Jaipur Golden Transport Co. Pvt. Vs. Commissioner of Central Excise - Court Judgment

Excerpt:
1. the issue referred to this bench is whether the goods which are cleared by 100% eou clandestinely and without any permission are eligible to full exemption under notification no. 125/84-ce and whether such goods are to be assessed under the provision of main section 3(1) of the central excise act or under the proviso to section 3 of the central excise act as it has been brought to our notice that there are conflicting decision on the same in the case of modern denim ltd. v.commissioner of central excise, ahmedabad reported in 2005 (191) e.l.t.1174 (tri.-mumbai) and in the case of sterlite optical technologies ltd. v. c.c. & c.e., aurangabad 2. the learned advocate for the appellants took us through the provision of section 3 of the central excise act which reads as under: section.....

Judgment:
1. The issue referred to this bench is whether the goods which are cleared by 100% EOU clandestinely and without any permission are eligible to full exemption under Notification No. 125/84-CE and whether such goods are to be assessed under the provision of main Section 3(1) of the Central Excise Act or under the proviso to Section 3 of the Central Excise Act as it has been brought to our notice that there are conflicting decision on the same in the case of Modern Denim Ltd. v.Commissioner of Central Excise, Ahmedabad reported in 2005 (191) E.L.T.1174 (Tri.-Mumbai) and in the case of Sterlite Optical Technologies Ltd. v. C.C. & C.E., Aurangabad 2. The learned advocate for the appellants took us through the provision of Section 3 of the Central Excise Act which reads as under: 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 in any excisable goods which are produced or manufactured.

- (ii) by a hundred per cent export -oriented 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 1962), on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value: the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).

3. It was submitted for application of proviso to Section 3(1), two conditions have to be cumulatively and simultaneously satisfied viz., (a) that the goods should have been produced or manufactured by an existing 100% EOU and (b) those goods should have been allowed to be sold in India.

The words allowed to be sold in India' have been interpreted by the Apex Court in the case of SIV Industries Ltd. v. Commissioner of Central Excise & Customs where the issue Involved was whether in case of an 100% EOU unit to whom permission from debonding has been granted, the stock of finished goods prior to debonding and lying in stock on the date of debonding is liable to be assessed under the main Section 3(1) of the Central Excise Act or under the proviso to the said Section 3(1).

4. The contention of the Revenue in that case was that permission to withdraw from this scheme is itself permission to sell in India i.e.

when unit is permitted to de-bond, it would be deemed to have been permitted to sell the goods in India. This was negatived by the Supreme Court which held that once the debonding of the unit is permitted, the unit ceases to be 100% EOU and the rate of duty applicable will be the rate which is prescribed for units other than 100% EOU under the main provision of Section 3(1) of the Central Excise Act. It inter alia held that in the EOU scheme as modified from time to time and corresponding amendments to Section 3 of the Act, the expression "allowed to be sold in India" in proviso to Section 3(1) of the Act is applicable only to sales made upto 25% of production by 100% EOU in DTA and with permission of the Development Commissioner. Since no permission is required to sell the goods manufactured by 100% EOU lying with it at the time approval is granted to debond, the goods cannot be assessed under proviso to Section 3(1) of the Central Excise Act.

5. It was submitted that this decision of the Supreme Court was considered by the Larger Bench of the Tribunal in the case of Himalaya International Ltd. v. C.C.E. Chandigarh-I Larger Bench took a view that this was one relating to the rate of duty applicable to 100% EOU on its stock of finished products produced prior to its debonding and the question whether sales made by EOU while it continued as EOU but in excess of the permission granted would be outside the proviso to Section 3(1) was not before the Supreme Court and therefore it cannot be held that the goods which are clandestinely cleared by 100% EOU without permission from Development Commissioner are to be assessed under the main provision of Section 3(1). The bench agreed with the contention raised by the department that in the nature of conditions under which an 100% EOU is functioning interpretation suggested by the assessee would defeat for the purpose of the proviso and held that goods produced and manufactured by 100% EOU and sold in DTA in excess of the permission granted cannot come under the main Section 3(1). The Division bench thereafter ruled that in accordance with the Larger Bench decision, goods cleared in DTA by an EOU, whether with the permission or without permission of the Development Commissioner would attract duty in terms of the proviso to Section 3(1) of the Central Excise Act. The Bench however allowed the benefit of the effective rate of duty fixed under Notification No. 13/98 dated 02.06.1998 as consequence of which the demand of duty was reduced from Rs. 60 Lakhs to Rs. 5.65 Lakhs. Against this grant of effective rate of duty prescribed under Notification No. 13/98 which allowed concessional rate of duty only in respect of goods for which permission has been granted by the Development Commissioner (which was not so in the present case) Revenue filed an appeal in the Supreme Court but the appeal was disposed of by the Supreme Court as reported in 2005 (179) E.L.T. A100 (SC) with the following order: Impugned judgment is set aside. The matter is remitted back to the Commissioner for consideration of not only the rate but also to decide the question whether the respondent is entitled to exemption keeping in mind the aspect as to whether the goods have or have not been manufactured from raw material produced or manufactured in India. The appeal stands disposed of accordingly. There will be no order as to costs.

