10 June 2024


Customs, Excise and Service Tax Appellate Tribunal

Confidence Export Pvt. Ltd. and Ors. Vs. Commissioner of Central Excise, Raigad




Once duty has been demanded on finished goods cleared in DTA, no duty demand can be made on the raw material

The Appellant No. 1 is a 100% EOU engaged in the manufacture of Polyester Twisted Yarn (PTY). One of the raw materials used by the Appellant No. 1 to manufacture PTY is Partially Orient Yarn (POY). During the period November' 2001 to March' 2002, the Appellant No. 1 had cleared 17 consignments of PTY to the EOUs namely, Bluemoon Textiles (1 consignment), Maharashtra Weaving Works (4 consignments) and Sunrise Textiles (12 consignments), all are located in Malegaon.

The case of the Department is that, PTY covered by the above consignments did not reach the premises of EOUs and were diverted in DTA. Based on the investigation, the department had initiated show cause proceedings against the above EOUs, proposing for confirmation of duty demand on the PTY purchased from the Appellant No. 1. The notices issued to the said EOUs were adjudicated in confirming the proposed demand for duty saved on purchase of PTY from the Appellant No. 1. Appeal filed against the adjudication order was rejected by the Learned Commissioner (Appeals).

The Learned Advocate appearing for the Appellants submitted that, since the duty demand has been confirmed on the above referred EOUs under the proviso to Section 3 of the Central Excise Act, 1944 on the alleged ground that PTY were diverted in the DTA, no further duty demand can be fastened on the raw material imported or procured indigenously without payment of duty by the Appellant No. 1.

The Learned Advocate further submitted that as per Section 28 of the Customs Act, 1962, no demand can be made beyond the period of five years from the relevant date, even if the bond has been executed in terms of Notification No. 53/97-Cus., dated 3rd June, 1997.

The issue arising out of the present dispute stands settled by various orders of the Tribunal and affirmed by the Hon'ble Apex Court. In the case of Sarla Polysters Ltd., this Tribunal by following its earlier order in the case of Sanjari Twisters has held that, the demand on raw material cannot be sustained in view of duty demand being confirmed on the final products cleared clandestinely. In other words, once duty has been demanded on the finished goods cleared in DTA, no duty demand can be made on the raw material.

As regard confiscation of POY, the same is not liable for confiscation, since the conditions of the notification dated 3rd June, 1997 has not been contravened. Material available in the case record proves the fact that, the POY were used for the intended purpose and there was no contravention of post import condition. Even otherwise, the imported POY was not available for confiscation at the time of initiation of show cause proceedings, and as such, in view of the judgment of the Hon'ble Bombay High Court in the case of Finesse Creation Inc., no redemption fine can be imposed in the absence of goods being available for confiscation.

No duty can be demanded on the inputs as no violation has been brought out on record vis-à-vis raw material consumption in EOUs for the required purpose. Further, the impugned order imposing redemption fine and penalties on the appellants cannot also be sustained for judicial scrutiny. The impugned order is set aside and the Appeals are allowed.


Sarla Polyester Ltd. vs. Commissioner of Central Excise MANU/CS/0445/2008

Tags : Demand Confirmation Legality

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