Salzer Electronics Ltd. (Unit III) Vs Commissioner of GST and Central Excise (CESTAT Chennai)
CESTAT Chennai upholds the demand of concession availed vide customs notification on failure of appellant to maintain proper accountal of the receipt of imported goods till their utilization in the manufacture of the specified finished products.
Facts- This appeal is preferred by M/s. Salzer Electronics Ltd., against Order-in-Appeal of the Commissioner of Customs and Central Excise (Appeals), Trichy rejecting the appellant’s appeal.
The Additional Commissioner of Customs, Coimbatore has ordered for recovery of Rs.36,94,921/- being an amount equal to the difference between the duty leviable on the goods imported and the concessional rate of duty availed in terms of Notification No. 25/99-Cus dated 28.02.1999 in terms of Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (Customs Rules, 1996) read with Section 28 (5) of Customs Act, 1962 along with interest.
Notably, the appellant imported parts of Relays, Switches and Connectors availing the benefit of concessional rate of duty as per Notification No. 25/99-Cus dated 28.02.1999.
Conclusion- Held that the appellant has not maintained the records as required in the Customs Rules, 1996 for proper accountal of the receipt of imported goods till their utilization in the manufacture of the specified finished products. So, we have to uphold the demand raised in terms of Rule 8 of the Customs Rules, 1996 which is the amount of concession availed under Notification No. 21/2002-Cus. dated 01.03.2002.
Tribunal in the case of Shiv Kripa Ispat Pvt. Ltd. Vs. Commissioner of Central Excise and Customs held that the goods cannot be confiscated and the redemption fine not to be imposed when they are not available for confiscation.
FULL TEXT OF THE CESTAT CHENNAI ORDER
This appeal is preferred by M/s. Salzer Electronics Limited, Unit III whose address is at SF No. 671/1, No. 2, Gudular Village, Samichettipalayam, Coimbatore against the Order-in-Appeal No. 316/2013 dated 20.09.2013 of the Commissioner of Customs and Central Excise (Appeals), Trichy rejecting the appellant’s appeal filed against the Order-in-Original No. 01/2013-ADC dated 21.03.2013.
2. The Additional Commissioner of Customs, Coimbatore vide order dated 21.03.2013 has ordered for recovery of Rs.36,94,921/- being an amount equal to the difference between the duty leviable on the goods imported and the concessional rate of duty availed in terms of Notification No. 25/99-Cus dated 28.02.1999 in terms of Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (herein after this Rules will be called as Customs Rules, 1996) read with Section 28 (5) of Customs Act, 1962 along with interest.
3.1 Brief facts of the appeal are that the appellant is engaged in the manufacture of Modular Switches and Parts falling under Central Excise Tariff Heading No. 85369090 and 85389000 of the Central Excise Tariff Act. The appellant imported parts of Relays, Switches and Connectors availing the benefit of concessional rate of duty as per Notification No. 25/99-Cus dated 28.02.1999. In order to avail the above concession, the importer/manufacturer has to comply with the provisions of Customs Rules, 1996. Accordingly, the appellant obtained Registration Certificate dated 27.05.2004 as per Rule 3 of the Customs Rules, 1996 which was effective upto 22.09.2011. The appellant has also executed a bond as required under the Customs Rules, 1996 and filed periodical returns under E.R. 1 with the Department. The imported materials were received in the factory of the appellant and various processes required for the manufacture of modular switch assembly were carried out which were cleared to appellant’s unit at Una for carrying out full assembly operations before the final product i.e, Modular Switches were cleared from the unit at Una. During the disputed period, the appellant’s unit at Una received the sub-assemblies and parts of Modular Swithches only from the appellant’s unit at Coimbatore.
3.2 During the audit of the accounts of M/s. Salzer Electronics Limited at Coimbatore, it was noticed that the appellant was clearing parts of switches from their unit at Samichettipalayam to their unit at Una, Himachal Pradesh. It was also observed that the said parts of switches were imported under Customs Notification No. 25/99-Cus (Entry No. 112 of list A) which prescribes concessional rate of Customs duty which were used in the manufacture of finished goods.