6. In view of above it was submitted that the Larger Bench decision no longer survive as it has been set aside and the matter has been remanded back to the Commissioner.

7. It was submitted that the issue was thereafter considered by the Tribunal in the case of Modern Denim Ltd. v. Commissioner of Central Excise, Ahmedabad reported in 2005 (191) E.L.T. 1174 (Tri Mumbai), Sam Spintex Ltd. v. Commissioner of Central Excise, Indore wherein it has been clearly held that goods clandestinely removed by 100% EOU is liable to pay excise duty under the main Section 3(1) of the Central Excise Act, 1944 and not under provision to Section 3(1). It rejected the plea of revenue that as per larger bench decision in Himalaya International case, the rate applicable would be in terms of proviso to Section 3(1) irrespective of the fact that the goods are cleared with or without the permission of Development Commissioner on the ground that the Apex Court has set aside the decision by remanding the matter back to Commissioner. This decision of the Tribunal in the Modern Denim case has been upheld by the Supreme Court in as much as the civil appeal against the same by the Revenue has been dismissed by the Supreme Court even though without assigning any reason. Attention was invited to the Larger Bench decision of the Tribunal in the case of S. Kumar's Ltd. v. C.C.E. wherein it was held that when a civil appeal is dismissed even though without assigning any reason it will have an effect of binding precedent unlike in the case of dismissal of special leave petition. In view of this it was submitted that the law declared in the Modern Denim has become final and any decision to the, contrary including that of the Larger Bench of Himalaya International will cease to hold good. Even otherwise once the Larger Bench decision has been set aside by the Supreme Court by remanding the matter back it cannot be held that the decision set aside was that of Division Bench only and not of the Larger Bench as Supreme Court has remanded the matter both for the purpose of determining the rate as well as the applicability of the exemption notification keeping in mind the aspect as to whether the goods have not been manufactured from raw material produced or manufactured in India. On the contention of the Revenue that since no appeal was filed by the respondent and revenue could not have filed an appeal on a issue which was decided in its favour it was submitted that the respondents can defend their case even on an adverse finding on a different issue against them.

8. As regards applicability of Notification No. 125/84 it was submitted that Notification 125/84 exempts goods manufactured in a 100% EOU from the whole of duty of excise and the only exclusion is that such exemption shall not apply to such goods if allowed to be sold in India.

It was submitted that so far as the interpretation of the words "allowed to be sold in India" is concerned, they would rely upon the decision of the Supreme Court in SIV Industries case and the Tribunal's decision in Modern Denim wherein words "allowed to be sold" has been interpreted as goods sold with permission from the Development Commissioner and since in this case the charge is that the goods were clandestinely removed, they were admittedly not allowed to be sold in India and therefore they are not hit by the proviso to Notification 125/84 and are thus entitled to exemption. As regards revenue's contention that it will lead to anomalous situation wherein EOU would pay higher rate of duty in respect of supplies made to DTA with the permission of Development Commissioner and no duty in respect of goods sold in excess of the permission for clearance to DTA, it was submitted that a similar situation has arisen in a sales tax matters where a dealer was required to take registration, did not do so, and was asked to pay sales tax as per provision to Section 9(1) of the Central Sales Tax Act which required a registered dealer to pay the tax, it was held by the Apex Court in the case of State of Uttar Pradesh v. Kasturilal vide Order dated August 3, 1987 that once the dealer has not taken a registration/he cannot be called upon to pay tax by invoking equitable maxim which cannot be applied in fiscal statute. It was accordingly submitted that the language of the Notification 125/81 should be given a plain interpretation and the fact that this interpretation would lead to anomalous situation is of no consequence.

