1. Appellants are a registered company, having an EOU and Domestic Supply unit and its Jt. Managing Director.
1.2 (a) As an 100% EOU with imported Capital Goods, they are engaged in the manufacture and export of Down hole drilling equipments used for oil & gas exploration and hold the necessary Approvals as EOU & licencees under the Custom Warehousing provisions (Section 58 and Section 65). They availed the benefit of notification 1/95-C.E. as amended & 13/81-Cus. in respect of Indian & foreign raw materials, procured duty free, required for manufacture of the final products.
(b) Some time in 1996, to cater the buyers in the domestic market as well as for carrying out repairs in respect of the drilling pipes received, they started the Domestic Tariff Unit (herein after referred to as DSU for short) adjacent to the EOU with its own set of Capital Goods manufacturing using locally procured duty paid material.
1.3 Pursuant to specific intelligence, that they were evading Customs & Excise Duties enquiries were made and a notice dated 26-7-2001 was issued. The notice issued, called upon to show cause as to why : (i) The C. Ex duty amounting to Rs. 85,02,349/- and Rs. 38,99,756/- as detailed in Annexure A & B to the show cause notice in respect goods cleared by them under guise and cover of its Domestic supply unit during the period from 1996-1997 to 31-10-2000 should not be demanded and recovered from them as leviable in terms of Section 3(1) of the C. Ex. Act read with Section 12 of the Customs Act under proviso to Sub-section (1) of Section 11A of the C. Ex. Act.
(ii) An amount of the Rs. 85,00,000/- deposited by assessee should not be confirmed and appropriated against the duty liability due thereon.
(iii) The Customs duty amounting to Rs. 1,49,70,155/- as detailed in Annexure C to SCN during the period from 1996-1997 to 31-10-2000 on the imported duty free spares tools and consumables, wrongly utilized in the manufacture of the goods referred to (1) above and on the repair jobs carried out in conversation of the Customs Notifications No. 13/81-Cus., dated 9-2-1998 and 53/97-Cus. dated 9-6-1997 as amended, in force during the material time, should not be demanded and recovered from them under proviso to Sub-section (1) of Section 28 of the Customs Act, 1962 read with Section 72 of the Customs Act.
(iv) The Customs duty amounting to Rs. 3,02,51,893/- as detailed in Annexure D to SCN during the period from 1995-1996 foregone on the machinery allowed to be imported duty free should not be demanded and recovered from them for contravention of provisions of the Customs Notification No. 13/81-Cus., dated 9-2-1981 as amended, in force during the material time, as under the proviso of Sub-section (1) of Section 28 of the Customs Act, 1962 read with Section 72 of the Customs Act, 1962.
(v) The C.E. Duty of Rs. 6,01,972/- as detailed in Annexure E to SCN during the period from 1995-1996, foregone on the machinery allowed to be procured indigenously duty free should not be demanded and recorded from them for contravention of provision of C. Ex.
Notification No. 1/95-C.E., dated 4-1-1995 as under the proviso to Sub-section (1) of Section 11A of the C. Ex. Act, 1944.
(vi) The C. Ex duty amounts to Rs. 5,59,43,039/- as detailed in Annexure F to SCN on the goods cleared in the DTA in terms of para 9.10(b) of the Exim Policy (1997-2002) during the period from 1998-1990 till 31-10-2000 should not be demanded and recovered from them under proviso to Sub-section (1) of Section 11A of the C. Ex Act, 1944.
(vii) The total duty demanded should not be appropriated by enforcing the Bonds executed by M/s. Interdril, referred to at Sr.
Nos. 1 & 5 at para 6.1 supra for the aforesaid contraventions.
(viii) Penalty equal to the amount of duty determined to be payable should not be imposed on them under the provision of Section 11AC of the C. Ex. Act 1944, and also under Section 28AB of the Customs Act, 1962 and (ix) Penalty under Rule 173Q of the C. Ex. Rules, 1944 for the aforesaid contravention should not be imposed on them; and also under Section 112 of the Customs Act, 1962 should not be imposed on them.
In the above mentioned SCN, the DSU is required to show cause to the Commissioner of C. Ex. Mumbai VII as to why penalty should not be imposed on them under Rule 173Q of the C. Ex. Rules 1944 for abetting to assessee in evasion of the C. Ex. duty & the Jt. Managing Director, was asked to show cause why penalty under Rule 209A should not be imposed on him.
