2018 (7) TMI 979 - AT - Central Excise

Tribunal Upholds Customs Act Valuation Principle for 100% EOU Goods

The Tribunal upheld the Revenue's valuation principle under the Customs Act, 1962 for goods manufactured and cleared by a 100% EOU. The appeals were ... 100% EOU - Valuation - goods manufactured and cleared by 100% EOU - whether the valuation shall be governed by Section 4 of Central Excise Act, 1944 or Section 14 of Customs Act, 1962? - Held that:- As per the facts of the case, the goods were manufactured out of the imported and some of the indigenous raw material and cleared in DTA on payment of duty. Some of the goods were cleared to the appellants own sister unit and part of the goods manufactured and cleared to the independent manufacturer - as per Section 3 proviso, Clause (ii) of CEA, it is clear that the value for the purpose of DTA sale shall be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1974 - Thus, there is no doubt that the valuation in respect of goods manufactured by EOU shall be adopted in accordance with the Customs Act, 1962. As regards the judgement of Hon’ble Supreme Court in the case of Nestle India Ltd [2015 (11) TMI 1171 - SUPREME COURT], it is found that in the said case the fact was different as the goods were manufactured from only indigenous raw-material and allowed to be sold in DTA, whereas in the present case, the goods were manufactured out of the imported and some of the indigenous raw material and cleared in DTA on payment of duty - As per the holistic view from the overall scheme for 100% EOU, the object is that goods manufactured by 100% EOU should be exported and if it is permited to be cleared in DTA, duty equal to the Customs duty should be charged. Appeal dismissed - decided against appellant. Issues involved:Valuation of goods manufactured and cleared by a 100% EOU - Whether governed by Section 4 of Central Excise Act, 1944 or Section 14 of Customs Act, 1962.Analysis:Issue 1: Valuation under Central Excise Act or Customs ActThe core issue in this case was whether the valuation of goods manufactured and cleared by a 100% EOU should be governed by Section 4 of the Central Excise Act, 1944, or Section 14 of the Customs Act, 1962. The department argued that the valuation should be done under the Customs Act, 1962, based on the value of identical goods sold to independent buyers. The appellant, however, relied on a Supreme Court judgment in the case of Nestle India Ltd., which held that valuation for goods manufactured by a 100% EOU should be done as per the Central Excise Act, 1944.Issue 2: Interpretation of ProvisionsThe Tribunal carefully considered the provisions under Section 3 of the Central Excise Act, 1944, which specifically addresses the duties on goods produced by a 100% EOU and cleared in the Domestic Tariff Area (DTA). The Tribunal noted that as per the proviso in Section 3, the valuation for DTA sales should be determined in accordance with the Customs Act, 1962 and the Customs Tariff Act, 1974. This provision clearly indicated that the valuation of goods manufactured by a 100% EOU should be done in accordance with the Customs Act, 1962.Issue 3: Distinguishing PrecedentThe Tribunal also analyzed the Supreme Court judgment in the Nestle India Ltd. case and distinguished it from the present case. It noted that in the Nestle case, the goods were manufactured using only indigenous raw material and allowed to be sold in the DTA. However, in the current case, the goods were manufactured using a mix of imported and indigenous raw materials. The Tribunal emphasized that the objective of a 100% EOU is primarily export-oriented, and if goods are cleared in the DTA, duty equivalent to customs duty should be charged. Since the raw materials for goods manufactured by a 100% EOU are imported duty-free, the duty on finished goods should compensate for the customs duty foregone on raw materials.ConclusionAfter thorough analysis, the Tribunal concluded that the valuation principle applied by the Revenue under the Customs Act, 1962 was correct and legally sound. Therefore, the impugned orders were upheld, and the appeals were dismissed. This decision was based on the specific provisions of the Central Excise Act, 1944, and the objective of 100% EOUs to primarily focus on exports, ensuring that the duty structure aligns with the import benefits enjoyed by such units.