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Case Law Details

Case Name : Commissioner of Central Excise Vs Sheena Textiles Limited (CESTAT Ahmedabad)
Appeal Number : Excise Appeal No. 12537 of 2013-DB
Date of Judgement/Order : 31/10/2023
Related Assessment Year :

Commissioner of Central Excise Vs Sheena Textiles Limited (CESTAT Ahmedabad)

Introduction: This article delves into the recent order by CESTAT Ahmedabad, addressing the dispute between the Commissioner of Central Excise and Sheena Textiles Limited regarding duty-free imported machinery. The case revolves around alleged violations of conditions for exemption and the subsequent actions taken by the authorities.

Detailed Analysis:

Background and Allegations: Sheena Textiles Limited, engaged in manufacturing cotton products, obtained approval for a 100% Export-Oriented Unit (EOU) and imported used textile machinery. The dispute arises from the alleged failure to fulfill conditions, leading to a show cause notice. Charges include recovering customs duty, confiscation of machinery, imposing penalties, and recovering interest.

Conditions of Exemption: The machinery import was assessed at a nil rate of duty under Notification No. 53/1997-Cus. Conditions included fulfilling export obligations and installing or using capital goods within a specified time frame. Failure to meet these conditions could result in recovering the duty foregone, among other penalties.

Department’s Allegations: The department contended that Sheena Textiles violated conditions, as machinery remained uninstalled, and export obligations were unmet within the prescribed period. The Commissioner issued a show cause notice, framing charges related to recovering duty, confiscation, penalties, and interest.

Order-in-Original and Legal Implications: The Adjudicating Authority, in the impugned order, dropped the proceedings and allowed the exported consignment to be re-exported. The department challenged this decision, asserting errors in dismissing charges and allowing re-export, arguing that these matters were not part of the original show cause notice.

CESTAT Ahmedabad’s Verdict: CESTAT Ahmedabad found the order-in-original legally untenable. It highlighted the violation of conditions for duty-free imports and deemed the order permitting re-export and destruction of goods as illegal. The tribunal set aside the order, upholding all charges on merit. However, it remanded the matter to the adjudicating authority for deciding the quantum of penalties, redemption fine, etc.

Conclusion: The CESTAT Ahmedabad’s decision emphasizes adherence to conditions for duty-free imports. While upholding charges against Sheena Textiles, the tribunal deems the permission for re-export and destruction as legally flawed. The case highlights the significance of complying with prescribed timelines and the legal consequences for non-compliance with exemption conditions.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the matter are that respondent assessee were engaged in the manufacture of cotton terry towel, bath mat, bath rugs, carpet, curtains etc. falling under Chapter 63 of Central Excise Tariff Act, 1985. The respondent assessee got approval for setting up a 100% EOU from the Development Commissioner, Kandla. The necessary permission of bonded warehouse under Section 58 of the Customs Act, 1962 etc. were also obtained by the respondent. The respondent assessee imported used textile machinery and its accessories under bills of entry No. 22/2000-01 dated 11.07.2000 and 53/2000-01 dated 29.08.2000 under which the textile machinery valued about Rs. 8.22 Crores were imported which was assessed at nil rate of duty under Notification No. 53/1997-Cus dated 03.06.1997. The total duty forgone on the two bills of entries came to Rs. 4.42 Crores. It is matter of record that the goods covered under bills of entry No. 22/2000- 01 dated 11.07.2000 whereunder 20 containers were imported and entire consignment was cleared by the importer. The second consignment which was covered by bill of entry No. 53/2000-01 dated 29.08.2000 covered 17 containers out of which only 12 containers were cleared and remaining 5 containers remained in the possession of ICD Sachin which was subsequently auctioned by the ICD Sachin.

2. The respondent assessee vide a letter dated 15.04.2004, addressed to Commissioner, Division-II, Surat informed that they had imported entire spinning plant in 105 containers out of which 32 containers were cleared by them however, 5 containers auctioned by the customs authorities, ICD Sachin because of inordinate delay in clearing the same. It has been the allegation by the department that respondent-assessee could not install the plant within prescribed time-limit of one year from the date of procurement of duty free machineries. The department issued a letter to show cause as to why the permission of extension of period of installation of the plant should not be denied to them as there has been inordinate delay in setting up of plant.

3. As the respondent-assessee could not satisfy the department regarding their failure to install the textile plant, the department formed a view that respondent-assessee has violated the condition No. 6 of Notification No. 53/97-Cus dated 03.06.1997 as the respondent have imported textile machinery without payment of duty. The show cause notice dated 14.09.2008 was issued whereunder the following charges have been framed by the department:-

“(i) Recover the Customs duty amounting to Rs. 4,43,48,014/- from them on the said used textile machinery and accessories imported from them in terms of Notification No. 53/97-Cus read with condition No. 10 of B-17 bond furnished by them read with Para 9.3 of the Exim Policy 1997- 2002 and para 9.7 of Handbook of Procedure under the said Exim Policy;

(ii) confiscate the said parts of the used textile machinery and accessories, as procured by them under the above said bills of entry and lying in the unit of the assessee without installation, under Section 111(0) of the Customs Act, 1962;

(iii) impose penalty on them under Section 112(a) of the Customs Act, 1962 and to recover the same in terms of condition no. 10 of the B-17 bond furnished by them;

(iv) recover interest on the Customs duty mentioned above, from the date of duty free importation till the payment of duty, from them in terms of Notification No. 53/97-Cus read with condition No.10 of the B-17 bond furnished by them.”

