1. This appeal is directed against Order-in-Appeal No 128/2008 dated 29.10.2008 passed by Commissioner of Customs (Appeals) on an appeal filed
by the appellants against the Order-in-Original No 08/2008 dated 26/29.02.2008 passed by Joint Commissioner of Customs. Brief issue involved is
whether the appellants have violated the conditions of Notification No 52/2003-Cus dated 31.3.2003 read with Notification No 22/03-CE dated
31.03.2003 and thus rendering the imported goods liable for confiscation; rendered themselves to pay applicable duty on the raw materials imported
and used in the manufacture of final products and as to whether they are liable for penalty.
2. Brief facts of the case are that the ""Appellant"", M/s Centum Electronics Limited, Bangalore (formerly known as M/s Solectron Centum Electronics
Limited), a 100% EOU engaged in manufacture of electronic goods such as hybrid micro circuits, resistors, etc; the Appellant had imported raw
materials like fuses, resistors, gold wire, etc., claiming exemption from duty vide Customs Notification No. 52/2003-Cus dated 31.3.2003 applicable to
the EOU/EHTP/STP, etc; the Appellant had used the raw materials imported under Notification No 52/2003 Cus in the manufacture of the final
products viz Hybrid Micro Circuits, and Crystal Oscillators & Crystals and the same were cleared at Nil rate of Excise duty to ISRO and BEL who
were eligible for exemption from Custom Duties vide Notification No 21/2002-Cus dated 01.03.2002 (for ISRO) and 39/96-Cus dated 23.07.1996 (for
BEL). Revenue issued a Show Cause Notice, dated 08.10.2007, alleging that the appellant has wrongly availed the exemption on raw materials
imported and used in the manufacture Hybrid Micro Circuits cleared to ISRO and Crystal Oscillators and Crystals cleared to BEL; it was also alleged
that the Appellant did not have permission for DTA Clearances. The OIO and OIA confirmed Confiscation of raw materials/inputs valued
Rs.2,17,55,817 and redemption Fine of Rs.10,00,000; Customs duty of Rs.53,65,310 along with interest of Rs.1,34,664 and penalty of Rs.2,00,000 while
appropriating the amounts already paid. Hence, this appeal.
3. Learned counsel for the appellants submits, with respect to the allegation that the manufactured goods were cleared in DTA without permission and
hence the said goods were liable for confiscation and also ineligible for exemption under Notification No 23/2003 CE dated 31.3.2003, that they had
achieved positive Net Foreign Exchange Earnings (NFE) and obtained approval of the STPI, Bangalore for making sales in DTA.; Appellants had
submitted copies of the Annual Reports submitted to the STPI and approval granted by the STPI for 2006-07; the Adjudicating authority has recorded
these facts in OIO and therefore, the allegation does not survive; findings to the contrary by the Commissioner (Appeals) in the impugned order are
without any basis.
4. Learned counsel for the appellants further submits that the effect of second Proviso, to Para 3 of Notification No 52/2003-Cus dated 31.3.2003, is
that if the subject finished goods, (i) Hybrid micro circuits, and (ii) Crystal Oscillators & Crystals, cleared to ISRO & BEL, were to be imported and if
such imported goods were leviable to Nil rate of Customs duty, then no exemption would be available in respect of the inputs utilized in the
manufacture of such finished goods; ; Hybrid Micro Circuits and Crystal Oscillators & Crystals, when imported, are classifiable under CTH 8542 3100
& 8541 6000 respectively, attracting basic Customs duty @ Nil (effective rate) and Additional duty of Customs @ 10% under Section 3(1) of the
Customs Tariff Act, 1975 (equivalent to the Excise duty leviable on the like article manufactured in India); it is not shown in the Show Cause Notice
or the impugned orders that the subject goods when imported attract Nil rate of Customs duty; these Notifications are also not applicable on clearance
of the finished goods by 100% EOU in DTA; therefore, the said final products if imported were not exempted goods or leviable to Nil rate of Customs
duty.
