Raju ORDER
Ramesh Nair, Member (J)
1. These two appeals have been filed by appellant M/s. Kaybee Tex Spin Ltd., on common issue against Order-in-Appeal dated 23.03.2021 passed by the Commissioner (Appeals), Customs, Ahmedabad.
1.1. The facts of the case are that appellant a 100% EOU, during the period September 2003 to November 2003 was engaged in manufacture of Texturized Yarn, Twisted Yarn, Knitted Fabrics etc. During scrutiny of ER-2 returns and Central Excise Invoices of appellant for the months of September-2003 to November 2003 department noticed that appellant had cleared finished goods viz. 29284.05 kgs of sized yarn valued at Rs. 1701696/- and 45249.41 kgs of polyester knitted fabrics valued at Rs. 26,99,227/- in DTA as per para 6.8 (f) of Exim policy 2002-2007 allegedly without having any permission from the Development Commissioner, and thereby allegedly failed to follow procedure laid down under the Exim policy and failed to fulfill the condition of exemption Notification no. 52/2003-Cus : MANU/CUST/0010/2003 dated 31.03.2003. Show Cause Notices on 01.06.2004 and 25.06.2004 were issued to Appellant proposing recovery of customs duty of Rs. 10,09,276/- and 15,96,827/- on raw materials imported duty free in term of Notification No. 52/2003-Cus : MANU/CUST/0010/2003 and also proposed confiscation of goods and imposition of penalty. The demand was confirmed by the adjudicating authority. Aggrieved, the appellant filed appeal before Commissioner (Appeals), who confirmed the demand on the ground that this is not a case of demand on raw material but a case of denial of exemption notification under which raw material was allowed to be imported duty free. The Case law cited by the appellant find no applicability, including the case of Suresh Synthetics MANU/SC/8981/2007 : 2007(216) ELT 662(S.C.). Therefore, the appellant filed the present appeals.
2. Shri Rahul Gajera, Learned Counsel appearing on behalf of the appellant submits that Ld. Commissioner (Appeals) erred in not appreciating that inordinate delay in adjudication caused serious prejudice the Appellant's case and hence impugned order is not sustainable on this ground alone. In view of the Judgment of Hon'ble Supreme Court in the case of Commissioner of C. Ex. & Customs Vs. Suresh Synthetics - MANU/SC/8981/2007 : 2007(216) E.LT. 662(S.C.) demand of Customs duty in respect of clearances of finished goods by 100% EOU in DTA is not sustainable. The matter is squarely covered by the decision in which it has been held that in case of finished goods manufactured and cleared in DTA by 100% EOU, only excise duty is applicable and; demand of Customs duty on raw material which has gone into manufacture of finished goods is bad in law. He relies upon the judgments in the case of Vikram Ispat Vs. CCE, Mumbai -III -MANU/CE/0427/2000 : 2002 (120) ELT 800, Sahil Synthetics Pvt. Ltd. Vs. CCE Surat-I MANU/CM/1427/2001 : 2002 (139) ELT 594, Abubakar Ismail Kapadia Vs CCE Surat - MANU/CS/0019/2019 : 2019 (369) E.L.T. 1003 (Tri. -Ahmd.).
2.1. Further, he submits that there is no dispute that goods have been cleared on payment of Central Excise Duty at full rate, demand of customs duty on raw material simultaneously would result into double duty on the very same raw material. Thus even when the exemption is denied to the appellant, simultaneous duty demand on raw material would result into recovery of double duty on the raw material which has already suffered duty consisting of customs component. When goods were cleared on payment of full rate of duty, Para 6.8 (f) of Exim Policy does not require a prior permission of development commissioner.
2.2. The Appellant also submits that during the relevant period they were holding procurement and Movement Certificate. The goods were entered in the statutory records, all the process were carried out under cover of bond and Jurisdictional authorities were having physical control over the Appellant's unit. The department should have referred the matter to development Commissioner before the adjudication, however in the present matter adjudicating proceeding are vitiated and liable to be set aside. In the present case there is no suppression of facts, hence duty on raw materials clearly barred by time limit.
3. Shri. Dharmendra Kanjani, Learned Superintendent (Authorised Representative) appearing on behalf of the revenue reiterates the findings of the impugned order-in-appeal and relies upon the Judgments in the cases of CC (Import) Mumbai Vs. Dilip Kumar & Company MANU/SC/0789/2018 : 2018 (361) ELT 577(SC), LR Brother Indo Flora Ltd. Vs. CCE MANU/SC/0664/2020 : 2020(373) ELT 721(SC), Union of India Vs Siddhi Vinayak Syntex Pvt. Ltd. 2018 (362) ELT A122 (SC), Union of India Vs. Pooja Tex Prints Pvt. Ltd. 2020 (371) ELT A247 (SC), Union of India Vs. West Coast Paper Mills Ltd., MANU/SC/0098/2004 : 2004 (164) ELT 375 (SC).
