Customs, Excise and Gold Tribunal - Mumbai
Favourite Industries vs Commissioner Of Central Excise on 17 July, 2003
ORDER
Gowri Shankar, Member (Technical)
1. Favourite Industries, a 100% export oriented unit located at Pandesara near Surat, was engaged in the manufacture of processed polyester fabrics. It had availed of the exemption contained in notification 8/97. The notification provides for exemption from excise duty on finished products, rejects and waste or scrap manufactured in a 100% export oriented unit or a free trade zone wholly from raw materials produced from or manufactured in India and allowed to be sold in India in accordance with the provisions of sub paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9, or of paragraph 9.20 of the Export Import policy April 1997 - March 2002 is in excess of the aggregate amount of excise duty leviable under Section 3 of the Act or any other law for the time being in force. Notice issued to it proposed to deny the exemption on the ground that the goods were not manufactured wholly from the raw materials produced by the manufacturer. It alleged that the unprocessed fabrics which the appellant processed had been supplied by other 100% export oriented unit. It also alleged that some of the fabrics are imported. The notice therefore proposed to levy duty at 50% of the Customs duty that will be payable on such goods imported as provided in notification 2/95. The assessee accepted in its reply to the notice that the unprocessed fabrics that it processed were manufactured by other 100% export oriented unit. It contended that the conditions subject to which the goods had been exempted satisfied since the unprocessed fabrics which had been manufactured in a 100% export oriented unit were manufactured in India. The Commissioner did not accept this submission. He found that the benefit of the exemption was not available, denied it and demanded duty from and also demanding interest under Section 11AB of the Act. Hence this appeal.
2. The reasons that the Commissioner advances for not extending the benefit of the exemption are as follows. Chapter IX of the Export Import Policy provides that the value of the goods obtained by one unit in an export promotion zone or similar factory, shall be included in calculating the net foreign exchange earning of the 100% export oriented unit and such supplies are considered to be deemed export. Therefore, it follows that the goods obtained from another 100% export oriented unit will be deemed to have been imported goods. Her also relies upon the observation in the decision of the Tribunal in CCE v. Champagne India Ltd. 1998 (104) ELT 134 that conceptually 100% export oriented units are islands insulated from all domestic restrictions and tariff and therefore goods sought to be cleared from units for home consumption are deemed to be imported into the country. He also relies upon two provisions relating to modvat in support.
3. Chapter IX of the relevant Import Export Policy deals with deemed export i.e. the transaction in which the goods supplied have been left the country, the payment of such supply is received either in Indian rupees or in foreign exchange. The chapter includes among these supply of goods to export oriented units. This chapter provides that deemed export shall be provided for advance licence for intermediate supply/deemed export/duty free replenishment certificate/drawback and refund of terminal excise duty. It is not possible to agree, as the Commissioner states and the departmental representative repeats, that it logically follows that goods received by a 100% export oriented unit from another. Such units are to be treated, for the purpose of the Customs Act, 1962 or the Central Excise Act, 1944 as deemed imports. The deeming provision contained in the policy is limited to the benefits that would flow as a result of such supply. We do not find it possible to say that export is for all intents and purposes. None of the benefits referred to is provided for in the Customs Act, 1962 or in the Central Excise Act, 1944. Such supplies will not be for the purpose of this Act, be deemed to be exports. Thus, drawback under Sections 74 or 75 will not be available.
4. In CCE v. Champagne India Ltd., the question for consideration before the Tribunal was liability to Customs duty of the champagne and inputs such as bottles, corks, wire rods, foils etc. cleared by Champagne India Ltd., a 100% export oriented unit to the domestic tariff area. The question for consideration in the appeal before the Tribunal was whether the Customs duty was payable on these goods cleared into the domestic tariff area. The Tribunal noted that in view of the constitutional provisions relating to potable alcohol, the champagne manufactured by 100% export oriented unit when cleared for consumption to the domestic tariff area would not be chargeable to excise duty and said that other imported items such as bottles, corks, wire rods and foils will be chargeable to duty in terms of Section 68 of Customs Act, 1962. Section 68 provides for levy of Customs duty on goods cleared for home consumption from a Customs Bonded Warehouse. The sentence that the Commissioner has relied upon to describe a 100% export oriented unit to be conceptually islands insulated for domestic prescription therefore it cannot be considered to be the part of the ratio and in the nature of obiter. In any event, the decision of the larger bench of the Tribunal in Vikram Ispat v. CCE 2000 (120) ELT 800 has clearly explained that the logical conclusion from the decision of the larger bench is goods that manufactured in a 100% export oriented unit which are manufactured in India and are liable to excise duty. The bench held that the duty paid on such goods, which is equal to the Customs duty payable on them on identical goods imported were in the nature of excise duty although its measure was Customs duty and the entire duty paid as such would be available as credit under Rule 57A to the person who purchased these goods.
5. The reference in the Commissioner's order to the provisions of Rule 57A does not seem relevant to the issue before us. The Commissioner says that additional duty of Customs is also available as modvat credit under Rule 57A. That is so because the law provides for that and we do not see relevance this provisions of the issue before us. We are also not able to find any merit in the contention in the order that approving the course of the action taken by the appellant would result in grant of any unintended benefit. Any clearance made to a 100% export oriented unit, domestic unit qualifies for facility of goods "deemed export" in chapter IX of the policy. There is no distinction made in this regard between goods supplied by a 100% export oriented unit and goods supplied by a unit in a domestic tariff area. If the intention were to deny the benefit of the exemption in respect of goods manufactured out of raw materials or components supplied by another 100% export oriented unit was easy enough to make that position clear. It will follow therefore that the appellant would be entitled to the benefit of the exemption contained in notification and liable to pay consequently such duty as would be payable by a unit manufacturing the same goods in the domestic tariff area under the Central Excise Tariff or any other law for the time being in force. It is not possible for us to attribute meanings or intentions that cannot be pressed in the notification. A notification is required to be strictly construed. We do not find any ground to say that the benefit of exemption should be denied.
6. Annexure A to the notice refers to three shipping bills under which the grey fabrics were received by the appellant. We have referred earlier to the allegation in the notice that part of the unprocessed fabrics was imported and the contention of the imported goods from outside the country i.e. not in India from any of the country and the denial of the counsel fore the appellant. In reply to the notice, the appellant had pleaded that it received raw material from other 100% export oriented unit. It had not specifically denied receipt of any imported raw material used in the manufacture of the goods on which duty has been demanded. We think it would be desirable to have these aspects verified in order to ensure whether the benefit of the exemption under consideration which is available only to manufacture out of wholly indigenous materials used for the finished goods.
7. The appeal is accordingly allowed, the impugned order set aside, and the matter remanded to the Commissioner. The Commissioner shall, after considering the materials that the appellant as well as the department may produce decide upon the eligibility to exemption in respect of the goods under consideration and also the determine the duty payable.