Legal principle

Where the Development Commissioner has extended a 100% EOU's letter of permission, customs authorities cannot, before expiry of the extended period, recover duty, interest, penalty or fine on the unit's warehoused imports for non-fulfilment of the export obligation in the earlier block, since liability under Section 72 arises only upon debonding or ex-bonding of the EOU.

Court decision

The Bombay High Court allowed the appeal, setting aside the CESTAT order dated 1 March 2012 and the order-in-original dated 16 March 2009. It held that before expiry of the extended LOP period the customs authorities could not treat the assessee as having ceased to be a 100% EOU after the first block of five years, nor enforce the duty demand, interest, penalty or fine for non-fulfilment of the export obligation in the first block. It directed the Development Commissioner to pass a fresh order within eight weeks specifying the date of commencement of the extended five-year period and the minimum export obligation/NFEP, whereupon the customs authorities were to renew the private bonded warehouse licence for that extended period, with penal action permissible only for violations during the extended period.

Facts

Mavi Industrial Ltd. (formerly Krishna Filaments Ltd.), a 100% EOU manufacturing HDPE ropes under a Letter of Permission dated 9 September 1998, imported capital goods valued at Rs.120.29 crores duty-free by executing a bond under Customs Notification No.53/97 and installed them in a private bonded warehouse approved under Section 58 of the Customs Act. Operations stopped from September 2000 when a Court Receiver, appointed in an IDBI suit, took possession of the unit, and the export obligation for the first five-year block (expiring 26 April 2004) was not fulfilled. The customs authorities adjudicated a duty demand of Rs.61.24 crores on the capital goods, spares and raw materials with interest and penalty, confiscated the goods with a redemption fine (order-in-original dated 16 March 2009) and refused to renew the private bonded warehouse licence, which CESTAT upheld by order dated 1 March 2012. Meanwhile, the Development Commissioner, SEEPZ by letter dated 27 April 2009 granted extension of the LOP for a further five years.

Key provisions

• Section 72, Customs Act, 1962 — Goods improperly removed from warehouse, etc
• Section 61, Customs Act, 1962 — Period for which goods may remain warehoused
• Section 58, Customs Act, 1962 — Licensing of private warehouses
• Section 68, Customs Act, 1962 — Clearance of warehoused goods for home consumption