ORDER
S.S. Sekhon, Member (T)
1. M/s. Leela Scottish Lace Ltd., Mumbai (herein referred to as LSLL) are exporting Readymade garments through various ports and they exported certain Readymade garments through Tuticorin port.
2. On receipt of information and verification of records, it appeared that :-
(a) M/s. LSLL had exported Readymade garments through Tuticorin Port under the following Bills No. 4623/24/6/1999, 3587/18-6-1999, 1365/7-7-99 and 2713/15-6-99, 2551/12-7-99, 2549/12-7-99, 4259/23-9-99 in respect of which the goods covered by these Shipping bills appeared to have been manufactured by 100% EOUs viz., M/s. Tropicate Textiles Ltd. and M/s. Sara International Inc., on jobwork basis.
(b) Further investigations conducted by Officers revealed that M/s. LSLL had also got some more export goods manufactured from the second appellant M/s. Leela Lace International Ltd. (hereinafter referred to as “LLIL”, the second appellant), an Export Processing Zone Unit (hereinafter referred to as ‘EPZ Unit’) at Cochin. The Readymade garments in these three Shipping Bills were manufactured in the EPZ premises and removed from there and exported through Tuticorin Port.
3. A Show Cause Notice was issued alleging that: –
(a) the export goods manufactured in any 100% EOU/ EPZ Units are not entitled to drawback under the provisions of Customs and Central Excise Drawback Rules, 1995. In the instant case, the goods exported by M/s. LSLL under 7 Shipping bills referred to above which were manufactured by 100% EOUs viz., M/s. Tropicate Textiles Ltd., Bangalore, and M/s. LLIL, Cochin an EPZ Unit, who had undertaken the jobwork for the DTA Unit viz., M/s. LSLL without obtaining permission from the Customs authorities for utilizing the spare capacity of 100% EOUs.
(b) Therefore it appeared that M/s. LSLL have fraudulently claimed duty drawback to the tune of Rs. 3,72,947/- on the FOB value Rs. 23,28,105/- without mentioning the fact in the Shipping Bills to the effect that the export goods were manufactured in their 100% EOUs/EPZ Units at the time of filing the above Shipping Bills and have suppressed the facts to the Customs Department thereby they have violated the provisions of Sub-section (2) of Section 50 of the Customs Act, 1962 as they are required to subscribe to a declaration as to the truth of its contents.
(c) The goods exported under the above said 7 Drawback Shipping Bills are liable for confiscation under Section 113(i) of the Customs Act, 1962. As the goods have already been allowed for export and not available physically, they are deemed to be liable for confiscation under Section 113(i) of the Customs Act, 1962.
(d) The duty drawback already sanctioned to M/s. LSLL, is demand-able as per Section 75A(2) of the Customs Act, 1962 read with Rule 16 of the Customs and Central Excise Duties Drawback Rules, 1975 and as per Notfn. No. 37/95-Cus.-(NT), dated 26-5-95. (e) M/s. LSLL, are also required to pay interest thereon as contemplated under Section 75A(2) of the Customs Act, 1962 and have rendered themselves liable for penal action under Section 114(iii) of the Customs Act, 1962. (f) M/s. Tropicate Textiles Ltd., Bangalore, M/s. LLIL, Cochin have also rendered themselves liable for penal action under Section 114(iii) of the Customs Act, 1962 for having failed to take necessary permission from the Customs Department for undertaking jobwork viz., conversion of ladies/gents garments by utilizing the machineries installed in their 100% EOUs. 5. The Commissioner after considering the findings, came to the following conclusion :- (i) He ordered recovery of duty drawback of Rs. 3,72,497/-received by M/s. LSLL, in respect of readymade garments manufactured on jobwork basis by M/s. Tropicate Textiles Ltd., and M/s. LLIL, Cochin alongwith interest in terms of Rule 16 of the Customs and Central Excise Rules, 1995 read with Section 75(A) of the Customs Act, 1962. (ii) He imposed a penalty of Rs. 3,72,497/- on M/s. LSLL, Mumbai under Section 114(iii) of the Customs Act, 1962. (iii) He imposed a penalty of Rs. 3,72,497/- on M/s. LLIL, Cochin under Section 114(iii) of the Customs Act, 1962. Hence these appeals. 6. After hearing both sides and considering the material, it is found : - (a) On the interpretation of Notfn. No. 67/98-Cus. (NT) and 31/99-Cus. (NT), especially the exclusion clauses of Para 2(a) and (c) thereof and the question of goods which were got fabricated in an EOU by a DTA Unit who owned and supplied the raw material, the following findings had been arrived at in Final Order No. F/2/2003, dated 2-1-2003 in M/s. LSLL own case : - "(i) 'Garments' falling under Chapter 61 or 62 of the tariff, are a commodity sui generis and for production thereof, the Raw Material Supplier is considered to be a manufacturer under the Central Excise Act, 1944 vide Rule 4(3) of the Central Excise Rules, 2002, which reads as under :-
“Notwithstanding anything contained in Sub-rule (1), every person who gets the goods, falling under Chapter 61 or 62 of the first Schedule to the Tariff Act, produced or manufactured on his account in jobwork, shall pay the duty leviable on such goods, at such time and in such manner as may be specified under these rules. Whether the payment of such duty be secured by bond or otherwise, as if such goods have been manufactured by such person.”
