Full Judgment
2. The Respondents is a 100% EOU for the manufacture and export of ready-made garments and knitwears. They imported several raw materials free of duty under the 100% EOU scheme. Since 1995, the unit has been non-functioning. Goods covered by 110 bonds totally valued at Rs. 7,15,82,320/- involving a Customs Duty of Rs. 9,21,60,949/- are lying unutilized and the extension of warehousing period was not obtained in time. Therefore, proceedings were initiated by the Dy. Commissioner of Customs in Show Cause Notice dated 26-9-2002. The Development Commissioner taking into the account the relevant facts allowed the debonding of the unit in his order dated 26-11-2002. The Respondents requested the Customs Authorities for re-export of the materials. The Commissioner of Customs gave them extension of warehousing period till 12-10-2003. As the Respondents failed to comply in the sense they could not re-export the goods, the Dy. Commissioner issued a notice demanding a duty of Rs. 3,64,033/- and Rs. 9,17,96,916/- along with applicable interest. The reason for demanding duty is that the goods were treated to have been improperly removed from the warehouse within the provisions of Section 72(l)(b) of the Customs Act. An Order-in-Original No. 25/2004 dated 14-9-2004 was issued to the effect that in case of failure to comply with the demand of duty, the goods shall be sold for recovery of the said amounts. Against the above mentioned Order No.25/2004, the Respondents approached the Commissioner (Appeals). The Commissioner (A) made the following observations in the Para 14 of the impugned order.
14. In view of what has been discussed herein above, I hold that since the appellants are in dire financial straits and have liabilities to the Department of Customs, the Bank and others, and are in no position to generate funds under the circumstances, but have stock of fabrics of approximately Rs. 7.0 17/207/2 crores in godown, it would be in the fitness of things and fair to consider releasing, may be only 30% to 40% of the stock of fabrics, free of all encumbrances, to the appellants and giving them an opportunity to sell in re-export to an appropriate buyer and clear their dues of the confirmed demand within a period of ninety days. The balance stock of fabrics of about 70% or so would continue to remain in the custody of the warehouse. It is highly probable that in the event of a distress sale through auction, the appellants might not even get a fair deal and will thus not be able to meet the creditors. Such a possibility is worth examining and may even require special dispensation and permission from the appropriate authorities at higher level and I suggest ought to be undertaken without loss of further time and taking everyone into picture. I, therefore, pass the following order.
The OIO No. 25/2004-Cus. Divn. Dated 14-9-2004 of the Asst.
Commissioner of Customs, Customs Division, Bangalore is set aside and the case is remanded back to the same authority for reconsideration in toto and for passing an order as deemed fit within 15 days.
3. Revenue is aggrieved over the impugned order on the following grounds.
(i) After the amendment of Section 128A(3) of the Customs Act, 1962 by Section 110 of the Finance Act, 2001 remand power earlier available with the Commissioner of Customs (Appeals) has conspicuously been withdrawn. This issue has been covered in favour of Revenue in order No. 1212 to 1213 dated 18-9-2003 passed by this Tribunal in the case of M/s. Indal Hydro Extrusions.
(ii) Section 128A(4) of the Customs Act, 1962 dealing with the procedure in appeal, requires the Commissioner (Appeals) to state the points for determination, the decision thereon and the reasons for the decision. A perusal of the impugned OIA reveals that no such points for determination have been framed by the Commissioner (Appeals).
(iii) As mentioned earlier, the OIO contained specific findings about the deemed removal and the resultant payment of duty and interest in terms of Section 72(l)(b). The Commissioner (Appeals) has not discussed the said findings of the OIO nor has found anything wrong with the same. To that extent the OIA is faulty.
(iv) The Commissioner (Appeals) has only considered the reported financial constraints of the appellants (party) and has issued directions to the original authority in the direction of solving the said financial problems of the party. The Commissioner (Appeals) has not found any illegality on the part of the original authority in observance of various procedures culminating in passing the said OIO. Therefore, it seems that the Commissioner (Appeals) has considered only extraneous matters in passing this order.
