2018 (2) TMI 159 - AT - Customs

Benefit of N/N. 66/2004-Cus. (serial No. 152-B) - it was alleged that the appellant was misusing the benefit of the exemption notification as amended by N/N. 66/2004-Cus. by using the imported waste paper in the manufacture of paper other than newsprint - Held that - there is no deliberate violation of the conditions of the exemption notification in question - the diversion of about 10% of the imported waste paper is only incidental and does not call for any adverse inference on the part of the appellant - there is no case made out against fraud, suppression of facts and/or falsification of record. In this view of the matter, the appellant has not violated the conditions of N/N. 21/2002-Cus. as amended. Penalty on Director u/s 112 - Held that - he should have been more vigilant and should have suo motu informed the Revenue of the utilization of the imported waste paper for manufacture of paper other than newsprint - penalty upheld but quantum reduced. Appeal allowed in part.

Summary

Issues Involved:
1. Misuse of exemption notification.
2. Violation of conditions of Notification No.21/2002-Cus.
3. Demand of differential customs duty.
4. Confiscation and penalty under Sections 111(o) and 114A of the Customs Act.
5. Penalty on the director under Section 112 of the Customs Act.
6. Extended period of limitation.

Detailed Analysis:

1. Misuse of Exemption Notification:
The appellant, M/s. Malu Paper Mills Ltd., a manufacturer of newsprint, imported waste paper under Chapter Heading 4707 of the Customs Tariff Act, availing exemption via Notification No.21/2002-Cus. (serial No.152-B), which allowed a concessional rate of duty for use in manufacturing newsprint. Based on intelligence, it was alleged that the appellant misused this exemption by using the imported waste paper to manufacture paper other than newsprint.

2. Violation of Conditions of Notification No.21/2002-Cus.:
The investigation revealed that the appellant used both indigenous and imported waste paper in a 60:40 ratio for manufacturing newsprint. However, it was admitted that some imported waste paper was used to manufacture paper other than newsprint, violating the notification conditions. The notification required the imported goods to be used solely for the specified purpose, with an undertaking and end-use certificate to be furnished to the customs authorities.

3. Demand of Differential Customs Duty:
The scrutiny of records indicated that 1095.519 MT of imported waste paper was used for manufacturing paper other than newsprint. Consequently, the appellant was liable to pay the differential customs duty, including Basic Customs Duty (BCD) and Countervailing Duty (CVD), for the misused quantity. The appellant contested this, arguing that the effective BCD rate was 5% irrespective of the end-use, and only CVD was payable for the portion used for non-newsprint paper.

4. Confiscation and Penalty under Sections 111(o) and 114A of the Customs Act:
The Commissioner confirmed the demand of ?15,51,674/- under Section 28 of the Act, along with interest, and imposed a fine of ?15 lakhs in lieu of confiscation under Section 111(o). Additionally, a penalty of ?15,51,674/- was imposed under Section 114A, and the amounts already paid were appropriated.

5. Penalty on the Director under Section 112 of the Customs Act:
A penalty of ?2 lakhs was imposed on the appellant's director under Section 112 for the alleged violation. The appellant argued that the director should not be penalized as there was no fraudulent intent or suppression of facts.

6. Extended Period of Limitation:
The appellant contended that the show cause notice was invalid for invoking the extended period of limitation, as there was no deliberate suppression or fraud.

Judgment:
The Tribunal concluded that there was no deliberate violation of the exemption notification conditions. The diversion of about 10% of the imported waste paper was incidental and did not warrant adverse inference. The Tribunal found no evidence of fraud, suppression of facts, or falsification of records. Consequently, the additional BCD demand was set aside, and the penalty under Section 114A was annulled. However, the penalty on the director was reduced to ?50,000/- for not informing the Revenue about the utilization of the imported waste paper for non-newsprint paper.

Conclusion:
The appeals were allowed, setting aside the additional BCD and penalties, except for a reduced penalty on the director. The Tribunal emphasized the absence of fraudulent intent and substantial compliance with the notification conditions.