ORDER
Balasundaram, Member (J)
1. The above appeals arise out of a common adjudication order of the Commissioner of Customs, Kandla and are hence heard together and disposed of by this common order.
2. The brief facts leading to the filing of the appeals are that M/s. Essar Oil Ltd. (hereinafter referred to as EOL) imported plant and machinery for setting up a petroleum refinery project and stored the goods in two private bonded warehouses located at their project site, one of them an open warehouse and the other a closed warehouse. The dispute in the present case relates to the open bonded warehouse. In June, 1998, there was a severe cyclone at Vadinar which caused substantial damage to the project as a result of which project cost increased. The project was thus facing a financial set back and funds required for debonding of the warehouse were not available,
though the project management consultants were pressing for supply of imported materials to continue with the erection of the refinery. Due to this, pent up requisitions were taken up for clearance, when ICICI indicated its willingness to sanction a bridge loan of Rs. 100 crores in February, 1999. As per ICICI letter dated 18-1-1999 and 8-2-99 on the above basis, EOL decided to process papers to ensure timely clearance of warehoused goods before the commencement of the budget to avoid any project cost increase due to any possible changes in the rate of duty. On 20-2-99, the Board of Directors of EOL resolved the availment of loan facilities of Rs. 100 crores and non-convertible debentures of Rs. 70 crores being offered by ICICI and thereafter EOL filed total 84 ex-bond bills of entry which were assessed. However, duty could not be paid immediately as funds were yet to be disbursed by ICICI. The Manager (Imports) of EOL, Shri Nitin Bhatt, informed Shri S.R. Agarwal, Director (Finance) of EOL, that Customs duty of little over Rs. 60 crores was payable on goods lying at the bonded warehouse, that duty of Rs. 37 lakhs approximately was payable against goods lying at the Jetty and Rs. 2,72,50,000/- was payable on goods lying at the Kandla Port and requested that a demand draft for Rs. 60,03,10,000/- be sent for release of the goods from the bonded warehouse. On 24-2-99, EOL wrote to ICICI requesting for immediate release of the loan so that the warehoused goods could be released before the budget and also agreed to give an undertaking furnishing securities. On the same date, i.e. 24-2-99, EOL at Jamnagar received a copy of Vadodara Commissionerate Trade Notice No. 73/85, dated 30-4-85 containing the special procedure to be followed for payment of duty on days when banks were on strike (An all India strike of Bank employees on 25-2-99 and 26-2-99 had been declared). On 25-2-99, EOL requested permission for submitting cheques covering the duty payable on the warehoused goods, together with bank collection charges, so that the goods could be debonded. Application seeking such permission was also made, in which it was declared that EOL has sufficient funds in its bank to cover the amounts indicated in the cheques. The Asstt. Commissioner (Technical) endorsed the application for acceptance of the cheques which were thereafter duly accepted on 25-2-99. The acknowledgement of the cheques was shown to the Range Supdt. who issued out of charge order for the goods. The order cancelling the warehouse licence was passed on 26-2-99.
3. On 27-2-99, the effective rate of duty on goods such as those imported by EOL was enhanced from 10% to 16.05%, by introducing basic Customs duty at the rate of 5% on the goods. ICICI did not release funds either on 25-2-99 or on 26-2-99. The cheques submitted by EOL on 25-2-99 were credited to the Revenue Account on 17-3-99 and EOL also paid interest at the rate of 20% for delay in realization of cheques to the extent of approximately Rs. 65.70 lakhs. On 13-4-99, the DRI officers seized the goods stored in the delicensed premises of EOL, and recorded the statements of the officers of EOL who were arrested and subsequently released on bail by the Gujarat High Court. EOL paid differential duty of approximately Rs. 36.23 crores, as per undertaking given to the High Court.
4. The investigations showed that M/s. EOL desired to freeze their duty liability on the goods lying in the warehouse and at the jetty and to achieve this goal they took the following steps :
"(i) filed Ex-Bond bills of Entry for all the goods lying in the Private Customs Bonded Warehouse even though no requisition for all these goods had been sent by CIL/Contractors/Sub-contractors; (ii) filed Home Consumption Bills of Entry for the goods lying at the Vadinar Port for which the Bills of Entry had otherwise not been filed even after expiry of the 30 days period and also for which no requisition was made by the users as per records; (iii) sought substitution of the Warehousing Bills of Entry for the goods which had been bonded as early as August/September, 1998 and in respect of which all warehousing formalities were completed and physical warehousing waiver was sought by EOL only; (iv) despite the fact that they were facing resource constraints and as such blocking Rs. 100 crores for goods which might be put to use after 6 months would not be prudent and reflect adversely on the Financial Management in crisis situation, yet they filed the ex-bond bills of entry; (v) went out of the way to misdeclare the availability of funds and deposit cheques for Customs duty leviable on the Warehoused goods and to get the Warehouse licence cancelled on the same day or next day; (vi) despite the fact that they made a claim that all the goods are urgently required and that they went out of the way for paying duty on the warehoused goods, no attempt at all was made to get the other White Bills of Entry assessed and/or to pay duty on the same."
5. Based on the above, show cause notice dated 22-8-99 was issued by DRI for recovery of differential duty, on the ground that duty was payable at the rate prevailing on 17-3-99, which is the date of payment of duty, by applying provisions of Section 15(1)(c) of the Customs Act and proposing confiscation of goods and proposing penal action against EOL, its officers and certain officers of Customs. The notice alleged that EOL has falsely represented before the Customs authorities on 25-2-99 that it was in possession of sufficient funds in its bank, to cover the cheque amounts, that EOL had managed to have the cheques presented by, it accepted by the Customs officers, that the cancellation of the warehouse licence was illegal as it was effected without payment of duty on the warehoused goods, that duty had not been paid at the time of cancellation of warehouse licence and hence the provisions of Section 68 had not been complied with, that EOL had misused the provisions of Trade Notice, that the entire exercise had been managed with the active collusion and involvement of officers of Customs.
