C.C.E. & S.T.-Ahmedabad-iii VERSUS Lumen Cables Ltd

Customs, Excise & Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad

 

REGIONAL BENCH- COURT NO.3

Excise Appeal No.11333 of 2013

(Arising out of OIO-AHM-CEX-003-COMM-010-13 dated 07/02/2013 passed by Commissioner of Central Excise-AHMEDABAD-III)

 

C.C.E. & S.T.-Ahmedabad-iii

VERSUS

Lumen Cables Ltd

 

APPEARANCE:

Shri Prabhat K Rameshwaram, Additional Commissioner (AR) for the Appellant Shri Amal Dave, Advocate for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON’BLE MEMBER (TECHNICAL), MR. C.L. MAHAR

 

Final Order No. A/ 10936 /2023

 

 

 

 

C L MAHAR

DATE OF HEARING: 13.02.2023 DATE OF DECISION: 20.04.2023

 

 

The respondent assessee namely M/s. Lumen Cable Pvt. Ltd. was permitted by the Board of Industrial Approval, Ministry of Commerce, Government of India vide letter dated 21^st June 1993 to setup an 100% Export Oriented Unit for the manufacture of Ultra fine magnet wire 45-52 AWG. They were also granted Customs Warehouse license number 10/93-94 dated 07.03.1994 under Section 58 & 65 of the Customs Act, 1962.

2. On the basis of the letter of approval issued by the Ministry of Commerce, the respondent assessee was allowed to import capital goods, raw materials and packing material, etc valued at Rs. 4,69,17,618/- during the period covering financial years 1994-95 to 1998-99 where under the payment of customs duty amounting to Rs. 2,26,51,803/- had forgone by availing benefit of notification no. 53/91-Cus dated 03.06.1997 and at the sametime excise duty amounting to  4,01,324/- was not charged as per

 

the provisions of notification no. 1/95-CE dated 04.01.1995 during above mentioned period.

3. It has been the contention of the department that the duty free procurement of capital goods, raw materials, packing materials, etc. under the aforesaid notifications was subject to certain conditions which included that the respondent assessee was required to achieve a value addition of 70% however against the prescribed value addition norms of 70%, the respondent unit achieved an average value addition of just 25% and thus resulting in short fall in the value addition by 45% during the periodcovering financial years 1994-95 to 1998-99. Being more specific, the respondent assessee was required to fulfill export obligation to the tune of Rs.1540 lacs as per their legal undertaking against which they could only export goods valued at Rs. 647.44 lacs and thus resulting into export short fall of Rs. 892.56 lacs.
   • On the basis of the above premises, the departmenthas issued a show cause notice F.No.GNR/SCN/LC/EOU/2000 dated 9.5.2000 in which it proposed to recover customs duty amounting to Rs. 2,26,51,803/- for violation to the condition no. 6(iv) of Notification No. 53/92-Cus dated 04.06.1997 and central excise duty amounting to Rs. 4,01,324/- for violation of condition no. (c)(d) of notification no. 1/95-CE dated 01.1995. Initially the show cause notice was adjudicated by the Commissioner vide order-in-original no. 45/Commissioner/2009 dated 05.11.2009. In the said order, the Commissioner held that M/s. Lumen Cables Ltd. were liable to pay duty of customs and central excise. Being aggrieved of this order, the respondent assessee appealed before the tribunal and the Hon‟ble Tribunal vide their order no. A/1626- 1627/WZB/AHD/2010 dated 20.09.2010 remanded the matter for fresh decision after taking note of the fact that result of the appellate proceeding before DGFT, New Delhi against order-in-original no. 5/2009-10 passed by Development Commissioner was awaited.
   • In the denovo proceedings, the Learned Commissioner had decidedthe show cause notice dated 09.05.2000 vide order-in-original No.AHM-CEX- 003-COMM-010-13 dated 07.02.2013. The learned Commissioner has dropped proceedings initiated by the impugned show cause notice holding as follows:-

