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TMI Blog2010 (10) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... he control of M/s. Sarayu Softech Pvt. Ltd. (SSPL). Officers seized the bonded capital goods valued at Rs. 94,55,111/- and recovered documents appeared to be relevant for further investigation. Such documents were also recovered from SSPL. Statements were recorded from Shri S. Shashi Kumar, Manager (Finance) of SSPL on 26-2-2004. Statements were recorded from Shri Suresh K. Dholakia, Managing Director of SSPL on 9-3-2004 and from Shri Atur Babu, Director in both MBPL and SSPL on 19-3-2004. The departmental authorities arrived at a tentative conclusion that MBPL had transferred the goods procured under STPI scheme under Notification Nos. 140/91-Cus., dated 22-10-1991, 52/2003, dated 31-3-2003, 1/95-C.E., dated 4-1-1995 and 22/2003, dated 31-3-2003. Though MBPL had procured indigenous and imported goods without payment of duty under E.O.U. Scheme it had not made any export till the date of visit of the officers. MBPL had been issued LOP for development and export of computer software. It appeared that the exemption availed by MBPL under the various notifications was not admissible to them. SSPL had purchased or dealt with the seized goods, which it knew or it had reason believe, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell-settled that both the Customs and the Development Commissioner had concurrent jurisdiction in the EOU matter. He relied on the case of Sheshank Sea Foods Pvt. Ltd. v. UOI reported in 1996 (88) E.L.T. 626 (S.C.) in support. Breach was not only of the terms of the license; it was also a breach of the condition in the Exemption Notification upon which the appellants had obtained exemption from payment of Customs duty and, therefore, the terms of Section 111(o) enabled the Customs authorities to investigate". The Hon'ble High Court of Karnataka in the case of Kamath Packaging Ltd. v. Union of India - 1992 (61) E.L.T. 548 (Kar.) also had held that the customs department had jurisdiction to take action when goods imported duty free under advance licence/duty exemption scheme were diverted which may result in evasion of customs duty. 3.1 The Commissioner found that the exemption had been allowed to the impugned goods subject to actual use condition and the goods ceased to be eligible for the benefit when they were sold or transferred to SSPL. In terms of the bond executed by MBPL, they were liable to pay duty foregone on the impugned goods. The relevant Notifications required th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Condition No. (d) of Notification No. 1/95-C.E., dated 4-1-95 (as amended). (v) Appropriated an amount of Rs. 4,14,000/- recovered by way of enforcement of Bank Guarantee and credited to Govt. (vi) Demanded interest @15% on the duty amount stated at Sl. No. 3 and 4 above under Notification 140/91-Cus., dated 22-10-1991 as amended and Notification 1/95-C.E., dated 4-1-1995 as amended respectively. (vii) Imposed penalty of Rs. 3,00,000/- (Rupees Three lakhs only) on MBPL under Section 112(a)(ii) read with Section 72 Customs Act, 1962. (viii) Imposed penalty of Rs. 1,50,000/- (Rupees One and half lakh only) on MBPL under Rules 25 of Central Excise Rules, 2000. (ix) Cancelled the Private Bonded Warehouse Licence & In-bond Manufacturing Sanction Order both No. 186/2000 dt. 30-3-2000 issued under Section 58 & 65 of Customs Act, 1962 respectively to MBPL. (x) Imposed penalty of Rs. 1,00,000/- (Rupees One lakh only) on SSPL under Section 112(b) of the Customs, Act, 1962. (xi) Imposed penalty of Rs. 50,000/- (Rupees Fifty thousand only) on SSPL under Rule 25 of Central Excise Rules, 2000. 4.& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms department. The APA therefore, did not support the allegations decided in the impugned order. (c) Subsequently, SSPL entered into a share holders agreement (SHA) dated 2-11-2004 with Shri Atur Babu and his wife Smt. Vijayee who held 6631260 shares of Rs. 10/- each in MBPL. It is submitted that this agreement was deliberately ignored by the Commissioner in passing the impugned order. As per the agreement, in view of APA entered into between SSPL and MBPL on 31-12-2004, Shri Atur Babu and Smt. Vijayee were desirous of transferring the shares of MBPL to SSPL in consideration of the amounts received by MBPL from SSPL under APA dated 31-12-2003 and further consideration of Rs. 19,36,000/- which was being paid therewith vide Cheque No. 142081 drawn on Union Bank of India, Industrial Finance Branch, Bangalore. As per the share holders agreement the following was also agreed upon. Subject to the terms and conditions set forth in the agreement and the receipt by the parties of all concerns and approvals necessary and appropriate in order to do the following actions on the closing date, Shri Atur Babu and Smt. Vija ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24-6-93 