2022 (11) TMI 336 - AT - Central Excise

Conversion of 100% EOU to normal DTA Unit - work in process / semi-finished goods at the time of debonding of EOU - requirement to pay duty or not - HELD THAT - As per the details submitted by the appellant which is not in dispute, the semi-finished goods/ work in process was not in fully manufactured form and the same was at different stages of the manufacturing process. The said goods are not marketable as such which were subjected to various other processes to attain the stage of final product, therefore, at the semi-finished stage, where no excisable goods came into existence, the demand of duty at the time of debonding is, in our view, incorrect in law. In any case, these semi-finished goods/ work in process will reach to the stage of final product and the same is liable for duty at the time of clearance from the factory. Therefore, at the intermediate stage when the goods are not fully manufactured, the excise duty was not payable at the time of debonding, particularly when the goods were not cleared from the factory and were in the process of manufacturing. No duty can be demanded on semi-finished goods/ work in process, lying at the time of debonding of 100% EOU - Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Demand of duty on semi-finished goods/work in process during debonding of 100% EOU.

Comprehensive Analysis:

1. Background:
The appellant, a manufacturer of bulk drugs and intermediates, sought to exit the 100% EOU status and convert to a normal DTA unit. Dispute arose regarding the duty payable on semi-finished goods and work in process at the time of debonding.

2. Appellant's Arguments:
- Appellant's representative argued that duty is not payable on work in process/semi-finished goods at debonding, citing Foreign Trade Policy provisions.
- Referenced various judgments supporting the non-levy of duty on work in process, emphasizing that such goods are not marketable.
- Contended that duty is payable upon removal of goods, and as the goods were not cleared, duty should not be demanded.
- Criticized the reliance on CBEC Customs Manual instructions for demanding duty, stating it lacks statutory support.
- Highlighted that even if duty is payable, it is revenue-neutral as the paid duty can be utilized for cenvat credit upon clearance of finished goods.

3. Respondent's Stand:
The authorized representative reiterated the findings of the impugned order, supporting the demand for duty on semi-finished goods.

4. Tribunal's Decision:
- Tribunal noted that the semi-finished goods were not fully manufactured and were in various stages of production, not yet marketable.
- Citing precedents, including judgments from CESTAT and High Courts, the Tribunal held that duty is not payable on work in process/semi-finished goods during debonding.
- Emphasized that excise duty is levied on excisable goods, which are not produced at the intermediate stage, aligning with Foreign Trade Policy provisions.
- Concluded that the demand for duty on semi-finished goods at debonding was legally incorrect, setting aside the impugned order and allowing the appeal.

5. Conclusion:
The Tribunal's decision established that duty cannot be demanded on semi-finished goods/work in process during the debonding of a 100% EOU, aligning with legal provisions and precedents. The judgment provided clarity on the non-levy of duty on goods not yet in a marketable state, ensuring a fair application of excise duty regulations.

*(Pronounced in the open court on 04.11.2022)*