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REPORTABLE  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 3555-3560  OF 2012

Sarla Performance Fibers Limited    ...  Appellant(s) Etc.  

                               Versus

Commissioner of Central Excise,    ... Respondent(s) Surat-II

J U D G M E N T

Dipak Misra, J.

The  appellant  is  a  company  registered  under  the

Companies  Act,  1956  and  is  engaged,  inter  alia,  in  the

manufacture of  excisable goods, namely, synthetic yarn and

for  that  purpose  it  has  a  factory  at  Unit-I,  Survey  No.

59/1/14,  Amli,  Piparia  Industrial  Estate,  Silvassa  (U.T.  of

D.N.&H).   The said factory is  a 100% Export  Oriented Unit

(EOU).  Prior to 6th November, 2006, Sarla Performance Fibers

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Limited was known as Sarla Polyesters Ltd. Shri Madhusudan

Jhunjhunwala  and  Shri  Satish  Kumar  Sharma  were  the

Chairman  and  the  excise  in-charge  respectively  of  Sarla

Performance Fibers Limited.  Shri Dineshchandra Pandey was

the dispatch in-charge of M/s. Hindustan Cotton  Company, a

partnership  firm,  engaged  inter  alia,  in  trading  of  Polyester

Textured/Twisted Dyed Yarn since 1988.  Sh. Gopal Bhagwan

Dutt  Sharma was the Manager of  Sarla Performance Fibers

Limited  at  the  relevant  time.   The  reference  to  appellants

herein will mean and include all the appellants.  

2. The appellants had procured partial oriented yarn (POY)

falling  under  Chapter  54  without  payment  of  duty  for  the

manufacture  of  various  types  of  yarn,  namely,  polyester

texturised  yarn,  nylon  covered  yarn  and  polyester  covered

yarn.  A show cause notice No. V(Ch.54)15-6/OA/2000 dated

16th May, 2001 was issued by the Commissioner of  Central

Excise,  Surat  –  II  requiring  the  appellant  to  explain  why

central excise duty of Rs.32,92,854/-should not be recovered

on  the  texturised  yarn  allegedly  removed  by  the  appellants

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without payment of  duty.  The said show cause notice also

required the appellants to explain why penalty should not be

imposed under Section 11AC of the Central Excise Act, 1944

(for short, ‘the Act’).  That apart, the show cause notice also

sought  to  confiscate  the  nylon  covered  yarn  valued  at

Rs.1,72,186/-and  further  to  recover  duty  thereon  of

Rs.55,202.96.   

3. After the show cause notice was issued, the appellants

made payment aggregating to Rs.14,89,349.00 as against the

duty payable under Section 3(1) of the Act (after taking into

account the cum-duty benefit) and Rs.11,19,775.00 payable in

the event the benefit of Notification No. 2/05 was allowed.   

4. After the reply to the show cause notice was filed, the

Commissioner  of  Central  Excise,  Surat-II,  by  his

order-in-original no. 11/MP/2002 dated 21st March, 2002 (i)

confiscated the seized nylon covered yarn weighing 245.980

kgs.  valued  at  Rs.1,72,186/-  and  appropriated  a  sum  of

Rs.86,093/-  which  was  given  as  bank  guarantee;  (ii)

demanded Rs.55,202.96 as differential duty on the confiscated

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goods  which  were  released  provisionally  before  the

adjudication;  and  (iii)  confirmed  the  central  excise  duty

amounting to Rs.32,92,854/- and ordered recovery of interest

under Section 11AB and imposed a penalty of Rs.33,48,060/-

on the appellants. The adjudicating authority also imposed

penalties on various persons set out in the impugned order.  

5. Being  aggrieved  by  the  aforesaid  order,  the  appellant

preferred appeals before the Customs, Excise and Service Tax

Appellate Tribunal (CESTAT) (for short,  ‘the tribunal’)  under

Section 35B of the Act to the extent the said order was adverse

to it.  The revenue also preferred an appeal before the tribunal

as certain aspects were adverse to it.  The tribunal referred the

issue  to  the  Larger  Bench of  the  tribunal  for  consideration

whether the goods cleared by the appellant were eligible for

exemption under Notification No.  125/84 dated 26.05.1984.

The Larger Bench vide order dated 03.08.2007 held that  in

case the goods cleared by the 100% EOU and sold in India

whether with or without permission, the assessment shall be

made  under  proviso  to  Section  3(1)  of  the  Act  and  the

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exemption  under  Notification  No.  125/84  shall  not  be

applicable.   After the matter  was placed before the Division

Bench of the tribunal vide its order dated 15.11.2007 referred

to the Larger Bench decision and reiterated the view of the Full

Bench by opining that the goods cleared by the 100% EOU

and sold in India whether with or without permission of the

Development  Commissioner,  the  assessment  shall  be  made

under proviso to Section 3(1) of the Act and exemption under

Notification No.  125/84 shall  not  be applicable but granted

some relief as regards the imposition of penalty.  Resultantly,

the  tribunal  vide  order  dated  15.11.2007  disposed  of  the

appeal  of  the  appellants  and  dismissed  the  appeal  of  the

revenue.  

6. As  the  facts  would  unfold,  the  appellants  filed  an

application  before  the  tribunal  for  recall  of  order  dated

15.11.2007 in terms of judgment in  J.K. Synthetics Ltd. v.

Collector  of  Central  Excise1,  which was dismissed on the

ground that  appeals were decided on merits and a detailed

1  1996 (86) ELT 472 (SC)

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order considering all aspects was passed by the tribunal and

as  such  it  could  not  be  said  that  the  Bench  defaulted  in

considering the merits of the case.   

