Committee envisaged in the Foreign Trade Policy (FTP) thus bringing production, export and clearance within a reporting structure far more regimented than the usual factories registered under Central Excise Act, 1944. Just as the export promotion schemes, envisaged in chapter 4 of Foreign Trade Policy (FTP) for incentivizing foreign exchange accretion in return for privilege of procurement of 'inputs' from abroad and corresponding credit for import substitution, placed premium on efficient use of such materials to rectify leakage under cover of inefficiency, units such as that of the assessee, covered by chapter 6 of the Foreign Trade Policy (FTP) had also had their privileges restricted to such theoretical estimates further down in time. Bonding of these goods in ....
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....esign of the 'norms' to serve both the justification for, and computation of, recovery. That the said absence of distinguishment in the 'norms' between inefficiency and diversion suffices to characterize the formulation for all applications except where it is specifically provides otherwise as an inevitable corollary. 4. With this backdrop of policy framework before us and considering the scale of alleged diversion that was proposed for recovery in the notice, it would be of use to set out the facts taken note of in the impugned proceedings. The appellant-assessee undertakes production of several articles made of 'polyvinyl chloride (PVC)' such as 'vinyl flooring' and 'textile fabrics' which are either exported or, when destined for domestic tariff area (DTA), are transferred to another undertaking of theirs that, unlike the appellant-assessee, which is an 'export oriented unit (EOU)' issued with 'letter of permission (LoP)' under the 'Foreign Trade Policy (FTP)', is a manufacturing facility registered as such under Central Excise Act, 1944. As privilege of operating under the scheme in 'Foreign Trade Policy (FTP)', the appellant is entitled to procure 'capital goods', 'raw mater....
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....cating authority, erected on the premise that 'export-oriented unit (EOU)' are obliged to undertake manufacture of goods solely by using exempted material and stood on assumption of diversion inhering in every procurement of 'raw materials' in excess - in quality or description - of enumeration in 'norms' for the relevant product group prescribed in Handbook of Procedures Vol II of Foreign Trade Policy (FTP) which, for the period in dispute, is that of AM 2010-2015. It was also noted that re-classification of each of the manufactured articles, within the product groups therein, has had the effect of lower ceiling for duty free procurement of 'raw materials' rendering excess procurement of enumerated 'raw materials' and those not enumerated as corresponding to the product group to be ineligible. Furthermore, it has been noted that alleging diversion/sale was sought to be established from private records of appellant-assessee and other parties as well as statements of employees and third parties. 8. The adjudicating authority also took note of the response of the assessee that the re-classification was inapt owing to defect in test reports that had been relied upon for this emendati....
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....at, but for the finding on non-leviability of differential duty in the adjudication order, the allegation of misclassification may have had effect on the quantum of recovery ordered and is, therefore, relevant for scrutiny only should relief sought by jurisdictional Commissioner of Central Excise be found to be tenable. 12. Owing to the sequence of commercial activity, it would be appropriate to first take up the challenge of the assessee to the fastening of duty liability on them stemming from disallowance of entitlement to clear the goods in the 'domestic tariff area (DTA)' at concessional rate of duty. Moreover, the jurisdictional Commissioner of Central Excise, too, is in appeal on this count with the cavil that the adjudicating authority had misinterpreted the provisions of the Foreign Trade Policy (FTP) to conclude that even goods dissimilar to those exported may be cleared into the 'domestic tariff area (DTA)', at the cost of eligibility for concessional rate of duty on finished goods cleared domestically by ignoring the proposition in the show cause notice that even deployment of 'raw materials', procured without payment of duty, is contrary to condition in the relevant no....
