| SooperKanoon Citation | sooperkanoon.com/18168 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Delhi |
| Decided On | May-03-2000 |
| Reported in | (2000)(121)ELT515TriDel |
| Appellant | Eicher Motors Ltd. |
| Respondent | Commissioner of Customs |
2. By a Show Cause Notice dated 14-9-1992, the appellants were called upon by the Department to show cause why differential Customs duty should not be demanded from them with regard to the quantity of components imported in CKD condition under Notification No. 222/87 as amended and used for purposes of supplies to the spare parts requirements of dealers/depots. It was alleged that the appellants had used components of CKD kits imported under the concessional rate available under Notification No. 222/87 for meeting the spare part requirements for vehicles under the warranty scheme. The Department alleged that diversion of components of CKD kits for the said purpose amounted to non-fulfilment of the conditions prescribed under Notification No. 222/87 and consequently differential Customs duty between the full tariff rate of Customs duty normally applicable on such components and the concessional rate availed by the appellants under Notification No. 222/87 was required to be discharged by the appellants. The duty demand was worked out at Rs. 24,57,753.09 on the basis of outstanding balance of CKD components supplied for spare parts requirements which was pending for replacement as on 1-5-1992. Apart from the differential duty demanded, the Show Cause Notice also proposed to impose a penalty under Section 112 of the Customs Act, 1962 for the contravention of the provisions of Section 111.
3. The Commissioner of Customs by order dated 4-12-1997 confirmed the duty demand to the extent of Rs. 19,97,100/-. While dropping imposition of penalty, the Commissioner held that the appellants would be liable to pay interest in terms of Section 28AB of the Customs Act.
4. We have heard Shri S. Madhavan, ld. Chartered Accountant who argued the case of the appellants and Shri S. Ramanathan, ld. JDR who appeared for the respondent Commissioner.
5. Ld. Chartered Accountant contended that although it was not disputed that the components imported in CKD kits under Notification 222/87 were supplied for spare parts requirements, it was also a fact that the said quantities were replaced by the appellants out of subsequent imports under Notification No. 74/85 or from subsequent imports at full Customs duty rates. He submitted that the impugned order was liable to be set aside on the preliminary ground of the adjudication proceedings initiated initially on 3-2-1993 being inordinately delayed for a period of over four years without passing any adjudication order till 12-9-1997. He referred to a series of decisions of the High Courts and the Tribunal in support of his contention that the adjudication proceedings would be vitiated and liable to be set aside because of efflux of time between the initiation of the proceedings and the final adjudication order. He stated that in the present case the SCN was issued in September, 1992 and the first personal hearing was held on 3-2-1993. Thereafter the Department had held the matter in abeyance without proceeding with the matter for 4 1/2 years and the next personal hearing was held only on 12-9-1997, after a period of more than 4 1/2 years.
6. On merits ld. Chartered Accountant contended that the Commissioner had erred in holding that the use of components under CKD under No- tification 222/87 for purposes of after sales requirements in spare parts Department amounted to a violation of the condition of that Notification and hence full tariff rate of duty was chargeable on such use. He submitted that the appellants were also simultaneously eligible for the concessional rate of Customs Duty under Notification No. 74/85 relating to import of such components for after-sales service requirements. Therefore the appellants were entitled to the concessional rates available under Notification No. 74/85. The differential rate of duty confirmed by the Commissioner between the tariff rates and the concessional rates under Notification No. 222/87 was, therefore not maintainable since in any case the concessional rates under Notification No. 74/85 could not be denied to the appellants and the difference if any, that could be demanded would only be the differential rate between the rates chargeable under Notification No. 222/87 and Notification No. 74/85.
7. Further, it was submitted that the Commissioner had failed to take note of the fact that the appellants had replaced the quantity of components that was lying outstanding as on 1-5-1992 and hence no duty demand could have been confirmed. This would, in effect, completely neutralise any differential in duty since the appellants had cleared the subsequent imports after payment of duty at the relevant rate. The appellants also contended that none of the ingredients of clauses specified under Section 111 or 112 of the Customs Act had been established and since the Commissioner had dropped the charge of penalty on this account, no allegation of mala fide acts or suppression of facts survived. Since the appellants had no mala fide intention and had acted in a bonafide manner the differential duty demand was uncalled for.
8. Ld. Chartered Accountant also submitted that there was no warrant for confirming payment of interest under Section 28AB of the Customs Act since the said provision was enacted subsequent to the imports and therefore, had no applicability to the imports made by the appellants.
