CESTAT allows Customs Exemption on Polyethylene (PET) granules as It was used as Testing Moulds which fall under Input Category [Read Order]

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) allowed the customs exemption on polyethene (pet) granules as it was used as testing moulds which fall under the input category.

M/s ASB International against confirmation of demand of ₹ 68,75,451 and demand of ₹ 3,88,600 under section 28 of Customs Act, 1962, along with interest thereon under section 28AA of Customs Act, 1962, and imposition of penalties of like amount under section 114A of Customs Act, 1962 for the period from 13th April 2005 to 5th June 2009 and from 5th August 2009 to 5th February 2010 in orders of Commissioner of Central Excise, Thane-I.

 The appellant had been issued with the respective notices for alleged wrong availment of exemption accorded to ‘inputs’ required for the manufacture of goods intended for export even though the impugned ‘polyethylene (PET) granules’ were utilised for testing their machines.

The appellant is an ‘export oriented unit (EOU)’, operating under chapter 6 of the Foreign Trade Policy (FTP) with a ‘letter of permission (LoP)’ granted by the Development Commissioner concerned and is entitled to exemption on procurement – domestic and foreign - of ‘inputs’ for the manufacture of goods enumerated in the permission.

Such units are permitted to establish their manufacturing facilities and, upon declaration of ‘commencement of commercial production’, become bound by the obligation specified in the policy and, thereby, entitled to exemption on ‘inputs’, ‘capital goods’ and ‘consumables’ in terms of notification no. 52/2003-Cus dated 31st March 2003.  The appellant is in the business of producing moulds used for manufacturing packaging in the pharmaceutical, cosmetic and food industries varying from 40 ml to 5 litres in volume with a capacity of 12000 such units.  

It was submitted that machines and moulds are operated continuously for eight to ten hours and consume ‘polyethene (PET) granules’ for quality assurance of moulds and the resultant products are subjected to various tests and inspections for conformity with end-use parameters.

It was submitted that the adjudicating authority has erroneously concluded that the ‘polyethylene (PET) granules’ not being deployed in the finished goods that are exported but in goods that were never intended to be exported would not fall within the purview of eligible inputs even though testing of the exported goods using ‘polyethylene (PET) granules’ is essential to the process.

It was contended that ‘consumables’, as defined in 9.15 of the Foreign Trade Policy (FTP), are entitled to the exemption notwithstanding enumeration among ‘inputs’ in the permission granted by the Development Commissioner; according to him, the enumeration is submitted by an ‘export-oriented unit’ as required for manufacture and the distinguishment of ‘inputs’ from ‘consumables’ is not relevant to the permission or usage to the extent of not having been diverted of which there is no allegation in the impugned proceedings.

The clubbing of all of these as ‘inputs’ for the account of eligible quantities of each does not exclude any type of goods used in production and the jurisdictional authorities have not been able to show that the ‘standard input output norms (SION)’ have not been conformed to. 

“Considering that ‘polyethylene (PET) granules’ are used during the manufacture of ‘moulds’ that are the acknowledged export product of the appellant and which, even if not deployed in the manufacture of mould, renders the acceptability of the goods for the customer in the absence of which export obligation would remain unfulfilled, it is nothing but ‘consumables’ which are covered by the omnibus enumeration of eligible requirements other than capital goods, the impugned order has erred in denying the benefit of exemption.”, the two-member bench comprising Mr S K Mohanty, Member (Judicial) and Mr C J Mathew, Member (Technical) held.

The CESTAT allowed the appeal and set aside the impugned order.  

To Read the full text of the Order CLICK HERE

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