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2023 (10) TMI 167 - HC - Central Excise100% EOU - Import of Cotton contained in Cotton Waste which is subsequently cleared at NIL rate of duty - Fulfilment of conditions of Exemption Notification No. 23/03-CE dated 31.03.2003 or not - benefit of N/N. 53/97 dated 03.06.1997 Notification No. 52/03- Cus dated 31.03.2003. HELD THAT - It is not in dispute that the assessee s unit is an export-oriented unit (EOU) since the year 1997, hence, being entitled to the benefits as conferred under the EXIM policy. It also appears to be not in dispute that the assessee was clearing cotton waste which was generated from the process of manufacturing of cotton yarn. Thus cotton waste was not the product for which the LOP was granted. Such cotton waste was excisable and the rate of duty specified for cotton waste being Nil, also appears to be not in dispute. Even otherwise, in respect of cotton waste generated in a 100% export-oriented unit, the rate of duty was Nil as specified in Notification No. 23/2003 dated 31 March, 2003 being General Exemption No. 32 - Also cotton waste being excisable was classified under Heading no. 52.02 under Chapter 52 of the Central Excise Tariff Act 2001-2002 at Nil Page 12 of 17 rate of duty. It thus appears that on clear application of Notification No. 23/2003-CE dated 31 March, 2003 as also Notification No. 52/2003-Cus dated 31 March, 2003, the cotton waste as generated in the assessee s unit and as cleared in the domestic tariff area, although excisable fell under the category of Nil duty. The CESTAT was thus correct in observing that when a manufacturer sets out to produce waste which is only incidentally generated in the process of manufacture of finished goods, the law would regard such waste as excisable goods, however, being exempted by application of notifications as discussed above, which permitted clearance into the domestic tariff area by adhering to the prescribed procedure - Once the notification(s) as discussed hereinabove provided Nil rate of duty in respect of such goods incidentally produced or manufactured by 100% export oriented unit and allowed it to be sold in the domestic tariff area, no duty could be leviable thereon. Even otherwise not only the notification provided for exemptions but also the provisions of the Customs Tariffs Act provided for Nil duty. It is agreed that the observations of the Tribunal that the decision of the Supreme Court in Collector of Central Excise vs. M/s. Dhiren Chemicals Industries 2001 (12) TMI 3 - SUPREME COURT would not apply to the present case. In any event, M/s. Dhiren Chemicals Industries was not a case which pertained to an export oriented unit. Such decision as rendered by the Constitution Bench of the Supreme Court had arisen in view of the conflict between the view taken in the decision of Collector of Central Excise, Patna vs. Usha Martin Industries 1997 (8) TMI 77 - SUPREME COURT and the decision in Motiram Tolaram Anr. vs. Union of India Anr. 1999 (8) TMI 68 - SUPREME COURT . The Constitution Bench resolved the conflict by holding that the conclusion reached in Usha Martin Industries (supra) that the exemption notification had imposed a condition on the export product should contain the raw materials on which an appropriate amount of duty of excise has already been paid, was not a correct view. The Tribunal in the case of Winsome Yarns Ltd. 2000 (10) TMI 406 - CEGAT, NEW DELHI in similar circumstances, had held that when the exemption notification provide Nil rate of duty and as such no duty was payable by the appellant therein on the cotton waste falling under heading 52.02 of the Central Excise Tariff Act. It appears that the said decision has been accepted by the Department as there is no material placed on record that the said decision of the Tribunal was assailed much less reversed. The appeal does not involve any substantial question of law - Appeal dismissed.
Issues Involved:
1. Whether the CESTAT was right in holding that the Respondent-assessee fulfilled the conditions of Exemption Notification No. 23/03-CE dated 31.03.2003 and thus, entitled for exemption. 2. Whether the assessee rightly availed exemption under Notification No. 53/97 dated 03.06.1997 & Notification No. 52/03-Cus dated 31.03.2003 on the portion of imported Cotton contained in Cotton Waste which is subsequently cleared at NIL rate of duty, under Notification No. 6/97-CE dated 01.03.1997 & Notification No. 23/03-CE dated 31.03.2003. Summary: Issue 1: Fulfillment of Conditions of Exemption Notification No. 23/03-CE dated 31.03.2003 The High Court examined whether the CESTAT was correct in holding the respondent-assessee fulfilled the conditions of Exemption Notification No. 23/03-CE dated 31.03.2003. The assessee, operating as a 100% Export Oriented Unit (EOU), was issued a Letter of Permission (LOP) for manufacturing cotton yarn. During an excise audit, it was noticed that the assessee had removed waste cotton at "nil" rate of duty under various notifications. The revenue argued that the notification was conditional, requiring payment of excise duty on articles cleared into the Domestic Tariff Area (DTA). The revenue issued a show cause notice contending that the exemption availed should be denied and appropriate duties be recovered. The CESTAT, however, held that the waste generated by such units should not be subject to a levy higher than that imposed on units operating outside the scheme. The High Court upheld the CESTAT's decision, noting that the notifications in question provided a nil rate of duty for cotton waste, and thus no duty was leviable. Issue 2: Availment of Exemption under Notification No. 53/97 dated 03.06.1997 & Notification No. 52/03-Cus dated 31.03.2003 The High Court also considered whether the assessee rightly availed exemption under the relevant notifications for the portion of imported cotton contained in cotton waste cleared at nil rate of duty. The revenue argued that the decision of the Supreme Court in Commissioner of Central Excise, Vadodara vs. M/s. Dhiren Chemicals Industries was applicable, which the CESTAT had not appropriately considered. The High Court found that the decision in Dhiren Chemicals was not applicable to the facts of the present case, as it did not pertain to an export-oriented unit. The court noted that the assessee's unit was entitled to the benefits under the EXIM policy, and the notifications provided for a nil rate of duty on cotton waste. The High Court upheld the CESTAT's decision, agreeing that the exemption notifications were correctly applied, and no duty was payable by the assessee. Conclusion: The High Court dismissed the appeals, holding that the CESTAT correctly interpreted the exemption notifications and that no substantial question of law arose. The court found that the assessee's unit, being a 100% EOU, was rightly entitled to the exemptions provided under the relevant notifications, and the decision in Dhiren Chemicals was not applicable. Thus, the appeals were rejected with no costs.
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