ORDER
T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Original No. 20/2005-Commr. dated 04.05.2005 passed by the Commissioner of Customs, Bangalore.
2. The appellants are a 100% EOU. They imported 3 DG sets with auxiliaries during January, 2003 claiming exemption under Notification No. 53/97-Cus dated 03.06.1997 as amended by Notification No. 65/2002-Cus dated 24.06.2002. In terms of the above Notifications, the appellants were entitled to generate power and sell the surplus power to DTA, provided duty on the consumables and raw materials foregone was paid while selling power to DTA. Consequent to investigations conducted by the departmental officers, Show Cause Notice dated 11.02.2005 was issued on the ground that the appellants had violated the conditions of the relevant Notifications by transferring power to the DTA without permission from the concerned authorities. There was a proposal for demand of the duty on the DG sets, their confiscation and imposition of penalties. On conclusion of the adjudication proceedings, the Commissioner passed the impugned order. The order portion of the impugned OIO is reproduced herein below:
ORDER
(a) I hold that the said diesel generating sets are ineligible for the benefit of exemption under Notification No. 53/97-Cus dated 3.6.1997, which was extended to M/s. Toyota Kirloskar Auto Parts Private Limited at the time of import.
(b) I order confiscation of the said three diesel generating sets totally valued at Rs. 11,18,01,269/-, imported under Bills of entry Nos. 455311 dated 10.01.2003 and 459225 dated 27.1.2003, under Section 111(o) of the Customs Act, 1962. However, I give an option to M/s. Toyota Kirloskar Auto Parts Private Limited to redeem the same on payment of nominal fine of Rs. 25,00,000/- (Rupees Twenty five lakhs only) in lieu of confiscation as per the provisions of Section 125 of the Customs Act, 1962 within 15 days from the date of receipt of this order.
(c) I demand an amount of Rs. 5,67,95,045/- (Rupees Five crore sixty seven lakhs ninety five thousand forty five only) being the total customs duty foregone on the import of the said DG sets from M/s. Toyota Kirloskar Auto Parts Private Limited under Notification No. 53/97-Cus dated 3.6.97 read with Notification No. 52/2003-Cus dated 31.3.2003;
(d) I appropriate the total amount of Rs. 5,67,95,045/- paid by them under protest as above towards the above demand by vacating the protest;
(e) I demand interest at the appropriate rates under Notification No. 53/97-Cus dated 3.6.97 read with Notification No. 52/2003-Cus dated 31.3.2003; from the date of import till the date of payment of duty.
(f) I impose penalty of Rs. 10,00,000/- (Rupees ten lakhs only) upon M/s. Toyota Kirloskar Auto Parts Private Limited under Section 112(a) of the Customs Act, 1962.
The appellants are highly aggrieved over the above order. Hence, they have come before this tribunal for relief.
3. S/Shri K.S. Ravi Shankar and N. Anand, the learned Advocates, appeared on behalf of the appellants and Shri Anil Kumar, the learned JDR, for the Revenue.
4. The learned Advocates took us through the various documents which culminated in the issue of NOC by the Bangalore Electricity Supply Company Ltd.(BESCOM), in its letter dated 21.04.2005 and also the permission of the Cochin Special Economic Zone(CSEZ), in its letter dated 31.05.2005 for transfer of power generated by the DG sets installed in the EOU premises by the appellants. Referring to the various correspondences, he made the point that even on 27.11.2002, the appellant unit, in its letter, informed the Jurisdictional DC of Customs their intention to transfer the surplus power to the DTA unit once the additional 3 Generators are brought into the EOU area and made functional. There was also an endorsement in that letter by the Jurisdictional Superintendent directing them to take the approval of the Board of approval before transferring surplus power. The appellants had been following up the matter with CSEZ and also the Electricity Authorities viz. BESCOM for giving No Objection. He relied on the decision of the Apex Court in the case of CE v. Tullow India Operations Ltd. wherein it is held that when there is delay of statutory authorities in granting a certificate of essentiality, which is not attributable to the party, and depends on the acts of public functionaries, that would not disentitle a party to the benefit of a notification. Actually here is no sale of power by the appellant because the power was only transferred to their own DTA. The Notifications in question have not been violated since necessary correspondence has been carried on with the Electricity department and the Customs authorities.
4.1. Since the transfer of power by the appellant to their own DTA does not amount to sale, the question of paying any duty on the raw material does not arise read with the decision of the Tribunal in Indian Railways (Wheel & Axle Plant) v. CCE, Bangalore 2004 (116) ECR 733(Tri-Bang.) and Wheel and Axle Plant v. CCE, Bangalore-II
4.2. The appellants have not imported or obtained any duty free raw material. Duty liability does not arise at all under the subject Notification. The DG sets are bonded goods still lying in the Private Bonded Warehouse and according to the decisions of the Supreme Court in the cases of Kiran Spinning Mills v. CC ; UOI v. Apar Pvt. Ltd. , the taxable event has not been arisen.
