2007 (4) TMI 6 - SC - Central Excise

Notification No. 2/95-CE: Appeal allows full concessional relief for DTA sales against foreign exchange; previous order set aside

VIRLON TEXTILE MILLS LTD Versus COMMISSIONER OF C. EX., MUMBAI

SC allowed the appeal, holding the tribunal erred in limiting Notification No. 2/95-CE relief to 50% of DTA sales against foreign exchange. DTA sales ... Entitlement to exemption under Notification No. 2/95-CE - EXIM -100% EOU - Alleged that appellant was not paying appropriate duties on the goods cleared by him - Appellant demand for exemption under Notification No. 2/95-CE rejected by Tribunal - HELD THAT:- In our view, the Tribunal had erred in relying on para 9.9(b) for limiting the benefits of exemption under Notification No. 2/95-CE by imposing a new condition to the effect that the benefits would be admissible only in respect of 50% of such DTA sales against foreign exchange. Secondly, once the permission was granted by the competent authority under the Exim Policy to make DTA sales against foreign exchange, the assessee (appellant herein) was entitled to the benefit of concessional rate of duty under Notification No. 2/95-CE. If DTA sales against rupee were allowed the benefit of Notification No. 2/95-CE, then DTA supplies against foreign exchange, which were at par with physical exports, cannot be denied the same benefits and they cannot be subjected to a higher duty. Thirdly, once DTA sales against foreign exchange are covered by the above expression 'allowed to be sold in India', all issues relating to calculation of the duty payable in terms of notification No. 2/95-CE will have to be decided afresh by the adjudicating authority and accordingly, we hereby remand the matter back to the Commissioner for calculating the duties payable by the assessee in terms of Notification No. 2/95. The Commissioner will calculate the duties accordingly as hereinabove mentioned. Lastly, we are of the view that there is no fundamental difference, as far as the exemption notification No. 2/95-CE is concerned, between DTA sales against foreign exchange and DTA sales against rupee. Once DTA sales against foreign exchange fall within the expression 'allowed to be sold in India', the Department cannot deny to such sales the exemption under Notification no. 2/95-CE, since DTA sales against foreign exchange will come under para 9.9. According to the Tribunal, the entire supply to PTA against foreign exchange was not entitled to the benefit of Notification No. 2/95-CE but only 50% of the supply was eligible for the said relief. We do not see any basis for introduction of this condition in Notification No. 2/95-CE. It appears that this condition is brought in on the ground that para 9.9(b) refers to DTA sales up to 50% of the FOB value of exports. In our view, the Tribunal had erred in relying on the said para 9.9(b) for limiting the benefits of exemption under Notification No. 2/95-CE in respect of 50% of DTA sales (supplies) against foreign exchange. One cannot ignore the fact that DTA sales in foreign exchange provides for better money value as compared to DTA sales in rupee. Therefore, if DTA sales against rupee are allowed the benefits of Notification No. 2/95-CE, DTA supplies, which are at par with physical exports, cannot be denied the same benefits. Thus, we do not wish to examine the larger issue canvassed before us on behalf of the assessee (appellant herein). We are confining this judgment to the arguments which were advanced by the appellant herein before the Tribunal. Accordingly, the civil appeal filed by the appellant herein stands allowed. The impugned judgment of the Tribunal is set aside and the matter is remitted to the Commissioner for calculation of duties payable in terms of notification no. 2/95-CE, as interpreted hereinabove. The appeal stands allowed with no order as to costs. Issues Involved:1. Rate of duty applicable to Domestic Tariff Area (DTA) sales under para 9.10(b) of the Export and Import Policy (Exim Policy) 1997-2002.2. Entitlement to exemption under Notification No. 2/95-CE.3. Comparison between DTA sales against foreign exchange and DTA sales against rupee.4. Calculation of duties payable under Notification No. 2/95-CE.Detailed Analysis:1. Rate of Duty Applicable to DTA Sales under Para 9.10(b) of Exim Policy 1997-2002:The appellant, a 100% Export Oriented Unit (EOU), was engaged in the manufacture of Texturised Polyester Yarn and Dyed Polyester Yarn, sold against foreign exchange in the Domestic Tariff Area (DTA) under para 9.10(b) of the Exim Policy 1997-2002. A show cause notice issued by the Joint Commissioner of Central Excise, Mumbai, alleged that the appellant had not paid appropriate duties on these goods. The notice stated that under the proviso to Section 3(1) of the Central Excise Act, 1944, duty of excise was leviable on excisable goods produced by 100% EOU and allowed to be sold in India, equal to the aggregate of the duties of customs leviable under Section 12 of the Customs Act, 1962, on like goods produced or manufactured outside India if imported into India.2. Entitlement to Exemption under Notification No. 2/95-CE:The Tribunal upheld the demand, stating that the appellant was required to pay duty equal to the aggregate of duties of customs on such yarns. The Tribunal rejected the appellant's contention that it was entitled to exemption under Notification No. 2/95-CE, which exempts excisable goods produced in 100% EOU when sold in India. The Tribunal also rejected the applicability of Notification No. 53/97-Cus, which exempts specified goods from customs duty when imported for manufacture of articles for export.3. Comparison Between DTA Sales Against Foreign Exchange and DTA Sales Against Rupee:The appellant argued that DTA sales against foreign exchange should be equated with DTA sales under para 9.9 for claiming the benefit of exemption under Notification No. 2/95-CE. The Tribunal, however, limited the benefits of exemption to 50% of such DTA sales against foreign exchange, relying on para 9.9(b) of the Exim Policy.4. Calculation of Duties Payable Under Notification No. 2/95-CE:The Supreme Court found merit in the appellant's argument, stating that DTA sales against foreign exchange should be covered by the expression 'allowed to be sold in India' under the proviso to Section 3(1) of the Central Excise Act, 1944. The Court held that once DTA sales against foreign exchange are covered by this expression, the difference between DTA sales against rupee and DTA sales against foreign exchange for the purposes of Notification No. 2/95-CE would be eliminated, subject to compliance with other conditions of the notification.The Court concluded that the Tribunal erred in limiting the benefits of exemption under Notification No. 2/95-CE to 50% of DTA sales against foreign exchange. The Court remanded the matter back to the Commissioner for calculating the duties payable by the appellant in terms of Notification No. 2/95-CE, as interpreted by the Court.Conclusion:The Supreme Court allowed the civil appeal, set aside the Tribunal's judgment, and remitted the matter to the Commissioner for recalculating the duties payable by the appellant under Notification No. 2/95-CE. The Court also dismissed the civil appeal filed by the Department, consistent with its judgment in the appellant's case. The appeal was allowed with no order as to costs.