2004 (6) TMI 228 - AT - Customs

Issues Involved:
1. Compliance with the conditions of Notification No. 110/95-Cus.
2. Fulfillment of export obligations under the EPCG scheme.
3. Liability for payment of customs duty and interest.
4. Confiscation of imported goods under Section 111(d) & 111(o) of the Customs Act, 1962.
5. Imposition of penalties under Section 112(a) & 112(b) of the Customs Act, 1962.
6. Enforcement of legal undertakings and bank guarantees.

Detailed Analysis:

1. Compliance with the conditions of Notification No. 110/95-Cus.:

The appellants imported capital goods under the EPCG scheme availing concessional customs duty as per Notification No. 110/95-Cus., dated 5-6-1995. However, it was alleged that the appellants did not comply with the conditions of the notification, specifically the requirement to use the imported capital goods for manufacturing the exported goods. The Commissioner found no evidence to prove that the exported goods were manufactured using the imported machines, thus violating the notification's conditions.

2. Fulfillment of export obligations under the EPCG scheme:

The appellants were required to fulfill an export obligation of US$ 47,04,192, which they allegedly failed to meet. The Commissioner noted that the appellants only achieved 21.25% of the export obligation, resulting in a shortfall of 78.75%. The Commissioner also highlighted that the appellants misrepresented their export performance to the DGFT, falsely claiming fulfillment of the export obligation without supporting evidence.

3. Liability for payment of customs duty and interest:

Due to the failure to fulfill the export obligation, the Commissioner demanded the payment of Rs. 96,03,687/- as customs duty along with interest at 15% per annum from the date of clearance of the goods. The Commissioner held that the appellants were liable to pay the entire amount of duty foregone together with interest as per the conditions of the notification and the bond executed at the time of clearance.

4. Confiscation of imported goods under Section 111(d) & 111(o) of the Customs Act, 1962:

The Commissioner ordered the confiscation of the imported goods valued at Rs. 4,22,02,466/- under Section 111(o) of the Customs Act, 1962, due to the failure to fulfill the export obligation. However, a redemption fine of Rs. One crore was offered in lieu of confiscation. The Commissioner also imposed a penalty of Rs. Fifty lakhs on the appellants under Section 112 of the Customs Act.

5. Imposition of penalties under Section 112(a) & 112(b) of the Customs Act, 1962:

The Commissioner imposed a penalty of Rs. Fifty lakhs on the appellants under Section 112 of the Customs Act due to the failure to comply with the conditions of the notification and the resultant liability for confiscation of the imported goods. However, no penalties were imposed on the individuals involved, namely Shri P.L. Sarawgi, Ravindra Shah, and S.L. Agarwal.

6. Enforcement of legal undertakings and bank guarantees:

The show cause notice also questioned why the legal undertakings and bank guarantees executed by the appellants should not be enforced if they failed to pay the duty and interest. The Commissioner found that the appellants were liable to pay the duty and interest as per the conditions of the notification and the bond executed.

Conclusion:

The appellate tribunal, after hearing both sides, found several issues with the Commissioner's order:
- The tribunal noted the conflict in the Commissioner's findings regarding the evidence of the use of imported machines for manufacturing the exported goods.
- It highlighted that the requirement for one-to-one correlation between the capital goods imported and the exported product was not mandated by the Exim Policy or the notification.
- The tribunal also considered the extension granted by the DGFT for fulfilling the export obligation and found that the demands for duty and interest were premature.
- Consequently, the tribunal set aside the duty and interest demands and remanded the matter for re-adjudication after the DGFT's decision on the extension request was known.
- The tribunal also set aside the liability for confiscation and penalty under Section 112(o), directing a de novo determination after the duty demands, if any, were recalculated.

The appeal was allowed, and the case was remanded for de novo determination in the terms specified.

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