TMI Blog2013 (8) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... r of India, located in different parts, shall not be created. Additional Duty of Customs (CVD), chargeable under Section 3 of the Customs Tariff Act, 1975 and applicability of exemption Notification No. 50/2003-C.E.- Held that:- Issue has already been settled by Hon’ble Supreme Court in Hyderabad Industries Ltd. [1999 (5) TMI 29 - SUPREME COURT OF INDIA]by following and affirming its earlier verdict in Thermax Pvt. Ltd.[ 1992 (8) TMI 156 - SUPREME COURT OF INDIA], wherein it has been held that section 3(1) of the Customs Tariff Act “Specifically mandates that the CVD will be equal to the Excise -Duty for the time being leviable on a like article if produced or manufactured in India. In other words, we have to forget that the goods are imported, imagine that the importer had manufactured the goods in India and determine the amount of Excise Duty that he would have been called upon to pay in that event.” - The explanation to Section 3 has two limbs. The first limb clarifies that the duty chargeable under sub-section (1) would be the excise duty for the time being leviable on a like article if produced or manufactured in India. The condition precedent for levy of additional duty th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of exemption Notification No. 50/2003-C.E., dated 10-6-2003 and to direct the Commissioner of Central Excise, Chandigarh not to demand differential excise duty and thereby to drop all the proceedings initiated in relation to non extending benefit of Notification No. 50/2003-C.E., dated 10-6-2003 to 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 Nala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its have to pay on their clearances. Therefore, if there is an exemption for excise duty which is applicable to a domestic unit, that exemption also applies for the purpose of calculating CVD . The CVD is intended to countervail 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, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the goods specified in the 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, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no Central Excise exemption would apply to a 100% EOU unit unless it was specifically mentioned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leviable thereon being hereinafter referred to as the statutory duty) may be granted by providing for the 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquor produced or manufactured in different States or, if a like alcoholic liquor is not produced or manufactured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts excisable products to DTA and in calculating the Central Excise duty being discharged for only payment of basic Customs 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, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Export Promotion for appropriate interim arrangement in the meanwhile, in which case appropriate orders in this regard be also 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 manufactured elsewhere in the country, as such, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Notification No. 50/2003-C.E. or like such notification) could not be made applicable and further, it was never intended to extend such benefit to 100% EOU units clearing their products to DTA . According to him the 100% EOU was otherwise availing several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (d) Section 3(1) of the Customs Tariff uses the terms and becomes applicable where the article is imported into India. However, when it comes to charging Additional Duty (CVD) equal to the excise duty for the time being leviable on a like articles it only considers as if like articles produced or manufactured in India. The expression the excise duty for the time being leviable on a like article if produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually 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 mandates that the CVD will be equal to the Excise -Duty for the time being leviable on a like article if produced or manufactured in India. In other words, we have to forget that the goods are imported, imagine that the importer had manufactured the goods in India and determine the amount of Excise Duty that he would have been called upon to pay in that event. To our mind the genesis of Section 3(1) of Customs Tariff Act has been brought out in the aforesaid observations of this Court, namely, for the purpose of saying what am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regarding levy of Additional Duty of Customs (CVD) on DTA sales as in terms of Notification No. 5/98-C.E. issued under the provisions of Central Excise thereby exempting such goods. On behalf of Union of India it was mainly contended that the exemption could not be claimed in view of the provisions contained in Section 5A of the Act , whereas, on behalf of M/s. Lucky Star International it was contended that they were being denied their liability to pay countervailing duty under Section 3(1) of the Customs Tariff Act in view of the fact that such goods were manufactured in India and were not liable to pay an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 letters dated 18-1-2008 and 6-4-2009, meaning thereby, clarifications highlighted through letter dated 6-4-2009 of DGEP, explaining the intention of using the expressions specifically provided in Section 5A of Act is valid. (j) The Notification No. 50/2003-C.E., dated 10-6-2003, has been issued in reference to O.M. dated 7-1-2003 which contains the type of industry and the negative list in respect of the products besides indicating the specified areas which were eligible for providing tax incentives including 100% Excise duty exemption where any unit undertakes manufacturing, as such, the scope of Notification No. 50/2003-C.E., in providing negative list has not to bar the entry of 100% EOU for obtaini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent 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 to encourage exports and the purpose of the New Industrial Policy pursuant to which Notification 50/2003-C.E. has been issued to attract investment and employment in backward areas of State of Himachal Pradesh. The petitioners have independently