Custom, Excise & Service Tax Tribunal
Cce, Jaipur-I vs M/S. Moonlight Exim Pvt. Ltd on 22 November, 2011
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Date of Hearing:22.11.2011
Date of Decision:28.02.2012
Customs Appeal No.770 of 2007 with
Cross Objection No.47 of 2009
[Arising out of Order-in-Appeal No.299(RKS)CE/JPR-I/2007 dated 3.10.2007 passed by the Commissioner of Central Excise (Appeals-I), Jaipur]
For approval and signature:
Honble Shri D.N. Panda, Judicial Member
Honble Shri Rakesh Kumar, Technical Member
1. Whether Press Reporters may be allowed to see
CESTAT (Procedure) Rules, 1982.
2. Whether it should be released under Rule 27 of the
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy
of the Order?
4. Whether Order is to be circulated to the Departmental
authorities?
CCE, Jaipur-I Appellant
Vs.
M/s. Moonlight Exim Pvt. Ltd. Respondent
Appearance: Rep. by Shri R.K. Gupta, DR for the appellant.
Rep. by Shri O.P. Bathla, Consultant for the respondent.
CORAM : Honble Shri D.N. Panda, Judicial Member Honble Shri Rakesh Kumar, Technical Member Order No. ________________ Dated :
Per Rakesh Kumar:
The facts leading to this appeal are in, brief, as under:-
1.1 The respondents are a 100% EOU engaged in recycling of old and damaged electric transformers, compressors, motors, etc.. for production of ferrous and non-ferrous scrap for export. In terms of the LOP dated 20.12.2000 issued to them by the Development Commissioner, Noida Export Processing Zone, they are entitled to import old and damaged electric transformers, compressors, motors, etc., which are dismantled by them and the components/parts of different metals are segregated and the scrap of different ferrous and non-ferrous metals so obtained is exported. On the basis of their export performance and in accordance with Exim Policy, the respondent were allowed to make DTA clearances of certain quantities of metal scrap produced by them. The dispute in this case is about the rate of duty applicable on the DTA clearances of the scrap made by the respondent. According to the respondent, their activity of obtaining scrap from damaged and un-seviceable transformers, motors, etc. amount to manufacture and hence, on DTA clearances of the scrap, they would be liable to pay central excise duty in terms of the proviso to Section 3 (1) of rate read with exemption under Notification No.2/95-CE dated 4.1.95, which would be 50% of the aggregate of duties of customs chargeable on import of like goods into India. According to the department, however, their activity does not amount to manufacture and hence, in respect of DTA clearances of scrap instead of central excise duty under Section 3(1) proviso of Central Excise Act, 1944 read with exemption notification no.2/95-CE, they would be liable to pay customs duty in terms of the Condition No.7 of the exemption notification No.53/97-Cus dated 3.6.97, according to which, when the finished goods produced by a 100% EOU are not excisable and are cleared to DTA, the EOU would be required to pay customs duty on the imported inputs used for the purpose of manufacture of such articles in an amount equal to the customs duty leviable on such articles as if imported as such. Thus, according to the department, the duty payable on the DTA clearances of the scrap would be the duty of customs chargeable as if this scrap is imported as such. It is on this basis that a show cause notice was issued to the appellant for demand of short paid duty amounting to Rs.8,63,551/- under Section 28(1) of Customs Act, 1962 along with interest under proviso to Section 28(1) of Customs Act, 1962 read with notification No.53/97-Cus and also for imposition of penalty on the Appellant under Section 112 of the Customs Act, 1962.
1.2 The show cause notice was adjudicated by the Addl. Commissioner vide order-in-original dated 19.07.2007 by which the customs duty demand as made in the show cause notice was confirmed along with interest and besides this penalty of Rs. 1 Lakh was imposed on the Respondent.
