Chemasia Industries Ltd vs Commissioner Of Customs, Central ...

[Arising out of Order-in-Appeal No. 16/2009-Cus. (Commr.) dated 26/06/2009 passed by the Commissioner of Customs, Central Excise & Service Tax, Guntur.]

For approval and signature:

HON'BLE SHRI JUSTICE G. RAGHURAM, PRESIDENT HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3 Whether Their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes

CHEMASIA INDUSTRIES LTD. MELLORE DISTRICT, KOTAPOLUR, VILLAGE, SULLURPET MANDAL Appellant(s)

Versus

Commissioner of Customs, Central Excise and Service Tax GUNTUR P.B.NO. 331, C.R.BUILDING, KANNAVARI THOTA, GUNTUR  520 004. ANDHRA PRADESH Respondent(s)

Appearance:

Mr. G. Prahlad & Mr. Karan Talwar, Advocates V. LAKSHMIKUMARAN & V. SRIDHARAN WORLD TRADE CENTRE NO.404-406, 4TH FLOOR, SOUTH WING BRIGADE GATEWAY CAMPUS NO.26/1, DR. RAJKUMAR ROAD, MALLESWARAM, BANGALORE - 560 055 KARNATAKA For the Appellant

Dr. A. K. Nigam, Addl. Commissioner (AR) For the Respondent

Date of Hearing: 26/05/2015

Date of Decision: 26/05/2015

CORAM:

HON'BLE SHRI JUSTICE G. RAGHURAM, PRESIDENT HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER

Final Order No. 21472 / 2015

Per : B.S.V.MURTHY

The appellant is a 100% Export Oriented Unit (EOU) engaged in the production/manufacture of Sodium Perborate and Hydrogen Peroxide falling under Chapter Heading 2840 3000 and 2847 0000 respectively of the Central Excise Tariff Act, 1985. The said unit was purchased by the appellants from M/s. Asian Peroxides Ltd., Kotapolur, Nellore District (APL) another 100% EOU engaged in the manufacture of Sodium Perborate and Hydrogen Perborate.

2. APL had three units, Unit I is a DTA unit engaged in the manufacture of Hydrogen Peroxide, Unit-II is a 100% EOU engaged in the manufacture of Hydrogen Perborate and Unit-III is also an 100% EOU engaged in the manufacture of Sodium Perborate. The present dispute is related to Unit-III of APL which was later on acquired on outright purchase by the appellants.

2.1 The appellant was given Letter of Permission (LOP) for manufacture and export of 1200 metric tonne of Sodium Perborate per annum with value addition of 26%. Export obligation for 5 years was fixed at 5 times CIF value of capital goods. However, even though commercial production was commenced on 19.1.1997, the appellants could not fulfill the export obligation. Proceedings were initiated by the Development Commissioner for non-fulfillment of export obligation from 19.1.1997 to 31.3.2001 which culminated into an order dated 20.5.2002 with imposition of fiscal penalty of Rs.10,000/-. Thereafter, APL who was owning the unit transferred it to the appellant. The LOP issued to APL was extended till 19.1.2007 and in November 2003, permission was granted by the Development Commissioner to utilize the existing plant and machinery for processing of additional product viz., Hydrogen Peroxide and export the same to achieve export obligation. The appellant informed on 7.1.2014 that they would be getting unstabilized hydrogen peroxide, stabilize and pack the same in cans and drums for further export. The storage tanks and machinery would be used for this purpose. On 22.5.2006, proceedings initiated for non-fulfillment of obligation and non-achievement of positive NFE were dropped considering that the appellant has fulfilled obligations as per the LOP. On 18.10.2016, permission was sought to exit from EOU scheme which was allowed on 22.11.2006 and in November 2007 a final order was issued by the Development Commissioner allowing appellant to exit from the 100% EOU scheme on 12.11.2007. Thereafter, proceedings were initiated by the Revenue proposing to demand the duty foregone on imported/indigenously procured raw materials and capital goods culminating in the impugned order whereby it was held that appellants have failed to fulfill the obligation caste on them as per the Notifications under which raw materials/capital goods were procured and consequently it was held that appellant was liable to pay duty of Rs.5,21,27,308/-. Penalty of Rs.2,40,10,000/- was imposed and redemption fine of Rs.1.5 crores was ordered to be paid.

