Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of Central Excise vs Siv Industries Ltd. on 25 November, 1997
Equivalent citations: 1999(112)ELT251(TRI-CHENNAI)
ORDER
V.P. Gulati, Vice President
1. The issue in the appeal relates to the levy of duty on the finished goods which were earlier manufactured in the 100% Export Oriented Unit (EOU) of the respondents and which were cleared for domestic tariff area (DTA) on debonding of the unit. The compulsions under which the respondents had to come out of the 100% EOU Scheme and the permission granted and the conditions therefor are reproduced from the correspondence filed in the paper book as under :
(a) Extracts from the letter of the respondents dated 8-9-1993 addressed to the Secretary of Commerce (relevant portion reproduced below):
"Soon after the commencement of initial production, however, teething problems started resulting in a much higher than expected level of 'rejects' besides other machinery problems causing frequent breakdowns and also the end quality of the fibre produced which was not conforming to the rigid international standards. Immediately thereafter, the Company set-out in sincere resolve to tackle the problems by consulting/engaging experts in the field not only from India but from abroad also hoping to find practical solutions to the machinery limitations etc. Despite several floor level modifications carried out as per advice of the Consultants the gravity of the quality problems cum high percentage of rejects continued unabated, as may be seen from the production statistics enclosed for the period September, 1992 to August 1993 as per Annexure-I. As a result of above factors, we have now incurred heavy losses exceeding Rs. 805 lakhs arising out of heavy accumulation of reject inventories on the one hand and our inability to produce desired quality product for export purposes reflected at less than 15% over the past full year of production, thus posing extraordinary financial problems by way of blocking working capital, inventory carrying costs etc., seriously affecting our resources position i.e., liquidity.
In view of the abnormal predicament and circumstances described above and with our maximum efforts to bring the operations back to normalcy not bearing fruit, the Management is left with no other option but to approach your offices to seek debonding of the EOU operations for marketing into DTA, as the product manufactured still meets the domestic standards. Accordingly, it is prayed that the Ministry's considered recommendations granting debonding may be rushed for official clearance by the Board of Approval for necessary action. In arranging your recommendations to Board of Approval, we appeal to your good offices to consider waiver of all/any penalties in light of the foregoing factors beyond our control. On our part, we would like to assure that immediately after the approval is afforded, we shall comply with the prescribed procedures, arrange refund of duty amounts on C G imports and concessions availed under the EOU Scheme through the authorities concerned. Meanwhile, pending the formal debonding clearance through GOI, in view of the serious ways and means position arising out of huge build-up of inventories exceeding 2650 MT (approximate value Rs. 12 Crores), we request you as a very special case. Government may kindly allow us to sell above quantities to DTA after payment of eligible duties as this would provide the much needed relief to our liquidity problems."
(b) Extract from the letter of the Govt. of India, Ministry of Commerce, dated 18-10-1993 regarding debonding (relevant portion reproduced below):
I am directed to refer to your letter dated 18th October, 1993 on the above subject and to say that your request for debonding of your Unit was considered by the BOA for 100% EOUs in its meeting for 7-10-1993 and has been recommended for approval subject to normal conditions of debonding (Annexure). Formal letter would be issued by SI A in due course.
2. As requested by you, this letter is being issued to enable you to work out various modalities with the Customs Authorities and others for switchover from EOU to DTA and to enable you to obtain release/dispose off the stock/inventories on payment of applicable duties, as the material is fire hazardous, through the concerned authorities.
(c) Extracts from the letter of the Govt. of India Ministry of Industry, Department of Industrial Development Secretariat for Industrial approvals EOU section dated 3 Nov. 1993 (relevant portion reproduced below):
"I am directed to refer to your letter addressed to Ministry of Commerce (EP Section) on the above subject and to say that in the circumstances explained therein. Government of India agree, in principle, to allow you to withdraw from the 100% Export Oriented Scheme, for which Letter of Permission No. PER: 163 (91)/E.0.335 (91}-II (MRTP), dated 18-12-1991 was granted to you for the manufacture of viscose staple fibre for an annual capacity of 18,000 tonnes. The withdrawal from 100% EOU Scheme will be subject to the conditions mentioned in the Annexure (Attached).
2. After you have complied with the conditions mentioned in the Annexure, you may approach your Administrative Ministry for issue of final debonding letter."
2. The respondents thereafter approached the Central Excise authorities and they by their letter dated 8-11-1993 informed them among other things as under :
"In partial fulfilment of the conditions specified in the said letter of the Ministry of Commerce, you are required to pay the duties of Customs and Central Excise involved. You are informed that the assessment is done on a provisional basis. You may be required to execute a bond for an amount which will be intimated to you in due course".
The Central Excise authorities by their letter dated 15-11-1993 identified the goods on which duties had to be paid and also the basis for the same. In para 5, the following has been set out:
"You are informed that the assessment is done on a provisional basis and is subject to the observance of the conditions of debonding as listed in the annexure to the letter of the Ministry of Commerce No. 12/335/91-EP dated 18-10-1993."
The respondents thereafter while contesting the demand on the basis identified vide their letter dated 17-11-1993, they also sought a letter from the authorities that they had complied with the conditions as set out in the conditions, for debonding at SI. No. 1 & 5 (annexure already reproduced above) regarding payment of duty etc. The Assistant Collector concerned vide his letter dated 5-1-1994 informed them that permission granted for clearance was on provisional basis. The respondents after being allowed so as above, approached the Secretary Ministry of Textiles for final debonding order. The jurisdictional Assistant Collector also addressed a letter to the Under Secretary, Ministry of Commerce as to the arrangement for payment of duty by the respondents as mentioned above for further action for debonding. Taking note of the above, the Ministry of Textiles, vide their letter dated 2-2-1994 and other relevant factors permitted them to operate the unit under Domestic Tariff Area (DTA).
