The Commissioner of Central Excise and Customs, Cochin v. M/S OEN India Ltd.

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN &** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY, THE 18TH DAY OF JUNE 2018 / 28TH JYAISHTA, 1940** **AGAINST THE ORDER/JUDGMENT IN APPEAL NO.C/421/05; C/CROSS/150/07 OF CUSTOMS,EXCISE&SERVICE TAX APP.TRIBUNAL,BANGALORE DATED 24-06-2008** ## **APPELLANT(S)/APPELLANT/REVENUE** **THE COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, C.R. BUILDINGS,, I.S. PRESS ROAD, COCHIN 682 018,** **BY ADV.SRI.P.R.SREEJITH, SC, CBEC** ## **RESPONDENT(S):/RESPONDENT/ASSESSEE** **M/S OEN INDIA LTD., ELECTROGIRI, MULANTHURUTHY, ERNAKULAM DIST., KERALA 682 314.** **BY ADV. SRI.E.K.NANDAKUMAR (SR.) BY ADV. SRI.P.BENNY THOMAS BY ADV. SRI.K.JOHN MATHAI** **THIS CUSTOMS APPEAL HAVING BEEN FINALLY HEARD ON 18-06-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **CUA 1/2009** ## **APPENDIX** ## **APPELLANT'S EXHIBITS** |**ANNEXURE-A(1) :**|**COPY OF CUSTOMS IGCRDMEG RULES, 1996**| |---|---| |**ANNEXURE-A(2) :**|**COPY OF STANDING ORDER NO.22/96 DATED 2.9.1996 ISSUED BY THE**| |**COMMISSIONER.**|| |**ANNEXURE-A(3) :**|**COPY OF SHOW CAUSE NOTICE NO.1/2004-CUSTOMS DATED 8.4.2004**| |**ISSUED TO THE RESPONDENT.**|| |**ANNEXURE-A(4) :**|**COPY OF ORDER IN ORIGINAL NO.01/2005 CUSTOMS DATED 23.2.2005.**| |**ANNEXURE-A(5) :**|**COPY OF FINAL ORDER NO.744/08 DATED 24.6.2008.**| |**ANNEXURE-A(6) :**|**COPY OF FINAL ORDER NO.1344 AND 1345/2006 DATED 18.8.2006.**| **//TRUE COPY//** **PS TO JUDGE.** ## **jg-2/7** ## K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Customs Appeal No. 1 of 2009 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 18[th] day of June, 2018 ## J U D G M E N T ## Vinod Chandran, J Questions of law have been raised against the order of the Customs, Excise and Service Tax Appellate Tribunal which allowed the claim of the respondent and interfered with the recovery of duty proposed by the Revenue. The original authority found against the respondent on merits; but however, on the question of limitation, found that there could be no recovery. The Tribunal, however, reversed the findings on merits and affirmed the findings on limitation. The Revenue is mainly aggrieved by the findings of the Tribunal on merits. 2. The issue arises under the Customs (Import of Goods CUA 1/09 -2- at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (Rules of 1996). The respondent is a manufacturer of “Electrical-Relays“ and it has imported copper wire, which is wound inside the Relays. The respondent's factory at Cochin is registered under the Rules of 1996 and it availed of duty concession under the Rules of 1996. The respondent at its factory in Cochin having reached its maximum capacity, sought for transfer of a portion of the goods imported to its Peenya unit in Bangalore. The Department did not respond to the same, and hence, the transfer was made to the factory at Bangalore and the manufacture of Relays was carried out there. The factory at Cochin maintained simple accounts of the utilisation of inputs as provided under the Rules of 1996. The accounts maintained at the factory at Cochin involve both the Relays manufactured in Cochin and that manufactured in Bangalore. The specific CUA 1/09 -3- challenge raised by the learned Counsel for the Revenue is on the question as to whether the manufacture made at the factory at Bangalore could be taken as due utilisation for the exemption, when and if the factory at Bangalore is not registered under the Rules of 1996. 3. Questions of law raised on the proper interpretation of the Rules of 1996 and on the question of limitation, are as follows:- “a) Whether the Tribunal was right in holding that the removal of goods in contravention of the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 r/w Customs Notification No.25/99-Cus dated 28.2.1999 (as amended) will not disentitle the respondent from claiming the benefit under those rules? b) Whether the Tribunal was right in holding that the extended period of limitation was not applicable in the facts and circumstances of the case? c) Whether the Tribunal has the power to CUA 1/09 -4- declare that import of goods at a concessional rate of duty & use of those goods in a manner that was not in accordance with the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 would not render the importer liable to pay the differential duty as provided for in those rules“. 