Whether denial of exemption allowed on inputs used to manufacture goods by 100% EOU proper if the final product is cleared in DTA?

PJ/Case Law /2016-17/3427

Case-INDIRA PRINTERS VERSUS COMMISSIONER OF C. EX., DELHI-II

Citation- 2017 (345) E.L.T. 269 (Tri. - Del.)

Brief Facts-The brief facts of the case are that the appellant is a 100% Export Oriented Undertaking (EOU), and is engaged in the manufacture of printed books falling under Chapter 4901 of the Central Excise Tariff Act, 1985. During the period 1-7-2005 to 31-1-2006, the appellant had sold the finished products in the Domestic Tariff Area (DTA) in terms of paragraph 06.09(b) of the Foreign Trade Policy, 2004-2009. Since the inputs, i.e., paper procured without payment of duty were used for manufacture of finished product, sold in the DTA and not exported by the appellant, the Department initiated proceedings for recovery of the duty amount attributable to the inputs.
Pursuant to the investigation by the Department, the appellant had deposited the Central Excise duty attributable to the inputs. The proceedings initiated by the Department for recovery of the Central Excise duty, culminated in the adjudication order, wherein demand of Central Excise duty of Rs. 19,18,731/- was confirmed along with equal amount of penalty. The amount already deposited by the appellant was appropriated in the said adjudication order. In appeal, ld. Commissioner (Appeals) has upheld the duty demand confirmed in the Adjudication Order. Hence the present appeal before this Tribunal.

Appellant’s Contention-Shri R.K. Hasija, the ld. Advocate appearing for the appellant submits that since the raw material/input supplier is the manufacturer of paper, the duty liability, if any, can be recovered from the supplier of the goods and the same cannot be confirmed on the appellant. He further, submits that even if the duty liability can be fastened on the appellant, in terms of Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, the appellants is not liable to pay the duty for the reason that the inputs procured without payment of duty have been used for the intended purpose i.e. manufacture of the finished products. It is his further submission that since there is no element of suppression, misstatement, fraud, etc., with the intent to evade payment of duty, no penalty can be imposed on the appellant in terms of Section 11AC of the Central Excise Act, 1944. To support his said view, the ld. Advocate has relied on the order dated 28-4-2010 of this Tribunal passed in the case of the appellant itself (Excise Appeal No. E/629/2006-EX.Br.).

Respondent’s Contention-Shri G.R. Singh, ld. DR appearing for the Revenue, on the other hand, reiterates the findings recorded in the impugned order.

Reasoning Of Judgement-It is an admitted fact that the inputs procured by the appellant for manufacture of printed books were not exported and sold in the DTA. Thus, in absence of export of printed books, the duty foregone on procurement of the input, namely paper, shall not be eligible for the exemption contained in the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. Thus, duty demand confirmed by the authorities below, in Tribunal’s opinion, is in conformity with the statutory provisions. It was found that the amount deposited by the appellant before adjudication of the matter, was appropriated in the adjudication order towards duty liability. Since interest in the present case has not been deposited by the appellant, Tribunal was of the view that the interest for delayed payment of Central Excise duty has to be paid by the appellant. With regard to imposition of penalty, it was held that the issue involved in the case relates to interpretation of the Notification No. 22/2003, dated 31st March, 2003 and in an identical case, this Tribunal in the case of the appellant itself, vide order dated 28-4-2010 has set aside the penalty imposed on the appellant. Therefore, Tribunal is of the considered view that penalty cannot be imposed on the appellant in the given circumstances of the case.
In view of the above, the appeal is partly allowed to the extent of setting aside the penalty imposed under Section 11AC of the Central Excise Act, 1944. However, the duty liability along with interest is confirmed and the appeal is dismissed to that extent.

Decision- Appeal partly allowed.
Comment- The substance of the case is that duty foregone on procurement of input will be recoverable if the said inputs are used in manufacture of goods that are ultimately cleared in domestic tariff area rather than export. This is for the reason that benefit of duty free procurement is for export of goods by EOU and not for clearance in DTA. However, since the issue involved interpretation of the provisions, penalty under section 11AC was set aside and the appeal was partly allowed.

Prepared By– Prateeksha Jain

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PJ/Case Law /2016-17/3427

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