By TIOL News Service

MUMBAI, SEPT 06, 2013: THE appellant has a power plant with an integrated facility for power generation. They were importing "Naphtha" by availing benefit of Notification NO. 21/2002-Cus dated 01.03.2002 as amended. The appellant submitted End Use Certification for the period 20.11.2006 to 31.05.2007 and informed that out of total imported quantity of 388542.793 they had consumed 380946 MT Naphtha resulting in a closing balance of 8050 MT of Naphtha lying unutilized.

The Asst. Commissioner confirmed the duty of Rs.7.92 Crores along with interest by disallowing the aforesaid exemption notification.

In appeal, the Commissioner (A) directed the appellant to either utilize the Naphtha or dispose it off as per law before 30.06.2011. The appellant informed the AC that it was not viable for them to utilize the balance quantity of Naphtha and requested more time for payment of duty and interest. Later, they informed that they had reconciled the quantities of Naphtha and resultantly they have unutilized quantity of 41993.6 MT. The department employed the services of an independent surveyor and came to the conclusion that since the appellant failed to declare the actual quantity of Naphtha in the end use certificate, the excess quantity of 34696.73 MT was detained.

The appellant discharged customs duty of Rs.30.64croresalong with interest of Rs.16.46 Crores on this quantity as on the quantity of 8050 MT they had already paid Customs duty and interest.

Consequently, proceedings were initiated against the appellant on the premise that they have imported Naphtha in violation of the condition of the Notification No. 21/2002-Cus by way of showing excess quantity as consumed when compared to actual quantity consumed by submitting false End Use Certificate and thereby evaded Customs duty on suppressed quantity of Naphtha. Proposals were also made for confiscation of the aforesaid quantity of Naphtha for demand of duty, interest and penalty.

The Commissioner of Customs, Pune denied the benefit of notfn. 21/2002-Cus confirmed the duty and ordered the confiscation. However, he allowed redemption of the goods on payment of fine of Rs.1 crore and also imposed an equal amount of penalty u/s 114A of the Customs Act, 1962.

Aggrieved by the same, the appellant is in appeal before the CESTAT.

It is inter alia submitted that the provisions of s. 111(o) are not attracted since there has been no violation of the conditions of the exemption notification 21/2002-Cus; that the balance quantity of naphtha is still lying with the appellants; that on their own they informed the department that the stock of imported naphtha lying in stock was not 8050 MTs but 31,189.60 MTs which shows the bonafide of the appellants; they had paid duty and interest and they have also paid 25% of the penalty; that there is no question of any penalty, when the bonafide of the appellants is not in doubt.

The Bench observed -

"5. We have carefully considered the submissions and perused the records. Undisputedly the appellants were importing naphtha for generation of electricity on nil rate of duty in terms of Notification No. 21/2002-Cus as amended. However, the appellants could not utilize the entire quantity of naphtha lying unutilized. The jurisdictional Asst. Commissioner demanded duty for the said quantity. The learned Commissioner (Appeals) vide his order dated 21.02.2011 ordered the appellant to either to utilize the balance quantity of Naphtha or dispose it off as per law. On the basis of further information supplied by the appellant and the basis of survey carried out it was found that 33950 MT of Naphtha was not accounted besides 8050 MT of Naphtha already reported. It is also not in dispute that the appellants have at no stage removed or made an attempt to remove the quantity disclosed at the initial stage and the quantity ascertained subsequently. However, the department confiscated the goods under Section 111(o) which reproduced here-in-under for convenience of the reference.

"111(o) any gods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer.

We find that it is not the case of the department that the appellant had imported the goods in respect of which any prohibition/restriction was applicable or they have contravened any condition of the Customs Notification while importing the goods. The appellant could not use certain quantity of the entire amount of Naphtha imported subsequently since they found generation of electricity not viable by use of Naphtha and found more viable by using the natural gas. We further find that this is not a case of levy or non-levy of duty by reason of misstatement or suppression of facts etc. but a case of not fulfilling the end use condition of the exemption notification. In these circumstances, we find that confiscation and penalty is not justified in this case. Therefore, confiscation of Naphtha and order for redemption fine and penalty imposed under Section 114 of Customs Act, 1962 are set aside. The appellants are not denying the duty is payable therefore, they have discharged the duty liability rightly. The appellants did not declare the correct quantity of the balance of unutilized Naphtha. Therefore, they are rightly liable to pay interest on the quantity which was not disclosed while furnishing End Use Certificate. Hence the order of appropriating interest amount in case of duty paid on 33950 MT of Naphtha is upheld.

5.1 So far as interest on 8050 MT is concerned the same will be liable to be paid from first day of the month succeeding month of Commissioner (Appeals)' order dated 21.02.2011 since no one has challenged the said order."

The appeal was disposed of in the above terms.

(See 2013-TIOL-1323-CESTAT-MUM)