1.4 After hearing the appellants, the impugned order came to be passed confirming the Central Excise Duty of Rs. 85,02,349/- & Rs. 38,99,756/- & Rs. 6,9,972/- (sic) & Rs. 5,59,43,039/- as per details in Annexure A & B, E & F to the notice confirmation of Central duty of Rs. 1,49,70,155/- as detailed in Annexure C & Rs. 3,02,51,893/- as detailed in Annexure D along with penalty along with interest under Section 11AB. A penalty of Rs. 10 lakhs was imposed on the Jt. Managing Director under Rule 209A. Hence these appeals.
(a) Annexure D to show cause notice is a demand of Rs. 3,02,51,893/-on the machinery allowed to be imported duly free in the EOU which was alleged to have been used in contravention of the provision of the said notification. There is no provision in the notification, shown to us, under which the capital goods imported in an EOU providing that they would be used exclusively for manufacture of the EOU production Reliance placed by the Id. Advocate in the case of Indian Charges Chrome 2001 (138) E.L.T. 609 is well placed to induce is to not uphold this duty demand as made on the EOU on this issue. The activity of the EOU & DSU are separate & DSU has its own machinery installed; from the process involved in the manufacture at DSU, the same could be achieved by the machinery installed therein; the finding of the Commissioner that it was in practicable & impossible to do so by the lathe installed is an opinion arrived by the Adjudicator without any independent material relied to support the same. Mere fact found that the appeallants did not have permission to do job work in the EOU cannot lead to denial of the exemption on the Capital Goods installed in the EOU. The Appellants have relied upon the Tribunal decision in case of Chiramith Precision India 2002 (148) E.L.T. 714 (Tribunal) holding that EOU doing job work on behalf of Domestic Unit is permissible.
The Commissioner has totally ignored this aspect of settled law. We find no reason to call for and deny the exemption & raise duly demands under Section 28(1) read with Section 72 of the Customs Act 1962 as per Annexure D to the notice as confirmed by the Commissioner.
(b) The demands in Annexure E, are on machinery procured indigenously in term of said Notification 1/95-C.E. & installed in EOU; it cannot be upheld for the same reasons as for imported capital goods found herein above.
(c) As regards the duty demand of Rs. 5,59,43,039/- as Annexure F demanded on goods cleared under the provisions of para 9.10(b) of the Exim Policy, as supplies from ah EOU during the period 1998-1999 till 31-10-2000, the same cannot be upheld following the settled position by the Tribunal decision in case of Maruti Cottex Ltd. & Ors. . These clearances are duty free & duty cannot be demanded from the manufacturer i.e. EOU in this case. Reliance placed by the Ld. SDR on para 9.26 of Exim Policy stipulating the liability to pay Excise Duty, Sales Tax & Ors. taxes leviable would be a liability on the Purchaser & not the seller. This para does not help the case of Revenue to demand duty on the seller i.e. EOU herein.
(d) As regards the demands in Annexure A, B & C, it was submitted by the Ld. Advocate that the submissions made have not been considered & the documents produced in evidence not rebutted. The claim of such clearance being within the Domestic Tariff Area Sale & plea of considering these clearances under para 9.9(b) of the Exim Policy & benefit of notification 2/95-C.E. has not been considered by the Ld.
Commissioner. From the written reply it is also found that in para 8 of the written reply the appellants had contested the oral statements which they stated were contrary to the facts. This vital plea is required to be tested before the adjudicator. We would therefore, consider that the demands on the issues raised in Annexure A, B & C are required to be reconsidered & redetermined after hearing the appellants. For this purpose the matter is required to be remanded back for de novo adjudication keeping all aspects in these demand to be open for redetermination.
(e) Since the part of the matter is being remanded back for de novo adjudication, the issue of penalty on the appellants is kept open for redetermination after the demands, if any, are determined.
3. In view of the findings, the appeals partly allowed as regards setting aside of demands on Annexure D, E & F & partly remitted back for redetermination on all aspects on regards Annexure A, B & C along with the penalty if any. Appeals disposed accordingly.