2023 (9) TMI 865 - AT - Central Excise

Appellant entitled to concessional Excise Duty rate for supplying goods to refinery. Previous order set aside.

Jindal Saw Ltd Versus C.C.E. & S.T. -Rajkot

The Tribunal held that the appellant, a 100% EOU, is eligible for the concessional rate of duty for calculating Excise Duty under specified Customs ... 100% EOU - Goods supplied to Bharat Oman Refineries Ltd. Mumbai for setting up crude petroleum refinery for the purpose of calculating Excise Duty which is equivalent to 50% of all Customs Duty in terms of Notification No. 23/2003-CE dated 31.03.2003 - applicability of N/N. 21/2002-CUS Sr. No. 228 - HELD THAT:- It is a settled law that for the purpose of calculation of Excise duty in respect of goods manufactured by 100% EOU, all the Customs duty leviable on the similar goods if imported shall apply. As per Notification No. 23/2003-CE the 100% EOU is required to pay 50% of all the customs duty. While taking the customs duty exemption notification of customs if any applicable on the like goods also need to be considered. In the present case, the appellant’s case is that they have supplied the goods for setting up crude petroleum refinery of M/s Bharat Oman Refineries Ltd., Mumbai. On going through the Notification No. 21/2002-CUS Sr. No. 228 the exemption entry does not bear any condition except the condition that the goods is specified under the list 17 of Notification are eligible for exemption if the same is meant for crude petroleum refinery. If this fact is satisfied than the appellant is eligible for concessional rate of 2.5% of basic customs duty (10-5 as per Notification 21/2002-CUS – 50% as per Notification No. 23/2003-CE = 2.5%). The Adjudicating Authority has denied the exemption Notification No. 21/2002-CUS on the ground that the raw material imported by the appellant was under “Nil” Rate of duty in terms of notification No. 52/2003-CUS(EOU). Thus, the Adjudicating Authority has gone on all together irrelevant fact. Here the duty ability has to be decided in respect of the goods manufactured by the appellant, which is nothing to do with the duty ability of imported raw material of the appellant. Therefore, the entire finding of the Adjudicating Authority is on wrong interpretation of the Notification in the present case. The finished goods manufactured by the appellant, EOU is not attracting “nil” rate of duty. Therefore, the Adjudicating Authority’s finding is absurd and not relevant in the present case. The matters needs to be reconsidered by the Adjudicating Authority by consideration the exemption Notification No. 21/2002-CUS in its correct spirit only after satisfaction that the goods in question i.e. Steel Pipes were supplied for the purpose of setting up of crude petroleum refinery by their buyer M/s. Bharat Oman Refineries Ltd. Mumbai - Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether finished goods manufactured by a 100% EOU and supplied for the purpose of setting up a crude petroleum refinery are eligible for exemption under Customs Notification No. 21/2002-CUS (entry for project imports) for the purpose of computing excise duty under Notification No. 23/2003-CE. 2. Whether, in computing excise duty leviable on clearance from a 100% EOU into DTA, the basic customs duty (BCD) to be taken into account should reflect any concessional/customs exemption under Notification No. 21/2002-CUS applicable to the finished goods (and then be subject to 50% levy under Notification No. 23/2003-CE), or whether the duty position of imported raw materials (including items imported at 'Nil' rate) affects that computation. 3. What documentary proof or satisfaction is required to establish that goods supplied by the EOU were 'meant for crude petroleum refinery' so as to attract the notification benefit. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Eligibility of finished goods of a 100% EOU for exemption under Notification No. 21/2002-CUS when supplied for setting up a crude petroleum refinery Legal framework: Notification No. 21/2002-CUS (project import entry) grants exemption for specified goods when meant for setting up a crude petroleum refinery. Notification No. 23/2003-CE prescribes that excisable goods manufactured in a 100% EOU and cleared to DTA shall be chargeable to excise duty only to the extent of 50% of all customs duty leviable on like goods if imported (subject to provisos). Precedent treatment: The appellant relied upon earlier tribunal and higher court decisions interpreting interplay between customs project-import exemptions and excise computation for EOUs. The Tribunal recognised reliance was placed on such precedents in argument and treated them as supporting the proposition that concessional customs treatment applicable to like finished goods must be considered in calculating the customs quantum for Notification No. 23/2003-CE purposes. Interpretation and reasoning: The Tribunal held that Notification No. 21/2002-CUS contains no condition beyond the requirement that the goods be specified and meant for a crude petroleum refinery. If that fact is established, the exemption under the customs notification applies to the finished goods and therefore the BCD applicable to the like goods for computation under Notification No. 23/2003-CE must reflect the concessional rate arising from Notification No. 21/2002-CUS. The Court reasoned that the object of Notification No. 23/2003-CE is to limit excise in excess of fifty percent of customs duty leviable on like goods if imported, and that any customs notification reducing BCD on the like goods must be considered when computing that ceiling. Ratio vs. Obiter: Ratio - where finished goods manufactured by an EOU are demonstrably meant for a crude petroleum refinery and Notification No. 21/2002-CUS applies to those finished goods, the reduced customs incidence under that notification must be taken into account for the purpose of computing