3. Learned counsel on behalf of the appellants took us through the facts which have been briefly discussed above. It was submitted that the Notifications under which the capital goods were imported did not require the appellants to make payment of duty with interest on capital goods in case they did not achieve positive NFE. It was submitted that the obligation to pay duty was introduced only in the Notifications issued in 2003 and therefore for the period from 1997-2001 there was no duty liability to be paid by the appellants in respect of capital goods at all. For this purpose, they relied on the decision of the Tribunal in the case of Semco Electric Pvt. Ltd.: 2007 (215) E.L.T. 253 (Tri.-Mum.). Further, it was submitted that for the subsequent period, the appellant was not liable to pay duty on raw materials as well as capital goods in view of the fact that the proceedings were dropped by the Development Commissioner and Development Commissioner had taken a view that appellants had achieved positive NFE as required in the LOP and had fulfilled the export obligations. Therefore for the period subsequent to 2003, there was no obligation on the appellant.

It was also submitted that when the order was passed on 6.11.2008, several decisions on the issue were not available and could not be cited. Some of them are as under:

(i) Girnar Industries vs. CIT: 2010 (254) E.L.T. 79 (Ker.)

(ii) Hewlett Packard India Sales (P) Ltd. & Others vs. CC, Bangalore: 2009 (241) E.L.T. 545 (Tri.-Bang.)

(iii) Tirumala Impex vs. CCE: 2010 (251) E.L.T. 310 (Tri.-Mum.)

(iv) Baccorse Perfumes and Beauty Products Ltd. vs. CCE: 2006 (194) E.L.T. 310 (Tri.-Mum.)

(v) Air Liquide North India (P) Ltd. vs. CCE: 2011 (271) E.L.T. 321

It was also submitted that the Commissioner has not considered many important submissions at all.

3.1 The Commissioner had observed that the capital goods had not been utilized or installed and this was factually incorrect. It was submitted that appellants had exported Sodium Perborate in the first 3 years viz., 1997-98, 1998-99 and 1999-2000 and because of adverse market condition, they had to stop export of Sodium Perborate thereafter.

3.2 The Commissioner did not take note of the fact that Development Commissioner on 25.11.2003 had permitted to fulfill the obligation cast on them by exporting Hydrogen Peroxide without any additional capital goods procured either by import or local capital goods. Therefore the capital goods which were already installed in the unit were used. In this view of the matter, they submitted that capital goods have been used for the manufacture of finished products which are exported. The Commissioner has taken the view that processes undertaken for manufacture of Hydrogen Peroxide did not require capital goods at all and the operations undertaken by the appellant cannot be considered as manufacture. According to him, the manufacture as per the definition requires a new product with distinct name, character and use to emerge and in this case this has not happened. It was submitted that definition of manufacture in Foreign Trade Policy is different.

4. We have considered the submissions. We find that as submitted, Notification No.13/81-Customs dated 9.2.1981 provided for payment of duty on the raw materials and consumables imported by the EOU in case of failure to either fulfill the export obligation or to achieve NFEP. When it was rescinded by Notification No.53/1997 dated 3.6.1997 till it was amended in 2003, there was no provision for demanding Customs duty on capital goods. Even in Notification No.53/1997 when it was amended in 2003, provision was made to demand duty on capital goods only when the capital goods were not installed. This provision remained till 2007. We find this submission to be correct.

4.1 We also find that processing of Hydrogen Peroxide by the appellant can be considered as manufacture. The Commissioner has not agreed with this view on the ground that the activity undertaken are stabilization, stirring and packing of Hydrogen Peroxide only and no new product with distinct name and character emerges. According to Foreign Trade Policy, manufacture is defined as under:

Manufacture means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, re-packing, polishing, labeling, reconditioning, repair, remaking, refurbishing, testing, calibration, re-engineering. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.

4.2 In the case of Girnar Industries (supra), this definition of manufacture was considered by the Honble High Court of Kerala and Honble High Court took the view that manufacture has been given wide definition to take even processing and refrigeration as manufacture. In the case of Hewlett Packard (supra) also a similar view was taken by this Tribunal. Moreover, once Broad Banding has been permitted and Development Commissioner had allowed export of Hydrogen Peroxide to be considered for fulfillment of export obligation, whether it is correct for the Commissioner to take a different view is also another question that arises.

