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Judgment
This appeal is directed against order in original No. PLG-GST-COM-13-21/18-19 dated 26.02.2019 of the Commissioner of Central GST and Central Excise, Palghar. By the impugned order, the Commissioner has held as follows:
"ORDER
I confirm the demand of Rs.1,62,41,406/- (Rupees One Crore Sixty Two Lakh Forty One Thousand Four Hundred and Six only) as below, raised vide the 17 Show Cause Notices under the provisions of Section 11 A(2) of the Central Excise Act, 1944 and order recovery thereof in terms of Section 11A(2) of the CE Act, 1944 and Section 174 of CGST Act, 2017.
I drop the demand of Rs.18,76,768/- (Rs. Eighteen Lakh Seventy Six Thousand Seven Hundred and Sixty Eight only) as below, raised vide various Show Cause Notices
No.
SCN No and Date
Period
Duty Demanded
Duty Confirmed
Duty Dropped
1.
C.Ex./R-I/BSR-II/LavinoKapur/ SCN/2005 dated 21.03.2005
08.03.1999 to 31.03.2000
4,40,382/-
Nil
4,40,382/-
2.
V.Adj (SCN)30-33/ThII/05 dated 28.03.2006
02.04.2001 to 30.03.2003
14,69,428/-
33,042
14,36,386
3.
V.Adj (SCN)30-49/ThII/06 dated 05.07.2006
June 2001 to March 2006
1,12,02,687/-
1,12,02,687/-
-
4.
C.Ex./R-I/BSRII/LavinoKapur /SCN/2006 dated 02.01.2007
April 2006 to September 2006
3,75,933/-
3,75,933/-
-
5.
C.Ex./R-I/BSR-II/ LavinoKapur/SCN/2007 dated 27.07.2007
October 2006 to March 2007
2,03,838/-
2,03,838/-
-
6.
C.Ex./R-I/BSR-II/ LavinoKapur/ SCN/2007 dated 21.02.2008
April 2007 to Sept 2007
4,79,826-/
4,79,826-/
-
7.
V.Adj (SCN) LavinoKapur / 118/BSR-II/08 dated 16.09.2008
Oct 2007 to Dec 2007
2,94,636/-
2,94,636/-
-
8.
V.Adj (SCN) LavinoKapur /165/ BSR-II/08 dated 19.01.2009
Jan 2008 to Mar 2008
4,50,511/-
4,50,511/-
-
9.
V.Adj (SCN) LavinoKapur /1237/ BSR-II/08 dated 06.05.2009
Apr 2008 to Jun 2008
3,84,837/-
3,84,837/-
-
10.
V.Adj (SCN) LavinoKapur /93/ BSRII/09 dated 24.09.2009
Sept 2008
2,42,089/-
2,42,089/-
-
11.
V.Adj (SCN) LavinoKapur /136/ BSR-II/09 dated 10.11.2009
Oct 2008
3,55,425/-
3,55,425/-
-
12.
V.Adj (SCN) LavinoKapur /143/ BSR-II/09 dated 02.12.2009
Dec 2008
2,17,816/-
2,17,816/-
-
13.
V.Adj (SCN) LavinoKapur /12/ BSRII/2010 dated 28.04.2010
May 2009 to Sept 2009
3,09,870/-
3,09,870/-
-
14.
V.Adj (SCN) LavinoKapur /83/ BSRII/10 dated 28.10.2010
Oct 2009 to Dec 2009
3,57,062/-
3,57,062/-
-
15.
V.Adj (SCN) LavinoKapur /143/ BSR-II/10 dated 16.12.2010
Jan 2010 to May 2010
4,16,911/-
4,16,911/-
-
16.
V.Adj (SCN) LavinoKapur /171/ BSR-II/10 dated 14.01.2011
June 2010 to Sept 2010
4,65,676/-
4,65,676/-
-
17.
V.Adj (SCN) LavinoKapur /66/ BSRII/11 dated 29.07.2011
Oct 2010 to Jan 2011
4,51,247/-
4,51,247/-
-
Total
1,81,18,174/-
1,62,41,406/-
18,76,768/-
I order for recovery of statutory interest at appropriate rate on the amount confirmed at Sr. No. 1 above, under the provisions of Section 11AB/11AA Central Excise Act, 1944.
I impose a penalty of Rs. 1,12,35,729/- (Rupees One crore Twelve lakhs Thirty five thousand seven hundred twenty nine only) (Rs. 33,042/ - (Rupees Thirty Three Thousand and Forty Two only) with regard to 2nd SCN and Rs. 1,12,02,687) - (Rupees One Crore Twelve Lakh Two Thousand Six Hundred Eighty Seven only) with respect to 3rd SCN) on M/s Lavino Kapur Cotton Ltd, Tarapur, under the provisions of Section 11 AC of the Central Excise Act, 1944.
I impose penalty of Rs. 50,05,677/- (Rupees Fifty Lakhs Five thousand six hundred seventy seven only) as below on M/s. Lavino Kapur Cotton Ltd., Tarapur under the provisions of Rule 25 of the Central Excise Rules, 2001/2002.
No.
SCN No and Date
Penalty U/R 25 of CER
1.
C.Ex./R-I/BSR-II/LavinoKapur/ SCN/2005 dated 21.03.2005
Nil
2.
V.Adj (SCN)30-33/ThII/05 dated 28.03.2006
Nil
3.
V.Adj (SCN)30-49/ThII/06 dated 05.07.2006
Nil
4.
C.Ex./R-I/BSRII/LavinoKapur/SCN/2006 dated 02.01.2007
2,94,636/-
5.
C.Ex./R-I/BSRII/LavinoKapur/SCN/2007 dated 27.07.2007
4,50,511/-
6.
C.Ex./R-I/BSRII/LavinoKapur/SCN/2007 dated 21.02.2008
3,84,837/-
7.
V.Adj (SCN) LavinoKapur /118/ BSR-II/ 08 dated 16.09.2008
2,42,089/-
8.
