TaxTMI 
TaxTMI 
2013 (8) TMI 161
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the petitioners. 2. The petitioner No. 1 i.e. M/s. Satya Metals a partnership firm is engaged in the manufacture of copper wire/strips, copper ingots including alloy ingots and is a 100% Export Oriented Unit (in short called as "EOU"), as such, has set up its unit at Nalagarh, District Solan, Himachal Pradesh having been issued 'EOU' licence on 14-7-2009 as per 100% 'EOU' Scheme in reference to Notification No. 23/2003 dated 31-3-2003. The petitioner No. 1 was also granted Central Excise registration for operating 100% 'EOU' and the Development Commissioner, Special Economic Zone, 'NOIDA' has also issued letter of permission ('LOP') on 31-8-2006 to the petitioners for its unit established at Jammu (J & K) for manufacturing the same items as indicated above and further vide its letter dated 23-6-2009 has also included additional location of work at village Rakh Ram Singh, Tehsil Nalagarh, District Solan, Himachal Pradesh, in reference to the provisions of Foreign Trade Policy (in short called as FTC). In the above mentioned 'LOP', undisputedly, the petitioners were procuring duty free raw material against CT-3 certificates for manufacturing the above mentioned final products and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vail the Indian taxes and is ordinarily levied on imported goods in order to allow a level playing field to the Indian industry. But 'CVD' levied on imported goods cannot exceed the excise duty leviable on similar goods manufactured or to be manufactured in India. (c) It is allowed income tax exemptions on its profits relatable to exports. (d) It is allowed 100% duty exemptions (customs duty and central excise) on the import of capital goods, raw materials etc. 4. The 'EOU' scheme is implemented by the Central Government by the issuance of appropriate exemptions of Custom and Excise which gives effect to the provisions of the 'FTP', mentioned above. The New Industrial Policy for the State of Himachal Pradesh was published by the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion by way of an office memorandum (O.M.), dated 7-1-2003. 5. As per para 3.1 of the said O.M., these units had to be set up in Growth Centres, Industrial infrastructure Development Centres (IIDCs), Industrial Estates, Export Processing Zones, Theme Parks (Food Processing Parks, Software Technology Parks, etc.) set up in areas notifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), other than the goods specified in Annexure-1 appended hereto, and cleared from a unit located in the Industrial Growth Centre or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area, as the case may be, specified in Annexure-II appended hereto, from the whole of the duty of excise or additional duty of excise, as the case may be, leviable thereon under any of the said Acts............ "2. The exemption contained in this notification shall apply only to the following kinds of units, namely :- (i) new industrial units which have commenced their commercial production on or after the 7th day of January, 2003, but not later than the 31st day of March, 2010; (ii) Industrial units existing before the 7th day of January, 2003, but which have undertaken substantial expansion by way of increase capacity by not less than twenty five per cent, on or after the 7th day of January, 2003, but have commenced commercial production from such expanded capacity, not later than the 31st day of March, 2010." 6. From the perusal of the above ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oned in the notification in terms of the proviso to Section 5(1) of the 'Act'. Since Notification No. 50/2003-C.E., did not contain any specific reference to a 100% 'EOU', the benefit of the exemption notification would not be available to the 100% 'EOU' units, however, to overcome such doubts, the respondent No. 3 [(The Central Board of Excise & Customs (in short called 'C.B.E. & C.') through Director General of Export Promotion (in short 'DGEP')] issued a clarification on 18-1-2008, indicating that the area based exemptions would also apply to a 100% 'EOU' making 'DTA' clearances followed by subsequent clarificatory letter dated 6-4-2008 indicating that goods produced by a 100% 'EOU' unit in an exempted area and cleared to any other place in India, shall also be exempted while making 'DTA' clearances and there is no bar to apply the exemption notification issued under Section 5A of the 'Act' for the purpose of calculating the 'CVD' on imported goods under Section 3 of the Customs Tariff Act, 1975. 8. The provisions of Section 5A of the Central Excise Act, 1944 are reproduced herein as below :- "5A. Power to grant exemption from duty of excise. - (1) If the central government i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... levy of a duty on such goods at a rate expressed in a form or method different from the form or method in which the statutory duty is leviable and any exemption granted in relation to any excisable goods in the manner provided in this sub-section shall have effect subject to the condition that the duty of excise chargeable on such goods shall in no case exceed the statutory duty. Explanation. - "Form or method", in relation to a rate of duty of excise means the basis, namely, valuation, weight, number, length, area, volume or other measure with reference to which the duty is leviable. 