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.... 'raw materials' as were deployed even in manufacture that was not exported. Yet, the adjudicating authority preferred to use that signification to infer only ineligibility for concessional rate of duty on domestic clearance; neither does the impugned order nor did the show cause notice suggest that the assessee was not eligible in terms of the twin conditions, viz., being compliant with obligation to be 'net foreign exchange (NFE) positive' and within the quantitative restriction proportionate to value of goods exported, for concessional rate of duty. With denial of that entitlement for clearance at concessional rate of duty not having been contemplated in the notice initiating the present proceedings, culmination in such insinuated detriment to assessee bedevils the acceptability of the impugned order, to that extent, for not being legal and proper. 15. Again, as both sides have made common cause before us on the impropriety of ignoring one proposal and substituting, in its stead, another conclusion - albeit with different pleadings on consequences - we may do worse than just disapprove resort to such by the adjudicating authority. However, the appeal of jurisdictional Commissio....
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....imilar', or otherwise, to exported goods to settle the controversy. 17. Learned Counsel submitted that the conclusion of lack of similarity of domestically cleared goods with exported goods had been inferred without any basis in fact or law solely by relying on purported admission to that effect in statements recorded from key personnel of the appellant-company and on a letter in which the leviability of 'special additional duty (SAD)' was doubted. He pointed out that the statements had been twisted out of context to contrive such conclusion and that the communication on applicability of 'special additional duty (SAD)' was more about absence of sale in inter-unit transfer than about the characteristics of the goods. He further pointed out several inconsistencies in the findings that had led to the outcome of fastening of duty liability on them. He contended that there was no difference, as far as classification or usage is concerned, between 'vinyl flooring' and 'polyvinyl chloride (PVC) leather cloth/ textile fabric', constituting almost 97% of production in the 'export oriented unit (EOU)', that was cleared without printing and embossing to their group undertaking and that clear....
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.... merely adopted the narrative in the show cause notice which is all the analysis, too, that prompted this element of the challenge now mounted in appeal of jurisdictional Commissioner of Central Excise. There has been no evaluation of facts by the adjudicating authority despite it being apparent that comparison of any two goods for ascertaining similarity should be grounded in facts to the exclusion of all else. And it is the glaring lack thereof in the notice which appears to have persuaded the impugned order to venture into speculation. That too does not surprise as there are no remnants of past clearances available and, yet founded on the admitted lack of embossing and printing on the goods cleared domestically, 'lack of similarity' has been got admitted from key personnel of the appellant-assessee with their admitted 'opinion'- such as it is - to project liability to duty - one way or the other. 20. That is clearly unacceptable as passing muster to be sufficiently conclusive because it is not from such contrived assent but from unquestioned distinguishment of description that such conclusions may acquire the mantle of credibility. In the absence of samples which could be refer....
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....of the Tribunal in Meghamani Industries Ltd v. Commissioner of Central Excise, Ahmedabad I [2010 (261) ELT 411 (Tri-Ahmd)] holding that 4. We have considered the submissions made by both the sides. Applicability of extended period in our opinion is not sustainable in this case when the appellant has submitted returns which would show exemption notification availed by them, it cannot be said that there was any suppression or mis-declaration once the details of exemption Notification is given. Central Excise officer who is receiving the returns would be able to checkup whether the clearances by the appellants were in terms of the notification or not. Since the condition of the Notification are known to the officer as well as the appellants. When all available information is submitted, if the departmental officers choose not to take any action under the Notification, unless the department is able to show that in the return or in the declaration made by the appellants there were any omissions or commissions which would have prevented, the officer to find out the correct case, extended period can not be invoked. In this case no evidence has been brought out to show that return/documen....
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....here is no finding as regards agro-chemicals which are similar and if they are not similar why they are not similar. Commissioner has to consider all these facts and give finding on the issues. Therefore, we remand the matter to the Original Adjudicating Authority, who shall consider in respect of each item the eligibility in DTA and also which meaning of "similar goods" to be adopted. We have already held that extended period cannot be applied. Appellants are to be given proper opportunity to present their case before the final decision is taken.' and referred to in the decisions supra cited by Learned Counsel, owing to which any finding of goods being 'dissimilar' would have to emerge in the facts of each dispute and independent of standards adopted for any other purpose. The Foreign Trade Policy (FTP) permits goods, 'similar' to that exported, to be cleared into the domestic market at concessional rate of duty. That flexibility appears to have been necessitated by customer preference being varied in different markets and, therefore, to accommodate commercial choice. The impugned order has not been able to distinguish the impugned goods from exported goods in terms of distinctio....
