Customs, Excise and Gold Tribunal - Bangalore
Parsin Chemicals And Ors. vs Commissioner Of Customs on 29 November, 2002
Equivalent citations: 2002ECR293, 2003(160)ELT679(NULL)
JUDGMENT S.S. Sekhon, Member (T)
1. Consequent to specific information, said to have been received by the Officers of the Headquarters Preventive, Customs and Central Excise, Hyderabad, the Factory and Administrative Officers of M/s. Pars in Chemicals Ltd., a 100% EOU (hereinafter referred to as PARSIN), as well as, several other premises were searched on 23.4.1993 and 24.4.1993. Based on the documents recovered during the searches, the statements recorded during the course of investigation and the investigation conducted, a Show Cause Notice O.R. No. 99/94-Adjn. Dtd. 5.4.1995, was issued to the following:
Parsin who allegedly sold/removed the goods to M/s. Raghu Chemicals.
Shri B.S. Grewal, Managing Director, Parsin.
Shri Y.S. Satyendranath, Executive Director, Parsin (Finance Manager at the material time).
Shri M. Sarva Rao, Commercial Manager, Parsin Hyderabad.
M/s. Raghu Chemicals and Pharmaceuticals Pvt Ltd., -- the receiver/buyer of the goods.
Shri K. Rahasekhar, Managing Director, M/s. Raghu Chemicals and Pharmaceuticals Pvt. Ltd., In the said show cause notice it was inter alia alleged-
Parsin had cleared 5078 kg of Sodium Azide into Domestic Tariff Area (DTA) without making entries in the statutory records, without following the prescribed procedures and without payment of Central Excise Duty. Accordingly they were asked to show cause as to why duty amounting to Rs. 22,24,958.69 cleared for sale within India shall not be paid by them under Rule 9(2) of the Central Excises and Salt Act, 1944, the quantity of 5078 Kgs of Sodium Azide thus clandestinely removed should not be confiscated under Rule 209 of the Central Excise Rules, 1944 and penalty not be imposed under that rule.
Capital goods imported by virtue of Notification No. 13/81-Cus., dt. 9.2.1981 should not be confiscated under Section 111(o) of the Customs Act, 1962 as they were utilized for manufacture of goods which were not exported.
Penalty not be imposed under Section 112 (a) of the Customs, Act 1962 & Rules 9 (2) and 209 of Central Excise Rules for the contraventions.
2. After hearing the appellants, the Commissioner confirmed a duty demand of Rs. 14,16,910 as against a demand of Rs. 22,24,958.60 under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Section 11 A (1) of Central Excise Act, 1944 and penalties were imposed on the following:
(i) A penalty of Rs. 1.5 lakhs on M/s. Parsin under Rules 9(2) and 173Q (1) of Central Excise Rules, 1944;
(ii) A penalty of Rs. 25,000 on Parsin under Section 112(a) of the Customs Act, 1962;
(iii) A penalty of Rs. 25,000 on Raghu Chemicals under Rule 209 A of Central Excise Rules, 1944;
(iv) A penalty of Rs. 2,500 on Raghu Chemicals under Section 117 of the Customs Act, 1962;
(v) A penalty of Rs. 5,000 on Shri Satyendranath and Shri Sarva Rao under Rule 209 A of Central Excise Rules, 1944;
(vi) A penalty of Rs. 1,000 each on S/Shri Satyendra Nath and Sarva Rao under Section 112 (b) and 117 of the Customs Act, 1962;
(vii) A penalty of Rs. 5,000 on Shri Rajasekhar of Raghu Chemicals under Rule 209 A of Central Excise Rules, 1944;
(viii) A penalty of Rs. 1,000 on Shri Rajasekhar of Raghu Chemicals under Section 117 of the Customs Act, 1962; and
(ix) A penalty of Rs. 10,000 under Rule 209 A of Central Excise Rules, 1944 and Rs. 5,000 under Sections 112 (b) and 117 of Customs Act, 1962 on Shri B.S. Grewal, M.D. of Parsin.
