ORDER
J.H. Joglekar, Member (T)
1. M/s. Hanil Era Textiles Ltd. (hereinafter HETL) are a 100% Export-Oriented Unit (EOU). Notification No. 13/81-Cus., dated 9-2-1981 (as amended) permitted such units to import capital goods and raw materials free of duty along with permissible spares, components and consumables. It also permitted duty free import by such units of material handling equipments and captive power plants as well as their spares, fuel and lubricants for such power plants. The condition was that such goods should have been imported for the purpose of manufacture of articles for export out of India or for being used in connection with the production or packaging of goods for export out of India by such units.
2. Notification No. 1/95-C.E., dated 4-1-1995 permitted use of the very same inputs and capital goods as were allowed under the notification when procured from indigenous sources when obtained by such units without payment of Central Excise Duty. With effect from 3-6-97 Notification 53/97-Cus. granted identical facilities as were granted in the erstwhile Notification 13/81-Cus.
3. M/s. HETL had imported Diesel Generating Sets under Notification No. 13/81-Cus. and had installed them in their factory in April, 1995. From installation to July, 1998 the electricity produced was used solely for manufacture of yarn, which was the declared export commodity for the EOU. Due to labour unrest and other factors the production of the unit was hampered. The electricity generated was sold to other units through the grid of Maharashtra State Electricity Board. Permission of the appropriate authorities was secured by the unit. Intimations were filed to the Development Commissioner as well as to the Central Excise Authorities about such sale of power.
4. M/s. HETL used the imported D.G. Sets and the duty free fuel/lubricants for generation of electricity which was sold.
5. 3 show cause notices were issued alleging that the HETL had imported the captive power plants and the materials for operating the plants for the express purpose of generation of electricity for sale. In doing so they have contravened the provisions of the notification under which the duty free imports were claimed. It was alleged that the policy at the material time did not permit sale of the electricity so generated. Para 7 of Notification 53/97 was specifically relied upon to highlight the contention. It was alleged that due to the contravention made by the EOU, duty on D.G. Sets as well as spares, fuel, lubricants and components, became chargeable. Demand was made for recovery of total duty amounting to Rs. 14,38,50,002/-. Allegation as to penalties were made on the EOU and their officers and Directors. It was alleged that Shri Ashok Saraf, Chartered Engineer who had certified the consumption of the fuel was also liable to penalty.
6. After hearing the concerned persons the Commissioner passed Orders confirming duties and imposing penalties as given below on the following persons:-
Name
Duty
Penalty (in Rs.)
(1)
M/s. HETL
Rs. 15,93,82,043 (Customs) Rs.
59,77,394 (C. EX.)
Rs. 16,12,38,266 (Customs) Rs.
41,12,171 (C. EX.)
(2)
R.K. Agarwal, Chairman
Rs. 5,00,000
(3)
V.C Gopalakrishnan, Di-rector
Rs. 5,00,000
(4)
S.C Kalra, st. President
Rs. 5,00,000
(5)
V.K. Aurangabadkar
Rs. 5,00,000
(6)
Ashok
Saraf, Chartered Engineer
Rs. 5,00,000
7. These persons have filed appeals against these Orders as also the present applications seeking waiver of pre-deposit of duties and penalties and stay of recovery thereof during the pendency of the appeals.
8. These applications are being disposed of vide this common order.
9. Shri M.H. Patil, Advocate along with Shri P.C. Nair and Shri D.H. Nadkarni appeared for the first 5 applicants. Shri Z.B. Nagarkar appeared for
Shri Ashok Saraf. Revenue was represented by Shri M.K. Gupta, Jt. Chief D.R.
