M/S. Bony Polymers (P) Ltd vs Cce, Delhi-Iii

IN THE CUSPTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI

Date of Hearing/ Decision:27.07.2015

Excise Appeal No.2245/2011-EX(DB)

[Arising out of Order-in-Appeal No.200/BK/GGN/2011 dated 28.06.2011 passed by the Commissioner of Central Excise(Appeals), Delhi-III).

M/s. Bony Polymers (P) Ltd. Appellants

Vs.

CCE, Delhi-III Respondent

Appearance:

Rep. by Shri J.P. Kaushik, Advocate for the appellant.

Rep. by Shri Ranjan Khanna, DR for the respondent.

For approval and signature:

Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

Coram: Honble Shri Ashok Jindal, Member (Judicial)

Honble Shri B. Ravichandran, Member (Technical)

Final Order No.52351/2015 dated:27.07.2015

Per Ashok Jindal:

The facts leading to filing of this appeal are, in brief, as under.

1.1 The appellant are a 100% EOU engaged in manufacture of rubber and metal components for automobiles, railways, machinery etc. The letter of permission had been issued to the appellant on 25/4/06. On June 2006 they also obtained permission from the Development Commissioner vide his letter dated 30th June 2006 for advance DTA sales which were to be adjusted within two years against their DTA entitlement. The value of advance DTA sales allowed was Rs. 100 lakhs. This advance DTA sale permission was initially valid upto 12th June 2007 and the same was extended upto 17/10/07. The appellant commenced manufacturing operations around July 2006 and in addition to exports also made DTA clearances against their advance DTA sales permission. The duty on the DTA clearances made against their advance DTA permission was paid at concessional rate prescribed under Notification No. 23/2003-CE. The appellant applied for debonding sometime in 2009 and were allowed to be debonded by the Development Commissioner vide his letter dated 15th June 2009. The DTA sales had been made by the appellant during October 2006 to October 2007 and the same consisted of one product namely O-ring falling under sub-heading 401600 of the Central Excise Tariff which was cleared by availing the concessional rate of duty under Notification No. 23/2003-CE. The Department was of the view that concessional rate under Notification No. 23/2003-CE would not be applicable in respect of the DTA sales made by the appellant against advance DTA permission for the following reasons :-

(i) in terms of the conditions prescribed for the concessional rate in the Notification No. 23/2003-CE, the concessional rate would be applicable only in respect of the goods cleared in accordance with the provisions of sub-para (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy, 2004-2009, while in this case, the goods had been cleared to DTA in accordance with the provisions of sub-para (k) of para 6.8 of the Foreign Trade Policy. Sub-para (k) of para 6.8 pertains to advance DTA clearances while para (a), (d), (e) or (g) of para 6.8 pertain to the regular DTA clearances. Thus the advance DTA clearances covered by para 6.8 (k) of the Foreign Trade Policy are not covered by the Notification.

(ii) For the benefit of concessional rate under Notification No. 23/2003-CE the goods cleared into DTA (other than waste, scrap or remnants) are similar to the goods exported. In this case while the DTA clearances have been made of the O-rings, the goods exported during the period of dispute were mainly striker bumpers and nut seals which were totally different item ;

(iii) the appellant had failed to achieve net positive foreign exchange earning during 2006-2007 and 2007-2008, which is also a requirement under para 6.8 (a) of the Foreign Trade Policy for being eligible for DTA clearances and thus the DTA clearances cannot be said to have been made in accordance with the provisions of para 6.8 (a) of the Foreign Trade Policy.

1.2 On the above basis, a show cause notice dated 26/3/2009 was issued to the appellant for 

(a) confirming the demand of differential duty amounting to Rs. 12,34,032/- alongwith interest thereon in respect of clearances of O-rings made into DTA during the period from October 2006 to October 2007 ; and

(b) imposition of penalty on the appellant under Section 11AC of Central Excise Act.

