2020 (9) TMI 49 - SC - Central Excise

100% EOU - Exemption from payment of Customs Duty and Excise Duty - sale to DTA - production and export of cut flowers and flower buds of all kinds, suitable for bouquets and for ornamental purposes - benefit of N/N. 126/94Cus dated 3.6.1994 - thrust of the argument of the appellant is that according to Paragraph 3 of the exemption notification, sales made in DTA would attract excise duty and since the cut flowers sold by the appellant are non-excisable goods, no excise duty can be levied upon it - it is also contended that since the cut flowers are home grown, customs duty cannot be levied upon them and therefore, the demand of customs duty cannot be sustained. Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOU? - HELD THAT - In the present case, the notification provides for exemption on import of inputs and at the same time prescribes for adherence of certain conditions for availing the exemption. The notification further prescribes the rate at which the customs duty on the inputs used in the production of non-excisable goods sold in DTA is to be charged. Thus, the notification, having been issued in exercise of delegated legislation under Section 25 of the 1962 Act, has to be understood as any other law . Resultantly, the appellant, having availed exemption under the notification, cannot evade customs duty on the imported inputs at the rate prescribed by the notification. - The show cause notice points out that the appellant imported raw materials like Live Rose Plants and consumables like fertilizers and planting materials, however, the appellant advisedly chose to confine its argument to cut flowers , which, as contended, were grown on Indian soil and thus not amenable to customs duty. However, the demand made in the show cause notice treating cut flowers as deemed to have been imported was only for the purpose of quantification of the customs duty on the imported inputs and not imposition of the customs duty on the domestically grown cut flowers as such. In case of excisable goods, even the present notification takes resort to Section 3 of the 1944 Act, as can be seen from the Paragraph 3 of the notification extracted above. Whereas, the provisions of the 1962 Act are invoked only when the goods are non-excisable. In the present case, since the cut flowers are non-excisable goods, the demand for payment of customs duty had rightly been made vide show cause notice under the provisions of the 1962 Act. Whether the amendment in terms of Notification No. 56/01Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application? - HELD THAT - The notification posits of carrying out amendments and substituting the charging clause of the inputs used in case of non-excisable goods. The language employed in the notification does not offer any guidance on whether the amendments as made were to apply prospectively or retrospectively. It is a settled proposition of law that all laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by the legislature. The latter would be a case of necessary implication and it cannot be inferred lightly. Upon a bare reading of the circular, it can be noted that it discusses the mechanism in force before the amendment, the reason for bringing in the change and the changes brought in. The circular does not mention that the earlier methodology in force was deficient or devoid of clarity in any manner. It rather says that the same was being disadvantageous to the EOU units as compared to the DTA units due to the difference in charging rates in the respective circulars. Upon considering that, the amendment has been brought in to establish parity with the excise notifications and to vindicate the disadvantage that earlier regime was causing to EOU units. Merely because an anomaly has been addressed, it cannot be passed off as an error having been rectified. Unless shown otherwise, it has to be seen as a conscious change in the dispensation, particularly concerning the fiscal subject matters. The word anomaly has been defined in Webster's New Twentieth Century Dictionary to mean abnormality; irregularity; deviation from the regular arrangement, general rule or the usual method . The proviso to the charging section of the 1944 Act provides that an EOU making DTA sales shall be charged duty as if the goods were imported into India and in value equal to the customs duty chargeable thereto. No doubt, the said provision applies only in cases of excisable goods, but the exemption notification providing for similar duty by terms thereunder for non-excisable goods, can be understood to have been made to equate the duty in case of excisable as well as non-excisable goods. Therefore, it must follow that the said provision was not an error that crept in but was intentionally introduced by the Government to determine the charging rate. That being the position prior to amendment, the amendment brought in cannot be said to be clarificatory in nature. The appellant was obliged to comply with the conditions prescribed by the EXIM Policy, to avail the exemption under the stated notification; and failure to do so, must denude them of the exemption so granted. Further, since the charging rate prescribed under the exemption notification is under question, any ambiguity in regard to the date of application of the amendment thereto would necessarily have to be construed in favour of the State, unless shown otherwise by judicially acceptable parameters. The next contention of the appellant is that Section 28 of the 1962 Act cannot be invoked to extend the limitation as there was no wilful misstatement or suppression of facts on behalf of the appellant - HELD THAT - In the fact situation of the present case, the appellant was issued a show cause notice mentioning that it had suppressed the DTA sales of cut flowers to evade payment of duty. Had the appellant in good faith believed that no duty was payable upon the DTA sales of cut flowers, it would have sought prior approval of the Development Commissioner, which it failed to do. Even in the letter seeking expost facto approval, the appellant claimed that they had not used any imported input such as fertilizer, plant growth regulations, etc. in growing flowers sold in DTA, despite having imported green house equipment, raw materials like Live Rose Plants and consumables like planting materials and fertilizers - The burden of proving to the contrary rested upon the appellant, which the appellant failed to discharge by failing to establish that the imported inputs were not used in the production of the cut flowers sold in DTA - In view thereof, the authorities below have rightly invoked Section 28 of the 1962 Act and allied provisions. The CESTAT has rightly upheld the levy of customs duty - appeal dismissed.

