Custom, Excise & Service Tax Tribunal
Brinton Carpets Asia Pvt. Ltd vs Commissioner Of Central Excise on 22 May, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.C/86865/13, E/86866/13, E/86879/13 (Arising out of Order-in-Original No.38-40/P-III/Comr/C.Ex/ 2012-13 dated 30/01/2013 passed by Commissioner of Central Excise & Service Tax, Pune) For approval and signature: Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S. S. Garg, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Shri.V Sridharan, Advocate for appellant Shri.Hitesh Shah, Comm. (AR), for respondent CORAM:
Honble Mr. P.K. Jain, Member (Technical) Honble Mr. S.S. Garg, Member (Judicial) Date of Hearing : 22/05/2015 Date of Decision : /2015 ORDER NO Per: P. K. Jain
1. The appeals are directed against Order-in-Original No.38-40/P-III/Comr/C.Ex/ 2012-13 dated 30/01/2013 passed by Commissioner of Central Excise & Service Tax, Pune.
2. The brief facts of the case are that the appellant is a 100% Export Oriented Unit (EOU) manufacturing carpets and exporting the same. In addition to the exports, they are also clearing the carpets manufactured in Domestic Tariff Area (DTA) on payment of excise duty as applicable. In addition to the earlier mentioned clearances, they are also clearing the carpets in the DTA to certain customers, who themselves are the holders of Export Promotion Capital Goods (EPCG) licence. The EPCG licence permits the holders of such licence to import specified goods at concessional rate of duty, which in turn is linked to export of goods/services over a period of time and subject to number of conditions in the relevant Notifications, which are; Notification No.44/2002-Cus dated 19/04/2002 and 55/2003-Cus dated 31/03/2003. These two notifications are meant to clear the goods at concessional rate of duty on import from abroad. EPCG licence holders can also get the EPCG licence invalidated and procure the goods from a indigenous domestic unit manufacturing the goods specified in EPCG licence and domestic manufacturers can clear the same on concessional rate of duty applicable for imported goods subject to conditions specified in Notification No.44/2002-Cus & 55/2003-CE. The crux of the present issue is that the appellant cleared the goods at concessional rate of duty without ensuring that their customers i.e. EPCG licence holders submit to the department for various requirements of Notification No.44/02-Cus dated 19/04/2002 and 55/03-Cus dated 31/03/2003 before the clearance of the goods by the appellant. Some of the conditions in the said notifications are in the nature of pre-clearance condition and others post clearance. Since the EPCG licence holders did not submit themselves to the department before the clearance of the goods, the post importation conditions could have not be monitored by the department. Revenues case is that it was incorrect on the part of the appellant to clear the goods at concessional rate of duty to the EPCG licence holders and therefore, Revenue has issued the demand notice for the differential duty of excise from the appellant. In addition to the above, demands have also been issued for the Customs duty involved on the inputs used in the manufacture of goods so cleared as also the excise duty involved in respect of the inputs locally procured. Notice also proposed interest and penalties under various provisions of law. Case was adjudicated by the Commissioner, who has confirmed demand in the impugned order. This is second round of litigation. Aggrieved by the said order, appellant is before us.
3. The learned Senior Counsel for the appellants first submission was that invoice-wise documents such as installation certificates and export obligation discharge certificates are now available for about 94% of the clearances. He submits that during the adjudication proceedings, the appellants were able to produce the above mentioned two documents in respect of about 50% of the clearances and during the pendency of the appellant they have obtained documents in respect of additional invoices and as of now installation certificates and export obligation discharge certificates are available for 94% of the clearances.
3.1 It was further submitted that notification No.44/2002-Cus and 55/2003-Cus duly provide for extension of time by Deputy Commissioner for producing installation certificate and evidence of fulfillment of export obligation. It was further submitted that condition (4) of Notification No. 44/02-Cus or 55/03-Cus requires the installation certificate to be produced by the EPCG Licence holder confirming the installation and use of the capital goods. The said certificate is to be produced within six months from the date of completion of imports. The notification also provides that the Deputy Commissioner of Customs can extend the said period of six months.
3.2 It was further submitted that condition (3) provides the importer to produce within 30 days from the expiry of each block from the date of issue of licence or evidence to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs showing the extent of export obligation fulfilled. Here again, the Assistant/Deputy Commissioner is empowered to extend the period.
3.3 It was further submitted that since the notification itself provides for extension of time delay in producing the installation certificate/proof of fulfillment of export obligation, delay in submission of these documents is of no consequence. In support of this contention, this Tribunal judgement in the case of J.K Corporation Ltd. reported in 1996 (88) ELT 112 (Tri) and the Honble Supreme Court decision in the case of Hotline Tele tube & Components Ltd.- order dated 16.02.1998 in Civil Appeal No. 5908 of 1998 were quoted.
3.4 It was further submitted that the appeal before the Tribunal is continuation of assessment proceedings and therefore, the documents submitted after the adjudication of the case can be looked into by this Tribunal. The Honble Supreme Court in State of AP Vs Hyderabad Asbestos Cement Production Ltd. 1994 (94) STC 410 (SC) was quoted to support the point.
3.5 It was further submitted by the learned senior Counsel that it is not that non-compliance of every conditions of Notification No. 44/02-Cus and 55/03-Cus will give raise to demand of duty. It is only the non-fulfillment of export obligation and/or failure to give installation certification that can give raise to duty demand. It was submitted that in view of the said position, breach of any condition of the notification other than export obligation cannot lead to raising of the demand by the Revenue.
3.6 The learned Senior Counsel submitted that the amount of bond, form of bond and to whom the bond has to be executed, has not yet been specified by proper officer. Requirement to execute bond will arise only thereafter. Another submission of the learned senior Counsel was that Foreign Trade Policy is piece delegated legislation by Central Government. It has specified that for indigenous procurement, LUT has to be given to DGFT. Para 2.27 of the Policy was quoted to support the contention. The said paragraph states that Wherever any duty free import is allowed or where otherwise specifically stated, the importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG)/ Bond with the Customs Authority before clearance of goods through the Customs, in the manner as may be prescribed. In case of indigenous sourcing, the licence/ certificate/ permission holder shall furnish BG / LUT to the licensing authority before sourcing the material from the indigenous supplier/nominated agency. It was submitted that similar provision exist in para 2.20 of the Handbook of Procedures. It was submitted that in view of the said position, no LUT is required to be executed with the Revenue. Another submission made by the learned Senior Counsel was that alleged non- rendering licence for debit is factually incorrect and also, not ground in four Show Cause Notices. It was also submitted that a Xerox copy of these documents were submitted to the department and illustrative copies of these documents from August 2008 to May 2009 are enclosed in the appeal paper books. The learned Counsel further submitted that the bond to fulfill export obligation can be and is to be executed by the EPCG Licence holder only and not by the appellant. In support of his contention, the learned senior Counsel submitted that the CBEC vide Circular No. 305/83/94-FTT dated 15.09.1994 has clarified to same effect. In the said circular it is clarified that where the end use based notification requires a bond to be given, such end use Bond can be taken from the domestic buyer treating them as if they are importers. Further in respect of clearances made to EPCG licence holders by the EOU, letter dated 21.09.2006 of Director General of Export Promotion specifically states that it is the obligation of the licence holder and not an EOU:
3.7 The learned Senior Counsel further submitted that the presumption that the excise duty can be demanded only from manufacturer is not of universal application and is not without exception. It can be shifted to any other person by the statute, particularly with the consent/approval of the other person. In support of the said proposition, the learned Senior Counsel submitted that the Rule 196 forming Chapter X of erstwhile Central Excise Rules, 1944 prescribed similar arrangements. Further, Rule 6 of the Central Excise (Removal of Goods at concessional rate of duty for manufacture of excisable goods) Rules, 2001 is another example. It was further submitted that this Tribunal decision in the case of CC Vs. Dynamic Twisters Pvt. Ltd. reported in 2012 (276) ELT 396 has held that manufacturer is not liable when liability is casted upon the merchant exporter to export the goods. Similarly, this Tribunal decision in the case of Jay Formulation Ltd. Vs. CCE- 2013 (289) ELT 395 (Tri) has held that duty liability in respect of goods cleared by manufacturer exporter against CT-3 certificate issued by merchant exporter is on the merchant exporter only, if the goods are not found exported ultimately. The learned senior Counsel quoted the Tribunal decision in the case of Maruti Udyog Ltd. Vs. CCE- 2000 (124) ELT 1175 (Tri) wherein the assessee cleared the saloon cars on payment of concessional rate of excise duties in terms of Notification No. 162/86-CE. The concessional rate of duty was subject to the condition that the saloon cars are required for use solely as taxies and the manufacturer was required to furnish certificate from concerned State Transport Authority stating that each such saloon cars has been registered for use solely as a taxi. The revenue raised objection that the saloon taxi was used subsequently as other vehicles and therefore, the assessee being manufacturer alone is liable to pay excise duty. The said contention was rejected by this Tribunal and the decision of this Tribunal was duly approved by the Honble Supreme Court.