3. It is clear from the above that the unit was approved as 100% EOU in terms of the relevant Import and Export Policy as approved by the Board of Approvals constituted under the scheme. The Ministries of Industry, Commerce and Textiles were the concerned Ministries for the purpose of debonding of the Unit. The formal order for purpose of debonding was to be issued by the Ministry of Textiles after the conditions as stipulated in the conditions to the letter of the Ministry of Industry dated 3-11-1993 (at page 10 of the paper book - relevant portion reproduced above), were complied with. The payment of Customs duties on capital goods and "Other imported materials allowed importation under the EOU scheme and duties of Excise due on the finished goods as well as indigenously procured goods was one of the conditions stipulated for the purpose. The respondents paid the duties provisionally and once this was done, the debonding was permitted. The pre-payment of duties on the goods was a condition precedent for debonding and this payment at the relevant time was made on provisional basis.
4. The issue in the appeal is whether duty in respect of the goods which were cleared to the domestic tariff area after debonding is to be demanded in terms of the main provisions of Section 3 of the CEA 1944 or under the proviso to Section 3.
5. Shri V. Thyagaraj, the learned SDR for the department has pleaded that inasmuch as the goods were manufactured in the 100% EOU and the same were allowed clearance to the domestic tariff area in terms of the sanction accorded by the Government of India duty will be demandable in terms of the proviso to Section 3. He referred us to the Board's Circular CBEC F. No. 202/21/82/CX. 6, dated 17-2-1983. In terms of para 4, duty to be paid according to him would be under the proviso to Section 3. This para 4 is reproduced below for convenience of reference :
"4. In order to levy excise duty equal to the duties of customs leviable on the like goods imported from abroad, a proviso has already been inserted in Section 3 of the Central Excises and Salt Act, 1944 vide Section 46 of the Finance Act, 1982 (14 of 1982). In view of the provisions of this proviso, basic excise duty leviable on the goods produced outside the free trade zone in India at the rates set forth in the First Schedule to the Act, is not leviable on the goods produced in a free trade zone and cleared to the domestic tariff area. The basic excise duty leviable under Section 3 on the goods produced in a free trade zone and brought to any place outside the zone in India will be equal to the duties of customs (i.e. basic customs duty, auxiliary customs duty, cess, additional (Customs) duty and any other customs duty as and when imposed) leviable on like goods produced or manufactured outside India if imported into India. The valuation of such goods will also be done with reference to the valuation provisions under the Customs-law and not under Section 4 of the Central Excises and Salt Act, 1944."
He has pleaded that the procedure for clearance of the goods in this regard is also prescribed and he referred us to the Central Excise Law Guide and in terms of the procedure laid down in Appendix B para 3, the mechanism for payment of duty is prescribed for. He has pleaded that the sales to the domestic tariff area were subject to the prior permission of the Export Commissioner in the office of the CCI&E, New Delhi within the valuation limit prescribed for the quantum which could be allowed to be cleared to the domestic area. He has pleaded that in the present case prior permission was sought by the appellant for sale of the goods and in this connection he referred us to their letter addressed to the Secretary, Ministry of Textiles, Govt. of India, New Delhi, the administrative Ministry wherein, while seeking permission for debonding of the unit, from 100% EOU, they had sought this permission for the following :
"Soon after the commencement of trial production, however, teething problems started resulting in a much higher than expected level of 'rejects' besides other machinery problems causing frequent breakdowns and also the end quality of the fibre produced which was not conforming to the rigid international standards. Immediately thereafter, the Company set-out in sincere resolve to tackle the problems by consulting/engaging experts in the field not only from India but from abroad also hoping to find practical solutions to the machinery limitations etc. Despite several floor level modifications carried out as per advice of the Consultants the gravity of the quality problems cum high percentage of rejects continued unabated, as may be seen from the production statistics enclosed for '.he period September, 1992 to August 1993 as per Annexure-I. As a result of above factors, we have now incurred heavy losses exceeding Rs. 805 lakhs arising out of heavy accumulation of reject inventories on the one hand and our inability to produce desired quality product for export purposes reflected at less than 15% over the past full year of production, thus posing extraordinary financial problems by way of blocking working capital, inventory carrying costs etc., seriously affecting our resources position i.e., liquidity.
In view of the abnormal predicament and circumstances described above and with our maximum efforts to bring the operations back to normalcy not bearing fruit, the Management is left with no other option but to approach your good offices to seek debonding of the EOU operations for marketing into DTA, as the product manufactured still meets the domestic standards. Accordingly, it is prayed that the Ministry's considered recommendations granting debonding may be rushed for official clearance by the Board of Approval for necessary action. In arranging your recommendations to Board of Approval, we appeal to your good offices to consider waiver of all/any penalties in light of the foregoing factors beyond our control. On our part, we would like to assure that immediately after the approval is afforded, we shall comply with the prescribed procedures, arrange refund of duty amounts on C G imports and concessions availed under the EOU Scheme through the authorities concerned. Meanwhile, pending the formal debonding clearance through GOI, in view of the serious ways and means position arising out of huge build-up of inventories exceeding 2650 MT (approximate value Rs. 12 Crores), we request you as a very special case, Government may kindly allow us to sell above quantities to DTA after payment of eligible duties as this would provide the much needed relief to our liquidity problems.
He has pleaded that ultimately, the respondents were granted permission by the Government of India after their papers were processed by the different Ministries after consideration of their case by the Secretariat, Industrial Approver and therefore, in this background the proviso to Section 3 would become applicable and the duty was therefore payable accordingly.
