2014 (6) TMI 122 - AT - Customs

Exemption from additional duty of customs u/s 3(5) of the Customs Tariff Act, 1975 - unit situated at KASEZ - Revenue felt that the appellant had not followed the provisions of law correctly and was engaged in clearance of goods into DTA without carrying out any manufacturing activity as per Section 2(r) SEZ Act, 2005 and as such they were not entitled for the benefit of exemption of additional duty of customs - Bar of limitation - Held that - show cause notice dated 21-6-2010 issued to the appellant is under Section 28 of the Customs Act, 1962. The provisions of Section 28 requires issuance of show cause notice within period of 6 months from the date of clearance of goods if it is in the normal time limit and extended period of 5 years can be invoked if there is suppression of facts, misdeclaration, etc. with intention to evade duty. Show cause notice dated 21-6-2010 invokes extended period of limitation, on the ground that the appellant had not correctly declared the activities conducted by them on the finished goods which would amount to manufacture - appellant could have entertained a bona fide belief that their activities would not amount to manufacture under SEZ Act. This view is also fortified by the fact that the office of the Development Commissioner of KASEZ had written a letter to the appellant - invocation of extended period of limitation by lower authorities, in this case is incorrect and the findings recorded by the adjudicating authority are also not in tune with the facts, as has been found by us - Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of manufacturing activity under the SEZ Act, 2005.
2. Applicability of additional duty of customs under sub-section (5) of Section 3 of the Customs Tariff Act, 1985.
3. Limitation period for issuing show cause notice under Section 28 of the Customs Act, 1962.

Detailed Analysis:
1. The case involved a company operating in a Special Economic Zone (SEZ) authorized for specific operations related to importing and exporting cosmetic products. The dispute arose when the Revenue authorities alleged that the company was clearing goods to the Domestic Tariff Area (DTA) without engaging in the required manufacturing activity as per the SEZ Act, thus not entitled to customs duty exemption. The lower authorities issued a show cause notice, which the company contested on grounds of correct declaration and limitation. The Adjudicating Authority upheld the demands and penalties, citing non-compliance with manufacturing provisions.

2. The company argued that activities like spray testing, appearance checking, and packing constituted manufacturing under the SEZ Act, supported by judicial precedents and a letter from the Deputy Development Commissioner affirming their eligibility for DTA benefits due to manufacturing activities. The Tribunal noted that the Adjudicating Authority's decision was based on a narrow interpretation of manufacturing, contrary to broader views supported by circulars and previous tribunal decisions. The Tribunal highlighted that the company had consistently declared intent to avail customs duty exemptions for manufactured goods.

3. The Tribunal focused on the limitation issue, emphasizing that the show cause notice invoked an extended period due to alleged suppression of facts. However, the Tribunal found that the company had a genuine belief in their activities not constituting manufacturing under the SEZ Act, supported by the Deputy Development Commissioner's letter and consistent customs declarations. As there was no intentional evasion of duty, the Tribunal held that the extended limitation period was wrongly applied, leading to the set aside of the demands, penalties, and interest imposed on the company and its director. The appeals were allowed, and the impugned order was overturned based on the limitation issue.