TMI Blog2013 (5) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to evade payment of customs duty is without any basis, because, the Development Commissioner would grant extension of LOP only if he is satisfied that non-fulfilment of the export obligation, if any, is on account of genuine reasons. - it is not open to the customs authorities to presume that extension of the LOP would be granted by the Development Commissioner to facilitate evasion of duty. Since the assessee could not resume its operations even after extension of the LOP on 27th April, 2009 on account of the customs authorities not renewing the private bonded warehouse licence, we direct the Development Commissioner to pass a fresh order within eight weeks from today, specifically stating therein the date on which the extended period of LOP for five years would commence and the mimumum export obligation/NFEP required to be achieved by the assessee in the said extended period of five years. - order of tribunal set aside - decided in favor of assessee. - Customs Appeal (LOD) No. 63 of 2012 - - - Dated:- 14-2-2013 - J.P. Devadhar and M.S. Sanklecha, JJ. Shri V. Sridharan, Sr. Advocate, with Prakash Shah, Jas Sanghavi, Uchit Sheth and Durga Prasad, i/b. PDS Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force at the relevant time. 5. Accordingly, the assessee imported capital goods valued at Rs. 120.29 crores as permitted under the LOP, cleared the same duty free by executing a bond under customs Notification No. 53/97 dated 3rd June, 1997 and installed the same in the aforesaid private bonded warehouse which was duly approved by the customs authorities. It is not in dispute that the assessee commenced the commercial production on 27th April, 1999 and the assessee exported all its products during the period from 1999-2000 valued at Rs. 2.95 crores. 6. Sometime in August, 2000, IDBI filed a Suit bearing No. 1990 of 2000 against the assessee in this Court and in that Suit Court Receiver was appointed in respect of the assets of the assessee. Consequently in September, 2000, the unit at Betegaon was attached and possession of that unit was taken over by the Court Receiver appointed by this Court on 3rd August, 2000 in the said suit filed by the IDBI against the assessee. Thus, the operations in the unit were stopped abruptly from September, 2000 on account of the Court Receiver taking over possession of the unit at Betegaon. 7. The assessee contested the Civil Suit and took st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y action should not be initiated against the assessee under the Customs Act, 1962 for non-fulfilment of the export obligation under the LOP dated 9th September, 1998. 12. Before proceeding with the adjudication of the aforesaid show cause notice dated 27th February, 2004, the customs authorities had sought the status report from the Development Commissioner. In view of the fact that as on that date, the unit was in possession of the Court Receiver and the final rehabilitation order was not passed by the BIFR, the Development Commissioner by his letter dated 25th August, 2006 permitted the customs authorities to proceed with the adjudication of the aforesaid show-cause notice dated 27th February 2004 on the ground that the assessee had failed to fulfil the export obligation under the LOP dated 9th September 1998. 13. Accordingly, by an Order-in-Original dated 29th September, 2006 the matter was adjudicated wherein the customs duty demand with interest and penalty were confirmed. The appeal filed by the assessee against the said order-in-original was dismissed by the CESTAT on 14th August, 2008. On a Writ Petition filed by the assessee, this Court by an order dated 17th December, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a period of 5 years effective from 1-4-2009 and also approve the fresh projections for the 2nd block of 5 years i.e. from 2009-10 to 2013-14 with export performance of US $5,06,07.290/- (US $ five crore six lakhs seven thousand two hundred and ninety only), RM Components of US $3,54,25,100/- (US $ Three crore fifty four lakhs twenty five Thousand one hundred only), Spares Consumables of US $20,24,290/- (US $ Twenty lakh twenty four thousand two hundred and ninety only) and Net Foreign Exchange Earnings of US $1,29,55,470/- (US $ one crore twenty nine lakhs fifty five thousand four hundred seventy only). 3. This approval is subject to the following conditions. (a) The entire (100%) production excluding rejects and sales in the Domestic Tariff Area (DTA) as per provision of Foreign Trade Policy 2004-09 shall be exported. (b) The unit would be required to achieve positive Net Foreign Exchange (NFE) as prescribed in the EOU scheme, failing which; it would be liable for penal action. (c) The benefit provided in Appendix 14-1-M of HBP 2004-09 as amended shall not be applicable. (d) This approval is without prejudice to any action that may be taken in respect of your EOU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, instead of considering the application for renewal of the private bonded warehouse licence, the customs authorities insisted on enforcing the duty demand with interest and penalty confirmed by order-in-original dated 16th March 2009. 