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Tuesday, June 14, 2016

A show cause notice No. V(Ch.54)15-6/OA/2000 dated 16th May, 2001 was issued by the Commissioner of Central Excise, Surat – II requiring the appellant to explain why central excise duty of Rs.32,92,854/-should not be recovered on the texturised yarn allegedly removed by the appellants without payment of duty. The said show cause notice also required the appellants to explain why penalty should not be imposed under Section 11AC of the Central Excise Act, 1944 (for short, ‘the Act’). That apart, the show cause notice also sought to confiscate the nylon covered yarn valued at Rs.1,72,186/-and further to recover duty thereon of Rs.55,202.96. = The decision in NCC Blue Water Products Ltd. (supra) was bound to be followed and the tribunal could not have stated that 2004 circular was not taken note of. The tribunal should have appropriately appreciated that this Court was interpreting the statutory provision and it is also worthy to note that after the judgment delivered in SIV Industries Ltd. (supra) an amendment was brought into the provision. Therefore, the transaction prior to the date of amendment would be governed by SIV Industries Ltd. (supra) which has been followed in NCC Blue Water Products Ltd. (supra). Be it clarified that we are not concerned with the amended provision in this case.In view of the aforesaid analysis, the appeals are allowed. The judgment and order passed by the tribunal and that of the adjudicating authority are set aside. The assessee shall be liable to pay the excise duty as per Section 3(1) of the Act. The competent authority is directed to compute the duty accordingly and proceed thereafter as per law. In the facts and circumstances of the case, there shall be no order as to costs.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                    CIVIL APPEAL NOS. 3555-3560  OF 2012

Sarla Performance Fibers Limited           ...  Appellant(s)
Etc.

                                Versus
Commissioner of Central Excise,            ...     Respondent(s)
Surat-II



                               J U D G M E N T

Dipak Misra, J.


      The appellant is a company registered under the  Companies  Act,  1956
and is engaged, inter alia, in the manufacture of excisable  goods,  namely,
synthetic yarn and for that purpose it has a factory at Unit-I,  Survey  No.
59/1/14, Amli, Piparia Industrial Estate, Silvassa (U.T.  of  D.N.&H).   The
said factory is a 100% Export Oriented Unit (EOU).  Prior to  6th  November,
2006, Sarla Performance Fibers Limited was known as  Sarla  Polyesters  Ltd.
Shri Madhusudan Jhunjhunwala and Shri Satish Kumar Sharma were the  Chairman
and the excise in-charge respectively of Sarla Performance  Fibers  Limited.
Shri Dineshchandra Pandey was  the  dispatch  in-charge  of  M/s.  Hindustan
Cotton  Company, a partnership firm,  engaged  inter  alia,  in  trading  of
Polyester Textured/Twisted Dyed Yarn since 1988.   Sh.  Gopal  Bhagwan  Dutt
Sharma was the Manager of Sarla Performance Fibers Limited at  the  relevant
time.  The reference to appellants herein will  mean  and  include  all  the
appellants.

2.    The appellants had procured partial oriented yarn (POY) falling  under
Chapter 54 without payment of duty for the manufacture of various  types  of
yarn, namely, polyester texturised yarn, nylon covered  yarn  and  polyester
covered yarn.  A show cause notice No. V(Ch.54)15-6/OA/2000 dated 16th  May,
2001 was issued by the Commissioner of Central Excise, Surat – II  requiring
the appellant to explain why central  excise  duty  of  Rs.32,92,854/-should
not be recovered on the texturised yarn allegedly removed by the  appellants
 without payment of duty.  The said show  cause  notice  also  required  the
appellants to explain why penalty should not be imposed under  Section  11AC
of the Central Excise Act, 1944 (for short, ‘the  Act’).   That  apart,  the
show cause notice also sought to confiscate the nylon  covered  yarn  valued
at Rs.1,72,186/-and further to recover duty thereon of Rs.55,202.96.

3.    After the show cause notice was issued, the  appellants  made  payment
aggregating to Rs.14,89,349.00 as against the  duty  payable  under  Section
3(1) of the Act  (after  taking  into  account  the  cum-duty  benefit)  and
Rs.11,19,775.00 payable in the event the benefit of  Notification  No.  2/05
was allowed.

4.    After the reply to the show cause notice was filed,  the  Commissioner
of Central Excise, Surat-II, by his order-in-original no.  11/MP/2002  dated
21st March, 2002 (i) confiscated the  seized  nylon  covered  yarn  weighing
245.980 kgs. valued at Rs.1,72,186/- and appropriated a sum  of  Rs.86,093/-
which  was  given  as  bank  guarantee;  (ii)   demanded   Rs.55,202.96   as
differential  duty  on   the   confiscated   goods   which   were   released
provisionally before the  adjudication;  and  (iii)  confirmed  the  central
excise duty amounting to Rs.32,92,854/- and  ordered  recovery  of  interest
under  Section  11AB  and  imposed  a  penalty  of  Rs.33,48,060/-  on   the
appellants. The adjudicating authority also  imposed  penalties  on  various
persons set out in the impugned order.

5.    Being aggrieved  by  the  aforesaid  order,  the  appellant  preferred
appeals before the  Customs,  Excise  and  Service  Tax  Appellate  Tribunal
(CESTAT) (for short, ‘the tribunal’) under Section 35B of  the  Act  to  the
extent the said order was adverse to it.   The  revenue  also  preferred  an
appeal before the tribunal as certain  aspects  were  adverse  to  it.   The
tribunal referred the  issue  to  the  Larger  Bench  of  the  tribunal  for
consideration  whether the goods cleared by the appellant were eligible  for
exemption under Notification No. 125/84 dated 26.05.1984.  The Larger  Bench
vide order dated 03.08.2007 held that in case the goods cleared by the  100%
EOU and sold in India whether with or  without  permission,  the  assessment
shall be made under proviso to Section 3(1) of the  Act  and  the  exemption
under Notification No. 125/84 shall not be  applicable.   After  the  matter
was placed before the Division Bench of the tribunal vide  its  order  dated
15.11.2007 referred to the Larger Bench decision and reiterated the view  of
the Full Bench by opining that the goods cleared by the 100%  EOU  and  sold
in  India  whether  with  or   without   permission   of   the   Development
Commissioner, the assessment shall be made under proviso to Section 3(1)  of
the Act and exemption under Notification No. 125/84 shall not be  applicable
but granted some relief as regards the imposition of penalty.   Resultantly,
the tribunal vide order dated 15.11.2007  disposed  of  the  appeal  of  the
appellants and dismissed the appeal of the revenue.

