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TMI Blog2005 (6) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... set up adjacent to the domestic unit. For convenience the domestic unit is referred to as E2 and the EOU as E3. 4.The two units had connecting doors for easy movement of men and material from one to another. The machines in E2 and E3 required to manufacture optical fibres were so arranged that they all looked like one large happy family. The regulations in this regard are that there should be a strict segregation between domestic units and EOUs. The Revenue contends that the appellants never disclosed the existence of the connecting doors while seeking a warehouse licence for their E3 unit. The counsel for the Revenue says that such non-disclosure is the first step the appellants have taken to perpetuate a fraud on the Revenue. 5.M/s. SOTL's intentions to export optical fibres received a setback in September 2001, according to them. 6.With monotonous regularity some miscreants crashed passenger planes into high rise buildings of New York on September 11, 2001. This type of activity created a slump in the export market for optical fibres, according to the appellants. The counsel for the Revenue is unconvinced. "September 11 and market for optical fibres!", he exclaims. These e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stigation revealed that the appellants removed some 6,35,626.7 kms of optical fibres from the EOU (E3) without payment of duty. It was also detected that the appellants removed 9913 kgs of pre-forms, an intermediate excisable product, manufactured in the EOU without payment of duty. It was also found that certain raw material imported duty free under notification 53/97-Cus. were not used in the production of export goods. 13.The appellants maintain a rather meticulous computerised records which clearly indicate whether the optical fibres and pre-forms are manufactured in E2 or E3. These records and the statements made by responsible persons working in the company made the job of the investigating officers easy in identifying the alleged clandestine removals of finished products as well as intermediate products from E3. 14.Investigations also revealed that the appellants adopt what is popularly known as hop step and jump while removing goods without payment of duty from their E3 unit. They first remove the goods from E3 to E2, allow them to cool off for a while, create evidence to indicate that the goods are actually manufactured in E2 itself and then remove them on payment of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 125/84-C.E. (c) The Commissioner erred in computing the duty leviable on the clearances made from E3 as he failed to take into consideration the effective rates of duties leviable under the Central Excise and Customs Tariff Acts. (d) Value of the impugned goods has not been correctly arrived at while computing the demand. (e) Duties cannot be demanded both under Customs Act and Central Excise Act. (f) Duty ought not to have been demanded on pre-forms on the assumption that the entire quantity (9913 kgs) is manufactured in the EOU when some quantity out of this was in fact is manufactured in the domestic unit E2. (g) Duty on raw material under Notification 53/97-Cus. is unsustainable as the imported raw material is properly accounted for. (h) Penalties imposed under the Central Excise Rules and Customs Act on various persons and the company are unjustified, excessive and unreasonable. (i) Capital goods are not liable to confiscation under Section 111(o) of the Customs Act. 20.Before we take up the various issues, we briefly deal with the process of manufacture of optical fibres. Raw material is first converted into c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit (E3) is treated as EPCG unit w.e.f. 6-10-2001, the demand for duty on 6,35,626 kms of optical fibres made under Section 11A does not survive as the appellants had already paid appropriate duty, under Section 3(1) of the Central Excise Act. The Commissioner however treated E3 as an EOU and held that the above said quantity was removed therefrom without payment of duly and demanded Rs. 51,65,35,050/- towards duty. 26.Reliance is placed on the decision of the Supreme Court in the case of State of UP and Another v. Haji Ismail Noor Mohd. [1988 3 SCC] in support of their contention. The Hon'ble Court held that a concession envisaged in a statute is available to an assessee even when the certificate necessary to be eligible for the concession is subsequently issued but is available at the time of assessment. In the case of MPV Engg Industries [2003 (153) E.L.T. 485] the Supreme Court held that the benefit of SSI exemption (175/86-CE) has to be extended to an assessee w.e.f. the date on which an application for registration is made by him and not from the dale of certificate of registration. In several other judgments the Supreme Court as well as the Tribunal took the same stand. