1. Warehousing of imported goods: Option to surrender the goods once availed cannot be withdrawn subsequently

Facts

The respondent imported goods and warehoused them on 30-5-1996 initially for a period of one year. The period of warehousing was extended time and again on the request of the importer up to 31-3-2001 whereafter no application for extension was made. The respondent surrendered the goods vide its letter dated 31-12-2004 and the auction of the goods was fixed on 28-9-2005 and was duly advertised. However, the respondent made a request for permission to re-export the goods under section 69(1) of the Customs Act, 1962 and for the cancellation of the auction sale vide letters dated 22/28-9-2005. However, the goods were auctioned.

Issue

The question that arose for consideration was whether an assessee who had surrendered the warehoused goods imported by him, was permitted to withdraw such offer of surrender subsequently.

Held

The Hon’ble Supreme Court observed that merely because of the fact that the respondent withdrew the offer of surrender would not make any difference to its cause. The respondent having surrendered its title in the goods could not contend that this surrender had been withdrawn subsequently. It was also held by the Hon’ble Supreme Court that Board Circular dated 14-1-2003 permitting entertainment of requests for re-export of goods in the event of expiry of the warehousing period (even when the same has been decided to be put on auction) would be of no avail to the respondent inasmuch as the goods were already put on auction in the present case. The appeals of UOI were allowed.

[UOI and Others vs. Shakti Lpg Limited and Another 2008 (223) ELT 129(SC)]

2. Rate of duty: Once the goods are entered for home consumption under section 46 of the Customs Act, 1962, the rate of duty leviable shall be the one existing on the date of presentation of the bill of entry

Facts

The respondent imported Superior Kerosene Oil (‘SKO’) on 15-5-1998 and thereafter presented ex-bond bills of entry for home consumption in respect of two lots on 20-5-1998 and 28-5-1998 respectively. At that time, the duty payable on importation of SKO was only the countervailing duty of 10% ad valorem. However, the imported quantity of SKO was permitted to be stored in the same warehouse at the request of the importer in view of the highly combustible nature of the product. The full duty was paid by the respondent, and the Customs Officer had also permitted clearance of the same. In the Budget for the year 1998-99, Basic Customs Duty and Special Customs Duty was levied on SKO. The Customs Authority withheld the clearance of SKO from the tank on the contention that the respondent was required to discharge the duty of enhanced rates.

Issue

Whether in the given circumstances, section 15(1)(a) of the Customs Act would apply or section 15(1)(b) ibid would prevail:

Held

The Hon’ble Supreme Court observed that where the imported goods are allowed to be warehoused under Section 68, Customs Act, 1962 and are subsequently cleared from the warehouse, the rate as on the date of actual removal of the goods from the warehouse is applicable. But where duty on the warehoused goods is paid and out of charge order for home consumption is made by the proper officer in compliance of the provisions of section 68, the goods removed in smaller lots have to be treated as cleared for home consumption. Section 15(1)(b) ibid would cease to operate.

The Court also held that since the entire duty required to be paid by the importer has been paid and an out of charge order had been passed by the Customs Authorities, nothing more remained to be paid by the importer. The goods would be more appropriately governed under section 15(1)(a) which provides that in the case of goods entered for home consumption under section 46, the duty leviable would be as on the date on which the bill of entry in respect of such goods is presented.

[CC, Calcutta and Another vs. Biecco Lawrie Limited 2008 (223) ELT 31 (SC)]

3. Compounding of offences u/s 137 of the Customs Act: An order for the same cannot be made in case of divergent statements made by the applicant

Facts

On the basis of specific information, respondent No.1, who alighted from a flight from London and walked through Green Channel, was intercepted by the DRI Officers at the exit gate of the arrival hall of the Airport. On personal search, two sets of diamond earrings were recovered from his coat pocket along with US $ 1,900. Further, an invoice evidencing sale of such earrings to respondent No. 1 along with VAT Declaration Form filed by the respondent bearing stamp of Customs Authority, London, was also recovered. He was placed under arrest for having committed offences punishable under ss. 132 and 135, Customs Act, 1962, for failure to declare dutiable goods in Customs Declaration Form and for having walked through the Green Channel with intent to evade the payment of duty and for making wilful misstatements and suppression of material facts. There were contradictions in his statement under section 108 ibid, in his first bail application and in his application for compounding under section 137(3) ibid. However, the Compounding Authority, accepting the respondent’s application, compounded the said offences. Hence, this appeal.

Issue

Whether in view of such divergent statements, an order for compounding of offences can be made or not.

Held

The Hon’ble Supreme Court held that the basic rule of ‘disclosure’ underlying s. 137(3), is that if there are demonstrable contradictions or inconsistencies or incompleteness in the case of the applicant, then application for compounding cannot be entertained. Applications for compounding ought to be disallowed if there are contradictions, inconsistencies or incompleteness.

The Court observed that the Compounding Authority is bound to discharge the statutory duty of making proper enquiry by examining with care and caution the materials that have been made available. The Compounding Authority must be satisfied that the applicant has done all he could or need to do in the matter. The applicant has to be One-Time Evader. He has to make clean breast of his affairs. In the present case Respondent should have given exhaustive account of the circumstances in which he came to Delhi, how he came in possession of the diamond earrings and whether he had knowledge of the said earrings to be smuggled into India. He should have disclosed the name, address and telephone number of the person who gave him the diamond earrings and whether he knew that the earrings were meant to be smuggled into India etc. Respondent should also have proved that he had received the goods without knowing that they were being illegally imported or smuggled. As in the present case, none of the tests stand fulfilled, the application for compounding the offences under ss. 132 and 135 (1)(a) was not maintainable. The court held that compounding cannot be allowed if there are apparent contradictions, inconsistencies or incompleteness in the case of the applicant before the Compounding Authority. It is the duty of the Compounding Authority to ascertain such contradictions before compounding is ordered. Accordingly, the appeals of the UOI were allowed.