4.3. It has been held that in respect of bonded goods in the EOU, duty can be demanded only when they are de bonded at the time of clearance. The following case-laws are relied on:
(a) CC, Bangalore v. Infosys Technologies Ltd.
(b) Trilux Electronics Inc. v. CC, Bangalore 2006 (133) ECR 102 (Tri.-Bang)
(c) Natural Stone Exports v. CC, Bangalore
(d) Ceeta Industries Ltd v. CC, Bangalore 2006 (198) ELT 209 (Tri-.Bang.)
(e) Transparent Technologies Pvt. Ltd. v. CC, Belgaum
4.4 The appellants submit that the Tribunal, in the case of Indian Charge Chrome Ltd. v. CCE 2001 (138) ELT 609(Tr.-Kolkata), which is affirmed by the Supreme Court as reported in 2003 (157) ELT A 137(SC), held that diversion of excess power from captive power plant imported duty free for generation of power for manufacture of export goods under Notification No. 13/81-Cus to DTA does not violate the conditions of the Notification.
4.5 The appellants submit that in the case of Hanil Era Textile Ltd. v. CCE affirmed by Supreme Court as reported in 2005 (180) ELT A44 (SC), it was held that if surplus power generated is sold in DTA, the benefit of exemption under Notification No. 13/81-Cus, 53/91-Cus and No. 1/95-CE is not deniable on DG sets, spare parts of DG sets and consumables such as furnace oil, lubricating oil and HSD. The impugned order is therefore untenable.
4.6. Since the Development Commissioner CSEZ and Central and State Electricity Authorities have all approved the transfer of power and fixed Input Norms for the purpose, there is no violation of any Notifications, as wrongly made out by the respondents.
4.7. It is held by the Apex Court that procedures are the handmaid of justice and not the mistress in law in the case of CST v. Auria Chamber of Commerce 1986(25) ELT 867(SC) Assuming any procedural error occurred, it cannot be held to be a violation of law to saddle the appellant with staggering demand of duties and penalties.
4.8. There was no culpable mental state to impose penalty or confiscate the DG sets.
4.9. The impugned order has been served after 240 days of passing the order.
4.10. The respondent has illegally exacted and appropriated Rs. 5.68 crores collected even before the Show Cause Notice was issued (paid under protest by the appellant) and this sum is liable to be refunded with statutory interest as held by the Apex Court in Kuil Fireworks v. UOI and Sandvik Asia Ltd. v. CIT .
4.11. The learned Advocates referred to the Supreme Court decision in the case of Sir Kikabhai Premchand v. CIT and contended that no one can do business with himself. There can be no sale by a person to himself. The expression ‘sale’ involves two distinct persons as held by the Apex Court in various decisions.
5. The learned JDR reiterated the impugned order.
6. We have gone through the records of the case carefully. The appellants imported 3 DG sets for generation of power under the EOU Scheme, free of duty vide Notification No. 65/2002-Cus dated 24.06.2002. This Notification was amended by Notification No. 52/2003-Cus dated 31.03.2003. Both the Notifications contained similar conditions with regard to the sale/transfer of surplus power generated. For examining the issue, we are reproducing para 8 of Notn. 52/2003-Cus.
(8): Subject to the satisfaction of the said officer, duty shall not be leviable in respect of-
(i) the capital goods, if such capital goods are destroyed within the unit or outside the unit, when it is not possible or permissible to destroy the same within the unit, in the presence of Customs or Central Excise Officer;
(ii) the scrap or waste material or remnants arising in the course of production, manufacture, processing or packaging, if such scrap or waste material or remnants are destroyed within the unit or destroyed outside the unit when it is not possible to destroy the same within the unit:
Provided that this condition shall not apply in the case of unit engaged in manufacture and export of gem and jewellery.
