Case Law Details
HCL Technologies Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that benefit of exemption in terms of section 5A vide notification no. 10/1997-CE dated 1.03.1997 duly extended to EOU.
Facts- The appellant is an 100% EOU and also holds a private bonded warehouse license u/s. 58 of the Customs Act, 1962 for manufacture of electrical, electronics and communication equipments falling under Chapter 84, 85 and 90 of the First Schedule to the CETA, 1985.
On perusal of the ER-2 returns, it appeared that the appellant had claimed benefit of Notification No.10/97-CE dated 1.3.1997 in respect of clearance of one unit of Test Equipment in GSM Bands valued at Rs.4,04,87,748/- without payment of duty. The clearance of finished goods into the DTA by an 100% EOU is covered by Para 6.8 and 6.9 of Foreign Trade Policy 2009 – 2014 subject to fulfilment of certain obligations and also observance of Customs and Central Excise formalities including duty demand etc. The department was of the view that the said exemption Notification No. 10/1997 dated 1.3.1997 has been issued under sub-section (1) of Section 5A. There is nothing contained in the exemption notification making it applicable to 100% EOU and therefore the appellant is not eligible to claim the benefit of duty exemption as per the Notification.
Conclusion- The Tribunal in the case of CCE, Hyderabad Vs. Shanta Biotechnics Ltd. has held that the duty payable shall be determined in exactly the same manner as is done in respect of imported goods. This implies that for determining the duties of excise under proviso to section 3(1) of the Central Excise Act, 1944 on the goods cleared to the DTA by the EOUs, the exemption under the relevant Customs Notifications and Excise Notifications, if any, have to be provided. Therefore, I am of the view that the assessee is liable to pay only the effective rate of Additional Duty of Customs under section 3(1) of the Customs Tariff Act on clearances of the goods into the DTA.
We are of the considered opinion that the demand cannot sustain and requires to be set aside which we hereby do. The appeal succeeds on merits. We therefore find it is not necessary to deal with the issue on limitation.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the appellant is an 100% EOU and also holds a private bonded warehouse license under section 58 of the Customs Act, 1962 for manufacture of electrical, electronics and communication equipments falling under Chapter 84, 85 and 90 of the First Schedule to the CETA, 1985. On perusal of the ER-2 returns for September 2011 filed by the appellant belatedly on 27.2.2012, it appeared that the appellant had claimed benefit of Notification No.10/97-CE dated 1.3.1997 in respect of clearance of one unit of Test Equipment in GSM Bands valued at Rs.4,04,87,748/- without payment of duty. The clearance of finished goods into the DTA by an 100% EOU is covered by Para 6.8 and 6.9 of Foreign Trade Policy 2009 – 2014 subject to fulfilment of certain obligations and also observance of Customs and Central Excise formalities including duty demand etc. The department was of the view that the said exemption Notification No. 10/1997 dated 1.3.1997 has been issued under sub-section (1) of Section 5A. There is nothing contained in the exemption notification making it applicable to 100% EOU and therefore the appellant is not eligible to claim the benefit of duty exemption as per the Notification. Though the appellant had informed the Range Officer about the transaction, they had not intimated the department regarding the fact of clearance without payment of duty and availing the exemption benefit under the said Notification. On the above facts, Show Cause Notice was issued to the appellant invoking the extended period proposing to demand the duty to the tune of Rs.62,81,173/- along with interest and for imposing penalty. After due process of law, the original authority confirmed the demand along with interest and imposed equal penalty. Aggrieved by such order, the appellant is now before the Tribunal.
2. The learned counsel Shri Raghavan Ramabhadran appeared and argued for the appellant. It is submitted that the appellant was awarded a tender by the Director, Defence Electronic Research Laboratory (DERL) situated in Domestic Tariff Area (DTA) for supply of “Special Test Equipment in GSM Bands”. The equipment designed for telecommunication enables the user to detect the presence of GSM networks and subscribers in its area of coverage, determine their identities, monitor voice communications, extract SMS and block the communication time slot / subscriber wise when required.
3. On 4.8.2011, prior to procurement of the equipment, DERL had issued a duty exemption certificate to the appellant certifying that the GSM band is exempt in terms of Notification No. 10/97-CE dated 1.3.1997.