5. Learned counsel for the appellants also submits that EOU is required to assess and pay excise duty on the goods manufactured and cleared in DTA
in terms of Section 3 of the CEA, 1944 read with Notification No 23/2003 CE dated 31.3.2003; finished products even if not exported are allowed to
be sold in DTA on payment of applicable duty of excise under Section 3 of the CEA, 1944. He relies upon:
(i). CBEC Circular No 54/2004 Cus dated 13.10.2004
(ii). Sarla Performance Fibre Ltd vs CCE, Surat II 2016 (336) ELT 557 (SC)
(iii). Vikram Ispat Vs CCE, Mumbai III 2000 (120) ELT 800 (T â€" LB)
6. Learned counsel for the appellants submits that Notifications No 21/2002 - Cus dated 1.3.2002 and 39/96 Cus dated 23.7.1996. are not applicable
for clearance of the manufactured goods by the EOU in DTA. The EOU was liable to pay excise duty on the goods manufactured and cleared in
DTA in terms of Section 3 of the Central Excise Act, 1944 read with Notification No 23/2003-CE dated 31.03.2003. Both the DTA buyers were
entitled to import the goods directly under in terms of Para 3 of Notification No 52/2003 Cus which mandates that the assesse is liable to pay excise
duty on the goods cleared in DTA in terms of Section 3 of the CEA, 1944; the appellant had not paid Excise duty on the finished goods cleared to
ISRO & BEL in DTA; in case the excise duty was not paid, the Department ought to have demanded excise duty payable under Section 3 of the
CEA, 1944; the Show Cause Notice has not proposed and was not confirmed; instead Customs Duty on the inputs was demanded and confirmed.
7. Learned counsel for the appellants submits, as regards the confiscation, that the same is not sustainable as imported goods were duly cleared by the
Customs for consumption in the EOU; the inputs were used for the manufacture of final products, which were supplied to ISRO and BEL within the
DTA entitlement and as per the permission granted by STPI; there is no violation of Notification No 52/2003 Cus with regard to import of the inputs;
there was no seizure of any of the goods; its settled law that when the goods were cleared by Customs; were not seized; were not available for
confiscation and subsequently proceedings, question of confiscation and imposition of redemption fine does not arise. He relies on the following
judgements:
(i). CC Vs Raja Impex Pvt Ltd 2008 (229) ELT 185 (P 8.5H)
(ii). CC (Import), Mumbai Vs Finesse Creation Inc 2009 (248) ELT 122 (Bom) [Maintained - 2010 (255) ELT A 120 (SC)]
(iii). CC (Export) Vs Sudarshan Cargo Pvt Ltd 2010 (258) ELT 197 (Bom)
(iv). CC, Bangalore Vs Microsoft India (R & D) Pvt Ltd 2014 (300) ELT 149 (Tri-Bang)
8. Learned counsel for the appellants submits, as regards penalty, that a plain reading of Section 112(a) ibid reveals that penalty is imposable under this
section on any person who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation
under section 111, or abets the doing or omission of such an act; when the goods are not available and liable for confiscation, the penalty imposed
under Section 112(a) of the Customs Act, 1962 is also not sustainable as it is contingent upon the goods being liable for confiscation.
9. Learned Authorised Representative for the department submits that the main contention of the appellant appears to be that finished goods were
taxable and Central Excise Duty was to be demanded on finished goods and not the Customs duty foregone on inputs imported by them; the issue to
be decided is whether demand on the duty foregone on inputs is sustainable or not; as there is no demand of Central Excise duty on finished goods, the
argument on the same is beyond the purview of SCN. The meaning of Proviso, to Para 3 of Notification No 52/03- Cus dt.31.03.2003, is that the
customs duty foregone on inputs is to be reversed by the importer on any of the two grounds:
(1) If finished goods are non-excisable OR
(2) The finished goods, if imported, are liable to “nil†customs duty (under First schedule as well as additional duty under Section 3 of Customs
Act, 1962) either by way of tariff rate or by way of any exemption.
