No Custom Penalty levied, if goods were permitted to be cleared by the officers after signing Bond
The issue under consideration is whether the penalty under Customs Act will be applicable in case where bond is submitted for any violation of EOU related rules?
CESTAT states that, there is merit in the argument of the appellants to the extent that the Revenue is free to demand and collect duty along with interest, in terms of the Bonds submitted by the appellants at the time of import in terms of Notification No. 52/03. They find that the Bond submitted in terms of the Notification binds the appellants to pay back the duty and interest in the event of any violation. CESTAT find that the said Notification does not provide for imposition of any penalty and therefore, they set aside the penalty imposed. CESTAT also find that the appellant’s submission vis-à-vis confiscation is also acceptable in terms of the Notification. The Notification is a self-contained Notification and action can be taken by Revenue under the terms of the Notification. The Notification also does not provide for confiscation and fine in lieu of confiscation. Moreover, as discussed above, Learned Commissioner finds that the appellants have imported the rejected goods even though the Serial No. 14 & 15 of Annexure-I to the Notification do not permit such imports. In such case, as submitted by the appellant, the fact that the respective Bills of Entry have been assessed by the proper officers at the time of import is also to be considered. In view of the same, penalty under Section 114A and other penal provisions cannot be invoked when the goods were permitted to be cleared by the officers. However, the Revenue will be free to recover duty along with interest in terms of the Notification.
FULL TEXT OF THE CESTAT JUDGEMENT
Briefly stated the facts of the case are that the Appellants, M/s. Bharath Tissues (P) Ltd, are a 100% EOU engaged in the manufacture and export of silk fabrics; the appellant imports silk yarn and grey silk fabrics without payment of duty availing relevant Notifications 53/2007 & 52/2003;
after due process/manufacture of silk fabrics, export the same; there are no sales of the finished goods in DTA; some of the exported silk fabrics are reimported, availing the benefit of exemption contained in above cited notifications; the re-imported fabrics are processed for removal of the defects and re-exported, depending on orders. During the statutory audit of the Appellant, company auditors had recorded details of shortage of imported materials and non-movable items; DRI has undertaken investigation and found shortage of 29,145.65 Meters of silk; after investigation, DRI issued Show Cause Notice dated 27.08.2008; the allegations were mostly based on audit reports except the allegation of shortage of 36409 Mtr/1609 pcs of silk fabrics reimported. The demands raised in the Show Cause Notice were confirmed by Commissioner of Customs, Bangalore, Commissioner of Customs, Bangalore, vide impugned Order 02/2010 dated 24.03.2010; Learned Commissioner confirmed the duty demand of Rs. 1,19,08,353 along with interest and penalty while confiscating the goods imported duty free. Hence the appeal, C/1139/2020; the appellants deposited an amount of Rs 75, 60,000 during investigation.
2. Learned Counsel for the appellants, Shri N. Rajagopalan submits that the impugned order has been passed assuming that the shortages have been accepted by the Managing Director and Manager Imports-Exports; a perusal of their statements would clearly establish that the appellant has given due explanation; in their letters dated 18.03.2006 to SBI and letter dated 13.06.2006 to Canara Bank, the appellant has categorically stated that the shortages were not real shortage but included clerical errors. He explains different shortages with reference to the allegations as follows.
(i). Alleged shortage of 134 kg of Dupion yarn is based on 40% weighment; work-in-progress yarn in weaving section was not considered; actual shortage, if all stock is taken, is well within 0.1%;
(ii). Alleged shortage of 2153 Mtr of imported fabrics, though based on 100% input stock verification, the stock of fabrics under work in process category was not considered.
(iii). Alleged shortage of 21903 Mtr of raw fabrics is based on 74% check only and was worked out by applying average fabric weight to meterage; 101 varieties of fabrics could not have been measured within 2 days; excess noticed in some cases was not considered; in his statement dated 23.11.2007, the Manager Imports-Exports has explained that there was no shortage;
(iv). It was alleged after officer’s visit in 2007 that as against the book stock 36401mtrs/1609 pieces of scarves, only 7263.60 Mtr were physically found.