Law enacted as above, considering the special milieu and condition in the Ready-made Garment Market and Industry, accept the Raw Material Supplier as a manufacturer. Then, for the purpose of this case, there is no reason, not to consider LSLL, in this case, as the manufacturer of the Readymade Garments exported, as is being understood in the Ready-made Garment Market and Industry milieu since manufacturer for purposes of Drawback is not specifically defined.
(ii) The minute of a meeting of EOUs held by Commissioner, Bangalore is as follows : –
“C. No. VIII/48/89/98-CUS.TECH
Minutes of the 100% EOU Meeting held on 18-12-98 at 3.30 PM with the representatives of 100% EOUs under the chairmanship of Dr. J. Sridharan, Commissioner of Customs, Bangalore.
(III) POINTS RAISED BY M/s. K&M (EXPORTS) UNIT II
Point 1) As per Para 4 of the above circular, Govt. has permitted that EOUs to utilize their idle capacity by undertaking job work of DTA unit subject to the condition that the goods so manufactured should be sent directly to the port and not to be sent back to DTA.
i. Modalities to be followed in implementing the above.
ii. Confirmation that DTA shall be the exporter who will file regular DBK shipping bill and that the DBK should be eligible for full all industry rate of drawback for such export. Reply (i) In case of EOU undertaking job work and such goods being exported, the existing procedure for removal of goods for export from an EOU to gateway ports shall be followed in this case also. (ii) The owner of the goods shall file the shipping bill and not the EOU unit (jobworker). The benefits, if any, of the export shall accrue to the owner of the goods."
As per these minutes, the Owner of the Readymade Garments in this case i.e., M/s. LSLL has been allowed to file a drawback shipping bill for export of the said goods and therefore the benefits of such an export on the drawback shipping bills permitted to be filed by the proper officer should accrue to the owners exporters i.e. M/s. LSLL, as assured and maintained at this meeting. The Commissioner’s finding on this plea of the appellants are therefore rejected, since the minutes do not show any purported meaning, as held by the Commissioner. The minutes when read plainly prescribe, that the procedure should be followed and shipping bill should be filed by the owner who will be eligible for the benefit. M/s. LSLL in this case have filed the same and the drawback amounts on the same as claimed, have been correctly sanctioned to them. We do not uphold the Commissioner’s finding to upset that grant made as per this promise, made to EOUs and others by the very Commissioner, Bangalore.
(iii) Considering General Note No. 2(a) of Notfn. No. 67/98-Cus. (N.T.), dated 1-9-98 which reads as under : –
“manufactured partly or wholly in a warehouse under Section 65 of the Customs Act, 1962 (52 of 1962)”
and the Commissioner’s findings thereon, it is found that Section 65 of the Customs Act, provides for manufacture of the goods in a warehouse licenced under Section 58 of the Customs Act, 1962. This section reads as under : –
“65. Manufactured and other operations in relation to goods in a warehouse. – (1) With the sanction of the Assistant Collector of Customs and subject to such conditions and on payment
of such fees, as may be prescribed, the owner of any ware
housed goods may carry on any manufacturing process or
other operations in the warehouse in relation to such goods.”
