Cus - Notfn 97/2004 - Appellant imports machinery under EPCG but installs same in mines for rental - actual user condition violated - Joint DFGT imposed penalty of Rs 25 lakhs - consequently appellant would no longer be eligible for benefit of said Notification - penalty upheld: CESTAT
By TIOL News Service
MUMBAI, OCT 17, 2013: THE appellant imported one new One New Nordberg Track Mounted (Cone Type) Crushing Plant and One New Extec S5 Ft Double Screen respectively through Mumbai port claiming benefit of Notification No. 97/2004-Cus dated 17/09/2004 under an EPCG licence. Investigation conducted by the DRI revealed that the machines imported by the appellant under the EPCG scheme were actually installed and being used in the mines of M/s. KJS Ahluwalia at Nuagaon Iron Ores Mines, Guali, Keonjhar.
Alleging that there has been a violation of the conditions of Notification No. 97/2004-Cus and EPCG, the said machines valued at Rs.5,89,29,208/- were seized u/s 110 of the Customs Act.
In his statement,the Proprietor admitted that he had imported two machines under EPCG scheme on high sea sale basis from M/s. Jharsanya Logistics Pvt. Ltd. and the machines were installed in the mines belonging to M/s. KJS Ahluwalia& Company at Nuagaon Iron Ore Mines at Keonjhar, Orissa and the said mines are not owned by him nor the iron ore fines generated are owned by him; that he is only involved in the processing of iron ore fines at the above mines on the basis of the work order dated 28/02/2006 issued by M/s. KJS Ahluwalia and they have provided the machines and manpower to M/s. KJS Ahluwalia who paid them per MT basis; that in the EPCG licence, he has not mentioned about M/s. KJS Ahluwalia either before the Customs authorities or before the DGFT authorities and he has not fulfilled the conditions laid down in Notification No. 97/2004-Cus as the ‘actual user' condition has not been satisfied; that he is willing to discharge the differential duty liability and accordingly issued post-dated cheques for a sum of Rs.1,53,52,470/- and also deposited a demand draft for Rs.66,00,000/- during August to October, 2008.
Accordingly, a SCN dated 08/12/2008 was issued to the appellant wherein it was proposed to confiscate the imported capital goods; demand differential duty amounting to Rs. 1,52,39,903/- and impose penalties.
The adjudicating authority concluded that the appellant had violated the terms and conditions of the EPCG licence and Customs Notification No. 97/2004-Cus; that the appellant was only a job-worker or a service provider operating from the mines of M/s. KJS Ahluwalia and assisting in the manufacture/production of iron ore fines for the mine owner and, therefore, the installation of the machines at the premise of KJS Ahluwalia did not amount to installation at the importer's factory premises. The Commissioner of Customs (Export Promotion) confiscated the imported machinery and gave an option to the importer to redeem the goods on payment of a fine of Rs.1 crore. The duty demand was confirmed by denying the benefit of the notification 97/2004-Cus and penalties were also imposed.
Aggrieved by the said order, the appellant is before the CESTAT.
The appellant inter alia placed reliance on the decision in FCI OEN Connectors Ltd. vs. Commissioner of Central Excise - (2006-TIOL-1826-CESTAT-BANG) and submitted that they had rightfully claimed the exemption notification.
The Revenue representative submitted that the appellant had not installed the imported machinery at their own premises and they had obtained EPCG licence fraudulently thereby violating the terms and conditions of the licence and also the terms and conditions of the Notification No. 97/2004-Cus. It was also submitted that the Zonal Joint Director General of Foreign Tradehad imposed a penalty of Rs.25 lakhs on the appellant for violation of the EXIM Policy relating to EPCG scheme.
The Bench after extracting the condition no. 5 of the notification 97/2004-Cus and referring to paragraphs 5.2, 5.3, 9.4, 9.5, 9.6 & 9.37 of the Foreign Trade Policy concluded that ‘mining' amounts to manufacture under the FTP and hence the appellant came under the category of “actual user (industrial)”. Inasmuch as the appellant has to utilize the imported goods for manufacture in its own industrial unit or for manufacturing for own use in another unit including a jobbing unit. Noting that the appellant had not used the machinery as a manufacturer-exporter but had used the same in the mines of M/s. KJS Ahluwalia, the appellant is not a lessee of the said mines and by renting out the machinery to M/s. KJS Ahluwalia for a consideration of Rs.180/- per MT, the appellant had not utilised the machinery for his own purposes but merely rented out the machinery to somebody else. So also, the appellant could not be the ‘actual user (non-industrial)' as defined under the EXIM Policy.
The Bench further held that since a penalty of Rs.25 lakhs has been imposed on the appellant by the Zonal Joint DFGT, the same clearly showed that the appellant had violated the actual user condition and consequently condition No. 5 of Notification No. 97/2004-Cus dated 19/07/2004 automatically comes into picture and the appellant would no longer be eligible for the benefit of the said Notification. Resultantly, the goods imported are liable to confiscation u/s 111(o) of the Customs Act, 1962 for violation of the end-use condition and the appellant is liable to penalty apart from losing the benefit of Notification No. 97/2004-Cus.
The Bench also observed that the case laws cited by the appellant do not apply to the facts of the case and that relied upon by the Revenue was apt.
In the matter of fine of Rs.1 Crore imposed by the adjudicating authority, the Bench observed that the same appeared to be on the higher side inasmuch fine imposed should have nexus with the profit that could have been made on the sale of the goods; that in the case on hand, the fine imposed was approximately 16% of the value of the goods and considering that the goods were imported five years ago, the value would have depreciated substantially and a fine of Rs.30 lakhs would suffice. However, the penalty imposed on the Proprietor was held to be not harsh or unreasonable and hence upheld.
In fine, the order passed by the Commissioner of Customs was upheld but for the reduction in fine from Rs.1 Crore to Rs.30 lakhs and the appeal was allowed to the said extent.
(See 2013-TIOL-1533-CESTAT-MUM)