3.8 The next contention of the learned senior Counsel was that non-submission of details of export obligation, block wise by the EPCG licence holder is not relevant. Moreover, the show-cause notice does not demand duty block-wise. Full duty has been demanded and the appellant have been able to get the copies of the EODC obtained by the EPCG Licence holders. The learned senior Counsel also submitted that the duty demand on the imported inputs by denying the benefit of Notification No. 53/97-Cus or 52/03-Cus is not sustainable. The Senior Counsel submitted that as per the condition 3 of the said notification, even if the finished goods are not exported but are cleared in DTA on payment of appropriate excise duty, exemption from customs duty on inputs will continue to apply.
3.9 In the present case, it is an undisputed fact that the appellants have paid duty while clearing the goods in DTA at 5% being EPCG rate. The said duty rate is indeed appropriate duty of excise within the meaning of said expression used in the above said Notification. It is also submitted that total of all DTA clearance i.e. normal DTA and DTA to EPCG customer is well within the permissible limits of 50%. It was submitted that the Commissioner has conveniently mis-read Condition No.3 of the Notification No. 52/2003-Cus. It was further submitted that the opening part of para 3 is what is relevant to present case and para 6.9 (e) of the Policy is not relevant. It was further submitted that for similar reasons duty duty demand on the inputs procured indigenously by denying the benefit of Notification No. 1/95-CE or 22/03-CE is not sustainable 3.10 The learned Counsel further submitted that the supply of goods to EPCG license holder amounts to deemed export in terms of Para 8.2(c) of FTP. Further, any excise duty paid by the appellant is available as refund from the DGFT vide para 8.3(c) Hence, entire situation is revenue neutral.
3.11 It was further submitted that clearances of carpets made to EPCG Licence holders are otherwise eligible to avail benefit of Sl. No. 2 of Notification No. 23/03-CE. Therefore, demand of full customs duty raised in the Show Cause Notices, dated 04/04/2008 is incorrect and is not sustainable.
3.12 Learned Counsel further submitted that exemption from Central Excise duty otherwise available under Notification No. 30/04-CE has to be considered while calculating component of additional duties of customs under Section 3 of Customs Tariff Act, 1975, in view of the law laid down by Honble Supreme Court in the case of SRF Ltd. Vs. CC 2015-TIOL-74-SC.
3.13 It was further submitted that a converse situation was considered by the Honble Supreme Court in the case of Thermax Vs. CCE reported in 1992 (61) ELT 352. In that, issue related to levy of additional duty of customs on goods imported into India. The Supreme Court held that for the purposes of computing additional duty of customs, we must forget that the goods are imported into India but assume that goods manufactured in India and that compute excise duty accordingly. This part of the decision has been affirmed by Constitution Bench in Hyderabad Industries Vs UOI 1999 (108) ELT 321.
3.14 It was further submitted that there are number of errors committed in computing/demanding the differential excise duties. The first error is that the department in demanding differential excise duty in the show cause notices covering the period from May, 2005 to May, 2009 (except April 2007 to February, 2008) has taken into account the Third Time Educational Cess as a component on the aggregate excise duty payable by an EOU when cleared the goods to DTA. It is submitted that in Sarla Performance Fibres Ltd. V/s. CCE reported at 2010 (253) ELT 203 (Tri. Ahmd.), the Tribunal has categorically held that third time educational cess is not to be taken into account while computing the duty payable by an EOU in terms of proviso to Section 3 of the Central Excise Act, 1944 in respect of the goods cleared into DTA. This view was further affirmed by the Larger Bench of Tribunal in Kumar Arch Tech Pvt. Ltd. V/s. CCE -2013 (290) ELT 372 (Tri. LB).
3.15 It was also submitted that the department in demanding differential excise duty in the show cause notices covering the period from April, 2006 to March, 2007 and April, 2007 to March, 2008 has taken into account the SAD @ 4% as a component in aggregate duty of customs, which is incorrect as the SAD is exempted in terms of Sl. No. 1 of Notification No. 23/2003-CE subject to the condition that goods are cleared by an EOU on payment of applicable VAT/ Sale Tax as the case may be. It was submitted that the appellants have paid the applicable VAT/Sales Tax, the question of said component does not arise at all. It was also submitted that the demand of differential excise duty covering the period from April, 2007 to February, 2008 has taken into account the CV duty rate @ 16% advalorem, which is incorrect. During the period, the effective excise duty rate is 8% advalorem in terms of Notification No. 29/04-CE. In fact, for the period from March, 2008 to 07.12.2008, the department has taken the excise duty @ 8% advalorem as per Notification No. 29/04-Cus. Further, from 08.12.2008 to May, 2009, excise duty rate has been taken @ 4% advalorem by the department.
3.16 It was also submitted that the demand of differential excise duty in the show cause notices covering the period from April, 2007 to February, 2008 has not considered exemption in terms of Sl. No. 2 of Notification No. 23/2003-CE, which is otherwise available to the appellants. It was submitted that the department itself has granted this exemption for the period prior to April 2007 and post February 2008.
3.17 It was also submitted that the department in demanding differential excise duty in the show cause notices has taken the incorrect rate of BCD. During the period March 2005 the correct rate should be 15% as against 20% adopted by the department. Similarly, during 08 January to 31 March 2004 the correct rate is 20% as against 30% adopted by the department. During the period March 2003 to 07 January 2004 the correct rate is 25% as against 30% adopted by the department.
3.18 Another submission made by the learned Counsel was extended period of limitation is not invocable. Therefore, demand of duty beyond normal period is time barred for first show cause notice dated 13.9.2006. The appellant had filed a letter dated 07/01/2003 and sought clarification from the department and the learned Assistant Commissioner vide letter dated 26/08/2003 had clarified that the appellants can clear the goods at concessional rate of duty subject to fulfillment of conditions of Notification. Thereafter, monthly ER-2 returns filed with the department every month shows the clearances made to EPCG license holder, vide Notification No. 44/2002 and 55/03-Cus, the rate of duty adopted being 5% and thus they had disclosed to the department. Further, the replies submitted by the jurisdictional Assistant Commissioner of Central Excise to the Customs Revenue Audit, shows that the department was fully aware of the clearances made by the appellants to the EPCG licence holders at 5% duty and procedure being followed by appellants. It was also submitted that duties payable on supplies to EPCG license holder is entirely available as refund of terminal excise duty. Therefore the exercise is revenue neutral. Hence, there cannot be intention to evade duty. Similar view is taken by the CESTAT in the case of Hindustan Syringes Pvt. Ltd. V/s. CCE - 1998 29 RLT 323. Further various letters/circulars of CBEC dated 15/9/94, 16/2/2005, 21/9/2006 and DGFT Policy Circular dated 13.5.2005 duly constitute bonafide belief. Another submission made by the Senior Counsel was that Rule 25 of the Central Excise Rules, 2002 is not attracted, for carpets cleared to the EPCG Licence holders. It was submitted in the present case, the appellants have followed each and every word of Rules, 4, 6, 8, 11, 12 and 17 in letter and spirit. The duty was paid on removal. The appellants themselves assessed the excise duty and paid the same. Monthly Returns were filed. Invoice for clearance of the goods was issued. Hence, Rule 25(1)(a) is not attracted. Similarly, Rule 25(1)(b) deals with accounting of any excisable goods is also not attracted. Similarly, clause (c) of Rule 25 (1) is not invokable in the present case since the same is applicable only to a manufacturer conducting any activity without having any registration. This clause is also not applicable to the appellants, as they are registered with the Central Excise department. Further, Rule 25 (1) (d) is not applicable as contention of department is violation of Customs Notification and not Central Excise Rules or notification.
3.19 In view of the judgement of the Honble High Court of MP in the case of Universal Cable Ltd. V/s. UOI 1977 (1) ELT J92 (M.P.), it cannot be treated as contravention of provisions of the Central Excise Rules with an intent to evade duty and therefore, confiscation of goods is uncalled for. Another submission made was that the Goods are not available for confiscation and therefore question of imposing redemption fine does not arise and in support of the said contention, the judgement of the Honble Bombay High Court in Commissioner of Customs Vs National Leather Cloth Manufacturing 2015-TIOL-342-HC-MUM was quoted. Reliance was also placed upon the case of CC Vs. Raja Impex (P) Ltd.- 2008 (229) ELT 185 (P&H). As also, the larger Bench decision in the case of Shiv Kripa Ispat Pvt. Ltd. V. Commissioner of C.EX & Cus., Nasik, 2009 (235) ELT 623 (Tri.-LB). Similar view has been taken by the Bombay High Court in Finesse Creation Inc. 2009 (248) ELT 122 (Bom.), which was affirmed by Honble Supreme Court.
