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of <h1>Appellant granted duty exemptions by Tribunal for scrap cleared into DTA, upholding favorable rulings</h1> <h3>M/s Meneta Automotive Components Private Limited Versus The Commissioner of Central Excise, Rohtak</h3> The Tribunal ruled in favor of the appellant, an EOU, regarding the entitlement of concessional rate of duty on scrap cleared into DTA, duty calculation ... Extended period of limitation - concessional rate of duty on the scrap cleared - HELD THAT:- The appellant’s case is squarely covered by the decision of the Tribunal in their own case for the past period M/S MENETA AUTOMOTIVE COMPONENTS PVT. LTD., SHRI PRAVEEN GARG, AUTHORISED SIGNATORY VERSUS CCE & ST, ROHTAK [2015 (4) TMI 733 - CESTAT NEW DELHI] and by the decision of the Commissioner in the subsequent period. Learned Commissioner vide OIO dated 23.11.2016 had categorically mentioned that the aforesaid decision of the Hon’ble Tribunal has attained its finality as the worthy Chief Commissioner, Central Excise, Delhi vide their office letter C.No. CCO(OZ)CXJ116/Meneta/CESTAT/ Review/ 2015 dated 03.11.2015 has accorded concurrence on the proposal of acceptance of Hon’ble CESTAT Final Order in M/S MENETA AUTOMOTIVE COMPONENTS PVT. LTD., SHRI PRAVEEN GARG, AUTHORISED SIGNATORY VERSUS CCE & ST, ROHTAK [2015 (4) TMI 733 - CESTAT NEW DELHI]. The impugned order is not sustainable and is liable to be set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether scrap cleared from a 100% EOU into DTA is eligible for exemption from Basic Customs Duty when an import exemption notification (for melting scrap) exists, notwithstanding absence of fixed/ad hoc SION or non-compliance with para 6.8 of the Foreign Trade Policy. 2. Whether the Special Additional Duty (SAD) component of excise duty (Section 3(5) of the Customs Tariff Act) is leviable on DTA clearances from a 100% EOU where State VAT has been paid and conditions analogous to import notification requirements are satisfied. 3. Whether denial of exemption on the ground that the scrap is not 'melting scrap' is supportable where the inherent nature and typical use of iron and steel scrap is to be melted. 4. Whether the departmental calculation of duty, including additive application of cesses (triple counting of cess), and invocation of extended period of limitation in subsequent show-cause notices, is legally sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility for exemption from Basic Customs Duty on DTA clearances of scrap from a 100% EOU despite lack of SION/para 6.8 compliance Legal framework: Central Excise levy under proviso to Section 3(1) of the Central Excise Act is tied to rates applicable to import of like goods (Basic Customs Duty) read with any customs exemption notifications issued under Section 25 of the Customs Act; Notification granting exemption on import (e.g., for melting scrap) negates basic customs duty where effective import duty is nil. Precedent treatment: Tribunal's earlier decision in the appellant's own case (Principal Bench) and Board Circular No. 305/83/94-FTT (15-9-1994) treating import exemption as determinative for basic customs duty component on DTA clearances; corroborating Tribunal authorities cited by parties. Interpretation and reasoning: The Court reasons that when an imported good is fully and unconditionally exempt from Basic Customs Duty by a notification, the Basic Customs Duty component of excise payable on DTA clearance must be treated as nil even if DTA clearance does not comply with para 6.8 of FTP or SION are not fixed. The proviso to Section 3(1) requires calculation of excise duty by reference to import duty rates, and where import duty is nil by virtue of an exemption notification, that nil rate controls. The Board's earlier circular supports adopting the effective import rate in computing the excise obligation on DTA clearances. Ratio vs. Obiter: Ratio - adoption of effective import duty (including zero where exempted) in computing basic customs duty component of excise on DTA clearances; Conclusion is determinative for the controversy. Conclusion: Denial of basic customs duty exemption under Notification granting import exemption is unsustainable; Basic Customs Duty component on DTA clearance of the scrap must be taken as nil. Issue 2 - Levy of Special Additional Duty (SAD) on DTA clearances from a 100% EOU where State VAT has been paid Legal framework: SAD under Section 3(5) of the Customs Tariff Act applies to align tax incidence on imports vis-à-vis domestic sales; notifications (e.g., Notification No.102/2007-Cus.) provide SAD exemptions where specified