2002 (9) TMI 356 - AT - Central Excise

Summary

Issues Involved:
1. Legality of duty-free import of Diesel Generating Sets (D.G. Sets) and fuel by a 100% Export-Oriented Unit (EOU) under Notification No. 13/81-Cus.
2. Validity of the sale of electricity generated by the imported D.G. Sets.
3. Applicability of Notification No. 53/97-Cus. and its conditions.
4. Imposition of duties and penalties on the EOU and its officers.
5. Liability of an independent Chartered Engineer for penalties.

Detailed Analysis:

1. Legality of duty-free import of D.G. Sets and fuel by a 100% EOU under Notification No. 13/81-Cus.:
M/s. Hanil Era Textiles Ltd. (HETL), a 100% Export-Oriented Unit (EOU), imported Diesel Generating Sets under Notification No. 13/81-Cus., which allowed duty-free import of capital goods and raw materials for manufacturing articles for export. The D.G. Sets were installed in April 1995, and the electricity produced was initially used solely for manufacturing yarn, the declared export commodity.

2. Validity of the sale of electricity generated by the imported D.G. Sets:
Due to labor unrest and other factors, HETL's production was hampered, leading to the sale of surplus electricity to other units through the Maharashtra State Electricity Board grid. The sale was conducted with the permission of the appropriate authorities, and intimations were filed with the Development Commissioner and Central Excise Authorities. Three show-cause notices alleged that HETL imported the D.G. Sets and materials for generating electricity for sale, contravening the notification provisions. The policy at the material time did not permit the sale of the generated electricity, invoking Para 7 of Notification 53/97.

3. Applicability of Notification No. 53/97-Cus. and its conditions:
Notification No. 53/97-Cus. granted identical facilities as Notification 13/81-Cus. and included a provision that the exemption would apply even if the goods manufactured from the inputs were sold in India on payment of appropriate duties. The Tribunal observed that Notification 13/81-Cus. did not prescribe exclusive use of generated power for export production. The sale of surplus power was not considered a violation of the notification, supported by Commerce Ministry circulars enabling the EOU to sell surplus power.

4. Imposition of duties and penalties on the EOU and its officers:
The Commissioner confirmed duties and imposed penalties on HETL and its officers, alleging pre-meditated arrangements to secure D.G. Sets of higher capacity for selling power. The Tribunal found that for 14 months, the entire electricity produced was used exclusively for yarn production. The authorities would have verified the generation capacity and power requirements before permitting such importation. The evidence did not sustain the charge of deliberate import of a higher capacity plant for selling electricity, nor did it show a pre-planned sale of electricity. The Tribunal found that the appellants did not violate the conditions of the exemption notification, and the demand on that ground was not sustainable.

5. Liability of an independent Chartered Engineer for penalties:
Shri Ashok Saraf, a Chartered Engineer, was engaged to verify the fuel consumption of the D.G. Sets. He certified the consumption, but allegations arose that one D.G. Set was non-operational at the time. The Tribunal found that if the EOU and its officers had not contravened the notification conditions, the Chartered Engineer was also not liable for penalties. A prima facie case was made out for Shri Saraf.

Conclusion:
The Tribunal granted waiver of pre-deposit of duties and penalties imposed on the EOU, its officers, and Shri Ashok Saraf, Chartered Engineer, staying the recovery thereof until the disposal of the appeals. The judgment highlighted that the sale of surplus electricity did not violate the conditions of the exemption notification, and the demands and penalties were not sustainable.