Applicability of provision for computing duty - when DTA clearances by EOU without permission

PJ/Case Laws/2011-12/1337

Case: COMMISSSSSIONER OF CENTRAL EXCISE, VISHAKHAPATNAM-ll v/s M/S. NCC BLUE WATER PRODUCTS LTD.

Citation: 2010-TIOL-73-SC-CX

Issue:- The goods cleared by EOU without permission from development commissioner has to pay duty under Section 3 rather than under proviso to Section 3.

Brief Facts:- Respondent-assessee is a 100% EOU which is engaged in production of shrimps and tiger prawns, falling under Chapter Sub Heading No. 0301.00 of the Schedule to the Central Excise Tariff Act, 1985.

Assessee had imported capital goods viz. sand blowers and air filters with payment of duty by claiming exemption under Notification No. 188/93 dated 27.12.1993 and 196/94 dated 08.12.1994 for use in their integrated Aquaculture project. The conditions of allowing duty free import was that the said goods would be used in the production of aquaculture products and 100% or such other percentage of said products, as may be fixed by the Board of Approvals for 100% EOU, shall be exported out of India for a period of 10 years or such extended period as may be specified by the said Board.

During the period 1994-95 to 1997-98, they produced and sold shrimp seeds and shrimps in DTA without obtaining the permission of the Development Commissioner; without issuing proper invoices as mandated under Rule 100E of Central Excise Rules, 1994 and without payment of Excise Duty. Besides this, the assessee also undertook certain job work whereby it processed shrimps and fish and cleared the said goods in DTA. According to the assessee, these goods were ultimately exported by the DTA units.

Show cause notice was issued to the assessee demanding excise duty equal to aggregate of duties of customs in terms of Section 3 of the Act read withRule 9 (2) read with proviso to sub-section (1) of Section 11A of the Act with interest and imposition of penalties was also proposed.

The Adjudicating Authority demanded duty on shrimp seeds, shrimps and fish cleared by assessee, with interest and penalty under Section 11AC and under Rule 173Q (1) of the Rules was also imposed.

Both Revenue and Assessee filed appeal against the impugned order before the Tribunal. The Tribunal allowed Assessee’s appeal and dismissed Revenue’s appeal. It was held by the Tribunal that duty couldnot be demanded under proviso to Section 3 (1) of the Central Excise Act, 1944 as done by the Revenue. Reliance was placed on the judgment given in Sam Sintex Ltd v/s CCE, Indore [2004 (163) ELT 212 (Tri-Del)] wherein it was held that when there is removal to DTA without permission of the Competent Authority, duty is leviable under main Section 3 and not its proviso. It was noted that the Tribunal had in that case relied upon judgment given in CCE v/s Pratap Singh [2003 (153) ELT 711 (Tribunal)] which was affirmed by the Apex Court [2003 (156) ELT A382]. Accordingly, in the present case, the Tribunal held that even if the Commissioner’s finding on the classification of Shrimp seeds is upheld, the duty would be Nil. Therefore, the classification issue becomes academic. The Tribunal further held that from HSN Explanatory notes it was clear that Chapter 3 would not cover items unfit for human consumption. And the shrimp seeds are at that stage unfit for human consumption and therefore, were not excisable.

In relation to goods cleared on jobwork basis, the Tribunal held that since goods were cleared to other exporters, there was no duty liability and even otherwise, since the permission of the Development Commissioner was not obtained, decision in Sam Sintex Ltd v/s CCE, Indore was applicable. It was held that as no suppression of facts was shown, extended period was not invokable and demand was barred by limitation.

Revenue has filed appeal before the Supreme Court against the order of the Tribunal.

Appellant’s Contention:- Revenue contended that since as per Note no.1 of Section 1 of the Custom Tariff Act, 1975, any reference in that Section to a particular genus or species of an animal, except where the context otherwise requires, includes a reference to the young of that genus or species and, therefore, both live shrimps and shrimp seeds are classified under heading 0306.23 of chapter 3 of the Custom Tariff Act, 1975. It was also submitted that the Tribunal committed an error in relying on the decision of this Court in SIV Industries Ltd. Vs. Commissioner of Central Excise & Custom [2000 (117) ELT 281 (SC)], because unlike in that case, in the present case, the assessee had sought permission of Development Commissioner, who in turn had advised them to approach the SIA for permission to clear shrimps and shrimp seeds which, in fact, was granted and, therefore, they were required to pay under proviso to Section 3 (1) of the act. It was argued that under the EXIM policy, an EOU is obliged to make exports of the entire production itself and not through any other entity.

