2020 (9) TMI 49 - SC - Central Excise

Supreme Court Upholds Customs Duty on Unauthorized Sales by Export Unit

The Supreme Court upheld the levy of customs duty on an Export Oriented Unit (EOU) for unauthorized sales of non-excisable goods in the Domestic Tariff ... Customs duty on inputs used in production - exemption notification for 100% EOUs - EXIM Policy DTA sales conditions and positive net foreign exchange requirement - prospective application of amendment notification - Section 12 of the Customs Act, 1962 as the charging provision - Section 28 of the Customs Act, 1962 - extended period for wilful suppression - strict construction of exemption clauses - clarificatory versus remedial amendment and retrospective effectCustoms duty on inputs used in production - exemption notification for 100% EOUs - EXIM Policy DTA sales conditions and positive net foreign exchange requirement - Section 12 of the Customs Act, 1962 as the charging provision - strict construction of exemption clauses - Section 28 of the Customs Act, 1962 - extended period for wilful suppression - Levy of customs duty in respect of DTA clearances by an EOU producing non-excisable goods and invocation of extended limitation for wilful suppression - HELD THAT: - The notification granting duty-free import to 100% EOUs permits DTA sales only in accordance with EXIM Policy subject to prescribed conditions (including positive net foreign exchange entitlement). Where DTA clearances are made in contravention of those conditions the exemption under the notification is unavailable and the goods become liable to duty as if imported. For non-excisable goods paragraph 3 of the notification prescribes recovery by reference to customs duty on the inputs used in production; Section 12 of the Customs Act is the charging provision for imported goods and the notification, issued under delegated power, operates as 'any other law' prescribing the rate. The show cause was directed to quantify customs duty by treating the DTA clearances as deemed imports only for assessing the duty on imported inputs, not to tax domestically grown flowers per se. The appellant failed to discharge the burden of showing that imported inputs were not used and the show cause alleged wilful suppression; on the material the invocation of extended period under Section 28 was justified. Consequently, the authorities and CESTAT correctly sustained the demand and penalties. [Paras 16, 18, 20, 22, 34]Customs duty on inputs used in production of non-excisable goods cleared to DTA in breach of EXIM Policy is maintainable under the Customs Act; extended limitation under Section 28 was rightly invoked.Prospective application of amendment notification - clarificatory versus remedial amendment and retrospective effect - strict construction of exemption clauses - Whether Notification No. 56/01Cus dated 18.5.2001 amending the method of charging duty on inputs applies retrospectively or prospectively - HELD THAT: - The amendment substituted the charging provision so that duty on non-excisable goods cleared to DTA would be calculated by reference to customs duty on inputs actually obtained under the notification. The language of the amendment does not expressly provide retrospective operation. Principles of construction require that fiscal or substantive changes operate prospectively unless clearly intended otherwise or the amendment is demonstrably declaratory/clarificatory of an earlier, ambiguous provision. The pre-amendment regime deliberately equated the duty on non-excisable DTA clearances to the customs duty chargeable on the finished articles (a policy choice), and the amendment removed that policy by a conscious change to the charging mechanism; the change was not merely a clarification of an obvious drafting error. Established authorities require that where there is no ambiguity or error in the prior provision and the amendment effects a substantive change, it must be applied prospectively. Accordingly the amendment could not be given retrospective effect to undo liabilities which had already accrued prior to 18.5.2001. [Paras 24, 26, 28, 31]Notification No. 56/01Cus (18.05.2001) is prospective in operation; it does not retrospectively alter or undo duty liabilities that had arisen under the earlier formulation.Final Conclusion: The appeals fail. CESTAT's confirmation of customs duty (assessed by reference to imported inputs) and related interest/penalty for the DTA clearances in breach of EXIM Policy is upheld; the 2001 amendment is prospective and does not affect liabilities already accrued. The appeal is dismissed. Issues Involved:1. Whether customs duty can be charged on the non-excisable goods produced in India and sold in the Domestic Tariff Area (DTA) by an Export Oriented Unit (EOU)Rs.2. Whether the amendment in terms of Notification No. 56/01-Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its applicationRs.Detailed Analysis:Issue 1: Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOURs.The appellant, a 100% EOU, engaged in the production of cut flowers, was required to export all articles produced by it and was exempted from customs duty on imported inputs used during production, as per Notification No. 126/94-Cus dated 3.6.1994. However, the appellant sold cut flowers in the DTA without obtaining the requisite approval from the Development Commissioner and without maintaining the requisite net foreign exchange earning, which was in contravention of the EXIM Policy.The Additional Commissioner issued a show cause notice to the appellant for the unauthorized DTA sales and confirmed the demand for customs duty, interest, and penalty. The appellant's appeals before the Commissioner (Appeals) and CESTAT were dismissed, confirming the levy of customs duty.The Supreme Court noted that the exemption notification allowed EOUs to clear goods in DTA to the extent permissible by the EXIM policy, which required maintaining positive net foreign exchange earning. The Court held that in case of contravention of the EXIM policy conditions, customs duty would be leviable as if such goods were imported goods, irrespective of whether the goods produced were excisable or non-excisable. The appellant's reliance on the decision in Vikram Ispat was found inapplicable as it did not involve contravention of EXIM policy conditions.The Court further clarified that for non-excisable goods, the customs duty on inputs used in their production is to be charged as per the exemption notification. The show cause notice treated cut flowers as deemed imported only for quantification of customs duty on the imported inputs, not on the domestically grown cut flowers.Issue 2: Whether the amendment in terms of Notification No. 56/01-Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its applicationRs.The appellant argued that the amendment notification, which changed the criteria for determining customs duty on inputs used in the production of non-excisable goods cleared in DTA, should apply retrospectively. The appellant relied on a CBEC Circular and decisions of the Supreme Court to support this claim.The Supreme Court, however, observed that the language of the amendment notification did not indicate retrospective application. It noted that laws are presumed to apply prospectively unless expressly stated otherwise or intended by the legislature. The Court found that the amendment was brought to address an anomaly and to harmonize the customs and excise notifications, but this did not imply an error in the previous notification.The Court referred to the decision in IndusInd Bank, which held that remedial provisions are not to be construed as clarificatory or declaratory and must be applied prospectively. The Court also cited the Constitution Bench decision in Hari Chand Shri Gopal, emphasizing that exemption clauses must be strictly construed, and any ambiguity must benefit the State.The Court concluded that the amendment notification was prospective and did not apply to the appellant's case. The appellant's failure to comply with the EXIM policy conditions denuded them of the exemption benefit, and the demand for customs duty was rightly made.Conclusion:The Supreme Court upheld the levy of customs duty on the appellant for the unauthorized DTA sales of non-excisable goods, confirming that the amendment notification was prospective in application. The appeal was dismissed, and the demand for customs duty, interest, and penalty was affirmed.