2012 (7) TMI 29 - AT - Central Excise

Demand of duty confiscation - 100% EOU - Search - Shortages of imported goods diversion of goods Held that - duty free imports were through regular channels, and were duly assessed and cleared by proper customs officers - Domestic Tariff Area (DTA) procurement, all the clearances were authorised/supervised by the proper Central Excise officers - Officers were supervising the clearances and the Respondent had documents showing satisfactory accounting of the goods and that they had exported goods earning sufficient foreign exchange, the case made out by Revenue cannot be sustained in the absence of evidence showing sale of the imported goods in the local market - Appeal filed by Revenue is rejected

Summary

Issues Involved:
1. Alleged diversion of duty-free imported raw materials by JSG to CLG.
2. Shortages of imported goods at JSG's premises.
3. Improper documentation and procedural non-compliance by JSG.
4. Duty demand and penalties imposed by the adjudicating authority.
5. Revenue's appeal against the adjudicating authority's decision.

Detailed Analysis:

Alleged Diversion of Duty-Free Imported Raw Materials by JSG to CLG:
The Department conducted searches on JSG and CLG premises, suspecting that JSG was diverting duty-free imported raw materials to its sister concern, CLG. Shortages of imported goods were found at JSG's premises, and materials detected at CLG lacked proper documentation. The goods imported duty-free by JSG were evidently diverted to CLG without following the prescribed procedures in Circular No. 65/2002-Cus., dated 7-10-2002. This procedure required departmental permission, sample drawing, and inspection of finished goods to ensure they were made from the sent-out raw materials.

Shortages of Imported Goods at JSG's Premises:
The search revealed shortages of clock movements, craft paper, and zinc ingots at JSG's premises, amounting to a total value of Rs. 2,503,533 and duty involved of Rs. 699,871. At CLG's premises, goods such as zinc ingots, tin ingots, clock movements, and lamp parts were found without proper documentation, totaling a value of Rs. 1,790,783 and duty involved of Rs. 806,515.

Improper Documentation and Procedural Non-Compliance by JSG:
JSG did not follow the prescribed procedures for sending out materials for job work, which included obtaining permission from the department and ensuring proper documentation. The Show Cause Notice (SCN) dated 31-5-2005 demanded a duty amount of Rs. 3.31 crores, proposing confiscation of goods and penalties on various persons involved. JSG admitted to procedural contraventions but claimed that all goods sent out for job work were received back and properly accounted for.

Duty Demand and Penalties Imposed by the Adjudicating Authority:
The adjudicating authority constituted a committee to inspect the documents produced by JSG. The committee agreed with JSG's contention for most of the goods allegedly diverted. Based on the committee's report and other submissions, the Commissioner confirmed a duty demand of Rs. 1,083,063 for goods not satisfactorily accounted for and imposed penalties accordingly. The Commissioner noted that all duty-free imports were through regular channels, duly assessed, and cleared by proper customs officers. The exports were supervised by Central Excise officers, and the EOU fulfilled their export commitments by exporting far in excess of their imports.

Revenue's Appeal Against the Adjudicating Authority's Decision:
Revenue filed an appeal challenging the adjudicating authority's findings, arguing that the verification conducted during adjudication was insufficient to prove that goods received back were made from the goods sent out. Revenue contended that JSG's failure to follow procedures was intentional to gain undue advantage. However, the Tribunal noted that the factory operated under the supervision of Central Excise officers, and no contraventions were pointed out during the relevant period. The Tribunal found that the verification conducted by the adjudicating authority based on records should be respected, given the satisfactory accounting of goods and significant foreign exchange earnings from exports.

Conclusion:
The Tribunal concluded that the appeal filed by Revenue lacked merit, as no evidence was provided to show the sale of imported goods in the local market. The Tribunal upheld the adjudicating authority's detailed and well-reasoned order, rejecting Revenue's appeal and disposing of the miscellaneous application accordingly. The decision of the Apex Court in C.C.E. v. Hari Chand Shri Gopal was deemed inapplicable to the facts of this case due to the presence of mitigating factors.