6. The Commissioner upheld the charges raised in the notice, confiscated goods under seizure with option to redeem the same on payment of fine of Rs. 20 crores, confirmed a duty demand of Rs. 96,26,91,711/- under the proviso to Section 28(1) of the Customs Act, 1962, and imposed penalties as under :
(1) M/s. Essar Oil Ltd. Rs. 10 crores under Section 112(a) of the Act;
(2) Shri S.R. Agarwal Rs. One crore under Section 112(a) of the Act;
(3) Shri P.R. Ashok Rs. 25 lakhs under Section 112{a) of the Act;
(4) Shri Nitin Bhatt Rs. 10 lakhs under Section 112(a) of the Act;
(5) Shri A.C. Sharma, Dy. Commissioner of Central Excise Rs. 5 lakhs under Section 112(a) of the Act; (6) Shri S.P. Chaudhari, Supdt. of Central Excise Rs. 50,000/- under Section 112(a) of the Act; and (7) Shri K.N. Thaker, Supdt. of Central Excise Rs. 25,000/- under Section 112(a) of the Act. In these appeals, the importer challenges the differential duty demand of Rs. 36,23,78,287/- and the penalty, and the officers of the company and the officers of Customs challenge the penal action against them. 7. We have heard Shri V.M. Doiphode, Id. Advocate for the company and its officers, Shri M. Chandrasekharan, Id. Sr. Counsel for Shri A.C. Sharma, Shri Devan Parekh, Id. Advocate for Shri S.P. Choudhary and Shri K.N. Thaker and Shri K.M. Mondal, Id. Consultant for Revenue and record our findings on the various issues as under :- 8. Issue No, 1. Whether the duty could be treated to have been paid on the 25th February, 1999 (Date of presentation of the cheques by M/s. EOL) in the facts and circumstances of the case:
The Commissioner holds that the ex-bond clearances from the warehouse are permitted only after the receipted TR-6 Challans are presented as evidence for the payment of Customs Duty; that the warehoused goods being in physical control, no clearance can be permitted, unless the duty is actually paid; that the plea of EOL, that unless the cheque is dishonoured by the bank, payment made would date back to the date when cheques were handed over, is not tenable; that State Bank of Saurashtra who had to realize the cheque, had prepared a memo with the remarks “returned unpaid”; but this memo was not sent, due to the collusion of the Bank officials with the company, and thus for the purpose of these proceedings this memo of State Bank of Saurashtra with remarks “returned unpaid” would tantamount to dishonour of the cheque. The Commissioner has observed that there is overwhelming evidence to conclude that the duty cannot be treated to have been paid on the 25th February, 1999 (the date of presentation of the cheques by EOL) as EOL had no balance in their account for encashment of the impugned cheques and had knowingly misdeclared to the department that they have sufficient bank balance in the account with State Bank of Saurashtra Ranjit Road Jamnagar on whom the impugned cheques were drawn; that it was also evident that if EOL had made a disclosure of insufficient balance in their account the department would not have accepted the non-realisable cheques on 25-2-99; that after making a false declaration and after misleading the department into acceptance of non-realisable cheques on 25-2-99 the contention of EOL that the payment by cheque would date back to the date of the cheques, independent of whether there were sufficient funds in the account at the time the cheques were given, is not tenable.
Findings:
9. The Trade Notice and the procedure set out thereunder which was followed by EOL, is reproduced below for a better understanding of this issue :
“Sub : Central Excise-Procedure to be followed for deposit of Central Excise duties during strike etc. in the nominated Banks and during prolonged holidays of sudden closure etc. of the Banks.
The Assessees are requested to follow the undermentioned procedure for payment of Central Excise duties during Bank strike or sudden closure of Banks :-
(1) Normally, in all cases of closure of Bank business due to strike by Bank employees, the public gets advance intimation either through the press, or otherwise. In all such cases, the assessees should make advance arrangements to deposit moneys into the Banks and keep sufficient amounts in their P.LAs so that they do not face any difficulty in the clearance of the goods during the period of the strike.
(2) In cases, where the strike of Bank employees is without notice or where the strike is called for after due notice is prolonged beyond a reasonable time (say over 3-4 days) or where difficulty is faced by the assessees in depositing Central Excise duties in the nominated Banks during riots, imposition of curfew or natural calamities such as floods/cyclones etc. the following procedure should be observed only for the duration of the strike or during the above kind of situations provided all the nominated banks i.e. all the branches of Bank of Baroda and State Bank of India are closed in a particular city or town affected by such situation.
(3) During the days of the closure of Bank business due to such strikes, the assessees can send their cheques by registered post, acknowledgement due (R.P.A.D.) or special messenger with the TR.6 challans, (in quadruplicate) duly filled in, to the Chief Accounts Officer (Revenue), Central Excise Building, 3rd floor, Race Course, Baroda, with a clear declaration that they have sufficient balance their Bank Account. They should send a copy of the letter forwarding the cheque, to the concerned Range Officer also. On the strength of a cheque so gent, they may take credit in the P.LAs and clear the goods. On receipt/s of the cheque in his office the Chief Accounts Officer will advise the concerned Range Officer about the name of the assessee, the No. and date of the cheque and its amount. Immediately after the strike is over all such cheques will be deposited by the Chief Accounts Officer (Revenue) into the Focal point Bank at the Headquarters (State Bank of India or Reserve Bank of India, as the case may be) through T.R.6 challans (in quadruplicate).
(4) The Duplicate/Triplicate copies of the receipted challans will be sent by the chief Accounts Officer to the assessees and the Quadruplicate copies to the R.Os. concerned to enable them to exercise necessary checks and prepare the monthly statement of revenue. Bank Commission or collection charges, if any, chargeble by the banks will be debited in the P.LA. of the assessees by the Chief Accounts Officer under intimation to them as also the ROs. If any of the cheques sent by the assessees are dishonoured, appropriate penal action is prescribed under the rules will be taken against the assessees. The Chief Accounts Officer will maintain a suitable record in regard to receipt and disposal of such cheques.
(5) For removal of doubts and to ensure uniformity of application of the procedure laid down above, it is further clarified that :-
(a) The said procedure is to be followed only when all the Banks nominated to collect revenue within a Collectorate are unable to transact business, due to strike etc. In other words, if there is a strike in only one nominated Bank, the assessee should still be in a position to deposit money in the other nominated Banks or Departmental Treasury, wherever existing, and consequently in such a situation he will not be given the benefit of the above procedure.
(b) The procedure referred to above will not be applicable; (i) in the case of declared Bank Holidays, as such holidays are known well in advance. (ii) Where the Public has been given advance intimation of a strike, unless the strike is unduly prolonged (say over 3-4 days) (iii) Where Bank employees adopt "go-slow" (iv) in the case of closure of the assessee's Bank, unless that Bank is the only nominated Bank in the Collectorate.
10. The above Trade Notice provides for payment of duty by cheque in certain circumstances set out thereunder. The Central Treasury Rules also provide for payment of Government dues by cheque. According to Rule 79(1)(a), at places where the cash business of the treasury is conducted by the Bank, cheques drawn on local branch of a scheduled bank may be accepted by departmental officers of the treasury or the Bank in payment of Government dues or in settlement of other transactions with the Government. The cheques should be crossed by the drawer before tendering. However, until the cheque is cleared, the Government cannot admit that payment has been received; consequently the receipt of the cheque alone may be acknowledged when it is tendered.
Rule 79(1)(b) stipulates that in the event of the cheque being dishonored by the Bank on presentation, the fact shall be reported at once to the tenderer with a demand for payment in cash.
Rule 80 provides that if a cheque tendered in payment of Government dues is accepted under the provisions of Rule 79, and is honoured on presentation, payment shall be deemed to have been made (i) if the cheque is handed over to the Government’s bankers or to a Government officer authorised to receive money on behalf of the Government, on the date on which it is so handed over; or (ii) …..
(emphasis supplied.)
11. The law as to what is the date of payment in cases where payment is made by cheque is also well settled.
12. In the case of Oswal Woollen Mills v. Commissioner of Income Tax [1980 (122) ITR 789] the Hon’ble Punjab and Haryana High Court has held in a case relating to payment of advance tax, that when payment is by cheque, it relates back to the date when the cheque is received. In coming to this conclusion, the High Court relied upon the following observations of the Supreme Court in CIT v. Ogale Glass Works Ltd. [1954] 25 ITR 529 J “when it is said that a payment by negotiable instrument is a conditional payment, what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand”. The court also quoted from Byles on Bills 20th Edn. P.23 that “a cheque, unless dishonoured, is payment.”
