CA Urvashi Porwal
Brief of the Case
In the case of M/s Uni worth Textiles Ltd. Vs. Commissioner of Central Excise, Nagpur, it was held that the benefit on export of goods cannot be denied on the mere fact that the goods got damaged, re-processed again after some time and then exported by the assessee.
Facts of the Case
The appellants are Export Oriented Unit (EOU). In 2003 they cleared the certain consignments of fabrics for purpose of export, which got damaged due to rain and had to be brought back to the factory. They intimated the said fact to the Range Superintendent immediately on return of the said goods. The said goods were examined by the Insurance Surveyor who reported that 11786.30 mtrs. of fabrics was damaged due to rain water and the balance fabrics was in good condition. The surveyor also observed that the said damaged goods were beyond recovery. In 2006 the appellants claim to have discovered a certain chemical which could be used to make the damaged fabric fit again. They claimed that the said damaged fabrics were recovered and part of it was exported and other part was cleared on payment of applicable duty in DTA. A demand of duty was raised for the said damaged fabrics asserting that the claim of recovery of fabric was wrong. The original adjudicating authority observed as follows: –
“I find that the Noticee received raw material under CT-3 without payment of duty under Notification No. 22/2003-CE dated 31.03.2003 for manufacture of goods for export. The said Notification lays down a condition that if the goods so manufactured are not exported, then applicable duty on said goods is to be paid. I further find that the Noticee is 100% EOU and as per Notification No. 24/2003-CE dated 31.03.2003 goods manufactured by 100% EOU are exempted from whole of duty, provided goods are not brought to any other place of India. Accordingly goods manufactured in EOU & not exported but sold in DTA are chargeable to duty. I find that in present case, the Noticee being 100% EOU did not export goods and same were brought back in the factory in damaged condition and were deemed beyond recovery/reprocessing and the Noticee obtained an insurance claim against these goods. In this matter it is pertinent to cite the statement of Shri Pradeep Saxena, Assistant Manager (Excise) of the Noticee which was recorded on 24.12.2007 wherein he has stated that the said goods were unfit for export/use and the same could not be processed or sold. It was also reasoned that with the passage of time the fabric would deteriorate further due to Basterial activities and would be beyond the scope of recovery. Accordingly they received an insurance claim of Rs. 1778866/- against the above loss of goods. From his statement also it is clear that the damaged goods were deemed beyond scope of recovery and were not exported.”
Contentions of the Assessee
The assessee contended that in the year 2006, they could got a certain chemical from M/s Colourtex Industries Ltd., which was effective and it can remove the water marks from the wool blended fabrics. The appellants claimed that treating the said chemical they could process the entire stock of damaged fabrics to sellable condition. The appellants claimed that they exported 14397 mtrs of the said fabrics during the period November, 2006 to February, 2007 and cleared 2922.4 meters of the fabrics to DTA during May, 2007 on payment of duty.
The assessee further contented that the said goods were indeed damaged after clearance from factory for export and were brought back to factory in the year 2003. At the material time, it was felt that there was no method of re-process of the said goods and the said goods were deteriorated with time. However, in year 2006, they learnt about certain chemicals which can be used for processing of such fabrics and could do so simultaneously. He claimed that they had processed the entire lot and cleared the same for export and for DTA clearance on payment of duty. The assessee further contended that they had informed the Revenue immediately on receipt of the damaged goods in the year 2003 and the fact that they had claimed insurance cannot come in their way to ability of process and clear the damaged goods. The assessee further contended that Notification No. 24/2003-CE relates to duty exemption on inputs purchased for manufacture of goods and not to the impugned goods which are final products. The assessee further contended that it is for Revenue to establish that the damaged goods have indeed been cleared in DTA. The assessee further stated that Revenue has wrongly discarded the documents produced by the appellants. The assessee relied on the decision of the Larger Bench of the Tribunal in case of Honest Bio-vet Pvt. Ltd. Vs. Commissioner of Central Excise, Ahmedabad-I 2014 (310) ELT 526 (Tri-LB), wherein it has been held that the goods cleared for export under Bond, which were destroyed before the same can be exported and be treated as having been destroyed before removal only. The assessee also relied on the decision of the Tribunal in case of Madhav Marbles and Granites Ltd. 2009-TIOL-337-CESTAT-MAD.
