2012 (11) TMI 517 - AT - Customs

Debonding demand of duty raw material - Held that - what can be demanded is the customs duty on the unutilized raw material which are lying in stock, at the rate of duty prevalent at the time of payment of duty on the original value of importation - duty demands have been confirmed in respect of raw materials and consumables consumed and utilised in the manufacture of goods which have been exported during the period from 1997-98 to 2001-02. Such a duty demand is totally and completely unsustainable Debonding demand of duty capital goods - Held that - Appellant has achieved export obligation and value addition during the first five year block period and achieved positive NFE during the second five year period. Thus non-fulfilment of the conditions of notifications under which the goods are obtained duty-free does not arise at all. Consequently, confiscation of goods under Section 111(o) of the Customs Act, 1962 cannot be upheld as also the imposition of penalty under Section 112(a) Customs Act, 1962 - Duty on the capital goods can be demanded only after grant of depreciation on the capital goods at the rate prevalent on the date of expiry of the warehousing licence - duty on the depreciated value of capital goods at the rate of duty prevalent on the date of debonding - matter remanded back to the original adjudicating authority - appeals are allowed by way of remand.

Summary

Issues:
1. Customs duty demand on imported raw materials and indigenous goods.
2. Confiscation of goods and imposition of penalties.
3. Deboning of the unit and re-quantification of duty amounts.
4. Application of depreciation on capital goods.
5. Reconsideration of the case by the adjudicating authority.

Detailed Analysis:

1. The case involved a dispute regarding the customs duty demand on imported raw materials and indigenous goods by an appellant who was a 100% Export-Oriented Unit (EOU). The appellant had fulfilled the export obligation and achieved positive net foreign exchange earnings during the first five-year block period. However, during the subsequent period, due to various reasons including competition from Chinese manufacturers, the appellant's unit became unviable, leading to non-fulfillment of obligations. The Commissioner confirmed the duty demands, leading to the appeal. The appellant argued that duty demands were not sustainable due to fulfillment of export obligations and value addition during the relevant periods.

2. The Commissioner had also ordered the confiscation of goods, imposition of penalties, and cancellation of the warehousing license. The appellant contended that since they had fulfilled export obligations and value addition requirements, the confiscation of goods and penalties were not justified. The appellant had paid a significant amount towards customs and excise duty and had approached the Settlement Commission, which referred the case back to the adjudicating authority. The appellant cited a Tribunal judgment in a similar case to support their arguments.

3. The issue of debonding the unit and re-quantification of duty amounts was crucial. The Tribunal held that duty demands on raw materials consumed in the production of exported goods were unsustainable. Duty on capital goods should be computed after allowing for depreciation. The duty demands on goods lying in the job-worker's premises and finished goods were to be levied based on the excise duty applicable at the time of debonding. The Tribunal emphasized that penalties were not warranted as there was no deliberate intention to evade duty.

4. Considering the above analysis, the Tribunal set aside the impugned order and directed the Commissioner to re-quantify duty amounts only for raw materials and consumables in stock at the time of the warehousing license expiry. Duty on capital goods should be calculated after applying depreciation. The Tribunal remanded the case to the adjudicating authority for reconsideration and re-computation of duties, taking into account the duty already paid by the appellant and providing them with a fair opportunity to present their case.

5. In conclusion, the appeals were allowed by way of remand, with the Tribunal providing detailed directions for the re-quantification of duty amounts and emphasizing the need for a fair reconsideration of the case by the adjudicating authority, ensuring compliance with legal provisions and giving the appellant a chance to present their arguments effectively.