10. Shri Patil stated that the issue is completely covered by the Tribunal judgment in the case of Indian Charge Chrome Ltd. v. Commissioner of Customs [2001 (138) E.L.T. 609] also reported in [2001 (46) RLT 828]. He submitted that the Commissioner has attempted to distinguish this case on flimsy grounds. He submitted that the scheme permitted sale of goods manufactured for export also in the domestic market on payment of appropriate duties. He submitted that prior authorization had been secured from the Development Commissioner for sale of electricity. He submitted that electricity was not listed in either Customs Tariff or Central Excise Tariff. Therefore Para 7 of the Notification 53/97 could not come into play. It was claimed that the notification did not provide that capital goods and the inputs should be solely and exclusively used in the manufacture of export production. It was claimed that the sale of electricity was not pre-planned. If the factory had continued to manufacture as per the programme then there would have been no available electricity for sale. It was only because of the factory had labour problems, that the captive power plants were used for generation of electricity for sale. On this ground it was claimed that the demands were not sustainable and penalties were not leviable.
11. Shri Nagarkar claimed that his client was a Chartered Engineer. He had been asked to verify the consumption pattern of the D.G. Sets. For verifying the pattern of the D.G. Sets only he was in the factory. For his findings he received a fee of Rs. 5,000/-. He had no role in the working of the EOU nor was he concerned with the alleged misuse of the condition of the notification.
12. Shri Gupta defended the Commissioner’s Order.
13. We have carefully considered the submissions made by both sides.
14. The D.G. Sets were imported during the currency of Notification No. 13/81-Cus. The coverage of this notification has been considered by the Tribunal in the citation made before the Commissioner. In the cited case the Appellant had imported D.G. Sets. The surplus power generated was sold through Orissa State Electricity Board. This was considered as violation of the provisions of the notifications resulting in the confiscation of the power plants and imposition of penalties upon the importer and their officers. The Appellant in that case had also secured appropriate permission. The Tribunal observed that part of the power generated by the Appellant was consumed by the EOU and a part had been sold to the OSEB. The Tribunal citing relevant case law observed that Notification 13/81-Cus. did not prescribe that such power generated should be exclusively used for production of export products. In the absence of such a restrictive clause the Tribunal noticed that there was no violation of notification where surplus power has been sold. The Tribunal also noticed all the circulars issued by the Commerce Ministry enabling the EOU to sell surplus power.
15. It was put to the Commissioner that the judgment covered the situation before him. The Commissioner referring to the Letter of Undertaking executed by HETL in 1992 and 1997 observed that the same did not permit disposal of export product in the domestic, market unless specifically allowed by the competent authority. We have on record the correspondence made by HETL with the appropriate authorities. Vide letter dated 4-2-99 they had requested the Board of Approval for permission to sell surplus electricity. The Commerce Ministry vide letter dated 22-2-99 directed them to contact the Development Commissioner. In the meanwhile the Development Commissioner was advised by the Ministry of Commerce vide letter dated 12-2-99 as to the modalities of permissions of such sale. The fact of sale was notified to the Development Commissioner after taking requisite permission from the State Government.
16. Shri Gupta observed that the documents nowhere indicated that specific permission was given by the Development Commissioner. We observe that although no specific permission was granted, the tenor of the correspondence suggests that permission was not denied by the Commerce Ministry. In fact the correspondence suggests and gives the modalities of such permission to the Development Commissioners.
17. The Commissioner in his Order has also cited the conditions in the licence given by the Commerce Ministry and the conditions of the bond executed by the EOU. We find that this narration was not material or relevant to, the issue in this case. It is correct that if the conditions of the notification are violated then duty is liable to be recovered in terms of the notification. But mere recital of the provisions does not enable the department to make such demand let alone sustain it. The Commissioner has further reproduced all the conditions in the exemption notification which also have no relevance to his findings.
18. On perusal of the cited judgment and the attempt made by the Commissioner to distinguish the same in the present case, we find that the findings of the Tribunal would cover the facts covered by the instant case.
