2014 (5) TMI 53 - HC - Customs

Liability to pay duty - Identification of Grey fabrics - Imported or not No Reference of demand in Show cause Notice - Expert Evidence Non-retracted statement of Director - Leviability of duty on the unit - 100% EOU or from some local traders - Illicit removal of grey fabrics Not sufficient Evidence Non-maintenance of separate record - Whether CESTAT is justified in holding that the Revenue has failed to establish from the documentary evidence that the grey fabrics were imported one and customs duty is liable to be paid, ignoring the material evidence being the statement of Director of the unit recorded u/s. 14 of the Central Excise Act, 1944 which has not been retracted by him at any point of time Held that - In the show cause notice, issued u/s 124, itself, the demand was made for the duty, interest and levying of penalty for having removed the material without payment of customs duty leviable thereon - Order-in-Original dealt with the contention raised by both sides with regard to the import of fabrics used in the material which was said to have been illicitly removed - Thus, both the adjudicating authorities found clear breach of Notification No. 53/97, dated 3-6-1997 r/w provisions of Customs Act - This was in violation of EXIM policy and procedures laid down under the Customs law where imported grey fabrics on payment of customs duty was to be necessarily utilized for manufacturing final products of processed MMF and the same was required to be exported. Tribunal held that the findings of the lower authorities were not based on evidence, while accepting the fact that for removal of goods in illicit manner and for selling grey fabrics in small quantities in the market, there could not be possibly any evidence available - It is required to be specifically mentioned that Tribunal noted that there ought to be proper documentation for 100% EOU taking out the goods - As seen from the orders of all the adjudicating authorities that the Order-in-Original and the order of Commissioner (A) relied on the evidences that have been adduced by Department and also depended heavily on the statement given by the Director who has not retracted the same till the date - What had further weighed with the authorities is the fact that there was no separate maintenance of record which would reveal either the material having been imported or having been procured from 100% EOU. Again the orders of both the authorities go to unfailingly suggest and as mentioned hereinabove, by way of clearly given findings that there was no such documentary evidence, however, if the Tribunal still found that the material which had been placed before the authorities was not sufficient for them to reach to the conclusion with regard to such material on such a specific finding of Tribunal, it could have remanded the matter back to the authority who passed the Order-in-Original for it to examine in greater detail instead of setting aside orders of both the adjudicating authorities despite strongly worded reasoning - Therefore, matter is remanded back to the authority who passed the Order-in-Original for fresh consideration Order of CESTAT set aside Decided in favour of Customs.

Summary

Issues Involved:
1. Whether the CESTAT was justified in holding that the Revenue failed to establish from documentary evidence that the grey fabrics were imported and customs duty was liable.
2. Whether the CESTAT was justified in holding that the unit was not liable to pay customs duty but rather Central Excise duty.
3. Whether the CESTAT was justified in holding that the goods were procured from 100% EOU or local traders, and not imported, which was considered a perverse finding.
4. Whether the Director of the unit was liable for penalty under Section 112(b) of the Customs Act for illicitly clearing grey fabrics without payment of customs duty.

Detailed Analysis:

1. Establishment of Imported Grey Fabrics:
The primary issue was whether the CESTAT was justified in holding that the Revenue failed to establish from documentary evidence that the grey fabrics were imported and customs duty was liable. The Department contended that the shortage of fabrics detected during preventive checks and the statement of the Director, which was not retracted, confirmed the illicit removal of imported grey fabrics. The CESTAT, however, noted that no documentary evidence was provided in the show cause notice to support that the grey fabrics were imported. The Tribunal found that the lower authorities did not verify the claim that the goods were not imported, which could have been easily done from the records maintained by the appellant. The Tribunal concluded that the findings of the lower authorities were not based on evidence.

2. Liability to Pay Customs Duty vs. Central Excise Duty:
The second issue was whether the unit was liable to pay customs duty or Central Excise duty. The Tribunal agreed with the respondent's contention that in the absence of proof that the goods were imported, customs duty could not be demanded. The Tribunal held that what was leviable was Central Excise duty in respect of goods obtained from 100% EOU and other local sources, not customs duty. The Tribunal's decision was based on the lack of evidence proving the importation of the raw materials.

3. Procurement from 100% EOU or Local Traders:
The third issue involved the Tribunal's finding that the goods were procured from 100% EOU or local traders, which the Department considered a perverse finding. The Tribunal observed that there was no proper documentation to prove that the grey fabrics were imported. It noted that the goods could have been procured from local traders or 100% EOU, and the lower authorities did not examine this contention. The Tribunal emphasized that for demanding customs duty, it was necessary to prove that the goods were imported, which was not done.

4. Penalty on the Director:
The fourth issue was whether the Director was liable for a penalty under Section 112(b) of the Customs Act for illicitly clearing grey fabrics without payment of customs duty. The Department argued that the Director's statement, which confirmed the illicit removal of fabrics, was not retracted and should be considered conclusive evidence. The lower authorities had imposed a penalty based on this statement and the lack of separate maintenance of records for imported and indigenous raw materials. However, the Tribunal found that the findings were not based on sufficient evidence and suggested that the matter required further examination.

Conclusion and Remand:
The High Court concluded that the Tribunal should have remanded the matter back to the original authority for a detailed examination instead of setting aside the orders of both adjudicating authorities. The High Court remanded the matter back to the authority who passed the Order-in-Original for fresh consideration, instructing the authority to independently examine the entire material produced by both the Department and the respondent. The appeals were disposed of with no order as to costs.