2015 (11) TMI 137 - SC - Customs

Duty demand - exemption in terms of Notification No. 53/97-Cus or Notification No. 1/95-CE. - 100% EOU - Invocation of extended period of limitation - Held that - It is not necessary that the material which is imported into India has to be used in the manufacture of articles which are to be exported out of India. Even if the said material is used for the purpose of manufacture of articles or for being used in connection with the production or packaging or job work , the same shall still be covered by the aforesaid notification and thus would not attract any customs duty. The table which mentions the goods that are entitled to exemption specifically include capital goods . It could not be disputed that the aforesaid good were imported by the appellant-assessee for construction of its unit from where the goods meant for export were to be manufactured and therefore, these goods are in the nature of capital goods. Goods are used for the purpose for which they are imported. If the perception of the Revenue was that these are not captive goods or the benefit of Notification No. 53/97 is not available to the assessee, the period of limitation started at the threshold and therefore, on the facts which were known to the Revenue the Show Cause Notice could have been issued within a normal period of limitation prescribed under Section 28 which was six months at the relevant time. - Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of Exemption Notification No. 53/97-Cus dated 03.06.1997.
2. Validity of Show Cause Notice issued beyond the normal period of limitation.
3. Applicability of duty exemption on imported goods used for construction purposes.
4. Assessment of penalty and its relation to the limitation period.

Interpretation of Exemption Notification No. 53/97-Cus dated 03.06.1997:
The appellant, a 100% EOU unit, imported goods for manufacturing CD and CD-ROM under the exemption notification. The dispute arose when the Revenue claimed that duty-free items were used for construction, not entitled to the exemption. The CESTAT affirmed this view. However, the Supreme Court held that the notification covers goods used "for the purpose of manufacture" or "in connection with production," including capital goods. As the imported goods were for the unit's construction to manufacture export goods, they were deemed capital goods, entitling the appellant to the exemption.

Validity of Show Cause Notice issued beyond the normal period of limitation:
The Show Cause Notice dated 23.07.2002 was challenged as time-barred under Section 28 of the Customs Act. The Revenue invoked the proviso to claim an extended limitation period. The CESTAT rejected the appellant's plea, stating that the bond signed required duty payment for any breach. However, the Supreme Court disagreed, emphasizing that the extended period applies if goods are diverted for domestic sales, not if used as intended. As the goods were used as imported, the penalty was set aside, impacting the limitation issue. The Court ruled the notice should have been within the normal limitation period of six months.

Applicability of duty exemption on imported goods used for construction purposes:
The issue involved whether duty-free goods used for construction were eligible for the exemption. The Revenue contended that construction goods were not covered. The CESTAT upheld this, leading to a penalty. However, the Supreme Court found the goods, used for the unit's construction, were capital goods under the exemption. As there was no diversion or breach of bond, the penalty was overturned. The Court emphasized that goods used as intended are exempt, irrespective of their purpose.

Assessment of penalty and its relation to the limitation period:
The penalty imposed was set aside by the CESTAT, stating the appellant's declaration was not contumacious. The Supreme Court concurred, emphasizing that no willful misdeclaration or diversion occurred. As the penalty was annulled, the limitation issue was crucial. The Court ruled that since the goods were used as intended, the notice should have been within the normal limitation period. The appeal succeeded on both limitation grounds and merits, overturning the CESTAT's decision.

In conclusion, the Supreme Court ruled in favor of the appellant, allowing the appeal, setting aside the CESTAT's order. The judgment clarified the interpretation of the exemption notification, the validity of the Show Cause Notice, the eligibility of duty exemption on construction goods, and the penalty assessment in relation to the limitation period.