3.3 It was also observed that more than 90% of the inputs required for the manufacture of Switches have been imported by the appellant from China. Some of the imported goods were cleared to their unit at Una and parts of Switches also have been sold from their unit at Una, Himachal Pradesh. The appellant as required under Rule 4(2) of the Customs Rules, 1996 has executed a bond with an undertaking that the imported goods shall be used for the manufacture of Switches, Relays and Connectors. The said bond executed specifies the manufacturer’s factory for utilization of the imported goods. So, it was alleged that the appellant have contravened the end-use condition of the beneficial Notification by removing the parts and accessories of imported Switches to their unit at Una and also by selling parts of imported Switches thereby becoming in-eligible to avail the benefit of the said Notification due to violation of the end-use condition and the imported goods became liable for confiscation under Section 111(O) of the Customs Act, 1962. Consequently, investigation carried out also revealed that the appellant failed to maintain proper accounts to reflect the quantity of imported inputs used in the manufacture of Switches and parts of Switches contravening the Rule 7 of the Customs Rules, 1996 for non-observance of the conditions of the Notification and Customs Rules, 1996 in respect of permission granted. A Show Cause Notice came to be issued to the appellant which was resulted in demand of duty along with interest, confiscation of goods and imposition of fine and penalty as mentioned in paragraph 2 above.
4.1 The Ld. Advocate Shri T. Ramesh has submitted that the appellant has complied with all the conditions of Notification No. 25/99-Cus dated 28.02.1999 read with the Customs Rules, 1996 and there was no dispute regarding receipt of the imported goods in their factory premises, and required manufacturing activities were carried out for manufacture of final product Switches and Modular Plates. He has submitted that all the manufactured sub-assemblies/parts of switches in SKD/CKD condition from Samichettypalayam unit at Coimbatore were cleared on payment of Central Excise duty to their unit at Una, Himachal Pradesh. Their factory at Una has received only such assemblies/sub-assemblies from their factory at Coimbatore and no other parts/sub-assemblies were received from outsiders during the entire disputed period. These parts and sub-assemblies were assembled and final product switches were packed and cleared to the customers from their unit at Una thus, complied with all the conditions of the Notification read with the Customs Rules, 1996.
4.2 The Ld. counsel has argued that as per the Rule 3 of the Customs Rules, 1996, the appellant is permitted to manufacture the parts of Switches/Modular Plates out of the imported material in their factory at Coimbatore. As the condition in the Customs Rules, 1996 is the receipt and use of the imported materials in their factory for the manufacture of the goods specified in the Registration Certificate issued under Rule 3 of the Customs Rules, 1996, the benefit of the Notification No. 25/99 dated 28.02.1999 cannot be denied in as much as the Una unit belonged to the appellant and common balance sheet and other financial records are maintained for all the units belonging to the appellant. A scrutiny of the entries in the balance sheet and the financial accounts would clearly indicate that the unit at Una has exclusively purchased the parts of Switches and sub-assemblies from the unit at Coimbatore and so the benefit of the Notification cannot be denied as the imported materials were used by the importer manufacturer himself and there was no diversion.
4.3 The Ld. Advocate has also further submitted that the substantive condition of the Notification read with Customs Rules, 1996 is that the imported materials have to be used for intended purpose of manufacture of the declared goods has been achieved. Neither the Notification nor the Customs Rules, 1996 contemplates the use of imported materials in the declared premises only and there is no bar to carry out the process of manufacture or completion of manufacturing process in another unit of their factory.
