Conditions for claiming benefit of exemption notification no. 52/2003 are to be strictly interpreted

Pelican Grani Marmo Pvt Ltd Vs Additional Commissioner (CESTAT Delhi)

CESTAT Delhi held that benefit of the exemption Notification No. 52/2003 is available subject to some conditions, the same is to be strictly interpreted.

Facts- M/s Pelican Grani Marmo Pvt Ltd filed two appeals to assail the order passed by the Commissioner (Appeals), Central Excise and Central Goods and Service Tax, whereby the appeal filed by the appellant was partly allowed two appeals filed the appellant by setting aside the penalty imposed on it under Section 117 of the Customs Act, 1962 and reducing the penalties imposed under section 112(a) and rejected the remaining part of the appeal.

As a 100% EOU, the appellant is entitled to import goods duty free as per Notification No. 52/2003-CUS as amended from time to time. The exemption notification is subject to some conditions including a condition that the appellant executes a bond with a customs authority binding itself to pay on demand an amount equal to duty leviable on the goods and interest at a rate specified by the Notification issued under section 28AB in certain situations.

It appeared to the revenue that the appellant had consumed steel grits/ steel blade at a rate higher than the Standard Input Output Norms. As the appellant had consumed steel grits/ steel blade in excess of the norms, it appeared to the Revenue that the goods which were imported were in violation of the exemption notification and, therefore, were liable for confiscation under section 111(o) of the Act. Accordingly, it was also felt that the appellant was liable for penalty under sections 112 and 117 of the Act.

Conclusion- We find that the appellant claimed the benefit of the exemption Notification No. 52/2003 which must be strictly interpreted because it is available subject to some conditions which will be applicable to all those who claim its benefit.

Held that the appellant is, therefore, liable to pay the duty. Consequently, the appellant is also liable to pay interest as applicable under section 28AB of the Act. Since there was no order of confiscation of the goods in the order, no penalty could have been imposed under section 112. The penalty under section 112 needs to be set aside.

FULL TEXT OF THE CESTAT DELHI ORDER

1. M/s Pelican Grani Marmo Pvt Ltd.¹ filed these two appeals to assail the order-in-appeal dated 31.12.2018 passed by the Commissioner (Appeals), Central Excise and Central Goods and Service Tax, Jaipur, whereby he partly allowed two appeals filed the appellant by setting aside the penalty imposed on it under Section 117 of the Customs Act, 1962² and reducing the penalties imposed under section 112(a) and rejected the remaining part of the appeal.

2. The undisputed facts of the case are that the appellant is a 100 % Export Oriented Unit³ and holds customs bonded warehouse licence and manufactures and exports granite slabs. Granite is found as blocks in nature which is cut by the  appellant into slabs, polished and exported. As a 100% EOU, the appellant is entitled to import goods duty free as per Notification No. 52/2003-CUS as amended from time to time. This exemption notification is subject to some conditions including a condition that the appellant executes a bond with a customs authority binding itself to pay on demand an amount equal to duty leviable on the goods and interest at a rate specified by the Notification issued under section 28AB in certain situations. One of the situations in which the appellant has to pay duty is as follows;

“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 in accordance with SION 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 may, on being satisfied that there is sufficient cause for not using them as above within the said period, allow;”

3. It appeared to the revenue that the appellant used or consumed steel grits/ gangs saw blades at a rate higher than the Standard Input Output Norms⁴, prescribed in the DGFT Hand Book of Procedures volume II at serial number A1833. As the appellant had consumed steel grits/ steel blade in excess of the norms, it appeared to the Revenue that the goods which were imported were in violation of the above condition of the exemption notification and, therefore, were liable for confiscation under section 111(o) of the Act. Accordingly, it was also felt that the appellant was liable for penalty under sections 112 and 117 of the Act. Two show cause notices were issued to the appellant covering the period from 2007-08 to 2011-12 and 2013-14 which were confirmed by the original authority as follows:

4. The original authority confirmed the demand of duty under proviso to section 28 (1) read with B17 Bond and legal undertaking given by the appellant along with interest under section 28 AB. He also imposed penalty equal to the amount of duty under section 112(a) and further imposed a penalty under section 117. Aggrieved, the appellant appealed to the Commissioner (Appeals) who, by the impugned order, set aside the penalty under section 117 and reduced the penalty under section 112(a). This reduction in penalty has not been appealed against by the Revenue.

