Decided on July 16,2015

Keva Fragrances Pvt. Ltd. Appellant
Commissioner of C. Ex., Mumbai -III Respondents


RAMESH NAIR, J. - (1.)These appeals are directed against order -in -original No. 14/COMMR/M -III/WLH/2012 -13, dated 21 -12 -2012 passed by the Commissioner of Central Excise, Mumbai -II. The fact of the case is that the appellant M/s. Keva Fragrances Pvt. Ltd. (KFPL) is 100% export oriented unit engaged in the manufacture of Perfumes and fragrances falling under CETH 330290. The appellant have been issued the show cause notice under F. No. V.Adj(SCN)15 -49/Commr/MDN/M -III/2010, dated 9th May, 2012 proposing denial of Notification No. 22/2003 -C.E., dated 31 -3 -2003 and Notification No. 52/2003 -Cus., dated 21 -3 -2003 and consequently proposed demand of Central Excise duty and Customs duty along with proposal for interest and penalty. The show cause notice contended as under:
M/s. Keva Fragrances Pvt. Ltd. has been granted EOU status by the Development Commissioner and has been issued Green Card and LOI No. 783(81), dated 30 -12 -1981 as amended for manufacture of Perfumery Compounds and functioning as 100% EOU unit. The "perfumery compound" falling under CETH 330290 which are manufactured from various aromatic compounds and essential natural oils procured either locally or imported. These compounds are exported directly and sometimes through third parties. These compounds are manufactured under Bond under a license issued under Ss. 58 and 65 of the Customs Act, 1962 by the Asstt. Commissioner of Customs (EOU section), New Customs House, Mumbai. They procure the inputs against a procurement certificate or CT 3 obtained from the jurisdictional Range officer. The Inputs are procured without payment of either Customs Duty or Central Excise duty as the case may be and are accounted for in the appellant's bonded premises and documents are accordingly maintained therein. The inputs so procured are required to be used in the manufacture of their final products, i.e., fragrances and perfumery compounds which are required to be exported. The activity of procurement of raw material in 100% EOU are governed by the Customs Notification No. 52/2003 -Cus., dated 31 -3 -2003 and Central Excise Notification No. 22/2003 -C.E., dated 31 -3 -2003. On the scrutiny of the Export register, Bond register, the Manufacturing Register revealed that appellant had procured various raw material required for their manufacturing activities under the cover of Procurement Certificate (for imported goods) and CT -3 certificate (for indigenous goods) in terms of Notification No. 52/2003 -Cus., dated 31 -3 -2003 and Central Excise Notification No. 22/2003 -C.E., dated 31 -3 -2003 respectively. The manufacturing register however shows the part of the goods so procured as manufactured by them but the export register shows that the raw material procured and shown as manufactured were exported as such. In order to verify whether they had manufactured the raw material shown in their manufacturing register, the appellant on enquiry vide Range office letter dated 7 -9 -2010 informed the percentage of utilization of the said inputs. Vide their letter No. KFPL/C.Excise/2010 -11, dated 15th Sep, 2010 also stated that products mentioned in their said letter 15 Sep, 2010 are not manufactured by them. It is contended in the show cause notice that it appears from the letter dated 1 -10 -2010 to the appellant and their reply dated 27 -10 -2010 thereto, that the approval accorded to them by Dy. Commissioner, SEEPZ for "broad banding" of items of manufacture is namely "perfumery compound" allowed in terms of LOI No. 783(81), dated 30 -12 -1981 as amended, whereas the goods exported (as per Annexure 'A' to SCN) are those goods which are inputs procured duty free, through imports as well as indigenously, goods are exported as such without being used in the manufacture of export goods which would amount to trading activity which is strictly prohibited vide para 6.1 of FTP 2004 -09 and 2009 -14. It was further contended that:

(i) Notfn. No. 52/2003 -Cus. states that, the goods imported under this scheme is exempted from whole of duty of the Customs and the Addl. Duty, subject to the condition No. (2) of the notification which implies that the E.O.U. should carry out the manufacture, production, packaging or job work or Service in Customs Bond;

(ii) Notfn. No. 22/2003 -C.E. stipulates that all raw materials, when brought in connection with, manufacture and packaging of articles of for production, into an EOU, from the whole of duty of excise and the additional duty of excise, subject to the condition that the same are used for the specified purpose, i.e., for manufacture, production, packaging, job work for export of goods or service;

(iii) Chapter 6 of the FTP 2004 -09 and 2009 -14 under para 6.2(b) stipulates that the goods imported by the EOU shall be with actual user condition and shall be utilized for export production.

