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TMI Blog2020 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ce whereof, it is exempted from payment of customs duty on the imported inputs used during production of the exported articles, vide Notification No. 126/94Cus dated 3.6.1994- For short, "the exemption notification". Under the said notification, exemption on levy of customs duty had been extended even to the inputs used in production of articles sold in domestic market, in accordance with the Export-Import (EXIM) Policy and subject to other conditions specified by the Development Commissioner. To wit, upon payment of excise duty in case of excisable goods; and in case of non-excisable goods, upon payment of customs duty on the inputs used for production, manufacturing or packaging of such articles at a rate equivalent to the rate of customs duty that would have been leviable on such articles, if such articles were imported. The said notification was amended by Notification No. 56/01Cus dated 18.5.2001- For short, "the amendment notification", by which the customs duty in case of non-excisable goods became leviable on inputs used for production, manufacturing or packaging, as if there was no exemption notification in place. The effect of this amendment was that the customs duty on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e making any DTA sales it was required that 20% positive Net Foreign Exchange Earning (NFEP) should have been achieved i.e. annual value of export should have been 20% more than Rs. 2,42,37,400/= (+) annual value of imports of raw materials and consumables during the respective year and the said noticee had exported the flowers worth Rs. 91,92,000/= only which are well below prorata annual value of Import of capital goods. 3.2 I also find that as per condition of the approval letter No. 119(1994)EOB/34/94 dated 04.5.94, issued by Govt. of India, Ministry of Industries, Department of Industrial Development, Secretarial for Industrial approval, MUCC Section, New Delhi, the bonding period of M/s. L.R. Brothers Indo Flora Ltd., was fixed for 10 years during which they were required to achieve 62% value addition over and above the imports and other factors contributing towards the foreign exchange gone out of the country. As per the specific condition of the approval letter, the party was required to export all of its production out of India subject to permissible limit of Domestic Tariff Area Sales (herein after referred to as DTA Sales) and that, too, after specific permission from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Book of Procedure, Export Import Policy 19972002. 3.6 Apart from the above, the floriculture EOU may Import Capital Goods and Raw Materials, without payment of Customs duties in terms of Custom Notification No. 126/94 dated 3.6.94 and accordingly M/s. L.R. Brother Indo, Flora Ltd., have imported green house equipment, raw materials like Liver Rose Plants and Consumable like planting materials and Fertilizers under the said notification. Para 3 of the said Notification reads as under :.... 3.7 Therefore, from the above provision, it is clear that the units working under the said Notification may sell their produced goods in DTA on payment of excise duty as leviable under Section 3 of Central Excise Act, 1944 if the goods are excisable and on payment of full Customs duties leviable on such goods as if imported as such if the goods are non excisable. Cut Flowers or Flower Buds are not covered under Central Excise Tariff Act, 1985 as Chapter 6 which covers such types of Flowers in Customs Tariff left blank in Central Excise Tariff Act and, therefore, such types of Flowers will be treated as non excisable in view of Section 2 (d) of the Central Excise Act, 1944. Therefore, ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... In the light of the above facts, I find myself in agreement with the findings of the adjudicating authority that the appellants have not earned the DTA sale entitlement due to very low exports in comparison to high quantum of imports. Thus, the alleged contravention of provisions of Import & Export Policy 1997-2002 and non-fulfilling of the conditions of the Notification 126/94Cus ibid is fully established against them. Therefore, the demand of Customs duty along with interest in this case as per the impugned order is justified. As regards the imposition of penalty on the appellants, I find that the charges of contravention of provisions of Export & Import Policy 19972002 & Notification No. 126/94 Cus dt. 03.06.94 stand proved against the appellants. They were aware that they were not entitled to make DTA sales of the subjected goods, even then they made DTA sales of the same to evade payment of duty. Hon'ble Supreme Court in the case of Gujarat Travancore Agency vs. Commissioner of Income Tax 1989 (42) ELT 350 (SC), has held that the penalty under Section 271(1)(a) of the Income Tax Act is a civil obligation and unless there is something in language of the statute indicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and it cannot be given retrospective effect. In view of this, during the period of dispute, customs duty on the inputs used in the production of cutflowers cleared to DTA has to be calculated as per the provisions of the Notification, as it existed during that period. 