2025 (3) TMI 777 - AT - Central Excise

100% Export Oriented Unit (EOU) - liability to pay duty on inputs used in the manufacture of final products cleared in the Domestic Tariff Area (DTA) without payment of duty - violation of N/N. 52/2003-Cus dated 31.03.2003 without invoking Section 28 of the Customs Act 1962 or Section 11A of the Central Excise Act 1944 - invocation of extended period of limitation. Whether the appellant is liable to pay duty on the inputs utilised in the manufacture of the final products which are cleared under DTA without payment of duty availing the benefit of various exemption notifications? - HELD THAT - In view of the N/N. 52/2003-Cus dated 31.03.2003 since the goods have been cleared under DTA without payment of duty the observation of the Commissioner that duty foregone on the inputs utilized in the manufacture of the above exempted products has to be discharged by the appellant needs to be sustained. The claim of the counsel that they fall under the main clause of the notification and the question of reading the proviso into the main clause cannot be accepted in view of the fact that the proviso to the main clause has to be necessarily read with the main clause which brings in certain restrictions in the situations referred in the main clause. The Hon ble Supreme Court in the case of Union of India vs. VKC Footsteps India Pvt. Ltd. 2021 (9) TMI 626 - SUPREME COURT while dealing with the interpretation of the proviso to Section 54(3) oof the CGST Act observed that Rule 89(5) is consistent with Section 54(3) of the CGST Act. Thus there are no reason to accept the contention of the learned counsel that the proviso is independent of the main clause para 3 of the Notification 52/2003. Whether the provisions of conditions of notification 52/2003 can be invoked to demand the duty when these conditions are violated without invoking Section 28 of the Customs Act 1962 or Section 11A of Central Excise Act 1944? - HELD THAT - The Supreme Court of India in the case of Moser Baer India Ltd. vs. Commissioner of Customs Noida 2015 (11) TMI 137 - SUPREME COURT while dealing with invocation of extended period in terms of the bond executed by an 100% EOU observed that the goods are used for the purpose for which they are imported. If the perception of the Revenue was that these are not captive goods or the benefit of Notification No. 53/97 is not available to the assessee the period of limitation started at the threshold and therefore on the facts which were known to the Revenue the Show Cause Notice could have been issued within a normal period of limitation prescribed under Section 28 which was six months at the relevant time. Thus there is no question of violation of any of the conditions of the Notification since they had legitimately availed the benefit of the exemption Notifications. This aspect was known to the department and hence the question of invoking extended period does not arise. Since the show-cause notice was issued on 11.05.2011 the demand for the normal period alone is to be sustained. Conclusion - i) The demand for duty on inputs used in the manufacture of goods cleared in DTA without payment of duty upheld. ii) The duty demand on inputs for the normal period upheld rejecting the extended period invocation. Appeal allowed in part.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the appellant, a 100% Export Oriented Unit (EOU), is liable to pay duty on inputs used in the manufacture of final products cleared in the Domestic Tariff Area (DTA) without payment of duty, under the exemption notifications.
Whether the provisions of Notification No. 52/2003-Cus can be invoked to demand duty when conditions are violated without invoking Section 28 of the Customs Act, 1962, or Section 11A of the Central Excise Act, 1944.

2. ISSUE-WISE DETAILED ANALYSIS

First Issue: Duty on Inputs for DTA Clearance

Relevant Legal Framework and Precedents: The appellant relied on Notification No. 52/2003-Cus and Notification No. 22/2003-CE, which allow EOUs to procure duty-free materials. The proviso to Para 3 of Notification No. 52/2003-Cus requires duty to be paid on inputs if finished goods are cleared in DTA without duty. The appellant argued that they are governed by the main clause of these notifications, not the proviso.
Court's Interpretation and Reasoning: The Tribunal interpreted the proviso as integral to the main clause, stating that it must be read together with the main clause, which introduces restrictions under certain conditions. The Tribunal cited the Supreme Court's interpretation of provisos, emphasizing that they qualify or except certain provisions from the main enactment.
Key Evidence and Findings: The appellant cleared goods in DTA without paying duty, invoking certain exemption notifications. The Tribunal found that the proviso to Notification No. 52/2003-Cus was applicable, requiring the appellant to pay duty on inputs.
Application of Law to Facts: The Tribunal applied the proviso to the appellant's case, concluding that the duty foregone on inputs used in the manufacture of exempted products must be discharged.
Treatment of Competing Arguments: The appellant's argument that the proviso is independent and should not apply was rejected. The Tribunal relied on the principle that a proviso is a qualification to the main clause.
Conclusions: The Tribunal upheld the demand for duty on inputs used in the manufacture of goods cleared in DTA without payment of duty.

Second Issue: Invocation of Section 28 or Section 11A

Relevant Legal Framework and Precedents: The appellant argued that demands for duty must be made under Section 28 of the Customs Act or Section 11A of the Central Excise Act, not merely based on notifications. They cited several precedents supporting this view.
Court's Interpretation and Reasoning: The Tribunal referred to the Supreme Court's decision in Moser Baer India Ltd., which emphasized that the extended period of limitation could be invoked only if there was willful misdeclaration or diversion of goods.
Key Evidence and Findings: The Tribunal found that the appellant had legitimately availed the exemption notifications, and there was no willful misdeclaration or diversion of goods.
Application of Law to Facts: The Tribunal concluded that the demand for duty could only be sustained for the normal period, as the extended period was not applicable due to the absence of willful misdeclaration.
Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that the demand could be based solely on the notification, emphasizing the need for proper invocation of statutory provisions.
Conclusions: The Tribunal sustained the demand for the normal period only, rejecting the invocation of the extended period of limitation.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal emphasized, "The proviso to the main clause has to be necessarily read with the main clause which brings in certain restrictions in the situations referred in the main clause."
Core principles established: The Tribunal reinforced the principle that a proviso qualifies or excepts certain provisions from the main enactment and must be read in conjunction with it.
Final determinations on each issue: The Tribunal upheld the duty demand on inputs for the normal period, rejecting the extended period invocation. Appeals were partially allowed.