York Knitwear Ltd. vs Asstt. Collector Of Customs And ...
2005 Latest Caselaw 165 Del

JUDGMENT

Manmohan Sarin, J.

1. Petitioner-M/s. York Knitwears Pvt. Ltd., by this writ petition, assails the impugned demand raised by the respondents, vide their letter of 20th September, 1991, amounting to Rs.2,65,047/-. Respondents issued a reminder vide their letter dated 23th October, 1991. The aforesaid amount of duty is claimed in respect of wastage of Angora woollen blended yarn weighing 1110.875 kg and vellore fabrics weighing 4150 kg.

2. Notice to show cause in the writ petition was issued on 4th April, 1991. Rule was issued on 2nd December, 1991. By interim order passed, the demand was stayed, subject to furnishing of Bank guarantee in the sum of Rs.2,65,047/-. The bank guarantee was furnished by petitioner and has been kept alive.

3. The facts giving rise to the filing of writ petition may be briefly noted:-

(i) Petitioner is a 100% export unit, established within the Noida Export Processing Zone (in brief NEPZ). Petitioner had imported the woollen and vellore fabrics for exporting woollen and knitwear garments. Being a 100% export unit, no custom duty was paid by the petitioner in imports by virtue of Notification bearing No.339/85 dated 21st November, 1985, as amended by subsequent Notification No.321/86, 405/86, 200/87, 352/87, 132/88, 232/88.

(ii) For getting the benefit of exemption under the Notification, the salient conditions required to be complied with, may be noted:-

a) Establishment of manufacturing unit in the Export Zone;

b) goods are imported against a license on terms;

c) imported goods are used for production of goods exported out of India;

d) the importer agreeing to execute bonds in the prescribed form by the Development Commissioner, binding himself to fulfilll export obligation and the conditions stipulated in the Notification or under the Import and Export Policy.

(iii) The Notification also provides for the Collector of Customs permitting the imported goods to be taken outside the Zone, temporarily without payment of duty for repairs, processing or display. The Notification also provides in Sub-clause (ix) that custom duty would not be leviable in respect (`c') scrap or waste material arising in the course of such manufacture, if such scrap or waste material is within such limits as may be specified in this behalf by the Central Government and is destroyed within the Zone; and (h) rags, trimmings and tailor cuttings arising in the course of manufacture of readymade garments, when cleared from the Zone provided that the percentage of such waste materials in the form of rags, trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Falta Export Processing Zone Board."

(iv) Petitioner claims that in pursuance to a contract entered into with a foreign buyer, the raw material was imported and finished goods were required to be exported to USSR on or before 15th November, 1999. Due to labour unrest, there was closure of the factory. About 11000 kg of the imported raw material remained unused at that time. Petitioner vide its letter dated 16th January, 1991 sought permission of respondent No.1 to take the raw material out to another unit at Ludhiana for processing and fabricating the balance quantity of garments in order to fulfilll the export obligation. The permission was granted by the Collector of Customs and Development Commissioner and communicated by the Assistant Collector of Customs vide its letter dated 30th January, 1991 (Annexure III). Petitioner, as required, also executed the bank guarantee. The bank guarantee, which is annexed with the petition, as Annexure I. The first condition of the bank guarantee was, "No wastage of the goods taken out shall be allowed." It is this clause on which reliance is claimed by the respondents to demand customs duty.

(v) Petitioner in the event, claims to have fulfillled the export obligation and also claims to have brought back the rags, trimmings etc., in the unit within the NEPZ, after manufacture.

4. Learned counsel for the petitioner in support of the writ petition submitted that the notification itself makes a provision for permitting taking out of the Zone, the raw material or the goods for repairs, processing or display, subject to such conditions, as may be prescribed. The raw material in this case, due to closure of the unit and labour unrest, was taken to another unit and used for manufacture and fabrication of garments. The Notification further provides in Clause (ix) (c) & (h), as noted in para 3(iii) above that duty would not be leviable in respect of the raw materials, which are taken out with permission and specially clause (h) makes a similar provision for rags, trimmings and tailor cuttings arising in the course of manufacture of ready made garments, when cleared from the Zone, provided that the percentage of such waste materials in the forms of rags, trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Falta Export Processing Zone Board."

