Customs, Excise and Gold Tribunal - Bangalore
Maruti Cottex Limited vs Commissioner Of C. Ex. on 10 December, 2004
Equivalent citations: 2005(183)ELT393(TRI-BANG)
ORDER T.K. Jayaraman, Member (T)
1. These are three appeals filed by 1. M/s. Maruti Cottex Limited (Appeal No. E/309/2004); 2. M/s. Sanghi Spinners India Ltd. (No. E/1110/2003) and 3. M/s. Manasa Industries (P) Ltd. (in E/28/2003). These appeals are against the Orders-in-Original Nos. 1. 63/2003 Commr., dated 17-12-2003; 2. C.Ex. 40/2003, dated 30-7-2003; and 3. 63/2002-RP dated, 22-10-2002 passed by the Commissioner of Central Excise, Hyderabad-III Commissionerate, Hyderabad in respect of the first two appeals and by the Commissioner of Central Excise, Visakhapatnam in respect of the third appeal.
2. All the three appellants are 100% EOUs. The first two appellants cleared the goods without payment of duty to DFRC/ARO holders. The third appellant cleared the goods without payment of duty in terms of EXIM Policy 1997-2002 para 9.10(b) with supplies effected in Domestic Tariff Area (DTA) against payment in foreign exchange under permission from Development Commissioner, Visakhapatnam Export Processing Zone (VEPZ). The appellants contend that the goods cleared by them are exempted from Excise Duty vide Notification No. 125/84-C.E., dated 26-5-1984. However, the Revenue is of the view that these clearances are not at all covered by the above mentioned exemption Notification and, therefore, all these clearances are liable to Central Excise Duty. Proceedings were initiated against all the appellants and duties have been demanded. Equal penalties under Section 11AC have been levied. Interest under Section 11AB has also been demanded. The point at issue is whether these clearances from 100% EOUs to DTA against DFRC Certificate holders/ARO holders and also against realization of foreign exchange are entitled to the exemption Notification No. 125/84, dated 26-5-1984.
3. Shri G. Shiva Dass, Shri Venkatesh and Shri Prakash Shah, learned Advocates appeared on behalf of the appellants and Smt. Shobha L. Chary, learned JCDR and Shri L. Narasimha Murthy, SDR appeared on behalf of the respondents.
4. The learned Advocate Shri G. Shiva Dass explained briefly the scheme of DFRC by referring to the relevant EXIM Policy. A DFRC holder is entitled to import of inputs used in the manufacture of goods without payment of Basic Customs Duty and Special Additional Duty. However, such inputs shall be subject to payment of Additional Customs Duty equal to the Excise Duty at the time of import. There is a provision for the DFRC holder to source the inputs from indigenous sources also in view of direct import against Advance Release Orders (ARO). The DFRC is freely transferable and a transferee is also eligible for ARO facility. In the instant case, the 100% EOUs i.e. the appellants have supplied goods against AROs. Shri Shiva Dass contended that under Notification No. 82/92-C.E., dated 27-8-1992 and Notification No. 28/01-C.E., dated 16-5-2001, the clearances made to the DFRC holders are exempted from only Basic Customs Duty and Special Additional Duty. However, these clearances have to pay countervailing duty, which is equal to the Excise Duty leviable. This is the stand of the Department. Hence, demands have been made and confirmed. However, the learned Advocate submits that the goods are exempted under Notification No. 125/84-C.E., dated 26-5-1984. This Notification exempts all excisable goods produced or manufactured in a 100% EOU from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944. There is a proviso to this Notification. The proviso reads as "Provided that the exemption contained in this Notification shall not apply to such goods if allowed to be sold in India". Placing reliance on the interpretation of the phrase "allowed to be sold in India" by the Hon'ble Supreme Court in the case of SIV Industries Ltd. v. CCE - 2000 (117) E.L.T. 281 (S.C.), the learned Advocate submitted that the ratio of the above case is squarely applicable to these clearances. In the above-mentioned case, the Supreme Court has held that the expression "allowed to be sold in India" in proviso to Section 3(1) of the Act is applicable only to sales made up to 25% of production by 100% EOU in DTA and with "permission of the Development Commissioner". The supplies to DFRC holders in the present case are not made with the permission of the Development Commissioner and hence they cannot come within the category of goods "allowed to be sold in India". The Advocate also referred our attention to a decision of CESTAT, West Zonal Bench, Mumbai in the case of CCE, Mumbai-III v. Shrishti Impex Pvt. Ltd. [2003 (156) E.L.T. 893 (Tri. - Mumbai)] wherein the same issue has been dealt with. The facts of the abovementioned case are similar to the case before this Tribunal. The Hon'ble Tribunal has held that clearance of goods by 100% EOU against DFRC are not covered under relevant para of the EXIM Policy relating to permissible DTA sales and also not covered by the expression "allowed to be sold in India" in Section 3 of the Central Excise Act, 1944 so as to bring such clearances out of ambit of exemption under Notification. In the above-mentioned case, the Tribunal has rejected the stay of operation of the order of the Commissioner (Appeals) who has held that Notification No. 125/84 is applicable to clearances against DFRC holders. The learned Advocate also urged the point that these clearances in terms of the EXIM Policy would be considered as 'deemed exports' and in any case, they would be entitled for refund of terminal Excise Duty and even if they pay duty they would be entitled for refund and, therefore, the whole exercise would be revenue neutral.