13. The Hon’ble Madras High Court took the same view in the case of CIT v. Kumudam Publications (P) Ltd. [1981 (128) ITR 617], relating to payment of advance tax by cheque dated 14-12-1973. The Court held that tax was paid on the date the cheque was handed over i.e. 14-12-1973.
Similar is the view expressed by the Hon’ble Karnataka High Court in the case of CIT v. Bharat Motors Service – [1987 (163) ITR 843]. In this case, Income-tax Appellate Tribunal, Bangalore Bench had referred the following two questions to the High Court:
(i) whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to the benefit of interest under Section 214 of the Income-tax Act, 1961, in respect of the second instalment of advance tax paid by the assessee? (ii) whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the appeal filed by the assessee before the Appellate Assistant Commissioner against the Income-tax Officer's refusal to grant interest under Section 214 of the Income-tax Act, 1961, was a competent one filed under Section 246(c) of the said Act?
The Court held that the relevant date in the case of payment of advance tax was 13-9-74, the date of the cheque, which was handed over on the same date to the Income-tax Officer, and not the date of encashment i.e. 25-9-1974, and answered the first question in the affirmative and against the Revenue. The second question was also answered in the affirmative and against the Revenue.
14. In the case of J & J Dechane v. CIT – [1990 (182) ITR 345] the Hon’ble Andhra Pradesh High Court noted the Treasury Rules and held that when cheques are handed over to the Government officials authorised to receive payment on behalf of the Government, payment would be deemed to have been made on the date the cheque was handed over. The High Court relied upon the decision of Oswal Woollen Mills Ltd. v. CIT and Kumudam Publications (P) Ltd. cited supra.
15. In the case of SAIL v. Commissioner of Central Excise, Bolpur -[2001 (132) E.L.T. 334] the Tribunal held that the date of cheque is to be taken as the relevant date for the purpose of taking credit, and set aside the impugned order of imposition of penalty upon the applicants for taking credit in PLA on the date when the cheque was handed over to their banker. In para 3 of its order, the Tribunal’s attention has been drawn to the Government of India order in the case of Sahara Indian Airlines reported in 2000 (117) E.L.T. 802 (GOI) in which, taking into account the various provisions of Central Government Account (Receipts and Payment) Rules, 1983, it has been held that upon tendering of a cheque, it shall be deemed that payment has been made on the date when it was handed over to the Government’s Bankers. Reference was also made in the Government of India’s decision to Supreme Court order in the case of K. Saraswatty v. P.S.S. Somastmdaram Chettiar reported in (1989) 4 SCC 527 while dealing with a case under Sections 10 and 82 of the Negotiable Instruments Act, 1881, holding that payment of cheque should be taken to be due payment if the cheque is subsequently encashed in the ordinary course.
16. In the case of Sanghi Polyester Ltd. v. CCE, Hyderabad [2001 (134) E.L.T. 344 (A.P.)], the Hon’ble Andhra Pradesh High Court has held that the date of receipt of cheque for payment of duty, and not date of realization of its proceeds, was the date of payment of duty and therefore, held that the assessee did not commit default in payment in instalment warranting withdrawal of facility of payment of duty in instalments.
17. In the present case, although the show cause notice alleges that Trade Notice No. 73/85, applies only to payment of Central Excise Duty and not Customs Duty, there is no finding in the order of the Commissioner that the Trade Notice does not cover payment of Customs duty. The notice also alleges that the Bank strike was not without notice (sudden strike), in which situation alone the Trade Notice permits payment of duty by cheque. The adjudicating authority has not disallowed coverage of the Trade Notice to the appellants on this ground. Further, we also find that although initially, there was intimation of bank strike, the bank subsequently withdrew the strike call and then suddenly went on strike. The Commissioner has also not held that the facility of payment by cheque is not available to M/s. EOL for the reason that their declaration of sufficiency of balance in their bank accounts was a false declaration and was in contravention of para 3 of the Trade Notice, although, the show cause notice makes such an allegation. On the other hand, the Commissioner has proceeded to record his finding only on the issue as to the date of payment of duty viz. as to whether duty can be said to have been paid on 25-2-99 which is the date of presentation of cheques by M/s. EOL, or 17-3-99, which is the date on which cheques were realized by the bank. This itself would go to show that the Commissioner has accepted that payment of duty by cheque by M/s. EOL was permissible. This being so, the law laid down by various High Courts and the Tribunal as set out in the preceding paras would clearly apply to the present case and thus it is clearly established that 25-2-99, the date of presentation of the cheques, was to be treated as the date of payment of duty by M/s. EOL as the cheques were not specifically dishonoured. Dishonour takes place when the maker of the note, acceptor of the bill, or drawee of the cheque, makes default in payment, upon being duly required to pay the same. (Section 92 of the Negotiable Instruments Act) In other words, cheque is said to be dishonoured by non-payment when the banker (drawee of the cheque) makes default in payment. In the present case, the bank on which M/s. EOL, drew the cheques for duty payment, did not default any payment and in fact made the payment although belatedly, for which M/s. EOL paid bank charges of Rs. 12,00,786/- and interest of Rs. 65,70,586/- on duty unpaid for 20 days (25/2 to 16-3-99) at the rate of 20%. The Commissioner has relied upon an Inter Office Memo prepared by State Bank of Saurashtra, Jamnagar (on whom the cheques were drawn) in favour of Gymkhana Branch, Rajkot with remarks “returned unpaid” which was not despatched by the Jamnagar Bank branch to the Rajkot Bank branch to hold that the cheques had been dishonoured. However, this does not amount to dishonour as Section 1’38 of the Negotiable Instruments Act, (as it stood during the relevant period) provides for dishonour by return of cheque drawn on an account maintained by the drawer with a banker for payment of any amount of money by the bank unpaid, either because the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank. The Section provides for imprisonment or fine or both if –
(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, makes a demand for the payment of the money by giving notice in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make such payment to the payee or the holder in due course of the cheque within fifteen days of the receipt of the said notice. Therefore, the finding of the Commissioner that the remarks ''returned unpaid" would tantamount to dishonour of impugned cheques, is not sustain-able. 18. In the light of the above discussion, we hold that the date of presentation of cheques by M/s. EOL i.e. 25-2-99 is the date of payment of Customs duty on the goods in question. 19. Issue No. 2. The date for determination of rate of duty, and whether the warehouse licence could be treated as cancelled as detailed in the impugned show cause notice:
The Commissioner has held that, on the basis of the records, the provisions of Section 15(1)(c) of the Customs Act are attracted; that the goods have been removed from the warehouse contrary to the terms of the licence cancellation order, which in fact assumed that the duty amount payable on the warehoused goods had been paid, that, owing to the cancellation of the licence, which order was obtained by fraud and misrepresentation, the removal of the goods in dispute from the warehouse resulted in clearance of Customs bonded goods without payment of duty; that these goods therefore escaped duty and duty was evaded thereon, and in this event, the goods cannot be held to be cleared in terms of Section 68 of the Act. The Commissioner has held that, for the purpose of determination of rate of duty, the goods are covered by the provisions of Section 15(1)(c) and the date of payment of duty would be taken as 17-3-99, when the duty was credited into the Government account. The Commissioner has also distinguished the facts of the present case from that of Montana Values & Compressors Ltd. v. CC, Mum-bai [2000 (116) E.L.T. 220] relied upon by EOL, on the ground that in the instant case, Customs duty on warehoused goods had not been paid at the time of cancellation of licence and therefore the goods in the present case had escaped duty, thus attracting the ratio of the Apex Court decision in the case of Chowgule & Co. v. UOI [1987 (28) E.L.T. 39 (S.C.)] wherein it was held that the expression “other goods” mentioned in Section 15(1)(c) is obviously meant to cover goods “imported clandestinely” and goods which have “otherwise escaped duty”.