6. Shri V. Sridharan, learned Counsel for the respondents took us through the background of establishment of the respondents' unit as EOU and the circumstances under which they had to withdraw from the scheme and debonding of the Unit. He has pleaded that the respondents' unit was established as 100% EOU on 18-12-1991 and had remained as EOU for one and half years. They however, on 8-8-1993 applied for debonding of the goods and permission for withdrawal from the scheme. He referred us to the letter dated 8-9-1993 addressed to the Secretary, Ministry of Textiles. He stated that the competent Ministry i.e. the Department of Industrial Development vide their letter dated 3-1-1993 in principle granted them permission to withdraw from 100% EOU subject to the conditions mentioned in the Annexure. The relevant portion of the Ministry's letter and the conditions attached thereto are reproduced below:
"I am directed to refer to your letter addressed to Ministry of Commerce (EP Section) on the above subject and to say that in the circumstances explained therein, Government of India agree, in principle, to allow you to withdraw from the 100% Export Oriented Scheme, for which Letter of Permission No. PER: 163 (91)/E.O. 335 (91)-II (MRTP), dated 18-12-1991 was granted to you for the manufacture of viscose staple fibre for an annual capacity of 18,000 tonnes. The withdrawal from 100% EOU Scheme will be subject to the conditions mentioned in the Annexure (Attached).
2. After you have complied with the conditions mentioned in the Annexure, you may approach your Administrative Ministry for issue of final debonding letter.
Annexure Standard conditions governing withdrawal from 100% EOU Scheme.
(1) The undertaking shall pay all customs and excise duties on the imported and indigenous capital goods, raw materials, components, consumables and spares in stock as well as on the finished goods in stock, together with all penalties and other charges as per Customs Act and Rules, before the issue of final debonding letter.
(2) The undertaking shall also deposit a penalty of 10% of the c.i.f. value of imported capital goods, towards non-fulfilment of export obligation, with the import licensing authority with whom it had executed a local undertaking in respect of the 100% Export Oriented Unit. This penalty shall be paid before the issue of final debonding letter.
(3) In case the undertaking has availed of the facility of external commercial borrowings, the same shall be disinvested before the issue of final debonding letter.
(4) The undertaking shall obtain a fresh approval under the current Industrial Licensing Policy to undertake the licenced activity under domestic tariff area scheme.
(5) The undertaking shall undertake an export obligation of 25% of the annual production for a period of 5 years or an amount equal to five times of the c.i.f. value of imports, whichever is higher. For this purpose it shall execute Legal Undertaking with the Import Licensing Authority concerned.
(6) The undertaking shall also make such payment(s) as may be necessary for all other major benefits that it might have availed of under 100% Export Oriented Scheme.
7. He has pleaded that the respondents ultimately paid duty on 15-11-1993 which date could be taken as the date of debonding. Regarding sale of the goods to the domestic tariff area he referred us to para 102 of the Import/Export Policy which provides for 25% of the production in value terms for sale to the domestic tariff area except for the goods which are excluded items. In this connection he also referred us to the provisions of Chapter 5A of Central Excise Rules, 1944 which provide for goods manufactured in the free trade area or from the 100% EOU for home consumption and referred us to the rules in this regard i.e. 100A and 100H and also the Customs Notification No. 13/81. The learned Counsel fairly conceded that the goods as were manufactured in the 100% EOU were excisable and were produced in the 100% EOU. He however contended that since the goods were cleared from the 100% EOU as a result of -^ debonding whether the same could be considered as goods sold in India in terms of para 102 of the Export/Import Policy for the purpose of levy of duty under proviso to Section 3. He has pleaded that the crucial wordings under the proviso to Section 3 for levy of duty are that the goods should be such as are 'allowed to be sold' in India. He has pleaded that a meaning has to be given to these words appearing in the charging section. He referred us to the provisions of the Finance Bill for the year 1982 and under which this proviso was introduced and pointed out that there was amendment later to cover the goods produced in Free trade centre and thereafter in 1984 in EOU. He referred us to the explanatory notes in para 61 which is reproduced below for convenience of reference:
61. Amendment of Section 3 :
It has been decided to permit manufacturers in the Santa Cruz Electronics Export Processing Zone and the Kandla Free Trade Zone to clear upto 25% of their production to the Domestic Tariff Area, on payment of Excise duty equal to all the Customs duties leviable on importation of the like goods abroad. A provision to implement this decision has been made in Section 3 of the Central Excises and Salt Act. Action to suitably amend the Central Excise Rules and the exemption notifications and to prescribe a procedure for collection of excise duty on goods produced in these Zones and permitted by the Administrator in charge of the Zone to be brought into the Domestic Tariff Area, is being taken. Further instruction may be awaited in this regard.
He also referred us to the Circular issued by the Board which the respondents already referred and which is reproduced above. His plea is that the expression allowed to be sold in India would mean only for the unit which continues to work under the EOU scheme. He has pleaded that on the withdrawal of the 100% EOU scheme, the condition of percentage of sale, licence required for clearance of the goods to the domestic tariff area would not be applicable and the question of permission being granted by the Development Commissioner also would not arise. He in this connection referred to the Finance Bill, 1984 clause 2, which is reproduced below for convenience of reference.
2. Amendment in Section 3 of the Central Excises and Salt Act, 1944 :
2.1 Vide the proviso to Sub-section (1) of Section 3 of the Central Excises and Salt Act, 1944, excise duty on excisable goods which are produced or manufactured in a free trade zone and brought to any other place in India is leviable at an amount equal to an aggregate of the duties of customs which are leviable under Section 12 of the Customs Act, 1962 on like goods produced or manufactured outside India if imported into India. The proviso also stipulates for determining the value of such goods, in the case of ad valorem duties, in accordance with the valuation provisions of imported goods under the Customs Act/Customs Tariff Act.
2.2 The aforesaid proviso has been amended by clause 45 of the Finance Bill, 1984 to extend similar provisions in respect of goods which may be allowed to be sold in India by the 100% Export Oriented Undertakings. It may be mentioned that this amendment in Section 3 ibid would come into force with the enactment of the Finance Bill, 1984. In the meanwhile further instructions, including necessary amendments in the Central Excise Rules, etc., in respect of goods allowed to be sold in India by the 100% Export Oriented Undertakings would follow.
He further referred us to the resolution of the Government of India, Ministry of Commerce providing for the EOU Scheme and the percentage of sale that would be permitted to the DTA, under clause (xxi) which is reproduced below for convenience of reference :
"The unit can supply only 25% of its production in the home market provided it is consistent with the import policy and subject to the licence and payment of import duties on the goods."
