Full Judgment
(c) The Head Office of M/s. ALSA in the normal course of their business applied for and obtained several Advance Licenses under the DEEC Scheme from the DGFT in the name of M/s. ALSA Marine & Harvests Limited, Chennai. As per Chapter VII of the EXIM Policy 1992-97, an Advance Licence is granted for the duty free import of the inputs.
(d) Based on an information that the 100% EOU of M/s. ALSA at Bhimli had unauthorisedly and clandestinely removed the products manufactured by them to the DTA and that the said goods were subsequently exported in the name of M/s. ALSA Marine & Harvests Ltd., Chennai, under the DEEC Scheme in fulfilment of the export obligation under the different DEEC licences issued in favour of the said Chennai unit of M/s. ALSA Marine & Harvests Ltd., investigation was initiated by the department.
(e) From the enquiries made, it appeared and was alleged in as that M/s. ALSA, Bhimli, a 100% EOU had :- (i) removed the goods manufactured by them to the DTA without payment of duty and without the cover of the documents prescribed in Rule 100D of the Central Excise Rules, 1944, and without following the procedures as stipulated in Rule 100E ibid; (ii) failed to observe the conditions of Notfn. No. 13/81-Cus. dated 9-2-81 under which goods were imported duty free, in so far as they did not export out of India hundred percent or such other percentage, as may be fixed, of articles manufactured wholly or partly from the goods imported; (iii) failed to observe the conditions of Notfn. No. 123/81-C.E., dated 2-6-81, 57/94-C.E., dated 1-3-94 and 1/95-C.E., dated 4-1-95 under which indigenous goods were received without payment of central excise duty against CT-3 certificates, in so far as they failed to export out of India hundred percent or such other percentage, as may be fixed, of articles manufactured wholly or partly from such non duty paid goods; (iv) failed to observe conditions of the bond executed by them before the Assistant Commissioner of Central Excise and Customs, Visakhapatnam undertaking to fulfil the export obligations and conditions stipulated under the Import and Export Policy.
(v) The 100% EOU of M/s. ALSA at Bhimli appeared to have imported different goods valued at Rs. 37,10,164.00 without payment of duty during the period from September 1992 to December 1995 under Notfn.
No. 13/81-Cus., dated 9-2-81. The goods were allowed to be imported and cleared duty free subject to observance of the different conditions stipulated in the Notification. Since M/s. ALSA appeared to have failed to observe the conditions of the said notification, the goods imported by them and cleared duty free as listed in Annexure-A to the Show Cause Notice, appeared to be liable for penalty under Section 114A and/or 112(a) of the Customs Act, 1962.
They also appeared to be liable to pay the customs duty amount of Rs. 27,53,915.00 as indicated in Annexure-A to the Show Cause Notice.
(vi) The 100% EOU of M/s. ALSA appeared to have procured different goods of indigenous origin without payment of central excise duty vide Notfn. No. 123/81-C.E., dated 2-6-81, 57/94-C.E., dated 4-1-95 and 1/95-CE., dated 4-1-95. The said goods were allowed to be procured duty free on the strength of CT-3 certificates subject to the observance of the different conditions stipulated in the notifications referred to above. Since M/s. ALSA failed to observe the conditions of the aforesaid notifications, in so far as they failed to export 100% of such other percentage as fixed, of the goods manufactured wholly or partly from the said goods and instead used the said goods in the manufacture and clearance of articles for DTA sales. It appeared that the said goods as listed in Annex-ure-B to the Show Cause Notice were liable for confiscation under Rule 173Q(l)(b) of the C.E. Rules 1944 and M/s. ALSA were liable for penalty under Rule 173Q(i) ibid. They also appeared to be liable to pay central excise duty amounting to Rs. 2,77,430/- payable on the said goods.
