Whether remission of duty is allowable in case of goods cleared for export under bond are destroyed in accident before they are exported?

Case:- M/s HONEST BIO-VET PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD-I

Citation:- 2014-TIOL-2286-CESTAT-AHM-LB

Brief Facts:-In this proceeding, a reference was made by Single Member Bench of CESTAT at Ahmedabad to the Hon'ble President, CESTAT for consideration as to whether the disputed issue should be placed before the Larger Bench as there are two contrary views of the Tribunal on the disputed issue. The reference was made by Misc. Order No. M/988/2009-WZB/AHD, dt.21.08.2009 in Appeal No. E/371/2009 [2009-TIOL-2566-CESTAT-AHM]. Accordingly, the Larger Bench Constituted for deciding disputed issue heard the matter on 03/04.09.2014.
The issue referred to the Larger Bench in this case 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 relevant facts that arise are that M/s Honest Bio-Vet Pvt Ltd, Ahmedabad [referred to as the Appellant] a manufacturer of excisable goods, registered with central excise authorities at Ahmedabad, cleared goods under ARE-1 for export under bond without payment of duty, on CIF terms 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 damaged goods were allowed to be taken back to town by customs officers at JNCH, and damaged goods brought back to the factory. The assessee had informed jurisdictional Central Excise Officers whereupon the Superintendent of Central Excise along with his excise Inspector, verified genuineness of the intimation and verified the condition of the goods damaged. Thereafter, assessee filed a claim for remission of duty on 15.08.2008, which was rejected on the ground that the destroyed finished goods had been removed from factory premises for export, thereby primary condition of eligibility of Remission of duty on destroyed goods is not fulfilled as required under Rule 21 of Excise Rules 2002.
During personal hearing, the appellant's authorised representative Shri P. P. Jadeja has drawn attention to provision of Rule 21 of Central Excise Rules 2002 for consideration to allow remission of duty, which is also reproduced hereunder:-
RULE 21. Remission of duty. - Where it is shown to the satisfaction of the Commissioner that goods 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, he may remit the duty payable on such goods, subject to such conditions as may be imposed by him by order in writing.

Appellant Contention:Ld. Consultant also submitted written synopsis of the case and briefly argued the matter on the following points:-
(i) The excise duty levied is on manufacture and collected on removal on Adv basis i.e. on percentage of value of the goods in question. Therefore, in case of transaction of sale, the assessable value of the goods would be the value of goods at the place of removal of goods in the hands of appellant.

(ii) "Sale" as defined u/s 2(h) of the Central Excise Act 1944 means "transfer of possession of goods from one person to another person". Thus, as long as the possession of the goods is not transferred to any other person by the appellant, the said sale has not been completed. When the goods are cleared for export under Bond, the ownership and possession of the said goods remains with the appellant only. However, when the said goods get destroyed under the ownership and possession of the appellant, the goods would be treated as having been destroyed before removal only and eligible to Remission of duty.
(iii) Section 4(3)(C)(iii) for "Place of removal" was inserted w.e.f. 14.05.2003 vide section 136 of Finance Act 2003 which has provided that depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory would be the place of Removal". Thus, in the cases of goods cleared for export under Bond, the place of removal will be the port of shipment from where the goods are to be exported after 14.05.2003. It is a settled position of the law that in case of exports of the goods, the place of removal is the load port of shipment. Accordingly, duty payable would be the value of the goods at the load port, in this case.
(iv) In terms of section 5 of Central Sales Tax Act, the sale in case of exports will be completed only if the sale for such export is effected by "transfer of documents or title to the goods, have crossed the custom frontier of India".
(v) He submitted that decisions in case of Kuntal Granites ltd Vs CCE - 2007 (215) ELT 515 (Tri-Bang.) = 2007-TIOL-930-CESTAT-BANG and followed in subsequent decisions like in case of Liva Healthcare Ltd v/s CCE, Nasik -2008 (222) ELT 243 (Tri.-Mumbai) = 2008-TIOL-193-CESTAT-MUM and others is a good law squarely applicable in this case requires to be upheld by this Hon'ble Bench. There is no reason to take a different view from the same in the present case, which is squarely covered by the above situation.
(vi) He submitted that decisions relied by revenue mainly are the Hon'ble CESTAT's decision in the case of Hind Nippon Rural Indus (P) Ltd - 2004 (167) E.L.T. 414 (Tri.- Bang.) = 2004-TIOL-272-CESTAT-BANG which had followed decision of Siraj Sons v. Collector - 1988 (35) E.L.T. 597 (Tribunal). However; it may be appreciated that the appeal filed by M/s Hind Nippon Rural Industries (P) Ltd - against Order-in-Appeal No.779/98-C.E. dt.21.10.1998, whereas clause (iii); in Section 4(3)(C) was inserted w.e.f. 14.05.2003 vide section 136 of the Finance Act 2003. Hence the provision under clause (iii) in Section 4(3)(C) for Place or removal will be applicable in this case under consideration. When such provision was not inserted in statute, the Hon'ble CESTAT has given such decision but those decisions are not applicable in the facts of this case pertaining to period after such amendment made w.e.f. 14.05.2003.
(vii) He also submitted that "Place of Removal" has been held to be the load port in cases of exports in the following CESTAT decisions:-
a)   CCE Hyderabad Vs Pokarna Ltd 2013 (292) E.L.T. 316 (Tri-Bang)
b)   Oriental Containers Ltd Vs CCE Thane 2012 (28) S.T.R. 397 (Tri- Mum.) = 2012-TIOL-1149-CESTAT-MUM
c)    CCE Vs Adani Pharmachem P. Ltd 200S (12) S.T.R. 593 (Tri- Ahmd) = 2008-TIOL-2584-CESTAT-AHM
d)   Bal Pharma Ltd Vs CCE 2014 (34) S.T.R. 752 (Tri. - Bang.)
e)   CCE Vs ADF foods Ltd 2009 (16) S.T.R. 564 (Tri. - Ahmd.) = 2009- TIOL-1363-CESTAT-AHM
f)    Rawmin Mining & Indus. Ltd Vs CCE Bhavnagari 2009 (13) S.T.R. 269 (Tri. - Ahmd) = 2008-TIOL-1997-CESTAT-AHM
g)   JK Tyre & Industries Ltd Vs CCE Mysore 2010 (18) S.T.R. 637 (Tri. Bang.) = 2010-TIOL-709-CESTAT-BANG
h)   Stovec Industries Ltd Vs CCE Ahmedabad 2014 (33) S.T.R. 155 (Tri. - Ahmd.)