10. Learned Authorised Representative submits that accordingly, the issue to be examined is whether, any of the above conditions exist. Even if one
of the conditions is true, then the demand of duty on inputs becomes sustainable. The finished goods, i.e. Hybrid Micro Circuits cleared to M/s ISRO
and Crystal Oscillators and Crystals cleared to M/s BEL, are chargeable to ‘Nil’ rate of customs duty and Nil rate of Additional Duty subject to
condition that the importer produces the required certificate from competent authority by virtue of Notification No. 21/02â€"Cus dt.1.3.2002 and
39/96â€"Cus dt.23.07.1996 respectively. In both the above cases, M/s SCEL have provided the requisite Certificates and Revenue has placed the
same on record. The moot point is not regarding the eligibility of the appellants to clear the finished goods at “Nil†rate of Customs duty. There is
no question regarding the eligibility of M/s ISRO and M/s BEL to obtain goods at “Nil “rate of duty.
11. Learned Authorised Representative submits that as per Para 6.8j of FTP, in case of DTA sale of goods manufactured by EOU/ EHTP/STP/BTP,
where basic duty and CVD is Nil, such goods may be considered as nonexcisable for payment of duty. The finished goods cleared to M/s ISRO and
M/s BEL are eligible for ‘Nil’ rate of Customs duty in terms of Notification No. 21/02â€"Cus dt.1.3.2002 and 39/96â€"Cus dt.23.07.1996. If
M/s ISRO and M/s BEL, were to import these same goods, they clearly were eligible for “Nil†rate of Customs duty under First schedule of
Customs Tariff and “Nil†rate of additional duty. Therefore, in terms of Para 3 of Notification No 52/2003 is satisfied rendering the imported raw
materials ineligible for the said exemption and rendering appellants liable to pay the duty foregone on import of inputs. Learned Authorised
Representative submits that it is incorrect to argue that the fact of clearance of finished goods under “Nil†rate was not known at the time of
import of inputs; this is a post import condition which is applicable in this case as it is based on clearance of finished goods. Therefore, duty not
collected, at the time of import of raw materials, becomes payable at the time of clearance of final goods as the conditions of Notification 52/2003
â€"Cus dt.31.03.2003, are violated.
12. Learned Authorised Representative submits that the appellants knew about the fact of clearance of finished goods at ‘Nil’ rate and thus
regarding his liability to pay the duty foregone on inputs; they cannot claim the benefit of exemption on finished goods and also justify the exemption on
inputs at the same time. Further, clearance of finished goods had taken place during the period March 2007 to July 2007, the appellants have not
obtained permission for the said DTA sales as is evidenced by the fact that the letter seeking permission is dt.15th May 2007 and subsequently SCN
has been issued on 08.10.2007. Hence the claim of the party they have been permitted to carry out the aforesaid sales is not correct. Relying on Apex
Courts judgement in Dilip Kumar case 2018 (361) ELT 577 (S.C.), learned AR submits that an exemption notification should be interpreted strictly and
the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause and when
there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity should be interpreted in favour of the
revenue.
13. Learned Authorised Representative submits, as regards the confiscability, that Hon’ble High Court of Madras in the case of Visteon
Automotive Systems India Limited Vs, CESTAT, Chennai 2018(9) G.S.T.L. 142(MAD)†held that once the power of authorization for confiscation
of goods gets traced to Section 111 of the Customs Act, 1962, physical availability is not so much relevant. Penalty under Section 112(a) ibid flows
from imposition of redemption fine which in turn flows from Section 111 ibid as held by Tribunal in the case of Venus Enterprises vs. Commissioner of
Customs , Chennai, 2006 (199) ELT661 (Tri-Chennai).
