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TMI Blog2002 (11) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... Director, Parsin. * Shri Y.S. Satyendranath, Executive Director, Parsin (Finance Manager at the material time). * Shri M. Sarva Rao, Commercial Manager, Parsin Hyderabad. * M/s. Raghu Chemicals and Pharmaceuticals Pvt. Ltd., -the receiver/buyer of the goods. * Shri K. Rahasekhar, Managing Director, M/s. Raghu Chemicals and Pharmaceuticals Pvt Ltd. In the said show cause notice it was, inter alia, alleged - * Parsin had cleared 5,078 kg. of Sodium Azide into Domestic Tariff Area (DTA) without making entries in the statutory records, without following the prescribed procedures and without payment of Central Excise Duty. Accordingly they were asked to show cause as to why - * duty amounting to Rs. 22,24,958.69 cleared for sale within India shall not be paid by them under Rule 9(2) of the Central Excise, and Salt Act, 1944. * the quantity of 5,078 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s manufactured by the Appellant-Company during the trial runs, should be treated as export waste or export rejects. * Whether the impugned goods satisfy the stringent conditions prescribed for Sodium Azide, which is meant to be utilized in the manufacture of Inflatable Restraint System (Air bags). * Whether there was any mala fide intention on the part of B.S. Grewal, Managing Directior, PCL, Y.S. Satyendra Nath, Executive Director, PCL (Finance Manager at the material time) and M. Sarva Rao, Stenographer, PCL, in the removal of the impugned goods, particularly, in view of the fact that N.A. Reddy who was the Commercial Officer at the material time was responsible for the Customs and Central Excise functions, in terms of his Employment Contract/ Order of Appointment. Whether the role of N.A. Reddy, who was exonerated, has been examined in the light of the plea of the Appellants that he was responsible at the material time for compliance with the Central Excise and Customs Laws and Regulations. * Whether there was any wilful suppression o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of marketability, in terms of the decisions referred to by the Hon'ble Tribunal. * There is no exemption on export rejects cleared to DTA by Parsin Chemicals Ltd. As such they have to pay appropriate duty, which has not been paid by them, admittedly. * In the light of the statements recorded during the course of investigation, their plea that the goods were cleared without payment of duty and without accountal under bona fide belief, that no duty is payable on export rejects, cannot be accepted. * The impugned goods are nothing but export rejects and as such, for the purpose of valuation and application of rate of duties, under Customs and Central Excise Law, price of Rs. 200/- shall be adopted for arriving at the assessable value for determining the duty liability. 3. We have heard both sides and considered the matter and find: (a) The matter was adjudicated by the then Commissioner vide his Order (Original) No. C.Ex. 16/96, dated 11-3-1996 in file O.R. No. 99/94-Adjn., wherein he had while co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemical Engineering Division to the following effect :-- "Technology detailed designs and commissioning assistance was provided by IICT to M/s. Parsin Chemicals Ltd., 201, Dwarakapuri Colony, Punjagutta, Hyderabad for the manufacture of Sodium Azide for 100% export. The product is mostly used in air bags in automobiles to meet the statutory obligations of the U.S. Government. The product has to meet the strict specifications regarding the particle size as well as the purity. The plant was commissioned during Nov-Dec, 1989 and July-Aug, 1990. Like any other new plant, the quality of the product made during the commissioning runs was not up to the mark. About 3 tonnes non-saleable product was produced during commissioning. Product not meeting the specifications, is produced during the normal production schedule, also due to various reasons; to name few, ingress of impurities, human failure, power failure, improper crystallization and/or drying, malfunction of equipment or instruments etc. This 'reject' or non-saleable product can be further processed to improve the quality of sold in the market if acceptable to the purchaser. Production or about 5 tonnes of a product in a plant of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is an after-thought and rejected the same. He also took note of the plea of Shri Rajashekar Reddy, Managing Director of M/s. Raghu Chemicals and certain processings were conducted on the waste materials received by them and reasonably good Sodium Azide was made and sold. However taking into view that the factory of Raghu Chemicals was closed he concluded that no processing was done by them and that the Sodium Azide, though of lesser purity not required by the buyer abroad but suitable for indigenous industries was manufactured and clandestinely removed. He thereafter concluded that it was not possible to seek any opinion from chemists as the goods were not available and thereafter valued the same. He established the fact of marketability as follows : "Having seen that Sodium Azide had been manufactured, the next point to see is whether it is marketable. The fact of marketability has been established by the department by evidence cited in the show cause notice as well as discussed in this order that the Sodium Azide was sold to Raghu Chemicals during the relevant period for a consideration ranging from Rs. 200/- to Rs. 300/- per Kg. and that Raghu Chemicals had sold major portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing defect and as such are not exportable as per the declaration of the unit concerned. Whereas sub-standard products would include the spares, tools, wastes or by-products shall not be included. Clearances of such 'rejects' within 5% of the limits was permissible over and above the quota of 'sales allowed in the DTA' to EOUs. This has been amended only with effect from 1-4-2000, to include the clearance of rejects within 'DTA Sale Allowances." When the Commissioner has come to a clear conclusion that the goods removed did not meet the export specifications, he should have considered the said removals as rejects, as per the Board's instructions guidelines issued as mentioned herein above, which he was bound to apply, to the facts of the case before him, even if the appellants