The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that customs duty cannot be demanded on imported materials intended for manufacturing if they are destroyed by an uncontrollable incident like a fire.
Sennar Paper and Boards Ltd., the appellant imported 333.482 MTs of waste paper on May 27, 2011, classified under CETH 47079000, availing a concessional duty under Notification No. 21/2002-Cus. The exemption required the imported waste paper to be used in the manufacture of kraft paper, as per the notification’s conditions.
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On June 10, 2011, a fire caught at the appellant’s facility destroyed the entire quantity of imported waste paper intended for manufacturing. The appellant filed a claim with their insurance company for the loss incurred due to the fire.
The appellant stated that they informed the Customs Department about the fire incident via email on the same day, followed by a formal letter on June 23, 2011. Following an audit, the Customs Department issued a show cause notice, alleging that the appellant failed to fulfill the end-use requirement due to the fire incident.
The department demanded a differential duty of Rs. 3,69,347 along with interest and imposed a penalty under Section 114A of the Customs Act, 1962. On appeal, the Commissioner of Customs (Appeals) upheld the demand and penalty, rejecting the appellant’s argument regarding compliance with the notification.
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Aggrieved, the appellant challenged the Commissioner (Appeals)’s order before the CESTAT arguing that “intended for use” should suffice for exemption compliance since the destruction by fire was beyond their control.
The appellant’s counsel claimed that the appellant had notified the Customs Department about the fire both via email and letter, proving no suppression of facts. They asserted that they only claimed insurance for the materials, not the taxes, refusing any allegation of double benefit.
The two-member bench comprising P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) referenced the Supreme Court ruling in the case of State of Haryana v. Dalmia Dadri Cement Ltd., where “for use” was deemed synonymous with “intended for use.” The tribunal concluded that the appellant met this requirement since the waste paper was intended for manufacturing kraft paper before it was destroyed by fire.
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The tribunal referred Bangalore tribunal ruling in the case of Vamsadhara Paper Mills Ltd. v. Commissioner of Customs which held that if goods intended for use in manufacturing were destroyed by an uncontrollable incident, the exemption should still apply. Therefore, the tribunal set aside the duty demand order and penalty. The appeal was allowed with consequential relief.
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