2025 (10) TMI 1073 - AT - Central Excise

DTA clearances by 100%EOU of vaccines and pharma formulations fall under Chapter 30 (heading 3002); exempt FTP 6.8(a)/(k) and Notification 23/2003-C.E.

Wockhardt Limited Versus Commissioner of Central Excise, Customs & Service Tax, Aurangabad

CESTAT MUMBAI - AT allowed the appeal, holding the adjudication unsustainable. DTA clearances by a 100% EOU of vaccines and pharmaceutical formulations ... 100% EOU - DTA clearance of excisable goods made by the appellants is in violation of Para 6.8(a)/6.8(k) of the Foreign Trade Policy or not - confirmation of differential duty with penalty - HELD THAT:- In respect of domestic tariff area clearances of excisable goods by a 100% EOU, the levy of excise duty shall be determined as though it is the aggregate of customs duties that are leviable on like goods, when the goods are removed from EOU/bonded area into the DTA. Classification of the excisable goods are based on the Schedule to the Central Excise Tariff as given under the Central Excise Tariff Act, 1985. Central Excise classification had initially followed Six-digit classification code until 2003 and was broadly based upon HSN (Harmonized System of Nomenclature) classification. However, there were a number of differences with HSN classification and as such the 6-digit classification was not totally aligned with HSN, on the basis of which Customs Tariff has been designed. Eight-digit HSN based Commodities Classification Code was adopted for the purpose of levy of Customs duty with effect from 01.02.2003. Same eight-digit Code was also adopted by DGFT for FTP/EXIM Policy and by DGCIS for compilation of trade statistics. In such background, the Central Government thought it is desirable to adopt a common commodity classification code for all trade related transactions so as to avoid disputes and facilitate smooth flow of trade. Accordingly, for the purpose of eight-digit classification code for levy of Central Excise duty also, Central Excise Tariff (Amendment) Act, 2004 was brought into force with effect from 28th February 2005. Therefore, it can be seen that classification of goods for the purposes of Central Excise duty, Customs duty and for compliance with Foreign Trade Policy follow a common code. From the facts on record it clearly transpires that the classification of items under dispute are vaccines for Hepatitis and similar vaccines for other diseases, injections and other pharmaceutical formulations. It would be travesty of justice to contend that a pharmaceutical product for treating one ailment/disease is not similar goods to other pharmaceutical product, since that is for treatment of some other disease. The classification of goods of Chapter 30 and more particularly heading 3002, clearly provide that in terms of heading and the sub-headings, all pharmaceutical products manufactured by the appellants and cleared in the DTA as well as the pharmaceutical products exported or to be exported in terms of LOP granted by the Development Commissioner, are duly covered under single heading 3002 of the Central Excise Tariff. Therefore, it cannot be said that these are not ‘similar goods’. The clearance of excisable goods to DTA are in compliance with the FTP Policy. Further, in case of advance DTA sale, since respective duty has also been paid by the appellants taking into account the un-adjusted advance DTA sale, there is no violation of para 6.8(k) of the FTP. Therefore, the case of the appellants in clearance of DTA sale are eligible to be considered for extending the exemption under No.23/2003-C.E. dated 31.03.2003. It is found that the issue of similar goods had been examined by various Hon’ble High Courts and Tribunal in a number of cases. In the case of Abi Turnamatics [2019 (2) TMI 1296 - CESTAT CHENNAI] the Co-ordinate Bench of the Tribunal have held that for interpretation of the term ‘similar goods’ in respect of DTA clearances from EOU, the common parlance meaning has to be adopted and not the one suggested by the department in the CBIC circular. The dispute is no more open for any debate and the impugned order treating the DTA clearances made by the appellants EOU unit as ineligible for concessional duty under the notification No.23/2003-C.E. dated 31.03.2003 for determination of excise duty, imposition of penalty on the appellants do not stand the scrutiny of law. The impugned order dated 18.02.2015 in confirmation of the adjudged demands is not legally sustainable - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Domestic Tariff Area (DTA) clearance of excisable goods by a 100% Export Oriented Unit (EOU) violated Paragraph 6.8(a)/6.8(k) of the Foreign Trade Policy (FTP) such that concessional excise duty under Notification No.23/2003-C.E. was not available. 2. Whether the differential duty demand and penalties confirmed by the adjudicating authority are legally sustainable, including the invocation of extended period of limitation under Section 11A and imposition of penalty under Section 11AC/Rule 25/Central Excise Rules and Section 112(a) of the Customs Act. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Legality of DTA clearances vis-à-vis Paragraph 6.8(a)/6.8(k) of FTP and entitlement to concessional duty Legal framework: Section 3 of the Central Excise Act, 1944 prescribes that excise on goods produced by a 100% EOU brought to any other place in India shall be an amount equal to aggregate customs duties leviable on like goods if imported; Notification No.23/2003-C.E. grants concessional treatment for such DTA clearances subject to compliance with Paragraph 6.8 of the FTP. Paragraph 6.8(a) permits DTA sales up to 50% of FOB value of exports (subject to positive NFE) and allows sale of 'products similar to goods which are exported or expected to be exported'; Paragraph 6.8(k) governs advance DTA sale for new EOUs (pharmaceuticals: based on estimated exports for first two years). Precedent treatment: Tribunal and High Court decisions have interpreted 'similar goods' and the scope