ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Original No. 5/2006-Commnr. dated 18.04.2006 passed by the Commissioner of Customs, Bangalore.
2. The appellants are a 100% EOU permitted to carry on operations relating to ‘photo typesetting, data capture software and book’. They hold Private Bonded Warehouse Licence and Inbond Manufacturing Sanction Order. Under the 100% EOU Scheme, the appellants imported various types of Capital Goods and executed the necessary bonds with the Customs. The appellants made use of the Capital Goods in order to carry out their activity and fulfill the export obligations. However, after a certain time, the imported goods became obsolete and, therefore, they addressed a letter to the Customs authorities for extending the bonding period and also give authorisation to destroy the capital Goods. But a Show Cause Notice was issued to the appellants demanding duty on the Capital Goods. The Adjudicating Authority held that once the warehousing period expired, the goods will be deemed to have been improperly removed from the warehouse. Applying the ratio of the Hon’ble Apex Court judgment in the case of Kesoram Rayon v. CC, Calcutta , he held that the impugned goods, which are lying in the warehouse beyond the warehousing period are deemed to have been removed without payment of duty and, therefore, he demanded duty on these goods under Section 72 of the Customs Act. Along with the duty, he demanded interest also. Further, penal action had been taken against the appellants in respect of the goods. In fact, even before the issue of the order, the appellant relinquished the title of the goods. That was also not accepted. The main reason for confirming the demand of duty and interest is that the Commissioner applied the ratio of the Kesoram Rayon case and held that the goods are deemed to have been improperly removed from the warehouse. In all, the Commissioner had demanded duty amounting to Rs. 72,14,076/-. A penalty of Rs. 10,00,000/- was demanded under Section 112(a) of the Customs Act. The Commissioner held the impugned goods liable to confiscation and he imposed a Redemption Fine of Rs. 7,50,000/-. The period of dispute in this case is from 1992 to 2004. The appellants strongly challenge the impugned order.
3. S/Shri B.V. Kumar, and B. Venugopal, the learned Advocates, appeared on behalf of the appellants and Shri K. Sambi Reddy, the learned JDR, on behalf of the Revenue.
4. We heard both sides. The learned Advocates pointed out that these goods are relating to Information Technology and normally the goods relating to Information Technology and Computers become obsolete rapidly. In the present case, the appellants had already used these goods to fulfill their export obligations and afterwards, they wanted to destroy the same. In this connection, the learned Advocate invited our attention to the Foreign Trade Policy 2004-2009 Para 6.15(b) wherein there is provision for destruction of obsolete goods.
6.15(b): Capital goods and spares that have become obsolete/surplus, may either be exported, transferred to another EOU/EHTP/STP/BTP/SEZ or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, will be available in case of disposal in DTA. No duty shall be payable in case capital goods, raw material, consumables, spares, goods manufactured, processed or packaged, and scrap/waste/remnants/rejects are destroyed within the Unit after intimation to the Custom authorities or destroyed outside the Unit with the permission of Custom authorities. Destruction as stated above shall not apply to gold, silver, platinum, diamond, precious and semi-precious stones.
Further, the learned Advocate invited our attention to para 6.31 which provides for destruction of goods within the unit after intimating to the Customs authorities and if it is outside the unit with the permission of the Customs Authorities:
6.31 Destruction of goods
No duty shall be payable in case capital goods, raw material, Consumables, spares, goods manufactured, processed or packaged, and scrap/waste/remnants/rejects are destroyed within the Unit after intimation to the Custom authorities or destroyed outside the Unit with the permission of Customs authorities. Destruction as stated above shall not apply to gold, silver, platinum, diamond, precious and semi precious stones.
He said that this point has not been appreciated by the learned Commissioner. The learned Advocate brought to our notice that in the present case, the only fault of the appellant is that immediately after the expiry of the warehousing period, they did not apply for extension of the warehousing period to the Competent Authority. However, when they came to know about it, they applied for the extension and also requested the Competent Authorities to permit them for destruction of the goods. But, to their surprise, their request was not acceded to and Revenue proceeded against them. In this connection, the learned Advocate drew our attention to the Board’s Circular No. 7/2005-Cus. dated 14.02.2005 wherein a very liberal view has been taken in respect of the extension of the warehousing period in respect of goods deposited in the 100% EOU. According to the Circular, when the warehouse licence itself is extended, automatically, the warehousing period would be deemed to have been extended even without application for Extension. In other words, even if there is a failure to apply separately for extension of the warehousing period in respect of the Capital Goods, the very fact that the warehoused lincese itself has been extended is sufficient to give them extension. Para 3 of the said Circular 7/2005 dated 14.2.2005 is reproduced below:
3. As you are aware that the EOU/EHTP/STP units are required to obtain private bonded warehousing licence Under Section 58 of the Customs Act. The said licence is valid for a period of 5 years and the units are required to apply for renewal after every 5 years. The Board in order to obviate the difficulties of the EOU/EHTP/STP units has decided to allow extension of warehousing of all the capital goods installed or put into use, simultaneously at the time of renewal of warehousing licences irrespective of the fact that the capital goods are due for extension or not. The period of extension would be allowed for such a period so that the capital goods need further extension only on the date of renewal of warehousing licence. The period of extension, therefore, may be adjusted accordingly for every piece of capital goods. However, the maximum period of extension at a time would not be allowed for a period for more than five years.