(viii) He also pointed out recent decision of the Hon'ble Gujarat High Court in case of Commissioner v/s Dynamic Industries Ltd in Tax Appeal No. 912 of 2012 decided on 25.07.2014, [now reported in 2014 (307) ELT-15(Guj)] = 2014-TIOL-1692-HC-AHM-ST, wherein the Hon'ble High Court has also upheld view taken by the CESTAT to the effect that "port of shipment is the 'place of Removal in the cases of exports" while wing credit of the "Input Services" upto the place of removal. This view of Hon'ble Gujarat high Court can be followed in this case. He prayed to answer the question in favour of the appellant.
At this stage, ld. Advocate Shri Saurabh Dixit, asked for a permission to be heard and to make oral/written submissions before this Larger Bench of the Hon'ble Tribunal, or aforesaid issue referred to the Bench for decision as an intervener, which was allowed by this Court confirming no objection from the authorized representative Shri P.P. Jadeja.
Advocate Shri Saurabh Dixit submitted a written synopsis and argued with reference to provisions of section 5 of Central Excise Act 1944 and submitted that Remission is for the "Duty Payable" and duty payable will be at port of Export in cases of clearance for exports under Bond.
He argued the issue and prayed to follow the decision in case of Kuntal Granites Ltd v/s C.C.E - 2007 (215) ELT 515 (Tri Bang.) = 2007-TIOL-930-CESTAT-BANG and the Gujarat High Court's decision in Commissioner Vs Dynamic Industries Ltd in Tax Appeal No.912 of 2012 decided on 25.07.2014 = 2014-TIOL-1692-HC-AHM-ST.

Respondent Contentions:- On the other hand, ld. A.R. also submitted written synopsis and argued the case reiterating the findings in the impugned OIO dt.06.02.2009. He also argued that the place of removal defined u/s 4 (3) (c) is not applicable to goods cleared for export to define place of removal and it is only for the purpose of section 4 of the Central Excise Act and the remission of duty is available only when the goods have been destroyed in the factory before removal from the factory. He relied upon Para 37 & 38 of the decision of the Hon'ble Supreme Court in case of J.K. Spinning & Weaving Mills Ltd & Another - 1987 (32) ELT 234 (SC) = 2002- TIOL-559-SC-CX-LB in countering the arguments on "Place of removal" contending that the place of removal will be factory only. He also placed reliance on the decision of the CESTAT Larger Bench in case of Gupta Metal Sheets - 2008 (232) E.L.T. 796 (Tri-LB) = 2008-TIOL-1891 -CESTAT- DEL-LB.

Reasoning of Judgment:-Court has given anxious consideration to submissions by both sides and the various case laws cited by them and also considered written submission, filed by both sides. Hearing submissions made at length by both sides and perusing relevant case records, it is seen that there is no dispute on the facts of case. In order to resolve the issue, it is imperative that reference to Provisions of Rule 21 of the Central Excise Rules 2002 as reproduced hereinabove, court reproduce the provisions of Rule 4 of the Central Excise Rules 2002 which provides for payment of duty on removal:-