6. The Tribunal's judgment in the case of Vikram Ispat (supra) is not applicable to the fact of this case, as in the present case what is being charged in respect of DTA clearances of the cutflowers is not the customs duty on the cutflowers, but the custom duty on the inputs used in the production of those cutflowers, which as per the provisions of Notification, as it existed at that time, was equal to the Customs Duty chargeable on the import of cutflowers, as such. In the Tribunal's judgment in case of Zygo Flowers Ltd. (supra) and Cosco Blossoms Pvt. Ltd. (supra), the implications of the wording of para 3(a) of the exemption notification during the period of dispute " or where such articles [including rejects, waste and scrap material] are not excisable, on payment of Custom Duty on the said goods used for the purpose of production, manufacture or packaging of such articles in an amount equal to the Cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disadvantageous position. The circular further envisages that the central excise notifications provided for recovery of duty on inputs procured duty free, whereas the exemption notification provided for recovery on inputs equal to duty on the final product. That the amendment notification was issued to address this anomaly and to harmonise the central excise and customs notifications. The appellant placed reliance on the Constitution Bench decision of this Court in Commissioner of Income Tax (Central) - I, New Delhi vs. Vatika Township Private Limited-(2015) 1 SCC 1, wherein it had been observed that whenever the legislator intends to confer benefit upon a person, it must be presumed to have retrospective effect. The appellant relied upon yet another decision of this Court in Zile Singh vs. State of Haryana & Ors. (2004) 8 SCC 1 to contend that the substitution of a clause which clarifies about the intent of the legislature takes effect from the date of enactment of original provision. The appellant would further urge that Section 12 of the 1962 Act being the charging section, could only be applied if the goods are imported into India and since the cut flowers are not imported, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st so to do, hereby exempts goods specified in AnnexureI to this notification (hereinafter referred to as the goods), when imported into India, for the production or manufacture of articles specified in AnnexureII for export out of India or for being used in connection with the production, manufacture or packaging of the said articles specified in AnnexureII for export out of India (hereinafter referred to as the specified purpose) by hundred per cent Export Oriented Undertakings approved by the Board of Approval for hundred per cent Export Oriented Undertakings, appointed by the notification of Government of India in the former Ministry of Industry and Civil Supplies, (Department of Industrial Development) No. S.0.163(E)/RLIU/10(2)76, dated the 3rd March, 1976 or the Development Commissioner concerned as the case may be, from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the second mentioned Act, subject to the following conditions, namely : ( 1) the importer has been granted the necessary licence for the import of the said goods; (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy. The EXIM policy, at paragraph 9.9 provided that for earning an entitlement to make sales in DTA, the unit has to maintain positive net foreign exchange earning. The calculation of net foreign exchange earning, as defined at paragraph 9.29, is provided for at paragraph 9.5 of the Policy, which had to be done as prescribed in Appendix I of the Policy. In case of cut flowers, it has been fixed at 20% since it would come within the category of "Products not covered above". 13. On a combined reading of the notification with the conditions laid down in the EXIM policy, it is clear that the fulfilment of the aforesaid conditions is a condition precedent to become eligible to make DTA sales. Resultantly, if goods are cleared in DTA sales in breach of the aforesaid conditions, customs duty would be leviable, as if such goods were imported goods. 14. Reverting to the first question, the appellant lays emphasis that the DTA sales made by an 100% EOU can only be amenable to excise duty and show cause notice under the provisions of the 1962 Act could not have been issued. This ground finds support in the decision of larger bench of the CEGAT in Vikram Ispat (supra), which the appellant re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms Act as held by the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxiliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR1A on which the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty." (emphasis supplied) However, this exposition has no application to the fact situation of the present case, in as much as there had been no contravention of conditions of EXIM Policy and the issue was only about the nature of tax, in case of goods otherwise amenable to excise duty. 15. Concededly, the DTA sales pertaining to excisable goods made in conformity with the conditions of the EXIM policy are exigible to excise duty, but once there is contravention of the condition(s) of the EXIM policy, irrespective of the goods produced being excisable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty. However, the demand made in the show cause notice "treating" cut flowers as deemed to have been imported was only for the purpose of quantification of the customs duty on the imported inputs and not imposition of the customs duty on the domestically grown cut flowers as such. 19. The decision of CESTAT in the case of Cosco Blossoms (supra) is of no avail to the appellant. In that case, the tribunal had relied upon the decision in Vikram Ispat (supra) and held that the cut flowers cleared in DTA sales cannot be charged with customs duty, without considering that the goods were non excisable. Notably, the Tribunal had granted liberty to the authorities to charge customs duty upon the imported inputs, if used in production of the goods cleared in DTA, which supports the case of the respondent. Paragraph 5 of the aforesaid order reads as under: "5. It is well settled [2000 (120) E.L.T. 800] that goods produced in an EOU cannot be treated as imported goods and subjected to customs duty. The duty payable in respect of such goods is the duty of excise under Section 3 of the Central Excise Act, 1944. Therefore, the duty demand made in the impugned order under Section 28 of the Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the said Table. TABLE Sr. No Notification No. and Date Amendment (1) (2) (3) xxx Xxx xxx 8. 