Custom, Excise & Service Tax Tribunal
Brintonscarpets Asia Pvt. Ltd. vs Commissioner Of Customs Excise And ... on 8 May, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. I
Customs Appeal No. 724 of 2012
(Arising out of Order-in-Appeal No. PIII/RS/161/2012 dated 30.04.2012 passed by
the Commissioner of Central Excise (Appeals), Pune-III, Pune)
Brinton Carpets Asia Private Limited .... Appellants
Plot No.414-416, Village - Urawade
Taluka Mulshi, District Pune - 412 108.
Versus
Commissioner of Central Excise .... Respondent
Pune-III Commissionerate GST Bhavan (ICE House), 41A, Sasson Road, Opp Wadia College Pune - 411 001.
And Excise Appeal No. 1174 of 2012 (Arising out of Order-in-Appeal No. PIII/RS/161/2012 dated 30.04.2012 passed by the Commissioner of Central Excise (Appeals), Pune-III, Pune) Brinton Carpets Asia Private Limited .... Appellants Plot No.414-416, Village - Urawade Taluka Mulshi, District Pune - 412 108.
Versus
Commissioner of Central Excise .... Respondent
Pune-III Commissionerate
GST Bhavan (ICE House),
41A, Sasson Road, Opp Wadia College
Pune - 411 001.
Appearance:
Shri Akhilesh Kangsia a/w Ms Madhura Khandekar, Advocate for the Appellants Shri D.S. Mann, Authorized Representative for the Respondent CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL) HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) FINAL ORDER NO. A/85780-85781/2025 2 C/724/2012 & E/1174/2012 Date of Hearing: 17.01.2025 Date of Decision: 08.05.2025 Per: M.M. PARTHIBAN These appeals have been filed by M/s Brinton Carpets Asia Private Limited, Pune (herein after, referred to as "the appellants", for short) assailing the Order-in-Appeal No. PIII/RS/161/2012 dated 30.04.2012 (herein after, referred to as "the impugned order") passed by the Commissioner of Central Excise (Appeals), Pune-III, Pune.
2.1 Briefly stated, the facts of the case are that the appellants herein is engaged in the activity of manufacture of carpets as an 100% Export Oriented Unit (EOU) and for the purpose of compliance with central excise statue and for payment of applicable duties on manufacture, they had taken a Central Excise Registration No. AAACB7059HXM001 with jurisdictional authorities. The appellants are availing the benefit of duty exemption under Notification No.52/2003-Customs and Notification No.22/2003-C.E., both dated 31.03.2003, as amended, for procurement of duty-free import and indigenous materials, respectively, for use in manufacture of finished goods to be exported by their 100% EOU. Further, the appellants have also executed B-17 Bond for undertaking to comply with the conditions of such notifications and for binding themselves to pay duty and interest on demand from the Department, in case of any failure of fulfilment of the said conditions. In these notifications, there is a provision that the finished goods, even if not exported are allowed to be cleared into Domestic Tariff Area (DTA), subject to certain prescribed conditions and limitations as mentioned in paragraph 3 of the said notifications. The appellants were procuring duty free imported raw materials as well as the indigenous materials by availing the aforesaid notifications and used such materials for manufacture of carpets. Such carpets were being cleared under "Served From India Scheme (SFIS)' under Notification No.34/2006-C.E. dated 14.06.2006.
2.2 The Department had interpreted that the clearance of carpets from 100% EOU under SFIS is not covered in terms of paragraph 3 of the notification No.52/2003-Customs and paragraph 6 of the notification No.22/2003-C.E., and therefore the appellants are liable to pay duty on such clearances. On the above basis, the Department had initiated show cause proceedings against the appellants by issue of Show Cause Notices (SCNs) dated 08.09.2009 and 18.09.2009 for demanding recovery of customs duty involved in the raw material used for production of the final product (carpet) 3 C/724/2012 & E/1174/2012 which were not exported but were cleared under SFIS, along with interest and seeking for imposition of penalty under Section 112(a)(ii) of the Customs Act, 1962 and under Rule 25 of the Central Excise Rules, 2002 read with Section 11 AC of the Central Excise Act, 1944. The SCNs were adjudicated by the Additional Commissioner by confirming the duty demands raised in the SCNs and for imposition of equal amount of penalty on the appellants. Being aggrieved the said order of the original authority, the appellants have filed before the Commissioner (Appeals), who vide Order-in-Appeal dated 21.01.2011, had upheld the order of the original authority and rejected the appeal filed by the appellants. Feeling aggrieved with the said order, the appellants have filed an appeal before the Tribunal, and the matter was disposed of by way of remanding the case for fresh adjudication by the learned Commissioner (Appeals) vide Final Order No. A163 & 164/+2012/ CSTB/C-I dated 07.02.2012. The relevant paragraph of the said order of the Tribunal is extracted and given below:
"5. After hearing both sides, we find that the Commissioner (Appeals) has not given any finding regarding the applicability of these notifications in question on the clearances made to D.T.A. under SFIS. In the finding at para 6 & 7 of the order he has discussed the clearances against EPCG scheme. We, therefore, agree with the submissions of the Ld. Counsel of the appellants and after waiving the pre-deposit, we set aside the impugned order and remand the matter back to the Commissioner of Central Excise (Appeals) for passing fresh order after giving opportunity of being heard to the appellants."