(v) In para 10 of his order, the Commissioner (Appeals) has mentioned (in the context of the third extension given to the party up to 12-10-03) that "I fail to understand the logic behind such granting of permission to a person whose hands are bound and no money in his pocket, to first pay up immediately and then re-export the goods in warehouse under attachment". It is submitted that this finding arises from a lack of correct appreciation of facts. In the said extension given by the Commissioner, which was up to 12-10-03, the condition was that before re-exporting the entire lot of fabrics, the party should pay the confirmed arrears which were only Rs. 3.64 lakhs plus interest. This is very clear from Para 16 of the O-I-O. It is clear from the abstract given in the Annexure to the OIO that the entire goods covered by the 110 bonds are grouped in two lots: (a) goods valued at Rs. 3,15,680 involving duty of Rs. 3,64,033.
These are goods, which are not fit for production, and this duty amount has already been confirmed vide the aforesaid order 44/01 dt.
28-9-01 passed by the then Deputy Commissioner of Customs, and (b) the remaining goods valued at Rs. 7,12,66,640 involving duty of Rs. 9,17,96,916 which amount has now been demanded vide the OIO No. 25/04 dt. 14-9-04.
While the aforesaid extension dt. 12-10-03 was granted, the party was permitted to re-export the goods covered by (b) above provided they pay the confirmed amount of Rs. 3.64 lakhs (plus interest) in respect of (a) above. Thus, it is not as if the party was being asked to pay the entire Rs. 9.17 Cr. of duty which related to the very goods whose re-export was then permitted. The Commissioner (Appeals) has therefore not correctly appreciated the facts in this regard.
(vi) In para 12 of the OIA the Commissioner (Appeals) has referred to the fact that goods are pledged to the bank. This fact, even if true, has got nothing to do with the rights and responsibilities of the customs department. The goods in question are bonded goods on which Revenue continues to have the first claim until the duties are discharged. This is the well-settled legal position and the department's interests are not at all affected by the extraneous question as to whether or not the goods are pledged to a bank.
(vii) In Para 12 of the O-I-A, the Commissioner (Appeals) has further mentioned that the party cannot be expected to generate a sum of Rs. 3.64 lakhs and Rs. 9.17 Cr. at the press of a button.
This finding is also irrelevant and erroneous. It is conspicuous from the records that the goods were imported more than 10 years ago. A number of notices have been given to the party. Warehousing extension has been given to them thrice. These are admitted facts.
It is not as if the party is all of a sudden being asked to pay the Government's rightful taxes. Upon import of these goods way back in the early nineties, a facility was extended to the party under which duty was deferred subject to certain conditions. Those conditions clearly not having been fulfilled, duty is now rightfully demanded for which several notices have already been given. In the background of all these facts, to give a finding that duty demand is "at the press of a button" appears to be totally without any basis.
(viii)The Commissioner of Customs (Appeals) has failed to appreciate that there is no contradiction between the Attachment of goods by the customs department on the one hand and the demand of more than Rs. 9 Cr. of duty by the impugned OIO No. 25/04 on the other. A careful reading of the facts which are narrated in great detail in the said OIO will make it clear that the goods were attached under the provisions of Section 142 since the party had despite repeated notices, failed to pay up the confirmed dues of Rs. 3.64 lakhs, plus interest, which had been confirmed vide the earlier OIO No. 44/01.
However, even though the goods (valued at more than Rs. 7 Cr CIF) were so attached, the duty liability on these goods themselves does not vanish. That liability, which is in excess of Rs. 9 Cr., continues to operate.
(ix) In para 14 of the O-I-A, the Commissioner (Appeals) has observed as under: In view of what has been discussed hereinabove, I hold that since the Appellants are in dire financial straits and have liabilities to the Department of Customs, the bank and others, and are in no position to generate funds under the circumstances, but have stock of fabrics of approximately Rs. 7.0 crores in godown, it would be in the fitness of things and fair to consider releasing, may be only 30% to 40% of the stock of fabrics, free of all encumbrances, to the Appellants and giving them an opportunity to sell in re-export to an appropriate buyer and clear their dues of the confirmed demand within a period of ninety days. The balance stock of fabrics of about 70% or so would continue to remain in the custody of the warehouse. It is highly probable that in the event of a distress sale through auction, the appellants might not even get a fair deal and will thus not be able to meet the creditors. Such a possibility is worth examining and may even require special dispensation and permission from the appropriate authorities at higher level and I suggest ought to be undertaken without loss of further time and taking everyone into picture.