9. The Domestic Tariff Area (DTA) clearances of 100% Export Oriented Units ('EOU's) are governed by Section 3 of the Central Excise Act, 1944. Section 3 of the 'Act' is reproduced herein below :- "(i) There shall be levied and collected in such manner as may be prescribed, (a) a duty of excise to be called "the Central Value Added Tax (CENVAT) on all excisable goods" (excluding 'goods produced or manufactured in special economic zones') which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a speci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in any State, then, having regard to the excise duty which would be leviable for the time being in different States on the class or description of alcoholic liquor to which such imported alcoholic liquor belongs. Explanation. - In this sub-section, the expression "the excise duty for the time being leviable on a like article if produced or manufactured in India" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, the highest duty." 11. From the clarification so issued on 18-1-2008, it appears that 100% 'EOU' (i.e. the petitioner No. 1) if makes sales, it would pay duty equivalent to the 'BCD' only and not the 'CVD', which was equivalent to the excise duty payable by domestic units, as the unit was located in a backward area and was entitled to central excise exemption on account of its location. 12. The above clarification issued on 18-1-2008, was validated by the subsequent clarification dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....toms duty under Section 12 of the Customs Act, 1962. While there has been no dispute with regard to considering discharge of 'SAD' amount under Section 3(5) of the Customs Tariff Act, 1975 at Nil rate in terms of Notification No. 23/2003-C.E., dated 31-3-2003 as amended, however, the Superintendent of Central Excise, Baddi through his correspondence intimated the petitioner that the benefit of Notification No. 50/2003-C.E., dated 10-6-2003 providing exemption on excise duty could not be made applicable, as the notification issued under Section 5A of 'Act' did not specifically include 100% 'EOU' unit. The petitioners however have maintained and tried to justify their action by relying on the contents and spirit of clarificatory letters No. DGEP/'EOU'/221/2007 dated 18-1-2008 and 6-4-2009, as from both these letters, the field formation was intimated that for calculating aggregated amount of Customs Duty under Customs Act, 1962 specially Additional Duty of Customs of Section 3(1) of the Customs Tariff Act, 1975, any exemption notification of Central Excise, whether unconditional or condition, on fulfilment of the conditions, shall be considered for arriving at the effective rate of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed during the pendency of the matter before the Directorate General of Export Promotion." 15. In reference to the above directions of this Court, a representation was preferred before 'DGEP', inter alia on many other grounds contending mainly as follows :- (a) Benefits of Notification No. 50/2003-C.E., shall apply qua DTA clearances made by 100% EOU units. (b) Proviso to Section 5A of 'Act' cannot operate as a bar for availing exemptions for 'DTA' clearances by 100% EOU. (c) Letter/circular dated 24-9-2010 is contrary to judgments of Hon'ble Supreme Court. (d) Calculation of 'CVD' could only be at the effective rate applicable to a domestic unit. (e) Power to issue clarifications is beneficial power and can be exercised only to mitigate the rigour of law and cannot be used to direct adjudication against the petitioners. (f) Basis of letter dated 24-9-2010 is incorrect as same has been issued by way of change in opinion which does not detract from the reasoning given in the earlier clarifications, namely, 18-1-2008 and 6-4-2009. (g) Benefit of Central Excise notifications which contain e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o be made to Section 3(1) of Customs Tariff Act because Additional Duty is one of the duties of Customs leviable on like goods when imported into India. The quantification of duty is therefore to be done with reference to like goods manufactured outside India and not with reference to goods manufactured by the 100% 'EOU'. The benefit of area based exemption cannot be extended in such cases. E. Even assuming that the benefit of the general exemptions, subject to fulfilment of the conditions can be extended, the area based exemptions area totally different, as these are not general exemption but are of a limited nature applicable only to a limited area. Such exemption cannot be allowed while computing 'CVD' on any imported goods. Explanation 1 to the proviso to Section 3 of 'Act', in case the duty of Customs is leviable at two rates, it shall be deemed to be leviable at higher of the two rates. Therefore, even if it is accepted that there are two rates of 'CVD' leviable, one is the exemption rate in case like goods are manufactured in the specified areas entitled for area based exemption and the second rate is the rate applicable on the like goods manufacture....