Gujarat High Court
Vazir Polymers Ltd. vs Union Of India (Uoi) on 6 February, 2004
Equivalent citations: (2004)2GLR1338
Author: M.S. Shah
Bench: M.S. Shah, A.M. Kapadia
JUDGMENT M.S. Shah, J.
1. In this petition under Article 226 of the Constitution, the petitioners have challenged the judgment and order dated 28.10.2003/12.11.2003 (Annexure "I") of the Customs, Excise & Service Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") dismissing the petitioners' appeal and confirming the order dated 21.4.2003 (Annexure "G") of the Commissioner of Customs, Kandla and holding that the additional duty of customs is payable by the petitioner-unit.
2. Petitioner No.1 is a unit in Kandla Special Economic Zone. The petitioner-unit manufactures regenerated polymers out of scrap or waste of goods falling within various Chapters including Chapter 39 of the Central Excise Tariff. Ordinarily, the units permitted to be set up in Kandla Special Economic Zone like the other Special Economic Zones in the country are to import raw materials without payment of customs duty, then manufacture finished products out of the raw material and export them out of the country. Under such scheme, such units are given special incentives and concessions so that they do not have to pay any import duty or excise duty and would, therefore, be in a position to compete with the manufacturers in other countries for exporting goods. However, when such units are not in a position to export the goods manufactured by them within the special economic zone from out of the raw materials imported without payment of customs duty, such units are required to take permission of the Development Commissioner of the Special Economic Zone for sale of their finished products in Domestic Tariff Area (DTA) and such DTA sales are to be made on payment of customs duties and excise duties in accordance with the provisions of law.
3. Section 3 of the Central Excise Act, 1944 (hereinafter referred to as "the Act") provides for levy and collection of duties of excise on goods produced or manufactured in India. The proviso to sub-section (1) of Section 3 of the Act stipulates that duties of excise on any excisable goods produced or manufactured in a Free Trade Done or a Special Economic Zone and brought to any other place in India shall be an amount equal to the aggregate of the duties of customs which could be leviable under the Customs Act, 1962 or any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. Accordingly, when the petitioner-unit sold the goods manufactured by it from imported raw materials in the DTA, the petitioner was required to pay excise duty as per the rates of basic customs duty leviable under the Customs Act for the like goods imported into India and also the Additional Customs Duty (CVD - Countervailing Duty) under the Customs Tariff Act, 1975 leviable on like goods imported into India. Such Additional Customs Duty is leviable at the rates applicable on like goods produced in India. The Additional Customs Duty is leviable under Section 3 of the Customs Tariff Act, 1975.
4. The Central Government issued notifications No.5/98, 5/99 and 6/2000 granting exemption to plastic materials reprocessed in India out of scrap or waste of goods falling within certain Chapters including Chapter 39 of the Tariff. Under the said notifications, nil rate of duty was prescribed for such reprocessed and regenerated plastics of polymers.The Customs authorities at Kandla, however, did not grant the petitioners the benefit of such exemption by relying on Circular No.38/2000 dated 10.5.2000 that the benefit of the said notifications was not available to plastic materials reprocessed in a Special Economic Zone, a Free Trade Zone or a 100% EOU and brought to any other place in India.
5. The petitioner-unit and other such units filed writ petitions before this Court. After hearing the learned standing counsel for the Union of India, this Court held in the decision dated 6.7.2000 in Lucky Star International vs. Union of India and other cases, 2001 (134) ELT 26 that the exemption under the above notifications was available to such goods produced or manufactured within the territory of India and that the Kandla Special Economic Zone or the Kandla Free Trade Zone were all situate within the territorial limits of India and, therefore, the benefit of exemption cannot be denied to the units manufacturing goods in Kandla Special Economic Zone or Kandla Free Trade Zone. Although the provisions of Section 5A of the Central Excise Act, 1944 were pressed into service on behalf of the Union of India, the Court did not deal with the contention based on the said provisions, but relied on the decisions of the Apex Court in Hyderabad Industries Ltd. vs. Union of India, 1999 (108) ELT 321 and in Thermax Pvt. Ltd. vs. Collector of Customs, 1992 (61) ELT 352 = 1992 (4) SCC 440 laying down that import duty will be equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and, therefore, we have to forget that the goods are imported, imagine that the importer had manufactured the goods in India and determine the amount of excise duty that he would have been called upon to pay in that event; Section 3 of the Customs Tariff Act has been enacted to provide for a level playing field to the present or future manufacturers of the like articles in India.