1.3 The above show cause notice was adjudicated by the Additional Commissioner vide order-in-original dated 19/4/2010 by which he confirmed the duty demand as made in the show cause notice alongwith interest and imposed equal amount of penalty on them under Section 11AC of Central Excise Act. While confirming the duty demand and denying the duty exemption, the Additional Commissioner in this order has held that the goods had been cleared into DTA against advance DTA permission in terms of sub-para 6.8 (k) of the Foreign Trade Policy, while in terms of the Notification No. 23/2003-CE, this exemption is available in respect of clearances of goods into DTA in terms of the provisions of sub-para (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy. He also observed that the NFE of the unit during 2006-2007 and 2007-2008, the period during which the advances DTA clearances have been made, was negative while for DTA clearances at concessional rate of duty, the positive NFE should have been achieved. Beside this, he also observed that the product being cleared into DTA and the product exported are not similar and, therefore, this condition of the Notification is also not satisfied.

1.4 On appeal being filed to the Commissioner (Appeals) against the above order of the Additional Commissioner, the Commissioner (Appeals) vide order-in-appeal dated 28/6/11 upheld the Additional Commissioners order.

1.5 Against the above order of the Commissioner (Appeals), this appeal has been filed.

2. Heard both the sides.

3. Shri J.P. Kaushik, Advocate, the learned Counsel for the appellant, pleaded that the DTA clearances had been made in accordance with the advance DTA permission given by the Development Commissioner in terms of the provisions of para (g) of Appendix 14  1H of the Handbook of Procedures, 2004-2009 EXIM Policy, that the Department had been duly informed about DTA clearances being made against the advance DTA sale permission granted by the Development Commissioner, that even the advance DTA clearances made against the permission given in terms of para (g) of Appendix 14-1H of the Handbook of Procedures 2004-2009 are eligible for the concessional rate of duty under Notification No. 23/2003-CE, that positive NFE had been achieved by the time of debonding in 2009 and it is not necessary that during the period of making DTA sales against advances DTA permission, the NFE should be positive, that the condition of the exemption Notification regarding the DTA clearances having been made in terms of sub-para (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy is not attracted in case of advance DTA sales made in terms of sub-para (k) of para 6.8 and as such denial of exemption on the ground that the DTA clearances were made in terms of para 6.8 (k) of the Foreign Trade Policy is not correct, that the condition in the Notification that the goods cleared into DTA must be similar to the goods exported is not applicable when the DTA clearances are made against advance DTA clearance permission under para 6.8 (k) of the Foreign Trade Policy, that in any case the duty demand is time barred, as all the relevant facts had been disclosed by the appellant to the department and, hence, extended period under proviso 11A (1) is not applicable, that for the same reason, penalty on the appellant under Section 11AC is not justified and that the appellant have a strong prima facie case and, hence, the requirement of pre-deposit of duty demand, interest thereon and penalty be set aside.

4. Shri Ranjan Khanna, the learned Departmental Representative opposed the contentions of the ld. Counsel by reiterating the findings of the Commissioner (Appeals) in the impugned order and emphasised that the appellant do not satisfy any one of the conditions subject to which the exemption under Notification No. 23/2003-CE is available in respect of DTA clearances, in as much as  neither the DTA clearances have been made in terms of sub-para (a), (d), (e) and (g) of para 6.8 of the Foreign Trade Policy nor the goods sold into DTA are similar to the goods exported nor during the period of DTA sales i.e. during the period October 2006 to October 2007, the appellant had achieved the positive net Foreign Exchange earning. He also pleaded that the appellant have suppressed the relevant facts from the department by not disclosing that while they are selling only O-Rings falling under Chapter 40 into DTA against advance DTA sales permission, the products being exported are totally different. He, therefore, pleaded that the appeal be dismissed.

5. We have considered the rival submissions.

6. The dispute in this case is about the rate of duty applicable on the goods cleared into DTA against advance DTA sole permission. In terms of the proviso to Section 3 (1) of Central Excise Act, 1944, the duty payable on the DTA clearances made by a 100% EOU is aggregate duties of Customs chargeable on the import of like goods into India. Notification No. 23/2003-CE (Sl. No. 2) of the Table to the Notification prescribes a concessional rate of duty in respect of DTA clearances made by a 100% EOU, which is subject to certain conditions, as mentioned in this notification. The conditions subject to which the concessional rate of duty is applicable are as under :-

(I) The goods are cleared into domestic tariff area in accordance with sub-para (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy ;

(II) The exemption is available only if the Deputy Commissioner of Customs or Assistant Commissioner of Customs or Deputy Commissioner of Central Excise, as the case may be, is satisfied that -

