Case Note & Summary
The appellant, a 100% Export Oriented Unit (EOU) engaged in manufacturing HDPE ropes, was granted a letter of permission (LOP) dated 9 September 1998 by the Government of India, valid for three years, requiring the unit to export its entire production for five years from the date of commercial production (27 April 1999). The assessee imported capital goods valued at Rs.120.29 crores duty-free under customs Notification No.53/97 and commenced production on 27 April 1999, achieving exports of Rs.2.95 crores during 1999-2000. In August 2000, IDBI filed a suit and a Court Receiver was appointed, taking possession of the unit in September 2000, causing operations to cease. The assessee regained possession only on 3 December 2007. Meanwhile, the assessee sought extensions of the LOP and private bonded warehouse licence. The warehouse licence was extended up to 31 December 2001, but further extensions were not granted as the unit was non-functional. The assessee also moved the BIFR for rehabilitation. The customs authorities issued a show cause notice on 27 February 2004 for non-fulfilment of the export obligation under the LOP, and after receiving a status report from the Development Commissioner, adjudicated the matter, confirming customs duty of Rs.61.24 crores with interest and penalty and confiscating goods on 29 September 2006. The CESTAT upheld this order on 14 August 2008, but the High Court set it aside on 17 December 2008 and remanded for fresh adjudication. On fresh adjudication, the order-in-original dated 16 March 2009 again confirmed the duty demand and penalty. In the interim, after settling the IDBI liability and regaining possession, the assessee sought revival under Appendix X of the Handbook of Procedure. The Board of Approval directed the assessee to approach the Development Commissioner for extension of the LOP, which was granted on 27 April 2009 for a further period of five years effective from 1 April 2009, with fresh export obligations. The Development Commissioner's extension was granted subject to conditions, including that the approval was without prejudice to any action taken for operations prior to 1 April 2009. The assessee appealed to the High Court against the order-in-original dated 16 March 2009. The High Court admitted the appeal on the question of law whether the extension of the LOP by the Development Commissioner precluded the customs authorities from recovering duty solely on the ground of non-fulfilment of export obligation during the first block of five years, thereby allegedly violating the bond under Notification No.53/97 and Sections 61 and 72 of the Customs Act, 1962. The provided judgment excerpt ends before the court's reasoning and final decision.
Issue of Consideration
When the Development Commissioner, SEEPZ, Mumbai by extending the letter of permission has extended the 100% EOU status of an assessee for a further period of five years, then, before the expiry of the extended period, is it open to the customs authorities to recover customs duty with interest, penalty and fine in respect of the capital goods, spares and raw materials imported by the said 100% EOU, solely on the ground that, non fulfilment of the export obligation within the first block of five years constitutes violation of the bond executed under notification No.53 of 1997 and violation of Sections 61 & 72 of the Customs Act, 1962?
Case Details
2013 LawText (BOM) (02) 71
Customs Appeal (LOD) No.63 of 2012
J.P. Devadhar, M.S. Sanklecha
Mr. V. Sridharan, Mr. Prakash Shah, Mr. Jas Sanghavi, Mr. Uchit Sheth, Mr. Durga Prasad (PDS Legal); Mr. Pradeep S. Jetly; Mr. A.S. Rao
Mavi Industrial Ltd. (formerly known as Krishna Filaments Ltd.)
The Commissioner of Customs and Central Excise, Thane-II and The Development Commissioner, SEEPZ Special Economic Zone, Ministry of Commerce & Industries
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Appeal under the Customs Act, 1962 against an order-in-original confirming customs duty demand, interest, penalty and confiscation of capital goods, spares and raw materials for alleged non-fulfilment of export obligation by a 100% Export Oriented Unit.
Remedy Sought
The appellant sought to quash the order-in-original dated 16 March 2009 and sought directions that the extension of the letter of permission by the Development Commissioner validated the EOU status, thereby precluding customs duty recovery solely on the ground of past non-fulfilment of export obligation.
Filing Reason
The customs authorities confirmed the duty demand on the ground that the appellant failed to fulfil the export obligation within the first five-year block as required under the letter of permission dated 9 September 1998, despite the subsequent extension of the EOU status by the Development Commissioner.
Previous Decisions
A show cause notice dated 27 February 2004 led to an adjudication order dated 29 September 2006 confirming the duty demand, which was upheld by CESTAT on 14 August 2008. The High Court set aside these orders on 17 December 2008 and remanded the matter. Fresh adjudication resulted in an order-in-original dated 16 March 2009 again confirming the duty demand and penalties, which is the subject of this appeal.
Issues
When the Development Commissioner extended the letter of permission for a further period of five years, is it open to the customs authorities to recover customs duty with interest, penalty and fine solely on the ground that non-fulfilment of the export obligation within the first block of five years constitutes violation of the bond executed under notification No.53/97 and violation of Sections 61 and 72 of the Customs Act, 1962?
Submissions/Arguments
The appellant argued that the extension of the LOP by the Development Commissioner validated the EOU status and extinguished any prior breach of export obligation.
The respondents argued that the non-fulfilment of export obligation during the initial five-year period constituted a violation irrespective of the subsequent extension, and the extension was without prejudice to action for past periods.
Judgment Excerpts
When the Development Commissioner, SEEPZ, Mumbai by extending the letter of permission has extended the 100% EOU status of an assessee for a further period of five years, then, before the expiry of the extended period, is it open to the customs authorities to recover customs duty with interest, penalty and fine in respect of the capital goods, spares and raw materials imported by the said 100% EOU, solely on the ground that, non fulfilment of the export obligation within the first block of five years constitutes violation of the bond executed under notification No.53 of 1997 and violation of Sections 61 & 72 of the Customs Act, 1962 ?
This approval is without prejudice to any action that may be taken in respect of your EOU operations prior to 01/04/2009 under Foreign Trade (Development & Regulation) Act, 1992, Customs Act, Central Excise & any other law for the time being in force.
Procedural History
1997-10-22: Private bonded warehouse approved under Section 58 of the Customs Act. 1998-09-09: Letter of permission granted for establishment of 100% EOU. 1999-04-27: Commercial production commenced. 1999-2000: Exports of Rs.2.95 crores achieved. 2000-08: IDBI filed suit and Court Receiver appointed over assets. 2000-09: Possession of unit taken over by Court Receiver, operations ceased. 2003-12-03: Assessee regained possession after settlement with IDBI. 2004-02-27: Show cause notice issued by customs for non-fulfilment of export obligation. 2004-04-20: Assessee sought extension of LOP. 2006-08-25: Development Commissioner permitted customs to proceed with adjudication. 2006-09-29: Order-in-original confirming duty demand. 2008-08-14: CESTAT dismissed appeal. 2008-12-17: High Court set aside orders and remanded. 2009-03-09: Board of Approval directed assessee to approach Development Commissioner for LOP extension. 2009-03-10: Assessee applied for LOP extension. 2009-03-16: Fresh order-in-original again confirming duty. 2009-04-27: Development Commissioner granted extension of LOP for second block of five years. 2012: Present appeal filed.
Acts & Sections
- Customs Act, 1962: 61, 72, 58
- Companies Act, 1956:
- Foreign Trade (Development & Regulation) Act, 1992:
