100% EOU finished goods sold to domestic market beyond permitted limits still get concessional excise duty u/s3(1) proviso

The dominant issue was whether finished goods cleared by a 100% EOU to the DTA in excess of the Development Commissioner's permission are chargeable at the concessional rate under the proviso to s. 3(1) of the Central Excise Act or under the main provision. Applying harmonious construction to suppress mischief, the Tribunal held that as long as the unit continues as a 100% EOU, mere excess DTA clearances do not take it outside the proviso; consequently, duty is leviable at the proviso rate for all such clearances, whether within or beyond permission. The Tribunal further held that a Board circular misreading SC precedent was not binding on the Revenue, and disapproved the contrary view of another bench; matters were remitted for decision on remaining issues.

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Issues involved:
The judgment addresses the issue of the rate of duty applicable to goods cleared from a hundred percent EOU to DTA in excess of the permission of the Development Commissioner.

Summary:
The Larger Bench of the Appellate Tribunal considered the interpretation of the rate of duty applicable to goods cleared from a hundred percent EOU to DTA in excess of the permission granted by the Development Commissioner. The Tribunal referred to a previous decision by the Bangalore Bench in Kuntal Granites (P) Ltd. v. CCE, Belgaum, which raised doubts about the correctness of the interpretation that such goods should be assessed under Section 3(1) of the Central Excise Act, 1944. The Tribunal analyzed the relevant statutory provision under Section 3 and the conditions for assessing goods under the proviso to Section 3(1) for hundred percent EOUs. The assessee argued that the assessment should be under the main provision of Section 3(1) based on previous court decisions and circulars issued by the Central Board of Excise & Customs.

The learned DR contended that the interpretation proposed by the assessee would defeat the purpose of the proviso to Section 3(1) and cited a Supreme Court decision to support this argument. The DR also challenged the applicability of previous court decisions and circulars in this context. The Tribunal examined a Supreme Court case involving the rate of duty applicable to goods produced by a hundred percent EOU prior to debonding, emphasizing the distinction between goods allowed to be sold in India and those sold in excess of permission granted.

The Tribunal agreed with the DR's argument that the interpretation suggested by the assessee would undermine the purpose of the proviso to Section 3(1) for hundred percent EOUs. It highlighted the unique functioning of hundred percent EOUs and the need for a harmonious construction of the statute to prevent anomalies in duty rates. The Tribunal also addressed an argument based on a circular issued by the Central Board of Excise & Customs, clarifying that the circular did not apply to the specific scenario under consideration. Ultimately, the Tribunal held that the rate under the proviso to Section 3(1) should apply to all goods cleared by hundred percent EOUs to DTA, regardless of permission granted, and deemed the contrary view in Kuntal Granites (P) Ltd. as not valid law. The appeals were remanded to the Regular Bench for further proceedings on other issues.

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