4. We have carefully considered the submissions made by both the sides and perused the records. The revenue has confirmed the demand of customs duty on the raw material imported duty free in terms of Notifications No. 52/2003-CUS : MANU/CUST/0010/2003 dated 31.3.2003 on the ground that the appellant have cleared the goods in DTA without obtaining the permission of Development Commissioner therefore, the appellant failed to follow the procedure laid down under the Exim policy and failed to fulfill the condition of exemption notification No. 52/2003-CUS : MANU/CUST/0010/2003 dated 31.3.2003. There is no dispute in the fact that though the appellant have not obtained the permission from Development Commissioner for removal of goods in DTA but the appellant have paid full duty on the finished goods wherein, such imported raw material have been consumed. In case of 100% EOU, as per the policy, the appellant is required to clear the finished goods for export and if any part of the finished goods cleared in DTA, they are required to pay the excise duty equivalent to all customs duty. As per this policy in respect of DTA clearances, the customs duty which was forgone at the time of import of raw material gets subsumed in the excise duty paid on the finished goods at the time of clearance in DTA therefore, the customs duty which was forgone at the time of import stands paid in the form of excise duty on the finished goods. Once the duty free raw material got consumed in the manufacture of final product and the final product is cleared on payment of excise duty then demanding of customs duty on the raw material shall amount to double payment of duty. Therefore, in our view in the facts of the present case as the appellant have paid the full excise duty on the finished goods wherein, the raw material imported duty free has been consumed, no duty of customs can be demanded on such raw material. The issue has been considered in various judgments as cited by the appellant. In the case of Commissioner of Customs Vs. Suresh Synthetics MANU/SC/8981/2007 : 2007 (216) ELT 662 (SC) it was held by the Apex Court that customs duty is not sustainable on the raw material when the finished goods have been cleared on payment of excise duty in DTA.
4.1. In the case of Sahil Synthetics Pvt. Ltd. Vs. CCE, Surat-I 2001 (139) ELT 594 the following order was passed:
"Saheli Synthetics (Appeal C/398/2001) is a 100% export oriented unit at Surat. It is engaged in printing and dyeing of fabrics which it imports, predominantly for the purpose of export. It also sells part of the production in the domestic tariff area. The notice issued to it demanded duty under Section 28 of the Customs Act, 1962 on the ground that it had removed quantities of such processed fabrics to the domestic tariff area without payment of duty and on the further ground that it had short paid customs on some other quantities which it sold. Penalty under Section 112 of the Act was proposed on it and on R.R. Agarwal, its director for its contravention. Penalty under Section 112 was also proposed on Gajanand Fabrics, Kamdhenu Textiles and Shalimar Fabrics, for having purchased such goods.
2. The contention of the common counsel for the appellants is that no duty under the Customs Act, 1962 could be demanded on these goods which the appellant manufactures in its factory in India and sells in the domestic tariff area and therefore no penalty can be imposed on the appellant, or anyone else for this contravention. We are not able to understand the rationale for demanding duty on the goods under consideration under Section 28 of the Customs Act, 1962. The show cause notice does not propose to demand customs duty on the fabrics the appellant imported on any ground such as that they were not utilised in the manufacture of exported goods. Such a demand could be justified where goods are manufactured by a 100% export oriented unit in a factory in a free trade zone using imported raw materials or components are cleared to a buyer in the domestic tariff area they are not imported. The 100% export oriented unit and a free trade zone are located in India. What is correctly payable is excise duty. The proviso under sub-section (1) of Section 3 of the Central Excise Act, 1944 provides that the duties of excise payable on such goods manufactured in a free trade zone or by export oriented unit shall be equal to the aggregate of the customs duties leviable under Section 12 of the Customs Act, 1962 on like goods imported into India. It also provides that where such duties are ad valorem the value shall be determined in accordance with the provision of the Customs Act, 1962 and Customs Tariff Act, 1975. The measure, therefore, in the statute for the calculation of duty is the customs duty payable on such goods if they were imported. The levy and collection of duty is covered to be governed by the provisions of enactments relating to Central Excise. The provisions of the Customs Act, 1962 and Customs Tariff Act, will have no application in this regard.
