2023 (2) TMI 740 - AT - Customs

100% EOU - SION - Benefit of exemption - Extended period of limitation - Waiver of penalty levied u/s 117 of the Customs Act, 1962 - reduction in the quantum of penalties imposed under section 112(a) of the Act - It appeared to the revenue that the appellant used or consumed steel grits/ gangs saw blades at a rate higher than the Standard Input Output Norms SION - liability to pay duty on the steel grits and saw blades consumed in excess of the SION - CENVAT Credit on additional duties of customs. Whether the appellant is liable to pay duty on the steel grits and saw blades consumed in excess of the SION? - HELD THAT - Undisputedly, the exemption Notification 22/2003-CUS, as applicable during the relevant period, was subject to various conditions including the condition that the appellant shall use consumables as per the SION norms. It is also undisputed that SION A1833 was applicable to the goods in question. Therefore, the quantity of grits and saw blades which the appellant could have used for manufacture of granite slabs for exports has to be, as per the SION prescribed for the purpose. If it exceeds these norms to the extent they are consumed in excess, they contravene the condition of the Notification. The appellant had executed a bond before the Assistant Commissioner at the time of import, undertaking to pay the duty along with interest if all the conditions are not fulfilled. The steel grits and gang of blades in dispute are consumables in this case and are neither capital goods nor inputs. The appellant claimed the benefit of the exemption Notification No. 52/2003 which must be strictly interpreted because it is available subject to some conditions which will be applicable to all those who claim its benefit. The appellant cannot claim any special waiver from these conditions. One of the conditions is that the appellant gives a bond or legal undertaking to pay the duty along with interest, if any, condition is violated. It needs to be pointed out that in exemption Notifications there may be conditions which must be fulfilled prior to the clearance of the goods and conditions which must be fulfilled after their clearance. In this case the standard input output norm (SION) have to be calculated as 5% of the FOB value of exports. The fulfilment of this condition can, therefore, be ascertained only after the exports have been made. There are no force in the submissions made by learned counsel for the appellant that the demand is time barred because the course of action arose only after the appellant completed its export and the value of such exports was known. The appellant should have, on own its own, paid the duty in fulfilment of its obligation under the bond or under undertaking but has failed to do so and, therefore, the show cause notice was issued in terms of section 28 read with the bond and legal undertaking - the appellant is, therefore, liable to pay the duty. Consequently, the appellant is also liable to pay interest as applicable under section 28AB of the Act. Imposition of penalty under section 112 - HELD THAT - While the show cause notice proposed that the imported goods were liable for confiscation under section 111(o), the Order-in-Original as well as the impugned order have not held that the imported goods were liable for confiscation - the confiscation or liability of confiscation of the goods under section 111 is a necessary pre-condition for imposition of penalty under section 112 (a). Since there was no order of confiscation of the goods in the order, no penalty could have been imposed under section 112. The penalty under section 112 needs to be set aside. It is contended that if it had paid the customs duty it would have been entitled to CENVAT credit to the extent of additional duty of customs - HELD THAT - Availability of CENVAT Credit does not take away the taxability. Otherwise, no manufacturer ever has to pay additional duty of customs because he would eligible for CENVAT credit of the amount so paid but such is not the scheme of the law. If appellant is entitled to take CENVAT credit as per the CENVAT Credit Rules, it may take such credit. Calculation of duty was done wrongly as it had to be done reckoning a three year period - HELD THAT - It is found fit to remit the matter to the original authority for the limited purpose of calculating the amount of duty payable as per the SION norms read with the DGFT Circular No. 10-2009/14 dated 12.10.2009. The penalties imposed under section 112(a) are set aside - The confirmation of duty and interest in the impugned order is upheld and the matter is remanded to the original authority for the limited purpose as calculation of the duty in terms of DGFT Circular read with SION norms - appeal disposed off.

Summary

Issues Involved:
1. Liability of the appellant to pay customs duty on the steel grits imported in excess of SION norms.
2. Liability of the appellant to pay interest under Section 28AB.
3. Liability of the appellant for penalty under Section 112(a).

Issue-wise
Detailed Analysis:

1. Liability to Pay Customs Duty on Steel Grits Imported in Excess of SION Norms:
The first issue addressed is whether the appellant is liable to pay duty on the steel grits and saw blades consumed in excess of the Standard Input Output Norms (SION). The exemption Notification 22/2003-CUS, applicable during the relevant period, was subject to conditions including the use of consumables as per SION norms. The SION A1833 was applicable to the goods in question, limiting the quantity of grits and saw blades to 5% of the FOB value of exports. The appellant had executed a bond agreeing to pay duty along with interest if conditions were not fulfilled.

The appellant argued that grits and saw blades should be considered as capital goods or parts of capital goods, not consumables. However, the Tribunal found that these items are consumables used in the process of manufacture and do not form part of the final product. The Tribunal concluded that the appellant is liable to pay the duty on the excess consumption of steel grits and saw blades as they are consumables subject to SION norms.

2. Liability to Pay Interest Under Section 28AB:
The Tribunal held that the appellant is liable to pay interest under Section 28AB of the Customs Act. The duty demand arose only after the appellant completed its exports and the value of such exports was known. The appellant failed to fulfill its obligation under the bond to pay the duty and interest, prompting the issuance of the show cause notice under Section 28 read with the bond and legal undertaking.

3. Liability for Penalty Under Section 112(a):
The Tribunal examined whether the penalty under Section 112(a) was justifiable. While the show cause notice proposed that the imported goods were liable for confiscation under Section 111(o), neither the Order-in-Original nor the impugned order held that the goods were liable for confiscation. Section 112(a) requires that the goods be liable for confiscation under Section 111 for a penalty to be imposed. Since there was no order of confiscation, the penalty under Section 112(a) was set aside.

Additional Grounds and Miscellaneous Applications:
The appellant raised additional grounds, including that the penalty under Section 112(a) is not imposable as the goods were not confiscated, and that the calculation of SION should be over three years. The Tribunal allowed the miscellaneous applications to place these additional grounds on record.

The Tribunal also addressed the appellant's contention regarding the availability of CENVAT credit if customs duty was paid. It clarified that the availability of CENVAT credit does not negate the taxability of the duty. The appellant may take CENVAT credit as per the CENVAT Credit Rules if eligible.

Remand for Duty Calculation:
The Tribunal found it appropriate to remit the matter to the original authority for the limited purpose of recalculating the duty payable as per the SION norms read with DGFT Circular No. 10-2009/14 dated 12.10.2009.

Conclusion:
1. The penalties imposed under Section 112(a) are set aside.
2. The confirmation of duty and interest in the impugned order is upheld.
3. The matter is remanded to the original authority for recalculating the duty in terms of DGFT Circular read with SION norms.

[Order pronounced on 17.02.2023]