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Notification No. 50/2003-C.E., dated 10-6-2003 clearly shows that the same is not applicable to the 'EOU'. M. The principle of promissory estoppel does not apply in the present case. N. The expression "specifically provided" incorporated in the proviso of Section 5A(1) of the 'Act', indicates that any exemption granted by way of any notification under Section 5A(1) shall not automatically apply to the 'DTA' clearances effected by the petitioners by taking benefit of Notification No. 50/2003-C.E., dated 10-6-2003 as amended from time to time. O. In addition to the above submissions Sh. Sandeep Sharma, learned Assistant Solicitor General, Sh. Manoj Arora, Addl. DGEP, Delhi also submitted that although any Central Excise notification issued under Section 5A of the 'Act', granting exemption, whether unconditionally or conditionally, subject to compliance of the conditions laid down, therein, the notification could be considered for finding effective rate of duty for calculating Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975 but Area based exemption notification (whether Notificat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e following duties :- (a) Basic customs duty under Section 12 of the Customs Act, 1962 (b) Additional duty of customs under Section 3(1) of the Customs Tariff Act, 1975. (c) Other customs duties like SAD, Special Customs duty etc. Thus, the Central Excise duty payable or paid by 100% 'EOU' only becomes complete and proper where the total of element of basic customs duty, Additional Customs duty (CVD) under Section 3(1) of the Customs Tariff Act, 1975 and other customs duties are taken. In the present case, there is no dispute that out of the three components of customs duty, referred, the petitioners have duly complied with payment of Basic Customs duty and other duties of customs including Additional duties of customs, however, the case of the department is that one of the components i.e. the additional duty of customs under section 3(1) of the Customs Tariff Act, 1975 has not been properly calculated for working out the aggregate duties of customs. It is on such account that the show cause notice was issued for differential duty and the demand. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctured in India. The second limb to the explanation deals with a situation where "a like article is not so produced or manufactured". (Emphasis supplied). The use of word "so" implies that the production or manufacture referred to in the second limb is relatable to the use of that expression in the first limb which is of a like article being produced or manufactured in India. "11. The words "if produced or manufactured in India" does not mean that the like article should be actually produced or manufactured in India. As per the explanation if an imported article is one which has been manufactured or produced then it must be presumed, for the purpose of Section 3(1), that such article can likewise be manufactured or produced in India. For the purpose of attracting Additional duty under Section 3 on the import of a manufactured or produced article the actual manufacture or production of a like article in India is not necessary. As observed by this Court in Thermax Private Limited v. Collector of Customs, Bombay [1992 (61) E.L.T 352 (S.C.) - (1992) 4 SCC 440] at page 452-453 that Section 3(1) of the Customs Tariff Act "Specifically man....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rance to 'DTA', the calculation of amount of Customs duty under Section 3(1) of the Customs Tariff Act, 1975 was in the nature of liability to pay 'CVD' equal to excise duty leviable on like article manufactured in India, therefore, where the effective rate of excise duty on the product is 'Nil' rate in any notification issued under the provisions of Central Excise, the same has to be adopted for calculation of 'CVD' vis-à-vis duty liability under Section 3(1) of the Customs Tariff Act, 1975. The decision of Delhi High Court in Plastic Processors (supra) was affirmed by Hon'ble Supreme Court in the matter reported as Union of India & Others v. Plastic Processors & Others (2009) 12 SCC 747 = 2005 (186) E.L.T. A27 (S.C.). (g) In another case of Lucky Star International v. Union of India, reported in 2001 (134) E.L.T. 26 (Gujarat) as affirmed by Hon'ble Supreme Court in the matter of Union of India v. Lucky Star International - 2002 (141) E.L.T. A90 (S.C.), the goods manufactured in the Export Processing Zone or 100% 'EOU' towards 'DTA' were liable to duties of excise equivalent to aggregate duties of customs, whereby, resolving the doubt arising regard....