3. The present appeals are filed against the abovesaid orders. The issues involved in the present appeals are:-
Whether the Sodium Azide, which was manufactured by the Appellant Company during the trial runs, should be treated as export waste or export rejects.
Whether the impugned goods satisfy the stringent conditions prescribed for Sodium Azide, which is meant to be utilized in the manufacture of Inflatable Restraint System (Air bags).
Whether there was any malafide intention on the part of U.S. Grewal, Managing Director, PCL, Y.S. Satyendranath, Executive Director, PCL, (Finance Manager at the material time) and M. Sarva Rao. Stenographer, PCL, in the removal of the impugned goads, particularly, in view of the fact that N.A. Reddy who was the Commercial Officer at the material time was responsible for the Customs and Central Excise functions, in terms of his Employment Contract/Order of Appointment. Whether the role of N.A Reddy, who was exonerated, has been examined in the light of the plea of the Appellants that he was responsible at the material time for compliance with the Central Excise and Customs Laws and Regulations.
Whether there was any wilful suppression of facts with an intent to evade payment of duty on the said Export waste or whether the Appellants were under the bonafide belief that the impugned goods were not liable for duty.
Whether the said goods are marketable and whether a Report of the Chemical Examiner was obtained in this regard, as directed by the Hon'ble Tribunal.
Whether the assessable value adopted for demanding duty was correct, in the light of the settled law that the selling price should be treated as cum-duty price, and an abatement is required to be given for the duty, for arriving at the assessable value.
The Department has contended:
The material allegedly removed, is nothing but Sodium Azide and all the persons concerned were referring to it as Sodium Azide only. However the material produced during the commissioning runs was contaminated with various metallic impurities. It also contained a high level of un-reacted raw materials. Therefore, the material produced during the two commissioning period does not possess the specifications required by the buyers abroad and should be treated as export rejects. The price of the same cannot be anything but the transaction value of Rs. 200 per Kg., and does not include any element of taxes.
The contention of Parsin Chemicals Ltd., is that the same was 'waste material'. This plea was not raised at any point of time, during investigation.
Parsin Chemicals Limited have not placed any evidence in support pf their submissions that what was manufactured by them and cleared, was not Sodium Azide, but waste materials including un-reacted materials.
The fact of the marketability has been established by the Department, inasmuch as, Sodium Azide was sold to Raghu Chemicals, during the relevant period for consideration, ranging from Rs. 200 to Rs. 300 per kg., and Raghu Chemicals sold the major portion of it to her actual users during the period when the factory of Raghu Chemicals was closed. Further, the receipt of sale proceeds is not disputed, therefore, the goods manufactured during the relevant period by Parsin Chemicals Limited, satisfy the test of marketability, in terms of the decisions referred to by the Hon'ble Tribunal.
There is no exemption on export rejects cleared to DTA by Parsin Chemicals Ltd. As such they have to pay appropriate duty, which has not been paid by them, admittedly.
In the light of the statements recorded during the course of investigation, their plea that the goods were cleared without payment of duty and without accountal under bonafide belief, that no duty is payable on export rejects, cannot be accepted.
The impugned goods are nothing but export rejects and as such, for the purpose of valuation and application of rate of duties, under customs and Central Excise Law, price of Rs. 200 shall be adopted for arriving at the assessable value for determining the duty liability.
