2015 (10) TMI 967 - AT - Central Excise

Duty demand - Conversion from 100% EOU to DTA - Confiscation of goods - Imposition of redemption fine and penalty - Held that - Dispute has arisen about the duty chargeable on the goods which were cleared during the period when the unit had made an application for conversion from EOU to DTA and in-principle approval for the same was given but the unit had not been converted to normal DTA unit as per the procedural formalities which include payment of customs and excise duty on capital goods, raw material, work in progress etc. Since the EOU had not been debonded and converted into DTA unit, the appellant was required to pay the duty as per clause (ii) of proviso to Section 3(1) of the Central Excise Act. In fact, the learned counsel for the appellant had agreed to the fact that the duty is required to be paid as per the said clause. Thus in the case of DTA clearances from a 100% EOU, the value is required to be determined in accordance with the provisions of the Customs Act, 1962. Section 14 of the Customs Act deals with valuation of the goods. In the case of import, the value of the goods is CIF value and it is the transaction value between the foreign supplier and a buyer in India. Thus for clearance of goods from 100% EOU to DTA, one has to ascertain the CIF value of similar goods being imported. We find that in this particular case, the appellant has not indicated any such CIF value. They have indicated certain values and on that they have added the duty which is applicable to the normal DTA units and thus arrived at the selling price. As mentioned earlier, the correct method in the present case will be to know the CIF value of the similar goods being imported and take that as the assessable value. An amount of penalty has been imposed under Section 114A of the Customs Act. We find that it is not a case of import but it is a case of clearance from a unit located in India. The penalty can be imposed under Section 11AC of the Central Excise Act and not under Section 114A of the Customs Act. However, we note that in the show cause notice, both the sections were invoked. Moreover, the two sections are pari materia and exactly same. In these circumstances, we do not consider that the mention of Section 114A is fatal to the case. However, we observe that the penalty under Section 11AC can only be imposed if the ingredients provided under the said section are satisfied. The ingredients provided under Section 11AC are fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or the Rules made thereunder with intent to evade payment of duty. - appellant indeed has offered to provide the bank guarantee for the differential disputed amount of duty. This only proves that the appellant genuinely believed that the duty would be applicable as is applicable to normal DTA unit. We also note that in the present case, the appellant had received the in-principle approval for debonding or conversion of unit from EOU to DTA. Under the circumstances, we do not consider it to be a fit case for imposition of penalty under Section 11AC of the Central Excise Act. Accordingly the penalty imposed is set aside. Goods which have been seized are not the same goods which were cleared from appellant No.1 but have already been processed. Further, the goods were not clandestinely cleared but were cleared on payment of duty. It is a separate issue that there was a dispute about the rate of duty applicable on such goods between appellant No.1 and the Revenue. We also agree with the learned counsel for the appellant that the Commissioner (Appeals) has misdirected himself into trying to invoke Section 120 of the Customs Act, 1962, which was not at all in the case, show cause notice or by the original authority. The confiscation of the goods is set aside and accordingly the redemption fine is also set aside. - Appeal disposed of.

Summary

Issues:
1. Duty payment on goods cleared during conversion from 100% EOU to DTA.
2. Penalty imposition under different sections of the Central Excise Act and Customs Act.
3. Confiscation of goods and penalties imposed on different appellants.

Analysis:

Issue 1: Duty payment on goods cleared during conversion from 100% EOU to DTA
The main appellant, a 100% EOU, applied for conversion to a DTA unit and cleared goods in DTA before formal conversion. The Revenue contended duty should be paid as per EOU clearance rates, while the appellant paid duty as per DTA rates. The Tribunal upheld duty payment under the EOU clause but rejected the appellant's plea to calculate duty based on selling price. The Tribunal noted the correct method would be to determine CIF value of similar imported goods, but as this was impractical, accepted the assessable value declared by the appellant for duty calculation.

Issue 2: Penalty imposition under different sections of the Central Excise Act and Customs Act
The Tribunal found a penalty imposed under Section 114A of the Customs Act was incorrect as it was a case of clearance from a unit in India, not import. The correct penalty section would be 11AC of the Central Excise Act. However, since both sections were invoked in the show cause notice and are similar, the mention of Section 114A was not considered fatal. The Tribunal further ruled that penalty under Section 11AC requires specific conditions like fraud or wilful misstatement, which were not present in this case. Therefore, the penalty was set aside.

Issue 3: Confiscation of goods and penalties imposed on different appellants
The Tribunal disagreed with the confiscation of goods and penalties imposed on appellant No.3. The seized goods were not the same as those cleared, were processed, and duty was paid. The Tribunal found no grounds for confiscation or penalty on appellant No.3, as they acted in good faith based on proper invoices. The penalties on appellant No.3 were set aside, and the confiscation of goods and redemption fine were annulled.

In conclusion, the Tribunal upheld duty payment under the EOU clause, set aside penalties imposed under incorrect sections, and annulled confiscation of goods and penalties on appellant No.3. All three appeals were disposed of accordingly.