1. The appellants M/s. Leela Scottish Lace Ltd. (hereinafter referred to as LSLL) are exporters of Ready-made Garments. LSLL had filed 103 Shipping Bills through Chennai Port. The Shipping bills for export of Readymade Garments, have been filed on the basis of their own invoice under claim for drawback, at the rate applicable for sub-serial No.62.01 of the table annexed to Government of India Notifications No.67/98-Cus. (N.T.), dated 1-9-98 as amended and 31/99-Cus. (N.T.), dtd.
20-5-99 as amended.
2. A Notice was issued, pursuant to a missive sent by Bangalore Customs Officers and enquiries made, alleging : - (i) The readymade garments, exported were manufactured by 100% EOU viz., M/s. Tropicate Textiles Ltd. and M/s. Sara In ternational Inc., from raw material supplied by M/s. LSLL, after they had obtained permission from the Assistant Commissioner of Customs, Customs Division, Bangalore vide letters C. No. VIII/48/4/99-EOU-II, dated 3-2-99 and C. No. VIII/48/54/98-EOU-II, dtd. 30-12-98 for undertaking this job- work within their bonded premises for LSLL.
(ii) Duty drawback of Rs. 93,14,838.97 has been paid to LSLL. Duty drawback of Rs. 28,44,812/- was pending sanction.
(iii) M/s. LSLL had filed all the shipping bills under EDI system where no provision for export by 100% EOUs, had been made on the dates of filing of Shipping Bills.
(iv) The shipping bills were filed based on their own invoices and that they were shipments of Readymade Garments allegedly manufactured at 100% EOUs i.e. M/s. Sara International Inc. and M/s.
Tropicate Textiles Ltd. These third party names were not indicated anywhere in the Shipping Bills or the invoices filed by LSLL as required under Para 3.54 of the EXIM policy and Circular 74/99, dtd.
5-11-99.
(v) The readymade garments, on job work basis by the EOUs were removed under transhipment Shipping Bills (filed at the EOUs) and have been exported against Shipping Bills filed at Custom House, Chennai Seaport, under claim for duty drawback at the rate applicable for Sub-serial No. 62.01 of the drawback table annexed to Notification No. 67/98-Cus. (N.T.), dtd. 1-9-98 and No. 31/99-Cus.
(N.T.), dtd. 20-5-99 as amended.
(vi) Even after the clarification that DTA Units/EOU Units both are not eligible for drawback as per Notification No. 74/99, dtd.
5-11-99, the exporters continued the above practice and availed drawback at the rate applicable for Sub-serial No. 62.01 as above.
(a) the duty drawback of Rs. 93,14,838.97 received by LSLL in respect of readymade garments manufactured on job work basis by the EOUs M/s. Sara International Inc. and M/s. Tropicate Textiles Ltd. in respect of Shipping Bills as detailed in Annexure-A, should not be recovered in terms of Rule 16 of the Customs and Central Excise Duties Drawback Rules, 1995 framed under Section 75 of the Customs Act, 1962 as per Government of India Notification No. 37/95-Cus.
(N.T.), dated 26-5-95; (b) the duty drawback of Rs. 28,44,812 claimed by LSLL in respect of readymade garments manufactured on job work basis by the 100% EOUs, M/s. Sara International Inc. and M/s. Tropicate Textiles Ltd. in respect of Shipping Bills as detailed in Annexure-B, should not be rejected in terms of Notification No. 31/99-Cus. (N.T.), dtd.
20-5-99 as amended issued under Section 75 of the Customs Act, 1962.
(c) The amount of Rs. 20,28,690/- paid as a pre-deposit towards excess drawback claimed vide Miscellaneous Challan No. 0202337, dtd.
9-2-2000 should not be adjusted towards recovery of ineligible drawback payments made to them vide Shipping Bills as per Annexure-A. (d) The goods valued at Rs. 7,38,95,957/- exported under claim for drawback should not be held liable for confiscation under Section 113(i) of the Customs Act, 1962 for claiming ineligible drawback.
(e) The exporters should not be held liable for penalty under Section 114(iii) of the Customs Act, 1962 for the said acts of omission and commission as above.
4. Commissioner after rejecting the appellant's contention and com-ing to his findings, ordered the recovery of duty drawback amounting to Rs. 93,14,838.97 already paid to M/s. LSLL under the provisions of Rule 16 of the Central Excise Rules, along with interest under Section 75A and rejected the claim of Rs. 28,44,812/- pending sanctions and after ordering the appropriation of the amounts deposited, imposed a penalty of Rs. 1,21,59,651.97 on M/s. LSLL under Section 114(iii) of the Customs Act, 1962, as he found that the goods which were alleged to be exported were liable for confiscation under the provisions of Section 113(i) of the Customs Act, 1962.