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.... 'dissimilar goods' in appeal of jurisdictional Commissioner of Central Excise within the urging for recovery of 'duty foregone' on the whole of 'raw materials' that did not get deployed for manufacture of exported goods. 24. While the notice and appeal of jurisdictional Commissioner of Central Excise, as well as the impugned order, are at one in spelling out the ineligibility of domestically traded output of the appellant-assessee for being ineligible ab initio on the one hand by not having been exported and on the other for not being similar to exported goods, the quantum of recovery is not in concord, with only the impugned order falling back on section 3 of Central Excise Act, 1944 for restitution and the other two seeking restitution by resort to the recovery contemplated in the two exemption notification for breach of conditions therein. This lack of concord is manifested again in inconsistency of approach to recovery which we may, at this stage, take the liberty of digressing to take note of. The adjudicating authority, while disregarding the proposal in the notice for recourse to the undertaking of the appellant in seeking benefit of exemption notifications, to be initiate....
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....restitution of 'duty foregone' at the time of import by operation of 'intended use' having been breached. Both the exemptions, viz., notification no. 52/2003-Cus dated and notification no. 22/2003-CE dated, make no reference to the nature of goods that are cleared domestically. Per contra, both are categorical that clearance of final products into the domestic market on payment of duty expunges scope for subsequent revisit of entitlement to exemptions availed of on procurement of 'raw material' used in such manufacture; moreover, the non obstante qualification of the facility excludes contemplation of any proceedings other than duty liability arising out of section 3 of Central Excise Act, 1944. It is apparent that, in filing this appeal, the competent authority did not appear to have been guided by the entirety of the impugned notifications and restricted themselves to the conditions attached to availment of exemptions from levy on procurement. The failure of Commissioner of Central Excise on this score is academic, however, considering our disposal of the appeal of the assessee on fastening of duty liability. 27. Turning to the other facet of appeal of jurisdictional Commissione....
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....t output norms (SION)' of the Foreign Trade Policy (FTP). 29. The charge of liability to recovery of 'duty foregone' by subsequent non-utilization for manufacture of eligible finished goods, is founded not by ascertainment of actual disposition of such 'raw material' but on the purported inability of the General Manager, and now respondent in appeal of jurisdictional Commissioner of Central Excise, to satisfy investigators about the unaccounted 21,24,77,752 kg of 'polyvinyl chloride (PVC) resin' entered in the returns filed during the disputed period as well as details of thickness of the goods cleared against invoices, the inordinately high consumption of 'raw materials' as recorded in the 'pen drives' seized from the residence of an employee and the deployment of 'polyvinyl chloride (PVC) resin' to the extent of eight times that of 'plasticizers' while it was to be only less than three times as per 'standard input output norms (SION)' in the Foreign Trade Policy (FTP). It was inferred from the last that the skew in the procurement of these two 'raw materials', and to the extent of excess from the ratio borne to one another in the norms, was attributable to the 'polyvinyl chlorid....
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....ress the principal cavil of the jurisdictional Commissioner of Central Excise about the impugned order. We make it abundantly clear that we are deciding only on the proposition putforth on the applicability of norms to allege diversion of 'raw materials' other than those used in manufacture of goods for export and domestic clearance. 33. From a perusal of '7. ..... (g) The working of the demand in the Show Cause Notice was done in the following manner:- (i) The assessee had procured duty-paid inputs as well as duty-free inputs. (ii) On the basis of export clearance of finished goods the quantum of duty-free inputs allowed as per SION was computed year-wise. This quantity of inputs was considered as permissible consumption of inputs. (iii) Thereafter, this permitted consumption was first adjusted against the total quantity of duty-paid inputs; balance, if any, was adjusted against the locally procured duty-free inputs and further balance, if any, was adjusted against imported duty-free inputs. (iv) Barring one or two inputs, permissible consumption of inputs, got adjusted against the first two types of procurement of inputs. (v) On the balance quantity remaining after....