 

• The Hon’ble CESTAT have ordered the Commissioner for fresh decision after takingnote of the result of the appellate proceedings before DGFT New Delhi, against Order-In-Original No.5/2009-10, passed by Development Commissioner.
• I find from, the Appellate Order (submitted by the notice during the PH proceedings on 29-01-2011) issued by the Director, Department of Commerce, Ministry of Commerce and Industry, from F.No. 12013/2/2010-ADJ/ACdated 28-07-2011 that’ the OIO 5/2009-10

passed by the Development Commissioner was set aside by the Appellate Committee by deciding that “there was no statutory requirement of achieving any minimum value addition and also taking a period of 1 year

8 months in calculating NFE is too short. Considering the present performance of the unit and the provisions of EXIM policy and terms and conditions of LOP, the order of DC,KASEZ was set aside.”

• Further, I also find that this fact was also confirmed by the Joint Development Commissioner, KASEZ vide his letter dated 29-08-2011 in response to the Department’s letter regarding the status of the appeal, had intimated that the OIO No. 5/2009-10 dt.30.9.09 of the Development Commissioner KASEZ has been set aside by the Appellate Committee, Dept. of Commerce, Udyog Bhavan, New Delhi vide order issued from F.No. 12013/2/2010-ADJ/AC dated 28-07-2011. No further appeal was preferred against the said appellate order as intimated by Deputy Development Commissioner KASEZ vide F. No. KASEZ/100%EOU/III/138/93-94 dated 07.02.2013.
• I find it very explicit from the above appellate Order that there was no statutory requirement of achieving any minimum value addition and also considering a period of 1 year and 8 months in calculating NFE is too

 

 

• In light of the hon’ble CESTAT’s order and the Appellate Order in the matter, I find and hold that once there is no statutory requirement of achieving any minimum value addition as per EXIM policy as held by the Appellate Committee, the allegations made in the subject show cause notice that the non achievement of export obligation as well as value addition in respect of the noticee do not hold any merit and get defeated and as such the show cause notice deserves to be dropped.

 

 

• The department feeling aggrieved by the above mentioned order-in- original has filed this appeal before us. The main contentions of the department for not agreeing with the Order-In-Original are as follows:-
  • Letter of permission (LOP) No. PER 244 (1993) EOU/301/93 dated 21.06.1993 was issued by the respondent assessee to setup a 100% EOU by manufacture of Ultrafine Magnet Wire.
  • The above mentioned LOP under Para 2(III) has prescribed the value addition of 70% which was further reiterates vide letter EO-301/93 dated 21.12.1998. The said unit was also

 

required to fulfill export obligation of Rs. 1540 lacs as per the legal undertaking.

Since the respondent assessee achieved an average value addition of only 25% leaving a short fall of 45%, it was wrong on the part of the Commissioner to drop the proceedings without going into the conditions of the LOP which was invocable as per the undertaking given by the respondent assessee as required by notification no. 53/97-Cus dated 03.06.1997 as well as notification no. 1/95-CE dated 04.01.1995.

4. Wehave heard both the

 

