CE - Rule 21 of CER, 2002 - Appellant is eligible for remission of duty in respect of goods cleared for export under bond but which were destroyed at port before same could be exported: CESTAT Larger Bench
By TIOL News Service
AHMEDABAD, NOV 17, 2014: THE appellant cleared goods under ARE-1 for export under bond without payment of duty and had taken the goods directly to the port of export i.e. JNCH, presented the Shipping Bill and "Let Export" order was allowed. However, the goods could not be loaded on the ship for export due to Fire Accident at the port. The goods were badly damaged and the said goods were allowed to be taken back to town by Customs officers at JNCH.The damaged goods were brought back to the factory.
The assessee had informed jurisdictional CE authorities whereupon the R/S along with the Inspector verified genuineness of the intimation and verified the condition of the damaged goods. Insurance claim in respect of the same was also settled by the insurance company, excluding the central excise duty element.
Thereafter, assessee filed a claim for remission of duty which was rejected on the ground that the destroyed finished goods had been removed from factory premises for export, thereby primary condition of eligibility for Remission of duty on destroyed goods is not fulfilled as required under Rule 21 of CER, 2002.
The Single Member Bench who heard the appeal observed that there were two streams of view in the field in the matter of granting remission of duty.
In the following cases, remission was held to be admissible -
++ Kuntal Granites Ltd. 2007-TIOL-930-CESTAT-BANG
++ Associated Capsules Pvt. Ltd. 2006-TIOL-1497-CESTAT-MUM
++ Liva Health Care Ltd. 2008-TIOL-193-CESTAT-MUM
Whereas, inter alia, in the following decisions a contrary view was taken -
++ Hind Nippon Rural Indus. (P) Ltd. 2004-TIOL-272-CESTAT-BANG
++ RohaDyechem Ltd. 2004-TIOL-408-CESTAT-MUM
And, therefore, the Single Member Bench referred the matter to the President for consideration by the Larger Bench.
We reported this referral order as 2009-TIOL-2566-CESTAT-AHM. That was five years ago.
The Larger Bench has pronounced its decision recently.
The issue referred is -
"Whether 'Remission of duty' is allowable when goods, cleared from factory without payment of duty for export under Bond, are destroyed due to unavoidable accident before the said goods could be exported?"
The Bench after considering the detailed submissions made by both sides & extracting the contents of rules4 &21 of CER, 2002 observed -
++ Rule 4 ibid reads that the duty of excise becomes payable in normal circumstances on removal from factory, unless otherwise provided. However, in case of clearances for exports, conditions & procedures have been prescribed vide Notification No.42/2001-CE(NT), dated 26-6-2001 which lays down that goods cleared without duty under Bond for export, if not exported within 6 months, the manufacturer will be liable to pay duty. These conditions also show that it will be the liability of the said manufacturer exporter to pay duty if the goods are not exported after clearance from factory. Furnishing Bond with surety and security suggest that ownership and possession of the goods cleared for export remains with the manufacturer only and such ownership and possession has not changed.
++ It is clear from sections 3 & 4 of CEA, 1944 that duty is levied on manufacture and collected on removal of goods on the value of the goods on date, time and place from where such goods are sold for consideration. As duty is on "manufacture", and collected on "removal", the term 'removal' is more relevant, which would apply to place from where the sale takes place or the ownership of goods is transferred from seller to buyer at the time of removal from such place.
++ The provisions of Rule 21 of the CER, 2002 provides that Remission can be allowed when goods in question have been lost or destroyed by natural causes or by unavoidable accident or are claimed by the manufacturer as unfit for consumption or for marketing, at any time before removal . Hence, in absence of any clear definition of "Removal", in our considered view, the phrase "place of Removal" is an important expression/factor, which has to be decided first for charging duty or considering Application for Remission of duty.
++ The Appellant claims that they had cleared goods on CIF sale basis for export, but such sale would be completed at the port of shipment because (i) in terms of CIF Sale Contract, such goods and the property in the goods remained with the seller [appellant] of the goods till the delivery of the goods in acceptable condition to the purchaser (ii) the seller [Appellant] has borne the risk of loss of or damage to the goods during transit to the destination and (iii) freight charges were an integral part of the price of goods. As the goods in question were destroyed before the same was completed i.e. goods have to be treated as destroyed in the hands of appellant before its removal.
++ Decision cited by AR are not applicable in the facts of this case as they pertain to period prior to amendment made in section 4(3)(c)(iii) of CEA 1944 w.e.f. 14.05.2003.
++ As goods in question were cleared under ARE-1 for export under bond, the sale would be completed at load port only as per definition of "Place of Removal" given u/s 4(3)(c)(iii) of the CEA, 1944. Under these circumstances, ownership of the goods and duty liability is also extended upto the load port and if, the goods are not exported, concerned manufacturer will be required to discharge the duty liability. Therefore, 'removal' also gets extended upto the port of shipment from where the sale would be completed and when the goods were to be exported. Hence, if the goods cleared for export under Bond are destroyed before the export, ownership of the said goods and also duty liability, if any, would be always to the account of appellant assessee and that the said goods could be considered having been destroyed before removal and the benefit of Remission of duty is allowable in such an exceptional situation in terms of Rule 21 of CER, 2002.
++ By referring to section 5 of Central Sales Tax Act, we also find that sale of goods can be deemed to take place in the course of Export of goods out of the territory of India only if the sale for such export is effected by a "transfer of documents of title to the goods, have crossed the custom frontier of India". It is settled position of law, in view of the decisions placed before us, that in case of exports the "place of removal" is the port of shipment.
++ We are of the view that the goods cleared for export under Bond which were destroyed before the same could be exported, can be treated as having been destroyed before removal only. This would be the fair interpretation of the Rule 21 of the CER, 2002. Thus, primary condition of eligibility of Remission of duty on the destroyed goods is fulfilled as required u/r 21 of Excise Rules 2002.
Held: Appellant is eligible for remission of duty u/r 21 of CER, 2002 in respect of goods cleared for export under bond but which were destroyed at port before the same could be exported.
The reference was answered accordingly.
(See 2014-TIOL-2286-CESTAT-AHM-LB)
