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TMI Blog2011 (3) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of condition No.2 and condition No.14(3) of the B-17 Bond would indicate that an amount of customs duty (with interest) leviable from the appellant could be demanded through a show-cause notice under Section 28 of the Customs Act and, in the event of default, could be recovered in the manner laid down in sub-section (1) of Section 142 of the Act. - What is fatal to the Revenue is not the non-mention of Section 28 in the show-cause notice but the absence of the essential ingredients of the said Section in the notice. The demand of duty without invoking Section 28 of the Act, i.e., without alleging the necessary ingredients thereof, is not sustainable. - Demand is also not maintainable beyond the normal period of limitation. - C/668/06 - - - Dated:- 30-3-2011 - Mr. P.G. Chacko, Mr. S.K. Gaule, JJ. Shri V.S. Nankani, Advocate, for appellant Shri A.K. Prasad, Authorised Representative (JCDR), for respondent Per: P.G. Chacko This appeal was filed by a 100% export-oriented unit (EOU), aggrieved by a demand of duty of Rs.1,42,34,222/- and a penalty of Rs.10,00,000/-. The EOU was set up for manufacture of optical fibre in both cabled and uncabled form and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 6.20(a) of EXIM Policy 2002-07. The show-cause notice also proposed penalties on the appellant under Sections 112 and 114A of the Customs Act. In their reply to the show-cause notice, the party submitted that no demand of Customs duty could be raised on them otherwise than under Section 28 of the Customs Act. The demand of duty raised in terms of the B-17 bond without invoking Section 28 of the Act was not sustainable in law, according to the appellant. They also contended that, had the above demand of duty been raised under Section 28 of the Act, it would have been barred by limitation. It was also submitted that what they paid on 22.5.2003 was applicable Customs duty which was the effective duty based on serial No.84 of Notification 21/2002-Cus. With regard to condition No.5 of Notification 21/2002-Cus., the appellant submitted that the condition was incapable of being followed on the date of payment of duty and, therefore, the benefit of the Notification could not be denied. Without prejudice to this submission, the appellant also contended that, as they had complied with the comparable conditions of Notification 53/97-Cus., they should be held to have substantially complie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant was entitled to pay duty at the effective rate prescribed under Notification 21/02-Cus. The learned counsel has also pleaded limitation against the demand of duty. He argued that every demand of Customs duty should be under Section 28 of the Customs Act. The department did not invoke this provision of law as they knew that the appellant would then contest the demand on the ground of limitation. The counsel argued that the B-17 bond was not enforceable against the appellant on the facts of this case. According to him, the department did not meet the requirements of condition No.10 of the B-17 bond. 4. The learned JCDR argued as follows: Condition No.5 of Notification 53/97-Cus. was not applicable inasmuch as there was no clearance of raw materials as such from the EOU when the duty of over Rs.9 crores was paid by the appellant on 22.5.2003. As per condition No.5(b), an EOU could be permitted to clear any raw materials (imported without payment of duty) on payment of Customs duty on the value at the time of import and at the rate in force on the date of payment of the duty, provided that the EOU was allowed by the Development Commissioner or the Board of Approvals to clear su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court vide Samtel Color Ltd. vs. CCE 2006 (196) ELT A145 (SC). The learned JCDR also claimed support from the apex court s judgment in Mihir Textiles Ltd. vs. CC, Bombay 1997 (92) ELT 9 (SC), wherein it was held that the benefit of project import was not admissible to the company as their contract with the buyer was not registered with the Customs department. In the present case, the appellant did not follow the mandatory procedure laid down under the aforesaid Rules and hence cannot claim the benefit of concessional rate of duty under Notification 21/2002-Cus. The Supreme Court s decisions in the cases of Indian Aluminium Company Ltd. vs. Thane Municipal Corporation 1991 (55) ELT 454 (SC) and Eagle Flask Industries Ltd. vs. Commissioner 2004 (171) ELT 296 (SC) were cited in support of the point that strict compliance with conditions of Exemption Notifications was a sine qua non for the exemption claimed. The learned JCDR further submitted that it was open to the department to enforce condition No.10 of the B-17 bond against the appellant who could not satisfy the Assistant Commissioner that they used the raw material in the manufacture of finished goods for export out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to dispose of the raw material, components, consumables, etc. against duty-free licences or to export the capital goods, raw materials, components etc. Two NOTES to the said STANDARD CONDITIONS FOR DEBONDING are also relevant to the present case and the same read as under: 1. The unit would fulfill the above mentioned standard conditions in a period of six months from the date of issue of in principle debonding letter and obtain final debonding permission from the Development Commissioner/SIA (in case manufacturing of item requires Industrial Licence) failing which the approval granted would lapse automatically. DC may however allow a further extension for fulillment of the standard conditions in deserving cases. 2. Further, the unit would continue to be treated as EOU/EPZ/SEZ/EHTP/STP unit till the date of final debonding order or issue of fresh LOP under the new scheme in cases of conversion from one scheme to the other and subject to monitoring of the stipulated obligations under the relevant scheme. In this case, in-principle debonding was allowed by the Development Commissioner on 16.1.2003 and the final debonding order was issued on 10.7.2003. As per the above N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -07. Neither the EXIM Policy nor any of the above Notifications stipulated that, when the appropriate amount of duty was paid in connection with debonding of EOU, the goods on which the duty was paid should be removed from the factory. It would follow that the aforesaid payment of duty made by the appellant on 22.5.2003 in connection with debonding of the Unit did not have anything to do with condition No.5(b) of Notification 53/97-Cus. and similar condition of Notification 52/03-Cus. Conversely, such condition is not applicable to any raw material which is present in stock at the time of debonding of EOU and on which duty is paid as per para 6.20(a) of the EXIM Policy. 