TMI Blog2020 (1) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... on conditions in respect of the shortages determined. Excesses stock - import without following the procedure - HELD THAT:- The appellant has not been able to offer any justifiable reason for the excesses. These goods have been imported without following the procedure for clearance of the imported goods as per the Customs Act, 1962. Since these goods are have been imported without following the procedure as prescribed they have been held liable for confiscation and have been confiscated by the Commissioner. However though these goods are liable for confiscation, but were never seized and released provisionally to the appellants against Bond and Bank Guarantee. Thus while upholding the demand of duty made in respect of the excesses as these goods were cleared without filing proper import declaration as require under the Customs Act, 1962, the order of confiscation of goods and redemption fine imposed is set aside. Demand of interest under Section 28AB on the amount short paid - HELD THAT:- The interest as provided by the statue is for the delay in the payment of duty from the due date. Since the demand has been upheld, demand for interest too is upheld. Appeal allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is subject to condition 102, prescribed by the notification which reads as follows: If, - (i) imported for servicing, repair or maintenance of aircraft, which is used for operating scheduled air transport service or the scheduled air cargo service, as the case may be; or (ii) the parts are brought into India for servicing, repair or maintenance of an aircraft mentioned in clause (ii) of Condition No.101. Explanation.- The expressions scheduled air transport service and scheduled air cargo service shall have the meanings respectively assigned to them in Condition No.101. 2.2 During the course on Onsite Post Clearance Audit (OSPCA) undertaken by Office of the Commissioner Service Tax -1, Mumbai for the period 2011-12, it was informed that the records of import and consumption of the same is maintained on quarterly basis and provided to the auditor M/s Pee Dee Kapur and Co, the Chartered Accountant appointed by them for internal audit purpose. M/s Pee Dee Kapur and Co. provided the audit report for the period 2010-12. 2.3 As per the Audit Report the value of short found pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After reconciliation undertaken by the internal audit, the excess and shortages will be ₹ 6,02,240/- and ₹ 8,83,709/- respectively. When compared to total inventory of ₹ 1120 crores that they are maintaining these excesses and shortages are miniscule 0.0133%, and should have been ignored, or the demand limited to the value of excess and shortages as determined by the internal audit. [Maruti Udyog Ltd [2010 (262) ELT 180 (P H)], [2007 (217) ELT 233 (T-Del)], [2004 (73) ELT 382 (T-Del)] and National Engineering Industries Ltd [2015 (30) ELT 681 (T-Del)]. There is no corroborative evidence in respect of the excess goods cleared by them and the demand has been made in respect of excesses based on the presumption without allowing the benefit of admissible exemption notification. Also there is no evidence in respect of the clearance of the short found goods contrary to the condition No 102 of the exemption notification. The short found goods have been utilized as per the conditions stipulated in the notification, however these shortages are for the reason of accounting discrepancies. The accounting discrepancies leading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The penalty under Section 112(a) of the Customs Act, too is justified for the reason that appellants have failed to properly account for the goods cleared by them availing the benefit of conditional exemption notification. 4.1 We have considered the impugned order with the submissions made in the appeal and during the course of argument. 4.2 During the course of OSPCA undertaken by the Service Tax Mumbai 1, and on the perusal of the report prepared by M/s Pee Dee Kapur Co, Chartered Accountants, it was noticed that there were shortages and excesses of various imported goods. These imported goods have been cleared by the appellant s claiming the benefit of exemption under S No 346D of Notification No 21/2002 dated 01.03.2002 as amended by Notification No 37/2007-Cus dated 7th March 2007. The exemption was subject to condition 102, prescribed by the notification as per which the imported goods were to be used for servicing, repair or maintenance of aircraft- a. which is used for operating scheduled air transport service or schedule air cargo service; or b. which is not registered or not intended to be registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respective stores and their acknowledgement confirmation was obtained. The same has been reported in enclosures of this report. 3. During physical verification, availability of item was relied upon on the basis of Item Code Nos. allotted to the concern items and description by the stores representative. 4. We have carried out 100% verification of items following under rotable stores with TL 02 03 and AUP above ₹ 1 Lac. Further we have also verified more than 50% of remaining stores item during the course of our assignment. OBSERVATIONS 1. During the course of our physical verification we observed various discrepancies and same have been reported location wise in the Shortage/ (Excesses) Sheet Annexed with this report. 