9. Shri S. Ramanathan, ld. JDR contended that the appellants had not disputed the fact that they had diverted components in CKD condition imported under exemption Notification 222/87 for purposes other than those covered under the said notification. In terms of Notification No.222/87, a fixed quantity was allowed to be imported at the concessional rate. Similarly, under Notification No. 74/85 also, the concessional rate of duty was available only to the quantity pre-determined before the actual import. In both the cases, if the import of components exceeded the quantity allowed under the Notifications, the tariff rates of duty would apply. Further, in terms of the Notification No. 227/87, the purpose for which the import is allowed at the concessional rate was for the purposes of manufacture of LCVs and for no other purpose.
It would be quite obvious from a reading of the terms and conditions Notification No. 222/87 that the exemption is limited for the specified purpose of manufacture and that the exemption was available only when the conditions specified therein had been fulfilled. Similarly, exemption Notification No. 74/85 was specifically intended for meeting after sales and warranty conditions of the manufacturer. The two Notifications therefore, relate to two different situations and the diversion or use of the components imported under the concessional rate under one Notification for purposes of the other Notification was clearly a violation of the conditions of the Notifications. He, therefore, submitted that the impugned order had correctly demanded the differential rate of duty. As regards the demand for interest under Section 28AB, ld. DR submitted that the said provision had been brought into the statute book at the time of passing the impugned order and there was no illegality in invoking the same in the facts and circumstances of the case.
10. We have considered the submissions. On merits we find that the Department's case is well founded. The fact has not been disputed that the appellants had diverted the goods imported under concessional rate of duty under Notification No. 222/87 for uses other than those allowed under that Notification. The fact that there was another notification viz. 74/85 which also allowed a concessional rate of duty (albeit less favourable) and the diversion was for purposes covered by that Notification will not absolve the appellants of the duty liability arising from such diversion. The question then arises whether the rate of duty chargeable in the case of goods diverted will be the rate of duty normally chargeable or it will be the rate chargeable under Notification No. 74/85. In terms of the opening para of Notification No. 222/87, the exemption is from the duty of Customs leviable under the Customs Tariff Act, 1975 and the additional duty leviable under Section 3 of that Act. Since the said notification does not make it a condition that where the goods imported are diverted for purposes covered by another notification allowing concessional rate, the concessional rate under the latter will apply, we find no merit in the appellants' contention that they would in any case be entitled to the rate applicable to import under Notification No. 74/85. There can be no two opinions on the position that each exemption notification has to be construed strictly and within its own four corners and that the assessee cannot claim the benefit of the terms of one notification on the basis of the terms of another notification. We, therefore, uphold the differential duty demand confirmed by the Commissioner.
11. As regards the contention of the ld. Consultant based on case law cited by him that the impugned order is liable to be set aside on the ground on undue delay between the holding of the two hearings, we have perused the case law. In Bhagwandas Tolane case [1983 (12) E.L.T. 44 (Bom.)] the Bombay High Court had considered a case where show cause notice had been issued on 2nd August, 1966 under the Foreign Exchange Regulation Act to which the noticee had shown cause on 9th August, 1966 and hearing took place before the Director of Enforcement but no order was passed. Subsequently after a period of nearly 11 years on 4th January, 1977, a further notice for adjudication was issued again to which the noticee sent his reply on 6th January, 1977. The Department thereafter by letter dated 7th January, 1977 sought a copy of the adjudication order from the noticee. The High Court held that it was for the Department to keep the records of its adjudication proceedings.
It was held that the Department is not entitled to take up old matters in this manner and the Department's contention that there was no limitation prescribed for conclusion of proceedings cannot be accepted for the reason that "if it were accepted, it would mean that the Department could commence adjudication proceedings 10 years, 15 years or 20 years after the original show cause notice. In Re: M/s. Girwar [1982 (10) E.L.T. 563] the Government of India under powers of Revision held that the period of seven years taken by the Assistant Collector to adjudicate the case was not proper. In Bhagsons Paints case [1996 (88) E.L.T. 400 (T)] the question considered by the Tribunal was whether the adjudication order dated 11-4-1990 passed after nearly nine years in relation to demand raised by Show Cause Notice dated 5-9-1981 would be valid especially when the assessee had requested well before personal hearing held in 1989 for copies of the RT 12 returns etc. (which assessee claimed were lost during a fire in 1984) was not respondend to by the Assistant Collector. It was held that the fact that no limitation was provided in the law for conclusion of adjudication proceedings did not mean that there was no time limit at all. It was held that in such circumstances the concept of reasonable time would apply. The adjudication was set aside in those circumstances. We note that in the instant case that though there was a gap of nearly 4 1/2 years between the dates of holding of the two personal hearings, this by itself cannot be made a ground for setting aside the impugned order in the absence of any irrepairable damage caused to the appellants due to such delay. The case law relied on does not advance the case of the appellants in the facts and circumstances of the case.