9. Learned D.R. explained the policy relating to 100% EOU and submitted that originally 100% EOUs were allowed to be established with a clear direction that 100% of their production was required to be exported and in consideration of that they were allowed to import capital goods, raw materials and components free of duty and to procure them indigenously also free of duty. The scheme was introduced somewhere in 1981-82. A similar provision was made in respect of goods produced in specified free trade Zone. All the goods which were manufactured in the free trade zone 100% EOUs and were meant for export were exempt from duty.

In 1982 the units in free trade zone were allowed to sell their goods not exceeding 25% of the production, in DTA on payment of excise duty, equal to the duties of customs leviable on like goods imported from abroad. Clearance to DTA was to be allowed only after necessary permission had boon obtained by the unit from the Development Commissioner in charge of the free trade zone. Accordingly, proviso to Section 3(1) of the Central Excise Act was inserted in Section 3 of the Act by Act 14 of 1982. It provided that in respect of goods produced or manufactured in free trade zone and brought to any other place in India, the duty shall be an amount equal to the aggregate of the duty of customs which would be leviable under Section 12 of the Customs Act, 1962. Thereafter in 1984, proviso to Section 3(1) was amended to include 100% EOUs also and it was decided to allow 100% EOUs to sell their goods not exceeding 25% of their exportable production, in the DTA on payment of duty of excise which would be an amount equal to the aggregate of the duty of customs on the like goods produced and manufactured outside India if imported into India. Where such duty of customs are chargeable by reference to their value, the value of such excisable goods was required to be determined in accordance with the provision of the Customs Act, 1962 and Customs Tariff Act, 1975. Thus Section 3 sought to make a clear cut distinction between domestic unit other than 100% EOU and 100% EOU and provided for separate mechanism for assessment of duty. 100% EOUs were for all practical purposes considered as units existing outside India and therefore the excise duty was made equal to the customs duty that would have been levied on the like goods produced or manufactured outside India if imported into India. There were only two ways in which 100% EOUs could have cleared goods i.e. one by way of export and the other by sale in DTA upto 25% of production after getting a specific permission from the Development Commissioner. It was for this purpose that these two modes were proscribed under proviso to Section 3(1), and sale without permission in DTA was simply not permissible. Notification 125/84 was also issued to give a legal footing on the existing practice of not charging the goods produced in 100% EOU with excise duty and since domestic sales upto 25% were permitted from the year 1984, a proviso was also added to notification 125/84 stating that such exemption shall not apply to the goods allowed to be sold in India This is no way means that the goods which are sold in India without Development Commissioner's permission will be treated at par with the manufacture of the domestic unit other than EOU and charged to duty accordingly. The intention under Section 3 has all along being to differentiate manufacture of 100% EOUs differential from the manufacture of other domestic units. In view of this both proviso to Section 3(1) end Notification 125/84 have to be given harmonious interpretation and an interpretation has to be given which should not defeat the purpose of the main Section. Reference in this regard was invited to the Apex Court decision in the case of Ispat Industries Ltd. v. Commissioner of Customs, Mumbai rule are possible, one which subserves the object of a provision in the parent statute and the other which does not, we have to adopt the former, because adopting the latter will make the rule ultra vires the Act. The court further held that while interpreting the statute we should follow the mimansa principles of interpretation i.e. any system which solves the difficulties should be used. One of the mimansa principle is that if a word or sentence purporting to express a subordinate idea clashes with the principal idea, the former must be adjusted to the latter or must be disregarded altogether. Further where there is a conflict between the use and the substance, greater regard should be paid to the use. When there is a conflict between the purpose and the material, the purpose is to prevail, because in the absence of the prescribed material a substitute can be used, for the material is subordinate to the purpose. In view of this it was submitted that the purpose of the main section is to put 100% EOUs on a different footing than the domestic unit and therefore proviso which is subservient to the purpose should be interpreted in a manner that the main object is achieved. Accordingly the proviso have to be interpreted to mean that all the goods which are sold in India for which permission is required shall be chargeable to duty under the proviso to Section 3(1) whether permission has been actually obtained or not. They cannot be compared with the domestic clearances of units other than EOU.10. It was submitted that this was the view taken by the Larger Bench in the case of Himalaya International which is binding and the respondents' contention that this decision has been set aside by the Supreme Court is not correct as what has been set aside is the Division Bench decision and not the Larger Bench decision. This matter was considered by the Tribunal in the case of Sterlite Optical (cited supra) which also negated the contention, that Larger Bench decision is not aside by the Supreme Court and also agreed with the observation of the Larger Bench distinguishing the decision rendered by the Supreme Court, in the SIV Industries case. Reference was also made to the Hon'ble Supreme Court decision in the case of British Airways PLC v.Union of India interpreting a statute, the courts are required to keep in mind the consequences which are likely to flow upon the intended interpretation.

