2005 (10) TMI 539 - AT - Central Excise

Summary

Issues Involved:
1. Classification of the activity conducted by the EOU as 'manufacture' or 'job work'.
2. Permissibility of DTA sales under EXIM Policy.
3. Applicability of Central Excise duty and exemption under Notification No. 8/97.
4. Validity of duty demands, interest, penalties, and confiscation orders.

Detailed Analysis:

1. Classification of Activity as 'Manufacture' or 'Job Work':
The core issue was whether the conversion of Manganese Ore into Silicon Manganese by the EOU constituted 'manufacture' or merely 'job work'. The Commissioner had relied on the case of Prestige Engineering (India) Ltd. v. CCE, interpreting the EOU's activity as job work due to the minor addition of raw materials by the EOU. However, the Tribunal found that a new commercial product, Silicon Manganese, emerged from the EOU's activity, thus constituting 'manufacture' under the Central Excise Act, 1944. The Tribunal referred to the Supreme Court's decision in Ujagar Prints to support this view, emphasizing that the liability to pay excise duty arises from causing the 'manufacture' of goods, not from ownership of the raw materials. Therefore, the EOU's activity was classified as 'manufacture', not job work.

2. Permissibility of DTA Sales under EXIM Policy:
The Commissioner had questioned the permissibility of DTA sales under the EXIM Policy, arguing that the conversion and clearance in DTA were not allowed. However, the Tribunal found no provision prohibiting an EOU from manufacturing excisable goods for DTA sales. The EXIM Policy allowed clearance of goods for sale in DTA up to 50% of the value of exports, provided the goods were manufactured in the EOU. The Tribunal upheld that the EOU's activity, resulting in the manufacture of Silicon Manganese, complied with the EXIM Policy, and the Development Commissioner's clarification supported this position.

3. Applicability of Central Excise Duty and Exemption under Notification No. 8/97:
The show cause notices demanded duty under the main Section 3(1) of the Central Excise Act, 1944, instead of the first proviso to Section 3(1), which applies to goods 'allowed to be sold in India'. The Tribunal referred to the Larger Bench decision in Himalaya International, which held that the rate as per the proviso to Section 3(1) applies to all excisable goods cleared by a 100% EOU to DTA. The Tribunal also noted that the Department had applied the rates of duties under the Customs Act for quantifying demands, indicating acceptance of the goods as clearances by an EOU. Additionally, since there was no use of duty-free imported raw materials, the benefit of exemption under Notification 8/97 was applicable.

4. Validity of Duty Demands, Interest, Penalties, and Confiscation Orders:
The Tribunal set aside the duty demands, as the EOU's activity was classified as 'manufacture' and the clearances were permissible under the EXIM Policy. Consequently, the interest and penalties, including the penalty on the Chairman, were also set aside. The Tribunal found no basis for confiscation liabilities of the goods already cleared or detained.

Conclusion:
The appeals were allowed, setting aside the duty demands, interest, penalties, and confiscation orders. The Tribunal upheld that the EOU's activity constituted 'manufacture', the DTA sales were permissible under the EXIM Policy, and the benefit of exemption under Notification 8/97 was applicable. The penalties on the Chairman were also set aside.