2.3 Accordingly, in de novo proceedings conducted by the learned Commissioner (Appeals), personal hearing was given to the appellants on 30.04.2012, and the impugned order was passed in confirming the order of the original authority, by rejecting the appeals filed by the appellants. Feeling aggrieved with the impugned order, the appellants have filed these appeals before the Tribunal.
2.4 The appeals filed by the appellants were earlier decided by this Tribunal vide Final Order No. A / 85091-85092/2022 dated 10.02.2022. In the said order, the Co-ordinate Bench of the Tribunal have held that Notification No.34/2006-CE dated 14.06.2006 was issued under Section 5A of the Central Excise Act, 1944 and since it does not provide for extending the benefit of duty exemption to goods manufactured by 100% EOU; consequently, the clearance of goods has been effected by the appellant without payment of applicable duties. Considering that the procurement of 'raw materials' - both imported and domestic - had been made without payment of duty, against notifications no. 52/2003-Cus. and no. 22/2003- 4 C/724/2012 & E/1174/2012 C.E., both dated 31.03.2003 issued under Customs Act, 1962 and Central Excise Act, 1944, respectively, the Tribunal had upheld the confirmation of demands in the impugned order.
2.5 The appellants had preferred an appeal against the Final order dated 10.02.2022 passed by the Tribunal, before the Hon'ble High Court of Bombay in Central Excise Appeal (CEXA) No.26 of 2022 and Customs Appeal (CUAPP) No.37 of 2022, wherein the Hon'ble High Court had quashed the said Final Order dated 10.02.2022 and remanded the matter to the CESTAT to decide the issue afresh by issue of judgement dated 03.07.2024. The relevant paragraphs of the directions of the Hon'ble High Court of Bombay are extracted and given below:
"5....We are satisfied with the submissions of Mr. Sridharan that the Tribunal has travelled beyond the scope of dispute and has upheld duty demand by relying upon proviso to Section 5A of the Central Excise Act, 1944, which was never raised by the Department either in the show cause notice or the orders passed by the lower authorities. It is settled law that the Tribunal shall not travel beyond the scope of relief and the case made out I the show cause notice.
6. In the light of the above, we think it is a fit case to interfere. The impugned order dated 10th February 2022 to the extent it upheld the demands of duty along with applicable interest is quashed and set aside and remanded to the CESTAT to decide afresh.
7. Since the issue involved pertains to period of September 2008 to May. 2009, the Tribunal is requested to dispose the matter before the 31st December, 2024."
Further, the Hon'ble High Court extended the period to 31st March, 2025 vide its Order dated 10.12.2024. Accordingly, the matter is being taken up for hearing and disposal, by way of passing a Final Order herein, afresh, by taking into consideration the directions of the Hon'ble High Court of Bombay.
3.1 The Learned Advocate appearing for the appellants submitted that the excise duty payable on the goods manufactured by EOU is in terms of the proviso to Section 3 of the Central Excise Act, 1944. He stated that as per this provision, the excise duty payable by EOU is equal to the duties of customs payable on finished goods imported into India. In the present case, he stated that the appellants while clearing the final product 'carpet', to the buyers, who are holders of SFIS scrip issued by DGFT, have discharged the applicable excise duty by way of debiting these SFIS scrips tendered by such buyers. Therefore, the appellants claimed that this would amount to payment of excise duty in such cases, by them. Therefore, learned advocate 5 C/724/2012 & E/1174/2012 submitted that demand of duty on inputs consumed in such final products, as claimed in the SCNs is not sustainable. In this regard, he relied upon the circular No. 973/7/2013-CX dated 04.09.2013 issued by the CBEC, wherein it has been clarified that the goods cleared by debiting the duty scrips by domestic manufacturers is not treated as goods exempted from duty and therefore there is no requirement for reversal of CENVAT credit. It is submitted by learned advocate that such clarification issued in the context of duty scrips issued by DGFT, shall apply to the present case inasmuch as the duty debited in the SFIS scrips at the time of clearance of carpets by the appellants, shall amount to payment of central excise duty thereon.
