By TIOL News Service

BANGALORE, JULY 04, 2013: THE assessee is registered with the Department for the manufacture of mobile phones/cellular phones and parts, components and accessories of mobile phones/cellular phones. They also obtained registration in October 2003 under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (the 1996 Rules, for short) for importing goods of Chapter 84 for manufacturing mobile/cellular phones and parts/components/ accessories of mobile phones. The assessee declared to the jurisdictional Assistant Commissioner of Central Excise under the said Rules that they were importing inputs required for manufacture of mobile/cellular phones and parts/components/ accessories of mobile phones at concessional rate of duty under Sl.No.320 of Notification No.21/2002-Cus (as amended) and Notification No.21/2005-Cus.

Later on, it appeared to the Department from the results of investigations for the period from September 2006 to March 2009 that the assessee had manufactured Fixed Wireless Terminals (FWTs) from the imported components/parts and cleared these FWTs without payment of duty by claiming the benefit of exemption under Notification No.6/2006-CE (Sl.No.31). According to the Department, the goods manufactured by the assessee viz. FWTs were not mobile/cellular phones and the benefit under Sl.No.31 of the said Notification was not available to them as the goods were supplied to M/s. BSNL who was not a manufacturer and also the procedure laid down under the 2001 Rules was not followed. When the Managing Director of the assessee company was confronted with these facts, he admitted that the benefit under Sl.No.31 was wrongly claimed and submitted that they were availing the benefit of Sl.No.28 of the Notification for the subsequent periods. According to the Department, the assessee could not validly claim the benefit of Sl.No.28 either. The investigative findings made their way into a show-cause notice dt.10/02/2011, in adjudication whereof the Commissioner denied the benefit of the Notification to the assessee and confirmed the demand of CE duty against them.

Taking the cue from the above investigative findings regarding the identity of the products manufactured by the assessee by making use of the goods imported by them, the Department launched investigations into the past importations of the assessee, from which it appeared to the Department that the imported goods had not been used in the manufacture of mobile phones/cellular phones, nor for the manufacture of parts/components/accessories of mobile phones/cellular phones and therefore the benefit of Notification No.21/2002-Cus. (as amended) and Notification No.21/2005-Cus. had been illegitimately claimed by the assessee by misrepresenting/suppressing facts with intent to evade duties. According to the Department, the concession under Notification No.21/2002-Cus (as amended) and Notification No.21/2005-Cus. was not admissible to the assessee in respect of their imports. On this basis, in the same show-cause notice a case was framed against the assessee for the purpose of recovery of duties on the imported goods also.

The adjudicating authority eventually confirmed this demand also against the assessee.

Demands:

Differential customs duty of Rs.16.13 crores on the goods imported by them and cleared on payment of concessional rate of duty under Notification No.21/2002-Cus dt. 01/03/2002 (as amended) and Notification No.21/2005-Cus. dt. 01/03/2005

CE duty of Rs.16.15 crores on the goods manufactured by them and cleared during the period from September 2006 to March 2007, May-June 2007, September 2007, March 2008 and December 2008 to March 2009 without payment of duty claiming the benefit of Notification No.6/2006-CE dt. 01/03/2006.

c. Penalties equal to the duties imposed on them under Section 112 of the Customs Act and Section 11AC of the Central Excise Act respectively.

The Tribunal did not find prima facie case for the appellant on merits. The appellant's argument that the assessments on the Bills of Entry could not have been reopened/reviewed by way of issue of a show-cause notice under Section 28(1) of the Customs Act is, prima facie, untenable in view of the Supreme Court's judgment in the case of UOI Vs. Jain Sudh Vanaspati - 2002-TIOL-585-SC-CUS.

On the question whether the parts/components of FWTs were covered by the description "parts, components and accessories of mobile handsets including cellular phones" given under Notification No.21/2002-Cus. and Notification No.21/2005-Cus, the appellant has not been able to establish a prima facie case so as to claim the benefit of the two Notifications.

It appears, an opinion given by BSNL and one given by VJTI in favour of the appellant are the main basis for the appellant to claim that FWTs could be considered as mobile/cellular phones. Prima facie, BSNL being the buyer of the goods manufactured and supplied by the appellant cannot be considered as a detached and independent expert and therefore BSNL's opinion may not be reliable. VJTI's opinion was taken by the appellant on 03/05/2012 and submitted to the Commissioner and the same was not accepted inasmuch as the Institute's authenticity to issue such opinion/certificate was not established by the appellant and the opinion/certificate was found to have been issued without examining the basic function of the FWTs. Apparently, the adjudicating authority has stated specific and cogent reasons for not accepting either of the two certificates.

From the impugned order, it appears that the calculation errors pointed out by the assessee were also examined by the Commissioner who observed that, in the absence of the related details and documents, it was not possible to modify the quantum of demand. The claim of CENVAT credit of CVD and SAD was also rejected on a similar ground. The present claims of the appellant with regard to CENVAT credit and quantification of duty are no better.

Tribunal also not, prima facie, impressed with the plea of negation of natural justice inasmuch as the impugned order has noted that the assessee acknowledged receipt of the documents relied upon in the show-cause notice.

However, Tribunal found prima facie case for them based on limitation. The case of the appellant is that, as BSNL in their purchase orders prior to June 2009 clearly stated that no excise duty was payable on FWTs, the appellant believed bona fide that they were not liable to pay CE duty on the goods manufactured by them and supplied to BSNL. It is further submitted by the appellant that there were divergent views within the Department itself. It further appears from the records that the issue was taken up in the Chief Commissioners' Conference on Tariff and Allied Matters held at Mumbai where a view was taken to the effect that FWT could not be treated as cellular phone even though they might work under similar technology in which cellular or mobile phones operated and hence the benefit under Notification No.21/2005-Cus. could not be extended to FWT.

Tribunal noted that the Board's Circular No.17/2007 dt. 19.04.2007 had taken the view that mobile handsets with advanced features like FWTs were to be treated as mobile phones. But the view taken in the Chief Commissioners Conference was different. Thus, it appears, there is substance in the submission of the counsel that there was divergence of views on the issue within the Department itself.

In the result, the entire demand of duties having been confirmed against the assessee for periods beyond the normal period of limitation, Tribunal was inclined to grant the benefit of time-bar to the appellant.

Accordingly, waiver of predeposit and stay of recovery are ordered against the demands of duties on the ground of limitation.

(See 2013-TIOL-1011-CESTAT-BANG)