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TMI Blog2008 (8) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... red to as the 'said finished goods') and were holding provisional licence for customs private bonded warehouse, dated 21-4-1999 under Sections 58 and 65 of the Customs Act, 1962, valid upto 31-12-2000. The appellants' 100% EOU scheme was approved by the Secretariat of Industrial Assistance (Ministry of Industry) vide letter dated 9-9-1998 and they carried out manufacturing activities in bond under Section 65 of the Customs Act, 1962 for manufacture of the said finished goods in the above premises with effect from 27th April, 1999. They were granted approval for setting up 100% EOU by the Secretariat of Industrial Assistance, Ministry of Industry, Government of India, vide letter dated 9-9-1998 with certain terms and conditions as prescribed in the said letter. Under Condition No. 2(i) of the terms and conditions of the said letter of permission and the approval granted by the Ministry of Industry, the appellants were required to enter into a legal agreement (LUT) with the Development Commissioner, SEEPZ, Mumbai, binding themselves to fulfil the required export obligation under the 100% EOU scheme. Pursuant to the said approval of the Ministry of Industry, they had entered into a le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation as stipulated in the legal agreement entered between them and the Joint Development Commissioner, SEEPZ, the customs authorities considered it as a violation of the provisions of Notification 53/97-Cus. dated 3-6-1997 as amended. They had also contravened the provisions of para 9.5 of Exim Policy of 1997-2002 as well as the conditions mentioned in para 9.10(d) and 9.40 of Handbook of Procedure Vol. No. 1 (1997-02) read with Section 3 and Section 5 of the Foreign Trade (Development Regulation) Act, 1992 by clearing the finished goods in domestic tariff area at concessional rate of duty without fulfilling the export obligations. 6. A show cause notice bearing F.No. V/Adj(SCN)15/R06/BSR/M-III/2001 dated 27-2-2004 was issued to them asking them to show cause as to why :- (a) full amount of applicable customs duties payable on imported capital goods, raw materials and spares totally amounting to Rs. 61,24,18,364/-(Rupees sixty-one crores twenty-four lakhs eighteen thousand three hundred sixty-four only) should not be demanded and recovered from them under the provisions of the bonds executed with the Assistant/Deputy Commissioner of Central Excise, in terms of condit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of Finance, wherein it was stipulated that the demand of customs duty on account of non-fulfilment of export obligation by 100% EOU is to be issued after consultation with the Development Commissioner. The department approached the Development Commissioner. Meanwhile, personal hearing was granted to the appellants on 24-2-2005 or 25-2-2005. In reply to the notice for the personal hearing, the appellants, vide letter dated 1-3-2005, stated that their unit had commenced production in April, 1999 and that they had exported their products valued at Rs. 2.64 crores in 1999-2000 and Rs. 4.82 crores in 2000-2001; that financial institution filed suit in April, 2000 in the Hon'ble High Court and their unit was closed and the unit was with the High Court Receiver; that the unit was under BIFR and rehabilitation package was expected by 30-9-2005; that as per circular No. 7/2005 dated 14-2-2005, the competent authority could grant the extension for the next five years; that under such circumstances, the factory could not be run due to reasons beyond their control, and thus they could not fulfil the export obligation and that they have sought extension of period for fulfilling the export ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner has further erred in passing the impugned order when the appellants' request for extension of export obligation period had not been rejected by the Development Commissioner, as brought out in their letter dated 25-8-2006 addressed to the Commissioner. (c) The Commissioner has failed to appreciate that the appellants could not complete export obligation as the entire plant, machinery, raw materials etc. were taken over by the Court Receiver in pursuance of the order of the Hon'ble High Court of Bombay and therefore the situation was beyond the control of the appellants and in any case, the appellants were pursuing the revival package and the matter was pending before BIFR. (d) The Commissioner did not specify as to which of the conditions of Notification 53/97-Cus. dated 3-6-1997 had been violated by the appellants, he refers to condition regarding execution of bond, but as per the bond the liability to pay duty arises only if any of the conditions stipulated in the notification are violated. Further, condition 6(i) requires that capital goods should have been installed or used within the bonded period within a period of one