Levy of Education Cess, Classification of Coin Blanks and DTA entitlement.

Case:- CONSOLIDATED COIN CO. PVT. LTD. V/S COMMISSIONER OF C. EX., DELHI-IV

Citation:- 2013(287) E.L.T. 221 (Tri. – Del.)

Brief Facts: - The appellant are a 100% EOU engaged in manufacture of coin blanks of copper alloys and strips of copper, zinc & nickel alloy in coil form for export. A part of the production is cleared to DTA in terms of their DTA quota which is 50% of the FOB value of the exports. While the exports are of both the items, the DTA clearances are of only coin blanks which were supplied to Government of India Mint. There are three points of dispute in this case. The first point of dispute is regarding calculation of education cess and higher education cess in respect of DTA clearances. In respect of DTA clearances, the appellants are liable to pay duty in terms of proviso to Section 3(1) of the Central Excise Act, 1944 read with the relevant exemption notification, which is 50% of the aggregate of the Duties of Customs leviable on the import of like goods into India. While calculating the aggregate Duties of Customs, first the education cess is added to the basic customs duty and thereafter the Additional Customs Duty leviable under Section 3(1) of the Indian Customs Tariff Act, 1975 is calculated which is equal to the Central Excise duty leviable on the manufacture of like goods in India and to this also the education cess is added. The point of dispute is as to whether on the aggregate of the duties of customs (basic customs duty + cess + additional customs duty + cess) which is the excise duty payable on the DTA clearances, the education cess would be chargeable again. The demand of about Rs. 39 lakhs is based on this issue. The second point of dispute is regarding classification of the coin blanks. While according to the appellant, the coin blanks are classifiable under Heading No. 74.09 of the Tariff, according to the Department, the same are classifiable as “articles of copper” under sub-heading no. 74.19. The duty demand of about Rs. 1.72 crores is on this issue. The third point of dispute is as to whether when a 100% EOU manufactures two or more products for export, the DTA entitlement of each product would be limited to 50% of the FOB value of its exports, as claimed by the Department or as claimed by the Appellant, the Appellant can sell any product into DTA upto 90% of the FOB value of its clearances. The duty demand of about Rs. 83 lakhs is on this issue.
The Commissioner of Central Excise, Delhi-IV vide order-in-original dated 2-12-2011 deciding each of these three orders against the appellant confirmed the duty demand of Rs. 2,94,69,929/- (Rs. 1,71,72,404/- + Rs. 83,23,000 + Rs. 39,74,525/-) along with interest on this duty under Section 11AB and besides this, imposed penalty of Rs. 50,00,000/- on the appellant. Aggrieved by this order of the Commissioner, this appeal along with stay application has been filed by the appellant assessee.

Appellant’s Contention: - The appellant submits that so far as the first point of dispute regarding the education cess is concerned, this issue has been referred by the Tribunal to a Larger Bench vide Tribunal’s judgment in Kumar Arch Tech Pvt. Ltd. v. CCE, Jaipur-II reported in 2011 (273) E.L.T. 574 (Tribunal-Delhi) and that earlier the Tribunal vide judgment in the case of Sarla Performance Fibers Ltd. v. CCE, Vapi reported in 2010 (253) E.L.T. 203 (Tribunal-Ahmd.) had decided this issue in favour of the assessee. Further, as regards the question of classification, the Coin Blanks are manufactured by punching the sheets of the copper alloys, that the coin blanks are converted by the mint into coins and as such the coin blanks cannot be called ‘articles of copper or copper alloys’, that the same are correctly classifiable under Heading 7409 of the Tariff in view of Chapter Note 1(g) of Chapter 74, according to which. Heading 7409 and 7410 applies to the plates, sheets, strips and foils with patterns and to such products which have been perforated, corrugated, polished, or coated provided that they do not thereby assume the character of articles or products of other headings, that the coin blanks conform to the definition of ‘flat surface products’ as given in Chapter Note 1(g), but the Commissioner relies upon the Section Note 6 to Section XVI for classifying the coin blanks under Heading No. 7419 which is totally incorrect, as Section XVI pertains to the machinery of Chapters 84 & 85 and according to this Section Note, in respect of the goods covered by this section i.e. goods of Chapters 84 and 85, the conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including ‘blank’, that is an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into a finished article or a part), into complete or finished article, shall amount to ‘manufacture’, that this Section Note is applicable only to the items of machinery covered under Chapters 84 and 85 and this Section Note cannot be applied to the goods of Chapter 74 which are covered by Section XV. Further US Customs in a Ruling dated 15th April, 1997 has held that brass coin blanks are correctly classifiable under Heading No. 7409 and not under Heading No. 7419 and similar view has been expressed in the ruling dated 10th Dec., 1991, that in view of this, the Commissioner’s order classifying the coin blanks of copper alloys under sub-heading No. 7419 as “articles of copper” is incorrect, that as regards the third point of dispute, in terms of para 6.8(a) of 2009-2014 Foreign Trade Policy when a 100% EOU manufactures two or more products, which are similar, it can sell into DTA within their DTA quota, a single product upto 90% of the FOB value of its exports subject to the condition that the total DTA sales do not exceed the overall DTA entitlement of 50% of the FOB value of the exports for the unit. In this case once the classification of the ‘coin blanks’ under Heading No. 7409 is accepted, the coin blanks and other products - Copper Zinc Nickel Alloy Strips would be similar products and in view of this, the DTA clearances of coin blanks can be upto 90% of the FOB value of the clearances of the coin blanks, as the total value of the DTA clearances is within the DTA entitlement of 50% of total FOB value of exports, and hence, the Department’s view that the DTA clearances of coin blanks must be in the same proportion in which the coin blanks are exported is not correct. In view of this, they have strong prima facie case and hence, the requirement of pre-deposit of duty demand, interest and penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.