(x) The above findings are improper, illegal and unsustainable for the following reasons: (a) These do not arise from the findings/order in the OIO and are therefore extraneous.
(b) Under Section 61 of the Customs Act, 1962, the power to permit extension of warehousing period whether for re-export or for whatever reasons, was earlier vested in the Chief Commissioner of Customs and is now with the Commissioner of Customs. The said two authorities have already exercised these powers in party's favour on a total of three occasions. On each of the occasions the party failed to comply with the conditions. This power is not within the jurisdiction of any officer lower in rank than the Commissioner of Customs and therefore no direction in this regard can be given by the Commissioner (Appeals) since his jurisdiction is confined to matters arising from decisions or orders passed by officers lower in rank to Commissioner of Customs. Therefore, the suggestion in the OIA asking the department to consider permitting export of part quantity is tantamount to the Commissioner (Appeals) giving a direction to the Commissioner of Customs, which is clearly beyond his competence under the statute. In fact, Section 5(3) of the Customs Act makes it very clear that Commissioner (Appeals) shall not exercise the powers other than those specified in Chapter XV and Section 108.
(c) In Para 10 of his order, the Commissioner (Appeals) has taken note of some expressions of interest shown by some potential buyers of the fabrics in question. However, the amounts if any being offered by these buyers are not mentioned in the order from which it appears that these are nothing but tactics by the party to further prolong the matter which is already 10 years old. The Commissioner (Appeals) has suggested that party should be allowed to sell/re-export 30-40% of the stock of goods so that they could pay, within a period of ninety days, their dues of the confirmed demand.
This suggestion is totally infeasible. As mentioned earlier, the total CIF value of the imported goods is about Rs. 7 crore and the duty involved thereon is about Rs. 9 crore. Thus, even the notional market value is about Rs. 16 crore, 40% of which comes to about Rs. 4 crore. Even if no allowance is made for the lapse of more than 10 years and the resultant erosion in the value of goods, the party would at best get Rs. 4 crore from the sale of the 30-40% suggested by the Commissioner (Appeals). From this amount, how the party would pay the confirmed customs dues, which are in excess of Rs. 9 crore, is beyond comprehension. This observation of the Commissioner (Appeals) therefore reflects non-application of mind.
4. The Respondents filed their cross-objections. In the cross-objections, they urged the following points.
(a) The Commissioner of Customs (A) still has power of remand after amendment to Section 128A(3) of the Customs Act, 1962 by Finance Act, 2001. The Apex Court in the case of UOI v. Umesh Dhaimode has observed that the law vests with the appellate authority with power "to pass such orders as it deemed fit confirming, modifying or annulling the decisions appealed against" and ruled that "an order of remand necessarily annuls the decisions which is under appeal before the authority". The court further observed that the appellate authority is also invested with the power to pass such order as it deemed fit. Both these portions of the aforesaid provisions read together necessarily imply that the appellate authority has the power to remand.
(b) The Commissioner (A) considered the Respondent's plea for extension for warehousing period and permission to allow re-export and found it to be genuine. If the Respondent is permitted, the Revenue would not loose anything. If permission is not considered for extension and for re-export and goods lying in the warehouse worth Rs. 7 crores is sold to buyers for just Rs. 50,000/- to Rs. 80,000/-, as valued by Chartered Engineers, the Respondents would be put into heavy losses.
(c) The goods are pledged to the Bank and the Respondents raised loans for the purchase of the goods. Though the Respondent does not dispute the power of the Department for realization of the Customs duty as a first charge, they had appealed to the department to allow them to re-export the goods, so that apart from clearing the dues of the department, they would repay the loan.
(d) In view of the above submissions, the Tribunal may take a view that the Order-in-Appeal passed by Commissioner of Customs (A), Bangalore is proper and legal and hence, the appeal filed by the Revenue may be dismissed.