3. Learned Counsel submits that the findings of the Commissioner are not correct for the following reasons:
4. Learned Counsel further submits that Commissioner has traversed beyond the scope of SCN:
Learned Counsel submits that an order passed traversing the contours of the SCN has been found not sustainable by the judicial forums; for example, in 2016 (334) ELT 689 and 2006 (206) ELT 529.
5. Learned Counsel submits that assessment in bills of entry not reviewed; goods being warehoused duty ought to have been confirmed under Section 72, and not under section 28; Section 28(1) covers only, collusion, or willful mis-statement or suppression of facts and not mis-declaration; imposition of penalty under section 114A is also wrong; since the shortages were duly explained, without admitting the same, there was no question of retraction from the statements; commissioner is wrong in concluding that the shortages were admitted and the statements were not retracted.
6. Learned Counsel further submits that these notifications allow extension of warehousing period of the re-imported goods/imported goods; warehousing period has been extended in respect of all but one Item; even otherwise, once the goods are taken for process, there is no need to seek extension; the notifications envisage that the goods will have to be used; accounting is by way of the manufactured goods; officers have not made any attempt to verify the finished stock. Counsel submits that Board have instructed, vide circular No. 3/2003-Cus, to grant extension of the warehousing period even if the bond period has expired and demand notice issued; confirmation of the demand is therefore, not warranted. Without prejudice to the above contention, the appellant would submit that without review of the bills of entry, no demand can be raised and that too after a gap of more than 5 years in most of the cases.
7. Learned Counsel submits that Paragraphs 6.8(e) and 6.8 (1) of the FIT allows sale of rejects, waste, scrap in DTA on payment of applicable duties or destruction and in which case, no duty is payable; Paragraph 6.15(b) permits destruction of the waste/ remnants/rejects and no duty is payable on them; appellant had sought permission to destroy some of the obsolete goods; for want of clearance from the Pollution Control Board, the destruction could not be undertaken.
8. Learned Counsel also submits that the adjudicating authority has charged the appellant of mis-declaration at the time of re-import; in that case the demand ought to have been raised within the period permitted under section 28; the extended period cannot be invoked as proper declaration was made in the bills of entry; in terms of judgment of the Apex Court in Moser Baer India Ltd (supra) the demand is time barred; assessment orders were not reviewed; as the appellant has shown that duty itself is not payable, interest is also not attracted; Board have vested the Chief Commissioners with powers to waive interest vide their circular No.10/2006-Cus dated 14.02.06; accordingly, the adjudicating authority ought to have desisted from charging interest. Learned Counsel also submits that as there was no mis-declaration, confiscation tinder section 111(m) is not tenable; as the goods are used in export production or in connection with export production, confiscation under section 111(o) is also not tenable; as the goods are not seized, no confiscation can be ordered. Learned Counsel further submits that penalty under section 114A is not attracted as the duty has not been levied on account of collusion or any willful mis-statement or suppression of facts; shortages were alleged without 100% physical stock taking; looking at the volume handled by appellants, shortage may not be even 1%; Commissioner’s finding that that the appellant had the knowledge of the shortages but still not informed the department is incorrect; commissioner himself has stated that there is no allegation of clandestine removal; as there was no mis-declaration at the time of import, ingredients for invoking penalty under section 114A are absent; Penalty under section 114 A is not imposable, as held in CCE Vs Chemiphar Drugs and liniments 1989 (40) ELT 276 (SC) and CCE Jalandhar Vs Royal Enterprises 2016 (337) ELT 482 (SC); being warehoused goods, section 72 and not section 28(1), is the section for confirmation of the demand; Penalty under section 114A is not attracted for confirmation of duty under section.
9. Learned Counsel further submits, without prejudice to the above, that under the first proviso to section 114A, there is an option available to pay the penalty or interest @ 25%; this option was not extended to the appellant in the impugned order; as held by the Gujarat High Court, in CCE Vs GP Prestress Concrete Works 2015 (323) ELT 709 (Guj), this option can be given at the appellate stage also; while the appellant earnestly prays the Hon’ble Bench to accept the foregoing pleas on merit and allow the appeal in toto, in case the Hon’ble Bench has any reservation, then the facility of payment at 25% be kindly extended.