X X X X Extracts X X X X
X X X X Extracts X X X X
....east confirm the view of the Board that there is no bar in applying effective rate of Central Excise duty of various exemption notifications of Central Excise issued under Section 5A of 'Act' either unconditionally or conditionally, subject to compliance of the conditions, on clearances effected to DTA by 100% 'EOU' under Section 3(1) of the Customs Tariff Act, 1975. There is no provision under the 'Act' and the Rules framed therein, which restricts applicability of exemption granted through Central Excise notifications for calculation of amount of Customs duty under Section 3(1) of the Customs Tariff Act, 1975. More so, even the impugned order dated 17-3-2011 also accepts that 'CVD' under section 3(1) of the Customs Tariff Act needs to be calculating by taking into account any exemption notification applicable to such goods when manufactured in India. (i) The clarification as appearing in clarificatory letters dated 6-4-2009 and 18-1-2008, have not been diluted by any finding in the impugned order dated 17-3-2011 of 'DGEP'. So much so, no reasoning has been given in the said impugned order to differ clarifications earlier appearing in both lett....
X X X X Extracts X X X X
X X X X Extracts X X X X
....more so, the observations of Supreme Court are only limited to payment of excise duty. In fact in the impugned order dated 17-3-2011, the 'DGEP' has failed to appreciate that the petitioners are paying basic Customs duty on their clearance to 'DTA' while other manufacturers in the State of Himachal Pradesh complying with Notification No. 50/2003-C.E. are not paying any such Basic Customs duty and rather clearing the goods at NIL rate of excise duty. Further, as per the provisions of FTP a 100% 'EOU' unit has to earn net foreign exchange for the country while such condition does not apply to other manufacturers. 19. Following submissions have also been made for and on behalf of the respondents :- (i) The impugned final order fails to appreciate that the petitioner unit has two independent status, one as a 100% EOU and the other as a unit set up in a specified area mentioned in Notification 50/2003-C.E. (ii) The petitioners have independently fulfilled the conditions of eligibility of both the 100% EOU Scheme as well as the conditions of eligibility specified in Notification 50/2003-C.E. (iii) The purpose of the 100% EOU Scheme is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....noted :- (a) The proviso to Section 5A of 'Act' cannot be taken as a bar in calculating 'CVD' for the purpose of computing the duties payable by a 100% EOU unit while making DTA clearances, stands settled by the judgment of the Delhi High Court in the case of Plastic Processors v. Union of India - 2002 (143) E.L.T. 521 (Del.) which has expressly been upheld by the Hon'ble Supreme Court in Union of India & Others v. Plastic Processors & Others - (2009) 12 SCC 747 = 2005 (186) E.L.T. A27 (S.C.). (b) Only the effective rate of duty applicable to the goods cleared by the domestic unit can be applied for computing the CVD payable. The respondent's impugned actions are contrary to the settled position of law on the issue by the Supreme Court in Hyderabad Industries Limited (supra) and Thermax Private Limited (supra), where the Hon'ble Supreme Court has observed that while calculating CVD it has to be assumed that the goods were manufactured in India and the applicable rate of duty to such manufactured goods has to be applied to the imported goods. The effective rate of excise duties for a unit located in the specified area mentioned in 50....