2022 (2) TMI 552 - AT - Customs

100% EOU - served from India scheme (SFIS) - Recovery of duties of customs foregone on imported raw materials and duties of central excise foregone on domestic procurement of raw materials - benefit of exemption under N/N. 34/2006-CE dated 14th June 2006 - HELD THAT - The appellant was required to discharge duties of central excise in accordance with proviso to section 3 of Central Excise Act, 1944 on clearance of goods into the domestic tariff area (DTA) and that obligation thereto was construed by them as having been duly complied with on supply to holders of scrips entitled to duty-free procurement of goods intended for use in providing eligible services. N/N. 34/2006-CE dated 14th June 2006 does not provide for extending the extension of the benefit of exemption to goods manufactured by 100 % export oriented units (EOU) . Consequently, the clearance of goods has been effected by the appellant without payment of applicable duties. Considering that the procurement of raw materials both imported and domestic had been without payment of duty, against notification no. 52/2003-Cus dated 31st March 2003 and no. 22/2003- CE dated 31st March 2003 issued under Customs Act, 1962 and Central Excise Act, 1944, the clearance of goods against debit of scrip is legalized only by recovery of the duties so forgone which is the primary component of the order of the original authority affirmed in the impugned order. There is no finding in the order of the original authority holding the goods liable to confiscation; the imposition of penalty under section 112 of Customs Act, 1962 is without authority of law. Neither is there any finding on the confiscability of goods under rule 25 of Central Excise Act, 1944 and the imposition of penalty thereunder is, therefore, without authority of law. The appeals is allowed to the extent of setting aside the penalties while the demands of duty along with applicable interest is upheld - appeal allowed in part.

Summary

Issues:
Dispute regarding clearance of manufactured goods without duty payment, Debit of 'scrip' under 'served from India scheme (SFIS)', Correctness of duty discharge claim under Central Excise Act, 1944, Applicability of exemption notification to 100% export-oriented units, Imposition of penalties under Customs Act, 1962 and Central Excise Act, 1944.

Analysis:

1. The case involved a dispute by M/s Brintons Carpets Asia Pvt Ltd against the rejection of their challenge to the demand for duty payment, interest, and penalties under the Customs Act, 1962 and Central Excise Act, 1944. The issue arose from the clearance of manufactured goods to domestic entities without duty payment, utilizing 'scrip' under the 'served from India scheme (SFIS)' of the Foreign Trade Policy, which was deemed insufficient to offset the foregone duties on imported and domestically procured 'raw materials'.

2. The appellant, operating under the '100% export-oriented unit (EOU)' scheme of the Foreign Trade Policy, was allowed to import/procure materials for export. However, proceedings were initiated against them for clearing goods to the domestic market by debiting 'scrip' value possessed by buyers entitled to duty-free procurement under a specific notification.

3. The central issue for consideration was whether the debit of 'scrip' under the 'served from India scheme (SFIS)' sufficed to discharge duty liability as per the proviso to section 3 of the Central Excise Act, 1944. The appellant claimed compliance with duty obligations through this mechanism.

4. The Tribunal differentiated this case from precedents involving the offset of credit under CENVAT Credit Rules, emphasizing the unique context of duty discharge in the present dispute.

5. It was established that the appellant was obligated to pay central excise duties upon clearing goods to the domestic market, and their interpretation of compliance through 'scrip' debit to eligible buyers was deemed inadequate. The notification granting duty exemption did not extend benefits to goods manufactured by '100% export-oriented units', leading to duty evasion on both imported and domestic 'raw materials'.

6. The clearance of goods without duty payment was found to be in violation of relevant notifications under the Customs Act, 1962 and Central Excise Act, 1944. The order affirmed the recovery of foregone duties as the primary component, upholding the demands of duty and interest while setting aside the imposed penalties.

7. Notably, the order did not find the goods liable for confiscation, rendering the penalties imposed under the Customs Act, 1962 and Central Excise Act, 1944 unauthorized. The absence of findings on the confiscability of goods further undermined the legitimacy of the penalties imposed.

8. Consequently, the appeals were allowed to the extent of nullifying the penalties while affirming the duty demands and applicable interest, as pronounced in the open court on 10/02/2022.