V.Adj (SCN) LavinoKapur /165/ BSRII/08 dated 19.01.2009
3,55,425/-
9.
V.Adj (SCN) LavinoKapur /1237/ BSRII/08 dated 06.05.2009
2,17,816/-
10.
V.Adj (SCN) LavinoKapur /93/ BSRII/09 dated 24.09.2009
3.09,876/-
11.
V.Adj (SCN) LavinoKapur /136/ BSRII/09 dated 10.11.2009
3.57,062/-
12.
V.Adj (SCN) LavinoKapur /143/ BSRII/09 dated 02.12.2009
4,16,911/-
13.
V.Adj (SCN) LavinoKapur /12/ BSRII/2010 dated 28.04.2010
4,65,676/-
14.
V.Adj (SCN) LavinoKapur /83/ BSRII/10 dated 28.10.2010
4,51,247/-
15.
V.Adj (SCN) LavinoKapur /143/ BSRII/10 dated 16.12.2010
3,75,933/-
16.
V.Adj (SCN) LavinoKapur /171/ BSRII/10 dated 14.01.2011
2,03,838/-
17.
V.Adj (SCN) LavinoKapur /66/ BSRII/11 dated 29.07.2011
4,79,826/
Total
50,05,677/-
I impose penalty of Rs.10,00,000/- (Rupees Ten Lakhs only) on Shri Vikram Kapur, Director of M/s. Lavino Kapur Cotton Ltd., Tarapur under the provisions of Rule 26 of the Central Excise Rules, 2002.
38. This order is issued without prejudice to any other action that may be initiated against the aforesaid Noticees under the provisions of the Central Excise Act, 1944 or rules framed there under or any other law for the time being in force in India."
2.1 Appellant is an 100% Export Oriented Unit (EOU) engaged in manufacture of Absorbent Cotton of Pharmacopeial Grade, falling under the Chapter Sub-heading 56912110 of the First Schedule to the CETA, 1985.
2.2 In the manufacture of finished product, the appellant company consumes indigenous raw cotton as well as cotton comber noil falling under chapter 52 of the Central Excise Tariff Act, 1985, and also the imported comber noil. The manufacturing process involves blow room cleaning of the cotton, carding and thereafter bleaching and drying of the same. In the manufacturing process waste known as 'cotton waste' dropping waste arise. The entire dispute in the present appeal for the entire period under dispute pertains to the said cotton waste generated in manufacturing of the finished products.
2.3 Revenue has issued seventeen show cause notices, demanding duty in respect of "cotton waste" arising during the course of manufacture of their finished products and cleared by them in the domestic tariff area during the period 08.03.1999 to January 2011.
2.4 The issue in regards to levy of Central Excise Duty on the 'cotton waste" as per proviso to Section 3 (1) of Central Excise Act,1 944 was earlier considered by the Tribunal in the appellants own case, and the matter was remanded back by the tribunal vide Final Order No A/88053-88061/17/EB dated 19.06.2017 for reconsideration of entire issue in light of the decision in case of C T Cotton [2012 (284) ELT 572 (Trib Delhi)]. Remanding the matter back, tribunal observed as follow:
"4. We have carefully considered the submissions made by both the sides before going to the merit of the case, we find that as per the submission of the Ld. Counsel and the finding of the impugned order. There are grave inconsistencies on the vital fact, such as the Ld. Commissioner has not considered the raw material imported and indigenously procured, this aspect is very significant to decide the dutiability on the cotton wastes and droppings. Similarly, the various issues raised by the appellant in his submissions was not considered properly by the adjudicating authority. The issue appears to be identical to the case of C.T. Cotton Yarn Ltd. (supra) which was decided by the Tribunal after remand from the Hon'ble Supreme Court however, the Ld. Commissioner has no occasion to deal with this judgement. It is also observed that in the case of C.T. Cotton Yarn Ltd. (supra) the appeal was allowed not only on the merit, but also on the limitation therefore the issue whether the extended period of demand is correct or otherwise also need to be reconsidered. We are therefore of the view that the entire matter requires relook on all the issues, taking into consideration the judgement given in the C.T. Cotton Yarn Ltd. (supra) therefore the matter needs to be remanded to the original authority for passing a de novo order by considering all the submissions made by the appellant before this Tribunal and to be made before the adjudicating authority. We, therefore, allow the appeals by way of remand to the adjudicating authority."
2.5 The matter was adjudicated by the Commissioner as per the impugned order referred in para 1, supra. Aggrieved by the impugned order, appellants have preferred this appeal.
3.1 We have heard Shri Surinder Mehra, Chartered Accountant for the Appellants and Shri Nitin Ranjan, Deputy Commissioner, Authorized Representative for the revenue. Both sides have also filed written submissions which have been taken on record.
3.2 Arguing for the appellant, learned Chartered Accountant submits as follows:
Ø U/s. 3(1) of the Central Excise Act, 1944, the duty of Central Excise is leviable on all excisable goods which are produced or manufactured in India at the rates specified in schedule thereto. Thus the duty of Central Excise under the main provisions of Section 3(1) of the Central Excise Act, 1944, and the proviso thereto is leviable only on any excisable goods which are produced or manufactured and as such no duty can be levied on any goods which are mere waste and not manufactured goods or produced goods by the assessee. This is as held by various authorities as follows:
o Indian Aluminum Co. Ltd. [2006 (203) E.L.T. 3 (S.C)]
o Tata Iron Steel Co. Ltd. [2004 (165) E.L.T. 386 (S.C.)]
o C. T. Cotton Yarn Limited [2012 (284) ELT 586 (Trib. Del)]
Ø In the case of the appellant company, Hon. Tribunal had remanded the matter back to the original adjudicating authority for passing de novo order after consideration of the submissions made by the appellant company before the Tribunal in respect of leviability of duty on cotton waste in light of the decision in case of C T Cotton.