Findings:
20. We have already held that the date of payment of duty is 25-2-99 which is the date of presentation of the cheques, which have been accepted by the department and on the basis of which clearance from warehouse was permitted and warehousing licence cancelled. In these circumstance, all the requirements of Section 68 of the Customs Act have been complied with by M/s. EOL and, therefore, the clearance is in terms of Section 68 and hence the provisions of Section 15(1)(b) of the Customs Act will apply, according to which the relevant rate of duty applicable to imported goods shall be the rate in force on the date on which goods are actually removed from the warehouse. In the case of M/s. EOL, warehousing licence was cancelled on 25-2-99 after which the goods ceased to be warehoused goods and this date is the relevant date for determination of rate of duty. The endorsement to this effect was also made by the Asstt. Commissioner by cancelling the warehousing licence and the endorsement was as per para 15 of the Central Manual of Bonding Department.
20.1 The Tribunal’s decision in the case of Montana Valves & Compressors (P) Ltd. cited supra, is squarely applicable to the facts of the present case. In that case, even though Bill of Entry was not filed as the goods cleared under a shipping bill as ship stores were diverted and sold in local market, the Tribunal held that the provisions of Section 15(1)(b) are applicable as the goods were actually removed from the bonded warehouse. We note that the Tribunal’s order has been confirmed on merits by the Hon’ble Supreme Court. The Commissioner has not given any detailed reasoning for distinguishing the Montana Valves & Compressors (P) Ltd. case beyond stating that the facts of the case were different from the present case. However, from the chart given in para 3.3.3 of the appeal filed by EOL, the similarity between the two cases came out clearly. The comparative chart is reproduced below: –
Allegations made in the Show Cause Notice
Allegations dealt with in Montana Values (supra)
Goods were removed
without payment of duty by presentation of a cheque with a false
declaration regarding availability of funds.
Goods warehoused were removed under Shipping Bills under a
false declaration for export without payment of duty. They were diverted
clandestinely for domestic market, (vide para 2 of the judgment)
Collusion is alleged against the appellant officers with some
officers of the Department in ordering clearance without ensuring payment of
duty.
Goods were to be escorted by an officer of Customs for
placing them on board the ship, who has not discharged his duty, (para 2 of
the judgment)
Bs/E filed and duty assessed was paid by way of cheque,
realized on 17-3-99. The
goods were cleared under out
of charge order issued by the proper officer.
Shipping Bills were filed and goods allowed clearance for
export under orders of the proper officer.
The above similarities have not been discussed by the Commissioner even though they were set out in the written submissions filed before him.
21. The Commissioner’s reliance on the Apex Court decision in the case of Chowgule & Co. Pvt. Ltd. is misplaced. The Supreme Court has clearly held that goods which are entered for home consumption under Section 46 are openly imported into India without concealment and the expression “other goods” under Section 15(1)(c) of the Customs Act covers other imported goods such as “goods not disclosed but discovered to be imported” i.e., smuggled goods, and goods which have otherwise escaped duty. We agree with the appellant that “other goods” obviously does not include goods entered for home consumption and warehousing and since the goods in this case were not only openly imported into India and entered in the warehouse but also ex-bond Bs/E were filed and assessed and out of charge order passed, the provisions of Section 15(1)(c) are not attracted.
21.1 According to the Revenue, physical clearance of goods is necessary for application of Section 15(1)(b). However, we note that actual clearance has been interpreted in many cases as “deemed removal”.
21.2 In the case of Kesoram Rayon v. CC, Calcutta [1996 (86) E.L.T. 464 (S.C.)] it has been that the date of expiry of the warehousing bond will be the date of deemed removal. Further, show cause notice categorically admits that the goods have been cleared from the warehouse. Moreover, the arguments of the Revenue that warehousing licence cannot be treated as having been cancelled unless the bond has also been cancelled, is also met by the appellants, who had applied for bond cancellation also, by showing that even as per the Bond Manual, the cancellation of the bond is only after proper auditing and the Bond Manual itself provides that the date on which the cancellation of the licence of private warehouse takes place should be taken to be the date of the actual removal of goods therefrom.
22. Now let us deal with the case law relied upon by Shri Mondal, Id. Consultant for the Revenue on this issue. In the case of Jindal Drilling & Industries Ltd. v. CC, Mumbai [2001 (138) E.L.T. 1335], the argument of the Revenue in para 7 which was accepted by the Tribunal in para 22 of the order was that the words “date of payment of duty” occurring in Section 15(1)(c) of the Act, being the date for determination of rate of duty, would be the date on which duty ought to have been paid i.e. the date of removal of the goods because the duty in any case must be paid under Section 47. Applying this ratio, since in the present case, the goods were removed on 25-2-99, this is the relevant date on which duty ought to have been paid and since this is the relevant date, then the rate of duty prevailing on 25-2-99, should be levied on the goods.
22.1 In the case of Sedco Forex International Drilling v. CC, Mumbai [2001 (135) E.L.T. 625] rigs were imported but were not declared to the Dept. in I.G.M. and no Bs/E were filed. Therefore, the facts are entirely different from those of the present case where goods have been cleared from those of the present case where goods have been cleared from the warehouse after proper assessment. The reliance of the Revenue on the Tribunal’s order in the appellants’ own case (Order No. CI/92-96-WZB/2001) reported in 2001 (129) E.L.T. 761 is also misplaced. The factual position regarding the applicability of Section 15(1)(c) is set out in para 11 of the order from which it is clear that, in that case, goods were removed without filing B/E for home consumption under Section 46 and they were landed and cleared from a place which was not notified as a Customs area. Hence, as per the Apex Court judgment in Chowgule & Co. cited supra, the goods do not fall under any of the two categories viz. goods entered for home consumption or goods warehoused, while in the present case, the goods were warehoused and cleared from the warehouse and hence it is Section 15(1)(b) of the Act, which will govern.
