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2013 (8) TMI 161 - HC - CustomsCVD - Benefit of Area based exemption to the 100%EOU - determination of Additional Duty of Customs (CVD) - Extending benefits of Area base Central Excise notification to the petitioners may create disparity vis- -vis other manufacturers who are not 100% EOU , it may be seen that when the benefits are provided under Foreign Trade Policy to the 100% EOU , can bring raw material and capital goods without payment of Customs and excise duty Held that - Benefit granted under FTP, a 100% EOU /the petitioner unit is accountable for the earning of net foreign exchange (NFE) for the country unlike other manufacturers. Moreover, the petitioners are paying basic Customs duty under Section 12 of the Customs Act, 1962, whereas, other manufacturers while functioning in the State of H.P. though are claiming benefits of area base exemption but are not paying such Customs duty Central Government intentionally provided the tax incentive benefit including 100% excise duty exemption to the special category State of Himachal Pradesh, as such, any disparity with other manufacturer of India, located in different parts, shall not be created. Additional Duty of Customs (CVD), chargeable under Section 3 of the Customs Tariff Act, 1975 and applicability of exemption Notification No. 50/2003-C.E.- Held that - Issue has already been settled by Hon ble Supreme Court in Hyderabad Industries Ltd. 1999 (5) TMI 29 - SUPREME COURT OF INDIA by following and affirming its earlier verdict in Thermax Pvt. Ltd. 1992 (8) TMI 156 - SUPREME COURT OF INDIA , wherein it has been held that section 3(1) of the Customs Tariff Act Specifically mandates that the CVD will be equal to the Excise -Duty for the time being leviable on a like article if produced or manufactured in India. In other words, we have to forget that the goods are imported, imagine that the importer had manufactured the goods in India and determine the amount of Excise Duty that he would have been called upon to pay in that event. - The explanation to Section 3 has two limbs. The first limb clarifies that the duty chargeable under sub-section (1) would be the excise duty for the time being leviable on a like article if produced or manufactured in India. The condition precedent for levy of additional duty thus contemplated by the explanation is that the article is produced or manufactured in India. The second limb to the explanation deals with a situation where a like article is not so produced or manufactured - The use of word so implies that the production or manufacture referred to in the second limb is relatable to the use of that expression in the first limb which is of a like article being produced or manufactured in India - While calculating CVD it has to be assumed that the goods were manufactured in India and the applicable rate of duty to such manufactured goods has to be applied to the imported goods. The effective rate of excise duties for a unit located in the specified area mentioned in 50/2003-C.E. is Nil and it is this rate alone which can be applied for the purpose of calculating CVD in terms of the observations of the Hon ble Supreme Court. Order dated 17-3-2011 passed by DGEP /i.e. respondent No. 3 is set aside and writ of mandamus is being issued directing the respondents to allow benefit of exemption Notification No. 50/2003-C.E., dated 10-6-2003 to be given to the petitioners and further direction is being issued not to demand differential excise duty from the petitioners consequent upon setting aside the order dated 17-3-2011 of DGEP and all connecting proceedings initiated against the petitioners shall also stand set aside. As such, the petitioners are entitled to the benefit of exemption Notification No. 50/2003-C.E., dated 10-6-2003 and also entitled for making goods by way of DTA clearances from the petitioner unit in reference to the aforesaid exemption notification - Decided in favor of Assessee.
Issues Involved:
1. Applicability of Exemption Notification No. 50/2003-C.E., dated 10-6-2003 to 100% Export Oriented Units (EOUs) for Domestic Tariff Area (DTA) clearances. 2. Calculation of Additional Duty of Customs (CVD) under Section 3(1) of the Customs Tariff Act, 1975. 3. Validity of clarificatory letters issued by DGEP on 18-1-2008, 6-4-2009, and 24-9-2010. 4. Interpretation of Section 5A of the Central Excise Act, 1944. 5. Principle of promissory estoppel and legitimate expectations. Detailed Analysis: 1. Applicability of Exemption Notification No. 50/2003-C.E., dated 10-6-2003 to 100% Export Oriented Units (EOUs) for Domestic Tariff Area (DTA) clearances: The petitioners argued that their unit, a 100% EOU, should be entitled to the benefits of Exemption Notification No. 50/2003-C.E., which grants 100% excise duty exemption for units located in specified areas of Himachal Pradesh. They claimed that their unit met all the conditions of the notification, including location and production timelines, and thus should be exempt from excise duty for DTA clearances. The respondents contended that the notification did not specifically include 100% EOUs and thus was not applicable. The court noted that the notification applied to "any unit" set up in the specified areas, which includes 100% EOUs. The court also observed that the state industrial policy and the rules framed by the state in 2004 were in compliance with the central policy, which aimed to provide tax incentives, including 100% excise duty exemption, to promote industrialization in backward areas. 2. Calculation of Additional Duty of Customs (CVD) under Section 3(1) of the Customs Tariff Act, 1975: The petitioners argued that the Additional Duty of Customs (CVD) should be calculated based on the effective rate of excise duty applicable to similar goods produced in India, which in their case was nil due to the exemption notification. The respondents countered that the CVD should be calculated without considering the exemption, as the notification did not specifically include 100% EOUs. The court referred to the judgments of the Supreme Court in Hyderabad Industries Ltd. and Thermax Pvt. Ltd., which clarified that for calculating CVD, it should be assumed that the goods were manufactured in India, and the applicable rate of duty should be applied. Since the effective rate of excise duty for units in the specified area was nil, the same rate should apply for calculating CVD. 3. Validity of clarificatory letters issued by DGEP on 18-1-2008, 6-4-2009, and 24-9-2010: The petitioners relied on clarificatory letters issued by DGEP, which initially supported their claim but were later withdrawn. The court found that the clarifications issued on 18-1-2008 and 6-4-2009 were consistent with the law and supported the petitioners' claim. The subsequent withdrawal on 24-9-2010 was not justified, as it did not provide adequate reasoning to counter the earlier clarifications. 4. Interpretation of Section 5A of the Central Excise Act, 1944: The respondents argued that the proviso to Section 5A barred the applicability of the exemption notification to 100% EOUs unless specifically mentioned. The court, however, interpreted that the proviso did not bar the calculation of CVD based on the effective rate of excise duty applicable to similar goods produced in India, as established by the Supreme Court in previous judgments. 5. Principle of promissory estoppel and legitimate expectations: The petitioners claimed that they had set up their unit based on the representations made by the government and the clarifications issued by DGEP, and thus should be entitled to the benefits promised. The court agreed, noting that the doctrines of promissory estoppel and legitimate expectations applied, as the petitioners had altered their position based on the government's representations. Conclusion: The court quashed the order dated 17-3-2011 by DGEP and directed the respondents to allow the benefit of Exemption Notification No. 50/2003-C.E. to the petitioners. It also directed the respondents not to demand differential excise duty and to drop all proceedings initiated against the petitioners. The petitioners were entitled to make DTA clearances with the benefits of the exemption notification.
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