13. As regards liability to pay interest under Section 11AB of the Central Excise Act, we have gone through the case law relied on by the ld. Consultant viz. (a) Maruti Udyog Ltd. v. CCE [1998 (101) E.L.T. 675 - 1998 (25) RLT 246 (T)], (b) Marcanday Prasad Radhakrishna Prasad v.CCE [1998 (25) RLT 919 (T)] and (c) Sonia Engg. Works v. CCE [1998 (29) RLT 630 (T)]. We agree with his contention that demand of interest under Section 11AB of the Act is not sustainable in the facts before us as no retrospective operation can be given to that section in the absence of express provision to that effect. Accordingly, we set aside the demand of interest under Section 11AB.14. Subject to the above modification the impugned order is confirmed.
Appellants will be entitled to the consequential benefit to the extent of the relief granted under para 13 above.
16. I am respectfully in agreement with my learned brother in respect of his order granting relief on the demand of interest. I am of the opinion that the demand for duties is also not maintainable.
Accordingly, I am recording my views on that issue here-under :- 17. The appellants were importing components at concessional rate of duty under Notification No. 222/87-Cus. for the manufacture of Light Commercial Vehicles. They were also importing same components at concessional rate for providing warranty coverage or after sales service under another notification is 74/85. The rates of duty for the two streams of imports were different, the rate for manufacture being much lower.
18. The issue involved is the demand for differential duty on account of interchange of components so imported and the present demand of duty is in respect of components imported for manufacture but diverted for supply as spare parts.
19. The appellants' defence is that they have subsequently replaced the quantity which had been diverted from manufacture with imports made for supply as spare parts. Therefore, there is no loss of revenue to the department in as much as the imported components were used only for authorised purposes. They have also submitted that in any case, the demand of duty should have been limited to the rate applicable to import for supply as spares and not at the tariff rate, as it is the admitted case that the diverted goods were used only for supply as spares (which also is covered by a concessional rate -74/85).
20. The impugned order has rejected the appellant's defence on the ground that according to Notification No. 222 of 1987, if the components imported for manufacture was not used for that purpose, the appellants "shall pay an amount equal to the difference between the duty leviable on such quantity of the said imported goods but for the exemption" and the amount paid at the time of importation.
21. From the records of the case and the submissions made, I find that both the sides are agreed that what is involved is essentially an interchange of components imported under two streams - manufacture of new vehicles and supply as spares. As both the imports were eligible for concessional assessment, if the goods diverted from manufacture to supply as spare parts was to be assessed to differential duty, the goods diverted from imports for supply as spare parts to use in manufacture would also have to be re-assessed at the concessional rate applicable to them and short and excess payments adjusted. Thus, the short levy claimed under one count would be liable to be given back under the other count of excess levy, thus, making the reassessments a revenue neutral activity. Even if the reassessment is undertaken only in respect of goods diverted from imports for manufacture to supply as spares parts (as in the present case) the demand for the duty must be restricted to the rate applicable to such imports i.e. imports for supply as spares, (and not the Tariff rate adopted in the impugned order) as the appellants were admittedly eligible for and had imported the stocks in question under the concessional rates and had used all the imports either for manufacture or for supply as spare parts - both purposes authorised by the notifications. The CEGAT has held in the case of Gujarat State Fertilizers Co. Ltd. v. C.C.E., Vadodara [1996 (83) E.L.T. 159] that, if claim under one notification is found to be not permissible, alternative claim under other notification is permissible even if not claimed in classification List, because there can be no estoppel against law. In the circumstances, I am of the view that the reassessment of interchanged goods is a revenue neutral exercise and is not required to be carried out. The revenue's approach of reassessing components diverted from manufacture alone is to adopt a pick and choose method. If on interchange, the components are to be re-assessed, the same should be done in all cases and not where it is to revenue's advantage only. The half way approach of the revenue not only leads to unjust results, it also defeats the object of the notifications i.e., making available at concessional, though at varying, rates components for manufacture and for supply as spares.
Once, it is admitted that the components were eligible for exemptions, full effect is required to be given to the exemptions. I am, therefore, of the view that the appeal is required to be allowed and impugned order set aside.
22. Since a difference of opinion has arisen to whether in the facts and circumstances of the case, differential duty demand would arise since the assessee simultaneously was eligible for exemption under a second exemption notification and had replaced the diverted components with components imported under the second exemption, thus making the inter change revenue neutral, the matter required to be referred to a Third Member.