fulfilled both these objectives and the benefits of the two schemes independently are to be made available to the petitioners. (iv) Notification 50/2003-C.E. has been issued pursuant to the New Industrial Policy issued on 7-1-2003. The state industrial policy includes in its ambit, the excise concessions even to 100% EOU, this means that the very intention for issuance of Notification No. 50/2003 of the government is to include and cover 100% EOU in Notification No. 50/2003. (v) The intention of the government cannot be overlooked while interpreting the fiscal statute/exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 50/2003-C.E. is Nil and it is this rate alone which can be applied for the purpose of calculating CVD in terms of the observations of the Hon ble Supreme Court. The impugned order dated 17-3-2011, therefore, being contrary to the law laid down by the Hon ble Supreme Court is liable to be quashed. (c) Both sides have heavily referred to the provisions of Section 5A of the Act for projecting their case. The petitioners have all along been submitting that for calculating Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975, there is no bar to consider benefit of Notification No. 50/2003-C.E., whereas, contrary to this, the respondents have drawn the attention of this Court to the expression specifically provided appearing in the proviso to the Section 5A(1) of the Act and has submitted that Area based Central Excise Exemption notification does not specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Section 3(1) of the Customs Tariff Act, 1975 requires that for determining the said duties of Customs, it has to be equal to the excise duty for the time being leviable on a like article if produced or manufactured in India. The expression the excise duty for 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. Therefore, it is only for the purpose of calculation of Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975 that one is required to look and consider as to what would be the quantum of excise duty which the goods might have discharged by the importer. In fact the provisions of Section 3(1) of the Customs Tariff Act, 1975 have already been considered including the scope of the said provision by Hon ble Supreme Court in the matter of M/s. Thermax Pvt. Ltd. (supra). 21. In Hyderabad Industries Ltd. (supra), Hon ble Supreme Court while affirming the observations regarding explanation of the scope of Section 3(1) of the Customs Tariff Act, 1975, made in Thermax Pvt. Ltd. (supra), thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 5A of the Act . The claim of the petitioners that their unit squarely falls within the specified area of Notification No. 50/2003-C.E., dated 10-6-2003 is not disputed. The petitioners further claim that the excisable goods manufactured by them even do not fall in the negative list annexed to the said notification and further the petitioner unit is a new industrial unit started after 7-1-2003. The petitioners also filled their declaration with the Assistant Commissioner of Central Excise, Shimla and thereby complying with the conditions of the notification for claiming exemption for the purpose of calculating Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975. This notification is applicable to any unit because of use of expression a unit appearing in main para of the notification and the scope of extending the benefit is therefore applicable for discharging their liability to pay Additional Duty of Customs under Section 3(1) of the Customs Tariff Act for clearances effected to DTA by a 100% EOU . To support their above claim, the petitioners relied on the O.M. dated 7-1-2003. In the said O.M. it was declared by the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability to pay the Additional Duty of Customs and which is equal to excise duty leviable on like goods when produced in India that such exemption notification has been considered. It is by way of specific provision of Section 3(1) of the Customs Tariff Act, 1975 that Area based exemption can be considered for finding about the excise duty on like goods chargeable when produced in India. Moreover, the order dated 17-3-2011 of DGEP while upholding DGEP clarification dated 24-9-2010 does not dispute the reasoning appearing for the expression specifically provided in Section 5A of the Act , as appearing in letters dated 18-1-2008 and 6-4-2009. In fact the judgments of Hon ble Delhi High Court in the case of Plastic Processors, as well as judgments of Gujarat High Court in the case of Lucky Star International (supra), were confirmed by Hon ble Supreme Court, showing that for extending benefit of Central Excise exemption notification, the provisions of Section 5A(1) and its Proviso under the Act , were duly considered, hence the objection raised by the Government of India towards the expression specifically provided does not carry any force as a 100% EOU unit only discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duties under Section 3(1) of the Customs Tariff Act applies where the goods are not being produced in India in the State of Himachal Pradesh, whereas, the issue of charging highest rate of duties when chargeable has already been settled by Hon ble Supreme Court in the case of Good Year India Limited v. Collector of Customs, Bombay, (1997) 2 SCC 582 = 1997 (90) E.L.T. 7 (S.C.). Relying on the said decision, the effective rate of duty would be NIL rate for calculating the Additional Duty of Customs. 29. Regarding contention of the respondent/Union of India that extending benefits of Area base Central Excise notification to the petitioners may create disparity vis- -vis other manufacturers who are not 100% EOU , it may be seen that when the benefits are provided under Foreign Trade Policy to the 100% EOU , can bring raw material and capital goods without payment of Customs and excise duty. As such the petitioner unit cannot be compared with other manufacturers regarding granting of benefit. In this connection it can t be ignored that by benefit granted under FTP, a 100% EOU /the petitioner unit is accountable for the earning of net foreign exchange (NFE) for the country unlike ..... X X X X Extracts X X X X X X X X Extracts X X X X
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