C.C., Indore vs M/s C.T. Cotton Yarn Ltd.

The Appeal No.163/2007 is filed by Revenue challenging the impugned order whereas in appeal No.224/2007 the assessee is in appeal challenging

the very same order. For convenience the parties are referred to the status of assessee and department hereafter.

At the outset, it needs mention that this Tribunal vide interim order dated 22.6.2007 had directed to deposit the duty demand within a period of 6

weeks from the date of order and report compliance on 2.8.2007. The assesse challenged this order before the Hon'ble High Court of Madhya

Pradesh and the Hon'ble Court vide order dated 2.8.2007 in W.P. 3537/2007 passed interim order directing that the appeal filed before the Tribunal

shall not be dismissed for non- depositing of the amount as directed vide order of Tribunal dated 22.6.2007. The case has since been pending before

this Tribunal. Though several notices were issued, the assessee or counsel has not turned up. It is seen that notices by registered post with A/D have

been issued to the assessee by marking copy to the counsel informing the hearing dates as 5.8.2015, 17.12.2014, 25.3.2014, 13.2.2014, 19.11.2013,

01.10.2013, 11.4.2013, 11.2.2013, 28.9.2012, 11.7.2012, 15.5.2012, 27.3.2012, 07.2.2011, 8.9.2011, 26.7.2011, 21.4.2011, 23.2.2011, 02.11.2010,

5.10.2010, 11.8.2010, 18.6.2010, 3.5.2010, 11.01.2010, 11.9.2009. But these notices were returned with endorsement that factory closed. Notice was

then directed to be issued to the assessee through the Department vide letter dated 11.5.2012 the Superintendent of Central Excise, Range-X,

Malanpur has informed that there was no one available at the assessee factory site to serve the notice and therefore the hearing notice was affixed on

the gate of factory in the presence of Panchnama. On 11.4.2013 this Tribunal issued miscellaneous order directing the registry to get information from

the High Court of Madhya Pradesh as to what is the status of the case pending before the High court- Reply was received stating that the same is

pending before the High Court. Thereafter the case has come up for Regular Hearing several times and has been adjourned and notices repeated to

the assessee. The matter thus came up on 5.8.2015 also, when none appeared for the assessee and the learned DR brought to our notice, the interim

order passed by the Hon'ble High Court on 08.4.2015 and also order passed on 13.5.2015.

On perusal of records and considering the fact that all possible ways to effect service of notice to the assessee has been exhausted we are of the

opinion that no purpose will be served . by keeping the appeal pending on the file of this Tribunal. Further by order of the Hon'ble Court dated

08.4.2015 the Tribunal is directed to consider and decide the appeal on merits. The order was brought to out notice by Department only on 5.8.2015,

by producing a photocopy. The certified copy of the order of the Hon'ble Court is not produced. None has appeared for the assessee.

It is seen that the Hon'ble Court had directed the Tribunal not to dismiss the matter for non-deposit of the amount as per interim order passed by the

Tribunal on 22.6.2007. There is no stay in disposing the appeal on merits. This is clarified by subsequent orders dated 8.4.2015 and 13.5.2015. What is

stayed is the dismissal of the appeal under Section 35F of the Central Excise Act, 1944 for non-compliance of direction of pre-deposit during the

pendency of appeal. With this view we proceed to consider the appeal on merits.

The issue that poses for consideration in this appeal is whether the assessee is liable to pay the customs duty of textile machinery imported by them

in the year 1997 for use within their premises as a 100% EOU in terms of Notification No.53/97-CUS dated 3.6.1997.

Brief facts of the case are as under:

The assessee who was engaged in manufacture of 100% cotton yarn, purchased textile machinery (Automatic Cone Winder) in 1997. Being a 100%

EOU they were entitled for duty free import of capital goods under Notification No.53/97-Cus dated 03.06.1997. This notification imposed conditions

for availing duty exemption. Sub clause (a) and (b) of Clause 5 of the said notification states that such capital goods shall not be removed to any other

place without permission from Department and such permission can be given on payment of Customs duty leviable on the depreciated value. The said

Machine was purchased by assessee by availing a loan from M/s Tata Finance Ltd. (TFL) under a Hire Purchase Agreement and the goods were

used by assessee upto the year 2000. The assessee defaulted the installments, M/s TFL approached Mumbai High Court for recovery of loan. In such

recovery proceedings the machine was sold by Court Receiver in October 2001 and the same was purchased by M/s Vamptex Traders, Coimbatore.

It is the departments' case that assessee did not intimate them about the court proceedings initiated by M/s TFL, or the removal of the goods by way

of sale to M/s Vamptex traders. When the department came to know about removal of goods investigation was conducted and separate Show Cause

Notices were issued to the assessee, M/s TFL and M/s Vamptex Traders. Original authority passed order confirming the duty demand of

Rs.33,65,344/- against assessee. Penalty was not imposed on any of the noticees. The assessee filed appeal and vide impugned order the

Commissioner (Appeals) taking into account that the machine was warehoused in the premises of the appellant till 31.5.1998 and removed in October,

allowed deprecation for a period of 3 (three) years and 2 (two) quarters at the rate of 45% in terms of Board Circular F.No.305/52/85-FTT dated

15.4.1987. The duty liability upon the assessee was thus reduced to Rs.18,50,939/- as per the impugned order. The Revenue has filed the above

appeal challenging the allowance of depreciation. The assessee has filed appeal challenging the levy of duty. Before parting with the narration of facts

it would be necessary to state that in the impugned order the Commissioner (Appeals) has observed that the assessee may take appropriate steps, as

may be necessary, to collect the duty payable from M/s Vamptex traders so that the ultimate burden of duty does not fall on them. It is also worth to

mention that the show cause notices issued to M/s TFL and M/s Vamptex traders was confined only to imposition of penalty under Section 117 of

Customs Act, 1962, whereas only the assessee was called upon to show cause as to why customs duty on the machine should not be demanded.