4.4 In support of his contentions, the appellant has relied upon the following decisions:-
i) Finolex Cables vs. Commissioner of Customs & Central Excise, Goa [2017 (358) ELT 990 (Tri. Mumbai)]
ii) Tamil Trading Corporation vs. Commissioner of Central Excise, Tuticorin [2006 (198) ELT 539(Tri. Chennai)]
iii) Commissioner of Central Excise Bangalore-I vs. Electronic Research [2005 (187) ELT 495 (Tri. Bang.)]
iv) FCD Ltd. vs. Commissioner of Central Excise, Belapur [2017 (357) ELT 464 (Tri. Mumbai)]
4.5 The Ld. Advocate for the appellant has contended that the demand raised under Rule 8 of the Customs Rules, 1996 is not sustainable as the recovery of Customs duty for short payment and non-payment can be made only under Section 28 of the Customs Act, 1962.
4.6 It has been put forth that the period involved is from 2005-06 to 2010-11 (upto 01.11.2010) whereas the Show Cause Notice was issued on 14.07.2011 only. It is argued that the Show Cause Notice has not been issued under Section 28 of the Customs Act, 1962 and extended period has not been invoked. There is no suppression with an intent to evade payment of duty and the appellant has complied with all the conditions of the Notification No. 25/99-Cus dated 28.02.1999. The Department had full knowledge of the activities of the appellant and the goods cleared from one unit of the appellant to other unit at Himachal Pradesh was on payment on Central Excise duty. The appellant has filed periodically statutory returns declaring the use of imported materials for the manufacture and clearance of parts/sub-assemblies in SKD/CKD condition to their unit at Una and so the demand is barred by limitation for the period prior to 14.07.2010 as there is no suppression involved.
5. The Authorised Representative Shri R. Raja Raman supported the findings of the lower appellate authority. He has submitted that the imported goods were not used for the manufacture of finished goods i.e, Switches as mandated in the Notification No. 25/99-Cus dated 28.02.1999, so, the appellant is not eligible for the benefit of the concessional rate of duty and the demand confirmed and fine and penalty imposed are legal and so to be upheld. He has prayed for setting aside the appeal.
6. We have heard both sides and we have considered the submissions and evidences as available from the appellate records.
7. The main issues that have to be decided in this appeal are
(i) Whether the appellant is eligible for the benefit of concessional rate of duty under Notification No. 25/99-Cus dated 28.02.1999 when a part of manufacturing activity was undertaken in a premises/factory not declared in the Registration Certificate obtained under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996?
(ii) Whether the imported goods and their resultant products are liable for confiscation for non-compliance to the condition of the Notification ibid read with the Customs Rules, 1996?
(iii) And whether the fine and penalty are rightly imposed on the appellant in the facts and circumstances of this case?
8.1 In order to avail either the exemption or concessional rate of duty benefit under Notification No. 25/99-Cus dated 28.02.1999, any importer manufacturer is required to comply with the provisions of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. Accordingly, the appellant has obtained the Registration Certificate from the Assistant Commissioner of Central Excise, Coimbatore indicating therein that the excisable goods that are to be manufactured from the imported goods as ‘Switches (Modular/Plates) parts thereof’. In the Annexure to the said Registration Certificate, the appellant has indicated the details of various imported goods i.e, description of the item along with Customs Chapter Sub-Heading to be used in the manufacture of Switches. As required, the appellant has executed a bond without any security for an amount of Rs. 50,00,000/- for the purpose of import of goods at concessional rate of duty for manufacture of excisable goods. In the Registration Certificate, the importer manufacturer’s address was given as M/s. Salzer Electronics Ltd. Unit-III, Samichettipalayam, Coimbatore – 641 047. The Notification No. 25/99-Cus dated 28.02.1999 allows concessional rate of duty for import of parts of Relays, Switches and Connectors to be used for manufacture of Relays, Switches and Connectors. The appellant in this Case has manufactured not complete Relays/Switches/Connectors but parts of these products which were admittedly cleared entirely to their unit at Una, Himachal Pradesh.
8.2 The contention of the Revenue is that the appellant has contravened the provisions of the Notification read with the Customs Rules, 1996 by not manufacturing the Switches in the declared premises. As a result, in terms of Rules 8 of the Customs Rules, 1996, a demand was raised for recovery of concessional rate of duty availed by the appellant on imported goods. For ease of reference the relevant part of the Notification is extracted below: –
