M/s Century Yarn And Anr. vs CC, Indore

Appeals are filed against order-in-appeal dated 31.3.2010 in terms of which customs duty demands amounting to Rs.6,63,988/- and Rs.2,15,235/-

were confirmed along with interest, and equal mandatory penalty under Section 114A of Customs Act, 1962 was also imposed.

The facts, briefly stated, are as under:

The appellant is a 100% EOU. It procured raw material without payment of duty under Notification No.53/1997-CU dated 3.6.1997. The appellant

imported cotton on the basis of procurement certificate issued by the designate authority of Customs & Central Excise based on which the Custom

authorities at the port allowed clearance thereof duty free. The goods were received in the appellant's factory and at the time of weigment while re-

warehousing found to be short (in weight), although the number of bales were the same as imported and were intact. The appellant raised debit notes

on the supplier for the quantity short received. The adjudicating authority confirmed the demand on the amount which was recovered by the appellant

from the foreign supplier on account of such shortage noticed.

The appellant has contended that there was no pilferage of the goods imported and the difference in the weight of cotton normally arises as a result

of variation in the moisture contained at the time of supply and at the time of receipt of goods in the factory and that realising the same even the

CBEC had issued a Circular No.462/41/93-CU dated 15.4.83 stating that variation up to 1% may be condoned.

Ld. DR on the other hand stated that the goods having been short received the duty is recoverable.

We have considered the contentions of both sides. We find that there is no allegation either in the show cause notice or in the order of the first

appellate authority that there was any diversion of the goods after their import duty free. The number of bales received in the factory were the same

as shown in the Bill of Entry and they were found to be intact and unopened at the time of re-warehousing in the factory which was done in the

presence of the custom officer. Cotton is a kind of raw material which can vary in weight marginally depending upon its moisture content. Possibly for

that reason only CBEC vide the aforesaid circular dated 15.4.1983 (supra) stated that loss in weight up to 1% was condonable, although it gave no

scientific basis as to how the figure of 1% was arrived at. Further, there is nothing sacrosanct about the figure of 1% mentioned in the said letter

CBEC. For example if the difference in weight up to 1% was a result of diversion of goods, that would be chargeable to duty. Notification No.53/97-

Cus. exempts the goods imported for use in the manufacture of export goods. The entire quantity of bales of cotton imported was received in the

factory intact and there is neither any allegation of diversion nor any evidence to that effect. Even the supplier reimbursed the amount towards

shortage noticed in weight which also supports the view that there was no diversion of the duty free goods. Thus none of the conditions of the

exemption Notification No.53/1977-Cus. are violated. In these circumstances the impugned demands are totally unsustainable and are therefore set

aside. As a consequence, the appeals succeed and are allowed.