2010 (2) TMI 533 - AT - Customs

EOU - The issue involved in this case is regarding the liability to duty on goods which were purchased by the appellant from M/s. A.K. Trade Links. It was found by the authorities that appellant had imported many items by availing benefit of exemption of Customs Notification No. 52/2003-Cus. dated 31-3-2003 and Central Excise Notification No. 22/2003-C.E. dated 31-3-2003. The said 100% EOU had subsequently cleared all the said machineries without payment of duty from the 100% EOU without seeking any permission from the authorities. On completion of investigation lower authorities issued a show cause notice to the said EOU directing them to show cause as to why duty be not been demanded on the capital goods and other goods cleared from the factory premises without payment of duty and also issued the show cause notice to the current appellant for imposition of penalty under Section 112(a) of the Customs Act 1962. Held that - their clearance from EOU has to be under proper procedure with permission from authorities and on payment of duty foregone. However on such duty liability assessee is entitled to benefit of depreciation on valuation especially where use of machinery in manufacture of finished goods is not in dispute. Notice could not be liable to penalty.

Summary

Issues Involved:
1. Duty liability on goods purchased by the appellant.
2. Confiscation of machineries under Section 125 of the Customs Act, 1962.
3. Imposition of penalties under Section 112(b) of the Customs Act, 1962.

Detailed Analysis:

1. Duty Liability on Goods Purchased by the Appellant:
The primary issue was whether the duty liability on the goods should be discharged by the person in possession of the goods or the original importer. The appellant purchased machinery from M/s. A.K. Trade Links, which had been imported by an EOU availing duty exemptions. These machineries were cleared from the EOU without proper authorization. The Tribunal held that duty liability must be discharged on such machineries. The appellant agreed to pay the duty, provided depreciation benefits were allowed. The Tribunal found that the lower authorities had incorrectly denied depreciation benefits, as the machineries were indeed used by the EOU. Consequently, the Tribunal directed the re-quantification of duty liability after allowing depreciation benefits.

2. Confiscation of Machineries under Section 125 of the Customs Act, 1962:
The show cause notice issued to the EOU did not extend to the appellant, who was the actual owner of the goods. According to Section 124 of the Customs Act, no order of confiscation can be made without notifying the owner of the goods. Since the appellant was not given such notice, the confiscation of the goods was deemed improper. The Tribunal set aside the confiscation order, emphasizing the necessity of proper notice to the owner before confiscation under Section 125.

3. Imposition of Penalties under Section 112(b) of the Customs Act, 1962:
The show cause notice directed the appellant to show cause for penalty under Section 112(a), but the penalty was imposed under Section 112(b). The Tribunal noted that Section 112(a) pertains to acts or omissions making goods liable to confiscation, which was not applicable as the appellant did not import the goods. For Section 112(b), the appellant demonstrated lack of knowledge about the goods being liable for confiscation. The Tribunal found no evidence that the appellant knew or had reason to believe the goods were liable for confiscation. Consequently, the penalty under Section 112(b) was set aside. The Tribunal also highlighted that penalties under different sub-sections require distinct circumstances, which must be clearly stated in the notice.

Conclusion:
The Tribunal upheld the duty liability on the appellant, subject to re-quantification with depreciation benefits. The confiscation of goods was set aside due to improper notice, and the penalty imposed under Section 112(b) was also set aside. The appeal was disposed of in these terms.