Unconditional exemption from additional excise duty barred levy on 100% EOU clearances to the Domestic Tariff Area.

Notification No. 55/91-C.E. granted an unconditional exemption from additional excise duty on goods manufactured by a 100% EOU and cleared to the Domestic Tariff Area. Although duty on such clearances may be measured by reference to customs duties, the levy remained excise duty and was capable of exemption under section 5A of the Central Excise Act, 1944. The exemption therefore extinguished the duty liability itself. The contrary view based on the customs-linked measure and the Board circular was held erroneous, and the demand, interest and penalty could not be sustained.

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Issues: Whether additional excise duty under the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 was payable on clearances of cotton yarn by a 100% Export Oriented Unit to the Domestic Tariff Area in view of Notification No. 55/91-C.E. dated 25-7-91.

Analysis: The liability to excise duty on manufactured goods is created by section 3 of the Central Excise Act, 1944, and in the case of 100% EOUs cleared to the Domestic Tariff Area the measure of duty may be linked to customs duties. However, the levy in substance remains excise duty, and the Central Government has power under section 5A of the Central Excise Act, 1944 to exempt such duty. Notification No. 55/91-C.E. dated 25-7-91 was held to grant an unconditional exemption from additional excise duty under the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 in respect of goods manufactured in a 100% EOU. Once the exemption operated, the duty liability itself stood extinguished and the lower authority's reliance on the customs-based measure and the Board circular was held to be erroneous.

Conclusion: Additional excise duty was not payable on the impugned clearances, and the demand, interest and penalty could not be sustained.

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