3.20 The learned Senior Counsel further submits that goods are not liable for confiscation under Section 111(o) of the Customs Act and consequently no penalty under Section 112 is imposable under Customs Act, qua demand of duty on imported inputs. It was further submitted that B-17 bond is not a substitute for invocation of Section 11A of the Central Excise Act. In any case, B-17 bond does not cover clearances of goods into DTA of the present nature. This Tribunal decision in the case of CCE Vs. Emcure Pharmaceuticals Ltd- 2014 (307) ELT 180 (Tri-Mum) was quoted to support the said contention.
3.21 Senior Counsel submitted that in view of the above submission, the whole demand of excise/customs duty, confiscation, etc. does not survive and therefore, there is no question of any penalty.
4. The learned Commissioner (AR) reiterated the various points made in the order-in-original. The learned Commissioner (AR) submitted that the appellant is aware of the need to follow the procedures of Rules 11, 17 and 20 of the Central Excise Rules, 2002 and the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) (RGCRD for MEG) Rules,2001 as prescribed at condition no. 5 & 6 of the opening paragraph of Notification No.22/2003-CE. The learned AR submits that in case the procedure prescribed by the said Rules of 2001 are not followed by the person who intends to receive goods at concessional rate of duty and yet the manufacturer of goods clears them at concessional rate of duty, in such case duty has to be demanded from the manufacturer of goods. In support of his contention the learned AR submitted the decision of the Honble Supreme Court in the case of Indian Oil Corporation Ltd. reported in 2012(276) ELT 145 (SC). It was further submitted that the said judgement follows the Constitution Bench of the Honble Supreme Court in the case of CCE Vs. Harichand Shri Gopal 2010 (260) ELT 3 (SC). The same judgement has been followed by this Tribunal in the case of HPCL 2014(301) ELT 554 (T). The learned Commissioner (AR)s main contention was that a manufacturer of excisable goods has to self assess the goods to duty on removing them from the factory. In case any condition is to be fulfilled before clearing such goods, the manufacturer making the assessment has to ensure that they are fulfilled, in case the conditions are not so fulfilled, and yet the concession/exemption is applied, the self assessment is a deliberate wrong assessment. The conditions of Rules and exemptions have to be strictly applied and followed and the words of the Notification have to be given their effect. In support of his contention, the learned AR quoted the following case laws:
a) Saraswati Sugar Mills Vs CCE 2011 (270) ELT 465 (SC)(para 7 & 8)
b) Eagle Flask Industries Ltd 2004 (171) ELT 296 (SC)
c) Indian Aluminium Co. 1991 (55) ELT 454 (SC) (para 3 and 5 to 8)
d) CCE Vs. Lloyd Insulation India 2004 (172) ELT 430 (T)
e) Steel Strips Vs CCE 2011 (269) ELT 257 (T-LB)(para 5.2 to 5.4 & 5.7 to 5.16)
f) UOI Vs. Jindal Praxair Oxygen Co. Ltd., 2014 (301) ELT 49 ( Ker)
g) Kalpik Interiors Vs. CST, Delhi 2014 (36) STR 1283 (T) and in such cases extended period of limitation is applicable.
4.1 Learned Commissioner (AR) further submitted that the person who clears goods under exemption has to fulfill the conditions and cannot rely on another person fulfilling the condition on his behalf. The person who removes goods manufactured by him has to prove that the conditions of exemption are fulfilled. Learned AR further submitted that even if the person is able to prove that the goods have been used for the specified purpose or that the purpose of the Notification can be demonstrated to have been achieved, yet, the concessional rate of duty under exemption notification or benefit of any scheme under any Rule would not be available if the conditions required to be complied with under the scheme of the notification or Rule are not complied with as mandated and at the point in time when mandated. In support of his contention, the learned AR submitted the following case laws:
a) Vinay Solvent Extraction Industries 2005 (183) ELT ` 113 (SC)
b) Indian Oil Corporation Ltd. 2012(276) ELT 145 (SC)
c) CCE Vs. Harichand Shri Gopal 2010 (260) ELT 3 (SC)
d) HPCL 2014(301) ELT 554 (T)
e) Eagle Flask Industries Ltd 2004 (171) ELT 296 (SC)
f) Indian Aluminium Co. 1991 (55) ELT 454 (SC) (para 3 and 5 to 8)
g) Arun International 2015 (317) ELT 465 (T)
h) Bombay Dyeing & Mfg 2001 (129) ELT 604 (T-LB)
i) Jayesh Containers 1996 (84) ELT 7 (SC) 4.2 The Commissioner (AR) further submitted that ER-2 returns were self assessed by the appellant. These returns are self assessed to duty under Notification No.44/2002-Cus and 55/2003-Cus without meeting the conditions prescribed therein with respect to the execution of bond and guarantee by the consignee. This is a mandatory condition because unless the consignee is registered in such manner, the verification of eligibility to entitlement and fulfillment of continuing obligation is impossible. Antecedent and subsequent conditions to be monitored and enforced by Customs and these are:
- Para 2 (1) -verification of genuinity of original licence and its invalidation for procurement
- Para 2 (2)- Bond binding to fulfill export obligations
- Para 2(3)- to monitor block wise EO fulfillment and if not fulfilled to demand duty and interest as prescribed
- Para 2(4)-to verify installation of goods in 6 months and to consider any plea of extension of time required to install if reasons are genuine.
- Para 2(5)-to ensure that DGFT does not give any block wise extension for fulfillment of EO beyond 2 years; DGFT does not regularize shortfall in EO beyond 5% and that DGFT does not extend the overall period of EO in cases where the total CIF value of licence is above Rs. 100 crores.
- Para 3- to ensure that goods if re exported are identified as those exported
- Table- That the goods mentioned in the licence and which are removed/imported are those described in the Table appended
- Explanation- to ensure that the goods mentioned in the licence and which are removed/imported are as defined as Capital goods and that the Export Obligation claimed to be fulfilled is only in terms of EXPORT OBLIGATION as defined.
4.3 It was further submitted that the above mentioned conditions are mandatory conditions and until and unless the consignee is registered with the Revenue in such manner that the verification, eligibility to entitlement and fulfill all continuing obligation is possible benefit of notification cannot be extended. He further submits that ER 2 returns are self assessed returns and the very fact that the appellant has self assessed to duty under Notification No.44/2002-Cus and 55/2003-Cus without meeting the conditions prescribed in therein with respect to the execution of bond and guarantee by the consignee, this itself would disentitle the appellant to clear the goods with the benefit of the said notification and in this situation, the duty is required to be demanded by the appellant and appellant alone. It was further submitted that under the Foreign Trade (Development and Regulation) Act 1992, Foreign Trade Policy read with the provisions of the Customs Act, 1962, the provisions of both statutes need to be met. Any clearance under EPCG Notification needs to meet all the conditions thereof including Bond. It was further submitted that the legal undertaking under HBP and Foreign Trade Policy clearly mandates at para (v) and (xi) thereof. Further, the Customs authorities are the final authority for satisfaction of conditions to be met in a Customs Notification and demand is valid even if EODC is given by DGFT. In support of his contention, the learned Commissioner (AR) quoted the decision in the case of CC Vs. Ashok Enterprises 2014(302) ELT 191 (Mad), which follows Constitution Bench of the Honble Supreme Court in CCE Vs. Harichand Shri Gopal 2010 (260) ELT 3 (SC). The learned AR also quoted this Tribunal decision in the case of Sanghi Industries Ltd 2012 (277) ELT 365 (T). Learned AR further submitted that since the appellants have cleared the goods without ensuring that the conditions mentioned in the Notification No.44/2002-Cus and 55/2003-Cus are not fulfilled, they only are required to pay the duty. The fact that latter on they are able to produce EO certificate in respect of certain consignments and also installation certificate in respect of good covered by some invoices is of no consequence as these were required to be produced at an appropriate time and to the appropriate authorities and . and to any authority.
4.4 It was further submitted that Notification No.44/2002-Cus and 55/2003-Cus for EPCG, Notification No.22/2003-CE and 52/2003-Cus for duty free procurement of indigenous and imported raw materials, etc. have continuing obligations to be performed once benefit of concession is availed. If such obligations are not discharged duties can be demanded without any reference to Section 11A of Central Excise Act or Section 28 of Customs Act or any Bond/Guarantee. The AR further quoted the larger bench decision of this Tribunal in the case of Bombay Hospital Trust 2005 (188) ELT 374 (T-LB), which have been upheld by the Honble High Court as reported in 2006 (201) 555 (Bom). Learned AR further submitted that the appeal against the said judgement was dismissed by the Honble Supreme Court 2015 (315) ELT A26(SC). It was further submitted that the ratio of the said judgement have been upheld in the case of Fortis Hospital Ltd. 2015 (318) ELT 551 (SC).