This Court struck down circular No.38/2000 dated 10.5.2000 whereby the Central Board of Excise and Customs had informed the traders that the above exemptions were not available to plastic materials manufactured and cleared from Free Trade Zone units, Export Processing Zone units and 100 Export Oriented Units.
6. Thereafter, the Central Government issued another notification No.3/2001 dated 1.3.2001 wherein item No.73 granted similar exemption from excise duties to regenerated and reprocessed plastic materials produced out of scrap and wastes. On the basis of the said notification, the petitioners and other similarly situated manufacturers claimed exemption from payment of amount to be calculated at the rates of additional custom duty on the ground that similar goods manufactured in India were fully exempt under notification No.3/2001. On 10.10.2001, the Central Government issued notification No.48/2001 inserting an explanation in the above notification dated 1.3.2001 clarifying that nothing contained in the exemption shall apply to plastic materials reprocessed in a Free Trade Zone and Special Economic Zone or a 100% Export Oriented Undertaking and brought to any other place in India. In view of the said notification No.48/2001 dated 10.10.2001, the Customs authorities denied exemption to the petitioners and other like units from payment of additional customs duty.
7. The petitioners and other like units again filed petitions before this Court which were admitted in December, 2001, but ultimately disposed of by order dated 20.2.2003 recording that the petitioners would make a representation to the Commissioner of Customs, Kandla who would consider the representation and take a decision in accordance with law after hearing the petitioners. The petitioners and other like units made such representation before the Commissioner of Customs, Kandla.
By order dated 21.4.2003, the Commissioner of Customs held that that petitioner-unit and other like units were liable to pay additional duty equivalent to excise duty on the clearances of reprocessed plastic agglomerates/granules, because notification No.3/2001 was not applicable to clearances made from Special Economic Zone units by virtue of the amendment made by notification No.48/2001.
The petitioners, therefore, challenged the said decision by filing an appeal before the Tribunal. By the impugned judgment, the Tribunal has dismissed the appeal and held that by virtue of notification No.48/2001 dated 10.10.2001, the petitioners are not entitled to get any exemption from payment of excise duty on the goods in question. Hence, this petition.
8. Mr Paresh M Dave, learned counsel for the petitioners has vehemently submitted that this Court having already decided the issue in Lucky Star International vs. Union of India, 2001 (134) ELT 26 that the Kandla Free Trade Zone/Export Processing Zones are parts of India and, therefore, the goods manufactured by the units in such zones have to be treated on par with the goods manufactured in India as if the goods had been manufactured in India, it is not open to the respondent authorities to take a view contrary to the decision of this Court.
The learned counsel has submitted that notwithstanding the notification No.48/2001, the petitioners are entitled to succeed, by virtue of plain language of Section 3 of the Customs Tariff Act, 1965 because the said provisions lay down that any article which is imported into India shall, in addition, be liable to a duty equal to the excise duty for the time being leviable on a like article, if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable, shall be calculated at that percentage of the value of the imported article. It is, therefore, submitted that in view of the principles laid down by the Apex Court in Thermax Pvt. Ltd. vs. Collector of Customs, 1992 (61) ELT 352 and in Hyderabad Industries Ltd. vs. Union of India, 1999 (108) ELT 321, it has to be imagined that the articles manufactured in such Special Economic Zones had been manufactured or produced in India and then to see what amount of excise duty was leviable thereon because Section 3 of the Customs Tariff Act has been enacted to provide for a level playing filed to the present or future manufacturers of the like articles in India; otherwise levying of such duty on the manufacturers of the goods in Special Economic Zones/Free Trade Zones and granting exemption to the like units would be discriminatory.
9. Before dealing with the submissions of the learned counsel, it is necessary to refer to the relevant statutory provisions. Sections 3 and 5A of the Central Excise Act, 1944 and Section 3 of the Customs Tariff Act, 1976, in so far as the same are relevant, are reproduced hereinbelow :-
Section 3 of the Central Excise Act, 1944 Sec.3 - Duties specified in First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied - (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 excluding goods produced or manufactured in special economic zones which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods excluding goods produced or manufactured in special economic zones specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule.
Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured,-
(i) in a free trade zone or a special economic zone and brought to any other place in India; or
(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 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).
