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2022 (2) TMI 22 - AT - Customs100% EOU - demand of customs duty on the raw material imported duty free - clearance of finished goods, sized yarn and polyester knitted fabrics in DTA without having any permission from the Development Commissioner - denial of exemption notification under which raw material was allowed to be imported duty free - failure to fulfil the condition of exemption Notification no. 52/2003-Cus dated 31.03.2003 - time limitation - HELD THAT - There is no dispute in the fact that though the appellant have not obtained the permission from Development Commissioner for removal of goods in DTA but the appellant have paid full duty on the finished goods wherein, such imported raw material have been consumed. In case of 100% EOU, as per the policy, the appellant is required to clear the finished goods for export and if any part of the finished goods cleared in DTA, they are required to pay the excise duty equivalent to all customs duty. As per this policy in respect of DTA clearances, the customs duty which was forgone at the time of import of raw material gets subsumed in the excise duty paid on the finished goods at the time of clearance in DTA therefore, the customs duty which was forgone at the time of import stands paid in the form of excise duty on the finished goods. Once the duty free raw material got consumed in the manufacture of final product and the final product is cleared on payment of excise duty then demanding of customs duty on the raw material shall amount to double payment of duty. In the facts of the present case as the appellant have paid the full excise duty on the finished goods wherein, the raw material imported duty free has been consumed, no duty of customs can be demanded on such raw material - The issue has been considered in various judgments as cited by the appellant. In the case of COMMISSIONER OF C. EX. CUSTOMS VERSUS SURESH SYNTHETICS 2007 (8) TMI 33 - SUPREME COURT it was held by the Apex Court that customs duty is not sustainable on the raw material when the finished goods have been cleared on payment of excise duty in DTA. Thus, it is settled that once in the 100% EOU the raw material imported duty free is used in the manufacture of final product and final product is cleared on payment of duty in DTA, for any reason the customs duty on the raw material which was used in the finished goods cannot be demanded therefore, the demand of Customs duty on this ground is clearly not sustainable. Time Limitation - HELD THAT - The department has not raised any objection at the relevant time, it is only subsequently on scrutiny of ER-2 return were carried out. There is no change of circumstances at the time of clearance of goods, filing of ER2 return and the verification of the same at the later stage therefore, there is absolutely no suppression of fact or mis-declaration with intend to evade payment of duty on the part of the appellant - the extended period of demand cannot be invoked hence the demand for extended period is not sustainable on limitation also. In the present case since there is no suppression of fact on the part of the appellant as all the informations were available to the department in the form of ER2 return, the demand for extended period is not sustainable - Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Demand of customs duty on raw materials imported duty-free. 2. Requirement of permission from the Development Commissioner for DTA clearances. 3. Alleged double duty on raw materials. 4. Time-bar and limitation for raising the demand. 5. Procedural compliance and jurisdiction. Issue-wise Detailed Analysis: 1. Demand of Customs Duty on Raw Materials Imported Duty-Free: The primary issue was whether customs duty could be demanded on raw materials imported duty-free when the finished goods were cleared in the Domestic Tariff Area (DTA). The Tribunal held that once the raw materials were used in manufacturing finished goods and those goods were cleared on payment of full excise duty, demanding customs duty on the raw materials would amount to double taxation. The Tribunal relied on the precedent set by the Supreme Court in the case of *Commissioner of Customs Vs. Suresh Synthetics* (2007) which held that customs duty is not sustainable on raw materials when the finished goods have been cleared on payment of excise duty in DTA. 2. Requirement of Permission from Development Commissioner for DTA Clearances: The appellant argued that the goods were cleared on payment of full excise duty, and thus, prior permission from the Development Commissioner was not required under Para 6.8 (f) of the Exim Policy. The Tribunal agreed, stating that the customs duty on raw materials gets subsumed in the excise duty paid on the finished goods, and therefore, no additional customs duty can be demanded. 3. Alleged Double Duty on Raw Materials: The appellant contended that demanding customs duty on raw materials, in addition to the excise duty already paid on the finished goods, would result in double duty on the same raw materials. The Tribunal upheld this argument, noting that once the excise duty is paid on the final product, the customs duty on the raw material is effectively covered, and thus, any additional demand would be unjustified. 4. Time-Bar and Limitation for Raising the Demand: The Tribunal found that the demand for customs duty was time-barred. The appellant had declared all relevant details in their ER-2 returns and excise invoices, which were regularly scrutinized by the department. The Tribunal cited several judgments, including *Meghmani Dyes & Intermediates Ltd.* (2013) and *Emcure Pharmaceuticals Ltd.* (2014), to support the view that the extended period for demand could not be invoked in the absence of suppression of facts or mis-declaration by the appellant. 5. Procedural Compliance and Jurisdiction: The appellant argued that the adjudicating proceedings were vitiated as the matter should have been referred to the Development Commissioner. However, the Tribunal did not delve into this issue in detail, as the matter was already decided on merits and limitation. The Tribunal concluded that the procedural aspects and jurisdictional arguments were secondary given the primary findings on merit and limitation. Conclusion: The Tribunal set aside the impugned orders, ruling that the demand for customs duty on raw materials was not sustainable on both merit and limitation grounds. The appeals were allowed, and the Tribunal emphasized that once excise duty is paid on the finished goods, no additional customs duty can be levied on the raw materials used in their manufacture.
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