23. Regarding the Commissioner’s finding that the plea taken by M/s. EOL that Section 15(1)(b) of the Customs Act is applicable to the case is at variance with the stand taken before the Gujarat High Court while arguing bail application of the officers of EOL where the company agreed to pay the duty as per the post-budget rate, it is to be noted that the High Court was only dealing with bail application and not with the issue of determination of rate of duty on imported goods. In fact, in para 5 of the judgment of the High Court, it is stated that the Court did not want to discuss and decide the mat-, ter on merits, because the investigation was still going on. The statement of the Counsel in the application filed for bail on behalf of S/Shri S.R. Agarwal and P.R. Ashok, officers of EOL, has to be read with the statement made in the application that, in order to show their bona fide intention and without prejudice to their rights, they have deposited Rs. 5 crores and also undertook to pay the remaining amount of Rs. 30 crores within the next two months. Thus, the payment of the disputed amount of duty on the basis of the statement made before the High Court cannot bind M/s. EOL and it is open to M/s. EOL to agitate the question of law as to the relevant date for determination of rate of duty, just as much as it is required of the Dept. to issue notice. We thus hold that the date for determination of rate of duty, is 25-2-99, which is the date of removal from warehouse, applying the provisions of Section 15(1)(b) and that the warehousing licence has been properly cancelled.
24. Issue No. 3. Whether the charge of evasion of duty by mala fide intention of wilful misdedaration and suppression of facts with an intent to evade payment of duty as held in the show cause notice is established.
The Commissioner has held that the above charges are proved inasmuch as the appellants gave a false declaration on 25-2-99 without having sufficient balance in their account; non-availability of funds was suppressed from the department till 3-3-99 with a clear intent to get the warehoused licence cancelled/debonded on 25-2-99; the appellants actively pursued the application for licence cancellation even though the non-availability of funds was known to Shri S.R. Agarwal on 25-2-99; that they deliberately withheld crucial information of non-disbursement of funds in spite of their knowledge that levy of basic customs duty was going to be introduced in the Union Budget of 1999-2000.
Findings:
25. We have already held that even otherwise this is, not a case of evasion of duty. The ingredients of the proviso to Section 28(1} which has been invoked and under which duty has been confirmed are that there should be non-levy/short-levy by reason of collusion or any wilful mis-statement or suppression of facts by the importer. In this case, 84 ex-bond Bs/E were assessed and duty was correctly assessed, based upon the rate of duty prevailing as on the dates of assessment. As on 25-2-99 when the goods were deemed to have been cleared due to cancellation of licence, there could not have been any non-levy or short-levy as the levy of basic customs duty itself came into effect only from 1-3-99. Further, the adjudicating authority has himself held in para E.II at page 107 of the impugned order that the question of invocation of Section 114A of the Customs Act under which also penalty was proposed in the show cause notice, would not arise as there is no short-levy. Thus, if this is not a case of short-levy as held by the Commissioner, the question of applying the ingredients of proviso to Section 28(1) does not arise and the question of collusion or wilful mistake or suppression of facts will assume relevance only in a case of non-levy or short-levy. As on the date of levy or assessment, there was no misdeclaration or suppression of facts as the assessments were completed prior to budget date.
26. As for the finding that the declaration given on 25-2-99 regarding availability of sufficient balance in the bank account was a false declaration, we are of the view that this finding is erroneous because such declaration was made under a bonafide belief that funds would be released to EOL by ICICI on 25-2-99 as seen from the various statements recorded of the officers of EOL. Shri S.R. Agarwal, Director (Finance) has stated on 5-5-99 that on or about 15-2-99, M/s. EOL discussed with ICICI for disbursement of about Rs. 100 crores against their sanctioned facilities of about Rs. 179 crores vide their letter of intent dated 8-2-99, that apart from the sanction of Rs. 179 crores, EOL had another sanctioned amount of Rs. 500 crores awaiting disbursement; that expecting this disbursement, EOL staff at Vadinar were informed to complete all formalities with the department so that duty amount can be paid upon the receipt of funds from ICICI. In his statement recorded on 17-6-99, Shri S.R. Agarwal has stated that the total requirement in respect of CVD payment for the goods imported for the refinery project was estimated at Rs. 270 crores as per ICICI’s re-appraisal in September, 98 and the entire amount was agreed to be shared by various Indian Financial Institutions in the Head of Institution Meeting in October, 98 and subsequently by ICICI and IDBI’s Board in November/December, 98, that in February, 99 ICICI expressed their desire to disburse Rs. 100 crores approximately on account of CVD payment in respect of goods imported and lying at bonded warehouse. From the above it transpires that ICICI had promised to release funds by 25-2-99, and based on such a promise, and on the fact that large amounts exceeding Rs. 800 crores had already been sanctioned by ICICI, expecting the release of a further smaller sum of Rs. 100 crores for payment of duty can be held to be a bonafide belief which can be entertained by an ordinary person. The factual position as emerging from the various statements, has not been controverted during investigation and the DRI has not recorded statement of ICICI officials to counter the statement of Shri Agarwal. Therefore, in the absence of any other material, the Commissioner’s conclusion that the declaration on 25-2-99 was false and intentional, is incorrect. It is also pertinent to note that cheque itself came for realisation on Monday 1-3-99 and 2nd March, 99 was a holiday for Holi and 3rd March was the earliest working day when EOL could, and did, bring the fact of non-realisation of cheques to the notice of the department. In the absence of any practice to issue letters to the bank enquiring about realisation of the cheques, as brought out from the statement of the ACAO, the department would not have come to know about the non-realisation of the cheque until the cheque was returned as dishonoured and in the present case, the cheques were not returned as dishonoured as we have already held in our findings on Issue No. (1). M/s. EOL brought the fact of non-realisation of cheques in writing to the notice of the department on 5-3-99 and undertook to pay interest if any payable; further interaction with the department was going on at various levels before the D.R.I., seized the goods on 12-4-99, and prior to this date EOL had already surrendered the goods on 17-3-99. In this background, it cannot be said that EOL had given a false declaration or had suppressed any facts resulting in short-levy. At the worst it was a wrong declaration. In any case, M/s. EOL could not have known with certainty that the rate of duty was going to increase by virtue of introduction of basic Customs duty as duty rate could have decreased, as noted by the Commissioner himself in para E.(ii) at page 106 of the impugned order. Regarding pursuing the matter of cancellation of licence, there is nothing illegal in the action of EOL, particularly when the department itself had permitted clearance on accepting cheques which in any case would have been realised only after 1-3-99, due to intervening bank strike and holidays. The date of cancellation of warehousing licence, whether 25-2-99 or 26-2-99 also would not make any difference as the rate of duty went up only with effect from 1-3-99 due to change in budget. Therefore, the action of M/s. EOL is vigorously pursuing the matter of cancellation of licence cannot amount to any wilful misstatement or suppression of facts so as to attract the proviso to Section 28(1) of the Act.
27. Issue No. 4. Whether the goods are liable to confiscation under Section 111 (j) of the Customs Act 1962.
The Commissioner has held that the goods are liable to confiscation as deemed removal from the Customs bonded warehouse was contrary to the permission for deemed removal (cancellation of the warehouse licence) as the warehoused goods had escaped payment of appropriate duty, that deemed removal had taken place due to cancellation obtained by fraud. He has held that it is not necessary to exercise revisionary powers under Section 130 of the Act, that the fraud has been set right by initiating the process of confiscation of the fraudulently removed goods under Section 124 of the Act, following the Apex Court decision in the case of Jain Shudh Vanaspati Ltd. [1996 (86) E.L.T. 460 (S.C)].
