2003 (7) TMI 115 - AT - Central Excise

Export Oriented Unit - Denial of exemption under Notification No. 2/95 - penalty - entitlement of DTA sales - HELD THAT - As per Clause (d) of Para 6.8 of the Handbook of Procedure the entitlement of DTA sale will be determined in totality and not with reference to the specific item. The guidelines on DTA sales given in Appendix 14F of the handbook were prescribed by the DGFT vide Public Notice No. 16/2000 dated 5-6-2002 for sale of goods in DTA by EOU. The Policy thus permits clearance of goods by 100% EOU to DTA in advance of its entitlement of DTA sales based on the export envisaged and to grant advance DTA permission is clearly within the jurisdiction of DGFT and the Development Commissioner. The appellants have been granted such permission. Therefore the finding of the Commissioner on interpretation of Notification No. 2/95 that the appellants should achieve minimum NFEP at the commencement of the first year itself for the purpose of availment of the benefit of concessional rate of duty thereunder is unsustainable as the conditions of notification have to be interpreted in the light of the Policy. The denial of the concessional rate under the notification also on the basis that the appellants had violated the provisions of Clauses (a) and (c) of the third proviso is also unsustainable for the reason that goods were yet to be exported by the appellants and therefore the stage of verification as to whether the goods being cleared for home consumption were similar or not similar to goods exported as per Clause (a) and to verify the fulfilment or otherwise of Clause (c) had not yet arisen. 8. We also note that Appendix 14F prescribes guidelines for monitoring the performance of EOU the review of performance of each operational unit and its compliance with the conditions of approval which shall be undertaken by the Development Commissioner before the end of the first quarter of various financial years and if there is a shortfall in NFEP etc. show cause notice for penal action will be issued by the Development Commissioner. From the above it is clear that permission to clear goods in DTA by 100% EOU is subject to its fulfilment of the conditions of achievement of export performance and minimum NFEP and the Policy itself therefore contemplated execution of bond by 100% EOU to cover differential duty in respect of clearance of goods in accordance with advance DTA permission based upon exports to be achieved. Thus we hold that the benefit of concessional rate of duty under Notification No. 2/95 is admissible to the appellants set aside the impugned order and allow the appeal.

Summary

Issues:
1. Entitlement to exemption under Notification No. 2/95 for a 100% EOU.
2. Denial of exemption and imposition of penalty based on value addition and export performance.
3. Interpretation of clauses of Notification No. 2/95 and relevant policy guidelines.

Analysis:
The judgment by the Appellate Tribunal CESTAT, Mumbai involved a case concerning the entitlement of a 100% Export-Oriented Unit (EOU) to exemption under Notification No. 2/95. The appellants had obtained permission to manufacture certain goods and sought advance DTA permission for clearance of finished goods. The dispute arose when the Assistant Commissioner issued a show cause notice proposing denial of exemption and penalty due to alleged discrepancies in value addition and export performance.

The Tribunal examined the relevant provisions of Notification No. 2/95, which granted exemption to excisable goods produced by a 100% EOU and allowed to be sold in India under specific conditions. The Tribunal noted that the Notification required satisfaction of conditions related to similarity of goods cleared for home consumption and those exported, total value of goods not exceeding 50% of FOB value of exports, and export of the balance production. The Revenue contended that these conditions were not met as there were no exports by the appellants.

The Tribunal clarified that there was no explicit requirement in the Notification that exports must precede DTA sales. The relevant policy clauses permitted DTA sales based on export envisaged, subject to certain conditions. The Tribunal highlighted that the guidelines for DTA sales allowed advance DTA sale permission based on anticipated exports, to be adjusted against subsequent entitlements. The Tribunal emphasized that the denial of concessional rate based on alleged violations of clauses of the third proviso was unsustainable as the goods were yet to be exported.

Furthermore, the Tribunal emphasized that the Policy envisaged monitoring of EOU performance and compliance with export conditions. The Tribunal concluded that the benefit of concessional rate of duty under Notification No. 2/95 was admissible to the appellants, overturning the lower authority's decision. The Tribunal held that the conditions of the Notification should be interpreted in light of the Policy guidelines and granted relief to the appellants based on the permissible advance DTA sales and compliance with future export obligations.

In light of the detailed analysis and interpretation of the Notification and policy guidelines, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants, recognizing their entitlement to the concessional rate of duty under Notification No. 2/95.