M/S. Krishna Knitwear Technologies ... vs Commissioner Of Central Excise & S.T., ...

(Arising out of OIO-09-DEM-VAPI-2007 dated 14.09.2007, passed by Commissioner Central Excise & Customs, Vapi)

M/s. Krishna Knitwear Technologies Limited : Appellant (s)

VERSUS

Commissioner of Central Excise & S.T., Vapi : Respondent (s)

Represented by :

For Appellant (s) : Shri T. Vishwanathan and Shri Manish Jain, Advocate For Respondent (s) : Shri Alok Srivastava, Authorised Representative

For approval and signature :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Hon'ble 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?

No 2 Whether it should be released under Rule 27 of 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?

Seen 4 Whether Order is to be circulated to the Departmental authorities?

Yes

CORAM :

Mr. P.K. Das, Hon'ble Member (Judicial) Mr. P.M. Saleem, Hon'ble Member (Technical)

Date of Hearing / Decision : 07.09.2015

ORDER No. A/11759/2015 Dated 07.09.2015

Per : Mr. P.M. Saleem

The brief facts of the case in the present appeal are that, M/s. Krishna Knitwear Technologies Limited, the appellants herein are a 100% EOU unit located in Silvassa and engaged in the manufacture of cotton yarn. They were granted permission to setup 100% EOU by Development Commissioner vide LOP dated 29.7.2002, and also granted license by Deputy Commissioner, Central Excise vide letter dated 23.12.2002. The appellants also executed B-17 bond dated 23.12.2002 with the Assistant Commissioner of Central Excise, Silvassa. The appellants procured/ imported capital goods viz. 144 Nos. of Secondhand Textile Machinery during the period January 2003 to February 2004 by availing exemption under Notification No. 53/1997-Cus dated 03.6.1997 as amended by Notification No. 52/2003-Cus dated 31.3.2003. The appellants installed 113 Nos. of Secondhand Textile Machinery (capital goods) out of the total 144 Nos. of Secondhand Textile Machinery procured, within one year from the date of import. The appellants failed to install remaining 31 Nos. of Secondhand Textile Machinery (capital goods) within the stipulated time of one year, or within the extended period permitted by the Assistant Commissioner of Customs, which is a condition for availing the exemption under the aforesaid notifications. Hence, a show cause notice dated 26.12.2006 was issued which was adjudicated by the Commissioner of Central Excise and Customs, Vapi by the impugned order dated 14.09.2007. The adjudicating authority confiscated the 31 Nos. of Secondhand Textile Machineries valued at Rs. 1,69,37,569/- and allowed redemption of the same on payment of fine of Rs. 10 Lakh. He also confirmed duty of Rs. 74,11,970/- along with interest and imposed penalty of Rs. 5 Lakh on the appellants. He ordered to enforce the bond for recovery of the aforesaid duty, interest and penalty. Aggrieved by the same, the appellants are before us.

2. Heard both sides. The learned counsel appearing for the appellants argued extensively on various points. He submitted that they could not install the remaining 31 Nos. of Secondhand Textile Machinery (capital goods) because the spare parts required for installation of the machinery were difficult to procure due to obsolete technology. He drew attention of the Bench to the fact that they had sought permission of the department to scrap and destroy the said capital goods but this was denied. They had also requested for extension of time for installation of the machinery which was also not granted by the department. He further contended that the goods imported were warehoused and since the goods were not cleared from bonded warehouse, no duty is leviable on the same. He also submitted that there was no suppression or malafide intention on their part and therefore, imposition of penalty was bad in law. The learned counsel cited the decisions of the Honble Madras High Court in the case of Gemini Metal Works vs. UOI  1985 (22) ELT 27 (Mad.) and Tribunal in the case of Macmillan India Limited vs. Commissioner of Customs,Bangalore  2008 (223) ELT 449 (Tri. Bang.), and Paras Fab International vs. CCE, Kandla  2010 (256) ELT 556 (Tri. LB). He therefore, pleaded that the impugned order-in-original is not sustainable in law and facts and should be set-aside.

3. On the other hand, learned Authorised Representative for Revenue submitted that undisputedly the appellant had failed to install 31 Nos. of Secondhand Textile Machinery within the stipulated period of one year from the date of import, as required under the exemption Notification No. 53/97-Cus dated 03.6.1997 3read with Notification No. 52/2003-Cus dated 31.03.2003. He also submitted that the appellant were granted extension of time to install the capital goods up to 30.06.2006 in accordance with the provisions of the notification, but they still failed to install the same. The request of the appellants dated 08.6.2006 to scrap and destroy the said goods were rejected on 20.6.2006 by the Assistant Commissioner, Central Excise and directed them to pay duty with interest. Their request for further extension of time vide their letter dated 22.06.2006 was rejected by the Assistant Commissioner vide his letter dated 30.6.2006. He submits that the appellant had not filed any appeal against these orders of the Assistant Commissioners and therefore, the same have reached finality. The learned Authorised Representative submits that the goods were imported and cleared from Customs availing benefit of exemption provided under the notification, and thereafter re-warehoused. He also cited the decision of the Tribunal in the case of Siddeshar Spinning Pvt. Limited vs. CCE, Bhavnagar  2013-TIOL-841-CESTAT-AHM in his favour. He argues that the appellant had not complied with the conditions of the notifications and therefore, they are liable to pay the duty along with interest, and confiscation of goods and imposition of penalty are justified.