2. The report also includes Annexure consisting of complete Summary of Stores-wise total no of items with value and Tracking Levels TL 01, TL 02 TL 03. 3. It was also observed that at most of the locations, the verification list of items so provided to us was not an updated list and the same was updated post our verification. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect. It appears that this report is a feeble and ill-founded defence for evading payment of duty on the short / excess found goods. In view of the same, I find that the noticee has cast aspersions on Pee Dee Kapur s Report wherein they should have initiated proper investigation before forwarding the same to their Internal Audit Team which they failed to do so. I find that there were differences between Pee Dee Kapur s Report and the report given by the Internal Audit Team and enough time was available to the noticee to rectify the differences. I find that the noticees were aware of the scheme of OSPCA and they had ample time for discussing the matter with their Internal Auditors. However, no substantial efforts was been made by M/s Air India to improve on the suggestion points given by the Pee Dee Kapur s report. Therefore, I find that the shortage of goods found amounts to clear-cut diversion of the imported goods and the excess of goods found are mis-declaration of the imported goods. As per the Companies Act, the noticee is required to have a proper in house Audit Team which should have worked in tandem with their Statutory Auditor. 11.4 I find that short foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand of ₹ 5,34,746/- may not be confirmed, why interest under Section 11AB of the Central Excise Act, 1944 may not be recovered and why penalty under Section 11AC of the Central Excise Act, 1944 may not be imposed. Upon considering the statement of Shri S.P. Ponde, Senior Executive (Commercial) and Authorized Signatory of the noticee for Central Excise matters, as recorded on 9-2-2005 and even after taking into consideration a letter-cum certificate dated 16-5-2004 furnished by Shri Dhananjay V. Joshi, Cost Accountant of the noticee, the Joint Commissioner of Central Excise Customs, Aurangabad confirmed the demand notice for recovery of wrong Cenvat credit worth ₹ 5,34,746/-, claimed by the assessee. Learned Joint-Commissioner also ordered recovery of interest under Section 11AB and imposed penalty equal to the wrong claim of Cenvat credit. This was done by observing thus : The Noticee in the instant matter, could not account for shortage of inputs of huge value ₹ 33.42 lakh in physical verification of inventory, as per Cost Audit report for 2002-2003 and could not explain whether inputs used in or in relation to manufacture of final product e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter against the assessee, and therefore, those authorities cannot be said to have read Rule 7(4) in an incorrect manner. 6. So far as the order of CESTAT is concerned, it has mainly relied upon the decision of the Tribunal, at Delhi in the matter of Maruti Udyog Ltd. v. Commissioner of C. Ex., Delhi-III, reported in 2004 (173) E.L.T. 382. We must state here itself that the decision of the Tribunal is certainly not binding upon us and it is a question as to whether we should approve the view taken by Delhi Tribunal in Maruti Udyog case and followed by the Tribunal in the impugned judgment. It is observed by the Tribunal at Delhi in paragraph No. 7 in its judgment in the case of Maruti Udyog as under : The appellants have a huge and complex accounting problem. It is beyond manual tally. The appellants have put in place sophisticated computer based accounting systems to ensure accuracy and efficiency. The evidence on record does not indicate any diversion of inputs in contravention of rules relating to utilisation of inputs. The demand is merely based on the shortages detected during physical tallying, that too without taking into account the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for brevity]. We need not refer to the facts of the case which gave rise to the questions for consideration before the Constitutional Bench. K.S. Radhakrishnan, J., who wrote the unanimous opinion for the Constitution Bench, framed the question, viz., whether manufacturer of a specified final product falling under Schedule to the Central Excise Tariff Act, 1985 is eligible to get the benefit of exemption of remission of Excise duty on specified intermediate goods as per the Central Government Notification dated 11-8-1994, if captively consumed for the manufacture of final product on the ground that the records kept by it at the recipient end would indicate its intended use and substantial compliance with procedure set out in Chapter 10 of the Central Excise Rules, 1944, for consideration? The Constitution Bench answering the said question concluded that a manufacturer qualified to seek exemption was required to comply with the preconditions for claiming exemption and therefore is not exempt or absolved from following the statutory requirements as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt the above