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TMI Blog2015 (7) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for grant of permission. We are afraid the stand of the Revenue suffers from certain basic fallacies, besides being wholly technical. - There are condition and conditions, some may be substantive mandatory based on considerations of policy, and some others may merely belong to the area of procedure. - In fact, it is now a trite law that the procedural infraction of notifications/circulars etc. are to be condoned if exports have really taken place and the law is settled now that substantive benefit cannot be denied for procedural lapses. Procedure has been prescribed to facilitate verification of substantive requirements. The core aspect or fundamental requirement for debate is its manufacture and subsequent export. As long as this requirement is met, other procedural deviations can be condoned. All documents relating to removal were under scrutiny by these officers and relevant documents relating to removals were subjected to proper scrutiny. It is relevant from the record that the department did not point out any contraventions. In this background, the issuance of demand in the year 2005 for non-compliance with procedural rules for the year 2001-02 to 2003-04 are unsus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the manufacture and other operations in a Warehouse Regulation, 1966, Warehoused Goods (Removal) Regulation, 1964; (iv) to maintain detailed accounts of all imported and indigenous goods used in the manufacturing processes and in operation in proper form including of those remaining stocks and those sent outside. 4. There was also pre-condition that the unit shall comply with such other terms and conditions as imposed by the jurisdictional Customs and Central Excise authorities and the substantial activity of manufacture shall be carried out within the bonded premises in terms of C.B.E. C. Circular No. 65/2002-Cus., dated 7-10-2002. The relevant provisions of said circular are as follows :- (i) The EOU shall be required to submit an application to jurisdictional Assistant/Deputy Commissioner of Customs/Central Excise furnishing information such as the name and address of the job worker, Central Excise registration no. of the job worker, (if registered with Central Excise), processing capacity of the job worker, the details of processes to be carried out by the job worker, justification for processing of the goods outside the bonded premises, value a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed by the Assistant Commissioner of Customs, binding himself to fulfill the export obligations and conditions stipulated in this notification and in or under said Export and Import Policy and to pay on demand an amount of equal to the duty 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 or in connection with the production or packaging or job work for export of goods or services out of India. Condition No. 3(b), (c) (d) of Notification No. 52/2003-Cus., dated 31-3-2003, inter alia, reads as under :- (b) To maintain proper account of receipt, storage and utilization of the goods; (c) To dispose of goods or services, the articles produced, manufactured, processed and packaged in the unit or the waste, scrap and remnants arising out of such production, manufacture, processing or packaging in the manner as provided in the EXIM policy ad this notification; (d) To pay on demand - (i) an amount equal to duty leviable on the goods and interest at a rate as specified in the notification of the Govt. of India in the Ministry of finance (Department of Revenue) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. CLG could not produce any record showing purchase/receipt nor could furnish any plausible reasons for acquisition of the goods of foreign origin. As such the officers had drawn a reasonable belief that the goods of foreign origin were not acquired validly and seized the same under Section 110 of the Customs Act, 1962. In this regard, show cause notice had been issued to the opposite parties on 30-6-2004. It has been alleged that from scrutiny of the records/documents resumed from the premises of M/s. JSG and M/s. CLG, it appears that M/s. JSG, through sister unit namely, M/s. CLG, instead of utilizing the duty free goods in the manufacture of the export goods, as laid down in Condition No. 3 of notification dated 22-4-2003 and as per Condition No. (d) of notification dated 4-1-1995 as amended, have diverted the same. In the relevant period, M/s. JSG had imported/duty free copper weighing 149.330 tons and also procured 82.776 MT Zinc. This quantity during this period, they exported Brass articles weighing 195.04 tons and there was closing balance of 10.92 tons of finished goods made of Brass and raw material weighing 7.45 tons at the end of the year. Finally, it has been alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sons was established as a 100% EOU. M/s. J.S. Gupta Sons, later applied and obtained a letter of Permission to operate as 100% EOU vide LOP No. 3-243/2000-100% EOU-1/9593, dated 15-12-2000 issued by the Development Commissioner, NSEZ, and a Warehousing Licence No. EOU/17/2001, dated 18-1-2001 issued by the jurisdictional Central Excise Division, Moradabad. 10. M/s. J.S. Gupta Sons, the 100% EOU, commenced commercial production with effect from 19-5-2001 and performed extremely well on export front and achieved commendable Net Foreign Exchange Earnings. 11. The Noticee s achievements were recognized by the Ministry of Commerce and M/s. J.S. Gupta Sons were awarded Top Export Award by the Export Promotion Council for Handicrafts (EPCH) for the year 2004-2005 and also outstanding Export Award for the year 2004-2005 by the Export Promotion Council for EOUs. Besides, the noticee M/s. JSG was also awarded recognition certificates for excellent performance. M/s. JSG was also granted 2-star Export House Status by the Ministry of Commerce and Industry. 12. It has been emphatically stated that the M/s. JSG were providing direct and indirect employment to thousands of artisans/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting of payments made to the employees/job workers of JSG stationed at CLG premises. 