126/94Cus dated the 3rd June, 1994 In the said notification, (a) in the first paragraph, in condition (6), after clause (d), the following shall be inserted, namely:" (e) permit destruction of rejects and waste without payment of duty within the unit, or outside the said unit, where it is not possible or permissible to destroy the same within the said unit, in the presence of Customs or Central Excise officer."; (b) in paragraph 2, in the proviso, for the words and figures "duty of 15% ad valorem", the words and figure "duty of 5% ad valorem" shall be substituted; (c) in paragraph 3, in clause (a), for the words "on payment of customs duty on the said goods used for the purpose of production, manufacture or packaging of such articles in an amount equal to the customs duty leviable on such articles as if imported as such.", the following shall be substituted, namely:" customs duty equal in amount to that leviable on inputs obtained under this notification and used for the purpose of production, manufacture or packaging of such articles, which would have been paid, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to pay any duty for sale of cutflowers, as the same are not excisable. This is stated to have placed the floriculture units in EOUs at a serious disadvantageous position visavis DTA units. 27. The matter has been examined. In the central excise notifications governing duty free procurement by EOUs and units under EPZ/STP/ETHP Schemes, there is a provision to recover duty on the inputs & consumables procured duty free under exemption notification, which have gone into production of non-excisable goods cleared into DTA. In the notifications governing duty free import by EOUs and the EPZ/STP/EHTP units, the anomaly, however, exists inasmuch as the notifications talk about payment of customs duty on the inputs used in the manufacture of articles in an amount equal to the customs duty leviable on such articles as if imported as such. In order to remove this anomaly, all the notifications governing duty free import of goods by STP/EHTP/EPZ units and EOUs including those in Aquaculture and Agriculture sector have been amended so as to bring the provisions of these notifications in harmony with the provisions of corresponding Central Excise notifications. Notification No. 56/2001C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich 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 special duty of excise, in addition to the duty of excise specified in Clause (a) above, on excisable goods specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule. Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, (i) in a free trade zone and brought to any other place in India; or (ii) by a hundred per cent exportoriented undertaking and allowed to be sold in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable Under Section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labelled as "declaratory statutes". The circumstances under which provisions can be termed as "declaratory statutes" are explained by Justice G.P. Singh in the following manner: "Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court: 'For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word "declared" as well as the word "enacted".' But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is clear that rights and liabilities that have already accrued as a result of agreements entered into between parties are sought to be taken away. This being the case, we are of the view that both the Single Judge and the Division Bench were in error in holding that the amended Section 28 would apply." We are in agreement with the respondent that this decision squarely applies to the present case as prior to the amendment, the DTA sales made by the appellant have already attracted liability at the prescribed charging rate, which in facts of the present case cannot be undone in reference to the subject amendment. 32. It is relevant here to advert to a decision of Constitution Bench of this Court in Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal & Ors. (2011) 1 SCC 236, wherein it has been held that an exemption clause ought to be strictly construed according to the language employed therein and in case of any ambiguity, benefit must go to the State. It will be useful to reproduce paragraphs 29 and 30 of the aforesaid decision hereunder: "29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon by the appellant. The same explains the situations in which Section 28 of the 1962 Act can be invoked. It had been held in the said decision that the extension of limitation for a period of five years can be done only in cases of deliberate default and not inadvertent nonpayment. It was further held that the burden for proving mala fide conduct is on the revenue; and specific averments in that regard must find place in the show cause notice. 34. In the fact situation of the present case, the appellant was issued a show cause notice mentioning that it had suppressed the DTA sales of cut flowers to evade payment of duty. Had the appellant in good faith believed that no duty was payable upon the DTA sales of cut flowers, it would have sought prior approval of the Development Commissioner, which it failed to do. Even in the letter seeking expost facto approval, the appellant claimed that they had not used any imported input such as fertilizer, plant growth regulations, etc. in growing flowers sold in DTA, despite having imported green house equipment, raw materials like Live Rose Plants and consumables like planting materials and fertilizers. Therefore, it prima facie appeared ..... X X X X Extracts X X X X X X X X Extracts X X X X
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