Case Law Details
Same Deutz Fahr India (P) Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Benefit duty import allowed when goods jointly imported financing company EOU
The CESTAT, Chennai in the case of M/s. Same Deutz – Fahr India (P) Ltd. v. Commissioner of GST & Central Excise (Customs Appeal No.42175 of 2014, dated May 26, 2023) allowed the Export Oriented Unit (“EOU”) and financing company jointly to enjoy the benefit of no duty imports when imported goods used by EOU.
Facts:
M/s. Same Deutz-Fahr India (P) Ltd. (“the Appellant”) is an EOU and is engaged in manufacturing of tractors and its accessories. The Appellant’s job worker M/s. Amul Industries Pvt. Ltd. (“M/s. AMUL”) imported 3 machineries cumulatively valued at INR 4,95,05,655/- on behalf of the Appellant. However, the Bill of entry was filed by the Appellant.
The machines were cleared by the Appellant by availing the benefit of Notification No. 52/2003-Cus. dated March 31, 2003 (“the EOU Notification”) i.e. without payment of custom duty when goods will be put to use by EOU for manufacturing goods for export.
The proper officer issued the notice levying demand of INR 1,41,78,027/- on the Appellant on three grounds firstly, the import documents were not filed by the Appellant and M/s. AMUL, secondly, the bond for fulfilment of conditions of the EOU Notification was not filed by the Appellant and the M/s. AMUL jointly and lastly that, the agreement between the Appellant and M/s. AMUL was of Principal and job worker and not of lessor and lessee. The demand was confirmed by the Commissioner vide Order-in-Original No. 1/2014 (Cus.) dated June 30, 2014 (“the Impugned Order”).
Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT, Chennai.
Issue:
Whether the machineries imported are eligible for the benefit of the EOU Notification?
Held:
The CESTAT, Chennai in [Customs Appeal No.42175 of 2014] held as under:
- Observed the legal provisions and CBEC’s Circular No. 88/95-Cus dated August 01, 1995, and stated that the circular (ibid) makes it clear that leasing company do not qualify for the EOU exemption therefore, a facility has been provided by the Exim policy for the domestic leasing company to jointly file the import documents along with the EOU to enable the import of the capital goods free of duty.
- Noted that, EDI system does not permit joint filing of the import documents and the agreement for the machining work between the lessor and lessee will not be affected by the fact that they had a principal and job worker manufacturer relationship.
- Held that, the Commissioner in the Impugned Order noted that the machines were put to use by the Appellant for manufacturing goods as per the EOU Notification thus, the benefit of the EOU Notification cannot be totally denied to the Appellant.
- Further, rejected the contention of the Revenue of invocation of extended period of time by stating that Revenue department did not find any additional/hidden documents during their investigation which were used by the Revenue Department to challenge the exemption availed by the Appellant.
- The CESTAT allowed the appeal and gave time to the Appellant and M/s. AMUL to comply with bond condition.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is filed by M/s. Same Deutz-Fahr India P. Ltd., Ranipet against Order in Original No. 1/2014 (Cus.) dated 30.6.2014 passed by the Commissioner of Central Excise, Chennai III.
2. Brief facts of the case are that the appellants are an Export Oriented Unit (EOU) and are manufacturers of tractors and parts thereof falling under Chapter 87 of the Central Excise Tariff Act, 1985. The charge against them is that they in collusion with M/s. Amul Industries Pvt. Ltd. (Amul) their job worker since 2008 (as per the job work agreement dated 3.3.2008), cleared 3 Mekino Horizontal Machining centre valued at Rs.4,95,05,655/- imported by Amul their job worker, with Bill of Entry (BE) No. 833825 dated 4.9.2008, being filed by the appellant. Proforma invoice was addressed to Amul by the foreign supplier, based on the purchase order place by Amul on the foreign supplier. The appellants were only the consignees for the impugned machines and were not the owners. Moreover, as per the job work agreement entered into by the appellant and Amul their job worker, Amul was the owner of the impugned goods. The said machines were wrongly cleared by the appellant without paying duties of customs to the tune of Rs.1,41,78,027/-. By availing the benefit of Notification No. 52/2003-Cus dated 31.3.2003 for the machines, but without having fulfilled the conditions of the said notification. The matter was adjudicated by the proper officer after issue of notice and following the due procedure. The learned Commissioner in the impugned order confirmed the demand for duty of Rs 1,41,78,027/- as assessed in the ex-bond Shipping Bill, along with interest and imposed penalties. She did not confiscate the impugned goods. Aggrieved by the said order, the appellant is before us in appeal.