Contentions of the Revenue
The Revenue relied on the findings of the impugned order and the revenue also relied on the decision of the Tribunal in the case of Siraj Sons, Bombay 1988 (35) ELT 597 (Tri). The revenue further stated that in the said case it has been held that waiver of duty cannot be claimed if the goods are destroyed by fire after clearance from the factory but before export. The revenue further stated that it is not possible for the said goods, which were found to be unfit in 2003 to become fit on processing in the year 2007.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that it is not disputed that the damaged goods were brought back into the factory. The argument of the Revenue that it is not possible to reprocess the goods in 2007 which were considered unfit for reprocessing in 2003, is not sustainable in view of the facts that the technology keeps improving and any claim made in 2003 is based on the appellants knowledge at the material time. The appellants have argued that in 2006, they come to know the chemicals which can reprocess the said materials and they reprocessed the material. The CESTAT stated that there is anything which cannot be taken at face value. The appellants have not only shown the details of clearance of reprocessed materials in export/DTA on payment of duty and Revenue has not challenged that fact. Revenue has only raised the suspicion that the records produced by the appellant are not authenticated. The assertion of the appellant cannot be set aside merely on suspicion. It has not stated by the Revenue at any stage as to what records were required to be produced that the appellant failed to produce. The appellants reliance on the decision of the Tribunal in case of Siraj Sons (supra) is of no avail as in view of the decision of Larger Bench in case of Honest Bio-vet (supra), the Tribunal has held as follows:
“14. We are of the view that the goods 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 the Rule 21 of the Central Excise Rules, 2002. Thus, primary condition of eligibility of Remission of duty on the destroyed goods is fulfilled as required u/r 21 of Central Excise Rules, 2002. Appellant is eligible for the Remission of duty in respect of goods for export under Bond which were destroyed before the same could be exported.”
The case of the appellant is on far superior footing. The appellants have not only brought back the goods but also re-processed and clear the same for export/DTA clearance on payment of duty. The Order-in-Original distinguished the decision of Madhav Marbles (supra) on the grounds that in that case the damaged goods were scraped and abandoned. In the case of Madhav Marbles (supra) the Tribunal has observed as follows: –
“3. It is not in dispute that the granite slabs removed from the EOU in November & December 2003 were damaged in road accidents when the goods were in transit to the point of export. Again, it is not in dispute that these damaged slabs were scrapped and abandoned under intimation to the department. The SCN was issued in July 2006 under Rule 19 of the Central Excise Rules, 2002 in terms of the bond executed by the EOU. In terms of this bond, the EOU was bound to export the goods and, in the event of default, to pay duty thereon. I have found no such default’ on the part of the appellants inasmuch as the intended export of the granite slabs did not come through on account of accident, which was beyond the control of the party. The very fact that insurance claim was made by them proved this nature of the subject transactions. In the absence of willful default of export of goods by the EOU, the bond was not liable to been formed against them and consequently the above demand of duty was not warranted. Moreover, the appellants could also claim the benefit of Notification No.24/2003-CE dt. 31.3.2003, which came into force on 1.4.2003. This Notification exempted all excisable goods produced or manufactured in an EOU, from payment of duty of excise. This exemption, however, was not applicable to such goods if brought to any other place in India ‘. In other words, excisable goods produced by an EOU and removed to the domestic tariff area (DTA) were chargeable to duty. Admittedly, in the present case, the granite slabs cleared by the EOU never reached the DTA. They eventually ended up as scrap, which was abandoned. Thus the appellants could legitimately claim the benefit of the Notification. Their appeal is only liable to be allowed.”
The Hon’ble CESTAT stated that the facts of the case are not exactly similar but it is seen that the appellants are not much better footing than Madhav Marbles (supra) in so far as the goods have not been totally lost but have been only partially damaged. If benefit can be given in case of goods totally lost then there is no reason to deny benefit in case of appellants where the goods were only partially damaged and they were able to reprocess the goods.
In view of the above, the impugned order is set aside and the appeal is allowed.
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