By TIOL News Service

MUMBAI, FEB 27, 2013:  THE appellant had set up a private bonded warehouse under section 58 of the Customs Act, 1962 for warehousing of imported bulk drugs. The private bonded warehouse was duly insured with endorsement in favour of Commissioner of Central Excise and Customs. On 26 th July, 2005, due to heavy rains and consequent floods, the goods stored in the warehouse which consisted of duty paid goods and as well as goods bonded without payment of duty were damaged.

The appellant sought remission of customs duty on imported goods bonded under section 23 of the Customs Act.

Their application for remission was rejected by the jurisdictional Asstt. Commissioner on 9 th August, 2007. The Appellant preferred an appeal against the said order and the Appellate Commissioner vide his order dated 28 th November, 2007 set aside the order and directed the adjudicating authority to re-adjudicate the matter. The case was re-adjudicated vide order dated 31/03/2008 and the Asst. Commissioner, after satisfying that the goods on which remission was claimed were damaged and were required to be destroyed as per law, allowed remission of duty of Rs.41,83,281/- under section 23(1) of the Customs Act. The said order of remission became final as there was no appeal filed against the same by the Revenue.

In the meanwhile, the appellant had lodged their claim with the Insurance Company and the claim was settled for a sum of Rs.1,93,77,041/- and the appellant received a sum of Rs. One crore as ‘on account' payment. For the balance amount, after adjusting for a reinstatement value of Rs.54,261/-, the Insurance company issued a cheque for a sum of Rs.93,22,780/- in the joint name of the department and the appellant for which the appellant sought a “No objection certificate” from the department.

Thereafter, the appellant wrote a number of letters to the jurisdictional authorities for issue of a No objection Certificate for claiming insurance from the Insurance Company vide letters dated 27-3-2008, 28-7-08, 9-9-08, 16-9-08,29-6-09, 19-4-10 and 30-7-10. On 17-08-10, the jurisdictional Asst. Commissioner sought certain information regarding total quantity of goods lying in the warehouse on 26-07-05, total quantity of goods damaged and total quantity of goods salvaged which were ex-bonded subsequently and the appellant provided the relevant information along with the details of settlement made by the insurance company. On receipt of the same, the department took up the matter with the Insurance company who vide letter dated 13-12-2010 informed the department that they had paid a sum of Rs. One crore to the appellant directly and the cheque for the balance amount of Rs. 93,22,780/- was issued in favour of the Commissioner of Central Excise and the appellant, which protects the department's interests, if any.

After hearing the appellant on 1-3-2011, the jurisdictional Asst. Commissioner passed an order dated 31-3-2011 wherein he confirmed the demand for customs duty of Rs. 41,83,281/- and directed the insurance company to credit the said amount in the account of the Commissioner of Central Excise and remit the balance amount to the appellant. Pursuant to the said order, the Insurance company deducted the said amount from the sanctioned claim and remitted the balance amount to the appellant.

Against the said order, the appellant preferred an appeal before the lower appellate authority. The department also filed an appeal against the said order dated 31-3-2011 on the ground that the amount of duty demand was over and above the monetary limit prescribed for Asst./Deputy Commissioner. The lower appellate authority allowed the appeal filed by the department by setting aside the order of the Asst Commissioner dated 31-3-2011 and also rejected the appeal filed by the appellant.

Hence the appellant is before the CESTAT.

The appellant submitted that the earlier order of the Assistant Commissioner granting them remission of the duty u/s 23(1) of Customs Act was not challenged by the department at any point of time and therefore, the same had become final. Inasmuch as since the Asst. Commissioner could not have reviewed his own order dated 31-3-08 after a lapse of 3 years the order is bad in law apart from being time-barred. It is also submitted that the remission of duty under the Customs Act is a benefit given to the importer and such benefits have no bearing on the benefit claimed under the Insurance Act, 1938. Reliance is placed on the decisions in Wellspun Terry Towels [2002-TIOL-35-CESTAT-MUM] and Jindal Vijayanagar Steel Ltd. in support. It is, therefore, prayed that the order be set aside and the refund of Rs. 41,83,281/- collected from the Insurance Company towards customs duty be allowed.

While considering the stay application, the Bench had directed the Revenue to file a report from the Asst. Commissioner explaining the circumstances under which he had asked the Insurance Company to remit the duty portion, especially when the claim of remission of duty has already been settled by the department.

In the report filed, it is informed -

”It is a fact that remission was granted vide Order-in-original No.211/Remission/07-08 dated 31-3-2008. However, later as the assessee asked for NOC from the Department for settlement of their insurance claim in respect of the same goods which remission of duty has been claimed, as the insurance policy was jointly in the name of the Commissioner and the assessee.

Therefore, it was felt that, the assessee was going to be doubly benefited (unjustly enrich) by having the benefit of remission of duty as well as claiming the amount from the insurance company. Accordingly, after following the principles of natural justice, an order to the effect that the amount claimed as remission of duty should be made good to the Department from the amount of the insurance claim to be recovered by the assessee, the Order-in-original No.T-III/39/2010-11 dated 31-3-2011 came to be passed on the issue…..”

The Revenue representative reiterated the findings of the lower authorities.

The Bench observed -

“6.1 It is an undisputed fact that an order of remission of customs duty for an amount of Rs.41,83,281/- was passed vide Order-in-original No.211/Remission /07-08 dated 31-3-2008 pursuant to an Order-in-appeal dated 28-11-07. Both these orders have not been challenged by the department at any point of time and therefore, they have become final. Therefore, the issue of remission of duty granted to the appellant vide order dated 31-3-08 cannot be re-opened by the department, that too, after a lapse of 3 years. The Asst. Commissioner, after having granted remission, cannot review his own order and direct for recovery of the amount remitted and such an order is bad in law and we hold accordingly.

6.2 In the present case, the goods were destroyed by rain and floods and became unfit for human consumption and had to be destroyed as per law. Accordingly, the appellant was entitled for remission of duty as the goods were bonded. From the records of the case, it is seen that the value of the goods destroyed in the floods were as follows:-  

Thus as against a loss of goods valued at Rs.2,11,60,253/-, the insurance claim was settled at Rs.1,93,22,780/-. As the amount settled in favour of the appellant does not include any customs duty in respect of bonded goods, the question of recovering the duty remitted does not arise at all and we hold accordingly.”

Holding that the ratio of the decisions cited by the appellant applies to the facts of the case, the Bench allowed the appeal with consequential relief. Inasmuch as the department was directed to refund the amount of Rs.41,83,281/- received from the Insurance company to the appellant forthwith.

(See 2013-TIOL-375-CESTAT-MUM)