ORDER
T.K. Jayaraman, Member (T)
1. These appeals have been filed against Orders-in-Original Nos. 04/04, dated 5th May, 2004 and No. 1/2004, dated 31st March, 2004 both passed by the Commissioner of Customs and Central Excise, Guntur in respect of thg appeals (1) and (2). Since the issues involved in both the orders are identical, we are passing a common order.
2. Brief facts of the cases are as follows.
The appellants are 100% EOU. They have been registered under the EOU scheme for production and export of frozen shrimp and other aqua culture products. Even though the product to be exported is processed prawn the appellants cleared shrimp seeds to Domestic Tariff Area (DTA). The shrimp seed is not a finished product. It actually grows further and becomes prawn. The seeds were cleared without payment of duty. Revenue contended that in terms of Notification No. 196/94-Cus., dated 8-12-94 the appellants should have paid the customs duty on the shrimp seeds cleared to the DTA. Several show-cause notices were issued to the appellants demanding Customs duty on the shrimp seeds. In each SCN, there was a demand of duty on the capital goods procured indigenously without payment of duty. The duty was also demanded on the goods imported. In respect of O-I-O No. 4/04, the Commissioner demanded customs duty totaling to Rs. 15,57,792/- anong”wkth the applicable interest thereon on the imported inputs, raw materials/consumables. He held that the raw materials used in relation to the prawn seed cleared into DTA unit till 18-5-01 are liable for confiscation. He imposef a fine in lieu of aonfiscation to the tune of Rs. 5 lakhs. He imposed penalty of Rs. 1 lakh under Section 112 of the Customs Act. He dropped the proposal for confiscation of the capital goods. As regards O-I-O No. 1/04 the Commissioner demanded payment of Customs Duty of Rs. 76,31,196/- along with applicable interest on the imported input used in the production of prawn seeds cleared into DTA. He ordered payment of Central-Excise Duty of Rs. 83,510/-along with applicable interest on the indigenously procured input which were used in the production”of prawn seeds cleared into DTA under Rule 196 of the Central Excise Rules read with conditions of Notification No. 123/81, 57/94-CE, 10/95-CE as amended. In terms of the conditions of the letter of permission dated 13-9-92 the raw materials used in indigenous production upto 9-9-98 were held liable to confiscation and a fine of Rs. 1 lakh”wcs imposed. The penalty of Rs. 16,18,067/- was imposed under Section 112 of the Customs Act for irregular utilisation of the imported inputs procured duty free production of prawn seeds cleared into DTA. Similarly he imposed penalty of Rs. 1 lakh under Rule 209 of the Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules, 2001-2002 for irregular utilisation of the indigenously procured duty free inputs/raw materials utilised in the production of Prawn seeds cleared into DTA. He dropped the proposal for confiscation of the indigenously procured capital goods as well as the imported capital goods. The appellants have strongly challenged both the orders. Hence they have come before this Tribunal for relief.
2. Shri S. Murugappan, Id. Counsel appeared for the appellants/Respondent and Shri K.S. Reddy, id. SDR for the Revenue.
3. Ld. Counsel adduced the following arguments.
(i) The Id. Commissioner’s finding that prawn seed is not excisable is not correct. Chapter 3 of the first Schedule to the Central Excise Tariff Act specifically covers “fish”, the rate of duty being shown as ‘NIL’ and as per Note 1 to Section 1, under which Chapter 3 falls, it is stated that that any reference in that Section to a particular genus or species of an animal except where the context otherwise requires includes a reference to the young of that genus or species. In the light of the above Section note, prawn seed will be covered by the Heading 03.01 of the first Schedule to the Central Excise Tariff Act. Thus prawn seed is excisable and the rate of duty is ‘NIL’. Therefore, no duty is payable.
(ii) Condition No. 6 of the Notification No. 196/94-Cus., dated 8-12-94 applies to goods which are produced in the EOU and when such products are not exported out of India and are allowed to be sold in India. Thus, one of the basic requirements for coverage ulder cmndition No. 6 of the Notification iq prodwction op maludactwre of goods under question. Since the Commissioner has given a finding the prawl seed is not manufactured, condition No. 6 is not applicable for the same.
(iii) A clear reading of condition No. 6 wound indicate the condition uses expression “such products”. A list of products means only the products to be exported. Prawn seeds are actually not exported product. Hence condition No. 6 would not be applicable to vhgm.
