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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 ..... f. 18-1-2001. The EOU scheme governed by the Export & Import (EXIM) Policy provides for duty free imported/indigenous procurement of raw materials, capital goods etc. for the manufacture of export. M/s. JSG to manufacture (1) Metal wares, glass wares, wooden wares, (2) Decorative clocks, Lamps sheds, Upholstery, (3) Corrugated boxes (captive consumption) and (4) Sculptures & statuary in stone, cement or other material subject to observance with certain conditions. The relevant conditions are as follows :- (a) The unit shall export its entire production excluding rejects and sales in the DTA as per provisions of Exim Policy for a period of five years. (b) The unit would be under obligation to achieve the minimum stipulated level of NEPF as prescribed in Appx-1 of the Exim Policy. (c) The unit shall be Customs bonded and execute a general bond in form B-17 (with surety/security) binding themselves, inter alia - (i) to observe all the provisions of Customs Act, 1962, Central Excise Act, 1944 and the rules regulations made thereunder; (ii) pay on dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponents etc. as it is, i.e. without being subjected to any processing in the unit for job work in the DTA, shall be required to furnish 100% Bank guarantee to cover the duty foregone on such duty free materials being taken out." 5. M/s. JSG was granted all facilities and privileges of EOU scheme. The EXIM Policy provided for duty free imported/indigenous procurement of raw-materials, capital goods etc. for the manufacture of export goods. At the same time, it was also obligatory on the part of an EOU to strictly follow the prescribed procedures, as laid down in Condition No. (3), (4) & (6) of Notification No. 53/97-Cus., dated 3-6-1997, Condition No. 3(b), (c) & (d) of Notification No. 52/2003-Cus., dated 31-3-2003 and Condition No. (d) of Notification No. 1/95-C.E., dated 4-1-1995, as amended. Conditions No. (3), (4) & (6) of Notification No. 53/97-Cus., inter alia, envisages as under :- "(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 the Commissioner of Customs in this behalf. (4) Importer exports out of India 100% or such other percentage, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification and the Export and import Policy, and binding itself to pay on demand an account equal to the duty leviable on the goods and interest on the said duty from the date of duty free procurement of the said goods till the date of payment of such duty, if- (i) .......... (ii) in the case of goods other than capital goods, such goods are not proved to the satisfaction of the Assistant Commissioner or Deputy Commissioner of Customs or Central Excise to have been used in connection with the production or packaging of goods for export out of India or cleared for home consumption...." 6. In the present matter controversy started, when an information were collected by the officers of the department that M/s. JSG were engaged in diverting the imported duty free raw material through its related firm M/s. C.L. Gupta & Sons, Rampur Road, Moradabad (hereinafter referred to as M/s. CLG) and accordingly, searches were conducted simultaneously at both the premises on 2-1-2004 by the department. During the course of search conducted at M/s. JSG, physical verification of duty free imported/indigenous goods viz. Kraft paper, Clock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cathodes, Zinc Ingots, HSD, Tin Ingots and Clock Movements involving Customs duty amounting to Rs. 1698872.00, SAD amounting to Rs. 368285.00 and Central Excise duty amounting to Rs. 4653950.00 from their premises to M/s. CLG in an irregular manner in contravention of provisions of Notification No. 53/97-Cus., dated 3-6-97, Notification No. 1/95-C.E., dated 4-1-1995, C.B.E. & C.'s Circular No. 88/98-Cus., dated 21-2-1998 and Section 71 of the Customs Act, 1962. 8. In defence, reply was filed by M/s. C.L. Gupta Exports Ltd. and M/s. JSG and its partners on 8-12-2006. It has been stated that M/s. C.L. Gupta Exports Ltd. made a humble beginning in the year 1889, promoted by late C.L. Gupta, a visionary, philanthropist and eminent citizen of Moradabad who was the great grandfather of the present Directors. The firm C.L. Gupta & Sons, as it was known then, was engaged in the manufacturing of brass utensils and art wares which further diversified into exports in the year 1955. In 1955, the firm established manufacturing facility at Rampur Road, Moradabad, however, later when the manufacturing activities and the quantum of export increased, the firm established another manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional officers of various government agencies visited the unit on a number of occasions however, on all occasions not a single instance of any violation, international or inadvertent was ever noticed by any of the agencies/officers. 14. The M/s. JSG came into existence in 2000 and was established as a 100% EOU under LOP dated 15-12-2000 issued by the Development Commissioner, NSEZ and on creation of JSG, a part of the CLG-II factory at Jiwai was transferred to JSG which was later appointed as a private bonded warehouse and manufacturing unit under Section 58 and Section 65 of the Customs Act, 1962 vide a warehousing Licence No. EOU/17/2001, dated 18-1-2001 issued by the Jurisdictional Central Excise Division, Moradabad. Though on creation of the JSG, the larger part of the unit at Jiwai was converted into 100% EOU and declared a bonded area, a part comprising a two storey building was retained by the CLG Unit-II and was not bonded. 