5. Therefore, the issues are to be decided by us are as follows:

(a) Is the appellant liable to pay customs duty on the steel grits imported by it in excess of SION notified by the DGFT?

(b) Is the appellant liable to pay interest under section 28 AB ?

(c) Is the appellant liable for penalty under section 112(a)?

6. It needs to be pointed out that the appellant had simultaneously filed Writ Petition No. 134084/2015 before the High Court of Rajasthan at Jodhpur and by order dated 06.03.2017 the High Court directed that the Writ Petition may be listed along with other Writ Petition No. 10379/2013. Further, by an order dated 24.11.2015, High Court directed that the respondents shall not adopt any coercive measures for recovery of the demand. Nothing has been brought on record which may indicate that there is any stay against deciding these appeals.

7. These appeals have been filed by the appellant on the following grounds:

(a) The impugned order is against law, equity and justice;

(b) Steel grits and saw blades are part and parcel of the gang saw machine which is a capital good and not inputs requiring compliance of SION. They are consumables goods and an essential part of the gang saw machine and should be considered as the part of the machine and not as inputs;

(c) The appellant relied on the decision of this Tribunal in GEE GEE Granites Limited vs. Commissioner of Central Excise⁵ which was overlooked by the lower authorities;

(d) DGFT Policy Circular is not applicable to steel grits and saw blades as they are accessories or spares of the machine. The SION norms were not applicable for the subject transaction as condition 3(d)(ii) was amended by Notification No. 84/2007-CUS dated 06.07.2007. The authorities considered the importation figures as consumption figures which is contrary to the law.

(e) The standard SION can be complied with only on the basis of production and export over three years. Notification No. 52/2003-CUS has not been violated as the appellant had used the imported goods in connection with manufacture and clearance of the export goods. SION norms in A1833 read as follows:

(f) A1833 is arbitrary and void and is under challenge by them before the High Court. The demand is barred by limitation.

(g) There is an error in calculation of the amount of duty.

8. The appellant prayed that the appeals may be allowed and the impugned order may be set aside.

9. Miscellaneous applications were filed subsequently seeking to place additional grounds. The Customs Miscellaneous application nos. 50050 of 2022 and 50051 of 2022 were allowed vide order dated 18.07.2022 These additional grounds are as follows:

(i) Penalty under section 112(a) is not imposable because the goods have neither been confiscated and nor have been held liable to confiscation under section 111;

(ii) The amending Notification No. 34/2015-CUS dated 25.05.2015 to the Notification read with Circular No. 12/2008 would imply that the condition does not exist in the Notification itself. SION must be calculated over the period of three years while reckoning the consumption;

(iii) If duty is paid, part of the duty to extent of additional duty of customs will be available to the appellant as CENVAT credit and, therefore, to that extent the exercise is revenue neutral.

10. Learned counsel for the appellant reiterated the above submission and vehemently pleaded that the impugned order needs to be set aside.

11. Learned authorised representative for the Revenue strongly supported the impugned order and submits that it calls for no interference.

12. We have considered the submissions on both sides and perused the records.

13. The first question to be decided is to whether the appellant is liable to pay duty on the steel grits and saw blades consumed in excess of the SION. Undisputedly, the exemption Notification 22/2003-CUS, as applicable during the relevant period, was subject to various conditions including the condition that the appellant shall use consumables as per the SION norms. It is also undisputed that SION A1833 was applicable to the goods in question. Therefore, the quantity of grits and saw blades which the appellant could have used for manufacture of granite slabs for exports has to be, as per the SION prescribed for the purpose. If it exceeds these norms to the extent they are consumed in excess, they contravene the condition of the Notification. The appellant had executed a bond before the Assistant Commissioner at the time of import, undertaking to pay the duty along with interest if all the conditions are not fulfilled.