He has further pleaded that proviso to Section 3 was introduced only in March 1984. Under the import policy, 1985-88, sale by 100% EOU in the domestic tariff area has been provided for and he referred us to the Customs Notification No. 13/81 dated 9-2-1981 providing for duty free importation into India of the goods specified in the table to the Notification, which were required for the manufacture of the articles for export out of India or for being used in connection with the production or packing the goods for export out of India by 100% EOU subject to the approval by the Board of approvals for 100% EOU by Notification issued by the Govt. of India. This Notification is reproduced below for convenience of reference :
2.6.9 Hundred Percent Export Oriented Undertakings - Imports By. Notification No. 13-Cus., dated 9-2-1981 as amended by Notification No. 86-Cus., dated 19-3-1984 and Notification No. 121-Cus., dated 3-5-1984.
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 below (hereinafter referred to as the goods), when imported into India for the purpose of manufacture of articles for export out of India by hundred percent export oriented undertakings approved by the Board of Approval for Hundred Percent Export-Oriented Undertakings appointed by the Notification of the Government of India in the former Ministry of Industry and Civil-Supplies (Department of Industrial Development) No. S.O. 163 (E)/RLIU/10(2)76 dated the 3rd March, 1976, from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under Section 3 of the second mentioned Act, subject to the following conditions, namely :-
(1) the importer has been granted necessary licence for the import of the goods for the said purpose;
(2) the importer carries out the manufacturing operation in customs bond and subject to such other conditions as may be specified by the Assistant Collector of Customs in this behalf;
(3) the importer exports out of India hundred percent or such other percentage, as may be fixed by the said Board, of articles manufactured wholly or partly from the goods for the period stipulated by the Board or such extended period as may be specified by the said Board;
(4) on the clearance of five per cent of articles so manufactured or such other percentage as may be fixed by the said Board for being sold in India, the importer shall pay a sum equivalent to the duty payable, but for this exemption, on imported raw materials or components or both used in the manufacture of such articles which have not been exported being in the nature of rejects;
(5) on the expiry of the period referred to in condition (3), the importer shall pay the following duties namely:-
(a) customs duty on capital goods on depreciated value but at rates prevalent at the time of import; and
(b) customs duty on unused imported raw materials or components on the value at the time of import and at rates in force at the time of clearances.
(6) the importer executes a bond in such form and for such sum and with such authority as may be prescribed by the Assistant Collector of Customs binding himself to fulfil the export obligations and conditions stipulated in this notification and to pay, on demand, an amount equal to the duty leviable on the goods as are not proved to the satisfaction of the Assistant Collector of Customs to have been used in the manufacture of articles for export.
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SI. No. Description of goods
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(1) (2)
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1. Capital goods
2. Raw Materials
3. Components
4. Spares of production machinery.
5. Consumables required for manufacture of goods.
6. Material handling equipments namely fork-lifts and over-head cranes.
7. Sample/Prototypes, not exceeding two in number of each type of articles covered by the manufacturing activity.
8. Drawing, blue prints, technical maps and Charts, relating to the manufacturing activity.
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He also referred us to para 3 of this Notification which provides for the percentage of the goods to be exported within the stipulated period out of India by 100% EOU. Para 5 provides for payment of duty after stipulation regarding requirement of para 3 had been fulfilled. Elaborating on the scope of para 3 of the Notification, he pointed out that the Board concerned has the power to grant permission for the percentage of the goods to be exported out of India. Therefore, it also has the power to amend this percentage. He has pleaded that in the present case, the respondents did not ask for the amendment of the percentage of the goods that will be sold in the DTA and the permission was granted to withdraw from the EOU Scheme. He has pleaded that by ITC Public Notice 16 dated 18-6-1992, referring to the procedure for the sale in the DTA and the quantum allowed. The relevant portion of this public notice is reproduced below for convenience of reference :
Min. of Commerce ITC PN No. 16 ITC (PN)/92-97, dated 18-6-1992.
I. DTA sale entitlement up to 25% or 15% Paragraph 102 (b) of the Export and Import Policy and paragraphs 181 and 183 of the Handbook of Procedures (1992-97) provide for sale of goods in the DTA by EOUs and units in EPZs up to 25% or 15% as the case may be, of the value of their production. Such sales in the DTA will be governed by the following guidelines:
(a) The sale of goods in the DTA will be subject to the payment of the applicable duties as notified from time to time by the Department of Revenue, Ministry of Finance, Government of India.
(b) DTA sale entitlement will be applicable only to those goods that are approved for manufacture and export in the Letter of Permission/Letter of Intent. No DTA sale will be permissible if such sale is specifically prohibited in the Letter of Permission/Letter of Intent.
(c) Units may opt for DTA sales on a quarterly, half yearly or annual basis by intimation to the Development Commissioner of the EPZ concerned.
(d) Application for DTA sales should be submitted within one year of the period of entitlement. The Development Commissioner of the EPZ concerned, may, if he deems it fit, extend this period by six months.
(e) An application for DTA sale shall be accompanied by a statement indicating the ex-factory value of the goods produced (excluding rejects); ex-factory value of the goods actually exported, and the value of indigenous raw materials, components and consumables used in the manufacture of the exported goods. The statement shall be certified by an independent Cost/Chartered Accountant and endorsed by the Customs/Central Excise officer having jurisdiction over the unit. The Development Commissioner of the EPZ concerned will determine the extent of the DTA sale admissible and issue an authorization for removing a specified quantity of the goods to be sold in the DTA.
(f) If the goods sought to be sold in the DTA requires any quality control certificate under any Act/Rule/Regulation, the DTA sale will be allowed only after the production of such a certificate.
(g) DTA sale entitlement shall accrue only after the goods are exported during the relevant period as indicated under sub-para (c) above. However, this requirement may be waived in the case of such goods which, in the opinion of the Development Commissioner of the EPZ concerned, require trial production in order to produce goods of exportable quality.