4. Accordingly, on 14.9.2011, the appellant supplied GSM band to DERL for value of Rs.4,04,87,748/- inclusive of CST without payment of excise duty. In their ER-II Return, the appellant had classified the GSM band under Central Excise Tariff Heading 90304000 of the First Schedule to the CEETA, 1985 which covers “other instruments and apparatus, specifically designed for telecommunications”. The learned counsel submitted that the duty liability on items falling under Customs Tariff Heading 90304000 is “free” and accordingly the appellant did not remit any excise duty equal to basic customs duty on clearance of such items. With respect to excise duty equal to countervailing duty, the appellant claimed the benefit of exemption under Notification 10/1997-CE dated 1.3.1997.
5. Show Cause Notice dated 4.10.2012 has been issued by the department demanding Rs.62,81,173/- excise duty equal to basic customs duty, countervailing duty and cess. It is alleged in the Show Cause Notice that the appellant is ineligible to claim the benefit of Notification No.10/1997-CE dated 1.3.1997 as the exemption granted in the said Notification has not been specifically extended to EOU in terms of proviso to Section 5A of Central Excise Act, 1944.
6. The learned counsel adverted to the Show Cause Notice and submitted that the department has not disputed the classification of the GSM band under CETH 90304000 in the Show Cause Notice. The appellant had replied to the Show Cause Notice and attended the personal hearing. Subsequent to the personal hearing, the Order in Original confirming the duty demand along with interest and imposing equal penalty was passed. In the said order, it is also held that the equipment supplied by the appellant is essentially a radio communication receiver and thus goods are classifiable under CETH 85279990 on which basic customs duty is applicable at the rate of 5%. The duty liability was thus calculated. It is urged by the learned counsel that as there is no allegation raised in the Show Cause Notice with regard to the classification, the order passed by the adjudicating authority redetermining the classification is completely erroneous and cannot sustain.
7. With regard to the main allegation that the appellant is not eligible to avail the exemption as per Notification 10/1997-CE, the learned counsel adverted to Section 5A of Central Excise Act, 1944 which reads as under:-
“…. That unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured –
(i) In a free trade zone or a special economic zone and brough t to any other place in India; or
(ii) By a hundred per cent export-oriented undertaking and brought to any place in India “
8. It is argued by learned counsel that in terms of proviso to section 3(1) of Central excise Act, 1944, an EOU is eligible to pay central excise duty equal to aggregate of customs duties which would be leviable under the Customs Act, 1962. In other words, duty payable by the appellant has to be determined in the exact manner as it is done in the case of goods imported. One of the duties of customs leviable while clearing goods in DTA is BCD in terms of section 12 of the Customs Act, 1962. Section 12 of the Customs Act, 1962 states that BCD shall be levied at such rate specified under the Customs Tariff Act, 1975. The goods cleared by the appellant are covered under CTH 90304000 as per the Customs Tariff Act, 1975. BCD leviable on this item is free. Consequently, in the instant case, the appellant is not liable to pay any excise duty equal to BCD. Therefore, the impugned order confirming the BCD to the tune of Rs.19,27,988/- is incorrect and requires to be set aside.
9. Further, as the Show Cause Notice has not disputed the classification, the adjudicating authority has travelled beyond the Show Cause Notice by redetermining the classification under 8527 99 90. To support this argument, the learned counsel relied upon the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs, Mumbai Vs. Toyo Engineering India Ltd. reported in 2006 (201) ELT 513 (SC).
10. Such classification adopted by the department is completely incorrect because the product in question is specifically designed for telecommunication devices namely mobile phones. Hence the instruments and apparatus specially designed for telecommunication devices are covered under Chapter Heading 90304000 which is the classification adopted by the appellant.
11. The adjudicating authority has confirmed the demand of Rs.40,48,775/- as part of the CVD of the total duty. As per proviso to section 3 of Central Excise Act, 1944, goods cleared by EOU will be liable to pay CVD in terms of Section 3(1) of Customs Tariff Act, 1975. This Section states that goods if imported into India will attract duty equal to the excise duty leviable under the Central Excise Act, on like goods when manufactured in India. On bare reading of this provision, it can be seen that for the purpose of calculation of CVD by an importer, it is required to determine the amount of excise duty that has to be paid on such item. If there is no duty liability in the light of an exemption, then there can be no demand.
12. Thus, the CVD component has to be calculated on the basis of excise duty as payable on such products manufactured in India. If no duty is payable by way of exemption in terms of a notification, the said notification will apply for claiming exemption on CVD of goods produced cleared by an 100% EOU also. The appellant has therefore rightly availed the benefit of Notification 10/97 and therefore is not liable to pay any excise duty equal to CVD.
