2006 (6) TMI 310 - AT - Central Excise

Summary

Issues:
Calculation of FOB value for duty exemption under Notification Nos. 2/95-C.E. & 13/98-C.E.
Applicability of deemed exports in determining FOB value.
Interpretation of statutory provisions of Exim policies.
Benefit of Notification Nos. 2/95 and 3/98.
Applicability of Notification No. 125/84 for full exemption.
Rate of duty under Section 3 of the Central Excise Act.
Prima facie case for duty exemption.

Analysis:
The case involved the appellant, a 100% EOU engaged in manufacturing polyester grey fabrics, seeking exemption under Notification Nos. 2/95-C.E. & 13/98-C.E. for clearing finished goods in DTA. The dispute arose when the department challenged the inclusion of deemed exports in the calculation of FOB value, leading to a demand of Rs. 45,99,115/- and a penalty of Rs. 15 Lakhs. The Commissioner (Appeals) upheld the department's decision, prompting the appellant to appeal.

The appellant argued that the Commissioner erred in excluding deemed exports from the FOB value calculation, citing statutory provisions of Exim policies. Referring to the Tribunal's decision in Opal Fabrics case, the appellant contended that they were entitled to the benefit of the notifications. Additionally, they claimed full exemption under Notification No. 125/84 if the other notifications were deemed inapplicable. The appellant also raised the issue of duty rate under Section 3 of the Central Excise Act as an alternative.

Upon consideration, the Tribunal noted the Opal Fabrics case's stance that Notification No. 2/95 would not apply in cases of deemed exports. The Tribunal differentiated this from the Himalaya case, which focused on duty rates for goods manufactured by EOU. The Tribunal clarified that the duty rate for EOU goods is governed by the proviso to Section 3 of the Central Excise Act, emphasizing the effective rate over the tariff rate. The Tribunal maintained that the Opal Fabrics decision's relevance remained despite the Supreme Court setting aside the Himalaya case.

Regarding the appellant's claim under Notification No. 125/84, the Tribunal rejected it, emphasizing that goods not allowed for sale in India would incur duty under the proviso to Section 3A of the Central Excise Act. The Tribunal highlighted that the appellant's clearances were beyond prescribed limits, making them liable for full duty payment. Consequently, the Tribunal directed the appellant to pay Rs. 25 Lakhs towards duty within 8 weeks, with a waiver of the remaining amount and a stay on recovery.

In conclusion, the Tribunal found the appellant's case lacking a strong prima facie basis, leading to the directive for duty payment within the specified timeline, with further compliance to be reported by a set date.