(h) Advance DTA sale permission in respect of trial production shall not exceed 25% or 15% (as the case may be) of the ex-factory value of the production envisaged in the first year. Such advance DTA sale shall be adjusted against the subsequent entitlement for DTA sale. The unit shall be required to execute a bond with the Development Commissioner of the EPZ concerned to cover the difference between the amount of duties paid on the advance DTA sale and the full duties applicable on such goods.
(i) The maximum DTA sale entitlement of 25% or 15%, as the case may be, is permissible if the value addition achieved by the unit is not less than the value addition stipulated in the Letter of Permission/Letter of Intent. In case the unit fails to achieve the value addition stipulated in the Letter of Permission/Letter of Intent, the DTA sale entitlement will be determined as follows :
(i) If the value addition achieved is not less than 90% of the value addition stipulated in the Letter of Permission/Letter of Intent, the unit will receive the full DTA sale entitlement of 25% or 15%, as the case may be.
(ii) If the value addition achieved is less than 90% of the value addition stipulated in the Letter of Permission/Letter of Intent, the DTA sale entitlement will be determined according to the following formula :
Value addition percentage achieved 25% or 15% (As the case may be) Value addition percentage stipulated in the Letter of Permission/Letter of Intent The DTA sale in both the cases mentioned above will be permissible only if the value addition achieved is not less than the minimum level of value addition specified for the item in Appendix-II of the Export and Import Policy or where no such percentage is specified in the Appendix, the minimum value addition of 20% stipulated in paragraph 97 of the Export and Import Policy.
He has pleaded that the provisions of this Public Notice do not come in the way of debonding. His plea is that permission to debond is equivalent to permission to sell in India. He has pleaded that for permission to sell and to debond are two different authorities are concerned and for the goods which have allowed to be sold by the proper officer. Central Excise statutory rules provide the procedure to be followed. He referred us to Rules 100A and 100B which are reproduced below for convenience of reference :
"RULE 100A. Application. - (1) The provisions of this Chapter shall apply to a person permitted under any law for the time being in force to produce or manufacture excisable goods, -
(i) within a free trade zone, and who has been permitted by the proper officer to remove such excisable goods to any other place in India on payment of duty of excise leviable thereon; or
(ii) in a hundred per cent export-oriented undertaking, and who has been allowed by the proper officer to remove such excisable goods for being sold in India, on payment of duty of excise leviable thereon.
(2) Where there is a conflict between the provisions of this Chapter and the provisions contained in any other Chapter in relation to such excisable goods, the provisions of this Chapter shall prevail.
RULE 100B. Daily Stock Account. - Where a manufacturer is required to maintain accounts of raw material or component parts or finished excisable goods, as the case may be, under the provisions of the Customs Act, 1962 (52 of 1962) or rules, regulations, orders or notifications made or issued thereunder, then, notwithstanding anything contained elsewhere in these rules, such accounts shall be deemed to be the accounts maintained for the purposes of these rules :
Provided that the Collector may require a manufacturer to provide such additional information in the said accounts or maintain such additional accounts as he may deem necessary."
In this connection he referred to the judgment of the Hon'ble Supreme Court reported in 128 ITR page 294. His plea is that the computation provision of charging section form one integrated scheme and going by the criterion, the goods which are debonded cannot be considered as goods which were allowed to be sold. Making an alternative submission he has pleaded that if the Revenue's plea is to be accepted, the benefit of Notification No. 97/91 should be allowed to the respondents subject to the provision in the Export/Import policy. He has pleaded that the learned lower appellate authority has not examined the other aspect whether the additional duty of customs was leviable. In reply, the learned SDR has pleaded that the import policy incorporates within itself provision for debonding and referred us to para 11 of the Policy. He has pleaded that it specifically provides for debonding of the goods. This para is reproduced below :
Subject to the approval of BOA, EOU/EPZ units may be debonded on their inability to achieve export obligation value addition or other requirements. Such debonding shall be subject to such penalty as may be imposed and payment of duties of customs and excise applicable at the time of debonding.
He has pleaded that it is clearly set out therein that the payment of duties of customs and excise has to be made as applicable at the time of debonding. He has pleaded that in this background duty payable would be under the proviso to Section 3 of the Central Excise Act, 1944. He also referred us to the Board's instruction which are issued at the relevant time when the Scheme was introduced. He also referred to the Circular dated 4/83-CX dated 17-3-1983 and referred to para 10 which is reproduced below :
He has pleaded that it is clearly set out that goods which are cleared to the domestic tariff area have been equated to the imported goods for the purpose of excise levy and further in terms of para 4 reproduced below, the value of the goods has to be under Section 14.
"4. In order to levy excise duty equal to the duties of customs leviable on the like goods imported from abroad, a proviso has already been inserted in Section 3 of the Central Excises and Salt Act, 1944 vide Section 46 of the Finance Act, 1982 (14 of 1982). In view of the provisions of this proviso, basic excise duty leviable on the goods produced outside the free trade zone in India at the rates set forth in the First Schedule to the Act, is not leviable on the goods produced in a free trade zone and cleared to the domestic tariff area. The basic excise duty leviable under Section 3 on the goods produced in a free trade zone and brought to any place outside the zone in India will be equal to the duties of customs (i.e. basic customs duty, auxiliary customs duty, cess, additional (customs) duty and any other customs duty as and when imposed) leviable on like goods produced or manufactured outside India if imported into India. The valuation of such goods will also be done with reference to the valuation provisions under the Customs law and not under Section 4 of the Central Excises and Salt Act, 1944."
He has pleaded that the above clearly shows that customs duty applicable has to be paid under the proviso to Section 3(1) of the Central Excise Act. He has pleaded that the goods cleared to the domestic tariff area were only by the permission of the Ministry of Commerce and this permission should be equated with the permission of the Development Commissioner for sale of the goods as envisaged under Section 3 of the Central Excise Act, 1944.