5. Similar issues and charges, as raised in these proceedings, except for the charges that the name of the two 100% EOUs was not indicated anywhere in the shipping bill or invoices as required under Para 35 of the EXIM Policy and Circular No. 74/99, dated 5-11-99 and the proposals for liability of confiscation under Section 113(i) and penalty under Section 114(iii) for the same export on M/s. LSLL, ahd the same EOUs, this Bench vide its Order No. F/2/2003, dated 2-1-2003 in the case of M/s. LSLL, Mumbai had allowed the appeals of the appellant, after finding that M/s. LSLL were the exporters, owners and manufacturers of the readymade garments exported in that case and the said goods were not manufactured and or fabricated under Section 65 of the Customs Act in a Custom bonded warehouse and also were not exports of an 100% EOU and cannot be considered being exported as per the EXIM policy applicable for exports of an 100% EOU and considering the promise made in the minute of the meeting held with the exporters, set aside the order and allowed the appeal with consequential relief. Following the said order, the present impugned order on the same grounds herein, will not survive.
(a) There is no dispute that the goods are fabricated from the raw materials supplied by LSLL to the EOUs. This raw material has originated from duty paying Domestic Tariff Area and are not goods deposited in the Customs Warehouse or non-duty paid goods. It is also not in dispute, infact this show cause notice itself alleges that the exports were made on Shipping bills filed by LSLL under claim of drawback and not on the transhipment bills of the EOUs since no such Shipping bills of EOUs could be filed at Chennai.
(b) The pending drawback claims have been rejected on the basis of the findings in Para 68 of the impugned order which reads as under: - "68. The Notice also contain a proposal to deny the Drawback in respect of claims which are pending sanction. The amount of Drawback involved in such case is Rs. 28,44,812/- and in respect of 13 shipments as per the Annexure C to the Show Cause Notice. As already discussed above, the DTA Unit is eligible for brand rate of Drawback fixed by the Drawback Directorate and Drawback would be admissible at the rates fixed, in such cases. As I have already pointed out, no such application has been made by M/s. Leela Scottish Lace Ltd., and no special brand rate has been fixed. Hence, the claims filed by them, are liable to be rejected in terms of the exclusion clause contained in Paras 2(a) & (c) of the General Notes to Notification Nos. 67/98-Cus. (NT.) and 31 /99-Cus. (NT.)." On the application of exclusion by Paras 2 (a) & (c) of the General Notes to Notfn. Nos. 67/98-Cus. (N.T.) and 31/99-Cus. (N.T.), viz.:- "2. The rates of drawback specified in the said Table shall not be applicable to export of any of the commodities/products if such commodity/ product is - (a) manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 (52 of 1962), (c) Manufactured and/or exported by a unit licensed as hundred per cent export oriented undertaking in terms of the relevant provisions of the Import and Export Policy in force....................." and as to who is the owner, manufacturer and exporter of these goods in the case of the same appellant vide Order No. F/2/2002, dtd. 2-1-2003, it has been found as follows :- "(i) 'Garments' falling under Chapter 61 or 62 of the tariff, are a commodity sui generis and for production thereof, the Raw Material Supplier is considered to be a manufacturer under the Central Excise Act, 1944 vide Rule 4(3) of the Central Excise Rules, 2002, which reads as under: - "Notwithstanding anything contained in Sub-rule (1), every person who gets the goods, falling under Chapter 61 or 62 of the First Schedule to the Tariff Act, produced or manufactured on his account in jobwork, shall pay the duty leviable on such goods, at such time and in such manner as may be specified under these rules. Whether the payment of such duty be secured by bond or otherwise, as if such goods have been manufactured by such person." Law enacted as above, considering the special milieu and condition in the Readymade Garment Market and Industry, accept the Raw Material Supplier as a manufacturer. Then, for the purpose of this case, there is no reason, not to consider LSLL, in this case, as the manufacturer of the Readymade Garments exported, as is being understood in the Readymade Garment Market and Industry milieu since manufacturer for purposes of Drawback is not specifically defined.
(ii) The minute of a meeting of EOUs held by Commissioner, Bangalore is as follows: - Minutes of the 100% EOU Meeting held on 18-12-98 at 3.30 PM with the representatives of 100% EOUs under the: Chairmanship of Dr. J. Sridharan, Commissioner of Customs, Bangalore.
