2019 (11) TMI 193 - AT - Customs

Imposition of penalty u/s 112 and 114A of CA - Clandestine removal - illegal diversion of duty free imported and indigenous raw materials i.e Transfer Print paper, Grey Fabrics and Knitted Fabrics etc. as such which was procured by them subject to condition of use of same in manufacture and export of finished goods - cross-examination of witnesses - HELD THAT - Pursuant to investigation undertaken by the revenue, it was found that the Appellant Unit had been showing the receipt of raw material i.e. transfer print paper, fabric etc in their factory and its use in manufacture of export goods which was shown to have been cleared to M/s Sunshine and Al-Amin Exports. The investigation at M/s Al-Amin and Sunshine showed that infact they did not receive any goods from the Appellant Unit but received a premium of ₹ 4 to 5 from Shri Mahendra Sancheti, director of Appellant Unit in whose favour the CT-3 certificates were issued. Shri Rashid Sayyed, the partner of M/s Al-Amin in his statement stated that one Shri Bilal Latif Memon used to supply readymade cheap goods after purchasing from open market to M/s Sunshine and M/s Al- Amin through the tempos of Shri Akbar Tempowala. No goods were received from M/s Laurel. The EOUs used to do minor jobs of sewing and packing and export the goods. It was found that all the goods were brought by these firms from market. No physical evidence of transportation of finished goods could be shown by M/s Laurel. This clearly shows that M/s Laurel instead of use of duty free raw material in manufacture of finished goods to be exported, has sold the raw material in open market. The Appellant has challenged the impugned order also on ground that no cross examination of panch witnesses and other witnesses was provided. We find that the repeated statements of the concerned persons clearly shows that the raw material was cleared by the Unit in open market and false receipt of goods was shown by the consignee unit. Even the goods seized from consignee M/s Al-Amin could not have been manufactured from goods supplied by M/s Laurel as the same were different in GSM and Denier. It leaves no doubt that M/s Laurel did not use the duty free raw material in manufacture of export goods and instead cleared the same in open market. The impugned order deserves no interference and the appeals filed by M/s Laurel and other co-appellants are required to be dismissed - As regard appeal filed by the revenue that the adjudicating authority has wrongly given option to pay reduced penalty under Section 114A, we consider it appropriate to send the matter back to the adjudicating authority to look into the contentions raise by the revenue and to decide the quantum of penalty - Appeal disposed of by way of remand.

Issues Involved:
1. Illegal diversion of duty-free imported and indigenous raw materials.
2. Confirmation of customs and central excise duty demands.
3. Imposition of penalties under Sections 112/114A of the Customs Act, 1962.
4. Adjudication without cross-examination of witnesses.
5. Requirement of clearance from the Development Commissioner.
6. Time-barred demands and applicability of the extended period of limitation.
7. Reduced penalty option under Section 114A of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Illegal Diversion of Duty-Free Imported and Indigenous Raw Materials:
The show cause notices dated 28.02.2005 and 24.10.2007 alleged that the Appellant Unit, M/s Laurel Apparels Pvt. Ltd., illegally diverted duty-free imported and indigenous raw materials such as Transfer Print Paper, Grey Fabrics, and Knitted Fabrics. These materials were procured under the condition of being used in the manufacture and export of finished goods. However, it was found that these raw materials were shown to have been received on paper only, and the finished goods were shown to have been supplied to M/s Al-Amin Exports and M/s Sunshine Exports, both 100% EOUs. Instead, these EOUs were exporting cheaper quality bought-out items procured from the domestic market. The raw materials procured against CT-3s from EOUs and DTA/imported under the EOU Scheme were diverted into the local market for sale in cash by manipulating records.

2. Confirmation of Customs and Central Excise Duty Demands:
The adjudicating authority confirmed the demands of customs duty amounting to ?13,68,930 and ?56,41,484 on imported materials and central excise duty of ?20,94,717 on indigenously procured materials. This was based on the evidence that the materials were not used in the manufacture of export goods but were sold in the local market.

3. Imposition of Penalties under Sections 112/114A of the Customs Act, 1962:
Penalties were imposed on M/s Laurel Apparels and co-appellants under Sections 112/114A of the Customs Act, 1962, and Rule 25 of the Central Excise Rules, 2002. The penalties were for the illegal diversion of duty-free materials and manipulation of records.

4. Adjudication without Cross-Examination of Witnesses:
The Appellant argued that the adjudicating authority denied cross-examination of witnesses without justification, which was necessary for a fair trial. The statements of the Appellant’s partners and other persons were relied upon without allowing cross-examination, which was contested by the Appellant.

5. Requirement of Clearance from the Development Commissioner:
The Appellant contended that the adjudication should have been initiated only after obtaining clearance from the Development Commissioner, as directed by the Tribunal in a previous remand order. However, the adjudicating authority held that the reference to the Development Commissioner was not required in cases of illegal diversion of duty-free goods, which was upheld by the Tribunal.

6. Time-Barred Demands and Applicability of the Extended Period of Limitation:
The Appellant argued that the demands were time-barred as the show cause notices covered periods beyond the normal limitation period. However, the Tribunal found that the extended period of limitation was applicable due to the wilful evasion of duty and manipulation of records, as revealed by the investigation.

7. Reduced Penalty Option under Section 114A of the Customs Act, 1962:
The revenue filed appeals against the adjudicating authority’s decision to give the option to pay a reduced penalty under the first proviso of Section 114A of the Customs Act, 1962, without statutory authority. The Tribunal remanded this issue back to the adjudicating authority to reconsider the quantum of penalty.

Conclusion:
The Tribunal dismissed the appeals filed by M/s Laurel Apparels and co-appellants, upholding the demands and penalties confirmed by the adjudicating authority. The Tribunal remanded the issue of reduced penalty option back to the adjudicating authority for reconsideration.

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