2024 (6) TMI 234 - AT - Customs

Extended period of limitation - Demand of duty on import of inputs used for final products which are exempted from payment of duty in terms of proviso to paragraph 3 of the N/N. 52/2003-Cus. dated 31.03.2003 - Section 28(4) of the Customs Act, 1962 - penalty - HELD THAT - A plain reading of the proviso clause to paragraph 3 of the above Notification, indicate that there is a restriction in availing the duty exemption, when the imported inputs are intended for use in the finished goods, which are non-excisable or exempted or attracting NIL rate of duty. In this case, it is not clear that whether the appellant was aware that the imported inputs may be used in the lifesaving drugs which are exempted from payment of duty. Further, the Department had not produced any evidence or the fact that the appellant had taken the exemption with an intention to evade duty. In the above factual matrix of the case, demand of duty under Section 28(4) of the Customs Act, 1962 invoking extended period is not sustainable. The above issue for consideration is no more open to debate as the issue has been discussed at length and was decided by the Co-ordinate Bench of the Tribunal in the appellant s own case 2023 (6) TMI 458 - CESTAT HYDERABAD where it was held that ' we can assume that the Appellant could be holding bonafide belief that they are eligible to utilize Cenvat credit for only clearances. Further as there are Tribunal decisions in their favour during the period under dispute, the issue would be that of interpretation only. Taking all these facts into account, we feel that the Department cannot allege any suppression on part of the Appellant. Therefore, we hold that the demand pertaining to the extended period is liable to be set aside in all the Appeals, wherever the demand has been confirmed for the extended period.' Thus, in terms of the Order of the Tribunal in the appellant s very own case having determined that the demand normal period alone is sustainable and that too in respect of duty involved on imported inputs for which the amount of customs duty foregone is required to be paid in cash and not to debit entry in PLA account. Accordingly, the impugned order dated 19.11.2019 in upholding the original order demanding customs duty under Section 28(4) ibid and imposition of penalty under Section 114A ibid is not legally sustainable. Appeal allowed.

Issues Involved:
1. Legality of the demand of duty on import of inputs used for final products which are exempted from payment of duty.
2. Eligibility of the appellant to pay the duty foregone through Cenvat credit.
3. Applicability of extended period for demand under Section 28(4) of the Customs Act, 1962.
4. Imposition of penalty under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Legality of the demand of duty on import of inputs used for final products which are exempted from payment of duty:
The core issue is whether the demand of duty on import of inputs used for final products, which are exempted from payment of duty, is legally sustainable under Section 28(4) of the Customs Act, 1962. The relevant portion of Notification No.52/2003-Cus. dated 31.03.2003 indicates a restriction on availing duty exemption when imported inputs are used for finished goods that are non-excisable or exempted. It was determined that the appellant may not have been aware that the imported inputs would be used in exempted lifesaving drugs, and there was no evidence of intent to evade duty. Therefore, the demand of duty under Section 28(4) invoking the extended period was not sustainable.

2. Eligibility of the appellant to pay the duty foregone through Cenvat credit:
The appellant argued that they had rightly paid the duty foregone using Cenvat credit, citing previous Tribunal orders in their favor. The Tribunal previously allowed such payments in the appellant's own case. However, the Department contended that the appellant was not eligible to pay the duty foregone through Cenvat credit as the duty to be paid was customs duty. The Tribunal reiterated that for imported inputs, the duty foregone must be paid in cash, not through Cenvat credit, aligning with the decision in the appellant's own case and other similar cases.

3. Applicability of extended period for demand under Section 28(4) of the Customs Act, 1962:
The Tribunal found that the appellant had kept the Department informed about their clearances and paid the requisite duty by Cenvat debit. There was no evidence of evasion or suppression of facts, and the appellant had a bona fide belief, supported by previous Tribunal decisions, that they could utilize Cenvat credit. Therefore, the demand for the extended period was set aside, and only the normal period demand was sustained.

4. Imposition of penalty under Section 114A of the Customs Act, 1962:
Given the findings that the appellant did not intend to evade duty and had a bona fide belief supported by previous Tribunal decisions, the imposition of penalty under Section 114A was not legally sustainable. Consequently, the penalty was set aside.

Conclusion:
The Tribunal set aside the impugned order dated 19.11.2019, allowing the appeal in favor of the appellant with consequential relief. The appellant was required to pay the duty for the normal period in cash for imported inputs, while no demand sustained for indigenous items where Cenvat credit was utilized. The demand for the extended period and the penalty imposed were both set aside.

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