2004 (2) TMI 437 - AT - Central Excise

Summary

Issues:
1. Applicability of customs duty on clearance of goods from a 100% EOU.
2. Nature of duty on clearance from an EOU.
3. Validity of duty demands, penalties, and interest imposed on the EOU.

Analysis:

Issue 1: Applicability of customs duty on clearance of goods from a 100% EOU
The appellants, a 100% EOU engaged in manufacturing fabrics from polyester twisted yarn, cleared fabrics waste and polyester twisted yarn arising during manufacturing. The lower authorities held that customs duty of Rs. 11,00,555/- was leviable on these goods under the Customs Act, 1962. The authorities considered such removals as imports and imposed duty, penalty under Section 114A, and demanded interest from the EOU based on the decision in Champagne India Ltd. The appellants challenged this decision, arguing that they procured indigenous raw materials from another 100% EOU. The Tribunal, citing the case of Vikram Ispat, clarified that duty levied on goods removed from a 100% EOU is excise duty. The method of measuring and recovering tax does not alter its character. Therefore, the confirmation of duty demands and penalties under the Customs Act was deemed incorrect, and the appeal was allowed.

Issue 2: Nature of duty on clearance from an EOU
The Larger Bench of the Tribunal, in the case of Vikram Ispat, established that the nature of duty levied on goods removed from a 100% EOU is excise duty, not customs duty. The duty is determined based on the Customs Act, but the method of measurement does not change its fundamental character. This ruling was crucial in overturning the lower authorities' decision to impose customs duty, penalties, and interest on the EOU for the clearance of goods.

Issue 3: Validity of duty demands, penalties, and interest imposed on the EOU
In light of the binding decision of the Larger Bench regarding the nature of duty on goods cleared from a 100% EOU, the Tribunal set aside the duty demands, penalties, and interest imposed on the appellants. The Tribunal concluded that the duty levied on such clearances should be excise duty, not customs duty, as per the provisions of the Customs Act, 1962. Consequently, the appellants were relieved of the duty liabilities, penalties, and interest obligations imposed by the lower authorities.

In conclusion, the judgment clarified the nature of duty applicable to clearances from a 100% EOU, emphasizing that excise duty, not customs duty, is leviable. The decision highlighted the importance of legal interpretation in determining tax liabilities and ensuring compliance with the relevant statutory provisions.