2025 ACR 15 CESTAT Chennai
Fiem Industries Ltd. (Unit – V)
Vs
Commissioner of GST & Central Excise
HON’BLE SHRI M. AJIT KUMAR, MEMBER (TECHNICAL)
Excise Appeal No.41839 of 2015
(Arising out of Order in Appeal No. 133/2015 (CXA-I) dated 1.6.2015 passed by the Commissioner of Central Excise (Appeals – I), Chennai)
FINAL ORDER NO. 40157/2025 PRONOUNCED ON 04.02.2025

Note –

There can be no doubt that the word ‘removal contemplated shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another.” In this case there was no shifting of the goods/moulds invoiced to customer in Indonesia with the goods remaining in the factory for use in manufacture of automotive lightings nor is there a deeming provision for sale or change of title to amount to removal. Accordingly, sale of capital goods imported under Notification 52/2003 Customs without physical removal from the EOU cannot be treated as deemed removal of the goods.

Where there has been no physical movement of goods outside the EOU, no removal / clearance of the impugned capital goods took place. This being so no duty was required to be paid. As per the legal position, no demand for customs duties survives. A deeming provision should be express and cannot be assumed.

APPEARANCE:

Shri Rohan Muralidharan, Advocate for the Appellant

Shri N. Satyanarayanan, Authorised Representative for the Respondent

ORDER

This appeal is filed b y the appellant against Order in Appeal No.133/2015 (CXA-I) dated 1.6.2015 passed by the Commissioner of Central Excise (Appeals – I), Chennai (impugned order).

  1. Brief facts of the case are that the appellant a 100% EOU, is engaged in the manufacture of Door Mirror, Pneumatic Mirror and Lighting & Signalling Equipments falling under Heading 70061000 and 85122010 of CETA, 1985. The department noticed that the appellant imported moulds from M/s. Ampa Industries in the year 2007 without payment of customs duties based on exemption contained in Notification No. 52/2003-Cus dated 31.3.2003. The said moulds were intended for manufacture of automotive lighting equipments and signalling equipments for two wheelers for M/s. PT TVS Motor Company, Indonesia (TVS Indonesia). The appellant during the month of March 2008, invoiced the moulds to TVS Indonesia for USD 1,91,360, they also paid an amount of Rs.2,92,192/- as VAT towards sale of the said moulds and dies considering the same as outright sale. However, the moulds remained in the factory premises of the appellant for further use in manufacture without being physically exported. The department alleged that the said transaction is a concluded domestic sale (second sale) of imported goods within India as per the Sale of Goods Act, 1930 and hence amounted to domestic clearance of capital goods / debonding of capital goods for sale in the name of TVS Indonesia. Hence after due process of law, the Ld. Adjudicating Authority confirmed the demand proposed in the Show Cause Notice on the ground that the moulds have been sold in contravention of Notification No. 52/2003-Cus the provisions of which do not contemplate change in title/ ownership of goods imported duty free but not physically removed. Accordingly, customs duties to the extent of Rs.28,93,685/- was demanded with appropriate interest and equal penalty was imposed under sec. 112 of the Customs Act, 1962. In appeal, the Commissioner (Appeals) upheld the same. Hence the present appeal.

  2. Shri Rohan Muralidharan, Ld. Advocate appeared for the appellant and Shri N. Satyanarayanan, Ld. Authorized Representative appeared for the respondent.

  3. I have gone through the appeals, connected documents and have heard the rival parties. I find that the whole issue arose because the appellant a 100% EOU availed duty exemption on capital goods purchased by them and imported for use in their factory. Subsequently after using the capital goods for some time they sold the said goods to their buyers. It is revenues case that such sale on which VAT had been also discharged amounted to deemed de-bonding of the said goods. The short question which arises is whether the sale of capital goods being used within an EOU to TVS Indonesia, without physical removal can be treated as deemed debonding / removal of the goods from the EOU on which duty has to be paid.

