M/S. Siv
Industries Ltd. Vs. Commissioner of Central Excise & Customs [2000] INSC
123 (10 March 2000)
D.P.Wadhwa,
Ruma Pal
D.P.
WADHWA, J.
This
appeal is directed against the order dated November 5, 1997 of the Customs,
Excise and Gold (Control) Appellate Tribunal (for short the 'Tribunal')
allowing the appeal of the respondent and directing that duty of Central Excise
was payable under Section 3(1) of the Central Excise and Salt Act, 1944 (for
short the 'Act') and not under proviso to Section 3(1) of the Act as claimed by
the appellant. Section 3(1) of the Act with proviso, in relevant part, is as
under: - "Section 3. Duties specified in the 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 duties of excise on all excisable goods other
than salt which are produced or manufactured in India and a duty on salt
manufactured in, or imported by land into, any part of India as, and at the
rates, set forth in the Schedule to the Central Excise Tariff Act, 1985:
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 and
brought to any other place in India; or (ii) by a hundred per cent export
oriented undertaking and allowed to be sold in India, shall be an amount equal
to the aggregate of the duties of customs which would be leviable under section
12 of the Customs Act, 1962 (52 of 1962), 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 Customs Act, 1962 (52
of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
Explanation
1. Where in respect of any such like goods, any duty of customs leviable under
the said section 12 is leviable at different rates, then, such duty shall, for
the purposes of this proviso, be deemed to be leviable under the said section
12 at the highest of those rates.
Explanation
2 In this proviso, - (i) "free trade zone" means the Kandla Free
Trade Zone and the Santa Cruz Electronics Export Processing Zone and includes
any other free trade zone which the Central Government may, by notification in
this Official Gazette, specify in this behalf;
(ii)
"hundred per cent export-oriented undertaking" means an undertaking
which has been approved as a hundred per cent export- oriented undertaking by
the Board appointed in this behalf by the Central Government in exercise of the
powers conferred by section 14 of the Industries (Development and Regulation)
Act, 1951 (65 of 1951), and the rules made under that Act." Under the
relevant import policy the 100% Export Oriented Unit Scheme (EOU) envisages an
industrial unit offering for export its entire production, excluding rejects or
items otherwise specifically permitted to be supplied to the Domestic Tariff Area.
Industrial units approved by the Board of Approvals (BOA) set up for this
purpose alone are eligible for import of capital goods, raw materials,
components and spares, etc. required by them for export production under the
Scheme. Based on the approval granted by the Board of Approvals a 100% EOU is
eligible to import, without payment of customs duty, capital goods, office
equipment, proto-types and technical samples, generating sets, raw materials,
components consumables, intermediates, packing materials, material handling
equipment like fork lifts, overhead cranes and spares under Open General Licence
subject to certain conditions. Applications for approval as 100% Export
Oriented Unit are to be submitted to the Secretariat for Industrial Approvals,
Ministry of Industry.
Such
EOU under no circumstances can be allowed to dispose of the export product in
the domestic market unless specifically allowed by the Government. Appellant
was granted permission to set up a 100% Export Oriented Unit (EOU) for the manufacture
of viscose staple fibre at its factory at Sirumugal in Coimbatore District in
the State of Tamil Nadu. The Letter of Intent dated December 19, 1991 was issued to the appellant for the
purpose by the Secretariat for Industrial Approvals (SIA), Ministry of
Industry, Government of India. On September 8, 1993 appellant made an
application to the Secretary, Ministry of Commerce, Government of India and
sought debonding of its unit from 100% EOU, i.e., withdrawal from 100% EOU
Scheme.
By
letter dated October
18, 1993 of the
Ministry of Commerce it was agreed in principle to allow the appellant to
withdraw from the 100% EOU Scheme subject to the conditions on which withdrawal
was permitted and as mentioned in annexure to the letter. Once the debonding of
the unit is permitted, finished goods earlier manufactured in the 100% EOU
could be cleared for Domestic Tariff Area (DTA) on levy of duty of Central
Excise. The dispute is at what rate this duty is to be levied. As noted above,
it is the contention of the appellant that excise duty is payable on the
finished goods under main Section 3(1) of the Act together with customs duty on
the imported raw material used in the manufacture of said finished goods lying
in the stock. The Revenue on the other hand contends that excise duty under
proviso to Section 3(1) of the Act is payable on the finished goods and with no
customs duty being levied on the raw materials gone into the manufacture of
finished goods.
