2009 (1) TMI 259 - AT - Central Excise

100% EOU EOU goods such as readymade garments, rejects and waste on payment of Central Excise duty department took a stand that respondents were required to discharge duty in terms of Notification No. 2/95-C.E., dated 4-1-95 which exempts all goods produced or manufactured by 100% EOU and allowed to be sold in India as per Para 9.9 and 9.20 of Exim policy in excess of the duty calculated at the rate of 50% of each of the duties of customs held that - , the whole concept of 100% EOU is deemed manufacture, deemed export and deemed import. However, when it comes to the levy, it is not possible to charge customs duty on deemed imports. Therefore, Proviso to Section 3 of Central Excise Act has been enacted and notifications being issued - In this case the dispute is whether appellants are eligible for the benefit of Notification No. 8/97 or duty has to be charged under Notification No. 2/95 and not as to whether Customs Duty has to be levied on the goods manufactured and cleared by a 100% EOU to DT matter referred to lager bench

Issues Involved:
1. Applicability of Notification No. 2/95-C.E., dated 4-1-95 for duty exemption.
2. Eligibility for exemption under Notification No. 8/97-C.E., dated 1-3-97.
3. Classification of raw materials received from another 100% EOU as indigenous or imported.
4. Interpretation of statutory provisions regarding 100% EOUs and their treatment under Central Excise and Customs laws.
5. Reference to Larger Bench for resolution of conflicting Tribunal decisions.

Issue-wise Detailed Analysis:

1. Applicability of Notification No. 2/95-C.E., dated 4-1-95 for duty exemption:
The department argued that the respondents should discharge duty liability under Notification No. 2/95-C.E., which exempts goods produced by 100% EOUs and allows them to be sold in India at a rate of 50% of each of the duties of customs. The original adjudicating authority imposed a penalty and appropriated the duty amount and interest deposited by the respondents towards the differential duty demanded.

2. Eligibility for exemption under Notification No. 8/97-C.E., dated 1-3-97:
The Commissioner allowed the appeal on the grounds that the respondents used only indigenous raw materials and not imported ones. However, the Revenue contended that the respondents received inputs from other 100% EOUs, which should not be treated as indigenous goods. The Tribunal analyzed whether the raw materials received from another 100% EOU could be considered indigenous under Notification No. 8/97-C.E.

3. Classification of raw materials received from another 100% EOU as indigenous or imported:
The Tribunal noted that raw materials received from another 100% EOU could be either manufactured goods or simply diverted imported raw materials. If the latter, they cannot be considered indigenous. The Tribunal emphasized that to qualify for exemption under Notification No. 8/97-C.E., the goods must be wholly produced or manufactured from raw materials produced or manufactured in India. The burden of proof lies on the 100% EOU to demonstrate eligibility for the exemption.

4. Interpretation of statutory provisions regarding 100% EOUs and their treatment under Central Excise and Customs laws:
The Tribunal referred to the Larger Bench decision in Jaipur Golden Transport Co. Pvt. Ltd. and the Hon'ble Tribunal in Himalaya International Ltd., which held that 100% EOUs are treated differently from other domestic units. The Tribunal emphasized that 100% EOUs are considered as units located outside India for practical purposes, and Central Excise duty equal to customs duties is applicable. The Tribunal also discussed the implications of various processes defined as manufacture under excise laws and the concept of deemed exports and imports for 100% EOUs.

5. Reference to Larger Bench for resolution of conflicting Tribunal decisions:
The Tribunal acknowledged conflicting decisions in Favourite Industries and AR Textiles, which supported the respondents' view. Given the conflict, the Tribunal decided to refer the issue to a Larger Bench for resolution. The framed issue for the Larger Bench was whether goods manufactured by a 100% EOU and cleared to the domestic tariff area out of raw materials/manufactured goods from another 100% EOU are eligible for exemption under Notification No. 8/97-C.E.

Conclusion:
The Tribunal concluded that the matter required further examination by a Larger Bench due to conflicting decisions. The issue was framed for the Larger Bench to determine the eligibility for exemption under Notification No. 8/97-C.E. when goods are manufactured by a 100% EOU using raw materials from another 100% EOU. The Registry was directed to place the matter before the Hon'ble President for constituting the Larger Bench.

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