2004 (5) TMI 360 - Commissioner - Central Excise

Issues Involved:

1. Applicability of Notification No. 82/92-C.E. to units in Special Economic Zones (SEZ).
2. Legal status of Kandla Free Trade Zone (FTZ) versus Kandla Special Economic Zone (SEZ) during the disputed period.
3. Demand for Central Excise duty under Section 3 of the Central Excise Act, 1944.

Detailed Analysis:

1. Applicability of Notification No. 82/92-C.E. to units in Special Economic Zones (SEZ):

The appellants argued that they were entitled to sell their manufactured goods against advance licences in the Domestic Tariff Area (DTA) and that the benefit of Notification No. 82/92-C.E. should not be denied merely because the term "Special Economic Zone" (SEZ) was not explicitly mentioned in the notification. They claimed that the notification was likely to be amended and that the lapse was technical on the part of the Ministry of Finance.

The Deputy Commissioner denied the benefit of Notification No. 82/92-C.E., stating that it exempted excisable goods produced in 100% EOUs or Free Trade Zones (FTZs) but did not include SEZs. It was only with the issuance of Notification No. 28/2001-C.E., dated 16-5-2001, that SEZs were included for duty-free clearances. The clearances in question occurred in January-February 2001, before this amendment.

2. Legal status of Kandla Free Trade Zone (FTZ) versus Kandla Special Economic Zone (SEZ) during the disputed period:

The Ministry of Commerce declared the conversion of Kandla FTZ to Kandla SEZ on 1-11-2000. However, the Central Board of Excise and Customs issued Circular No. 92/2000-Customs on 20-11-2000, detailing the procedures for SEZ operations. The geographical boundaries of Kandla SEZ were defined by Notification No. 12/2001-C.E. (N.T.), dated 27-3-2001. Until this notification, the Kandla FTZ continued to exist under the Central Excise Rules, 1944.

The judgment noted that the unit of the appellant, which was earlier in Kandla FTZ, automatically became part of Kandla SEZ with the issuance of the circular. However, the Central Excise Rules continued to recognize Kandla FTZ until 20-6-2001, when Notification No. 30/2001-C.E. (N.T.) superseded the Central Excise Rules, 1944. Thus, for the purpose of Central Excise, the unit continued to exist in Kandla FTZ during January-February 2001.

3. Demand for Central Excise duty under Section 3 of the Central Excise Act, 1944:

The charging Section 3 of the Central Excise Act, 1944, was amended by Section 120 of the Finance Act, 2001, effective from 11-5-2001, to include SEZs. Before this amendment, the charging section did not apply to SEZs. Therefore, Central Excise duty could only be demanded from SEZ units from 11-5-2001 onwards.

The judgment concluded that since the disputed period was prior to 11-5-2001, the duty demand under Section 3 was not legally backed. The benefit of Notification No. 82/92-C.E. was available to units in Kandla FTZ, and the change in nomenclature to Kandla SEZ did not affect this entitlement.

Conclusion:

The appeals were allowed, and the impugned orders were set aside. The appellant was entitled to the benefit of Notification No. 82/92-C.E. during the disputed period, regardless of the transition from FTZ to SEZ. The demand for duty was not justified as the legal framework did not support it for the period before the amendment of Section 3 of the Central Excise Act, 1944.

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