2008 (4) TMI 208 - AT - Customs

Non-fulfillment of export obligation by 100% EOU reason given by appellant is financial loss occurred due to defective import, heavy loss by the import of the machinery and also non functioning of the unit held that penalty is not imposable - In respect of demand on unused raw material, demand is confirmed because appellant have not proved that raw material which were put to use resulted in huge wastage due to defected imported machinery, had been destroyed in presence of custom officers

Summary

Issues:
Demand of duty on unused raw material under the 100% EOU Scheme, imposition of penalty under Section 112(a)(ii) of the Customs Act, 1962.

Analysis:
The appeal was filed against Order-in-Appeal No. 183/2006-Cus.(B) dated 29-12-2006 passed by the Commissioner of Customs (Appeals) Bangalore. The appellants, a 100% EOU, imported machinery, capital goods, and raw material under the scheme with an obligation to export a specific quantity of socks annually with a minimum value addition. Due to operational issues, they failed to meet the export obligations, leading to penalties imposed by the Development Commissioner. The Customs demanded duty on unused raw material and imposed a penalty under Section 112(a)(ii) of the Customs Act. The lower authorities upheld the demand, prompting the appellants to appeal, arguing that the duty was demanded beyond the scope of the show cause notice, which only focused on export obligations. They claimed that the imported machinery malfunctioned, resulting in wastage, and any remaining raw material was destroyed in the presence of Customs officers, although no evidence was provided to support this claim.

The Tribunal carefully considered the issue and found that the demand for duty on unused raw material and the penalty were justified. The show cause notice explicitly covered non-fulfillment of conditions under which the raw materials were imported, including duty obligations. The appellants were required to demonstrate the proper use of the imported raw materials, especially since they failed to fulfill their export obligations and were allowed to de bond the unit. The lack of evidence showing permission from Customs officers for the destruction of raw materials led to the confirmation of duty demand. However, considering the financial losses incurred by the appellants due to machinery issues and non-functioning of the unit, the Tribunal decided to set aside the penalty. The duty, along with any applicable interest, as per the notification, was upheld for payment. The appeal was disposed of accordingly.

In conclusion, the Tribunal upheld the duty demand on the unused raw material imported under the 100% EOU Scheme, emphasizing the appellants' obligation to prove proper utilization of the raw materials. Despite setting aside the penalty due to financial losses suffered by the appellants, the duty payment, along with any interest, was deemed necessary. The decision highlighted the importance of complying with import obligations and providing evidence to support claims of material destruction in Customs presence to avoid duty liabilities.