4. We have heard both sides and considered the matter and find:
(a) The matter was adjudicated by the then Commissioner vide his Order (Original) No. C.Ex, 16/96 dated 11,3.1996 in file O.R. No. 99/94-Adjn., wherein he had while confirming the demand of Rs. 14,16,918 under Rule 9(2) of Central Excise Rules, 1944 read with proviso to Sub-section (1) of Section 11 of the Central Excises and Salt Act, 1944, as against the proposed demand of Rs. 22,24,958.60, had imposed penalties on Parsin under Rules 9(2) and 173Q of Central Excise Rules, 1944 and Section 112 (a) of the Customs Act, 1962. He also imposed penalties under Rule 209 A of the Central Excise Rules, 1944 as well as under Section 117 of the Customs Act, 1962 on Raghu Chemicals. Penalties were also imposed on S/Shri Satyendra Nath and Sarva Rao of M/s. Parsin Chemicals Ltd. under Rule 209 A of Central Excise Rules, 1944 as well as under Sections 112 (b) and 117 of Customs Act, 1962: Penalties were imposed on Shri Rajasekhar of Raghu Chemicals under Rule 209 A of Central Excise Rules, 1944 and under Section 117 of the Customs Act, 1962. However, he had dropped the proceedings initiated against Shri B.S. Grewal, M.D. of Parsin. On appeal filed by Parsin, the Hon'ble CEGAT, Madras Bench, vide its Order Nos. 414 to 423 dated 30.1.1997 set aside the order-in-original referred to above and remanded the matter without expressing any opinion on the merits of the case with a direction that the marketability test of the goods in question should be examined afresh by the adjudicating authority before the duty liability is cast on the appellants. The Hon'ble CEGAT also directed that the plea of bonafide belief of the appellants that the disputed goods are not dutiable should be considered. The Hon'ble CEGAT also observed that the appellant's plea that what they did was at the behest of Shri A.M. Reddy who was exonerated should be examined and considered before imposing penalties.
(b) It is established that the 100% EOU set up by the technology supplied by M/s. IICT and the initial processing resulted in 2.8 Mts of Sodium Azide during November/December 1989 and during the second commissioning after modification of the plant and machinery 2.3 Metric Tonnes of these goods was produced during September/October 1990. 2.3 Mts of Sodium Azide was produced which met other specifications but the particle size distribution was not as per customer specifications and out of this 5.1 Mts, a quantity of 4750 kgs. was sold in one lot and 350 in another lot. They produced certificates from Deputy Director and Head Chemical Engineering Division to the following effect:-
"Technology detailed designs and commissioning assistance was provided by IICT to M/s. Parsin Chemicals Ltd., 201, Dwarakapuri Colony, Punjagutta, Hyderabad for the manufacture of Sodium Azide for 100% export, The product is mostly used in air bags in automobiles to meet the statutory obligations of the U.S. Government, The product has to meet the strict specifications regarding the particle size as well as the purity. The plant was commissioned during Nov-Dec 1989 and July-Aug 1990. Like any other new plant, the quality of the product made during the commissioning runs was not upto the mark. About 3 tonnes non-saleable product was produced during commissioning. Product not meeting the specifications, is produced during the normal production schedule, also due to various reasons; to name few, ingress of impurities, human failure, power failure, improper crystallization and/or drying, malfunction of equipment or instruments etc. This 'reject' or non-saleable product can be further processed to improve the quality of sold in the market if acceptable to the purchaser. Production or about 5 tonnes of a product in a plant of 1 tpd capacity works out to five days capacity of the plant. It is not unusual to generate this quantity of non-saleable spec, product over a period of time considering the factors mentioned in 3 & 4 above".
And affidavits from the chemists looking after the quality assurance functions in the factory, to claim that the Sodium Azide produced during November-December 1989 was like brown sand colour which contained various metallic impurities mainly iron from loose particles in the brand new plant and equipment used and had very high level of unreacted raw-materials and it did not comply with customer requirements/ specifications and was not approved for export and could be treated as rejects. The Commissioner after relying upon the statements recorded along with the documents of correspondence which indicate that certain samples were removed and taken to Bombay for testing and cash entries were received and therefore he concluded that the Sodium Azide removed was the material and would be classified under heading 2850. The Commissioner in para-16 of the OIO after enumerating the evidence, came to the following conclusions:
"I am inclined to accept the above views that the material produced during the two commissioning periods does not possess the specifications required by the buyer abroad. However, chapter sub-heading No. 2850.00 covers Hydrides, nitrides, azides, silicides and borides, whether or not chemically defined. The chapter heading does not prescribe any specifications for the items mentioned therein. Therefore, Sodium Azide resulting out of commissioning periods, although does not have the specifications required by the buyer abroad but it has the specifications required by indigenous customers and hence it falls within the purview of chapter heading 28.50. It is not the plea of the Parsin that to be called as Sodium Azide the product should have prescribed specifications, say like I.S.I. standards. Therefore, while not disputing the plea that the product resulted in commissioning attempts was not suitable for exports and should be treated as export rejects, the point still remains that what emanated during commissioning attempts was Sodium Azide only but not answering to the specifications of the export order."