Section 3 of the Customs Tariff Act, 1975 Sec.3 - Levy of additional duty equal to excise duty.- (1) Any article which is imported into India shall, in addition, be liable to a duty (hereafter in this section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.
Provided that ... ... ... ...
Explanation.- In this section, the expression "the excise duty for the time leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India, or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty.
... ... ... ... ...
Section 5A of the Central Excise Act, 1944 was inserted by the Customs & Central Excises Laws (Amendment) Act, 1988 with effect from 1.7.1988.
Sec.5A - Power to grant exemption from duty of excise.- If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette exempt generally either absolutely or subject to such conditions (to be fulfilled before or after removal) as may be specified in the notification, excisable goods of any specified description from the whole or any of the duty of excise leviable thereon :
Provided that, unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured -
(i) in a free trade zone or a special economic zone and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and brought to any place in India.
Explanation.- ... ... ... ...
(2) ... ... ... ... ...
(2A) The Central Government may, if it considers it necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification in the Official Gazette at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be.
10. Notification No.3/2001 dated 1.3.2001 was issued by the Central Government in exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 exempting excisable goods of the description specified in the Table -
(a) from so much of the duty of excise specified thereon under the First Schedule to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table; and
(b) from so much of the Special duty of excise leviable thereon under the Second Schedule to the Central Excise Tariff Act, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (5) of the said Table, TABLE
-------------------------------------------------------
S.No. Chapter Description of Rate Rate Condi-
or head- goods under under tion No.
ing No. the the
or sub- First Second
heading Sche- Sche-
No. dule dule
------------------------------------------------------
(1) (2) (3) (4) (5) (6)
------------------------------------------------------
73. 39.01 to Plastic materials Nil -- --
39.14 reprocessed in
India out of the
scrap or the
waste of goods
falling within
Chapters 39, 54,
55, 56, 59, 64,
84, 85, 86, 87,
90, 91, 92, 93,
94, 95 and 96.
------------------------------------------------------
Notification No.48/2001-CE dated 10th October 2001 has thereafter been issued by the Central Government in exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1955 making the following further amendment in the notification No.3/2001-Central Excise, dated the 1st March, 2001 namely :-
In the said notification, in the Table, against S.No. 73, in the entry in column (3), the following Explanation shall be added at the end, namely :-
"Explanation.- For the removal of doubts it is hereby clarified that nothing contained in this exemption shall apply to plastic materials reprocessed in a free trade zone, a special economic zone or a hundred per cent export-oriented undertaking and brought to any other place in India."
11. The submission of the learned counsel for the petitioners that the goods manufactured by the units in Special Economic Zones/Free Trade Zones have to be treated like goods manufactured for all purposes like the goods manufactured in other parts of India, cannot be accepted.
The fiction contained in Section 3 of the Customs Tariff Act, 1975 relied upon by the petitioners is for the limited purpose of considering the levy of excise duty and the rates thereof on the goods manufactured in India. As per the settled legal position, when the statute provides for levy of tax and under the power conferred on the Government if any exemption notification is issued, the exemption does not obliterate the levy of tax. The exemption merely means that the person who is otherwise liable to pay tax under the charging Section is not required to pay the tax. In Collector of Central Excise vs. Vazir Sultan Tobacco Co., 1996(3) SCC 434 (pg. 441 para 13), the Apex Court held that where the goods are excisable, an exemption notification stipulating nil rate of duty for such goods does not make them non-excisable. Nil rate of duty is also a rate of duty. In the said decision, the Apex Court also approved the decisions of the Karnataka and Madras High Courts that excisable goods do not become non-exisable goods merely by reason of the exemption given under a notification. Vazir Sultan's case has also been followed in CCE vs. Polyset Corpn., (2000) 10 SCC 241.
All that the notification No.3/2001 read with notification No.48/2001 does is merely to grant exemption to such goods manufactured in any other part of India i.e. in any of part of India other than the Free Trade Zones/Special Economic Zones. The said notifications do not obliterate the levy. Hence, in view of the admitted fact that similar goods manufactured or produced in the other parts of India (i.e. any part of India other than in India excluding a Free Trade Zone and Special Economic Zone) are liable to levy of excise duty (presently at the rate of 16% ad valorem on the value of the goods), the goods manufactured by the petitioners within the Kandla Special Economic Zone/Free Trade Zone are also liable to levy of excise duty at the same rate. But for the exemption notification No.3/2001 read with notification No.48/2001, all such goods manufactured in any part of India would be required to pay excise duty at the specified rate. It is only because of exemption notification No.3/2001 that such goods manufactured in India (other than in any special economic zone/free trade zone) are not required to pay excise duty. There being no such notification in favour of such goods manufactured within the special economic zones or free trade zones, the petitioners do not get any exemption from payment of excise duty.