interpretation of Section 125(2). It is well established in law that the taxing statutes have to be construed strictly and unless the literal meaning leads to anomaly or absurdity, the golden rule of literal interpretation should be adhered to. Literal meaning of Section 125(2) is that, whenever the goods liable to be confiscated under the Customs Act are allowed to be redeemed by giving an option to pay fine in lieu of confiscation imposed under Section 125(1), the owner of such goods or the person referred to in Section 125(1) shall, in addition to the fine be liable to any duty and charges payable in respect of such goods. In other words, under Section 125(2), the duty payable on the confiscated goods has to be paid on imposition of fine in lieu of confiscation and it is immaterial whether such option is exercised or not. 42. It is contended that if the above literal interpretation of Section 125(2) is accepted, then the absurd situation would be that in every case, the moment an order of confiscation is made with an option to pay fine in lieu of confiscation, the owner would have to pay duty even if the option to redeem the goods is not exercised. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such goods does not become payable on imposition of fine in lieu of confiscation but has to be paid before seeking clearance of the goods. In such a case if the clearance of the goods is not sought for, the question of paying duty does not arise at all. 45. However, in cases where the dutiable goods are cleared for home consumption without payment of duty and are confiscated subsequently under Section 111(o) with an option to redeem the same on payment of fine in lieu of confiscation imposed under Section 125(1), then, the duty on such goods as per Section 125(2) becomes payable, on imposition of fine in lieu of confiscation. The reason is that, in such cases, the clearance of the goods was subject to fulfilment of the conditions and if those conditions are not fulfilled, the benefit of the Notification would not be available and consequently, duty in respect of such goods becomes payable if allowed to be redeemed by imposition of fine in lieu of confiscation. In such cases, the liability to pay duty is not dependent upon the owner or the person referred to in Section 125(1) exercising the option of redeeming the goods. In such cases, duty becomes payable on impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the substantial questions of law placed before the High Court by the department was whether redemption fine under Section 125 of the Customs Act could be imposed where the goods were neither available for confiscation nor cleared under bond/undertaking. The Hon ble High Court followed the ratio of the Apex Court s judgment in Weston Components case and held that, as the goods in question had been allowed to be cleared without execution of any bond/undertaking by the importer, no redemption fine could be imposed under Section 125 of the Customs Act in lieu of confiscation. Reproduced below is the relevant part of the High Court s judgment. 12. It may also be noticed here that in the case of M/s. Weston Components Ltd. v. Commissioner of Customs, New Delhi (supra), the goods were released to the assessee on an application made by it and on the execution of a bond by the assessee and in those circumstances, the Hon ble Apex Court held that the mere fact that the goods were released on the bond being executed would not take away the power of custom authority to levy redemption fine. A reading of the judgment/order of the Hon ble Apex Court in M/s. Weston Compon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned and allow the appeal with consequential relief as per law. (emphasis supplied). Dismissing the department s Civil Appeal filed against the above order of the Tribunal, the Apex Court ordered vide 2005 (184) E.L.T. A36 (S.C.) as under: We see no reason to interfere with the impugned order. The appeal is dismissed. (emphasis supplied) In the result, the view taken by the Tribunal in Chinku Exports case stands affirmed by the Apex Court and consequently the similar view taken by the P H High Court in Raja Impex case is a binding precedent while the contra decision of the Madras High Court in Venus Enterprises case ceases to be good law on the point. It may be noted contextually that the dismissal, by the apex Court, of the SLP filed by M/s. Venus Enterprises did not have the effect of enhancing the precedent value of the High Court s decision in that case. 4.7 Thus while upholding the demand of duty made in respect of the excesses as these goods were cleared without filing proper import declaration as require under the Customs Act, 1962 we set aside the order of confiscation of goods and redemption fine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 5.1 In view of discussions as above,- i. We uphold the impugned order demanding duty of ₹ 1,47,94,926/- on the excesses and shortages of the imported goods. ii. We uphold the demand of interest on the duty demanded under Section 28AB of the Customs Act, 1962. iii. We set aside the order confiscating the excesses determined and also the redemption fine imposed. iv. We set aside the penalty i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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