2025 (7) TMI 357 - AT - Customs

100% EOU - Clandestine removal from SEZ unit - Jurisdiction of Central Excise Officers to issue SCN to recover Customs Duty in respect of an EOU - department has made out a case for issue of SCN - time limitation. Whether the Central Excise Officers have Jurisdiction to issue Show Cause Notice to recover Customs Duty in respect of an EOU? - HELD THAT - The issue as to whether officers of DRI/DGCEI are competent to issue a demand Notice under Section 28 of the Customs Act, 1962. The dispute is set to rest by the Hon ble Apex Courts decision in Review in the case of M/s Canon India and the retrospective amendment carried out in 2022. Moreover as the issue in the instant case is not the subject matter of the cases cited by the Learned Counsel we are not inclined to analyse the issue vis a vis the above cases in details. Learned Authorized Representative for the Department submits that the ground of jurisdiction has been taken for the first time before CESTAT; it was not agitated before the Commissioner and therefore in view of Hon ble Supreme Court in the case of Warner Hindustan 1999 (8) TMI 75 - SUPREME COURT the same cannot be permitted. The argument of the Learned Authorised Representative cannot be accepted as the issue raised is a legal one and thus can be raised at any point of time during the proceedings subject to the rider that both sides are afforded opportunity to rebut which has been done in the instant case. The Central Government has issued Notifications viz 30/1997-Cus (NT) dated 07.07.1997; 83/2004-Cus (NT) dated 30.06.2004 from time to time authorizing the officers of Central Excise as officers of Customs; Vide Circular No. 16/2004-Cus. dated 16-2-2004 it was clarified that the proper officer for investigation issue of show cause notice and adjudication is the officer having administrative control over EOU. and accordingly Commissioner of Central Excise was authorized to administer 100% EOUs and as proper officer for issuance of SCN. The Tribunal has gone into this issue and decided that Central Excise authorities have jurisdiction over the EOUs under their administrative control to issue show cause notices demanding customs/ excise duties - the central excise officers have jurisdiction over the EOUs under their administrative control to issue show cause notices demanding customs/ excise duty. The argument and the cases laws relied upon by the learned Counsel for the appellants are not acceptable. Whether in the facts and Circumstances of the case the department has made out a case for issue of Show Cause Notice? - HELD THAT - The Bill of Entry is the basic document vide which the quantity imported and warehoused and the duty foregone etc. can be ascertained. Demanding of any duty without reference to any authentic documents more so demanding customs duty on the imported raw material is not only without any basis but also is not permissible. On the single point alone the show cause notice falls flat. Revenue has not made out any efforts to find out relevant factors such as whether the bond period was liable to be extended and was applied and as to whether the Development Commissioner has not extended the bond period; whether the export obligation has been fulfilled by the appellants and what was the actual stock remaining at the time of issuance of show cause notice - it is found from the records of the case that Revenue kept silent for all the years and issued a show cause notice on one fine day alleging clandestine removal on the basis of the stock improperly ascertained five years ago. No case is made for confiscation of goods or imposition of fine in lieu of confiscation and imposition of penalty on M/s Royal Industries Ltd. Accordingly we are of the considered opinion that the impugned order is liable to be set aside - the clandestine removal cannot be alleged for the reason of shortages without presenting any evidence for clandestine removal/disposal of the goods in domestic market. Duty demanded on the material supplied free of duty to M/s AS Enterprises - HELD THAT - The Adjudicating Authority observed that the warehousing license of the Appellant was suspended during the period when this stock was transferred to another EOU at Parwanoo; the appellant was required to inform the jurisdictional Range regarding removal of inputs from the bonded warehouse; the appellant had removed the inputs without following the proper procedure; Hence he was not inclined to accept this transfer of stock as legal and justified; he concluded that Customs duty amounting to Rs 44, 03, 344/- is recoverable from the appellant along with interest. It is not the case of the department that the goods were not accounted by the other EOU; the only allegation appears to be that at the time of the transfer the warehousing License has expired. When the re-warehousing of the goods is not disputed it is required to consider the lapse of the appellant as a procedural lapse and this would in no case be a reason or evidence to demand duty from the appellants. The confirmation of demand on account of shortages found clearances for job-work and export the impugned order is erroneous and legally not sustainable All demands confirmed and penalties imposed except the demand of duty on deemed exports claimed to have been made to M/s Devyani Processors Limited Jethpur and M/s Philtex Prints Patancheru are set aside - The issue of duty on deemed exports claimed to have been made to M/s Devyani Processors Limited Jethpur and M/s Philtex Prints Patancheru is remanded to the adjudicating authority for a fresh-consideration and quantification. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(i) Whether Central Excise Officers have jurisdiction to issue Show Cause Notices to recover Customs Duty in respect of a 100% Export Oriented Unit (EOU).