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.... in accordance with the FTP. This fact has remained unappreciated by the Adjudicating Authority. Para 6.08 (a) of the FTP requires the fulfillment of two conditions before goods can be cleared to DTA, as under - (i) that the EOU earns Positive Net Foreign Exchange [NFE]; and (ii) that the goods cleared to DTA are "similar" to the goods exported; but such DTA clearances should not exceed 50% of the FOB value of exports.' in the grounds of appeal that, and riding on the support of documentary evidence set out in show cause notice, should have sufficed for establishing manipulation of records maintained by assessee to derail suspicion of diversion that were more accurately portrayed by the contents in 'pen drive' recovered during search. 34. The essence of 'norms' to the onus of 'use for intended purpose' has been set out thus (a) The Adjudicating Authority has made the following observation at para 9d of the impugned Order-in-Original - If the Noticee has procured lesser quantity of Plasticizers as compared to PVC Resins, it cannot be concluded that PVC Resins has been procured in excess. Therefore, nothing adverse can be concluded against the Noticee. (b) The basic premi....
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....hat SION provides for maximum quantity of inputs that can be used but there was no restriction on lesser quantity being used. There's no harm in this argument but the moot question is then whether the resultant finished goods would be as intended by the assessee? Even the basic tenets of chemistry, which states that in a given manufactured substance one chemical cannot be unilaterally altered without proportionately altering the other required chemicals, has been overlooked by the Adjudicating Authority. There has been a failure on the part of the Adjudicating Authority in not correctly considering the allegations made in para 44 of the Show Cause Notice. (i) Another observation made by the Adjudicating Authority in the impugned Order-in-Original at para 9d is - The data compiled in the notice at Annexure - O and P itself varies. For example, in the year 2010-11, in Annexure - O, all grades of PVC Resins consumption is as 1,57,38,452 kgs while in Annexure - P the consumption data of PVC Resins is shown as 8,27,60,000 kgs. In this regard, it is submitted that Annexure-O is "Summary of Input Consumption Data" whereas Annexure-P is a "Summary of the Inputs [duty-paid + duty-fr....
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....ver, are constrained to bear this in mind while evaluating the acceptability of evidence discarded, and erroneously so according to the grounds of appeal, by the adjudicating authority despite being clear evidence in support of inference of diversion of 'raw materials' procured without payment of duties of customs or duties of central excise, as the case may be. 37. In appeal of Commissioner of CGST & Central Excise, Palghar, it is accepted that the impugned proceedings have emanated from follow-up action by investigators and we are, therefore, burdened with the task of excoriating, as it were, any aspect that relates to disposal of application before the Customs Central Excise and Service Tax Settlement Commission; a dilemma presents itself here as the alleged complicity in alleged diversion of the impugned goods, said to be evidenced by some of the statements relied upon in the notice, is inseparable from the dispute carried to Customs Central Excise and Service Tax Settlement Commission. The record of that proceeding is not before us to assist in the exercise and, in the absence of even suggestion of impugned goods having reached some recipient, let alone trail of movement of g....
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....ot been deployed for computation of differential duty liability but is limited to having been set out as evidence of alleged manipulation of records maintained by the assessee. Hence, even if the provenance of the information is held as acceptable, no substantive detriment turns upon it save in circumstances of any such being attributed to the maintained records - either as mandated obligation under prescribed procedure or presumption, thereby, of diversion of material. Therefore, the information purportedly obtained from the 'pen drives' is, for the nonce, irrelevant. 39. Having alluded to certain episodes involving the appellant, Learned Special Counsel for appellant-Commissioner took us through details of the 'export oriented unit (EOU)' scheme and the corresponding notifications, exempting duties of customs and duties of central excise, issued under Customs Act, 1962 and Central Excise Act, 1944 to operationalize the intent of the Foreign Trade Policy (FTP) which he contended to have been succinctly encapsulated in circular no. 12/2008-Cus dated 24th July 2008 of Central Board of Excise & Customs (CBEC) and is the bedrock of the case established in the investigation. He argued....