Ø In remand proceedings appellant submitted that the issues involved is squarely covered by the decision in case of C T Cotton, wherein Tribunal had held that obtaining soft cotton waste, in course of carding and combing of ginned cotton does not amount to manufacture as no new product with distinct name, usages and character emerges. Appellant is engaged in manufacture of absorbent cotton from indigenous cotton, indigenous cotton waste and imported comber noil. These raw materials undergo process of physical and chemical cleaning and carding which results in the generation of further cotton droppings/ waste which is essentially cotton waste mixed with dirt and rubbish and not a 'manufactured' product. They place reliance on the decision of the Supreme Court in the case of Indian Aluminum Co. Ltd. [1995 (77) ELT 268 (SC)].
Ø In the impugned order, it has been held that decision in case of C T Cotton Yarn Ltd is distinguishable as in the said case the indigenous raw material was consumed and not imported raw material. The distinction drawn by the learned adjudicating authority is not correct as both the cases are identical. Under main Section 3 of the Central Excise Act, 1944, as well as proviso thereto the excise duty can be levied "only on goods which are produced or manufactured". In the case of C.T. Cotton Yarn Ltd. Vs. CCE, Indore, the Tribunal had held that the cotton waste generated was not a 'manufactured' product and as such no duty could be levied. Similarly, in the case of the appellant the cotton waste generated by a mere cleaning and carding process is also not a 'manufactured' product and the question of levying any excise duty does not arise. The processes undertaken determines whether the goods are produced or manufactured and not the source of raw material on which the said processes are undertaken.
Ø The Principal Commissioner nowhere in the impugned order states that the cotton waste generated in the manufacture of absorbent cotton is a manufactured/ produced product. It has been held by the Supreme Court in the case of Union of India vs. Ahmedabad Electricity Co. Ltd. reported in 2003 (158) ELT 3 (SC) that the onus to show that particular goods on which excise duty is sought to be levied have gone through the process of manufacture in India is on the revenue.
Ø Thus no excise duty can be levied on mere 'waste' generated, which is not a manufactured product.
Ø The words 'manufactured or produced in India' still appear in main Section 3(1) of the Central Excise Act and the proviso thereto and the said words form the core of the charging provisions of Section 3 of the Central Excise Act and the same have not been amended in any manner. So the judgement of the Tribunal, New Delhi, in the case of C. T. Cotton Yarn and various Supreme Court judgements relied upon by the appellant are applicable
Ø Reliance placed on notification No .84/2007-Customs and 29/2007-CE both dated 06.07.2007 is improper as the major demand of Rs. 1,12,02,687/- is for the period upto 31.3.2006 and the said notifications issued much after have no application
Ø The duty is being imposed for mere theoretical difference between the raw material consumed, the goods produced and the allowance of 5% of wastage. Prior to the above notifications dated 06.07.2007 there was no system of levying central excise duty on mere theoretical difference and the duty was to be levied only on the clearance of the manufactured goods into the DTA.
Ø The said notifications dated 06.07.2007 for the first time talked of levy of duty where the goods are not proved to the satisfaction of the officer to be used in connection with the production or packing in accordance with the standard input/output norms. In the said notification it is further provided that such self-declared norms were to be taken till fixation of the final norms. As such the said notification would apply only for periods after 06.07.2007 and can have no application whatsoever for determination of excise duty and custom duty for the earlier period.
Ø These two notifications were not referred in the original show cause notice dated 05.07.2006 issued by the earlier Commissioner of Central Excise as the said notifications came much later on 06.07.2007 and as such the adjudicating authority has gone beyond the show cause notice in justifying the levy of excise duty. These notifications were not brought to the notice of the appellant at any time. Thus the order for the periods subsequent to the notification is also bad in law.
Ø DGFT had revised input/output norms in the case of the company vide their letter dated 28.5.2009, adjudicating authority has erred in applying the revised norms from 28.5.2009 when the appellant has sought revision of norms on 04.05.2006. The Assistant Development Commissioner, SEEPZ, vide his letter dated 18.8.2011 clearly stated that as per the decision taken by the Norms Committee, the adhoc norms shall be applicable from 04.05.2006 till 31.3.2012. Thus the revised norms need to be applied from 04.05.2006.
Ø The levy of presumptive duty on alleged excess waste became applicable only from 06.07.2007 when fresh customs and excise notifications were issued. Further, notification provided that the excess wastage is to be taken only in relation to import and consumption of imported materials and the wastage on indigenously procured raw materials is not to be considered. Accordingly, in the chart enclosed herewith the excess wastage on imported raw materials is computed by taking the percentage of the imported material consumed to the total materials consumed. Thus the entire excess waste that could have been subjected to levy of excise duty upto 31.01.2011 works out to 33,119 kgs only, on which the total duty (including education cess and secondary & higher education cess) payable comes to Rs. 66,250/-
Ø As per these notifications the appellants had time of three years from the date of import or procurement of raw material to manufacture the finished products and the excise authorities are also vested with the discretion to extend the said time. Thus in terms of notifications are dated 06.07.2007, no show cause notice can be issued prior to 05.07.2010 and as such the entire demand created pursuant to the said notifications is bad in law.
Ø The appellant company had imported the raw materials availing the benefits of Tariff Notification No. 52/2003-Customs dated 01.03.2003. By the said notification all goods as specified in Annexure-I to the said notification when imported or procured from a public warehouse or a private warehouse for the purpose of manufacture of articles for export or being used in connection with production or packaging or job work for export of goods or services by export oriented undertaking are exempted. The appellant exported 100% of the goods manufactured by it and is entitled to the exemption provided in the said notification in Para 1 of the said notification.
Ø Para 3 of the said notification, exempts goods which on importation in India are used for the purpose of manufacture of finished goods and such finished goods even if not exported, are allowed to be sold in Domestic Tariff Area in accordance with the Export Import Policy also on payment of appropriate duty of excise leviable thereon u/s. 3 of the Central Excise Act, 1944.
Ø The appellant has exported all the finished goods manufactured by it and is availing exemption under Para 1 of the said notification and the said para 3 has no application to it whatsoever. It is, therefore, submitted that the exemption availed under Tariff Notification No. 52/2003-Customs dated 01.03.2003 is in order and there is no contravention by the appellant company in that regard.