7. The aforesaid orders were assailed before the High Court

in Writ Petition No. 4758 of 2008 and the Division Bench of

the High Court  taking note of the submissions of the learned

counsel for the parties, directed as follows:-

“3.  There  were  certain  Appeals  filed  by  the Petitioners and also  there were certain Appeals filed by the Department. Mr. Desai, the learned Senior  Counsel  for  the  Respondents,  has  no objection  if  all  the  Appeals  are  heard  together denovo  including  the  Appeals  filed  by  the Department since the Petitioners were not heard in  the  Appeals.   The  learned  Counsel  for  the Petitioners also has no objection for the same.

4. Under the aforesaid facts and circumstances, both the impugned orders dated 21st April, 2008 and 15th November, 2007 passed by the CESTAT in the aforesaid Appeals are hereby quashed and set  aside,  and  all  the  aforesaid  Appeals  stand restored to file.  The CESTAT is directed to hear all  the  Appeals  mentioned  hereinabove  afresh denovo without being influenced by their earlier orders in any manner.”

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8. After the remit, it was contended before the tribunal that

the allegation of clandestine removal was based on a computer

sheet  and  no  other  records  had  been  recovered;  that  the

reliance by the department to establish clandestine removal

were the invoices issued by Hindustan Cotton Company; and

that the appellant SPL is a 100% EOU and when case goods

were  cleared  without  permission  of  the  Development

Commissioner according to the department duty was payable

under  Section  3(1)  of  the  Act  and  exemption  was  available

under  notification  no.  125/84  CE.   To  sustain  the  stand,

reliance  was  placed  on  SIV  Industries  Ltd.  v.  CCE  &

Customs2.  Be it stated that the reliance was placed on Larger

bench decision of the tribunal in  Shrichakra Tyres Ltd. v.

CCE Madras3  and on that base it  was contended that the

amount  utilized  by  the  assessee  was to  be  treated as  duty

price and no penalty could have been imposed on individuals

since no evidence had been brought on record to show that

they were aware of the transactions.

2  (2000) 3 SCC 367 3  1999 (108) ELT 61 (Tribunal)

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9.   The stand of the assessee was resisted by the revenue

contending,  inter  alia,  that  the  benefit  of  exemption

notification  could  not  be  extended  since  the  notification

incorporated several conditions to be fulfilled and unless these

conditions were fulfilled, exemption could not be allowed; that

the  benefit  of  cum-duty  price  could  not  be  extended  and

invocation of a wrong section or rule in the show cause notice

would not be a bar for imposition of penalty under the correct

rule  or  section,  and  that  appellant  was  not  eligible  for

treatment  of  clearances  under  Section  3(1)  of  the  Act.   On

behalf of the revenue reliance was placed on Sterlite Optical

Technologies Ltd. v. CC&CE Aurangabad4.   

10. At  this  juncture,  it  is  relevant  to  state  that  Member,

Technical  came  to  hold  that  all  the  sales  to  DTA  were

clandestinely  done in contravention of  the provisions of  the

EXIM  policy  and  the  appellant-company  did  not  raise  any

contention that the price charged included the component of

excise duty. On the contrary the appellants claimed exemption

4  2005 (188) ELT 201 (Trib.-Mumbai)

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under notification no. 125/84 and, therefore, the question of

SPL having recovered any cum-duty price from the customers

in  DTA  did  not  arise.  Further  it  was  evident  that  the

transactions had been made by SPL in the name of Hindustan

Cotton Company and M.M. Sanghavi  and the demands had

been raised on the invoices raised.  The transaction itself was

artificial and no justification had been shown to treat the same

as  cum-duty  price  and,  therefore,  the  decision  of  the

Commissioner  not  to  treat  the  price  as  cum-duty  price

deserved to be upheld. As regards penalty on the company, the

learned member held that it had been rightly imposed under

Section 11AC of the Act read with Rule 173Q of the Central

Excise Rules.  As far as the individuals were concerned, the

learned  Member  opined  that  the  imposition  on  some  was

justified  and  imposition  on  certain  individuals  was  not

warranted.   He,  however,  dismissed the appeal  preferred by

the department.   

11. The  Member,  Judicial  concurred  with  the  view  of  the

Member,  Technical  as  regards  the  clandestine  removal  and

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consequent confirmation of demand of duty and imposition of

penalty  on  various  appellants  but,  however,  as  far  as  the

present appellant was concerned, the learned Member opined

that the entire realization  made by M/s. Sarla Polyester Ltd.

were  required  to  be  treated as  cum-duty  and as  such,  the

benefit  had  to  be  extended  to  the  appellant  on  the  above

count.   She further observed that:-

“Admittedly no duty has been recovered by them from  their  buyers.   When  the  duty  is  being subsequently demanded from them on the same realization,  it  is,  in  my  view,  required  to  be treated  as  cum duty  and  the  assessable  value has to be arrived at by deduction of the duty now being confirmed against the assessee.  This has been the declaration of law in all the judgments relied upon by the learned Advocate.  The fact as to  whether  the  duty  is  being  demanded  on clandestine  removal  or  on  any  other  issue, should not make a difference”.

12. The  learned  Member  placed  reliance  on  CCE Delhi  v.

M/s.  Maruti  Udyog  Ltd.5,  reproduced  a  passage  from  the

same and opined that the entire realization was required to be

considered as cum-duty-price and the benefit of the same had

5  2002 (141) ELT 3 (SC)

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to be extended to the assessee and for the said purpose, the

matter  needed  to  be  remanded  for  recalculation  of  the

quantum  of  duty.  As  far  as  penalty  is  concerned,  she

concurred with the Member, Technical, but also opined that it

required to be remanded for  imposing penalty  equivalent  to

the duty calculated on the determination of the quantum.   

