2015 (1) TMI 368 - AT - Customs

100% EOU - export obligation - validity of show cause notice - clandestine clearance plastic granules imported duty free to the sister and other concerns - manipulation of statutory production reveals so as to show excess production and excess export - violation of conditions of Notification No. 53/97-Cus. dated 6.3.1997 - Penalty u/s 114A, 112/117 and u/s 11AC - Held that - On a plain reading of 3rd proviso to Section 28(1) of the Customs Act, 1962, as it stood during the relevant time, we find that it is mandatory that where the amount of demand of duty is more than Rs. One crore, no notice under this sub-section shall be served except with the prior approval of the Chief Commissioner of Customs. In the present case the demand of customs duty of ₹ 16,13,10,303/- under Section 28(1) of the said Act vide show-cause notice dated 20.6.2002 shall be served with the prior approval of the Chief Commissioner of Customs. - There is no indication that the approval was also accorded under 3rd proviso to Section 28(1) of the Customs Act, 1962. - the submission of the learned Special Counsel that the Superintendent of Central Excise was delegated power to issue the show-cause notice vide Office Order dated 18.7.2001 is not acceptable. - The action of Superintendent to issue notice demanding duty under Section 28(1) of the Act, 1962 vide Notice dated 26.3.2002 is contrary to the provisions of law. The adjudicating authority dropped the Show Cause Notices on merit. Taking into account of the overall facts and circumstances of this peculiar case, in our considered view, the show-cause notice cannot be dropped only on the jurisdiction point, when the assessee contested the demand on merit as well as availed the opportunity of cross-examination of various persons as prayed for. We make it clear that this order would not become a precedent that the Show Cause Notice issued beyond jurisdiction, would be held valid by the appellate authorities. Regarding the demand of Central Excise duty, it has further been alleged that the Assessee cleared carry bags sold to DTA without accounting and payment of central excise duty of ₹ 4,61,692/- and it is based on out-passes of the Assessee to its sister unit. This was supported by the statement dated 15.6.2001 of Shri Arun Thangam, Director of M/s. Seven Seas Polymers (P) Ltd. The Assessee in their reply to show-cause notice stated that they have not sold plastic bags, but waste and rejects to M/s. Priya, who tried to segregate the good one and on test basis effected a few sales as seconds, which was not find good market and the idea was dropped. - The evidence relied upon by the Revenue would show clearances of carry bags seconds . Apparently, the statement of Shri Arun Thangam is not corroborating with evidence. - the allegation of clearance of plastic carry bags is on the basis of statement and the demand of central excise duty is not sustainable. The percentages of Waste and Rejects appear to be excessive should be examined - Revenue contended in their appeal that the Assessee had obtained permission for the first time for clearance of 216.250 MTs of rejects and 230.050 MTs of waste from the jurisdictional Assistant Commissioner only on 14.2.2000 and they effected sale of rejects to DTA much before the date of permission from the Assistant Commissioner. It is also stated that the Assessee had obtained approval from the Development Commissioner, MEPZ, increasing the percentage of waste only after the investigation of the Preventive Unit on 12.1.2001. The Assessee in their reply stated that they were averaging the waste around 17% and hence the matter was referred to MEPZ. So, this issue is required to be examined as per EXIM Policy. We, therefore, set aside the impugned order and remand the matter to the Commissioner for de novo adjudication of this matter after ascertaining from the Development Commissioner/Board of Approval about their decision with regard to the question of fulfilment of the export obligation and achieving NFEP. The show cause notice issued to the appellant is to be adjudicated only after the Development Commissioner/Board of Approval gives the findings on the issue of meeting the export obligation and achieving the NFEP. The appeals are disposed of in the above terms. - Matter remanded back.

Summary

Issues Involved:
1. Validity of the show-cause notice issued by the Superintendent of Central Excise.
2. Allegation of clandestine removal of duty-free imported plastic granules.
3. Allegation of manipulation of production and export records.
4. Demand of customs duty and central excise duty.
5. Examination of evidence and cross-examination of witnesses.
6. Role of Development Commissioner and compliance with EXIM Policy.

