2024 (6) TMI 203 - AT - Customs

Remission of duty - demand of Customs duty on the goods lost in fire accident - SEZ deemed to be a foreign territory - value of goods lost in fire. Remission of duty - HELD THAT - There is no dispute that there was a fire in the factory of the appellant. There is no dispute that certain quantity of goods were lost in the fire. There is a dispute regarding the quantum of goods lost in the fire. Consequently there is a dispute on the amount of remission required. The impugned order holds that the goods procured in the SEZ have to be disposed of in terms of the prescription under Rule 22 of SEZ Rules 2006 which prescribes the terms and condition for availing exemption draw back and concession for the foreign operations. The impugned order holds that the only way to avail exemption is to use the goods for authorized operations and follow the procedure prescribed under Rule 22 (2) and Rule 34 of the SEZ Rules 2006. He is of clear opinion that loss of goods by fire cannot be deemed as accountal of goods and should be treated as non-utilization of goods for authorized operations. It is seen that the issue regarding remission of duty arising on account of loss of goods due to fire has been examined in the case of SATGURU POLYFAB PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS KANDLA 2011 (2) TMI 403 - CESTAT AHMEDABAD . In the said case there was a fire in three units located close to each other and consequently there was a loss of goods. In the said case also the units were located in SEZ and the demand was raised on the ground that the goods lost in fire were not utilized for the purpose of authorized operations. The facts in the instant case are similar to the facts in the case of Satguru Polyfab Private Limited - it is concluded that the goods have been destroyed in foreign territory and no customs duty can be demanded on the said goods. Another reason for rejection of the application of remission is that section 23 of the Customs Act is not applicable as the goods in the instant case have been ordered to be deposited in a warehouse under Section 60 of the Customs Act 1962 which are entitled to be utilized in the manufacture under bond under Section 65 of the Customs Act 1962 - HELD THAT - It is not understood as to how the provisions of Section 58 and Section 60 of Customs Act 1962 are applicable to the SEZ Act. SEZ Act is a separate legislation and does not specifically import section 58 of 60 as there are other parallel provisions within the SEZ Act which allow import storage and manufacture of goods without paying import duty. It is found that duty has been demanded on entire stock of good at the time of fire. The Revenue had visited and made a punchnama after the fire. The insurance authorities have also estimated the loss and paid insurance accordingly. There is no evidence on record to suggest entire stock of raw material in process goods and finished goods was destroyed. In these circumstances demand of entire stock is without any basis. There are no merit in the impugned order and the same is set aside - appeal allowed.

Summary

Issues Involved:
1. Demand of Customs Duty on Goods Lost in Fire Accident.
2. Applicability of SEZ Rules and Customs Act for Remission of Duty.
3. Quantum of Goods Lost and Corresponding Remission.

Summary:

1. Demand of Customs Duty on Goods Lost in Fire Accident:
The appeal was filed by P I Industries against the demand of customs duty on goods lost in a fire accident. The appellant, a unit in a Special Economic Zone (SEZ), experienced a fire on 05.06.2018, destroying raw materials and semi-finished goods. The Preventive Officer of SEZ conducted an investigation and stock verification, and a show cause notice was issued on 06.06.2020 demanding customs duty on the entire stock valued at Rs. 16,54,77,557/-, ignoring the actual loss reported by the appellant at Rs. 7,95,76,996/-. The Principal Commissioner confirmed the demand, leading to the appeal.

2. Applicability of SEZ Rules and Customs Act for Remission of Duty:
The appellant argued that no customs duty is payable on material destroyed in a fire accident, citing Section 23 of the Customs Act which provides for remission of duty on goods lost or destroyed. The Commissioner had relied on Rule 22(2) read with Rules 25 and 34 of SEZ Rules, asserting that the goods were not accounted for as per these rules. However, the appellant contended that the material lost in the fire was duly explained and should be treated as accounted for.

3. Quantum of Goods Lost and Corresponding Remission:
The Tribunal referenced previous cases, such as ONGC Petro Additions Ltd [2023 (12) TMI 530 (Tri. Amd)] and Satguru Polyfab Pvt. Limited [2011 (267) ELT 273(Tri.)], where remission was granted under similar circumstances. It was noted that the SEZ is deemed a foreign territory, and customs duty can only be demanded if goods are moved from this territory to the domestic area. The Tribunal found no evidence suggesting negligence or unauthorized use of goods by the appellant. The insurance claim settled at Rs. 5,45,11,492/- further supported the appellant's reported loss.

Conclusion:
The Tribunal concluded that the goods destroyed in the fire were still in the deemed foreign territory of the SEZ, and no customs duty could be demanded. It set aside the impugned order and allowed the appeal, emphasizing that the demand for the entire stock was without basis.

Order Pronounced:
The order was pronounced in the open court on 05.06.2024.