15. It has been further stated that due to the compulsion that JSG was a nascent unit and workers were also not willing to relocate themselves to a far off area, the unit was constrained to outsource certain operations to CLG (HQ) prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premises on 2-1-2004 and on the basis of searches certain shortages of imported goods were found in the premises of JSG and certain materials which were detected at the premises of M/s. CLG proprietors, and they were unable to show proper documents and other records. It has been alleged that goods imported duty free by M/s. JSG were diverted to M/s. CLG in contravention of the circular dated 7-10-2002 and as per circular while sending out such material, the procedural clearance were required from the department. The assessee has submitted its reply that there might be some deviation in the procedure but all goods which were send out for job work to M/s. CLG, were received back and were properly accounted. The Adjudicating Authority constituted a Committee of officers to look into the claim of M/s. JSG and by inspecting all documents produced before him. 21. It appears that from scrutiny of the records/documents resumed from the premises of M/s. JSG and M/s. CLG for an allegation that duty free imported raw material were diverted through sister unit, instead of utilizing the duty free goods in the manufacture of the export goods in the bonded premises and the revenue thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er accordingly. (7) The proposal for cancellation of licence under Section 58 of the Customs Act, 1962 is dropped. Ordered accordingly." 23. Aggrieved with the order dated 30-4-2007 passed by the Commissioner of Central Excise, Meerut-II, the department has preferred Appeal No. C/534/2007 (C.C.E., Meerut-II v. M/s. J.S. Gupta & sons) and finally the Tribunal vide order dated 21-7-2011 [2012 (275) E.L.T. 449 (Tri. - Del.)] had rejected the appeal filed by the Revenue with following observations :- "15. We have considered the arguments on both sides. In principle we are in agreement with the argument of Revenue that verifications conducted with reference to documents when the goods are not available cannot in most situations identify the goods as the ones manufactured using imported raw material. But we are of the view that the whole facts have to be seen together before coming to a final conclusion. This is a factory which worked under the supervisions of two Central Excise officers posted in the factory. All documents relating to removals were under scrutiny by these officers. Further the returns filed by the unit also were to be scrutinized. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness, to be fulfilled by substantial, if not strict compliance-Actual compliance of factors considered as essential required and mere attempted compliance not sufficient. Words and Phrases-Substantial compliance-Substantial compliance means actual compliance in respect of the substance essential to every reasonable objective of the statute." 25. This Court vide order dated 27-11-2012 had passed the following order :- "Questions of Law framed by the appellant in the memo of appeal are argumentative in nature and does not bring out the real controversy involved. Let Questions of Law be re-framed. List in the next cause list." 26. In compliance of the said order, the learned Counsel for the appellant had filed supplementary affidavit and framed the following questions of law :- "(1) Whether on the facts and in the circumstances of the case, the CESTAT, New Delhi is justified in law in holding that the decision of the Hon'ble Supreme Court in the case of Commissioner of Central Excise v. Hari Chand Shri Gopal reported in 2010 (260) E.L.T. 3(S.C.) is distinguishable and would not apply to the facts of the present case? (2) Whether on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it had been provided for duty free imported/indigenous procurement of raw materials, capital goods etc. for the manufacture of export and there was also pre-condition that the unit shall export its entire production including rejects and sales in the duty. As per provision of EXIM Policy it is no doubt that the unit had executed a general bond in form B-17 (with surety/security) binding themselves to observe all the provisions of Customs Act, 1962, Central Excise Act, 1944 and the rules regulations made thereunder. 29. It was also paramount responsibility of JSG that it had to carried out the substantial activity to manufacture within the bonded premises in terms of C.B.E. & C. dated 7-10-2002. It was also pre-condition to the unit, if they were sending out goods for job work in DTA shall be required to give an intimation to the jurisdictional officer and a sample of the goods being sent out for job work shall be drawn and retained in the range office and after receipt of the goods after job work, the bond officer shall establish the identity of the goods so returned with reference to the sample retained by him at the time of removal. 30. During the year 2001-02, the Im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorical plea has been taken on behalf of manufacturer that during the relevant period, all the material procured, whether duty free or duty paid, were being entered into Material Receipt Note (MRN) and thereafter the duty free material was being entered into Warehousing Register and was stored in the Excise Warehouse after physical examination and under supervision of the Bond Officer. 