(vii) The 100% EOU of M/s. ALSA at Bhimli appeared to have unau-thorisedly removed the finished goods namely frozen marine products packed in packing materials made out of LDPE, craft paper and cardboard totally valued at Rs. 9213.16 lakhs during the period from 1992-93 to 1995-96 from their 100% EOU to the DTA for sale to their Head Office. Since imported marine products were exempt from duty during 1992-93 to 1993-94 vide Notfn. No. 29/92-Cus., dated 1-3-92. From 1-3-94 onwards, duty @ 10% adv. was chargeable on all goods falling under Chapter 3 of the Custom Tariff vide Notfn. No. 98/94-Cus., dated 1-3-94. The value of goods cleared to the DTA by M/s. ALSA during March 1994, 1994-95 and 1995-96 was Rs. 4,25,49,371/-, Rs. 43,47,97,371/-. The total duty payable on the above said goods at the rate of 10% Adv. works out to Rs. 4,34,79,737.10. They also appeared to be liable for penalty under Rule 173Q(1) of the Central Excise Rules, 1944.
(viii) Since it appeared that the 100% EOU of M/s. ALSA had cleared the abovesaid manufactured goods without payment of duty and without raising any invoice as stipulated under Rule 100D of the Central Excise Rules, 1944 and without following the procedures prescribed and since they appeared to have given false statement to the Development Commissioner, VEPZ, Visakhapatnam, in the returns filed to the effect that the said goods were exported in discharge of the export obligation on them and suppressed vital information that the said goods were exported in the name of their Head Office in discharge of the export obligation on the said Head Office against the Advance Licences under the DEEC Scheme taken by them, the extended period of limitation as provided in the proviso to Section 11A(1) of the Central Excise Act, 1944 appeared to be applicable for raising the demand of duty on the finished goods cleared. Since the imported and indigenous goods were received by them duty free by giving false declaration that such goods would be utilized in the manufacture of goods for export and since they appeared to have violated the conditions of the notifications under which those goods were allowed clearance duty free, the extended period of limitation as provided in the proviso to Section 28(1} of the Customs Act, 1962 and the proviso to Section 11A(1) of the Central Excise Act, 1944 appeared to be applicable for raising the demand on the goods received in their 100% EOU without payment of duty.
(f) Hence, a Show Cause Notice C.No.V/15/30/43/9/-Adj. dated 12-12-97 was issued to M/s. ALSA, requiring them to show cause as to why :- (i) an amount of Rs. 27,53,915.00 being the duty of customs payable on the goods imported by them under Notfn. No. 13/81-Cus., dated 9-2-81 should not be demanded from them under the proviso to Section 28(1) of the Customs Act, 1962 and in terms of the bond executed by them; (ii) an amount of Rs. 2,77,430.00 being the Central Excise duty payable on the goods received by them duty free under CT-3 certificates should not be demanded from them under the proviso to Section 11A(1) of the Central Excise Act, 1944 and in terms of the bond executed by them; (iii) an amount of Rs. 4,34,79,737.10 being the duty of excise payable on the marine products cleared to the DTA by them without payment of duty should not be demanded from them under the proviso to Section 11A(1) of the Central Excise Act, 1944.
(iv) The goods imported by them valued at Rs. 37,10,164/- without payment of duty should not be confiscated under Section 111(o) of the Customs Act, 1962; (v) The indigenous goods valued at Rs. 17,80,492/- received without payment of Central Excise duty against CT-3 certificates should not be confiscated under Rule 173Q(l)(b) of the Central Excise Rules, 1944; (vi) Penalty should not be imposed on them under Section 114A and/or 112(a) of the Customs Act, 1962 under Rule 173Q(1) of the Central Excise Rules, 1944 and Section 11AC of the Central Excise Act, 1944; (vii) Interest should not be paid by them on the duty sought to be evaded as provided in Section 28AB of the Customs Act, 1962 and Section 11AB of the Central Excise Act, 1944, as the case may be; and (viii) The amount of Rs. 5,00,000/- already paid by them vide TR-6 challan dated 2-9-97 should not be adjusted against the above demands.
(a) It is admitted by M/s. ALSA that the goods in question, processed and packed in their 100% EOU at Bhimli, were allowed to be exported in the name of their Head Office in Chennai, a DEEC Advance Licence holder. It is also not disputed that M/s. ALSA Marine & Harvests Ltd., Chennai had exported the above said goods under the DEEC Scheme, and discharged their export obligation under the DEEC Scheme to that extent.