It is
the expression "allowed to be sold in India" appearing in proviso to Section 3(1) of the Act which in fact is
the bone of contention between the parties. Appellant contends that for the
application of proviso to Section 3(1) two conditions have to be cumulatively
and simultaneously satisfied, viz., (1) goods should have been produced or
manufactured by an existing 100% EOU and (2) these goods should have been
allowed to be sold in India. It is not necessary for us to state the grounds on
which appellant sought debonding of its 100% EOU. By letter No.
12/335/91-EP
dated October, 1993 from the Government of India in the Ministry of Commerce,
appellant was told that its request for debonding of the unit was considered by
the Board of Approvals (BOA) for 100% EOUs in its meeting and had been
recommended for approval subject to normal conditions of debonding. It was
stated that formal letter would be issued by SIA in due course. It was also
pointed out that the letter was being issued to enable the appellant to work
out various modalities with the Customs Authorities and start for switching
over from 100% EOU to DTA and to enable it to obtain release/dispose of the
stocks/ inventories on payment of applicable duties. By letter No.
E.O.335(91)-IL/MRTP
dated November 3, 1993 from the Government of India in the Ministry of
Industry, Department of Industrial Development, Secretariat for Industrial
Approvals (SIA) to the appellant it was agreed in principle to allow the
appellant to withdraw from 100% EOU Scheme subject to conditions mentioned in
the annexure to the letter. It will be appropriate to set out this letter as
well as the annexure thereto, containing the conditions governing withdrawal
from 100% EOU Scheme: - "No.E.O.335(91)-IL/MRTP Government of India
Ministry of Industry Department of Industrial Development Secretariat for
Industrial Approvals EOU SECTION New Delhi, the 3rd November, 1993 M/s. South
India Viscose Limited., P.B. No.1844, 1977-A, Trichy Road, Singanallur, Coimbatore
641 005.
Subject:-
Letter of permission No. PER:163 (91) /E.O.335(91)-IL(MRTP), dated 18.12.1991
issued for the manufacture of viscose staple fibre under 100% Export Oriented
Scheme Debonding of the unit.
(E.O.335/91-IL/(MRTP)-
Gentlemen, 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) IL(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.
3. As
regards surrender of Letter of Permission No.
PER:163(91)/E.O.235(91)-IL/MRTP,
dated 18.12.1991, a separate communication will follow from the Administrative
Ministry (viz. Ministry of Textiles A&MMT Section), Udyog Bhawan, New
Delhi.
4. All
further correspondence in the matter, if any, may please be addressed to the
Administrative Ministry viz.
Ministry
of Textiles A&MMT Section, Udyog Bhawan, New Delhi.
5.
Please acknowledge receipt.
Yours
faithfully, Sd/- (Baldev Raj) Under Secretary to the Government of India."
"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 cif value of imported
capital goods, towards non-fulfillment of export obligation, with the import
licensing authority with whom it had executed a legal 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 proposal 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 Cif value of
imports whichever is higher. For this purpose it shall execute a 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." When the appellant received letter dated October 18, 1993 from the Ministry of Commerce it
approached the Assistant Collector of Central Excise for valuing the goods and
the duties of customs and central excise payable.
Appellant
was informed by the Assistant Collector of Central Excise by his letter No.
C.No.VIII/48/3/92-Cus. dated November 8, 1993
that value of the goods and duties have been worked out and it was asked to pay
the same. Appellant was also informed that the assessment had been done on a
provisional basis. The dispute in the present case concerns the finished goods
which had been manufactured prior to the date of debonding of 100% EOU of the
appellant. There is no dispute that whole of the duties of customs and central
excise as demanded by the Assistant Collector of Central Excise in his letter No.
