Custom – No Penalty applicable when bond submitted in terms of SEZ rules has been violated
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
The Relevant Text of the Order as follows :
16. The appellants submitted that the auditors also did not conduct 100% stock taking; they have ignored work in progress and they have not considered the fact that samples can be retained by them in terms of Foreign Trade Policy. Moreover, their explanation, submitted to the bankers i.e. SBI and Canara Bank that the shortages were not real shortages but were due to some clerical errors, was not considered by the Revenue. They submitted that the Department has not conducted any stock taking and therefore, they allegations thereof are devoid of any merit as they do not have any evidence. With reference to the demand on non-accountal of re-imported fabrics. They submitted that export, re- export due to reaction by foreign buyers, re-import, re-processing and re-export is a continuous process. The goods so re-imported were present in the work in progress which was not considered. Also, the fact that the some of the re-processed goods were exported by four shipping bills was also not considered by the adjudicating authority. They also submitted that the adjudicating authority himself has made a categorical observation that this is not a case of clandestine removal and therefore, they duty cannot be demanded. The appellants, moreover, pleaded that the demand cannot be made in terms of the warehousing provisions as the Bond period is not over. They also contested that demand cannot be under Section 28 as the goods were imported after duly filing the Bills of Entry and after due examination by the officers. They also submitted that penalty cannot be imposed under Section 114A of Customs Act,1962 and the goods cannot be confiscated.
17. Revenue contends that audit of annual accounts of a company is compulsory and is indispensable part of business; all companies registered under Company’s Act 1956 are required to maintain proper books of accounts in terms of provisions of Sections 209, 224 & 224(1) of the Company’s Act 1956. Revenue argues that in the instant case, audit was conducted, report was prepared, finalized and submitted by M/s Gnanoba & Bhat, Chartered Accountants; further the “Report on Audit of Inventory and Receivables” have been prepared by the M/s Gnanoba & Bhat in accordance with the generally accepted principles of the casting and in line with the mandatory Accounting Standards (AS-2) and that they have based their report on Annual Financial Statements for 2004 – 05, books of accounts for 2005-06 (up to November 2005) maintained at the factory, monthly stock statement submitted to the bankers, Central Excise records, VAT Returns, internal records of the company and information given by the company officials. Revenue is of the opinion that these are statutory reports and therefore they are reliable. The company officials in their statements have accepted the shortage. Therefore, whatever has been accepted need not be proved again by the Department.
18. As far the shortages founded by the statutory auditors is concerned, we find that the appellant’s have claimed that they have written letters i.e. Letter dated 18.03.2006 to SBI and Letter dated 13.06.2006 to Canara Bank. It can be seen that the letters to the bankers were initiated before the DRI officers visited the premises of the appellants. The appellants further submit, in respect of the various shortages found, that in respect of SI. No. 1, shortages were arrived on 40% weighment; in respect of SI. No. 5, 74% was checked and shortages were arrived by applying Average Fabric Weight to Meters and that the auditors could not have verified 101 varieties of fabrics in two days. We find that in respect of the shortages found by the auditors, were not verified by the DRI officers physically. The Show Cause Notice and the OIO have taken the argument stated above that as the audit reports are statutory and are based on appellant’s records, they may be relied upon. We find that such an argument is not acceptable. If any action is required to be taken under the Customs Act, 1962 officers need to verify the stock physically to allege and prove the charge of shortage. If the appellants have made any mistake under any other act, action can be taken by the officers concerned under the relevant provisions. Moreover, it is alleged that the auditors have prepared their reports on the basis of appellants records including those maintained as per the requirement of Customs and Central Excise Acts. In such case the records were always open to the officers for examination and verification. Under such circumstances, it’s not open to invoke the extended period. Moreover, the appellants have claimed that they have informed the bankers on their own; they have written letters i.e. Letter dated 18.03.2006 to SBI and Letter dated 13.06.2006 to Canara Bank; letter written to SBI is before the officers visited the premises of the appellant. The contents of the letter, reply by Bankers etc. have not been verified and discussed in detail. Other contentions of the appellants regarding the non-accounting of stock of work in progress; physical impossibility of counting the stock within 2 days; shortage being within permissible limits; eligibility to retain samples in terms of FTP etc have not been investigation and answered. Officers have not taken physical stock. Therefore, we find that this extent, we hold that demand of duty in respect of SI No. 1 to 5 & 7 of the table given at Para 59.2 of the OIO are not sustainable.