3. No cross objections have been filed by the respondent.
4. We have heard Ms. J Ragini learned advocate on behalf of the appellant. She has stated that there is no suppression of facts involved. She submitted that Amul were having their premises within the EOU. Import documents could not be filed jointly by them along with Amul as the EDI system did not permit a joint filing. They were further of the view that a lease is not defined by rent alone. The interest free financing of the machining facility and for tooling and fixture by the appellant to Amul and the free cost of space given to Amul to house and run the machines within the EOU premises, will show that there was adequate consideration and that the agreement was not a sham. Further the lease agreement was given to the Superintendent of Central Excise on 31.10.2008. After scrutiny of the lease agreement only, re-warehousing certificate was sent to customs authorities at Chennai. All operations inside the bonded warehouse are with the knowledge of officers and the Show Cause Notice in this case was issued on the last day of the five-year period by invoking the extended time limit without any justification. It is not the case of the department that the machineries were diverted or not put to use for production of goods meant for export. Further if Amul is the importer then as per section 28 of the Customs Act the demand can be made only against Amul who is the person liable to pay duty. She prayed that the impugned order be set aside.
5. We have heard Ms. K. Komathi learned AR on behalf of Revenue. She submitted that exemption notifications have to be strictly complied with. That the appellant has wrongly availed of the duty exemption under Notification No. 52/2003-Cus dated 31.3.2003, without fulfilling the conditions given therein in as much as the Bill of Entry was not filed jointly along with the owners of the machines (Amul) and the bond for fulfilment of the conditions of the exemption notification was also not executed jointly by both the parties. The appellants have also mis-declared their relationship with Amul, in as much as there does not exist a lessor – lessee relationship between the appellant and Amul. The actual relationship is only that of a principal manufacturer and a job worker. Hence for the suppression of these facts the extended time limit for issue of SCN has been rightly invoked. She has relied upon the following judgements in favour of Revenue:-
(i) Star Industries Vs. Commissioner of Customs (Imports) Raigad reported in 2015 (324) ELT 656 (SC)
(ii) Commissioner of Central Excise, Pondicherry Vs. Honda Siel Power Products Ltd. reported in 2015 (323) ELT 644 (SC)
(iii) Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company reported in 2018 (361) ELT 577 (SC).
She prayed that the order may be upheld.
6. We find that the issues for determination are;
(a) whether the impugned goods are eligible for the benefit of Notification No. 52/2003-Cus dated 31.3.2003
(b) whether the extended time limit for issue of show cause notice was correct.
7. To answer the issue at para 6 (a) it would be necessary to examine the legal provisions involved in the dispute which are cited at para 10 of the impugned order and are reproduced below;
“Relevant Foreign Trade Policy / Notification No. /Legal Provisions
(A)Para 6.4(a) of the Foreign Trade Policy 2004 – 2009 provides for allowing the E.O Unit to source the capital goods from foreign/domestic leasing company without payment of duties of customs, in addition, to the sourcing of capital goods through direct import.
(B) Notification No. 52/2003-Cus dated 31.3.2006 as amended allows an E.O. Unit to procure imported inputs and capital goods subject to certain conditions without payment of duties of customs payable thereon.
(C) CBEC’s Circular No. 88/95-Cus dated 1.8.1995 issued from the File No. 305!34!95-FTT issued with regard to sourcing of capita l goods by an E.O Unit from foreign ! domestic leasing company at free of duty, stipulates the following two conditions to avail the duty benefit granted by the said notification:-
(i) The E.O Unit should source the capital goods from the foreign ! domestic leasing company on the basis of firm contract entered into between the E.O. Unit and the leasing company; and
(ii) The E.O. Unit and the leasing company will jointly file the import documents i.e. Bill of Entry, to enable the import o f the capital goods at free of duty. ”
8. Para 2 of CBEC’s Circular No. 88/95-Cus dated 1.8.1995 relating to the imports of leased capital goods by EOU’s is reproduced below;
“2. As may be noted, para 96 of the Exim policy details the facility available to EOU/ EPZ units to source its capital goods from the domestic leasing company on the basis of a firm contract. This is an existing facility. However, the said para has been re- formulated now so as to clearly bring out the fact that in such case, the EOU / EPZ unit and the domestic leasing company will jointly file the import documents to enable the import of the capital goods free of duty. This stipulation is necessary in view of the fact that while the EOU / EPZ unit may be eligible for duty free imports under the respective customs notification, imports by a leasing company for supply to these units do not qualify for the exemption. Hence, it is necessary that if imports are by a leasing company then for the purpose of availing duty concession, the import document namely bill of entry should be jointly filed by the leasing company together with the EOU / EPZ unit concerned and consequently the bond for fulfilment of the conditions of the exemption notification has also to be executed by both the persons. Only in such case customs duty benefit will be available. This aspect is to be particularly ensured by the customs in case any imports are noticed under para 96 of the Exim policy.”
(Emphasis added)
9. The circular makes it clear that the Exim policy seeks to facilitate EOU’s who would like to source capital goods from leasing companies. Since imports by a leasing company for supply to EOU’s do not qualify for the exemption, a facility has been provided by the Exim policy for the domestic leasing company to jointly file the import documents along with the EOU to enable the import of the capital goods free of duty. Consequently, the bond for fulfilment of the conditions of the exemption notification has also to be executed by both the persons.