4.5 As far as the benefit of Notification No.30/2004-Cus for computation of CVD is concerned, the learned Commissioner (AR) submitted that as per explanation to Proviso to Sec 3(1) of the CEA each duty is liable to be paid at the highest of applicable rates. It is a deeming provision for goods and makes no reference to description or class of articles. The Honble Supreme Court decision in the case of IFFCO 2000(115) ELT 11(SC), Hansur Plywood Works 1992 (61) ELT 4(SC), Western India Plywood 1989 (44) ELT 595 (SC) were quoted. To support his contention, the decision in the case of Hanil Era Textiles 2014 (312) ELT 324(T) was also quoted.
4.6 It was also submitted that explanation to Section 3 (1) of Customs Tariff Act is not similar to the explanation given in Section 3 (1) of the CEA. It was further submitted that the decision of the Honble Supreme Court in the case of Thermax Pvt Ltd 1992 (61) ELT 352 (SC) is not applicable and it is based on a concession by Department that the articles were not covered by any other entry. It was further submitted that only the explanation in the Central Excise Act, 1944 is relevant in this case, it shall override the provisions of the explanation in the Customs Tariff Act even for arriving at the rate of additional duty of Customs component of BED.
4.7 The learned AR further submitted the decision of the Honble Supreme Courts decision in the case of SRF Ltd. 2015(318) ELT 607 (SC)(Division Bench) is sub.on the issue and is not binding. Learned AR further submitted the ratio of the decision in the case of Ashok Traders 1987 (32) ELT 262 (Bom) is described as a not good law, even though the ratio of the judgement in the case of Ashok Traders has been held as good law by Full Bench of the Supreme Court in the case of Garden Silk Mills 1999 (113) ELT 358(SC) paras 21, 39 & 40 and the same principle has been enunciated by a Full Bench in Motiram Tolaram 1999(112) ELT 749(SC), which was following the Constitution Bench in Hyderabad Industries 1999 (108) ELT 321 (SC), the same was upheld by Constitution Bench in the case of Dhiren Chemical Industries 2002 (139) ELT 3(SC) and both these decisions were explained by Kay Kay Industries 2013 (295) ELT 177(SC).
4.8 In view of the above the learned AR submitted that the benefit of Notification No.44/2002-Cus and 55/2003-Cus for EPCG and Notification No.22/2003 CE and 52/2003-Cus will not be available to the appellant for computation of duty liability.
4.9 On the issue relating to the recovery of duty on raw materials procured duty free under Notification No.22/2003-CE and 52/2003-Cus learned Commissioner (AR) submitted that such goods have not been proved to the satisfaction of the AC/DC to have been used in connection with production or packaging of goods for export out of India and hence duty is reasonable. The learned AR further submitted that the Condition 4(a)(ii) & (iii) of opening paragraph of Notification No.22/2003-CE and Condition 3(d)(I)(ii) &(iii) of Notification No.52/2003-Cus may be seen. It was further submitted that the provisions of para 6 of Notification No.22/2003-CE and paragraph 3 of Notification No.52/2003-Cus are not applicable because such clearances to invalidated EPCG licence holders are not covered therein and also because there is nothing which shows that such clearances of the goods were allowed to be sold in the DTA in accordance with the Foreign Trade Policy and subject to such other limitations and conditions as may be specified in this behalf 4.10 It was also submitted that no permission is taken from the Development Commissioner or the AC/DC for such clearances. Further, the clearances were not made on payment of appropriate duty of Central Excise leviable under Section 3 of the CEA 44. If appropriate duty is not paid at the time of clearance, the conditions of the aforesaid opening paragraphs of the said Notifications mandate recovery of duty on the goods procured duty free. It was further submitted that without prejudice to other arguments, the relaxation of the said paragraphs 3 and 6, if available, could only be available in case the appropriate duty on goods cleared in DTA was paid either within 3 months of procurement of duty free material or within 1 year of the procurement of duty free material as per Condition 4(a)(ii) & (iii) of opening paragraph of Notification No.22/2003-CE and Condition 3(d)(I)(ii) &(iii) of Notification No.52/2003-Cus. The conditions and limitations imposed by Notification No.44/2002-Cus and 55/2003 for such clearances have not been met. It was further submitted that the benefit of Notification No.23/2003-CE is not available to the impugned clearances because the conditions of the said Notification are not satisfied as recorded at paragraphs 31 & 32 of the Order-in-Original.
4.11 It was also submitted that appellant has been accorded the concessions of procurement of duty free indigenous and imported materials, facilities of a warehouse under the Customs Act, 1962 and the Central Excise Rules, 2002, the manufacture in bond and removal of such materials and goods produced or manufactured therefrom, on the execution of Bonds with security/surety. The demand and recovery of duty foregone is valid in terms of the said Bonds. It was further submitted that in view of paragraphs 10 to 13 of the Conditions of the Bond dated 8.12.1998, 2.01.2006 and 31.3.2009 no time limit is applicable.
4.12 The learned AR further submitted that the learned Counsel for the appellant has raised the issue relating to proof of error relating to rate of duty, SAD, etc. None of these points were taken up by the appellant before the Commissioner at the time of adjudication. These points were not taken even in the grounds of appeal. No application has been filed by the appellant under Rule 10 of the CEGAT (Procedure) Rules, for amending the ground of appeal and the learned senior Counsel cannot be permitted to raise these issues at the time of arguments. It is not possible to react to such claims at such a stage.
5. In rebuttal the learned Senior Counsel for the appellant submitted that the Honble Supreme Court decision in the case of SRF Ltd., (supra) disposes of the following two appeals:
a) Civil Appeal No. 9440 of 2003 by M/s SRF Ltd.
b) C.A. No. 1623 of 2009- by ITC Ltd.
5.1 He further submitted that the issue involved in the said case was relating to the benefit of Notification No.30/2004-CE for countervailing duty purpose and this is the same notification which is in dispute in this case. He further submitted that the SRF Ltd., case was decided by this Tribunal taking into accounts the following case laws:
i) Motiram Tolaram Vs UOI 1999 (112) ELT 749
ii) Ashok Traders Vs UOI 1987 (32) ELT 262
iii) Gujarat Plastic Industries Vs UOI 2003 (160) ELT 125
iv) Priyesh Chemicals & Metals Vs CCE 2000 (120) ELT 259 5.2 After noticing these decisions and also relying on the following decisions, the Supreme Court has decided the SRF case in favour of the appellant and held that Notification No. 30/04-CE and Notification No 06/2002-CE are applicable to even imported goods too. It was also submitted that in Motiram Tolaram Vs UOI- 1999 (112) ELT 749 (SC), the Supreme Court dealt with applicability of exemption under Notification No. 185/83-CE to imported Polyvinyl Alcohol and in view of the language employed in the said Notification, the Supreme Court in Motiram held that imported goods will not be entitled for exemption from payment of CVD, under Notification No. 185/83-CE. It was submitted that the language of the Notification No. 30/2004-CE is entirely different and that has been construed by the Supreme Court to be not applicable for imported goods. In Ashok Traders Vs UOI- 1987 (32) ELT 262 (Bom.), the issue was availability of exemption from CV duty under Notification No. 302/79-CE dated 4.12.1979 on import of High Density Polyethylene. This exemption was subject to the condition that appropriate amount of excise duty is paid on raw naphtha used for the manufacture of High Density Polyethylene. In other words, this condition of the notification was not similar to the condition of Notification No. 30/2004-CE.
5.3 He has also submitted that in Priyesh Chemicals & Metals Vs Collr- 2000 (120) ELT 259 (Tri-LB), the issue was relating to availability of the Notification No. 19/88-CE. in respect of import of Zinc Ash into India and the condition was more or less similar to the condition mentioned in Notification No.30/2004. It was further submitted that reasoning of the Larger Bench of the Tribunal in Priyesh Chemicals and other decisions following the same have now been reversed by the Supreme Court. The learned Counsel further submitted that the Honble Tribunal has distinguished the invocation of B-17 bond in the case of CCE Vs. Emcure Pharmaceuticals Ltd., reported in 2014 (307) ELT 180 (Tri-Mum). The Tribunal in the case of Endress + Hauser Flowtec (I) Pvt. Ltd., it was submitted that the Section 11A of the Central Excise Act applies for DTA, it would be applicable for EOU as well. It was submitted that B-17 will not a substitute to over come the time bar, in so far it related to demand of duty on the carpets cleared in the DTA.