4. On careful consideration of the arguments of the both sides and perusal of the records, we observe that the appellant had imported 144 Nos. of Secondhand Textile Machinery as capital goods, by availing the exemption Notification No. 53/97-Cus dated 03.6.1997, as amended by Notification No. 52/2003-Cus dated 31.3.2003. Condition No. 6(i) of the exemption Notification No. 53/1997-Cus and Condition No. 3 (d) (I) (i) of Notification No. 52/2003-Cus, reads as under:-

Condition No. 6(i) of the exemption Notification No. 53/1997-Cus (6) The importer executes a bond in such form and for such sum and with such security or surety as may be prescribed by the Assistant Commissioner of Customs, binding himself to fulfil the export obligations and conditions stipulated in this notification and in or under said 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% per 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, if 

(i) in the case of capital goods, such goods are not proved to the satisfaction of the Assistant Commissioner of Customs to have been found installed or otherwise used within the bonded premises or re-exported within a period of one year from the date of importation or procurement thereof or within such extended period not exceeding five years as the Assistant Commissioner of Customs may, on being satisfied that there is sufficient cause for not using them as above within the said period, allow; Condition No. 3(d) (I) (i) of Notification No. 52/2003-Cus.

(3) The unit executes a bond in such form and for such sum and with such authority, as may be specified by the said officer, binding himself,

(d) to pay on demand-

(I) an amount equal to duty leviable on the goods and interest at a rate as specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue) issued under section 28AB of the said Customs Act on the said duty from the date of duty free import of the said goods till the date of payment of such duty, if -

(i) in the case of capital goods, such goods are not proved to the satisfaction of the said officer to have been installed or otherwise used within the unit, within a period of one year from the date of import or procurement thereof or within such extended period not exceeding five years as the said officer may, on being satisfied that there is sufficient cause for not using them as above within the said period, allow; 

5. It is observed that the appellants failed to install 31 Nos. of the Secondhand Textile Machinery (capital goods) within the stipulated period of one year nor could they install the same up to 30.06.2006, the extension of time limit granted for installation of the same as per the provisions of the notification. It is their case that they could not install the goods since they could not procure the spare parts of the machine for installation of the goods. They have also argued that their request for scraping and destruction of the said obsolete goods were also not granted by the department. However, we find that the appellant had imported 144 Nos. of Secondhand Textile Machinery during the period January 2003 to February 2004. They were required to install the same within one year period. They had also installed 113 Nos. of Secondhand Textile Machinery. It does not stand to reason that they had imported such machinery, that the same could have become obsolete within such a short period. They had imported machinery for certain specific purpose of putting the same into production. The goods were allowed to be imported and the duty on the same was exempted for a specific purpose, as per the conditions of the exemption notification (supra) and the appellant was bound by the conditions. On failure to comply with those conditions, the goods are not eligible for the exemption provided by the said notification and they are liable to pay applicable customs duty. It is settled law that the exemption notifications have to be construed strictly and non-observance of the conditions of the notification would undoubtedly result in denial of the benefit of the subject notification. We also find force in the arguments of the Authorised Representative for Revenue that the goods were imported and cleared by availing the benefit of the exemption under the notifications (supra), and the said capital goods were warehoused for installation of the same in the warehoused premises of 100% EOU for manufacture of final goods for export, and therefore, the goods are liable to customs duty once it is found that they are not eligible for the exemption under the said notifications (supra). We, therefore, find no reason to interfere with the impugned order of the adjudicating authority confirming the demand of duty of Rs. 74,11,970/- along with interest and therefore, we uphold the same.

6. However, as brought out hereinabove, the appellant had no malafide intention as they had not suppressed the facts from the department. To the contrary, they had approached the department for further extension of the time-limit as also for destruction of the subject goods, which were denied to them. We do agree with the learned Authorised Representative for Revenue that these orders, rejecting extension of time limit and destruction of subject goods had reached finality. However, we find that demand of duty with interest would suffice the cause of justice in the instant case and confiscation of the goods and penalty on the appellant are not warranted.