Ø The CESTAT, Bangalore, in the case of Synergy Dooray Automotive Ltd. [2008 TIOL 682 (CESTAT Bangalore)] have upheld said interpretation of this notification.
Ø As mentioned above, the cotton waste arising in the production process which were sold by the appellant was not a manufactured product and as such on clearance of the same, no excise duty was leviable and as such no permission was required.
Ø Under Notification No. 6/97-CE, dated 01.03.1997 at Sr. No. 3 exemption is provided for goods falling under heading 52.02 produced or manufactured by a 100% EOU undertaking and allowed to be sold in India. There is no reason to disallow the benefit of the said notification to the appellant company.
Ø Under Notification No. 23/2003-CE, dated 31.03.2003 exemption was provided to goods produced or manufactured in an export oriented undertaking specified in the said notification. At Sr. No. 15 of the said notification exemption is provided to goods falling under Chapter 52.02 - Cotton Waste (including yarn waste and garneted stock).
Ø In the case of Mangalore Chemicals and Fertilizers Ltd. [2002-TIOL-234-SC-CX] that a subsequent notification cannot undo the benefits allowed under an earlier notification. Further, the Supreme Court held that equal importance cannot be attached to all the conditions of a policy as some of them may be substantive and some only related to procedures.
Ø The CESTAT in their order dated 22.02.2017 passed earlier for the period under consideration had also highlighted that the Commissioner passed the order earlier had not considered the important fact that the entire raw material is not imported and that there is indigenously procured raw material also to decide the duty on the cotton waste and droppings. This fact has been totally ignored by the Commissioner while adjudicating the matter in remand proceedings.
Ø Not. No. 23/2003 required the permission of the Development Commissioner for sale of goods into the DTA it specifically provided for it to avail of the exemption and the same is as found in Condition No. 7 dealing with Sr. No. 11 of the notification. The exemption in such a case would be available only to the extent the same is permitted by the Development Commissioner and not in excess thereof. There is no such requirement found in Sr. No. 15 of Notification No. 23/2003. From the reading of the notification as a whole it is crystal clear that for clearance of cotton waste no condition is prescribed.
Ø In any event not obtaining of permission from the Development Commissioner to sell the cotton wastes/scrap (assuming that the same is required) can only be regarded as a procedural lapse and the benefit of Notification Nos. 6/97 and 23/2003 is not to be denied only for procedural lapses.
Ø The FOB value of exports of the company for year ending 31.3.2002 to year ending 31.3.2006 aggregate to Rs. 203.55 crores and against the same the domestic sales of finished goods for the said period was Rs. 0.86 crores only and the domestic sales of waste were Rs. 2.30 crores only and the company was granted DTA entitlement certificates as under:-
For Year Ending
Rs. Crores (Approx.)
31.03.2001
6.23
31.03.2002
9.49
31.03.2003
14.23
29.95
Ø Thus it is seen that domestic sales are negligible, only 1.13% of FOB and much below the 50% of FOB prescribed in the EXIM policy for various years.
Ø The Department has sought to levy a tax on the difference between the weight of the raw material consumed and the weight of the finished goods produced viz. the absorbent cotton manufactured all of which has been fully exported after allowing 5% for wastage. This levy is illegal, wrong and incorrect because there is no provision for levying duty on mere theoretical differences and the duty of excise and custom is levied only on goods manufactured and cleared for sale and for transportation to DTA unit. This method of levying duty on the difference between the inputs and outputs is erroneous because in the process of manufacture of finished goods substantial amount of cotton waste is washed away or loss - the same is referred to as 'invisible waste'. Such invisible waste exceeds 50% of the entire cotton waste generated in the manufacture of absorbent cotton. Demanding duty on such invisible waste which is never cleared is erroneous and perverse.
Ø The extended period of limitation was not invocable as there was no suppression of fact with intent to evade duty on the part of the appellant. The first letter of enquiry regarding non-payment of duty on sale of cotton droppings was issued on 30.10.2003 and the assessee company's reply was filed on 04.11.2003. Thereafter, another letter dated 25.01.2005 was issued by the Department and the assessee's reply was filed on 14.02.2005. Thereafter, first show cause notice was issued on 21.3.2005. Thereafter, the Additional Commissioner of Central Excise issued second show cause notice dated 28.03.2006 for the period from 02.04.2001 to 31.03.2003. Thereafter, the Commissioner of Central Excise had issued show cause notice, now in dispute, dated 05.07.2006 which is much beyond the limitation period of one year. Hon'ble Supreme Court has in the case of Nizam Sugar Factory [(2006) 11 Supreme Court cases 573] when the first show cause notice was issued and all the relevant facts were to the knowledge of the authorities, later on while issuing of second and third show cause notice, same/similar facts could not be taken as suppression of the facts on the part of the assessee. In the present case the assessee had disclosed all the facts in its application for Bonded Warehouse dated 26.11.1996 filed with the department.
3.3 Arguing for the revenue learned Authorized Representative while reiterating the findings recorded by the Commissioner, submits as follows:
The Appellate had imported 100% Cotton Comber Noir falling under the Chapter 52.02 of the Customs Tariff Act, 1975 without the payment of Customs Duty against CT-3 Forms issued to them , to be used in the manufacture of Absorbent Cotton. During this process, Cotton Waste was generated.
As per the Handbook of Procedures - Input Output Norms prescribed in the Handbook of Procedures 1997-2002 and Foreign Trade Policy 2002-07 and subsequently in Foreign Trade Policy 2007-12 read with the Appendix 41 and 14L, the upper limit Cotton Waste generated for a manufacturer under this scheme is 5% of the raw cotton inputs used i.e. 50 gm of Waste to be generated for each 1.05 Kg raw cotton inputs.