3. On this point, without going to the merits of the issue, we hold that the show cause notice demanding duty and proposing penalty under the Customs Act is not maintainable, set aside the order confirming this notice and allow this appeal. We however make it clear that the department is at liberty to proceed to recover excise duty, if any, payable on the goods and initiate acts for contravention of the Central Excise Act and the rules thereunder in accordance with law."
The above judgment has been upheld by the Hon'ble Supreme Court reported in 2015 (316) A29 (SC)
4.2. The identical issue has also been considered by this Tribunal in the case of Sanjari Twisters - 2009 (235) E.L.T. 116 (Tri.- Ahmd.) wherein the Tribunal passed the following order:
"This is a departments appeal against the order of the Commissioner No. 03/Dem/2002, dt. 13-2-02
2. Heard the Ld. SDR. None appeared for the respondent.
3. The Commissioner vide his impugned order confirmed the demand of duty on certain finished goods, wastes and rejects cleared by the respondent who are a 100% EOU These clearances were effected by them into DTA However, he did not demand the duty on the duty free imported raw material used in the manufacture of such goods on the ground that the respondents being a 100% EOU, only Central Excise duty in terms of Section 3 of the Central Excise Act, 1944 can be recovered
4. The department being aggrieved with the said portion of the impugned order by which no duty stand was confirmed in respect of raw materials, has filed the present appeal. The appeal has been filed on the ground that non duty paid raw materials were admittedly used in finished products which were cleared to DTA in contravention of provisions of law. Such raw materials, which were imported by availing the benefit of notification No. 53/97-Cus dt. 3-6-97, should have discharged the duty
5. After hearing the id SDR, we find that the main issue involved relates to the determination of FOB value of export to arrive at the quantum of eligible domestic clearances and whether the same should include only physical export or it should include deemed export as well. If deemed exports are held to be not included, then the quantum of clearances permitted in DTA will be accordingly reduced. This issue has been decided by the Tribunal in favour of the assessee on a number of precedent decisions holding that the value of deemed export should be included while determining the FOB value of export, based on which DTA clearances are permitted. However, in this case, the assessee is not in appeal before us. The duty on finished goods stands demanded on the ground that the same is in excess of the permissible limit for the purpose of DTA clearance. The department's claim is to the effect that the raw material used in such finished products cleared in DTA should be treated as not used for the intended purposes and the duty on import should be demanded. We do not agree with this view In this case, it can not be said that the raw materials have not been used for the intended purpose. Even if there was clearances in excess of permissible limit it may amount to be case of diversion of finished goods, the duty shall be payable in respect of finished goods and no duty become demandable on the raw material used in the manufacture of such diverted goods.
6. Therefore, the appeal by the department is rejected"
The above decision of the Tribunal was maintained by the Hon'ble Supreme Court by dismissing the revenue's appeal reported at Commissioner v. Sanjari Twisters - 2010 (255) E.L.T. A15 (S.C.)
4.3. In view of the above judgments, it is settled that once in the 100% EOU the raw material imported duty free is used in the manufacture of final product and final product is cleared on payment of duty in DTA, for any reason the customs duty on the raw material which was used in the finished goods cannot be demanded therefore, the demand of Customs duty on this ground is clearly not sustainable.
4.4. As regard the judgment relied upon by the learned Authorized Representative, we find that as regard the Hon'ble Supreme Court judgement in the case of DILIP KUMAR & CO., the said judgment was decided on the point that the exemption notification should be followed strictly and any violation of any condition will amount to denial of the exemption.
4.5. We find that in the present case, as we have viewed that once the Excise duty has been paid on DTA clearances, no customs duty can be demanded on the raw material. In these circumstances, the judgment of DILIP KUMAR & CO. is not applicable in the facts of the present case. As regard the judgement in the case of LR BROTHERS INDO FLORA LTD. relied upon by the Learned AR, we find that the facts of that case are entirely different. In the said case, the final product was not dutiable and cleared without payment of duty for this reason; the Hon'ble Apex Court has held that the demand of customs duty in respect of raw material is sustainable.
4.6. We are also of the opinion that the duty of customs on raw material cannot be demanded on the ground that once the full excise duty is paid on the final product which is equivalent to the all customs duty, the customs duty on the raw material gets subsumed in the duty of excise paid on the final product cleared in DTA. Therefore, on the above cited judgment of LR Brother's case since the duty was not paid on the final product, the duty of customs on raw material is clearly sustainable therefore, the facts of the present case and the case of LR BROTHERS INDO FLORA LTD. are entirely different and hence ratio of LR BROTHERS INDO FLORA LTD. case is not applicable.
