2017 (10) TMI 492 - AT - Central Excise

100% EOU - destroyed goods - N/N. 22/2003 CE read with N/N. 52/2003 CUS - manufacture of parts of data projector as overview IU, PU, Interface etc - whether the appellant are liable to pay duty for the raw materials which was acquired duty-free under N/N. 52/2003 CUS read with N/N. 22/2003 CE, duty-free, on the remnants, rejects etc., which were destroyed by them under intimation to the Revenue during the period in dispute from April, 2007 to March, 2014? Held that - the appellant, as required under the N/N. 52/2003 CUS read with N/N. 22/2003 CE, as amended, read with the Foreign Trade Policy 2004 09 have, following the procedure of law given proper intimation to the Department that certain goods and raw materials, work in progress etc have gone waste, rejects, remnants, etc., and accordingly the same have been written off in the books of accounts and also the goods have been destroyed within the premises of their 100% EOU under prior intimation to the Revenue. Thus, there is no violation either of the Notification or of the Foreign Trade Policy or the provisions of the Central Excise Act or the Customs Act. Once the said raw material etc have been issued for production and when in the course of production on the shop floor such raw material, work in progress, etc., are rejected, the same is equivalent to use in the course of production and does not amount to removal of inputs as such. Accordingly, the goods destroyed were used in connection with the production of the final products of the appellant. There is no clearance of any goods as alleged in the show cause notice and as such, the demand of duty is unsustainable. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Liability to pay duty on duty-free acquired raw materials destroyed as remnants, rejects, etc.
2. Compliance with the conditions of Notification No. 52/2003 CUS and Notification No. 22/2003 CE.
3. Adequacy of intimation and procedure followed for destruction of obsolete materials.
4. Validity of demand for extended period and imposition of penalties.

Issue-wise Detailed Analysis:

1. Liability to pay duty on duty-free acquired raw materials destroyed as remnants, rejects, etc.:
The primary issue is whether the appellant, a 100% EOU, is liable to pay duty on raw materials acquired duty-free under Notification No. 52/2003 CUS and Notification No. 22/2003 CE, which were destroyed as remnants, rejects, etc. The Department contended that the duty-free imported goods were not used for the intended purpose and were written off as obsolete, thus violating the conditions of the notifications. The appellant argued that the destroyed goods were within the permissible 2% limit of waste, scrap, and remnants as allowed under the notifications.

2. Compliance with the conditions of Notification No. 52/2003 CUS and Notification No. 22/2003 CE:
The Department alleged that the appellant violated the conditions of the notifications by writing off and destroying the goods without following the proper procedure. The notifications required the appellant to use the goods for specified purposes, maintain proper accounts, and dispose of the goods in accordance with the Export and Import Policy. The appellant countered that they had given due intimation to the Department about the destruction of the goods and had followed the procedure as required under the notifications and the Foreign Trade Policy.

3. Adequacy of intimation and procedure followed for destruction of obsolete materials:
The appellant provided evidence of having informed the Department about the destruction of goods through various letters, giving advance intimation and requesting the presence of the concerned officer to supervise the destruction process. The Department's failure to attend the destruction process was not the appellant's fault. The Tribunal found that the appellant had made adequate disclosures and followed the procedure as required by law.

4. Validity of demand for extended period and imposition of penalties:
The Department issued show cause notices for different periods, demanding duty and proposing penalties under Section 11 AC of the Central Excise Act and Sections 114 A and 117 of the Customs Act. The appellant argued that there was no contumacious conduct or suppression on their part, and the transactions were duly recorded in their books of accounts. The Tribunal held that the demand for the extended period was unsustainable and no case of penalty was made out against the appellant or its officers.

Conclusion:
The Tribunal concluded that the appellant had followed the procedure of law, given proper intimation to the Department, and destroyed the goods within their 100% EOU premises. There was no violation of the notifications or the Foreign Trade Policy. The demand for duty was unsustainable, and the goods destroyed were used in connection with the production of the final products. The appeals were allowed, and the impugned orders were set aside, entitling the appellant to consequential benefits in accordance with law.

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