The clearance of Waste is governed by Para 9.30 of Handbook of Procedures 1997-2002 , Para 6.8 (d) of the EXIM of the Foreign Trade Policy 2002-07 and Para 6.8 (e) of the Foreign Trade Policy 2007-12. They are produced here for reference :
Para 9.30 of Handbook of Procedures 1997-2002:
"(a) Waste/Scrap/remnants arising out of production process and in connection therewith , upto 5% of f.o.b. value of exports, may be sold in the DTA on the basis of records "
Similarly the provisions of Para 6.8 (d) of the Foreign Trade Policy 2002-07 read with Appendix 42H of the Handbook of Procedures 1997-2002 and Para 6.8 (e) of the Foreign Trade Policy 2004-09 read with Appendix 14F of the Handbook of Procedures have been contravened by the Appellate They all have similar provisions that the Waste to Input Ratio for EOUs are fixed by statue and have to be followed strictly to avail any benefits under Foreign Trade Policy or the Central Excise Act.
Ø The SCNs issued in this case are due to excessive generation of Cotton Waste by the Appellate as allowed for an EOU by the Central Excise Act, 1944 and the Foreign Trade Policy. The amount of Cotton Waste which an EOU can generate is proportional to the utilization of inputs. In this case, the required ratio of Waste to Inputs was not followed. the Appellate should have follow the Standard Input Output Norms given in the EXIM Policy.
Ø Also, the waste was cleared using private invoices without the approval of the Development Commissioner. The transgression was only discovered by the Revenue during EA-2000 Audit. Hence, the Appellate was issued SCNs by the Respondent to explain this deviation.
Ø From the order of the Commissioner, it is seen that DGFT had revised the Standard Input-Output Norms for the Appellate by visiting their EOU unit. The norms have been revised for Absorbent Uncarded Cotton and Absorbent Cotton Wool w.e.f. from 28.05.2009. But it was also noticed that the Appellate has not declared manufacture of Absorbent Uncarded Cotton to the CE Department in their Monthly CE Returns. The benefit of the revised norms has been given to the Appellate by Revenue. The calculations have been made by taking the revised norms by the Commissioner.
Ø The Appellate has actually imported duty free Comber Noil in terms of Notification No. 53/97-Cus and Notification No. 52/2003-Cus . In terms of condition 3(c) of Notification No. 52/2003-Cus, an exemption from Customs Duty and Additional Duty of Customs is only applicable when the imported goods are used for manufacture of exported goods :
Ø As per Notification 6/97-CE and 23/2003-CE which were relevant during this period, Nil Rate of duty was only to be charged on cleared goods , if the conditions given in these notifications are met. In the case of Dilip Kumar and Co. 2018 (361) ELT 577 (SC), the Apex Court has held that in the interpretation of tax exemption notification, a strict rule of interpretation has to be applied. Any Exemption Notification is not to be liberally interpreted in the favour of the assesse, the Exemption Provisions have to be interpreted strictly as per their plain language. As assesse has not followed the conditions notified in the above provisions, any benefit accruing from the Notification i.e. of clearance of product at Nil rate cannot be extended to the assesse.
Ø A very important point to cover was that the Appellate has not declared the clearance of the waste to the Department but has cleared the Entire Waste was not under the prescribed procedure of issuing CE Invoices as per Rule 17 of the Central Excise Rules, 2002 but by using Private Invoices. This clearly shows an intent to defraud the Department from Revenue. Hence extended period has been rightly invoked. Reliance placed on following authorities:
o The Bell Match Company [2019-TIOL-1117-HC-MAD-CUS],
o Samsaa Rubber And Polymers Pvt Ltd [2019-TIOL-2617-CESTAT-HYD],
o K.I.International Ltd. [2012 (2) ECS (126 ) (Tri-Chen)],
Ø CESTAT has remanded this case as the difference between indigenously procured and imported cotton was not considered by the OAA and has also said that the case of C.T. Cotton Yarns was not decided entirely on merit but also limitation issue as the SCN in CT Cotton (supra) was issued even beyond the extended period of five years.
Ø Regarding the distinction between domestically procured and imported inputs, it was observed that the Appellant has indeed procured some inputs domestically but they were not able to produce a batch wise utilization of these inputs versus the imported inputs in front of Commissioner (Appeals). This information is in special knowledge of the Appellate and hence Commissioner could not grant them any benefit for the same. The imported inputs being sufficient to produce the DTA clearances have been considered as the sole inputs in the production of waste.
Ø The Appellant having asserted the fact should have been able to evidence in its favour in front of Commissioner (Appeals). The Appellate now cannot produce this document at this stage of litigation. The Appellate in their reply has stated several technical grounds in their favour but has not been able to counter the main allegation made by the Revenue.
Ø They have also made a plea that the duty demanded in the SCNs should be calculated on cum basis. Here, the OIO has held that the duty demanded is actually on the Excess Consumption of Inputs compared to the waste generated and hence the benefit of cum duty cannot be accorded to the Appellant
Ø In the cases presented by the Appellate, there has never been a dispute regarding the requirement of permission from Development Commissioner as per the requirements of Central Excise Act and Foreign Trade Policy. This is a valid requirement which has not been followed by the Appellate and hence these cases are not applicable to the present case.
Ø The plea made by the Appellate that Revenue was aware of the excess generation of waste is not accurate. The Appellate had also not declared the quantity of waste in their annual returns. Also they had obtained their EOU license in 1996 while the sale of waste was only allowed in the Foreign Trade Policy 2002-07 and this is the period for which SCNs have been issued. Hence, no declaration to Revenue was made. The waste was cleared using private invoices without the approval of the Development Commissioner. The transgression was only discovered by the Revenue during EA-2000 Audit.
Ø Shri Vikram Kapur (Noticee No.2 in the 3rd SCN), is the person responsible for the day to day activities and is responsible for not declaring the Cotton Waste to the Department. This has resulted in nonpayment of duty as far as excess generation of the Cotton waste. This Excess Cotton Waste is therefore liable for confiscation. The act of misdeclaration and excess generation of Cotton Waste has emerged only from a detailed investigation.