Findings:
28. The provisions of Section 111(j) are attracted when dutiable or prohibited goods removed or attempted to be removed from the warehouse without permission of the proper officer or contrary to the terms of such permission. Section 68 of the Customs Act permits clearance of warehoused goods for home consumption after presentation of a B/E for home consumption, payment of total duty leviable and all penalties, rent, interest and other charges, and after an order of clearance for home consumption has been made by the proper officer. Thus, the relevant condition is whether an order for clearance of warehoused goods for home consumption has been made. In the case of M/s. EOL, ex-bond Bs/E, were filed and duly assessed, and out of charge order was given. Thus, the goods have been cleared with the proper officer’s permission. Therefore, the ingredients of Section 111(j) have not been established against M/s. EOL, particularly when the Revenue does not allege or find that the permission of the proper officer for allowing clearance under Section 68 was obtained by fraud. Permission for clearance was given after the department accepted the cheque and acknowledged the same in the light of Trade Notice No. 73/85 of the Baroda Commissionerate which accepts that presentation of cheque tantamounts to payment. In any case, on the date of permitting clearance against acceptance of cheques, there is physically no payment made to the Government as in the normal course also, outstation cheques are realised only after a couple of days, irrespective of where there is any balance in the bank account or not. Therefore, the finding that the goods were cleared without payment of duty, is not sustainable and goods were cleared on the basis of valid permission granted by the proper officer of Customs based upon the Trade Notice, which has not been challenged in the impugned order. Further, while permitting clearance under Section 68 and while giving out of charge on the ex-bond Bs/E, the proper officer of Customs has not incorporated any condition to be complied with. Thus, not only was the clearance was given by the proper officer, the cancellation of the warehousing licence was also done with the permission of the proper officer, and was not contrary to any of the provisions of the Act. Cancellation of the warehousing licence cannot be treated on equal footing with the permission of the proper officer for removal of goods as permission for removal is given by an out of charge order on the ex bond Bs/E. Therefore, the finding that deemed removal was contrary to the permission for the cancellation of warehousing licence, is not tenable. The reliance placed by the Commissioner on the Apex Court judgment in the case of Jain Shudh Vanas-pati Ltd. is misplaced because that case pertains to raising of a demand under Section 28 of the Customs Act, beyond a period of six months and containing allegation of misdeclaration and fraud while the present case relates to a demand raised under Section 28(1) within a period of six months.
28.1 The decision of the Apex Court in the case of M.K. Bafna v. UOI [1992 (60) E.L.T. 13 (S.C.)] does not advance the stand of the Revenue. In that case, the Court proceeded on the assumption that goods have been alleged to have been removed by the petitioner from the warehouse without the permission of the proper officer (para 7 of the order). In para 13, the Court observed that the petitioner had removed or caused the removal of goods from the bonded warehouse without the consent of the concerned authorities. The ratio of this judgment cannot therefore, be applied against M/s. EOL who had cleared goods after assessment of the ex-bond Bs/E and after the passing of an out of charge order by the proper officer of the Customs.
29. In the light of the above discussion/ we hold that the provisions of Section 111(j) are not applicable and, therefore, set aside the confiscation.
30. Issue No. 5. To determine the appropriate penal clause invokable whether penalty against EOL is leviable under Section 114A or Section 112(a)(b) of the Customs Act, 1962.
The Commissioner has held that since import duty leviable on the goods was not paid on 25-2-99, therefore, the rate of duty has to be taken as applicable on the date of actual payment i.e. 17-3-99, it would not be apt to conclude that there was a short-levy of duty. M/s. EOL had neither discharged the duty liability prior to 25-2-99 nor on the date of physical removal of the goods. In other words, no tangible benefit accrued to them in the matter of putting the goods to use for economic benefit, that if the post-budget rate of duty had not undergone a change, the question of invocation of Section 114A would not arise. The Commissioner holds that the provisions of Section 114A are not applicable as it is not a case of short levy. However, he has imposed penalty under Section 112(b) of the Act on the ground of wilful misstatement and suppression of facts in order to evade duty.
Findings:
31. In view of our earlier finding that the goods are not liable to confiscation under Section 111(j), penal action under Section 112 cannot be sustained. The Commissioner himself having held that it is not a case of short levy and, therefore, refrained from imposing any penalty under Section 114A, he cannot in the same breath impose penalty under Section 112(b) by holding that this is a case of mis-statement or suppression as these are the very same ingredients of Section 114A of the Act. We also find that suppression or misstatement are ingredients relevant only to Section 111(m) which has not been invoked in the present case. Further, Section 112(b) will not be applicable to M/s. EOL as this clause is applicable to any one who acquires possession or is in any way concerned in carrying/removing/depositing/ harbouring/ keeping/concealing/selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111, and these ingredients are not made out against M/s. EOL.
32. The decision in the case of Oceanic Shipping Agencies Pvt. Ltd. v. Commr. of Customs, Calcutta – 1996 (82) E.L.T. 571 relied upon by Shri Mondal, Id. Consultant for the Revenue is distinguishable as that judgment was rendered in the context of Section 112(a), wherein it was held that mens rea is not relevant while in the present case, penalty has been imposed on M/s. EOL under Section 112(b).
33. Although, in the case of Cujarat Travancore Agency v. Commr. of Income-tax [1989 (42) E.L.T. 350 (S.C.)] cited by Shri Mondal, it was held that in the absence of language in the statute of the need to establish mens rea, default in complying with the statute is sufficient for imposition of penalty, we note that directly in a case under the Customs Act, there is a judgment of the Apex Court in the case of Akbhar Badhruddin Jizvani v. CC, Mumbai [1990 (47) E.L.T. 161 (S.C.)], holding that the burden lies upon the Customs department to prove that the importers had acted dishonestly or contemptuously or with a deliberate object of committing a breach of law. The Court noted that the importers had acted under a bona fide belief that the goods were importable under OGL. The Supreme Court set aside the penalty. In the present case, the Commissioner himself has observed that it is M/s. EOL who had brought the fact of non realisation of cheques to the notice of the department and that they have not derived any benefit.
34. In the light of the above discussion, we hold that the penalty imposed upon M/s. EOL cannot sustain and accordingly set aside the same.
35. Issue No. 6. The extent of involvement of the individual persons vis-a-vis evidence on record to sustain the charge of collusion on the part of the employees of the EOL and officers of the department as detailed in show cause notice.
It is the finding of the Commissioner that Shri P.R. Ashok signed the declaration regarding availability of sufficient balance in their account with the bank at the instruction of Shri S.R. Agarwal, that Shri S.R. Agarwal was in the knowledge of non-availability of funds prior to 25-2-99, and even by the evening of 25-2-99, and despite this knowledge he pursued the cancellation of warehousing licence and for grant of out of charge, with the assistance of Shri P.R. Ashok and Shri Nitin Bhatt.