4. The learned Counsel for the respondent-assessee asserts that Rules of 1996 speak of only registration and the manufacturer having two units could avail of such benefits merely by transfer of imported goods to the other factory. The other factory at Bangalore is also registered with the Central Excise Department and the manufacture of Relays is exigible to duty before the jurisdictional Officer; which could be proved before the Assistant Commissioner at Cochin for the purpose of establishing the utilisation as provided under the Rules of 1996. The learned Counsel for the Revenue however points out that the decisions relied on the Tribunal are on by exceptional CUA 1/09 -5- circumstances, which do not declare the registration to be not necessary. 5. The Tribunal has relied on its own orders and that of a co-ordinate Bench reported in 2005 (187) ELT 495 [Commissioner of Central Excise, Bangalore v. Electronic Research Ltd.] and 2006 (198) ELT 539 (Tri.- Chennai) [Tamil Trading Corporation v. Commissioner of Central Excise, Tuticorin] . Electronic Research Ltd. (supra) was a case in which there was registration for the assessee's factory at Bangalore to which factory the import was made. Due to labour unrest in the said factory, a portion of the imported goods were transferred to Gurgaon and the unit at Gurgaon was not registered under the Scheme with the jurisdictional Assistant Commissioner. The specific contention raised by the assessee therein was that pointing out the contingency, the Department was informed of CUA 1/09 -6- the diversion and permission sought for removal of goods. The removal was made expeditiously only considering the urgency of the matter. The Tribunal allowed the claim of the assessee on two grounds; firstly, the removal was made due to reasons beyond the control of the assessee and that they had before removal, approached the jurisdictional Deputy Commissioner for permission who had directed them to the Additional Commissioner. There was hence found to be no intentional diversion. Secondly, the Commissioner (Appeals) after perusing the documents produced was satisfied that the goods were used for the intended purpose. There cannot be found any declaration that registration of the factory at Gurgaon was not required. 6. Tamil was in the Trading Corporation (supra) circumstances of manufacure being carried out in a factory on job work basis. There was also an application for registration CUA 1/09 -7- under the Rules of 1996 before the jurisdictional Officer of the factory. The application was declined for reason of the registration being sought by a person other than the owner of the factory. The Tribunal found that it was only proper that the registration was granted, since the Rules of 1996 require registration of the manufacturer by the Departmental Officer having jurisdiction over the manufacturer's factory. The EXIM Policy was read out to find that the actual user includes a person who utilises the imported goods for his own use in another unit, including a job unit (sic). The declaration therein was insofar as a manufacturer being entitled to seek registration of a factory which is not under his ownership, but to where he takes rawmaterials for the purpose of manufacture as a job work. The very same Tribunal in the case of a sister concern had passed Annexure-A(6) order wherein the very same reasoning was CUA 1/09 -8- adopted to decide the exemption in favour of the assessee on similar reasoning. 7. Looking at the Rules of 1996, we are not inclined to find that there could be an exemption claimed and utilisation established without the factory in which the manufacture has been carried out, having registration under the said Rules. Rule 3 speaking of registration and Rule 4 about the application to obtain the benefit are extracted here under : “ Rule 3. Registration.- (1) A manufacturer intending to avail of the benefit of an exemption notification referred to in sub-rule (1) of rule 2, shall obtain a registration from the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction over his factory. (2) The registration shall contain particulars about the name and address of the manufacturer, the excisable goods produced in his factory, the nature and description of imported goods used in the manufacture of such goods. (3) The Assistant Commissioner of Central Excise CUA 1/09 -9- or Deputy Commissioner of Central Excise shall issue a certificate to the manufacturer indicating the particulars referred to in sub-rule (2).” “ Rule 4. Application by the manufacturer to obtain the benefit .