2015 (12) TMI 1485 - AT - Customs

100% EOU - procurement of goods without payment of duty - The goods were received in the appellants factory and at the time of weigment while re-warehousing found to be short - penalty under Section 114A - Held that - there is no allegation either in the show cause notice or in the order of the first appellate authority that there was any diversion of the goods after their import duty free. The number of bales received in the factory were the same as shown in the Bill of Entry and they were found to be intact and unopened at the time of re-warehousing in the factory which was done in the presence of the custom officer. Cotton is a kind of raw material which can vary in weight marginally depending upon its moisture content. Possibly for that reason only CBEC vide the circular dated 15.4.1983 stated that loss in weight up to 1% was condonable, although it gave no scientific basis as to how the figure of 1% was arrived at. Further, there is nothing sacrosanct about the figure of 1% mentioned in the said letter CBEC. The entire quantity of bales of cotton imported was received in the factory intact and there is neither any allegation of diversion nor any evidence to that effect. Even the supplier reimbursed the amount towards shortage noticed in weight which also supports the view that there was no diversion of the duty free goods. Thus none of the conditions of the exemption Notification No. 53/1977-Cus. are violated. In these circumstances the impugned demand is totally unsustainable and is therefore set aside - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of customs duty and penalty under Section 114A of Customs Act, 1962.
2. Procurement of raw material without payment of duty under Notification No. 53/1997-CU.
3. Shortage in weight of imported goods.
4. Allegation of diversion of duty-free goods.
5. Interpretation of Circular No. 462/41/93-CU dated 15.4.83.
6. Compliance with conditions of exemption Notification No. 53/1997-CU.

Analysis:
1. The appeal was filed against an order confirming customs duty, interest, and penalty under Section 114A of the Customs Act, 1962. The appellant, a 100% EOU, imported cotton duty-free under Notification No. 53/1997-CU but later found a shortage in weight upon receipt in the factory. The adjudicating authority upheld the demand based on the shortage recovered from the foreign supplier. The appellant contended that the weight difference was due to moisture content variation, supported by CBEC Circular No. 462/41/93-CU condoning up to 1% variation.

2. The Tribunal noted that there was no allegation of diversion of goods post-import, with the number of bales intact and unopened at the factory. The weight difference was within a reasonable range and could be attributed to the nature of cotton as a raw material susceptible to moisture content fluctuations. The CBEC circular allowed for a 1% variation, although lacking a scientific basis. Notably, the supplier reimbursed the shortage amount, indicating no diversion of duty-free goods and compliance with exemption conditions under Notification No. 53/1997-CU.

3. The Tribunal emphasized that the absence of evidence or allegations of diversion, coupled with intact goods and supplier reimbursement, rendered the demand unsustainable. Consequently, the demand was set aside, and the appeal was allowed in favor of the appellant. The judgment highlighted the importance of factual evidence, compliance with exemption conditions, and reasonable interpretation of circulars in customs duty cases involving weight discrepancies in imported goods.