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TMI Blog2020 (9) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... escribes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption notification . Under the said notification, exemption on levy of customs duty had been extended even to the inputs used in production of articles sold in domestic market, in accordance with the Export-Import (EXIM) Policy and subject to other conditions specified by the Development Commissioner. To wit, upon payment of excise duty in case of excisable goods; and in case of non-excisable goods, upon payment of customs duty on the inputs used for production, manufacturing or packaging of such articles at a rate equivalent to the rate of customs duty that would have been leviable on such articles, if such articles were imported. The said notification was amended by Notification No. 56/01Cus dated 18.5.2001- For short, the amendment notification , by which the customs duty in case of non-excisable goods became leviable on inputs used for production, manufacturing or packaging, as if there was no exemption notification in place. The effect of this amendment was that the customs duty on inputs which was charged at the rate equivalent to the duty leviable on final articles under the exemption notification, was now chargeable at the rate specified for the inputs. 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 2,42,37,400/= (+) annual value of imports of raw materials and consumables during the respective year and the said noticee had exported the flowers worth ₹ 91,92,000/= only which are well below prorata annual value of Import of capital goods. 3.2 I also find that as per condition of the approval letter No. 119(1994)EOB/34/94 dated 04.5.94, issued by Govt. of India, Ministry of Industries, Department of Industrial Development, Secretarial for Industrial approval, MUCC Section, New Delhi, the bonding period of M/s. L.R. Brothers Indo Flora Ltd., was fixed for 10 years during which they were required to achieve 62% value addition over and above the imports and other factors contributing towards the foreign exchange gone out of the country. As per the specific condition of the approval letter, the party was required to export all of its production out of India subject to permissible limit of Domestic Tariff Area Sales (herein after referred to as DTA Sales) and that, too, after specific permission from Development Commissioner of the EPZ concerned, on payment of applicable Customs Central Excise duties. The Export Import Policy 19972002 specifies the condition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials, without payment of Customs duties in terms of Custom Notification No. 126/94 dated 3.6.94 and accordingly M/s. L.R. Brother Indo, Flora Ltd., have imported green house equipment, raw materials like Liver Rose Plants and Consumable like planting materials and Fertilizers under the said notification. Para 3 of the said Notification reads as under :.... 3.7 Therefore, from the above provision, it is clear that the units working under the said Notification may sell their produced goods in DTA on payment of excise duty as leviable under Section 3 of Central Excise Act, 1944 if the goods are excisable and on payment of full Customs duties leviable on such goods as if imported as such if the goods are non excisable. Cut Flowers or Flower Buds are not covered under Central Excise Tariff Act, 1985 as Chapter 6 which covers such types of Flowers in Customs Tariff left blank in Central Excise Tariff Act and, therefore, such types of Flowers will be treated as non excisable in view of Section 2 (d) of the Central Excise Act, 1944. Therefore, full Customs duties will be leviable on such Flowers, if sold in DTA treating such flowers as imported into India, in terms of Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellants have not earned the DTA sale entitlement due to very low exports in comparison to high quantum of imports. Thus, the alleged contravention of provisions of Import Export Policy 1997-2002 and non-fulfilling of the conditions of the Notification 126/94Cus ibid is fully established against them. Therefore, the demand of Customs duty along with interest in this case as per the impugned order is justified. As regards the imposition of penalty on the appellants, I find that the charges of contravention of provisions of Export Import Policy 19972002 Notification No. 126/94 Cus dt. 03.06.94 stand proved against the appellants. They were aware that they were not entitled to make DTA sales of the subjected goods, even then they made DTA sales of the same to evade payment of duty. Hon ble Supreme Court in the case of Gujarat Travancore Agency vs. Commissioner of Income Tax 1989 (42) ELT 350 (SC), has held that the penalty under Section 271(1)(a) of the Income Tax Act is a civil obligation and unless there is something in language of the statute indicating the need to establish element of mensrea, it is generally sufficient to prove that a default in complying w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , customs duty on the inputs used in the production of cutflowers cleared to DTA has to be calculated as per the provisions of the Notification, as it existed during that period. 