19. Considerable arguments were advanced by both sides on the coverage of condition 7 of Notification 53/97. Since D.G. Sets were imported in terms of an earlier notification we presume that para refers to the importation of spares, fuel, lubricants, etc. The subject para reads as below:
“Notwithstanding anything contained in this notification the exemption herewith shall also apply to goods which on importation into India are used for the purpose of manufacture of articles within hundred per cent Export-Oriented Unit and such articles even if not exported out of India, are allowed to be sold in India, under and in accordance with the said Import and Export Policy and in such quantity and subject to such other limitations and conditions as may be specified in this behalf by the Director General of Foreign Trade, on payment of duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944) or where such articles (including rejects, waste and scrap material) are not excisable, on payment of customs duty on imported goods used for the purposes of manufacture of such articles in an amount equal to the customs duty leviable on such articles as if imported as such.”
20. The interpretation of this provision is that the exemption under the notification would not be adversely affected or withdrawn even if the goods manufactured from the inputs are not exported but are sold in India on payment of appropriate duties. This is merely saving clause acknowledging the authority of the Commerce Ministry to permit diversion of part of the production into domestic market. It does not give any support to the allegation made against HETL. Even if electricity is considered to be “goods” it was accepted by both sides that electricity is not mentioned in either Central Excise Tariff or Customs Tariff. This aspect need not to be laboured further.
21. We, thus find that in selling surplus electricity generated, the appellants did not violate the conditions of the exemption notification. Prima facie the demand confirmed on that ground does not sustain.
22. During hearing Shri Patil claimed that out of the 3 show cause notices the demand made in one notice was barred by limitation. He stated that suppression, etc., could be alleged in the face of the intimation given by the EOU to the jurisdictional Central Excise authorities. Shri Gupta contesting this claimed that subsequent investigation showed that the stamp indicating receipt of communications dated 6-1-99 and 10-2-99 by the department were forged and also that the register maintained by the officers indicating the receipt of these communications had pre-dated entries. The correspondence in this regard however was not placed on record. The Commissioner in page 16 of his findings terms these communications as fabricated but does not give reasons for using this adjective.
23. Since on merits we have found a prima facie case made out by the EOU, at this stage we would not go into the aspect of limitation.
24. As to the aspect of the Penalties, we find the case made against the EOU and its officers is of pre-meditated arrangements to secure D.G. Sets of capacity higher than that was required for power production only to sell power so generated. The EOU has claimed and shown that for 14 months the entire electricity produced was used exclusively for production of yarn. The authorities who permit such importation would no doubt verify generation capacity of such power plants and also the requirements of power required for processing. The rated capacity is not always indicative of the actual production capacity. This is what comes out of the cited case where the Tribunal has recited the submission of the appellant in that case that even if the rated capacity was 180 m.w. it could not produce more than 65 m.w. even if operated efficiently. The evidence disclosed in the proceedings does not sustain the charge of deliberate import of a plant of higher capacity than required nor it does not show the plan for sale of electricity from the beginning.
25. Shri Gupta claimed that even before they started production, the EOU had corresponded with Bombay Dyeing for sale of electricity.
26. Shri Patil pointed out that there was no such sale. The electricity was passed through the MSEB grid and was never sold to any unit. We find this claim to be prima facie correct. On this ground we find that prima facie case has been made out for non-imposition of penalties upon the EOU and its officers.
27. The case of Shri Ashok Saraf, Chartered Engineer is entirely different from those of the officers of the HETL. He is an independent consultant. He had been engaged to verify the fuel consumption in liters per hour. He had done that and certified the consumption vide certificate dated 10-3-99. The allegation is that on that date one of the D.G. Sets was non-operational. A number of questions were asked and his statements were recorded bringing out the paucities and defeats in his examination. These have become the reasons for imposing penalty upon him.
28. If the allegation that the EOU and its officers had planned to misuse the notification had substance, then the Chartered Engineer would have been a part of the conspiracy. In view of our prima facie finding that the EOU and its officers had not contravened the conditions of the notification the Chartered Engineer is also not liable for penalty. We find that a prima facie case has been made out by Shri Saraf.
29. We grant waiver of pre-deposit of duties. We also grant waiver of pre-deposit of various amounts of penalties imposed upon the EOU and its officers and also upon Shri Ashok Saraf, Chartered Engineer and stay recovery thereof until disposal of the appeals.