Point 1) As per Para 4 of the above circular, Govt. has permitted that EOUs to utilize their idle capacity by undertaking job work of DTA unit subject to the condition that the goods so manufactured should be sent directly to the port and not to be sent back to DTA. (ii) Confirmation that DTA shall be the exporter who will file regular DBK shipping bill and that the DBK should be eligible for full all industry rate of drawback for such export.
Reply (I) In case of EOU undertaking job work and such goods being exported, the existing procedure for removal of goods for export from an EOU to gateway ports shall be followed in this case also.
(ii) The owner of the goods shall file the shipping bill and not the EOU unit (job worker). The benefits, if any, of the export shall accrue to the owner of the goods." As per these minutes, the owner of the Readymade Garments in this case i.e., M/s. LSLL has been allowed to file a drawback shipping bill for export of the said goods and therefore the benefits of such an export on the drawback shipping bills permitted to be filed by the proper officer should accrue to the owners exporters i.e M/s.
LSLL, as assured and maintained at this meeting. The Commissioner's finding on this plea of the appellants are therefore rejected, since the minute do not show any purported meaning, as held by the Commissioner. The minutes when read plainly prescribe, that the procedure should be followed and shipping bill should be filed by the owner who will be eligible for the benefit. M/s. LSLL in this case have filed the same and the drawback amounts on the same as claimed, have been correctly sanctioned to them. We do not uphold the Commissioner's finding to upset that grant made as per this promise made to EOUs and others by the very Commissioner, Bangalore.
(iii) Considering General Note No. 2(a) of Notfn. No. 67/98-Cus.
(N.T.), dtd. 1-9-98 which reads as under : - "manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 (52 of 1962)" and the Commissioner's findings thereon, it is found that Section 65 of the Customs Act provides for manufacture of the goods in a warehouse licenced under Section 58 of the Customs Act, 1962. This Section reads as under: - "65. Manufactured and other operations in relation to goods in a warehouse - (1) With the sanction of the Assistant Collector of Customs and subject to such conditions and on payment of such fees, as may be prescribed, the owner of any warehoused goods may carry on any manufacturing process or other operations in the warehouse in relation to such goods." The term 'warehoused goods' used in this Section 65 is defined under Section 2(44) of the Customs Act, as 'warehoused goods' means goods deposited in a warehouse. Goods deposited in a warehouse, are only such goods, which would be permitted under Section 60 of the Customs Act or removed from other warehouse under Section 67. The garments in this case are admittedly fabricated from raw materials supplied by LSLL, and not from any imported goods, which are deposited under provisions of Section 60 of the Customs Act or removed and received under Section 67 by the EOU. Therefore, the fabrication activity being carried out on raw material, goods other than 'goods deposited' under Section 60 or received under Section 67, even if carried out in the warehouse premises, would not be covered by the provisions of Section 65 to construe as manufacture of goods in a warehouse. If we do not interpret in that manner, then it would invoke, the provisions of recovery of, duty on waste and rejects etc. even on goods, which are duty paid and/or brought from dutiable Domestic Tariff Areas. Such an interpretation, would render the levy of duty, on waste/rejects even on domestic duty paid raw material, if required to be removed from these premises, to levy of a Customs duty. Such levy would be not permissible, as there can be no levy on goods, removed from a warehouse for home consumption, other than those which are deposited under Section 60 or received transferred under Section 67 of the Customs Act. The Control envisaged and duty liabilities by the provisions of Chapter IX of the Customs Act, is only on imported non-duty paid goods and not on duty paid Domestic Tariff Area Goods, which may be brought into the bonded warehouse areas under specific relaxation granted by the Board's Circular dtd.
14-9-98. In this view, manufacture of Readymade Garments on Raw Material supplied by LSLL is not covered by Section 65. Therefore, the findings arrived by the Commissioner, as regards the exclusion by this Clause 2(a) of Notfn. No. 67/98 cannot be sustained.
(iv) Examining the exclusion by Notfn. No. 67/98-Cus. (N.T.), dtd.
1-9-98 by Clause 2(c), which reads as under: - "(c) Manufactured and/or exported by a unit licensed as hundred per cent export oriented undertaking in terms of the relevant provisions of the Import and Export Policy in force........." it is found, the interpretations and the findings arrived at by the Commissioner cannot be sustained. If these goods are considered as manufactured and/or export of an EOU, then that would count towards the export performances of the EOU and the Import Policy, does not permit any such counting of such exports of an EOU. The Readymade Garments, in this case, have been found to be understood as having been manufactured by M/s. LSLL and are owned and exported on a Drawback Shipping Bills allowed to be filed by the proper officer of Customs. They are not fabricated/manufactured in a warehouse under Section 65 as arrived at herein-above, after considering the provisions of the said Section 65 of the Customs Act, 1962. In that view of the matter, the Readymade Garments in this case cannot be considered to be manufactured and/or exported by an EOU. Admittedly, after removal from the EOU on transhipment shipping bills, the proper officers have allowed M/s. LSLL to file the shipping bills as an exporter and drawback has been granted not on the transhipment shipping bills but on the substituted Drawback Shipping Bills permitted to be filed by M/s. LSLL. Therefore, these readymade garment exports are not found to be manufacture or an export by an EOU under the policy to be hit by the exclusion Clause 2(c) of Notfn. No. 67/98.
