2008 (7) TMI 352 - AT - Customs

100% EOU cleared rejects and waste of different categories of yarn in the domestic market - how to determine the 5% limit for the reject when more than one product is manufactured by EOU - Development Commissioner vide his subsequent clarification dated 6-6-2002, clarified that entitlement of reject upto 5% of production will be determined in totality and not with reference to the specific items further, there is no finding that the rejects are artificially and falsely inflated therefore, Commissioner (Appeals) is justified in allowing respondent s appeal holding that the 5% limit shall be applicable on the total production and not for individual items of manufacture

Summary

Issues: Interpretation of policy provision regarding permissible limit for rejects in 100% EOU manufacturing multiple products.

In this case, the Department filed two appeals against the common orders-in-appeal No. IND-I/134-135/04 dated 23-3-2004 of the Commissioner (Appeals). The respondent, a 100% EOU, was manufacturing various categories of yarn and exporting them, generating waste and rejects in the process. The Department contended that the 5% limit for rejects should be applied to each category of yarn separately, demanding differential duty for quantities exceeding the limit. However, the Commissioner (Appeals) held that the 5% limit should be applied on the total production of all items, not individually. The Department argued that some varieties had rejects exceeding permissible limits, citing an interpretation by the Development Commissioner disallowing bunching of rejects for the 5% concession. On the other hand, the respondent argued that the policy permitted up to 5% rejects of the total production value without specifying separate limits for each product. They maintained that they did not exceed the overall 5% limit when considering all products together. The Tribunal analyzed the policy provision and clarifications by the Development Commissioner, concluding that the 5% limit for rejects should be determined in totality for all products, not individually. They noted that the policy did not specify separate limits for each product and that the respondent had sought clarification, which confirmed the aggregate application of the 5% limit. Since there was no evidence of artificially inflating rejects, the Tribunal upheld the decision of the Commissioner (Appeals) and rejected the Department's appeals.

This judgment primarily deals with the interpretation of the policy provision regarding the permissible limit for rejects in the context of a 100% EOU manufacturing multiple products. The key issue was whether the 5% limit for rejects should be applied separately to each category of yarn or collectively to the total production of all items. The Department argued for separate limits, while the respondent advocated for an aggregate application of the 5% limit. The Tribunal carefully examined the policy provision, clarifications by the Development Commissioner, and the submissions from both sides to reach a conclusion. They emphasized that the policy did not explicitly set individual limits for each product and that the 5% limit should be determined considering the total production of all items. The Tribunal highlighted the clarification from the Development Commissioner, which confirmed the aggregate application of the 5% limit and supported the respondent's position. Additionally, the Tribunal noted that there was no indication of artificially inflating rejects, further strengthening their decision to uphold the Commissioner (Appeals) ruling.