2023 (5) TMI 431 - AT - Central Excise

Recovery of Central Excise Duty alongwith Interest and penalty - Manufactured Goods cleared to duty free shop at airport claiming benefit of exemption - cigarettes - clearances affected to M/s. Nuance Group without payment of duty - eligibility for benefit of N/N. 46/2001 CE(N.T.) dated 26.06.2001 - cigarettes were consigned directly to duty free shop, which was a Customs Bonded Warehouse licensed under Section 58 of the Customs Act, 1962, from where they were sold to the outbound/inbound passengers against payment in foreign currency. - HELD THAT - As per the show cause notice it is quite evident that M/s Nuance Group were granted permission to receive the impugned goods without payment of duty from the appellant for being bonded in their bonded ware house licensed under Section 58 of the Customs Act, 1962, for sale through their duty free shops located at International Airport, Bangalore. Para 5, also records that impugned goods were received by M/s Nuance Group in their bonded warehouse. Nuance Group had executed Bond with prescribed Bank Guarantees from time to time for covering the clearances of the said non duty paid cigarettes received by them from the Appellant. It is not the case of the revenue that these goods were cleared by the appellant in contravention of any of the conditions as per the permission accorded to them by the Commissioner. At the time of granting the permission, Commissioner would have satisfied himself in respect of fulfillment of all the conditions prescribed and in our view he was right in doing so. The conditions for registration under Rule 9 of the Central Excise Rules, 2002 as per Circular No 581/18/2001-CX dated 29.06.2001 was qua the exporter who intended to clear the goods for export from his warehouse. M/s Nuance Group have been granted the license under Section 58 of the Customs Act, 1962 for operating such a bonded warehouse to receive, store and subsequently clear for export the goods so received. Once he fulfilled these conditions the condition of registration under rule 9 of Central Excise Rules, was merely procedural and could not have been reason for the denial of substantial benefit that was claimed by M/s Nuance Group. Once it is admitted that the goods cleared by the appellant were received in the warehouse, the circular no. 581/18/2001 says in case of any diversion to domestic tariff area, the duty is required to be paid by the warehouse operator. The impugned order, wherein the demand has been made from the manufacturer of the impugned goods cannot be upheld - appeal allowed.

Summary

Issues Involved:
1. Validity of exemption from Central Excise Duty for goods cleared to duty-free shops.
2. Requirement of registration under Rule 9 of the Central Excise Rules, 2002.
3. Liability for duty, interest, and penalties under the Central Excise Act, 1944 and Central Excise Rules, 2002.

Detailed Analysis:

1. Validity of Exemption from Central Excise Duty:
The appellant, a manufacturer of cigarettes, cleared goods to M/s. Nuance Group (India) Pvt. Ltd. at a duty-free shop without payment of duty. The central issue was whether these clearances were exempt from Central Excise Duty. The Commissioner (Appeals) and Deputy Commissioner held that there was no valid provision under Section 5A of the Central Excise Act, 1944, or Rule 19 of the Central Excise Rules, 2002, deeming such removal as exports. The Tribunal found that the goods were cleared based on proper permission from the Commissioner of Central Excise, and the goods were received in a Customs Bonded Warehouse under Section 58 of the Customs Act, 1962. It was held that the substantive benefit of duty exemption could not be denied even if procedural deficiencies existed.

2. Requirement of Registration under Rule 9:
The revenue argued that M/s. Nuance Group did not take registration under Rule 9 of the Central Excise Rules, 2002. The appellant contended that Nuance Group, being a merchant exporter, was listed in the "Non-Assessee" category and exempted from registration. The Tribunal noted that the conditions for registration under Rule 9 were procedural. Since Nuance Group was licensed under Section 58 of the Customs Act, 1962, for operating a bonded warehouse, the requirement for registration under Rule 9 was not applicable. The Tribunal also referenced Notification No. 7/2013-CE (NT) and Circular No. 970/04/2013, which clarified that duty-free shops licensed under Section 58 of the Customs Act were deemed to be registered under Rule 9 for warehousing purposes.

3. Liability for Duty, Interest, and Penalties:
The Commissioner (Appeals) imposed a duty of Rs. 4,52,942, interest under Section 11AB, and penalties on both the appellant and M/s. Nuance Group. The Tribunal disagreed, stating that the demand should have been made from Nuance Group, who executed the Bond and Bank Guarantees for duty-free clearances. The Tribunal cited several cases, including *Kishore Pumps Ltd.* and *Tejal Paper Mills Pvt. Ltd.*, to support that the liability for duty should fall on the merchant-exporter who executed the bond, not the manufacturer. The Tribunal also highlighted that the goods were received in the bonded warehouse and cleared for export as per prescribed procedures.

Conclusion:
The appeal was allowed, and the impugned order was set aside. The Tribunal concluded that the appellant complied with the conditions for duty-free clearance based on proper permissions and that procedural lapses by the merchant-exporter did not warrant denial of substantive benefits. The liability for duty, if any, should be on M/s. Nuance Group, not the appellant.