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.... onus of disproving diversion vested with the assessee. The acceptance of the plea of Shri Rangnath Shinde on the variation in the handwriting in the statements recorded from him was, according to Learned Special Counsel, incorrect inasmuch as the language deployed for the exercise should have been factored in. He also contended that the adjudicating-Commissioner had, without considering the significance of the buyer named therein as merely symptomatic of mala fides on the part of the assessee, set more store, and inappropriately, on the particulars of the buyer to reject its evidentiary potential in the context of statement of one Keyur Umrania attesting to the veracity of the printout and manner in which the records suppressed the true picture. The discarding of the testimony of the transporters by the adjudicating-Commissioner was also criticized by him for inappropriateness to conclude that dropping of portion of demand in the impugned order had not been adequately justified. 42. At the core of the primary cavil of the appellant-Commissioner, as well as the notice initiating proceedings, is the arrogating of 'standard input output norms (SION)', incorporated in the Handbook of....
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....d. Furthermore, enough corroborative evidence has been provided in the Show Cause Notice in this regard to establish this fact. (e) Without having to prove any diversion, the Revenue's case holds good on the following grounds itself- (i) The duty-free inputs procured by the assessee were not used for the intended purpose; and (ii) The goods cleared to DTA were "not-similar" to the goods exported as mandated under para 6.08 (a) of the FTP. Though the adjudicating authority has agreed to this basic fact, he has gone ahead to arrive at a conclusion which is not legal and proper. (f) In addition to the above, the documentary evidences relied upon in the Show Cause Notice are additional/ corroborative evidences only to bring home the fact that the assessee was manipulating their documents for the purpose of projecting that they were complying with the legal requirements.' and the second relies on '15) Para 9d of the Order-in-Original - (a) The Adjudicating Authority has made the following observation at para 9d of the impugned Order-in-Original - If the Noticee has procured lesser quantity of Plasticizers as compared to PVC Resins, it cannot be concluded that PVC Resi....
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....the finished product. Lesser the Plasticizer, more rigid the product. (h) The argument put forth by the assessee is that SION provides for maximum quantity of inputs that can be used but there was no restriction on lesser quantity being used. There's no harm in this argument but the moot question is then whether the resultant finished goods would be as intended by the assessee? Even the basic tenets of chemistry, which states that in a given manufactured substance one chemical cannot be unilaterally altered without proportionately altering the other required chemicals, has been overlooked by the Adjudicating Authority. There has been a failure on the part of the Adjudicating Authority in not correctly considering the allegations made in para 44 of the Show Cause Notice. (i) Another observation made by the Adjudicating Authority in the impugned Order-in-Original at para 9d is - The data compiled in the notice at Annexure - O and P itself varies. For example, in the year 2010-11, in Annexure - O, all grades of PVC Resins consumption is as 1,57,38,452 kgs while in Annexure - P the consumption data of PVC Resins is shown as 8,27,60,000 kgs. In this regard, it is submitted tha....
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....process. Unlike the schemes in chapter 4 of the Foreign Trade Policy (FTP) which conferred privilege of exemption to undertakings that carried out manufacture for exports in de-regulated environment warranting some 'record based' surety of utilization by the importer, the 'export oriented units (EOU)' scheme entities were not only confined to 'warehouses' but also required to 'manufacture in bond', as envisaged in section 65 of Customs Act, 1962, with risk of leakage restricted to deliberate removal that was unlikely to remain undetected for long. The rigour of handling of 'waste and scrap' in such 'manufacture in bond', with potential for distorting the intent of the scheme in the Foreign Trade Policy, was cause for incorporating 'tolerance limits' insofar as 'waste and scrap' was concerned. That such supervised manufacture was not attuned to ensuring optimal use of 'raw materials', with consequent cost to the exchequer, compelled policy fine-tuning towards that end by adopting monitorial mechanism of 'standard input output norms (SION)' which had been gainfully employed in restricting use of exemption driven 'raw materials' for factories operating under export promotion schemes o....