13. The  two  Members  noted  three  points  as  difference  of

opinion.  For the sake of completeness, we think it appropriate

to reproduce the same:-

“a. Whether the entire sales value of the goods removed  clandestinely  is  required  to  be considered as cum-duty and benefit of the same is  to  be  extended  to  M/s.  Sarla  Polyester  Ltd. (Appellant no.1 herein) or not?

b. Whether  the  ratio  of  law  declared  by  this Hon’ble Court in the case of CCE Delhi vs. M/s. Maruti Udyog Ltd. reported in 2002(141) ELT 3 applies to the facts of the present case or not and as to  whether  the benefit  of  the  same is  to  be extended to the said assessee or not?

c. Whether  the  matter  is  required  to  be remanded  for  quantification  of  the  duty  by treating entire realization as cum-duty price, as held by the Member (Judicial) or the appellant’s plea on the above issue is required to be rejected by upholding the decision of  the Commissioner

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not  to  treat  the  price  as  cum-duty  price,  as observed by learned Member (Technical)?

d. Consequent to the re-quantification of duty on the above ground, the penalty imposed upon M/s.  Sarla  Polyester  Ltd.  would  get  reduced to the quantum of duty reconfirmed against the said appellant?

14. It  is  necessary  to  state  here  that  before  the

pronouncement of Order on 13.10.2010, counsel on behalf of

the present assesee mentioned that  the controversy was no

more  res integra in view of the decision rendered in  CCE v.

NCC Blue Water Products Ltd.6  Thereafter the matter was

heard on another day and on behalf of the Bench, the learned

Member, Technical passed the order. He took note of the stand

of  the  revenue  that  ratio  of  the  said  decision  was  not

applicable as it was based on the principle stated in earlier

decision i.e. SIV Industries Ltd. (supra).  The learned Member

also took note of the fact that the Larger Bench of the tribunal

had distinguished the decision in SIV Industries Ltd. (supra)

which  was  relied  upon in  NCC Blue  Water  products  Ltd.

(supra).  At this juncture, we think it appropriate to reproduce

6  (2010) 12 SCC 761 : 2010 (258)_ ELT 161

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a passage from the order passed by the Member, Technical on

behalf of the Bench:-

“It  is  quite  clear  that  as  submitted  by  learned SDR,  the  Hon’ble  Supreme  Court  followed  the decision in case of SIV Industries and also took note of the Board’s circular issued in 2002 and it is  quite  apparent  that  circular  issued  in  2004 was not brought to the notice of learned SDR in Supreme  Court.   Further,  we  also  note  as submitted by the decision of the present case, the Larger  Bench  had  considered  the  Hon’ble Supreme Court in case of SIV Industries Ltd. and had  distinguished  the  same  and  reached  the conclusion that  in case of  goods sold by 100% EOU  in  DTA,  the  assessment  shall  be  made under proviso to Section 3(1) of the Act.”

15. After  so  stating,  the  learned Member  quoted  copiously

from the Larger Bench.  We think it appropriate to reproduce

the relevant part:-

“14.  We have considered the submissions.   We find that the wordings of proviso to Section 3(1) of the Central  Excise Act  and Notification 125/84 which we have been called upon to interpret are similar and the basic  dispute is  as to how the words  “allowed  to  be  sold  in  India”  are  to  be interpreted.   After  going  through  the  various submissions  made  by  both  sides,  we  find  that 100% EOUs were allowed to be established with the  sole  purchase  of  exporting  100%  of  their

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production  as  is  evident  from the  words  100% EOUs.  However, on account of certain hardship faced in getting export order, sales in DTA up to 25% were permitted from the year 1984 but there was a clear intention to distinguish between such sales  by  the  100%  EOU  from  the  sales  by domestic units other than 100% EOU and it was for this purpose that proviso to Section 3(1) and Notification 125/84 was introduced.  Since there were only two modes of  clearance in which the 100% EOUs could have cleared the goods i.e. one by export  and the  other  by domestic  sale  after obtaining  the  permission  of  the  Development Commissioner,  in respect  of  domestic  sales  the words  “allowed  to  be  sold  in  India”  were incorporated in both the provisos.”

16. Thereafter,  the  learned  Member  proceeded  to  state

certain aspects which are not necessary and then reproduced

the following passage:-

“We also agree with the observation of the Larger Bench that the decision of the Supreme court in SIV  Industries  case  is  distinguishable  for  the reason stated therein, as in that case the main thrust was that whether on the date of removal the  100%  EOU  ceased  to  be  100%  EOU  and therefore  the  provisions  relating  to  100% EOU could not  have been applied to them.  For  the same  purpose  we  hold  that  exemption  under Notification  125/84  shall  not  be  applicable  in respect of goods manufactured by 100% EOU but sold in India.”

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17. After  reproducing number of  passages from the Larger

Bench, the learned Member observed thus:-

“7. It  may  be  seen  that  Larger  Bench  had considered  the  decision  of  Hon’ble  Supreme Court  in  case  of  SIV  Industries  Ltd.,  and  has agreed with another decision of the Larger Bench in  the  case  of  Himalaya  International,  wherein also  the  decision  of  Hon’ble  Supreme Court  in case of SIV Industries Ltd had been considered; and distinguished.

8. To sum up, two decisions of Larger Bench of the  Tribunal  have  considered  the  issue  and distinguished  the  decision  in  the  case  of  SIV Industries Ltd. and the decision of Larger Bench in the present case on a reference made in the appellant’s case itself had considered, all aspects and  the  history  of  100%  EOU,  statutory provisions  and  precedent  decisions  to  reach conclusion that duty is chargeable under proviso to Section 3(1) of Central Excise Act, 1944.”