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aggregate of the duties of Customs which would be leviable under the Customs Act, 1962 or any other law for the time being in force as becomes applicable on the goods produced outside India and imported therefrom. It is such collection of aggregate duty of Customs leviable under the Customs Act, 1962 which would be considered appropriate for payment as excise duty by 100% 'EOU'. (iii) It is also evident from the impugned order dated 17-3-2011 of 'DGEP' that the duties of customs leviable on the goods imported into India are as under :- (a) Customs duty under Section 12 of the Customs Act, 1962 (b) Additional duty of customs under Section 3(1) of the Customs Tariff Act, 1975. (c) Special Additional Duty etc. The basic Customs duty under Section 12 of the Customs Act, 1962 have already been paid by the petitioners on effecting clearances to DTA and thereby discharging one of the their liabilities required for working out the aggregate duties of Customs under Section 3 of the 'Act'. The provisions of Section 3(1) of the Customs Tariff Act, 1975 requires that fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tariff Act. It is only for the purpose of calculation of Additional Duty of Customs that they have to consider, the element of excise duty leviable on like goods produced or manufactured in India. Therefore, the liability to discharge only Additional Duty of Customs i.e. one of the component of aggregate duty of Customs under Section 3 of the 'Act', by considering the excise duty for the time being in force on a like article if produced or manufactured in India. 23. After analyzing the provisions of Section 3 of the 'Act', and Section 3(1) of the Customs Tariff Act, 1975, the next issue for dispute is as to what would be the effective rate of excise duty leviable on a like kind of goods, if produced in India. The whole debate here requires consideration of Section 3(1) of the Customs Tariff Act, 1975. It is undisputed that Notification No. 50/2003-C.E., dated 10-6-2003 for the State of Himachal Pradesh, like Notification No. 56/2002-C.E., dated 14-3-2002 for the State of Jammu & Kashmir, both known as Area Based Exemption Notifications under Central Excise issued by the Central Government under the provisions of Section 5A of the 'Act'. The claim of the petitioners that their uni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ression "specifically provided" was introduced in the Proviso to Section 5A(1) of the 'Act'. Quite obviously any exclusive benefit of Central Excise exemption notification for a 100% 'EOU' cannot be made applicable particularly when the duties have to be determined by way of aggregate duty of Customs leviable under the Customs Act, 1962. 25. The 'DGEP' in their Circular No. DGEP/'EOU'/221/2007, dated 18-1-2008 and in circular of even no. dated 6-4-2009, while providing their clarifications in extending even benefit of area based exemption notification to 100% 'EOU' in calculating the additional Customs duty under Section 3(1) of the Customs Tariff Act, 1975 (CVD), considered the provisions of Section 5A of the 'Act', Section 3(1) of the Customs Tariff Act, 1975, and thereby explained the scope of the expression "SPECIFICALLY PROVIDED" in Section 5A of the Central Excise Act, 1944. 26. There is otherwise no bar in Area based exemption notification, referred above for 100% 'EOU' for calculation the Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975. It is only by discharging the liability to pay the Additional Duty of Customs and which is equal to excise ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated, where petitioner unit is established, as such, the applicability of such notification in question to the petitioners is also justifiable. The petitioners have drawn my attention to Section 5A(1A) of the 'Act' to justify that where the effective rate of excise duty, for the units located in the specified areas of Himachal Pradesh manufacturing the goods other than the negative list is absolutely exempted, such rate is binding. The provisions of Section 5A(1A) does not allow the manufacturer complying with the conditions of the area based exemption notification and claiming thereto to opt out. There thus exist only one rate i.e. NIL rate of duty. In fact the circulars of 'DGEP' and impugned order dated 17-3-2011 does not bar the applicability of Central Excise exemption notification for calculating Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975, as such, the impugned order dated 17-3-2011 is legally not sustainable. 28. The order dated 17-3-2011 refers to there being two rates of duties under Section 3(1) of the Customs Tariff Act, 1975. The concept of two rate of duties under Section 3(1) of the Customs Tariff Act applies where the goods are no....