2005 (3) TMI 188 - AT - Central Excise

Exports - 100% Export Oriented Unit - EXIM Policy - Manufactures Jumbo Bag (Polypropelene woven sacks) - sales to Domestic Tariff Area (DTA) - duty demand - Penalty - HELD THAT - It has to be also noted that once the Development Commissioner has accepted these sales as satisfying export obligations, the Customs authorities should not take a contrary view that would render export promotion scheme unworkable. Customs and Central Excise exemptions are dovetailed to export promotion policy. Therefore, the same goods cannot be treated as export by export promotion authority and non-export by another governmental authority. In a three legged race for export promotion by the Customs and Export Promotion authority, the two authorities cannot run in opposite directions. Lack of clarity, if any, should be resolved in a manner facilitating the advancement of the policy and not in a manner that defeats public policy. Thus, we are clear in our mind that duty demand is not sustainable. Once duty demand is not sustainable, there is no occasion for penalty also. The impugned order is therefore, set aside and the appeal is allowed with consequential relief, if any, to the appellant. We make it clear that we are not going into the alternate arguments advanced by the appellants since we are satisfied that the demand is contrary to the relevant legal provisions as discussed.

Summary

Issues:
Central Excise duty demand on supplies made by an EOU under para 9.10 of EXIM Policy 1997-2002 and imposition of penalty.

Analysis:
The appellant, an EOU manufacturing Jumbo Bags, faced a Central Excise duty demand of approximately Rs. 1.7 crores and a penalty of Rs. 25 lakhs for supplies under para 9.10 of the EXIM Policy. The appellant contended that goods supplied under para 9.10 are exempt from duty as they are deemed exports. The appellant relied on Notification No. 125/84, arguing that only goods allowed to be sold in India are not exempt. The appellant cited the judgment in SIV Industries Ltd. v. CCE to support their position. The supplies in question were made to parties specified in para 9.10, with payments received in foreign exchange, reinforcing the appellant's claim of exemption from duty.

The Revenue argued that the supplies in question were sales to the Domestic Tariff Area (DTA) and therefore liable for duty under Notification No. 2/95. However, a detailed analysis revealed that supplies under para 9.10 of the EXIM Policy are distinct from sales to DTA under para 9.9. The supplies under para 9.10 are explicitly considered exports, as per the policy. The goods covered by Notification No. 2/95 are those sold to DTA, not those supplied under para 9.10. The Commissioner erred in invoking the notification to demand excise duty on the appellant's supplies.

Furthermore, it was emphasized that once the Development Commissioner accepted the sales as fulfilling export obligations, Customs authorities should not take a contradictory view. The alignment of Customs and Central Excise exemptions with export promotion policies is crucial. Conflicting interpretations between export promotion and other authorities would hinder the effectiveness of export promotion schemes. Therefore, the duty demand was deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeal with consequential relief to the appellant. The judgment underscored the importance of interpreting legal provisions in a manner that advances policy objectives rather than defeating public policy.