6.    As the facts would unfold, the appellants filed an application  before
the tribunal for recall of order dated 15.11.2007 in terms  of  judgment  in
J.K. Synthetics Ltd. v. Collector of Central Excise[1], which was  dismissed
on the ground that appeals were decided  on  merits  and  a  detailed  order
considering all aspects was passed by the tribunal and as such it could  not
be said that the Bench defaulted in considering the merits of the case.

7.    The aforesaid orders were assailed  before  the  High  Court  in  Writ
Petition No. 4758 of 2008 and the Division Bench of the High  Court   taking
note of the submissions of the learned counsel for the parties, directed  as
follows:-

“3. There were certain Appeals filed by the Petitioners and also there  were
certain Appeals filed by the  Department.  Mr.  Desai,  the  learned  Senior
Counsel for the Respondents, has no objection if all the Appeals  are  heard
together denovo including the Appeals filed  by  the  Department  since  the
Petitioners were not heard in the Appeals.   The  learned  Counsel  for  the
Petitioners also has no objection for the same.

4. Under the aforesaid facts and circumstances,  both  the  impugned  orders
dated 21st April, 2008 and 15th November, 2007 passed by the CESTAT  in  the
aforesaid Appeals are hereby quashed and set aside, and  all  the  aforesaid
Appeals stand restored to file.  The CESTAT is  directed  to  hear  all  the
Appeals mentioned hereinabove afresh  denovo  without  being  influenced  by
their earlier orders in any manner.”



8.    After the remit,  it  was  contended  before  the  tribunal  that  the
allegation of clandestine removal was based  on  a  computer  sheet  and  no
other records had been recovered; that the reliance  by  the  department  to
establish clandestine removal were the invoices issued by  Hindustan  Cotton
Company; and that the appellant SPL is a 100% EOU and when case  goods  were
cleared without permission of the Development Commissioner according to  the
department duty was payable under Section 3(1) of the Act and exemption  was
available under notification no. 125/84 CE.  To sustain the stand,  reliance
was placed on SIV Industries Ltd. v. CCE & Customs[2].  Be  it  stated  that
the reliance was  placed  on  Larger  bench  decision  of  the  tribunal  in
Shrichakra Tyres Ltd. v. CCE Madras[3]  and on that base  it  was  contended
that the   amount utilized by the assessee was to be treated as  duty  price
and no penalty could have been imposed on individuals since no evidence  had
been brought on record to show that they were aware of the transactions.

9.      The stand of the assessee was resisted by  the  revenue  contending,
inter alia,  that  the  benefit  of  exemption  notification  could  not  be
extended since  the  notification  incorporated  several  conditions  to  be
fulfilled and unless these conditions were fulfilled,  exemption  could  not
be allowed; that the benefit of cum-duty price could  not  be  extended  and
invocation of a wrong section or rule in the show cause notice would not  be
a bar for imposition of penalty under the correct rule or section, and  that
appellant was not eligible for treatment of clearances  under  Section  3(1)
of the Act.  On behalf of  the  revenue  reliance  was  placed  on  Sterlite
Optical Technologies Ltd. v. CC&CE Aurangabad[4].

10.   At this juncture, it is relevant to state that Member, Technical  came
to hold that all the sales to DTA were clandestinely done  in  contravention
of the provisions of the EXIM  policy  and  the  appellant-company  did  not
raise any contention that  the  price  charged  included  the  component  of
excise  duty.  On  the  contrary  the  appellants  claimed  exemption  under
notification  no.  125/84  and,  therefore,  the  question  of  SPL   having
recovered any cum-duty price from  the  customers  in  DTA  did  not  arise.
Further it was evident that the transactions had been made  by  SPL  in  the
name of Hindustan Cotton Company and M.M. Sanghavi and the demands had  been
raised on the invoices raised.  The transaction itself  was  artificial  and
no justification had been shown to treat the same  as  cum-duty  price  and,
therefore, the decision of the Commissioner not to treat the price  as  cum-
duty price deserved to be upheld. As regards penalty  on  the  company,  the
learned member held that it had been rightly imposed under Section  11AC  of
the Act read with Rule 173Q of the Central Excise  Rules.   As  far  as  the
individuals were concerned, the learned Member opined  that  the  imposition
on some  was  justified  and  imposition  on  certain  individuals  was  not
warranted.  He, however, dismissed the appeal preferred by  the  department.


11.   The Member, Judicial concurred with the view of the Member,  Technical
as regards the clandestine removal and consequent confirmation of demand  of
duty and imposition of penalty on various appellants but,  however,  as  far
as the present appellant was concerned, the learned Member opined  that  the
entire realization  made by M/s. Sarla Polyester Ltd. were  required  to  be
treated as cum-duty and as such, the benefit  had  to  be  extended  to  the
appellant on the above count.   She further observed that:-

“Admittedly no duty has been recovered by them from their buyers.  When  the
duty is being subsequently demanded from them on the  same  realization,  it
is, in my view, required to be treated as cum duty and the assessable  value
has to be arrived at by deduction of the duty now  being  confirmed  against
the assessee.  This has been the declaration of law  in  all  the  judgments
relied upon by the learned Advocate.  The fact as to  whether  the  duty  is
being demanded on clandestine removal or on  any  other  issue,  should  not
make a difference”.