13. The adjudicating authority has held that the benefit of Notification 10/97 will not be applicable to appellant in view of proviso (1) of section 5A of Central Excise Act, 1944. The said view of the adjudicating authority is totally erroneous. The proviso to section 5A(1) of Central Excise Act merely states that even if there is exemption from central excise duty under section 3(1) on any goods, produced in India, it will not imply that the exemption benefit will be automatically extended to a 100% EOU. This is because the duty payable by an 100% EOU is equal to the aggregate of customs duties. Even if duty exemption is available on a product, the excise duty on a product manufactured by 100% EOU will not be automatically nil as such product will still have to bear excise duty equal to basic customs duty and cess etc. (if applicable) and duty liability has to be determined based upon rate prescribed in Customs Tariff (for BCD). Hence the proviso operates for this limited purpose and it does not operate as a bar for the appellant to claim exemption on the CVD component.
14. The learned counsel adverted to the CBEC Circular which has clarified that CVD paid is equal to excise duty as applicable and exemption of central excise duty shall also be applicable to EOUs for computation of duty on DTA clearances.
15. The learned counsel submitted that the issue is no longer res integra and stands covered by the following decisions, wherein it has been held that exemption of central excise notification shall be extended to EOU for computation of CVD on DTA clearances:-
(a) CCE vs. Maiden Trading – 2001 (132) ELT 431 (Tri. Del.)
(b) Ratnagiri Textiles Ltd. Vs. CCE, Jaipur – 2003 (161) ELT 975
(c) Sahajanand Technologies Ltd. Vs. CCE, Daman – 2007 (210) ELT 108
(d) CCE, Daman Vs. Sahajanand Technologies Ltd. – 2015 (325) ELT 625 (SC)
(e) CCE Hyderabad Vs. Shanta Biotechnics Ltd. – 2010 (259) ELT 447 (Tri. Bang.)
(f) CCE Vs. Gugan Mills and Saradha Terry Towels Ltd. – 2018 (6) TMI 908 – CESTAT, Chennai
(g) CCE, Salem Vs. Blue Mount Textiles – 2018 (8) TMI 315 – CESTAT Chennai
(h) CCE, Chennai Vs. Triumph International India – 2018 (8) TMI 1166 – CESTAT, Chennai.
16. The learned counsel submitted that the issue involved is interpretation of law and the appellant was under bonafide belief that they were not liable to duty on GSM, there is no positive act of suppression on the part of the appellant established by the department. It is submitted by the learned counsel that there are no grounds to invoke the extended period. The learned counsel prayed that the appeal may be allowed.
17. The learned AR Ms. K. Komathi supported the findings in the impugned order.
18. Heard both sides.
19. At the outset, it is to be stated that as there is no allegation in the Show Cause Notice with regard to classification adopted by the appellant or a proposal for redetermination of classification. By redetermining the classification, indeed the adjudicating authority has travelled beyond the Show Cause Notice and hence the classification redetermined and adopted for raising the demand cannot sustain. Ordered accordingly.
20. The main issue is with regard to the demand of duty alleging that
exemption Notification No. 10/1997 dated 1.3.1997 cannot be availed by the appellant. It is the case of the department that as per proviso to Section 5A, unless there is specific mention that the notification is applicable to 100% EOU, the benefit of duty exemption cannot be availed by 100% EOU. The relevant provision under sec. 5A has been already reproduced. The exemption under Central Excise Notification No.10/1997 reads as under:-
“In exercise of the powers conferred by subsection (1) of section 5A of the Central Excise Act,1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in column (3) of the Table below and falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule, when supplied to the institutions specified in the corresponding entry in column (2) of the said Table, subject to the conditions specified in the corresponding entry in column (4) of the said Table.”
21. The learned counsel has relied upon the Board circular to support the arguments that the Board has clarified that exemption under Notification is applicable to a 100% EOU. The Board circular F.No.DGEP/EOU/03/2007/879 dated 2.4.2008 reads as under:-
“Sub – Benefits of exemption notification issued under section 5A o f Central Excise Act on the goods cleared into DTA by EOUs – Clarification in respect of representation of M/s. A.R. Sulphonates Pvt. Ltd. Thane – reg.
Please refer to F. No. IV/16-Tech-16/MCS/CCO-I/2008 dated 21.2.2008 on the above cited subject.