Sd/- Sd/-(C.N.B. Nair) (A.C.C. Unni) Member (T) Member (J) 23. This matter is referred to the Third Member on difference of opinion having arisen on the point whether in the facts and circumstances of the case, differential duty demand would arise since the assess simultaneously was eligible for exemption under a second exemption notification and had replaced the diverted components with components imported under the second exemption thus making the inter change Revenue neutral. The ld. Member (Judicial) is of the view that the fact that there was another notification viz. 74/85 which also allowed a concessional rate of duty (albeit less favourable than Notification No. 222/87) and the diversion was for purposes covered by that notification will not absolve the appellants of the duty liability arising from such diversion. He has also not found any merit in the contention of the appellants that they would in any case be entitled to the rate applicable to import under Notification No. 741/85 and has upheld the levy of duty to such diverted components at the tariff rates. The ld. Member (Technical) on the contrary is of the view that this essentially is a case of interchange of components under two streams - manufacture of new vehicles and supply as spares. As both the imports were eligible for concessional assessment if the goods diverted from manufacture to supply as spare parts was assessed to the differential duty the goods diverted from imports for supply as spare parts to use in manufacture would also have to be reassessed at the concessional rate applicable to them and short and excess payments adjusted. Thus, the short levy claimed under one count would be liable to be given back under the other count of excess levy, thus, making the reassessment a revenue neutral activity. The ld. Member (Tech.) is further of the view that even if the re-assessment is undertaken only in respect of the goods diverted from imports for manufacture to supply as spare parts, the demand of duty must be restricted to the rate applicable to such imports i.e. imports for supply as spares and not the tariff rate.
24. I have heard Shri Rajan Das Gupta, CA assisted by Shri Pramod Banthia, CA for the appellants and Shri J. Singh, DR for the Revenue.
The appellants had diverted the imported goods cleared on payment of concessional rate of duty under Notification 222/87 for uses other than those allowed under this notification. Therefore, as a matter of natural corollary they should pay the differential duty in respect of the goods so diverted as if they were imported without the benefit of this notification. The question of application of concessional rate under any other exemption notification would not arise. In terms of the provision of Sub-section (O) of Section 111 of the Customs Act, 1962, any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other Law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer, shall be liable to confiscation.
Therefore, the diverted goods are liable to confiscation and the importers are also liable to penalty under Section. 112(a) ibid. The exemption Notification No. 222/87-Cus., dated 20-5-1987 as amended, itself lays down that the importer shall furnish an undertaking to the effect that (a) the said components shall be used for the specified purposes (their usage for providing the warranty coverage or after sales service to the customers is not one of them), (b) an account of the components received and consumed shall be maintained in the manner specified, (c) he shall produce the extract of such account within a period of 3 months or such extended period as allowed; and (d) he shall pay, on demand, in the event of his failure to comply with any of the stated conditions, an amount equal to the difference between the duty leviable on such quantity of the said imported goods but for the exemption contained herein and that already paid at the time of importation (emphasis added). Therefore, in terms of the provisions of the notification itself, the party is liable to pay the differential duty as demanded from them. The ld. Counsel of the appellants places reliance on the Tribunal decision in Gujarat State Fertilizer Co. Ltd. v. CCE, Vadodara [1996 (83) E.L.T. 159 (T)] in which it is held that if the appellants had not filed their classification list claiming the benefit of the notification, the consequence thereof could not be to deprive them of the benefit thereof while responding to the Show Cause Notice. The cited decision is rendered under the Central Excise Act and Rules and the facts therein are not pari materia to the ones under consideration. Besides, as analysed above, the estoppel against giving the benefit of any other exemption is built in the Notification No.222/87 itself wherein inter alia it is mandated that the said components shall be used for the purpose specified therein and the importer shall pay, on demand in the event of his failure to comply with such purpose, an amount equal to the difference between the duty leviable on such quantity of the said imported goods but for the exemption contained herein and that already paid at the time of importation. In the light of these provisions, there is no scope for diversion to be taken either as a revenue neutral exercise or giving benefit of any other exemption to such components.
25. In view of the above analysis, I am of the view that the facts and circumstances of the case, the interchange imported components is not revenue neutral and the differential duty demand would arise on the inputs. Having thus answered the question referred to me the matter will go back to the referral bench for passing the final order.
In the light of the views of the majority of two members it is held that the differential duty demand raised in the Show Cause Notice is valid and legal and the order of the Commissioner date 4-12-1997 confirming the said duty demand is upheld.Sd/- Sd/-(C.N.B. Nair) (A.C.C.Unni) Member (T) Member (J)