8.2 It was argued by the counsel that the appellant, having complied with condition 5(b) of Notification 53/97-Cus., should be held to have substantially complied with condition 5 of Notification 21/02-Cus. [which reads thus: If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 ] and, accordingly, the benefit of concessional rate of duty in terms of serial No.84 in the Table annexed to the latter Notification sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mport of raw materials, the appellant qua EOU could not have chosen to avail the benefit of Notification 21/02-Cus. At the time of payment of duty on the raw materials present in stock during the period of debonding (16.1.2003 10.7.2003), the appellant was still an EOU and, therefore, they were not entitled to claim such benefit at that time too. 8.4 The Tribunal s decision in Sarita Software case (vide supra) is of no aid to the appellant. In that case, the question was whether the assessee (100% EOU) was entitled to pay central excise duty on final product cleared to DTA, at the effective rate prescribed under an Exemption Notification. The Tribunal held in their favour. We are afraid, we shall have to dismiss the reliance placed on this decision as, in the present case, we are not dealing with any DTA clearance. 8.5 The issue is, therefore, held in favour of the Revenue. 9.0 Issue No.(ii) The question to be considered is whether the differential amount of Customs duty was sought to be collected in the manner authorized by law. The supreme law in this domain is Article 265 of the Constitution of India, which forbids levy and collection of taxes except by authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under Section 25 of the Customs Act, is the importer s covenant to pay the duty or the differential duty, as the case may be, in the event of breach of mandatory post-import conditions of such notification. When such post-import condition of the notification is violated by the importer, the duty or the differential duty, as the case may be, becomes leviable and, ipso facto, the provisions of Section 28 get attracted for collection of such duty. Of course, it can be rightly said that, in the process of collection of the duty amount, the bond is enforced against the importer. To put it differently, Section 28 of the Act is the provision for enforcing the bond executed by the importer. Case law cited for and against this proposition will be discussed later. 9.2 The demand of duty in this case is on raw materials which were imported duty-free under Customs Notifications 53/97 and 52/2003 and remained in stock (either as such or as WIP) at the stage of debonding of the Unit. The show-cause notice, which raised the demand, sought to enforce condition No.10 of the B-17 Bond (General Bond with Surety) dated 13.3.2001 executed by the EOU. This condition reads: We, the obligors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand of customs duty on raw material found in physical stock at the time of debonding of an EOU would not attract condition No.6 of Notification 53/97-Cus./condition No.3 of Notification 52/03-Cus. and, for that matter, would not attract condition No.10 of the B-17 Bond. The reason is that condition No.10 of the B-17 Bond read with condition No.6 of Notification 53/97-Cus. and condition No.3 of Notification 52/03-Cus. only purport to make the EOU liable to pay, on demand, an amount equal to the duty of customs leviable on the goods as are not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the manufacture of articles for export. In respect of the goods (raw materials) present in physical stock (verified by the Bond Officer) at the time of debonding of the Unit, the question of proving to the satisfaction of the Assistant Commissioner of Customs that such goods have not been used in the manufacture of articles for export does not arise. The very physical presence of the goods with the EOU as verified by the Bond Officer is per se evidence of the goods having not been used in the manufacture of finished goods for export. Obviously, the phra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referred to as the goods), when imported into India for the purpose of manufacture of articles for export out of India, or for being used in connection with the production or packaging or job work for export of goods or services out of India by hundred per cent Export Oriented Units approved by the Board of Approvals for hundred per cent Export Oriented Units appointed by the notification of the Government of India in the Ministry of Industry, Department of Industrial Policy and Promotion for this purpose, (hereinafter referred to as the said Board), from the whole of duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act subject to the following conditions, namely:- (1) (2) (3) The importer carries out the manufacture, production, packaging or job work or service in Customs bond and subject to such other conditions as may be specified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh a show-cause notice under Section 28 of the Customs Act and, in the event of default, could be recovered in the manner laid down in sub-section (1) of Section 142 of the Act. In our view, therefore, the department should have issued a show-cause notice to the appellant under Section 28(1) of the Customs Act demanding customs duty on the raw materials in question as per condition No.2 of the B-17 Bond. In that event, the Commissioner of Customs would have determined the correct amount of duty under sub-section (2) of Section 28 and demanded the same from the appellant. If the appellant does not honour the demand, the remedy for the Revenue is under Section 142(1) of the Act. In this case, there is no demand of duty under Section 28 of the Customs Act. What is fatal to the Revenue is not the non-mention of Section 28 in the show-cause notice but the absence of the essential ingredients of the said Section in the notice. The demand of duty without invoking Section 28 of the Act, i.e., without alleging the necessary ingredients thereof, is not sustainable. 9.7 CBEC s circular No.73/2000-Cus. dated 1.9.2000 was relied on by the learned JCDR to argue that Section 28 of the Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Customs Act would be applicable only to those cases where duty of customs was not levied or short-levied on any goods at the time of importation. When the appellant imported the raw materials, any amount of customs duty was not leviable thereon on account of full exemption from duty available to the EOU under Customs Notifications 53/97 and 52/03. It was only at a later stage (at the time of debonding of the Unit) that duty of customs became leviable on the raw materials in stock as such or in partly processed condition. In such a case, according to the learned JCDR, Section 28 of the Customs Act would not be applicable. He argued that the case would not fit in the definition of relevant date under Section 28. The learned counsel contested this proposition. Though the JCDR s submission that the duty became leviable only at the time of debonding of the Unit is acceptable, we cannot agree with the view he expressed with reference to relevant date . Sub-section (3) of Section 28 of the Act reads as follows: (3) For the purposes of sub-section (1), the expression relevant date means (a) in a case where duty is not levied, or interest is not charged, the date on which th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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