M/S German Garden Ltd vs Cce, Delhi-Iii

Date of Pronouncement : 5.5.2015

Appeal No. C/642/2008-CU(DB)

[Arising out of Order-in-Original No. 5/JM.CUS/07/6352 dated 31.5.2008 passed by the Commissioner of Central Excise, Gurgaon]

For Approval & Signature :

Honble Mr. Justice G. Raghuram, President

Honble Mr. R.K. Singh, Member (Technical)

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

M/s German Garden Ltd. Appellant

Vs.

CCE, Delhi-III Respondent

Appearance:

Shri J.M. Sharma, Advocate - for the Appellant

Shri A.K. Agarwal, C.A.

Shri Amresh Jain, D.R. - for the Respondent

Coram : Honble Mr. Justice G. Raghuram, President

Honble Mr. R.K. Singh, Member (Technical)

F. Order No. 51491/2015

Per R.K. Singh :

Appeal has been filed against the Order-in-Original No. 5/JM/CUS/07/6352 dated 31.5.2008 in terms of which Customs duty amounting to Rs.3,99,668/- and Central Excise duty amounting to Rs.2,75,61,081/- was confirmed along with interest and penalty of Rs.3,99,668/- under the Customs Act, 1962 and Rs. 50 lakhs under Rule 173Q of Central Excise Rules, 1944 and Rule 25 of Central Excise Rules, 2002 was also imposed.

2. The facts are briefly stated below:

The appellants (100%) EOU were issued LOP by the Development Commissioner, Noida for production and export of roses and other kinds of flowers. The said LOP fixed the annual capacity of 56,10,000 nos. for cultivation of the said product. As per terms and conditions of the said LOP the appellants were inter alia required to :

(i) export their entire production (excluding rejects not exceeding 5%) to GCA/Hard Currency area for a period of 10 years and achieve the target of export worth Rs.1380.46 lakh, during the period of 5 years after commencing production;

(ii) achieve minimum value addition (VA/NEEP) not less than 90%;

(iii) carry out entire production activity in customs bonded area;

(iv) follow the conditions specified in the customs notifications under which capital goods, raw materials and components for production under the scheme, were to be imported duty free;

(v) follow the conditions specified in the central excise notifications under which capital goods, components, raw materials for production under the scheme, were to be procured indigenously duty free; and

(vi) to pay all penalties, customs and excise duties and such other amounts as may be decided by the Government, in case they fail to fulfil their export obligation and other obligations under this scheme.

In terms of the above LOP the appellants procured capital goods, components, raw materials etc. duty free under Notification No. 136/94-CX dated 10.11.1994 / 22/2003-CE (on which Central Excise duty of Rs.2,75,61,081/- was otherwise leviable) and under Notification No.126/94-Cus / 52/2003-Cus (on which Customs duty of Rs.3,99,668/- was otherwise leviable). The adjudicating authority confirmed the demand of the said Central Excise duty and Customs duty foregone on the ground that the appellants failed to fulfil the conditions of the said notifications under which full duty exemption was availed of and also failed to fulfil the conditions of the said LOP by not utilising the goods procured duty free for producing and exporting flowers as required and not achieving positive NFE. The adjudicating authority specifically noted that there was no permission granted to the appellant to make domestic clearances and in spite of there being no such permission they cleared the goods in the Domestic Tariff Area (DTA). The adjudicating authority observed that they had exported roses valued at Rs.98.02 lakhs only since inception and that they had cleared the said product mainly in the DTA. The adjudicating authority also specifically referred to Notification No. 52/2003-Cus. dated 31.3.2003 (as amended) and Notification No. 22/2003-CE dated 31.3.2003 (as amended) which inter alia required proportionate payment of duty foregone in case of short fall in achieving positive NFE.

3. The appellants have contended that:

(i) all the duty free procurements by them were during the period prior to 2003 and therefore Notification No. 52/2003-Cus and Notification No. 22/2003-CE were not relevant and so the adjudicating authority was not right in resorting thereto.

