2007 (8) TMI 22 - AT - Central Excise

EOU - Issue arises 100% EOU cleared good clandestinely without any permission are eligible for full exemption under Notification No. 125/84-C.E and assessable under which section - Held that no exemption will be allowed and assessed under proviso of section 3(1) of CEA,1944

Issues Involved:
1. Eligibility of goods cleared by 100% EOU for full exemption under Notification No. 125/84-C.E.
2. Assessment under the main Section 3(1) of the Central Excise Act versus the proviso to Section 3 of the Central Excise Act.
3. Interpretation of the phrase "allowed to be sold in India."
4. Applicability of the Larger Bench decision in the Himalaya International case.
5. Impact of the Supreme Court's decision in the Modern Denim case.

Issue-wise Detailed Analysis:

1. Eligibility of Goods Cleared by 100% EOU for Full Exemption under Notification No. 125/84-C.E.:
The Tribunal examined whether goods clandestinely cleared by a 100% Export-Oriented Unit (EOU) qualify for full exemption under Notification No. 125/84-C.E. The notification exempts goods manufactured in a 100% EOU from excise duty, with the exclusion that such exemption does not apply to goods "allowed to be sold in India." The Tribunal referred to the Supreme Court's interpretation in SIV Industries Ltd. v. Commissioner of Central Excise & Customs, which clarified that goods sold without permission from the Development Commissioner do not fall under the proviso and are thus entitled to exemption. However, the Tribunal concluded that the exemption under Notification 125/84 does not apply to goods manufactured by 100% EOUs but sold in India, whether with or without permission.

2. Assessment under the Main Section 3(1) of the Central Excise Act versus the Proviso to Section 3 of the Central Excise Act:
The Tribunal discussed whether goods cleared by 100% EOUs should be assessed under the main Section 3(1) or the proviso to Section 3 of the Central Excise Act. The proviso states that goods produced by 100% EOUs and sold in India should be assessed at an amount equal to the aggregate of the duties of customs. The Tribunal noted that the purpose of the proviso is to treat 100% EOUs differently from other domestic units, as they are considered units existing outside India for duty purposes. Therefore, the Tribunal held that goods cleared by 100% EOUs should be assessed under the proviso to Section 3(1), regardless of whether the clearance was with or without permission.

3. Interpretation of the Phrase "Allowed to be Sold in India":
The phrase "allowed to be sold in India" was a central point of interpretation. The Tribunal referred to the Supreme Court's decision in SIV Industries, which interpreted the phrase to mean goods sold with permission from the Development Commissioner. However, the Tribunal concluded that the phrase should be interpreted in a manner that aligns with the legislative intent to treat 100% EOUs differently from other domestic units. Thus, goods cleared by 100% EOUs, whether with or without permission, fall under the proviso to Section 3(1) and are not eligible for exemption under Notification 125/84.

4. Applicability of the Larger Bench Decision in the Himalaya International Case:
The Tribunal examined the Larger Bench decision in the Himalaya International case, which held that goods produced by 100% EOUs and sold in DTA in excess of the permission granted cannot come under the main Section 3(1). The Tribunal agreed with this interpretation, stating that the decision has not been set aside by the Supreme Court. The Tribunal reiterated that the purpose of the proviso to Section 3(1) is to treat 100% EOUs differently from other domestic units, and this interpretation should not be defeated.

5. Impact of the Supreme Court's Decision in the Modern Denim Case:
The Tribunal considered the impact of the Supreme Court's decision in the Modern Denim case, where the civil appeal by the Revenue was dismissed without assigning any reason. The Tribunal noted that the dismissal of the appeal does not amount to a declaration of law under Article 141 of the Constitution. Therefore, the decision in the Modern Denim case does not override the Larger Bench decision in the Himalaya International case. The Tribunal concluded that the law declared in the Modern Denim case has not become final and does not affect the applicability of the proviso to Section 3(1) for goods cleared by 100% EOUs.

Conclusion:
The Tribunal concluded that goods cleared by 100% EOUs and sold in India, whether with or without permission of the Development Commissioner, should be assessed under the proviso to Section 3(1) of the Central Excise Act. The exemption under Notification 125/84 is not applicable to such goods. The matter was returned to the Division Bench for hearing on other issues if any and passing suitable orders.

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