2014 (10) TMI 371 - AT - Customs

100% EOU - Confiscation of goods - Redemption fine - benefit of Notification No. 126/94-Cus. dated 3.6.1994 and Notification No. 52/2003-Cus. dated 31.3.2003 - Held that - Appellants being a 100% EOU made import of certain raw material without payment of duty by availing the benefit of the above mentioned Notifications. Part of the raw material is used for research and development activity which is essential for manufacture of human vaccines. The Tribunal in the case of Dr. Reddy Laboratories Ltd. (supra) rejected the contention of the Revenue that the manufacturer is liable to pay duty in respect of the raw material obtained without payment of duty, which is used for research and development purposes. In the present case, we find that there is no allegation that the raw material which is procured without payment of duty is diverted or not used within the 100% EOU as the research and development facility is within the 100% EOU - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of demand by Commissioner of Central Excise
2. Denial of benefit of Notifications for raw material import
3. Use of raw material for research and development activities
4. Applicability of Notifications on raw material procurement
5. Allegations of diversion or non-use of raw material

Confirmation of demand by Commissioner of Central Excise:
The appellant filed an appeal against the order passed by the Commissioner confirming a demand of &8377; 44,24,726/- with interest and penalties imposed. The adjudicating authority also held that the goods in question are liable for confiscation and gave an option to redeem them on payment of a redemption fine.

Denial of benefit of Notifications for raw material import:
The appellants, a 100% EOU engaged in manufacturing vaccines, imported raw materials without duty payment under specific Notifications. The Revenue alleged that some inputs received without duty payment were used in research and development activities, leading to the issuance of a show cause notice denying the benefit of the Notifications.

Use of raw material for research and development activities:
The appellant argued that the inputs received without duty payment were essential for carrying out research and development activities necessary for manufacturing vaccines. They contended that without such activities, the manufacturing process could not be completed properly. The appellant cited a Tribunal decision supporting their position.

Applicability of Notifications on raw material procurement:
The Revenue contended that since the raw material received without duty payment was not used in the manufacture of the final product, the appellants were not entitled to the benefit of the Notifications.

Allegations of diversion or non-use of raw material:
The Tribunal found that the raw material imported without duty payment was used for research and development activities essential for manufacturing human vaccines. Referring to a previous Tribunal decision, the Tribunal rejected the Revenue's argument that duty should be paid on such raw materials. As there was no allegation of diversion or non-use of the raw material within the 100% EOU, and the research and development facility was within the EOU, the Tribunal upheld the appellant's contention, setting aside the impugned order and allowing the appeal.