Thereafter concludes that the plea and contentions that it was a waste material has been developed after adjudicating of the case and it is an after-thought and rejected the same. He also took note of the plea of Shri Rajasehkar Reddy, Managing Director of M/s. Raghu Chemicals and certain processings were conducted on the waste materials received by them and reasonably good Sodium Azide was made and sold. However taking into view that the factory of Raghu Chemicals was closed he concluded that no processing was done by them and that the Sodium Azide, though of lesser purity not required by the buyer abroad but suitable for indigenous industries was manufactured and clandestinely removed. He thereafter concluded that it was not possible to seek any opinion from chemists as the goods were not available and thereafter valued the same. He established the fact of marketability as follows:
"Having seen that Sodium Azide had been manufactured, the next point to see is whether it is marketable. The fact of marketability has been established by the department by evidence cited in the show cause notice as well as discussed in this order that the Sodium Azide was sold to Raghu Chemicals during the relevant period for a consideration ranging from Rs. 200 to Rs. 300 per kg. and that Raghu Chemicals had sold major portion of it as such to other actual users during the period when the factory of Raghu are required to export all their production but for the rejects Chemicals was closed. Since Parsin is a 100% E.O.U. who not exceeding 5% in D.T.A., the Sodium Azide produced during the commissioning periods being in the nature of export order) had been sold in a limited extent to Raghu Chemicals and the receipt of sale proceeds is not disputed. Therefore, I am of the view that the goods manufactured during the relevant period by Parsin satisfied the test of marketability in terms of decisions referred to by the Hon'ble CEGAT. As represented by Parsin, when their technology had been upgraded there were no rejects and as such there was no need for them to try domestic market. What we are concerned is the marketability of low grade goods produced by them during the commissioning periods and not regarding the marketability of standard goods required by the buyer abroad."
From these findings arrived at by the Commissioner, it can be safely concluded that the Sodium Azide in question was not waste but were "Export Rejects." When guidelines on 'Export Rejects' are applied.
(c) The guidelines for clearance of such rejects were initially issued by the Ministry of Commerce vide REP Circular No. 26/1985-9/66/85 EPC, dated 25.10.1985. Hereby it was clarified that the question of what constitutes 'rejects' would be decided by the Assistant Commissioner of Central Excise. For this purpose the Assistant Commissioner was to refer to a quality control yardstick, prescribed by the buyer or the report of the internal quality control department of the manufacturer and other technical opinions. The manufacturer could also be called upon to produce correspondence on the basis of which the claim of item being a 'reject' had been made. In addition it was clarified that rejects will include sub-standard products but not waste or 'by products. These guidelines for disposal of rejects in the DTA has its basis on the paragraph 7(x) of the Ministry of Commerce Resolution No. 8(15)/78-EP dated 31.12.1990 reproduced in Appendix 23 of the EXIM Policy, 1985-88, which provided that 5% or such fixed percentage, as determined by the BOA. may be sold in the DTA. As per the guidelines in the matter it was decided that the term 'Rejects' would cover products having a definite manufacturing defect and as such are not exportable as per the declaration of the unit concerned. Whereas sub-standard products would include the spares, tools, wastes or by-products shall not be included. Clearances of such 'rejects' within 5% of the limits was permissible over and above the quota of 'sales allowed in the DTA' to EOUs. This has been amended only with effect from 1.4.2000, to include the clearance of Rejects within 'DTA Sale Allowances". When the Commissioner has come to a clear conclusion that the goods removed did not meet the export specifications, he should have considered the said removals as rejects, as per the Board's instructions guidelines issued as mentioned hereinabove, which he was bound to apply, to the facts of the case before him, even if the appellants have taken the plea that the said rejects were 'waste' and he did not find them to be waste. We find enough material to consider these clearances as clearances of Rejects.'