10. The main charges made out by Revenue against the present import are that;
(a) import documents have not been filed jointly by the appellant-EOU and the owner-importer of the goods, Amul.
(b) the bond for fulfilment of the conditions of the exemption notification has also not been executed jointly by the appellant and Amul
(c) the agreement between the appellant and Amul is not one between a lessor – lessee but between a principal manufacturer and a job worker. There is no provision for consideration i.e. amount of leasing rent, for leasing out the machines in the said agreement. Section 25 of the Indian Contract Act, 1872 says an agreement without consideration is void and cannot be enforced in a court of law.
However, it is seen that the learned Commissioner in the impugned order has noted that the imported capital goods have been received and put to use by the EOU and hence she did not find any grounds to confiscate the impugned goods.
11. We find that the allegation that import documents have not been filed jointly by the appellant-EOU and the owner-importer of the goods, Amul has been adequately explained by the appellant. The appellant cannot be faulted if the EDI system did not permit a joint filing of the import documents. Revenue has not disputed the appellants claim. As regards the bond for fulfilment of the conditions of the exemption notification having not been executed jointly by the appellant and Amul, the appellant has not provided a satisfactory answer and have been found to have erred. Revenue has stated that since in the agreement there is no provision for consideration i.e. amount of leasing rent, for leasing out the machines, then as per Section 25 of the Indian Contract Act, 1872 the said agreement is void and cannot be enforced in a court of law. However, this point regarding what constitutes ‘consideration’ which is crucial for understanding the relationship between the appellant and Amul, the owner of the machines, has not been examined and discussed along with the extant provisions of the Indian Contract Act, 1872, in the impugned order. We find that ‘consideration’ is defined under Section 2 (d) of the Indian Contracts Act, 1872 as under;
“(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;” (emphasis added)
Adequacy of the consideration is immaterial. In the light of the above the appellants submission that the promise for interest free financing of the machining facility and for tooling and fixtures by the appellant to Amul and the free cost of space given by the appellant to them to house and run the machines within the EOU premises, will show that there was adequate consideration and that the agreement was not a sham, cannot be brushed aside. The fact that a job worker – principal manufacturer relationship existed between the lessor and lessee will not be determinantal to the agreement for the machining work executed by them.
12. We find that had the appellant-EOU imported the impugned goods they would have been eligible for the exemption. Similarly, if Amul had jointly filed a Bill of Entry and executed a bond along with the appellant, they (Amul) too would have been eligible for the exemption. Moreover the learned Commissioner in the order has noted that the impugned goods have been received and put to use by the EOU and hence she did not find any grounds to confiscate the same, only strengthens the appellants plea that the impugned goods were put to proper use and were hence eligible for the benefits of Notification No. 52/2003-Cus dated 31.3.2003. Revenue is also not aggrieved with the non-confiscation of the impugned goods. In the given circumstances the parties could have been given a fixed time to comply with the bond condition. This being so the benefits of the notification cannot be totally denied to the goods. A penalty for the violation of bond condition, would suffice.
13. We now examine the query at para 6 (b) above as to whether invoking the extended time limit for issue of show cause notice was correct. We find considerable force in the views of the appellant that suppression of facts cannot be alleged by the department as the lease agreement was given to the Superintendent of Central Excise on 31.10.2008. After scrutiny of the lease agreement only, re-warehousing certificate was sent to customs authorities at Chennai. All operations inside the bonded warehouse are with the knowledge of officers. It is not the case of the department that the machines were diverted or not put to use for production of goods meant for export. It is true that the EOU scheme involves the close working of a number of different authorities. Two such authorities are the officers of the Customs department at the port of import who look after the import of goods meant for an EOU and in this case the Central Excise authorities have jurisdiction over the EOU. Producing one set of documents before one authority say Customs would not tantamount to the facts being in the knowledge of the Central Excise Authorities. However, no such allegation has been made by Revenue. In this case the agreement between the appellant and Amul along with documents connected with the Ex-bond shipping bill bearing Sl. No. 18275 dated 5.9.2008 used for clearing the said imported machines duty free, and their re-warehousing in the EOU were within the knowledge of the jurisdictional Central Excise department. The SCN is based on documents that were submitted to the department during the course of processing the imports of the impugned machines and completing the bonding process. No extra / hidden document that was not submitted to the department was unearthed by the department by way of an investigation etc while coming to a conclusion whether the exemption was eligible for the goods or not. Hence the charge of suppression of facts must fail. This being so the department was not justified in invoking the larger time limit while issuing the show cause notice.
14. Based on the above discussions, the impugned order passed by the Commissioner of Central Excise, Chennai III is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Pronounced in open court on 26.5.2023)
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