35. Basically, the main charge against the manufacturer that it had diverted the imported/legally procured duty free raw material and had not utilized in manufacture and export of product and had diverted duty free material to local market and had substituted the same with legally procured material is also unsustainable specially on the ground that no evidence, whatsoever, of sale of duty free raw material or any clandestine procurement of local raw material could be established by the Revenue and further the allegation of violation of EXIM Policy, notification and guidelines stipulated in the circulars, the M/s. JSG had complied with substantive provisions and used the material in accordance with the purposes of the scheme for manufacture of articles/products, which were eventually exporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether, for if his contention be correct it will lead to the position that if the declaration form is furnished, well and good; but, if not furnished, other evidence can be produced. That is to rewrite the clause and to omit the proviso. That will defeat the express intention of the legislature." 20. We have given our careful consideration to these submissions. We are afraid the stand of the Revenue suffers from certain basic fallacies, besides being wholly technical. In Kedarnath case, the question for consideration was whether the requirement of the declaration under the proviso to Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, could be established by evidence aliunde. The Court said that the intention of the legislature was to grant exemption only upon the satisfaction of the substantive condition of the provision and the condition in the proviso was held to be of substance embodying considerations of policy. Shri Narasimhamurthy would say the position in the present case was no different. He says that the Notification of August 11, 1975 was statutory in character and the condition as to 'prior permission' for adjustment stipulated therein must also be hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguage. Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in Union of India v. Wood Papers Ltd. : "... Truly speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction ..." (emphasis supplied)" 39. 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. It will be erroneous to attach equal importance to the non-observance of all conditions ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge, consent and authority of the appellant." 41. In the case of Mulji Mehta & Sons Private Limited v. Commissioner of Central Excise, Mumbai - 2006 (206) E.L.T. 463 (T), the Tribunal held that even when wrong procedure has been followed, but if goods have been exported, no demand is sustainable. Para 4 from that decision is extracted below :- "4. Considering the arguments made on behalf of the appellants as well as verification of the case records, I find that the explanation given by the appellants is satisfactory regarding their claim that the impugned goods have indeed been exported through this has been done following the wrong procedure. As such, the duty demand confirmed against the appellants is set aside. However, the small penalty of Rs. 5,000/- imposed by the lower authority for infaction of the rules and procedure is confirmed. The appeal is thus allowed in the above terms. The stay application also stands disposed of." 42. The Hon'ble Apex Court in Commissioner of Cus. (PRV.), Amristar v. Malwa Industries Ltd. (2009 (235) E.L.T. 214 (S.C.)) has considered the controversy regarding exempting finishing agents, dye carriers, printing paste, etc. use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . There is nothing in Section 3 of the Act and in particular the explanation appended to sub-section (1) thereof mandating actual production or manufacture in the said factory itself. There cannot be any doubt whatsoever that if Excise duty is not leviable on manufacture of goods, the question of the importer paying any additional duty for import of like goods would not arise. That is principally the question which fell for determination in Thermax Private Ltd. (supra) and answered in the following terms : "6. It is common ground that Customs duty is payable and has been paid on the imported goods under Customs Tariff Item No. 84.17(1) at 40 per cent of the value of the imported goods plus a surcharge of 25 per cent thereon. The rate of CVD, however has to be determined on the basis of Item No. 29-A of the Central Excise Tariff. It is common ground that "chillers" fall under sub-item (3) of Item No. 29-A and that the basic Excise duty payable thereon was at 80 per cent of the value of the goods under the above item read with Notification No. 42 of 1984/C.E., dated March 1, 1984. ****** ********* 9. The assessee's claim for concession has, however, been rejected not on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption for the first time under this notification and thereafter before the 15th day of April of each financial year, as found by the forums below, including CEGAT, factually, the declaration and the undertaking were not submitted by the appellants. This is not an empty formality. It is the foundation for availing the benefits under the notification. It cannot be said that they are mere procedural requirements, with no consequences attached for non-observation. The consequences are denial of benefits under the notification. For availing benefits under an exemption notification, the conditions have to be strictly complied with. Therefore, CEGAT endorsed the view that the exemption from operation of Rule 174, was not available to the appellants. On the facts found, the view is on terra firma...." In Tata Oil Mills Co. Ltd. v. Collector of Central Excise (1989) 4 SCC 541, Ranganathan, J., despite accepting the proposition that the exemption notification should be construed strictly, opined : "These words may be construed literally but should be given their fullest amplitude and interpreted in the context of the process of soap manufacture. There are no words in the notification t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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