(d) Once the goods have been found to be 'export rejects', all that is required to be done is to determine the duty, if any, that was required to be demanded in the facts of this case. During the relevant period these removals would not be part of quota of goods allowed to be sold to DTA. Proceeding to decide, the Central Excise duty, that could be charged on the subject clearance of 'rejects', it is found.....
(i) Demand of duty made by invoking Proviso to Section 3 ( 1) of the Central Excise Act, 1944, the case of the Revenue is that a certain unaccounted quantities have been cleared to Domestic Tariff Area (D.T.A.), without applying for any permission and/or obtaining the same from the concerned authorities. Relying on the case law of Kunthal Granites 2001 (75) ECC 168 (T) : 2001 (132) ELT 214 (T) and SIV Industries, 2000 (68) ECC 531 (SC) : 2000 (37) RLT 583 (SC) it was contended by the learned advocate for the appellants that the levy of Central Excise duty under Section 3 first proviso to the Central Excise Act, 1944 in case of an EOU is sui generis, it cannot be equated with the concept of levy as on other goods produced or manufactured in another unit. It was submitted in the case of SIV Industries 2000 (68) ECC 531 (SC) : 2000 (117) ELT 281 (SC), in has been held, after recording the say of UOI, that Proviso to Section 3( 1) would apply only when goods are 'allowed to be sold in India.' The Circular Nos. 618/9/9/2002 CE dated 13.2.02 issued by the Central Board of Customs has also settled the position that in a situation where goods have been cleared without getting the permission from the Development Commissioner i.e. 'not allowed to be sold', then duty in such cases is to be demanded only on the basis of main Section 3 of the Central Excise Act. In this case, the Department has not made a demand under main Section 3 and in any case all goods vide Notification 125/84 dated 26.5.84 stand and shall be exempt from demand of duty, for the levy, if any, under main Section 3. Therefore following the Apex Court and the Board's instructions, can be concluded that the goods, in this case, for which unquestionably there is 'no permission to allow the sale in D.T.A.' there cannot be any duty.
(ii) As regards the central excise duty concession on the goods cleared to the Indian market it was only in 1983 that the Government decided to allow the units in the KAFTZ and the SEEPZ to sell their goods, not exceeding 25% of their production, in the Domestic Tariff Area (DTA) on payment of applicable Central Excise Duty equal to the Duties of Customs on like goods imported into India. For this Section 3 of the Central Excises & Salt Act, 1944 was amended vide Section 46 of the Finance Act, 1982 (14 of 1982) to provide for the levy of duty at a value of the said goods determined in terms of the customs law (not central excise law). Also it was decided that no excise/customs duty is to be charged on the goods used in the production of the said goods cleared to DTA.
(iii) Notification No. 15/83 CE dated 11.2.1983 was issued to exempt excisable goods produced/or manufactured in an EPZ unit, unless the goods were brought to any place in India. Similarly Notification No. 125/84-CE dated 26.5.1984 was issued, which provided that goods produced or manufactured in an EOU were exempt from whole of the duty of Excise leviable thereon under Section 3 of the Central Excise Act, 1944, This exemption provided that it shall not extend to such goods "allowed to be sold" in India.
(iv) to interpret the terms "allowed to be sold" in India, it is found that in the case of Siv Industries Ltd. v. CCE, 2000 (68) ECC 531 (SC) : 2000 (37) RLT 583 (SC) in para 8 thereof it was held as ".......It also becomes apparent that in view of the EOU scheme as modified from time to time and corresponding amendments to Section 3 of the Act, the expression 'if allowed to be sold in India.' And any proviso to Section 3 (i) of the Act is applicable to sales made upto 25% of production by 100% EOU in DTA and with permission of the Development Commissioner....."