6. The Tribunal's judgment in the case of Vikram Ispat (supra) is not applicable to the fact of this case, as in the present case what is being charged in respect of DTA clearances of the cutflowers is not the customs duty on the cutflowers, but the custom duty on the inputs used in the production of those cutflowers, which as per the provisions of Notification, as it existed at that time, was equal to the Customs Duty chargeable on the import of cutflowers, as such. In the Tribunal's judgment in case of Zygo Flowers Ltd. (supra) and Cosco Blossoms Pvt. Ltd. (supra), the implications of the wording of para 3(a) of the exemption notification during the period of dispute or where such articles [including rejects, waste and scrap material] are not excisable, on payment of Custom Duty on the said goods used for the purpose of production, manufacture or packaging of such articles in an amount equal to the Custom Duty leviable on such articles, as if imported, as such had not been considered. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al excise notifications provided for recovery of duty on inputs procured duty free, whereas the exemption notification provided for recovery on inputs equal to duty on the final product. That the amendment notification was issued to address this anomaly and to harmonise the central excise and customs notifications. The appellant placed reliance on the Constitution Bench decision of this Court in Commissioner of Income Tax (Central) I, New Delhi vs. Vatika Township Private Limited- (2015) 1 SCC 1 , wherein it had been observed that whenever the legislator intends to confer benefit upon a person, it must be presumed to have retrospective effect. The appellant relied upon yet another decision of this Court in Zile Singh vs. State of Haryana Ors. (2004) 8 SCC 1 to contend that the substitution of a clause which clarifies about the intent of the legislature takes effect from the date of enactment of original provision. The appellant would further urge that Section 12 of the 1962 Act being the charging section, could only be applied if the goods are imported into India and since the cut flowers are not imported, the show cause notice issued under the provisions of the 1962 Act is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnexureI to this notification (hereinafter referred to as the goods), when imported into India, for the production or manufacture of articles specified in AnnexureII for export out of India or for being used in connection with the production, manufacture or packaging of the said articles specified in AnnexureII for export out of India (hereinafter referred to as the specified purpose) by hundred per cent Export Oriented Undertakings approved by the Board of Approval for hundred per cent Export Oriented Undertakings, appointed by the notification of Government of India in the former Ministry of Industry and Civil Supplies, (Department of Industrial Development) No. S.0.163(E)/RLIU/10(2)76, dated the 3rd March, 1976 or the Development Commissioner concerned as the case may be, from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the second mentioned Act, subject to the following conditions, namely : ( 1) the importer has been granted the necessary licence for the import of the said goods; (2) the importer, at the time of import of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 9.9 provided that for earning an entitlement to make sales in DTA, the unit has to maintain positive net foreign exchange earning. The calculation of net foreign exchange earning, as defined at paragraph 9.29, is provided for at paragraph 9.5 of the Policy, which had to be done as prescribed in Appendix I of the Policy. In case of cut flowers, it has been fixed at 20% since it would come within the category of Products not covered above . 13. On a combined reading of the notification with the conditions laid down in the EXIM policy, it is clear that the fulfilment of the aforesaid conditions is a condition precedent to become eligible to make DTA sales. Resultantly, if goods are cleared in DTA sales in breach of the aforesaid conditions, customs duty would be leviable, as if such goods were imported goods. 14. Reverting to the first question, the appellant lays emphasis that the DTA sales made by an 100% EOU can only be amenable to excise duty and show cause notice under the provisions of the 1962 Act could not have been issued. This ground finds support in the decision of larger bench of the CEGAT in Vikram Ispat (supra), which the appellant relies upon. In paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxiliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR1A on which the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty. (emphasis supplied) However, this exposition has no application to the fact situation of the present case, in as much as there had been no contravention of conditions of EXIM Policy and the issue was only about the nature of tax, in case of goods otherwise amenable to excise duty. 15. Concededly, the DTA sales pertaining to excisable goods made in conformity with the conditions of the EXIM policy are exigible to excise duty, but once there is contravention of the condition(s) of the EXIM policy, irrespective of the goods produced being excisable or non-excisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oms 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. 19. The decision of CESTAT in the case of Cosco Blossoms (supra) is of no avail to the appellant. In that case, the tribunal had relied upon the decision in Vikram Ispat (supra) and held that the cut flowers cleared in DTA sales cannot be charged with customs duty, without considering that the goods were non excisable. Notably, the Tribunal had granted liberty to the authorities to charge customs duty upon the imported inputs, if used in production of the goods cleared in DTA, which supports the case of the respondent. Paragraph 5 of the aforesaid order reads as under: 5. It is well settled [2000 (120) E.L.T. 800] that goods produced in an EOU cannot be treated as imported goods and subjected to customs duty. The duty payable in respect of such goods is the duty of excise under Section 3 of the Central Excise Act, 1944. Therefore, the duty demand made in the impugned order under Section 28 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corresponding entry in column (3) of the said Table. TABLE Sr. No Notification No. and Date Amendment (1) (2) (3) xxx Xxx xxx 8. 