(Underlining supplied)
The term ‘warehoused goods’ used in this Section 65 is defined under Section 2(44) of the Customs Act, as ‘warehoused goods’ means goods deposited in a warehouse. Goods deposited in a warehouse, are only such goods, which would be permitted under Section 60 of the Customs Act or removed from other warehouse under Section 67. The garments in this case are admittedly fabricated from raw materials supplied by LSLL, and not from any imported goods, which are deposited under provisions of Section 60 of the Customs Act or removed and received under Section 67 by the EOU. Therefore, the fabrication activity being carried out on Raw material, goods other than ‘goods deposited’ under Section 60 or received under Section 67, even if carried out in the warehouse premises, would not be covered by the provisions of Section 65 to construe as manufacture of goods in a warehouse. If we do not interpret in that manner, then it would invoke, the provisions of recovery of, duty on waste and rejects etc. even on goods, which are duty paid and/or brought from dutiable Domestic Tariff Areas. Such an interpretation, would render the levy of duty, on waste/rejects even on domestic duty paid raw material, if required to be removed from these premises, to levy of a Customs duty. Such levy would be not permissible, as there can be no levy on goods, removed from a warehouse for home consumption, other than those which are deposited under Section 60 or received transferred under Section 67 of the Customs Act. The Control envisaged and duty liabilities by the provisions of Chapter IX of the Customs Act, is only on imported non-duty paid goods and not on duty paid Domestic Tariff Area Goods, which may be brought into the bonded warehouse areas under specific relaxation granted by the Board’s Circular dated 14-9-98. In this view, manufacture of Readymade Garments on Raw Material supplied by LSLL is not covered by Section 65. Therefore, the findings arrived by the Commissioner, as regards the exclusion by this Clause 2(a) of Notfn. No. 67/98 cannot be sustained.
(iv) Examining the exclusion by Notfn. No. 67/98-Cus. (NT), dated 1-9-98 by Clause 2(c), which reads as under : –
“(c) Manufactured and/ or exported by a unit licensed as hundred per cent export oriented undertaking in terms of the relevant provisions of the Import and Export Policy in force………”
it is found, the interpretations and the findings arrived at by the Commissioner cannot be sustained. If these goods are considered as manufactured and/ or export of an EOU, then that would count towards the export performances of the EOU and the Import Policy, does not permit any such counting of such exports of an EOU. The Readymade Garments, in this case, have been found to be understood as having been manufactured by M/s. LSLL and are owned and exported on a Drawback Shipping Bills allowed to be filed by the proper officer of Customs. They are not fabricated/manufactured in a warehouse under Section 65 as arrived at herein above, after considering the provisions of the said Section 65 of the Customs Act, 1962. In that view of the matter, the Readymade Garments in this case cannot be considered to be manufactured and/or exported by an EOU. Admittedly, after removal from the EOU on transshipment shipping bills,
the proper officers have allowed M/s. LSLL to file the shipping bills as an exporter and drawback has been granted not on the transshipment shipping bills but on the substituted Drawback Shipping Bills permitted to be filed by M/s. LSLL. Therefore, these readymade garment exports are not found to be manufacture or an export by an EOU under the policy to be hit by the exclusion Clause 2(c) of Notfn. No. 67/98.
(v) When it is found that goods are not manufactured and/or exported by an EOU, but can be considered to be manufactured and are allowed to be exported by M/s. LSLL, then there is no reason to deny M/s. LSLL the drawbacks eligible to an exporter under Heading No. 6201. There is no finding that the Raw Material used has not suffered duty. The findings of the Commissioner, for denying the claims of Drawback on various other grounds, as extracted herein above, on the nature of exemption to capital goods of an EOU etc. are his interpretations on issues which were not raised in the notice and cannot be a reason to deny the just claim.”
As regards the charge of not obtaining permission of the jurisdictional Assistant Commissioner of the EOUs the adjudicator has found that such a permission had been obtained by the EOUs (Para 76 of the impugned order refers). Therefore, on the above said findings, this Order considering the payment or of drawback to M/s. LSLL on the Shipping Bills of the EOUs as mentioned herein above as erroneous is not found to be sustainable. The amounts of drawback, which have been sanctioned and paid by the proper officer, cannot be ordered to be recovered as erroneous payments alongwith interest.