8. We have considered the pleas made by both the sides. The issue that falls for consideration is the status of the goods which are manufactured by the 100% EOU for the purpose of levy of duty and which were cleared after the unit was permitted to go out of the 100% EOU scheme, for this purpose, we have to examine the scope of 100% EOU scheme including the permission for clearance of the goods to the DTA. The EOU scheme stands for Export Oriented Unit and this Scheme was introduced by resolution of the Govt. of India Ministry of Commerce. The purpose of the Scheme was to give fillip to the export to reduce the deficit in the foreign trade and to augment the exchange reserves. Certain specified value addition over the inputs which are to be used for the manufacture of the export goods was envisaged and the unit could import capital goods and the raw materials without payment of duty. The condition for operating under the EOU scheme are set out in para 7 of the resolution and the conditions set out in this para relevant for the purpose of the present proceedings are (i), (ii), (iv), (x), (xiv), (xvi), (xxi). These are reproduced below :
"7. A unit approved by the Board shall be governed broadly by the following terms and conditions :-
(i) The unit shall undertake to manufacture in bond and to export its entire production for a period of 10 years ordinarily and 5 years in the case of products having high degree of technological change. The customs authorities shall provide bond facilities to such units wherever located.
(ii) Import of capital goods, components, raw materials, spares, consumables, office equipments, material handling equipments, such as fork-lifts, overhead cranes including construction materials shall be exempt from import duty.
(iv) Import of capital goods, components, raw material and consumables, as required will be permitted.
(x) Rejects up to 5% or such percentage as may be fixed by the Board may be allowed to be
(xiv) On debonding after the period of export, duties shall be leviable as follows:
(a) customs duty on capital goods on the depreciated value but at rates prevalent at the time of import;
(b) Customs duty on unused imported raw materials and components value at the time of import and at rates in force at the time of clearances; and
(c) In respect of excisable goods, excise duty to be levied without depreciation and at rate attracted at the time of clearance.
(xvi) If any unit approved under this scheme is unable for any reasons, to fulfil its export or other obligations under this scheme, the Board will review the circumstances of that unit and recommend the future course of action to be taken in regard to that unit.
(xxi) The unit can supply upto 25% of its only (sic) in the home market provided it is consists with the import policy, and subject licences and payment of import duties of the goods.
As to the dutiability of the goods, the position was clarified by the CBEC Circular dated 29-5-1984. Paras 1,2,3,4, 5, 7,8 & 9 regarding sale of the goods and which are reproduced below :
"40.06. Dutiability of goods produced in 100% EOU when goods are cleared to DTA (Home Consumption). - (1) The Government have decided to allow 100% export-oriented undertakings, which have been approved by the Board of Approval sell their goods not exceeding 25% of their exportable production in the domestic tariff area on payment of appropriate duty of excise. In addition these undertakings can remove 5% or such other percentage of the goods, as may be fixed by the Board of Approvals, provided such goods are in the nature of rejects. In this regard attention is invited to amendments carried out by Section 45 of the Finance Act, 1984, to the provisions contained in Section 3 of the Central Excises and Salt Act, 1944. Such of the goods would be liable to pay duty of excise equal to the aggregate of duties of Customs on like goods imported from abroad.
(2) Chapter V-A of the Central Excise Rules, 1944, lays down the procedure for removal of excisable goods from a free trade zone for home consumption. It has been decided to prescribe the same procedure for removal of goods from a hundred per cent export-oriented undertaking. Accordingly, the provisions contained in Chapter V-A and also in various other rules have been suitably amended vide Notification No. 130-C.E., dated 26th May, 1984. Unlike the units in a free trade zone, an undertaking clearing excisable goods for home consumption would be required to take out a Central Excise Licence under Chapter VIII of the Rules. To achieve this end, Rule 100H has also been suitably amended vide Notification No. 131 / 84-C.E., dated the 26th May, 1984.
(3) The value of excisable goods removed from an undertaking would be in accordance with the provisions contained in the Customs Act, 1962, read with provisions contained in the Customs Tariff Act, 1975. Assessable value of the goods for purposes of Customs duty an auxiliary duty would be deter-mined under Rule 8 of the Customs Valuation Rules, 1963, as Section 14(1)(a) of the Customs Act, 1962 and other valuation rules will not apply to the goods produced in such undertakings and allowed to be sold in India. For purposes of additional (customs) duty, the valuation of goods will be governed by Section 3(2) of the Customs Tariff Act, 1975, while determining the assessable value of the goods under Rule 8 of the said Customs Valuation Rules, the following points would be taken into consideration :
(a) sale invoice price of the goods under assessment;
(b) sale price of other consignments of the identical/similar goods cleared from the undertaking or other undertakings to the domestic tariff area at some other time;
(c) export price of the identical/similar goods exported from the undertaking or other undertakings;
(d) nature of sale transaction, i.e., whether transaction is at arms length between two independent parties and the sale price is the sole consideration for the transaction, or the price is influenced by the relationship between the seller and the buyer or by some other considerations.
(4) Excise Duty to be levied on the goods produced or manufactured in an undertaking when allowed to be sold in the domestic tariff area is the basic excise duty leviable under Section 3 of the Central Excises and Salt Act, 1944, since such goods are to be charged the basic excise duty equal to the duties of customs leviable on like goods if imported from abroad and not the basic excise duty leviable on indigenous goods produced or manufactured in units other than the undertakings. All existing exemption notifications issued under Rule 8 (1) ibid have been made inapplicable to the excisable goods produced or manufactured in the undertakings when allowed to be sold in India vide Notification No. 124/84-C.E., dated the 26-5-1984. Similarly, Rule 8 (1) has also been amended vide Notification No. 130/84-Central Excises, dated the 26th May, 1984 and a proviso has been inserted making inapplicable all exemption notifications which will be issued under Section 5A(1) to excisable goods produced or manufactured in the undertaking when allowed to be sold in India.
