Custom, Excise & Service Tax Tribunal
Sham Chandrakant Keluskar vs Nasik on 10 August, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEALS NO: E/635 & 636/2007
[Arising out of Order-in-Original No: 34/CEX/2006 dated 11th December 2006 passed by the Commissioner of Central Excise & Customs, Nashik.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Premium Tools Pvt Ltd
Sham Chandrakant Keluskar
Appellants
versus
Commissioner of Central Excise & Customs
Nasik
Respondent
Appearance:
Ms. Vijaya Birmole, Advocate for the appellant Shri Ajay Kumar, Jt. Commissioner (AR) for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 10/08/2016 Date of decision: 13/12/2016 ORDER NO: ____________________________ Per: C J Mathew:
The appellant, M/s Premium Tools Pvt Ltd, an export oriented unit (EOU) issued with Letter of Permission (LoP) under the eponymous scheme of the Foreign Trade Policy, is licenced to manufacture and export steel files and rasps. Appellant has also cleared seven consignments of files into the domestic tariff area between November 2000 and September 2005. Likewise, fifteen consignments of scrap and rejects were also cleared during this period. All the clearances were effected on payment of duty of 16% which is a concession available to clearances from such units as are eligible for the benefit of notification no. 8/1997 dated 1st March 1997 and its successor instrument, notification no. 23/2003 dated 31st March 2003.
2. Normally, clearances into the domestic tariff area (DTA) are permissible, under section 3A of Central Excise Act, 1944, on discharge of duty liability of half the aggregate of customs duties leviable on such goods on import into the country. However, where such goods as are manufactured out of raw materials that have not been imported under the exemption notification available to export oriented units are liable to such duties as are leviable on goods produced by other entities that are not export oriented units. Accordingly, notice was issued on 28th November 2005 demanding the short-paid duty of Rs 22,07,699/- on the said clearances.
3. Vide the impugned order-in-original no. 34/CEX/2006 dated 11th December 2006, Commissioner of Central Excise & Customs, Nashik confirmed the demand, imposed penalty of like amount under section 11AC of Central Excise Act, 1944 and impose penalty on the Managing Director leading to these appeals.
4. The core of the dispute is the contention of Revenue that appellant utilises barium chloride, corundum sand, anti-corrosion oil and stamping ink which were allegedly imported for manufacture of the goods cleared into the domestic tariff area; the adjudicating Commissioner held that the first two are raw materials and the other two are consumables rendering the appellant-assessee ineligible for the concessional rate of duty on domestic clearances.
5. Appellant contends that only such clearances as are manufactured out of imported raw materials are ineligible and that the exclusion from eligibility is not predicated upon use of imported consumables. They also contend that the four items are consumables and that they use only domestically procured consumables for manufacture of goods cleared domestically.
6. Learned Authorized Representative contests this defence and asserts that, at no stage, did the appellant produce any evidence that domestic clearances were manufactured out of domestically procured goods. On the contention that use of imported consumables is not a ground for denial of exemption, it was canvassed that circular no. 614/5/2002-CX dated 31st January 2002 withdrew the earlier instruction that allowed use of imported consumables for manufacture of goods that were cleared into domestic tariff area.
7. Learned Counsel for appellant took us through the exemption notifications in his elaborate arguments. We note that the third condition in the relevant exemption notification merely bars the use of imported raw materials and that the exemption notification which permits imports without payment of duty specifies raw materials, consumables and capital goods implying that these are distinct categories of goods. There is, however, no definition of these expressions in the exemption notification. Indeed, the instrument would be hard put to do so as thee categorisation is not rigid across all industries. It would, therefore, appear that the fitment within any of these expressions is determined by the manufacturing process and is best left to the appellant. Therefore, if a user chooses to categorise the wherewithal for manufacture in a particular category that must, in the absence of any other evidence, be accepted. No evidence that these four items are not consumables is perceptible in the show cause notice or the impugned order. It is also clear from the exemption notifications pertaining to domestic clearance that the restriction on use of imported goods is limited to raw materials.