4.3 The final conclusions of the Commissioner are contained in paragraph 42 and portion of 43 which are reproduced below.

42. Finally, I would like to draw a brief summary of my findings. The assessee has procured duty free capital goods imported and procured indigenously, for the manufacture and export sodium perborate. The assessees were penalized by the Development Commissioner for the negative NFE and for shortfall in fulfillment of export obligation during the block year 1997-2001. The Development Commissioner has accorded permission to the assessees to manufacture and export hydrogen peroxide under Broad Band Scheme. Though the assessees claim that they have earned positive NEF for the next period from 2002 to 2007, the NFE is not earned by manufacturing and exporting neither sodium perbonate nor hydrogen peroxide. The positive NFE was achieved by exporting hydrogen peroxide which was not actually manufactured by the assessees by using the duty free capital goods but by procuring it from their sister concern M/s. Asian Peroxides Ltd. Plant-I under CT-3 procedure and by doing end processes of stabilization, stirring and packing only. By now it is clear that the assessees have not utilized the duty free capital goods and raw materials for the manufacture of neither sodium perborate nor hydrogen peroxide but earned positive NFE by procuring the said product from their sister concern under CT-3 and exporting the same by doing end processes of stabilization, stirring and packing and thus violated the conditions of the Notifications, Bond, LOP and Legal Agreement and thereby are liable to pay the duty with interest on the capital goods imported and procured indigenously.

43. Now, coming to the contentions of the assessee in their reply, on one side they are stating that they have not violated the conditions of the Notifications, Bonds, LOP, Legal Agreement and hence duty cannot be demanded from them on the capital goods and raw materials procured duty free. On the other hand, they contend that only duty can be demanded on the duty free goods but not interest, and at another point they stress that duty can be demanded only on the depreciated value of the capital goods, thus, contradicting their own stands. If they feel very strong that duty cannot be demanded on the capital goods and raw materials procured duty free then they should stick to that stand. There is no need to contend that, only duty can be demanded but not interest, and that duty should be demanded on the depreciated values only, etc. This clearly proves that they are aware of their violations and liabilities but are only saying some thing or other to draw the attention of the adjudicating authority to various directions. Since they raised the issues of time bar and demand of duty on depreciated values I would like to record in my findings that they are not eligible for depreciation as they have not fulfilled the conditions of the Notifications and not fulfilled export obligation by manufacturing and exporting hydrogen peroxide.

4.4 We find that the Commissioner has not segregated the periods from 1997-2001 and the obligations that arise because of the failure and period from 2003-2007. Whether such exercise is required or not, also has not been considered. As regards the period from 1997-2002 there is a conclusion of the Development Commissioner that appellants have not fulfilled the obligation. For subsequent period, he has even allowed them to exit the scheme. The Commissioner has also not examined the claim of the appellant that process of stabilization, stirring and packing is covered by the definition of manufacture. To be fair, it has to be stated that during the time the order was passed, the decisions taking such a view were not available.

4.5 In paragraph 43, the Commissioner has considered the alternative submissions made by the appellants as the submissions which are contrary to their defence. He has failed to recognize the fact that the alternative submissions have to be considered only if their claim on the main issue on merit is not considered.

5. The above observations would show that the matter requires a more detailed consideration in the hands of the learned Commissioner. Moreover, there are several decisions which have come after the order was passed, which in our opinion, are required to be considered. Moreover, we also find that there are contradictory observations in the order which show that matter requires a more detailed consideration.

5.2 In view of the above observations, we consider it appropriate that matter should be reconsidered by the Commissioner. We make it clear that none of the observations made by us hereinabove need to be considered as taking a view on merits in favour of the appellants or against them. Needless to say before coming to a conclusion and passing the order, the appellants shall be given reasonable opportunity to present their case.

(Operative portion of the order was pronounced in open court on 26.5.2015.)

JUSTICE G. RAGHURAM PRESIDENT

B.S.V. MURTHY TECHNICAL MEMBER rv 8