Findings:
36. We have already held that the goods in dispute were not liable to confiscation under Section 111(j) as goods were cleared as per permission of proper officer and clearance was not contrary to the terms of the permission. Hence, no penal action lies against the officers of M/s. EOL. It is also pertinent to note that Shri S.R. Agarwal consistently stated that ICICI had promised disbursement of Rs. 100 crores for payment of Customs duty as bridge loan as against the total sanction of Rs. 891 crores and there is no evidence to the contrary. This proves the bona fides of Shri S.R. Agarwal who in good faith instructed Shri P.R. Ashok to sign the declaration regarding sufficiency of funds for allowing clearance against acceptance of cheques as per the Trade Notice. Shri P.R. Ashok acted in good faith on the basis of instructions from his superiors regarding availability of funds. As far as Shri Nitin Bhatt is concerned, his only act was to write out in his hand-writing, the declaration addressed to the Asstt. Chief Accounts officer regarding availability of funds in the bank account. Such a situation is governed by the provisions of Section 111(m) which has not been invoked. Therefore, we set aside the penalties imposed on these 3 officers of M/s. EOL.
37. As regards the 3 Customs officers, the Commissioner has held that both Shri Thacker and Shri Choudhri, Supdt. dealt with and processed the application of M/s. EOL for cancellation of warehousing licence, that Shri Choudhri submitted a report to the Divisional Office, that Shri Choudhri failed to follow specific directions conveyed vide letter dated 25-2-99 that date of cancellation should be taken to be the date of actual removal of goods from warehouse under Section 15(1)(b) of the Act, that he failed to ensure “actual removal”: He has held that all 3 officers acted in undue haste and also resorted to back-dating of documents. He has however dropped the charge of collusion with officers of EOL but has held that the departmental officers’ action in failing to verify payment of duty on warehoused goods rendered goods liable to confiscation and that they abetted commission of the offence of clearing goods without payment of appropriate duty. He has held Shri A.C. Sharma the Dy. Commissioner, Jamnagar as the officer primarily responsible for the lapse and that the Supdt, acted under his overall guidance and supervision, and for the above reasons, imposed different amounts of penalty on all 3 officers.
Finding:
38. The finding in para E(ii) being that EOL had fraudulently got the bonded warehouse licence cancelled, it would mean that a fraud was perpetrated on the officers who had cancelled the licence and although in the show cause notice, it was alleged that officers of EOL had colluded with the Customs officers, in the light of the finding that the charge of collusion is not established, the charge against Shri A.C. Sharma cannot sustain. As for the issue of pre-dating of the receipt of application for licence cancellation, from 26-2-99 to 25-2-99, and whether orders for cancellation were passed on 25/2 or 26/2, it does not alter the legal position relating to liability to duty as the pre-Budget restriction in respect of clearance of goods was to take effect only after office hours on 26-2-99. Further, EOL officials (Shri Ashok and Shri Bhatt) had categorically stated that they handed over the application on 25/2 and had also placed before the Commissioner, details relating to their commuting between Rajkot and Jamnagar on 25/2, including taxi receipts for the journey, as evidence in support of their contention. As for the statement of Shri Thacker that the application was given by EOL on 26-2-99, it is to be oted that Shri Sharma had in his reply dated 27-4-2002, (prior to the issue of the impugned order) which Id. Sr. Counsel urges may be taken as his defence in the appeal, that on the part of the Supdt., there was some resentment against him, which could have led the Supdt. to depose against him. At the time when the file for cancellation of warehouse licence was put up before Shri Sharma, he had before him (i) the receipt of the ACAO, accepting cheques of EOL covering the entire duty payable on the warehoused goods, along with bank charges (ii) the out-of-charge granted by the proper officer (iii) the detailed report of the Supdt. (Tech) staling that no duties and dues were outstanding against EOL and that, therefore, their request for cancellation was in order. Under these circumstances, he cannot be penalised for EOL/s insufficiency of funds in their account at the time of presentation of cheques when he was not at all aware of the above stated facts. It cannot also be held that he acted with “undue haste” in the above set of circumstances.
39. Regarding the finding that Shri Sharma did not verify whether he had counter-signed the Bills of Entry, we note that there was no such practice prevalent in Jamnagar Division. Further the finding that Shri Sharma had failed to verify that duties on warehoused goods were not paid is not sus-tainable in view of our earlier finding that date of presentation of cheques by EOL is the date of payment of duty. The finding of the Commissioner that both Supdts. have committed the acts of omission under the overall guidance and supervision of Shri Sharma is unsubstantiated, as there is no evidence to such effect.
40. As for Shri Thaker and Shri Choudhari, their statements dated 12-5-99 (reproduced in paras 4.10 and 4.11 of the show cause notice) show that Shri Thaker was the Supdt. (Technical) in the Division Office at Jamnagar looking after the work of classification and declaration and cancellation of Customs bonded warehouse licence. He was the Technical Supdt. while Shri Choudhari was the Supdt. in Range Office of the Customs warehouse, Jamnagar and was concerned with the activity of all clearances under ex-bond Bs/E from the warehouse. On 25-2-99, an application for cancellation of bonded warehouse at Vadinar was addressed by EOL to the Asstt. Commissioner of Central Excise, Jamnagar who cancelled the licence after obtaining the report from Shri Choudhari for recommendation of the cancellation of the licence. In this connection, it is pertinent to note that EOL have filed around 84 ex-bond Bs/E around 18-2-99, which is well prior to 28-2-99 when changes in duty structure took place and such Bs/E were accordingly assessed and TR 6 challans were also issued. He received acknowledgement from the ACAO, Central Excise, Rajkot accepting payment by cheque dated 25-2-99 and he, therefore, endorsed the Bs/E as duty paid. From the statements of ACAO, Rajkot and Shri S.K. Sharma, Asstt. Collector, Rajkot, it is brought out that when the officers of EOL went to the ACAO on 25-2-99 for acceptance of payment by cheque due to bank strike, ACAO directed obtaining necessary permission from the higher authorities at Central Excise Headquarters, Rajkot as the amount involved was very large, that EOL officers met the Asstt. Collector (Technical), Rajkot, Shri S.K. Sharma that Shri Sharma was given a fax from the Commissioner’s office, containing the Trade Notice to the Vadodara Commissionerate that Shri S.K. Sharma then discussed the matter with the Commissioner who has given his approval and then Shri Sharma endorsed the letter for acceptance of payment. On this basis, the ACAO accepted the payment by cheque. From the above narration, it is cystal clear that the two Supdts. viz. Shri Thaker and Shri Choudhary had absolutely no connection with the acceptance of the cheques.
41. In the light of the above, we hold that the charge of aiding and abetting against Shri Thaker and Shri Choudhary cannot sustain and accordingly set aside the penalty imposed upon them.