(iv) Whereas Para 6.15 of the Foreign Trade Policy 2004 -2009 and 2009 -14 allows sale of unutilized raw material if they are unable to utilize the raw material imported or procured from DTA, by the way of transfer to another EOU/disposed off in DTA with approval of Customs authorities and on payment of applicable duties or exported.

(v) Para 2 of Board's Circular No. 91/2002 -Cus., dated 20 -12 -2002 allows sale of unutilized material to DTA unit or to another EOU only in exceptional cases and cannot be a regular feature for the units.

In nutshell, show cause notice contended that the Notification No. 52/2003 -Cus., dated 31 -3 -2003 and Central Excise Notification No. 22/2003 -C.E., dated 31 -3 -2003 shown to be applicable only if the goods imported under the said notification has been used in the manufacture of goods which has been exported. In the adjudication, the adjudicating authority confirmed charges of show cause notice and consequently confirmed the demand of excise duty on the indigenously procured goods and custom duty on the imported goods on the ground that goods procured indigenously and imported were exported as such and was not used in the manufacture, accordingly vital condition of both the notifications of actual user were violated. Being aggrieved by the adjudication order, the appellant is before us.

(2.)Shri Yogesh Patki, ld. Counsel for the appellant submits that entire demand was confirmed only on the ground that the appellant have not manufactured the goods exported from the raw material imported under Notification No. 52/2003 -Cus., dated 31 -3 -2003 and indigenously procured under Notification No. 22/2003 -C.E., dated 31 -3 -2003 therefore, the vital condition has been violated consequently notifications were denied and customs duty and excise duty was confirmed. He submits that right from the beginning they have been submitting that even goods which have been alleged as removal of goods as such the appellant have admittedly carried out activity of repacking and re -labeling of the fragrances and exported the same. He submits that as per the EXIM Policy, manufacture was not restricted to activity as stipulated under Sec. 2(f) of Central Excise Act, 1944, but definition of manufacture in EXIM Policy is much wider and the same includes the activity such as repacking and re -labeling, etc. Therefore, in the case of 100% EOU which is governed by the EXIM Policy, definition of manufacture provided under the EXIM Policy shall be adopted and not manufacture as provided under Sec. 2(f) of Central Excise Act, 1944. Therefore, the charges of the show cause notice become Null and void, once it is accepted that the appellant have carried out the activity of repacking and re -labeling which amount to manufacture and since the said activity amounts to manufacture, charges made in the show cause notice and confirmed in the impugned order will not stand. He submits that adjudicating authority has not examined the case from the activity of the appellant as claimed by the appellant regarding the repacking and re -labeling of the exported goods. He further submits that ld. Commissioner has also not considered the submissions of the appellant that even if duty is payable by the appellant same shall stand neutralized for the reason that goods have been exported and the appellant is otherwise entitled for draw back of the same duty which is payable.
(3.)On the other hand, Shri Rakesh Goyal, ld. Addl. Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He submits that since, re -packing/labeling alone is not amount to manufacture, the appellant have exported the goods without carrying out any manufacturing activity, hence violated the condition of manufacture in order to avail benefit of Notification No. 52/2003 -Cus., dated 31 -3 -2003 and No. 22/2003 -C.E., dated 31 -3 -2003, accordingly, they made themselves liable for payment of excise duty and customs duty. Therefore, the ld. adjudicating authority has rightly confirmed the demand. He further submits that whole objective of the setting up 100% EOU is that the goods should be manufactured and exported. In the present case, though the goods have been exported but in the form of raw material and condition of manufacture has not been fulfilled. In absence of such, vital condition of manufacture, there is violation of condition prescribed under both the notification and consequently denied both the notification; therefore, the demand confirmed by the adjudicating authority is sustainable.

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