2025 (2) TMI 139 - AT - Central Excise

100% EOU - recovery of Customs Duty with interest and penalty - duty foregone on raw materials and inputs used in the manufacture of goods cleared in the Domestic Tariff Area (DTA) at nil rate of duty - whether the benefit of N/N. 12/2012-Cus (S No 431) and 12/2012-CE (S No 272) can be extended to the respondent? HELD THAT - From perusal of entry at S No 431 of the custom notification ii is evident that exemption has been granted to all parts components accessories and sub parts of these for the manufacture of mobile handsets battery chargers PC connectivity cables Memory cards and hands-free headphones of mobile handsets. The phrase used in the said entry is for the manufacture of and not of . Thus anything which goes into the manufacture of these items would be eligible to exemption under the said entry of this notification. It is settled position in law that the exemption notification need to be construed strictly as per the words and phrase used in the notification. From the phrase used we are of the view that this phrase would cover all the items that are consumed directly or indirectly for the manufacture of these items. Similar expressions were used while defining the Capital Goods as per Rule 57 Q of the Central Excise Rules 1994 and Hon ble Supreme Court has in the case of COMMISSIONER OF C. EX. COIMBATORE VERSUS JAWAHAR MILLS LTD. 2001 (7) TMI 118 - SUPREME COURT interpreted the said phrase to be very wide to cover all things used in the factory of production to be covered by the said definition. It was held by Supreme Court that The aforesaid definition of Capital goods is very wide. Capital goods can be machines machinery plant equipment apparatus tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be Capital goods and therefore qualify for availing Modvat credit. Per clause (b) the components spare parts and accessories of the goods mentioned in clause (a) used for the purposes enumerated therein would also be Capital goods and qualify for Modvat credit entitlement. Clause (c) makes moulds and dies generating sets and weigh bridges used in the factory of the manufacturers as capital goods and thus qualify for availing Modvat credit. It is found that the controversy sought to be raised in the present case as to whether these goods qualify as component part or accessory etc. is totally irrelevant for determining the issue of admissibility of these notifications. The benefit of these notifications will be available in respect of all goods used for manufacture/ production of mobile parts and battery chargers. Conclusion - The exemption notifications should be interpreted liberally to include all items used in the manufacturing process not just identifiable components and parts. The benefit of these notifications will be available in respect of all goods used for manufacture/production of mobile parts and battery chargers. Appeal of Revenue dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment revolve around the applicability of certain exemption notifications under the Customs Act and Central Excise Act to 100% Export Oriented Units (EOUs), specifically regarding the duty foregone on raw materials and inputs used in the manufacture of goods cleared in the Domestic Tariff Area (DTA) at nil rate of duty. The primary questions include:

• Whether the respondents, being EOUs, are eligible for the benefit of Notification No. 12/2012-Cus and Notification No. 12/2012-CE, which provide exemptions for parts, components, and accessories used in the manufacture of mobile handsets and battery chargers.
• Whether the goods procured and used by the respondents qualify as parts, components, or accessories under the said notifications, or if they should be classified as raw materials, thus affecting their eligibility for exemption.
• Whether the procedural requirements under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, were adequately followed by the respondents, and if not, whether this non-compliance affects their eligibility for the exemptions.
• Whether the respondents can claim the benefit of the exemption notifications post-clearance of the goods.

ISSUE-WISE DETAILED ANALYSIS

Eligibility for Exemption under Notifications No. 12/2012-Cus and 12/2012-CE

• Legal Framework and Precedents: The relevant legal framework includes Notification No. 12/2012-Cus and Notification No. 12/2012-CE, which provide exemptions for parts, components, and accessories used in the manufacture of mobile handsets and battery chargers. The Tribunal also considered various judicial precedents that interpret the scope of "parts" and "components" in similar contexts.
• Court's Interpretation and Reasoning: The Tribunal interpreted the phrase "for the manufacture of" in the notifications to include all items consumed directly or indirectly in the manufacturing process. The Tribunal relied on the liberal interpretation principle established in previous judgments, such as Jawahar Mills Ltd., which advocated for a broad understanding of terms like "capital goods" and "components."
• Key Evidence and Findings: The Tribunal examined the usage of disputed items like polycarbonate resin, TA wire, solder wire, and others, determining that these items were integral to the manufacturing process of the finished goods.
• Application of Law to Facts: By applying the legal interpretations and precedents, the Tribunal concluded that the items used by the respondents qualify for the exemptions under the notifications, as they are essential for the manufacturing process.
• Treatment of Competing Arguments: The Tribunal dismissed the revenue's argument that the notifications only apply to identifiable components and parts, emphasizing the broader interpretation of "for the manufacture of" to include all necessary items in the production process.
• Conclusions: The Tribunal concluded that the respondents are eligible for the exemptions under Notifications No. 12/2012-Cus and 12/2012-CE.

Procedural Compliance with Customs Rules

• Legal Framework and Precedents: The Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, outline the procedural requirements for claiming exemptions. The Tribunal referenced the case of Salora Components Pvt Ltd., which addressed procedural compliance in similar contexts.
• Court's Interpretation and Reasoning: The Tribunal acknowledged that the respondents followed a similar procedure under Notification No. 52/2003-Cus, which was deemed sufficient for compliance with the spirit of the Customs Rules, 1996.
• Key Evidence and Findings: The Tribunal noted that the respondents operated under the EOU scheme, which includes strict procedural requirements for importing and using goods.
• Application of Law to Facts: The Tribunal applied the reasoning from Salora Components Pvt Ltd. to determine that the procedural compliance under the EOU scheme was adequate.
• Treatment of Competing Arguments: The Tribunal rejected the revenue's argument that non-compliance with the Customs Rules, 1996, should disqualify the respondents from claiming exemptions, citing the substantial compliance with EOU procedures.
• Conclusions: The Tribunal concluded that the respondents' procedural compliance under the EOU scheme suffices for claiming the exemptions.

Post-Clearance Claim of Exemptions

• Legal Framework and Precedents: The Tribunal considered the precedent set by the Supreme Court in Share Medical Care, which allows for claiming exemptions post-clearance if the conditions of the notification are met.
• Court's Interpretation and Reasoning: The Tribunal reasoned that the respondents could claim the exemption benefits post-clearance, as supported by the precedent and the substantial compliance with notification conditions.
• Key Evidence and Findings: The Tribunal found no procedural or substantive barriers to the respondents claiming the exemptions post-clearance.
• Application of Law to Facts: Applying the principles from Share Medical Care, the Tribunal allowed the respondents to claim the exemptions post-clearance.
• Treatment of Competing Arguments: The Tribunal dismissed the revenue's contention that post-clearance claims were invalid, citing the legal precedent supporting such claims.
• Conclusions: The Tribunal concluded that the respondents could validly claim the exemptions post-clearance.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reinforced the principle that exemption notifications should be interpreted liberally to include all items used in the manufacturing process, not just identifiable components and parts. It also established that procedural compliance under the EOU scheme suffices for claiming exemptions.
• Final Determinations: The Tribunal dismissed the appeals filed by the revenue and allowed the appeal filed by the respondents, confirming their eligibility for the exemptions under Notifications No. 12/2012-Cus and 12/2012-CE.
• Verbatim Quotes: "The benefit of these notifications will be available in respect of all goods used for manufacture/production of mobile parts and battery chargers."