12.   The learned Member placed reliance on CCE Delhi v. M/s.  Maruti  Udyog
Ltd.[5], reproduced a passage from the  same  and  opined  that  the  entire
realization was required to be considered as cum-duty-price and the  benefit
of the same had to be extended to the assessee and  for  the  said  purpose,
the matter needed to be remanded for recalculation of the quantum  of  duty.
As far as penalty is concerned, she concurred with  the  Member,  Technical,
but also opined that  it  required  to  be  remanded  for  imposing  penalty
equivalent to the duty calculated on the determination of the quantum.
13.   The two Members noted three points as  difference  of   opinion.   For
the sake of completeness, we think it appropriate to reproduce the same:-
“a.   Whether the entire sales value of the goods removed  clandestinely  is
required to be considered as cum-duty and benefit  of  the  same  is  to  be
extended to M/s. Sarla Polyester Ltd. (Appellant no.1 herein) or not?

b.    Whether the ratio of law declared by this Hon’ble Court  in  the  case
of CCE Delhi vs. M/s. Maruti Udyog Ltd. reported in 2002(141) ELT 3  applies
to the facts of the present case or not and as to  whether  the  benefit  of
the same is to be extended to the said assessee or not?

c.    Whether the matter is required to be remanded  for  quantification  of
the duty by treating entire realization as cum-duty price, as  held  by  the
Member (Judicial) or the appellant’s plea on the above issue is required  to
be rejected by upholding the decision of the Commissioner not to  treat  the
price as cum-duty price, as observed by learned Member (Technical)?

d.    Consequent to the re-quantification of duty on the above  ground,  the
penalty imposed upon M/s. Sarla Polyester Ltd.  would  get  reduced  to  the
quantum of duty reconfirmed against the said appellant?


14.   It is necessary to state here that before the pronouncement  of  Order
on 13.10.2010, counsel on behalf of the present assesee mentioned  that  the
controversy was no more res integra in view of the decision rendered in  CCE
v. NCC Blue Water Products Ltd.[6]   Thereafter  the  matter  was  heard  on
another day and on behalf  of  the  Bench,  the  learned  Member,  Technical
passed the order. He took note of the stand of the  revenue  that  ratio  of
the said decision was not applicable  as  it  was  based  on  the  principle
stated in earlier decision i.e. SIV Industries Ltd.  (supra).   The  learned
Member also took note of the fact that the Larger Bench of the tribunal  had
distinguished the decision in SIV Industries Ltd. (supra) which  was  relied
upon in NCC Blue Water products Ltd. (supra).  At this  juncture,  we  think
it appropriate to reproduce a passage from the order passed by  the  Member,
Technical on behalf of the Bench:-
“It is quite clear that as submitted by learned  SDR,  the  Hon’ble  Supreme
Court followed the decision in case of SIV Industries and also took note  of
the Board’s circular issued in 2002 and it is quite apparent  that  circular
issued in 2004 was not brought to the  notice  of  learned  SDR  in  Supreme
Court.  Further, we also note as submitted by the decision  of  the  present
case, the Larger Bench had considered the Hon’ble Supreme Court in  case  of
SIV  Industries  Ltd.  and  had  distinguished  the  same  and  reached  the
conclusion that in case of goods sold by 100% EOU  in  DTA,  the  assessment
shall be made under proviso to Section 3(1) of the Act.”


15.   After so stating, the learned Member quoted copiously from the  Larger
Bench.  We think it appropriate to reproduce the relevant part:-

“14. We have considered the submissions.   We  find  that  the  wordings  of
proviso to Section 3(1) of the Central Excise Act  and  Notification  125/84
which we have been called upon  to  interpret  are  similar  and  the  basic
dispute is as to how the words “allowed to be  sold  in  India”  are  to  be
interpreted.  After going through  the  various  submissions  made  by  both
sides, we find that 100% EOUs were allowed to be established with  the  sole
purchase of exporting 100% of their production as is evident from the  words
100% EOUs.  However, on account of certain hardship faced in getting  export
order, sales in DTA up to 25% were permitted from the year  1984  but  there
was a clear intention to distinguish between such  sales  by  the  100%  EOU
from the sales by domestic units other than 100% EOU and  it  was  for  this
purpose  that  proviso  to  Section  3(1)  and   Notification   125/84   was
introduced.  Since there were only two modes of clearance in which the  100%
EOUs could have cleared the goods i.e.  one  by  export  and  the  other  by
domestic  sale  after  obtaining   the   permission   of   the   Development
Commissioner, in respect of domestic sales the words “allowed to be sold  in
India” were incorporated in both the provisos.”


16.   Thereafter, the learned Member  proceeded  to  state  certain  aspects
which are not necessary and then reproduced the following passage:-
“We also agree with the observation of the Larger Bench  that  the  decision
of the Supreme court in SIV  Industries  case  is  distinguishable  for  the
reason stated therein, as in that case the main thrust was that  whether  on
the date of removal the 100% EOU ceased to be 100%  EOU  and  therefore  the
provisions relating to 100% EOU could not have been applied  to  them.   For
the same purpose we hold that exemption under Notification 125/84 shall  not
be applicable in respect of goods manufactured  by  100%  EOU  but  sold  in
India.”


17.   After reproducing number  of  passages  from  the  Larger  Bench,  the
learned Member observed thus:-
“7.   It may be seen that  Larger  Bench  had  considered  the  decision  of
Hon’ble Supreme Court in case of SIV Industries Ltd., and  has  agreed  with
another decision of the Larger Bench in the case of Himalaya  International,
wherein  also  the  decision  of  Hon’ble  Supreme  Court  in  case  of  SIV
Industries Ltd had been considered; and distinguished.

8.    To sum up,  two  decisions  of  Larger  Bench  of  the  Tribunal  have
considered the issue and distinguished the  decision  in  the  case  of  SIV
Industries Ltd. and the decision of Larger Bench in the present  case  on  a
reference made in the appellant’s case itself had  considered,  all  aspects
and the history of 100% EOU, statutory provisions  and  precedent  decisions
to reach conclusion that duty is chargeable under proviso  to  Section  3(1)
of Central Excise Act, 1944.”