- (1) A manufacturer who has obtained a certificate referred to in sub-rule (3) of rule 3 and intends to import any goods for use in his factory at concessional rate of duty, shall make an application to this effect to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise indicating the estimated quantity and value of such goods to be imported, particulars of the notification applicable on such import and the port of import. (1A) The manufacturer may, at his option, file the application specified under sub-rule (1), either in respect of a particular consignment, or indicating his estimated requirement of such goods for a quarter, (2) The manufacturer shall also give undertaking on the application that the imported goods shall be used for the intended purpose. (3) The application shall be countersigned by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise who shall certify therein that the manufacturer is registered in his office and has executed a bond to his satisfaction in respect of end use of the imported goods in the manufacturer's factory and indicate the particulars of such bond.” CUA 1/09 -10- 8. We see that the registration has to be obtained from the Officer having jurisdiction over the factory, which certificate shall contain the following particulars: - (1) Name and address of the manufacturer. - (2) Excisable goods produced in his factory. - (3) The nature and description of imported goods used in manufacture. Under Rule 4 when an application is filed, the manufacturer has to indicate the estimated quantity and value of goods to be imported, which is utilised in the manufacturing process; for the purpose of claiming exemption under Rules of 1996. Hence, definitely a registration under the Rules of 1996 is required for every factory owned by the same manufacturer or in which the manufacturer carries out the process by way of job work. It is only in such circumstances, there could be a proper monitoring CUA 1/09 -11- of the transfer of goods as also the utilisation, by the respective officers, who granted registration to the various factories of the very same manufacturer. 9. The learned Counsel appearing for the respondentassessee has relied on a judgment of the Delhi Tribunal in 2010 (261) ELT 267 (Tri.-Del.) [Commissioner of Central Excise v. JCT Electronics Ltd.] which has been upheld by the Punjab and Haryana High Court at Chandigarh in the decision reported in 2011 (267) ELT 41 (P&H) [Commissioner of Central Excise, Chandigarh-I v. JCT Electronics Ltd.]. Therein also, the question was with respect to diversion of inputs to another factory with due intimation to the Commissioner and seeking permission, which was never responded to. The diversion was also on account of the factory to which the import was made being closed down. With all the respect at our command we are unable CUA 1/09 -12- to agree with the decision finding no violation of the terms of exemption as is discernible from the Rules. We notice that in none of these cases relied on by the Revenue or by the respondent-assessee, the issue as to whether the factory in which the manufacture was carried out after diversion was registered under the Rules of 1996 was looked into. The Tribunals in the various decisions as cited herein above, went on the premise that the diversion being intimated to the Department, the Department should have taken proceedings within the limitation period or if the use is found to be for the intended purpose, there could be no proceedings for recovery of duty exempted on import, which is the specific question that has been urged before this Court by the Department. We are inclined to agree with the Department on that aspect, but we notice that even in the present case, the enquiry as to whether the CUA 1/09 -13- factory at Bangalore has registration under the Rules of 1996 has not been looked into by any of the authorities. We would hence not declare anything on that question of law and we refuse to answer the questions at (a) and (c). We however, vacate orders of the Tribunal to the extent it finds the claim of exemption being availed on the ground of establishment of utilization in the other factory premises. The issue shall be left open to be considered in an appropriate case. Even then, we would not interfere with the order of the original authority which categorically found that there could be no recovery effected since the proceedings were initiated after the normal limitation provided under Section 28 of the Customs Act, 1962. The proviso enables the proceedings in the event of suppression of such diversion in the extended period of five years. In the present case, the diversion was intimated to the Department and CUA 1/09 -14- permission sought for. Original authority itself finds that the proceedings are beyond the period of limitation. Hence we answer the question (b) herein above, in favour of the assessee and against the Revenue and in such circumstances, we reject the appeal by the Department. Sd/K. Vinod Chandran, Judge Sd/Ashok Menon, Judge jg/jma