2024 (12) TMI 367 - AT - Customs

Jurisdiction of customs authorities to demand duty - denial of benefit of Notification No. 12/2012-Cus dated 17.03.2012 to the Appellant on the ground that the Appellant failed to follow the conditions scrupulously - retrospective effect of license amendment - applicability of principle of revenue neutrality - HELD THAT - The appellants have got a bonded warehouse notified by Customs way back in 1986. The area notified was not sufficient for the purpose of manufacturing activity of the appellant as the appellants are engaged in manufacturing large off-shore oils exploration related machinery. The appellants have been taking the material out of bonded space into the factory premises, within which the bonded space is located, for the purpose of actual physical manufacturing of goods. The entire process was happening in the knowledge of Revenue authority since 1986 - The goods were manufactured and cleared by the appellant availing benefit of Notification 12/2012-Cus dated 17.03.2012. 8 show cause notices were issued to the appellant during the period 18.12.2018 to 04.07.2019. All the show cause notices were issued Section 72 of the Customs Act 1962. In some show cause notices invoked Section 73A of the Customs Act, was also invoked and some demand was raised by invoking section 28 and sub-section 28(4) of the Customs Act. The appellant had obtained private bonded warehouse license under Section 58 of the Customs Act 1962 within the premises that were otherwise registered under Central Excise Act. The first license was granted on 31.03.1986 and thereafter license was renewed in the name of the appellant on 28.05.2014. The said license was amended on 29.11.2016 and again on 01.09.2017. The second amendment dated 01.09.2017 enlarged the bonded area under Section 58 to the full factory as per the request of the appellant. It transpires that the activity for which the appellants are being charged was happening in full knowledge of the Revenue. The Conditions imposed under Section 58 and 65 licenses were imposable to follow and that fact was acknowledged by Revenue - The Revenue did not, at any stage, crystallize the matter during more than 30 years it was followed. Further it is noticed that the Revenue has not made out any case to the effect that the imported goods were not used for stated purpose. No case of clandestine clearance was made out by Revenue and there is absolutely no allegation of diversion of any imported goods. The issue regarding covering entire premies within Section 58 of the Customs Act was raised by appellant themselves. The bonafides of the appellant cannot be doubted. When the permission to cover the entire premises was granted by Revenue, it was granted on the basis of a request made by the appellant on 06.11.2015 for amendment of their license issued on 28.05.2014. In the instant case, it is noticed that Revenue also recognizes that the conditions imposed during earlier period were impracticable and would have defeated the very purpose of grant of license. The appellant could not have possibly manufactured the goods within the bonded area. In these circumstances, when revenue after recognizing this difficulty extended the Bonded area to the entire factory registered under Central Excise Act then said amendment can only be treated as curative and therefore, will have the effect from the date of issue of original license on 28.05.2014 - The entire activity happened in the full knowledge of the Revenue. Furthermore, there is absolutely no loss of the Revenue as can be seen from the fact that Revenue has not raised any allegation about diversion of any goods or use of goods for the purpose other than that stated in Notification 12/2012 dated 17.03.2012. Section 28 of the Customs Act cannot be invoked to raise demand for the period beyond the period of limitation. In view of above, the amendment made in 01.09.2017 will have to be treated as curative amendment having effect from 28.05.2014. Consequently, the demands made would not survive. Appeal allowed.

Summary

Issues Involved:

1. Jurisdiction of customs authorities to demand duty.
2. Compliance with conditions of Notification No. 12/2012-Cus.
3. Retrospective effect of license amendment.
4. Revenue neutrality and duty demand.
5. Applicability of Sections 72, 73A, and 28(4) of the Customs Act.
6. Confiscation and penalties under Sections 111(j) and 111(o) of the Customs Act.

Detailed Analysis:

1. Jurisdiction of Customs Authorities to Demand Duty:

The appellant contended that the customs authorities at the port of import lacked jurisdiction to demand duty, as the assessment of warehoused goods occurs at the time of clearance from the warehouse, per Section 15(1)(b) of the Customs Act. They argued that only officers with territorial jurisdiction over the warehouse could demand duty. The appellant relied on precedents to support this claim, asserting that their activities were under the supervision of Central Excise Officers, who also acted as customs officers.

2. Compliance with Conditions of Notification No. 12/2012-Cus:

The appellant argued that the manufacturing activities outside the bonded warehouse were conducted with the knowledge and approval of the customs/excise authorities. They maintained that the conditions of the notification were fulfilled in spirit, as the goods were used for offshore petroleum operations, evidenced by certificates from the Director General of Hydrocarbon. The appellant contended that the end-use condition of the notification was met, and any procedural deviations were known and accepted by the authorities.

3. Retrospective Effect of License Amendment:

The appellant sought retrospective effect for the amendment of their warehouse license, arguing that the amendment should be effective from the original license date or at least from the date they requested the amendment. They cited case laws where courts held that amendments to licenses could have retrospective effect. The tribunal agreed, stating that the amendment was curative and should apply from the original license date, as the revenue had acknowledged the impracticality of the conditions and no diversion of goods was alleged.

4. Revenue Neutrality and Duty Demand:

The appellant claimed that the duty demand was revenue neutral, as they were eligible for various export benefits, including duty drawback and deemed export benefits. They argued that the demand should not be raised, as the ultimate purpose of the imported goods was fulfilled without any loss to the exchequer. The tribunal concurred, noting that the supplies to ONGC were deemed exports, and the demand was indeed revenue neutral.

5. Applicability of Sections 72, 73A, and 28(4) of the Customs Act:

The appellant argued that Sections 72 and 73A were inapplicable, as the goods were removed from the warehouse with the department's permission for further manufacture, not for home consumption. They contended that the extended period of limitation under Section 28(4) could not be invoked, as there was no suppression of facts or willful misstatement. The tribunal agreed, finding that the activities were conducted with the department's knowledge and permission, and thus, the extended period was not applicable.

6. Confiscation and Penalties under Sections 111(j) and 111(o) of the Customs Act:

The appellant argued that no wrong was committed, and the goods were not liable for confiscation under Sections 111(j) and 111(o), as the removal from the warehouse was sanctioned by the proper officer. They contended that the manufactured goods were supplied for petroleum operations under valid certification, fulfilling the post-import condition. The tribunal found no basis for confiscation or penalties, as the activities were conducted with the necessary approvals and knowledge of the authorities.

Conclusion:

The tribunal allowed the appeal, concluding that the amendment to the license should have retrospective effect, the conditions of the notification were substantially fulfilled, and the demand was revenue neutral. Consequently, the demands made did not survive, and the appeal was allowed.