16. The manufacturing space and equipments to JSG s contractual job workers also known as Karkhanedars were provided at both the premises by the JSG so also the power connections. The material for job working was issued to them through Lal Bahi and the material received from them was also entered into the same. The payments to job workers were thereafter made after deduction of TDS. 17. The manufacturing of brass art ware and the allied products is basically a labour intensive manufacturing process carried out by individual artisans having expertise in various aspects of manufacturing such as casting, carving, polishing, art work etc. which are basically handicrafts. Due to this peculiar nature of operations, an inventory control system and issue, receipt system have been devised and developed over decades to suit the peculiar operations of the industry which is prevalent in most of the manufacturing units at Moradabad. 18. The opposite parties through their reply has vehemently opposed the show cause notice and by means of reply they had submitted that allegation of abating divers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Excise, Meerut-II had passed the following order dated 30-4-2007 against the opposite party :- (1) Invoking the extended period of limitation I confirm the duty demand of ₹ 1083063.00 under Section 72 of the Customs Act, 1962, read with Section 28 of Customs Act, 1962 and Section 11A of the Central Excise Act, 1944, read with Section 28 of the Customs Act, 1962, together with the interest chargeable under Section 28AB and Section 11AB of the Acts ibid on M/s. J.S. Gupta Sons (now M/s. C.L. Gupta Exports Limited), as under : (a) of ₹ 205916.00 + ₹ 622903.00 = ₹ 828819.00 in respect of HSD (b) of ₹ 16293.00 in respect of plywood. (c) of ₹ 200101 in respect of cobalt oxide (d) ₹ 37850.00 in respect of the semi-finished articles and brass samples which the party failed to get them verified for the period 1-4-2002 to 26-9-2002. (2) A penalty of ₹ 5 lakh (Rupees five Lakh only) is imposed on M/s. J.S. Gupta Sons (now M/s. C.L. Gupta Exports Limited) under Section 112 read with Section 72 of the Customs Act, 1962, under Section 11AC of Central Excise Act, 1944 and Rule 25 of the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of evidence showing sale of the imported goods in the local market. No such evidence has been produced by Revenue. 16. The decision of the Apex Court in the case of Hari Chand Shri Gopal (supra) is with reference to the facts of that case where there were no mitigating factors as pointed out by us above and therefore, we cannot apply the decision in that case to the facts of this case. 17. In the facts and circumstances of this case we do not see any merit in the appeal filed by Revenue and we approve of the very detailed and well-reasoned order passed by the adjudicating authority. So the appeal filed by Revenue is rejected. Misc. application is also disposed of accordingly. 24. Aggrieved with the rejection of the Custom Appeal No. C/534/2007, the present appeal is filed by the Revenue and initially following substantial question of law had been framed :- (i) Whether party has not fulfilled the mandatory condition of Exemption Notification and Board s Circular meant for EOU when they diverted duty free imported material to DTA in the guise of job work for which they have not obtained any permission and thus the party has not carried out substantial compli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Exemption Notification No. 52/2003 Cus., dated 22-4-2003 and 1/95-C.E., dated 4-1-1995 was bona fide mistake and no loss is caused to Revenue but if fact failure on the part of SSG was not bona fide but was intended to gain advantage by selling imported goods in local market? (4) Whether on the facts and in the circumstances of the case, the CESTAT was justified in law in overlooking that as per Export and Import Policy 2002-07 and C.B.E. C. Circular No. 65/2002-Cus., dated 7-10-2002 on EOU can send material for job work on the basis of proper application and prior permission of the competent authority subject to condition that substantial activity of manufacture is carried out within the EOU and identity of finished goods received after job work is established as having been manufactured out of the raw material sent for job work to ensure that no substitution/diversion of duty free goods takes place? 27. Initially in the present appeal, the questions of law were framed by the appellant in the memo of appeal and this Court vide order dated 27-11-2012 had observed that the said question of law were argumentative in nature and does not bring out real controversy involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... silli emerges at the intermediate stage and in the process loss to the tune of 6% occurs during the course of manufacture of Brass Silli by conversion of copper cathodes and zinc ingots. 31. A plea was taken by the manufacture that brass art ware and the allied products is basically a labour intensive manufacturing process carried out by individual artisans having expertise in various aspects of manufacturing such as casting, carving, polishing, art work, etc. which are basically handicrafts. Due to this peculiar nature of operations, an inventory control system and issue, receipt system have been devised and developed over decades to suit the peculiar operations of the industry which his prevalent in most of the manufacturing units at Moradabad. 32. It is also apparent from the record that the calculation and determination of job work charges, a peculiar practice of accounting specific to metal handicraft industry is prevalent in Moradabad for decades whereunder after negotiation of job charges material is issued to the job workers indicating notional price and the finished product is also received against a notional price and the difference of the two is paid as job work c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed in accordance with the notifications, for the manufacture of export products which were exported under physical supervision of Central Excise officers. 38. The Hon ble Apex Court in the case of Mangalore Chemicals Fertilizers v. Deputy Commissioner (1992 SUPP. (1) SCC 21) = 1991 (55) E.L.T. 437 (S.C.) held that non-compliance with substantive and mandatory requirement fatal but non-compliance with formal and procedural requirement not fatal to the application for grant of permission. The relevant paragraph Nos. 18, 19, 20, 23, 24 are reproduced herein below : 18. Learned Counsel submitted that the point was not whether there was any justification for delaying the permission; but, more importantly, whether appellant at the relevant point of time had such prior permission or not and that if, in the meanwhile, the period itself expired, no relief was possible as, quite obviously, the requirements of prior permission became impossible of compliance. 