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

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 ... Eligibility for exemption under Notification No.2/95-CE - interpretation of 'allowed to be sold in India' in the proviso to Section 3(1) of the Central Excise Act, 1944 - treatment of DTA sales against foreign exchange (para 9.10(b)) as 'Other Supplies in DTA' equated with physical exports - remand for calculation of duties under Notification No.2/95-CEInterpretation of 'allowed to be sold in India' in the proviso to Section 3(1) of the Central Excise Act, 1944 - treatment of DTA sales against foreign exchange (para 9.10(b)) as 'Other Supplies in DTA' equated with physical exports - eligibility for exemption under Notification No.2/95-CE - DTA sales against foreign exchange made under paragraph 9.10(b) of the Exim Policy fall within the expression 'allowed to be sold in India' in the proviso to Section 3(1) of the Central Excise Act, 1944 and are eligible for consideration under Notification No.2/95-CE. - HELD THAT: - The Court held that the Exim Policy treated 'Other Supplies in DTA' (DTA sales against foreign exchange) as being equated with physical exports for policy purposes, because such supplies preserve foreign exchange, effect import substitution and maintain competitiveness. Consequently the expression 'allowed to be sold in India' in the proviso to Section 3(1) covers DTA sales against foreign exchange as well as DTA sales against rupee. There is no basis to subject DTA sales against foreign exchange to a higher duty or to deny them the benefit of Notification No.2/95-CE where DTA sales against rupee are entitled to that benefit; the Tribunal erred in limiting the exemption to 50% of such supplies by relying on para 9.9(b). The matter is confined to the arguments on record and the Court concludes that, subject to compliance with the other conditions of Notification No.2/95-CE, supplies under para 9.10(b) cannot be excluded from the exemption regime applicable to 100% EOUs. [Paras 7]DTA supplies against foreign exchange under para 9.10(b) are covered by the proviso to Section 3(1) and the appellant is entitled to have such supplies considered under Notification No.2/95-CE.Remand for calculation of duties under Notification No.2/95-CE - The question of quantification/assessment of duties payable in view of entitlement under Notification No.2/95-CE is remitted to the Commissioner for fresh calculation. - HELD THAT: - Having held that para 9.10(b) supplies fall within the proviso and are to be examined under Notification No.2/95-CE, the Court directed that all issues relating to calculation of duty in terms of that notification be decided afresh by the adjudicating authority. The Commissioner is to compute the duties payable by the assessee in accordance with Notification No.2/95-CE and subject to the notification's conditions and provisos. [Paras 9]Matter remitted to the Commissioner for calculation of duties payable under Notification No.2/95-CE in accordance with the Court's interpretation.Final Conclusion: The appeal is allowed; the Tribunal's decision is set aside to the extent it denied full benefit of Notification No.2/95-CE to DTA supplies against foreign exchange, and the matter is remitted to the Commissioner for fresh calculation of duties payable under Notification No.2/95-CE. 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.