Detailed Analysis:

1. Validity of the Show-Cause Notice:
The Assessee raised a preliminary objection regarding the validity of the show-cause notice dated 26.3.2002 issued by the Superintendent of Central Excise (SPAC), arguing that it violated the third proviso to Section 28(1) of the Customs Act, 1962, as it required prior approval from the Chief Commissioner of Customs. The adjudicating authority overruled this objection, stating that the adjudication should be done by the competent authority. However, the Tribunal noted that the Superintendent was not empowered to issue the notice, and the approval letter from the Chief Commissioner of Central Excise did not indicate approval under the Customs Act, 1962. Despite this, the Tribunal decided not to drop the show-cause notice solely on jurisdictional grounds, considering the overall facts and the Assessee's participation in the proceedings.

2. Allegation of Clandestine Removal:
The Revenue alleged that the Assessee clandestinely removed 8142.57 MT of duty-free imported plastic granules from their warehouse and sold them in the Domestic Tariff Area (DTA). The Assessee contested this, stating that the granules were reprocessed materials cleared to their sister units. The Tribunal found that the investigating officers had opportunities to verify the materials but failed to prove that the seized goods were imported granules. The evidence provided by the Assessee, including the statements of Central Excise officers and the lack of tampering with container seals, supported their claim. The Tribunal agreed with the adjudicating authority that the seized goods were reprocessed granules and not imported granules.

3. Allegation of Manipulation of Production and Export Records:
The Revenue claimed that the Assessee manipulated production records to show excess production and export of bogus items. The Assessee refuted this, providing evidence of genuine exports, including certifications from the Development Commissioner and ECGC policies. The Tribunal noted that the exports were supervised by Central Excise officers, and there was no evidence of tampering with export consignments. The Tribunal agreed with the adjudicating authority that the Assessee had fulfilled their export obligations and the goods exported were genuine.

4. Demand of Customs Duty and Central Excise Duty:
The Revenue demanded customs duty of Rs. 16,13,10,303/- and central excise duty of Rs. 4,61,692/- along with penalties. The Tribunal upheld the adjudicating authority's decision to drop the demand for customs duty on 6662.36 MT of exported goods, as the Assessee fulfilled their export obligations. However, the Tribunal remanded the issue of the differential quantity cleared as waste and rejects to the Commissioner for re-examination based on the findings of the Development Commissioner. The demand for central excise duty was also dropped, as the evidence did not support the allegation of clearance of plastic carry bags.

5. Examination of Evidence and Cross-Examination of Witnesses:
The Tribunal found that the statements of various persons and documents recovered during the investigation did not conclusively prove the allegations against the Assessee. The cross-examination of witnesses, including Central Excise officers and third parties, revealed inconsistencies and lack of corroborative evidence. The Tribunal emphasized the importance of re-examination and cross-examination to test the validity of the statements and evidence.

6. Role of Development Commissioner and Compliance with EXIM Policy:
The Tribunal highlighted the role of the Development Commissioner in determining compliance with the EXIM Policy. The Assessee had achieved net foreign exchange earnings as per the EXIM Policy, and the Development Commissioner had accepted their export obligations. The Tribunal referred to previous case laws, stating that the Customs authorities should not take a contrary view to the Development Commissioner. The Tribunal remanded the issue of waste and rejects to the Commissioner for re-examination based on the Development Commissioner's findings.

Conclusion:
The Tribunal upheld the adjudicating authority's decision to drop the demand for customs duty on the exported goods and the central excise duty. The issue of waste and rejects was remanded for re-examination based on the Development Commissioner's findings. The preliminary objection regarding the validity of the show-cause notice was overruled, but the Tribunal emphasized that such notices should comply with statutory provisions. The appeals filed by the Revenue were disposed of, and the cross-objections and miscellaneous applications were also disposed of accordingly.