7. We find that the case laws cited by learned counsel are not applicable in the present case, as the facts are different in those cases. In Macmillan India Limited (supra), the goods related to Information Technology and export obligations were already met. In Paras Fab International (supra), the issue was whether the entire premises of 100% EOU should be treated as warehouse, and whether for captive consumption within the bonded premises, ex-bond bill of entry has to be filed and duty paid. The issue in Gemini Metal Works (supra) related to cancelation of license and is not relevant in the instant case. On the other hand, we find our views are fortified by the decisions of this very Bench of the Tribunal in the case of M/s. Siddeshar Spinning Pvt. Limited vs. CCE, Bhavnagar  2013-TIOL-841-CESTAT-AHM, which had also followed the earlier decisions of the Tribunal in the case of Nava Bharat Enterprises Limited  2010 (256) ELT 602 (Tri. Bang.), Philips India Limited vs. Commissioner of Customs, Mumbai  2001 (137) ELT 697 (Tri. Mum.) and Taurus Novelties Limited vs. Commissioner of Customs, Bangalore -2004 (173) E.L.T. 100 (Tri. - Bang.). Paras 7,8 and 9 of the said decision are reproduced below for better appreciation:-

7. We find that on an identical issue, the co-ordinate Bench of the Tribunal in the case of Nava Bharat Enterprises Ltd (supra) (wherein I was one of the Member of the Bench) had specifically held that the liability to pay the Customs duty along with interest, arises in the absence of any fulfilment of export obligation against the machinery imported by availing the benefit of Notification No.53/97-Cus and held that the said machinery are not liable to be confiscated and penalty should not be imposed.

8. Respectfully, we reproduce the said ratio as under:

"12. We have heard both sides and carefully considered the case records and submissions made by both sides. In the instant case, the appellants had submitted that they were forced to close down the business owing to problems such as lack of orders, internal competition, low prices and working capital. They had also submitted that considering these difficulties faced by the EOU, the Development Commissioner had taken a lenient view and imposed a light penalty of Rs.50,000/- on them. The Commissioner rejected this claim of the appellant as not substantiated. We find that it is reasonable to conclude that the EOU had wound up its business for want of business and funds. In this connection we find that the appellants have rightly relied on the decision of this Tribunal in Fal Industries Limited (supra) wherein the Tribunal has observed as follows :

"B. Confiscation of the goods & imposition of penalty.

We observe that in this case the appellants have come clean before the authorities that it was beyond their control to fulfill the export obligations because of various reasons and they could export only a negligible quantity of 1%. Further, there is no allegation in the show cause that the appellants-importer willfully sought to avail of the benefit of Notification with a view to gain any benefit. It is not the case of the department that there was deliberate attempt to avail of the notification by making any mis-declaration. The extent of the failure to fulfill the export obligation does not matter in a situation, as seen from the records that in this case, in fact the appellants had filed bank guarantee and sought for extension of time to fulfill the export obligation. But in spite of their efforts, they could not succeed. We observe that identical case came up for consideration before the CEGAT, West Regional Bench, in the case of Philips India Limited vs. CC, Mumbai - reported in 2001 (137) E.L.T. 697 wherein the confiscation of the goods and imposition of penalty was set aside. In that case also the same Notification i.e. No. 160/92-Cus. and Para 38 of the EXIM Policy was dealt with. We would also like to observe that the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa, has held that "penalty will not also be imposed merely because it is lawful to do so. Where penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances". Following the ratio of the above decisions, we set aside the confiscation of the goods and imposition of penalty on the appellants."

We also find that in the case of Taurus Novelties Limited vs. CC Bangalore (supra), where the appellant therein had failed to fulfil the export obligation, owing to collapse of Korean Economy, the Tribunal ordered as follows :

".........In a like situation, the Tribunal, in the citations referred to by the Counsel, has held that confiscation cannot be ordered in a circumstance when the export obligation became an impossibility. Further it has been held that when the Bank Guarantee has been realised before the issue of Show Cause Notice, then in such a circumstance, the redemption fine, penalty and interest is not imposable. We have perused these judgments and find that the appellants' prayer for setting aside the redemption fine, penalty and interest, in terms of these judgments, is justified. The ratio of the judgments clearly applies to the facts and circumstances of this case. Respectfully following the same, the impugned order, confiscating the machinery and imposing redemption fine and penalty on the Company and the Directors including the levy of interest, is set aside by allowing the appeal."

10. The ratio of the decisions clearly applies to the facts and circumstances of this case as regards the liability of the impugned goods to confiscation and the assessee's liability to penalty. Respectfully following the same, we set aside the impugned order confiscating the capital goods and raw materials and imposing redemption fine and penalty on the EOU."

The above said ratio will squarely apply to the case in hand before us.

9. In view of the foregoing, while upholding the confirmation of duty liability and interest thereof, we find that the appellant has made out a case for setting aside the confiscation ordered by the adjudicating authority and also for setting aside the penalties imposed under Section 112 of Customs Act, 1962. We do so.

8. In view of the above analysis, the demand of duty of Rs. 74,11,970/- along with interest as ordered in the order-in-original is upheld. However, confiscation of the goods, and consequent redemption fine, along with imposition of penalty are set-aside. The impugned order is modified to the above extent.

9. Appeal is disposed of on the above terms.

(On conclusion of the hearing, operative part of the order pronounced in the open Court)

(P.K. Das) (P.M. Saleem) Member (Judicial) Member (Technical) ..KL

10