18. Being of this view, the Bench reiterated the difference of

opinion  and  the  questions  framed  thereunder.   After  the

judgment  was  delivered  by  the  tribunal,  the  appellant

preferred W.P.  No.  714 of  2011.  The High Court  noted  the

submissions of the learned counsel for the writ petitioners and

opined that keeping in view the concept of self-restraint and

the requirement of judicial propriety, it was desirable for the

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assessee to prefer an appeal before this Court. Being of this

view, the High Court declined to interfere. Hence, the present

appeals have been preferred under Section 35L(b) of the Act.

19. It is not in dispute that the unit of the assessee-appellant

is a 100% EOU and under the EOU scheme it was required to

export  the  goods  manufactured  by  it.   The  stand  of  the

assessee is that it was eligible to clear goods up to a certain

specified  limit  after  obtaining  due  permission  from  the

Development Commissioner in terms of Export Import (EXIM)

Policy  read  with  Handbook  of  Procedure  (HBP).   It  is  the

submission of Mr. V. Lakshmi Kumaran, learned counsel for

the appellant that even if it is held that finished goods were

removed by the assessee without requisite permission from the

Development Commissioner, central excise duty is leviable in

terms of Section 3(1) of the Act.  It is contended by him that

the  tribunal  has  erroneously  followed  the  Larger  Bench

decision of the tribunal in  Himalaya International Ltd. v.

Commissioner  of  C.Ex.  Chandigarh7.   Learned  counsel

7 (2003) 154 ELT 580

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would  submit  that  if  the  submission  of  the  assessee  is

accepted, he will be entitled to refund as it has paid more than

the amount than the duty liability determinable under Section

3(1) of the Act.  

20. Mr. K. Radhakrishnan, learned senior counsel appearing

for the revenue,  per contra, would contend that the appellant

which  is  a  continuing  EOU,  was  bound  to  export  finished

goods and as there has been non-fulfilment of the obligation

and the goods have been cleared without  permission of  the

competent authority, the appellants are liable to pay the duty

as determined by the tribunal.  It is his further argument that

the assessee cannot be assessed under Section 3(1) of the Act

but under the proviso as held by the tribunal.  Learned senior

counsel  would  submit  that  the  decision  in  SIV  Industries

Ltd. (supra) and NCC Blue Water Products Ltd. (supra) when

seemly  applied,  the  100% EOU which  was  cleared  in  DTA

without  permission  cannot  be  allowed  to  pay  duty  under

Section 3(1) of the Act.

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21. To  understand  the  controversy,  it  is  necessary  to

scrutinize the relevant provisions, circulars in the field and the

interpretations  placed  by  this  Court  on  the  pertinent

provisions.  The contentious part of Section 3 of the Act, prior

to amendment w.e.f. 11.05.2001 read as follows:-

“Section  3.  Duties  specified  in  the  First Schedule  and  the  Second  Schedule  to  the Central Excise Tariff Act, 1985 to be levied – (1)  There  shall  be  levied  and collected in  such manner as may be prescribed,-

(a) a duty of excise on all excisable goods 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 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  export-oriented undertaking and allowed to be sold in India,

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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 the  provisions of  the  Customs Act,  1962 (52 of  1962)  and the Customs Tariff Act, 1975 (51 of 1975).”

22. After the amendment the relevant part of the provision

reads as under:-

“Section  3.  Duties  specified  in  the  First Schedule  and  the  Second  Schedule  to  the Central Excise Tariff Act, 1985 to be levied – (1)  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 special duty of excise, in addition to the duty of  excise  specified in clause (a)  above,  on excisable  goods  excluding  goods  produced  or manufactured in special economic zones specified in  the  Second  Schedule  to  the  Central  Excise Tariff Act, 1985 (5 of 1986) which are produced

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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 or a special economic zone and brought to any other place in India; or

(ii) by  a  hundred  per  cent  export-oriented undertaking and brought to  any other  place in India,  

shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act, 1962 (52 of 1962) or any other law  for  the  time  being  in  force,  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 the  provisions of  the  Customs Act,  1962 (52 of  1962)  and the Customs Tariff Act, 1975 (51 of 1975).”

23. Having  noted  the  relevant  provisions,  it  is  apposite  to

appreciate what has been held in SIV Industries Ltd. (supra).

In  the  said  case,  the  appeal  was  preferred  challenging  the

order of the tribunal whereby it had directed that the duty of

central excise was not payable under Section 3(1) of the Act

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but under the proviso to Section 3(1) of the Act.  The appellant

therein  was  granted  permission  to  set  up  a  100%  Export

Oriented Unit (EOU) for the manufacture of viscose staple fibre

at its factory at Sirumugal in Coimbatore District in the State

of  Tamil  Nadu.  The  letter  of  intent  dated  18.12.1991  was

issued to the appellant for the purpose by the Secretariat for

Industrial Approvals (SIA), Ministry of Industry, Government of

India.  On  08.09.1993  the  appellant  therein  made  an

application  to  the  Secretary,  Ministry  of  Commerce,

Government of  India and sought debonding of  its unit  from

100% EOU, i.e., withdrawal from 100% EOU Scheme. By letter

dated 18.10.1993 of the Ministry of Commerce it was agreed in

principle to allow the appellant  to withdraw from the 100%

EOU Scheme subject to the conditions on which withdrawal

was permitted.  Once the debonding of the unit was permitted,

finished goods earlier manufactured in the 100% EOU could

be cleared for  domestic  tariff  area (DTA)  on levy of  duty  of

central excise. The dispute arose as to what rate of duty was to

be levied. The contention of the assessee was that excise duty

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is payable on the finished goods under the main Section 3(1)

