Procedural Breach in Inter-EOU Transfer not Ground for Customs Duty Demand: CESTAT [Read Order]
SUMMARY: A procedural lapse, regularised by the competent authority, cannot serve as the basis for a duty demand under the B-17 bond.
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT),Hyderabad Bench, while setting aside the Customs duty demand, held that a procedural breach in the transfer of goods between two Export Oriented Units (EOU) cannot be the sole ground for demanding duty, especially when the regulatory authority has granted post-facto approval.
The appellant, M/s Madhucon Granites Ltd, is a 100% EOU engaged in the manufacture of granite slabs and dimensional blocks. During the period from April 2006 to August 2007, the appellant imported and domestically procured raw materials and capital goods under exemption notifications.
The dispute arose when the Revenue confirmed demands for Central Excise and Customs duty, alleging that the appellant cleared certain consignments to the Domestic Tariff Area (DTA) without payment of duty and transferred goods to a sister concern (also an EOU) without following the prescribed procedure under the Handbook of Procedures.
The department contended that the granite transferred to the DTA was not merely rough stone but processed stone classifiable under Chapter 68, attracting duty. Furthermore, they argued that the transfer to the sister EOU violated procedural norms, as the recipient unit had not accounted for the entire quantity or added the value to its Net Foreign Exchange (NFE) calculation.
Shri Y. Sreenivasa Reddy, counsel for the appellant, argued that the goods cleared were merely rough cuts classifiable under Chapter 25, which was exempt from duty. Regarding the inter-EOU transfer, he submitted that while prior approval was not obtained, they had subsequently secured post-facto approval from the Development Commissioner, thereby regularising the transfer.
He pointed out that the duty-free inputs were actually used in the factory, and denying the exemption on inputs after demanding duty on finished goods amounted to double jeopardy.
The Division Bench of A.K. Jyotishi (Member Technical) and Mr Angad Prasad (Member Judicial) observed that the primary issue regarding the DTA clearance was one of classification, which required a fresh examination by the adjudicating authority to determine if the stone was merely cut or fully processed.
Regarding the inter-EOU transfers, the Tribunal found that the breach was purely procedural. It noted that the appellant had obtained post-facto approval from the Development Commissioner, and there was no allegation that the duty-free materials were not used for the intended purpose.
The Tribunal held that a procedural lapse, regularised by the competent authority, cannot serve as the basis for a duty demand under the B-17 bond.
The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority to decide the classification issue afresh and verify the accounting of goods received by the sister concern. The demand based solely on procedural irregularities for inter-EOU transfers was set aside.
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