(ii) The condition of proportionate payment of duty foregone in the absence of non-fulfilment of export obligation/non-achievement of positive NFEE was incorporated in the relevant notifications only in the year 2008.

(iii) The LOP was cancelled on 29.3.2007 as a result of which debonding had to follow and accordingly they paid the duty on the capital goods procured by them duty free (both imported and indigenously procured) at their depreciated value as required under the respective exemption Notifications availed of by them.

(iv) the non-fulfilment of export obligation on their part has been adjudicated by the Development Commissioner and for that violation they have already been fined by the Development Commissioner to the extent of Rs. 5 lakhs which was reduced by the Appellate Committee of Commerce and Industry to Rs.50,000/- and therefore penalising them again vide the impugned order would amount to punishing them twice for the same offence.

(v) duty cannot be demanded on mother plants of flowers (treated as capital goods) as they were consumed/destroyed in the EOU.

(vi) their actual exports including deemed exports were to the tune of Rs. 2.19 cores as against Rs. 98.02 lakhs stated by the adjudicating authority;

(vii) they were issued a Show Cause Notice on 13.9.2001 demanding duty of Rs. 26,14,587/- on DTA clearances which demand was dropped vide order in original dated 26.8.2004 and the second Show Cause Notice dated 31.7.2007 was issued after their LOP was cancelled and that they on their own, on receipt of the said Show Cause Notice, computed the duty liability in respect of imported/indigenous goods procured without payment of duty and paid the same on their depreciated value on 7.12.2007.

(viii) the Commissioner was not legally justified in confirming duty as applicable to the duty free procured goods at the time of import/domestic procurement ignoring the fact that the goods on which duty was being confirmed were old and had been used for a number of years.

(ix) no separate order for debonding is required to be issued as once the LOP was cancelled, debonding had to follow.

(x) the penalty under Section 112 is not imposable in the absence of a finding that the goods were liable to confiscation.

(xi) Rule 173Q of Central Excise Rules, 1944 is not attracted in their case as the said rule does not apply to 100% EOU. Similarly penalty under Rule 25 of Central Excise Rules, 2002 is not imposable as the adjudicating authority has not specified the sub-rule of Rule 25 under which the penalty has been imposed and that the Commissioner has not held the goods liable to confiscation which is a pre-condition for penalty under the said Rules.

4. The ld. DR on the other hand essentially contended that (i) the appellants did not fulfil the conditions of the exemption notifications under which the goods were procured duty free and therefore the duty foregone is clearly recoverable, (i) The goods so procured were also rendered liable to confiscation on account of violation of the conditions of exemption notifications and hence penalties imposed are clearly imposable.

5. We have considered the contentions of both sides. The appellants have stated that the imported/indigenous goods were procured during the period 1995-1996 to 2002-2003. The details of procurement of goods submitted by the appellants do indicate that the goods were procured only up to the year 2002-2003. This contention has not been disputed by the adjudicating authority. Therefore there cannot be any doubt/dispute that for the goods procured prior to 31.3.2003, the conditions of Notification No. 52/2003-Cus dated 31.3.2003 and 22/2003-CE dated 31.3.203 would be of no avail.

6. As the issue involved in the present case is whether the duty foregone at the time of procurement of impugned goods is recoverable or not, it is necessary to refer to the notifications under which such duty free procurements were made. For the goods procured duty free from the domestic sources, the relevant notification under which exemption was claimed was 136/94-CE. One of the conditions (condition no. 7) of the said exemption notification was that the appellants exported out of India 100% or such other percentage as may be fixed by the Board of articles manufactured wholly or partly from the said goods for the period stipulated by the Board or such extended period as may be specified by the board. The appellants evidently violated the said condition (No. 7)) of the exemption Notification No. 136/94-CE inasmuch as they were required to export 100% of articles (excluding rejects) manufactured wholly or partly from the goods procured duty free but they admittedly did not do so. Consequently, the appellants were disentitled for the exemption under the said notification (No. 136/94-CE). It is a settled principle that when exemption is subject to certain conditions the same has to be denied if any of the conditions is not fulfilled. In the case of Indian Oil Corporation Vs. CCE Vadodara  2012-TIOL-04-SC-CX., it has been held that in the case of conditional exemptions, the conditions of exemption have to be construed strictly and if the exemption is available only on complying certain conditions, the conditions have to be complied with.