18.   Being of this view, the Bench reiterated  the  difference  of  opinion
and the questions framed thereunder.  After the judgment  was  delivered  by
the tribunal, the appellant preferred W.P. No. 714 of 2011. The  High  Court
noted the submissions of the learned counsel for the  writ  petitioners  and
opined  that  keeping  in  view  the  concept  of  self-restraint  and   the
requirement of judicial propriety, it was  desirable  for  the  assessee  to
prefer an appeal before this Court. Being  of  this  view,  the  High  Court
declined to interfere. Hence, the present appeals have been preferred  under
Section 35L(b) of the Act.

19.   It is not in dispute that the unit  of  the  assessee-appellant  is  a
100% EOU and under the EOU scheme  it  was  required  to  export  the  goods
manufactured by it.  The stand of the assessee is that it  was  eligible  to
clear goods up to a certain specified limit after obtaining  due  permission
from the Development Commissioner in terms of Export  Import  (EXIM)  Policy
read with Handbook of Procedure (HBP).  It  is  the  submission  of  Mr.  V.
Lakshmi Kumaran, learned counsel for the appellant that even if it  is  held
that  finished  goods  were  removed  by  the  assessee  without   requisite
permission  from  the  Development  Commissioner,  central  excise  duty  is
leviable in terms of Section 3(1) of the Act.  It is contended by  him  that
the tribunal has erroneously followed  the  Larger  Bench  decision  of  the
tribunal  in  Himalaya  International  Ltd.   v.   Commissioner   of   C.Ex.
Chandigarh[7].  Learned counsel would submit that if the submission  of  the
assessee is accepted, he will be entitled to refund  as  it  has  paid  more
than the amount than the duty liability determinable under Section  3(1)  of
the Act.

20.   Mr.  K.  Radhakrishnan,  learned  senior  counsel  appearing  for  the
revenue, per contra, would contend that the appellant which is a  continuing
EOU, was bound  to  export  finished  goods  and  as  there  has  been  non-
fulfilment of the  obligation  and  the  goods  have  been  cleared  without
permission of the competent authority, the appellants are liable to pay  the
duty as determined by the tribunal.  It is his  further  argument  that  the
assessee cannot be assessed under Section 3(1) of  the  Act  but  under  the
proviso as held by the tribunal.  Learned senior counsel would  submit  that
the decision in SIV Industries Ltd. (supra)  and  NCC  Blue  Water  Products
Ltd. (supra) when seemly applied, the 100% EOU  which  was  cleared  in  DTA
without permission cannot be allowed to pay duty under Section 3(1)  of  the
Act.

21.   To understand the controversy,  it  is  necessary  to  scrutinize  the
relevant provisions, circulars in the field and the  interpretations  placed
by this Court on the pertinent provisions.  The contentious part of  Section
3 of the Act, prior to amendment w.e.f. 11.05.2001 read as follows:-

“Section 3. Duties specified in the First Schedule and the  Second  Schedule
to the Central Excise Tariff Act, 1985 to be levied –  (1)  There  shall  be
levied and collected in such manner as may be prescribed,-

(a)   a duty of  excise  on  all  excisable  goods  which  are  produced  or
manufactured in India as, and at the rates, set forth in the First  Schedule
to the Central Excise Tariff Act, 1985 (5 of 1986);

(b)   a special duty of excise, in addition to the duty of excise  specified
in clause (a) above, on excisable goods specified in the Second Schedule  to
the Central Excise Tariff Act, 1985  (5  of  1986)  which  are  produced  or
manufactured in India, as, and at the rates, set forth in  the  said  Second
Schedule.

Provided that the duties of excise which shall be levied  and  collected  on
any excisable goods which are produced or manufactured, --

(i)   in a free trade zone and brought to any other place in India; or

(ii)  by a hundred per cent export-oriented undertaking and  allowed  to  be
sold in India,

shall be an amount equal to the aggregate of the  duties  of  customs  which
would be leviable under Section 12 of the Customs Act, 1962  (52  of  1962),
on like goods produced  or  manufactured  outside  India  if  imported  into
India, and where the said duties of customs are chargeable by  reference  to
their value; the  value  of  such  excisable  goods  shall,  notwithstanding
anything contained in any other provision of  this  Act,  be  determined  in
accordance with the provisions of the Customs Act, 1962  (52  of  1962)  and
the Customs Tariff Act, 1975 (51 of 1975).”

22.   After the amendment the  relevant  part  of  the  provision  reads  as
under:-

“Section 3. Duties specified in the First Schedule and the  Second  Schedule
to the Central Excise Tariff Act, 1985 to be levied –  (1)  There  shall  be
levied and collected in such manner as may be prescribed,-

(a)   a duty of excise to be called the Central Value Added Tax (CENVAT)  on
all excisable goods excluding goods  produced  or  manufactured  in  special
economic zones which are produced or manufactured in India as,  and  at  the
rates, set forth in the First Schedule to the  Central  Excise  Tariff  Act,
1985 (5 of 1986);

(b)   a special duty of excise, in addition to the duty of excise  specified
in clause  (a)  above,  on  excisable  goods  excluding  goods  produced  or
manufactured in special economic zones specified in the Second  Schedule  to
the Central Excise Tariff Act, 1985  (5  of  1986)  which  are  produced  or
manufactured in India, as, and at the rates, set forth in  the  said  Second
Schedule.

Provided that the duties of excise which shall be levied  and  collected  on
any excisable goods which are produced or manufactured, --

(i)   in a free trade zone or a special economic zone  and  brought  to  any
other place in India; or

(ii)  by a hundred per cent export-oriented undertaking and brought  to  any
other place in India,

shall be an amount equal to the aggregate of the  duties  of  customs  which
would be leviable under  the Customs Act, 1962 (52 of  1962)  or  any  other
law for the time being in force, on  like  goods  produced  or  manufactured
outside India if imported into India, and where the said duties  of  customs
are chargeable by reference to their value;  the  value  of  such  excisable
goods shall, notwithstanding anything contained in any  other  provision  of
this Act, be determined in accordance with the  provisions  of  the  Customs
Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).”