Summary

Issues Involved:
1. Whether customs duty can be charged on the non-excisable goods produced in India and sold in the Domestic Tariff Area (DTA) by an Export Oriented Unit (EOU)?
2. Whether the amendment in terms of Notification No. 56/01-Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application?

Detailed Analysis:

Issue 1: Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOU?
The appellant, a 100% EOU, engaged in the production of cut flowers, was required to export all articles produced by it and was exempted from customs duty on imported inputs used during production, as per Notification No. 126/94-Cus dated 3.6.1994. However, the appellant sold cut flowers in the DTA without obtaining the requisite approval from the Development Commissioner and without maintaining the requisite net foreign exchange earning, which was in contravention of the EXIM Policy.

The Additional Commissioner issued a show cause notice to the appellant for the unauthorized DTA sales and confirmed the demand for customs duty, interest, and penalty. The appellant's appeals before the Commissioner (Appeals) and CESTAT were dismissed, confirming the levy of customs duty.

The Supreme Court noted that the exemption notification allowed EOUs to clear goods in DTA to the extent permissible by the EXIM policy, which required maintaining positive net foreign exchange earning. The Court held that in case of contravention of the EXIM policy conditions, customs duty would be leviable as if such goods were imported goods, irrespective of whether the goods produced were excisable or non-excisable. The appellant's reliance on the decision in Vikram Ispat was found inapplicable as it did not involve contravention of EXIM policy conditions.

The Court further clarified that for non-excisable goods, the customs duty on inputs used in their production is to be charged as per the exemption notification. The show cause notice treated cut flowers as deemed imported only for quantification of customs duty on the imported inputs, not on the domestically grown cut flowers.

Issue 2: Whether the amendment in terms of Notification No. 56/01-Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application?
The appellant argued that the amendment notification, which changed the criteria for determining customs duty on inputs used in the production of non-excisable goods cleared in DTA, should apply retrospectively. The appellant relied on a CBEC Circular and decisions of the Supreme Court to support this claim.

The Supreme Court, however, observed that the language of the amendment notification did not indicate retrospective application. It noted that laws are presumed to apply prospectively unless expressly stated otherwise or intended by the legislature. The Court found that the amendment was brought to address an anomaly and to harmonize the customs and excise notifications, but this did not imply an error in the previous notification.

The Court referred to the decision in IndusInd Bank, which held that remedial provisions are not to be construed as clarificatory or declaratory and must be applied prospectively. The Court also cited the Constitution Bench decision in Hari Chand Shri Gopal, emphasizing that exemption clauses must be strictly construed, and any ambiguity must benefit the State.

The Court concluded that the amendment notification was prospective and did not apply to the appellant's case. The appellant's failure to comply with the EXIM policy conditions denuded them of the exemption benefit, and the demand for customs duty was rightly made.

Conclusion:
The Supreme Court upheld the levy of customs duty on the appellant for the unauthorized DTA sales of non-excisable goods, confirming that the amendment notification was prospective in application. The appeal was dismissed, and the demand for customs duty, interest, and penalty was affirmed.