(a) the goods being cleared in the domestic tariff area, other than scrap waste, or remnants, are similar to the goods which are exported or expected to be exported from the units during the specified period of such clearances in terms of Foreign Trade Policy ;

(b) the total value of such goods being cleared under sub-paragraph (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy into domestic tariff area from the units does not exceed 50% of the FOB value of exports made during the year [starting from 1st April of the year and ending with 31st March of the next year] by the said unit ; and

(c) the balance of production of the goods which are similar to such goods under clearance into domestic tariff area, is exported out of India or disposed in domestic tariff area in terms of para 6.9 of the Foreign Trade Policy.

(III) clearances of goods into domestic tariff area under paragraph (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy shall be allowed only when the unit has achieved positive under foreign trade earning and

(IV) clearance of goods into domestic tariff area under sub-para (d) of para 6.8 of the Foreign Trade Policy in excess of 5% of the FOB value of exports made by the unit during the year (starting from 1st April of the year and ending with 31st March of the next year) shall be allowed only when the unit has achieved net foreign exchange earning.

7. It is well settled by a series of judgment by the Apex Court in the cases of Eagle Flask Industries Ltd. vs. CCE reported in (2004) 7 SCC  377 and State of Jharkhand vs. Ambay Cements reported in (2005) 1 SCC  368, that the exemption notifications have to be strictly construed and if duty exemption, is subject to certain conditions, for availing the exemption, the assessee has to satisfy those conditions and an assessee not satisfying those conditions would not be eligible for exemption.

8. Para 6.8 of 2004-2009 of the foreign trade policy is reproduced below :-

6.8 DTA Sale of Finished Products/Rejects/Waste/ Scrap/Remnants and By-products

The entire production of EOU/EHTP/STP/BTP units shall be exported subject to the following :

(a) Units, other than gems and jewellery units, may sell goods up to 50% of FOB value of exports subject to fulfilment of positive NFE on payment of concessional duties. Within the entitlement of DTA sale, the unit may sell in DTA its products similar to the goods, which are exported or expected to be exported from the units. No DTA sale at concessional duty shall be permissible in respect of motor cars, alcoholic liquors, books, tea (except instant tea), pepper and pepper products, marble and such other items as may be notified from time to time. Such DTA sale shall also not be permissible to units engaged in the activities of packaging/ labelling/ segregation/ refrigeration/ compacting/micronisation/pulverization/granulation/conversion of monohydrate form of chemical to anhydrous form or vice versa.

Sales made to a unit in SEZ shall also be taken into account for the purpose of arriving at FOB value of export by EOU provided payment for such sales are made from Foreign Exchange Account of SEZ unit. Sale to DTA would also be subject to mandatory requirement of registration of pharmaceutical products (including bulk drugs).

(b) For services, including software units, sale in the DTA in any mode, including on line data communication shall also be permissible up to 50% of FOB value of exports and/or 50% of foreign exchange earned, where payment of such services is received in foreign exchange.

(c) Gems and jewellery units may sell up to 10% of FOB value of exports of the preceding year in DTA subject to fulfilment of positive NFE. In respect of sale of plain jewellery, the recipient shall pay concessional rate of duty as applicable to sale from nominated agencies. In respect of studded jewellery, duty shall be payable as applicable.

(d) Unless specifically prohibited in the LOP, rejects within an overall limit of 50% may be sold in the Domestic Tariff Area (DTA) on payment of duties as applicable to sale under paragraph 6.8 (a) on prior intimation to the Customs authorities. Such sales shall be counted against DTA sale entitlement. Sale of rejects up to 5% of FOB value of exports shall not be subject to achievement of NFE.

(e) Scrap/waste/remnants arising out of production process or in connection therewith may be sold in the DTA as per the Standard Input-Output norms modified under the Duty Exemption Scheme on payment of concessional duties as applicable within the overall ceiling of 50% of FOB value of exports. Such sales shall not, however, be subject to achievement of positive NFE. In respect of items not covered by the norms, the Development Commissioner may fix ad hoc norms on the basis of data for a period of six months and within this period, he shall get the norms fixed by the BOA. Sale of waste/scrap/remnants by units not entitled to DTA sale or sales beyond the DTA sale entitlement, shall be on payment of full duties. The scrap/ waste/remnants may also be exported.

