CESTAT Quashes ₹49.6 Lakh Customs Duty Demand Over Unproven Diversion of Imported Goods [Read Order]

The Allahabad Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) quashed  ₹49.6 lakh customs duty demand against the assessee due to unproven diversion of imported goods.

UKB Electronics Pvt. Ltd.,appellant-assessee,was engaged in manufacturing electrical components at its Noida unit, which included both a DTA unit and a 100% EOU unit separated by a wall.

In September 2010, Central Excise officers visited the premises and found that the appellant had wrongly availed CENVAT credit of ₹36.13 lakh on capital goods used for job work. The credit was reversed immediately. It was also found that some machines meant for the EOU unit were uninstalled and transferred to other units. A cheque of ₹6.71 lakh was submitted, followed by a letter stating the credit was admissible and would be contested.

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Further investigation revealed that the appellant had undertaken job work for a principal manufacturer without obtaining the required undertaking under Notification No. 214/86-CE. It was also found that imported “Housings” were diverted to the appellant’s Pune unit. Initially, usage details were not submitted and were only provided in August 2012.

A Show Cause Notice was issued in March 2013 alleging wrongful availment of CENVAT credit, diversion of imported goods, and unauthorised transfer of machinery. The Commissioner confirmed the demands through Order-in-Original dated 12.03.2014, with a reduced duty demand of ₹49.60 lakh on the housing issue.

On appeal, the Tribunal remanded the matter in September 2018 for fresh adjudication. In the remand proceedings, the appellant submitted new documents and explanations. However, by order dated 10.09.2020, the adjudicating authority again confirmed demands of ₹36.13 lakh, ₹49.60 lakh, ₹9.04 lakh, and ₹32,761, along with interest and penalties. A small demand of ₹1.58 lakh was dropped. Personal penalties were also imposed on the director.

Both the appellant and its director challenged this order before the Tribunal. The department also appealed, seeking enhancement of penalty under Section 114A of the Customs Act.

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The two member bench comprising P.K Choudhary (Judicial Member) and P.Anjani Kumar(Technical Member)  heard both sides and examined the records related to the customs duty demand of Rs. 49,60,092/-, which was based on the alleged diversion of imported “Housings” to the Pune unit.

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It noted that the letter from the Deputy Commissioner and the statement of Shri Pankaj Bhardwaj did not clearly show any such diversion. The tribunal also looked at two invoices through which UKB transferred the goods to its Pune unit. Both invoices referred to purchases made from East West Automation Technologies Pvt. Ltd. A certificate from this supplier confirmed that the goods supplied were as per UKB’s order, and this was neither disputed nor verified by the department.

The appellate tribunal found no other evidence to support the diversion claim. It held that while UKB’s initial failure to give details of usage might attract a penalty, it could not be the basis for demanding customs duty. Hence, the demand of Rs. 49,60,092/- was not sustained.

In short,the appeal was allowed.

To Read the full text of the Order CLICK HERE

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