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-2001 and an application for EPCG licence in January 2002 without full disclosure is no application at all. The appellants' attempt to take advantage of such an application has to be discarded. It is only when it is detected that the appellants were removing goods from E3 without paying proper duty the appellants came out with the theory that removals from E3 should be treated as removals from an EPCG unit. 29.We therefore reject the contention that E3 is an EPCG unit from the date of application (6-10-2001). In fact it remained an EOU till an EPCG licence was accorded in 2003. All clearances effected from E3 during the period July 2001 to August 2002 should be considered as clearances made from an EOU attracting duty under proviso to Section 3(1) of the Central Excise Act. Duty on 6.35,626.7 kms of optical fibres has been rightly demanded treating them as the ones manufactured in an EOU and cleared therefrom without payment of appropriate duty. 30.The appellants then contend that in the event their E3 is considered as an EOU during the period July 2001 to August 2002 they are entitled to the benefit of Notification 125/84-CE on all clandestine clearances made from E3 during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s do not constitute good law after the Larger Bench's decision in Himalya International [2003 (154) E.L.T. 580] which interpreted the expression "allowed to be sold" occurring in the proviso to Section 3(1) of the Central Excise Act in the context of duty liability on goods unauthorisedly removed from an EOU. The Bench held that duty as prescribed in the proviso to Section 3(1) of the Central Excise Act is leviable on all goods manufactured in an EOU whether or not allowed to be sold. The expression used in Notification 125/84 is also "allowed to be sold". We are unable to persuade ourselves to give any interpretation to "allowed to be sold" other than what has been given by the Larger Bench. The appellants' contention that the Larger Bench's decision is set aside by the Supreme Court is factually not correct. We also observe that the Larger Bench has distinguished the decision rendered by the Supreme Court in SIV Industries case [2000 (117) E.L.T. 281 (S.C.)]. 37.Secondly, Notification 125/84 merely exempts goods manufactured in an EOU. It does not exempt goods which are allowed to be sold in India. By some deductive logic, one cannot conclude that this notification exempts all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty indicated in an exemption notification should be applied even to goods which are clandestinely removed. But this proposition is subject to the condition that the exemption notification itself does not have any strings attached. It is an accepted position that Notification No. 2/95 provides for levy of 50% of the aggregate of Customs on goods brought into any place in India from an EOU w.e.f. 11-5-2001 provided that such goods are brought into India with the permission of the Development Commissioner and that NFEP is achieved. No such permission was taken or given. NFEP was also not achieved. The Tribunal in the case of Opal Fabrics [2004 (164) E.L.T. 70] rejected the contention that 2/95 is applicable even when conditions in that notification are not satisfied. We are therefore of the opinion that the standard rate of duty prescribed under proviso to Section 3(1) of the Central Excise Act is applicable to goods which do not satisfy the condition laid down in Notification No. 2/95. 43.The appellants contend that the Commissioner did not apply the effective customs duty on optical fibres under Notifications 17/2001 and 21/2002 which provide for a rate of 15% ad valorem on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered these contentions carefully. In Thermax case an importer was denied the benefit of an exemption notification. The appellants are not the importers of optical fibres. What the appellants want is adoption of that rate which is applicable to an importer of optical fibres even when he had not followed the procedure laid down in Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. 47.In Thermax case the Supreme Court observed that entitlement to the benefit of Notification No. 63/85-CE will depend on whether the purchaser of the imported goods is a holder of an L6 licence. This appears to be an important criteria laid down by the Hon'ble Supreme Court and therefore it is necessary to see whether the appellants can claim the benefit of Notifications 17/2001 and 21/2002-Cus. even when the purchaser does not satisfy the conditions in the above said Rules. It is a fact that the appellant company sold their optical fibres to an unit which manufactures optical fibre telecommunication cables. Thus, the end use condition stated in Notifications 17/2001 and 21/2002 is satisfied. 48.The appellants' plea that the concessional rates s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kms of optical fibres manufactured in E3 were sold from E2. Simply because they were sold under E2 invoices they would not become goods manufactured in a domestic unit. Shorn of the subterfuges adopted by the appellants the transaction of these fibres is between an EOU and a domestic buyer. In such a transaction, value of the impugned goods has to be determined under Customs Valuation Rules. Normally the price at which goods are sold by an EOU becomes the transaction value under Rule 4 of the Customs Valuation Rules. The Commissioner adopted the price shown on the central excise invoice as transaction value for the purpose of computation of duty under proviso to Section 3(1) of the Central Excise Act. The appellants' plea that the Commissioner should have either adopted the FOB value, or a contemporaneous price at which similar goods are imported has to be rejected. These alternative ways of arriving at the value become irrelevant when transaction value is available. The appellants' plea that admissible deductions should be given on the price shown in central excise invoices has to be rejected. Price paid or payable is the transaction value as per Customs Valuation Rules, 1988. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pre-forms under Section 11A of the Central Excise Act. He levied duty applicable to EOU clearances under Proviso Section 3(1) of the said Act. He determined the value of the pre-form adopting the value at which similar pre-forms were imported by the appellants under Bill of Entry No. A/4984, dated 17-4-2001. He did so because these pre-forms were not sold but were captively consumed in the E2 unit after their removal from E3. The Commissioner did not apply the concessional rate under notifications 17/2001 and 21/2002-Cus. on imported pre-forms while calculating the aggregate of customs duty. Several contentions are raised on this demand. It is argued that the Commissioner erred in holding that 9913 kgs of pre-forms were manufactured in the EOU; that in fact only 2583 kgs of this material were manufactured in EOU; that the balance quantity of 7330 kgs was manufactured in E2 out of the core rods manufactured in E3; that the Commissioner erred in demanding duty leviable under Proviso to Section 3(1) on the entire quantity; that the computerized records clearly point out that only 7330 Kgs were manufactured in the DTA unit out of the core rods made in E3; that the Commissioner app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -forms is also contrary to their stand that core rods are not transportable from one place to another. If they are not transportable it is not understood how they could be removed to sleeving lathe situated in E2 from the MCVD lathes in E3. We reject the contention that only 2583 kgs of pre-forms were manufactured in E3. 61.We also reject the contention of the appellants that the Commissioner erred in holding that 1 kg of pre-form can produce 37 kms. of optical fibres. The experts working with the appellant company gave this ratio. There is no reason to doubt their version. 62.We also reject the contention that the concessional customs duty envisaged in Notification No. 17/2001 and 21/2002 should have been applied while calculating the aggregate of customs duties leviable on the pre-forms for the same reasons given by us elsewhere in this order while discussing the duty liability on 6,35,626 kms of optical fibres. Similarly, the benefit of Notification No. 2/95-C.E. also cannot be extended to goods, which were not allowed to be sold in India. 63.We observe that since no transaction value was available the Commissioner determined the value under Customs Valuation Rules. He ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fibres at the time of removal. Once it is established that the goods in question suffered a part of the duty payable credit of that part has to be given. We reject the contention of the Revenue that credit of duty paid by one unit cannot be extended to another. It is not the government's intention to collect more duty than what is payable, it is specious to ask the appellants to claim the central excise duty paid on goods which were admittedly not manufactured in E2. 68.The appellants are entitled to the credit of duty of Rs. 10,54,54,680/-already paid on 6,35,626.7 kms of optical fibres. To this extent the demand on the said quantity of optical fibres comes down. We therefore hold that Rs. 41,14,84,370/- being the differential duty is payable on this account. Penalty under Section 11AC of Central Excise Act : 69.The Commissioner imposed a penalty of Rs. 94,87,92,687/-equivalent to the duty sought to be evaded (Rs. 21,54,92,842 + Rs. 51,69,39.050/- + Rs. 21,63,60,797/-). The amount of penalty is some Rs. 2/- more than the 100% of duty sought to be evaded! 70.Some arguments are advanced to canvas that penalty is not imposable when an assessee acted on a bona fide belief tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to confiscation. Suffice it to say that bona fides are conspicuously absent in this whole affair. 74.The appellants are a large industrial house. The captains as someone would call them. If the captains and the marshals were to engage themselves in such fraudulent activities the corporals and soldiers would not be far behind. Had the appellants paid appropriate duty on the optical fibres and pre-forms at a time when such duty became payable the govt. coffers would have been that much fuller. The appellants attempt to understate the implication of their actions by pleading that what was at stake was only the duty payable on raw material (Rs. 2.5 crores or is it Rs. 6.93 as the Commissioner holds) and the duty on capital goods applicable to EPCG imports (Rs. 6.14 crores) and not the astronomical figures alleged by the Department, to say the least, is an understatement. The appellants did evade duty through subterfuge, careful planning and no small cunning. If there is any case which deserves a penalty under Section 11AC it is the appellants'. They made every attempt to qualify themselves for such visitation. 