issued by the Ministry of Industry. MBPL applied to the Deputy Commissioner of Customs vide letter dated 11-8-2005 requesting for de-bonding of capital goods both imported and indigenous after payment of applicable duty on their depreciated value in terms of Foreign Trade Policy 2004-2009 and CBEC Circulars No. 29/2003-Cus., dated 2-4-2003 and 14/2004-Cus., dated 13-2-2004 and Notifications No. 52/2003-Cus., dated 31-3-2003 and 22/2003-C.E., dated 31-3-2003. Vide letter dated 23-8-2005, the Deputy Commissioner declined permission applied for as the capital goods in question were the subject matter of adjudication. After explaining the factual background, they have raised the following grounds. (f) MBPL was not able to secure export orders and as such it became impossible for them to show any export performance. They relied on the following decisions in this connection which had held in favour of the EOU as regards its liability, when exports had become impossible. (i) Suvarna Aqua Farm and Exports Ltd. v. CCE, Guntur - 2005 (190) E.L.T. 284 (T) (ii) Taurus Novelties Ltd. v. CC, Bangalore [2004 (173) E.L.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Notifications No. 140/91-Cus., dated 22-10-1991 and 1/95-C.E., dated 4-1-95 and their successor notifications, it is submitted that the appellants were willing to pay duty on the bonded goods on their depreciated value as already intimated. It is submitted that the order of confiscation in terms of Section 111(o) and 111(j) of the Customs Act, 1962 and Rule 25 of the Central Excise Rules, 2000/2002 and penalty on MBPL and SSPL under the Customs Act, 1962 and the Central Excise Act, 1944, were premature. The LOP granted by STPI was for an initial period of 5 years ending on 25-3-2005. This permission was subsequently extended to 23-9-2005. The PBWL and IBM sanction order were also extended to 23-9-2005. As MBPL had initiated suo moto action to pay the duty due, penal proceedings initiated for demand of duty and impose penalty were premature. The order of confiscation was not sustainable in law. (i) The subject show-cause notice had been issued contrary to the clarification contained in the CBEC Circular No. 21/95-Cus., dated 10-3-1995. As the show-cause notice had been issued without obtaining clearance from the Director, STPI, the show-cause notice wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposing penalty on MBPL under Section 114A of the Customs Act, 1962 and Section 11AC of the Central Excise Act, 1944. It was found in the order that MBPL had colluded with SSPL and willfully suppressed the sale of bonded goods to SSPL with an intention to evade payment of duty. 7. In the Cross Objection No. 97/2006 filed by MBPL in appeal No. C.502/06, it is submitted that the impugned order was not maintainable and therefore, question of imposition of penalty on MBPL under Section 114A of the Customs Act, 1962/Section 11AC of the Central Excise Act, 1944 did not arise. 8. Revenue has made the following submissions justifying the findings contained in the impugned order. It is submitted that the goods had been imported by MBPL availing exemption under Notification No. 140/1991-Cus. amended by Notification No. 52/2003-Cus. as well as exemption from Central Excise duty on indigenously procured goods under Notification No. 22/2003-C.E. brought into the EOU for manufacture and export of goods. MBPL had entered into a Memorandum of Understanding with SSPL on 22-2-2002. In terms of the MOU, the entire premises where MBPL was carrying on its business were transferred to SSPL. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emises could be transferred to any third party without obtaining permission from the Customs Officer. Section 59 also implied that no transfer could be made unless a fresh bond was allowed to be executed by the transferee. 8.1 MBPL had claimed that Shri Atur Babu and Smt. Vijayee, shareholders to MBPL had agreed to transfer their shares in favour of SSPL relying on Shareholders Agreement dated 2-11-2004. On the same basis, it was claimed that SSPL had taken over MBPL and there was no transfer. This claim is challenged on the basis that the agreement was a sham document brought into existence after the proceedings were initiated by the department. A show-cause notice had been issued on 24-4-2004. The shareholders agreement did not involve transfer of shares in favour of SSPL but contained indication of transfer of shares in future. The agreement did not indicate date on which shares had been transferred. Though the agreement stated that MBPL shall execute share transfer deeds and shall cause MBPL to record SSPL as the owner of the shares, there was no indication of date of such transfer as required to be recorded in the Registrar of Companies. APA clearly indicated that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d carefully studied the submissions