"RULE 4. - Duty payable on removal.-(1) Every person who produces or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided."
Thus 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, otherwise has been provided to this effect vide Notification No.42/2001-CE(NT), dated 26-6- 2001 with primarily conditions 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 duty 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 section 3 & 4 of Central Excise Act 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 transferred from seller to buyer at the time of removal from such place. The provisions of Rule 21 of the Central Excise Rule 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. In the present case, question of Remission of duty is under consideration, we will confine our views only to the question of 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.
On the other hand Ld. Departmental Representative's reliance on the decision of the Hon'ble Supreme Court in case of J.K. Spinning & Weaving Mills Ltd & Another - 1987 (32) ELT 234 (SC) = 2002-TIOL-559-SC-CX-LB to argue that "Place of removal" will be factory only may not carry the case of the Revenue any further for the reason that in the said case, the issue was for the period prior to the amendment to section 4(3)(c)(iii) w.e.f. 14.05.2003. We also find from the records that prior to 14.05.2003, the place of removal was only "Factory" or "Warehouse" as referred to in section 4(3)(c)(i) and (ii). Therefore, this decision pertaining to the period prior to 14.05.2003, will not apply to the facts of this case, which pertains to the year 2008. Similarly, the decision of the Larger Bench in case of Gupta Metal Sheets - 2008 (232) ELT 796 (Tri-LB) = 2008-TIOL-1891 -CESTAT- DEL-LB is also not applicable in this case. The view taken in the said case was that said case the issue was about availability of remission in case of theft of the goods and it was held that, the term 'loss' in Central Excise law to be understood as being unavailable for consumption in market and the Goods not lost or destroyed in case of theft or dacoity and further that Stolen goods enter market for consumption after removal from approved premises and it was held that "Theft or Dacoity" not a natural cause and not an unavoidable accident. Ultimately holding that the Goods lost in theft or dacoity is not eligible for remission. However, there is no dispute in this case that the goods in question have been destroyed and the same are not available for consumption. Hence, the decision of Larger Bench in case of Gupta Metal Sheets - 2008 (232) ELT 796 (Tri-LB) = 2008-TIOL-1891 -CESTAT- DEL-LB isalso not applicable. Similarly, decision in the case ofHind Nippon Rural Indus. (P) Ltd - 2004 (167) ELT 414 (Tri- Bang) = 2004-TIOL-272-CESTAT-BANG which had followed decision of Siraj Sons v. Collector – 1988 (35) ELT 597 (Tribunal). However, we find that those decision are not applicable in the facts of this case as pertaining 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, in Tribunal’s view 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 Central Excise Act 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 Central Excise Rules 2002. Clause (iii) in Section 4 (3) (c) for "Place of removal" was inserted w.e.f. 14.05.2003 vide section 136 of the Finance Act 2003 which has stipulated as under:-
“(iii) depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory"
Hence, the provision under clause (iii) in Section 4 (3) (c) for "Place of Removal" will be applicable in the case under consideration.
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 tribunal, in case of exports the "place of removal" is the port of shipment. Accordingly, we have no hesitation in following the recent decision of the Hon'ble Gujarat High Court in case of Commissioner v/s Dynamic Industries Ltdin the tax Appeal No.912 of 2012 decided on 25.07.2014 = 2014-TIOL-1692-HC-AHM-ST, wherein the Hon'ble High Court has also upheld view taken by CESTAT to the effect that port of shipment is the 'place of Removal' in the cases of exports". Once such a view is taken, we find that the decisions in case of Kuntal Granites Ltd v/s C.C.E reported at2007 (215) ELT.515 (Tri-Bang.) = 2007-TIOL-930-CESTAT-BANG and followed in subsequent decisions like in case of Liva Healthcare Ltd v/s CCE, Nasik - 2008 (222) ELT 243 (Tri. Mum.) = 2008-TIOL-193-CESTAT-MUM and others is a good law, and requires to be upheld.
There is no reason to take a different view.
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 Central Excise rule 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. Appellant is eligible for the Remission of duty in respect of goods for export under Bond which were destroyed before the same could be exported.
We find that the issue as referred to the Larger Bench, is now decided by the Hon'ble High Court of Gujarat in Tax Appeal No.912 of 2012 decided on 25.07.2014 = 2014-TIOL-1692-HC-AHM-ST. Accordingly, reference to the several precedents by the ld. counsel for the assessee and by the SDR, would be of academic interest, since the judgment of the Hon'ble High Court is of academic interest, since the judgment of the Hon'ble High Court Gujarat in the case of Commissioner v/s Dynamic Industries Ltd has considered the very same point which is in favour of the appellant.
In view of the foregoing, we hold that in cases where goods removed from factory for export under Bond are destroyed before export, due to unavoidable accident, then in such situation the goods destroyed are to be treated as having been destroyed before removal in terms of Rule 21 of Central Excise Rules 2002.
The reference is answered accordingly and Registry is directed to place the files before the concerned bench for passing appropriate orders.

Decision:-Appeal Allowed.

Comment:-The gist of this case is that goods cleared for export under Bond which were destroyed before export are to be treated as having been destroyed before removal only. Thus, primary condition of eligibility of Remission of duty on the destroyed goods is fulfilled as required u/r 21 of Excise Rules 2002. Accordingly, appellant is eligible for the Remission of duty in respect of goods for export under Bond which were destroyed before export of such goods.

Prepared by: Hushen Ganodwala

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