(b) There is clear distinction between units operating as Hundred percent Export Oriented Undertakings and units operating in the Domestic Tariff Area. The clear distinction between hundred percent EOU and units in DTA is further evident from paragraph 160 of Chapter IX of the Hand Book of Procedures April, 1992 - March 1997.
(c) M/s, ALSA Marine & Harvests Ltd. Chennai, had procured Advance Licences under the Duty Exemption Entitlement Scheme from the licensing authorities and they were under legal obligation to export the specified quantity of goods and to bring in foreign exchange to the county. The 100% EOU of M/s. ALSA at Bhimli also, being a hundred percent EOU, are under legal obligation to export their products and to bring in foreign exchange to the country. Hence, as per the law, the Advance licence (DEEC) holders and the hundred percent EOU have the individual and independent obligation to export goods and to bring in foreign exchange to the country.
(d) M/s. ALSA Marine & Harvests Ltd., Chennai, being a unit in the DTA, are required to export goods from the DTA, in discharge of their export obligation. Similarly, M/s. ALSA at Bhimli, being a hundred percent EOU, are required to export goods from the EOU, in discharge of their export obligation. The line of demarcation, role and responsibilities of both the DEEC holder (DTA) and the hundred percent EOU are well defined. When a consignment originating from hundred percent EOU is exported by a unit in the DTA, it cannot be said that both of them have complied with the export obligation on them. There is only one export and only one of them can claim credit for the said export. Since the goods in question were not exported in the name and account of the 100% EOU of M/s. ALSA at Bhimli, but in the name of the domestic unit of M/s. ALSA Marine & Harvests Ltd., Chennai, the said goods cannot be considered to have been exported by the 100% EOU of M/s. ALSA at Bhimli. Hence, in the books of accounts of M/s. ALSA, the said consignments remain as unaccounted.
(e) As per the Import-Export Policy in force, no replenishment benefit would be admissible on any export or supplies effected by a 100% EOU. In the instant case, in the shipping bills filed by M/s.
ALSA Marine & Harvests Ltd., Chennai, for the export of the goods in question, there was no indication that the goods had originated from a 100% EOU. Hence, the export consignments were considered by the customs authorities as originated from the DTA and the said goods were allowed to be exported under the Advance Licence DEEC Scheme in discharge of the export obligation under the said scheme, as claimed by the DEEC holder. In other words, M/s. ALSA had, by handling over the goods in question packed and processed in their 100% EOU to M/s: ALSA Marine & Harvests Ltd., Chennai, allowed the latter (the domestic unit) to avail of export replenishment benefits on the export of the goods in question, which benefit was not otherwise due to the said goods.
(f) The argument of M/s. ALSA that the goods were subsequently exported by M/s. ALSA Marine & Harvests Ltd., Chennai, does not help the 100% EOU of M/s. ALSA because the said exports were effected by the DTA unit of M/s. ALSA Marine &, Harvests Ltd., Chennai in their name, as if the goods had originated from the DTA and accordingly they had claimed the export benefits due to such goods originated from the DTA. (g) It is clear that M/s. ALSA had during March 1994, 1994-95 and 1995-96 cleared frozen marine products processed and packed in their 100% EOU at Bhimli of a total value of Rs. 43,47,97,371/- to the DTA (to the Head Office of M/s. ALSA Marine & Harvests Ltd., Chennai, a unit in the Domestic Tariff Area) without payment of duty.
(h) As per Section 2 of the Central Excise Tariff Act, 1985, the rates at which duties or excise shall be levied under the Central Excise Act, 1944 are specified in the Schedule. The goods in question are chargeable to 'Nil' rate if duty under Heading 03.01 of the Schedule to the Central Excise Tariff Act, 1985. Since 'Nil' rate has to be considered as a rate of duty, the above products are subject to a duty of excise. Therefore, it is clear that shrimps and other marine products are excisable goods. In the Customs Tariff, shrimps and prawns fall under Heading 0306.13 and are chargeable to duty @ 10% ad valorem.
