Moheb Ali M., Member (T)
1. The appellant company is a 100% EOU licensed to manufacture all types of sized yarn, grey fabrics, readymade garments, made-ups etc. The unit is required to export its entire production excluding rejects and permitted DTA sales as per the Exim Policy in force. The unit was granted a private bonded warehouse licence under Section 58 of the Customs Act, 1962 and was permitted to manufacture the said goods under bond as per Section 65 of the said Act by the Deputy Commissioner of Central Excise, Jalgaon division. The appellant company executed a bond with the Superintendent of Central Excise having jurisdiction for the due observance of the conditions laid down in the licence. Shri Rajesh Chhaganlal Choudhary is the proprietor of the appellant company.
2. The officers of DGCEI collected intelligence that the unit was procuring duty free polyester yarn and diverting the same into DTA. A search of the premises revealed that a quantity of 6,138 kgs. polyester texturised yarn imported duty free under notification 53/97-Cus. though entered in the bond register was not found in the bonded premises. Similarly, a quantity of polyester filament yarn weighing 3,795 kgs. imported duty free under the same notification and cleared under bill of entry No. 764843, though entered in the bond register was not found in the bonded premises. Customs duty on the goods found short for Rs. 5,62,300.85 was demanded under Section 28 and Section 72 of the Customs Act. In addition, a quantity of 5,676 kgs. of imported polyester texturised yam which was not accounted in the accounts maintained was seized. There are other seizures and irregularities with which we are not concerned.
3. The Commissioner of Central Excise, Nashik, who adjudicated the case confirmed the demand on polyester texturised yarn and polyester filament yarn, under Section 28 read with Section 72 of the Customs Act, confiscated the unaccounted polyester texturised yarn of 5,676 kgs. but allowed it to be redeemed on payment of a fine of Rs. 1,00,000/-, imposed a penalty of Rs. 5,62,300.85 under Section 11AC of the Central Excise Act, imposed a penalty of Rs. 50,000/- on the appellant firm under Rule 26 of the Central Excise Rules, 2002 for non-maintenance of records and demanded interest under Section 11AB read with Section 28AB of the Central Excise Act and Customs Act respectively.
4. Heard both sides.
5. The learned advocate assailed the order of the Commissioner, laying a lot of emphasis on the lack of jurisdiction of both the show cause notice issuing authority and the adjudicating authority. Me argued that a Deputy Director of DGCEI has no jurisdiction to issue a show cause notice as he was not appointed as a proper officer. In any case when suppression with an intent to evade duty is alleged even under normal period of limitation to demand duty, the proper officer is the Commissioner who has to issue a notice and in this case a Deputy Director of DGCEI had issued the notice; that warehousing licence was issued by an Assistant Commissioner and he is the proper officer to adjudicate the case and when Section 28 of the Customs Act was invoked, the officer who originally cleared the goods in the Customs House was the proper officer and not the Commissioner of Central Excise and that the proceedings initiated and conducted by officers who have no jurisdiction are bad in law. On merits he argued that penalty under Section 11AC of the Central Excise Act cannot be imposed when duty is demanded under the Customs Act; that order of confiscation under Section 111 of the Customs Act without mentioning the relevant clause under that section is untenable; that interest cannot be demanded under Section 11AB read with Section 28AB of the Central Excise Act and Customs Act respectively cannot be demanded and that duty on the shortages of imported goods is demanded without any evidence that the goods were clandestinely removed.
6. The learned JDR, Shri K.K. Srivastava for the Revenue, argued that in the case of Dhanlaxmi Garments Pvt. Ltd. and Anr. v. CCE, Surat (2004  RLT 784), the Tribunal held that customs duty could be demanded under Section 72 of the Customs Act; that the officers of DGCEI were appointed as customs officers and, therefore, are competent to issue show cause notices under the Customs Act; that the Deputy Director, DGCEI, had issued the notice invoking provisions of the Customs Act after obtaining the approval of the ADG, DGCEI, who is of the rank of Commissioner of Customs; that in the case of Konia Trading Co. v. CC, Jaipur (2004  RLT 475), the larger bench of the Tribunal held that DRI officers can issue show cause notice once they are appointed as customs officers; that DGCEI officers were also appointed as customs officers under Section 4 of the Customs Act; that the Commissioner has rightly imposed penalties under Section 11AC as the present case involves violation of both the Central Excise Act and the Customs Act that interest is demanded under Section 11AB of Central Excise Act read with Section 28AB of the Customs Act and, therefore, is tenable; that non-mention of a specific clause of Section 111 of the Customs Act is not fatal and that the order of the Commissioner is legal and proper and should be upheld.