5. Our attention was also invited to Circular No. 3/2003-Cus. dated 14.01.2003 wherein it has been clarified that when an importer makes a request to permit re-export of the goods under Section 69 of the Customs Act, 1962, such a request may be allowed even if the permitted period for bonding has expired. The learned Advocate impressed upon us that as far as 100% EOU is concerned, the Government has taken a very liberal view and relaxed all the procedures. Applying for extension of warehousing period and the failure to apply should not be taken very seriously by the Customs Authorities in view of these Circulars issued by the Board. He said that the Kesoram Rayon decision of the Hon’ble Apex Court cannot be blindly applied to all situations. There is always a distinction between the Capital Goods deposited in the 100% EOU and the above goods, which are imported and kept in either private or public bonded warehouse. In the case of the 100% EOUs, the Capital Goods are meant for using them in the manufacture of goods which are ultimately to be exported. Alternatively, in 100% EOUs, the bonded premises is a factory which is not the case in other private or public bonded warehouse. The initial warehousing period in the case of goods deposited in the 100% EOU is 5 years and after the elapse of 5 years, the manufacturers are expected to apply for extension of the warehousing period, and this is routinely given. However, the Kerosam Rayon case refers to the goods, which are imported and warehoused either in a private bonded warehouse or a public bonded warehouse under Section 68 of the Customs Act. The only reason for the Commissioner to have confirmed the demand is that in terms of the Kesoram Rayaon case, the goods are to be considered as improperly removed on the expiry of the warehousing period.
5.1. The learned advocate stated that the Commissioner disregarded the decisions of the Hon’ble Tribunal in the case of Modern Suitings v. CC, Jaipur and CC, New Delhi v. Perfect Latex Pvt. Ltd. wherein it was held that the ratio laid down by the Hon’ble Supreme Court in the case of Kesoram Rayon is not applicable to the goods deposited in an EOU. Moreover, the learned advocate pointed out that before the issue of the order by the Commissioner, the appellants informed their intention to relinquish the title of the goods. He said that before an order of clearance for home consumption under Section 23 of the Customs Act, the importer has a right to relinquish the title. He stated that the goods, which continue to remain in the warehouse notwithstanding the expiry of permitted warehousing period or such extended period, are deemed to be warehoused goods in terms of Section 2(44) of the Customs Act, 1962. He relied on the following case-laws:
(i) CBS Gramophone Records and Tapes (India) Ltd. v. CC
(ii) CC, New Delhi v. Perfect Latex Pvt. Ltd.
(iii) Modern Suitings v. CC, Jaipur
(iv) Essar Oil Ltd v. CC, Rajkot
(v) Decorative Laminates (I) Pvt. Ltd. v. CC, Bangalore 2006 (195) ELT 175 (Tri.-Bang.)
He also said that no duty can be demanded on the warehoused goods after relinquishment of the title. In this regard, he relied on the following case-laws:
(i) 12 Technologies Software Pvt. Ltd. v. CC, Bangalore
(ii) Mafatlal Fine Spinning and Manufacturing Col. Ltd. v. UOI and Ors.
(iii) CCE and C, Surat v. Garden Silk Mills Ltd.
He relied on the following case-law to hold that when there is no demand of duty, interest cannot be demanded.
(i) Pratibha Processors v. UOI
6. The learned JDR urged that the Adjudicating Authority has rightly applied the ratio of the Kesoram Rayon’s case and he requested the Bench to uphold the order.
7. On a very careful consideration of the issues, we find that the Commissioner, while demanding duty on the imported goods, which are in the 100% EOU and for which the appellants had not requested extension of warehousing period in time. The Commiddioner has demanded duty holding that on expiry of the warehousing period, the goods are deemed to have been improperly removed. He has applied the ratio of the Kesoram Rayon case (cited supra). The learned Advocate had already brought to our notice the decisions of the Tribunal which hold that the Kesoram Rayon case cannot be applied to goods deposited in 100% EOU. This point has not been properly appreciated by the learned Commissioner. On going through the above noted Circulars issued by the CBEC, we find that the CBEC has adopted always a liberal approach towards the procedures in respect of 100% EOU. The Capital Goods imported in 100% EOU are meant for production of goods, which are ultimately to be exported. All the 100% EOUs have got warehousing lincences and their validity period is periodically extended. When the Capital Goods are imported, the initial bonding period is 5 years and later, the period can be further extended. In these extensions also, a very liberal approach is adopted by the Board and there are very many instructions to that effect. In the Circular of 2005, it is stated that even if the manufacturer or the importer has not applied for extension of warehousing period in respect of the imported goods, the very fact that the warehouse licence has been extended is sufficient and automatically the warehousing period also may be got extended. These liberal approaches have to be appreciated by the learned Commissioner. Moreover, we have noted the description of the goods, imported namely, the computers, fax machines, key boards, image setting system, spanner, laser printer, etc. They are all relating to Information Technology and we note that in Information Technology, the equipments become obsolete very soon. This point also has to be kept in mind.
8. Moreover, in the present case, it is the contention of the learned advocate that the appellants had already fulfilled the export obligations by using the imported Capital Goods. The import Policy also clearly permits destruction of obsolete goods. In the present case, no action has been taken on the application of the appellants for destruction of the obsolete goods. That apart, before the adjudication order, the appellants had relinquished the title of the goods. This also has been ignored by the learned Commissioner. He has mechanically confirmed the duty demand and demanded interests and imposed penalties just by applying the ratio of the Kesoram Rayon case, which is rightly not applicable to 100% EOU. In view of these observations, there is no justification for demand of duty especially when there is provision in the Import Policy for destruction of obsolete goods inside the unit simply by informing the Customs or outside the unit with the permission of the Customs. There is also provision for relinquishment of title. In these circumstances, we set aside the impugned order, which demands duty and imposes penalty on the appellants. The impugned order has no merits. Hence, we allow the appeal with consequential relief.
(Pronounced in open Court on 30.10.2007)