2008 (3) TMI 66 - AT - Customs

EOU(export of software) revenue alleged that goods imported duty free have been sold without fulfilling export obligation - licensing authority extended the period of fulfillment of export obligation & Customs officers extended warehousing period - These 2 instances indicate that demand raised in SCN is totally pre-mature duty is payable only at time of clearance from warehouse - Confiscation not sustainable as goods can be confiscated only if obligation is not fulfilled in extended period

Issues Involved:
1. Whether the duty demand on M/s. Gaia is sustainable.
2. Whether the confiscation of goods is justified.
3. Whether the penalties imposed on M/s. Delta and other appellants are valid.
4. Whether the sale of goods by Delta to Gaia during the bonded warehouse period is permissible.
5. Whether the show cause notice issued for recovery of duty is premature.

Issue-wise Detailed Analysis:

1. Duty Demand on M/s. Gaia:
The Tribunal noted that the Customs Bonded Warehouse Licence (CBWL) had been extended till January 2008. Therefore, the provisions of Section 72(b) of the Customs Act, 1962, which provide for recovery of duty from the owner of the goods upon non-removal from the warehouse after the expiry of the warehousing period, were not applicable. Consequently, the duty demand on M/s. Gaia was set aside.

2. Confiscation of Goods:
The Commissioner had confiscated the goods under Section 111(o) of the Customs Act, citing that the imported goods were exempt from duty on the condition that they were used in the manufacture of software for export, which was not fulfilled. However, the Tribunal found that since the export obligation period had been extended till April 2008 by the STPI, confiscation under Section 111(o) could not be sustained. The confiscation of goods was accordingly set aside.

3. Penalties Imposed:
The penalties imposed on M/s. Delta and other appellants were also set aside. The Tribunal reasoned that since the duty and confiscation were unsustainable, the penalties could not be upheld. Additionally, the show cause notice did not propose penal action against the three appellants other than M/s. Delta.

4. Sale of Goods by Delta to Gaia:
The Tribunal examined the sale agreement between Delta and Gaia and subsequent agreements involving Gaia. It was found that the goods were still in the bonded premises and had not moved out, despite being sold. The Tribunal held that the goods were still under bond, and therefore, duty could not be demanded until the bonding period was over.

5. Prematurity of Show Cause Notice:
The Tribunal cited several precedents to support the view that duty on goods in a bonded warehouse could only be demanded upon expiry of the bonding period. Since the CBWL and the export obligation period were extended, the show cause notice issued on 7-4-2006 was deemed premature. The Tribunal concluded that the demand for duty was premature and set aside the impugned order.

Separate Judgments:
- Vice-President's Judgment: The Vice-President set aside the duty demand, confiscation, and penalties, deeming the show cause notice premature.
- Member (Technical)'s Judgment: The Member (Technical) upheld the confiscation and penalties but set aside the penalty on M/s. Gaia due to the absence of invocation of penal provisions in the show cause notice.
- Third Member's (Judicial) Judgment: The Third Member agreed with the Vice-President, concluding that the entire impugned order was premature and should be set aside.

Majority Order:
The majority concluded that the impugned order was set aside and the appeals were allowed. The Tribunal pronounced this decision in court on 7-3-2008.

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