In view of this interpretation of the term 'allowed to be sold' in respect of levy of duty in case of EOUs by the Hon'ble Supreme Court, which was arrived at, as it appears from para 22 of the reported decision on an interpretation placed on the term in the affidavit filed by the Union of India, there can be no duty on 'Export Rejects' when they are not part of DTA quota.
(v) The clearance of rejects up to 5% or such percentage as may be fixed by the Board of approvals is not subject to any such prior export obligation or value addition norms stipulations. In fact no material has been placed before us to show that the permission to clear the rejects is required to be obtained from the Development Commissioner. Such clearances of Rejects as is seen from Import Trade Control Order No. 33/85-88 Open General Licence No. 22/85-88, circulated vide F.No. 307/12/86-FTT dated 11.12.1986 issued by C.C.I & E - which reads as follows:-
"The undersigned is directed to enclose a copy of Import Trade Control Order No. 33/85-88 open General Licence No. 22/85-88, dated 16th January 1986 issued by the Chief Controller of Imports and Exports, New Delhi on the above subject for guidance and necessary action.
(Import Trade Control Order No. 33/85-88, Open General Licence No. 22/85-88, New Delhi, dated 16th January 1986.
In exercise of the power conferred by Section 3 of the Imports and Exports (Control) Act, 1947 (18 of 1947), the Central Government hereby gives general permissions till further orders to import into the Domestic Tariff Area rejects as permitted in the Letter of Approval of the 100% Export Oriented Units issued to such units by the Central Government, subject to the following conditions.
1. Rejects shall be permitted to be imported by all persons.
2. The term 'Rejects' shall cover the products which have definite manufacturing defect and as such are not exportable as per declaration of the 100% Export Oriented Unit concerned and shall include sub-standard products but shall not include spares, tools wastes or by-products. The following parameters shall be kept in view for determining rejects;
(i) The unit must certify that the rejects were an unavoidable feature on account of flaws of technology, techniques or material deployed by unit in the manufacture of its products;
(ii) Rejects are also invoiced and stamped by the manufacturer as 'REJECTS' at the time of clearance into the DTA; and
(iii) Rejects shall be established as such to the satisfaction of the Assistant Collector of Customs and Central Excise, having jurisdiction over such units. Assistant Collector shall decide that an item is indeed a reject with reference to quality control yardsticks prescribed by the buyer, report of the internal quality control department of the manufacturer, and other technical opinion which the Assistant Collector may consider necessary to call upon before deciding the matter."
Would indicate that this Import Trade control order No. 33/85-88 prescribed that "Central Government hereby gives general permission till further orders to import Domestic Tariff Area rejects as permitted...."
Therefore, no further permission was required from any other authority for such clearance of rejects, whose clearance is permitted by this order as made in this case at the relevant time. These clearances were also not to be reckoned within the 25% quota of DTA. It is also found that in the present case, that the sub-standard Sodium Azide should be considered as rejects as per definition in this order of Central Government and were an unavoidable feature and should have been allowed to be cleared. Since no permission of the Development Commissioner is required for clearance of such 'rejects' which were in addition to the 25% DTA quota sales which only required permission of Development Commissioner, then clearance of such 'rejects' could not be covered under the term 'allowed to be sold' used in proviso to Section 3 of the Central Excises and Salt Act, 1944 or the Notification No. 125/84 CE dated 26.5.84. Therefore these rejects would be covered by the exemption vide Notification No. 125/84 CE dt. 26.5.84 as soon as they were manufactured/ready in the EOU. On their removal from the EOU premises no amount of duty therefore could be charged as they were leviable for 'NIL' rate of duty as the CBEC Circular No. 618/9/02 C.Ex dated 13.2.02 communicate Board's instructions that Proviso of main Section 3 would be applicable in cases where goods are manufactured which are not covered by the term 'allowed to be sold' would benefit the appellants case to be eligible for levy at 'NIL rate of duty when Notfn. No. 125/84-CE dated 26.5.84 is read.
(e) The learned DR submitted that.....
"In this case there are two possible interpretations of the term 'allowed to be sold'. To use it in the sense advanced by the advocates for the parties who have admittedly removed goods illegally, would be to privilege the law-breaker over the law-abiding citizen, and is offensive to our sense of justice.
