Failure to maintain Proper Records of Import  under Customs Rules: CESTAT upholds Demand of Concession Amount Availed Under Customs Notification [Read Order]

The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)upheld the demand of concession amount availed under customs notification as the assessee failed to maintain proper records of import  under Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (Customs Rules, 1996).

M/s. Salzer Electronics Ltd. (Unit III), the appellant challenged the Order-in-Appeal No. 316/2013 dated 20.09.2013 of the Commissioner of Customs and Central Excise (Appeals), Trichy rejecting the appellant's appeal filed against the Order-in-Original No. 01/2013-ADC dated 21.03.2013.

The  Additional  Commissioner of Customs, Coimbatore has ordered for recovery of Rs.36,94,921/- being an amount equal to the difference between the duty leviable on the goods imported and the concessional rate of duty availed in terms of Notification No. 25/99-Cus dated 28.02.1999 in terms of Rule 8 of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (Customs Rules, 1996) read with Section 28 (5) of Customs Act, 1962 along with interest.

The appellant is engaged in the manufacture of Modular Switches and Parts falling under Central Excise Tariff Heading No. 85369090 and 85389000 of the Central Excise Tariff Act. The appellant imported parts of Relays, Switches and Connectors availing the benefit of concessional rate of duty as per Notification No. 25/99-Cus dated 28.02.1999.

In order to avail the  above concession, the importer/manufacturer has to comply with the provisions of Customs Rules, 1996. Accordingly,  the appellant obtained Registration Certificate dated 27.05.2004 as per Rule 3 of the Customs Rules, 1996 which was effective upto 22.09.2011. The appellant has also executed a bond as required under the Customs Rules, 1996 and filed periodical returns under E.R. 1 with the Department.

The imported materials were received in the factory of the appellant and various processes required for the manufacture of modular switch assembly were carried out which were cleared to appellant's unit at Una for carrying out full assembly operations before the final product i.e, Modular Switches were cleared from the unit at Una. The appellant's unit at Una received the sub-assemblies and parts of Modular Swithches only from the appellant's unit at Coimbatore.

During the audit , it was noticed that the appellant was clearing parts of switches from their unit at Samichettipalayam to their unit at Una, Himachal Pradesh.  It was also observed that the said parts of switches were imported under Customs Notification No. 25/99-Cus (Entry No. 112 of list A) which prescribes concessional rate of Customs duty which were used in the manufacture of finished goods.

The appellant as required under Rule 4(2) of the Customs Rules, 1996 has executed a bond with an undertaking that the imported goods shall be used for the manufacture of Switches, Relays and Connectors. The said bond executed specifies the manufacturer's factory for utilization of the imported goods.

It was alleged that  the appellant have contravened the end-use condition of the beneficial Notification by removing the parts and accessories of imported Switches to their unit at Una and also by selling parts of imported Switches thereby becoming in-eligible to avail the benefit of the said Notification due to violation of the end-use condition and the imported goods became liable for confiscation under Section 111(O) of the Customs Act, 1962.

It was evident that the appellant failed to maintain proper accounts to reflect the quantity of imported inputs used in the manufacture of Switches and parts of Switches contravening the Rule 7 of the Customs Rules, 1996 for non-observance of the conditions of the Notification and Customs Rules, 1996 in respect of permission granted. A Show Cause Notice came to be issued to the appellant which was resulted in demand of duty along with interest, confiscation of goods and imposition of fine and penalty.

Shri T. Ramesh for the appellant has submitted that the appellant has complied with all the conditions of Notification No. 25/99-Cus dated 28.02.1999 read with the Customs Rules, 1996 and there was no dispute regarding receipt of the imported goods in their factory premises, and required manufacturing activities were carried out for manufacture of final product Switches and Modular Plates.

Authorised  Representative  Shri R. Rajaraman supported the findings of the lower appellate authority. He has submitted that the imported goods were not used for the manufacture of finished goods i.e, Switches as mandated in the Notification No. 25/99-Cus dated 28.02.1999, so, the appellant is not eligible for the benefit of the concessional rate of duty and the demand confirmed and fine and penalty imposed are legal and so to be upheld.

In order to avail either the exemption or concessional rate of duty benefit under Notification No. 25/99-Cus dated 28.02.1999, any importer manufacturer is required to comply with the provisions of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.

A two member bench comprising Mr. P Dinesha, Member (Judicial) and Mr. Vasa Seshagiri Rao, Member (Technical) observed that in the case of Shiv Kripa Ispat Pvt. Ltd. Vs. Commissioner of Central Excise and Customs, Nasik [2009 (235) ELT 623 (Tri.-LB)] “it was held that the goods cannot be confiscated and the redemption fine not to be imposed when they are not available for confiscation, we order to set aside the confiscation and consequently, the fine imposed.”

Further observed that imposition of penalty under Section 112 (a)(ii) of the Customs Act, 1962 for contravening the provisions of the Notification No. 21/2002- Cus. dated 01.03.2002 read with the Customs Rules, 1966 is justified but the same is reduced to Rs.3,60,000/- (Three Lakhs Sixty Thousand only).

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