2005 (6) TMI 97 - AT - Customs

Export Oriented Units, 100% EOU - Conversion into EPCG unit - Valuation (Customs) - Demand - Confiscation - Penalty

Issues Involved:
1. Whether the E3 unit should be considered an EPCG unit from 6-10-2001.
2. Applicability of Notification 125/84-CE for goods clandestinely removed from E3.
3. Proper computation of duty on clearances made from E3.
4. Correct valuation of the impugned goods.
5. Whether duties can be demanded under both Customs Act and Central Excise Act.
6. Duty demand on pre-forms.
7. Duty on raw materials under Notification 53/97-Cus.
8. Justification of penalties imposed on the company and individuals.
9. Confiscation of capital goods under Section 111(o) of the Customs Act.

Detailed Analysis:

1. EPCG Status of E3 Unit:
The appellants argued that the E3 unit should be deemed to be working under the EPCG scheme from 6-10-2001, the date of their application for conversion. However, the Tribunal rejected this contention, stating that an EPCG licence is necessary to be considered an EPCG unit. The Tribunal held that E3 remained an EOU until the EPCG licence was granted in 2003. Thus, all clearances from E3 during the disputed period should be treated as EOU clearances, attracting duty under proviso to Section 3(1) of the Central Excise Act.

2. Applicability of Notification 125/84-CE:
The appellants contended that goods clandestinely removed from E3 should be exempt from duty under Notification 125/84-CE. The Tribunal rejected this argument, citing the Larger Bench's decision in Himalya International, which held that duty is leviable on all goods manufactured in an EOU, whether or not allowed to be sold. The Tribunal emphasized that Notification 125/84 does not exempt goods removed without permission.

3. Computation of Duty on Clearances:
The appellants argued that the Commissioner erred in computing the duty, failing to consider effective rates under the Central Excise and Customs Tariff Acts. The Tribunal upheld the standard rate of duty prescribed under proviso to Section 3(1) of the Central Excise Act, as the conditions of Notification No. 2/95 were not satisfied.

4. Valuation of Impugned Goods:
The Tribunal upheld the Commissioner's method of adopting the transaction value shown on the central excise invoices for calculating the differential duty. The appellants' plea for adopting FOB value or contemporaneous import prices was rejected.

5. Demand of Duties Under Both Acts:
The Tribunal found that duties cannot be simultaneously demanded under the Customs Act and Central Excise Act. The duty demand on 6,35,626.7 kms of optical fibres was upheld, subject to granting credit for the duty already paid.

6. Duty on Pre-forms:
The Tribunal upheld the duty demand on 9913 kgs of pre-forms, rejecting the appellants' claim that only 2583 kgs were manufactured in E3. The Tribunal also upheld the valuation method and the application of the standard rate of duty.

7. Duty on Raw Materials:
The Tribunal set aside the duty demand on raw materials and remanded the matter to the Commissioner for a fresh decision after considering the appellants' contentions regarding the accounting of raw materials.

8. Penalties:
The Tribunal reduced the penalty under Section 11AC of the Central Excise Act to Rs. 84,33,38,000/-. Penalties imposed on individual employees under Rule 26 of the Central Excise Rules and Section 112(b) of the Customs Act were set aside, as their involvement was not sufficiently established.

9. Confiscation of Capital Goods:
The Tribunal upheld the confiscation of capital goods under Section 111(o) of the Customs Act, citing clear violations of Notification 53/97. However, the quantum of penalty was to be redetermined in light of the Tribunal's observations.

Conclusion:
The appeals were disposed of with specific directions regarding duty demands, penalties, and confiscation, providing relief in certain aspects while upholding significant portions of the Commissioner's order.

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