(ii) Whether, on the facts and circumstances of the case, the Department has made out a case for issuance of Show Cause Notices demanding Customs Duty.

(iii) Whether the Show Cause Notices issued are barred by limitation under the Customs Act.

(iv) Whether the demand of Customs Duty confirmed on various counts in Appeal No. C/106/2010 is maintainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Jurisdiction of Central Excise Officers to issue Show Cause Notices for Customs Duty in respect of EOUs

Relevant legal framework and precedents: The appellants contended that the Commissioner of Customs, Amritsar, was not competent to issue the initial show cause notice dated 03.07.2003, relying on Notification No. 30/1997-Cus (NT) dated 07.07.1997 and its amendments, which appoint Commissioners of Central Excise as Commissioners of Customs within their respective jurisdictions. The appellants argued that only the Commissioner of Central Excise, Ludhiana, was the proper officer for issuing show cause notices to EOUs in that region. They further submitted that no notification under Sections 2, 3, 4, 5, or 6 of the Customs Act authorized Central Excise officers as Customs officers for assessment or adjudication of Customs duty. The appellants relied on Supreme Court decisions including Syed Ali (2011), Mangli Impex (2016), and Cannon India (2021) to emphasize that only officers assigned specific functions under the Customs Act can issue show cause notices under Section 28 as "proper officers."

The Department countered by referring to Notifications 30/1997-Cus (NT) and 83/2004-Cus (NT), which authorized Central Excise officers as Customs officers for EOUs, and Circular No. 16/2004-Cus clarifying that officers with administrative control over EOUs are proper officers for investigation and adjudication. The Department relied on Tribunal decisions, particularly Paras Fab International (2009), and the retrospective validation under Section 97(1) of the Finance Act, 2022, to support their jurisdiction.

Court's interpretation and reasoning: The Tribunal acknowledged the appellants' reliance on the Supreme Court decisions but noted that the present issue was distinct, and the retrospective amendment in 2022 settled the question in favor of the Department. The Tribunal held that jurisdictional objections, being legal questions, could be raised at any stage and that the Central Government's notifications and circulars validly conferred jurisdiction on Central Excise officers over EOUs. The Tribunal extensively relied on the Paras Fab International decision, which held that the proper officer to raise demand for short levy or refund in the case of warehoused goods imported by EOUs is the officer having jurisdiction over the EOU, not the Customs House at the port of importation.

Key evidence and findings: The Tribunal noted the sequence of notifications and circulars issued by the Central Government and the CBEC, authorizing the Central Excise Commissioner, Ludhiana, as the proper officer for EOUs in that jurisdiction. It also observed that the show cause notice issued by the Commissioner of Customs, Amritsar, was later assigned to the Commissioner of Central Excise, Ludhiana, for adjudication.

Application of law to facts: The Tribunal applied the legal framework and precedent to hold that Central Excise officers had jurisdiction to issue show cause notices and adjudicate Customs duty demands against EOUs under their administrative control.

Treatment of competing arguments: The Tribunal rejected the appellants' jurisdictional challenge, holding that the issue was settled by notifications and judicial precedents, and that the Department's approach was valid.

Conclusion: The Tribunal affirmed the jurisdiction of Central Excise officers to issue show cause notices and adjudicate Customs duty demands against EOUs.