7. The appellants referred to the judgement of Khabros Steel India Ltd. Vs. CCE, Jaipur  2006 (194) ELT 117 (Tri.-Del.) to argue that in the case of debonding the duty is to be paid on the depreciated value at the rate in force at the time of payment of such excise duty. They also referred to the CESTAT judgement in the case of CCE, Vadodara Vs. Solitaire Machine  2003 (152) ELT 384 (Tri) wherein it was, inter alia, held that A perusal of Notification No. 13/81-Cus. and the EOU provisions make it clear that duty liability upon debonding is no way connected to discharge of export obligation. It is clear from the notification that under the EOU scheme, imported goods were given exemption from duty as long as they were used for production of export goods. thereafter, upon debonding the goods are treated as imported goods and subjected to duty as applicable to other import goods. That the original import was under an export obligation scheme makes no difference to duty liability. In this regard, it is to state that we agree with the contention of the appellants that during the relevant time when the goods were procured duty free there was no condition to achieve positive NFEE in Notifications Nos. 136/1994-CE and 126/94-Cus. nor was there any condition requiring only proportionate payment of duty in case of non-fulfilment of export obligation. Indeed the adjudicating authoritys reference to Notification No. 52/2003-Cus. and Notification No. 22/2003-CE in the present case is totally out of context because these notifications were issued on 31.3.2003 while procurement of impugned goods duty free took place prior thereto and hence these notifications do not have any nexus with the impugned goods. However, it needs to be emphasised that the adjudicating authority has categorically recorded a clear finding that the appellants did not fulfil the conditions of the exemption Notification No. 136/94-CE regarding exporting the goods produced wholly or partly from the impugned goods (procured duty free) during the stipulated period. Consequently the Central Excise duty demand sustains even without reference to Notification No. 22/2003-CE.

8. Similarly the goods were procured by them from abroad duty free in terms of Notification No. 126/1994-Cus. dated 3.6.1994 which inter alia contained the following conditions :

(3) The importer at the time of import or procurement of said goods executes a bond in such form and for such sum as may be prescribed by the Assistant Commissioner of Customs or Deputy Commissioner of Customs binding himself:-

(a) to produce a certificate from the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction over his unit, certifying receipt of the said goods in the unit as having been entered in the records prescribed for this purpose.

(b) to fulfil the Export obligation and comply with the conditions stipulated in this notification and Export and Import Policy, and to pay on demand an amount equal to the duty leviable on the goods and interest at the rate of 20% pr annum on the said duty from the date of duty free importation or procurement of the said goods till the date of payment of such duty.

As per the LOP, the appellants had inter alia the following export obligation:

(i) The entire (100% production shall be exported to General Currency Area Countries/Hard Currency Area Countries.

(ii) To export the entire production (100%) excluding rejects not exceeding 5 (five) percent for a period of 10 (ten) years.

(iii) The value addition shall be a minimum of 90% as per new formula in force w.e.f 1.4.93.

As has been discussed earlier, the appellants did not fulfil their export obligation and thereby violated the condition of the exemption Notification No. 126/1994-Cus. which makes them ineligible for the said exemption notification. As a consequence the Customs duty foregone was correctly confirmed by the adjudicating authority in terms of Section 28 of the Customs Act, 1962 read with the bond executed by the appellants.