19. Regarding the shortage of 36049 Mtr/1609 Pcs in respect of re- imported export goods, we find that the appellants submitted that no physical stock was carried; Manager, Import Export has stated that re- imported stock was not separately stored and they got mixed with regular stock and therefore, one-to-one co-relation was not possible. They also submitted that among the shipping bills, they provided to the Department, four shipping bills pertain to the export of re-imported goods after processing. However, we find that Learned Commissioner has considered the submissions of the appellants and has given a categorical finding in Para 64 stating that the appellants have submitted that impugned exports have taken place after issuance of SCN and therefore, the contention of having re-exported 11774 Mtr is not supported by any facts on record. We find that Learned Commissioner finds that the appellants had re-imported the goods, partially rejected by the foreign buyers, claiming benefit under Serial No. 14 & 15 of Annexure- I to the Notification. Commissioner, however, finds that re-import of goods partially rejected by the foreign buyers after taking delivery do not fall under any of the above Serial numbers and therefore, duty has been demanded correctly. We further find that physical stock of re-imported goods was taken up by the officers on 11.12.2007/22.12.2007; the shortages were also accepted by Sh. Shyam Goenka, M.D. in his statement on 28.12.2007. Further, we find that Sh. Goenka was aware of the warehousing provisions and the licensing period. Learned Commissioner finds that the appellants have not maintained proper records and was not applied for extension of warehousing period and they have not exported also. The stock of re-imported goods was taken by the officers and has been accepted by the company officials; the appellants could not show any proof of export of such re-imported goods. We find that the appellant’s contention, that it is a continuous process and hence on-to-one co-relation is not possible, is not acceptable. In respect of these goods, we find that the appellants have violated the provisions of the Notification inasmuch as they could not maintain records properly; could not show the stock physically and could not show any proof of re-export. Therefore, the arguments of the appellant in this regard are not acceptable and the lapses cannot be treated as procedural. Therefore, in respect of the re-imported goods, we find that the allegations regarding Serial No. 6 of the table referred above, we find that the Department has correctly confirmed duty of Rs.72,79,538/- in respect of these goods.
20. The appellants have argued that as the warehousing period is not over, the demand is premature. Whereas, we find that Learned Commissioner has confirmed the demand in terms of the Notification No. 53/97 dated 03.06.1997 and 52/03 dated 31.03.2003 as the goods were neither utilized within the prescribed period nor any extension was sought. We find that among other conditions, Notification No. 52/2003 requires the appellants “to maintain proper account of the receipt, storage and utilization of the goods.” The investigation conducted by the Revenue shows that the so-called re-imported goods were not found in the factory premises and no proper accounts of the same has also been done. We find that the appellants have taken the plea that import, export, re-processing and re-export is a continuous exercise and that the re-imported goods were in the work in progress. We find that this argument is not acceptable. It is not the case of the appellants they have maintained records showing the receipt, utilization and disposal of re- imported goods. Under the circumstances, we find that the appellants have violated the conditions of the Notification and in terms of the Bond they have submitted at the time of import, they are liable to pay duty along with applicable interest. Therefore, to this extent, we find that demand in respect of Serial No. 6 above is sustained. Learned Counsel for the appellants relied upon the Final Order No. 21297-21298/2019 dated 20.12.2019 of this Bench in the case of M/s Eastern Silk Industries Ltd. However, we find that as the facts are different, the ratio of the judgment is not applicable.
21. Learned Commissioner has imposed penalty under Section 114A of the Customs Act, 1962. The appellants have contested the same and submitted that the demand under Section 28 is not sustainable and therefore, penalty under Section 114A is not imposable. We find that there is merit in the argument of the appellants to the extent that the Revenue is free to demand and collect duty along with interest, in terms of the Bonds submitted by the appellants at the time of import in terms of Notification No. 52/03. We find that the Bond submitted in terms of the Notification binds the appellants to pay back the duty and interest in the event of any violation. We find that the said Notification does not provide for imposition of any interest and therefore, we set aside the penalty imposed. We also find that the appellant’s submission vis-à-vis confiscation is also acceptable in terms of the Notification. We find that the Notification is a self-contained Notification and action can be taken by Revenue under the terms of the Notification. We find that the Notification also does not provide for confiscation and fine in lieu of confiscation. Moreover, as discussed above, Learned Commissioner finds that the appellants have imported the rejected goods even though the Serial No. 14 & 15 of Annexure-I to the Notification do not permit such imports. In such case, as submitted by the appellant, the fact that the respective Bills of Entry have been assessed by the proper officers at the time of import is also to be considered. In view of the same, penalty under Section 114A and other penal provisions cannot be invoked when the goods were permitted to be cleared by the officers. However, the Revenue will be free to recover duty along with interest in terms of the Notification. We find that Commissioner has not imposed any fine in lieu of confiscation.
22. In view of the above, the appeal is partly allowed by restricting the duty demand to the extent of Rs.72,79,538/- only on the goods mentioned at Serial No. 6 of the table (Para 59.2 of OIO). Balance duty demand and penalty under Section 114A are set aside.
(Order pronounced in the open court on 01/07/2020)
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