It has also been observed therein that it is the duty of the court to give a harmonious construction of a statute and that such construction shall suppress the mischief and advance the remedy. The bench in Himalaya International case has clearly held that so long as in 100% EOU continues as an EOU, it will be within the proviso to Section 3(1) of the Central Excise Act and mere violation of the permission in the matter of sale to DTA will not take it outside the proviso to Section 3(1) of the Central Excise Act.

11. Reference was also invited to a recent decision of the Tribunal in the case of Asian Alloys Limited v. Commissioner of Central Excise, Delhi respondents and others taking a similar view ware considered alongwith Supreme Court decision in SIV Industries case, larger bench decisions in Himalaya International & S. Kumar's, Ltd case, Sterlite Optical and upheld the view expressed by the Larger Bench in Himalaya International and the Division Bench in a Sterlite Optical. It further held that the plea that the Larger Bench decision in the case of Himalaya stood overruled by the Hon'ble Supreme Court is not at all borne out from the order of the Supreme Court by which the matter was remitted to the Commissioner as the Hon'ble Supreme Court was interpreting an appeal filed by the Commissioner against the decision of the Division Bench in Himalaya International Ltd. and has remitted the matter back to the Commissioner on the question as to whether the respondent/assessee was entitled to exemption. There is nothing in the order to undertake that Hon'ble Supreme Court was dealing the issue of applicability of the said provision, mush less setting aside the findings given by the Larger Bench on the issue of law which was decided in favour of the Revenue and could not have been challenged by the Revenue in its appeal.

12. As regards the plea that equity has no place while interpreting a fiscal statute, it was submitted that the view has now changed and in this regard he invited attention to the Supreme Court decision in the case of Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise & Customs enrichment based on equity has been made applicable in the case of refund even in the absence of statutory provision to this effect.

13. Referring to the plea of the appellant chat since the appeal against the decision of the Tribunal in the case of Modern Denim has been dismissed by the Supreme Court, it will have a binding precedent an amount to declaration of law, it was submitted that in the case of SC and Supreme Court Employees Welfare Association v. Union of India 1989 STPL(LE) 14806, SC it was held that mere dismissal of a Special Leave Petition in limine does not lay down any law under Article 141 of the constitution and that it is a speech, express are necessarily implied which only is the declaration of law within the meaning of Article 141 of the constitution. In view of this it cannot be said that by dismissing the appeal without assigning any reason in the Modern Denim case, the law has been declared by the Supreme Court and therefore the Larger Bench decision in Himalaya is the correct interpretation which should be followed.

14. We have considered the submissions We find that the wordings of proviso to Section 3(1) of the Central Excise Act and Notification 125/84 which we have boon called upon to interpret are similar and the baric dispute is as to how the words "allowed to be sold in India" are to be interpreted. After going through the various submissions made by both sides, we find that 100% EOUs were allowed to be established with the sole purpose of exporting 100% of their production as is evident from the words 100% EOUs. However, on account of certain hardship faced in getting export order, sales in DTA upto 25% were permitted from the year 1984 but there was a clear intention to distinguish between such sales by the 100% EOU from the sales by domestic units other than 100% EOU and it was for this purpose that proviso to Section 3(1) and Notification 125/84 was introduced. Since there were only two modes of clearance in which the 100% EOUs could have cleared the goods i.e. one by export and the other by domestic sale after obtaining the permission of the Development Commissioner, in respect of domestic sales the words "allowed to be sold in India" were incorporated in both the provisos.

