TaxTMI 
TaxTMI 
1997 (11) TMI 343
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....er than expected level of `rejects' besides other machinery problems causing frequent breakdowns and also the end quality of the fibre produced which was not conforming to the rigid international standards. Immediately thereafter, the Company set-out in sincere resolve to tackle the problems by consulting/engaging experts in the field not only from India but from abroad also hoping to find practical solutions to the machinery limitations etc. Despite several floor level modifications carried out as per advice of the Consultants the gravity of the quality problems cum high percentage of rejects continued unabated, as may be seen from the production statistics enclosed for the period September, 1992 to August 1993 as per Annexure-I. As a result of above factors, we have now incurred heavy losses exceeding Rs. 805 lakhs arising out of heavy accumulation of reject inventories on the one hand and our inability to produce desired quality product for export purposes reflected at less than 15% over the past full year of production, thus posing extraordinary financial problems by way of blocking working capital, inventory carrying costs etc., seriously affecting our resources position i.....
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....l approvals EOU section dated 3 Nov. 1993 (relevant portion reproduced below) : "I am directed to refer to your letter addressed to Ministry of Commerce (EP Section) on the above subject and to say that in the circumstances explained therein. Government of India agree, in principle, to allow you to withdraw from the 100% Export Oriented Scheme, for which Letter of Permission No. PER: 163 (91)/E.O. 335 (91)-II (MRTP), dated 18-12-1991 was granted to you for the manufacture of viscose staple fibre for an annual capacity of 18,000 tonnes. The withdrawal from 100% EOU Scheme will be subject to the conditions mentioned in the Annexure (Attached), 2. After you have complied with the conditions mentioned in the Annexure, you may approach your Administrative Ministry for issue of final debonding letter." 2. The respondents thereafter approached the Central Excise authorities and they by their letter dated 8-11-1993 informed them among other things as under : "In partial fulfilment of the conditions specified in the said letter of the Ministry of Commerce, you are required to pay the duties of Customs and Central Excise involved. You are informed that the assessment is done....
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....lated for the purpose. The respondents paid the duties provisionally and once this was done, the debonding was permitted. The pre-payment of duties on the goods was a condition precedent for debonding and this payment at the relevant time was made on provisional basis. 4. The issue in the appeal is whether duty in respect of the goods which were cleared to the domestic tariff area after debonding is to be demanded in terms of the main provisions of Section 3 of the CEA 1944 or under the proviso to Section 3. 5. Shri V. Thyagaraj, the learned SDR for the department has pleaded that inasmuch as the goods were manufactured in the 100% EOU and the same were allowed clearance to the domestic tariff area in terms of the sanction accorded by the Government of India duty will be demandable in terms of the proviso to Section 3. He referred us to the Board's Circular CBEC F. No. 202/21/82/CX. 6, dated 17-2-1983. In terms of para 4, duty to be paid according to him would be under the proviso to Section 3. This para 4 is reproduced below for convenience of reference : "4. In order to levy excise duty equal to the duties of customs leviable on the like goods imported from abr....
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.... from India but from abroad also hoping to find practical solutions to the machinery limitations etc. Despite several floor level modifications carried out as per advice of the Consultants the gravity of the quality problems cum high percentage of rejects continued unabated, as may be seen from the production statistics enclosed for the period September, 1992 to August 1993 as per Annexure-I. As a result of above factors, we have now incurred heavy losses exceeding Rs. 805 lakhs arising out of heavy accumulation of reject inventories on the one hand and our inability to produce desired quality product for export purposes reflected at less than 15% over the past full year of production, thus posing extraordinary financial problems by way of blocking working capital, inventory carrying costs etc., seriously affecting our resources position i.e., liquidity. In view of the abnormal predicament and circumstances described above and with our maximum efforts to bring the operations back to normalcy not bearing fruit, the Management is left with no other option but to approach your good offices to seek debonding of the EOU operations for marketing into DTA, as the product manufacture....