23.   Having noted the relevant provisions, it  is  apposite  to  appreciate
what has been held in SIV Industries Ltd. (supra). In  the  said  case,  the
appeal was preferred challenging the order of the tribunal  whereby  it  had
directed that the duty of central excise was not payable under Section  3(1)
of the Act but under the proviso to Section 3(1) of the Act.  The  appellant
therein was granted permission to set up a 100% Export Oriented  Unit  (EOU)
for the manufacture of viscose staple fibre at its factory at  Sirumugal  in
Coimbatore District in the State of Tamil Nadu. The letter of  intent  dated
18.12.1991 was issued to the appellant for the purpose  by  the  Secretariat
for Industrial Approvals (SIA), Ministry of Industry, Government  of  India.
On 08.09.1993 the appellant therein made an application  to  the  Secretary,
Ministry of Commerce, Government of India and sought debonding of  its  unit
from 100% EOU, i.e., withdrawal  from  100%  EOU  Scheme.  By  letter  dated
18.10.1993 of the Ministry of Commerce it was agreed in principle  to  allow
the  appellant  to  withdraw  from  the  100%  EOU  Scheme  subject  to  the
conditions on which withdrawal was permitted.  Once  the  debonding  of  the
unit was permitted, finished goods earlier  manufactured  in  the  100%  EOU
could be cleared for domestic tariff area (DTA) on levy of duty  of  central
excise. The dispute arose as to what rate of duty  was  to  be  levied.  The
contention of the assessee was that excise duty is payable on  the  finished
goods under the main Section 3(1) of the Act together with customs  duty  on
the imported raw material used in  the  manufacture  of  the  said  finished
goods lying in the stock. The Revenue  on  the  other  hand  contended  that
excise duty under the proviso to Section 3(1) of the Act was payable on  the
finished goods and with no customs duty being levied on  the  raw  materials
gone into the manufacture of finished  goods.  The  Court  encapsulated  the
issue by  stating  that  the  expression  “allowed  to  be  sold  in  India”
appearing in the proviso to  Section  3(1)  of  the  Act  was  the  bone  of
contention  between  the  parties.  The  assessee  contended  that  for  the
application of the proviso  to  Section  3(1)  two  conditions  have  to  be
cumulatively and simultaneously satisfied, viz., (1) goods should have  been
produced or manufactured by an  existing  100%  EOU,  and  (2)  these  goods
should have been allowed to be sold  in  India.    After  analyzing  various
aspects and the circulars dated 17.02.1983 clarifying  the  introduction  of
the proviso and the circular dated 29.05.1984 explaining  further  amendment
to the proviso to Section 3(1) of the Act, the Court held :-
“The contention of the Revenue is  that  permission  to  withdraw  from  the
Scheme is itself a permission to sell in  India,  i.e.,  when  the  unit  is
permitted to debond, it would be deemed to have been permitted to  sell  the
goods in India. But then permission to sell in India has to be in  terms  or
in accordance with the provisions of the  export-import  policy.  Permission
to sell in India by 100% EOU  consists  of  all  those  factors  like  value
addition, fulfilment of  export  obligation,  sale  of  a  general  currency
licence-holder, item being not mentioned  in  the  negative  list  and  then
there being a limit of 25%, etc. When permission to debond  is  given,  none
of these criteria or aspects are applied by the Board of Approvals (BoA)  to
the closing stock of finished goods. The Board of Approvals is  a  statutory
authority, which permits debonding.  It  is  created  under  the  Industrial
(Development and Regulation) Act. On the other hand permission to  sell  the
goods in India under and in accordance with the  import  policy  has  to  be
given by the Development Commissioner  in  the  Ministry  of  Commerce.  The
Board of Approvals  and  the  Development  Commissioner  are  two  different
authorities constituted for two different purposes. Permission to debond  is
a statutory function exercised by one  statutory  authority.  On  the  other
hand permission to  sell  in  India  is  to  be  exercised  by  a  different
statutory authority. If reference is  made  to  para  102  of  the  relevant
import-export policy permission of the Development Commissioner is  required
for selling the goods in India up to a limit of 25% by 100%  EOU.  Para  117
of the policy deals with debonding of 100% EOU. Thus  it  is  apparent  that
debonding and permission to sell in India are two  different  things  having
no connection with each other. It also becomes apparent that in view of  the
EOU Scheme as modified from time to time  and  corresponding  amendments  to
Section 3 of the Act the expression “allowed to be sold  in  India”  in  the
proviso to Section 3(1) of the Act is applicable only to sales  made  up  to
25% of production by 100%  EOU  in  DTA  and  with  the  permission  of  the
Development  Commissioner.  No  permission  is  required   to   sell   goods
manufactured by 100% EOU lying with it at the time approval  is  granted  to
debond.”

24.   After so stating the Court noted the stand  of  the  revenue  that  by
debonding permission had been granted by BoA for selling the  closing  stock
of finished goods in India.   Negativing  the  said  contention,  the  Court
held:-
“By its application dated 8-9-1993 the appellant had only asked the  Central
Government for permission to  debond  the  unit.  Pending  formal  debonding
clearance, the appellant requested the  Central  Government  that  it  might
allow it to sell the goods in India.  This  request  of  the  appellant  was
never acceded to by the authority concerned  and  letter  of  debonding  was
issued. This application of the appellant, therefore, could not  be  treated
as an application for permission to  sell  in  India  as  contended  by  the
Revenue and the debonding letter of BoA cannot be  construed  as  permission
to sell in India.  The  argument  of  the  Revenue  that  debonding  assumes
allowing all closing stock of the goods on the date of debonding to be  sold
in India would be stretching the matter a little  too  far.  Conditions  for
sale of 25% of the finished products by EOU and sale of finished stock by  a
debonded 100% EOU on the date of debonding are different.”

