2018 (2) TMI 851 - AT - Customs

100% EOU - benefit of N/N. 53/97-Cus. dated 03.06.1997 - demand on the ground that cotton waste generated (32.10%) out of duty free imported raw cotton was over and above the permissible limit of 25% - Held that - once the manufactured goods which are excisable are allowed to be sold in accordance with Exim Policy no demand of customs duty can be raised - In the present case cotton waste which is cleared to DTA is an excisable goods falling under Chapter heading 52.02 of CETA, 1985. The said clearance of waste is also permissible as per para 6.8(d) of the Exim Policy 2002-07 within the overall limit of 50% of the FOB value. Hence the present demand of duty is untenable under the above Notification - appeal allowed - decided in favor of appellant.

Summary

Issues:
Confirmation of demand, interest, and penalties under Order-in-Appeal No. 7/2006-Cus regarding duty on imported raw cotton exceeding permissible limit.

Analysis:
The appellant, a 100% EOU engaged in the manufacture of Cotton Yarn, contested the duty demand on cotton waste generated from duty-free imported raw cotton exceeding the permissible limit of 25%. The appellant relied on Notification No. 53/97-Cus. dated 03.06.1997, which exempts imported cotton used for manufacturing articles within EOUs. The issue revolved around the interpretation of the notification, which allows the sale of manufactured goods in India without customs duty if they are excisable and cleared in accordance with the Exim Policy. The Tribunal noted that the clearance of waste falls under excisable goods and is permissible under the Exim Policy within the overall limit of 50% of the FOB value, rendering the duty demand untenable under the notification.

The appellant argued that the permissible limit for waste on imported goods is 30% for combed cotton yarn as per Appendix 14L of the Handbook of Procedure, not 25%. Additionally, the waste percentage should be computed on imported cotton, not on the consumed cotton. The appellant challenged the rejection of the notification's benefit based on a CBEC circular, asserting that the circular cannot override the notification's provisions. The Tribunal agreed with the appellant's interpretation, emphasizing that the circular cannot render the notification redundant, thereby invalidating the duty demand.

In a related appeal by another appellant, the Tribunal observed that without specific provisions in the EXIM Policy or the notification regarding wastage percentage, arbitrary adjudication is impermissible. The Tribunal noted that the waste was not deliberate, and the appellant had paid excise duty on the cleared waste, without evidence of malafide intentions. Consequently, the Tribunal allowed the appeal, emphasizing that arbitrary treatment based on undeclared provisions is unjustifiable. Given the consistent interpretation in favor of the assessee in similar cases, the Tribunal set aside the impugned order, allowing the appeal with consequential reliefs, if any, as per law.