2003 (7) TMI 134 - AT - Customs

Summary

Issues Involved:
1. Classification and assessment of imported capital goods.
2. Applicability of EPCG scheme and concessional duty rates.
3. Fulfillment of export obligations under EPCG scheme.
4. Demand for differential duty and interest.
5. Limitation period for issuing a demand notice.
6. Validity of confiscation and penalties under the Customs Act.
7. Liability for payment of interest.

Issue-wise Detailed Analysis:

1. Classification and Assessment of Imported Capital Goods:
The appellants were permitted to manufacture ammonium nitrate and nitric acid and were granted a licence for importing capital goods for a new undertaking. They registered six contracts under the Project Import Regulations with Visakhapatnam Custom House, and the goods were assessed under Tariff Heading 98.01 of the Customs Tariff. The goods were initially warehoused under this classification. The Commissioner concluded that the classification under Heading 98.01 was correct and should not be altered at the time of ex-bond clearance, as it was compliant with the Project Import Regulations.

2. Applicability of EPCG Scheme and Concessional Duty Rates:
The appellants applied for clearance of the capital goods under the EPCG scheme, which allowed a concessional duty rate of 15% under Notification No. 160/92-Cus., provided export obligations were met. The DGFT amended the import licence to permit import under the EPCG scheme. The goods were cleared at the concessional rate, and an indemnity-cum-guarantee bond was executed to cover the differential duty in case of non-fulfillment of export obligations. The Commissioner found that the goods were eligible for the EPCG scheme, and the concessional rate was correctly applied.

3. Fulfillment of Export Obligations under EPCG Scheme:
The appellants were unable to fulfill the export obligation within the stipulated period and requested an extension. A show cause notice was issued alleging violation of the EPCG scheme due to non-fulfillment of export obligations, demanding differential duty. The DGFT directed the appellants to pay interest and surrender special import licences proportionate to the unfulfilled export obligation. The appellants complied by surrendering licences worth Rs. 6 crore and paying interest.

4. Demand for Differential Duty and Interest:
The Commissioner held the appellants liable to pay the differential duty between the EPCG concessional rate and the merit rate applicable to the goods. However, the Tribunal found that the proper officer should have applied the notification rate for goods classified under Chapter 9801, and the duty foregone could be recovered if export obligations were not met. The Tribunal also noted that the appellants' submission regarding the understanding of duty liability under the Project Import scheme had merit.

5. Limitation Period for Issuing a Demand Notice:
The appellants argued that the demand for duty was barred by limitation, as the notice was issued after the expiry of six months from the date of payment of duty (considered as the date when the bank guarantee was encashed). The Tribunal agreed that the longer period of five years could not be invoked due to the absence of suppression of information, and the demand was time-barred.

6. Validity of Confiscation and Penalties under the Customs Act:
The Tribunal found that the condition of the exemption notification was fulfilled upon payment of duties, and there was no cause for confiscation under Section 111(o) of the Customs Act. The exemption notification provided two alternatives: export the goods or pay the duty. Since the appellants paid the duty, there was no violation, and confiscation and penalties under Section 112 could not be sustained.

7. Liability for Payment of Interest:
The Tribunal held that the liability for payment of interest at 24% was not sustainable, as Notification No. 160/92-Cus. did not contain a condition for interest payment.

Conclusion:
The Tribunal set aside the order of the Commissioner, allowing the appeal with consequential benefits as per law. The proper classification under Heading 98.01 was upheld, the concessional rate under the EPCG scheme was correctly applied, the demand for differential duty was time-barred, and the confiscation and penalties were invalid. The appellants were not liable for interest payments as per the notification.