Respondent’s Contention:- Respondent-assessee contended that the DTA sales made by an EOU without approval of the Development Commissioner are to be assessed to Excise Duty under Section 3(1) of the act and not under proviso to the said section. Reliance was placed on SIV Industries case and Commissioner of Central Excise, Jaipur-II v/s Pratap Singh [2003 (153) ELT 711 (Tre-Del), Sam Spintex Ltd and Modern Denim Ltd v/s Commissioner of Central Excise, Ahmedabad [2005 (191) ELT 174 (Tri-Mumbai)].

It was submitted that since shrimp seeds are microscopic post larva of 20 days, which do not contain meat and as such, are not fit for human consumption, on a plain reading of Chapter note 1(b) of chapter 3 of the Tariff Act, these cannot fall within tariff entry 0301.00. It was argued that for the purpose of the EXIM Policy sale of shrimps by supporting manufacturers carrying out job work and clearance of the same directly for exports on behalf of other exporters is to be treated as export sales and therefore, clearance of shrimps by the assessee on job work basis could not be treated as DTA sales for the purpose of the act. It was asserted that since there was regular correspondence between the department and the assessee in relation to these sales and invoices and other documents were also submitted, there was no suppression of DTA sales by the assessee with intent to evade payment of duty, particularly when the entire industry as also the jurisdictional excise authority were under the impression that no duty was payable on sale of shrimps and shrimp seeds. In support of the proposition that a mere violation of rule is not sufficient to invoke extended period of limitation, they relied upon the judgment given in M/s Padmini Products v/s Collector of Central Excise, Bangalore [(1989) 4 SCC 275], Collector of Central Excise, Hyderabad v/s M/s Chemphar Drugs & Liniments, Hyderabad [(1989) 2 SCC 127] and Gopal Zarda Udyog & Ors v/s Commissioner of Central Excise, New Delhi [(2005) 8 SCC 157].

Reasoning of Judgment:- The Supreme Court noted that a similar issue was considered in the case of SIV Industries. It was noted that the issue in that case was with regard to interpretation of expression “allowed to be sold in India” appearing in the proviso. It was held therein that the said expression is applicable only to sales made in DTA upto 25% of the production by 100% EOU, which are allowed to be sold into India as per the provisions of the EXIM Policy. No permission was required to sell the goods manufactured by 100% EOU lying with it at the time the approval is accorded to debond. It was opined that the goods having been sold by the assessee without permission of the Central Government to debond the unit, the duty on the goods sold by the assessee was leviable under main Section 3 (1) of the Act.

The Supreme Court also noted that after the said judgment, Board had issued Circular No. 618/9/2002-CX dated 13.02.2002 clarifying that prior to 11.05.2001, the clearances from EOUs, if not allowed to be sold in India, shall continue to be chargeable to duty under main section 3 (1) of the Act.

It was noted that according to EXIM Ploicy 1992-97 read with Appendix XXXIII of the Handbook of Procedures, an EOu may sell 50% of its production in value terms into s DTA only on issuance of a removal authorization by ther Development Commissioner.

It was held that on facts, in view of judgment in SIV Industries case, Board circular that excise duty on sale without permission from Development Commissioner is chargeable under main Section 3 (1) of the Act. It was held that the question of classification is academic exercise as even if the finding of the Commissioner on classification of shrimp seeds is affirmed, still the duty payable on these goods would be nil.

It was held that even if stand of Revenue is accepted and shrimp seeds are classified under sub-heading 0301.00 of the Tariff Act, the rate of Exchange Duty chargeable would be nil. Similarly, if the Excise Duty payable is nil, the other question regarding the extended period of limitation on the alleged ground of suppression of sales also pales into insignificance. The impugned orders passed by the Tribunal cannot be flawed and deserve to be affirmed.

Decision:- Appeals dismissed.

Comment:- The important point underlined in this decision is that when the goods are not allowed to be sold by development commissioner then the duty payable will be excise duty under main section 3. But when the permission is taken by 100% EOU then aggregate of custom duty will be payable under proviso to Section 3. Thus, the EOU is benefited from clandestinely removing goods without permission. They have to pay normal duty. But another law abiding EOU taking the permission and cleared the goods lawfully, has to pay higher rate of custom duty on clearance in DTA. Sometimes law creates such type of anomalies. It is truly said “Law is not based on logic”. This is reason the words “allowed to be sold in India” were changed to words “brought into India”.

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PJ/Case Laws/2011-12/1337

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