Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Customs (Air) vs Harmony Musical Instrument (Mds.) Pvt. ... on 7 July, 2006
Equivalent citations: 2006(111)ECC240, 2006ECR240(TRI.-CHENNAI), 2006(202)ELT117(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The respondents are a 100% EOU manufacturing electric guitars, acoustic guitars and parts and accessories thereof, in the Madras Export Processing Zone (MEPZ). In 1996, they had obtained permission from the Development Commissioner for the manufacture and export of the above goods. By letter dated 10.5.2002 of the Development Commissioner, wooden boxes and other wooden articles were also added to the list of goods permitted to be manufactured and exported by the unit. The said letter authorised the respondents to manufacture and export the specified goods (including wooden boxes and other wooden articles) for a value of Rs. 3550 lakhs over the period 2002-2007. It also required them to achieve the minimum NFEP (Net Foreign Exchange earning expressed as percentage of export) prescribed in Appendix I to the EXIM Policy 2002-07. Subsequently, in a letter dated 22.5.02, the Development Commissioner permitted the unit to sell their products in Domestic Tariff Area (DTA) to the extent of 50% of the FOB value of the physical exports made during 2000-01, this fraction amounting to Rs. 477.28 lakhs. This permission was granted in terms of para 6.8(b) of the EXIM Policy 2002-07 and was subject to the following conditions:
1. This DTA sale entitlement will be applicable only to those goods that are approved for manufacture in the Letter of Approval issued to you. Disposal of waste/reject shall also be availed within the above entitlement.
2. All conditions laid down in the guidelines for DTA sales as per Appendix 14(f) of Hand Book of Procedures 2002-07 shall be strictly followed.
3. This DTA sale entitlement shall be availed of within three years w.e.f. 1.4.2001 to 31.3.2004.
4. The sale of goods in DTA will be subject to the payment of necessary customs duties applicable.
Subsequently, by letters dated 18.7.2002 and 14.8.2002, the Development Commissioner granted permission to the respondents for supply of wooden boxes for a value of Rs. 7,54,650/- + Rs. 3,29,994 = Rs. 10,84,644 to a DTA unit viz. M/s. A.V. Thomas Leather & Allied Products Ltd. against payment in foreign exchange. Such DTA sales were to be treated as 'deemed exports' and to be counted towards fulfilment of NFEP/EP (export performance) in terms of the above permission. The respondents supplied a consignment of wooden boxes to the same unit in July 2002 on payment of duty @ 16%, claiming the benefit of concessional rate of duty under Central Excise Notification No. 8/97 dt. 1.3.97 (as amended). They effected a similar clearance of wooden boxes to the same unit in August 2002. The department took the view that the benefit of concessional rate of duty under the above Notification was not available to the above DTA clearances. They took the stand that the goods were actually sold in DTA in terms of para 6.9(b) of the EXIM Policy and not in terms of the provisions of para 6.8 of the said Policy. The benefit of the Notification would be available only to goods allowed to be sold in terms of para 6.8(a), (b), (d) & (h) of the EXIM Policy. On this basis, a show-cause notice was issued to the respondents, which was contested. The order passed by the original authority in adjudication of the dispute was set aside by the Commissioner (Appeals), who remanded the case for fresh adjudication, pursuant to which the original authority passed Order-in-Original No. 1/2004 dated 30.7.2004, confirming demand of differential duty of Rs. 4,42,882/- against the assessee. The appeal filed by the assessee against the above order of the original authority was allowed by the Commissioner (Appeals). Hence the present appeal of the Revenue.
2. Ld.SDR reiterated the grounds of the appeal and referred to the relevant provisions of the EXIM Policy 2002-2007 as well as to Notification No. 8/97 ibid. It was submitted that the benefit of exemption under the above Notification was admissible to only those goods which were manufactured in a 100% EOU and allowed to be sold in India in accordance with the provisions of sub-paragraphs (a), (b), (d) & (h) of para 6.8 of the EXIM Policy. The Notification did not anywhere mention para 6.9 of the EXIM Policy. The DTA sales in question were effected in terms of para 6.9 (b) of the EXIM Policy. Hence, Ld. SDR argued, the exemption claimed by the respondents was not admissible to them. In this connection, it was argued that the terms and conditions of an Exemption Notification were to be construed strictly as held by the apex court in the cases of Rajasthan Spinning and Weaving Mills 1994 (77) ELT 474, Navopan India Ltd. and Mangalore Chemicals & Fertilizers Ltd. . Reliance was also placed on the apex court's judgment in the case of Tullow India Operations Ltd. .