(i) It was also argued that no duty was payable on the goods in question as they were not used for home consumption. As per Section 3 of the Central Excise Act, 1944, the duties of excise shall be levied and collected on all excisable goods which are produced or manufactured in India. As per Rule 9 of the Central Excise Rules, 1944, no excisable goods shall be removed from any place where they are produced or manufactured, whether for home consumption or export, until the excise duty leviable thereon has been paid. If the goods in question were exported under cover of a shipping bill prepared in the name of the 100% EOU, the argument of M/s. ALSA would have been relevant. In the instant case, the goods in question were not covered under any of the documents of the 100% EOU. The shipping bills which were presented to the customs were in the name of M/s. ALSA Marine & Harvests Ltd., Chennai, a domestic unit.
Hence, as far as the 100% EOU is concerned, the removal of the goods in question was unaccounted; the clearances were not for export as there were no valid export documents of the 100% EOU, accompanying the goods; no exports were actually made in the name of the 100% EOU; arid it was only an unauthorised and unaccounted removal of goods to the domestic tariff area. I, therefore, hold that M/s. ALSA is liable to pay duty of excise at the rate of 10% Adv. on the goods in question, namely Frozen Marine Products Processed and Packed in their 100% EOU at Bhimli, totally valued at Rs. 43,47,97,371/- sold by them to M/s. ALSA Marine & Harvests Ltd., Chennai, a DTA unit, during the period March 1994, 1994-95 and 1995-96. The total duty amount works out to Rs. 4,34,79,737.10.
(j) The 100% EOU of M/s. ALSA had imported various goods valued at Rs. 37,10,164/-, without payment of duty during the period from September 1992 to December 1995, under Notification No. 13/81-Cus., dated 9-2-81. They also executed a bond with the Assistant Commissioner of Central Excise and Customs, Visakhapat-nam undertaking to fulfil the export obligation and the conditions of Notification No. 13/81-Cus. dated 9-2-81. M/s. ALSA had failed to observe the conditions of the above said notification and also the conditions of the bond executed by them by their failure to export hundred percent of such other percentage, as fixed, of the goods processed and packed in their 100% EOU using the imported goods. The Development Commissioner, VEPZ, Visakha-patnam also, vide Letter No. QPR(76)/VEPZ/96-97, dated 21-3-97 rejected the request made by M/s.
ALSA to permit them to fulfil the export obligation part which was accounted against Advance Licence Scheme along with the export obligation for the remaining period of five years, instead of paying the duty amount of Rs. 22,08,935 foregone on the duty free imports made by them during the period from 1992-93 to 1995-96. They directed M/s. ALSA to pay the duty amounting to Rs. 22,08,935/- to the jurisdictional Assistant Commissioner of Customs immediately.
Since, M/s. ALSA failed to fulfil the conditions of Notification No. 13/81-Cus., dated 9-2-81 and since the Development Commissioner, VEPZ had held that they had not fulfilled export obligation, they are liable to pay the duty on the above said imported goods cleared duty free. Though M/s. ALSA agreed to pay the customs duty payable on the above said goods, they did not come forward to pay up the amount. The total customs duty amount payable on the abovesaid imported goods works out to Rs. 27,53,915/-. As per Section 111(o) of the Customs Act, 1962, any goods exempted, subject to any condition, from duty of any prohibition in respect of the import thereof under the Customs Act, 1962 or any other law, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer, is liable for confiscation. In the instant case, the goods in question were allowed to be cleared duty free on the condition that M/s. ALSA would fulfil the export obligation. The BOA for 100% EOU turned down the request of M/s. ALSA for shifting their 100% EOU status to 1-4-96 onwards. The Development Commissioner VEPZ also rejected the request made by M/s. ALSA to permit them to fulfil the export obligation part, which was accounted against Advance Licence Scheme along with the export obligation for remaining period of five years.
Since the Ministry and the Development Commissioner did not relax the conditions and instead directed M/s. ALSA to pay the duty foregone on the imported goods and since it is proved that M/s. ALSA had not observed the conditions under which the goods in question were exempted from duty, the said goods are liable for confiscation under Section 111(o) of the Customs Act, 1962. M/s. ALSA are also liable for penalty under Section 112(a) of the Customs Act, 1962.