In the case of Chief Justice of Andhra Pradcsh v. LVA Dikshitulu and Ors., AIR 1979 SC 193, the Apex Court held that the words 'civil service of the State' as used in Article 371-D of the Constitution did not include the High Court staff and the subordinate judiciary, though the same words used in Article 311 include these categories. The Court observed:
"Where two alternative constructions are possible, the Court must choose the one which will be in accord with the other parts of the statute and ensure its smooth harmonious working and eschew the other which leads to absurdity. Confusion or friction, contradiction and conflict between its various provisions, or undermines or tends to defeat the basic scheme and purpose of the enactment."
In this case the scheme we are dealing with is the EOU scheme, which gives the units under it the privilege of duty-free import of goods from both India and abroad, for the purpose of manufacture of goods for export. The underlying motif is to encourage exports and earn foreign exchange for the country. Therefore goods sold in India are to pay duty. The Notification No. 125/84 exempts goods manufactured in an EOU, because goods are excisable upon manufacture and captive consumption amounts to removal by a legal fiction; therefore this exemption was necessary. But to extend it to goods removed from the EOU and sold clandestinely in India would go against the grain of the scheme."
The Advocate for the appellants has submitted on this aspect as follows......
"The CBEC Circular dated 13.2.2002 (supra) cannot overrule the decision of the Hon'ble Supreme Court in the case of Siv Industries v. CCE, 2000 (68) ECC 531 (SC) : 2000 (117) ELT 281 (SC). Further, the amendment made to proviso (ii) to Section 3 of the Act, through the Finance Act, 2001, is not retrospective and cannot be applied to past cases interpreting a statute the Court is required to interpret the law and cannot legislate it. In this connection the Appellants would like to place reliance on the decision of the Hon'ble Supreme Court (Five Judge Bench) in the case of Padmasundara Rao v. State of Tamil Nadu, AIR 2002 (SC) 1334. In this decision the Hon'ble Supreme Court held as follows:
"While interpreting a provision the Court only interprets the law and cannot legislate it. If a provision of law is misused and subject to the abuse of process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary (See Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd., 2000 (5) SCC 515. The legislative casus omissus cannot be supplied by judicial interpretative process. Language of Section 6 (1) is plain and unambiguous. There is no scope for reading something into it, as was done in Narasimhaiah's case (supra)......"
(Copy enclosed)
3. The Apex Court in the case of Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd., AIR 2000 (SC) 1583, inter alia held as follows:
"While interpreting, this Court only interprets the law and cannot legislate it, if a provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repeal it, by having recourse to appropriate procedure, if deemed necessary."
The Appellants submit that a statute is required to be interpreted harmoniously. A careful reading of the proviso (ii) of Section 3, Suction 11 A, Rules 100 A, 173 A, and Notification No. 125/84-CE dtd 26.5.84, would show that there is consistency in the language used and there is no contradiction in any of the above provisions.
The Hon'ble Supreme Court (Five Judge Bench) in the case of K. Garg v. UOI, 1981 (4) SCC 675 (SC), inter alia observed as follows;
"It has been pointed out that there have been voluntary disclosure schemes in the past. That is so, but none of them is quite like the scheme in question, which not only exempts the unaccounted money in the shape of Special Bearer Bonds from all taxes but provides also for a tax free premium on it. According to the petitioners, if the earlier schemes have been conciliatory, the present scheme amounts to capitulation to black money. I asked the Attorney General if it was his case that all attempts to unearth black money had failed and the present scheme was the only course open. His answer was that was not the case. Clearly, the impugned Act, puts a premium on dishonesty without even a justification of necessity--that the situation in the country left no option.