9. It is pertinent to reiterate here that in the said Notifications No. 126/1994-Cus. and Notification No. 136/1994-CE there was no provision to recover only the proportionate duty foregone (i.e. to recover only the proportionate duty equivalent to the proportion by which the export obligation was not fulfilled) and therefore in the present case, the fact that they had made some exports, is immaterial for the purpose of the appellants duty liability because in spite of those exports, they remained in clear violation of the conditions of exemption under the said notifications (No. 136/94-CE and Notification No. 126/94-Cus.) and as a consequence were rendered ineligible for the exemption there-under; the further consequence of which is that the entire duty foregone became recoverable.

10. The appellants strenuously argued that it is a case of debonding of EOU and that they have paid duty on the depreciated value of the goods at the time of debonding which automatically follows on cancellation of LOP and cited judgements to that effect like Mohd. Tariq Abbasi Vs. CCE, Meerut-I  2012 (283) ELT 287 (Tri.-Del.). That debonding follows as a consequence of cancellation of LOP is not an unacceptable proposition. But in the present case the issue is the appellants non-eligibility for the exemption notifications (under which duty free procurements were made) by virtue of non-fulfilment of the condition thereof. None of the judgements which they cited deal with this aspect.

11. The appellants have argued that even if the duty is recoverable the goods are not liable to confiscation and therefore penalty under Section 112 of Customs Act, 1962 is not imposable. In this regard, we note that Section 111(o) of Customs Act, 1962 reads as under:

Section 111. The following goods brought from a place outside India shall be liable to confiscation:- ..................................................

(o) 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.

Thus the impugned goods imported duty free were clearly rendered liable to confiscation as they were cleared duty free under Notification No. 126/94-Cus. but the condition of exemption was not fulfilled by them.

12. The appellants have also argued that Rule 173Q is not applicable in the case of EOUs. We have perused the provisions of Rule 173Q and we do not find any disability in the said Rule which makes it inapplicable to 100% EOU. Similarly their contention that the adjudicating authority has not mentioned Sub-Rule to Rule 25 of Central Excise Rules, 2002 is not of much avail as the said Rule contains Sub-Rule (1) and Sub-Rule (2) and Sub-Rule (2) only states that An order Sub-Rule (1) shall be issued by Central Excise officer following the principles of natural justice. Thus non intention of Sub Rule of Rule 25 ibid has in no way prejudiced the appellants.

13. The appellants contention of double jeopardy on the ground that they have already been penalised under the FTDR Act, 1992 is totally invalid as the ingredients of offences under the FTDR Act and the Customs Act, 1962/Central Excise Act, 1944 are different. This issue is rather too well settled to require parading of familiar judicial pronouncements but for the sake of illustration the judgements of Supreme Court in the cases of V.K. Agarwal Vs. Vasantraj Bhagwanji Bhatia & Ors.  AIR- 1988- SC- 1106, A.A. Mulla & Ors Vs. State of Maharastra - AIR-1997-SC-1441 and Sangeetaben Mahendrabhai Patel Vs. State of Gujarat  2012-TIOL-34-SC -Misc. can be cited.

14. At this stage, it needs to be appreciated that this case does not involve clandestine removal of goods or any wilful mis-statement or suppression of facts and even the appellate body of the DGFT in the given circumstances had taken a lenient view with regard to imposition of penalty for the violation of the provisions of the Foreign Trade Development and Regulation Act. In these circumstances the penalties imposed deserve to be substantially attenuated.

15. In the light of the foregoing, we uphold the impugned order except to the extent of penalties which are reduced to Rs. One lakh under Section 112 of the Customs Act, 1962 and Rs.12 lakhs under Rule 173Q of Central Excise Rules, 1944/ Rule 25 of Central Excise Rules, 2002.

(Pronounced in Court on 5.5.2015)

(Justice G. Raghuram)

President

(R.K. Singh)

Member (Technical)

RM

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