4.7. We find that the appellant have also raised the ground of limitation, on this, the fact is that the appellant have cleared the goods in DTA on payment of full duty by following the procedure such as issuance of excise invoice wherein the duty payment has been shown, the same particulars were reflected in their monthly ER-2 return. In this fact when the department was in complete knowledge regarding the clearance of finished goods in DTA, they were not prevented from verifying the fact that whether the appellant have obtained the permission from Development Commissioner or not. However, the department has not raised any objection at the relevant time, it is only subsequently on scrutiny of ER-2 return were carried out. There is no change of circumstances at the time of clearance of goods, filing of ER2 return and the verification of the same at the later stage therefore, there is absolutely no suppression of fact or mis-declaration with intend to evade payment of duty on the part of the appellant. Therefore, we are of the clear view that extended period of demand cannot be invoked hence the demand for extended period is not sustainable on limitation also.
4.8. The issue of time bar related to 100% EOU has been considered in various judgments. In the case of Meghmani Dyes & Intermediates Ltd. MANU/GJ/0159/2012 : 2013 (288) ELT 514 (Guj.) the Hon'ble Gujarat High Court has observed as under:
"32. It will not be appropriate for us to touch or observe anything in this regard as the CESTAT has directed the Commissioner to consider this issue and decide afresh. However, we do not find any merit in the contentions of the Revenue that ER-2 Returns which were filled in by the assessees did not enable the Central Excise officers to find out whether the DTA sales were in excess of the 50% of the quantities of the exported goods or not. We do not find merit in this contention for two reasons: first, it is factually incorrect to suggest that the details of the quantities of DTA sales and the quantities of goods manufactured and goods exported were not available in the Returns. We have perused the ER-2 Returns available on record. The format of ER-2 Returns specified by the Central Government shows that details of manufacture and clearance of goods of the concerned month are to be declared at Clause (iii) of the Returns and all the relevant details like description of goods, classification number of the goods, unit of quantity etc. along with the quantity of each of the goods manufactured and the quantities of physical export as well as the value of physical export, deemed export and also the quantities of each of the goods cleared in DTA in terms of quantity as well as value have been shown in the Return. Under Clause 4A of the Returns, details of clearances in DTA and deemed export and duty payable are to be disclosed and the excise notification availed along with serial number in the excise notification are also required to be submitted under Clause 4A of the Return. It is not the case of the Revenue that the respondents failed to declare the details and information required under ER-2 Returns and it is also not the case of the Revenue that any information declared under ER-2 Returns was wrong or false. On the other hand, we find that the details like total quantity of goods manufactured in a month with reference to each of the goods, quantities of each of the goods physically exported and quantity as well as value of each of the goods cleared in DTA would enable the Central Excise officers assessing such Returns to easily verify the total quantity of goods manufactured, exported and cleared in DTA. Further, details of excise notification number and also serial number of the notification availed for DTA sales shown at Clause 4A of the Return would also enable the Central Excise officers receiving and assessing the Returns to check up whether the exemption availed of was in order or not. Therefore, the Revenue's contention that the details submitted in ER-2 Returns were not sufficient enough to find out whether the respondents exceeded the permissible limit of DTA clearance is not tenable in law. Further, the format of ER-2 Returns is prescribed by the Government and, therefore, an assessee cannot be accused of suppression of facts if the details and information were provided by him in accordance with the format of the Return unless he provides any wrong information in the Return which is not the case as set-up by the Revenue.
33. Record reveals that the details in the prescribed format of ER-2 Returns along with the Central Excise invoices were submitted by the assessees on monthly basis for a period from 2004-05 onwards and, therefore, it is not believable that the Central Excise officers who received the Returns and invoices right from the year 2004-05 were not able to verify the exact quantity of each of the goods exported by the assessees vis--vis the DTA clearances made on payment of concessional rate of duty for a long period of five years.
34. Therefore, the findings recorded by the CESTAT that the Central Excise officers receiving the Returns had all the information to enable him to verify the facts is, therefore, correct and cannot be termed as perverse so as to warrant any interference at our ends.
35. We are of the view that the conclusion arrived at by the CESTAT that the demand was time-barred and the Revenue cannot invoke the extended period of limitation in this case is not based on mere assumptions or presumptions but is based on the conclusion arrived at after considering the documentary evidence on record including ER-2 Returns and Central Excise invoices of the assessees.