42. We sum up our findings as under :-
(a) The date of presentation of cheques by EOL i.e. 25-2-99 is the date of payment of Customs duty on the goods in question; (b) the date for determination of rate of duty is 25-2-99 which is the date of removal from the warehouse applying the provisions of Section 15(1).(b) of the Customs Act, 1962 and that the warehousing licence has been properly cancelled; (c) the charge of evasion of duty is not established; (d) confiscation of goods under Section 111(j) of the Act is not sus-tainable; (e) penalties imposed on M/s. EOL is unsustainable and is hence set aside; and (f) penalties on the officers of M/s. EOL and officers of Department cannot sustain and are therefore, set aside.
43. In the result, we hold that the duty payable on the goods in question is only Rs. 60,03,13,424/-, (as on 25-2-1999 as per Annexure B to Show Cause Notice) and set aside the demand of Rs. 36,23,78,287/- paid in excess. Hence, we set aside the impugned order and allow the appeals with consequential relief of refund of Rs. 36,23,78,287/- to M/s. EOL in accordance with law.
Sd/-
(Jyoti Balasundaram)
Member (J)
44. [Assent Order per : J.H. Joglekar, Member (T)]. – The centre of controversy in these proceedings is the determination of the date on which duty was paid. In other words whether duty was deemed to have been paid on the date of presentation of the cheques or on the date of their realisation.
45. At the material time, the provisions of the Rule 173G of the Central Excise Rules, 1944 prescribed the manner of payment of duty. Sub-rule (1) of the said Rule reads as under :-
“RULE 173G. Procedure to be followed by the assessee. – (1) Every as-sessee shall keep an account-current with the Commissioner separately for each excisable goods falling under different Chapters of the Schedule to the Central Excise Tariff Act, 1985 (5 to 1986), in such form and manner as the Commissioner may require, of the duties payable on the excisable goods and in particular such account (and also the account in Form R.G. 23, if the assessee is availing of the procedure prescribed in Rule 173K) shall be maintained in triplicate by using indelible pencil and double-sided carbon, and the assessee shall periodically make credit in such account-current, by cash payment into the treasury so as to keep the balance, in such account-current, sufficient to cover the duty due on the goods intended to be removed at any time; and every such assessee shall pay the duty determined by him for each consignment by debit to such account-current before removal of the goods”.
46. The highlighted portion could be interpreted to mean that the date of realization of the cheque was the date of deposit of duty in the PLA. There was at all times an element of uncertainty as to the dale on which the cheque was credited to the Government account. The cheque deposited by an assessee in an outstation branch would travel to the nodal branch and from there it would go for clearance through the head quarters of the bank. From the date of deposit of the cheque by the assessee it might take weeks before it was credited to the Government account. The actual date of realisation and the credit was known only to the Pay and Account Officer and the Chief Accounts Officer in the Collectorate Head Quarters and the assessees as well as the Jurisdictional Officer of Central Excise would have no knowledge thereof. There was therefore always a possibility that a number of clearances could be made before the cheque deposited by the assessee was eventually credited to the account of the Government.
47. In the Customs Act, 1962 or in the Rules framed thereunder there was no equivalent provision. During the hearing both sides were asked to show if there was any such provision and neither side could do so. Therefore the provisions of the Central Treasury Rules would have to apply. In terms of Rule 80 of the said Rules as mentioned in para 10 of the Order of the Member (Judicial) the date of tendering of the cheque shall be the date of payment of duty unless the cheque is dishonoured. In the present case the cheque was not dishonoured by the Bank and therefore it has to be held that the date on which the cheque was presented was the date on which the duty was paid.
48. Much has been said about the misrepresentation by the assessee as to the adequacy of funds when the funds were not at all there. The assessee justified their belief that the funds would be available and when their justification seemed to be not borne out they themselves volunteered the information to the department and offered to remedy the situation by offering to pay the interest. The Revenue on the other hand have hinted at the existence of conspiracy on the part of the assessee, their bankers and the funding institution. The net result was that the cheque was ultimately honoured and therefore in terms of the Central Treasury Rules it is not the date of realization but the date on which the cheque was deposited, became the date on which duty was paid.
49. As correctly observed by the Commissioner in his Order if the rate of duty had not changed the conclusion on the various steps taken by the assessee would not have been questioned. All the actions of the assessee are being evaluated in retrospect on the increase in the duty on the warehoused goods.
50. One of the points contested is the date of removal of goods from the warehouse. In this case there was no physical removal of goods from the warehouse. What happened was that the status of the area where the goods were stored underwent a change. It ceased to be bonded premises. Therefore although the goods remained physically in the warehouse, due to this change the goods ceased to be bonded goods and duty paid goods. There is nothing unusual in this situation. The period of bonding of the warehoused goods is specified in Section 61 of the Customs Act. On a particular date where the warehousing period of any goods expires those goods cease to be warehoused goods although such goods continue to be physically in the bonded warehouse. [Kesoram Rayon -1996 (86) E.L.T. 464 (S.C.)].
51. The sequence of events was that the duty was paid on 25-2-99. The warehousing licence of the premise was cancelled on 26-2-99. The sum total of the two actions was as if the goods had been physically cleared from the warehouse on payment of duty.
52. The show cause notice makes out these activities as fraud committed by the assessee and also cites the officers of the department having assisted the assessee in committing this fraud. The events disclosed in the show cause notice go much further back in time. They show that in terms of a notice which appeared to apply to clearance of goods attracting duty of Excise they made a request to the Commissioner for extension of provisions to clearance of goods from the Customs Warehouse. The proceedings show the Commissioner accepting this request and directing his subordinates. The proceedings also show a direct order given by the officer acting under these instructions the to Assistant Accounts Officer, to accept the cheque. The proceedings also show that the course of action so adopted by the Commission-erate was known to the Chief Commissioner and also perhaps to officers superior to the Chief Commissioner. The proceedings also show remedial correctional measures demanded by the Collectorate, such as payment of interest and the compliance by the assessee to those demands. The proceedings up to this stage show that both the sides were aware of the possible error having been committed in these proceedings and were in the process of rectifying the situation when the investigation agency started its job.
53. Although the date on which the cheques were actually encashed was later, in terms of Rule 80 of the Central Treasury Rules duty was deemed to have been paid on 25-2-1999. On this date in terms of the trade notice, the officers were entitled to presume that the goods were duty paid and therefore the warehousing licence could be cancelled.
54. Section 111(j) of the Customs Act provides for confiscation of any dutiable or prohibited goods removed or attempted to be removed from a Customs area or a warehouse without the permission of the proper officer or contrary to the terms of such permission.
55. As discussed above, neither situation envisaged in this provision existed in this case. Therefore the liability to confiscation of any goods under this proviso cannot arise. Since the imposition of penalty under Section 112 of the Customs Act is directly linked with the action of the person concerned of rendering any goods liable for confiscation under the previous section, in this case the order of imposition of penalty under Section 112 of the Act cannot sustain.
56. Time and again in this case it was pleaded that the assessees declared the availability of funds where they had none. The imposition of penalty upon them therefore is justified. As we have observed above this ground cannot suffice for imposition of penalty under section 112 of the Act. It is likely that provisions of some other Acts may provide a remedy for the department. But then that would be out of our jurisdiction.
57. On these observations I concur with the findings of the Member (Judicial) that the appeals succeed and are allowed.
Sd/-
(J.H. Joglekar)
Member (T)