(f) There shall be no duties/taxes on scrap/waste/ remnants in case the same are destroyed with the permission of Customs authorities.

(g) By-products included in the LOP may also be sold in the DTA subject to achievement of positive NFE on payment of applicable duties within the overall entitlement of paragraph 6.8 (a). Sale of by-products by units not entitled to DTA sales or beyond the entitlements of paragraph 6.8 (a) shall also be permissible on payment of full duties.

(h) EOU/EHTP/STP/BTP units may sell finished products, except pepper and pepper products and marble which are freely importable under the Policy in the DTA under intimation to the Development Commissioner against payment of full duties provided they have achieved the positive NFE.

(i) In the case of units manufacturing electronics hardware and software, the NFE and DTA sale entitlement shall be reckoned separately for hardware and software.

(j) In case of DTA sale of goods manufactured by EOU/ EHTP/STP/BTP, where basic duty and CVD is nil, such goods may be considered as non-excisable for the purpose of payment of duty.

(k) In case of new EOUs, advance DTA sale will be allowed not exceeding 50% of its estimated export for the first year except the pharmaceutical units, where this will be based on its estimated exports in the first two years.

9. From the perusal of the above para, it will be seen that only sub-para (k) of the para 6.8 provides for the permission for advance DTA sales in case of new units. The sub-para (a), (d), (e) and (g) of para 6.8 are about normal DTA clearances of the goods being manufactured by the unit or the DTA clearances of by-products, waste and scrap. Since, the exemption Notification No. 23/2003-CE in terms of its condition, provides concessional rate of duty only to the goods cleared into domestic tariff area in accordance with sub-para (a), (d), (e) or (g) of para 6.8 of the Foreign Trade Policy and since it does not cover the goods cleared into DTA against advance DTA sale permission given under sub-para (k) of para 6.8 of the Foreign Trade Policy, it is very clear that the goods sold into DTA against advance DTA sales permission granted under para 6.8 (k) are not covered by this notification. The fact that the advance DTA clearances in terms of para 6.8 (k) of the Foreign Trade Policy are not covered by this exemption notification is also clear from the Condition (II) (b) of the notification, according to which the total value of the goods cleared into DTA under sub-para (a), (d), (e) and (g) of para 6.8 does not exceed 50% of the FOB value of exports made during the financial year. In the case of advance DTA clearances, this condition cannot be satisfied as the advance DTA clearances are adjusted against the future DTA entitlements. We also take note of the fact that the letter from Development Commissioner permitting advance DTA clearances by the appellant is also mis-leading as while it refers to the permission being granted in terms of para (g) of Appendix 14 1H of Handbook of Procedures, which pertains to advance DTA clearances, it does not mention para 6.8 (k) of the Foreign Trade Policy, which is the parent provision under which the advance DTA clearances can be given.

10. Further, we find that in this case the appellant has claimed duty concession by claiming the benefit of notification no.23/2003-CE and as per the arguments advanced by the ld. Counsel for the appellant, the conditions which are required to be fulfilled by the assessee, who claimed the benefit of this notification, are not applicable to the appellant. As the Condition No.II of the said notification could not be fulfilled by the appellant, therefore, the appellant is not entitled to claim the benefit of the notification. Consequently, the appellant is liable to pay duty. Therefore, the appellant have no case on merits.

11. Another arguments advanced by the Advocate for the appellant that the show cause notice has been issued on 26.03.2009 by invoking extended period of limitation for the period October, 2006 to October, 2007 is barred by limitation in absence of ingredients of Section 11 AC of the Act. We are not convinced of the arguments advanced by the Advocate for the appellant as the Counsel himself has admitted that the appellant is not able to fulfill the Condition No.II attached to the Notification No.23/03-CE. Therefore, claiming the benefit thereof does not arise. This fact was not brought in the knowledge of the Department by the assessee by availing the benefit of the said notification. In these terms, the lower authorities have rightly invoked the extended period of limitation. With these terms, we do not find any merit in the appeal filed by the appellants. Accordingly, the same is dismissed.

[Operative part of the order pronounced in the open Court]

( Ashok Jindal )

Member (Judicial)

( B. Ravichandran)

Member (Technical)

Ckp.

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