19. Shri Narasimhamurthy relied on the following observations of this Court in Kedarnath Jute Manufacturing Co. case to support this contention : (SCR pp. 628-30). But the said exemption is made subject to a proviso. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified by the purpose intended to be served. The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance. 23. Francis Bennion in his Statutory Interpretation, (1984 edn.) says at page 683 : Unnecessary technicality : Modern Courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfilment of the purposes of the legislation. 24. Shri Narasimhamurthy again relied on certain observations in CCE v. Parle Exports (P) Ltd., in support of strict construction of a provision concerning exemptions. There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on the other unexempted class of tax payers and should be construed against the subject in case of ambiguity. It is an equally well known principle that a person who claims an exemption has to establish his case. Indeed, in the very case of Parle Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement for debate is its manufacture and subsequent export. As long as this requirement is met, other procedural deviations can be condoned. 40. In Udai Shankar Triyar v. Ram Kalewar Prasad Singh and Another (2005 AIR SCW 5851), the Supreme Court held that procedure, a hand maiden to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use. The relevant para is reproduced here as under :- 17. Non-compliance with any procedural requirement relating to a pleading, memorandum of appeal or application or petition for relief should not entail automatic dismissal or rejection, unless the relevant statute or rule so mandates. Procedural defects and irregularities which are curable should not be allowed to defeat substantive rights or to cause injustice. Procedure, a hand-maiden to justice, should never be made a tool to deny justice or perpetuate injustice, by any oppressive or punitive use. The well recognized exceptions to this principle are :- (i) where the Statute prescribing the procedure, also prescribes specifically the consequence of non-compliance. (ii) where the procedural defect is not rectified, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same factory? 10. An exemption notification should be read literally. A person claiming benefit of an exemption notification must show that he satisfies the eligibility criteria. Once, however, it is found that the exemption notification is applicable to the case of the assessee, the same should be constructed liberally. 11. Section 3 of the Act, on its plain reading, provides that the goods imported into India would be liable to additional duty. The object of levy of the said duty is that an importer should not be placed at some more advantageous position vis- -vis the purchasers/manufactures of similar goods in India. 12. A notification like any other provision of a statute must be construed having regard to the purpose and object it seeks to achieve. For the aforementioned purpose, the statutory scheme in terms whereof such a notification has been issued should also be taken into consideration. 13. It is a well-settled principle of law that where literal meaning leads to an anomaly and absurdity, it should be avoided. When the goods are imported evidently, the same would not be manufactured in the same factory. It would, therefore, be impossible to apply the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat those who are entitled to the benefit cannot be deprived therefrom by taking recourse to the doctrine of narrow interpretation simplicity, although the purpose and object thereof would be defeated thereby. In Kartar Rolling Mills v. Commissioner of Central Excise, New Delhi [2006 (197) E.L.T. 151 = (2006) 4 SCC 772], this Court held : ....It is trite to say that exemption notification has to be construed strictly. Since the notification came into effect from 11-4-1994, the benefit of the notification cannot be extended to the appellants retrospectively w.e.f. 1-3-1994. In Eagle Flask Industries Ltd. v. Commissioner of Central Excise, Pune (2004 (171) E.L.T. 296) = (2004) 7 SCC 377, this Court held : 6. We find that Notification No. 11/88 deals with exemption from operation of Rule 174 to exempted goods. The notification has been issued in exercise of powers conferred by Rule 174A of the Rules. Inter alia, it is stated therein that, where the goods are chargeable to nil rate of duty or exempted from the whole of duty of Excise leviable thereon, the goods are exempted from the operation of Rule 174 of the Rules. The goods are specified in the Schedule to the Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiny. It is relevant from the record that the department did not point out any contraventions. In this background, the issuance of demand in the year 2005 for non-compliance with procedural rules for the year 2001-02 to 2003-04 are unsustainable and liable to be rejected. 44. In the above mentioned facts of the case such as that the officers were supervising the clearances and respondent had documents sharing satisfactory accounting of the goods and that they had exported goods earning sufficient foreign exchange, the case of the Revenue cannot be sustained specially in the background that the Revenue could not give even one stance, where they could prove that the respondents had indulged in sale of the imported goods in the local market, complete products were exported and earned foreign exchange substantially. 45. In the facts and circumstances as indicated above, we do not find any merit in the appeal filed by the Revenue and accordingly, we approve the detailed and well considered order passed by the adjudicating authority and also Appellate Tribunal. All the four questions of law as noted above are answered in favour of assessee and against the Revenue. Therefore, the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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