10. Learned Authorised Representative, reiterates the findings of OIO and submits that the appellants contention that it’s not correct to say that the auditor’s report cannot be the basis to arrive at shortage of goods as the same was prepared for Bank purpose and that no proper investigation done; statutory Audit is conducted under the provisions of the Company Act, 1956 and the same is accepted in the Annual Financial Statement and incorporated in the Balance Sheet; physical stock verification was conducted and the impugned shortage found; M.D. of the Appellant accepted the shortage in the statement dated 28.12.2007; no proper records maintained for receipt, consumption and utilization of the imported materials.
11. Learned Authorised Representative submits that there are no inconsistencies in the order; all the facts and figures have been taken in to cognizance and discussed in detail; quantity of fabric failing short and duty free fabrics not used in the manufacture of export goods; re-imported goods lying in stock beyond warehousing period without seeking extension was also considered; as per Notifications 53/97-Cus dated 3.6.97 and 52/03-Cus dated 31.3.2003, exemption is available only when the goods imported duty free are used in manufacture of the export goods; appellant accepted the shortages of imported goods and the fact that goods re-imported were not re-exportable; contention that duty cannot be demanded before expiry or the bond period is incorrect; appellant has failed to provide satisfactory explanation to the investigating authorities with regard to the irregularities in the stock verification; the contention of the appellant that there is no allegation of clandestine removal is incorrect.
12. Tracing the chronology of events, Learned Authorised Representative submits that DRI visited appellants on 1.6.2006; statements of Shri K Sheshadri Manager (Exports) were recorded on 11.10.2007, 18.10.2007, 21.11.2007 and 23.11.2007; statement of Shri Deepak Jagany Chief General Manager (Fin) was recorded on 15. 11.2007; stock verification was conducted on 22.11.2007 and 11.12.2007; statement of Shri Shyam Goenka, MD was recorded on 28.12.2007; appellants submitted data on 20.5.2008 and on 05.6.2008 and SCN was issued to appellant 27.8.2008; delay in issuance of the notice is due to the delay by the appellant from time to time and non-cooperation during the investigation; data was submitted by the appellant as late as 22.05.2008 and 05.06.2008; Learned Authorised Representative submits that delay in passing the order is also due to delayed submission of the reply to the SCN and time taken by the appellant in submitting the final reply and also in appearance for personal hearing; delay in issuance of Show Cause Notice is fatal to the charges leveled.
13. Learned Authorised Representative, refuting the charge that Bond period is co-terminus with the validity period of the EOU license and any demand of duty before expiry is premature, submits that duty has been demanded on the shortage of the stock and noncompliance of the notification No. 53/97 Cus dated 3.6.97 and 52/03 Cue date 31.3.2003; shortages were arrived on the basis of audit reports corroborated with the submissions made by the appellant and their voluntary statements; adjudicating authority confirmed duty and imposed penalty and confiscation, after adhering to the principle of natural justice;
14. Learned Authorised Representative submits that the submission of the appellants that the statements of Shri K Sheshadrj and Shri Shyam Goenaka are taken under threat and coercion and hence are not confessional, is factually incorrect; the appellants’ statements were voluntary; appellants have not only accepted the shortage and the fact that the goods are not exportable but also deposited an amount of Rs.75,00,000/- during the course of investigation; vide letter dated 08.06.2008, appellants have withdrawn letter dated 05.06.2006 and have requested to appropriate deposits towards duty payable; no allegation of force was made during the course of investigation. On the issue of applicability of statements, appreciation of evidence, imposition of mandatory penalty etc, he relies upon the following cases.
(i). K.I. Pavunny Vs ACCE (HQ), [(1997) 3 SCC 721
(ii). 1996 (83) ELT 258 (SC) and 1997 (89) ELT 646 (SC)
(iii). CC Madras Vs D. Bhoormull, 1983 (13) ELT 1546 (SC)
(iv). Surjeet Singh Chrabra Vs Union of India (1997(89) ELT 646 (SC)
(v). CCE Madras Vs Systems & Components Pvt. Ltd 2004(165) ELT. 136 (SC)
(vi). S.M. Steel Ropes Vs CCE (ADJ.) Mumbai 2014 (304) ELT 591 (Tri – Mumbai)
(vii). 1997(90) ELT 241 (SC); 1998(98) ELT 50 (Mad); 2013 (289) ELT 3 (SC) followed in 2011 (270) ELT 643 (SC)
(viii). Mysore Chipboards Ltd Vs CCE, Mysore 2012 (282) ELT 112 (Tri-Bang.)