Ø Section 3 of the Central Excise Act, 1944 has been amended w.e.f. from 11.05.2001 by substituting the words 'brought to any place in India' in place of 'allowed to be sold in India'. Hence, from 11.05.2001,all clearances to a DTA from an EOU is governed by Section 3 of the Central Excise Act, 1944.Section 3 provides for levy of duty equal to aggregate of the Duties of Customs on goods which are manufactured outside India and are imported inside India. The judgments relied upon by the Appellate are also from a period prior to May-2001 and hence are not applicable in the case after the amendment in Section 3 of the Central Excise Act, 1944.
Ø The Impugned OIO has relied on the Lager Bench Judgement of Hon`ble CESTAT in Kumar Arch Tech Pvt Ltd. [2013 (290) ELT 372 (T-LB)] . Here, the Hon`ble Tribunal has upheld that for DTA Clearances of EOU, duty as per Section 3 of the Central Excise Act, 1944 has to be charged. The period in this matter was post May-2001. Also, this decision was followed in cases of 2015 (316) ELT 498, 2015 (327) ELT 514, 2015 (328) ELT 620 , 2015 (327) 514, 2016 (338) ELT 435, Samyu Glass 2017 (6) GSTL 330 where it has been held that on DTA Clearances of COU , duty as per Section 3 of the Central Excise Act, 1944 has to be paid.
Ø Part of the demand was dropped in the OIO because as per the Ratio of Sarla Perf. 2016 (336) ELT [577], the duty should be demanded under Section 3(1) of the Central Excise Act, 1944 and the duty prior to 10.05.2003 on Cotton Waste is Nil. Also, the period of 1.6.2001 to 31.3.2003 is repeated in the Second and Third SCN and hence the same is dropped from the demand of the Second SCN.
4.1 We have considered the impugned order along with the submission made in appeal, during the course of argument and also in the written submission.
4.2 The matter was remanded by the CESTAT, earlier for consideration of the issue in light of the decision of the tribunal in case of C T Cotton, on remand from Hon'ble Apex Court. Commissioner has in the impugned order on the merits of the demands observed as follows after considering the decision in case of C T Cotton:-
"28. First, it is of paramount importance to discuss the applicability of the judgement of Hon'ble Supreme Court in C.T. Cotton Yarn case to the instant cases, as it is the foremost and basic contention of the assessee.
28.1 I find that in the case of C.T. Cotton yarn, upon the matter being remanded to the Tribunal by the Apex Court, CESTAT in de novo proceedings held that obtaining of Soft Cotton Waste in the course of carding and combing of ginned cotton does not amount to manufacture.
28.2 Here I would like to point out that the judgement of the CT Cotton Yarn was with regard to the dutiability of Cotton Waste arising out of indigenously procured Cotton. The judgement does not deal with cotton waste generated from imported Comber Noils, which were procured duty free by availing the benefit of exemption notification.
28.3 Further, for the period from June 2001 to Jan 2011, the duty has been demanded on the excess generation of cotton waste by alleging that they consumed excess duty free imported raw material than prescribed to that extent and computing duty amount foregone on the said imported comber noil. In other words, duty has been sought on the imported comber noil procured duty free and consumed in excess of the permitted norms. The SCNs do not demand duty on the cotton waste cleared by the assessee, Hence, the benefit of the judgement of C.T. Cotton Yarn, which deals with the dutiability of Cotton Waste cannot be extended to the demand made vide the 3rd SCN and the subsequent periodical SCNs, since in these SCNs duty has been demanded on excess consumption of Comber Noil, leading to the excess generation of Cotton Waste and that there was no dispute regarding dutiability or non-payment of duty on cotton waste involved.
Hence, I do not find it appropriate to apply the ratio of the aforesaid judgment to the instant cases,
28.4 Further even if it is considered that cotton waste generated is not a manufactured product as held by CESTAT in the case of CT Cotton Yarn, then Cotton Waste becomes non excisable. In Para 7 of Notification No. 53/97-Cus, it was laid down that where goods cleared into DTA were non excisable, Customs Duty equal in amount to that leviable on the inputs obtained under this Notification and used in production of such non excisable articles, which would have been paid, but for exemption under this Notification, shall be payable at the time of Clearance of such article. Thus, on the clearance of Cotton Waste, if considered non-excisable, the aggregate of Customs duties involved on Comber Noil imported duty free by availing exemption, but not used for the purpose specified but cleared as Waste shall be recovered from the assessee. This provision has been stipulated to safeguard the duty foregone on import of raw materials which are not used in the manufacture of finished goods or are used in excess of the permitted norms. The wordings of para 7 of the said Notification is reproduced as under:
"(7) Notwithstanding anything contained in this notification the exemption herewith shall also apply to goods which on importation into India are used for the purpose of manufacture of articles within hundred per cent Export Oriented Unit and such articles (including rejects, waste and scrap material arising in the course of manufacture of such articles) even if not exported out of India, are allowed to be sold in India, in accordance with the Export and Import Policy, on payment of duty of cotton waste excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944) or where such articles (including rejects, waste and scrap material) are not excisable, customs duty equal in amount to that leviable on the inputs obtained under this notification and used for the purpose of manufacture of such articles, which would have been paid, but for the exemption under this notification, shall be payable at the time of clearance of such articles, or where such articles are cleared to the warehouses appointed or registered under the notification of the Government of India. in the Ministry of Finance, Department of Revenue number 26/98-Central Excise (NT), dated the 15th July, 1998 or cleared to warehouse authorized to carry on manufacturing process or other operations under section 65 of the Customs Act, 1962 (52 of 1962) and under the Manufacture and Other Operations in Warehouse Regulations, 1966 or cleared to the license holders referred to in clause (e) of paragraph 6.9 of the Export and Import Policy, without payment of duty."
Next, I proceed to discuss whether the requirement of permission from the Development Commissioner was mandatory to avail the benefit of Notifications No. 6/97-CE or 23/2003-CE. To decide this, I find it pertinent to reproduce below the relevant portions of the EXIM Policy 1997-2002, 2002-2007, 2004-2009 and 2009-2014.
