Deemed Export - inclusion in export of EOU for computing DTA clearance

PJ/Case Laws/2010-11/1198

Case:-JUMBO BAGS LTD. V/s COMMISSIONER OF CUSTOMS, CHENNAI

Citation:-2011 (268) E.L.T. 81 (Tri.- Chennai)

Issue: - Whether the expression “ 50% of the FOB value of exports” can only include physical exports taken out of India and not deemed exports which are essentially clearances within the country.

Brief Facts: - The dispute in this case relates to computation of DTA (Domestic Tariff Area) sale entitlement under para 9.9(b) of the EXIM policy which provides a limit of 50% of the FOB value of exports.

EOU was eligible to effect sales in the DTA in terms of para 9.9(b) of the EXIM policy 1997-2002 upto 50% of the FOB value of exports subject to payment of applicable duties under Notification No. 2/95-C.E. dated 4-1-95 and subject to fulfillment of minimum NFEP. Para 9.10 of the EXIM policy allows inclusion of certain supplies in the DTA to be counted towards fulfillment of export performance. Such supplies in the DTA are known as deemed exports.

100% Export Oriented Units do not export 100% of their production. Notification No. 2/95 initially permitted these units DTA sales upto 25% of the value of total production but that was amended by Notification No. 25/99 dated 19-5-1999to change the limit of 50% of the FOB value of exports. The Notification also requires satisfaction of the jurisdictional Assistant Commissioner that the total value of the goods cleared under para 9.9 & 9.20 of the EIXM policy for home consumption does not exceeds 50% of the FOB value of exports made during the year.

Appellant’s Contention:- Appellant contended that deemed export should be counted towards computing 50% of the FOB value of exports under Para 9.9 (b) of Exim policy and Notification No. 2/1995. Reliance was placed on decisions given in

(i) Ginni International Ltd. v. CCE, Jaipur – 2002 (139) E.L.T. 172
(ii) Commissioner v. Ginni International Ltd. – 2007 (215) E.L.T. A102 (S.C.)
(iii) Amitex Silk Mills Pvt. Ltd. v. CCE, Surat – 2006 (194) E.L.T. 344
(iv) Virlon Textile Mills Ltd. v. CCE, Mumbai -2007 (211) E.L.T. 353 (S.C.)
(v) Juned Bilal Memon v. CCE, Surat – 2008 (221) E.L.T. 45 (Tri.-LB)

It was submitted that the term “exports” has been defined in the Customs Act, 1962 and the same definition is squarely applicable for the purposes of Foreign Trade (Development & Regulation) Act, 1992 and EXIM policy. But it was emphasized in the view of above case laws, the appellants are entitled to DTA sales under concessional rate of duty in terms of Notification No. 2/95 of 505 of the value of exports including deemed exports.

Respondent’s Contention:- Revenue argued that the expression FOB value of exports specified in para 9.9(b) of the EXIM policy and in the third proviso to the Notification No. 2/95 only means physical exports and it cannot include sales in DTA or deemed exports. The Board’s Circular F. No. 305/48/2000-FTT dated 7-4-2000 was also presented which makes it very clear that DTA sales entitlement would be upto 50% of FOB value of exports i.e. physical exports only. It was further stated that when this circular was challenged in the jurisdictional High Court in the case of BAPL Industries ltd. v. union of India – 2007 (211) E.L.T. 23(Mad.), the Hon’ble Madras High Court held that physical export and deemed export are different and that the impugned circular dated 7-4-2000 is not ultra vires the provision of Foreign Trade (Development And Regulation) Act, 1992, EXIM policy or the constitution of India.

It was also stated that Notification No. 2/95 has undergone amendment and the amended Notification clearly links the DTA entitlement to free on board value of exports which was not the expression used in the Notification 8/97 considered by the tribunal earlier in the case of Ginni International (supra). The following letters were also submitted by the learned DR on behalf of the Respondent (Department):-

1. Letter issued by Development Commissioner dated 7-1-2005 had categorically clarified that the DTA entitlement is limited to 50% of physical exports and that the department should take action against the appellants if deemed exports have been taken into account for claiming DTA clearance.
2. Copy of the letter No. DGEP/EOU/74/2008 dated 2-1-2009 issued by the Directorate General of Export Promotion intimating that the Department of Commerce under their letter No. 1/09/2008-EOU dated 26-12-2008 have clarified that for calculating DTA entitlement only physical exports should be taken into account.

Reasoning of Judgment:-
The Tribunal held that:

(A) From the circular issued by the Department of Revenue and the Department of Commerce it was cleared that both the authorities have the same view regarding the calculation of the DTA entitlement i.e. only the value of physical exports has to be taken into account.
(B) The plain language used both in para 9.9(b) of the EXIM policy and the amended Notification No.2/95 refers to 50% of the free on board value of exports.
(C) In the decision of the Madras High Court in the case of BAPL Industries, exactly the same question was raised as in the present case and the cited circular dated 7-4-2000 was challenged in a writ petition. The Hon’ble High Court has upheld the validity of the said circular, dismissed the writ petition and has held that the circular is not ultra vires the provisions of the Foreign Trade (D&R) Act, 1992, the EXIM policy or Articles 14, 9 & 265 of the Constitution of India.

Decision: Appeal Dismissed.

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