2019 (8) TMI 719 - AT - Customs

Violation of import conditions - Benefit of exemption notification -EOU - export of cotton waste generated in manufacturing of cotton yarn - diversion of imported raw materials in the making of goods cotton waste, cleared to the domestic tariff area at nil rate of duty - HELD THAT - There could be no doubt that no manufacturer sets out to produce waste which is only incidentally generated in the process of manufacture of finished goods. Appellant is required to take approval of the competent authority for manufacture of identified goods and the scheme itself acknowledges that any waste and rejects arising therefrom would be treated akin to approved finished goods. Therefore, there is no requirement to export such goods for entitlement to the benefit of the exemption notification under Central Excise Act, 1944 and Customs Act, 1962. Clearances from export oriented unit into the domestic tariff area are subject to duties of central excise even though the rate and the value applicable are derived from the provisions of Customs Act, 1962 and the Customs Tariff Act, 1975. There is no dispute that the impugned goods are a waste product and have been subject to the process of assessment as decreed by law. There is also no dispute that the impugned goods have materially altered from the raw materials utilised for manufacture and were not the duty free goods removed as such. The only issue that arises is the discharge of duty liability and the dispute is limited to the non-payment of duty arising from non-dutiability. The scheme of export oriented unit is intended to provide special facilities to units that are engaged in export and even in the matter of clearance of domestic tariff area are subject to higher duties than a corresponding domestic unit is. The policy prescription also includes a ceiling on the quantity of goods that may be sold in the domestic market. A unit operating outside the scheme is subject only to the duties of excise on their finished products and there is no limit on the clearance that may be effected from the factory. The scheme of conditions in the exemption notifications under the Central Excise Act, 1944 and Customs Act, 1962 are intended to ensure that a unit operating under the scheme does not derive any unintended advantage vis- -vis a unit operating outside by utilisation of exempted raw material and consumables. It cannot have been the conception behind the scheme to subject the waste generated by such units to a levy that is not less than that devolving outside the scheme; more so, as the cost of production of the finished goods invariably subsume the value of the materials that are embedded in the waste. Hence such value have already been either included in the obligation for export or subject to rate of duty not less than that suffered by a domestic unit and does not confer any unwarranted advantage to the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Interpretation of the term "appropriate duty of excise."
2. Applicability of exemption notifications to goods cleared in the domestic tariff area.
3. Duty liability on waste generated by export-oriented units (EOUs).

Issue-wise Detailed Analysis:

1. Interpretation of the term "appropriate duty of excise":
The core issue revolves around whether the term "appropriate duty of excise" includes a 'nil' rate of duty. The appellant argued that the term should encompass 'nil' duty, citing several precedents, including Tata Yodagawa Ltd & Another v. Union of India & Others, N B Sanjana v. The Elphinstone Spinning and Weaving Mills Co Ltd, and Aarti Industries Ltd. The Tribunal, referencing these cases, agreed that 'nil' duty qualifies as 'appropriate duty of excise,' thus supporting the appellant's stance that goods cleared at 'nil' duty rate are compliant with the exemption conditions.

2. Applicability of exemption notifications to goods cleared in the domestic tariff area:
The appellant, operating under the export-oriented unit (EOU) scheme, cleared 'cotton waste' in the domestic market at 'nil' duty. The original and first appellate authorities contended that the exemption notifications necessitated the repayment of duties foregone at the time of procurement or import. However, the Tribunal found that the scheme allows for the clearance of goods, including waste, into the domestic market under the exemption notifications, provided the appropriate duties are paid. The Tribunal referenced decisions such as Winsome Yarns Ltd v. Commissioner of Central Excise, Chandigarh, which clarified that the duty levied on EOUs is central excise duty, measured by customs duty, and that 'nil' duty under the notification is valid.

3. Duty liability on waste generated by export-oriented units (EOUs):
The Tribunal emphasized that waste generated during the manufacturing process is incidental and should be treated akin to approved finished goods. The appellant's compliance with procedural requirements, including ceiling limits for domestic clearance and approval from competent authorities, was noted. The Tribunal cited Angana Textiles P Ltd and other cases to support that waste cleared in the domestic market under the EOU scheme does not necessitate additional duty liability beyond what is stipulated in the exemption notifications. The Tribunal concluded that the scheme's intention is not to impose a higher duty burden on waste than on finished goods, and the appellant's actions did not confer any unintended advantage.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal. The judgment reaffirmed that 'nil' duty qualifies as 'appropriate duty of excise,' and the clearance of waste by EOUs into the domestic market under the exemption notifications is valid, provided procedural compliance is met. The decision underscored that the scheme's purpose is to facilitate exports without imposing undue duty burdens on incidental waste, aligning with the broader policy objectives of the EOU scheme.

(Order pronounced in open court on 13.08.2019)