29.1 Exim Policy, 1997-2002
Para 9.20 stipulates that scrap/waste/remnants arising out of production process or in connection therewith may be sold or disposed of in the DTA on payment of applicable duties.
Appendix 42 of the Handbook of Procedures, 1997-2002
(e) An application for sale of goods, rejects, waste, scrap and remnants in DTA as per Para 9.9 and 9.20 of the Policy by the EOUS shall be submitted to the Development Commissioner of the EPZ concerned in the form given at Annexure A. The application shall be certified by an Independent Cost/ Chartered/Cost and Works Accountant and endorsed by the Bond Officer of Customs/ Central Excise having jurisdiction over the unit. The Development Commissioner of the EPZ concerned will determine the extent of the DTA sale admissible and issue a goods removal authorization in terms of value. An EPZ unit may effect sale in DTA on the basis of records maintained by it with prior intimation to Customs Authorities
29.2 EXIM Policy 2002-07
Para 6.8 (d) provides that scrap/waste/remnants arising out of production process or in connection therewith may be exported or sold in the DTA on payment of duties as applicable under paragraph 6.8 (b) of the Policy within the overall ceiling of 50% of FOB value of exports but shall not be subject to achievement of minimum NFEP. Sale of waste/ scrap/remnants by units not entitled to DTA sale or sales beyond the DTA sale entitlement, shall be on payment or full duties.
Appendix 14F reads as under -
(2) An application for sale of good in DTA as per EXIM Policy by the EUs shall be submitted to the Development Commissioner concerned in the form given at Annexure-A. The application shall be certified by an Independent Cost/Chartered/Cost and Works Accountant and endorsed by the Bond Officer of Customs/Central Excise having jurisdiction over the unit. The Development Commissioner of the EPZ concerned will determine the extent of the DTA sale admissible and issue authorization in terms of value. An EPZ unit may effect sale in DTA on the basis of records maintained by it subject to payment of applicable duties to Customs Authorities.
29.3 FTP 2004-2009
Para 6.8(e) lays down that scrap / waste / remnants arising out of production process or in connection therewith may be sold in DTA, as per SION notified under Duty Exemption Scheme, on payment of concessional duties as applicable, within overall ceiling of 50% of FOB value of exports. Such sales of scrap / waste 1 remnants shall not be subject to achievement of positive NFE. In respect of items not covered by norms, DC may fix ad-hoc norms for a period of six months and within this period, norms should be fixed by Norms Committee. Ad-hoc norms will continue till such time norms are fixed by Norms Committee. Sale of scrap / waste / remnants by units not entitled to DTA sale, or sales beyond DTA sale entitlement, shall be on payment of full duties. Scrap / waste / remnants may also be exported.
The Appendix-14-I-H of Handbook of Procedures 2004-09 read as under:
"An application for sale of goods in DTA as per EOU Scheme by the EOUS shall be submitted to the Development Commissioner concerned in the form given at Annexure-A. The application shall be certified by an independent Cost/ Chartered / Cost and Works Accountant and endorsed by the Bond Officer of Customs/ Central Excise having jurisdiction over the unit. The Development commissioner concerned will determine the extent of the DTA sale admissible and issue authorization in terms of value. However, EOUs having status holder certificate can sell finished goods into under para 6.8(a) of Foreign Trade Policy under intimation to the concerned Development Commissioner and Jurisdictional Central Excise Authority in terms of Para 6.39.9 of Handbook". 1977
29.4 FTP 2009-14
Para 6.8 (e) states that scrap / waste / remnants arising out of production process or in connection therewith may be sold in DTA, as per SION notified under Duty Exemption Scheme, on payment of concessional duties as applicable, within overall ceiling of 50% of FOB value of exports. Such sales of scrap / waste / remnants shall not be subject to achievement of positive NFE. In respect of items not covered by norms, DC may fix ad-hoc norms for a period of six months and within this period, norms should be fixed by Norms Committee. Ad-hoc norms will continue till such time norms are fixed by Norms Committee. Sale of waste/ scrap/ remnants by units not entitled to DTA sale, or sales beyond DTA sale entitlement, shall be on payment of full duties. Scrap / waste / remnants may also be exported.
The Appendix-14-1-H, sub-clause (e) of Para I of the Foreign Trade Policy and Handbook of Procedures 2009-14 read as under:
An application for sale of goods in DTA as per EOU Scheme by the EOUS shall be submitted to the Development Commissioner concerned in the form given at Annexure -A. The application shall be certified by an independent chartered/ Cost and Works Accountant and endorsed by the Bond Officer of Central Excise having jurisdiction over the unit. The Development commissioner concerned will determine the extent of the DTA sale admissible and issue authorization in terms of value. However, EOUs having status holder certificate can sell finished goods into under para 6.8(a) of Foreign Trade Policy under intimation to the concerned Development Commissioner and Jurisdictional Central Excise Authority in terms of Para 6.39.9 of Handbook".
29.5. The assessee has submitted that the cotton waste, even if it is held dutiable is exempted in terms of Notification Nos. 6/97 and 23/2003 during the period under consideration. The relevant portion of the Notification No. 6/97-CE. dated 01.03.1997 and 23/2003 dated 31.03.2003 are reproduced verbatim as under: Notification No. 6/97-CE dated 01.03.1997
"In exercise of the powers conferred by sub-section (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 hereto annexed and falling within the heading No of the Schedule to the Central Excise Tariff Act. 1985 (5 of 1986) specified in the corresponding entry in column (2) of the said Table, from the whole of the Duty of Excise leviable thereon under Section 3 of the said Central Excise Act. 1944,
Sl. No.
Heading No.
Description of goods
1
2
3
3
52.02
All goods produced or manufactured -
(a) in a free trade zone and brought to any other place in India; or
(b) by a hundred per cent export oriented undertaking and allowed to be sold in India."