7. We have considered the rival contentions and perused the following case law filed by the learned advocate.
i) CCE, Indore v. ONGC (1998  ELT 3 [SC])
ii) Alcobex Metals (P) Ltd. v. CCE (1992  ELT 108 [T])
8. The impugned show cause notice was issued by a Deputy Director of DGCEI with the approval of ADG DGCEI who is equivalent to a Commissioner of Customs and Central Excise. What has been alleged in the show cause notice is clandestine removal of imported goods. The show cause notice does not invoke proviso to Section 28 of the Customs Act. The show cause notice also refers to demand under Section 72 which is applicable to goods removed unauthorisedly from a bonded warehouse. The Central Government appointed the DGCEI officers as customs officers and we see no lack of jurisdiction insofar as issue of show cause notice is concerned. In regard to the contention that the proper officer to issue a show cause notice and adjudicate the case of removal of goods from a bonded warehouse, is the officer who licensed the warehouse under Section 58 of the Customs Act, we observe that the contention is not tenable. The powers of adjudication are specified by the Board under Section 124 of the Customs Act. Depending on the value of the goods and the duty foregone an appropriate officer can adjudicate a case. It is not necessary that the licensing authority under Section 58 of the Customs Act alone should adjudicate a case of unauthorised removal from a licensed bonded warehouse. We see no infirmity in the order.
9. The Commissioner confiscated imported goods lying unaccounted in the premises of the appellant under Section 111 of the Customs Act on the ground that they were not covered under any document evidencing clearance on payment of appropriate customs duty. We observe that it is a fact that the appellant did not offer any explanation as to where he acquired the goods from. The impugned goods were found in the appellant's possession. He would be the best person to know as to where he got the imported goods from. He failed to come out with any plausible explanation. The imported goods are liable to confiscation under Section 111(k). It is true that the Commissioner failed to mention Clause 'k' of Section 111 but that in itself is not fatal. It would have been a different matter had the goods not been liable to confiscation under Section 111 of the Customs Act.
10. In regard to imposition of penalty under Section 11AC of the Central Excise Act, we observe that the Commissioner demanded duty under Section 28 read with Section 72 of the Customs Act on the goods clandestinely removed. He could not have imposed a penalty under Section 11AC of the Central Excise Act. Insofar as demand of interest under Section 11AB of the Central Excise Act rend with Section 28AB of the Customs Act is concerned, we observe that the Commissioner was not certain under which Section and under which Act interest could be demanded. In the present case, imported raw materials were clandestinely removed and not the finished goods manufactured out of it. The correct provision in such a case would have been to invoke the relevant provisions of the Customs Act. The Commissioner failed to do so. Interest demanded vaguely is set aside.
11. Insofar as penalty of Rs. 50,000/- on the company under Rule 26 of the Central Excise Rules goes, we observe that the Commissioner imposed the penalty for non-maintenance of accounts by the appellant insofar as receipt of duty paid material and the subsequent production of goods. Such a penalty is imposable under Rule 26 of the Central Excise Rules. But, however, we find that the Commissioner himself dropped the proposal to confiscate the unaccounted goods (indigenous). We hold that a penalty of Rs. 5,000/- would meet the ends of justice. We accordingly reduce the penalty to Rs. 5,000/-.
12. The appeals are partly allowed as stated below:
(1) Demand for duty on the goods clandestinely removed is confirmed.
(2) Penalty under Section 11AC and interest under Section 11AB of the Central Excise Act is set aside.
(3) Confiscation of imported goods under Section 111 of the Customs Act is upheld.
(4) Penalty under Rule 26 of the Central Excise Rules is reduced to Rs. 5,000/-.
(Operative part pronounced in court)