(ix). Hazari Singh Vs Union of India 1999 (110) ELT 406 (SC)
(x). Kollatra Abbas Ram Vs GOI & Others 1984 (15) ELT 129 (Ker)
(xi). CCE, Mumbai Vs Kalvert Foods India Pvt Ltd. 2011 (270) ELT 643 (SC)
(xii). Ahmednagar Rolling Mills Pvt Ltd Vs CCE Aurangabad 2014 (300) ELT 119 (Tri. Mumbai)
(xiii). CCE, Delhi- IV, Faridabad Venus Ill pea Paramount Pvt Ltd 2006 (204j ELT 22 (P & H)
(xiv). CC, Mangalore Vs Jindal Vijayanagar Steel Ltd 2017 (346) ELT 378 (KAR.)
15. Heard both sides and perused the records of the case. The main allegations in the SCN are about the shortage of the imported material at the appellant’s premises which were certified by their internal auditors and later verified by the officers of DRI. The officers of DRI have found in addition to the shortages detected by the auditors, shortages in respect of goods claimed to have been re-imported by the appellants in consequence to the rejection of the same by the foreign buyers. The details of shortages noticed by the auditors and the officers of DRI and on which duty has been demanded and confirmed are as follows:
|SI. No.||Item||Quantity||Value||Duty Liability (Rs)||Audit Para||Remarks|
|1.||Dupion Yarn||134 Kgs||174164||49102||188.8.131.52||Shortage|
|2.||Silk Fabric||2153 mtr||233505||59812||184.108.40.206.||Shortage|
|3.||Silk Fabric||2598 mtr||703242||286787||220.127.116.11.3||Warehousing period Extension not applied|
|4.||Silk Fabric||22731.80||3196753||921997||18.104.22.168||Non exportable goods|
|5.||Silk Fabric||21903 mtr||2718050||701315||22.214.171.124.2||Shortage|
|6.||Silk Fabric||36409 mtr/ 1609Pcs||22490434||7279538||–||Export goods rejected and returned by overseas buyer and re- imported but not found qty. of 36409 Mtrs/ 1609 Pcs in their stock as on 11-12-07/ 22.12.07|
|7.||Silk Fabric reference samples||86,356 Mtr||10536269||2609802||126.96.36.199||The shortage of sample fabrics and fabrics not used in the manufacture of export goods|
Among the above, except Serial No.6 all the discrepancies have been found out by the auditors and the discrepancies in respect of re-imported goods was found out by the officers.
16. The appellants submitted that the auditors also did not conduct 100% stock taking; they have ignored work in progress and they have not considered the fact that samples can be retained by them in terms of Foreign Trade Policy. Moreover, their explanation, submitted to the bankers i.e. SBI and Canara Bank that the shortages were not real shortages but were due to some clerical errors, was not considered by the Revenue. They submitted that the Department has not conducted any stock taking and therefore, they allegations thereof are devoid of any merit as they do not have any evidence. With reference to the demand on non-accountal of re-imported fabrics. They submitted that export, reexport due to reaction by foreign buyers, re-import, re-processing and re-export is a continuous process. The goods so re-imported were present in the work in progress which was not considered. Also, the fact that the some of the re-processed goods were exported by four shipping bills was also not considered by the adjudicating authority. They also submitted that the adjudicating authority himself has made a categorical observation that this is not a case of clandestine removal and therefore, they duty cannot be demanded. The appellants, moreover, pleaded that the demand cannot be made in terms of the warehousing provisions as the Bond period is not over. They also contested that demand cannot be under Section 28 as the goods were imported after duly filing the Bills of Entry and after due examination by the officers. They also submitted that penalty cannot be imposed under Section 114A of Customs Act,1962 and the goods cannot be confiscated.