(5) Under the provisions of Section 3 of the Central Excises and Salt Act, 1944, duties of excise leviable is the basic excise duty. However, by virtue of Section 52 of the Finance Act, 1984 and Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, special excise duty and additional duty is also leviable on the excisable goods. In addition Cess is also leviable on such excisable goods. However, by virtue of the proviso to the Section 3 of the said Central Excises and Salt Act, the basic excise duty leviable is equal to the aggregate of basic customs duty, additional (customs) duty and auxiliary duty. When working out additional (customs) duty, one has to add up the basic excise duty, additional excise duty and special excise duty and cess leviable on like goods imported from abroad. It is therefore seen that special excise duty, additional excise duty and cess would be payable once again on the said goods. In order to avoid double levy, excisable goods produced/manufactured in the undertakings and cleared to domestic tariff area have been exempted from Special Excise Duty and Additional Excise Duty vide Notification No. 126/84-Central Excises and 127/84-Central Excises, both dated 26th May, 1984. However, special excise duty and additional excise duty would be payable as part of the additional (customs) duty.
(7) Since goods produced or manufactured in the undertakings and allowed to be sold in domestic tariff area have been equated with the imported goods for the purpose of levy of duty of excise, such goods are entitled to only such benefits which are available to imported goods. Accordingly, Notification No. 128/84-Central Excises, dated 26th May, 1984 has been issued amending Notification No. 20/79-Central Excises, dated 4th June, 1979 and also vide Notification No. 130/84-Central Excises, dated the 26th May, 1984 various Central Excise rules have been amended.
(8) Notification No. 123/81-Central Excises, dated the 2nd June, 1981 as amended, grants exemption to capital goods, components and raw material when brought to the undertaking in connection with the articles to be manufactured therein, subject to the condition that the articles manufactured are meant for export and samples and only five per cent or such other fixed percentage of rejects are cleared for home consumption. This notification has been amended vide Notification No. 129/84-Central Excises, dated 26th May, 1984 to allow for articles upto twenty-five percent for being sold in domestic tariff area. Similarly Notification No. 13-Customs, dated 9-2-1981 has been amended by Notification No. 86/84-Customs, dated 19-3-1984 (communicated with this office Public Notice No. 15/84-Customs, dated 19-5-1984) to permit upto twenty-five per cent of the articles so produced or manufactured when sold in the domestic tariff area.
(9) Clearance to the domestic tariff area will be allowed only after necessary permission has been obtained by the undertaking from the Export Commissioner, Office of the Chief Controller of Imports and Exports. In applying for such permission to the Export Commissioner, it is necessary that the application should be certified by the Central Excise Officer, indicating the quantity of goods which have actually been produced or manufactured as on that date during the financial year. In addition to this, the purchaser of goods will obtain Release Order from the licensing authority (of the office of Chief Controller of Imports and Exports), on the basis of which actual clearances will be allowed by the Range Officer. The details of this are given in para 172 of the Imports and Exports Policy, Vol. 1 (1984-85), an extract of which is given in Appendix A."
The position as explained in Appendix A to the said Circular vide paras 1 & 2 which are reproduced below :
APPENDIX A Sale of goods by 100 per cent Export Oriented Units in the Domestic Tariff Area (1) Notwithstanding the provisions made in sub-para 171(5)(c) above, goods manufactured by approved 100% export oriented unit may be allowed to be sold in the domestic market against valid General Currency Area import licences. Such sales shall not exceed 25 per cent of production of the same item by the unit concerned during 1984-85. Within the 25% limit, sale into domestic market of the items allowed for import under OGL may also be allowed.
(2) The sale shall be effected only with the prior permission of the Export Commissioner in the office of the Chief Controller of Imports and Exports, New Delhi. The Unit desiring to sell its goods in the domestic market should approach the Export Commissioner. It should also indicate the quantity of the item sought to be supplied in the domestic market against valid import licence, or covered under OGL, and the total quantity of the same item produced by the unit, as on date, during 1984-85. The application should be certified by the officer of the Customs/Central Excise in-charge of the bonded area. The Export Commissioner will verify that the proposed sale does not exceed 25% of the actual production already turned out by the unit before allowing sale in the domestic market.
The position is further amplified in Appendix B. Regarding the procedure to be followed this is set out in para 2 which is reproduced below :
(2) The undertaking shall produce before the Range Officer the original copy of the Release Order issued by the licensing authority (of the office of Chief Controller of Imports and Exports) to the purchaser of goods as well as one photostat copy of the same, indicating the value/quantity of the goods to be removed. The Range Officer will enter the particulars of the Release Order in the register and retain the photostat copy of the Release Order, for his own record. He shall return the original copy of the Release Order to the undertaking. The undertaking shall present an assessment document in form ARIA (in triplicate) along with other documents such as invoice. The ARIA application shall be entered in the Clearance Register. Other particulars as required by the form shall be entered in the register and a running serial number assigned for all assessments and clearance during a financial year. The particulars of Release Order and date shall also be entered against the entry 'Authorization Permit No. and date' appearing in the AR 1A application form.