25.   Eventually, the Court  interpreting  the  provision  and  notification
issued under the relevant Rules held thus:-
“Chapter V-A of the Central Excise Rules  contains  provisions  for  removal
from a free trade zone or from a  100%  EOU  of  excisable  goods  for  home
consumption. This chapter was made applicable to units under the EOU  Scheme
by Notification No. 130/84-CE dated 26-5-1984. This chapter  contains  Rules
100-A to 100-H. Rule 100-A provides that  the  provisions  of  this  chapter
shall apply to a person permitted under any law for the time being in  force
to  produce  or  manufacture  excisable  goods  in  a  100%  export-oriented
undertaking and who has been allowed by the proper officer  to  remove  such
excisable goods for being sold  in  India  on  payment  of  duty  of  excise
leviable thereon. It will be thus seen that this Chapter V-A  would  not  be
applicable where EOU is outside the EOU Scheme after the unit  is  debonded.
Under Rule 100-H, Rule 57-A and other  Rules  mentioned  therein  shall  not
apply to excisable goods produced or manufactured by a 100%  export-oriented
undertaking. Rule 57-A relates to allowing credit of any duty of  excise  or
the additional duty under Section 3 of the Customs Tariff Act, 1975  as  may
be specified by the Central Government in  the  notification,  paid  on  the
goods used in or in relation to the manufacture of the  final  products  and
for utilising the credit so  allowed  towards  payment  of  duty  of  excise
leviable on the final products.”

26.   In view of the aforesaid position, the Court was of the view that  the
tribunal was not right in holding  that duty was to be leviable in terms  of
the proviso to Section 3(1) of the Act and, accordingly, it  set  aside  the
judgment of the tribunal and restored that of the adjudicating authority.
27.   The aforesaid judgment of this Court was distinguished by  the  Larger
Bench of the tribunal in Himalaya International  Ltd.  (supra).  The  Larger
Bench referred to circular No. 618/9/2002-CX  dated  13.02.2002   and  ruled
thus:-
“A reading of the above circular would show that it was issued  pursuant  to
the decision of the Supreme  Court  in  SIV  Industries  Ltd.  (supra),  but
without understanding the position that the Supreme Court did not deal  with
a case where clearance was made  to  DTA  by  100%  EOU  in  excess  of  the
permission granted.  It is contended on behalf  of  the  assessee  that  the
interpretation given in the circular referred to above  is  binding  on  the
Revenue and therefore, this Tribunal cannot give a different  interpretation
to Section 3(1) and the proviso at the instance of the Revenue.  In  support
of the above contention reliance was placed on a  decision  of  the  Supreme
Court in CCE, Vadodara v. Dhiren Chemicals  Industries,  2002  (139)  ELT  3
(S.C.). We find no merit in the above contention of the assessee.   In  CCE,
Vadodara v. Dhiren Chemicals Industries  the  Supreme  Court  observed  that
regardless of the interpretation placed by  it  on  the  expression  in  the
notification ‘on which appropriate duty of excise has already been paid’  if
there are circulars which have been issued by the Central Board of Excise  &
Customs placing  a  different  interpretation  upon  the  said  phrase  that
interpretation will be binding upon the Revenue.  In the  present  case,  we
are not dealing with any circular of Central Board of  Revenue  interpreting
the meaning of the proviso to Section 3(1) and which had been in force.   On
the other hand, the circular dated 13.2.2002 is one issued  giving  a  wrong
interpretation to the decision of the Supreme Court.  We have no  hesitation
to hold that an interpretation thus given by the Board to  the  decision  of
the Supreme Court will not be binding.”

28.   To appreciate the whole controversy in completeness, we may  reproduce
the said circular dated 13.2.2002:-
“Subject: Removal of goods by 100% EOUs to DTA  –  Non-levy  of  duty  under
Section 3(1) of Central Excise Act, 1944.

      I am directed to invite reference to Supreme Court’s judgment in  case
of SIV Industries v. CCE [2000 (117) E.L.T. 281 (S.C.)] vide which the  Apex
Court had held that “proviso to Section 3(1) regarding the  duty  chargeable
on goods cleared by EOUs shall be applicable only to sales made in DTA  upto
25% of production which are allowed to be sold into India as per  provisions
of EXIM Policy”.  In other words, Hon’ble Court decided that  if  the  goods
are “not allowed” to be sold in  India,  the  proviso  to  Section  3(1)  of
Central Excise Act, 1944 shall not be applicable.  The  expression  ‘allowed
to be sold’ has since been  replaced  with  ‘brought  to  any  other  place’
w.e.f. 11-5-2001 vide Section 120 of Finance Act, 2001 [14 of 2001].

2. It has come to  the  notice  of  the  Board  that  field  formations  are
interpreting the judgment of Apex Court to the  effect  that  if  the  goods
cleared by EOUs are not allowed to be sold into India, the Section  3(1)  of
Central Excise Act, 1944 is not applicable and duty can  be  demanded  under
the provisions of Customs Act, 1962 only.  Board has taken  a  serious  view
of this mis-interpretation.  The provisions  of  Central  Excise  Act,  1944
shall apply to all  goods  manufactured  or  produced  in  India  for  which
Section 3 is the charging section.  EOUs are also situated in India and  the
chargeability under Central Excise Act is never in doubt.  Therefore, it  is
clarified 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 Central Excise Act, 1944. Appropriate action  may  be  taken
immediately to safeguard revenue and all pending decisions  may  be  settled
accordingly.”



29.   The said circular, as is perceptible, is in accord with  the  decision
rendered in SIV  Industries  Ltd.  (supra).   The  said  circular  while  so
indicating also clearly lays down the expression “allowed to  be  sold”  has
been replaced with “brought to any other place” with effect from  11.05.2001
vide Section 120 of Finance Act, 2001 (14 of 2001).   The circular being  in
consonance with the decision in SIV Industries Ltd. (supra) and rightly  so,
it was absolute unnecessary on the part of the Larger Bench of the  tribunal
to say that this Court in SIV Industries Ltd. (supra) did not deal with  the
case where clearance  was  made  to  DTA  by  100%  EOU  in  excess  of  the
permission granted.   The  attempt  to  distinguish  the  circular,  in  our
considered opinion, was not only unnecessary but also absolutely  erroneous.

30.   After the judgment of the Larger Bench, the Central  Board  of  Excise
and Customs,  New  Delhi  brought  out  a  circular  dated  05.01.2004.  The
relevant part of the said circular reads as follows:-
“Subject: Withdrawal of Board’s Circular No.618/9/2002-CX., dated  13-2-2002
– Removal of goods by 100% EOU to DTA  –  Clarification  regarding  levy  of
duty on removal of goods by 100% EOU to DTA.