5. It is contended that the wastage claimed by the petitioner is well within the norms fixed. The wastage in fact had been brought back to the Zone. Hence no duty ought to be charged in respect of this wastage. Learned counsel further submits that it is not even the contention of the respondents that the raw material i.e., woollen yarn and Vellore yarn, which was taken out of the Zone for production or manufacturing has not been so used for manufacture of goods, which have been 100% exported. It is also not the case of the respondents that any excess wastage has been claimed. Rather the wastage, rags, trimmings have been brought back also into the unit. In these circumstances, when permission had been granted and the basic notification provides that wastage is not to be subjected to duty, than it is totally arbitrary and unreasonable to claim duty on the basis of the condition put in the bank guarantee. Once all the necessary conditions for export and application of the notification have been met, then duty on the wastage cannot be claimed, as the wastage would have occurred irrespective of whether the goods were manufactured within the Zone or outside the Zone.

6. Learned counsel for the petitioner has placed reliance on Gopalsamy Industries Vs. M.M.T.C reported at 1989 (39) E.L.T. 390 (Madras). This was a case where stainless steel strips had been imported on concessional rates of custom duty for manufacture of watch straps and pen nibs. A question arose as to whether concessional rates of duty would be admissible also on the wastage in raw material during the process of manufacture. The Court held that, "there is absolutely no authority shown that when the entire material supplied under the concessional rate has been utilised for the manufacture of watch straps and pen nibs etc., if there is any wastage in the process of manufacture, whether there could be imposition of this duty on such wastages. The Customs Notification 152/77 dated 15.7.1977 does not contemplate such provision for imposition of such duty on wastages occurring in the process of manufacture." Further, it is not the case of respondents that the petitioner had kept away some of the raw materials supplied to him with some ulterior purposes.

7. Mr. Aggarwal on behalf of the respondents opposes the writ petition, firstly on the ground that petitioner could have availed of regular appellate remedy and writ petition was thus not maintainable. Secondly, he submits that petitioner applied for permission to take the goods for manufacturing outside the Zone. He submits that the manufacturing within the Zone is under the control and supervision of the Customs and for permitting any manufacturing or processing outside the Zone, complete control and supervision of the Customs is not possible. It is on this account that conditions are put. As it was not feasible to control and supervise the manufacturing outside the Zone, a condition has been put that wastage component would not be allowed and duty would thus be leviable on the said component. Petitioner having taken the advantage under the permission and having taken the goods out, cannot seek implementation of the terms, without complying with the conditions put in there.

8. As regards objection on maintainability of the writ petition, petitioner has claimed that the demand is ex facie illegal and without authority of law. The demand is contrary to terms and conditions of the Notification itself. Petitioner has also contended that the letter of demand had been issued without giving a show cause notice. In these circumstances, writ petition could be entertained. Besides, in this case, Rule was issued as far back as on 2nd December, 1991. It would sub serve the interest of justice to dispose of the matter on merits itself rather than petitioner being relegated after 13 years to the appellate remedy.

9. Coming to the second objection of the respondents regarding the petitioner being bound by Bank guarantee term, I am unable to accept the stand of respondents. There is no dispute with regard to the petitioner having fulfillled the export obligation. There is no dispute with regard to the raw material, which was taken out, having been utilised for fabrication of knit yarns and garments, which have been exported. Petitioner has claimed wastage, which is within the acceptable norms. Additionally, it is claimed that the entire rags, trimmings, wastage, have been brought back into the unit within the Zone. The Notification itself provides for no duty being charged on the waste component, in paras (c) and (h), as noted above. The surviving question would be whether custom duty can be levied on the basis of the condition in the bank guarantee. In my view, the answer to that has to be in the negative. Once duty is not leviable on wastage component of the raw material, it would not make any difference whether the manufacture had been done within Zone or done outside the Zone, with permission. Merely on account of a condition in the bank guarantee, wherein petitioner can at best be taken to have consented to payment of duty on waste component, it will not clothe such a term, with authority of law, which is required for the levy of customs duty. Petitioner was exempted from payment of custom duty on the waste component when manufactured within the Zone, subject to fulfillment of certain conditions, on manufacture of goods being done, with permission, outside the Zone, duty does not become leviable on waste component. The condition in the bank guarantee of payment of duty on the waste component is illegal and irrational. It has no nexus with the object sought to be achieved. It is not a demand raised under any statute or authority of law. Accordingly, the demand letter dated 20th September, 1991 is quashed. The bank guarantee is discharged.

Writ petition is allowed in the above terms.