17. Revenue contends that audit of annual accounts of a company is compulsory and is indispensable part of business; all companies registered under Company’s Act 1956 are required to maintain proper books of accounts in terms of provisions of Sections 209, 224 & 224(1) of the Company’s Act 1956. Revenue argues that in the instant case, audit was conducted, report was prepared, finalized and submitted by M/s Gnanoba & Bhat, Chartered Accountants; further the “Report on Audit of Inventory and Receivables” have been prepared by the M/s Gnanoba & Bhat in accordance with the generally accepted principles of the casting and in line with the mandatory Accounting Standards (AS-2) and that they have based their report on Annual Financial Statements for 2004-05, books of accounts for 2005-06 (up to November 2005) maintained at the factory, monthly stock statement submitted to the bankers, Central Excise records, VAT Returns, internal records of the company and information given by the company officials. Revenue is of the opinion that these are statutory reports and therefore they are reliable. The company officials in their statements have accepted the shortage. Therefore, whatever has been accepted need not be proved again by the Department.
18. As far the shortages founded by the statutory auditors is concerned, we find that the appellant’s have claimed that they have written letters i.e. Letter dated 18.03.2006 to SBI and Letter dated 13.06.2006 to Canara Bank. It can be seen that the letters to the bankers were initiated before the DRI officers visited the premises of the appellants. The appellants further submit, in respect of the various shortages found, that in respect of SI. No. 1, shortages were arrived on 40% weighment; in respect of SI. No. 5, 74% was checked and shortages were arrived by applying Average Fabric Weight to Meters and that the auditors could not have verified 101 varieties of fabrics in two days. We find that in respect of the shortages found by the auditors, were not verified by the DRI officers physically. The Show Cause Notice and the OIO have taken the argument stated above that as the audit reports are statutory and are based on appellant’s records, they may be relied upon. We find that such an argument is not acceptable. If any action is required to be taken under the Customs Act, 1962 officers need to verify the stock physically to allege and prove the charge of shortage. If the appellants have made any mistake under any other act, action can be taken by the officers concerned under the relevant provisions. Moreover, it is alleged that the auditors have prepared their reports on the basis of appellants records including those maintained as per the requirement of Customs and Central Excise Acts. In such case the records were always open to the officers for examination and verification. Under such circumstances, it’s not open to invoke the extended period. Moreover, the appellants have claimed that they have informed the bankers on their own; they have written letters i.e. Letter dated 18.03.2006 to SBI and Letter dated 13.06.2006 to Canara Bank; letter written to SBI is before the officers visited the premises of the appellant. The contents of the letter, reply by Bankers etc. have not been verified and discussed in detail. Other contentions of the appellants regarding the non-accounting of stock of work in progress; physical impossibility of counting the stock within 2 days; shortage being within permissible limits; eligibility to retain samples in terms of FTP etc have not been investigation and answered. Officers have not taken physical stock. Therefore, we find that this extent, we hold that demand of duty in respect of SI No. 1 to 5 & 7 of the table given at Para 59.2 of the OIO are not sustainable.