1.3 On appeal to the Commissioner (Appeals) against the Addl. Commissioners order, the Commissioner (Appeals) vide order-in-appeal dated 21.1.2009 set aside the Addl. Commissioners order and allowed the appeal on the ground that for the purpose of 100% EOUs, the definition of manufacturer as given in para 3.31 of the Exim Policy 1997-2000 has to be adopted and not the definition of manufacture as given in Section 2 (f) of the Central Excise Act, 1994 and in this regard, he also referred to the Boards Circular No.314/30//97-Excise dated 6.5.97, wherein it has been clarified that that term manufacturer for the purpose of export is wider in meaning than that used in Section 2 (f) of the Central Excise Act, 1944 and, therefore, the exemption may not be restricted only to the cases where manufacture under Section 2 (f) of the Central Excise Act, 1994 is involved. Against this order of the Commissioner (Appeals), the department has filed an appeal and the respondent have filed a cross objection.
3. Heard both sides and perused the records.
4. Shri R.K. Verma, ld. Departmental Representative assailed the impugned order reiterating the grounds of the appeal in the Revenues appeal and emphasized that
(a) Notification No.2/95-CE dated 4.5.95 prescribing concessional rate of central excise duty in respect of DTA clearances is not applicable in the cases where the process undertaken by the 100% EOUs does not amount to manufacture within the meaning of this term as defined in Section 2(f) of the Central Excise Act, 1944 and the goods produced are not excisable goods, as such a situation is specifically covered by the Condition No.(7) of the Exemption Notification No.53/97-Customs dated 3.6.97, which permits duty free import of the inputs, consumables and capital goods required by 100% EOUs for use in the manufacture of or production of finished products for exports;
(b) process undertaken by the respondents dismantling old and unserviceable transformers, motors and other machines for retrieving the various metals to be sold as scrap does not amount to manufacture and as such no excise duty is chargeable at this stage so obtained and the scrap arisen in this process is not excisable; and ( c ) since the scrap arisen in the process undertaken by the respondent is not excisable, in terms of Condition No.7 of the Exemption Notification No.53/97-Customs, the duty on the inputs used in the production of final products in an amount equal to the customs duty chargeable if the final products are imported as such, would be chargeable. He, therefore, pleaded that the impugned order is not correct.
5. Shri O.P. Bathla, Consultant, Consultant, ld. Counsel for the respondent defending the impugned order pleaded that in case of 100% EOUs, the definition of manufacture as given in the Exim Policy, which would be applicable and not the definition of manufacture, as given in Section 2 (f) of the Central Excise Act, 1944, that the benefit of concessional rate of duty under Section 2 (f) of the Central Excise Act, 1944 under Notification No.2/95-CE dated 4.1.95 can not be denied in respect of DTA clearances of 100% EOUs made with the permission of the Development Commissioner just because the process undertaken by EOUs does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944, that the Boards Circular No.314/30/97-CX dated 6.5.1997 also states that in case of 100% EOUs, a liberal interpretation of the word manufacture has to be adopted, that relying upon this Circular of the Board and that the Tribunal in the case of Precision Processors (India) (P) Ltd. Vs. CC, Kolkata reported in 2007 (216) ELT 233 (Tribunal-Kolkata) has held that benefit of concessional rate of duty under DTA clearances under Notification No.2/95-CE cannot be denied just because the process undertaken by EOU slitting of paper rolls into different sizes does not amount to manufacture under Section 2 (f) of Central Excise Act, 1944. He, therefore, pleaded that there is no infirmity in the impugned order.
6. We have carefully considered the submissions made from both the sides and perused the records. The respondent are a 100% EOU engaged in re-cycling of old and used damaged electric transformers, compressors, motors, etc. which are dismantled by them and the different metals obtained are segregated. The final product of the appellant are ferrous as well as non-ferrous metals, which are exported. The respondent are allowed to clear certain quantity of their final product- scrap into DTA by the Development Commissioner in accordance with the provisions of Exim Policy. The dispute in this case is about the rate of duty payable on the DTA clearances. According to the appellant, process undertaken by them is manufacture and, hence, the duty payable by the appellant would be the central excise duty payable under proviso to Section 3(1) of the Central Excise Act, 1944 read with duty exemption under Notification No.2/95-CE and duty payable on this basis would be the central excise duty equal to 50% of their aggregate duties of customs if such scrap is imported into India. The department is of the view that the process undertaken by the Respondent does not amount to manufacture and, hence, in terms of Condition No.7 of the Notification No.53/97-Cus under which the duty free import of the inputs had been made, they would be required to pay customs duty on the inputs used in the manufacture of their finished products in an amount equal to the customs duty payable on the import of their finished products i.e. scrap. The contention of the respondent is that the term manufacture in their case must be interpreted on the basis of the definition of this term, as given in the Exim Policy and not on the basis of its definition in Section 2 (f) of the Central Excise Act, 1944.
