ORDER
Moheb Ali M., Member (T)
1. The appellant has an unit in KFTZ. They submitted a project report to the Development Commissioner KFTZ to establish an unit for manufacture of plastic goods and plastic articles of certain types. The appellants were given a letter of authority dated 1-11-1988 by the Development Commissioner (DC) which authorised the appellant to set up an unit in KFTZ. As the appellants could not commence commercial production in time, the said DC extended the time to commence production up to 31-12-1994. The appellants thereupon intimated to the DC that they started operations in their unit manually, as electric connection was delayed. These manual operations were conducted by installing padd operated sewing machines. The appellants were granted L-6 licences dated 21-1-1994 to procure excisable goods without payment of duty under which they procured plastic strands, plastic tubings and 2 nos. of extruder machines. The appellants applied for and were granted CT3 forms permitting them to procure the said raw material under Notification 126/94-CE dated 2-9-1994 free of duty. They manufactured tarpaulins and plastic bags and exported these goods without payment of duty under AR4s under para 106 of ITC Policy 1992-97. The appellants effected export of goods worth Rs. 21.66 lakhs against the projected export of Rs. 30 lakhs in the first year of production. Whatever exports that were done by the appellants were approved by the DC. This then, is the background.
2. A show cause notice dated 28-7-1994 was issued to the appellants asking them to explain whey the benefit of exemption under Notification 126/94 availed of by them while procuring duty free raw material should not be denied as they failed to manufacture the finished product in accordance with the project report submitted by them to the DC. Why the raw material procured by them under Notification 126/94 should not be confiscated along with the extruder machines and why penalties should not be imposed on them for violation of the condition of B16 bond which they executed. The Commissioner in the impugned order confiscated the goods, demanded the duty and interest and penalised the appellants. Hence the appeal.
3. Heard both sides.
4. The burden of the song in the Commissioner’s order is that the appellants have not stuck to the project report submitted by them to the DC in which they stated that they would manufacture the finished goods in a particular manner. Non-observance of the method stated in the project report, according to the Commissioner, is a violation of the condition of the notification. According to him the extruder machines which were procured duty free were not used in the production of final products and therefore are liable to confiscation along with the raw material. From the various correspondence between the appellants and the DC, it is evident that the DC extended the period for commencing commercial production and also permitted them to broadband their export product. They informed the DC that they would be operating manually for want of electric power. Nowhere in the order the Commissioner says that the goods procured duty free were removed without payment of duty from the unit in KFTZ. He admits that the finished goods were exported out of the country. These finished goods were manufactured out of the duty free material procured under CT 3 certificates. The Commissioner also holds that the subject raw materials have not undergone any process of manufacture except pin-holing and end-stitching and therefore the raw materials have been exported as they are. Granting without admitting that this contention is correct, it is not understood how it is a violation of condition of Notification 126/94-CE. Instead of bringing these raw materials under CT 3 to KFTZ if they are directly exported no duty will have been payable on them. It is for the Development Commissioner to cancel the letter of authority, if the appellants have not adhered to the condition under which a letter of authority is given. It is not for the Customs authorities to demand duty and confiscate the goods simply because an unit in KFTZ has not adhered to the method of producing export goods. The order of the Commissioner is liable to be set aside. We accordingly order so.
5. The appeal is allowed and the order of the Commissioner set aside.