4.1 I find that Para 6.2 (b) of FTP 2004-2009 states as under;

b) An EOU / EHTP / STP / BTP unit may import and /or procure, from DTA or bonded warehouses in DTA / international exhibition held in India, without payment of duty, all types of goods, including capital goods, required for its activities, provided they are not vprohibited items of import in the ITC (HS). Any permission required for import under any other law shall be applicable. Units shall also be permitted to import goods including capital goods required for approved activity, free of cost or on loan / lease from clients. Import of capital goods will be on a self certification basis. Goods imported by a unit shall be with actual user condition and shall be utilized for export production. (emphasis added)

Subsequent FTPs have also followed a similar policy. Hence ownership of the capital goods is not a criterion to avail duty exemption on imports on the said goods. If the appellant could have imported the capital goods on loan basis and still enjoyed the concession there is nothing in the Customs Act or subordinate provisions which require him to pay duty just because he sold the capital goods to the buyer of his products, without physically removing the goods from the Unit.

4.2 Further sale would not amount to removal of goods / debonding unless such a provision is made in law. A deeming provision should be express and cannot be assumed. No such deeming provision has been alluded to by revenue in this case. In a normal situation it is the occurrence of the taxable event that creates or attracts the liability to tax. As held by the Hon’ble Supreme court in the case of Kiran Spinning Mills v. CC [1999 (113) E.L.T. 753 (S.C.)] the taxable event with respect to warehoused goods occurs when the goods are physically removed from the warehouse. This shows that ownership of the goods is irrelevant for an EOU to undertake its authorized operations. In J.K. Cotton Spinning And Weaving Mills Ltd & Anr Vs Union Of India & Ors [AIR 1988 SUPREME COURT 191 / (1987) 32 ELT 234], the hon’ble Apex Court held that, “there can be no doubt that the word ‘removal contemplated shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another.” In this case there is no shifting of the goods nor is there a deeming provision for sale or change of title to amount to removal, accordingly, sale of capital goods without physical removal from the EOU cannot be treated as deemed removal of the goods.

4.3 It has been held in the impugned order that the Appellant has violated para 4 of the Notification No. 52/2003 Cus dated 31.03.2003.

Paragraph 4 of the Notification reads as under:

“Without prejudice to any other provision contained in this notification, the said officer may, subject to such conditions and limitations as he may deem fit to impose under the circumstances of the case for the proper safeguard of revenue interest and also subject to such permission of the Development Commissioner, wherever it is specially required under the Foreign Trade Policy, allow the unit to clear any of the said goods for being taken outside the unit, to any other place in India or to debond in accordance with the Foreign Trade Policy:

Provided that –

      1. such clearance or debonding may be allowed on payment of duty on the depreciated value thereof and the rate in force on the date of debonding or clearance, as the case may be. The depreciation shall be allowed in straight line method as specified below, namely:

……..

      1. such clearance or debonding of goods (including empty cones, bobbins, containers, suitable for repeated use) other than those specified in clause (a) may be allowed on payment of duty on the value at the time of import and at rates in force on the date of payment of such duty;

…… (emphasis added)

I find that the provision requires that goods imported duty free under the said Notification shall be removed from such bonded premises only after payment of duty. As discussed in the para above there has been no physical movement of goods outside he EOU and hence no removal / clearance of the impugned capital goods took place. This being so no duty was required to be paid. As per the legal position, no demand survives.

4.4) Even though the issue does not survive on merits, it is also noticed that prior to the issue of SCN, the Appellant had opted to exit from the 100% EOU Scheme and were granted permission to de-bond and exit the EOU Scheme by the Development Commissioner. The Central Excise authorities had duly verified and found correct the duty payable by the Appellant while exiting the EOU Scheme and a ‘No Objection Certificate’ granted. Hence it is deemed that the department was aware of the transaction, unless they had shown otherwise by way of fraud etc, which is not the case here. Hence the extended period of limitation under Section 28(4) of Customs Act, 1962 could not have been invoked nor can the goods be held liable for confiscation. No penalty could be imposed on the Appellant.

5. In the facts and circumstances as discussed above the demand fails on merits and the impugned order is hence set aside. The appellant is eligible for consequential refund, if any, as per law. The appeal is disposed of accordingly.

(Order pronounced in open court on 04.02.2025)

(M. AJIT KUMAR)

Member (Technical)