2004 (97) ECC 58 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Chennai

Shri P.G. Chacko, Hon'ble, Member (J) and
Shri Jeet Ram Kait, Hon'ble, Member (T)

CC, Chennai

Versus

Shasun Drugs & Chemicals

Appeal No. C/240/99

[Arising out of Order-in-Original No. 74/98-CAU dated 17.4.98 passed by the Commissioner of Customs, Chennai]

Final Order No. 414/2004, dated 28.4.2004, Certified on 20.5.2004

Amnesty

Benefit -- DEEC Scheme -- Import -- Raw Material under duty free Notification No. 203/92-Cus, 19.5.1992 -- Assessee violated condition V (a) of the notification by availing in put credit under Rule 56A/57A on the indigenous imported raw material used in the exported final products, established -- Hence, the entire duty of customs which was leviable on the imported goods but for the exemption is liable to be paid be the assessee -- Amnesty benefit cannot be granted.

Confiscation and Penalty (Customs)

Imported goods under DEEC Scheme used by the assessee instead of manufacturing final product to be exported -- Department failed to prove that the assessee indulged in commissions or omissions with the belief/knowledge that such act would render the goods liable to confiscation and penalty under Sections 111 & 112(a) of Customs Act.

Appeal dismissed

PRESENT :

Sri M. Chandrasekharan, Senior Counsel for the appellant.

Sri K. Sankararaman, Adv. for the respondent.

Case Cited :

Bharati Telecom Ltd. v. CCE, 2001 (78) ECC 665 (SC)................................. [Paras 3 & 6]

Per : P.G. Chacko (Oral)

This appeal of the Revenue is against an order of the Commissioner of Customs, Chennai, whereby the department's proposal for recovering Customs Duty of over Rs. 12 Crores on imported goods from the respondents under Section 28(1) of the Customs Act and confiscating the goods under Section 111 of the Act as also imposing penalties on the party under Sections 112 & 114(i) of the Act was dropped.

2. The respondents had imported raw materials during 1993-94 duty-free under Notification No. 203/92-Cus. 19.5.92, declaring, inter alia, that they would be fulfilling all the relevant conditions under the notification. The imports were made under the DEEC scheme on the strength of Value-Based Advance Licences issued by the Chief Controller of Imports & Exports, Ministry of Commerce. The chief condition under the notification was that the importer should not avail input credit under Rule 56A/57A of the Central Excise Rules, 1944 in respect of any inputs used in the manufacture of final products to be exported under the scheme. The respondents utilized the imported raw materials alongwith indigenous raw materials for the manufacture of their final products which they exported during 1993-95. Later on, the department found that the respondents had availed input credit under Rule 56A/57A on the indigenous raw materials used in the exported final products, in violation of condition V (a) of the notification. On this basis, two show-causes were issued to the party, one dated 24.7.95 and the other dated 25.9.95, both demanding customs duty on the imported raw materials under Section 28(1) of the Customs Act. Both the notices also contained proposals to levy interest on duty, to confiscate the imported materials and to impose penalties. These proposals were contested by the party in their replies, wherein they, however, conceded the availment of input credit alleged by the department. The party, apparently, made reversal of the credits which they had taken in RG 23A-Part II on the indigenous raw materials used in the final products exported in discharge of export obligation under the notification. The total amount of Modvat credits so reversed from time to time was over Rs. 83 lakhs. A major part of this credit had been reversed prior to 31.1.97, the date which is relevant to the Amnesty Scheme introduced by the Government in favour of importers like the present respondent who violated condition V (a) of the notification. The remaining part was reversed after 31.1.97. The above scheme, which was introduced on 31.1.97, exonerated such importers from payment of customs duty on the imported goods as also from penal proceedings under the Customs Act, provided they reversed the entire modvat credit on or before 31.1.97 and also paid interest on the credit amount on or before the said for the period from the date of export to the date of payment. If any importer of goods under the DEEC scheme did not reverse modvat credit and did not pay interest within the stipulated time, they were liable to pay customs duty on the imported goods as well as to be subject to penal proceedings like imposition of redemption fine in lieu of confiscation and imposition of penalty. In the instant case, as already indicated, a part of the modvat credit was reversed beyond 31.1.97, a small amount in February 1997 and another small amount in August 1997. Interest to the extent of Rs. 20.8 lakhs was also paid beyond 31.1.97. Before the adjudicating authority, the respondents, apparently, requested for a lenient view in the matter. That authority took such a view and dropped the proposals made in the show-cause notice, after noting that the party had `substantially complied" with the conditions of the notification. Accordingly, the delay involved in reversal of a part of the modvat credit and that involved in the payment of interest were condoned. The learned Commissioner of Customs, thus, accorded amnesty to the party.

3. Heard both sides. Learned Senior Counsel for the Revenue submits that, in the facts of this case, the judgment of the Hon'ble Supreme Court in Bharati Telecom Ltd. v. CCE, 2001 (78) ECC 665 (SC) : 2001 (134) ELT 327 (SC), is squarely applicable. The party, in that case, stood in the same factual position as the present respondents. They has worked under the DEEC scheme in a similar way. When the department noticed that they had availed input stage credit in respect of indigenously procured raw materials used in the manufacture of export goods, in violation of condition V (a) of the notification, the party reversed the modvat credit. Such several was effected within the stipulated date (31.1.97). However, the interest on the amount of credit, which ought to have been paid on or before 31.1.97 under the Amnesty Scheme, happened to be paid beyond that date. The Hon'ble Supreme Court, in the cited case, held that M/s. Bharati Telecom Ltd. were not eligible for amnesty under the scheme and were consequently liable to be proceeded against on the ground of violation of conditions of Notification No. 203/92. Consequently, the party had to satisfy the department's demand of customs duty on the imported raw materials. Ld. Senior Counsel has pointed out that a review petition filed by M/s. Bharati Telecom Ltd. against the above judgment as also rejected.

