2015 (4) TMI 641 - AT - Customs

Actual user condition - various components were imported free of basic custom duty under Notification No.24/2005-Cus for use in manufacture of telecommunication equipment - re-export of defective components - re-export of surplus inventory - some components written-off - Held that - Re-export of defective components after being issued for manufacturing would be treated as used for intended purpose - Following decision of Asahi India Safety Glass Limited vs. Union of India reported in 2004 (9) TMI 118 - HIGH COURT OF DELHI - such components have to be treated as having been used and hence the assessee cannot be asked to reverse the cenvat credit. Following the judgments of the Tribunal, these components have to be treated as having been used for the intended purpose and hence the duty demand of ₹ 1,71,07,253/- would not be sustainable and has to be set aside. As regards the duty demand of ₹ 94,29,117/- in respect of the surplus inventory which was re-exported and the duty demand of ₹ 23,15,901/- in respect of the components written-off admittedly these components have not been used for the manufacture of the finished products and, therefore, in our view the Department is justified in invoking Rule 8 of the 1996 Rules for recovery of duty. Since the components in respect of which the duty demand of ₹ 94,29,117/- has been confirmed have been re-exported, in our view, the customs authorities have to consider the appellants claim for duty drawback. While customs duty demand of ₹ 1,71,07,253/- and also the order of penalty of ₹ 20,23,000/- is set aside, the customs duty demands of ₹ 23,15,901/- and ₹ 94,29,117/- are upheld. As regards the appellants claim for draw-back in respect of the components re-exported, the same may be considered by the concerned customs authority - Decided partly in favour of assessee.

Summary

Issues:
1. Duty demand on components written-off without use
2. Duty demand on surplus inventory re-exported
3. Duty demand on defective components re-exported
4. Imposition of penalty under section 112(a) of the Customs Act, 1962

Issue 1: Duty demand on components written-off without use

The appellant, a manufacturer of telecommunication equipment, imported components free of basic custom duty under Notification No.24/2005-Cus. The duty demand of &8377; 23,15,901/- was raised as certain imported components were written-off without use. The Commissioner confirmed the duty demand and imposed a penalty of &8377; 20,23,000/- under section 112(a) of the Customs Act, 1962. The appellant argued that the duty demand is not sustainable, citing a Tribunal judgment in a similar case. The Tribunal upheld the duty demand on components written-off, stating that since these components were not used for the manufacture of finished products, the duty recovery under Rule 8 of the 1996 Rules is justified.

Issue 2: Duty demand on surplus inventory re-exported

Another duty demand of &8377; 94,29,117/- was raised on surplus inventory components that were re-exported. The appellant contended that no duty should be payable on these components, referring to a Tribunal judgment in a similar case. The Tribunal upheld the duty demand on surplus inventory components that were re-exported, as they were not used for the manufacture of finished products, in line with Rule 8 of the 1996 Rules.

Issue 3: Duty demand on defective components re-exported

A duty demand of &8377; 1,71,07,253/- was imposed on components used in the assembly of finished products but later found to be defective and re-exported. The appellant argued that these components should be treated as having been used for the specified purpose, citing a Tribunal judgment in their favor. The Tribunal set aside this duty demand, stating that the components were indeed used for the intended purpose, as per previous judgments.

Issue 4: Imposition of penalty under section 112(a) of the Customs Act, 1962

The appellant challenged the imposition of a penalty of &8377; 20,23,000/- under section 112(a) of the Customs Act, 1962, stating that it was contrary to the law. The Tribunal agreed with the appellant, setting aside the penalty based on a previous judgment that Rule 8 of the 1996 Rules does not authorize the imposition of such penalties. The Tribunal partially allowed the appeal, setting aside the duty demand and penalty in certain instances while upholding them in others, and directed the customs authority to consider the appellant's claim for duty drawback on re-exported components.