Ld.SDR ruled out any connection between DTA sales under para 6.8 and those under para 6.9 of the EXIM Policy. The two provisions were independent of each other. The DTA clearances under para 6.9 were not limited to 50% of the FOB value of exports prescribed in para 6.8 and the same were also not subject to the condition of fulfilment of minimum NFEP/EP. Though the Development Commissioner's permission was for clearance of wooden boxes under para 6.8 (b), the respondents chose to clear the goods in terms of para 6.9 (b) for availing deemed export benefits. The EXIM Policy did not envisage such double benefit.
3. Ld. Counsel for the respondents submitted that the benefit of the Notification was available to the subject goods inasmuch as the goods were approved for manufacture, in the Letter of Approval issued by the Development Commissioner, and were sold in DTA in terms of para 6.8 (b) of the EXIM Policy 2002-07 as permitted by the Development Commissioner. It was submitted that, in terms of para 6.9 (b) of the EXIM Policy, foreign exchange earned in the transaction could be reckoned towards fulfilment of NFEP/EP and hence there was no question of double benefit. Merely because the respondents obtained permission from the Development Commissioner for treating the DTA sales for purposes of NFEP/EP in terms of para 6.9 (b), such sales, permitted under para 6.8 (b), would not cease to be "DTA sales made in accordance with para 6.8 (b)". CBEC Circular No. 29/2003-Cus. dated 3.4.2003 referred to in the appeal was wrongly interpreted by the appellant. Counsel submitted that DTA supplies under para 6.9, which were to be treated as deemed exports and to be counted towards fulfilment of NFEP/EP, were held, in the circular, to be chargeable to Central Excise duty in terms of the proviso to Section 3(1) of the Central Excise Act "read with the relevant Exemption Notifications". Thus the circular allowed the benefit of Notification No. 8/97-CE to goods cleared to DTA by EOU. Ld. Counsel contended that, where DTA sales were made against payment in foreign exchange, the same would be counted as "deemed exports" and any duty could not be demanded thereon. The subject clearances of wooden boxes belonged to this category and, therefore, the demand of duty thereon was not sustainable. In this connection, reliance was placed on the following orders of the Tribunal:
1) Gujarat Sico Textiles Pvt. Ltd. v. Commissioner (Tri.-Mumbai)
2) Kurt-O-John Shoe Components (I) P. Ltd. v. Commissioner
3) Krishna Filament Ltd v. Commissioner 2004 (177) ELT 432 (Tri. -Mumbai) Alternatively, ld. Counsel argued that, if the DTA sales in question were to be held as not allowed to be sold in terms of para 6.8 (b) of the EXIM Policy, duty would be leviable on the goods under Section 3 of the Central Excise Act, in which event the benefit of Notification 125/84-CE would be available to the respondents and, consequently, no differential duty would be payable. In this connection, reliance was placed on the Tribunal's decision in the cases of Modern Denim Ltd. v. Commissioner 2005 (191) ELT 1174 (Tri.-Mumbai) and Commissioner v. Suresh Synthetics . Yet another alternative argument was that, as the wooden boxes supplied to the DTA unit were actually exported by that unit, the respondents were eligible for the benefit of Notification No. 43/2001-CE (NT) issued under Rule 19 of the Central Excise Rules, 2002. In this connection, reference was made to CBEC Circular No. 314/30/97-CX dated 6.5.97 and reliance was placed on the Tribunals decision in Paras Fab International v. Commissioner
4. We have examined the records and considered the submissions. The basic facts are not in dispute. The respondents (100% EOU) were permitted by the Development Commissioner to manufacture guitars and parts and accessories thereof, besides wooden boxes and other wooden articles. They were also permitted to sell 50% of their physical exports, in DTA in terms of para 6.8 (b) of the EXIM Policy 2002-07 vide Development Commissioner's letter dated 22.5.02. This letter also stated that the DTA sale entitlement allowed in terms of para 6.8 (b) ibid would be applicable to those goods which were approved for manufacture in the Letter of Approval. Thus it was obvious that the DTA sale entitlement in terms of para 6.8 (b) of the EXIM Policy was applicable to wooden boxes also. During July & August 2002, wooden boxes manufactured by the EOU exclusively out of indigenous material were cleared to the DTA unit on the basis of the permission granted by the Development Commissioner in terms of para 6.8 (b) ibid. This clearance was effected on payment of duty in terms of Notification No. 8/97-CE and such payment was made against foreign exchange remittances received from overseas. The buyer utilized the wooden boxes for packing and exported the goods.