Respondent’s Contention: - The respondent, by reiterating the findings of the Commissioner in the impugned order and pleaded that the coin blanks are correctly classifiable as articles of copper under Heading No. 7419, that Chapter Note 1(g) does not help the appellant. The rulings of US Customs are not applicable, that when the goods manufactured by 100% EOU are cleared into DTA the same attract central excise duty as per the provisions of the proviso to Section 3(1) which provides the measure of the excise duty. Since the duty which is calculated in accordance with the proviso to Section 3(1) read with any exemption notification, if any applicable, is only the excise duty leviable, on this duty education cess would also be leviable irrespective of the fact that in calculating the aggregate of the duties of customs, the education cess had been added twice, first while calculating the basic customs duty and thereafter while calculating the additional customs duty equal to the central excise duty leviable, that when the appellant manufactures two products, the DTA clearances of each product cannot be more than the DTA sale entitlement of that product, and excess DTA clearances would not be eligible for concessional rate of duty under Notification No. 23/2003-C.E., and that in this case, while the bulk of the production of Copper alloys blank had been cleared into DTA, bulk of the production of Copper Zinc Nickel Alloy Strips had been exported out of India and thus, the clearance of Copper alloy coin blanks are in excess of the DTA entitlement. He, therefore, submitted that this is not a case for waiver from the requirement of pre-deposit.

Reasoning of Judgment: - The Hon’ble Tribunal held that as regards question of calculating the education cess whether the education cess is to be levied once again on the aggregate of duties of customs, this issue stands referred to a Larger Bench by the judgment of the Tribunal in the case of Kumar Arch Tech Pvt. Ltd. (supra) and thus, on this issue, it can be said that the appellant have an arguable case. As regards the question of classification of Copper Alloys Coin Blanks, the same are manufactured by punching the Copper Alloys Sheets. Coin Blanks are used by the mint for making the coins. The Commissioner has classified the coin blanks as articles of copper on the basis of Section Note 6 to Section Note XVI. They held that since Section Note VI to XVI is in respect of the machinery items, it would not be correct to apply the same to the products of Chapter Note 74 falling under Section XV. Moreover, coin blanks which are used for manufacture of coins have not attained the shape or character of an article and as such, the same cannot be said to be articles of Copper or Copper Alloys. The plea of the respondent that the US Customs Rulings with regard to classification of the Copper Alloys Coin Blanks under sub-heading No. 7409 are not applicable is also difficult to accept when like USA, the India also follows the HSN based system of classification. Therefore, in terms of Chapter Note 1(g) to Chapter 74, the Copper Alloys Coin Blanks would be correctly classifiable under Heading No. 7409 and not as an article of Copper alloys under Heading No. 7419. Thus, on the question of the duty demand of Rs. 1,74,72,404/- linked with the issue of classification of Copper alloy Join blank, the Appellant have prima facie case in their favour. As regards the third point of dispute since the items exported by the appellant the ‘Copper Alloys Coin Blanks and Copper Zinc Nickel Strips’ are the similar products, both falling under Heading No. 7409 and since their DTA clearances are within the overall entitlement of 50% the FOB value of the Exports, in accordance with the provisions of para 6.8(a) of the Foreign Trade Policy, the DTA clearances of any one of these products can be made upto 90% of the FOB value of its export. The DTA sales of Copper alloy coin blanks are well within 90% of their clearances. In view of this, the third objection of the department also does not appear to be valid and as such, the duty demand of Rs. 83,23,000/- does not appear to be sustainable. In view this, it is held that the appellant have prima facie case in their favour. The requirement of pre-deposit of duty demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal.

Decision: - The stay application was allowed.

Comment:-The essence of this case is that it involved mainly 3 issues and all stand in favour of the assessee primarily and so the stay was granted. It was held that education cess cannot be levied third time on the duty under proviso to section 3, the coin blanks were classifiable under 7409 and consequently the clearances were held to be within the DTA permissible limit for concessional rate of duty.

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PJ/Case Laws/2012-13/1433

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