(v) When it is found that goods are not manufactured and/or exported by an EOU, but can be considered to be manufactured and are allowed to be exported by M/s. LSLL, then there is no reason to deny M/s.
LSLL the drawbacks eligible to an exporter under heading No. 6201.
There is no finding that the Raw Material used has not suffered duty. The findings of the Commissioner, for denying the claims of Drawback on various other grounds, as extracted herein above, on the nature of exemption to capital goods of an EOU, etc., are his interpretations on issues which were not raised in the notice and cannot, be a reason to deny the just claim." Therefore, in view of the above findings, we cannot uphold the rejection of the pending claims arrived at on the grounds of exclusion of Paras 2(a) and (c) of General Notes to the Notifications as arrived at in Para 68 (supra) of the impugned order.
(c) As regards the infringement of Para 3.54 of the EXIM Policy, 1997-2002, alleged in the Invoices and the liability for confiscation of the goods and consequential penalty under Section 114(iii) of the Customs Act, 1962, the Commissioner has found as follows :- "69. With regard to the proposal for confiscation of the goods under Section 113(i) valued at Rs. 7,38,95,957/- exported under claim for drawback, it has been contended that the goods exported by them corresponds in all the material particulars to the declaration in the shipping bills and that the eligibility or otherwise drawback of the exporter has nothing to do with Section 113(i) just like eligibility or otherwise to exemption does not render the imported goods liable to confiscation under the corresponding Section 111(m) of the said Act as held by the Hon'ble Supreme Court in Northern Plastics v. Commissioner - [1998 (101) E.L.T. 549] and as the said goods were not liable for confiscation, they are also not liable for penal action under Section 114(iii) of the said Act. I have considered this plea. From the records of the case I find that Shri Manoharan Nair in his statement, inter alia, stated that when the goods were produced on job work basis in an EOU as 'usually' they do not indicate in the Shipping Bills whether the goods are manufactured by them in their own unit or subcontracted outside and regarding the requirement under Para 3.54 of EXIM Policy it has been stated that the shipment are not treated as third party shipment, but only as jobwork, whether by an EOU or DTA Unit. It has been admitted by them that the manufacturer's name (100% EOUs viz., M/s.
Sara International Inc. and M/s. Tropicate Textiles Ltd., should have been mentioned along with the third party M/s. LSLL. As already discussed the Shipping Bills were filed by M/s. LSLL under EDI sys tem where no provision for export by 100% EOUs had been made on the dates of filing of Shipping Bills. Further the Shipping Bills were filed on the basis of their own invoice and they claimed duty drawback at the rate applicable for sub-serial No. 62.01 of the Table annexed to the Notfn. No. 67/98-Cus. (N.T.), dtd. 1-9-98 as amended and Notfn. No. 31/99-Cus. (NT.), dtd. 20-5-99 as amended.