6. We have carefully considered the submissions made by both the sides and perused the records.
6.1 First and the foremost issue to be decided in the case is about the applicability of the Notification No.44/2002-Cus dated 19/04/2002 and 55/2003-Cus dated 01/04/2003 (both notifications are similar) and the liability of the appellant or his customer with reference to the said notification. For proper understanding of the issue the Notification No.44/2002-Cus is re-produced below:
Import under EPCG scheme Capital goods, components and spares thereof Exemption In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table annexed hereto from so much of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as is in excess of the amount calculated at the rate of five percent ad valorem and from the whole of the additional duty and special additional duty leviable thereon respectively under Sections 3 and 3A of the said Customs Tariff Act.
2. The exemption contained in above paragraph, shall be?2. subject to the following conditions, namely :-
(1) the goods imported are covered by a valid licence issued under the Export Promotion Capital Goods (EPCG) Scheme in terms of Chapter 5 of the Export and Import Policy permitting import of goods at the rate of five percent duty and the said licence is produced for debit by the proper officer of the customs at the time of clearance;
Provided that for the import of spare parts, the validity period of the licence shall be deemed to be the period permitted for fulfillment of the export obligation in full;
(2) the importer executes a bond in such form and for such sum and with such surety or security as may be specified by the Assistant Commissioner of Customs or Deputy Commissioner of Customs binding himself to fulfil export obligation equivalent to five times the CIF value of the goods imported on FOB basis, as specified in the licence, or for such higher sum as may be fixed by the Licensing Authority, within a period of eight years from the date of issue of licence, in the following proportions, namely :-
S. No. Period from the date of issue of licence Proportion of total export obligation (1) (2) (3)
1.
Block of 1st and 2nd year Nil
2. Block of 3rd and 4th year 15%
3. Block of 5th and 6th year 35%
4. Block of 7th and 8th year 50% :
Provided that where the CIF value of licence is not less than Rs. 100 crores, the export obligation shall be fulfilled within a period of 12 years from the date of issue of licence in the following proportions, namely -
S. No. Period from the date of issue of licence Proportion of total export obligation (1) (2) (3)
1.
Block of 1st, 2nd, 3rd, 4th and 5th year Nil
2. Block of 6th, 7th and 8th year 15%
3. Block of 9th and 10th year 35%
4. Block of 11th and 12th year 50% :
Provided further that Export Obligation of a particular block may be set off against the excess exports made in the said preceding blocks;
(3)the importer produces within 30 days from the expiry of? each block from the date of issue of licence or within such extended period as the Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow, evidence to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs showing the extent of export obligation fulfilled, and where the export obligation of any particular block is not fulfilled in terms of the preceding condition, the importer shall within three months from the expiry of the said block pay duties of customs of an equal amount equal to that portion of duties leviable on the goods but for the exemption contained herein which bears the same proportion as the unfulfilled portion of the export obligation bears to the total export obligation together with interest at the rate of 24% per annum from the date of clearance of the goods;
(4) the capital goods imported, assembled or manufactured are installed in the importers factory or premises and a certificate from the jurisdictional Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise or an independent Chartered Engineer, as the case may be, is produced confirming installation and use of capital goods in the importers factory or premises, within six months from the date of completion of imports or within such extended period as the said Assistant Commissioner of Customs or Deputy Commissioner of Customs may allow :
Provided that in the case of, -
(i) manufacturer exporter and merchant exporter having supporting manufacturer(s) or vendor(s), ? (ii) import of irrigation equipment for use in contract farming for export of agricultural products, and
(iii) importer rendering services.?
the capital goods may be installed at the factory or premises of such other person whose name and address are endorsed on the licence referred to in condition (i) and where the bond for full difference of duty, if necessary, in terms of condition (2), with a bank guarantee is executed by the importer and such other person binding themselves jointly and severally to fulfil the export obligation and all other conditions of this notification and to pay duty with interest in case of default;
? (5) notwithstanding anything contained in condition (3), where the Licensing Authority grants an extension of block-wise period for any block(s) or overall period of fulfilment of export obligation up to a period of two years or regularisation of shortfall in export obligation, not exceeding five percent of such export obligation, the said block-wise period or overall period of export obligation may be extended and the said shortfall in export obligation be condoned by the Assistant Commissioner of Customs or Deputy Commissioner of Customs :
Provided that where the CIF value of licence is not less than Rs. 100 crores extension of overall period of export obligation shall not be allowed :
3. where the goods are found defective or unfit for use, the? said goods may be re-exported back to the foreign supplier within 3 years from the date of payment of duty on the importation thereof :
Provided that at the time of re-export the goods are identified to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs as the goods which were imported.
TABLE S. No. Description of goods (1) (2)
1. Capital goods.
2. Capital goods in SKD/CKD condition to be assembled into capital goods by the importer.
3. Components of capital goods required for assembly or manufacture of capital goods by the importer.
4.
Spare parts not exceeding twenty percent of the value of goods specified at special Nos. 1, 2 and 3 as actually imported and required for maintenance of capital goods so imported, assembled, or manufactured.
Explanation In this notification, -
?(1) Capital Goods means any plant, machinery, equipment and accessories required for -
(a) manufacture or production of other goods, including packaging?machinery and equipments, refractories, refrigeration equipment, power generating sets, machine tools, catalysts for initial charge, and equipment and instruments for testing, research and development, quality and pollution control;
(b) use in manufacturing, mining, agriculture, marine, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, viticulture and sericulture;
(c) rendering services;
(2) Export and Import Policy means the Export and Import? Policy 2002-2007 published vide notification of the Government of India in the Ministry of Commerce, No. 1/2002-2007, dated the 31st March, 2002;
(3) Licensing Authority means the Director General, Foreign?Trade appointed under Section 6 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant a licence under the said act.
(4) export obligation, -?
(i) in relation to importers other than those rendering services,?means export, to a place outside India, of products manufactured with the use of capital goods imported, assembled or manufactured in terms of this notification :
Provided that export obligation may also be fulfilled by
(a) export of same product capable of being manufactured with the use of said capital goods; or
(b)export of same product manufactured in different units of the licence holder; or
(c) through third party exports made by an exporter or? manufacturer on behalf of the licence holder by exporting the same product and in such cases, inter alia the Shipping bills shall indicate name of both the third party and the licence holder; or
(d) making supplies of same product in terms of sub paras (a) (b) (d) (e) (f) (g) (h) (i) and (j) of paragraph 8.2 of the Export and Import Policy;
(ii) in relation to importers rendering services, means, receiving payments in freely convertible foreign currency for services rendered through the use of such capital goods.
[Notification No. 44/2002-Cus., dated 19-4-2002] 6.2 On perusal of the said notification would indicate that the benefit of said notification is available in respect of the goods specified in the table annexed to the said notification. In the table there are four serial numbers covering different categories of goods. First serial number covers the capital goods. There is no dispute between the Revenue and the appellant that the goods in this case, namely, carpets are covered by the said entry. Thus the goods are covered by the said notification. Paragraph 2 of the said Notification further puts five conditions for the benefit of the said exemption. These five conditions in brief are as under:
i) the goods imported are covered by a valid EPCG licence and the said licence is produced for debit by the proper officer of the Customs at the time of clearance.
ii) The importer executes a bond in such form and for such sum and with surety or security as may be specified by the AC/DC of Customs binding himself to fulfill export obligation equivalent to five times of the CIF value of the goods of for such higher sum as may be fixed by the Licensing Authority within a period of eight years from the date of issue of licence.
iii) In case the licence value is more than Rs.100 crore, the export obligation is required to be fulfilled in a period of twelve years instead of eight years.
6.3 The second component in the bond is that in addition to overall export obligation, the importer is expected to fulfill certain percentage of total of the export obligation in different years as is specified in the table given in condition No.2. For example, in case of licensing value less than Rs.100 crore in the first two years, the export obligation is fulfilled in NIL but in 3rd and 4th year 15% and in 5th and 6th years is 35% and in 7th & 8th year is 50%. Similarly, in respect of limits are prescribed in the notification. The notification also states that if an importer fulfils the export obligation of a particular block more than what is prescribed in the notification, the same can be counted for the subsequent years.
6.4 It is important to note that reversal is not true. Thus, the export obligation which is required to be fulfilled in 3rd and 4th year cannot be fulfilled in 5th and 6th years or 7th and 8th years but can be fulfilled in 1st and 2nd year. The condition No.3 provides for monitoring of the block-wise export obligation. The importer is expected to produce the details of the export carried out in each block year within thirty days of the completion of the block year and the AC/DC is expected to exempt the same and if the export obligation of a particular block is not fulfilled the importer is expected to pay customs duty of an equal amount equal to that proposition of duties leviable on the goods but for the exemption. Thus, being an importer who is expected to fulfill 15% of the total export obligation in 3rd and 4th year does not fulfill the same but is able to export only 10% of the total export obligation in the first four years. It is expected that importer will pay 5% of the total duty leviable on the goods but for the exemption along with interest @ 24% per annum to the Customs department.