5. According to the appellant, as the DTA sales were allowed to be treated as 'deemed exports' and to be counted towards fulfilment of the condition of minimum Net Foreign Exchange in terms of para 6.9 (b) of the EXIM Policy, such sales cannot be treated as having been made under para 6.8 (b). On this basis, it has been argued by ld.SDR that the benefit of Notification No. 8/97-CE, which was available to goods produced in EOU entirely out of indigenous raw material and allowed to be sold in DTA in accordance with the provisions of sub-paras (a), (b), (d) & (h) of para 9.9 of EXIM Policy 1997-2002 (pari materia with para 6.8 of the EXIM Policy 2002-2007), cannot be extended to goods so produced but allowed to be sold in DTA in terms of para 6.9 (b) of the EXIM Policy 2002-07. The appellant has treated the DTA sales in question as clearances made in terms of para 6.9 (b) and as having nothing to do with para 6.8 (b) mentioned in the above Notification and, accordingly, it is argued that the benefit of exemption under the Notification is not available to such sales of wooden boxes. This argument is based on the premise that para 6.8 and para 6.9 are provisions independent of each other.
6. Para 6.8 (b) of the EXIM Policy 2002-07 permitted EOUs (other than gems and jewellery units) to sell, in DTA, goods/services upto 50% of FOB value of exports, subject to fulfilment of minimum NFEP as prescribed in Appendix I of the Policy on payment of applicable duties. Para 6.9(b) authorized such EOUs to count towards fulfilment of NFEP, supplies effected in DTA against foreign exchange remittances received from overseas. It is evident from these provisions that para 6.9 (b) operated in the area of fulfilment of a condition attached to the DTA sale entitlement granted to EOU under para 6.8 (b). Hence it is erroneous to hold that the provisions of para 6.8 and those of para 6.9 of the EXIM Policy are independent of each other. It was also argued on behalf of the appellant that, as any wooden box was not physically exported by the respondents, they did not qualify for entitlement under para 6.8 (b) of the EXIM Policy. This argument does not take into account the fact that the Development Commissioner vide letter dated 22.5.2002 had expressly allowed the EOU to claim such entitlement in respect of all goods permitted for manufacture. Admittedly, wooden boxes were also permitted to be manufactured by the EOU and, therefore, it cannot be gainsaid that the party qualified for entitlement under para 6.8 (b) of the EXIM Policy in respect of the DTA sales of wooden boxes. We have found that both the above points are adequately covered in favour of the respondents by the Tribunal's decision in the case of Kurt-O-John Shoe Components (I) P. Ltd. v. CCE (supra), wherein it was held that supplies made by EOU to DTA against foreign exchange would be treated on the same footing as physical exports and further that, where the Development Commissioner allowed the EOU to sell the goods upto a fixed value in the DTA, the Revenue could not disallow clearance and demand Central Excise duty on the ground that entitlement was required to be restricted to 50% of the FOB value of physical exports. Para (5) of "Kurt-O-John" is reproduced below:
We have considered the submissions of both the sides. Notification No. 2/95-CE., dated 4-1-95 provides concessional rate of duty of excise in respect of excisable goods produced or manufactured in a 100% Export-Oriented Undertaking and allowed to be sold in India in accordance with the provisions of sub-paragraphs (a), (b), (c) and (d) of Paragraph 9.9 or of Paragraph 9.20 of the Export and Import Policy 1997-2002. As per paragraph 9.9 (b) of the EXIM Policy, DTA sale upto 50% of the FOB value of exports may be made subject to payment of applicable duties and fulfilment of minimum NFEP prescribed in Appendix 1 of the Policy. As per Paragraph 9.10 of the Policy, supplies effected in DTA against payment in foreign exchange shall be counted towards the fulfilment of export performance. It has been submitted by the Appellants that they had sold the goods after obtaining written permission from the Development Commissioner, NEPZ. The issue involved in the present matter is squarely covered by the decisions relied upon by the learned Consultant. The Appellate Tribunal in the case of Virlon Textile Mills (supra) has considered the matter with reference to Notification No. 2/95-CE. wherein the Tribunal has held that Paragraphs 9.9 or 9.10 deal with two different issues altogether. Paragraph 9.9 prescribed the mode of disposal of the goods manufactured by a 100% Export-Oriented Undertaking ....Among