14. The first argument of the appellant is that the grits and saw blades should be considered as capital goods or as parts of capital goods and not as consumables and, therefore, SION should not apply. As may be seen the SION has been prescribed by the DGFT at serial no. A 1833 with export item as unpolished/ polished granite slabs and import items as steel grits or short/gangs saw blades and the quantity allowed was upto 5 % of the FOB value of export. It is also evident from the description of the use of the grits and the gang saw blades given by the appellant itself that these are used in the machine to cut granite. Like blades, the grits also can be used a few times and thereafter have to be discarded. In other words, they get consumed in the process. The difference between the consumables and inputs is that the inputs get transformed into the final product whereas the consumables do not get transformed under the final product but get consumed in the process of manufacture. Water, electricity, Welding electrodes, Blades etc., are all consumables as, these are used in the process of manufacture but do not form part of the final products. DGFT prescribed SION for consumables also and specifically, serial no. A 1833 deals with the specific export products of the appellant, namely, granite slabs and specific consumables in dispute, namely, steel grits/ gang saw blades. If that is so, the appellant cannot contend that insofar as it is concerned, steel grits and gang saw blades should be considered as capital goods or spare parts of capital goods. There is nothing on record to show that they are either spare parts or they were capital goods. Capital goods get used again and again over a long period of time and spares are some parts which require replacement in the capital goods. The gang saw blades and steel grits are neither capital goods nor are they spare parts. These are used with the capital goods in the process of manufacture. However, they do not enter the final product but do get consumed in the process of manufacture either in one or a few cycles. Therefore, on the facts of the case, we find that the steel grits and gang of blades in dispute are consumables in this case and are neither capital goods nor inputs. We find that the appellant claimed the benefit of the exemption Notification No. 52/2003 which must be strictly interpreted because it is available subject to some conditions which will be applicable to all those who claim its benefit. The appellant cannot claim any special waiver from these conditions. One of the conditions is that the appellant gives a bond or legal undertaking to pay the duty along with interest, if any, condition is violated.

15. It needs to be pointed out that in exemption Notifications there may be conditions which must be fulfilled prior to the clearance of the goods and conditions which must be fulfilled after their clearance. In this case the standard input output norm (SION) have to be calculated as 5% of the FOB value of exports. The fulfilment of this condition can, therefore, be ascertained only after the exports have been made.

16. Therefore, at the time of import, it is impossible for anyone to anticipate how much will be the value of exports and if this condition of the Notification will be violated. When issuing the show cause notice the Department calculated the FOB value of the export, the value of the steel grits imported and the value of saw blades imported and calculated the excess value of imports. Duty has been demanded only on that amount. We, therefore, find no force in the submissions made by learned counsel for the appellant that the demand is time barred because the course of action arose only after the appellant completed its export and the value of such exports was known. The appellant should have, on own its own, paid the duty in fulfilment of its obligation under the bond or under undertaking but has failed to do so and, therefore, the show cause notice was issued in terms of section 28 read with the bond and legal undertaking.

17. The appellant is, therefore, liable to pay the duty. Consequently, the appellant is also liable to pay interest as applicable under section 28AB of the Act.

18. In so far as the imposition of penalty under section 112 is concerned, while the show cause notice proposed that the imported goods were liable for confiscation under section 111(o), the Order-in-Original as well as the impugned order have not held that the imported goods were liable for confiscation. Section 112(a) reads as follows:

“Section 112(a)

112 Penalty for improper importation of goods, etc. —Any person,—

(a) who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act,”

19. In other words, the confiscation or liability of confiscation of the goods under section 111 is a necessary pre-condition for imposition of penalty under section 112 (a). Since there was no order of confiscation of the goods in the order, no penalty could have been imposed under section 112. The penalty under section 112 needs to be set aside and we do so.

20. Insofar as the appellant’s contention that if it had paid the customs duty it would have been entitled to CENVAT credit to the extent of additional duty of customs is concerned, availability of CENVAT Credit does not take away the taxability. Otherwise, no manufacturer ever has to pay additional duty of customs because he would eligible for CENVAT credit of the amount so paid but such is not the scheme of the law. If appellant is entitled to take CENVAT credit as per the CENVAT Credit Rules, it may take such credit.

21. Insofar as the appellant’s claim that the calculation of duty was done wrongly as it had to be done reckoning a three year period is concerned, we find it fit to remit the matter to the original authority for the limited purpose of calculating the amount of duty payable as per the SION norms read with the DGFT Circular No. 10-2009/14 dated 12.10.2009.

22. Consequently both appeals are disposed of as below;

(a) The penalties imposed under section 112(a) are set aside.

(b) The confirmation of duty and interest in the impugned order is upheld and the matter is remanded to the original authority for the limited purpose as calculation of the duty in terms of DGFT Circular read with SION norms.

[Order pronounced on 17.02.2023]

Notes:

1 the Appellant

2 the Act

3 EOU

4 SION

5 2010(258) ELT 109 (Tri-Chennai)