(b) Para 2(c) of Notification No. 67/98-Cus. (NT) and 31/99-Cus. (NT) does not cover such goods exported by a DTA-Unit that were fabricated in the premises of an EPZ. However, the Unit and area of EPZ are bonded under Section 65 of the Customs Act, 1962. The findings arrived for EOU, therefore will apply to EPZ also. The EPZ goods admittedly have been removed as it appears from the Show Cause Notice after following the procedure prescribed. It is an admitted position apparent from the Show Cause Notice, that the wire seals on the cartons removed from EOU/EPZ, covered by the transshipment shipping bills filed on the clearance of the goods from the EOU and or the EPZ, were destroyed too. The exports admittedly were not made on Shipping bills filed by the EOU and or the EPZ showing themselves as the exporter but were made on the declaration, invoices and Shipping Bills filed and accepted for the subject exports by LSLL and drawback paid to them. From these admitted facts, it is apparent that the goods that were removed from an EOU and the EPZ, were not exported as such, but were the goods of an exporter, who in this case is M/s. LSLL.
(c) From the impugned order, Para 73 which reads as under :-
“73. Regarding the above discrepancy in the declarations, I find from the records of the case that M/s. Leela Scottish Lace Ltd., Mumbai – DTA Unit have not mentioned that the “goods” are manufactured on jobwork basis by the 100% EOU/EPZs Unit while filing the above 7 drawback Shipping Bills. In view of the above fact, it is clearly established that M/s, Leela Scottish Lace Ltd., Mumbai have fraudulently claimed duty drawback to the extent of
Rs. 3,27,497/- on the FOB value of Rs. 23,28,105/- without mentioning the fact in the Shipping Bills alongwith enclosures to the effect that the exported “goods” were manufactured in their 100% EOU and EPZ Unit at the time of filing the above Shipping Bills and have suppressed the facts from the Customs Department and thereby they have violated the provisions of Sub-section (2) of Section 50 of the Customs Act, 1962 as they are required to subscribe a declaration as to the truth of the contents. Thus the “goods” exported under the above said 7 Shipping Bills are liable for confiscation under Section 113(i) of the Customs Act, 1962. In as much as the “goods” have already been allowed for export and not available physically, they are deemed to be liable for confiscation under Section 113(i) of the Customs Act, 1962 and also rendered themselves liable for penalty under Section 114(iii) of the Customs Act, 1962. The fact that the goods are already exported and not available for confiscation, will be kept in mind while imposing penalty.”
It appears that the Commissioner has strongly relied upon and stressed on the fact that Clauses (f), (g) and (h) appearing in the declaration of the Shipping bills filed by M/s. LSLL on which the goods were exported in this cases were not deleted. That has been considered to be a reason for violation of provisions of Sub-section 2 of Section 50 of the Customs Act, 1962 to constitute a mis-declaration on the Shipping bills, which have been considered to raise a liability for confiscation under Section 113(i) of the Customs Act, 1962. Since the goods had been allowed to be exported and were not available physically for the confiscation, the Commissioner held that they were deemed to be liable for confiscation under the said act, invoking a liability for penalty under Section 114(iii) of the Customs Act, 1962. When we find that the owner, manufacturer and exporter of the subject goods declared on the Shipping bills in question is M/s. LSLL, then there was no question or requirement for effecting the said declarations under the Clauses (f), (g) and (h) of the Shipping bills. Therefore, once the EOUs and or EPZs are not the owners, manufacturers and or exporters of the subject goods, which were actually to be exported on the Shipping bills of M/s. LSLL, any mention of the goods having been manufactured and or exported by any EOU or and an EPZ Unit, or from a bond under Section 65, would amount to a mis-declaration. We would consider, that in not scoring out the Clauses (f), (g) and (h) in the declarations on the Shipping bills would show the bona fide of M/s. LSLL and their belief at the time of export. The statement of various persons not withstanding, since those statements are interpretations of the deponents, and not the correct position of law, as to the owner, manufacturer and exporter of the subject goods. Therefore, not scoring the clauses, which have been held to be a cause for invoking liability for confiscation in Para 73 of the impugned order, cannot be upheld. Once, liability for confiscation under Section 113(i) is not found, as also there is no other allegation of mis-declaration of material facts about description, value, and quantity of the goods under export, the penal clause under Section 114(iii) as invoked and applied on the exporter and the other appellant viz., M/s. LLIL cannot be upheld.