12. Moreover the fiction contained in Section 3 of the Customs Tariff Act, 1975 stands expressly curtailed by the proviso to sub-section (1) of Section 5A of the Central Excise Act, 1944 which was inserted with effect from 1.7.1988.Section 5A provides that unless specifically mentioned in any notification, no exemption granted under the Central Excise Act shall apply to the excisable goods which are produced or manufactured in a free trade zone or a special economic zone and brought to any other place in India. In view of such emphatic language of Section 5A, there can be no room for doubt that the goods manufactured in a Special Economic Zone and then brought in other parts of India will not automatically get the exemption granted in favour of the local goods.
13. As regards the decision of this Court in Lucky Star International (Supra), when that case was decided on 6th July 2000, the exemption notifications providing for additional rate of duty were in respect of such goods manufactured in India without any exclusion of the free trade zones or special economic zones. This Court held that since the exemption notification was available to all goods manufactured in India and the free trade zones and special economic zones were parts of the territories of India, the exemption was available even to the units situate in special economic zones/free trade zones. However, a similar exemption through notification No.3/2001 has subsequently been qualified by notification No.48/2001 dated 10.10.2001 and the Government has removed all doubts by specifically excluding the goods manufactured in free trade zones and special economic zones from the benefit of the said exemption granted by notification No.3/2001 and, therefore, the benefit of the decision of this Court in Lucky Star International would no longer be available to the petitioners and like units. In Lucky Star (Supra), the respondents did invoke Section 5A of the Central Excise Act, but the Court did not deal with the said submission.
14. At this stage, we may also refer to the decision of the Calcutta High Court in Sukhi India Pvt. Ltd. vs. Union of India, 2003 (156) ELT 35 wherein the same notification i.e. notification No.48/2001 dated 10.10.2001 was challenged as violative of Article 14 of the Constitution. The Calcutta High Court negatived the said challenge and made the following observations :-
"There is no dispute that the petitioner No.1 having a unit in free trade zone gets some benefits as it appears from the terms of agreement. A unit which is manufacturing similar type of material in non-free trade zone cannot be equated with the unit belonging to the petitioners. Some special privileges are given to the petitioners by virtue of the agreement with the Union of India. If the Union of India decides not to extend the privileges which are granted in favour of units situated in non-free trade zone to those having seats in free trade sone, such action cannot be said to be unreasonable. The petitioners cannot contend that they will get not only the benefit conferred upon them by virtue of being a unit in free trade zone but should also be given some additional benefit which are conferred upon other units established in non-free trade zone. Those units are not getting the special benefit of importation which the petitioners enjoy. The clarification mentioned in the impugned notification, at the same time in no way, violates any of the provisions of the other situates. It is rightly pointed out by Mr Banerjee that Section 5A of the Central Excise Act specifically provides that unless specifically mentioned in any notification no exemption should apply to excisable goods which are produced or manufactured in a free trade zone and brought to any other place in India. Articles manufactured in a free trade zone cannot be classified in the same category with those produced and manufactured in a non-free trade zone."
15. We may also further note that the decisions of the Apex Court in Hyderabad Industries Ltd. (Supra), Thermax Ltd. (Supra), and in Motiram Tolaram, 1999 (112) ELT 749 = AIR 1999 SC 3121 do not apply to the petitioners in the facts of the present case because in those cases, the Apex court was dealing with the imports made prior to the year 1988. The Court dealt with those imports on the basis of the Explanation to Section 3 of the Customs Tariff Act, 1975, but had no occasion to consider the provisions of Section 5A of the Central Excise Act, 1944 because Section 5A was inserted with effect from 1.7.1988.
Hence, the principles laid down in the above cases do not apply to imports made in the instant case.
16. In view of the above discussion, the Tribunal was right in dismissing the appeal and in holding that the petitioner-unit was obliged to pay any additional customs duty under Section 3 of the Customs Tariff Act, 1975 on reprocessed plastic materials notwithstanding that similar goods manufactured in India were exempt or were chargeable to nil rate of duty. We, therefore, do not find any merit in this petition and the petition is accordingly summarily rejected.