5. In respect of the third appellant, the supplies are under para 9.10 (b) of the EXIM Policy 1997-2002 effected in DTA against payment in foreign exchange. These clearances are with the permission of the Development Commissioner, VEPZ. The learned Advocate, Shri Prakash Shah contended that the clearances under para 9.10 (b) against payment in foreign exchange are fully exempted from payment of Basic Excise Duty under Notification No. 125/84-C.E., dated 26-5-1984 and from Additional Excise Duty (T & TA) under Notification No. 55/91-C.E., dated 25-7-1991. The main thrust of his submission is that these clearances which earn foreign exchange are at par with physical exports or deemed exports. Hence, no Customs Duty is leviable on them. The adjudicating authority has observed that there is no provision to exempt these clearances from Excise Duty. However, the learned Counsel urges that Notification No. 125/84 squarely covers these cases also. In this connection, he drew our attention to the grounds taken by Revenue in the case of Shrishti Impex mentioned above wherein it is urged in b(vi) as follows :
"b(vi) Para 9.10 of the policy consists of series of deeming provisions. One of such provision is that the supplies to domestic tariff areas made against payment in foreign exchange shall be counted towards fulfilment of export performance. The object behind the provision of Para 9.10 appears to be earning foreign exchange. Therefore, the goods manufactured in 100% EOU appears to have been exempted from payment of Central Excise duty under Notification No. 125/84, dated 26-5-1984. However, the goods cleared by the assessee are neither earning foreign exchange nor revenue for exchequer. This may not be the intention of the Government. Therefore, the decision of Commissioner (Appeals) passing the benefit of exemption Notification No. 125/84, dated 26-5-1984 to those goods does not appear to be correct and is contrary to the provisions of law."
A reading of the above ground shows that even the Revenue is of the view that Notification No. 125/84 covers goods cleared against foreign exchange. Further, it was urged that the clearances under para 9.10(b) also would not be covered by the clearances coming under the category of goods 'allowed to be sold in India' as these clearances are considered as exports only.
6. The learned JCDR submitted that the Hon'ble Supreme Court interpreted the expression "allowed to be sold in India" in the context of goods cleared at the time of de-bonding. Hence, the ratio of the above-mentioned case is not applicable to the facts of the present case. Since all these clearances are to buyers in India, they should be considered as "allowed to be sold in India" and hence the exemption notification is not applicable to them.
7. We have carefully considered the rival submissions. This issue has been elaborately dealt with by the Tribunal in the Shrishti Impex case mentioned above. We are in total agreement with the interpretation of the Tribunal. The clearances to DFRC holders/ARO holders against foreign exchange cannot come within the purview of the category of goods allowed to be sold in India in view of the restrictive interpretation of the expression "allowed to be sold in India" by the Hon'ble Supreme Court in the SIV case. The clearances to DFRC holders and also to suppliers against foreign exchange cannot be treated on par with the clearances permitted by the Development Commissioner for sale to DTA. Since supplies in DTA against foreign exchange covered by para 9.10(b) shall be counted against NFEP/EP, these clearances cannot suffer Central Excise Duty. Hence, Notification No. 125/84 is squarely applicable to these clearances. Moreover, even if duty is paid on these clearances, by virtue of the fact that they are considered as deemed exports vide Chapter 10 of EXIM Policy, the appellant would be entitled to the benefit of refund of Terminal Excise Duty. Hence, the whole exercise appears to be revenue neutral. In view of these observations, we allow the appeals with consequential relief.