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....essed to Ministry of Commerce (EP Section) on the above subject and to say that in the circumstances explained therein, Government of India agree, in principle, to allow you to withdraw from the 100% Export Oriented Scheme, for which Letter of Permission No. PER: 163 (91)/E.O. 335 (91)-II (MRTP), dated 18-12-1991 was granted to you for the manufacture of viscose staple fibre for an annual capacity of 18,000 tonnes. The withdrawal from 100% EOU Scheme will be subject to the conditions mentioned in the Annexure (Attached). 2. After you have complied with the conditions mentioned in the Annexure, you may approach your Administrative Ministry for issue of final debonding letter. Annexure Standard conditions governing withdrawal from 100% EOU Scheme. (1) The undertaking shall pay all customs and excise duties on the imported and indigenous capital goods, raw materials, components, consumables and spares in stock as well as on the finished goods in stock, together with all penalties and other charges as per Customs Act and Rules, before the issue of final debonding letter. (2) The undertaking shall also deposit a penalty of 10% of the c.i.f. value of imported cap....
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....ords appearing in the charging section. He referred us to the provisions of the Finance Bill for the year 1982 and under which this proviso was introduced and pointed out that there was amendment later to cover the goods produced in Free trade centre and thereafter in 1984 in EOU. He referred us to the explanatory notes in para 61 which is reproduced below for convenience of reference : 61. Amendment of Section 3 : It has been decided to permit manufacturers in the Santa Cruz Electronics Export Processing Zone and the Kandla Free Trade Zone to clear upto 25% of their production to the Domestic Tariff Area, on payment of Excise duty equal to all the Customs duties leviable on importation of the like goods abroad. A provision to implement this decision has been made in Section 3 of the Central Excises and Salt Act. Action to suitably amend the Central Excise Rules and the exemption notifications and to prescribe a procedure for collection of excise duty on goods produced in these Zones and permitted by the Administrator in charge of the Zone to be brought into the Domestic Tariff Area, is being taken. Further instruction may be awaited in this regard. He also referred us to ....
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.... pleaded that proviso to Section 3 was introduced only in March 1984. Under the import policy, 1985-88, sale by 100% EOU in the domestic tariff area has been provided for and he referred us to the Customs Notification No. 13/81 dated 9-2-1981 providing for duty free importation into India of the goods specified in the table to the Notification, which were required for the manufacture of the articles for export out of India or for being used in connection with the production or packing the goods for export out of India by 100% EOU subject to the approval by the Board of approvals for 100% EOU by Notification issued by the Govt. of India. This Notification is reproduced below for convenience of reference : 2.6.9 Hundred Percent Export Oriented Undertakings - Imports By. Notification No. 13-Cus., dated 9-2-1981 as amended by Notification No. 86-Cus., dated 19-3-1984 and Notification No. 121-Cus., dated 3-5-1984. In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table below (hereinafter referr....
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....e not proved to the satisfaction of the Assistant Collector of Customs to have been used in the manufacture of articles for export. THE TABLE Sl. No. Description of goods (1) (2) 1. Capital goods 2. Raw Materials 3. Components 4. Spares of production machinery. 5. Consumables required for manufacture of goods. 6. Material handling equipments namely fork-lifts and over-head cranes. 7. Sample/Prototypes, not exceeding two in number of each type of articles covered by the manufacturing activity. 8. Drawing, blue prints, technical maps and Charts, relating to the manufacturing activity. He also referred us to para 3 of this Notification which provides for the percentage of the goods to be exported within the stipulated period out of India by 100....
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....ement shall be certified by an independent Cost/Chartered Accountant and endorsed by the Customs/Central Excise officer having jurisdiction over the unit. The Development Commissioner of the EPZ concerned will determine the extent of the DTA sale admissible and issue an authorization for removing a specified quantity of the goods to be sold in the DTA. (f) If the goods sought to be sold in the DTA requires any quality control certificate under any Act/Rule/Regulation, the DTA sale will be allowed only after the production of such a certificate. (g) DTA sale entitlement shall accrue only after the goods are exported during the relevant period as indicated under sub-para (c) above. However, this requirement may be waived in the case of such goods which, in the opinion of the Development Commissioner of the EPZ concerned, require trial production in order to produce goods of exportable quality. (h) Advance DTA sale permission in respect of trial production shall not exceed 25% or 15% (as the case may be) of the ex-factory value of the production envisaged in the first year. Such advance DTA sale shall be adjusted against the subsequent entitlement for DTA sale.....