8. What we have concluded above is not as startling as it may appear to be on first and superficial perusal. It is not a blanket mandate to assessees to seek opportunistic categorisation to evade duty. To comprehend this proposition, we must revisit the scheme for export oriented units in the Foreign Trade Policy.
9. Such units are established as part of the foreign exchange generation programme of the Government of India. These units are permitted to procure all or any resource for manufacture without payment of duty either by imports or from domestic sources. In return, they are obliged to be net foreign exchange positive; in other words, every unit of foreign currency spent on procurement must be offset by exports and in the event of failure to do so within the first two five-year blocks, duty liability is fastened on the assessee. In computing the annual foreign exchange earning target, the actual consumption of raw materials and the value of imported consumables and spares are to be taken into account. As far as capital goods are concerned, the annual amortisation at a tenth of the import value is to be included. It is thus seen that it is the actual consumption of raw materials that need to be offset whereas usage of capital goods, consumables and spares are not relevant; irrespective of the quantum of clearance into the domestic tariff area, the value of imported consumables, spares and amortised portion of capital goods must be met with, at least, equal earning in foreign exchange failing which duty liability on these elements will be due. Raw materials are required to be offset by earnings only to the extent of usage in production. Hence, the specificity of the condition that to be eligible for clearance at the rate of excise duty, as applicable to domestic industry, imported raw materials must be used. We also see that the categorisation adopted by an assessee is attendant with perils that would cause a assessee to pause and ponder before taking the risk of claiming that a raw material is a consumable; for a prudent businessman, the costs of immediate gain, in the long run, may well be too high to pay.
10. It would appear that the circular of Central Board of Excise & Customs supra cited by Learned Authorized Representative has been issued without comprehending this fundamental. It is also moot whether the benefits of a statutory instrument issued under section 5A of Central Excise Act, 1944 can be constrained by a circular of Central Board of Excise & Customs. We do not believe so and, hence, hold that circular to be inapplicable.
11. While Learned Authorized Representative has relied upon the decision of the Honble Supreme Court in Collector of Central Excise v. Ballarpur Industries Ltd [1989 (43) ELT 804 (SC)] and Vansthali Textile Industries Ltd v. Commissioner of Central Excise, Jaipur [2007 (218) ELT 3 (SC)] to reinforce the conclusion of the adjudicating Commissioner that barium chloride and corundum sand are not consumables but raw materials, we find that a pointed observation of the Honble Court is most relevant, viz., 5 The expression Raw Material is not a defined term. The meaning to be given to it is the ordinary and well-accepted connotation in the common parlance of those who deal with the matter. We would go so far as to advert that the decision in re Vanasthali Textiles Industries Ltd which held that 20.?Dealing with a case under a Sales Tax statutes, i.e. Andhra Pradesh General Sales Tax Act, 1957, this Court held that the word consumable takes colour from and must be read in the light of the words that are its neighbours raw material, component part, sub-assembly part and intermediate part. So read, it is clear that the word consumables therein refers only to material which is utilized as an input in the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consumed therein. It is for this reason, a departure was made from the concept that consumable fall within the broader scope of the words raw materials. Reference in this connection can be made to the view expressed in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Thomas Stephen & Co. Ltd., Quilon [1988 (2) SCC 264] and Coastal Chemicals Ltd. v. Commercial Tax Officer, A.P. and Ors. [1999 (8) SCC 465]. In the cases at hand consumable are treated differently from raw materials. makes it even more apparent that these expressions are to be read with reference to the context. The context of the exemption afforded to materials imported by export oriented units and the condition stipulated for eligibility to excise duties, instead of half of the aggregate of duties of customs, that raw materials be domestically procured does not permit the latitude of treating consumables as raw materials. The adjudicating Commissioner has erred in doing so.
12. For the above reasons, we hold that the discharge of duties by the appellant-assessee on domestic clearances is legal and proper and, hence, warrants no interference.
13. We set aside the impugned order and allow the appeals.
(Pronounced in Court on 13/12/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 6 9