2013 (12) TMI 403 - AT - Customs

Demand of duty - Diversion of duty free material imported in terms of Notification No. 53/97-Cus., dated 3-6-1997 - Confiscation of goods - Held that - Admittedly the goods in respect of which duty stands confirmed against the appellant were found in the factory premises of the appellant. As such it can be safely concluded that the goods in question were not diverted by the appellant in the local market. Surprisingly neither any demand stands raised by the Revenue nor confirmed in the impugned order in respect of the duty free imports which were actually diverted in the local market. Inasmuch as the fabrics in question were still found in the factory of the appellant, no demand of duty can be confirmed in respect of the same on the ground that the previous consignments of imported fabrics stand diverted by the appellant. No presumption can be made that the said present fabric was also likely to be diverted. Admittedly the appellant s factory had 35 sewing machines as also the cutter installed in their factory, required for stitching of the ladies ready-made garments. The manufacturing and other operations are required to be carried out in the said 100% EOU under Customs bond. No ex-bond bill of entry is required to be filed or any duty is required to be paid on warehoused goods before taking them for manufacture inside bonded premises. The imported warehoused goods in the said 100% EOUs cannot be treated as having been removed for home consumption so as to require any payment of duty leviable thereon - the fabrics in question were still in the 100% EOU, no duty liability can arise in respect of the same - Following decision of Paras Fab International v. CCE, Kandla 2010 (6) TMI 184 - CESTAT, NEW DELHI - Decided in favour of assessee.

Summary

Issues: Duty liability on imported fabrics found in the factory premises of a 100% EOU, diversion of duty-free material, application of Larger Bench decision on treatment of EOU premises as warehouse, duty liability on warehoused goods inside 100% EOU, appeal against duty demand, confiscation, and penalties.

Analysis:

1. Duty Liability on Imported Fabrics: The case involved a 100% EOU engaged in the manufacture of ready-made garments. Central Excise Officers found duty-free imported fabrics in the factory premises. The Commissioner confirmed duty liability, interest, and imposed penalties. However, the appellate tribunal noted that the presence of fabrics in the factory did not automatically imply diversion for local market sale. No demand was raised for the actual diversion of duty-free imports, and the tribunal found no grounds to uphold the duty liability.

2. Application of Larger Bench Decision: Referring to the decision in Paras Fab International v. CCE, the tribunal highlighted that 100% EOU premises are akin to warehouses, where manufacturing occurs under a Customs bond. The imported goods within the EOU are not considered removed for home consumption, thus no duty payment is required on warehoused goods before manufacturing. Applying this principle, the tribunal concluded that duty liability cannot arise on fabrics still within the 100% EOU premises.

3. Appeal Against Duty Demand, Confiscation, and Penalties: The tribunal set aside the impugned order confirming duty demand, confiscation of goods, and penalties. It allowed the appeal, providing consequential relief to the appellant. The decision emphasized that duty liability cannot be imposed based on assumptions of diversion, especially when the goods are within the EOU premises. The tribunal also addressed the issue of the EOU's current operational status, clarifying that any de-bonding matters should be handled separately according to relevant laws.

In conclusion, the tribunal's judgment focused on the lack of evidence supporting duty liability on the imported fabrics found within the 100% EOU premises. By applying legal principles regarding EOU treatment as warehouses and duty payment requirements, the tribunal overturned the duty demand, confiscation, and penalties imposed on the appellant. The decision underscored the importance of factual evidence and adherence to legal provisions in determining duty liabilities in such cases.