(d) The Commissioner has denied cross-examination, in finding arrived at in Para 74 of the Order, which reads as under : –
“74. M/s. Leela Scottish Lace Ltd., have in their reply file to the Show Cause Notice requested for cross-examination of the deponents who had deposed that the seals had been tampered with at the directions of M/s. Leela Scottish Lace Ltd., Mumbai. The request of the noticee was not considered as copies of all the statements were provided to them. Further for recovering the drawback and for imposing penalty this is not the only ground and I have discussed in detail in the preceding paragraphs the reasons for recovering the drawback and for imposing the penalty. Further at the time of personal hearing no such request has been made by the Advocate.”
For denying cross-examination of the deponents, whose statements on tampering of seals has been relied upon, is not upheld on the ground that statements had been supplied.
(e) As regards penalty on M/s. LSLL, the Commissioner has also found in Para 77 as: –
“77. Secondly, with respect to M/s. Leela Lace International Ltd., Cochin, EPZ Unit, I find from the records of the case that they have not taken any permission from the Jurisdictional Development Commissioner, to undertake manufacture of the goods out of the raw materials etc., supplied by the DTA Unit viz., M/s. Leela Scottish Lace Ltd., Mumbai as required under Circular No. 67/98, dated 14-9-98. From the statement of Shri Nanda Kumar, Commercial Manager, it is clear that they received instruction from M/s. Leela Scottish Lace Ltd., Mumbai, a DTA Unit, to manufacture ready-made garments in their EPZ Unit out of the materials supplied by them and to dispatch the finished export goods directly to the respective port of shipment under transport documents. I find from the records that for the exports effected from the Leela Lace International Ltd., the disclaimer certificates dated 28-6-99 and 2-9-99 have been issued by them to the effect that they would not claim any duty drawback or export benefits and also they had not mentioned the fact of having manufactured the export goods in the EPZ Unit in the Invoices, but mentioned the above fact only on CPEZ Form-I meant for clearing the goods for export from their unit. From the above, it is clearly established that they had not obtained any permission as required under Circular No. 67/98, dated 14-9-98 from the Jurisdictional Development Commissioner for undertaking jobwork from M/s. Leela Scottish Lace Ltd., Mumbai – DTA Unit. Thus they have rendered themselves liable for penalty under Section 114(iii) of the Customs Act, 1962 for their failure to take necessary permission from the Customs authorities before undertaking jobwork from M/s. Leela Scottish Lace Ltd., Mumbai.”
Even if they have not taken permission from the Jurisdictional Development Commissioner for undertaking jobwork, under Circular No. 67/98, dated 14-9-98, that will not be a cause to effect a penalty under, Section 114(iii) as arrived at by the Commissioner, since ‘jobwork undertaking’ by itself would not amount to ‘attempt to export’ and would only be preparation to export and for which penalty under Section 114 of the Customs Act, 1962 is not called for. However, from the reply of the appellant to the Notice dated 6-12-2000, it is observed that they had stated in Para 5, thereunder as :-
“5. Even otherwise, we are not liable for penalty as there is no contumacious or deliberate defiance of law on our part. The only allegation of the department against us is that we have failed to take necessary permission from the Customs Authorities before undertaking jobwork of conversion of ladies/gents garments belonging to M/s. LSLL. This allegation is not true and is not substantiated by any evidence. Infact we have obtained permission from the Jurisdictional Assistant Commissioner vide letter dated 8-9-99 granted us permission to undertake manufacture of readymade garments on jobwork basis within our bonded premises. In such circumstances, we submit that there is no warrant or justification in imposing penalty against us.”
There is no finding that such permission was not granted, as claimed, vide the letter dated 8-9-99 by the Assistant Commissioner. Therefore, Commissioner’s order as not considering the reply of the LLIL and such orders cannot be upheld.
7. In view of our findings, the order of recovery of drawback with interest as paid erroneously cannot be upheld and or the penalties as imposed on the two appellants herein are held to be uncalled for. The entire order needs to be set aside and the two appeals are required to be allowed with consequential benefit.