7. The Notification No.1/95-CE dated 4.1.95 issued under Section 5A of the Central Excise Act, 1944 provides for full exemption from central excise duty and the additional excise duty leviable under Additional Duties of Excise (goods of special importance) Act, 1957 in respect of the goods manufactured in India and supplied to a 100% EOU in connection with manufacture and packaging of articles or for production or packaging of the goods for export out of India. The term manufacture in this exemption notification has to be interpreted on the basis of its definition in the context of 100% EOUs as given in Exim Policy. In other words, definition of manufacture as given in the Exim Policy is relevant only for duty free acquisition of the goods by a 100% EOUs under Notification No.1/95-CE. Even as per the Boards Circular No.332/40/97-TRU referred to in the Commissioners (Appeals) order, a broader view of the term manufacture is called for only while permitting duty free acquisition of the goods by a 100% EOUs in terms of Notification No.1/95-CE and in that context the exemption notification no.1/95-CE does not require the manufacture of only excisable goods. However, when the goods manufactured or produced in a 100% EOUs are cleared into DTA, the central excise duty on the same is chargeable in terms of the proviso to Section 3(1) of the Central Excise Act, 1944, as the excisable goods produced or manufactured even by a 100% EOUs are the goods produced or manufactured in India. Since the duty on the DTA clearances of 100% EOUs is chargeable in terms of proviso to Section 3(1), the process undertaken by the EOU has to be manufacture within the meaning of this term, as defined in Section 2(f) of the Central Excise Act i.e. marketable and specified in the Central Excise Tariff for levy of excise duty. There is no separate definition of manufacture for 100% EOUs, in the Central Excise Act, 1944. If such goods produced/manufactured in a 100% EOU are not excisable, no excise duty under Section 3(1) would be payable. In such a situation, Condition No.7 of the Notification 53/97-Cus providing for duty free import of the inputs used for manufacture of finished goods for export, would come in picture and according to this condition, if the goods produced out of imported inputs are not excisable and the same are cleared into DTA, instead of central excise duty, customs duty on the inputs used in production of such finished goods would be payable and this duty payable would be equal to the duty payable on the import of the such finished products into India. The Commissioner (Appeals)s findings that the question whether the process undertaken by the 100% EOU amounts to manufacture for the purpose of charging central excise duty on DTA clearances has to be decided on the basis of definition of the term manufacture in Exim Policy, is not correct. The definition of term manufacture in the Exim Policy is relevant only for duty free acquisition of the inputs or capital goods by a 100% EOU under Notification No.1/95-CE, but for the purpose of charging central excise duty on the DTA clearances, and for this purposes, for deciding question as to whether the activity of 100% EOUs amounts to manufacture or not, this question would have to be decided on the basis of definition of manufacture under Section 2(f) of the Central Excise Act. This question has to be decided after ascertaining as to whether by the process undertaken by 100% EOU, a new product with a distinct name, characteristics, commercial identity and usages has emerged and whether that product is specified in the Central Excise Tariff for charging of central excise duty. The order of the original adjudicating authority and the Commissioner (Appeals) does not discuss this question from the above mentioned criteria. If the process undertaken by the respondent does not amount to manufacture, the stand of the department would be correct and the respondent would be liable to pay customs duty in terms of Condition No.7 of the Exemption Notification No.53/97-Customs. But if the process undertaken by the respondent amounts to manufacture, they would be liable to pay central excise duty under proviso to Section 3 (1) of the Central Exise Act, 1944 read with Duty exemption Notification No.2/95-CE. However, for deciding as to whether the process undertaken by the respondent amounts to manufacture or not, this matter has to be remanded to the original adjudicating authority.
8. In view of the above discussion, the impugned order is set aside and the matter is remanded to the original adjudicating authority for de novo decision on this issue as per our directions and observations in this order. The appeal is allowed by way of remand. The cross objection filed by the Respondent also stands disposed off.
[order pronounced in open court on 28.02.2012.] ( D.N. Panda ) Judicial Member (Rakesh Kumar) Technical Member Ckp.
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