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....ve such excisable goods to any other place in India on payment of duty of excise leviable thereon; or (ii) in a hundred per cent export-oriented undertaking, and who has been allowed by the proper officer to remove such excisable goods for being sold in India, on payment of duty of excise leviable thereon. (2) Where there is a conflict between the provisions of this Chapter and the provisions contained in any other Chapter in relation to such excisable goods, the provisions of this Chapter shall prevail. RULE 100B. Daily Stock Account. - Where a manufacturer is required to maintain accounts of raw material or component parts or finished excisable goods, as the case may be, under the provisions of the Customs Act, 1962 (52 of 1962) or rules, regulations, orders or notifications made or issued thereunder, then, notwithstanding anything contained elsewhere in these rules, such accounts shall be deemed to be the accounts maintained for the purposes of these rules : Provided that the Collector may require a manufacturer to provide such additional information in the said accounts or maintain such additional accounts as he may deem necessary." In this connection he referred....
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....set forth in the First Schedule to the Act, is not leviable on the goods produced in a free trade zone and cleared to the domestic tariff area. The basic excise duty leviable under Section 3 on the goods produced in a free trade zone and brought to any place outside the zone in India will be equal to the duties of customs (i.e. basic customs duty, auxiliary customs duty, cess, additional (customs) duty and any other customs duty as and when imposed) leviable on like goods produced or manufactured outside India if imported into India. The valuation of such goods will also be done with reference to the valuation provisions under the Customs law and not under Section 4 of the Central Excises and Salt Act, 1944." He has pleaded that the above clearly shows that customs duty applicable has to be paid under the proviso to Section 3(1) of the Central Excise Act. He has pleaded that the goods cleared to the domestic tariff area were only by the permission of the Ministry of Commerce and this permission should be equated with the permission of the Development Commissioner for sale of the goods as envisaged under Section 3 of the Central Excise Act, 1944. 8. We have considered the....
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....racted at the time of clearance. (xvi) If any unit approved under this scheme is unable for any reasons, to fulfil its export or other obligations under this scheme, the Board will review the circumstances of that unit and recommend the future course of action to be taken in regard to that unit. (xxi) The unit can supply upto 25% of its only (sic) in the home market provided it is consists with the import policy, and subject licences and payment of import duties of the goods. As to the dutiability of the goods, the position was clarified by the CBEC Circular dated 29-5-1984. Paras 1, 2, 3, 4, 5, 7, 8 & 9 regarding sale of the goods and which are reproduced below : "40.06. Dutiability of goods produced in 100% EOU when goods are cleared to DTA (Home Consumption). - (1) The Government have decided to allow 100% export-oriented undertakings, which have been approved by the Board of Approval sell their goods not exceeding 25% of their exportable production in the domestic tariff area on payment of appropriate duty of excise. In addition these undertakings can remove 5% or such other percentage of the goods, as may be fixed by the Board of Approvals, provided such goods are ....
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.... for the transaction, or the price is influenced by the relationship between the seller and the buyer or by some other considerations. (4) Excise Duty to be levied on the goods produced or manufactured in an undertaking when allowed to be sold in the domestic tariff area is the basic excise duty leviable under Section 3 of the Central Excises and Salt Act, 1944, since such goods are to be charged the basic excise duty equal to the duties of customs leviable on like goods if imported from abroad and not the basic excise duty leviable on indigenous goods produced or manufactured in units other than the undertakings. All existing exemption notifications issued under Rule 8 (1) ibid have been made inapplicable to the excisable goods produced or manufactured in the undertakings when allowed to be sold in India vide Notification No. 124/84-C.E., dated the 26-5-1984. Similarly, Rule 8 (1) has also been amended vide Notification No. 130/84-CentraI Excises, dated the 26th May, 1984 and a proviso has been inserted making inapplicable all exemption notifications which will be issued under Section 5A(1) to excisable goods produced or manufactured in the undertaking when allowed to be sold i....