C.No.VIII/48/3/92-Cus dated November 15, 1993,
had been paid and which amounted to Rs.6,62,70,540.76. It is also not disputed
that all the conditions stipulated in the letter dated November 3, 1993 of the
Government of India in the Ministry of Industry, Secretariat for Industrial
Approvals (SIA) have also been complied with by the appellant. On February 2, 1994 a formal letter was issued by the
Ministry of Textile in the Government of India debonding the appellant's unit
and permitting it to operate as a DTA unit. This letter took note of the fact
that on the basis of the provisional assessment by the Assistant Collector of
Central Excise appellant had deposited the amount of duties of customs and
central excise and the appellant had also been allowed to clear the finished
stock lying with it in its stock as on November 16, 1993 as well as the
production from December 8, 1993 onwards on provisional basis. After the
appellant had been allowed in principle to withdraw from the 100% EOU Scheme by
letter dated November 3, 1993 of the Ministry of Industry it had recognised its
manufacturing activities as a DTA unit from December 6, 1993. On January 21, 1994 Assistant Collector of Central
Excise issued a show cause notice to the appellant now seeking to assess the
finished goods lying in the stock on the date of debonding and demanding excise
duty under proviso to Section 3(1) of the Act. It would appear that the
Assistant Collector of Central Excise had earlier demanded duty under main
Section 3(1) of the Act. A corrigendum dated February 14, 1994 was issued by the Assistant Collector of Central Excise to
the show cause notice seeking now to demand duty in respect of clearance made
from November 16, 1993 to February 1, 1994 under proviso to Section 3(1) of the Act after deducting
the duties already paid by the appellant. Yet another corrigendum was issued to
the show cause notice by the Assistant Collector of Central Excise on February 21, 1994.
By his
order dated March 31, 1994 Assistant Collector of Central Excise passed his
order in original in which he agreed with the appellant to the extent that the
date of debonding should be taken as November 15, 1993 when the appellant paid
the applicable duties and not February 2, 1994 when formal letter of debonding
was issued by the Ministry of Textiles. However, in respect of applicability of
proviso to Section 3(1) of the Act Assistant Collector of Central Excise
decided the issue against the appellant and accordingly confirmed the duty
demanded. Aggrieved appellant filed an appeal before the Collector of Central
Excise (Appeals) under Section 35 of the Act. Collector of Central Excise
(Appeals) agreed with the appellant and decided the issue in its favour thus
allowing the appeal.
Now it
was the Revenue which felt aggrieved. Collector of Central Excise filed appeal
before the Appellate Tribunal against the order of the Collector of Central
Excise (Appeals) under Section 35B of the Act. By order dated November 5, 1997 which is impugned, Tribunal allowed
the appeal of the Revenue holding that it was the proviso to Section 3(1) of
the Act, which was applicable. We may note that corrigendum to show cause
notice which was issued on February 14, 1994
was later on dropped by the Assistant Collector of Central Excise himself. Now
it is the appellant which has come before this Court. To appreciate the rival
contentions we may consider the policy of the Central Government under which
EOU Scheme came into operation. Under Notification No. 13/81-Cus. dated
February 9, 1981 as amended from time to time (as on October 15, 1992) and
issued under sub-section (1) of Section 25 of the Customs Act, 1962, Central
Government exempted specified goods when imported into India for the purpose of
manufacture of articles for export out of India or for being used in connection
with the production or packaging of goods for export out of India by 100% EOU
approved by the Board of Approvals (BOA) from whole of the duty of customs leviable
thereon and the additional duty, if any, subject to the conditions contained in
the notification. One of the conditions was "on the clearance of five per
cent of articles so manufactured or such other percentage as may be fixed by
the said Board, which are allowed to be sold in India, being in the nature of
rejects, the importer shall pay a sum equivalent to the duty of excise payable
on such articles under Section 3(1) of the Act, which have not been
exported". Benefit of the notification is to be availed of by the
importer, if he exports out of India 100% 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. On the expiry of this period the importer is
required to pay customs duty on the imported capital goods, material handling
equipment, office equipment, captive power plants, etc. on depreciated value
but at the rates prevalent at the time of import and also to pay customs duty
on enhanced imported raw materials or components on the value at the time of
import and at the rates in force at the time of clearance. Proviso to Section
3(1) of the Act thereafter was inserted in Section 3 of the Act by Act 14 of
1982. A circular dated February
17, 1983 was issued by
the Central Government clarifying the introduction of proviso. It applied to
units in Kandla Free Trade Zone and Santa Cruz Electronics Export Processing
Zone allowing them to sell their goods not exceeding 25% of the production in
DTA on payment of excise duty equal to the duties of customs leviable on like
goods imported from abroad. Clearance to the DTA was to be allowed only after
necessary permission had been obtained by the unit from the Development
Commissioner/Administrator in-charge of the Free Trade Zone (FTZ). The circular
pointed out that in order to levy excise duty equal to the duties of customs leviable
on the like goods imported from abroad, a proviso had already been inserted in
Section 3(1) of the Act. In 1984 there was further amendment to proviso to
Section 3(1) of the Act by Act 21 of 1984. The effect of the amendment was that
the facility of sale in DTA was now extended to 100% EOUs as well. On May 29, 1984 Central Government issued a
circular explaining further amendment to proviso to Section 3(1) of the Act. It
said that the Central Government had decided to allow 100% EOU which had been
approved by the Board of Approvals (BOA) to sell their goods not exceeding 25%
of their exportable production in the Domestic Tariff Area (DTA) on payment of
appropriate duty of excise. In addition these undertakings could remove 5% of
such other percentage of the goods, as may be fixed by the BOA provided such
goods are in the nature of rejects. It was pointed out that amendment has been
carried out in proviso to Section 3(1) and that such of the goods would be
liable to duty of excise equal to the aggregate of the duties of customs of
like goods imported from abroad. Circular provided that application for
permission to sell 25% of exportable production should be certified by the
Central Excise Officer indicating the quantity of goods which had actually been
produced or manufactured as on that date. On June 18, 1992 a Public Notice No.