2. The issue has been examined. EOUs are required to pay duties on their clearance to DTA equating such clearance at par with imports in terms of proviso to section 3 of the Central Excise Act, 1944. For the purpose of calculating additional duty (CVD) on imported goods under section 3 of the Customs Tariff Act, 1975, any general excise exemption as well as conditional excise exemption, if conditions are satisfied, would be applicable for determining the CVD liability. Thus, there is no bar in applying an exemption notification issued under section 5A of the Central Excise Act for the purpose o f computation of CVD to be paid by EOUs on the goods cleared to DTA. The restriction on EOUs for applying exemption issued under section 5A of the Central Excise Act is for the purpose that EOUs should not pay excise duty only as in the case of clearances from DTA units, unless so intended. This would render section3 of the Central Excise Act redundant which require EOUs to pay central excise duty equivalent to the aggregate of customs duties. However, as in the case of import, wherein CVD is paid equal to excise duty as applicable, exemption of central excise duty shall also be applicable to EOUs for computation of duty on DTA clearances.
It is thus, viewed that there is no bar under the proviso to section 5A ibid for considering excise exemption while calculating the additiona l customs duty component payable by an EOU on DTA clearances. Hence the unit would be liable to pay duties based on applicable basic custom duty and applicable additional customs (CVD) in terms of the exemption vide Sl. No. 32 of Notification No. 4/2006-CE dated 1.3.2006 on Sulphuric Acid subject to the condition 2 of the Annexure to this notification.”
22. It is clarified by the Board circular that wherein CVD is paid equal to excise duty as applicable, exemption of central excise notification shall also be applicable to EOU for computation of duty on DTA clearance. The circular clarifies that there is no bar under proviso to section 5A of Central Excise Act, 1944 to consider the exemption while calculating the additional customs duty payable b y an EOU on DTA clearance.
23. The issue whether a 100% EOU is eligible to avail the benefit of exemption notification is no longer res integra and is squarely covered by the decision of the Tribunal in the case of CCE, Hyderabad Vs. Shanta Biotechnics Ltd. reported in 2010 (259) ELT 447. The relevant para reads as under:-
“7. The issue involved in this case is whether the duty payable by the assessee respondent shall be determined exactly in the same manner as is done in respect of imported goods, as the clearances effected by the assessee respondent is a 100% export oriented. The provisions of clearances made to DTA would apply to the current case, which is mandated under provisions of Section 3(1) of the Central Excise Act, 1944. It is seen from the Order-in-Original that the Adjudicating Authority has recorded the following findings while setting aside the proceedings initiated by the Show Cause Notices.
“I have gone through the decisions and cases relied and referred in their defence reply. I find that as per proviso to Section 3(1) of the Central Excise Act, the duties of excise charged on goods sold in DTA by a 100% EOU is equal to the aggregate of the duties of Customs leviable under the Customs Act, or any other law in force, on like goods produced or manufactured outside India, if imported into the country. In other words, the duty payable shall be determined in exactly the same manner as is done in respect of imported goods. This implies that for determining the duties of excise under proviso to section 3(1) of the Central Excise Act, 1944 on the goods cleared to the DTA by the EOUs, the exemption under the relevant Customs Notifications and Excise Notifications, if any, have to be provided. Therefore, I am of the view that the assessee is liable to pay only the effective rate of Additional Duty of Customs under section 3(1) of the Customs Tariff Act on clearances of the goods into the DTA. This view is supported by the ratio of the decisions referred and relied briefly dealt as under.
(a) U.O.I. v. Plastic Processors [2005 (186) E.L.T. A27 (S.C.)]. The Apex Court maintained the decision of the Delhi High Court that CVD was payable at effective rates and not at tariff rate on clearances by a 100% EOU into the DTA. The Delhi High Court [2002 (143) E.L.T. 521 (Del.)] had disposed of certain writ petitions challenging the legality of Circular No. 38/2000-Cus. dated 10th May, 2000 issued by the Central Board of Excise & Customs, issued to clarify doubt regarding levy of Additional Duty of Customs (CVD) on Domestic Tariff Area (in short DTA) sale of reprocessed plastic agglomerates/granules (reprocessed out of plastic scrap) by Export Oriented Units (in short EOU)/Export Processing Zone (in short EPZ) units. In paragraph 3 of the circular, it was inter alia stated as follows:
“In so far as levy of additional duty of customs (CVD) on imports of reprocessed plastic materials viz., plastic granules/agglomerates, is concerned, condition (1) above will not be satisfied because the reprocessing has not been done in India. Thus, in case of normal imports of reprocessed plastic materials, the importers/domestic manufacturers are liable to pay, among other duties, additional duty for customs (CVD). It, therefore, follows that no CVD exemption will be available when reprocessed plastic materials are cleared in Domestic Tariff Area (DTA) by EOUs and EPZ units. In other words, the plastic processor EOUs/EPZ units are liable to pay, among other duties, excise duty equivalent to CVD payable on imported reprocessed plastic materials (e.g. plastic granules/agglomerates) in respect of their DTA clearances of such materials/goods.”
