2005 (10) TMI 128 - AT - Central Excise

EXIM - 100% Export Oriented Unit - Rejects and Waste of grey fabrics and twisted yarn - claim for duty concession in terms of Notification No. 20/98-C.E. - domestic tariff area (D.T.A.) - No valid permission for D.T.A. sale - value of deemed export -Difference Of Opinion - Whether, the value of deemed export was required to be excluded and the Central Excise Authority were not required to be bound by the quantification of D.T.A. clearance fixed by the Development Commissioner as held by the Hon'ble Member (Technical) - HELD THAT - We have noted, in the case before us, a note is required to be taken of the fact that the third proviso to the notification specifically requires that AC /DC Central Excise is also required to be satisfied with the quantum of permissible clearances to D.T.A. in terms of the Policy. The entitlement to exemption flows from the said determination by the AC/DC Central Excise and not automatically from the fact of grant of approval by the Development Commissioner. In this connection in somewhat similar situation, the Honorable Supreme Court in the case of M/s. Sheshank Sea Foods v. U.O.I. 1996 (11) TMI 67 - SUPREME COURT held that, notwithstanding the fact that the D.G.F.T. authorities have the jurisdiction to determine the aspect of fulfillment of export obligation under the Foreign Trade (DQR) Act the custom authorities are also empowered to ascertain the aspect of fulfillment of export obligations for the purpose of entitlement to customs duty exemption in terms of customs Notification No. 204/92-Cus. This view is also further supported in terms of Supreme Court judgment reported in the case of British Airways PLC v. UOI, 2001 (11) TMI 81 - SUPREME COURT . Therefore, we hold that obtaining the permission from the Development Commissioner is only one of the steps and not the only step for seeking the benefit of exemption under notification No. 2/95-C.E. and the Central Excise authorities (including the Commissioner of Central Excise) are well within their legal right to determine the quantum of D.T.A. clearances etc. as provided in the third proviso to the notifications. Whether or not the exclusion of the quantum of deemed exports from the value of exports in terms of Exim Policy for arriving at the quantum of D.T.A. - In the judgments the Tribunal in the case of Vikram Ispat 2000 (8) TMI 111 - CEGAT, NEW DELHI had relied upon the definition of the term import u/s 2(23) of the Customs Act to hold that clearances from 100% EOU to D.T.A is not import. Therefore, what is stated for import (with reference to inward flow of goods in a 100% EOU) will also apply for export (outward flow of goods from a 100% EOU) defined u/s 2(18) of the Customs Act, since there cannot be different standards for interpreting import and export. Therefore, if sourcing of goods by a 100% EOU from a 100% EOU by applying definition of import contained in the Customs Act is not considered as an import, then sale of goods to any unit in a domestic market (even to a 100% EOU) can not be considered as export. We therefore, are in agreement with the adjudicating authority that the value of deemed exports was required to be excluded and the central excise authorities were not required to be bound by the wrong quantification of the D.T.A. clearances fixed by the Development Commissioner. Clearance of wastes for which in terms of provisions of the Exim Policy - From the provisions of para 9.9 of the Exim Policy it is noted that rejects up to 5% of the value of production are permitted to be sold in the D.T.A. sale of rejects above 5% are to be approved by the Development Commissioner concerned, in consultation with the local customs authorities. Therefore we agree with the appellants that since no permission from the Development Commissioner is required in respect of clearance of waste, they are entitled to the duty concession applicable to D.T.A. clearance. Duty concession - We hold that, the quantities of rejects in excess of 5% of the production value cleared to D.T.A. are disentitled to the exemption. In this case no data is produced before us to indicate as to what the respective permissible and non-permissible quantities are. Therefore the matter is required to be remanded to the adjudicating authority for the limited purpose of re-quantifiaction of duty liability, by confining the benefit of D.T.A. clearance to waste without any quantity restriction and to rejects only up to the extent of 5% of the value of production, as stipulated in the Policy. We also note that, the appellants had effected clearance to D.T.A., in violation of the provisions of Central Excise law and the imposition of penalty was justified. Since the quantum of duty is required to be recalculated the penalty also will require requantification. Accordingly we hold that the appellants are liable to the duty and penalty. However, since the amount of duty liability and consequential penalty is required to be requantified, we remand the matter to the adjudicating authority for the limited purpose of requantification of the duty and penalty in the light of our observations in the preceding para. Except for this modification, the rest of the order of the Commissioner is confirmed and the appeal of the appellants in respect of these points stands rejected. The adjudicating authority shall recalculate the duty liability and penalty after hearing the party. Difference Of Opinion - I find that this issue remains discussed in detail in our earlier judgment in the case of Ginni International Ltd v. CE, 2001 (9) TMI 165 - CEGAT, COURT NO. IV, NEW DELHI , I am in respectful agreement with that decision of the Tribunal. Even assuming that Revenue authorities are entitled to determine value independently, they have no reason to exclude deemed exports while computing F.O.B. value of exports, for the reason indicated by me in the earlier paragraph. In these circumstances, revenue was in error in excluding the value of deemed exports while determining the F O.B. value of exports. Thus, I, concur with the view taken by the learned Member (Judicial), as he then was. In view of majority opinion, the value of deemed export is not to be excluded while determining the FOB value of export and the appellants are entitled to the benefit of Notification No. 20/98-CE in absence of any other ineligibility. The consequential demands and penalty are set aside.