• The learned Department representative has reiterated the contentions as mentioned in their appeal memorandum. He has also relied on the decision of namely M/s. SIMAC ELECTRICALS PVT. LTD. Vs. Union Of India reported under 2011 (263) ELT 69 (Guj.)and COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I reported under 2003 (159) E.L.T. 308 (Tri.-del.)
• The learned advocate appearing for the respondent assesseesubmitted that the respondent are manufacturing a unique product however, as they were new in the business, the value addition which was mentioned while applying for 100% EOU license was highly exaggerated and  It has further been mentioned that infact during the relevant exim policy of 1992-1997, the value addition norms for the subject product were only 20% and even in the subsequent exim policy of 1997-2002 as mentioned, no minimum stipulation for the product under the category of “Electric hardware items”. It has also been argued that a very short period of around 18 months was only taken for judging their export performance though, as per the policy requirement the period for fulfilling their value addition norms under the export period was five years. It has also been argued that they have explained their difficulties to the concerned Development commissioner, Kandla that they are unable to achieve such a high value addition norms of 70%. The Development Commissioner, Kandla has agreed to their submissions in downgraded value addition norms in the mid-term review of the export performance.
• After hearing both the sides and on perusalof record of the appeal, we find that the only question which need to be answered by us is whether the respondent assessee has violated the condition of notification no. 53/97-Cus dated 03.06.1997 and notification no. 1/95-CE dated 04.01.1995. The notification  53/97-Cus dated 03.06.1997 provides exemption to the

 

capital goods imported for the purpose of manufacture of articles for export by 100% exported oriented unit. The condition stipulated under the notification reads as under :-

(6) The importer executes a bond in such form and for such sum and with such security or surety as may be prescribed by the Assistant Commissioner of Customs, binding himself to fulfil the export obligations and conditions stipulated in this notification and in or under said Export and Import Policy and to pay on demand an amount equal to the duty leviable on the goods as are not proved to the satisfaction of the Assistant Commissioner of Customs to have been used in the manufacture of articles or in connection with the production or packaging or job work for export of goods or services out of India.

Thus, it can be seen that the 100% EOU has to fulfill the export obligation and conditions as mentioned in the export-import policy for the relevant period.

• The export-import policy for the period 1992-1997 under Chapter 9 provides the guidelines and procedure for Export Oriented Unit and units in the Export Processing Zone under Rule 97 which provides as follows:-

The unit shall achieve a minimum Value Addition (VA) of 20%, but units engaged in the manufacture or production of items specified in Appendix II shall achieve the Value Addition (VA) norms indicated therein. Items of manufacture for export specified in the letter of permission/letter of intent alone shall be taken into account for calculation of value addition and discharge of export obligation. Notwithstanding the above, projects shall be allowed to be set up without minimum value addition stipulation in sectors such as electronic hardware.

 

 

The appendix which have been provided to Rule 97 does not have specific entry „Ultrafine Magnetic Wires‟ as a electronic item however, the same is to be governed by norms which have been prescribed for the computer software-hardware which are mentioned in Appendix-1 which reads as follows:-

 

 

 

• It can be seen from the above Appendix-1 for the exim policy 2002- 2007 that electronic hardware does not have any minimum value addition norms, it need to be only a positive value addition.
• Since it is an admitted fact that the respondent assessee had achieved valueaddition norms of about 25% and if we go by the minimum percentage of value addition prescribed in the exim policy, we find that there has not been any substantial violation of value addition norms by the respondent‟s

 

100% EOU. We therefore, do not find any violation of the conditions of the exemption notification as mentioned above.

• We also take note of the Development Commissioner, Kandla order dated 17.03.2003 under which a show cause notice dated 29.10.2002 issued to the respondent assessee for non-fulfillment of the export obligation has been decided. The relevant part of the order of the Development Commissioner reads as follows:-

I have gone through fact of the case and the written reply dtd 17/3/2003. They had undertaken export total of 13320 kgs of finished products value at USD 39.96 lakhs in ten years period. During the initial stages the price was USD 240 per Kg. but later on the price fell down USD 91 per Kg. This is due to heavy international market as they were forced to sell at the rock bottom prices. Hence FOB value of export has reduced.

In view of the above facts and circumstances, I find no reason to penalize them for the shortfall in the export obligation / export performance, specially in view of the fact that the actual export obligation as per the show cause notice was to the tune of Rs. 1132.24 lakhs Whereas they have actually achieved export of Rs. 1055.24 lakhs which is short to the extent of 6.76% of stipulated export obligation. This is reasonable taking into account that the price available for their final products has been reduced by more than 62 % due to the competition in the International Market, mainly by China which was a factor beyond their control. In any case the cumulative NFEP has been maintained above the normal minimum prescribed NFEP of 20% since inception till 30.09.2002 also.