6.1. The case of the Department is that before transfer of surplus power generated in the EOU to the DTA unit, the appellants were required to obtain advance permission from (a) the State Electricity Board; (b) The Development Commissioner, CSEZ; (C) The Development Commissioner of Customs. But, the appellants kept the Customs Department in the dark about the transfer of power and also did not obtain the permission of the Electricity Authorities and the Development Commissioner, CSEZ. The above mentioned failure amounts to violation of the condition 8 of Notification No. 52/2003 dt. 31.03.2002. Since the conditions of the Notification have not been fulfilled, duty on the imported DG sets have been demanded. From the records, we find that the appellant addressed a letter dated 27.11.2002 wherein they had intimated the department about their intention to transfer the surplus power to the unit. Therefore, one cannot say that the appellant kept the department in dark about the transfer of power. While dealing with this contention of the appellant that they had not suppressed any fact from the department, the learned Commissioner, in the impugned order, has tried to distinguish the words ‘intention’ and ‘attempt’. He has held that mere intention does not establish that they were not guilty. We do not understand the logic of the Commissioner. It is a fact that the appellant informed of their intention to transfer power. There is also an endorsement in that letter by the Superintendent to the effect that the appellant has to obtain permission from the Board of Approvals. The correspondences reveal all the efforts taken by the appellant to obtain NOC both from the Development Commissioner, and also the Electricity Authorities. The chronology of the events is given below:
Date
Event
29.4.2002
Application to set up EOU addressed to the CSEZ
3.5.2002
Permission granted to set up EOU by CSEZ
12.10.2002
Application for licence to operate private bonded
warehouse
27.11.2002
Letter sent to Deputy Commissioner of Customs,
EOU informing that order was placed for three DG Sets (import proposed) and
their intention to transfer the surplus power to DTA
10.1.2003 & 27.1.2003
Three numbers of DG Sets imported from Finland,
Wartsila through Chennai Port and installed.
28.3.2003
Goods bonded under B-17 bond at EOU premises.
26.2.2003
Correspondence with Electricity authorities of
Government of Karnataka for approval of drawings.
25.8.2003
Letter to Chief Electrical Inspector to Govt. of
Karnataka seeking permission to transfer power from EOU to DTA.
22.3.2004
Letter to CSEZ, GOI, seeking permission to
transfer power by EOU to DTA under copy to Customs.
29.3.2004
Visit by Customs Headquarters – Preventive
30.3.2004,
Duty of Rs. 5,67,95,045 collected from Appellant
even
20.5.2004 and 29.6.2004
before investigation was complete and without
issue of Show Cause Notice (paid under protest)
28.4.2004
Letter to CSEZ, again seeking permission as above
under copy to Customs.
24.8.2004
Letter to Secretary, Central Electricity
Authority, New Delhi for transfer of power from EOU to DTA to fix norms for
input use.
16.9.2004
Letter of Central Electricity Authority, GOI,
intimating norms for operation of DG stations, heat rate, lube oil
consumption etc.
17.9.2004
Letter of the KPTCL to BESCOM forwarding copy of
the letter of Appellant to take action.
4.10.2004
Letter to CSEZ intimating them about CEA
clarification on input-output norms and informing them about transitional
difficulties in Karnataka State regarding re-constitution of electricity
supply authorities (under copy to Customs), and non-cooperative attitude of
the BESCOM.
29.10.2004
Letter to Development Commissioner, CSEZ, seeking
permission to transfer power and fixation of input-output norms (under copy
to Customs).
15.12.2004
CSEZ fixes norms on ad-hoc basis for transfer of
power.
11.2.2005
Show Cause Notice issued by the Customs
26.3.2005
Reply to Show Cause Notice filed
21.4.2005
No objection certificate issued for transfer of
power/sale of power from EOU to DTA by BESCOM (Govt. of Karnataka).
31.5.2005
CSEZ fixes final norms for use of inputs to
generate power under copy to Customs Authorities
18.7.2005
Record of hearing conducted by Respondent
30.8.2005
OIO passed by the Respondent
10.3.2006 & 27.3.2006
Customs Department collects another chunk of duty
without issuing OIO already passed, for another purported enquiry conducted
and Rs. 80,51,536 paid under protest by Appellant, unrelated to the
adjudication.
4.5.2006
OIO issued to Appellant after 244 days of
passing.
25.5.2006
Appeal filed before CESTAT.
Therefore, we do not agree with the findings of the Commissioner that the appellant had violated the conditions of the Notification. It has been held that by the Apex Court in the Tullow India Operations case, cited supra, that delay of statutory authorities in granting a certificate of essentiality, which is not attributable to the party, would not dis-entitle a party to the benefit of a Notification. In the present case, the Commissioner has dealt with the issue as though he were dealing with a criminal act. That is why he has used the words ‘preparation’ ‘attempt’ and ‘actual commission of offence’. In the context of the commission of a criminal offence one refers to ‘intention’ or a ‘guilty mind’. In the present case, the intention has a different connotation. The intention as far as the letter 27.11.2002 is, not an intention to commit any criminal offence but only an intention to transfer surplus power to DTA. Para 8 of the relevant notification requires that the appellant takes the permission of the Electricity Board authorities and also the Development Commissioner in order to (a) sell power into Domestic Tariff Area; (b) Transfer power to other export oriented undertaking or software technology park; In the present case, actually there is no sale of power for the simple reason that the power is transferred only to the appellants’ own DTA which is adjacent to the EOU unit. By applying the ratio of the Apex Court’s decision in the case of Sir Kikhabhai Pemchand, cited supra, there is no sale involved. In this context, it is worth quoting the following observations of the Apex Court in the above said decision.