Summary

Issues Involved:
1. Validity of permission for Domestic Tariff Area (D.T.A.) sales.
2. Inclusion of deemed exports in the F.O.B. value of exports for D.T.A. entitlement.
3. Duty concession eligibility under Notification No. 20/98-C.E.
4. Authority of Central Excise officers versus Development Commissioner in determining D.T.A. sales.
5. Clearance of waste and rejects without permission.
6. Imposition of penalties.

Detailed Analysis:

1. Validity of Permission for D.T.A. Sales:
The appellants argued that no permission was required for D.T.A. sales of rejects and waste. The adjudicating authority, however, focused on the third proviso to Notification No. 2/95-CE, which mandates that the Assistant/Deputy Commissioner must be satisfied that the total value of clearance for home consumption does not exceed 50% of the F.O.B. value of exports made in the financial year. The Tribunal concurred, stating that obtaining permission from the Development Commissioner is only one step, and the Central Excise authorities have the right to determine the quantum of D.T.A. clearances.

2. Inclusion of Deemed Exports in the F.O.B. Value:
The appellants contended that the term "50% F.O.B. value of exports" should include deemed exports. The adjudicating authority excluded deemed exports from the F.O.B. value, arguing that the Exim Policy did not explicitly include deemed exports. The Tribunal, referencing the Customs Act, agreed that deemed exports should not be included unless specifically mentioned in the policy. However, the majority opinion, citing the Ginni International Ltd. case, held that deemed exports should be included in the F.O.B. value, thus favoring the appellants.

3. Duty Concession Eligibility under Notification No. 20/98-C.E.:
The appellants claimed duty concession under Notification No. 20/98-C.E., which was initially rejected on the grounds that the raw materials were deemed imported. The Tribunal held that EOUs are domestic units, and products made therein are indigenous, thus entitling the appellants to the said exemptions.

4. Authority of Central Excise Officers vs. Development Commissioner:
The appellants argued that once the Development Commissioner grants permission for D.T.A. clearance, Central Excise authorities cannot challenge it. The Tribunal noted that the AC/DC has the statutory power to determine the similarity of goods, the quantum of D.T.A. sales, and the NFEP of the exports. The majority opinion, however, held that the Development Commissioner's permission is final, and the Central Excise authorities cannot override it.

5. Clearance of Waste and Rejects without Permission:
The Tribunal agreed with the appellants that no permission from the Development Commissioner is required for the clearance of waste, and they are entitled to duty concession for such clearances. For rejects, only quantities exceeding 5% of the production value require permission. The matter was remanded to the adjudicating authority for re-quantification of duty liability, limiting the benefit to waste without quantity restriction and rejects up to 5% of the production value.

6. Imposition of Penalties:
The Tribunal upheld the imposition of penalties due to the violation of Central Excise law. However, since the duty liability needs recalculation, the penalty also requires re-quantification. The matter was remanded for this purpose.

Conclusion:
The Tribunal, by majority, concluded that the value of deemed exports should be included while determining the F.O.B. value of exports, and the appellants are entitled to the benefit of Notification No. 20/98-CE. The consequential demands and penalties were set aside, and the matter was remanded for re-quantification of duty and penalty based on the revised determination of permissible D.T.A. clearances.