TaxTMI 
TaxTMI 
2023 (12) TMI 1169
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....impugned here as well as the foundational logic 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 o....
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....ds should that contingency arise, the obligation for restitution of privileges availed 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 restri....
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.... consequential liability. The fatal flaw, in such dovetailing, lies in the inherent design 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 'Fore....
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....t out in the adjudication order informing the issues for disposal that, according to the adjudicating 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-cla....
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....rds seized from third parties as well as statements of transporters and employees. It is to be noted that, 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 dep....
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....Indeed, the notice went a step further to propose recovery of such 'duty foregone' as is attributable to such '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 tha....
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....ds, we are required to resolve the dispute over the goods cleared to 'domestic tariff area (DTA)' entity being 'similar', 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 'exp....
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....abric' -'embossed'/'printed' - exported by them. That is not in the least surprising for the adjudicating authority has 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 o....
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....er determination including description of goods in any other context. 22. This conclusion funds resonance in the decision 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....
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....ading VAT dyes would give an impression that department has accepted that VAT dyes, OBA and solvent dyes form distinct categories. There 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 accommodat....
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.... not to other inputs obtained by availing the exemption notification. For those reasons, too, we are compelled to consider the aspect of '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....
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....ared on discharge of 'applicable' duty, or even if subjected to post-clearance proceedings for being dissimilar, can ever be contemplated for 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 ....
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....for manufacture of exported goods and of such 'raw materials' that had availed duty exemption incorrectly owing to non-inclusion in 'standard input 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....
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....tions and rendered answers to each which, however, does not detract from the simplicity word picture supra. That having been placed on record, may now address 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-fre....
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....xport and Import Policy [i.e. the FTP]". A con-joint reading of the EOU Scheme, the Notification No. 23/2003-CE and the FTP clearly brings to the fore that the said Notification is applicable only to those goods that are allowed to be brought into DTA 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 pa....
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....RUD-B48], Shri R. K. Parsania vide his Statements dated 23-11-2015 [RUD-B77] and 28-12-2015 [RUD-B81] and also by the assessee vide letter dated 31-07-2015. The Plasticizer is the chemical that gives flexibility to 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 ....
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....ervice Tax Settlement Commission under section 127B of Customs Act, 1962. Conscious of the finality of order issued by the Commission in terms of section 127J of Customs Act, 1962, we steer clear of any inferences, relating to alleged acts of omission and commissions, that the representatives of the Commissioner of Central Excise desired to impress upon us. We, however, 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, sa....
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.... thereto of any credibility whatsoever notwithstanding any statement of acceptance on the part of the persons from whom these were recovered and which has been the substance of contention by Learned Special Counsel for appellant-Commissioner. Our perusal of the notice leads to the inevitable conclusion that the information purportedly sourced from the 'pen drives' has not 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 an....
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....f the scheme from a holistic perspective in ruling on the want of evidence to support the allegation of diversion. He echoed the criticism in the ground of appeal about the acceptance by the adjudicating-Commissioner of the contentions of the assessee without considering the proposition in the notice that, with non-conformity to the 'norms' along with manipulation of records, 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 adjudi....
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..... This contention has been accepted by the Adjudicating Authority without evaluating the evidences in the Show Cause Notice and without considering the Revenue's submission that the onus was on the assessee to prove otherwise. The Adjudicating Authority has completely failed to appreciate the crux of the case. It is logically evident that inputs procured way in excess of the finished goods have been obviously diverted. 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 bri....
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....x 0.587/0.405 (refer SION for PVC Leather Cloth)] = 8584585 Kgs only. The procurement of PVC Resin in excess of the above quantity therefore becomes dutiable. (g) The use of Plasticizer has been confirmed by the following employees of the assessee - Shri Sharad Chandra vide his Statement dated 25-08-2015 [RUD-B48], Shri R. K. Parsania vide his Statements dated 23-11-2015 [RUD-B77] and 28-12-2015 [RUD-B81] and also by the assessee vide letter dated 31-07-2015. The Plasticizer is the chemical that gives flexibility to 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 t....
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....e circumstances. Even if the importer has been found wanting in adhering to the norms, a consequential presumption of misuse, in contradistinction with inefficiency, must necessarily rest upon unearthing of some destination for the goods impugned in the appeal. The lack thereof circumscribes the extent of detriment that could, possibly, be fastened on the importer. 45. The dichotomy supra is apparent in the evolution of the notification itself. In the original version of 2003, neither of the notifications placed emphasis on monitoring of the manufacturing 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 p....
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....tional Development Commissioner, for export, and even clearance of like or similar goods into 'domestic tariff area (DTA)' on payment of appropriate duties of central excise, in fulfillment of 'export obligation', i.e., being 'net foreign exchange (NFE) positive' over five year period as prescription for renewal. While there is no ceiling, either under the policy or in terms of either notification, on the quantity or value of such procurement on 'duty foregone' basis, deployment in manufacture of goods to be exported or cleared on payment of duty by the approved 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 Exc....
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.... Trade Policy which has not envisaged restriction on deployment of raw materials and it is merely the unwieldiness in exhaustive enumeration of each and every conceivable article of manufacture that appears to have prompted prescription limited to that most commonly known without intruding upon management of manufacturing facility. The assumption of the tax authorities is not echoed in the notifications or the scheme and must be discarded without any let or hindrance. Thus, we find that, in the two-pronged approach to enforcement of the norms, both intent and content have been maimed by the tax 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 c....
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....intended for fulfillment of 'net foreign exchange (NFE)' earning. As we have noticed supra, 'standard input output norms (SION)', designed for another and later scheme in the Foreign Trade Policy (FTP), was grafted into the already existing 'export oriented unit (EOU)' scheme in the same policy without any alterations in structuring. Again, as we have noticed supra, the grafting narrowed down the existing latitude in empowering of customs authorities to track usage of 'duty exempt' materials and even to the extent of prescribing 'tolerance' for 'waste' arising in the production process. Once again, as we 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 noti....
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.... the rest of the mix. That, then, should be the test for allowing the relief sought by appellant-Commissioner. 51. The extent of exports is not in dispute. The entitlement in procurement of 'polyvinyl chloride (PVC) resin' to the extent effected by the unit is not in dispute and it is not in dispute that the production was not proportional to such quantity. The contention of the appellant-Commissioner rests upon the procurement of 'plasticizer' not being in proportion with procurement of 'polyvinyl chloride (PVC) resin' implying that consumption of the former was higher than justified for the quantity of consumption 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 a....