year from the date of importation. Conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the depreciation was a rule of nature and therefore, it is to be allowed to the appellants. As LOP had been cancelled, the appellants could not continue as EOU and had to debond the capital goods. In those circumstances, depreciation was allowed. The advocate in the said written submission also referred to Exim Policy of 2004-09 where in para 6.36.1, 6.36.2 and 6.36.3, depreciation norms have been set out for all goods. In the said additional submissions, the advocate has pointed out Notification 67/95-Cus (NT) dated 1-11-1995 and Notification 132/04-Cus (NT) dated 25-11-2004 for the proposition that interest accrued on the customs duty payable on capital goods is exempt and thus no interest was payable. He also pleaded that in the instant case, the Development Commissioner has no option but to extend the period upto 23-7-2009 and if so, the show cause notice was premature. They have further referred to modification in ground (f) of the synopsis which was to be read as under :- "The Ld. Commissioner has erred in ordering confiscation of the subject goods when the same were already in possession and under the control of the Court Receiver appointed by the Hon'ble Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the condition of the notification. It was also submitted by the learned Joint CDR that it was incorrect to plead that even if there was violation of post import condition notification, the department was not authorised to confiscate. The Hon'ble Tribunal in the case of Asian Alloys Ltd. v. CCE, Delhi - 2006 (203) E.L.T. 252, has clearly held that the capital goods or raw materials procured by 100% EOU which were not used for specified purpose were liable to confiscation under Section 111(o) of the Customs Act. 17. On the issue of depreciation, the learned Joint CDR drew our attention to the provisions of clause 5 of Notification 53/97. He argued that depreciation on capital goods is allowed only if capital goods are removed from the EOU to any other place in India by the order of the Development Commissioner or other competent authority. If such permission was not available, then the provisions of clause 5 will be applicable and no depreciation will be allowed for capital goods cleared without the permission of the Development Commissioner/other competent authorities. Pointing out to the decisions cited by the learned advocate, the learned Jt. CDR referred to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of section 25 of 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) The imports, clearance, export, transfer and usage of the goods and goods manufactured therefrom and the net foreign exchange earning as a percentage of export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation in respect of goods covered by clause (a) shall be allowed for the period from the date of commencement of commercial production of the unit or where such goods have been imported after such commencement, from the date such goods have come into use for commercial production, up to the date of payment of duty." 21. For claiming the benefit of depreciation, it should be shown to the satisfaction of the Assistant Commissioner/Deputy Commissioner that (1) the unit (EOU) has been allowed to clear the capital goods by the Development Commissioner or by the Board of Approval; (2) the said goods should be taken to any other place in India, and (3) it should be in accordance with the Export Import Policy. Only in such circumstances will depreciation be allowed. We do not find any other provisions in the notification whereunder depreciation has been envisaged. 22. Admittedly, in the instant case, the clearance of the capital goods has not been allowed by the Development Commissioner or the Board of Approval. The advocate claimed that when the Development Commissioner declined to extend the time for fulfilment of the export obligation, it should be presumed that the clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes to adhesive tapes. The product manufactured by respondent is adhesive plaster B.P.C. In common parlance it is surgical dressing. The learned Advocate had referred to the tariff advices issued by the Board and also a judgment of the Board in the case of M/s. Leukoplast India Pvt. Ltd. We are in full agreement with the order passed by the Central Board of Excise and Customs (Order No. 29/81, dated 31st August, 1981). We are not inclined to follow the earlier judgment of the Tribunal in the case of J.L. Morison, Son and Jones (India) Ltd., Bombay reported in 1984 (15) E.L.T. 251 in which case the Tribunal had ordered the classification of Adhesive Plaster B.P.C. under Item 14E. The judgment was based on the statement of Shri D.B. Engineer, Advocate, it was in the nature of the concession. In 'Salmond on jurisprudence' Twelfth Edition Section 27 page 153 it is opined that "A decision passed sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harmaceutical and commercial parlance. Accordingly we hold that the adhesive plastic B.P.C. manufactured by the respondents falls under Tariff Item 68. In the result the appeal filed by the revenue fails." 