made by both sides. In the instant case, MBPL was issued with Private Bonded Warehouse Licence (PBWL) and IBM sanction order on 30-3-2000 by the Deputy Commissioner of Customs, Bangalore for warehousing non-duty paid goods for in-bond manufacture. MBPL had obtained the goods under the EOU scheme. In the statement dated 22-2-2004, Shri Shashi Kumar, Manager (Finance) of SSPL admitted that under APA made on 31-12-2003, SSPL had taken over all the assets including bonded premises of MBPL and that they were in the process of obtaining approval of STPI and the Customs authorities. They were carrying on software development in the bonded warehouse. STPI had granted them approval to set up 100% EOU in the same premises as occupied by MBPL with effect from 12-3-2002. Nobody from MBPL worked in the organization. This statement was corroborated by Shri Pradeep Sonawala, authorized representative of Shri Suresh Dholakia, Managing Director of SSPL vide his statement dated 9-3-2002. Shri Atur Babu, Managing Director of MBPL deposed in a statement dated 19-3-2004 that SSPL was using the entire premises of MBPL for software development activity. Owing to financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following duties :- (a) Customs duty on capital goods at depreciated value but at rates prevalent on the dates of import; (b) Customs duty on unused raw materials and components on the value on the dates of import and at rates in force on the dates of clearance." Therefore duty and penalties if any and the application of the notification, will have to be considered on the date of debonding i.e. expiry of prescribed Bond period." During the proceedings, SSPL had also relied on the Circular issued by CBEC in support of the plea that the proceedings of the Commissioner were premature. They had requested that matter had to be referred to the Development Commissioner for advice by the Commissioner. The proposed proceedings would defeat the purpose of development of software of a STPI unit envisaged in the notification. 11. We find considerable force in the submission made by the assessee that the impugned proceedings suffer from infirmity in as much as the adjudication had not followed the procedure to obtain concurrence with the Development Commissioner. We find that Circular No. 21/95-Cus., dated 10-3-95, the CBEC issued the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal held that the Development Commissioner's recommendation was essential before duty demand could be confirmed on the assessee . In that case petition of the appellants for de-bonding was pending before the competent authority and the Development Commissioner had not initiated any action for non-fulfillment of export obligation. The Tribunal followed decision in the case of Vishal Footwear Ltd. (supra) and quashed the order of confiscation and imposition of penalty. The appellants had cited the decision of the Hon'ble Apex Court in the case of Ranadey Micronutrients (supra) in support of the claim that the Board's circular No. 21/95-Cus., dated 10-3-95 and Circular No. 122/95, dated 28-11-95 are binding on the departmental officers. 12. We find that the issue involved in the instant case is also nonfulfillment of export obligation. Capital goods had not been removed from the warehouse clandestinely or otherwise. We find that failure on the part of MBPL was that it had not used the capital goods procured under EOU scheme for manufacture and export of software. In such a situation, it was mandatory that the Commissioner obtained clearance from the Development C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed till January, 2008. Therefore the provisions of Section 72(b) of Customs Act providing for recovery of duty from the owner of the goods in the event of non-removal thereof from the warehouse at the expiry of the warehousing period, were not attracted so as to hold that M/s. Gaia Ites was required to discharge duty liability on the goods, even if it was established that Gaia Ites had purchased the goods imported duty free from Delta. The Tribunal set aside the duty demand. As regards confiscation, in the face of the admitted position that the period for fulfilment of export obligation by Delta had stood extended till April, 2008 by STPI, confiscation under Section 111(o) could not be sustained and it was only in the event of non-fulfilment of the export obligation during the extended period that the provisions of Section 111(o) could be invoked against the goods. The Tribunal therefore set aside the confiscation of the goods. As a consequence, penalty imposed upon Delta also was set aside. Penalties imposed in terms of Rule 26 on the other three appellants were also set aside for the reason that the duty and confiscation had been held to be unsustainable. This view of one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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