2018 (12) TMI 668 - AT - Customs

100% EOU - duty-free procurement - manufacture and packaging of articles of export goods - N/N. 22/03-CE dt. 31/03/2003 - Held that - It has not been disputed by both the authorities below that the impugned goods have not been diverted by the appellant and have been put to use in the EOU. Also, subsequently, the Development Commissioner has accorded approval for procurement of prefabricated RPUF Insulated Panels which is identical in nature with only difference in description. Further, in view of the various decisions relied upon by the appellant, the duty can only be demanded at the time of debonding and demand prior to debonding would be premature. Division Bench of this Tribunal in the case of CCE, Chandigarh Vs. Kejriwal Bee Care (I) Ltd. 2011 (1) TMI 422 - CESTAT, NEW DELHI has held that there is no definition for capital goods in Notification No.22/2003-CE and the definition of capital goods under CENVAT Credit Rules, 2004 are not applicable to exemption notification EOU. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Appeal against rejection of duty-free procurement claim for manufacturing and export activities under EOU operations.

Analysis:
The case involved an appeal against an order rejecting the appellant's claim for duty-free procurement of items for their EOU operations. The appellant, a 100% EOU engaged in manufacturing and exporting surgical sutures and needles, had procured items under a CT-3 certificate for duty-free import. The dispute arose when a show-cause notice was issued demanding duty payment, alleging that the procured items were not used in connection with manufacturing export goods. The original authority confirmed the demand, which was upheld by the Commissioner(Appeals), leading to the present appeal.

The appellant argued that the impugned order failed to appreciate facts and evidence properly, contrary to established judicial precedents. They contended that the goods were procured against a valid CT-3 certificate, warehoused under supervision, and used in manufacturing activities within the EOU premises. The appellant emphasized that duty demand before removal from the warehouse was premature, citing relevant case laws supporting their position.

On the other hand, the Department defended the duty demand, claiming the imported goods were not covered by the applicable notification. However, the Tribunal found that the goods were procured against a valid CT-3 certificate, warehoused after verification, and used in manufacturing export goods within the EOU premises. Notably, subsequent approval by the Development Commissioner for similar items further supported the appellant's position. The Tribunal highlighted that duty demand should occur at debonding, not before, as per precedents and relevant case laws.

Moreover, the Tribunal referenced a judgment emphasizing that definitions from CENVAT Credit Rules did not apply to exemption notifications for EOUs. The judgment clarified that items essential for manufacturing processes, like prefabricated structures and insulated panels, should be considered as capital goods for EOU operations. Relying on this reasoning and the cited precedents, the Tribunal concluded that the impugned order was unsustainable in law. Consequently, the appeal was allowed in favor of the appellant, with any consequential relief granted.

In conclusion, the Tribunal's detailed analysis considered the validity of duty-free procurement, the usage of imported goods in manufacturing activities, and the timing of duty demand for items warehoused in an EOU. The decision underscored the importance of adherence to legal principles and precedents in resolving disputes related to duty payments in EOU operations.