3.2 Learned Advocate has also submitted that the appellants continue to pay duty on the final products cleared in DTA, as in normal cases, the applicable duties shall be paid through payment by cash and in case of SFIS scrip holders, the duties debited in the SFIS scrips. He further stated that the Tribunal have been taking the consistent view that goods cleared in DTA by debiting the duties scrips is not an exemption from payment of duty. In this regard, he submitted copies of invoices wherein the duty debit details w.r.t. specific SFIS scrips have been shown on the face of invoice itself.
3.3 It support of their stand the learned Advocate had relied upon the following case laws:
(i) Voltamp Transformers Ltd. Vs. Commissioner of Central Excise, Vadodara - 2012 (276) E.L.T. 238 (Tri. - Ahmd.)
(ii) Tanfac Industries Ltd. Vs. Assistant Commissioner of Customs, Cuddalore - 2009 (240) E.L.T. 341 (Mad.)
(iii) Essar Oil Limited Vs. Commissioner of Central Excise, Rajkot -
2010-TIOL-1647-CESTAT-AHM.
(iv) Universal Power Transformers Pvt. Ltd. Vs. Commissioner of Central Excise, Bangalore - 2010 (256) E.L.T. 244 (Tri. - Bang.) affirmed by Hon'ble High Court of Karnataka - 2015 (32) E.L.T. A163 (Kar.) On the above basis, learned advocate requested for allowing the appeals filed by the appellants.
4. On the other hand, the Learned Authorised Representative (AR) appearing for the Revenue had reiterated the findings of the learned Commissioner as recorded in the impugned order. In view of the fact that appellants have not paid the excise duty and had only used the SFIS scrips, he submitted that the impugned order is sustainable, and therefore he requested that the appeal filed by the appellant is liable to be dismissed.
6C/724/2012 & E/1174/2012
5. We have heard both sides and perused the case records and additional paper books submitted in this case by both sides.
6. The issue involved herein is to decide, whether or not, the payment of duty by the appellants working as 100% EOU, in debiting the SFIS scrips of the buyers for clearance of final product viz., carpets in DTA, shall be treated as payment of duty for the purpose of applicability of Notifications No.52/2003-Customs and Notification No.22/2003-C.E., both dated 31.03.2003?
7. In order to address the above issue, we would like to refer the relevant legal provisions contained in the Central Excise Act, 1944 and relevant notifications thereof.
Central Excise Act, 1944 CHAPTER II LEVY AND COLLECTION OF DUTY "Section 3. (1) There shall be levied and collected in such manner as may be prescribed
(a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods 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);....
Provided that the duty of excise which shall be levied and collected on any excisable goods which are produced or manufactured
(i) in a free trade zone or special economic zone and brought to any other place in India;
(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)......"
Notification No. 22/2003-C.E. EOU/STP/EHTP Units -- Exemption to goods brought into -- Notification Nos. 136/94-C.E., 1/95-C.E., 10/95-C.E., 37/99-C.E. and 37/2000-C.E. rescinded "In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), read with sub-section (3) of section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) and sub-section (3) of section 3 of Additional Duties of Excise (Textile and Textile Articles) Act, 1978 (40 of 1978), the Central Government being satisfied, that it is necessary in the public interest so to do, hereby exempts, -
(a) all goods specified in Annexure-I to this notification, when brought in connection with, -
(i) manufacture and packaging of articles or for production or packaging or job work for export of goods or services, into export oriented 7 C/724/2012 & E/1174/2012 undertakings (hereinafter referred to as the user industry) other than those units referred to in clauses (b) to (c);...