The Delhi Court relied upon the decisions of the Supreme Court in Hyderabad Industries [1999 (108) E.L.T. 321 (S.C.)] and Thermax Private Limited [1992 (61) E.L.T. 352(S.C.)] and held as under :
“8. As observed in the aforesaid quoted portions by the Apex Court, for the purpose of attracting additional duty under Section 3 of the Tariff Act, on the import of a manufactured or produced article, the actual manufacture or production of a like article in India is not necessary. Said provision specifically mandates that CVD will be equal to the excise duty for the time being leviable on a like article if produced or manufactured in India. This position was also elaborated in Thermax Private Limited case (supra).
9. In essence, what has to be imagined is that importer had manufactured the goods in India and then the amount of excise duty that he would have called upon to pay in that event has to be determined.
10. In view of the above discussion, the inevitable conclusion is that the impugned circular is not in accordance with law, direction contained in it to make assessment in a particular fashion only is indefensible. In the result, impugned Circular No. 38/2000-Cus. dated 10th May, 2000” is quashed to the extent it imposes the liability of CVD.”
(b) CCE Jaipur Maiden Trading Company (P) Limited – 2001 (132) E.L.T. 431 (Tri.-Delhi) —”Clearances to Domestic Tariff Area (DTA) to be taken as produced in India – Benefit of exemption under Notification Nos. 5/98-C.E. dated 2-6-1998 and 5/99-C.E. dated 282-1999 available and no counterveiling duty leviable on such goods”. The CESTAT, in the aforesaid decision, relied upon the decisions of the Apex Court in Hyderabad Industries [1999 (108) E.L.T. 321 (S.C.)]; Thermax Pvt. Limited v. Collector [1992 (61) E.L.T. 352(S.C.) and Varsha Exports v. UOI – 2000 (40) RLT 9 (Guj.)
(c) Ratnagiri Textiles Ltd. Commissioner of Central Excise, Jaipur-II [2003 (161) E.L.T. 975 (Tri.-Del.) :- The CESTAT relied upon the earlier decision of the Hon’ble Gujarat High Court in the case of Varsha Exports and Others v. UOI and Others – 2000 (40) RLT 9 (Guj.) and letter F. No. 305/113/94-FTT, dated 19th February, 1998 of the Central Board of Excise and Customs, to hold that the additional duty of Customs (CVD) was payable at effective rate and not at tariff rate in the case of clearance of goods by an 100% EOU in the DTA. Appeal filed by the department in Supreme Court against the decision of the High Court, was dismissed. The Tribunal also relied on Board’s clarification in letter F. No. 305/113/94-FTT dated 19th February 1998 which laid down that effective rate of duty was payable.”
8. It can be seen from the above reproduced findings of the Adjudicating Authority that he has correctly followed the law as has been decided by the Tribunal and upheld by the higher judiciary. There is no dispute that the goods, which are manufactured and cleared by the assessee, are exempt from payment of Central Excise Duty under Notification 4/2006-C.E.
9. In view of the settled law by the higher courts and correctly relied upon by the Adjudicating Authority, we find that the Revenue’s appeals are devoid of merits and are liable to be rejected and we do so.
10. Accordingly, in view of the foregoing reasons, Revenue’s appeals are rejected and the Adjudicating Authority’s orders are upheld. The Cross Objections filed by the assessee being in support of the O-I-O, are also disposed off accordingly.”
(Emphasis supplied)
24. After appreciating the facts, applying the Board circular as well as the decision of the Tribunal, we are of the considered opinion that the demand cannot sustain and requires to be set aside which we hereby do. The appeal succeeds on merits. We therefore find it is not necessary to deal with the issue on limitation.
25. The impugned order is set aside. The appeal is allowed with consequential reliefs, if any, as per law.
(Pronounced in open court on 14.6.2023)
Author Bio
