2019 (5) TMI 828 - AT - Customs

Imposition of penalty u/s 112(b) of Customs Act, 1962 - violation of import conditions - alleged diversion of duty free imported raw material into domestic area - HELD THAT - We find that the appellant have received raw material from a 100% EOU firms namely M/s Royal Industries Ltd. under proper job work challan and entire quantity has been taken on the records by the appellant in his statutory books of accounts. It is also a matter of record and an admitted fact that after the conversion of Acrylic Fibre into yarn, a part of the manufactured quantity has been returned back to the raw material supplier namely, M/s Royal Industries Ltd. and balance quantity which was also got converted into yarn, as per the assertion of the appellant, was not lifted by the supplier and therefore, the appellant have cleared the same after taking the same in the statutory record namely RG-1 Register and on payment of appropriate Central excise duty. For invoking the provisions of Section 112(a) or 112(b) of the Customs Act, 1962 the subject goods need to be made liable of confiscation - so far as the appellant is concerned the goods were duly covered by prescribed job work documents and the same were also taken on record in the books of the accounts of the appellant, therefore, the quantities which have been received by the appellant were not liable for confiscation as the same were covered by legitimate documentation. There was no violation of any provisions of Customs Act with regard to the raw materials received by them from the 100% EOU firm and thereby legally it cannot be alleged that the raw material namely acrylic fibre received by him was liable for confiscation - Since we find that the goods received by the appellant were not liable for confiscation u/s 111 of the Customs Act, therefore, the appellant is not liable for the penalty u/s 112(b) of the Customs Act, 1962. Penalty cannot be sustained - appeal allowed - decided in favor of appellant.

Summary

Issues:
Violation of provisions of Customs Act regarding diversion of duty-free imported raw material from 100% EOU firm, imposition of penalty under Section 112(b) of Customs Act, 1962 on the appellant.

Analysis:

1. The appellant received Acrylic Fibre from a 100% EOU firm, which was later found to have diverted duty-free imported raw material into the domestic market. The appellant processed a portion of the material into yarn and returned a part to the supplier, but the remaining quantity was cleared in the open market after paying excise duty equivalent to countervailing duty.

2. A show cause notice was issued, and a penalty of ?10 lakhs was imposed on the appellant under Section 112(b) of the Customs Act, 1962. The appellant challenged this penalty, arguing that they had followed all necessary procedures, accounted for the raw material, and cleared the processed goods after payment of appropriate duty.

3. The appellant contended that as they had dealt with the goods in accordance with the job work documents and had accounted for everything in their records, the penalty under Section 112(b) was not applicable. They emphasized that the goods were not liable for confiscation as they were covered by legitimate documentation.

4. The Authorized Representative supported the findings of the Order-In-Original, leading to a hearing where both sides presented their arguments.

5. The Tribunal found that the appellant had received the raw material under proper documentation, processed it into yarn, and returned a part to the supplier. The balance quantity was cleared after payment of excise duty and recorded in the statutory registers.

6. Upon examining the provisions of Section 112(b) of the Customs Act, the Tribunal noted that for the penalty to apply, the goods must be liable for confiscation under Section 111. Since the appellant had followed all procedures and the goods were not liable for confiscation, the penalty under Section 112(b) was deemed inapplicable.

7. Consequently, the Tribunal held that there was no violation of the Customs Act by the appellant regarding the raw material received from the 100% EOU firm. As the goods were not liable for confiscation, the appellant was not liable for the penalty under Section 112(b) of the Customs Act, 1962.

8. The Tribunal concluded that the Order-In-Original imposing the penalty was without merit, and therefore, set it aside, allowing the appeal in favor of the appellant.