have taken the plea that the said rejects were 'waste' and he did not find them to be waste. We find enough material to consider these clearances as clearances of 'rejects'. (d) Once the goods have been found to be 'export rejects', all that is required to be done is to determine the duty, if any, that was required to be demanded in the facts of this case. During the releva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual to the Duties of Customs on like goods imported into India. For this Section 3 of the Central Excises and Salt Act, 1944 was amended vide Section 46 of the Finance Act, 1982 (14 of 1982) to provide for the levy of duty at a value of the said goods, determined in terms of the customs law (not central excise law). Also it was decided that no excise/customs duty is to be charged on the goods used in the production of the said goods cleared to DTA. (iii) Notification No. 15/83-C.E., dated 11-2-1983 was issued to exempt excisable goods produced or manufactured in an EPZ unit, unless the goods were brought to any place in India. Similarly Notification No. 125/84-C.E., dated 26-5-1984 was issued, which provided that goods produced or manufactured in an EOU were exempt from whole of the duty of Excise leviable thereon under Section 3 of the Central Excise Act, 1944. This exemption provided that it shall not extend to such goods "allowed to be sold" in India. (iv) To interpret the term "allowed to be sold" in India, it is found that in the case of Siv Industries Ltd. v. CCE - 2000 (117) E.L.T. 281 (S.C.) = 2000 (37) RLT 583 (S.C.) in para 8 thereof it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall cover the products which have definite manufacturing defect and as such are not exportable as per declaration of the 100% Export-Oriented Unit concerned and shall include sub-standard products but shall not include spares, tools wastes or by-products. The following parameters shall be kept in view for determining rejects; (i) The unit must certify that the rejects were an unavoidable feature on account of flaws of technology, techniques or material deployed by unit in the manufacture of its products; (ii) Rejects are also invoiced and stamped by the manufacturer as 'REJECTS' at the time of clearance into the DTA; and (iii) Rejects shall be established as such to the satisfaction of the Assistant Collector of Customs and Central Excise, having jurisdiction over such units. Assistant Collector shall decide that an item is indeed a reject with reference to quality control yardsticks prescribed by the buyer, report of the internal quality control department of the manufacturer, and other technical opinion which the Assistant Colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'civil service of the State' as used in Article 371D of the Constitution did not include the High Court staff and the subordinate judiciary, though the same words used in Article 311 include these categories. The court observed : "Where two alternative constructions are possible, the court must choose the one which will be in accord with the other parts of the statute and ensure its smooth harmonious working and eschew the other which leads to absurdity. Confusion or friction, contradiction and conflict between its various provisions, or undermines or tends to defeat the basic scheme and purpose of the enactment." In this case the scheme we are dealing with is the EOU scheme, which gives the units under it the privilege of duty-free import of goods from both India and abroad, for the purpose of manufacture of goods for export. The underlying motif is to encourage exports and earn foreign exchange for the country. Therefore goods sold in India are to pay duty. The Notification 125/84 exempts goods manufactured in an EOU, because goods are excisable upon manufacture, and captive consumption amounts to removal by a legal fiction; therefore this exemption was necessary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there have been voluntary disclosure schemes in the past. That is so, but none of them is quite like the scheme in question, which not only exempts the unaccounted money in the shape of Special Bearer Bonds from all taxes but provides also for a tax-free premium on it. According to the petitioners, if the earlier schemes have been conciliatory, the present scheme amounts to capitulation to black money. I asked the Attorney General if it was his case that all attempts to unearth black money had failed and the present scheme was the only course open. His answer was that was not the case. Clearly, the impugned Act, puts a premium on dishonesty without even a justification of necessity - that the situation in the country left no option. The Act has been criticized as immoral and unethical. Any law that rewards law-breakers and tax-dodgers is bound to invite such criticism. Should the Court concern itself with questions of morality and ethics in considering the constitutional validity of the Act? Of course no law can be struck down only on the ground that it is unethical. However, friedmann in this Legal Theory (page 43) : "There cannot be - and there never has been - a complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 173A(2) of these Rules it is found that the rules framed for removal of the goods from EOU are restricted and applicable only to such goods which are covered by the proper officer to be 'removed for being sold in India' i.e. 25% DTA quota. Since the present removal is not within this 25% DTA quota, the rules framed under the Central Excise Rules will not be applicable to their removals. Therefore we cannot find contravention of any central excise rules if such goods which are at 'NIL' rate of duty, are removed from an EOU. When no contravention of rules for removal of these 'NIL' rated goods is found, there is no liability for arriving at a confiscation under Rule 209 and penalty thereunder or under Rule 209A. (g) From the reading of the provisions of Rule 100A(2) and Rule 173A(ii) it would be clear that provisions of Chapter V will not apply to an EOU, therefore, penalty imposed under Rule 173Q(i) cannot be determined. The penalty under Rule 9(2) of the Rules cannot be upheld since the goods are found to be 'NIL' rated and no provision for removal of such goods is found under the Central Excise Rules. Contravention of Rule 9(1) for which penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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