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....amended vide Notification No. 129/84-Central Excises, dated 26th May, 1984 to allow for articles upto twenty-five percent for being sold in domestic tariff area. Similarly Notification No. 13-Customs, dated 9-2-1981 has been amended by Notification No. 86/84-Customs, dated 19-3-1984 (communicated with this office Public Notice No. 15/84-Customs, dated 19-5-1984) to permit upto twenty-five per cent of the articles so produced or manufactured when sold in the domestic tariff area. (9) Clearance to the domestic tariff area will be allowed only after necessary permission has been obtained by the undertaking from the Export Commissioner, Office of the Chief Controller of Imports and Exports. In applying for such permission to the Export Commissioner, it is necessary that the application should be certified by the Central Excise Officer, indicating the quantity of goods which have actually been produced or manufactured as on that date during the financial year. In addition to this, the purchaser of goods will obtain Release Order from the licensing authority (of the office of Chief Controller of Imports and Exports), on the basis of which actual clearances will be allowed by the Range....
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....ts such as invoice. The AR1A application shall be entered in the Clearance Register. Other particulars as required by the form shall be entered in the register and a running serial number assigned for all assessments and clearance during a financial year. The particulars of Release Order and date shall also be entered against the entry `Authorization Permit No. and date' appearing in the AR 1A application form. Regarding the quantum that could be sold, the position is set out in the import/export policy. For the sale to the DTA limits prescribed has been made subject to fulfilment of the money value addition of the export obligation. The learned Counsel for the respondents fairly conceded that in the event of the clearances made to the DTA upto 25%, the limit prescribed in the import/export policy and under the EOU scheme, the duty that could be chargeable would be under the proviso to Section 3 of the Centrial Excise Act, 1944. He has pleaded that the clearances were fully covered by the terms and conditions as set out in the import/export policy and under the EOU scheme read with Notification No. 13/81 issued for the purpose in terms of the EOU scheme and the clarification iss....
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....nufactured in the EOU are being treated as if the same are imported into India. The goods it is seen are manufactured out of the raw materials which are brought in duty free by use of the machinery, capital goods which are also allowed duty free. The special provision therefore for charging of duty is to take care of the advantage that accrues in respect of the goods which are manufactured in the EOU and which was sought to be manufactured by charging duty as above in terms of Section 3 of the Central Excise Act, 1944. The question that is to be considered is if that method of duty is acceptable and is not disputed in respect of 25% of the goods which have been allowed to be sold in terms of the Scheme in the DTA why the same logic will not apply for levy of duty in respect of the goods which were similarly produced in the EOU and were cleared for the purpose of home market i.e. the DTA on withdrawal of the unit from the EOU. There is nothing in the Scheme or in the instructions to show that any other consideration would apply in this regard. The respondents have sought to infer from the wording used in the Import/Export policy that in case the unit is functioning under the EOU and....
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.... permission it has been clearly mentioned that the duty shall be payable as provided for in respect of the goods in question. This permission can be taken to be sufficient to cover the production of the goods within the ambit of permission to sell the goods to the DTA as mentioned in the proviso to Section 3. The respondents have stressed that the permission to sell the goods in the DTA can be only be taken to be applicable to such of those goods as were allowed to be cleared by the Development Commissioner. We observe that the Development Commissioner only performs the functions of verifying the percentage of the goods for the purpose of clearance of the goods to the DTA and the requirement of value addition for export. As it is he had no authority to fix any percentage of the goods that can be cleared for sale to the DTA. He was only verifying that for the purpose of clearance to the DTA whether the assessee had complied with the export obligation as well as the value addition and to ensure that the goods are verified for clearance to the DTA in terms of the EOU scheme. The permission to clear the goods to the DTA is provided for in the scheme itself and the question of the Devel....