Para 3.54 of the EXIM Policy 1997-2002 stipulates that "Third Party Exports" means exports made by an exporter or manufacturer on behalf of a third party and in such cases Shipping Bill shall indicate the name of both the Exporter/manufacturer and the third party. In the light of the above, M/s. LSLL should be considered as a third party and the goods were manufactured on their behalf by 100% EOUs and exported out of their premises directly and therefore, the Shipping Bills filed at Custom House, Chennai should have indicated both the names and LSLL and the corresponding manufacturer which was not done even after the issue of Circular No. 74/99, dtd. 5-11-99 in terms of which names of "Ex-porter-DTA Unit" and "Jobworker 100% EOU Unit" should be mentioned in the invoice and AR4 form. In terms of Section 113(i) of the Customs Act, 1962, "goods" entered for exportation under claim for Drawback which do not correspond in any material particular with the entry made under the Customs Act, 1962 are liable for confiscation. The Customs and Central Excise Duties Drawback Rules, 1995 have been framed under Section 75 of the Customs Act, 1962. The above said Shipping Bills filed under the Drawback Rules reflects the material discrepancy that the Drawback is claimed at the All Industry Rate for the "goods" exported without mentioning name of the 100% EOUs where the "goods" have been manufactured as required under the Customs Act, 1962 and the Rules made thereunder with an intention of claiming higher drawback, I find that the 'goods' are liable to confiscation under Section 113(i) inasmuch as the full particulars of the 'goods' have not been declared i.e. the 'goods' have not been declared to be manufactured by 100% EOUs. Further the entry referred to in Section 113(i) should be taken to be declarations made in the Shipping bill and supporting documents in toto and not only the declaration with reference to description, quantity, etc., made on the shipping bill. In the instant case, it was mandatory on the part of the exporter to declare the manufacturer of the 'goods' as the same has an impact on the rate of drawback to be applied for exports. This has not been done at the time of making an entry for export under the Customs Act, 1962 and therefore such 'goods' allowed for export should be deemed to be liable to confiscation under the provisions of Section 113(i) of the Customs Act, 1962. The fact that the goods have already been exported and not available for confiscation will be kept in mind while imposing penalty. Therefore, the submissions made by the Noticees that the 'goods' exported correspond in the material particulars to the 'goods' covered under various Shipping Bills detailed in the Annexures to Show Cause Notice has no substance and the decision in the case of Northern Plastic Ltd. v. Collector of Customs & Central Excise--[1998 (101) E.L.T. 549 (S.C.)] relied upon by them is of no avail, as the submission completely overlooks the provisions of Customs Act, 1962 read with the Customs and Central Excise Duties Drawback Rules, 1995. The fact that the 'goods' are manufactured by 100% EOUs has not been indicated on the Shipping Bills and claimed undue benefit of duty drawback which the DTA Unit was not entitled to, by virtue of Notfn. No. 67/98-Cus. (N.T.) and Notfn. No, 31/99-Cus. (NT.), I am constrained to impose a penalty under Section 114(iii) of the Customs Act, 1962 on M/s. Leela Scottish Lace Ltd., Mumbai." (i) Para 3.54 of the EXIM Policy is only a definition of the term 'third party exports' and it reads as follows :- '3.54 "Third-party exports" means exports made by an exporter or manufacturer on behalf of a third party. In such cases, shipping bills shall indicate the name of both the exporter/manufacturer and the third party.
This definition and the requirement of mentioning the names of EOUs on Shipping bills and other documents at the time of export would arise only if the exports were third party exports. In view of the findings, that M/s. LSLL are the owners, manufacturers and exporters of the goods in all these cases, inasmuch as it is their Shipping bills and invoices, the goods have finally been exported, the non-mention of the EOUs as alleged and found in these proceedings by the Commissioner cannot be upheld. When the exports are not third party exports, there was no liability for a declaration on the Shipping Bills or other documents. We do not therefore, uphold the findings as arrived at in Para 69 (extracted supra) on this aspect.
(ii) As regards the findings on the requirement of mentioning "Exporter - DTA Unit" and "Jobworker - 100% EOU Unit" in the Invoice and AR4 form, after issue of Circular No. 74/99, dtd. 5-11-99 no statutory backing for such a requirement has been found thereto even by the Commissioner. Therefore, non-mention of the same on the Export documents would not call for a liability in terms of Section 113(i) of the Customs Act, 1962 for the goods entered and allowed for exportation under claim for drawback. There is no statutory requirement and absence of the said terms in the document cannot be considered, as 'not corresponding in any material particularly with an entry made under the Customs Act, 1962. In any case, when the owner, manufacturer and exporter is M/s. LSLL, such a mention on the Shipping documents would amount to an incorrect declaration and was not called for. No finding has been arrived at, as regards the incorrect mention of quality, quantity, and values on the shipping bills. These are the material particulars on a Shipping Bill, which if incorrectly mentioned, may call for invoking the confiscation clauses of Section 113(i). In the present case, these have not been alleged to be mis-declared or mis-stated. Therefore, we find no reason to find the liability for confiscation under Section 113(i) as arrived at in Para 69 (extracted supra) of the impugned order. We also do not find that the submissions on the applicability of the decision of the Supreme Court in the case of Northern Plastics reported in 1998 (101) E.L.T. 549 relied by the appellant, is not applicable in the facts of this case, and do not uphold the findings as arrived at by the ld. Commissioner on this aspect, when goods are not manufactured by an EOU in this case and we do not find any undue benefit or drawback which the DTA Unit M/s. LSLL was not entitled for. In that view of the matter, we do not find any reason for confiscation of the goods and/or liability for penally under Section 114(iii) as arrived at in the impugned order and/or to deny the drawback claims paid correctly and now ordered to be recovered or appropriation of any amounts in lieu thereto or any interest as determined.
7. In view of our findings, the order is set aside and appeal allowed with consequential benefit.