14. Heard both sides and perused the records of the case. Brief point to be considered in this case is to decide as to whether the appellants are liable
to pay duty on the raw materials which have been used in the manufacture of final products which have been cleared without payment of duty in
DTA. At the root of the contention is the proviso to Para 3 of Notification No.52/2003-Cus. dated 31.3.2003. The appellants have cleared hybrid
micro circuits to M/s. ISRO at ‘Nil’ rate of duty claiming exemption under Notification No.21/2002-Cus. dated 1.3.2002 and have cleared
crystal oscillators and crystals to M/s. BEL under Notification No.39/1996. In both cases, Customs duty is ‘Nil’ and CVD is exempt subject to
the condition that the importer produces the required certificates from Department of Space or the competent authority. The adjudicating authority has
given a clear finding that the appellants have produced the required certificates. These facts are not under dispute.
15. We find that the relevant portion of the Notification reads as under:
“Provided that such finished goods (including rejects, waste, scrap, remnants and by-products) are either non excisable or such finished
goods (including rejects, waste, scrap remnants and by-products), if imported, are leviable to nil rate of duty of customs specified under
First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and nil additional duty leviable under Section 3 of the Customs Tariff Act, read
with exemption notification in this regard, if any, no exemption in respect of inputs utilised for the purpose of manufacture of such finished
goods (including rejects, waste, scrap, remnants and byproducts) shall be available under this Notification.â€
“Provided that where such finished goods (including rejects, waste, scrap remnants and by-products) are not excisable, customs duty
equal in amount to that leviable on the inputs imported under this notification and used for the purpose of manufacture of such finished
goods, which would have been paid but for the exemption under this Notification shall be payable at the time of clearance of such finished
goods.â€
16. Plain reading of the above provision gives a clear understanding that the Customs duty forgone on inputs required to be repaid by the importer
under the two conditions: (i) if the finished goods are not excisable and (ii) the finished goods, if imported are liable to ‘Nil’ rate of Customs duty
under First Schedule as well as the additional duty (CVD) under Section 3 of Customs Act, 1962. Now, it requires to be seen whether the final goods
cleared by the appellant to M/s. BEL and ISRO fulfill the above conditions. The appellants have cleared hybrid micro circuits to M/s. ISRO at
‘Nil’ rate of duty under Notification No.21/2002-Cus. dated 01.03.2002 and have cleared crystal oscillators and crystals to M/s. BEL under
Notification No.39/1996. In both cases, Customs duty is ‘Nil’ and CVD is exempt.
17. We find that the appellants contend that the goods supplied in DTA to M/s. BEL and ISRO are not exempted from Central Excise duty as such,
but exempt only when certain conditions are met and procedures are followed. The contentions of the appellants, based on the above and their reading
of Circular No.54/2004-Cus. dated 13.10.2004 is that it could be inferred that only when both basic and additional duty of customs are exempt as per
Tariff or based on general exemptions, not in the case of conditional exemptions. We find that CBEC vide above cited Circular clarified that:
iii) DTA Sale by EOU/EHTP/STP Units:
8. Under the present dispensation, in case of DTA sale of goods manufactured by EOU/EHTP/STP, if basic customs duty and CVD are both
‘nil’ on similar goods when imported, no duty is payable by the EOU as per proviso to Section 3(1) of the Central Excise Act, 1944.
Similar goods manufactured in DTA suffer duty on inputs (as CENVAT Credit is not available in such cases) whereas the EOU/EHTP/STP
avail the facility of duty-free inputs. This puts the DTA units manufacturing similar goods at a comparative disadvantage. In order to remove
this anomaly, a new provision, i.e. paragraph 6.8(j), has been introduced in the FTP providing that in case of DTA sale of goods
manufactured by EOU/EHTP/STP, where basic duty and CVD, both are ‘nil’ [either tariff rate or effective rate], such goods would be
treated in the same manner as non-excisable goods manufactured by an EOU. In other words, when such goods are cleared into DTA, duty
foregone on inputs utilized for production of such goods will have to be paid (as in the case of non-excisable goods vide Para 6 of
Notification No. 22/2003-C.E., dated 31-3-2003 and Para 3 of Notification No. 52/2003-Cus., dated 31-3-2003).
9. For implementation of the said provision, Notification Nos.22/2003-C.E., dated 31-3-2003 and 52/2003-Cus., dated 31-3- 2003,
governing duty-free domestic procurement and import of goods, respectively, by EOUs and EHTP/STP units, have been amended.