The assessee availed duty exemption under Notification No.53/1997 dated 3.6.1997 and executed bond agreeing to abide by the conditions of the

notification for exemption of duty, and on failure to pay the duty. As per these conditions the assessee has to seek permission from the development

Commissioner before removal of the machine from the premises. If the machine is removed, the assessee is liable to pay customs duty.

The contentions raised by the assessee are that:-

(a) The machine was imported by filing a B/E on joint basis, by assessee and M/s TFL, as the machine was purchased under a Hire Purchase

agreement. That being a H. P. agreement the ownership of the goods remained with M/s TFL. The machine was subsequently recovered by M/s TFL

under a Court order. Therefore it is M/s TFL being the real owner who are liable to pay the duty.

(b) That the assessee has not intentionally removed the goods. Due to default in installments M/s TFL approached the Mumbai High Court and

obtained orders for recovery in an Arbitration Proceeding against the assessee. As there is no intentional removal, and the machine being removed

under a court order, there is no violation of the provisions of the notification.

(c) It is also their contention that M/s Vamptex Traders, having purchased the machine in 'as is where is' condition and accepting the 'Terms and

conditions' which specifically state that the purchaser shall be liable to pay all taxes and duties applicable; after sale of machinery to M/s Vamptex

Traders, they are liable to pay the duty.

(d) In any case, the machine was imported in 1998 and removed/taken away by a court order in 2001. That therefore the assessee is entitled to claim

depreciation in the value in regard to duty demand.

As already stated, the notices issued to M/s TFL and M/s Vamptex Traders did not include proposals to levy duty but was confined to levy of

penalty under 117 of the Customs Act, 1962. The primary adjudicating authority vide order dated 31.8.2006 has dropped levy of penalty against all the

three noticees, observing that it would not be proper to impose penalty as the machine was removed by order of court. The Department has not

challenged these findings and the same has reached finality. The adjudicating authority confirmed the duty demand against the assessee.

The foremost contention raised by the assessee is that as the machine was purchased under a Hire Purchase Agreement, they are not the owner of

the machine. M/s TFL being the Financier is the owner and is liable to pay the duty. Though this argument may appear to be attractive on the first

blush of it, the same is unacceptable. In a Hire Purchase System, the possession of goods is transferred to the hirer by the financier at the time of

entering into the hire purchase agreement with a facility to pay the price in installments. The ownership in goods passes to the hirer only on payment

of the last installment. The hirer has an option to purchase the goods at any time during the term of agreement by paying the entire installments. In the

instance case, the assessee defaulted the installments and through a court order, the machine was recovered/taken possession of by M/s TFL.

Therefore the argument that the responsibility to pay the duty is shifted to M/s TFL does not hold any water. The liability to pay the duty arises from

the bond executed by the assessee with the Department obliging to abide by the conditions in the notification. The plea that the assessee did not violate

the provisions of the notification is therefore not sustainable. It is due to the act of default in installments on the part of the assessee that has resulted

in recovery of possession of the machine by M/s TFL. It can be safely concluded that assessee is primarily liable to pay the duty.

The first appellate authority has examined the liability of M/s Vamptex Traders. In Para 12 of the Show Cause Notice it is seen stated as under:

Further, as per the ""Terms & Conditions"" which were agreed upon by both the parties t.e. by Noticee No. 2 and 3, regarding sale of the said suit

machinery, Noticee No. 2 made it very clear at clause-I which follows as herein under:- ""The machinery namely ONE MURATA N0.7 MACH ....

CONER AUTOMATIC CON EWIN DER (TYPE MAGAZINE), more particularly described in the schedule written herein under shapllu bt eu p

for sale on ""as is where is ""basis and the sale is subject to I the payment by the purchaser of all outstanding duties (inclusive of Customs duty. if

applicable) taxes and liabilities attached to the said machineries"" and as per clause 13 ""the purchaser shall be liable to pay all Central State. Municipal

& Other Taxes. duties. levies. cesses, all outgoing etc. as may be applicable in respect of the said machinery from any point to timer before the

confirmation of the same and thereafter. The price offered by the purchaser is a net price excluding all the Central, State, Municipal & Other Taxes,

duties, levies, cesses, all outgoing etc."" Thus sale was subject to payment of customs duty. (Annexure X).

M/s Vamptex Traders having taken over the goods which are liable to customs duty, being successor of the defaulting importer is liable to meet

the dues. As per the proviso to Section 142 inserted by Act No. 23 of 2004, the successor of defaulter would also be held liable. The department has

failed to raise any demand of duty against M/s Vamptex Trader in the SCN issued on 28.6.2005. The Commissioner (Appeals) observed that the

assessee could take steps against M/s Vamptex traders to recover the amount paid. The adjudicating authority has committed a grave error by not

proceeding against M/s Vamptex Trader for demand of duty.

The Commissioner (Appeals) has allowed depreciation of 45% observing that the machine was removed after a period of 3 (three) years and 2

quarters relying upon the F.No.305/52/85-FIT. Revenue vehemently opposed the reduction in duty demand and contended that the depreciation

allowed is on the higher side. The machine in question is an Automatic Cone Winder. Taking into consideration, the peculiar facts presented by the

case, we do not think it is a fit case to interfere with the depreciation allowed by the first appellate authority. On these grounds we uphold the order

passed by the first appellate authority.

From the above discussions, the appeal filed by the Revenue and that of the assessee both are dismissed.

(Pronounced on 24.08.2015)