16-ITC(PN)/92-97 was issued, being one of the import and export public notices,
laying down guidelines for sale of goods in DTA by EOUs and units in the Export
Processing Zone (EPZs). The Public Notice referred to the export and import
policies and the Handbook of Procedures (1992- 97) providing for sale of goods
in the DTA by EOUs and units in EPZs up to 25% and then laid down the
guidelines which would govern sales in DTA. This Public Notice could not be
applicable to EOU when it is debonded in view of the norms laid in Public
Notice which could apply only to the unit not withdrawing from EOU Scheme.
Contention
of the Revenue is that permission to withdraw from scheme is itself a
permission to sell in India, i.e., when unit is permitted to debond, it would
be deemed to have been permitted to sell the goods in India. But then
permission to sell in India has to be in terms or in accordance with the provisions
of the export import policy.
Permission
to sell in India by 100% EOU consists of all those factors like value addition,
fulfillment of export obligation, sale of a general currency licence holder,
item being not mentioned in the negative list and then there being a limit of
25%, etc. When permission to debond is given, none of these criteria or aspects
are applied by Board of Approvals (BOA) to the closing stock of finished goods.
Board of Approvals is a statutory authority, which permits debonding. It is
created under the Industrial (Development and Regulation) Act. On the other
hand permission to sell the goods in India under and in accordance with the
import policy has to be given by the Development Commissioner in the Ministry
of Commerce. Board of Approvals and the Development Commissioner are two
different authorities constituted for two different purposes. Permission to debond
is a statutory function exercised by one statutory authority. On the other hand
permission to sell in India is to be exercised by different statutory
authority. If reference is made to para 102 of the relevant import export
policy permission of the Development Commissioner is required for selling the
goods in India up to limit of 25% by 100% EOU. Para 117 of the policy deals
with debonding of 100% EOU. Thus it is apparent that debonding and permission
to sell in India are two different things having no connection with each other.
It
also becomes apparent that in view of the EOU Scheme as modified from time to
time and corresponding amendments to Section 3 of the Act the expression
"allowed to be sold in India" in proviso to Section 3(1) of the Act
is applicable only to sales made up to 25% of production by 100% EOU in DTA and
with permission of the Development Commissioner. No permission is required to
sell goods manufactured by 100% EOU lying with it at the time approval is
granted to debond.
Revenue
has proceeded on the assumption that by debonding permission has been granted
by the BOA for selling the closing stock of finished goods in India. This
cannot be so. BOA does not concern itself with the manner of the disposal of
the closing stock of the finished goods. After debonding it is open to the
erstwhile 100% EOU, which is now like any other manufacturing unit in India to
sell the goods in India or export it by following the normal procedure. By its
application dated September 8, 1993 appellant had only asked the Central
Government for permission to debond the unit. Pending formal debonding
clearance, appellant requested the Central Government that it might allow it to
sell the goods in India. This request of the appellant was never acceded to by
the concerned authority and letter of debonding was issued. This application of
the appellant, therefore, could not be treated as an application for permission
to sell in India as contended by the Revenue and the debonding letter of the
BOA cannot be construed as permission to sell in India. Argument of the Revenue
that debonding assumes allowing all closing stock of the goods on the date of debonding
to be sold in India would be stretching the matter a little too far. Conditions
for sale of 25% of the finished products by EOU and sale of finished stock by a
debonded 100% EOU on the date of debonding are different. It was contended by
Mr. Lakshmikumaran, learned counsel for the appellant, that under Rule 9A(1)(ii)
of the Central Excise Rules framed under the Act duty is chargeable at the rate
on the date of removal of the goods and not from the date of their manufacture
(See Wallace Flour Mills Co.