21. In the appeal filed before the CESTAT against the order-in-original dated 16th March, 2009 the assessee contended that in view of the extension of the LOP granted by the Development Commissioner, the customs authorities were not justified in declining to extend the private bonded warehouse licence and enforcing the duty demand on the ground that the export obligation under the LOP dated 9th September 1998 had not been fulfilled. The Tribunal by its order dated 31st March, 2011 set aside the order-in-original dated 16th March, 2009 and restored the matter for fresh decision by the Commissioner. On a Writ petition filed by the revenue, this Court on 16th August, 2011, by consent set aside the order of the Tribunal dated 31st March, 2011 and directed the Tribunal to pass fresh order on merits. 22. Accordingly, the matter was heard afresh and by an order dated 1st March 2012 [2013 (289) E.L.T. (Tri.-Mum.)]. the CESTAT upheld the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies could not have invoked the deeming fiction contained in Section 72 of the Customs Act before the expiry of the period extended by letter dated 27th April, 2009. It is contended that as per the policy circulars issued by the C.B.E. C., extension of the warehousing period should be granted liberally in the case of EOUs and duty can be demanded only at the time of exit from the scheme/debonding of the unit and, therefore, in the present case, confirmation of the duty demand with interest and penalty prior to debonding of the unit is illegal. 26. On the other hand, it is contended by counsel for the customs authorities that the assessee was permitted to clear the capital goods and raw materials on execution of a bond without payment of duty under Notification No. 53/97 subject to fulfilling the export obligation contained in the LOP dated 9th September 1998. Admittedly, the assessee has not fulfilled the export obligation and, therefore, the customs authorities are justified in seeking to recover the duty with interest and penalty. 27. With reference to the extension of LOP granted by the Development Commissioner on 27th April 2009, it is contended that the said extension ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Foreign Trade (D R) Act, 1992. He submitted that even though the assessee had not fulfilled the export obligation in the initial five years on account of the Court Receiver taking over possession of the unit, in view of the directions given by the Board of Approval for EOU Scheme, the Development Commissioner considered the case of the assessee and on 27th April 2009 granted extension of LOP dated 9th September 1998 for a further period of five years from 2009-10 to 2013-14. He submitted that since the request for extension of LOP was being considered in 2009, granting approval for the interim period when the unit had not manufactured or exported any goods was not considered by the Development Commissioner. He submitted that the letter dated 27th April 2009 is in the nature of renewal of LOP on fresh terms and conditions and accordingly submitted that appropriate orders be passed in the matter. 30. We have carefully considered the rival submissions. 31. The first question to be considered herein is, where a 100% EOU set up in a private bonded warehouse duly licenced by the customs authorities is granted extension of the 100% EOU status for a further period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Customs Act valid for a period of five years and such licences may be extended for a further period of five years or for such period as prescribed by the Secretariat of Industrial Approvals. Thus, various circulars issued by the C.B.E. C. from time to time clearly show that where extension of LOP is granted by the Development Commissioner, the customs authorities are required to grant extension of the private bonded warehouse licence, unless the assessee has violated any other provisions of law. 34. The question then to be considered is, where the Development Commissioner considers the cause shown by the assessee for not fulfilling the export obligation and on being satisfied grants extension of the LOP for a further period of five years, whether the customs authorities on expiry of the first block of five years can demand customs duty on the capital goods, spares and raw materials imported by that assessee in the first block of five years on the ground that the failure to fulfil the export obligation in the first block of five years constitutes violation of the terms of the bond executed by the assessee under the exemption Notification No. 53/97-Cus., dated 3rd June, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LOP is extended, it is neither open to the Development Commissioner nor it is open to the customs authorities to initiate penal action against the assessee before the expiry of the extended period of the LOP, on the ground that the assessee has failed to fulfil the export obligation in the first block of five years. 37. In the present case, the Development Commissioner by his letter dated 27th April, 2009 has granted extension of LOP for the second block of five years with effect from 1st April, 2009 whereas the LOP granted on 9th September, 1998 expired on 26th April, 2004. The question therefore to be considered is, whether during the period from 27th April, 2004 till 31st March, 2009 the assessee should be deemed to have ceased to be a 100% EOU ? 