Issue (ii): Merits of the case - whether the Department made out a case for Customs duty demand

Relevant legal framework and precedents: The appellants challenged the demand on grounds including absence of proper physical verification of stock, reliance on eye estimation, lack of reference to specific Bills of Entry (BoEs) in the show cause notices, and failure to examine witnesses whose statements were relied upon. They also cited principles that the burden of proof lies on the revenue to establish evasion with irrefutable evidence, and that procedural lapses cannot justify duty demands.

The Department relied on stock-taking reports, statements of employees and third parties, and investigation reports indicating diversion of duty-free imported goods into the domestic market and fabrication of export documents.

Court's interpretation and reasoning: The Tribunal found that the stock-taking conducted on 27/28.03.2002 was unscientific and casual, based on eye estimation without proper weighing or worksheets, and accepted by the investigating officer in cross-examination. The Tribunal held that such inaccurate stock-taking could not form a reliable basis for demanding duty. It also found that the show cause notices did not specify the BoEs on which the duty demand was based, rendering the notices vague and unsustainable. The Tribunal further observed that statements of key witnesses were relied upon without permitting cross-examination, violating mandatory provisions under Section 9D of the Central Excise Act and Section 138B of the Customs Act, thereby vitiating the proceedings.

The Tribunal noted that the Department failed to conduct proper enquiries to establish diversion of goods into the domestic market and that mere shortages without evidence of clandestine removal cannot sustain a duty demand. It also observed that procedural irregularities, such as failure to revoke warehousing licenses timely or suspension of IEC, were not valid grounds to confirm duty demands.

Key evidence and findings: The Tribunal reviewed the stock-taking panchnama, cross-examination of investigating officers, statements of employees and third parties, investigation reports from other Customs authorities, and documentary evidence including re-warehousing certificates. It found contradictions and lack of corroboration in the Department's evidence and accepted some contentions of the appellants regarding proper accounting and utilization of imported materials.

Application of law to facts: Applying principles of evidence and natural justice, the Tribunal held that the Department failed to establish evasion or diversion of duty-free goods with credible evidence, and that demands based on vague, unsubstantiated allegations and improper procedures were unsustainable.

Treatment of competing arguments: The Tribunal gave due consideration to the appellants' submissions and evidence, while also acknowledging some acceptance of shortages by the appellants. However, it emphasized that the Department's failure to produce reliable evidence and follow proper procedures outweighed such admissions.

Conclusion: The Tribunal concluded that the Department did not make out a case for confirming Customs duty demands on the basis of stock shortages, job work clearances, or alleged diversion, except for the deemed export claims which required further adjudication.

Issue (iii): Limitation

Relevant legal framework and precedents: The appellants contended that the show cause notices issued in 2007 were barred by limitation, as the imports occurred between November 2001 and March 2002, exceeding the five-year period under Section 28 of the Customs Act. The Department argued that the B-17 bond executed under Notification No. 53/1997 extended the limitation period.

The Tribunal referred to its earlier decisions, including Emcure Pharmaceuticals Ltd. (2014) and Surya Life Science Limited (2019), which held that limitation under Section 28 applies notwithstanding the execution of B-17 bonds.

Court's interpretation and reasoning: The Tribunal held that the limitation provisions under Section 28 of the Customs Act are applicable even when B-17 bonds are executed. It rejected the Department's contention that bond execution extended the limitation period. The Tribunal also noted that the show cause notice dated 28.09.2007 was issued beyond the prescribed period and that the demand was partly based on the same imports already covered by the earlier show cause notice dated 03.07.2003, which had been adjudicated.

Key evidence and findings: The Tribunal examined the timelines of imports, issuance of show cause notices, and adjudication orders. It found that the impugned show cause notice was issued after the limitation period and was partly a reiteration of earlier demands.

Application of law to facts: The Tribunal applied the limitation provisions strictly and held that the impugned show cause notice was time-barred and therefore liable to be set aside.

Treatment of competing arguments: The Tribunal rejected the Department's argument based on bond provisions and accepted the appellants' plea on limitation.