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....d unit is mandated. Procedurally, the operations under bond is subject to continuance of the facility of the unit as a warehouse that is also approved under section 65 of Customs Act, 1962 to carry out manufacturing activities with stipulation that waste generated by such operation be subjected to restitution of 'duty foregone' to the extent of clearance for domestic consumption while departing from the statutory prescription therein of duty liability to duties of customs under section 12 of Customs Act, 1962 on domestic clearance of finished goods by the special levy of duties of central excise under section 3 of Central Excise Act, 1944. Diversion of procured goods into the domestic market erases the regularity of import of such goods ab initio to invoke confiscation under section 111(o) of Customs Act, 1962 attended by recovery empowered by section 28 of Customs Act, 1962 in conjunction with penal provision of section 112 or section 114A of Customs Act, 1962 which is not the substance of the proceedings in the present dispute that has ought to do with the presumption of diversion by attribution of such as inhering in the content of bond, as prescribed in third condition of first....
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....ax authorities; not only in the issuing of the show cause notice but also by persisting with the appellate remedies. 48. Before the incorporation of the proviso to conditions in the two notifications supra, the reference to, as well as contingency of non-existent, norms for product group with authority to finalise norms vested in the Board of Approval effective between 6th July 2007 and 5th May 2008, satisfaction of customs authorities that '(ii) in the case of goods other than capital goods, such goods as are not proved to the satisfaction of the said officer to have been used in connection with the production or packaging of goods for export out of India or cleared for home consumption within a period of three years from the date of import or procurement thereof or within such extended period as the said officer, as the case may, on being satisfied that there is sufficient cause for not using them as above within the said period, allow;' in condition 3(d) of first paragraph of notification no. 52/2003-Cus dated 31st March 2003, as well as in condition 4(a) of first paragraph in notification no. 22/2003-CE dated 31st March 2003, which held sway with no reference to 'standard i....
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....have noticed supra, the distinction lay in employing of the 'norms' to limit import of 'raw materials' physically at the threshold for the purpose of export promotion scheme while employing it as a template for determining deviations when 'raw materials' are not physically available any longer and, consequently, cannot be accorded the rigour, by subsequent adoption, for presumption of diversion with penal consequence in the case of 'export oriented units (EOU)' in the Foreign Trade Policy (FTP). Case for diversion-driven detriment has always existed, independent of the customs notification relevant to either of the schemes, in Customs Act, 1962, by recourse to 111(m) of Customs Act, 1962 or section 111(o) of Customs Act, 1962 and rule 25 of Central Excise Rules, 2002 respectively; the rigour of those provisions cannot be diluted through arrogation of empowerment in a notification issued under section 25 of Customs Act, 1962 or section 5A of Central Excise Act, 1944 and, especially, as neither these notifications nor the corresponding provisions in the Foreign Trade Policy (FTP) allude, even remotely, to such intent. Therefore, a case of diversion cannot be made out without referenc....
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....onsumption of the latter leading to the allegation, thereby, that lesser quantity of 'polyvinyl chloride (PVC) resin' was actually used; this is the pitfall of embarking upon mathematical computation that was not designed into 'norms' formulation - a case of logic being stood on its head for contriving a desired end. 52. The adjudicating-Commissioner has, on the other hand, noted that 'plasticizer' imparts flexibility to products of resinous origin and that the manifold variations of goods, within the product groupings, manufactured by the appellant does not lend itself to acceptance of the proposition in the show cause notice that consumption of 'plasticizer' should govern restrictions on use of 'polyvinyl chloride (PVC) resin' for determining recovery of 'duty foregone' at the time of procurement. The grounds enumerated for relief sought by appellant-Commissioner have not put forth any contention to override this conclusion. Mere reproduction of extracts from the notification coupled with reiteration of the proposition in the notice is not tenable surrogate either. We find no valid ground to hold that any part of 'duty foregone' is recoverable for the reasons offered in the appe....