Expression allowed to be sold cannot be interpreted as the compulsory condition that goods must be actually sold

Brief of the case:

• The Hon’ble Supreme Court in the case of Nestle India Ltd. held that partial exemption available under exemption notifications does not require assessee to clear the goods by way of sale only because in the notification expression “allowed to be sold” has been used which implies that goods cleared should only be those which are allowed to be sold in India as per EXIM policy.
• Therefore, in the present case assessee was entitled to claim benefit under the notification even if the goods not actually sold and only captively consumed.

Facts of the case:

• The assessee (respondent) company is engaged in the manufacture of instant tea falling under Chapter 2101.20 of schedule to the Central Excise Tariff Act, 1985. Assessee cleared instant tea by taking benefit of exemption notification no.- 8/97-CE dated 1.3.1997 and Notification No.23/2003 CE dated 31.3.2003.
• The exemption was partial exemption to the extent of so much of the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), as is in excess of an amount equal to the duty of excise leviable under the said section 3 of the Central Excise Act, on like goods, produced or manufactured in India other than in a hundred per cent export-oriented undertaking or a free trade zone, if sold in India.
• Assessee was issued show cause notice alleging that tea was transferred only to two sister concerns and no sale was involved, the assessable value of instant tea remove d to the its own units would be determined on the basis of the export price of similar goods and not 115% of the cost of production.
• The show cause notice was confirmed by adjudication order raising a demand of duty amount of Rs. 42,86,079/- and equivalent penalty. Such demand and penalty was confirmed by the Commissioner (Appeals). Aggrieved by the same assessee approached to CESTAT which set aside the order of lower authorities by holding that the very basis of issuing show cause notice was not tenable because notification does not mandatorily require actual sale of goods by EOU rather goods should be such as such which are allowed to be sold in India as per EXIM policy. It is therefore, valuation to be made only as per Central Excise Valuation Rules and not as per Customs Rules.
• Aggrieved revenue filed an appeal before High Court against the order of tribunal.
  

Contention of the Assessee:

• The learned counsel for the assessee submitted that in exemption notification the expression used is not “sold” but “allowed to be sold” and so being the actual interpretation the very basis of show cause notice was incorrect which had led to incorrect adjudication and first appellate authority orders.
• Further, it was not case of the revenue that the assessee non-complied with any other conditions of the exemption notifications.

Contention of the Revenue:

• It was submitted that since the goods were captively consumed and not actually sold the assessee was not entitled to pay duty under partial exemption scheme of the exemption notification. Such non-eligibility would result in assessee’s liability to pay duty as per Customs Act,1962 which is required by Sec 3 of the Central Excise Act,1944.
• Therefore, the adjudicating authority was right to assess the goods equivalent to value of similar goods.
  

Issue before the Hon’ble Supreme Court:

Whether assessee was entitled to claim benefit of partial exemption notification benefit when the goods were not actually sold and only captively consumed?

Held by Hon’ble Supreme Court:

• The object of the exemption notifications was to restrict the duty liability of excise duty of EOU units upto the excise duty payable by other than EOU units. Such relaxation was however, subject to such conditions as specified in the exemption notification.
• Revenue challenged that the assessee was not entitled to such partial exemption because no actual sale took place and the goods were actively consumed as the same were transferred to assessee’s sister units. As such the point of revenue was that since the conditions specified in exemption notification won’t be available, and in the absence of the same valuation would be as per Sec 3 of the Central Excise Act, 1944 which make reference to Customs Act,1962 in case of transaction by 100% EOU.
• But such contention of revenue cannot be upheld because as pointed by the learned counsel for assessee that in exemption notification it is not compulsorily required that goods cleared must be by way of sale only rather the same should be allowable for sale under EXIM policy.
• Since the entire case of revenue was based on its interpretation of exemption notification requiring the actual sale mandatorily, the case of revenue fails in totality as soon as otherwise held above.
• Based on the above analysis, the assessee was well entitled to the benefit exemption notifications and eligible for exemption in excess of duty paid under Rule 8 of Central Excise Valuation Rules,2000.
• In result the appeal filed by revenue was dismissed.