Consider this simple illustration. A man trades in rice and also uses rice for his family consumption. The bags are all stored in one godown and he draws upon his stock as and when he finds it necessary to do so, now for his business, now for his own use. What he keeps for his own personal use cannot be taxed however much the market rises; nor can he be taxed on what he gives away from his own personal stock, nor, so far as his shop is concerned, can he be compelled to sell at a profit. If he keeps two sets of books and enters in one all the bags which go into his personal godown and in the other the rice which is withdrawn from the godown into his shop, rice just sufficient to meet the day to day demands of his customers so that only a negligible quantity is left over in the shop after each day’s sales, his private and personal dealings with the bags in his personal godown could not be taxed unless he sells them at a profit. What he chooses to do with the rice in his godown is no concern of the Income-Tax department provided always that he does not sell it or otherwise make a profit out of it. He can consume it, or give it away, or just let it rot. Why should it make a difference if instead of keeping two sets of books he keeps only one? How can he be said to have made an income personally or his business a profit, because he uses ten bags out of his godown for a feast for the marriage of his daughter? How can it make any difference whether the bags are shifted directly from the godown to the kitchen or from the godown to the shop and from the shop to the kitchen or from the shop back to the godown and from there to the kitchen? And yet, when the reasoning of the learned Attorney-General is pushed to its logical conclusion, the form of the transaction is of its essence and it is taxable or not according to the route the rice takes from the godown to the wedding feast. In our opinion, it would make no difference if the man instead of giving the feast himself hands over the rice to his daughter as a gift for the marriage festivities of her son.
6.2 In fact, the surplus transfer will not be covered by sale. There is also no transfer of power to another EOU. Hence, the situation which has arisen here is only the appellant’s use of power in his own DTA. In other words, this use amounts to captive consumption. Therefore, strictly speaking, there is no violation of conditions of para 8 at all. Assuming that it is covered by para 8, it is on record that the appellants had obtained permission from both the Electricity Board authorities and the Development Commissioner, CSEZ. The delay in obtaining the permission cannot be attributed to the appellants. Therefore, the benefit of Notification cannot be denied.
6.3. Another point is that para 8 requires that in case of sale of surplus power, duty attributable to the consumables and raw materials for generation of power transferred should be paid. In the present case, it is on record that the appellants had actually used only duty paid consumables and raw materials for the generation of power. In these circumstances, there is no question of demanding any duty on the consumables and raw materials. Duty has been demanded on the Diesel Generating sets. It is not the case of the department that the Diesel Generating Sets have not been installed in the EOU. There is no charge that all the power generated has been diverted to the DTA unit. The learned Commissioner has tried to distinguish the present case from those of the Indian Charge Chrome and Hanil Era Textiles Ltd. (both cited supra), relied on by the appellants on the ground that those cases relate to Notification. 13/81 wherein there was no clause similar to the present Notification. We do not agree with the Commissioner. The reason adopted by the Tribunal in the Indian Charge Chrome case to hold that diversion of excess power to DTA has not violated the conditions of the Notification is that the surplus power generated could not be stored on account of the nature of electricity and as such has to be transmitted to the grid. The same principle is applicable here. The surplus power utilized has to be used and even if it is transferred we cannot hold that the DG sets imported have not been used for the purpose for which they have been imported. In the above decision, the Tribunal has observed that the words ‘only exclusively’ or ‘entirely’ have not been used in Notification 13/81. Therefore, it has been held that the appellants are right in their stand that when there is a surplus power and when the same cannot be stored, the use of the same in DTA should not dis-entitle them from the benefit of the Notification in question. We feel that the same principle is definitely applicable to the present case also. Even in the present Notification, nowhere it is said that the surplus power generated should be exclusively used by the appellant. In fact, there is a provision for transfer or sale of the power subject to certain conditions. The available records show that the conditions have been satisfied in the sense that the appellants had informed the Customs Department of their intention to use the surplus power in their Domestic Tariff Area and had taken necessary steps to get the approval of the DC, CSEZ and the Electricity Authorities. We have already held that delay in getting the permission is not due to any fault on the part of the appellants. There is nothing on records to show that with an intent to evade payment of duty, the appellant had diverted the power. There is no merit in the impugned order. Hence, we set aside the same and allow the appeal with consequential relief, if any.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)