(k) M/s. ALSA violated the conditions in Notfn. 123/81, 57/94 and 1/95 by making unaccounted and unauthorized clearances to the DTA unit of M/s. ALSA Marine & Harvests Ltd., Chennai. It is a well settled principle of law that when a substantive condition of a notification is not satisfied, the benefit accruing from the said notification is not available. Further, the user industry should follow the procedure contained in Chapter X of the Central Excise Rules, 1944. As per rule 196 (Chapter X) of the Central Excise Rules, if any excisable goods obtained under Rule 192 are not duly accounted for as having been used for the purpose and in the manner stated in the application, the applicant shall on demand by the proper officer, immediately pay the duty leviable on such goods.
Since M/s. ALSA failed to observe the conditions of the above said notifications and since the Department Commissioner VEPZ rejected their request to permit them to fulfil the export obligation part which was accounted against Advance Licence Scheme along with the export obligation for remaining period of five years, M/s. ALSA are liable to pay duty on the above said goods received duty free, as provided in Rule 196 of the Central Excise Rules, 1944. Though M/s, ALSA agreed to pay the duty amount involved in respect of the above goods, they have not come forward to pay up the amount. The total Central Excise Duty amount payable on the above said goods works out to Rs. 2,77,430/-.
(l) Since M/s. ALSA failed to account for the above said goods as having used for the purpose for which they were received duty free and availed of the exemption without satisfying the conditions attached to the notifications, the said goods are liable for confiscation under Rule 173Q(l)(b) of the Central Excise Rules, 1944. M/s. ALSA are also liable for penalty under Rule 173Q(l)(b) of the said rules.
(m) From the above discussions it is clear that M/s. ALSA had cleared the goods manufactured in their 100% EOU to the DTA without payment of duty and without raising any invoice and without following the stipulated procedure for such clearance. They have also suppressed the fact of clearance of the said goods in the DTA without payment of duty from the knowledge of the department.
Chapter VA of the Central Excise Rules, 1944 prescribes the procedure for removal of excisable goods for home consumption from an FTZ or from a hundred per cent export oriented undertaking. In the present case M/s. ALSA did not observe the different procedures prescribed in the rules such as :- They did not indicate the value of goods and duty involved separately in the invoice and they did not forward the triplicate copy of the invoice to the proper officer within 24 hours of the removal of goods as prescribed under Rule 100D of the Central Excise Rules, 1944.
The goods in question were removed without payment of duty to the DTA in contravention of Rule 100E; and They did not file the monthly return in respect of the DTA sales effected by them, to the proper officer as prescribed under Rule 100F. In other words, M/s. ALSA had suppressed the fact of clearance of goods in question without payment of duty from the knowledge of the department and they had contravened the provisions of Rules 100D, 100E and 100F of the Central Excise Rules, 1944 with intention to evade payment of duty on the shrimps cleared by them to the DTA. M/s. ALSA had also, in a fraudulent manner, allowed the goods in question, manufactured in their 100% EOU to be exported in the name of their Head Office, M/s. ALSA Marine & Harvests Ltd., Chennai, a DTA unit, in discharge of their export obligation under the Advance licence under the DEEC Scheme. They also allowed the domestic unit to avail of the replenishment benefits, which benefits were not due to the goods processed and packed in the 100% EOU of M/s. ALSA. Hence the extended period of limitation as provided under the proviso to Sub-section (1) of Section 11A of the Central Excise Act, 1944 is applicable to the demand in question.
(n) Since M/s. ALSA had contravened the different provisions of the Central Excise Rules, 1944 as aforesaid, with intention to evade payment of duty on the goods in question, they are liable for penalty under sub-rule (91) of Rule 173Q of the Central Excise Rules, 1944. Since the removal of the goods in question were effected prior to 28-9-96, the provisions of Sections 11AB and 11AC of the Central Excise Act, 1944 are not applicable to the present case.
Hence, he confirmed the amounts of duties as determined and imposed penalty on M/s. ALSA under Rule 173Q{1) of Rs. 1,50,000/- and under Rule 112(a) of the Customs Act, 1962 of Rs. 50,000. He also ordered the confiscation of goods under Section 110 (o) and Rule 173Q(l)(b) and offered a redemption fine.
