2015 (12) TMI 3 - AT - Customs

Waiver of pre deposit - 100% EOU - Clandestine manufacture and clearance of goods - DTA Clearances - Clearance of goods in the name of fictitious units - exemption on capital goods under Notification No. 53/97-Cus - Held that - on the basis of evidences unearthed by the investigation, it is revealed that the Applicant M/s Vatan Textiles Ltd have manufactured final products i.e. fabric and cleared clandestinely in the domestic market without payment of excise duty. The said Applicant with systematic modus operandi, in the guise of clearance of goods from M/s Loomcraft and M/s Fabricart, manufactured and cleared goods to various customers clandestinely. Claim of the group companies i.e. M/s Loomcraft and M/s Fabricart that the goods alleged to have been manufactured by M/S. VTL were manufactured on job work basis on their behalf, got demolished on the basis of enquiries conducted with the so called job workers, where it was found that there exist no such job worker or they do not have any loom to manufacture of fabric. The so called job workers in their statements clearly stated that they did not carry out any job work on behalf of M/s Loomcraft and M/s Fabricart. Goods manufactured by the Applicant M/S. VTL is neither exported nor cleared on payment of excise duty and without the permission of the development commissioner. The Applicant cleared said manufactured goods clandestinely without payment of duty. Thus the Applicant(VTL) appears to have grossly violated the conditions of the exemption notification No.53/97-Cus. Therefore in our view the demand of custom duty confirmed on the capital goods is prima facie correctly demanded. As regards claim of the Applicant for depreciation in the valuation for calculation of custom duty, we are of the view that once vital conditions of the notification is not complied with, the Applicant is not eligible for the exemption notification. The depreciation provision being part of the said notification shall also not be prima facie available. M/s Loomcraft and M/s Fabricart are directly involved in abeting and aiding the evasion of excise and custom duty committed by VTL. - Applicants have not made out prima facie case for full waiver of the pre-deposit. - Partial stay granted.

Issues Involved:

1. Restoration of Appeals
2. Allegations of clandestine manufacture and clearance
3. Demand for excise and customs duty
4. Confiscation of capital goods
5. Imposition of penalties
6. Financial hardship and waiver of pre-deposit

Detailed Analysis:

1. Restoration of Appeals:
The applicants filed six applications for the restoration of appeals. However, these appeals had already been restored along with other connected appeals as per the Tribunal's Misc. Order No. M/1112-1115/15/CB dated 2/3/2015. Consequently, the applications for restoration were deemed infructuous and dismissed.

2. Allegations of Clandestine Manufacture and Clearance:
The case involved allegations that M/s. Vatan Textiles Ltd. (VTL) manufactured goods in their EOU and cleared them in the DTA without payment of duty under the names of fictitious units, M/s. Loomcraft Fabrics Pvt. Ltd. and M/s. Fabrikart Furnishings Pvt. Ltd. It was contended that VTL used duty-free capital goods for manufacturing goods sold in DTA under fictitious names, violating Notification No. 53/97-Cus. Investigations revealed that the job work claims by VTL were false, as the supposed job workers did not have the necessary machinery and premises were residential. Evidence showed that goods were actually manufactured at VTL and cleared under the names of Loomcraft and Fabricart.

3. Demand for Excise and Customs Duty:
The show cause notice demanded excise duty on the finished goods cleared in DTA and customs duty on the capital goods. The denovo adjudication confirmed the following:
- Confiscation of capital goods valued at Rs. 5,29,75,870/- with an option to redeem on payment of Rs. 1,35,00,000/-.
- Demand of customs duty amounting to Rs. 2,73,80,647/-.
- Recovery of interest on the customs duty.
- Penalty of Rs. 2,73,80,647/- under Section 112(a) of the Customs Act.
- Penalties on various noticees under Section 112(b) of the Customs Act and Rule 26 of the Central Excise Rules, 2001/2002.
- Demand of central excise duty of Rs. 4,33,75,032/- and corresponding interest and penalty.

4. Confiscation of Capital Goods:
The capital goods of VTL were confiscated under Section 111(o) of the Customs Act, 1962, with an option to redeem on payment of a fine. The demand for customs duty was confirmed as the capital goods were used for manufacturing goods cleared clandestinely, violating the conditions of Notification No. 53/97-Cus.

5. Imposition of Penalties:
Penalties were imposed on VTL and associated entities and individuals for their involvement in the clandestine removal and evasion of excise and customs duty. The penalties were detailed as follows:
- M/s. Loomcraft Fabrics Ltd.: Rs. 25 lakhs (Customs), Rs. 40 lakhs (Excise)
- M/s. Fabricart Furnishings Pvt. Ltd.: Rs. 15 lakhs (Customs), Rs. 20 lakhs (Excise)
- Various individuals associated with VTL: Penalties ranging from Rs. 20 lakhs to Rs. 40 lakhs.

6. Financial Hardship and Waiver of Pre-deposit:
The applicants argued financial hardship and sought a waiver of pre-deposit. The Tribunal considered the financial condition and directed VTL to make a pre-deposit of 25% of the confirmed duties of excise and customs, and Loomcraft and Fabricart to deposit 10% of the penalties within eight weeks. The remaining adjudged dues were waived until the disposal of the appeal, conditional on the compliance with the pre-deposit order.

Conclusion:
The Tribunal found a prima facie case of evasion of excise duty by VTL, with corroborating evidence from investigations. The demand for customs duty on capital goods was upheld due to non-compliance with the conditions of the exemption notification. The applicants were directed to make partial pre-deposits, failing which the appeals would be dismissed for non-compliance.

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