2016 (4) TMI 771 - AT - Central Excise

Demand of differential duty - on finished goods lying in stock - at the time of debonding of the E.O.U. - Denial of exemption under Notification No.23/2003-CE dated 31.03.2003 - Appellant contended that no benefit has been availed by E.O.U. on the finished goods themselves and once the benefit availed on inputs, consumables and capital goods are surrendered then for all purposes, the unit becomes a normal DTA Unit. Held that - we are unable to agree with the submission made by appellant that language employed in the foreign trade policy continued to be allowed to be sold in India and the amendment brought in 2001 has not materially changed the situation. The Foreign Trade Policy apparently deals with the goods which are allowed to be sold in India by an E.O.U. in terms of the policy and the same is applicable to a functioning E.O.U. It cannot be said that such expression in the Foreign Trade Policy applies to the finished goods lying in stock when the E.O.U. intents to exit the scheme itself. It is noticed that the final debonding and conversion of E.O.U. to a D.T.A. Unit is legally permissible only on discharging all the duty liabilities on capital goods, raw-materials, finished goods etc. lying in the E.O.U. In such a situation, it is not legally tenable to argue that the rate of duty applicable to a normal Central Excise Unit should be applicable to a E.O.U. even before the E.O.U. becomes a normal Central Excise Unit. Imposition of penalty - Rule 25 of Central Excise Rules 2002 - Held that - the rate of duty applicable on the finished goods lying in an E.O.U. at the time of debonding involves interpretation of legal provision and applicability of various case laws. So, it is not a fit case for penal action. - Decided against the revenue

Summary

Issues:
Calculation of duty payable on finished goods at the time of debonding of Export Oriented Unit (E.O.U.), applicability of Notification No.23/2003-CE, interpretation of proviso to Section 3 (1) of the Central Excise Act, 1944.

Analysis:
1. The case involved two appeals, one by the assessee and another by the Revenue, against the same order passed by the Commissioner of Central Excise. The appellant, a 100% Export Oriented Unit, sought permission to exit the E.O.U. scheme, subject to paying applicable Customs/Excise Duties on goods in stock. A show cause notice was issued for demanding a differential duty, leading to the dispute on the duty payable on finished goods at debonding.

2. The appellant contested the demand based on the argument that once benefits on inputs are surrendered, the unit becomes a normal Domestic Tariff Area (DTA) unit. Reference was made to a Supreme Court judgment regarding duty payment upon debonding, emphasizing that permission to exit E.O.U. is not permission to sell in India.

3. The Revenue supported the demand, stating that the exemption under Notification No.23/2003-CE does not apply to finished goods at debonding. They argued that the duty calculation should follow the proviso to Section 3 (1) applicable to goods manufactured in E.O.U. Reliance was placed on tribunal decisions for this interpretation.

4. The Tribunal analyzed whether duty on finished goods at debonding should be as per the main Section 3 (1) or proviso to Section 3 (1) of the Central Excise Act. It was noted that the duty liability must be discharged before converting to a normal Central Excise Unit. The Tribunal referred to the Supreme Court's interpretation of the proviso and subsequent amendments, concluding that the revised proviso has a wider scope.

5. Previous tribunal decisions were cited to distinguish the duty liability after debonding from that at debonding. The Tribunal upheld the lower authorities' application of law, emphasizing that benefits under the exemption Notification apply only when goods are brought to DTA under specific conditions.

6. The Tribunal dismissed the appeal by the appellant, stating that the duty rate applicable to a normal Central Excise Unit cannot be applied to an E.O.U. before conversion. The appeal by the Revenue for imposing a penalty was also dismissed, considering the complex legal interpretation involved in the duty calculation.

This detailed analysis covers the issues of duty calculation, Notification applicability, proviso interpretation, and legal position on duty liabilities for E.O.U. debonding, providing a comprehensive overview of the judgment.