The Act has been criticized as immoral and unethical. Any law that rewards law-breakers and tax-dodgers is bound to invite such criticism. Should the Court concern itself with questions of morality and ethics in considering the constitutional validity of the Act? Of course no law can be struck down only on the ground that it is unethical. However, Friedmann in this Legal Theory (page 43);
"There cannot be--and there never has been a complete separation of law and morality. Historical and ideological differences concern the extent to which the norms of the social order are absorbed into legal order" It has been held by this Court in Royappa, AIR 1974 SC 555 and Maneka Gandhi, AIR 1978 SC 597 that the principles of reasonableness is an essential element of equality. The concept of reasonableness does not exclude notions of morality and ethics. I do not see how it can be disputed that in the circumstances of a given case considerations of morality and ethics may have a bearing on the reasonableness' of the law in question."
We have carefully considered the submissions made by the learned SDR, especially the conclusions, that the interpretations which the appellants are seeking to give to the proviso to Section 3 of the Act read with Section 11A, Rules 100 A, 173 A and Notification 125/89-CE will result in the appellants availing/taking undue advantage of the provisions of the law and this will not be correct. This submission, in the face of the specific reply made by the learned Advocate, based on Supreme Court decisions induces us with great respect to conclude that submissions made by the learned SDR cannot be upheld, It is well settled that levy of duty and its collection have to be effected in clear, unambiguous terms which could be understood by the person who is being taxed by the State. No question of ethics and equity could be invoked in matters of taxation especially in this Tribunal since this Tribunal is not a Court of equity. Consideration of ethics and advantages are not to be weighed, If the law is clear it is to be interpreted with consequences. We find no ambiguity in the same. If amendments are required, due to the reason that the benefits were not intended, the cure would be in amending the legislation. In fact the Proviso to Section 3 of the Central Excise Act prescribing the levy in the case of EOUs has been amended vide Clause 114 of Finance Act 2001-02 and the words 'allowed to be sold in India' have been deleted and replaced by the words 'brought to any other place in India.' This amendment is not retrospective in operation, even though other amendments to the levy of duty under Section 3 on EOUs have been made retrospectively applicable.
(f) From the reading of rules framed under Chapter V A of the Central Excise Rules, 1944, and Rule 173 A (2) of these rules it is found that the rules framed for removal of the goods from EOU are restricted and applicable only to such goods which are covered by the proper officer to be 'removed for being sold in India' i.e. 25% DTA quota. Since the present removal is not within this 25% DTA quota, the rules framed under the Central Excise Rules will not be applicable to their removals. Therefore we cannot find contravention of any central excise rules if such goods which are at 'NIL' rate of duty, are removed from an EOU. When no contravention of rules for removal of these 'NIL' rated goods is found, there is no liability for arriving at a confiscation under Rule 209 and penalty there under or under Rule 209 A.
(g) From the reading of the provisions of Rule 100A (2) and Rule 173A(ii), it would be clear that provisions of Chapter V will not apply to an EOU, therefore, penalty imposed under Rule 173Q(i) cannot be determined. The penalty under Rule 9(2) of the Rules cannot be upheld since the goods are found to be 'NIL' rated and no provision for removal of such goods is found under the Central Excise Rules. Contravention of Rule 9(1) for which penalty under Rule 9(2) could be imposed, cannot be found to have taken place in the facts of this case. In any case, penalty under Rule 9(2) is limited to Rs. 2000 and a penalty of Rs. 1.5 lakhs imposed in this case cannot be upheld.
(h) As regard the penalties under 112(a), 112(b) and 117 of the Customs Act, we do not find the Commissioner to have come to conclusion as regard the liability of confiscation of any goods under the Section 111 of the Customs Act. Therefore, penalties under Section 112(a), 112(b) of the Customs Act as imposed cannot be upheld. It is found from para 26.8 of the Order that the Commissioner is giving a positive conclusion that contravention of the provisions of Notification 13/81 Cus read with Section 65 of the Customs Act, 1962 have taken place. However in para 26.7 of his order he has come to a positive finding that in view of the factual position in this case, the imported capital goods in question are not liable for confiscation under the Customs law. In view of the same we do not uphold the liability of penalties imposed under Sections 112 (a), 112 (b) and 117 by the learned Commissioner.
In view of our findings the order is set aside and appeals allowed.