While considering a bunch of appeals, the Chennai Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the retrospective effect of two years does not apply to export obligation extension as the Export Promotion Capital Goods (EPCG) committee has not stated any period.
M/s. Ashok Leyland Nissan Vehicles Ltd. (ALNVL) is a joint venture between M/s Ashok Leyland Ltd. (ALL) and M/s Nissan Motors Co Ltd (NMCL) with a shareholding pattern, in the ratio of 51%: 49% to manufacture Passenger Cars / Light Commercial Vehicles (LCV). M/s. ALNVL was incorporated as a Private Limited Company in May 2008. It does not have any manufacturing facility of its own and was getting vehicles manufactured by M/s. Renault Nissan Automotive India Pvt. Ltd, Chennai (M/s RNAIPL) and M/s ALL, Hosur under a Contract Manufacturing arrangement entered into with the said manufacturers.
Based on intelligence, the Officers of the Directorate of Central Excise Intelligence (DGCEI) visited the premises of M/s ALNVL and other companies on various dates and caused verification of records/documents. During verification, it was revealed that M/s ALNVL had imported capital goods under the EPCG Scheme at Zero duty / 3% concessional rate of duty and installation certificates had been obtained for installing the said capital goods at nine premises of supporting manufacturers of M/s ALNVL including M/s RNAIPL.
The documents and the customs data showed that M/s. ALNVL had imported Capital goods at zero duty / 3% concessional rate of customs duty under the EPCG scheme under the cover of 65 EPCG Licences. On verification of the 51 EPCG licenses issued to M/s ALNVL by DGFT, it revealed that the Licences had been issued for the Import of dies, Jigs checking fixtures etc for the manufacture of “Passenger Motor Vehicles (Chassis/fully built – goods/passenger)” falling under ITC HS Code 87033110, 87033119 and also under 87033199 (In some of the licenses);
M/s Renault Nissan Automotive India Pvt Ltd, Oragadam (M/s RNAIPL) and M/s Nissan Motor India Private Limited, Oragadam along with some other companies have been endorsed as supporting manufacturers in respect of all the 51 licenses. M/s ALNVL had executed bank guarantees amounting to Rs. 14,35,55,000/- at the time of registration of the 51 EPCG licences with Custom House, Chennai,
The investigation revealed a case of violation of the provisions of EPCG licenses on the main ground that M/s.ALNVL had failed to fulfil the Export obligation. Show Cause Notice was issued to the appellants proposing to demand differential duty denying the exemption under Notification No. 102/2009 dated 11.09.2009 along with interest, for imposing penalties, for confiscation of goods under Section 111 (d) & 111 (o) of Customs Act 1962 etc. The Show Cause Notices were issued in respect of 51 EPCG licenses. After due process of law, the original authority found lapses with 26 EPCG licenses.
It was clarified to the co-notices by the appellants that the allegations are only procedural and the FTP issued by GOI allows condonation in all such cases and appellants have enough time to approach authorities seeking their permission for such condonation. Appellants also then paid an amount of Rs 11.92 crores during the investigation reserving their right to appeal in case of demands raised against them at a later point in time. In the meantime, Customs also seized certain goods that were released after seeing merits in the plea of the appellant.
The EPCG Committee approved the request and granted an extension of the export obligation period in respect of 14 (out of the 26) licenses for two years. This order of extension was subject to payment of compensation fees as prescribed under the FTP and to be regularized by the Review Authority (RA) (JDGFT Chennai). The committee also had gone on record to say that there had been no other issue in respect of these 14 cases except for the extension of EO.
The Policy Relaxation Committee (PRC) condoned all procedural irregularities like the diversion and installation of capital goods in a location other than the one endorsed in the authorization and granted an extension of the export obligation period unconditionally.
The adjudicating authority had proceeded to confirm the proposal in SCN to confiscate the goods which is patently illegal and unsustainable. The competent authority had allowed the extension of time for fulfilment of the Export Obligation period and condoned the procedural lapses and that exports had happened based on such approvals of the competent authority, there can be no demand of duties alleging non-fulfilment of EO and consequently no demand of duty or interest.
The contention of the appellant that the original authority should have granted them more time to submit the compliance of DGFT orders was countered by the Special Counsel by putting forward the argument that more than one year had lapsed from the relevant date of July 2018.
As per the order passed by the EPCG Committee on 13.02.2009, the period for fulfilment of EO is extended by two years on fulfilment of two conditions: Firstly, on payment of composition fee of 2% on the duty saved amount. Secondly, the adjudication is not completed.
It was evident that the EPCG Committee did not state any period to comply with the conditions. There is no mention in the order of the EPCG Committee that the extension of two years is to be applied retrospectively.
A two-member bench comprising of Ms Sulekha Beevi C S, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) set aside the penalty imposed by the adjudicating authority on the supporting manufacturers viz. M/s.Renault Nissan, M/s.Gestamp Automotive Chennai, M/s.Myoung Shin India Automotive, M/s.Daejoo Automotive, M/s.Global India Automotive, M/s. Magna Automotive, M/s.Caparo Engineering India on the ground of installation of imported capital goods in other premises.
The CESTAT remanded the matter to the adjudicating authority to consider the decisions passed by the Committees, the compliances made by the appellants and the fulfilment of export obligations and pass a fresh order preferably within 3 months.
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