3. After hearing both sides and considering the material on record, it is found :- "Nothing in this Chapter shall apply to a manufacturer or producer who has been allowed to discharge his duty liability in accordance with the provisions contained in Sec. C-I, E-III, E-VI OR E-IX of Chap ter V or to whom the provisions of Chapter V-A apply." Therefore, penalty and confiscation as levied and ordered by the ld. Commissioner under the provisions of Rule 173Q cannot be upheld since Chapter VA of the Central Excise Rules, 1944 apply to removal from an EOU unit. Therefore, penalties and confiscations arrived at under Rule 173Q(1) are required to be set aside.
(b) Notification No. 125/84-C.E. dated 26-5-84 exempts goods manufactured in India in a EOU from whole of the duties levied thereon under Sec. 3 of the Central Excise Act with the following proviso : "Provided that the exemption contained in this notification shall not apply to such, goods if allowed to be sold in India." In this view of the matter, no Central Excise duty could be levied on goods cleared in this case from ALSA, EOU at Bhimli, as arrived by the ld. Commissioner, even if goods are held to be removed to Chennai, since such removals admittedly was not allowed to be sold in India being not within the DTA sales quota of an EOU. Moreover, there cannot be a sale from Bhimli unit to the owner company registered office at Chennai, when both these entities are in India of goods manufactured a Bhimli when Bhimli unit is owned by same corporate entity registered at Chennai.
(c) The goods manufactured and removed from the EOU have been admittedly and unquestionably Exported out of India. Therefore, there cannot be any duty leviable under the Customs Act and or Excise Act as arrived at by the ld. Commissioner. The goods brought to the EOU premises after availing benefit of exemption notifications under the Central Excise Act, 1944 and the Customs Act 1962 have been admittedly used in the manufacture of goods within the EOU. The denial of the benefit of exemption is not called for.
Exports in this case, from the EOU, as effected, cannot be held to be not exports in this case since export has not been defined under the Central Excise Act, 1944 or Central Excise Rules, 1944 thereunder; the meaning ascribed to the word 'export' as defined under the Customs Act and commonly understood, would have to apply.
Export under Sec. 2(18) of the Customs Act, 1962 is defined as under :- "(18) 'export'; that its grammatical variations and cognate expression, means taking out of India to a place outside India;" Since goods in this case have been undoubtedly, eventually, taken 'to a place outside India' after their removal from the EOU, their short sojourn and stay at Chennai, if at all, cannot be understood or interpreted to be a sale to DTA, as is being arrived at by the ld. Commissioner. They have been exported. If some unentitled benefit like DEEC as alleged has been claimed/granted the EOU cannot be found fault with. Since goods have been exported out of India, there cannot be any infringement of the EOU Rules except, possibly, a non-preparation of removal document for exports at the EOU gate, for which the heavy duty liabilities, penalty liabilities and confiscation liabilities under Customs Act, 1962 and or Central Excise Act, 1944, as arrived at, are totally uncalled for. The same are required to be set aside.
(d) Penalty for not preparing appropriate documents of removing the goods for export could be imposed only under Rule 210 of the Central Excise Rules, which are applicable to this EOU. That rule prescribes maximum penalty of Rs. 1000/-. There is no clear cut finding, as to on what document, if any, the goods were removed from the factory of the EOU and the notice under 210 Rule has been issued. Therefore, we refrain from determining any penalty under that rule.
(e) If the Exports had been made in contravention of the DEEC law, in as much as DEEC exports cannot be reckoned from an export from an EOU, then the DEEC availment by the appellant company should have been impugned by the Department and not the manufacturer and export from the EOU. (f) From a question from the Bench, it could not be clarified whether the DEEC exports and fulfilment of export obligations under the Advance Licences have been impugned. The Department is free to take such action for the DEEC exports misdeclared, in the facts of this case, as available under law to them. In any case, for DEEC exports, made from Chennai, the jurisdiction of Commissioner of Central Excise and Customs, Visakhapatnam is not competent officer to invoke that jurisdiction by taking cognizance of the exports correctly or incorrectly made from Chennai.
4. In view of our findings, this appeal is allowed with consequential relief, as per law.