2000 (3) TMI 162 - SC - Central Excise

Whether duty is to be leviable in terms of the proviso to Section 3(1) of the Central Excise Act, 1944? Held that - Chapter VA of the Central Excise Rules contains provisions for removal from a Free Trade Zone or from a 100% EOU of excisable goods for home consumption. This Chapter was made applicable to units under the EOU Scheme by a Notification No. 130/84-C.E., dated May 26, 1984. This Chapter contains Rules 100A to 100H. Rule 100A provides that the provisions of this Chapter shall apply to a person permitted under any law for the time being in force to produce or manufacture excisable goods in a 100% Export Oriented Undertaking and who has been allowed by the proper officer to remove such excisable goods for being sold in India on payment of duty of excise leviable thereon. It will be thus seen that this Chapter VA would not be applicable where EOU is outside the EOU Scheme after the unit is debonded. Under Rule 100H Rule 57A and other Rules mentioned therein shall not apply to excisable goods produced or manufactured by 100% Export Oriented Undertaking. Rule 57A relates to allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 as may be specified by the Central Government in the notification, paid on the goods used in or in relation to the manufacture of the final products and for utilizing the credit so allowed towards payment of duty of excise leviable on the final products. Thus considering the whole aspect of the matter the Tribunal was not right in holding that duty is to be leviable in terms of the proviso to Section 3(1) of the Central Excise Act, 1944. We, therefore, set aside the impugned judgment of the Tribunal and restore that of the Collector of Central Excise, dated October 11, 1994. The appeal is accordingly allowed.

Summary

Issues Involved:
1. Applicability of Section 3(1) vs. Proviso to Section 3(1) of the Central Excises and Salt Act, 1944.
2. Interpretation of "allowed to be sold in India" under the proviso to Section 3(1).
3. Conditions for debonding from 100% Export Oriented Unit (EOU) Scheme.
4. Assessment of duties on finished goods upon debonding.

Issue-wise Detailed Analysis:

1. Applicability of Section 3(1) vs. Proviso to Section 3(1) of the Central Excises and Salt Act, 1944:

The primary contention was whether the excise duty on the finished goods should be levied under the main Section 3(1) of the Act or under the proviso to Section 3(1). The appellant argued that excise duty should be payable under the main Section 3(1) along with customs duty on the imported raw materials used in the manufacture of finished goods. In contrast, the Revenue contended that the duty should be levied under the proviso to Section 3(1) without any customs duty on the raw materials.

2. Interpretation of "allowed to be sold in India" under the proviso to Section 3(1):

The expression "allowed to be sold in India" was the bone of contention. The appellant argued that for the proviso to apply, two conditions must be cumulatively satisfied: (1) the goods should have been produced or manufactured by an existing 100% EOU, and (2) these goods should have been allowed to be sold in India. The Revenue, however, assumed that permission to debond equated to permission to sell in India, which the court found to be an overreach.

3. Conditions for Debonding from 100% Export Oriented Unit (EOU) Scheme:

The appellant was granted permission to set up a 100% EOU and later sought debonding. The debonding was subject to conditions such as payment of all customs and excise duties on imported and indigenous capital goods, raw materials, components, consumables, and spares in stock, as well as on the finished goods in stock. The appellant complied with these conditions and paid the demanded duties, which amounted to Rs. 6,62,70,540.76.

4. Assessment of Duties on Finished Goods Upon Debonding:

The dispute centered on the rate at which duty was to be levied on the finished goods manufactured before the date of debonding. Initially, the Assistant Collector of Central Excise demanded duty under the main Section 3(1), but later issued a show cause notice demanding duty under the proviso to Section 3(1). The Tribunal upheld the Revenue's contention, but the Supreme Court disagreed, stating that the proviso to Section 3(1) applies only to sales made up to 25% of production by 100% EOU in DTA with permission from the Development Commissioner, not to the finished goods lying in stock at the time of debonding.

Conclusion:

The Supreme Court concluded that the Tribunal erred in applying the proviso to Section 3(1) for the duty on the finished goods. The court restored the order of the Collector of Central Excise, which aligned with the appellant's contention that duty should be levied under the main Section 3(1) of the Act. The appeal was allowed, and no costs were ordered.