No Customs Duty on Unreceived Goods: CESTAT Ruling

K.H. Leather Industries Private Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai)

Introduction: The case of K.H. Leather Industries Private Limited vs. Commissioner of GST and Central Excise, adjudicated by CESTAT Chennai, delves into the exemption of customs duty on goods not received by the importer. The tribunal’s ruling highlights the significance of accurate invoicing and the implications of clerical errors in customs documentation.

Detailed Analysis: The appellant, an Export Oriented Unit (EOU) engaged in the manufacturing of leather shoes, held Central Excise registration and a Customs Private Bonded warehouse license. This enabled them to procure duty-free imported and indigenous materials for their export-oriented production. Despite complying with procedural requirements and possessing pre-authorized certificates for duty-free import, discrepancies arose concerning the quantity of goods received.

Upon physical verification, the appellant discovered a substantial shortfall in the quantity of rubber top pieces received compared to what was declared in the supplier’s invoice and the corresponding bill of entry. The discrepancy, attributed to a clerical error by the supplier, led to the imposition of a demand for customs duty by the jurisdictional Central Excise authority.

However, the appellant promptly notified the authorities of the shortfall and sought rectification by providing revised invoices from the supplier, which corroborated the actual quantity received. Despite these efforts to rectify the error, the Department issued a Show Cause Notice demanding customs duty and initiated penal proceedings.

The original adjudicating authority, upon scrutinizing the evidence presented by the appellant, acknowledged the genuine mistake in the supplier’s invoice and consequently set aside the duty demand. Nevertheless, the Department appealed this decision before the Commissioner (Appeals), contesting the validity of the adjudicating authority’s ruling.

In its analysis, CESTAT Chennai emphasized the fundamental principle that an importer should not be liable to pay duty on goods they did not receive. The tribunal underscored the appellant’s proactive disclosure of the discrepancy and the absence of any findings by the Commissioner (Appeals) refuting the genuineness of the error.

Consequently, CESTAT Chennai overturned the decision of the Commissioner (Appeals) and reinstated the original authority’s order, granting relief to the appellant from the unwarranted duty demand.

Conclusion: The case of K.H. Leather Industries Private Limited vs. Commissioner of GST and Central Excise underscores the importance of accurate documentation in international trade transactions. It highlights the necessity for stakeholders to promptly address and rectify discrepancies to avoid unjust financial burdens such as unwarranted duty demands. CESTAT Chennai’s ruling reaffirms the principle of fairness in customs adjudication, ensuring that importers are not unduly penalized for errors beyond their control.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the appellant is an EOU and holds Central Excise registration. They also have Customs Private Bonded warehouse license issued for storage of imported and indigenous raw materials, inputs, consumables, etc., for use in the manufacture of their export goods i.e., Leather Shoes.

1.2 The appellant had executed two B-17 (General Security) Bonds for Rs.8 crores to procure duty free imported and indigenous materials, to cover the movement of non-duty paid materials from one warehouse to another ware house to use them in the manufacture of export goods. The importer / appellant is exempted from furnishing security to the B-17 Bonds in terms of Board Circular No. 54/2004-Cus. dated 13.10.2004. On the basis of pre-authorized certificates they are permitted to procure imported goods without payment of duty.

1.3 The Importer had issued Procurement Certificate No. 361 dated 25.03.2011, based on the Supplier Invoice No. 427097 dated 10.02.2011, to import the following materials without payment of customs duties.

The importer imported these goods under Bill of Entry No. 3083567 dated 30.03.2011 (Shipping Bill NO. 5024 dated 31.03 .2011)

1.4 The Importer had been permitted by the Commissioner of Central Excise vide letter in C.No. VIII/48/29/2007-Cus.Pol. dated 12.9.2007 for self-bonding and warehousing of the imported and indigenous materials. The goods imported against Bill of Entry No. 3083597 dated 30.03.2011 was palletized in 2 Nos. and was received in the factory on 04.04.20 11. On examination of the contents of the 2 Pallets by the importer, it was found that only the following material were available.

1.5 It was noted by the appellant importer that the Rubber Top Pieces declared vide Bill of Entry No. 3083597 dated 30.03.2011 was 11000 pairs whereas the Rubber Top Pieces received was only 1100 pairs. The importer reported the short receipt on 04.04.2011 itself and informed that this occurred due to the mistake committed by supplier. The supplier while invoicing had invoiced for 11000 pairs though the supply was only 1100 pairs.