4. Ld. Counsel for the respondents has not cited any better binding judicial authority on the point. He, however, submits that the proposal for levy of interest is illegal inasmuch as, at the relevant time, there was no provision in the Customs Act authorising such levy. It is further submitted that there can be no penalty under Section 114(i) of the Customs Act on the respondents inasmuch as, in the event of satisfying the department's demand of customs duty on the imported raw materials, they stand out of the DEEC scheme. Referring to the factual aspects of reversal of modvat credit and payment of interest thereon, learned Counsel submitted that only a minor part of the modvat credit was reversed beyond 31.1.97. A major part of the amount of interest had, in fact, been paid by way of debit in Modvat account on 31.1.97. Subsequently, when it was pointed out by the department that interest had to be paid in cash, the respondents made deposit of the interest on 16.10.97 in cash. These facts, according to learned Counsel, show that the respondents acted without mens rea. In the circumstances, any penalty under Section 112 should be avoided. Ld. Counsel has, further, taken a contention that as the respondents had reversed the modvat credit of Rs. 80 lakhs (out of the total credit of Rs. 83 lakhs to be reversed) within 31.1.97 and also had paid interest of Rs.18 lakhs (out of the total interest of Rs. 20.8 lakhs) through modvat debit within 3.1.97, the quantum of demand of customs duty is liable to be reduced on a pro rata basis.

5. Ld. Senior Counsel for the Revenue has contested the "pro rata plea" raised by the Counsel for the respondents, by pointing out that the reversal of modvat credit in the Modvat Scheme under the Central Excise Act is separate from, and independent of, the demand of duty raised under the Customs Act on the ground of violation of conditions of the exemption notification.

6. We have given careful consideration of the submissions. We have been the decision of the Tribunal in Bharati Telecom Ltd. v. CC Nhava Sheva, which was affirmed by the Apex Court in the judgment cited by learned Senior Counsel. On the facts of that case, which we have already noted, the Tribunal declined to grant the benefit of Amnesty Scheme (under the DEEC Scheme) to the assessee despite the fact that the entire amount of modvat credit had been reversed by the party before 31.1.97. It was only the interest which remained unpaid after 31.1.97. The Tribunal's decision has been affirmed by the Apex Court. The case of the present respondents appears to be worse inasmuch as, in the instant case, a part of the modvat credit had not been reversed by 31.1.97 and a major part of the interest also had not been paid in the appropriate manner by that date. Therefore, following Bharati Telecom Ltd. v. CC (supra), we have to hold that the benefit of amnesty is not available to the respondents. The consequence, necessarily, is that violation of condition V (a) of Notification No. 203/92-Cus stands established in this case and, therefore, in terms of the said notification, the entire duty of customs which was leviable on the imported goods but for the exemption is liable to be paid by the respondents.

7. Coming to the demand of interest, we note that, during the material period, there was no provision in the Customs Act authorising levy of interest on any amount of customs duty demanded under Section 28 of the Act. A demand, not authorised by law, cannot be sustained.

8. Coming to the penalties, we have searched for a copy of the show-cause notices in the file and have filed to come across any Ld. Senior Counsel has shown us copies of the two show-cause notices and we note that, in these notices, only penalty under Section 112(a) of the Customs Act was proposed. The impugned order, however, mentions Section 114(i) also. This, we suppose, might have been a mistake. In any case, a penalty under Section 112(a) strictly depends on the question whether the assessee had done anything or omitted to do anything, which rendered the imported goods liable to confiscation under Section 111 of the Customs Act. If the party has to be penalised under Section 112, it has to be shown by the department that they had indulged in commissions or omissions with the belief/knowledge that such commissions or omissions would render the goods liable to confiscation under Section 111. We have not come across any allegation to this effect in either of the show-cause notices. Therefore, any penalty under Section 112(a) of the Customs Act will not be sustainable on the respondents.

9. We have also examined the last submission made by the learned Counsel for the respondents, which is to the effect that the quantum of duty on the imported goods should be reduced pro rata, taking into account the quantum of modvat credit reversed within time. We are unable to accept this contention for the reason that the Modvat Scheme under the Central Excise Act is independent of the DEEC scheme under the Customs Act. As rightly pointed out by learned Senior Counsel, the quantum of duty of Customs cannot be varied by reason of any availment or reversal of modvat credit.

10. In the result, it is held that the respondents are liable to pay the duty of customs as demanded in the two show-cause notices, and the same can be recovered by the Department in accordance with law without charging any interest. However, no penalty is warranted, under Section 112 of the Customs Act, on the allegations raised in the show-cause notices. It is, further, made clear that this order will not stand in the way of the competent Central Excise authority considering any claim of the respondents for restoration of the modvat credit in accordance with law. The impugned order is set aside. The appeal stands allowed.

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