Assessee is eligible for remission of duty in respect of goods cleared for export under bond but which were destroyed at port before same could be exported

Honest Bio-Vet Pvt. Ltd. Vs Commissioner of Central Excise, Ahmedabad-I [2014-TIOL-2286-CESTAT-AHM-LB]

Honest Bio-Vet Pvt. Ltd. (the Appellant) cleared certain goods for export under ARE-1 under bond without payment of duty. The Appellant had taken the goods directly to the port of export i.e. JNCH, presented the Shipping Bill and ‘Let Export’ Order was allowed. However, the goods could not be loaded on the ship for export due to Fire Accident at the port. The goods were badly damaged and were brought back to the factory with the permission of the Customs Officers at JNCH. The Appellant informed the same to the Jurisdictional Central Excise Officers who thereafter along with Inspector visited the factory of the Appellant and verified the condition of the damaged goods.Insurance claim in respect of the same was also settled by the Insurance Company, excluding the Central Excise duty element.

Thereafter, the Appellant filed a claim for remission of duty under Rule 21 of the Central Excise Rules, 2002 (“the Excise Rules”) on August 15, 2008 which was rejected by the Department on the ground that destroyed finished goods had been removed from factory premises for export, thereby primary condition of eligibility for remission of duty on destroyed goods is not fulfilled as required under Rule 21 of the Excise Rules.

On appeal being filed to the Hon’ble CESTAT, Ahmedabad, theHon’ble Single Member Bench heard the appeal and after observing that there were two streams of view in the stated matter, referred the matter to the Hon’ble President for consideration by the Larger Bench.

The Larger Bench of the Hon’ble Tribunal decided the matter in favour of the Appellant and held as under:

  • The provisions of Rule 21 of the Excise Rules provides that remission can be allowed when goods in question have been lost or destroyed by natural causes or by unavoidable accident or are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal. Hence, in absence of any clear definition of the term ‘Removal’, the phrase ‘Place of Removal’ is an important expression/factor, which has to be decided first for charging duty or considering application for remission of duty;
  • As goods in question were cleared under ARE-1 for export under bond, the sale would be completed at load port only as per definition ofPlace of Removal’given under Section 4(3)(c)(iii) of the Central Excise Act, 1944. Under these circumstances, ownership of the goods and duty liability is also extended upto the load port and if, the goods are not exported, concerned manufacturer will be required to discharge the duty liability. Therefore, ‘Removal’ also gets extended upto the port of shipment from where the sale would be completed;
  • In case of clearances for exports, conditions and procedures have been prescribed vide Notification No.42/2001-CE(NT) dated June 26, 2001, which lays down that goods cleared without duty under Bond for export, if not exported within 6 months, the manufacturer will be liable to pay duty. These conditions also show that it will be the liability of the said manufacturer exporter to pay duty if the goods are not exported after clearance from factory;
  • It is settled position of law that in case of exports the‘Place of Removal’ is the port of shipment. Even Section 5 of Central Sales Tax Act also provides that sale of goods can be deemed to take place in the course of export of goods out of the territory of India only if the sale for such export is effected by a “transfer of documents of title to the goods, have crossed the custom frontier of India”;
  • Accordingly, thegoods cleared for export under Bond, which were destroyed before the same could be exported, can be treated as having been destroyed before removal only.

This would be the fair interpretation of Rule 21 of the Excise Rules. Thus, primary condition of eligibility of remission of duty on the destroyed goods stands fulfilled.

Hence, the Appellant was held to be eligible for remission of duty on the goods destroyed at port of export in terms of Rule 21 of the Excise Rules.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email:

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October 2020