We also find that in terms of Para 6.8j, in case of DTA sale of goods manufactured by EOU/EHTP/STP/BTP, where basic duty and CVD is
‘Nil’, such goods may be considered as non-excisable for payment of duty.
18. In view of the above discussion, it is clear that the finished goods supplied by the appellants to M/s. BEL and ISRO are exempt from payment of
customs duty as well as additional customs duty. Therefore, in terms of proviso to Para 3 of the Notification No.52/2003 and the CBEC Circular
No.54/2004-Cus. dated 13.10.2004 the appellants are required to pay the duty foregone, on the inputs imported duty-free. There is no confusion in the
wordings of either the notification or circular. The appellants have argued on the basis of the case law cited by them. We find that the said cases are
not relevant as the facts of the case are not identical. The dutiability of final products cleared by the EOU/EHTP/ units was the subject matter of the
discussion in the cases cited. Whereas, in the instant case, duty has been demanded on raw materials which have been imported duty free as the final
products are cleared duty free. We find that Tribunal in the case of Cosco Blossoms Pvt. Ltd. vs. CC, Delhi: 2004 (164) ELT 423 (Tri-Del.) it was
held that:
“5. It is well settled [2000 (120) E.L.T. 800] that goods produced in an EOU cannot be treated as imported goods and subjected to
customs duty. The duty payable in respect of such goods is the duty of excise under Section 3 of the Central Excise Act, 1944. Therefore, the
duty demand made in the impugned order under Section 28 of the Customs Act is not sustainable. Accordingly, we set aside the impugned
order and allow the present appeal. However, we make it clear that revenue authorities will be at liberty to demand duty on the imported
inputs, if any, used in the production of the cut-flowers in question.
19. Therefore, we find that as held by the adjudicating authority and as upheld by the appellate authority, there is no infirmity in the demand and
confirmation of the same. We hold that the appellants’ contention that if the exemption is conditional, the proviso to para 3 of the Notification
52/2003 is not attracted, is not acceptable as the language of the Notification is clear and in view of the ratio of the decision of Apex Court in the case
of Dilip Kumar and Co. (supra), we find that there is neither a scope nor a need for any interpretation. The appellants have paid duty along with
interest. Further, we find that the appellants argument that revenue should have demanded Central Excise Duty has no relevance as we find that
customs duty foregone at the time of import of raw material by the appellants was correctly demanded and confirmed. Similarly, we find that the
argument of the appellate authority that the appellants did not have the permission from the competent authority to clear the goods on DTA is not
based on facts. We find that the original authority has confirmed the fact of necessary permission being obtained.
20. Having decided the issue on the question of applicability of duty, we turn our attention to the submission of the appellant regarding the imposition of
redemption fine and penalty, we find that goods have been cleared after due filing of documents before the authorities. The goods have been cleared
well before the issuance of show-cause notice. Goods were not physically available for confiscation. We find that this Bench in the case of Microsoft
India (R & D) Pvt. Ltd.: 2014 (300) ELT 149 (Tri.-Bang.) held that in case of STPI units, confiscation and penalty are not sustainable as the goods
were imported after necessary approvals by STPI. We find that in the instant case too, the import of raw material, on which duty was demanded, was
allowed by the customs authorities. We find that the show-cause notice seeks to invoke the provisions of warehousing saying that the imported bonded
goods have been removed without payment of duty. We find that such an argument is quite out stretched. The mistake or lapse on the part of the
appellant is that they have not repaid the duty foregone on the imported raw materials at the time of clearance of duty free final goods in the DTA.
The proper course of action, in such violations, is to recovery duty along with interest. Duty has been paid along with interest on being pointed out. In
view of the facts of the case and the case law cited above, we are of the considered opinion that confiscation and imposition of penalty are not
warranted in the instant case.
21. In view of the above, the appeal is partly allowed by setting aside confiscation, redemption fine and penalty. Duty demanded which is paid along
with interest is, however, upheld.
(Order was pronounced in Open Court on 04.01.2021.)
