Whether special permission is required for sale of by-products in DTA by EOU if (LOP)/(LOI) is obtained ?

PJ/CASE LAW/2015-16/2812

Case:-AQUAPHARM CHEMICAL PVT LTD. VERSUSCOMMISSIONER OF C. EX., RAIGAD

Citation:- 2015 (323) E.L.T. 374 (Tri. - Mumbai)

Brief Facts:-The appeal is directed against Order-in-Appeal No. SRK/388/RGD/2007, dated 17-10-2007 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-II, wherein the original order dated 28-1-2007 was upheld and the appeal of the appellant was rejected. The fact of the case is that the appellant is 100% EOU engaged in the manufacture of Water Treatment Chemical. During the manufacture by-product namely Hydrochloric Acid also generates, which is cleared by the appellant in the domestic market on payment of Excise duty availing concessional Notification No. 23/2003-C.E., dated 31-3-2003. A show cause notice was issued by the Asst. Commissioner, Central Excise, Mahad Division, Raigad, wherein it was contended that since the appellant has cleared by-product Hydrochloric Acid without obtaining the permission for DTA sale of such by-product, they are not entitled for concessional rate of duty under Notification No. 23/2003-C.E. and was required to pay 100% of the applicable duty. In the adjudication vide order No. RGD/MHG/51/2006-07, dated 23-1-2007, the adjudicating authority confirmed the demand of Rs. 1,54,340/- under Section 11A(1) and imposed equal amount of penalty under Section 11AC and also ordered interest under Section 11AB. Being aggrieved with the said Order-in-Original the appellant filed appeal before the Commissioner (Appeals), which was rejected. Hence the appellant is before Tribunal.

Appellants Contention:-Shri S. Narayanan, ld. Counsel for the appellant submits that both the lower authorities denied exemption Notification No. 23/2003-C.E., dated 31-3-2003 on the ground that the appellant has not obtained the permission to clear Hydrochloric Acid at concessional rate of duty under DTA. It is his submission that as regard all other conditions required for the purpose of DTA clearance except the permission, there is no dispute. In support, he referred the adjudication order No. RGD/MHD/56 to 61/09, dated 21-12-2009 for the period of Sept. 2006 to March, 2009, during which specific permission for sale of Hydrochloric Acid was available. This shows that in the present case except such specific permission, all other compliance stand made. As regard the Revenue’s contention that in the present case the DTA clearances was made without permission, he submits that in terms of the Board Circular No. 21/2001-Cus., dated 24-3-2001 DTA sale of by-product was allowed if same is permitted in the Letter of Permission (LOP). He referred the LOP F. No. PER/135(2001)/SEEPZ/EOU-1281/2001-02, dated 26-3-2002, which was issued in respect of by-product, i.e., Hydrochloric Acid. It is his submission that on the basis of the said LOP the appellant was entitled to clear the by-product in the domestic market and for which no specific permission was required.

Respondents Contention:-On the other hand, Shri N.N. Prabhu Desai, ld. Superintendent (A.R.) appearing for the Revenue reiterates the findings of the impugned order. He further added that the appellant, for the clearance of the said by-product, i.e., Hydrochloric Acid, during the period of Sept. 2006-March, 2009 had obtained the permission and on that basis only the adjudicating authority vide order dated 21-12-2009, dropped the penalty whereas in the present case the appellant has not obtained similar permission for DTA sale of by-product/Hydrochloric Acid. Therefore, the orders passed by both the lower authorities are correct and legal and the same is required to be sustained.

Reasoning of Judgement:-The tribunal have carefully considered the submissions made by both the sides and perused the records.
They perused the Circular No. 31/2001-Cus., dated 24-5-2001. The relevant portion of the circular extracted below:
DTA Sale of by-products by EOUs/EPZ Units.
13. Before revision of the Policy, by-products included in the LOP/LOI were allowed to be sold in DTA on payment of applicable duty. The revised para 9.9(h) of the Policy provides that within the overall limit of 50% of FOB value of exports, by products can also be cleared for sale in DTA (subject to achievement of NEEP) on payment of concessional duty, i.e., 50% Customs duty. Suitable amendment in Notification No. 2/95-C.E., dated 4-1-1995 has been carried out for implementation of this provision. Notification No. 29/2001-C.E., dated 18-5-2001 may be seen for details.
(iv)       …..
14 …..
and clarification issued vide F. No. 305/178/92-FTT, dated 19-8-1992 as reproduced below :-
II.         …………..
III        …………..
IV.        Sale of by-products
The aforementioned guidelines do not apply to the sale of by-products generated by an EOU/EPZ unit during the process of manufacture. The sale of by-product in the DTA may be made -
(i)         if such sale is permitted in the Letter of Permission/Letter of Intent; or
(ii)        in any other case with the prior permission of the Board of Approval.
From the above circular, it is clear that for the purpose of DTA sale of by-product, specific permission is not required. If LOP in respect of by-products is obtained, it is sufficient requirement for sale of by-product in DTA as envisaged in Para IV. Sale of by-products is permitted under clarification issued on 19-8-1992. On going through the LOP, tribunal observed that the LOP was issued in respect of by-product namely Hydrochloric Acid. Therefore, in terms of clarification, it provides that the sale of such by-product in the DTA may be made if such sale is permitted in the Letter of Permission (LOP)/Letter of Intent (LOI). Accordingly, a separate and specific permission, is not warranted. In view of the above position, they are of the considered view that concessional Notification No. 23/2003-C.E. could not have been denied to the appellant only for the reason that they have not obtained the specific permission for sale of by-product under DTA. However, the appellant is required to comply with other conditions of policy and notification such as the total sale in DTA should not exceed 50% of FOB value of export clearance, achievement of positive NFE, etc. Tribunal therefore, remand the matter to the original adjudicating authority with the direction that the benefit of Notification No. 23/2003-C.E. should not be denied for want of specific permission. The Adjudicating authority, however, shall verify other conditions such as sale of by-product should well within the limit of total of 50% of FOB value of the exports clearance and the appellant has achieved positive NFE. The appeal is allowed by way of remand.

Decision:-Appeal allowed.

Comment:-The crux of the case is that the sale of by-products generated by an EOU/EPZ unit during the process of manufacture is allowed if the same is permitted in the Letter of Permission/Letter of Intent otherwise such by-products can be cleared with the prior permission of the Board of Approval. Therefore, the benefit of Notification No. 23/2003-C.E. should not be denied for want of specific permission. And, the other conditions that must need to be satisfy is that sale of such by-product should not exceed the 50% of FOB value of the exports clearance and the assessee should achieve the positive NFE.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2812

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