75.We have noted that the appellants paid Rs. 10,54,54,680/- towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. He however does not know whether full duty was paid on the removals from the E3. This is not a sufficient ground to impose a penalty on him. We therefore set it aside. 80.Shri Venkatesh Babu was Manager (Commercial). He was imposed a penalty of Rs. 5 lakhs under the same Rule. The Commissioner says that he was recording false figures of production in E3 at the instance of Shri S.L. Bajaj and know that the goods made in E3 were being sold. He is the one who helped the Department in identifying the goods made in E3 and quantifying the duty involved etc. Penalty on him is set aside. 81.We set aside die penalties on S/Shri Abhay Kelkar Chief Manager (Commercial) and Pramod Unde Coo (whatever that means) for the same reasons. In fact all the above persons should have been cited as witnesses rather than as accused. 82.The Commissioner seemed to be imposing penalties on the employees stating that they were aware of the fact that they were knowingly concerned with the goods liable to confiscation. Going by his logic every employee/worker can be accused of such knowledge, a greaser, a forklift truck operator etc. The point is that all these persons were not in a position to obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EOU as claimed by the appellants, whether the Commissioner considered the raw materials contained in the optical fibres lying in the EOU, whether he has taken into consideration the quantity of raw materials contained in the seized 3.35 lakh kms of optical fibres, and finally whether he has considered the quantity of raw materials used in the exported optical fibres. We are not privy to the evidence placed before the Commissioner in support of these pleas. The Commissioner ought to have dealt with the plea, that some raw materials were still lying in the factory and given a finding. He also failed to give any finding on the other pleas made before him in this regard. We observe that the Commissioner demanded Rs. 6.93 crores on the raw materials without proper justification. We set aside this demand and remand the matter to the Commissioner for a fresh decision after examining the contentions raised by the appellants. Penalty under Customs Act : 86.In regard to penalty imposed under the Customs Act, it is argued that the machinery imported duty free under Notification 53/97 has been used both for manufacturing export goods as well as those which are alleged to have been clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Supreme Court binding themselves to pay the differential duty between the duty payable on the capital goods upon their debonding from EOU and the one already paid at the rate applicable to EPCG, in case it is adjudicated that the appellants obtained the EPCG licence wrongly. It is hoped that this matter would be adjudicated upon by the time the Plant and Machinery is ready to be redeemed as at that time (at the time of redemption) the appellants are required to pay the correct duty leviable on the capital goods. 90.For the reasons given by us while discussing the penalties under Central Excise Rules, we are inclined to set aside the penalties. The appellants are far removed from the act of importation of the capital goods and raw materials. These people cannot be said to have concerned themselves in dealing with goods which are liable to confiscation. In a vague sense they may be aware that the goods produced in the EOU are being removed to domestic unit. But such awareness itself is not enough to impose penalties under Section 112(b) of the Customs Act. We set aside the penalties on the above mentioned persons. Combined Registration : 91.The appellants prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Rules imposed on S/Shri Navin Agarwal, L. Ram Kumar, S.L. Bajaj, Abhay Kelkar, Venkatesan Babu and Pramod Unde are set aside thus allowing their appeals. (7) Confiscation of capital goods as mentioned in Annexure 47 to the show cause notice under Section 111(o) of the Customs Act for contravention of the provisions of Notification 53/97 Cus. upheld. Redemption fine is reduced to Rs. 15 crores (fifteen crores). (8) Duty demanded on the raw material is set aside and the matter remanded to the adjudicating authority to redetermine the same after considering the submissions made by the appellants. Opportunity of being heard should be accorded along with an opportunity to furnish evidence if any in this regard. (9) Penalty of Rs. one crore imposed on the appellant company under Section 112(a) is set aside. The Commissioner will redetermine the quantum of penalty after ascertaining the extent to which raw materials imported under Notification 53/97-Cus. are not accounted for. We may however make it clear that since the capital goods are held to be liable to confiscation under Section 111(o), penalty is imposable. (10) Penalties imposed on the various ..... X X X X Extracts X X X X X X X X Extracts X X X X
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