On total imports of 460.06 lakhs they have achieved export of 1344.28 lakhs which is value addition of 192%. I find that since the unit has achieved on cumulatively basis the minimum stipulated Net Foreign Exchange Earnings as a Percentage of exports (NFEP) and Export Performance (EP) as prescribed in the Appendix-I of the Export and Import Policy, 1997-2002, in force as also there is no non achievement of Export Obligation / Export Performance in US dollar and thus do not proceed for any penal action against them for their alleged non-achievement of export obligation / EP during the period from 01-04-1996 to 30-09-2002. I hold that they have met their Export Obligation upto 31.3.2001 as well as upto 30.09.2002 (i.e. in the second block of 5 years).

ORDER:

In view of the above facts and circumstances, I do not find any reason to proceed against the noticee firm. Therefore, in exercise of the powers vested in me under the Foreign Trade (Development & Regulation) Act, 1992, drop the proceedings initiated vide Show Cause Notices dated 29- 10-2002, without imposing any penalty against M/s. Lumen Magnetic Wires Ltd. Therefore, the Show Cause Notices No. KASEZ/100%EOU/IV/22/02-03, dated 29-10-2002, issued by the Development Commissioner, KASEZ, is hereby discharged holding the achievement of export obligations in the relevant period (1.4.1996 to 31.3.2001 & 1.4.2001 to 30.09.2002).

 

This is without prejudice to any other action that may be taken against them under any Law/Act/Rules/Regulation/Rule in force.

 

 

 

We also take note of the appellate order issued from F.No.12013/2/2010- ADJ/AC Department of Commerce, Ministry of Commerce and Industry dated 28^th July, 2011 whereunder, it has been held as under:-

6. The Committee after hearing all the arguments from the appellant and representative of DC,KASEZ decided that as per EXIM Policy there was no statutory requirement of achieving any minimum value addition. Secondly taking a period of 1 year 8 months in calculating NFE is too short. Considering the present performance of the unit and provisions of EXIM Policy and terms and conditions of LOP, the order of DC, KASEZ was set aside.

The above mention order is one which the learned adjudicating authority has relied and dropped the proceedings.

• We areof the view that to decide whether there has been any violation of relevant exim policy by any Export Oriented Unit, the most appropriate authority to decide the violation of the policy are the officers of the Ministry of Commerce and Industry and as can be seen from the above orders, they have categorically found that there has been no violation on the part of the respondent assessee of any provisions of the import-export policy and it has very categorically been provided that no statutory requirement of achieving any minimum value addition and therefore as a corollary no violation of any provisions of the exim policy.
• In our view, for demanding the forgone customs duty under the notification no. 53/97-Cus dated 03.06.1997 there need to be violation of the conditions of the import-export policy of the relevant period. Since the relevant authorities implementing the import export policy provisions have categorically found that there has not been any violation of the conditions therefore, we hold that no conditions of the exemption notification no. 53/97-Cus dated 03.06.1997 and notification no. 1/95-CE dated 04.01.1995 has been violated by the respondent assessee. We also take note of the fact that relevant period taken for judging export performance was very short

i.e. 18 months only which they were to achieve the entire export obligation in 5 years. We also take note of the fact that the Export Oriented Unit was continuously engaged in the export of their final product hence, we find that no conditions of the exemption notification as well as exim policy has been

 

violated by them and therefore, we find no short coming in the impugned order-in-original under challenge.

5. Accordingly,the appeal filed by the department deserves to be dismissed and thus we dismiss the appeal.

(Pronounced in the open court on 20.04.2023)

 

(RAMESH NAIR) MEMBER (JUDICIAL)

 

(C.L. MAHAR) MEMBER (TECHNICAL)