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Diversion of goods imported under Advance Licence to Open Market: Mens rea upheld

APRIL 16, 2024

By S K Rahman, IRS, working as AR at Delhi CESTAT

THE CESTAT has passed Final Order No. 55357-55360 /2024 dated 19.03.2024 - 2024-TIOL-298-CESTAT-DEL in the cases of Himachal Fashion Private Limited (erstwhile known as Candex Chemical Fibres Company Pvt.Ltd) and others on the issue of diversion of imported polyester knitted fabric imported duty free under Advance Licence to open market which was supposed have been used in the manufacture of ready made garments and export them

2. In these cases, there were 4 appeals namely Himachal Fashion Private Limited (erstwhile known as Candex Chemical Fibres Company Pvt. Ltd. Vs. Commissioner Of Customs Inland Container Depot Tughlakabad, New Delhi I in Customs Appeal No. 50671 of 2021; Rakesh Kumar Goyal Director, Himachal Fashion Private Limited (erstwhile known as Candex Chemical Fibres Company Pvt. Ltd. Vs Commissioner Of Customs Inland Container Depot, Tughlakabad, New Delhi in Customs Appeal No. 50858 of 2021; Ajay Kumar Goyal Vs. Commissioner Of Customs (Import) Inland Container Depot Tughlakabad, New Delhi in Customs Appeal No. 51121 of 2020 and Pawan Kumar Seth Vs. Commissioner of Customs (Import) Inland Container Depot Tughlakabad, New Delhi in Customs Appeal No. 51122 of 2020 pending before Hon'ble CESTAT all arising out of one Order-in-Original No. 12/2020/ M.K.S./Pr. Commr/Import/ICD/TKD dated 03.06.2020 passed by the Principal Commissioner, Customs, ICD TKD)

3. Issue: the appellant has imported polyester knitted fabric (mainly) and polyester plain dyed fabric also. These are duty free imports under Advance Authorisation with benefit of Notification No 99/2009 Cusdt. 11-09-2009. The appellant was entitled to import raw material i.e. fabrics duty free to be used in the manufacture of export goods i.e. ready made garments. But the impugned goods are being diverted to open market instead of using them for manufacture of garments in violation of condition no 14 of the Advance Authorisation which stipulates that the imported goods shall be processed at the declared factory address. In such situation whether duty on the impugned goods can be demanded, whether the goods can be confiscated, whether penalty can be levied.

4. During the hearing of the case :

a) Diversion to Open market of live 3 Bs/E:- The Authorized Representative of the Department has demonstrated that goods imported have been diverted to open market and imported goods at these places in open market have been seized .

b) Diversion to Open market of past 7 Bs/E:- The Authorized Representative of the Department has submitted details of Past 7 Bs/E and stated that the imported goods were diverted into open market, without using the same in export goods ,as is evident from the fact that the appellant colluded and connived with one another person to act as his partner in the offence in the disposal of the imported goods in open market at market rates.

c) Goods cleared through an Ex bond BE :- The Authorized Representative of the Department has submitted details of the impugned goods which were imported by one another importer which were warehoused and subsequently same goods were cleared by the appellant (Candex Chemical Fibres Co. PVt. Ltd.) duty free by ex bond BE on the strength of advanced authorization. After clearance the subject goods have been sold in open market

5. For each of the cases above Hon'ble CESTAT has held that :

a) live 3 Bs/E:- Hon'ble CESTAT upheld the decision of Adjudicating authority to deny the benefit of Notification No 99/2009 Cus dt. 11-09-2009 under Advance Authorisation and to demand duty under Sec 28(4) of Customs Act 1962. The Hon'ble CESTAT upheld also the decision of Adjudicating authority to confiscate the impugned goods under Sec 111(o), (d) & (m) of Customs Act 1962.

b) past 7 Bs/E :- Hon'ble CESTAT upheld the decision of Adjudicating authority to deny the benefit of Notification No 99/2009 Cus dt. 11-09-2009 under Advance Authorisation and to demand duty under Sec 28(4) of Customs Act 1962. Hon'ble CESTAT upheld also the decision of Adjudicating authority to confiscate the impugned goods under Sec 111(o) of Customs Act 1962 but no RF as goods already cleared

c) Ex bond BE:- Hon'ble CESTAT upheld the decision of Adjudicating authority to deny the benefit of Notification No 99/2009 Cus dt. 11-09-2009 under Advance Authorisation and to demand duty under Sec 28(4) of Customs Act 1962.

d) Apart from the above issues, Hon'ble CESTAT upheld the decision of Adjudicating authority to enhance the declared value wrt two out of three live consignments.

e) Hon'ble CESTAT also upheld the penalty imposed upon the Co notices.

6. Take away from this Final Order No. 55357-55360 /2024 dated 19.03.2024 are :

a) The duty-free imported goods under Advance Authorisation with benefit of Notification No 99/2009 Cusdt. 11-09-2009 if diverted to open market instead of using them in the manufacture of finished goods and export them, then duty shall be demanded imported goods under Sec 28(4) along with interest under Sec 28AA of Customs Act;

b) This will cover both live imports as well as the past imports done by the importer;

c) The live goods can be confiscated under Sec 111(o), (d) & (m) of Customs Act 1962. For the past imports goods are confiscated under Sec 111(o) of Customs Act 1962 but no RF under Sec 125 of Customs Act 1962 is imposed as goods already cleared.

d) Penalties can be imposed on importer under Sec 112 of Customs Act 1962.

(The views expressed are personal and not in official capacity)

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

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