from the whole of,-
(i) the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944);
(ii) the additional duty of excise, if any, leviable thereon under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957); and
(iii) the additional duty of excise, if any, leviable thereon under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), subject to following conditions, namely :-
(1) the user industry brings the excisable goods directly from the factory of manufacture or warehouse;
(2) all excisable goods so brought are used by the user industry specified in clauses (a) to (d) for the purposes specified therein;
xxx xxx xxx xxx
6. Notwithstanding anything contained in this notification, the exemption contained herein shall also apply to the goods used for the purposes of processing, manufacture, production or packaging of articles in an user industry and such articles (including rejects, wastes, scrap and remnants arising out of such processing, manufacture, production, or packaging of such articles) even if not exported out of India are allowed to be cleared outside the user industry under and in accordance with the Export and Import Policy and subject to such other limitations and conditions as may be specified in this behalf by Development Commissioner, or the Board of Approval or the Inter Ministerial Standing Committee (IMSC), as the case may be, on payment of appropriate duty of excise, or where such articles are cleared to the warehouse appointed or registered under notification of the Government of India in the Ministry of Finance, Department of Revenue, No. 26/98-Central Excise (N.T.), dated the 15th July, 1998 or No. 46/2001-C.E. (N.T.), dated 26th June, 2001 or cleared to the warehouse authorised to carry on manufacturing process or other operation under section 65 of the Customs Act, 1962 (52 of 1962) and under the Manufacture and Other Operations in Warehouse Regulations, 1966, or cleared to the holders of certificate for duty free import from Apparel Export Promotion Council and Council for Leather Export as specified in paragraph 6.9(e) of Export and Import Policy, without payment of duty :...."
NOTIFICATION NO. 52/2003-CUS. dated 31.03.2003, as amended In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962) (hereinafter referred to as the said Customs Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts, -
(a) all goods as specified in the Annexure-I to this notification, when imported or procured from a Public Warehouse or a Private Warehouse appointed or licensed, as the case may be, under section 57 or section 58 of the said Customs Act or from international exhibition held in India for the purposes of -
(i) manufacture of articles for export or for being used in connection with the production or packaging or job work for export of goods or services by export-oriented undertaking (hereinafter referred to as the unit) other than those referred to in clauses (b), (c) and (e), or....
8
C/724/2012
& E/1174/2012
xxx xxx xxx xxx
"3. Notwithstanding anything contained in this notification, the exemption herewith shall also apply to goods which on importation into India or procurement, are used for the purpose of manufacture of finished goods or services and such finished goods and services, (including by- products, rejects, waste and scrap arising in the course of production, manufacture, processing or packaging of such goods) even if not exported, are allowed to be sold in Domestic Tariff Area in accordance with the Foreign Trade Policy and subject to such other limitations and conditions as may be specified in this behalf by Development Commissioner, or the Board of Approval or the inter Ministerial Standing Committee, as the case may be, on payment of appropriate duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944) or where such finished goods (including by-products, rejects, waste and scrap) or services are cleared to the warehouse appointed or registered under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 26/98 Central Excise (NT), dated the 15th July, 1998 or No. 46/2001 Central Excise (NT), dated the 26th June, 2001 or cleared to the holders of certificate from Apparel Export Promotion Council and Council for Leather Export for duty free imports as referred to in clause (e) of the paragraph 6.9 of the Foreign Trade Policy, without payment of duty..."
8.1 From plain reading of the aforesaid legal provisions, it transpires that clearance of goods to Domestic Tariff Area (DTA) by a 100% EOU, would require payment of an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside India if imported into India. From the facts of the case it is found that the final product - Carpets manufactured by the appellants are being cleared to DTA, and since the buyers are holders of SFIS scrip issued by the DGFT, the applicable duty is being paid by debiting the scrips, instead of being paid in cash, in terms of paragraph 3.6.4.10 of the Foreign Trade Policy (FTP), which state that "utilisation of Duty Credit Scrip shall be permitted for payment of excise duty in terms of DoR notification issued in this behalf, for procurement from domestic sources of items permitted under Para 3.6.4.5.". From combined reading of the legal provisions of the Central Excise Act, 1944 and the relevant notifications issued therein along with FTP, it is found that payment of duty by utilising SFIS scrips, by debiting the same for an amount equal to such duty, has been treated as fulfilment of the obligation of an assessee/ the appellants 100% EOU, for payment of applicable duty.
8.2. In this regard we find that the learned Commissioner in deciding the issue of dispute in de novo proceedings have given his findings as follows. The relevant paragraphs of the said order is reproduced below:
"15. Procurement of inputs duty free under Notification No.52/2003-CUS and Notification No. 22/2003-C.E. is not available if the end products are cleared 9 C/724/2012 & E/1174/2012 for DTA sale at Nil rate of duty. It is the basic principle of exemption that the benefit of exemption from duty is available only for the value addition at the last stage and no relief is available for tax is paid on inputs. In the case of exemption under value added tax system, input taxes be subsumed as part of cost and passed on to the ultimate consumers. This is because of brake in CENVAT credit chain. Export is zero-rated but exemption is not zero-rated. Notification No.34/2006-CE is an exemption notification issued under Section 5A of CEA and hence benefit of zero rating is not available. This is a conscious policy decision which is evident from the conditions specified in the two notifications. To provide input tax relief in the case of exemption to certain category of manufacturers line 100% EOU will create, and disadvantaged the similarly placed domestic manufacturers. Benefit of exemption under these two notifications is available only for goods exported and not for goods cleared for DTA sale at Nil rate of duty. Acceding to the claim of the appellant to allowed duty free procurement of goods under Notification No.52/2003-CUS and Notification No. 22/2003-C.E. would amount to zero-rating of clearances under Notification No. 34/2006-C.E. which is not legally permissible and contrary to the explicit provisions of the relevant Notifications. The claim of the appellant is not sustainable in view of the statutory provisions and the provisions concerning in the said notifications.