Ltd.
vs. Collector of Central Excise, Bombay, Division III [(1989) 4 SCC 592]). He
said it is not material when the goods were manufactured and that it is the
date of removal for sale in India that matters. He, therefore, submitted that
central excise duty could be charged at the rate prevalent at the time when the
goods were sold by the appellant in India on the date when 100% EOU was debonded
which would be the date for removal for sale in India. We may also refer to the
counter affidavit filed by the Revenue in this appeal. It is stated that in
December, 1991 appellant started 100% EOU and was following all the rules and
regulations set out for running an EOU. Owing to poor running of the unit
appellant applied for debonding of the unit, which was accepted in October,
1993. The Department issued show cause notices demanding duty on the stock of
finished goods lying on the date of debonding, which is equal to customs duty leviable
under Section 12 of the Customs Act, 1962 as per proviso to Section 3(1) of the
Act which provides for charging duty on 25% of goods sold by an EOU in DTA. It
will thus be seen that it is the stand of the Revenue itself that proviso to
Section 3(1) of the Act is applicable to 25% of goods sold by an EOU in DTA.
Concept
of bonding or debonding is well understood both under the Act and the Customs
Act, 1962. The entire operations of an EOU are to be in customs bonded factory,
unless otherwise specifically exempted from physical bonding. The approved unit
is required to execute a bond/legal undertaking with the Development
Commissioner concerned in the form prescribed. Under the conditions laid for
EOU, bonding period for units under the EOU Scheme is ten years. This period
may be reduced to five years by the Board of Approvals in case of products
liable to rapid technological change. On completion of the bonding period it
shall be open to the unit to continue under the Scheme or opt out of the
Scheme. Such debonding is, however, subject to industrial policy in force at the
time the option is exercised. On the satisfaction of the Board of Approvals,
EOU may be debonded on its inability to achieve export obligations, value
addition or other requirements. Such debonding is subject to such penalty as
may be imposed and levy of the following duties: - (a) Customs duty on capital
goods at depreciated value but at rates prevalent on the dates of import; (b)
Customs duty on unused raw materials and components on the value on the dates
of import and at rates in force on the dates of clearance. Unless there is a
specific prohibition EOU is permitted sale in the DTA all rejects up to 5%
production or such percentage as may be fixed by the Board of Approvals subject
to payment of applicable duties and other conditions. DTA sale entitlement is
25%. It is to be determined in relation to the ex-factory value of the total
production, excluding permissible levels of rejects. DTA sale entitlement may
be up to 25% of the total production provided the value of indigenous
constituents of the final products excluding water, power, services and spares
for capital goods is in excess of 30% of the cost of the product. Such
entitlement may be up to 15% only if the value of indigenous constituents is
less than 30% of the total cost. Chapter V-A of the Central Excise Rules
contains provisions for removal from a free trade Zone or from a 100% EOU of
excisable goods for home consumption. This Chapter was made applicable to units
under the EOU Scheme by a notification No. 130/84-C.E. dated May 26, 1984. This
Chapter contains Rules 100A to 100H. Rule 100A provides that 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 in a 100% 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. It will be thus seen that this Chapter V-A would not be applicable
where EOU is outside the EOU Scheme after the unit is debonded. Under Rule 100H
Rule 57A and other Rules mentioned therein shall not apply to excisable goods
produced or manufactured by 100% Export Oriented Undertaking. Rule 57A relates
to allowing credit of any duty of excise or the additional duty under Section 3
of the Customs Tariff Act, 1975 as may be specified by the Central Government
in the notification, paid on the goods used in or in relation to the
manufacture of the final products and for utilising the credit so allowed
towards payment of duty of excise leviable on the final products.
Considering
the whole aspect of the matter, we are of the opinion that the Tribunal was not
right in holding that duty is to be leviable in terms of the proviso to Section
3(1) of the Central Excise Act, 1944. We, therefore, set aside the impugned
judgment of the Tribunal and restore that of the Collector of Central Excise
dated October 11, 1994. The appeal is accordingly allowed. There shall be no
order as to costs.
Back