2015 (5) TMI 1123 - AT - Customs

100% EOU - Clandestine removal - Capital goods - it appeared that appeared that the duty-free imported goods and indigenous goods were procured by UAIL under bond which were subsequently improperly removed and production for export have not commenced and no ex-bonding has taken place in respect of duty-free goods - Held that - it is an admitted fact that there was no activity of clandestine removal of the Capital goods lying under bond in the bonded premises till February 1997 or May 1997 when the present appellant and the other promoters sold their equity in UAIL to Cherry Fashions Ltd. under proper permission granted by SEBI and also proper intimation was given to the revenue. It is admitted fact that the alleged clandestine clearance from the bonded premises have taken much thereafter for which the erstwhile management of UAIL including the present appellant cannot be held liable to any penalty under Section 112 of the Act - also the penalty is bad as neither in the show cause notice any particular clause of Section 112 have been invoked nor-in the impugned order - the order of penalty is vitiated and is bad in law - penalty set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Demand of Customs and Central Excise duty.
2. Imposition of penalties under Section 114A and Rule 173Q.
3. Liability of the former director under Section 112 of the Customs Act.
4. Transfer of liabilities post-takeover by Cherry Fashions Ltd.
5. Allegation of clandestine removal of capital goods.
6. Applicability of Section 28(1) of the Customs Act and Section 11A of the Central Excise Act.
7. Validity of the imposition of penalty without specifying the clause under Section 112.

Detailed Analysis:

1. Demand of Customs and Central Excise Duty:
The Commissioner of Central Excise, Raigad, demanded Customs duty amounting to Rs. 1,39,93,825 and Central Excise duty of Rs. 58,800 from Unity Agro Tech Industries Ltd. (UAIL). This demand was based on the import and procurement of duty-free capital goods under exemption notifications, which were not properly accounted for due to non-fulfillment of export obligations.

2. Imposition of Penalties under Section 114A and Rule 173Q:
A penalty of Rs. 50 lakhs was imposed under Section 114A of the Customs Act, 1962, and Rs. 20,000 under Rule 173Q of the Central Excise Act, 1944, on UAIL. These penalties were due to the alleged fraudulent activities and failure to fulfill export obligations.

3. Liability of the Former Director under Section 112 of the Customs Act:
A penalty of Rs. 50 lakhs was imposed on the appellant, the former director of UAIL, under Section 112 of the Customs Act. The appellant contended that he had resigned in June 1997 and that the company, along with its liabilities, was taken over by Cherry Fashions Ltd. The Commissioner held that the transfer of shares did not absolve the directors from their liabilities towards Customs and Central Excise duties.

4. Transfer of Liabilities Post-Takeover by Cherry Fashions Ltd.:
The appellant argued that Cherry Fashions Ltd. took over all assets and liabilities of UAIL, and proper intimation was given to the relevant authorities. However, the Commissioner found that no fresh bond or legal undertaking was executed post-takeover, and the appellant was aware of the conditions of the bond and the duty-free goods procured.

5. Allegation of Clandestine Removal of Capital Goods:
The Commissioner concluded that UAIL had clandestinely removed capital goods from the bonded premises. The appellant denied knowledge of such removal and stated that all assets were handed over to Cherry Fashions Ltd. The Commissioner held that the appellant, being in a responsible position, was liable for the clandestine removal.

6. Applicability of Section 28(1) of the Customs Act and Section 11A of the Central Excise Act:
The Commissioner noted that the limitation under Section 28(1) of the Customs Act and Section 11A of the Central Excise Act would not apply as the duty-free goods were improperly removed, and the export obligation was not fulfilled.

7. Validity of the Imposition of Penalty without Specifying the Clause under Section 112:
The appellant argued that the show cause notice and the impugned order did not specify the clause under Section 112 of the Customs Act under which the penalty was imposed. The Tribunal found that the penalty was vitiated as neither the show cause notice nor the impugned order mentioned the specific clause of Section 112. The Tribunal relied on various rulings, including those of the Delhi High Court and the Tribunal, which held that penalties without specific allegations and references to the relevant clauses are unsustainable.

Conclusion:
The Tribunal allowed the appeal, setting aside the penalty imposed on the appellant under Section 112 of the Customs Act. The Tribunal found that there was no evidence of clandestine removal of capital goods during the appellant's tenure and that the imposition of the penalty was vitiated due to the lack of specific reference to the relevant clause of Section 112.

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