Regarding the quantum that could be sold, the position is set out in the import/export policy. For the sale to the DTA limits prescribed has been made subject to fulfilment of the money value addition of the export obligation. The learned Counsel for the respondents fairly conceded that in the event of the clearances made to the DTA upto 25%, the limit prescribed in the import/export policy and under the EOU scheme, the duty that could be chargeable would be under the proviso to Section 3 of the Central Excise Act, 1944. He has pleaded that the clearances were fully covered by the terms and conditions as set out in the import/export policy and under the EOU scheme read with Notification No. 13/81 issued for the purpose in terms of the EOU scheme and the clarification issued by the Board, for levy of duty. The stress of the learned Counsel is that in terms of the scheme only such of those goods will come within the purview of the proviso to Section 3 as are allowed to be cleared by the Development Commissioner incharge of the EOU functioning under the Ministry of Commerce and what was applicable to such clearances may not be made applicable to the goods when the EOU was permitted to withdraw from the EOU scheme. His plea is that provisions for withdrawal from the scheme is set out in the resolution under which the EOU scheme was notified. He has pleaded that clearance of the goods on permission being granted to withdraw from the scheme would merit different treatment for the purpose of excise levy and which according to him could be only under the main provision of Section 3 i.e. duty as would be leviable to any other goods which are produced outside the bonded unit in the country. The question therefore, that arises for consideration is whether the goods which were produced in the unit in the present case when it was functioning under the EOU could be differently treated for the purpose of clearance to the DTA than those cleared while functioning under this scheme and cleared within 25% of the goods the maximum limit prescribed for clearances to the DTA subject to the obligation being fulfilled as provided for in the scheme. There is nothing in the scheme to show that different goods of the same category produced under similar circumstances in the EOU scheme should be treated differently for the purpose of levy of duty when same are cleared after permission is granted for withdrawal from the EOU scheme. In the absence of any specific provision in this regard as to the status of the goods as are produced in the EOU, we observe that while the value of the-goods is under the Customs Act, various excise Notifications having been made inapplicable to these goods, as seen from the circular referred to supra in para 8, the quantum of duty to be charged as per the circular is equal to the duties as are leviable on like goods being imported from abroad and not the basic excise duty and further additional customs duty and auxiliary duty are also chargeable. Valuation of the goods is to be in terms of Section 14(1)(a) read with Rule 8 of the valuation rules framed under the Customs Act. What emerges from the above is that the goods manufactured in the EOU are being treated as if the same are imported into India. The goods it is seen are manufactured out of the raw materials which are brought in duty free by use of the machinery, capital goods which are also allowed duty free. The special provision therefore for charging of duty is to take care of the advantage that accrues in respect of the goods which are manufactured in the EOU and which was sought to be manufactured by charging duty as above in terms of Section 3 of the Central Excise Act, 1944. The question that is to be considered is if that method of duty is acceptable and is not disputed in respect of 25% of the goods which have been allowed to be sold in terms of the Scheme in the DTA why the same logic will not apply for levy of duty in respect of the goods which were similarly produced in the EOU and were cleared for the purpose of home market i.e. the DTA on withdrawal of the unit from the EOU. There is nothing in the Scheme or in the instructions to show that any other consideration would apply in this regard. The respondents have sought to infer from the wording used in the Import/Export policy that in case the unit is functioning under the EOU and has fulfilled the requirement of export obligation, under those conditions and from it are cleared to the DTA 25% of the goods on being allowed to do so, by the Development Commissioner then only duty in the manner prescribed under proviso to Section 3 would be chargeable. It is observed that when duty is sought to be charged from the assessees complying with the requirements of export obligation there is no reason why the same duty could not be charged when export obligation as such is not fulfilled and on account of certain circumstances, the assessee not able to comply with the requirement of export obligation. If respondent's plea is accepted, then the unit which does not meet the export obligation, it will have the benefit in the matter of payment of duty in case the same rate of duty is not asked to be paid. There is no reason why the advantage should accrue to the assessee in the matter of levy of duty in respect of the goods which were manufactured in the EOU when it was permitted to come out of the EOU without meeting the export obligation under the EOU scheme. The status of the goods as mentioned earlier was fixed as if the same were imported and therefore, duty to be charged has to be equal to the duty that would have been chargeable under the Customs Act. Since the goods have been manufactured on the Indian soil, the provision for charging duty has been made under Section 3 of the Central Excise Act, 1944. As it is for normal operation of the scheme the upper limit of 25% for clearance to the DTA has been provided. However, as seen from the Customs Notification No. 13/81 as amended from time to time in terms of para 3, the Board of Approvals that approves 100% EOU has been given the power to fix the percentage of the production of the goods as may be required to be exported. This para 3 is reproduced below for convenience of reference :
"the importer exports out of India hundred percent or such other percentage, as may be fixed by the said Board, of articles manufactured wholly or partly from the goods for the period stipulated by the Board or such extended period as may be specified by the said Board."
Permission to come out of the EOU to clear the goods as are manufactured in the said unit during the period when it was functioning under the scheme can be taken to have been given for sale of the goods in the DTA. In fact while giving this permission it has been clearly mentioned that the duty shall be payable as provided for in respect of the goods in question. This permission can be taken to be sufficient to cover the production of the goods within the ambit of permission to sell the goods to the DTA as mentioned in the proviso to Section 3. The respondents have stressed that the permission to sell the goods in the DTA can be only be taken to be applicable to such of those goods as were allowed to be cleared by the Development Commissioner. We observe that the Development Commissioner only performs the functions of verifying the percentage of the goods for the purpose of clearance of the goods to the DTA and the requirement of value addition for export. As it is he had no authority to fix any percentage of the goods that can be cleared for sale to the DTA. He was only verifying that for the purpose of clearance to the DTA whether the assessee had complied with the export obligation as well as the value addition and to ensure that the goods are verified for clearance to the DTA in terms of the EOU scheme. The permission to clear the-goods to the DTA is provided for in the scheme itself and the question of the Development Commissioner allowing the goods to be cleared does not clothe him with any power other than that of verification for compliance with the requirement of the scheme. He performs the functions like those performed by the appraiser or the AC of the Customs where the goods are allowed to be cleared after verification that the requirement of law have been complied with. The goods cleared to the DTA did not acquire a different hue for reason of the same having been allowed to be taken out of the EOU, after verification regarding fulfilment of the requirements of the scheme. The power to permit clearance of the goods is with the Ministry of Commerce, Government of India who fixed the percentage and which percentage can be varied by them. In the above view of the matter, we hold that the case law cited by the respondents is distinguish-able and plea of the respondents that duty should be paid under the provision to Section 3 of the Central Excise Act, 1944 is not sustainable. We, therefore, allow the plea of the department for levy of duty in terms of the proviso to Section 3 of the Central Excise Act, 1944.
9. However, the learned Counsel for the respondents made an alternative plea that their contention for benefit of Notification No. 97/91 should be considered and also for valuation aspect and the levy of additional customs duty would also required to be considered. We observe that the learned lower appellate authority has not examined these pleas of the assessee when he allowed the appeal of the respondents. This in our view was also required to be considered and for this limited purpose, we remand the matter to the lower appellate authority for de novo consideration. The appeal of the Revenue is therefore allowed in the above terms.