2008 (3) TMI 5 - SC - Customs

Misuse of SEEPZ facility by showing excess manufacturing wastage or loss than permissible under the notification no. 196/87 customs - manufacturing of gold jewellery - when there is no suppression of facts, the department would not be justified in invoking the extended period of limitation.

Issues Involved:
1. Misuse of gold wastage facility by SEEPZ units.
2. Maintenance of Wastage Account Register.
3. Shortage of gold and its implications.
4. Limitation period for issuing show cause notice.
5. Applicability of Sections 111, 112, 114A, and 28 of the Customs Act, 1962.
6. Imposition of penalty and duty.

Detailed Analysis:

1. Misuse of Gold Wastage Facility by SEEPZ Units:
The respondent, a unit in Santacruz Electronics Export Processing Zone (SEEPZ), was engaged in manufacturing gold jewelry for export. The unit was allowed to import gold duty-free under certain notifications, which permitted a graded percentage of gold wastage or loss. However, upon investigation, it was found that the unit showed excess manufacturing wastage or loss than permissible, resulting in a shortage of 6410.885 grams of gold, valued at Rs.28,72,076.48.

2. Maintenance of Wastage Account Register:
The respondent was required to maintain proper accounts of import, consumption, and utilization of gold, including a Wastage Account Register as per Public Notice No. 2/88 dated 28.7.1988. The unit failed to maintain this register, which was crucial for monitoring actual manufacturing wastage or loss. This failure constituted a violation of the conditions of the relevant notifications.

3. Shortage of Gold and Its Implications:
The investigation revealed a shortage of 6410.885 grams of gold, which the respondent claimed was in the form of dust/slurry and recoverable. However, the Commissioner of Customs found that the respondent had not maintained the prescribed register and had incurred wastage more than the permissible limit. Consequently, the shortage was considered a violation of the conditions of the notifications and EXIM Policy, rendering the goods liable for confiscation under sections 111(d) and 111(o) of the Customs Act, 1962.

4. Limitation Period for Issuing Show Cause Notice:
The respondent argued that the show cause notice issued on 13.11.1997 was time-barred as it pertained to imports from 1992-1993. The Commissioner of Customs found no evidence of collusion, willful misstatement, or suppression of facts by the respondent, which are necessary conditions to invoke the extended period of limitation under the proviso to section 28(1) of the Customs Act, 1962. Consequently, the demand for duty and penalty was considered time-barred.

5. Applicability of Sections 111, 112, 114A, and 28 of the Customs Act, 1962:
- Section 111: The shortage of gold was liable for confiscation under sections 111(d) and 111(o) due to non-fulfillment of notification conditions.
- Section 112: The respondent was held liable for penal action under section 112(a) for acts of commission or omission leading to the shortage.
- Section 114A: The Commissioner found that section 114A, which imposes penalties for short-levy or non-levy of duty due to suppression or misstatement, was not applicable as there was no evidence of such conduct by the respondent.
- Section 28: The demand for duty was confirmed under section 28, but the extended period of limitation was not applicable due to the absence of collusion, misstatement, or suppression.

6. Imposition of Penalty and Duty:
The Commissioner of Customs confirmed the demand of duty amounting to Rs.20,82,255/- and imposed a penalty of Rs.2,87,000/- under section 112(a). However, the Tribunal set aside this order, holding that the demand for duty was barred by limitation and that the imposition of penalty was not justified. The Supreme Court upheld the Tribunal's decision, dismissing the appeals on the ground of limitation and dropping the demand and penalty raised against the respondent.

Conclusion:
The Supreme Court dismissed the appeals filed by the appellant on the ground of limitation, as the extended period of limitation under section 28 of the Customs Act, 1962, could not be invoked due to the absence of collusion, willful misstatement, or suppression of facts by the respondent. Consequently, the demand and penalty raised against the respondent were dropped.

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