I am directed to draw your attention to  Board’s  Circular  No.  618/9/2002-
CX., dated 13-02-2002 [2002 (140) E.L.T. T27] on the above  subject  wherein
it was clarified that prior to 11-5-2001, 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  Central  Excise  Act,  1944.This  was  based  on  an
interpretation of Apex Court’s decision in the case of SIV  Industries  Ltd.
[2000 (117) E.L.T. 281(S.C.)].

2.    However, attention is now invited to the decision of Larger  Bench  of
CESTAT in the case of M/s. Himalaya International Ltd.  v.  Commissioner  of
Central Excise, Chandigarh [2003 (154) E.L.T. 580 (Tri. – LB)],  wherein  it
has been held that “Rate of duty as per the proviso to Section 3(1)  of  the
Central  Excise  Act,  1944  would  be  applicable  for  assessing  all  the
excisable goods, which were cleared by 100% EOU to DTA whether in  terms  of
permission granted or in excess of permission  granted”.   In  view  of  the
said  judgment  of  the  CESTAT,  it  is  now  clear  that  all  the   goods
manufactured by EOU and cleared into DTA before final debonding of  the  EOU
shall be chargeable to duty under proviso to Section  3(1)  of  the  Central
Excise Act, 1944 and under no condition, goods produced in 100% EOU  can  be
charged under main Section 3(1) of Central Excise Act, 1944.

3.     In view of the above judgment of the CESTAT, the matter has been  re-
considered by the Board and it has been  decided  to  withdraw  the  Board’s
Circular No. 618/9/2002-CX., dated 13-2-2002.  The above-mentioned  judgment
of CESTAT, which has been accepted  by  Board,  may  kindly  be  taken  into
consideration in deciding similar pending cases.”

31.   Having noted the circular, we may refer to the authority in  NCC  Blue
Water Products Ltd. (supra).  In the said case, the tribunal has  held  that
the duty of Central excise on shrimps and shrimp seeds produced and  removed
by the assessee-respondent,  a  100%  export-oriented  unit  (EOU),  in  the
Domestic  Tariff  Area  (DTA)  without  the  approval  of  the   Development
Commissioner, would be payable under Section 3(1) of the Act and  not  under
the proviso appended thereto.   The two-Judge Bench taking note of the  fact
that during the period 1994-1995 to 1997-1998,  the  assessee  produced  and
sold 11,15,29,540 number of shrimp seeds and 48,365 kg  of  shrimps  in  DTA
without obtaining the permission of the  Development  Commissioner;  without
issuing proper invoices as mandated under Rule 100-E of the  Central  Excise
Rules, 1944 (for short “the Rules”) and  without  payment  of  excise  duty.
Besides, the assessee also undertook certain job-work whereby  it  processed
864.238 MT of shrimps and 905.580 MT of fish and cleared the said  goods  in
DTA. According to the assessee, these goods were ultimately exported by  DTA
units. The said action of the assessee compelled the authority  to  issue  a
show cause notice requiring the assessee to show cause as  to  why  duty  of
excise equal to aggregate of the duties of  customs  should  not  be  levied
under Section 3 of the Act read with Rule 9(2) read  with  proviso  to  sub-
section (1) of Section 11-A of the Act and  interest  and  penalty  thereon.
The matter was contested by the assessee and eventually the  tribunal  ruled
in favour of the assessee. Before this Court, it was  contended  that  since
as per Note 1 of Section I of the First Schedule to the Customs 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 classifiable under Sub-Heading 0306.23 of Chapter 3  of
the First Schedule to the Customs Tariff Act, 1975.  It was also urged  that
the tribunal committed an error in relying on the decision of this Court  in
SIV Industries Ltd. (supra) because unlike in that  case  the  assessee  had
sought permission of the 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  duty
under proviso to Section 3(1) of the Act. It was also urged that  under  the
Exim Policy, an EOU is obliged to make  exports  of  the  entire  production
itself and not through any other entity.   The  Court  posed  the  following
question:-
“The core question for our consideration, therefore, is  whether  the  sales
of shrimps and shrimp seeds  by  the  assessee  in  DTA,  without  requisite
permission from the Development Commissioner, are to be assessed  to  excise
duty under Section 3(1) of  the  Act  or  under  the  proviso  to  the  said
section?”

32.   To deal with the said question, the Court referred to  Section  3  and
it expressed understanding of the provision in the following terms:-
“It is manifest that all excisable goods produced or manufactured  in  India
are exigible to duty of excise under Section 3  of  the  Act,  the  charging
section, at the rates set forth in the Schedule to the Tariff Act.  However,
the proviso to the said section provides that the duties of  excise  on  any
excisable goods, which are produced  or  manufactured  by  a  100%  EOU  and
allowed to be sold in India shall be an amount equal  to  the  aggregate  of
the duties of customs which would  be  leviable  under  Section  12  of  the
Customs Act, 1962. As aforestated, the controversy at  hand  is  whether  in
the absence of an order by the competent authority,  allowing  the  assessee
to sell the shrimp seeds and shrimps in India, excise  duty  on  such  sales
could  be  levied  and  collected  in  terms  of  the  proviso.  To  put  it
differently, the  issue  relates  to  the  significance  of  the  expression
“allowed to be sold in India” as appearing in clause (ii) to the proviso  to
sub-section (1) of Section 3 of the Act.”