6.5 Serial No.4, the other condition in the notification is that the capital goods imported should be installed in the importers factory or premises and a certificate to that effect from the jurisdictional AC/DC of Central Excise or an independent Chartered Engineer is required to be produced confirming installation and use of capital goods in the importers factory or premises. This is to be done within six months from the date of completion of imports or within such extended period as the said AC/DC may be allowed.
6.6 The 5th condition is that in respect of condition 3 above licensing authority can grant extension of block-wise period for any block or overall period of fulfillment of export obligation upto a period of two years or regularization of shortfall in export obligation, not exceeding five percent of such export obligation. The AC/DC may extend the said block or overall period of export obligation. It will thus be seen that the AC/DC is not only empowered to monitor the export obligation over the different years but also is empowered to extend this period upto two years if the licensing authority has done similar thing. Similarly, shortfall in export obligation can only be condoned upto 5% even if licensing authority has done more than 5%. It is also provided that in respect of licence where the CIF value is Rs.100 crores or above no such realization can be granted by the AC/DC.
6.7 A reading of the above condition indicates that certain things are required to be examined by the assessing officer at the time of clearance of the goods and the importer is required to execute bond with the Customs authorities to fulfill the obligation detailed in the notification. The benefit of the notification cannot be extended without execution of thebond to fulfill the condition relating to the export obligation. Similarly, importer is required to produce a certificate that the goods imported are installed in the importers factory or premises and a certificate to that effect is required to be produced from the AC/DC or an independent Chartered Engineer. It is also interesting to see that the term expiry obligation in explanation 4 of the said notification in clause (ii) of the said explanation which is explained that in relation to the importers rendering services, means receiving payments in freely convertible foreign currency for services rendered through the use of such capital goods. It would thus be seen that it is very important to see that the goods period under the said exemption Notification are installed in the importers premises and the export obligations are fulfilled through use of such capital goods. Thus, the importer is required to be fulfilled export obligation to the use of such capital goods and not otherwise. If an importer fulfills an export obligation without use of goods imported under exemption notification, such goods imported will not be entitled to the benefit of such notification. It is the duty of the AC/DC to check and ensure that the goods cleared under the said notification are installed in the importers premises.
6.8 In the case of goods imported from abroad, the goods are assessed at the time of clearance from the customs, the issue can be self assessment or it can be assessed by the custom officer depending upon the status of merits. In both the situation before the goods gets cleared importer executes the required bond, etc. and thereafter the customs authorities monitor various conditions mentioned in the notification. In case an EPCG licence holder decides to procure the goods from the local manufacturer instead of importing the role of the assessment gets shifted to the factory of production of such goods. Thus, before clearance from the factory of production conditions which are required to be fulfilled at the time of import are similarly required to be fulfilled at the time of clearance. In case of clearance from a factory the system being followed is self assessment by the manufacturer and there is no concept of assessment by the excise officers, even the monthly returns are required to be self assessed and filed to the Central Excise department. The Central Excise department only checks few cases for detailed scrutiny. Thus, due the trust imposed in the trade it is their responsibility to ensure that the conditions of the notification are correctly fulfilled. In the present situation which would mean that the manufacturer asked his customers whether they have executed the bond with the concerned authorities relating to the fulfillment of the export obligation as also the block-wise fulfillment of the export obligation. The manufacturer is also required to ensure that the customers have submitted the invalidation letter along with copy of the EPCG licence so that the authorities had checked up the clearances with reference to the validity of licence and also debit such invalidation letter. If the manufacturer is satisfying that his customers had already fulfilled all these conditions by submitting himself before the jurisdictional authorities it is only thereafter that the manufacturer can clear the goods in terms of the said notification, as number of conditions are in the nature of post importation conditions which are required to be fulfilled by the customers of the manufacturer or the service provider in the present case. Thereafter, it is for the Revenue department to monitor the export obligation, instillation of the goods and other conditions of the notification. In case of any default in fulfillment of any of the condition, the Revenue will take action against the customers of the manufacturers who failed to fulfill any of the above importation condition. For eg. If the exports cleared are diverted or the export obligation not fulfilled by using the said carpets it is for the concerned jurisdictional authorities to raise the demand against such defaulters. However, it is not in dispute in the present case that the appellants has not taken any care to ensure that his customers fulfilled the conditions of the notification by submitting themselves to the jurisdictional authorities along with concerned documents, like invalidation letter, EPCG licence, bond, along with proper sureties, etc. Since the appellant has cleared the goods without ensuring the above mentioned conditions or verified the procedure. In our considered view they are not entitled to clear the goods with benefit of the said notification and liability of excise duty for such an incorrect clearance and consequent assessments squarely lies on the appellant. The appellant cannot be permitted to take a stand later on that these conditions are relating to their customers and it is for the Revenue to chase such customers and raise demands against them. In our considered view if the appellant would have ensured that his customers submit themselves to the Revenue authorities with the requisite documents and after fulfilling the conditions which are required to be fulfilled before the clearance of the goods then only they were entitled to the benefit of notification.
6.9 We find that the learned Senior Counsel for the appellant has raised many submissions relating to obligation of the customers and not of the appellant. In view of the above discussion, in our view these contents do not merit any consideration and requires to be rejected out rightly.
6.10 We entirely agree with the condition of the learned Commissioner (AR) that the appellant is a 100% EOU and they themselves for getting the goods under Central Excise removal of goods at concessional rate of duty for manufacture of excisable goods Rules, 2001 and the said rules are general rules can be followed whether or not prescribed in the notification and in the present case the appellant should have asked his customers to follow the said rules and for this purpose, the customers should have been approached the jurisdictional authorities and produced the EPCG licence along with invalidation certificate and thereafter executed the bond as required under Notification No.44/2002 or 55/2003. Once these formalities were completed after obtaining the copies of the said documents, the appellant could have cleared the goods availing the benefit of exemption Notification Nos.44/2002 & 55/2003. Further, the appellant should have every month produced the copies of invoices and other details including the copy of the letter received from the jurisdictional authorities of his customers to his jurisdictional AC/DC and it is only in this situation, the responsibility of the appellant would have been over and the assessment of the goods would be in order. Since the appellant has cleared the goods without following any of the above procedure, the benefit of above mentioned notification cannot be extended. We note that the constitution bench of the Honble Supreme Court in the case of CCE New Delhi Vs. Hari Chand Shri Gopal reported in 2010 (260) ELT 3 (SC) has observed as under:
Exemption Clause - Strict Construction
22.?The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption. In Novopan Indian Ltd. (supra), this Court held that a person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State. A Constitution Bench of this Court in Hansraj Gordhandas v. H.H. Dave - (1996) 2 SCR 253, held that such a notification has to be interpreted in the light of the words employed by it and not on any other basis. This was so held in the context of the principle that in a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification, i.e., by the plain terms of the exemption.
23.?Of course, some of the provisions of an exemption notification may be directory in nature and some are of mandatory in nature. A distinction between provisions of statute which are of substantive character and were built in with certain specific objectives of policy, on the one hand, and those which are merely procedural and technical in their nature, on the other, must be kept clearly distinguished. In Tata Iron and Steel Co. Ltd. (supra), this Court held that the principles as regard construction of an exemption notification are no longer res integra; whereas the eligibility clause in relation to an exemption notification is given strict meaning wherefor the notification has to be interpreted in terms of its language, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally. An eligibility criteria, therefore, deserves a strict construction, although construction of a condition thereof may be given a liberal meaning if the same is directory in nature.
Doctrine of substantial compliance and intended use :
24.?The doctrine of substantial compliance is a judicial invention, equitable in nature, designed to avoid hardship in cases where a party does all that can reasonably expected of it, but failed or faulted in some minor or inconsequent aspects which cannot be described as the essence or the substance of the requirements. Like the concept of reasonableness, the acceptance or otherwise of a plea of substantial compliance depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means actual compliance in respect to the substance essential to every reasonable objective of the statute and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. Fiscal statute generally seeks to preserve the need to comply strictly with regulatory requirements that are important, especially when a party seeks the benefits of an exemption clause that are important. Substantial compliance of an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the non- compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the substance or essence of the statute, if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not of the essence of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substantial, if not strict compliance. In other words, a mere attempted compliance may not be sufficient, but actual compliance of those factors which are considered as essential.
25.?The details to be furnished in Form No. 1 as per Rule 192 and the declaration to be made, relate to the substance and essence of Chapter X. R-2 Registration Certificate is also pre-requisite to obtain CT-2 Certificate. Further, the execution of bonds as provided in that chapter is also not an empty formality for obtaining the duty free excisable goods. Bonds also insist for a declaration. CT-2 Certificate will be issued only if a party gets registered under Form R-2 from the Registering Authority. Only if CT-2 Certificate is obtained, the excisable goods could be removed. Form RG-16 Register and the details to be furnished in Form RT-11 are also statutory in nature, which relate to the substance and essence of the requirements under Chapter X. Indisputedly, those requirements had not been complied with.
