Custom Duty is to be paid when condition of exemption not fulfilled

L. R. Brothers Indo Flora Ltd. Vs Commissioner of Central Excise (Supreme Court of India)

The factual matrix leading to the present appeal is that the appellant M/s. L.R. Brothers Indo Flora Ltd. is a 100% Export Oriented Unit3 and engaged in production of cut flowers and flower buds of all kinds, suitable for bouquets and for ornamental purposes. The 100% EOU is required to export all articles produced by it. As a consequence whereof, it is exempted from payment of customs duty on the imported inputs used during production of the exported articles, vide Notification No. 126/94­Cus dated 3.6. 19944. 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 Export­Import (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 non­excisable 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. 56/01­-Cus dated 18.5.2001⁵, by which the customs duty in case of non­excisable 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.

The EXIM Policy 1997­2002 provided that a 100% EOU in floriculture sector was permitted to sell 50% of its produce in DTA, subject to achieving positive net foreign exchange earning of 20% and upon approval of the Development Commissioner. The appellant, without obtaining the approval of the Development Commissioner and without maintaining the requisite net foreign exchange earning, made DTA sales to the extent of Rs.38,40,537/­ during 1998­99 to 2000­01 (upto December 2000), in contravention of the provisions of EXIM Policy. Notably, the appellant subsequently sought ex­post facto approval from the Development Commissioner vide letter dated 6.2.200 1.

Meanwhile, the Additional Commissioner, Central Excise, Meerut­I issued a show cause notice dated 16.3.200 1 to the appellant to show cause as to why customs duty, interest and penalty should not be imposed for the DTA sales made by the appellant in contravention of the EXIM Policy, that too after having availed the exemptions under the exemption notification on the import of green house equipment, raw materials like Live Rose Plants and consumables like planting materials and fertilizers. After according opportunity of being heard, the Additional Commissioner adjudged the show cause notice and held that the DTA sales were made without permission of the Development Commissioner and in contravention of the EXIM Policy and therefore, customs duty is leviable upon the appellant for the said sales.

Held by Hon’ble Supreme Court

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