2019 (12) TMI 950 - AT - Customs

Import of restricted item - 100% EOU - import and clearance of fabric in to DTA without permission - shortage of stock - main allegation on the appellant is about non-reconciliation of stock of raw material and shortage of raw material - Whether the demand of duty from the appellants on the issue of shortages shrinkages non accountal and non-receipt of goods from job workers etc.? HELD THAT - As the material is hydroscopic in nature excess or shortage is bound to occur from the Bill of Entry quantity; therefore the person was recording the actual weight of the material issued for production. We find that these aspects have also not been considered in the impugned order. Therefore the shortage has been arrived at on the basis of assumption or presumption or on the basis of calculations. Moreover going by the case laws submitted by the appellants we find that finding of shortage cannot in itself be a conclusive proof of raw material being sold clandestinely or being used for manufacture of fabric which has been sold clandestinely. There is neither any allegation nor evidence regarding the clandestine clearance of such short-found material in the domestic market. That being the position demanding of duty on mere shortages cannot be acceptable. Alleged import and clearance of fabrics in DTA - the department alleges that the appellants have imported fabrics whereas as per the license they were entitled to import only raw silk and that they have cleared the imported fabrics under the guise of defects/waste - HELD THAT - The fact that a Bill of Entry was filed at the time of import and the goods were warehoused under the supervision of an officer the appellants cannot be found fault with. It was an act which was performed under the glare of the light and customs cannot allege that the appellants have wrongly imported the fabrics. It was open to the officers to disallow the clearance and warehousing. In case it was a mistake on the part of the department show-cause notice could have been issued within normal period and not invoking extended period. Even if it is held that the appellants have not received waste back from their job workers or the subcontractors of job workers the applicable duty payable would be Nil . The whole exercise will be futile. Moreover like the case of shortage in raw material we do not find that the department has proved anything with evidence to show that the scrap has been cleared in the domestic market. Demand not sustainable - Once the duty demand itself becomes non-sustainable the levy of penalties on the appellant-company and the Managing Director does not arise - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Shortage of raw material in stock.
2. Import and clearance of silk fabric in the Domestic Tariff Area (DTA).
3. Shortage of raw material in the godown register.
4. Availment of wastage over permissible limits.
5. Non-receipt of waste from job workers.

Issue-wise Detailed Analysis:

1. Shortage of Raw Material in Stock:
The department conducted stock-taking of the appellant's unit and alleged a shortage of 2140.03 kg in the stock of raw material, demanding a duty of ?5,94,928. The appellants argued that the stock-taking was performed both on an actual and estimated basis, and discrepancies arose due to conversion factors and the hygroscopic nature of the material. The Tribunal found that the shortage was based on assumptions and calculations rather than conclusive evidence. The shortage in stock cannot be a conclusive proof of raw material being sold or used clandestinely, as held in Oudh Sugar Mills Ltd. vs. Union of India.

2. Import and Clearance of Silk Fabric in the DTA:
The department alleged that the appellants imported silk fabric instead of raw material and cleared it in the domestic market, demanding a duty of ?6,96,138. The appellants contended that the import was permitted by customs officers and warehoused under their supervision. The Tribunal found that the appellants had not mis-declared the goods and that the customs officers should have verified the permissibility of the import. The Tribunal held that the appellants could not be faulted for the import and clearance of the fabric, and any mistake by the department could not justify the demand for duty.

3. Shortage of Raw Material in Godown Register:
The department noted a shortage of raw material in the godown register, demanding a duty of ?8,65,739. The appellants argued that the shortage was due to discrepancies in the register and the hygroscopic nature of the material. The Tribunal found that the shortage was based on assumptions and calculations, and there was no evidence of clandestine clearance. The Tribunal held that the demand for duty based on the shortage in the godown register was not sustainable.

4. Availment of Wastage Over Permissible Limits:
The department alleged that the appellants availed wastage over the permissible limits, demanding a duty of ?14,84,941. The appellants contended that the EXIM Policy as of April 2001 permitted 53% wastage, and they accounted for 49% shrinkage. The Tribunal found that the appellants could not be faulted for utilizing the wastage percentage allowed by the policy at the time. The Tribunal held that the demand for duty on this count was not sustainable, as any change in the law should be applied prospectively.

5. Non-receipt of Waste from Job Workers:
The department alleged that the appellants did not receive back the waste from job workers, demanding a duty of ?2,49,983. The appellants submitted delivery challans for one job worker but not for the other two. The Tribunal found that the appellants were required to pay duty on the wastage not returned by the other two job workers. However, the applicable duty on such waste would be 'Nil' as per the Central Excise Tariff Act, 1985. The Tribunal held that the demand for duty on this count was not sustainable.

Conclusion:
The Tribunal found that the show-cause notice and the impugned order were not sustainable on any of the issues raised. Consequently, the duty demand was not sustainable, and the penalties imposed on the appellant-company and the Managing Director were not justified. The impugned order was set aside, and the appeals were allowed with consequential relief.