these are goods sold in the domestic tariff area upto 50% of the FOB value of the exports. Paragraph 9.10 consists series of deeming provisions holding that the supplies to domestic tariff area of various kinds among which those made against payment in foreign exchange shall be counted towards fulfilment of export performance. Therefore, the supplies made by the Appellants to the domestic tariff area against payment in foreign exchange will be deemed, for purpose of Paragraph 9.9, to have been exported. From this it would follow that upto 50% of the value of such supplies could be sold at the concessional rate of duty available in the Notification No. 2/95...supplies to domestic tariff area against foreign exchange would be treated on the same footings as physical exports." We also observe that Appellate Tribunal has considered the question about the authority of Development Commissioner to determine the extent of DTA sale in the case of Ginni International Ltd. (supra). The Tribunal was of the view that once the Development Commissioner has allowed the appellants permission to sell the goods upto a fixed value in the DTA, the Revenue cannot disallow clearance and demand Central Excise duty on the ground that the entitlement was required to be restricted to 50% of the FOB value of physical exports. Following the decisions in Ginni International and Virlon Textile Mills, the Appellate Tribunal in the case of Morgaon Tetronics Ltd. allowed the Appeal filed by the Appellants against the Adjudication Order by which the Commissioner has confirmed the demand of Central Excise duty in respect of sales made in Domestic Tariff Area and not agreeing with the Department that sale entitlement would accrue only against physical exports and partial exemption on DTA clearances under Notification No. 2/95-CE. was available only against physical export.
(emphasis added) The ratio of the decision in Virlon Textile Mills v. Commissioner which was followed in Kurt-O-John's case was relied on by the same Bench in the cases of Guarat Sico Textiles (supra) and Krishna Filament (supra) for purposes of Section 35F of the Central Excise Act.
7. We have already observed that the Development Commissioner's letter dated 22.5.2002 granted 'DTA sale entitlement' in terms of para 6.8 (b) of the EXIM Policy in respect of all goods (including wooden boxes) approved for manufacture. What was permitted by the Development Commissioner would not be taken away by the Revenue saying that the entitlement was restricted to 50% of the FOB value of physical exports. This is the consistent view of this Tribunal as correctly observed in Ginni International Ltd. v. Commissioner vide extract below:
...once the Development Commissioner has allowed them the permission to sell the goods upto a fixed value in the DTA, the Revenue cannot disallow the clearance and demand Central Excise duty on the ground that the entitlement was required to be restricted to 50% of the FOB value of Physical Exports. If the Revenue is of the view that the value of deemed export should not have been taken into consideration for arriving at the value of goods to be allowed to be sold in the DTA, the matter should have been taken up with the Development Commissioner who had initially accorded the permission to the Appellants. This has been the consistent view of the Appellate Tribunal wherever the permission under the Central Excise Act/Rules or Notification is accorded by an authority outside the Department.
8. Ld.SDR insisted on strict interpretation of Notification No. 8/97-CE and cited decisions of the apex court in support of her point. There is no demur against this. We have strictly construed the plain language of the Notification, which provided effective rate of Central Excise duty leviable on goods produced entirely out of indigenous raw materials and allowed to be sold in DTA in accordance with the provisions of para (9.9) of EXIM Policy 1997-2002 (=para (6.8) of EXIM Policy 2002-07 relevant to the present case). The Development Commissioner's permission letter, on its face, indicated that wooden boxes were also allowed to be sold in DTA in terms of para 6.8 (b) of the EXIM Policy 2002-07. Thus, on strict interpretation, the benefit of the Notification was available to the wooden boxes cleared to the DTA unit by the assessee.
9. Following the law settled by the decisions cited by ld.counsel, we hold that the DTA sales of wooden boxes effected by the respondents were eligible for the benefit of Notification No. 8/97-CE as held by the lower appellate authority. The impugned order is sustained and this appeal is dismissed.
(Pronounced in open court on 7.7.06)