26.?The respondents have laid great emphasis on maintenance of some statutory registers and filing of periodical returns at the recipient unit, so as to take the shelter under the doctrine of substantial compliance for remission of duty. Respondents pointed out that they had identical columns in the registers kept at the recipient end, hence, the requirement of maintaining separate register at the supplier end and the requirements of Chapter X was substantially complied with. It may be noted that RG-16 Register prescribed was specific to Chapter X with the sole intention of maintaining separate accounts for receipt, issue and usage of duty free remitted inputs received from the supplier unit. Similarity of columns and the details furnished therein cannot be considered as substitute for not maintaining of RG-16 Register or other registers for remission of duty under Chapter X.
27.?We have already indicated that, at the supplier end, no registration under Rule 174 was obtained and no records were kept. The applicants, at the recipient end, were also legally obliged to give various declarations in the statutory forms so as to claim exemption and such declarations admittedly were not made. Non-compliance of those conditions enumerated under various rules in Chapter X of the Excise Rules and non-furnishing of various statutory forms prescribed under Chapter X, in our view, are fatal to a plea of substantial compliance and intended use. The respondents, therefore, on the facts of this case, have not succeeded in establishing the plea of intended use or the substantial compliance of the procedure set out in Chapter X so as to claim the benefit of the exemption notification dated 11-8-1994.
6.11 We have seen the Honble Supreme Court decision in the case of Indian Oil Corporation Ltd., Vs. CCE, Vadodara reported in 2012 (276) ELT 145 (SC). In the said order, the Honble Supreme Court has observed in para 6 as under:
The question whether it was enough to prove to the satisfaction of the Central Excise Officer that the goods are for the intended use specified in the notification of exemption or whether in addition the procedure laid down in Rule 192 of Chapter X of the Rules was also to be complied with for availing concession under the exemption notification was raised before this Court in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House [1992 (61) E.L.T. 352 (S.C.) = (1990) 4 SCC 440] and a two-Judge Bench of this Court held that the possession of a license or production of a C-2 certificate as provided in Rule 192 of Chapter X of the Rules enables the applicant to secure the necessary concession and that the entitlement to the concession will depend on whether the purchaser is the holder of a L-6 license (or C-2 certificate) or not. These observations made in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House (supra) were held by a two-Judge Bench of this Court in Collector of Customs, Bombay v. J.K. Synthetics Limited [1996 (87) E.L.T. 582 (S.C.) = (1997) 10 SCC 224] as not laying down principle and held to be limited to eligibility for concession under Rule 192 of the Rules. In the aforesaid decision in the case of Collector of Customs, Bombay v. J.K. Synthetic Limited (supra) this Court took the view that where there was evidence on record that show the intended use of the material, the benefit of exemption could be granted. In a subsequent decision in the case of Collector of Central Excise, Jaipur v. J.K. Synthetics [2000 (120) E.L.T. 54 (S.C.) = (2000) 10 SCC 393] a three-Judge Bench of this Court took the view that if there was substantial compliance of the procedure laid down in Chapter X of the Rules, exemption could be granted. In the case of Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal [2010 (260) E.L.T. 3 (S.C.) = (2011) 1 SCC 236] a Constitution Bench of this Court considered the decisions of this Court in Thermax Private Limited v. The Collector of Customs (Bombay), New Customs House (supra) and Collector of Central Excise, Jaipur v. J.K. Synthetics (supra) and held that a provision for exemption, concession or exception, as the case may be, has to be construed strictly and if the exemption is available only on complying certain conditions, the conditions have to be complied with. In the aforesaid decision, the Constitution Bench further held that detailed procedures have been laid down in Chapter X of the Rules so as to curb the diversion and utilization of goods which are otherwise excisable and the plea of substantial compliance or intended use therefore has to be rejected.
6.12 Coming to various contentions of the learned Senior Counsel for the appellant, the first contention of the learned senior Counsel is that at the time of denovo adjudication, they have produced certificate in respect of 50% of the invoices and thereafter now they have produced certificate in respect of 95% of the clearances. In our view production of these certificates at this distant point of time is of no consequence. For eg. The installation certificates, these were produced within six months from the date of clearances, the jurisdictional authorities has the discretion and could have verified whether the carpets cleared were in fact installed in the hotels and are being used for fulfilling the export obligation. Similarly, the block-wise export obligation could have been monitored by them and in the event of any failure they could have issued the demand notice. The so called as EODC produced now is with reference to the overall fulfillment export obligation. It is also important to note that as per the explanation provided in the notification, the export obligation is required to be discharged using the goods cleared under the exemption notification. These facts cannot be verified by the said EODCs. It is a well settled principle of law that scrutiny needs to be done at a particular point of time then the same should be done in that point of time and not any point. The learned Senior counsels another contention was both the notification provides for extension of time for producing installation certificate. We have gone through the said provision. It is true that the notification provides for extension of time but that does not imply there is no time limit for producing such certificate. The extension of time is to be given by the competent authority keeping in view the facts and circumstances of the case. The appellant cannot be permitted not to apply for extension of time and producing the certificate at any point of time and take the plea that the AC/DC was competent to extend the time limit. Similarly, in the position in respect of the block-wise export obligation to be fulfilled. The learned Counsel has quoted the judgement of this Tribunal in the case of JK Corporation Ltd. (supra). We have gone through the said judgement. In the said case the facts were that the appellants were cleared the goods after executing an use base bond. The appellant did not produce the end use certificate in time and the department started recovery proceedings. Thereafter the appellant produced the end use certificate and it is in these circumstances this Tribunal has taken the view in detailing in filing of end use certificate and rests can be condoned. Similarly, in the case of Hotline Teletube and Components Ltd., (supra) the appellant had cleared certain goods on execution of the end use bond. The appellant did not produce the end use certificate in time and the Revenue proceeded to recover the differential duty. The appellant hereafter produced the end use certificate and it is in these circumstances, the Honble Supreme Court has taken the view. In the present case, the situation is entire different. The appellant have not cleared the goods as per the conditions of the notification. No bond was executed invalidation certificate, EPCG import licence, etc. were not produced at the time of clearances of the goods and after the issuance of the show-cause notice at this stage, the EODC certificate is being produced by which none of the conditions of the notification can be monitored and checked. There can be no doubt that this Tribunal can look into the documents produced in the proceedings before us. However, as mentioned earlier when the bond itself has not been executed the block-wise, the export obligation was not available. The fact whether the export obligation has been fulfilled using the said goods fact that whether the carpets were installed immediately after the clearance, etc. cannot be verified and therefore, the plea is required to be rejected outright. It was also submitted by the Senior Counsel that amount of bond, form of bond and to whom the bond amount executedby the proper officeronly thereafter. We are not impressed with these arguments for the simple reason that the appellants customers or the appellant was required to approach the jurisdictional authorities for the said details. In any case, the form of bond, amount, etc. is of standard things and prescribed. The appellant customers would have executed such bond for clearance of the goods being imported by them. In view of this position, the plea of the Senior Counsel requires to be outrightly rejected. Another contention of the senior Counsel was vide their policy..registered by the Central Government. As per the said policy, the LUT has to be given to the DGFT. We have not impressed with this arguments. The customs notification does not provide for any relaxation for the execution of bond and does not provide that such a bond can be executed with DGFT. Under these circumstances, the bond is required to be executed with the customs and excise alone. The LUT to be executed with DGFT will be for their purpose and not for the purpose of benefit of this notification. In our view keeping in view the conditions of the notification, bond is required to be executed with the jurisdictional customs authorities alone. Learned Senior Counsel has also submitted that these bonds, etc. were required to be executed by the customers of the appellant and not by the appellant. We entirely agree with the contention. However, the fact remains that without execution of such bond by his customer, the appellant was not entitled to clear the goods taking the benefit of Notification No.44/2002 or 55/2003. Another contention of the learned senior Counsel was that ..of excise duty can be demanded only from. And is not without exception. We do not find that Revenue has made any such claim. The Revenues point is that the appellant was required to assess the goods at the time of clearance and since the conditions of notification were not fulfilled. The appellant was not entitled to clear the same availing the benefit of notification No.4/2002 & 55/2003 and under these circumstances, it is the appellant who is required to pay the duty. There can be no doubt if the appellant could have been ensured that his customers fulfilled all the requirements of the notification such as execution of bond, etc. before clearance of the goods. The demands would have been raided from his customers and not from the appellant. The senior Counsel has submitted this Tribunals decision in the case of Dynamic Twisters Pvt. Ltd., (supra). We have gone through the said judgement in the said case. The appellants customer has executed the bond with the Central excise authorities and in these circumstances, the Tribunal has to be demanded from the exporters and not from the Dynamic Twisters Pvt. Ltd. Similar position in the case of Jay Formulation Ltd. (supra). We have also gone through the Tribunal decision in the case of Maruti Udyog (supra) which was affirmed by the Honble Supreme Court in the said case. There was a concessional rate of duty if saloon cars were required to use solely as taxi and the manufacturer could furnish certificate from the state transport authorities. Maruti Udoyog cleared certain taxies which were in fact registered as taxies and they produced evidence of registration to the Central Excise authorities. However, later on some of the buyers of the taxis got the registration changed from taxi to the normal cars and the Revenue wanted the recover the duty from the manufacturer. In these circumstances, the Tribunal took the view that the manufacturer has fulfilled his obligation inasmuch as the saloon cars cleared were initially registered as taxies and therefore, duty cannot be demanded from the manufacturer. The said decision was upheld by the Honble Supreme Court. In the present case, the appellant have no fulfilled their obligation under the law. The obligation included that their customers executes the bond with the jurisdictional authorities in terms of Notification No.44/2002 and 55/2003 and also produced the EPCG licence, invalidation certificate, etc. which were required to be debited by the jurisdictional authorities and also to examine the validity of such licence. Since in this case, the appellant had cleared the goods without ensuring that his customers submit themselves to the jurisdictional authorities and fulfilled various conditions that demand has been correctly raised to the appellant. We are also not impressed with the Senior Counsels arguments that non-submission of details of export obligation block-wise by the EPCG licence . The notification specifically provides for such demands and such obligation cannot be brushed aside by an argument of the senior Counsel.
