No Excise Duty on Export Goods Damaged in Transit Before Reaching Port: CESTAT Allows Toyota Kirloskar’s Appeal [Read Order]

The Bangalore Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) holded that no excise duty was payable on export goods that got damaged in transit and destroyed before reaching port of export, and allowed appeal.

Toyota Kirloskar Auto Parts Pvt. Ltd., the appellant, was engaged in manufacture of gear boxes and transmission assembly units. The company cleared finished goods for export through third-party exporters. In two separate instances, one in February 2008 and another in January 2012, part of export consignments met with accidents during transit before reaching Chennai port.

In each case, 288 units was damaged. After accidents, damaged goods was brought back to factory. Appellant filed Form D-3 declarations under Rule 16 of Central Excise Rules, 2002, lodged FIRs with police, and requested physical verification by departmental officers. After verification, goods was re-warehoused in factory. Quality checks showed that goods was beyond repair.

For 2008 incident, the appellant sought and obtained permission from department to destroy damaged goods within factory premises. Destruction took place under departmental supervision, and excise duty was paid on scrap value when scrap was cleared to Domestic Tariff Area. Department accepted this process and did not raise any objection at that time.

For 2012 incident, the appellant followed same procedure and requested permission to destroy irreparable goods and pay duty on scrap value. Instead of granting permission, department issued show cause notice demanding excise duty of Rs. 34,70,133 on full value of damaged goods relating to both 2008 and 2012 consignments. An extended period of limitation was invoked along with interest and penalty.

Adjudicating authority dropped demand. Revenue filed appeal, and Commissioner (Appeals) set aside adjudication order and confirmed demand. Appellant then approached CESTAT.

The appellant’s counsel argued that for export goods, the place of removal is the port and not the factory gate. The goods were destroyed before reaching the port but they must be treated as destroyed before removal and eligible for remission of duty. The company also argued that the 2008 permission had already attained finality.

The revenue counsel argued that goods was cleared on ex-works basis and that ownership transferred to merchant exporter at factory gate. Since goods was not exported, duty was payable on full value under Section 3(1) of Central Excise Act.

The revenue counsel argued that exemption notifications must be interpreted strictly and that benefit claimed by appellant did not apply to goods returned after clearance for export through third party. The revenue also argued that permission granted in 2008 was not quasi-judicial order and did not bind department.

The Two-member bench comprising Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member) observed that the facts were not disputed and that settled law treats the port as the place of removal for export goods. It observed that goods destroyed before export qualify for remission of duty. The tribunal also observed that reopening the 2008 case using extended limitation was not valid.

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