33.   After so stating the two-Judge Bench referred to the decision  in  SIV
Industries Ltd. (supra) and opined that:-

“A similar issue fell for consideration of  this  Court  in  SIV  Industries
Ltd. (supra) In that case, the assessee was  a  100%  EOU.  Later  on,  they
sought permission to withdraw from 100% EOU Scheme, for which  the  Ministry
accorded the necessary permission. However, some of the goods lying  in  the
unit were removed prior to the debonding.  A  dispute  arose  regarding  the
rate of duty payable on such sales. The plea taken by the assessee was  that
they were liable to pay duty under Section 3(1) of  the  Act  together  with
customs duty on the imported raw material used in the  manufacture  of  said
finished goods, lying in the stock whereas the  stand  of  the  Revenue  was
that excise duty under the proviso to Section 3(1) of the  Act  was  payable
on the finished goods with  no  customs  duty  being  leviable  on  the  raw
materials used in the manufacture of  finished  goods.  Thus,  the  bone  of
contention in that case was also with regard to the  interpretation  of  the
expression “allowed to be sold in India”  appearing  in  the  said  proviso.
Interpreting the said  expression,  this  Court  held  that  the  expression
“allowed to be sold in India” used in the proviso to  Section  3(1)  of  the
Act is applicable only to sales made in DTA up to 25% of the  production  by
100% EOUs, 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.
The Court opined that the goods having been sold 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.”
                                                            [Emphasis added]


34.   It is necessary to state here that after so  stating  the  Court  also
noted  that after pronouncement of  the  decision  in  SIV  Industries  Ltd.
(supra), the circular was issued  on  13.02.2002  clarifying  the  position.
Interpreting the said circular, the Court held:-
“19. As  aforesaid,  according  to  the  Exim  Policy  1992-1997  read  with
Appendix XXXIII of the Handbook of Procedures, an EOU may sell  50%  of  its
production in value  terms  into  a  DTA  only  on  issuance  of  a  removal
authorisation by the Development Commissioner.

20. In the instant case, admittedly at the time  of  sales  of  shrimps  and
shrimp seeds by the assessee in DTA, the Development  Commissioner  had  not
issued the requisite  removal  authorisation.  Therefore,  in  view  of  the
dictum of this Court in SIV Industries Ltd. (supra), with which  we  are  in
respectful agreement, and the afore-extracted circular issued by  the  Board
following the said decision, excise duty on such sales is  chargeable  under
main Section 3(1) of the Act.”
                                                            [Emphasis added]

35.   The impugned order,  as  is  manifest,  relies  on  the  Larger  Bench
decision. It is to be noted that  after  the  judgment  in  NCC  Blue  Water
Products Ltd. (supra) the said decision was brought to  the  notice  of  the
tribunal but it has opined that  parent  judgment  in  SIV  Industries  Ltd.
(supra) was distinguished by the  Larger  Bench  and  further  the  circular
dated 05.01.2004 was not taken note of  by  this  Court  in  the  subsequent
judgment.  On a  careful  scrutiny  of  the  authority  in  NCC  Blue  Water
Products Ltd. (supra), we are of the  considered  opinion  that  it  concurs
with the view expressed in SIV Industries Ltd. (supra). The  circular  dated
05.01.2004 came into existence after the Larger Bench decision  in  Himalaya
International Ltd. (supra).  We  have  already  stated  that  there  was  no
justification  for  distinguishing  the  decision  in  SIV  Industries  Ltd.
(supra).  The Technical Member who authored the judgment after the  decision
in NCC Blue Water Products Ltd. (supra) was brought to  the  notice  of  the
tribunal  has  absolutely   improperly  noted  that   the   circular   dated
05.01.2004 was not brought to the notice of this Court.  The  Court  in  NCC
Blue Water Products Ltd. case had not based its conclusion on the  basis  of
the circular dated 13.02.2002. It is clear as  day  that  it  has  concurred
with the ratio laid down  in  SIV  Industries  Ltd.  (supra).  It  has  been
clearly opined that the expression “allowed to be sold  in  India”  used  in
proviso to Section 3(1) of the Act would be applicable only  to  sales  made
in DTA  of the production by 100% EOUs, which are allowed to  be  sold  into
India as per the provisions of the Exim Policy.
36.   The said authority has also made it clear that the circular issued  in
2002 is in consonance with the authority in  SIV  Industries  Ltd.  (supra).
Thus, the view expressed by NCC Blue Water Products Ltd. (supra)  has  given
the stamp of approval to the circular. It is a binding precedent on all  the
courts and the tribunals under Article 141 of  the  Constitution  of  India.
The Larger Bench  of  the  Tribunal,  as  stated  earlier,  could  not  have
distinguished the  judgment  in  SIV  Industries  Ltd.  (supra).  The  later
circular issued on 05.01.2004 on which reliance was placed  by  the  revenue
before the tribunal which has been taken note of in  the  impugned  judgment
is clearly indicative of an erroneous approach.  The decision  in  NCC  Blue
Water Products Ltd. (supra) was bound to be followed and the tribunal  could
not have stated that 2004 circular was  not  taken  note  of.  The  tribunal
should have appropriately appreciated that this Court was  interpreting  the
statutory provision and it is also worthy to note that  after  the  judgment
delivered in SIV Industries Ltd. (supra) an amendment was brought  into  the
provision.  Therefore, the transaction prior to the date of amendment  would
be governed by SIV Industries Ltd. (supra) which has been  followed  in  NCC
Blue Water Products Ltd. (supra). Be it clarified that we are not  concerned
with the amended provision in this case.
37.   In view of the aforesaid  analysis,  the  appeals  are  allowed.   The
judgment and order passed by the  tribunal  and  that  of  the  adjudicating
authority are set aside. The assessee shall be  liable  to  pay  the  excise
duty as per Section 3(1) of the Act.  The competent  authority  is  directed
to compute the duty accordingly and proceed thereafter as per  law.  In  the
facts and circumstances of the case, there shall be no order as to costs.


                                  ........................................J.
                                    [DIPAK MISRA]



                                  ........................................J.
                                              [SHIVA KIRTI SINGH]
NEW DELHI;
June 03, 2016
-----------------------
[1]     1996 (86) ELT 472 (SC)
[2]     (2000) 3 SCC 367
[3]     1999 (108) ELT 61 (Tribunal)
[4]     2005 (188) ELT 201 (Trib.-Mumbai)
[5]     2002 (141) ELT 3 (SC)
[6]     (2010) 12 SCC 761 : 2010 (258)_ ELT 161
[7]    (2003) 154 ELT 580


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