Conclusion: The Tribunal answered the limitation issue in favor of the appellants, holding the show cause notice barred by limitation.

Issue (iv): Maintainability of Customs duty demands in Appeal No. C/106/2010

Relevant legal framework and precedents: The appellants challenged the demands on grounds including vagueness of show cause notices, lack of specific BoEs, improper stock verification, reliance on retracted statements, and procedural irregularities. They also argued that diversion, if any, would attract Central Excise duty and not Customs duty, citing relevant case law.

The Department relied on stock-taking, investigation reports, statements of employees and third parties, and documentary evidence to substantiate duty evasion and diversion.

Court's interpretation and reasoning: The Tribunal found that most of the appellants' arguments applied equally to this appeal. It held that the show cause notices were vague and did not specify BoEs, the stock-taking was unscientific and unreliable, and reliance on statements without cross-examination violated statutory provisions. The Tribunal further observed that the Department failed to prove diversion with credible evidence and that procedural lapses could not justify duty demands.

Regarding deemed exports to M/s Devyani Processors Pvt Ltd and M/s Philtex Prints, the Tribunal found contradictions in the evidence and lack of proper examination of witnesses. It remanded these issues to the adjudicating authority for fresh consideration and quantification, directing adherence to principles of natural justice and proper evaluation of all evidence.

Key evidence and findings: The Tribunal reviewed stock-taking reports, registers, re-warehousing certificates, investigation reports, and statements of various parties. It found inconsistencies and lack of corroboration in the Department's evidence and accepted some of the appellants' contentions on utilization and accounting of goods.

Application of law to facts: Applying evidentiary standards and procedural safeguards, the Tribunal held that demands based on unsubstantiated allegations and improper procedures were unsustainable, except for the deemed export claims which required re-examination.

Treatment of competing arguments: The Tribunal critically examined the Department's reliance on investigation reports and statements without cross-examination and gave weight to the appellants' submissions and available documentary evidence.

Conclusion: The Tribunal set aside all demands and penalties except those relating to deemed exports, which were remanded for fresh adjudication.

3. SIGNIFICANT HOLDINGS

"The proper officer to issue a show cause notice in the case of clandestine removal of goods from the EOU is the Central Excise Officer under whose administrative control the said EOU falls."

"Demanding of any duty without reference to any authentic documents, more so, demanding customs duty on the imported raw material is not only without any basis but also is not permissible."

"Show cause notice demanding duty cannot proceed on such inaccurate and incorrect figures as those arrived at by casual and unscientific stock-taking."

"Statements of persons making allegations must be recorded before the adjudicating authority and cross-examination must be permitted; failure to comply with Section 9D of the Central Excise Act and Section 138B of the Customs Act vitiates the proceedings."

"Limitation provisions under Section 28 of the Customs Act apply even when B-17 bonds are executed; show cause notices issued beyond the prescribed period are barred by limitation."

"Mere shortages or procedural lapses cannot sustain a charge of clandestine removal or justify Customs duty demands without credible evidence."

"Where evidence on deemed exports is contradictory and witnesses are not examined, the matter requires remand for fresh adjudication."

"The burden of proof lies on the Revenue to establish evasion with irrefutable evidence; absence of such evidence mandates setting aside of demands."

"The issue of jurisdiction being a legal question can be raised at any stage of proceedings."

Final determinations:

(i) Central Excise officers have jurisdiction to issue show cause notices and adjudicate Customs duty demands against EOUs under their administrative control.

(ii) The Department failed to establish evasion or diversion of duty-free goods with credible evidence; demands based on vague notices, unscientific stock-taking, and uncorroborated statements are unsustainable.

(iii) The show cause notice dated 28.09.2007 is barred by limitation and liable to be set aside.

(iv) All Customs duty demands and penalties confirmed in Appeal No. C/483/2009 are set aside.

(v) In Appeal No. C/106/2010, all demands and penalties are set aside except for the deemed export demands relating to M/s Devyani Processors Pvt Ltd and M/s Philtex Prints, which are remanded for fresh adjudication with due opportunity to the appellants.