2020 (9) TMI 49 - SC - Central Excise

Supreme Court Upholds Customs Duty on Unauthorized Sales by Export Unit

M/s. L.R. Brothers Indo Flora Ltd. Versus Commissioner of Central Excise

M/s. L.R. Brothers Indo Flora Ltd. Versus Commissioner of Central Excise - 2020 (373) E.L.T. 721 (SC), [2020] 12 G S.T.R. - OL 386 (SC) 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.