of  the Act together with customs duty on the imported raw

material used in the manufacture of the said finished goods

lying in the stock. The Revenue on the other hand contended

that excise duty under the proviso to Section 3(1) of the Act

was payable on the finished goods and with no customs duty

being levied on the raw materials gone into the manufacture of

finished goods. The Court encapsulated the issue by stating

that the expression “allowed to be sold in India” appearing in

the  proviso  to  Section  3(1)  of  the  Act  was  the  bone  of

contention between the parties. The assessee contended that

for the application of the proviso to Section 3(1) two conditions

have to be cumulatively and simultaneously satisfied, viz., (1)

goods  should  have  been  produced  or  manufactured  by  an

existing  100% EOU,  and (2)  these  goods should  have  been

allowed to be sold in India.   After analyzing various aspects

and the circulars dated 17.02.1983 clarifying the introduction

of  the proviso and the circular dated 29.05.1984 explaining

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further amendment to the proviso to Section 3(1) of the Act,

the Court held :-   

“The contention of the Revenue is that permission to  withdraw  from  the  Scheme  is  itself  a permission to sell in India, i.e., when the unit is permitted to debond, it would be deemed to have been  permitted  to  sell  the  goods  in  India.  But then  permission  to  sell  in  India  has  to  be  in terms or in accordance with the provisions of the export-import policy. Permission to sell  in India by 100% EOU consists  of  all  those  factors like value  addition,  fulfilment  of  export  obligation, sale  of  a  general  currency  licence-holder,  item being not mentioned in the negative list and then there being a limit of 25%, etc. When permission to  debond  is  given,  none  of  these  criteria  or aspects  are  applied  by  the  Board  of  Approvals (BoA) to the closing stock of finished goods. The Board  of  Approvals  is  a  statutory  authority, which permits debonding. It is created under the Industrial (Development and Regulation) Act. On the other  hand permission to  sell  the  goods in India under and in accordance with the import policy  has  to  be  given  by  the  Development Commissioner in the Ministry of Commerce. The Board  of  Approvals  and  the  Development Commissioner  are  two  different  authorities constituted for two different purposes. Permission to  debond  is  a  statutory  function  exercised  by one  statutory  authority.  On  the  other  hand permission to sell in India is to be exercised by a different statutory authority. If reference is made to para 102 of the relevant import-export policy permission of the Development Commissioner is required for  selling  the  goods in  India  up to  a limit of 25% by 100% EOU. Para 117 of the policy

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deals with debonding of  100% EOU. Thus it  is apparent that debonding and permission to sell in  India  are  two  different  things  having  no connection  with  each  other.  It  also  becomes apparent  that  in  view  of  the  EOU  Scheme  as modified  from  time  to  time  and  corresponding amendments  to  Section  3  of  the  Act  the expression  “allowed to  be  sold  in  India”  in  the proviso  to  Section  3(1)  of  the  Act  is  applicable only to sales made up to 25% of production by 100% EOU in DTA and with the permission of the Development  Commissioner.  No  permission  is required  to  sell  goods  manufactured  by  100% EOU lying with it at the time approval is granted to debond.”  

24. After so stating the Court noted the stand of the revenue

that by debonding permission had been granted by BoA for

selling the closing stock of finished goods in India.  Negativing

the said contention, the Court held:-   

“By its application dated 8-9-1993 the appellant had  only  asked  the  Central  Government  for permission  to  debond  the  unit.  Pending  formal debonding clearance, the appellant requested the Central Government that it might allow it to sell the goods in India. This request of the appellant was never acceded to by the authority concerned and  letter  of  debonding  was  issued.  This application of the appellant, therefore, could not be treated as an application for permission to sell in  India  as contended by the Revenue and the debonding letter of BoA cannot be construed as permission to sell in India. The argument of the

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Revenue  that  debonding  assumes  allowing  all closing  stock  of  the  goods  on  the  date  of debonding to be sold in India would be stretching the matter a little too far. Conditions for sale of 25% of the finished products by EOU and sale of finished stock by a debonded 100% EOU on the date of debonding are different.”

25.  Eventually,  the  Court  interpreting  the  provision  and

notification issued under the relevant Rules held thus:-  

“Chapter  V-A  of  the  Central  Excise  Rules contains provisions for removal from a free trade zone or from a 100% EOU of excisable goods for home  consumption.  This  chapter  was  made applicable  to  units  under  the  EOU Scheme by Notification  No.  130/84-CE  dated  26-5-1984. This  chapter  contains  Rules  100-A  to  100-H. Rule 100-A provides that  the provisions of  this chapter shall apply to a person permitted under any law for the time being in force to produce or manufacture  excisable  goods  in  a  100% export-oriented  undertaking  and  who  has  been allowed  by  the  proper  officer  to  remove  such excisable  goods  for  being  sold  in  India  on payment of duty of excise leviable thereon. It will be thus seen that this Chapter V-A would not be applicable  where  EOU  is  outside  the  EOU Scheme after the unit is debonded. Under Rule 100-H,  Rule  57-A  and  other  Rules  mentioned therein  shall  not  apply  to  excisable  goods produced  or  manufactured  by  a  100% export-oriented undertaking. Rule 57-A relates to allowing  credit  of  any  duty  of  excise  or  the additional duty under Section 3 of the Customs Tariff  Act,  1975  as  may  be  specified  by  the Central Government in the notification, paid on

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the  goods  used  in  or  in  relation  to  the manufacture  of  the  final  products  and  for utilising the credit so allowed towards payment of duty of excise leviable on the final products.”

 26. In view of the aforesaid position,  the Court was of the

view that the tribunal was not right in holding  that duty was

to be leviable in terms of the proviso to Section 3(1) of the Act

and, accordingly, it set aside the judgment of the tribunal and

restored that of the adjudicating authority.

