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Morepen Laboratories Ltd V/S C.C., Kandla

    Custom Appeal No. 118 of 2011-SM (Arising out of the Order-in-Appeal No. 01/2011/Cus/Commr(A)/KDL, dated 5.1.2011 passed by the Commissioner (Appeals), Customs, Kandla) and Final Order No. A/13447/2017

    Decided On, 15 November 2017

    At, Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad

    By, MEMBER

    For Petitioner: Anand Nainawati, Advocate And For Respondents: A. Mishra, A.R.

Judgment Text

1. Heard both sides.

2. This Appeal is filed against the Order-in-Appeal No. 01/2011/Cus/Commr(A)/KDL, dated 5.1.2011 passed by the Commissioner (Appeals), Customs, Kandla.

3. Briefly stated the facts of the case are that the Appellants are engaged in the manufacture of bulk drugs falling under Chapter 29 and 30 of CETA, 1985. During the relevant period i.e. April 2003 to July, 2003, the Appellant had imported 50 MTs of ISO Propyl Alcohol and 14.852 MT of Methylene Chloride valued at Rs. 17,52,690/- involving duty amount of Rs. 9,88,878/- against Advance Licence having actual user condition as per Notification No. 43/2002-Cus dated 19.4.2002 and Notification No. 50/2000-Cus dated 27.4.2000. Alleging that the said imported goods were not brought to the factory nor was used in the manufacture of finished goods, show cause notice was issued to them for recovery of the said duty of Rs. 9,88,878/- with interest and penalty; also proposing confiscation of the duty free goods imported. On adjudication, the demand was confirmed with interest and penalty of Rs. 2.0 lakhs imposed under Section 112 of Customs Act, 1962. Also, the adjudicating authority ordered confiscation of the goods under Section 125 of the Customs Act, 1962 with option to redeem the same on payment of fine of Rs. 5.0 lakhs. Aggrieved by the said order, the Appellant filed Appeal before the ld. Commissioner (Appeals), who in turn, partly allowed their Appeal by reducing redemption fine to Rs. 4.0 lakhs and penalty to Rs. 1.50 lakhs. Hence, the present Appeal.

4. Ld. Advocate for the Appellant submits that the alleged diversion of the imported goods is not sustainable in the absence of cogent and corroborative evidence, accordingly, the demand of customs duty under Section 28 of the Customs Act is not sustainable. It is his contention that since the Appellant discharged the export obligation, therefore, in the absence of proof of clandestine diversion of imported goods, duty cannot be demanded in view of the judgment in the case of C.C.E., Ludhiana vs. Rakesh Nayyar 2010 (255) ETL 234 (P & H). Further, he has submitted that since the allegation in relation to violation of condition of the exemption Notification, accordingly, Section 28 of the Customs Act could not be applied, therefore, interest under Section 28AB also would not be leviable. Further, he has submitted that accordingly, penalty under Section 112 of the Customs Act is also not applicable. He has further submitted that direction of confiscation of the imported goods is also not sustainable as the goods were not available for confiscation. In support, he has referred to the judgment in the case of Commissioner vs. Shiv Kripa Ispat Pvt. Ltd. - 2015 (318) ELT A 259 (Bom.).

5. Ld. A.R. for the Revenue on the other hand argued that the Appellant is a manufacturer of excisable goods and holder of advance licence for import of duty free inputs with actual user condition. From the evidences collected by the Department namely, the statement of Shri Satbir Singh, Senior Executive (Excise) and Shri Ravi Kapoor, AGM (Commercial), who in their respective statements categorically admitted that the Appellants have not received any imported material in their manufacturing unit against the three Bills of Entry; besides, there had no registers maintained nor documentary evidence produced by the Appellant before the authorities below, to substantiate their claim of receipt and utilization of the imported goods in their factory. The arguments of the Appellant that they have fulfilled the export obligation, hence, the demand of duty on the imported goods is also unsustainable in law, be accepted, inasmuch as, the duty free imported goods cannot be transferred nor sold and has to be utilized in the manufacture of finished goods which alone can be sold in the local market. The condition of the Customs Notification and the Foreign Trade Policy read with Para 4.30 and 9.7 of Handbook of Procedure of Exim Policy 2002-2007 since violated, therefore, the Appellant are liable to discharge the duty with interest.