[UOI vs. Anil Chanana and Another 2008 (222) ELT 481(SC)]

4. Condonation of delay: Commissioner (Appeals) is not vested with the powers to condone the delay beyond the statutory period of 30 days

Facts

The appellant had filed an appeal before the Commissioner (Appeals). The Commissioner had dismissed the appeal only on the ground that it was filed after 21 months of the date of service of the original order and the appellant authority did not have power to condone the delay beyond the period of 30 days from the date of expiry of period of 60 days prescribed for filing the statutory appeal.

Issue

Whether the Commissioner (Appeals) can or cannot condone the delay beyond the statutory period of 30 days after the prescribed period for filing the appeal.

Held

The Hon’ble Supreme Court held that the language used in s. 35 makes the position clear that the legislature intended the appellate authority to entertain the appeal by condoning delay only up to 30 days after the expiry of 60 days which is the normal period for preferring an appeal. Therefore, there is complete exclusion of section 5, of the Limitation Act. The Commissioner and the High Court were justified in holding that there was no power to condone the delay after the expiry of 30 days period.

[Singh Enterprises vs. C.C. Ex., Jamshedpur and Others 2008 (221) ELT 163 (SC)]

5. Manufacture: Clearance of cooling as well as condensing unit along with other accessories like pipe kit etc. amounts to clearance of a manufactured complete Split Air Conditioner

Facts

The appellant cleared condensing units from their unit in New Delhi to Mumbai, where it locally purchased cooling units which were fabricated on order from local manufacturers. After carrying out certain tests for quality, the gas was filled in the units and appellant’s brand name was affixed thereon. Thereafter, the complete units were cleared along with pipe kits, electrical cord, remote control, etc., to various customers from appellant’s warehouse/godown at Mumbai. The invoices were raised by the appellant’s Mumbai office for supply of split air-conditioners. However, no excise duty was paid on the same contending that the product cleared by them was not a complete split air conditioners. A show cause notice was issued to the appellant, alleging that split air-conditioners were clandestinely removed by the appellant without payment of duty.

Issue

Whether the product cleared by the appellants was a complete split air-conditioner.

Held

The Supreme Court held that neither the condensing unit nor the cooling unit by itself is a complete air conditioner. It is only when these two, i.e., condensing unit and cooling units are put together, the complete unit of air conditioner fit for use, came into existence in the Mumbai workshop. Hence, the contention of the appellant that there is no manufacture at its Mumbai Unit stands belied and cannot be accepted. Further, the issue of clearing complete units of air-conditioners from Mumbai Branch of the appellant was evident from the depositions of the appellant’s own employees and the partners of the agency who had supplied the cooling units and the invoice raised by the appellant. Hence, the appellant was manufacturing the split air-conditioners.

[Fedders Lloyd Corporation Limited vs. C.C.Ex., Mumbai 2008 (221) ELT 0003 (SC)]

6. Prosecution proceedings: The same must not survive after quashing of the adjudication proceedings

Facts

The petitioners were engaged in the business of import and trading of textiles and some other consumable goods. The statements of both the petitioners were recorded and they were arrested for the offences under sections 132 and 135 of the Customs Act, 1962 on account of alleged false declaration, false documents and evasion of customs duty. Prosecution proceedings were initiated against the appellant as a result thereof. Simultaneously, adjudication proceedings were also initiated under the Act. The accused persons were exonerated by the competent authority/Tribunal in the adjudication proceedings.

Issue

Whether criminal proceedings were carried out simultaneously would survive even after the quashing of the adjudication proceedings.

Held

The Hon’ble High Court observed that charges cannot be framed and criminal prosecution cannot be permitted to continue against petitioners once adjudication proceedings on merits have been found in favour of petitioners. The High Court observed that the Department has failed in adjudicatory process against petitioners and yet continued to contend that criminal proceedings must go on. The High Court observed that the legal system by which we are governed is adversarial in nature, but there is a special responsibility on Government and public authorities to act reasonably and in a fair manner. The High Court opined that the already over-burdened legal system couldn’t be further burdened by unnecessary cases. The Court allowed the petition.

[Anjali Mahajan and Another vs. UOI and Another (Del) decided on 5th Feb., 2008]

7. Incidental/Auxiliary activities of manufacture: The same are part and parcel of the complete chain of manufacture

Facts

The appellants were engaged in the processing of cotton fabrics falling under Chapter 52 and carried the activities such as bleaching, mercerizing, dyeing, printing, washing, drying and finishing before the fabrics were packed and cleared. Appellant also used power for carrying out auxiliary and incidental activities such as mixing of chemicals. Appellant claimed benefit of exemption notification No.28/94 granted to cotton fabrics processed without the aid of power” The stand taken by the appellants was that they were not using power in the processing of the fabric and, therefore, the benefit which they were earlier availing was available. The appeals filed by the appellants were dismissed by CESTAT holding that they were not entitled to benefit of concerned notifications. CESTAT denied the benefit relying on a larger Bench’s decision in the case of M/s. Mathania Fabrics vs. Commissioner of Central Excise, Jaipur 2002 Indlaw CEGAT 641 LB.

Issue

Whether power used in the incidental/auxiliary activities could be said to have been used in the manufacture of fabrics:

Held

The Hon’ble Supreme Court observed that the stand that there was no use of power is unsustainable and therefore, the benefit of the notification is not available to the appellants.

[Mathania Fabrics vs. C. Ex., Jaipur 2008 (221) ELT 481(SC)]