126/94Cus dated the 3rd June, 1994 In the said notification, (a) in the first paragraph, in condition (6), after clause (d), the following shall be inserted, namely: (e) permit destruction of rejects and waste without payment of duty within the unit, or outside the said unit, where it is not possible or permissible to destroy the same within the said unit, in the presence of Customs or Central Excise officer. ; (b) in paragraph 2, in the proviso, for the words and figures duty of 15% ad valorem , the words and figure duty of 5% ad valorem shall be substituted; (c) in paragraph 3, in clause (a), for the words on payment of customs duty on the said goods used for the purpose of production, manufacture or packaging of such articles in an amount equal to the customs duty leviable on such articles as if imported as such. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sionerates, the floriculture units under the EOU Scheme are being asked to pay duty equivalent to the customs duty leviable on finished goods as if imported as such, for clearance of cutflowers, which is not an excisable commodity. It has also been stated that the DTA units are not required to pay any duty for sale of cutflowers, as the same are not excisable. This is stated to have placed the floriculture units in EOUs at a serious disadvantageous position visavis DTA units. 27. The matter has been examined. In the central excise notifications governing duty free procurement by EOUs and units under EPZ/STP/ETHP Schemes, there is a provision to recover duty on the inputs consumables procured duty free under exemption notification, which have gone into production of non-excisable goods cleared into DTA. In the notifications governing duty free import by EOUs and the EPZ/STP/EHTP units, the anomaly, however, exists inasmuch as the notifications talk about payment of customs duty on the inputs used in the manufacture of articles in an amount equal to the customs duty leviable on such articles as if imported as such. In order to remove this anomaly, all the notifications govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant period, which is set out hereunder: Section 3. Duties specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied( 1) There shall be levied and collected in such manner as may be prescribed, (a) a duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a special duty of excise, in addition to the duty of excise specified in Clause (a) above, on excisable goods specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule. Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, (i) in a free trade zone and brought to any other place in India; or (ii) by a hundred per cent exportoriented undertaking and allowed to be sold in India, shall be an amount equal to the aggregate of the duties of customs which would be leviable Under Section 12 of the Customs Act, 1962 (52 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by reading the same in isolation. To have a better understanding of the said principle, it is relevant to read the preceding and subsequent paragraphs. We may here refer to Paragraph 32 of the said decision, which is extracted below: 32. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labelled as declaratory statutes . The circumstances under which provisions can be termed as declaratory statutes are explained by Justice G.P. Singh in the following manner: Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court: For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. On a conspectus of the aforesaid decisions, it becomes clear that Section 28, being substantive law, operates prospectively, as retrospectivity is not clearly made out by its language. Being remedial in nature, and not clarificatory or declaratory of the law, by making certain agreements covered by Section 28(b) void for the first time, it is clear that rights and liabilities that have already accrued as a result of agreements entered into between parties are sought to be taken away. This being the case, we are of the view that both the Single Judge and the Division Bench were in error in holding that the amended Section 28 would apply. We are in agreement with the respondent that this decision squarely applies to the present case as prior to the amendment, the DTA sales made by the appellant have already attracted liability at the prescribed charging rate, which in facts of the present case cannot be undone in reference to the subject amendment. 32. It is relevant here to advert to a decision of Constitution Bench of this Court in Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal Ors. (2011) 1 SCC 236 , wherein it has been held that an exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the State, unless shown otherwise by judicially acceptable parameters. 33. 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. The decision of this Court in Uniworth Textiles (supra), has been relied upon by the appellant. The same explains the situations in which Section 28 of the 1962 Act can be invoked. It had been held in the said decision that the extension of limitation for a period of five years can be done only in cases of deliberate default and not inadvertent nonpayment. It was further held that the burden for proving mala fide conduct is on the revenue; and specific averments in that regard must find place in the show cause notice. 34. 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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