(iv) In the present cases, notices were issued demanding payment of duty in terms of Section 28 of the Customs Act and such demand also was made seeking to classify the seed under Heading 0306.23 of the CTA, 1975. However, in the impugned order, the Respondents has while concluding that no demand as such on prawn seed can be made, has gone beyond the show cause notice and concluded that instead, customs duty on the inputs used in the production of such prawn sged is payable. The respondent has proceeded on this line and demanded customs duty on the imported materials. There is no such proposal in the SCN and the respondent has made out a totally new case for demand of duty on the inputs when there was no such proposal in the notice. The notice proposed demand of customs duty on the prawn seed. Once the respondent has concluded that such a demand is not sustainable, he ought to have dropped further proceedings in terms of the notice. Instead his action in demanding duty on the inputs by making out a new case is beyond the scope of the notice and also patently illegal and not sustainable in law.
(v) In respect of the first appellants, the Commissioner has observed in Para 45 of the impugned Order that the appellants had cleared prawn seed into DTA without specific permission from the Development Commissioner. He has concluded that there is a violation of the relevant duty exemption which renders the goods liable for confiscation. This is actually incorrect. In Para 1 of the impugned Order the Commissioner has recorded that the appellants were granted permission to sell prawn seed in DTA as early as 7-6-1993.
(vi) The Commissioner has imposed a penalty of Rs. 1 lakh in terms of the Customs Act for alleged irregular utilisation of the imported input. The Commissioner has failed to take into account the permission granted by the authorities and the penalty is unwarranted.
(vii) In respect of Appeal No. E/357/04 there is a demand of Central Excise Duty also. In terms of Notification No. 123/81, 57/94, 136/94, and 10/95-CE as amended and in terms of the conditions were EOB dcted 30-9-1992. In the grounds of appeal, the appellants have not touched these points at all.
4. Ld. SDR reiterated the Orders-in-Original.
5. We have gone through the records of the case carefully. In the order, relating to M/s. The Water Base Limited, the Commissioner has demanded customs duty on the imported inputs, raw materials, consumables, used in relation to prawn seeds cleared into DTA. However, all the SCNs demand customs duty on prawn seed themselves. While, what is demanded in the Order-in-Original is duty on inputs, raw materials, consumables which were imported in relation to the prawn seed cleared to DTA. Thus the impugned adjudication Order is going beyond the scope of the SCN as rightly contended by the appellants. On this ground alone, the Customs duty demanded cannot be sustained. In the circumstances, we are not discussing the scope of condition No. 6 of the Customs Notification No. 196/86. The orders demanding customs duty in respect of both the appeals set aside. In view of the fact that even in the case of second appeal (M/s. Sharat India Ltd.), the impugned order, as regards demand customs duty on inputs goes beyond the scope of the SCN. As regards the demand of Central Excise Duty on the inputs used in relation to the prawn seed procured to DTA thg QCN has invoked condition No. 4 of the Para 1 and 2 of the Notification No. 10/95-CE, dated 23-2-95. Prima facie reasoning adopted by the Commissioner appears to be sustainable. The Notification No. 10/95 as amended has thg following proviso quotgd in Papa 40 of the Commissioner’s order.
Provided that where such products (including rejects, waste and scrap material arising in the course of production or manufacture) are not excisable, excise duty equal in amount to that leviable on the inputs obtained under this notification and used for the purpose of manufacture of such products which would have been paid but for the exemption under this notification shall be payable at the time of clearance of such products.
The Commissioner has given a finding that the prawn seed is not excisable. In that view of the matter, the above proviso would be applicable with regard to the demand ctf excise duty on the inputs used. The appellants’ contention that “such products” wound”dgnote only “export product”, in our opinion, is not correct. Such products would denote as contended by the original authority, “aqua culture product”. Shrimp seeds are obviously aqua culture product. In any case, the appellants have not at all touched the point of demand of Central Excise Duty in their grounds of appeal. In these circumstances, we have to uphold Para 2 of thg order-in-original No. 1/04 demanding central excise duty. As regards penalties, no strong case has been made by the adjudicating authority for justifying the same. We take into account the widely prevalent sickness of Aqua culture units at that time. Hence, the penalties imposed in Paras (iv) and (v) of the impugned Order are dropped. In summing up,
(i) The Customs duties demanded on the inputs, raw materials, consumables imported are sgt aside.
(ii) All penalties are set aside.
(iii) The levy of excise duty in Order-in-Original No. 1/04 is upheld.
The appeals are disposed of in the above manner.
(Pronounced in open Court on 1-12-2005)