2018 (9) TMI 1191 - AT - Central Excise

100% EOU - Extended period of limitation - It appeared to the department that the quantum of spares procured / imported without payment of central excise duties / customs duties removed from the bonded warehouse to the quarries and used in the quarry equipment had exceeded the limit of 5% of the value of the goods imported by the appellant - Benefit of exemption under N/N. 22/2003-CE as amended and also N/N. 52/2003-Cus. as amended. Whether the restriction of the 5% is applicable to the spares that are removed from EOU to the quarries or whether the said restriction of 5% is in respect of the spares that are procured / imported by 100% EOU? Held that - There is no limit for the procurement of spares required for capital goods for use within EOU. The restriction of 5% is for removal of spares to the quarrying site. The ld. AR has been at pains to argue that DGFT circular is not binding upon the Customs department. However, it is pertinent to note that the above clarification has been issued only after consultation with, and clarification from, the Department of Revenue of which only CBEC is a wing - there is no violation of conditions of the Notifications and the allegation that the appellants have imported spares over and above 5% and thus is not eligible for the exemption of customs duties / central excise duties is without any legal basis. Time Limitation - Held that - It is seen that the appellants have been furnishing fortnightly statements showing the movement of goods / spares to their quarries. Further, CT-3 certificates have also been issued in respect of the goods moved to the quarries - the department had full knowledge and permission was granted to the appellant for transfer of such items to the quarries - the allegation that the appellant is guilty of suppression of facts with intent to evade payment of duty cannot sustain. Appeals succeed both on merits and on limitation - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Applicability of the 5% restriction on spares.
2. Interpretation of relevant notifications.
3. Procurement and removal of spares.
4. Clarifications issued by DGFT.
5. Invocation of the extended period for duty demand.

Detailed Analysis:

1. Applicability of the 5% Restriction on Spares:
The primary issue revolves around whether the 5% restriction on spares applies to the spares removed from the Export Oriented Unit (EOU) to the quarries or to the spares procured/imported by the EOU. The appellants argued that the restriction is only for removing spares to the quarries, not for procurement. They highlighted that they set up sophisticated workshops within the EOU for major repairs and maintenance, which necessitated the procurement of spares without any restriction.

2. Interpretation of Relevant Notifications:
The relevant notifications under scrutiny were Notification No. 22/2003-CE and Notification No. 52/2003-Cus., both dated 31.3.2003, and their subsequent amendments. The appellants contended that the notifications intended to impose a 5% restriction only on the spares removed to the quarry sites, not on the procurement of spares for use within the EOU. They pointed out that the notifications allowed the EOU to procure all necessary spares for maintaining capital goods without any limit, as long as these spares were used within the bonded premises.

3. Procurement and Removal of Spares:
The appellants procured/imported various goods without paying central excise/customs duties for manufacturing granite articles for export and for quarrying granite. They argued that the restriction of 5% spares was only for removal to quarry sites and not for procurement for use within the EOU. They emphasized that the notifications allowed the procurement of spares beyond the 5% limit for genuine repair work.

4. Clarifications Issued by DGFT:
The appellants referred to clarifications issued by the Directorate General of Foreign Trade (DGFT), which stated that the 5% restriction was only for taking spares to quarry sites and not for procurement. The DGFT clarified that spares could be procured beyond the 5% limit for genuine repair work. This interpretation was supported by DGFT Policy Circular No. 10/2009-2014 and a letter from the Department of Revenue, which clarified that there was no limit on spares required for capital goods used within the EOU.

5. Invocation of the Extended Period for Duty Demand:
The appellants argued against the invocation of the extended period for duty demand, stating that they had been transparent in their operations by filing fortnightly statements and obtaining CT-3 certificates for the movement of goods to the quarries. They contended that the department had full knowledge of their activities, and there was no willful suppression of facts to evade duty. Therefore, the extended period for duty demand was not justified.

Conclusion:
The Tribunal concluded that the 5% restriction on spares applied only to the removal of spares to quarry sites and not to the procurement of spares for use within the EOU. The clarifications issued by DGFT and the Department of Revenue supported this interpretation. Consequently, the appellants were not in violation of the notifications, and the duty demands along with penalties were set aside. The appeals were allowed on both merits and limitation grounds, providing consequential relief to the appellants.