19. Regarding the shortage of 36049 Mtr/1609 Pcs in respect of reimported export goods, we find that the appellants submitted that no physical stock was carried; Manager, Import Export has stated that reimported stock was not separately stored and they got mixed with regular stock and therefore, one-to-one co-relation was not possible. They also submitted that among the shipping bills, they provided to the Department, four shipping bills pertain to the export of re-imported goods after processing. However, we find that Learned Commissioner has considered the submissions of the appellants and has given a categorical finding in Para 64 stating that the appellants have submitted that impugned exports have taken place after issuance of SCN and therefore, the contention of having re-exported 11774 Mtr is not supported by any facts on record. We find that Learned Commissioner finds that the appellants had re-imported the goods, partially rejected by the foreign buyers, claiming benefit under Serial No. 14 & 15 of Annexure- I to the Notification. Commissioner, however, finds that re-import of goods partially rejected by the foreign buyers after taking delivery do not fall under any of the above Serial numbers and therefore, duty has been demanded correctly. We further find that physical stock of re-imported goods was taken up by the officers on 11.12.2007/22.12.2007; the shortages were also accepted by Sh. Shyam Goenka, M.D. in his statement on 28.12.2007. Further, we find that Sh. Goenka was aware of the warehousing provisions and the licensing period. Learned Commissioner finds that the appellants have not maintained proper records and was not applied for extension of warehousing period and they have not exported also. The stock of re-imported goods was taken by the officers and has been accepted by the company officials; the appellants could not show any proof of export of such re-imported goods. We find that the appellant’s contention, that it is a continuous process and hence on-to-one co-relation is not possible, is not acceptable. In respect of these goods, we find that the appellants have violated the provisions of the Notification inasmuch as they could not maintain records properly; could not show the stock physically and could not show any proof of re-export. Therefore, the arguments of the appellant in this regard are not acceptable and the lapses cannot be treated as procedural. Therefore, in respect of the re-imported goods, we find that the allegations regarding Serial No. 6 of the table referred above, we find that the Department has correctly confirmed duty of Rs.72,79,538/- in respect of these goods.
20. The appellants have argued that as the warehousing period is not over, the demand is premature. Whereas, we find that Learned Commissioner has confirmed the demand in terms of the Notification No. 53/97 dated 03.06.1997 and 52/03 dated 31.03.2003 as the goods were neither utilized within the prescribed period nor any extension was sought. We find that among other conditions, Notification No. 52/2003 requires the appellants “to maintain proper account of the receipt, storage and utilization of the goods.” The investigation conducted by the Revenue shows that the so-called re-imported goods were not found in the factory premises and no proper accounts of the same has also been done. We find that the appellants have taken the plea that import, export, re-processing and re-export is a continuous exercise and that the re-imported goods were in the work in progress. We find that this argument is not acceptable. It is not the case of the appellants they have maintained records showing the receipt, utilization and disposal of reimported goods. Under the circumstances, we find that the appellants have violated the conditions of the Notification and in terms of the Bond they have submitted at the time of import, they are liable to pay duty along with applicable interest. Therefore, to this extent, we find that demand in respect of Serial No. 6 above is sustained. Learned Counsel for the appellants relied upon the Final Order No. 21297-21298/2019 dated 20.12.2019 of this Bench in the case of M/s Eastern Silk Industries Ltd. However, we find that as the facts are different, the ratio of the
judgment is not applicable.
21. Learned Commissioner has imposed penalty under Section 114A of the Customs Act, 1962. The appellants have contested the same and submitted that the demand under Section 28 is not sustainable and therefore, penalty under Section 114A is not imposable. We find that there is merit in the argument of the appellants to the extent that the Revenue is free to demand and collect duty along with interest, in terms of the Bonds submitted by the appellants at the time of import in terms of Notification No. 52/03. We find that the Bond submitted in terms of the Notification binds the appellants to pay back the duty and interest in the event of any violation. We find that the said Notification does not provide for imposition of any interest and therefore, we set aside the penalty imposed. We also find that the appellant’s submission vis-à-vis confiscation is also acceptable in terms of the Notification. We find that the Notification is a self-contained Notification and action can be taken by Revenue under the terms of the Notification. We find that the Notification also does not provide for confiscation and fine in lieu of confiscation. Moreover, as discussed above, Learned Commissioner finds that the appellants have imported the rejected goods even though the Serial No. 14 & 15 of Annexure-I to the Notification do not permit such imports. In such case, as submitted by the appellant, the fact that the respective Bills of Entry have been assessed by the proper officers at the time of import is also to be considered. In view of the same, penalty under Section 114A and other penal provisions cannot be invoked when the goods were permitted to be cleared by the officers. However, the Revenue will be free to recover duty along with interest in terms of the Notification. We find that Commissioner has not imposed any fine in lieu of confiscation.
22. In view of the above, the appeal is partly allowed by restricting the duty demand to the extent of Rs.72,79,538/- only on the goods mentioned at Serial No. 6 of the table (Para 59.2 of OIO). Balance duty demand and penalty under Section 114A are set aside.
(Order pronounced in the open court on 01/07/2020)