conditions (including incidence of State VAT) are satisfied for imported goods intended for sale. Precedent treatment: Tribunal's prior conclusions and the administrative order/OIO applying Tribunal ratio; concept of applying import-facing notifications mutatis mutandis to DTA clearances of 100% EOUs where conditions are substantially satisfied. Interpretation and reasoning: The Tribunal accepted that where VAT levied by the State Government has been paid on goods sold into DTA by a 100% EOU, the conditions of the relevant customs exemption notification are substantially satisfied. The notification designed for imported goods for subsequent sale cannot be denied effect in respect of DTA clearances by a 100% EOU if parallel conditions (mutatis mutandis) are met. Thus, SAD exemption applies and SAD component of excise is not leviable. Ratio vs. Obiter: Ratio - where State VAT is paid and conditions of import exemption notification are substantially met in DTA sales by a 100% EOU, SAD exemption applies; Conclusion is binding for the present facts. Conclusion: The duty demand based on levy of SAD is unsustainable; SAD equivalent portion of excise duty is exempted for the DTA clearances in issue. Issue 3 - Characterization of scrap as 'melting scrap' and validity of denial based on alleged non-melting nature Legal framework: Exemption notifications frequently distinguish categories (e.g., 'melting scrap'); characterization must be grounded in objective nature and use of the goods. Precedent treatment: Tribunal decisions (including Indo Deutsche Trade Links v. CC (Imports)) hold that the nature/use of iron and steel scrap cannot be determined by the identity of the purchaser (actual users or dealers); typically iron and steel scrap is used for melting to produce other iron/steel products. Interpretation and reasoning: The Tribunal finds the Department's contention that the scrap is not melting scrap to be absurd insofar as the nature of iron and steel scrap and its sole practical use (melting) are concerned. Determination of 'melting scrap' cannot depend on whether it was sold to actual users or dealers. Therefore denial of exemption on this ground is unsustainable. Ratio vs. Obiter: Ratio - denial of melting scrap characterization on the basis of buyer identity is unsupportable; the conclusion is of central importance to allow the exemption. Conclusion: The ground for denying exemption on the basis that scrap is non-melting is not sustainable and must be set aside. Issue 4 - Calculation errors (multiple application of cesses) and invocation of extended limitation period Legal framework: Duty quantification must follow statutory scheme; extended period invocation subject to legal constraints (jurisprudence such as Nizam Sugar Factory regarding impermissible invocation in certain contexts). Precedent treatment: Authorities cited by appellant (Sarla Performance Fibres; Commissioner v. Meghmani Dyes & Intermediates; Kadimi Tools) address proper computation of duty and cesses; Nizam Sugar Factory establishes limits on invoking extended period. Interpretation and reasoning: The appellants submitted that the Commissioner erred in computing duty by treating cesses multiple times and that invocation of extended period in later notices was impermissible. The Tribunal, while primarily disposing of substantive exemption issues, noted the appellants' reliance and accepted past decisions favorable to the appellants; the operative result sets aside the impugned order and the demand founded inter alia on such calculation and limitation defects. Ratio vs. Obiter: Partly ratio (insofar as the set-aside of the impugned demand necessarily negates defective calculations and improper extended period invocation); some aspects remain ancillary but are treated as part of the operative conclusion. Conclusion: The departmental calculation and extended period invocation are not sustained in light of applicable principles and prior authority; the impugned demand is set aside. Overall Conclusion The impugned order demanding excise/CVD on DTA clearances of scrap from a 100% EOU is unsustainable on multiple grounds: (i) Basic Customs Duty component must be treated as nil where import exemption exists; (ii) SAD is not leviable where State VAT is paid and conditions of the import exemption notification are substantially met; (iii) denial of exemption on the ground that scrap is not melting scrap is unreasonable; and (iv) errors in duty computation and improper invocation of extended limitation further vitiate the demand. The appeal is allowed and the demand is set aside.
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