(e) The Tribunal may direct the appellant (Revenue) to consider the request of the Respondent for extension of warehousing period for a period of one or two months and permit him to re-export the goods forthwith.
5. We have gone through the records of the case carefully. The power of Commissioner (A) to remand has been questioned by Revenue. It is now well settled that Commissioner (A) has powers to remand even after amendment of Section 128A in 2001. Now let us deal with other issues.
The Respondent imported duty free goods valued at Rs. 7,15,82,320/- under the 100% EOU scheme. It is on record that since inception of the unit in 5-8-1987, exports worth Rs. 110.66 crores have been made as against the imports of capital goods worth Rs. 77 lakhs and raw materials worth Rs. 80.86 crores. The Respondents ran into certain financial problems and the unit became defunct. Considering a fact that the Respondent had met its export obligation in terms of EXIM policy, the Development Commissioner allowed the debonding of the unit in his Order dated 26-11-2002. The Respondents requested for extension of warehousing period in respect of 110 bonds and for permission to re-export the imported raw materials. The warehousing period was extended up to 12-10-2003 to enable them to re-export the goods after payment of duty determined and also the arrears. The Respondents failed to comply to the extension granted by the Commissioner up to 12-10-2003, hence, a demand notice was issued by the Dy. Commissioner, Customs with regard to the confirmed demand of Rs. 3,64,033/-. A notice of attachment was issued on 18-11-2003 and a copy thereof was pasted in the factory premises of the factory. As the Respondents failed to re-export the goods within 12-10-2003, the goods were treated to have been improperly removed under Section 72(l)(b) of the Customs Act. The duty of Rs. 9,17,96,916/- along with interest was demanded in Order-in-Original No. 25/2004 dated 14-9-2004. In an earlier Order-in-Original No. 44/2001 the duty confirmed was Rs. 3,64,033/-.
Against the Order-in-Original 24/2004, according to which the duty along with interest was to have been paid within seven days of the issue of the impugned order, the Respondents appealed to the Commissioner (A) seeking for relied.
5.1 The Commissioner (A) in the impugned order has noted that the unit had been lying closed because of labour trouble since 1995 and the Respondents could not utilize goods covered by 110 bonds. He has also noted the Development Commissioner's decision for allowing the unit to be debonded in his order dated 26-11-2002. The Respondent, on the advice of the Dy. Commissioner (Customs) in his letter dated 4-2-2003 requested for extension of warehousing period in respect of the 110 bonds and in his letter dated 21-3-2003 requested for permission to re-export the imported raw materials. The department drew up a Mahazar on 24-4-2003 to verify the sealing of the goods done earlier and the same was re-sealed. The warehousing period was extended up to 13-8-2003 and latter up to 12-10-2003. Failure of the Respondent's to comply with the clearance and re-export of the raw materials within time resulted in the Order-in-Original No. 25/2004. In the above mentioned order, the Respondents were given an ultimatum to pay the duty along with interest within seven days. The above demand was made under Section 72 of the Customs Act. Further, the Original Authority by virtue of the power vested under him under Section 72(2) of the Customs Act ordered that on failure to pay the demands within seven days, all the goods sealed shall be inventorised and sold for recovery of the two amounts of Rs. 3,64,033/- and Rs. 9,17,96,916/- along with interest thereon. The Commissioner (A) before deciding the issue called for a factual report from the Dy. Commissioner of Customs. As per that report, he had issued a No Objection Certificate dated 17-5-2004 to the Customs Headquarters for disposal of the goods under attachment at the unit. It was further confirmed that inventorisation of the stocks had been undertaken to enable the Headquarters (Customs) to go ahead with the auctioning of the goods. The Commissioner (A) has also referred to the decision of the Hon'ble High Court of Karnataka in WP dated 26-11-2004 filed by the Respondents wherein the Commissioner of Customs, Bangalore; the Asst.
Commissioner, Customs Bangalore and Commissioner of Customs (A) are Respondents No. 1, 2 & 3. The High Court had directed Respondent No. 3 [Commissioner (A)] to dispose of the appeal as expeditiously as possible and the authorities concerned had been restrained from auctioning the property. While passing the impugned order, the Commissioner (A) has taken cognance of the High Court's order.