6. Heard both sides and perused the record. In the impugned order, the ld. Commissioner (Appeals) has discussed in detail the implication of Para 4.1.2 of Exim Policy 2002-2007 Advance Licence issued for duty free imports as defined in paragraph 4.1.1, which is subject to actual user condition, and also Para 4.1.3 of the said Policy relating to non-transferability of advance licence/material imported thereunder; Notification 43/2002-Cus which also says that the said licence and material are not to be transferred and sold. Concluding from the said provisions, the ld. Commissioner (Appeals) observed that these conditions are laid down to prohibit the importer from importing duty free goods diverted the same to local market and attempt to misuse advance licence scheme. Further, he has recorded that Para 4.30 of the Handbook of Procedure stipulates that the advance licence holder shall maintain and preserve true and proper account of same and utilization of the duty free importd/domestically procured goods against advance licence as prescribed in the relevant Appendix under the said provision. Thereafter, analyzing the evidences on record and accepting the conclusion arrived at by the adjudicating authority, the ld. Commissioner (Appeals) has recorded that a feeble attempt was made by the Appellant in contending that the goods were received in the factory and utilized in the manufacture of exported goods but records were not traceable. Further, analyzing the evidence of Shri Satbir Singh, Senior Executive and S.K. Malpani AGM, the Ld. Commissioner(Appeals) concluded that the Appellant had not maintained any record. To establish the fulfillment of the condition of Exim Policy under Notification No. 43/2002-Cus. To establish that the goods were utilized in the manufacture finished goods. The conclusion of the ld. Commissioner (Appeals) as recorded is as follows:

The Appellant failed to lead their evidence to Rule out their role in the offence committed and prove their case with clean hands even after they were given fair and sufficient opportunities during the original proceedings and also by the undersigned, to rebut the charges. Nothing was repelled by them to show that either they had brought the imported raw materials into their manufacturing unit at Baddi and in turn, used the same for the manufacture of resultant export products or that they maintained records prescribed for this purpose under the Exim Policy provisions. They failed miserably to prove their bona fide. In the facts and circumstances to this case, it has to be concluded that the duty free exemption scheme available to goods imported under Advance Licence Scheme was abused by Appellant and the customs duty exemption was illegitimately claimed on the raw materials imported and accordingly, the demand of customs duties Rs. 9,88,878/- and interest Rs. 3,95,822/- in the impugned order-in-original read with corrigendum dated 28.5.2008 are sustained. Section 111(O) of the Customs Act states that when goods are exempted from customs duty subject to a condition and the condition is not observed, the goods are liable to confiscation. Since there is no dispute in this case that the goods involved had been imported availing customs duty exemption subject to actual user condition for manufacture of resultant export products and since this post import condition has been violated, the provisions of Section 111(O) are clearly attracted and accordingly, the imported goods are liable to confiscation under Section 111(O) of the Act and the appellant, by committing breach of conditions of notification, rendered themselves liable to penalty liable for penalty under Section 112 of the Act.
Further the ld. Commissioner (Appeals) referred to arguments of the Appellant and analyzing the principle laid down in Western Components Ltd : 2000 (115) ELT 278 in relation to imposition of penalty with confiscation goods observed as follows:

7.5. Citing the CESTAT judgment in C.C., Chennai vs. Askhatt Forge: 2008 (224) ELT 309] it was contended by the Appellant that penalty u/sec. 112 of the Customs Act, 1962 cannot be imposed for post import violation. However, after careful examination of the subject decision, I find that the Hon'ble Tribunal in that case was dealing with a situation where both the proposal to demand duty from importer in respect of such goods under Section 28 read with Section 111 (o) of the Act was dropped by the Commissioner and his decision has been accepted by the Board. Based on these facts, it was held that where the action proposed under Section 111 of the Custom Act stands dropped, there is no question of invoking Section 112 of the Act inasmuch as the penal liability of a person under Section 112 depends on the confusability of the goods imported by him. A penalty under Section 112 of the Customs Act depends mainly on liability of imported goods for confiscation under Section 111 of the Act. Any person, who in relation to any goods does or omits to do any act which act or omission would render such goods liable to confiscating under Section 111 or abets the doing or omission of such an act, is liable to penalty under Section 112. In the present case, the appellant have not succeeded in challenging the confiscation order, nor have they shown that they did not render the goods liable for confiscation. Hon'

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ble CESTAT Principal Bench, New Delhi in its decision in Regional Inst of Ophthalmology & Eye Hospital Trust vs. C.C., New Delhi : 2006 (206) ELT 819 (Tri-Del.)] has, while dealing with an identical question, held as under: Since, the appellants having not fulfilled the post importation condition, they have rendered the equipments liable to confiscation under Section 111(O) of the Customs Act. The appellants are also liable for penalty for non-fulfillment of post importation condition under Section 112(a) of the Customs Act. Therefore, we do not find any infirmity in the Order of the adjudicating authority. We, accordingly, reject the appeal. I do not find any reason to interfere with the reasoning and conclusion recorded by the ld. Commissioner in confirming duty, interest and confiscation of the goods in absence of contrary evidence in this regard. The case law cited by the Appellant are not applicable to the facts and circumstances of the case. In the result, the impugned order is upheld and the Appeal is dismissed.