27. The aforesaid judgment of this Court was distinguished

by  the  Larger  Bench  of  the  tribunal  in  Himalaya

International  Ltd. (supra).  The  Larger  Bench  referred  to

circular  No.  618/9/2002-CX  dated  13.02.2002   and  ruled

thus:-

“A reading of the above circular would show that it  was  issued  pursuant  to  the  decision  of  the Supreme Court in  SIV Industries Ltd. (supra), but without understanding the position that the Supreme Court did not deal  with a case where clearance  was  made  to  DTA  by  100% EOU in excess of the permission granted.  It is contended on behalf of the assessee that the interpretation given in the circular referred to above is binding on  the  Revenue  and  therefore,  this  Tribunal cannot give a different interpretation to Section 3(1)  and  the  proviso  at  the  instance  of  the Revenue.  In  support  of  the  above  contention

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reliance was placed on a decision of the Supreme Court  in  CCE,  Vadodara  v.  Dhiren  Chemicals Industries, 2002 (139) ELT 3 (S.C.). We find no merit in the above contention of the assessee.  In CCE,  Vadodara  v.  Dhiren Chemicals  Industries the  Supreme Court  observed that  regardless  of the interpretation placed by it on the expression in the notification ‘on which appropriate duty of excise  has  already  been  paid’  if  there  are circulars which have been issued by the Central Board  of  Excise  & Customs placing  a  different interpretation  upon  the  said  phrase  that interpretation will be binding upon the Revenue. In the present case, we are not dealing with any circular of Central Board of Revenue interpreting the meaning of  the proviso to Section 3(1)  and which had been in force.  On the other hand, the circular dated 13.2.2002 is one issued giving a wrong  interpretation  to  the  decision  of  the Supreme Court.  We have no hesitation to hold that an interpretation thus given by the Board to the  decision  of  the  Supreme Court  will  not  be binding.”

28. To appreciate the whole controversy in completeness, we

may reproduce the said circular dated 13.2.2002:-

“Subject:  Removal  of  goods  by  100% EOUs  to DTA  –  Non-levy  of  duty  under  Section  3(1)  of Central Excise Act, 1944.

I am directed to invite reference to Supreme Court’s judgment in case of SIV Industries v. CCE [2000 (117) E.L.T. 281 (S.C.)] vide which the Apex Court  had  held  that  “proviso  to  Section  3(1) regarding the duty chargeable on goods cleared

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by EOUs shall be applicable only to sales made in DTA upto 25% of production which are allowed to be  sold  into  India  as  per  provisions  of  EXIM Policy”.   In other  words,  Hon’ble Court  decided that if the goods are “not allowed” to be sold in India,  the  proviso  to  Section  3(1)  of  Central Excise  Act,  1944 shall  not  be  applicable.   The expression  ‘allowed  to  be  sold’  has  since  been replaced with ‘brought to any other place’ w.e.f. 11-5-2001 vide Section 120 of Finance Act, 2001 [14 of 2001].

2. It has come to the notice of the Board that field formations are interpreting the judgment of Apex Court to the effect  that  if  the goods cleared by EOUs are not allowed to be sold into India, the Section 3(1)  of  Central  Excise  Act,  1944 is  not applicable and duty can be demanded under the provisions of Customs Act, 1962 only.  Board has taken a  serious view of  this  mis-interpretation. The provisions of Central Excise Act, 1944 shall apply to all goods manufactured or produced in India for which Section 3 is the charging section. EOUs  are  also  situated  in  India  and  the chargeability under Central Excise Act is never in doubt.   Therefore,  it  is  clarified  that  prior  to 11-05-2001,  the  clearances  from  EOUs  if  not allowed to be sold in India, shall continue to be chargeable  to  duty  under  main  Section  3(1)  of Central Excise Act, 1944. Appropriate action may be taken immediately to safeguard revenue and all pending decisions may be settled accordingly.”

29. The said circular, as is perceptible, is in accord with the

decision rendered in  SIV Industries Ltd. (supra).  The said

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circular  while  so  indicating  also  clearly  lays  down  the

expression  “allowed  to  be  sold”  has  been  replaced  with

“brought to any other place” with effect from 11.05.2001 vide

Section 120 of Finance Act, 2001 (14 of 2001).   The circular

being in consonance with the decision in SIV Industries Ltd.

(supra) and rightly so, it was absolute unnecessary on the part

of the Larger Bench of the tribunal to say that this Court in

SIV Industries Ltd. (supra) did not deal with the case where

clearance was made to DTA by 100% EOU in excess of  the

permission granted.   The attempt to distinguish the circular,

in our considered opinion, was not only unnecessary but also

absolutely erroneous.    

30. After  the  judgment  of  the  Larger  Bench,  the  Central

Board  of  Excise  and  Customs,  New  Delhi  brought  out  a

circular  dated  05.01.2004.  The  relevant  part  of  the  said

circular reads as follows:-

“Subject:  Withdrawal  of  Board’s  Circular No.618/9/2002-CX., dated 13-2-2002 – Removal of  goods  by  100% EOU to  DTA  –  Clarification regarding  levy  of  duty  on  removal  of  goods  by 100% EOU to DTA.

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I am directed to draw your attention to Board’s Circular No. 618/9/2002-CX., dated 13-02-2002 [2002  (140)  E.L.T.  T27]  on  the  above  subject wherein it was clarified that prior to 11-5-2001, the  clearances  from EOUs if  not  allowed to  be sold in India, shall continue to be chargeable to duty under main Section 3(1) of  Central Excise Act, 1944.This was based on an interpretation of Apex  Court’s  decision  in  the  case  of  SIV Industries Ltd. [2000 (117) E.L.T. 281(S.C.)].

