2003 (6) TMI 80 - AT - Customs

Summary

Issues Involved:
1. Exemption under Notifications 177/94-Cus. and 196/87-Cus.
2. Maintenance of proper accounts and wastage norms.
3. Invocation of larger period of limitation under Section 28 of the Customs Act.
4. Applicability of Section 114A of the Customs Act.
5. Demand of duty and imposition of penalty.

Detailed Analysis:

Exemption under Notifications 177/94-Cus. and 196/87-Cus.:
The appellants claimed exemption under Notifications 177/94-Cus. and 196/87-Cus. for the import of gold, mountings, and findings used in the manufacture and export of gold jewellery. The notifications provided specific conditions and wastage norms for the manufacturing process, including the treatment of scrap, dust, or sweepings of gold.

Maintenance of Proper Accounts and Wastage Norms:
The appellants were required to maintain proper accounts of import, consumption, and utilization of imported goods and submit these periodically to the Assistant Commissioner of Customs as per Clause (5) of the notification. Clause (8) specified that gem and jewellery, including rejects, should not be brought to the Domestic Tariff Area, with provisions for forwarding scrap, dust, or sweepings to the Government Mint for conversion into standard gold bars. The appellants argued that the term "loss" in Clause (10) referred to irretrievable manufacturing loss, which should not be accounted for as it was invisible and inherent in the manufacturing process.

Invocation of Larger Period of Limitation under Section 28 of the Customs Act:
The department issued a show cause-cum-demand notice under Section 28 of the Customs Act, alleging failure to maintain proper wastage accounts and claiming duty for discrepancies found during an inspection on 11-11-1995. The appellants contended that the notice was issued beyond the permissible period, as the inspection was conducted in 1995, and the notice was issued on 13-11-1997. The tribunal found that the show cause notice lacked the necessary ingredients of collusion, wilful misstatement, or suppression of facts required to invoke the larger period of limitation under Section 28.

Applicability of Section 114A of the Customs Act:
The adjudicating authority confirmed the demand under Section 28 but dropped the proposal to impose a penalty under Section 114A, stating that there was no case of collusion, wilful misstatement, or suppression of facts. The tribunal observed that if these factors were absent for imposing a penalty, they could not be present for confirming the duty demand under Section 28, indicating a failure in the adjudicating authority's reasoning.

Demand of Duty and Imposition of Penalty:
The tribunal held that the confirmation of duty demand was barred by limitation and could not be sustained. It also ruled that the department did not have a strong case on merits, as the appellants had recovered gold from dust and slurry, reducing the alleged shortage. The tribunal emphasized that the manufacturing process inherently involved some irrecoverable loss, which was recognized by the government in the wastage norms. Consequently, the imposition of penalty was deemed incorrect.

Conclusion:
The tribunal allowed the appeals, setting aside the confirmation of duty demand and imposition of penalty. The decision underscored the importance of adhering to legal requirements for invoking extended limitation periods and recognizing inherent manufacturing losses as per the prescribed wastage norms.