38. In the affidavit in reply filed on behalf of the Development Commissioner, it is specifically stated that since the request for extension of LOP was being considered in the year 2009, granting approval for the interim period was not considered, as during that period the assessee had not manufactured or exported any goods. It is relevant to note that as per Notification No. 53/97-Cus., dated 3rd June, 1997 liability to pay custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach the Development Commissioner seeking extension of LOP. Accordingly, the Development Commissioner considered the case of the assessee and on being satisfied that the non-fulfilment of the export obligation in the first block of five years was due to bona fide reasons beyond the control of the assessee has granted extension of LOP. Therefore, when the Board of Approval for EOU scheme as also the Development Commissioner have considered it fit to grant extension of the LOP, the customs authorities are not justified in treating the extension of the LOP as a fresh LOP and seek to enforce the penal liability imposed against the assessee on the footing that the assessee had ceased to be a 100% EOU during the period from 26th April, 2004 to 31st March, 2009. 41. Apart from the above, it is relevant to note that in the present case, the office of the Development Commissioner had issued a show cause notice to the assessee on 11th April, 2002 calling upon the assessee to show cause as to why for non-fulfilment of the export obligation penal action should not be initiated against the assessee and why customs duty foregone at the time of import of capital goods/raw materials should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfilled. Once the Development Commissioner after considering the facts of the case grants extension of LOP so that the needful could be done during the extended period, penal liability cannot be fastened upon the assessee by any authority before the expiry of the extended period. Therefore, the argument of the customs authorities which leads to an anomalous situation cannot be accepted. 44. The apprehension of the customs authorities that the assessee may seek extension at the end of each block of five years with a view to evade payment of customs duty is without any basis, because, the Development Commissioner would grant extension of LOP only if he is satisfied that non-fulfilment of the export obligation, if any, is on account of genuine reasons. When the legislature has cast that responsibility upon the Development Commissioner to grant extension to 100% EOU in appropriate cases it cannot be presumed that even if the assessee violates the provisions of law the extension would be granted. In other words, in a given case, if it is found that that the assessee has violated the provisions of law it would be open to the Development Commissioner to deny extension. Therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted by the Development Commissioner. Therefore, before expiry of the extended period of LOP it is neither open to the Development Commissioner nor to the customs authorities to treat that the assessee had ceased to be a 100% EOU after the expiry of the first block of five years and consequently the question of enforcing the penal liability before the expiry of the extended period does not arise at all. 46. The fact that clause 3(d) in the letter dated 27th April, 2009 is relatable to cases other than non-fulfilment of the export obligation/performance in the first block of five years can be demonstrated from the following illustrations. Suppose a 100% EOU is found to have imported capital goods by under invoicing the value of the said capital goods for which penal action is initiated. In such a case, granting extension of LOP would not absolve the 100% EOU from the penal consequences. That is why clause 3(d) in the letter dated 27th April, 2009 provides that grating extension is without prejudice to any action that may be taken in respect of EOU operations prior to 1st April, 2009. If the extension granted was subject to taking penal action for non-fulfilment of the export o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y permits different period for warehousing in respect of imports by 100% EOU and imports by others. Apart from the above liability to recover duty in the case of imports by a 100% EOU, if any, arises only at the time of ex-bonding sought either by the assessee or by the Development Commissioner within six months of the expiry of the bonding period. In the present case, neither the assessee has opted for debonding nor the Development Commissioner has initiated any proceedings on the footing that the assessee has ceased to be a 100% EOU. Moreover, in the case of Kesoram Rayon (supra) there was nothing on record to suggest that extension of the warehousing period has been granted or clearance under Section 68 of the Customs Act has been ordered and, therefore, in those circumstances, the Apex Court held that Section 72 of the Customs Act was attracted. In the present case, admittedly, extention of the 100% EOU status has been granted to the assessee by the Development Commissioner on 27th April, 2009. Therefore, the argument of the customs authorities based on the decision of the Apex Court in the case of Kesoram Rayon (supra) that the assessee has violated the provisions of Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X
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