5.2 During the personal hearing before the Commissioner (A), the Respondents brought to his notice that two parties have shown expression of interest in the stock of fabrics available with the appellants subject to, they being provided with samples of fabrics. At this point, we observe that the Commissioner (A) started going deep into the problems faced by the Respondents. In Para 12 he observes that a demand has been raised on the goods that are in the warehouse and which have been attached by the department for non-payment of outstanding arrears and confirmed the duty amount plus interest due thereon from a party who has had no financial activity in the last eight years. He has not examined whether the action taken by the lower authority in demanding the arrears, duty and interest and also the attachment is in accordance with law or not. It appears that the Commissioner instead of examining the legality of the order impugned before him, has gone off the tangent to find ways and means of solving the problems faced by the Respondents. The impugned order of the Commissioner (A), no doubt, reveals his sympathetic attitude towards the sick unit of the Respondent. The reasoning for setting aside the Order-in-Original appears to be the dire financial strait of the Respondents. In Para 14 of the impugned order, he made a proposal of releasing 30% to 40% of the stock to the Respondents giving them an opportunity to sell in re-export to an appropriate buyer and clear the dues of the confirmed demands within a period of ninety days. In terms of expediency, the Commissioner's proposal may be correct. But, as Commissioner (A), he is not called upon to decide these issues. The Revenue in its ground of appeals have stated that Section 128A(4) of the Customs Act, 1962 dealing with procedure in appeal requires the Commissioner (A) to state the points for determination, the decision thereon and the reasons for the decision. We agree with the Revenue that no such points of determination have been framed by the Commissioner (A). In other words, while setting aside the order of the Dy. Commissioner, the Commissioner should have given a finding as to the legality or otherwise of that order. Obviously, he has not done that. When the impugned goods could not be removed for export till the expiry of the warehousing period, it is deemed to have been removed improperly and duty is liable to be demanded under Section 72(l)(b).
The OIO demands duty only under this provision. The Commissioner (A) has not discussed this aspect. Further, Revenue has pointed out that the Commissioner has not appreciated the facts of the case properly. In the grounds of appeal the Revenue has made it clear that when extension up to 12-10-2003 was granted the party was required to pay only an amount of Rs. 364 lakhs and not the entire Rs. 9.17 crores of duty which related to the very goods, whose re-export was then permitted.
The Revenue has pointed out that the power to permit extension of warehousing period for re-export or for whatever reasons, which was earlier vested in the Chief Commissioner of Customs is now vested with the Commissioner of Customs, is not in the jurisdiction of any officer lower in the rank, then the Commissioner of Customs and therefore no direction in this regard can be given by the Commissioner (A), since his jurisdiction is confined to matters arising from the decisions or orders passed by the officers lower in rank to Commissioner of Customs.
Therefore, a suggestion in the OIA asking the department to consider permitting export of part quantity is tantamount to Commissioner (A) giving a direction to the Commissioner of Customs, which is clearly beyond his competency under the Statute. We agree with this contention of the Revenue. The revenue has further shown that even if 40% of the stock is allowed to be sold, at the best the respondent would fetch Rs. 4 crore which would not be sufficient to pay up the dues amounting to Rs. 9 crores, therefore, it is the contention of the Revenue that the suggestion of the Commissioner (A) for allowing the respondent to sell 40% of the stock is without application of mind.
5.3 In the functioning of any organization, whether it is Government or private, there exists several authorities and invariably there is division of work. Each authority has its own jurisdiction. If one authority trespasses into the jurisdiction of another, the result would be chaos and confusion. The Commissioner(A) is required only to decide the legality of the impugned order. Instead of confining his work, as required by his jurisdiction, in the present appeal, he has embarked on uncharted territories leading to Revenue's grievances over his order.
There are other authorities and fora where the Respondent's various problems would be settled. Unfortunately, the Commissioner (A) has bitten off more than what he could chew. With these observations, we restore the Dy. Commissioner's Order-in-Original, which in our view is legal and proper and set aside the impugned order. We allow Revenue's appeal in the above matter.