4.9. The same issue of limitation for the 100% EOU was also considered in the case of Commissioner of Central Excise, Pune-I Vs. Emcure Pharmaceuticals Ltd.- MANU/CM/0104/2014 : 2014 (307) E.L.T. 180 (Tri.- Mumbai) wherein, the Tribunal has passed the following order:
"5. We have carefully considered the submissions made by both the sides. From the records it is clearly seen that the respondent had declared to the department that they would be availing the benefit of Notification 23/2003 in of advance DTA sales to be effected by them in terms of the permission granted by the Development Commissioner as early as in 2004 itself. Therefore, the respondent cannot be, said to have withheld any information from the department. The respondent's plea that they were entitled for the benefit of exemption under Notification 23/2003 under the belief that they were entitled for benefit of such Notification cannot be said to be a mis-declaration as held by the Hon'ble Apex Court in Northern Plastics Ltd. v. Collector of Customs & Central Excise - MANU/SC/0418/1998 : AIR 1998 SC 2371 : 1998 (101) E.LT. 549 (S.C.). If the department felt that the respondent was not entitled to such exemption, they should have issued the show cause notice within the period stipulated under Section 11A. Revenue's reliance on the decision of the Tribunal in the case of Endress+Hauser Flowtec (1) Pvt. Ltd. (supra) does not come to their rescue for the reason that B-17 bonds are executed not only by the 100% EOUS but also units in the DTA. If Section 11A is applicable in respect of units in DTA who have executed B-17 bonds before the department, the same logic would apply in respect of 100% EOUS as well. Therefore, the argument that merely because the respondent has executed a B-17 bond they would fall outside the purview of Section 11A is illogical and irrational. One cannot interpret the law in such a way so as to make the provisions of law redundant
6. In these circumstances, we find no merit in the appeal filed by the Revenue. Accordingly, we dismiss the same as devoid of merits"
The aforesaid decision of the tribunal was taken to the Hon'ble Bombay High Court by the revenue, the Bombay High Court in a judgment reported at Commissioner of C. Ex., Pune-I Vs. Emcure Pharmaceuticals Ltd.-MANU/MH/2653/2016 : 2016 (342) E.L.T. 172 (BOM) held as under:
"3. Upon a reading of the Tribunal's order, we are unable to agree. The Tribunal found and as a matter of fact that whatever may be the procedure adopted and if it contravenes the law, the Department should have taken Upon a reading of the Tribunal's order, we are unable to agree. The Tribunal found and as a matter of prompt action. The Department though in the know of things on 14-6-2004, allowed the assesses to avail of the benefit of the above Notification. The Tribunal found that the returns were filed in which the assessee indicated that it effected advance Domestic Tariff Area clearances under Notification No. 23/2003. Thus the fact was known to the Department and hence issuing a show cause notice dated 3-7-2009 covering a period April, 2004 to March, 2006 was barred.
4. These very facts were, therefore, appreciated by the Tribunal and in arriving at the conclusion that the show cause notice and the proceedings in pursuance thereof were barred by limitation. It may be that the Tribunal dealt with an incidental contention of the Revenue. Merely because that incidental question has been dealt with, we cannot loose sight and shift the focus from the main question. The main question was the applicability of Section 11Aand invocation of the extended period thereunder. The extended period could not have been invoked in the absence of the requisite ingredients and to be found in Clauses (a) to (e) of sub-section (4) of Section 11A of the Central Excise Act, 1944. This is clearly a finding of fact and reached in the backdrop of the assessee's peculiar case. We do not think that such findings raise any substantial question of law The Tribunal's view cannot be said to be perverse. It is a possible view of the matter. The appeal is devoid of merits and is dismissed."
4.10. In view of the judgements, we find that even though the clearances were made by 100% EOU and bond- 17 has been executed, the proviso to Section 11A is clearly applicable with regard to the limitation for raising the demand.
5. As discussed above, in the present case since there is no suppression of fact on the part of the appellant as all the information's were available to the department in the form of ER2 return, the demand for extended period is not sustainable.
5.1. As per above discussion and findings, the demand of customs duty on raw material is not sustainable on merit as well as on limitation. The appellant has raised other grounds such as delay in issuing show cause notice and proceeding is beyond jurisdiction as the Development Commissioner is the competent authority. Since we have decided the matter on merit as well as on limitation, we are not going into other grounds raised by the appellant.
6. Accordingly, the impugned orders are set aside. Appeals are allowed.
(Pronounced in the open court on 31.01.2022.)
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