2. However,  attention  is  now  invited  to  the decision of Larger Bench of CESTAT in the case of  M/s.  Himalaya  International  Ltd.  v. Commissioner  of  Central  Excise,  Chandigarh [2003 (154) E.L.T. 580 (Tri. – LB)], wherein it has been held that “Rate of duty as per the proviso to Section  3(1)  of  the  Central  Excise  Act,  1944 would  be  applicable  for  assessing  all  the excisable  goods,  which  were  cleared  by  100% EOU  to  DTA  whether  in  terms  of  permission granted or in excess of permission granted”.  In view of  the said judgment of  the CESTAT, it  is now  clear  that  all  the  goods  manufactured  by EOU and cleared into DTA before final debonding of  the  EOU shall  be  chargeable  to  duty  under proviso to Section 3(1) of the Central Excise Act, 1944 and under no condition, goods produced in 100% EOU can be charged under main Section 3(1) of Central Excise Act, 1944.

3.  In  view  of  the  above  judgment  of  the CESTAT,  the matter  has  been re-considered by the Board and it has been decided to withdraw the Board’s Circular No. 618/9/2002-CX., dated 13-2-2002.   The  above-mentioned  judgment  of CESTAT, which has been accepted by Board, may kindly  be  taken  into  consideration  in  deciding similar pending cases.”

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31. Having noted the circular, we may refer to the authority

in  NCC Blue Water Products Ltd. (supra).  In the said case,

the  tribunal  has  held  that  the  duty  of  Central  excise  on

shrimps  and  shrimp  seeds  produced  and  removed  by  the

assessee-respondent,  a  100% export-oriented unit  (EOU),  in

the  Domestic  Tariff  Area  (DTA)  without  the  approval  of  the

Development Commissioner, would be payable under Section

3(1) of the Act and not under the proviso appended thereto.

The two-Judge Bench taking note of the fact that during the

period 1994-1995 to 1997-1998, the assessee produced and

sold 11,15,29,540 number of shrimp seeds and 48,365 kg of

shrimps  in  DTA  without  obtaining  the  permission  of  the

Development  Commissioner;  without  issuing proper  invoices

as mandated under Rule 100-E of the Central Excise Rules,

1944 (for  short  “the  Rules”)  and without  payment  of  excise

duty. Besides,  the assessee also undertook certain job-work

whereby it processed 864.238 MT of shrimps and 905.580 MT

of fish and cleared the said goods in DTA. According to the

assessee, these goods were ultimately exported by DTA units.

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The  said  action  of  the  assessee  compelled  the  authority  to

issue  a  show  cause  notice  requiring  the  assessee  to  show

cause as to why duty of excise equal to aggregate of the duties

of customs should not be levied under Section 3 of  the Act

read  with  Rule  9(2)  read  with  proviso  to  sub-section  (1)  of

Section 11-A of the Act and interest and penalty thereon.  The

matter  was  contested  by  the  assessee  and  eventually  the

tribunal ruled in favour of the assessee. Before this Court, it

was contended that since as per Note 1 of Section I of the First

Schedule  to the Customs Tariff  Act,  1975,  any reference in

that section “to a particular genus or species of  an animal,

except  where  the  context  otherwise  requires,  includes  a

reference to the young of that genus or species” and, therefore,

both  live  shrimps  and  shrimp  seeds  are  classifiable  under

Sub-Heading 0306.23 of Chapter 3 of the First Schedule to the

Customs Tariff Act, 1975.  It was also urged that the tribunal

committed an error in relying on the decision of this Court in

SIV Industries Ltd. (supra) because unlike in that case the

assessee  had  sought  permission  of  the  Development

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Commissioner, who in turn had advised them to approach the

SIA for permission to clear shrimps and shrimp seeds which,

in fact, was granted and, therefore, they were required to pay

duty under proviso to Section 3(1) of the Act. It was also urged

that under the Exim Policy, an EOU is obliged to make exports

of  the  entire  production  itself  and  not  through  any  other

entity.  The Court posed the following question:-  

“The  core  question  for  our  consideration, therefore,  is  whether  the  sales  of  shrimps  and shrimp seeds  by  the  assessee  in  DTA,  without requisite  permission  from  the  Development Commissioner, are to be assessed to excise duty under Section 3(1) of the Act or under the proviso to the said section?”

32. To  deal  with  the  said  question,  the  Court  referred  to

Section 3 and it expressed understanding of the provision in

the following terms:-  

“It is manifest that all excisable goods produced or manufactured in India are exigible to duty of excise under Section 3 of the Act, the charging section, at the rates set forth in the Schedule to the Tariff  Act.  However,  the proviso to the said section provides that the duties of excise on any excisable  goods,  which  are  produced  or manufactured by a 100% EOU and allowed to be sold  in  India  shall  be  an amount  equal  to  the aggregate of the duties of customs which would

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be leviable under Section 12 of the Customs Act, 1962. As aforestated, the controversy at hand is whether  in  the  absence  of  an  order  by  the competent authority, allowing the assessee to sell the  shrimp seeds and shrimps in  India,  excise duty on such sales could be levied and collected in terms of the proviso. To put it differently, the issue relates to the significance of the expression “allowed  to  be  sold  in  India”  as  appearing  in clause  (ii)  to  the  proviso  to  sub-section  (1)  of Section 3 of the Act.”