16. In view of the foregoing, I uphold the impugned Order-in-Original dated 31.08.2010 and reject the appeal filed by the appellant. The matter is disposed off as above in accordance with the direction of CESTAT West Zonal Bench vide Order No. S/340&341/2012/CSTB/C-I and A/163&164/2012/CSTB/C-I dated 13.03.2012."
8.3 We find that in the case of Voltamp Transformers Limited (supra.), the Tribunal had held that debits made in SFIS would not amount to exemption from payment of duty.
"6. It can be seen from the above reproduced ratio/finding of the Tribunal, that it is held that benefit of Notification No. 34/2006-C.E., dated 14-6-06 cannot be equated to exempted goods, by referring to judgment of Hon'ble High Court of Madras. We do not find any difference in the facts of this case and that case. We are of the considered view that the ratio laid down by the decision of Tribunal in the case of Universal Power Transformer Pvt. Ltd. (supra), will be squarely applicable in this case also."
8.4 We also find that in the case of Universal Power Transformer Private Limited (supra), the Tribunal have also held that debits made in SFIS would not amount to exemption would be payment of duty. The relevant paragraphs of the said order are given below:
"10. It is nobody's case that the functioning of SFIS certificate is different then the functioning of DEPB scheme. In DEPB scheme the exporters are issued DEPB which allow them specific amount to be utilized as customs duty, while the SFIS scheme, the service providers are issued SFIS certificate which allow them to import or procure indigenous goods without payment of duty by debiting the said script. This being the case, I find that the decision of the Hon'ble High Court of Madras having been affirmed by the Hon'ble Supreme Court, the ratio would clearly apply in this case also.
11. Accordingly, in view of the foregoing it is held that debits made in SFIS would not amount to exemption from payment of duty. I hold that the impugned order is liable to be set aside and I do so. The impugned order is set aside and the appeal is allowed with consequential relief, if any."10
C/724/2012 & E/1174/2012 8.5 We further find that in the case of Tanfac Industries Limited (supra), the Hon'ble High Court of Madras has held that the debit of scrips under the export promotion scheme is a mode of payment of duty. The said order of the Hon'ble High Court of Madras, was also upheld by the Hon'ble Supreme Court in Special Leave to Appeal (C) Nos. 24640 of 2009 vide judgement dated 20.04.2009. The relevant paragraph of the order of Hon'ble Court is extracted and given below:
"12. In fact, in that case, there were three bills of entries, only one of them was goods exported under DEEC Scheme and other two were under the DEPB Scheme. The difference drawn by the Supreme Court in the above judgments make it clear that under the DEEC Scheme, the clearance is allowed duty free, whereas under DEPB Scheme, the exporters are issued DEPB scrips which allows them specific amounts to be utilised for payment of Customs duty. Therefore, the importers, who use DEPB scrips, pay duty not by cash but only by way of credit. This is clear from the judgment of the Supreme Court extracted above. Therefore, the goods cleared under DEPB Scheme cannot be treated an exempted goods, but they can only be treated to be duty-paid goods and therefore, the interest is payable as per Section 61(2) of the Act. The debit of any amount under the DEPB Scheme is a mode of payment of duty on the imported goods and cannot be treated as exempted goods, unlike the goods under DEEC Scheme....."
9. In view of the foregoing discussions and analysis, and on the basis of the judgement of the Hon'ble Supreme Court, High Court and the decisions of the Tribunal as discussed above, we are of the considered view that the impugned order dated 30.04.2012 does not stand the scrutiny of law.
10. In the result, by setting aside the impugned order dated 30.04.2012, we allow the appeals filed by the appellants in their favour.
(Order pronounced in open court on 08.05.2025) (S.K. Mohanty) Member (Judicial) (M.M. Parthiban) Member (Technical) Sinha