23. We now discuss the case law relied upon by learned counsel for the appellants. 23.1 In the case of Shiva Analyticals (I) Ltd. v. CC, Bangalore - 2008 (224) E.L.T. 417, the appellant had failed to fulfil the export obligation and had also cleared certain goods in the domestic area without obtaining the required permission from the Development Commissioner. The department proceeded against the appellant for recovery of duty foregone in respect of various items procured free of customs and central excise duty. The Tribunal remanded the case to the original authority for re-computation of the duty liability after extending the benefit of depreciation as the appellant had put the imported capital goods to use for the fulfilment of the export obligation. 23.2 In the case of CCE v. Aravic Aqua Farms (P) Ltd. - 2008 (224) E.L.T. 319, the respondents imported raw materials and capital goods in terms of Notification 196/94-Cus dated 8-2-1994 and were required to ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of depreciation, but held that depreciated value of capital goods was to be applied only upto the date of in-principle debonding, rejecting the contention of the assessees that depreciation was to be allowed upto the date of clearance of the goods. The Tribunal noted that debonding of 100% EOU was governed by the 2004-09 Exim Policy, that as per Notification 52/03-Cus., dated 31-3-2003 which was relevant, depreciation was to be allowed either upto the date of debonding or upto the date of clearance of the capital goods as the case may be. It was held by the Tribunal that in cases covered by Notification 52/03, depreciated value was to be computed from the date of commencement of commercial production upto the date of payment of duty. 23.5 The decisions in the case of Shiva Analyticals (I) Ltd. v. CC, Bangalore - 2008 (224) E.L.T. 417, CCE v. Aravic Aqua Farms (P) Ltd. - 2008 (224) E.L.T. 319 and CCE, Bangalore v. Maharashtra Hybrid Seeds Co. Ltd. - 2008 (226) E.L.T. 575, do not consider the relevant provisions of the respective notifications for the purpose of grant of depreciation on capital goods cleared without the express permission of the Development Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case is under Section 111 of the Customs Act. The heading of the Section reads "confiscation of improperly imported goods, etc.". In the present case, imports were under a Govt. Sponsored Scheme to promote exports. It was also in terms of an exemption notification which was issued to bring into effect the export promotion scheme. There was no impropriety at the time of import. Therefore, confiscation of the goods and imposition of penalty were not attracted. 5. Consequence of failure to carry out export obligation is made clear in the notification itself in clauses 4, 5 6 of the notification. They may be read : "4. The importer produces within 30 days from the expiry of each block of two years from the date of issue of licence from the second block or within such extended period as the Asstt. Commissioner of Customs may allow, evidence to the satisfaction of the Asstt. Commissioner of Customs showing the extent of export obligation fulfilled, and where the export obligation of any particular block of two years is not fulfilled in terms of the preceding condition, the importer shall within three months from the expiry of the said block pay duties of customs of an amount equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision but even in such a case it could not be used for cutting down the wide application of the clear words used in the provision. Sub-item (3) so construed is wide in its application and all parts of refrigerating and air-conditioning appliances and machines whether they are covered or not covered under sub-items (1) and (2) would be clearly covered under that sub-item. Therefore, whether the manufacturer supplies the refrigerating or air-conditioning appliances as a complete unit or not is not relevant for the levy of duty on the parts specified in sub-item (3) of Item 29A." 28. The plain reading of Section 111(o) makes it clear that goods can be confiscated for violation of post import condition, even when the import itself was valid. We note that in the case of violation of post import condition incorporated in exemption Notification 64/88-Cus in respect of import of hospital equipment, the Larger Bench of the Tribunal held in the case of Lady Amphthil Nurses Institutions v. CC, Chennai - 2002 (150) E.L.T. 776, that confiscation of imported equipment was warranted due to breach of obligation cast on the importers thereof, subsequent to import of equipment. In comin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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