33. After  so  stating  the  two-Judge  Bench  referred  to  the

decision in SIV Industries Ltd. (supra) and opined that:-  

“A  similar  issue  fell  for  consideration  of  this Court in  SIV Industries Ltd. (supra) In that case, the  assessee  was  a  100% EOU.  Later  on,  they sought permission to withdraw from 100% EOU Scheme,  for  which  the  Ministry  accorded  the necessary  permission.  However,  some  of  the goods lying in the unit were removed prior to the debonding. A dispute arose regarding the rate of duty payable on such sales.  The plea taken by the assessee was that they were liable to pay duty under  Section  3(1)  of  the  Act  together  with customs duty on the imported raw material used in the manufacture of said finished goods, lying in the stock whereas the stand of  the Revenue was that excise duty under the proviso to Section 3(1) of the Act was payable on the finished goods with no customs duty being leviable on the raw materials  used  in  the  manufacture  of  finished goods. Thus, the bone of contention in that case was also with regard to the interpretation of the

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expression “allowed to be sold in India” appearing in  the  said  proviso.  Interpreting  the  said expression,  this  Court held that  the expression “allowed to be sold in India” used in the proviso to  Section 3(1)  of  the  Act  is  applicable  only  to sales made in DTA up to 25% of the production by 100% EOUs, which are allowed to be sold into India as per the provisions of the Exim Policy. No permission  was  required  to  sell  the  goods manufactured by 100% EOU lying with it at the time  the  approval  is  accorded  to  debond.  The Court  opined  that  the  goods  having  been  sold without permission of the Central Government to debond the unit, the duty on the goods sold by the assessee was leviable under main Section 3(1) of the Act.”

[Emphasis added]  

 34. It  is  necessary  to  state  here  that  after  so  stating  the

Court also noted  that after pronouncement of the decision in

SIV  Industries  Ltd. (supra),  the  circular  was  issued  on

13.02.2002  clarifying  the  position.  Interpreting  the  said

circular, the Court held:-  

“19.  As aforesaid,  according to the Exim Policy 1992-1997  read  with  Appendix  XXXIII  of  the Handbook of Procedures, an EOU may sell 50% of its production in value terms into a DTA only on  issuance  of  a  removal  authorisation  by  the Development Commissioner.

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20. In the instant case, admittedly at the time of sales  of  shrimps  and  shrimp  seeds  by  the assessee in DTA, the Development Commissioner had  not  issued  the  requisite  removal authorisation. Therefore, in view of the dictum of this  Court  in    SIV  Industries  Ltd.  (supra)  ,  with which we are  in  respectful  agreement,  and the afore-extracted  circular  issued  by  the  Board following the said decision, excise duty on such sales is chargeable under main Section 3(1) of the Act.”

[Emphasis added]   

35. The impugned order, as is manifest, relies on the Larger

Bench decision. It is to be noted that after the judgment in

NCC Blue Water Products Ltd. (supra) the said decision was

brought to the notice of the tribunal but it has opined that

parent  judgment  in  SIV  Industries  Ltd. (supra)  was

distinguished by  the  Larger  Bench and further  the  circular

dated 05.01.2004 was not taken note of by this Court in the

subsequent judgment.  On a careful scrutiny of the authority

in  NCC Blue  Water  Products  Ltd. (supra),  we  are  of  the

considered opinion that it concurs with the view expressed in

SIV Industries Ltd. (supra).  The circular  dated 05.01.2004

came  into  existence  after  the  Larger  Bench  decision  in

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Himalaya International Ltd. (supra). We have already stated

that there was no justification for distinguishing the decision

in  SIV Industries Ltd. (supra).  The Technical Member who

authored the judgment after the decision in NCC Blue Water

Products  Ltd. (supra)  was  brought  to  the  notice  of  the

tribunal  has  absolutely   improperly  noted  that  the  circular

dated 05.01.2004 was not brought to the notice of this Court.

The Court in  NCC Blue Water Products Ltd. case had not

based  its  conclusion  on  the  basis  of  the  circular  dated

13.02.2002. It is clear as day that it has concurred with the

ratio laid down in  SIV Industries Ltd. (supra).  It  has been

clearly opined that the expression “allowed to be sold in India”

used in proviso to Section 3(1) of the Act would be applicable

only to sales made in DTA  of the production by 100% EOUs,

which are allowed to be sold into India as per the provisions of

the Exim Policy.

36. The  said  authority  has  also  made  it  clear  that  the

circular issued in 2002 is in consonance with the authority in

SIV Industries Ltd. (supra). Thus, the view expressed by NCC

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Blue Water  Products  Ltd. (supra)  has  given the  stamp of

approval to the circular. It is a binding precedent on all the

courts and the tribunals under Article 141 of the Constitution

of India.  The Larger Bench of the Tribunal, as stated earlier,

could not have distinguished the judgment in SIV Industries

Ltd. (supra). The later circular issued on 05.01.2004 on which

reliance was placed by the revenue before the tribunal which

has been taken note of in the impugned judgment is clearly

indicative  of  an erroneous  approach.   The decision in  NCC

Blue Water Products Ltd. (supra) was bound to be followed

and the tribunal could not have stated that 2004 circular was

not  taken  note  of.  The  tribunal  should  have  appropriately

appreciated  that  this  Court  was  interpreting  the  statutory

provision and it is also worthy to note that after the judgment

delivered in  SIV Industries Ltd. (supra) an amendment was

brought into the provision.  Therefore, the transaction prior to

the date of amendment would be governed by SIV Industries

Ltd. (supra)  which  has  been  followed  in  NCC Blue  Water

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Products  Ltd. (supra).  Be  it  clarified  that  we  are  not

concerned with the amended provision in this case.   

37. In view of the aforesaid analysis, the appeals are allowed.

The judgment and order passed by the tribunal and that of the

adjudicating  authority  are  set  aside.  The  assessee  shall  be

liable to pay the excise duty as per Section 3(1) of the Act.  The

competent  authority  is  directed  to  compute  the  duty

accordingly and proceed thereafter as per law. In the facts and

circumstances of the case, there shall be no order as to costs.

........................................J.        [DIPAK MISRA]

........................................J.                        [SHIVA KIRTI SINGH] NEW DELHI; June 03, 2016