1997 (11) TMI 343 - AT - Central Excise

Issues Involved:
1. Levy of duty on goods manufactured in 100% Export Oriented Unit (EOU) and cleared for Domestic Tariff Area (DTA) after debonding.
2. Applicability of Section 3 of the Central Excise Act, 1944.
3. Provisional payment of duties and conditions for debonding.
4. Interpretation of "allowed to be sold" under the proviso to Section 3.
5. Consideration of Notification No. 97/91 and valuation aspects.

Issue-wise Detailed Analysis:

1. Levy of Duty on Goods Manufactured in 100% EOU and Cleared for DTA after Debonding:
The core issue in the appeal is whether the duty on goods cleared to the DTA after debonding from the 100% EOU should be levied under the main provisions of Section 3 of the Central Excise Act, 1944, or under the proviso to Section 3. The respondents faced significant operational issues that led to financial losses, prompting them to seek debonding from the EOU scheme. The Ministry of Commerce and Ministry of Industry granted permission for debonding, subject to the payment of applicable customs and excise duties.

2. Applicability of Section 3 of the Central Excise Act, 1944:
The department argued that since the goods were manufactured in a 100% EOU and cleared to the DTA with government sanction, duty should be levied under the proviso to Section 3. This proviso equates the excise duty on such goods to the aggregate of customs duties leviable on like goods imported from abroad. The respondents contended that the goods, once debonded, should not be subjected to the same duty as those cleared under the EOU scheme.

3. Provisional Payment of Duties and Conditions for Debonding:
The respondents paid the duties provisionally, and the debonding was permitted based on this provisional payment. The final debonding order from the Ministry of Textiles allowed the unit to operate under the DTA. The pre-payment of duties was a condition precedent for debonding, and the assessment was done on a provisional basis, subject to compliance with debonding conditions.

4. Interpretation of "Allowed to be Sold" under the Proviso to Section 3:
The respondents argued that the phrase "allowed to be sold" should only apply to units continuing under the EOU scheme and fulfilling export obligations. They claimed that once the unit is debonded, it should not be subject to the same conditions and duties as those still operating under the EOU scheme. The department countered that the permission to debond effectively included permission to sell the goods in the DTA, thus invoking the proviso to Section 3.

5. Consideration of Notification No. 97/91 and Valuation Aspects:
The respondents requested that if the department's plea is accepted, they should be allowed the benefit of Notification No. 97/91, subject to the provisions of the Export/Import policy. The lower appellate authority had not examined this aspect or the issue of additional customs duty. The Tribunal remanded the matter to the lower appellate authority for de novo consideration of these issues.

Conclusion:
The Tribunal concluded that the goods manufactured in the EOU and cleared to the DTA after debonding should be treated the same as those cleared under the EOU scheme for the purpose of duty levy. The duty should be levied under the proviso to Section 3 of the Central Excise Act, 1944. The appeal of the department was allowed, and the matter was remanded to the lower appellate authority for further consideration of the respondents' alternative plea regarding Notification No. 97/91 and the valuation aspects.

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