of Paragraph 6.8 liberally (Meghmani, ABI Turnamatics, ABI Showatech, Axiom Cordages, Consolidated Coin and decisions approving Development Commissioner determinations). The line of authority holds that (i) 'similar goods' is to be understood in common parlance/dictionary sense for notification interpretation rather than by borrowing Customs Valuation Rules; (ii) where Development Commissioner/implementing authority grants DTA entitlement, revenue cannot re-open or substitute its view on policy compliance; and (iii) units manufacturing multiple products may allocate DTA sale subject to overall 50% FOB limit and product-level 90% ceiling read in the broad sense envisaged by FTP. Interpretation and reasoning: The Tribunal found that the contested products (vaccines, injections, pharmaceutical formulations) fall within Chapter 30, heading 3002 of the Central Excise Tariff and therefore share common classification characteristics. Given the tariff heading coverage and the nature/use of products (vaccines/injectables/medicaments), the goods satisfy the FTP requirement of being 'similar goods.' The implementing authority (Development Commissioner) issued LOPs and advance DTA sale permissions covering the relevant items and expressly confirmed that no liability remained for unadjusted DTA sale; the same permissions were repeatedly renewed. The Tribunal reasoned that where the Development Commissioner - the policy-implementing authority - has authorized DTA clearances, the excise authorities cannot reinterpret FTP to deny the concession, particularly when classification and export entitlements align and positive NFE and export obligations were fulfilled. Ratio vs. Obiter: Ratio - (a) goods covered under the same Central Excise Tariff heading (Chapter 30/3002) can be treated as 'similar goods' for purposes of Paragraph 6.8 of FTP and Notification No.23/2003-C.E.; (b) where Development Commissioner has granted LOP/advance DTA permission covering the goods, revenue cannot independently negate entitlement; (c) interpretation of 'similar goods' for excise/FTP notification follows common parlance/dictionary meaning rather than a restrictive Customs-valuation definition. Obiter - detailed comparisons to other factual matrices (e.g., analogies with non-pharmaceutical products) that illustrate the Tribunal's policy rationale. Conclusions: DTA clearances in issue were within the scope of Paragraph 6.8(a)/6.8(k) of the FTP and eligible for concessional duty under Notification No.23/2003-C.E. The adjudicating authority's denial of similarity and consequent disallowance of concessional treatment was unsustainable in law. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sustainment of differential duty demand, penalty and invocation of extended period of limitation Legal framework: Section 11A (extended period of limitation) and penalty provisions (Section 11AC read with Rule 25/Central Excise Rules and Section 112(a) of Customs Act) allow revenue to demand duty and impose penalties where there is suppression, fraud or misstatement, or where extended limitation is otherwise invoked. The bond conditions (B-17) relate to imports/duty-free procurements and do not themselves create liability for purported breaches of FTP unless specifically connected to DTA clearances. Precedent treatment: Decisions (Meghmani, Emcure, Surya Life Sciences, and subsequent Tribunal/Supreme Court affirmances) have held that where the implementing authority has permitted DTA sales and the department had prior knowledge or accepted returns/intimations and audits, invoking extended limitation is not permissible; revenue cannot invoke extended limitation where there is no suppression/misrepresentation and where Development Commissioner had not objected. Interpretation and reasoning: The Tribunal observed that the appellants had filed ER-2 returns, made regular intimations to Development Commissioner and jurisdictional customs/central excise authorities, underwent audit (including C&AG/CERA), and obtained renewals of LOP/advance DTA permission. The Department accepted duty payments for un-adjusted advance DTA sale items and CERA closed its objection. There was no finding of suppression, misrepresentation, or concealment by the appellants. The Tribunal reasoned that in these circumstances invocation of extended period of limitation is unjustified and revenue could not retrospectively displace the Development Commissioner's policy determinations or reconstruct eligibility to deny concessional duty and levy penalties. Ratio vs. Obiter: Ratio - extended period of limitation cannot be invoked where the implementing authority (Development Commissioner) has permitted DTA clearances and revenue had contemporaneous knowledge or accepted returns/intimations and audits without raising objections; absence of suppression precludes extended limitation and penalties. Obiter - discussion on the limited relevance of bond conditions (B-17) to DTA clearance duty liability and broader policy rationales regarding EOU scheme. Conclusions: The differential duty and penalties as confirmed are not legally sustainable. Substantial portions of the demand were time-barred or could not be sustained given the Development Commissioner's permissions, departmental knowledge and absence of suppression; in any event, since DTA clearances are held lawful, the demand fails on merits and limitation grounds have no bearing on ultimate outcome. Cross-references and operative outcome The Tribunal applied tariff-heading classification principles, precedents on interpretation of 'similar goods' and authority of the Development Commissioner in FTP matters, and concluded that (i) the DTA clearances were within Paragraph 6.8 entitlements and eligible for Notification No.23/2003-C.E. concessional treatment; and (ii) the differential duty/penalty and invocation of extended limitation by the adjudicating authority were unsustainable. The impugned adjudication was set aside and the appeal allowed with consequential reliefs as per law.