6.13 The learned senior Counsel for the appellant has submitted that even if they are required to pay the duty as demanded in the show-cause notice, the countervailing duty portion is required to be computed at nil rate of duty. In view of the Honble Supreme Courts decision in the case of SRF Ltd. reported in 2015 (318) ELT 607 (SC). It was also submitted that the Division Bench of the Supreme Court has already held that the decision of the Bombay High Court in the case of Ashok Traders Vs. UOI & Another reported in 1987 (32) ELT 262 (Bom) is not a good law. In contrast the learned Commissioner (AR) submitted that three member Division Bench of the Honble Supreme Court in the case of Garden Silk Mills Ltd., Vs. UOI reported in 1999 (113) ELT 358 (SC) has held the same to be a good law. It was also submitted that three member Bench of the Honble Supreme Court in the case of Motiram Tolaram Vs. UOI reported in1999 (112) ELT 749 (SC) has taken a similar view. It was further submitted that two member Division Bench of the Honble Supreme Court again over ruled the decision of the three member Bench. The learned senior Counsel on the other hand submitted that the Honble Supreme Court in the case of SRF Ltd. (supra) has also disposed of the appeal relating to ITC (CA No.1632 of 2009) and the said appeal was relating to the notification No.30/04-CE which is the same notification which is under dispute in the present case. It was also submitted that the Tribunal has relied upon the following judgement in the said case:
i) Motiram Tolaram Vs UOI 1999 (112) ELT 749
ii) Ashok Traders Vs UOI 1987 (32) ELT 262
iii) Gujarat Plastic Industries Vs UOI 2003 (160) ELT 125
iv) Priyesh Chemicals & Metals Vs CCE 2000 (120) ELT 259 and it is after noting these decisions that the Honble Supreme Court has decided the said case. It was also submitted by the learned Commissioner (AR) that as per explanation to proviso. liable to be paid at the highest of applicable rates. This is a deeming provision for goods and make more reference for description and class of articles. He further quoted Honble Supreme Court decision in the case of IFFCO - 2000 (115) ELT 11 (SC), Hansur Plywood Works 1992 (61) ELT 4 (SC), Western India Plywood 1989 (44) ELT 595 (SC). He further submitted that the explanation to Section 3 (1) of Customs Tariff Act is not similar. The learned Commissioner (AR) has also submitted that the decision of the Honble Supreme Court in the case of Thermax Pvt. Ltd. is not applicable to the present facts as this case and it is based on a concession given by the department that the articles were not covered by any other entry. It was also submitted that the explanation in the CEA 1944 is relevant in this case and it shall override the provisions of the explanation in the Customs Tariff Act. Before discussing the various judgements of the Honble Supreme Court it will be important to re-produce the relevant portion of the Section 3 (1) of the CEA 1994.
3.(1) Levy of additional duty equal to excise duty, sales tax, local taxes and other charges. - Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article:
Provided that in case of any alcoholic liquor for human consumption imported into India, the Central Government may, by notification in the Official Gazette, specify the rate of additional duty having regard to the excise duty for the time being leviable on a like alcoholic liquor produced or manufactured in different States or, if a like alcoholic liquor is not produced or manufactured in any State, then, having regard to the excise duty which would be leviable for the time being in different States on the class or description of alcoholic liquor to which such imported alcoholic liquor belongs.
Explanation. In this sub-section, the expression the excise duty for the time being leviable on a like article if produced or manufactured in India means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty.
6.14 It is seen from the said Section that in case of goods cleared by a 100% EOU to DTA the duty of excise shall be an amount equal to aggregate the duties of Customs which would be leviable. Further that explanation (1) clarifies that where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable a different rates, then, such duty shall for the purposes of this proviso, be deemed to be leviable at the highest of those rates. It is thus clear that if some goods are cleared from EOU while computing the excise duty which is equivalent to customs duty and if the goods are chargeable to more than one rate the highest of the two would be taken. It would be worthwhile to mention that Section 3 of the Customs Tariff Act, 1975 has been introduced to bring a level applying fee for domestic manufacturer of goods, when the goods are manufactured domestically, the manufacturer is required to pay excise duty in case of the imported goods since the goods are manufactured outside the country and every country promotes the export of the goods and taxes are generally not levied on the export of goods. The manufacturer will be an disadvantages provision as far as taxes are concerned, in order to bring a level applying for under Section 3 of the Customs Tariff Act, 1975 was introduced. The said section primarily provides levy of additional duty equal to excise duty, sales tax, local taxes and other charges. The relevant portion of the said section 3(ii) is reproduced:
(ii) by a hundred per cent export-oriented undertaking and brought to any other place in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
Explanation 1. Where in respect of any such like goods, any duty of customs leviable for the time being in force is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable at the highest of those rates.
Explanation 2. In this proviso, -
It would be the explanation in he above mentioned section explains that excise duty for the time being (a) a duty of excise to be called the Central Value Added Tax (CENVAT)] on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods excluding goods produced or manufactured in special economic zones specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule.
6.15 The said above mentioned Section 3 (i) along with explanations have been a matter of lists between the Revenue and the various importers. In number of cases and the mater has gone to the Apex Court and the decision have been quoted by both the sides. Normally if there is a single rate of duty for any article being imported no difficulty in levying the same as per the above section. But the difficulties arises when the goods are leviable to more than one rate of duty. As per the explanation in such a situation arises duty is required to be taken. The question arises why there should be more than one rate of duty can be the variety of reasons. It is possible that for a particular goods one rate with normal rate there may be a concessional rate for a particular end use. There can be another situation where the second rates are not based upon end use but based upon the inputs used or based upon some conditions relating to the inputs. It is well settled system in the excise administration in the country that many at times the taxes collected at a particular stage which are generally where the goods are manufactured in which ..For Eg. The plastic materials which are products obtained from crude oil which normally manufactured units. However, once the plastic granules are manufactured by the large scale units. These granules are used by thousands of small industrial for various types of plastic goods which are used packaging and day today household articles, etc. The policy maker or the legislature to decide the tax on granules but exempts down stream products. However, such down stream products are under .exemption is granted subject to the condition that no credit of duty paid on such granules is taken as Cenvat credit by those manufacturers. Such down stream products have an optin either to take Cenvat Credit and pay the duty on the goods manufactured by them or not to take Cenvat credit and also not to pay the duty. Generally these options are given in order to make thousands of small scale units from the role of tax authorities and procedure. Any units who would like to pay duty and also availed Cenvat credit is allowed to do so. It would thus be seen that in such cases two rates of duty comes .one for the manufacturers, who are availing the Cenvat Credit and another rate for the manufacturers, who are not availing the Cenvat credit and explanation to Section 3 (1) of the Customs Tariff Act comes into force. In such a situation a highest of the two rates are required to be applied. If that is not done it will .objects and .. ..Section 3 of Customs Tariff Act because if such a down stream products are imported from abroad then no countervailing duty will be chargeable by the manufacturer of similar goods in India. By either normal rate or would have suffered the duty on the inputs like granules used in the manufacture of such final products.
(Pronounced in Court on .) (S.S. Garg) Member (Judicial) (P.K. Jain) Member (Technical) pj 1 5