excise under Notification No. 23/2003-CE (i.e., 50% of the applicable BCD after concessions). Obiter - ancillary observations on the commercial practices of industry or on the precise mechanism by which project supplies are documented (so long as statutory requirement of being 'meant for crude petroleum refinery' is satisfied) are incidental. Conclusion: The appellant's finished goods will be eligible for the concessional calculation (BCD after applying Notification No. 21/2002-CUS, then 50% under Notification No. 23/2003-CE) if it is established that those goods were meant for setting up a crude petroleum refinery. Issue 2 - Whether duty-free (nil) treatment of imported raw materials affects entitlement to the finished goods' exemption and the excise computation Legal framework: Notification No. 23/2003-CE contains a proviso excluding application of the first proviso where goods are chargeable to 'Nil' rate of duty leviable under section 12 of the Customs Act read with other notifications in force. The question is the proper object of that proviso and whether it can be read to deny Notification No. 21/2002-CUS benefit on finished goods because some imported raw material was earlier imported at nil duty. Precedent treatment: The adjudicating authority relied on an interpretation that invoked the proviso to Notification No. 23/2003-CE to deny the concession because steel plates (raw material) were imported at nil rate under a separate EOU notification. The Tribunal evaluated that approach against settled principles governing the scope of customs and excise notifications and earlier decisions cited by the appellant. Interpretation and reasoning: The Tribunal found the Adjudicating Authority's reliance on the duty incidence on imported raw materials to be irrelevant to the statutory inquiry. The duty to be considered for excise computation under Notification No. 23/2003-CE is the duty leviable on the like finished goods if imported, and whether any customs exemption/ concession applies to those finished goods (for instance, under Notification No. 21/2002-CUS). The fact that certain raw materials were imported at nil duty under a different notification does not alter the duty applicable to the finished goods nor deny the finished goods' entitlement to project-import concession if they independently satisfy the project import criteria. The proviso in Notification No. 23/2003-CE was not intended to conflate the duty position of raw materials with that of finished goods for the statutory ceiling calculation. Ratio vs. Obiter: Ratio - the duty position of imported raw materials (including nil-rate imports) is not determinative of entitlement to concessional BCD for the finished goods when computing excise under Notification No. 23/2003-CE; the relevant inquiry is the customs duty leviable on the imported like finished goods (after considering any specific customs notification applying to those finished goods). Obiter - comments criticizing the Adjudicating Authority's 'entirely irrelevant' focus on raw material duty levels are incidental but underscore the proper statutory focus. Conclusion: The adjudicating authority erred in denying the benefit of Notification No. 21/2002-CUS on the basis that imported raw materials were at nil duty; such fact is irrelevant to the assessment of whether the finished goods qualify for the concession and to computation under Notification No. 23/2003-CE. Issue 3 - Standard and sufficiency of proof that goods were 'meant for crude petroleum refinery' Legal framework: Notification No. 21/2002-CUS requires that goods specified in the relevant list be 'meant for crude petroleum refinery' to attract exemption. Administrative practice requires documentary proof or other sufficient evidence to satisfy the authority that the goods supplied are for the declared project purpose. Precedent treatment: The decision notes that documents establishing that goods were supplied to the refinery project were placed before the lower authority and that tribunal practice accepts documentary evidence proving project end-use as sufficient, subject to verification. Interpretation and reasoning: The Tribunal observed that, on the face of the record, it prima facie appears that the goods were supplied to the refinery and that documents submitted support that proposition. The proper course is for the Adjudicating Authority to examine and satisfy itself on that factual nexus (i.e., that the finished goods were supplied for setting up the refinery) and then apply relevant notifications consistently. The Tribunal remanded the matter for fresh consideration on that limited factual question in light of proper legal approach described above. Ratio vs. Obiter: Ratio - entitlement under Notification No. 21/2002-CUS is contingent on establishing that the goods were meant for the project; documentary proof satisfying the authority is the correct standard. Obiter - observations on the sufficiency of particular documents on the present record are provisional pending fresh adjudication. Conclusion: The Adjudicating Authority must reconsider whether the documentary evidence establishes that the finished goods were meant for the crude petroleum refinery; if satisfied, the customs concession must be applied when computing the excise ceiling under Notification No. 23/2003-CE. Disposition and practical holding The impugned order, which denied the benefit of Notification No. 21/2002-CUS and computed excise without applying the concessional BCD for finished goods, is set aside. The matter is remanded to the Adjudicating Authority to determine, after proper consideration of the documents submitted and applying the correct legal approach (i.e., assess whether the finished goods qualify for Notification No. 21/2002-CUS and, if so, compute excise as 50% of the concessional basic customs duty applicable to the finished goods), and to pass a fresh decision consistent with these principles.