2024 (11) TMI 65 - AT - Customs

Custom duty for the raw material consumed in excess of SION norms - Appellant being a 100% EOU - improper accounting of imported raw material consumption - period of dispute is from August, 2004 to March 2006 - Appellant had imported Milled Glass Powder for manufacture and export of multi form Bead glass which is used in the manufacture of Electron Guns HELD THAT - We find that it is an admitted fact that the appellant had imported the raw-material for manufacture and as per the information available on record, they have fulfilled the export obligations. When the actual waste generated during the production was more than 4.76% as per norms related to subject goods, Appellant had take-up the issue with Development Commissioner, Cochin Special Economic Zone (CSEZ) vide letter dated 07.12.2004 for amending the wastage norms. Considering the same, Assistant Development Commissioner vide letter No. 1/72(2) EOU CEPZ 10517 dated 15.12.2004, conveyed the approval of the Development Commissioner fixing the percentage of waste and scrap generated as 20.34% on adhoc basis for the period of 6(six) months. Thereafter, as evident from letter dated 05.07.2005, Board of Approvals for 100% EOU in its 4th meeting held on 14.06.2005 decided that Adhoc norms fixed by the Development Commissioner, Special Economic Zone to continue till regular norms are approved by the Board of Approval. From the above facts and considering the judgment of M/s Goodluck Garments Pvt Ltd 2019 (1) TMI 1514 - GUJARAT HIGH COURT merely if wastage is in excess of the input-output norms, without anything more, would not be sufficient for the Adjudicating authority to arrive at the conclusion that the imported goods have not been used for the manufacture of the articles for export. Further, it cannot be read in this manner, despite the fact that the Appellant is in a position to show that the entire material has been used for the purpose of manufacture of goods and there is no allegation with regard to the diversion of goods. We find that, if the Appellant has fulfilled the export obligation and when waste generated over and above SION norms is available in EOU, merely because the wastage norms are not satisfied, no presumption can be made to the effect that the goods have not been used for the manufacture of articles for export. Further it cannot be treated as improper accounting of raw material consumption to demand duty under 65(2)(b) and 72 (1)(d) of the Customs Act, 1962 as held by adjudication authority. Recovery of duty and interest confirmed in the impugned orders are also set aside.

Summary

Issues:
Whether a 100% EOU is liable to pay customs duty for raw material consumed in excess of SION norms due to improper accounting.

Analysis:
The appeals revolved around the liability of a 100% EOU to pay customs duty for raw material consumed in excess of SION norms. The appellant had imported 'Milled Glass Powder' for manufacturing 'Bead glass' used in 'Electron Guns'. The issue arose when the waste generated during production exceeded the permissible 4.76% wastage under SION norms. The Adjudicating authority confirmed duty and interest under Section 72(1) of the Customs Act, 1962 for the period from August 2004 to March 2006.

The appellant contended that they had sought approval from the Development Commissioner to amend the wastage norms, which was granted on an ad hoc basis. The Board of Approvals for 100% EOU also decided to continue the ad hoc norms until regular norms were approved. The appellant argued that the excess wastage was still available with the EOU and cited Circulars clarifying the allowance of self-declared norms in such cases.

The appellant challenged the jurisdiction of the Adjudication authority, citing Circulars that required concurrence of the Development Commissioner before concluding demands. They argued that the Development Commissioner's approval of excess wastage should prevent duty demands. Additionally, they highlighted that Section 72 of the Customs Act pertains to goods improperly removed from the warehouse, which was not the case here.

The appellant also relied on precedents and judgments to support their arguments, emphasizing that the demand of customs duty on raw materials imported and consumed in excess of SION norms was contradictory to the law. They pointed out that the Board of Approval's approval of wastage norms should have been binding on the Customs authority, preventing the rejection of ad hoc norms.

The Tribunal, after considering the facts and arguments presented, concluded that the mere excess of wastage over SION norms does not automatically imply improper use of imported goods. If export obligations were fulfilled, and the excess waste was still available in the EOU, the demand for duty under Sections 65(2)(b) and 72(1)(d) was deemed unjustified. Therefore, the appeals were allowed, and the recovery of duty and interest was set aside.

In summary, the judgment emphasized the importance of fulfilling export obligations and the relevance of approvals granted by competent authorities in determining the liability of a 100% EOU to pay customs duty for excess wastage beyond SION norms.