The fact however remains that 100% EOUs were never treated at par with other domestic units and for all practical purpose they were considered as units located outside India and accordingly Central Excise duty equal to amount of duties of customs leviable on like or similar goods manufactured outside India when imported into India was made applicable. In fact a different procedure was carved out and a separate chapter V A was inserted in Central Excise rules relating to removal of goods from free trade zone and 100% EOU for home consumption and many provisions of the Central Excise Rules were made inapplicable. Even exemption notifications issued under Rule 8 were made inapplicable unless notification itself said so. The intention of the legislature and the purpose of introducing proviso to Section 3(1) and Notification 125/84 is therefore very evident that 100% EOUs are to be treated differently from other domestic units. We are therefore in agreement with the plea raised by the Revenue that no interpretation which would have the effect of defeating the very statutory provision shall be given. It has also been observed by Supreme Court in British Airway's case that while interpreting the statute, courts are required to keep in mind, the consequences which are likely to flow up on the intended interpretation that it is the duty of the court to give a harmonious construction of a statute and that such a construction shall suppress the mischief and advance the remedy. Further as observed by the Supreme Court in the case of Ispat Industries it is no where laid down by our constitution or any other law that only Maxwell's Principles of Interpretation can be used by the court. We can use any system of interpretation which helps us solve the difficulties like the mimansa of principle of interpretation which lay down that when there is the conflict between the purpose and the material, purpose is to prevail because in the absence of the prescribed material a substitute can be used, for the material is subordinate to the purpose. If a subordinate idea clashes with the principal idea, the former must be adjusted to the latter or must be disregarded altogether. Further when there is a conflict between the use and the substance, greater regard should be paid to the use. Following these principles, we find that the purpose all along has been to treat 100% EOUs differently from domestic units other than 100% EOU and therefore we hold that so long an hundred percent EOU continues as an EOU, it will be within the proviso to Section 3(1) of the Central Excise Act and a mere violation of the permission in the matter of sale to DTA will not take it outside the proviso to Section 3(1) of the Central Excise Act and notification 125/84-CE. Any other interpretation will moan that while the law abiding assesses will be liable to pay duty on domestic clearances, others violating the law can conveniently escape duty liability and this would be against the principle of suppressing mischief & advancing remedy.

15. We are also of the view that the Larger Bench decision in the Himalaya case has not been set aside and it is only the Division Bench decision regarding the applicability of Notification 13/98 which was set aside and remanded back and not the issue regarding applicability of proviso to Section 3(1) in respect of clearance effected by 100% EOU with or without permission from the Development Commissioner. Even independently we are of the same view and reiterate the same as normally a remand is on matter of facts under dispute or on a law point not considered by the lower court, whereas in the present case the law point regarding applicability of proviso to Section 3(1) in case of clandestine clearance was the only issue before larger Bench without any dispute of facts. The facts regarding production from indigenous raw material was relevant only for notification 13/98. We also agree with the observation of the Larger Bench that the decision of the Supreme Court in SIV Industries case is distinguishable for the reason stated therein, as in that case the main thrust was that whether on the date of removal the 100% EOU ceased to be 100% EOU and therefore the provisions relating to 100% EOU could not have been applied to them.

For the same purpose we hold that exemption under Notification 125/84 shall not be applicable in respect of goods manufactured by 100% EOU but sold in India.

16. As regards the dismissal of the Revenue's appeal in the Modern Denim case, we find that though the Larger Bench in S. Kumar case has held that when a civil appeal is dismissed even though without assigning reasons, it will have an effect of binding precedent unlike in the case of dismissal of a Special Leave Petition. The facts in Modern Denim case are little different. In the case of Modern Denim, the allegation was that the 100% EOU had surreptitiously removed goods to adjoining unit working under EPCG scheme and its production was shown as that of other unit working under EPCG Scheme and accordingly duty was sought to be demanded in respect of goods clandestinely removed. Tribunal held that clandestine removal was not established and the demand cannot be made on assumptions and presumption and accordingly set aside the same. It went into the applicability of the rate of duty, whether under main Section 3(1) or under proviso to Section 3(1) and whether the goods stood exempted under Notification 125/84 or not although it was not required to do so. It has therefore given findings on 2-3 issues whereas once it was held that there has been no clandestine removal the question of demand of any duty would not arise. It cannot therefore be said that the appeal filed by the Revenue has been dismissed by the Supreme Court solely on the grounds that the clandestine removal itself has not been established or on all the three grounds. Therefore in the absence of a simple dismissal without a word about reasons it cannot be said that it would amount to declaration of law when 2-3 issues were involved and no findings have been given. Some observation to this effect has also been made by the Apex Court in the case of S. Shanmugavel (cited supra) that it is a speech express or necessarily implied which only is the declaration of law within the meaning of Article 141 of the constitution. We, therefore, hold that the decision rendered by the Tribunal in Modern Denim case against which an appeal was dismissed by the Supreme Court cannot be considered as a declaration of a law.

In case of goods cleared by 100% EOU and sold in India whether with or without permission of the Development Commissioner, the assessment shall be made under proviso to Section 3(1) of the Central Excise Act, 1944 and the exemption under Notification 125/84 shall not be applicable.

18. The matter is returned back to the Division Bench for hearing on other issues if any and passing suitable order.