2014 (2) TMI 218 - AT - Customs

Waiver of pre deposit - Import Polyester Textured Yarn - Diversion of goods supplied against CT-1 to the local market - supply to 100% EOU - Exemption under Notification No. 53/97-Cus., dated 3-6-1997 - Held that - even if there was clearance in excess of permissible limit it may amount to be case of diversion of finished goods, duty shall be payable in respect of finished goods and no duty become demandable on the raw material used in the manufacture of such diverted goods - Therefore, prima facie any duty of customs is not leviable on the imported/indigenously procured inputs used in the manufacture of final products. In this case also, if at all duty is to be demanded, that can be demanded on the final products and the Customs duty on the imported raw materials cannot be demanded - Following decision of CCE, Surat v. Sanjari Twisters 2007 (9) TMI 369 - CESTAT, AHMEDABAD - Stay granted.

Summary

Issues Involved:
Waiver of pre-deposit of Customs duty and penalty for the applicant firm and co-appellants due to alleged misuse of duty-free imported raw materials.

Detailed Analysis:

Issue 1: Alleged Misuse of Duty-Free Imported Raw Materials
The applicant, a 100% EOU, imported raw materials under an exemption and used them in manufacturing Polyester Textured Yarn (PTY). However, it was discovered that the PTY was diverted to the local market instead of being exported or used for manufacturing export goods by the recipient unit. Consequently, a show-cause notice was issued to the applicant for misusing duty-free imported raw materials, leading to the imposition of Customs duty, confiscation of goods, and penalties on the applicant firm and co-appellants.

Analysis: The Tribunal considered the argument that the applicant had complied with the conditions of the exemption notification by importing raw materials and supplying PTY to other EOUs. The Tribunal noted that there was no specific allegation of diversion against the applicant and that the goods were cleared with proper documentation. Referring to previous judgments, the Tribunal held that duty on raw materials cannot be demanded if duty is levied on the final products. Therefore, the Customs duty on imported raw materials used in manufacturing PTY should not be demanded, as the duty was imposed on the final products.

Issue 2: Violation of Principles of Natural Justice
The applicant contended that the order was in violation of natural justice as they were not provided with relied upon and non-relied upon documents, and cross-examination of relevant persons was not allowed. The applicant also argued that the adjudicating authority did not consider relevant tribunal decisions cited during the proceedings.

Analysis: The Tribunal acknowledged the violation of natural justice principles and the failure to consider relevant tribunal decisions. The applicant's right to be provided with necessary documents and the opportunity for cross-examination were crucial for a fair adjudication process. As a result, the Tribunal considered these factors in waiving the requirement of pre-deposit of duty, redemption fine, and penalties for all the applicants during the appeal process.

In conclusion, the Tribunal granted the waiver of pre-deposit and stayed the demand of duty and penalties for the applicant firm and co-appellants, citing compliance with exemption conditions, lack of diversion allegations, and the violation of natural justice principles.