1.6 The importer was advised by jurisdictional Central Excise to pay the appropriate customs duties with interest on the short quantity also. The duty payable on the short quantity was Rs.99,531/-. The appellant was thereupon

issued Show Cause Notice proposing to demand Rs.99,531/- being the customs duty along with interest payable on short receipted quantity of Rubber Top Pieces – 9900 pairs and for imposing penalties. After due process of law, the original authority observed that there is indeed short receipt of goods and that it is a clear case of clerical error on the part of supplier and lack of application of mind of the CHA. The proposal of duty demand was dropped. Against this order, the Department filed appeal before Commissioner (Appeals) who vide order impugned herein set aside the order of adjudicating authority and allowed the appeal filed by Department. Aggrieved by such order, the appellant / importer is now before the Tribunal.

2.1 The Ld. counsel Shri N. Viswanathan appeared and argued for the appellant. It is submitted that the appellant placed an order for supply of 1100 pairs of Rubber Top Pieces along with other goods with their supplier, Loake Shoe Makers, UK. The appellant received an invoice showing supply of 11000 pairs. Believing that the supplier has sent that much goods, they filed the Bill of Entry and moved the goods as per procedure to their warehouse on 04.04.2011. On physical verification, they came to understand that only 1100 pairs have been supplied. On the same day itself they informed the Superintendent in writing. The said officer endorsed on the letter directing the appellant to obtain revised supplier’s invoices and then approach the Department for amendment of Bill of Entry by making application under Section 149. The appellant then obtained the revised invoice from the supplier. The supplier also admitted that it was a mistake on their end. Along with the revised invoice they filed application for amendment of Bill of Entry on 03.08.2011. However, the same was rejected on 28.12.2011. The appellant then made a detailed representation on 09.01.2012 requesting for amendment of Bill of Entry as it was only a genuine mistake at supplier’s end. The Department did not respond to this representation till date.

2.2 Meanwhile, the appellant was asked to pay the duty and also was issued the Show Cause Notice. It is submitted that the original authority after examining all the documents had set aside the demand observing that it was a mistake committed while noting the quantity in the supplier’s invoice. The Ld. counsel adverted to the Purchase Order to argue that appellant had placed order only for 1100 pairs and had received the same quantity only. The CHA had filed the Bill of Entry on the basis of supplier’s invoice in which the figure was wrongly mentioned as 11000 pairs. The bank statement would also show that appellant has paid amount towards 1100 pairs only and not for 11000 pairs. The Commissioner (Appeals) ought to considered that it was mistake committed in supplier’s invoice. The Ld. Counsel prayed that appeal may be allowed.

3. The Authorised Representative Shri R. Rajaraman appeared for the Department. The Ld. AR reiterated the findings of the impugned order.

4. Heard both sides.

5. The facts narrated above would show that the appellant has been called upon to pay duty of the short shipped goods. The Purchase Order would show that appellant has placed order only for 1100 pairs. So also the supplier- Loake Shoe Makers Ltd. has issued letter at 21.04.2011 to the appellant stating that they have supplied only 1100 pairs. A revised invoice and packing list with correct quantity has been issued by the supplier. The adjudicating authority has examined all these documents and after being satisfied that it is a mistake committed by the supplier while quoting the quantity in the invoice, the demand of duty has been set aside.

6. The Department has taken up the matter as an appeal before the Commissioner (Appeals) contending that the decision of adjudicating authority is premature. We are not able to see any finding rendered by Commissioner (Appeals) that the case put forward by the appellant regarding short shipment of goods and mistake in supplier’s invoice to be not genuine. Again, it requires to be noted that on 04.04.2011 itself the appellant has approached the officers informing the short shipment. The immediateness in making such request by the appellant draws a strong inference that there is short shipment of goods and it is a mistake in supplier’s invoice. The appellant cannot be called upon to pay duty on goods which he has not received. We therefore are of the considered opinion that the order passed by Commissioner (Appeals) cannot be sustained.

7. In the result, impugned order is set aside and the order passed by original authority is restored. The appeal is allowed with consequential reliefs, if any.

(Order pronounced in open court on 03.01.2024)