2011 (6) TMI 633 - AT - Customs

100% EOU - respondent was not able to meet the conditions imposed on them at the time of approval of their EOU regarding export of final products - show-cause notice was issued proposing demand of customs duty - argument that the entire activities were contrived to evade customs and excise duties is prima facie not acceptable and no evidence to prove the contrary has been submitted by the Revenue, argument of the Revenue that the respondent had a guilty intention of evading customs and excise duties rejected, penalty of Rs. 5000/- on the respondent under Rule 173Q of the Central Excise Rules, show-cause notice there is no proposal for confiscation of the goods under the Customs Act. The proposal was for imposing penalty under Section 114A of the Customs Act. Under Section 114A of the Customs Act, mens rea is to be proved, which has not been proved by Revenue, appeal is disposed of by modification of the Order-in-Original

Summary

Issues:
1. Duty exemption for 100% EOU
2. Failure to meet export obligations and de-bonding
3. Show-cause notice for duty demand, interest, and penalty
4. Adjudication by Commissioner: duty confirmed, no penalty imposed
5. Appeal by Revenue for confiscation of goods and penalty imposition
6. Argument of wilful default and poor performance due to currency devaluation
7. Imposition of penalty under Rule 173Q and Section 114A
8. Tribunal's decision on mens rea requirement for penalty imposition
9. Disposal of appeal with modification of penalty imposition

Analysis:
1. The respondent established a 100% Export Oriented Unit (EOU) with duty exemptions under relevant notifications. However, they failed to meet export obligations, leading to a request for de-bonding their unit due to financial difficulties and legal actions by creditors.

2. A show-cause notice was issued proposing duty demand, interest, and penalties under Customs and Central Excise Acts. The Commissioner confirmed duty demand and interest but did not impose penalties citing lack of mens rea and the company's business closure and asset takeover by creditors.

3. The Revenue appealed, arguing for confiscation of goods and penalty imposition based on wilful default in meeting export obligations. The argument highlighted the impact of currency devaluation on the company's performance and intent at the factory's setup.

4. The Tribunal rejected the Revenue's argument of intentional evasion of duties by the respondent, noting the disproportionate loss compared to duty exemption benefits. Penalty imposition under Rule 173Q was upheld without the need for mens rea, citing relevant precedents.

5. Regarding penalty under the Customs Act, the Tribunal noted the lack of proof for mens rea required under Section 114A, leading to no penalty imposition. The appeal was disposed of by modifying the Order-in-Original to impose a penalty of Rs. 5000 under Rule 173Q of the Central Excise Rules on the respondent.