4. The matter got adjudicated vide impugned order-in-original dated 07.5.2013 wherein the learned Adjudicating Authority has dropped the proceedings and allowed the imported consignment to be exported.

5. The department feeling aggrieved with the above order-in-original are before us. It has been the contention of the department that learned Commissioner has grossly erred in setting aside the proceedings initiated against the respondent-assessee and allowing the permission to re-export the duty free textile machinery plant. The main contention of the department is that:-

“(a) The assessee was granted a permission to operate under the scheme of 100% EOU and was required to fulfill the conditions as stipulated under Notification No. 53/97-Cus dated 03.06.1997 amended by Notification No. 66/99-Cus dated 19.05.1999; that a B-17 Bond was executed by the assessee undertaking to fulfill the conditions stipulated therein and failing to do so automatically results in recovery of duty foregone on such goods;

(b) The assessee had not cleared the remaining 73 containers as a result of which the same were auctioned by DGDC, the custodian of ICD, Sachin;

(c) The assessee failed to install or use the aforesaid duty free imported machinery within prescribed period and thereby violated condition no. 6 of the Notification No. 53/97-Cus dated 03.06.1997 amended by Notification No. 66/99-Cus dated 19.05.1999.

(d) The issue as to whether the assessee is to be allowed re-export of the subject goods or not was not the subject matter of the Show Cause Notice issued in the instant case. The Commissioner has, by concluding to allow re-export of Capital Goods, gone beyond the Show Cause Notice which is not correct and legal.

(e) Similarly, the issue as to whether the assessee is to be allowed destruction of the goods or not was also not the subject matter of the Show Cause Notice issued in the case at hand. The Commissioner has again, by giving the alternate liberty of destroying the goods to the assessee, travelled beyond the Show Cause Notice which is not legal.”

6. We have heard Shri Prabhat K. Rameshwaram, learned Addl. Commissioner AR appearing for the appellant. None appeared for the respondent assessee in spite of giving several opportunities to them. It is a matter of record that the notice of hearing was pasted at the given address of the respondent-assessee under a Panchnama dated 23.06.2023 however nobody has appeared from the respondent-assessee’s side. It is matter of record that respondent-assessee has imported textile machinery and its accessories vide bills of entry Nos. 22/2000-02 dated 11.07.2000 and No. 53/2000-01 dated 29.08.2000. The goods which were imported under these bills of entry were assessed to nil rate of duty by virtue of Notification No. 53/97-Cus dated 03.06.1997 and as a result customs duty amounting to Rs. 4,43,48,014/- was forgone. The provisions of exemption Notification No. 53/97-Cus dated 03.06.1997 and the condition No. 6 of the said notification reads as follows:-

(6) The importer executes a bond in such form and for such sum and with such security or surety as may be prescribed by the Assistant Commissioner of Customs, binding himself to fulfill the export obligations and conditions stipulated in this notification and in or under said Export and Import Policy and to pay on demand an amount equal to the duty leviable on the goods as are not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the of articles or in connection with the production of packaging or job work for export of goods or services out of India.

(a) in the opening paragraph, for the words “when imported into India, for the purpose of manufacture of articles for export out of India”, the words “when imported into India or procured from a Public Warehouse or a Private Warehouse appointed or licensed, as the case may be, under section 57 or section 58 of the said Customs Act, for the purpose of manufacture of articles for export out of India”, shall be substituted:

(b) in condition (6), for the portion beginning with the words “duty leviable on the goods” and ending with the words “services out of India”, the following shall be substituted, namely:-

“duty leviable on the goods and interest at the rate of 20% per annum on the said duty from the date of duty free importation or procurement of the said goods fill the date of payment of such duty, if –

(i) in the case of capital goods, such goods are not proved to the satisfaction of the Assistant Commissioner of Customs to have been found installed or otherwise used within the bonded premises or re-exported within a period of one year from the date of importation or procurement thereof or within such extended period not exceeding five years as the Assistant Commissioner of Customs may, on being satisfied that there is sufficient cause for not using them as above within the said period, allow.”

It can be seen from the bare perusal of the above condition of the exemption notification that duty free imported goods namely plant-machinery for textile industry should have been for manufacture of export products and export obligation need to have been fulfilled within prescribed time-limit.

7. There is no denying of the fact that duty free imported consignment of machinery was neither installed nor they were used for manufacture of the export items. The order of re-export of duty free imported machineries provided by impugned order-in-original is legally not tenable as the permission for the re-export of the goods could have been given by the concerned proper officer, had they followed the prescribed time schedule as given in the exemption notification and made a request for re-export at the proper time. In our view, it is also absolutely illegal to give liberty to the respondent-assessee to destroy the said goods. We also find that since the impugned goods have been imported without payment of customs duty, the inherent value of the goods comprises the element of Customs duty therein and therefore permission of allowing destruction of goods without authority of customs law will amount to arbitrary abatement of leviable customs duty. We therefore, hold that the impugned order-in-original is without any merit and we set-aside the same. We also hold that all the charges invoked in the show cause notice are upheld on merits. However, for deciding the quantum of penalty, redemption fine etc. we remand back the matter to the original adjudicating authority to re-adjudicate the matter, after giving proper hearing to the respondent-assessee.

 

8. In view of above, the appeal is allowed by way of remand to the original adjudicating authority.

(Pronounced in the open court on 31.10.2023)

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