.Notification No.23/2003-CE, dated 31.03.2003, as amended, read as under:
"In exercise of the exercise of the powers of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944) (hereinafter referred to as the Central Excise Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column(3) of the Table below, and falling within the chapter heading No, or sub-heading No. of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) (hereinafter referred to as the Central Excise Tariff Act), specified in the corresponding entry in column (2) of the said Table, produced or manufactured in an export oriented undertaking or an Electronic Hardware Technology Park (FHTP) Unit or a Software Technology Park (STP) Unit and brought to any other place in India in accordance with the provisions of EXIM Policy/Foreign Trade Policy and subject to the relevant conditions specified in the Annexure to this notification, and referred to in the corresponding entry in column (5) of the said table, from so much of the Duty of Excise leviable thereon under Section 3 of the said Central Excise Act as specified in the corresponding entry in column (4) of the said Table.".
SL No
Chapter or heading No. or sub-heading No
Description of goods
Amount of Duty
Conditions
15
52.02
Cotton waste (including yarn waste and garneted stock)
In excess of "Nil
The Notification No. 6/97-CE dated 01.03.1997 provides for exemption of goods falling under chapter heading 52.02, produced or manufactured by a 100% EOU and allowed to be sold in India. Thus, it is clear that to avail the benefit of the Notification ibid, the condition stipulated is that the goods are allowed to be sold in India. The term "allow' means to give permission. Hence read in the whole context of the Notification, the phrase "allowed to be sold in India' can be construed as permission from appropriate authority. I further find that the expression Allowed to be sold in India' has been interpreted as permission by concerned authorities as held by the Hon'ble Supreme Court in the case of Agricultural & Processed Food Products Vs. Oswal Agro Furnace - Civil Appeal Nos. 3785, 3786 and 3787 of 1992 and T.C. (C) No.15 of 1996, decided on 30.04.1996 Thus, the exemption benefit provided in the Notification was available only if the goods were permitted by the Development Commissioner, being the appropriate authority in case of 100% EOU, to be sold in India.
In this regard, para 42(e) of the Appendix to Handbook of Procedures 1997-2002 stipulates for submission of application duly certified by independent Cost/ Chartered/ Cost and Works accountant and endorsed by the jurisdictional bond officer of Customs/ C.Ex., to the Development Commissioner for sale of waste in DTA by EOUs. The Development Commissioner will determine the extent of DTA sale admissible and issue a goods removal authorisation in terms of value. The EOU are required to effect such permitted sale in DTA on the basis of records maintained by it with prior intimation of jurisdictional Customs Authorities.
30.1 Similarly, Notification 23/2003-CE dated 31.03.2003 exempted excisable goods falling under chapter heading 52.02, produced or manufactured in a 100% EOU and brought to any other place in India with a condition that DTA sale should be in accordance with the provisions of EXIM Policy Foreign Trade Policy. For availing benefit of this Notification, the condition stipulated is that the DTA sale should be in accordance with the provisions of EXIM Policy.
30.2 A cursory glance of the EXIM policy/ FTP along with the Handbook of. Procedures reveals that for effecting DTA sale, submission of application to the Development Commissioner was a mandatory requirement for determination of the extent of DTA sale admissible and thereafter allowing the sale to that extent. It was not meant to provide blanket permission for DTA sale. Moreover, the sale was to be effected in DTA on the basis of records maintained by the EOU, with prior intimation to the jurisdictional Customs Authorities. Further w.e.f, the date the DTA sale was subject to SION, DTA sale of waste was allowed as per SION notified on payment of concessional duties and where the waste generated was in excess of permitted norms, the EOU may apply to Development Commissioner to fix ad-hoc norms. Thus, obtaining the permission of the Development Commissioner for effecting DTA Sale of Cotton waste was an inherent requirement and cannot be dispensed with. Therefore, once the mandatory requirement of obtaining the permission from the Development Commissioner has not been fulfilled, the benefit of exemption Notification cannot be made available to such clearances in DTA. Hence, the contention of the assessee to this effect is not tenable.
30.3 Here, it is also relevant to peruse the provisions of para 3 of the Notification No.52/2003-Cus. Dated 31.3.2003 which is as under:
"Notwithstanding anything contained in this notification, the exemption herewith shall also apply to goods which on importation into India or procurement, are used for the purpose of manufacture of finished goods or services and such finished goods and services, (including by by-products, rejects, waste and scrap arising in the course of production, manufacture, processing or packaging of such goods) even if not exported, are allowed to be sold in Domestic Tariff Area in accordance with the Export and Import Policy and subject to such other limitations and conditions as may be specified in this behalf by Development Commissioner, or the Board of Approval or the Inter Ministerial Standing Committee, as the case may be, on payment of appropriate duty of excise leviable thereon under section 3 of the Central Excise Act, 1944(1 of 1944) or where such finished goods (including by-products, rejects, waste and scrap) or services are cleared to the warehouse appointed or registered under notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 26/98-Central Excise (NT), dated the 15th July, 1998 or No. 46/2001 Central Excise (NT), dated the 26thJune, 2001 or cleared to the warehouse authorised to carry out manufacturing process or other operation under section 65 of the Customs Act, 1962 (52 of 1962) and under the Manufacture and Other Operations in Warehouse Regulation, or cleared to the holders of certificate from Apparel Export Promotion Council and Council for Leather Export for duty free imports as referred to in clause (e) of the paragraph 6.9 of the Export and Import Policy, without payment of duty"
30.4 Further, as per Letter of Permission (LOPI No. PER/65(1997)/EOB/19/97 dated 26.02.1997, as amended vide No. SEEPZ/28(23)/97 dated 10/10/2001 and No. SEEPZ-SEZ/EOU/28(23)/97 dated 12/08/2004 issued to the assessee, it was apparent that the approval of the permission was subject to the four conditions mentioned as (a) to (d) of the said LOP, wherein condition (a) stated that the entire (100%) production, excluding rejects and sales in the Domestic Tariff Area (DTA), as per provision of Export and Import Policy for a period of 5 the years shall be exported."
30.5 Besides, the Board has viewed that SION should be applicable not only for waste cleared in DTA on payment of duty but also for accounting of input consumption for manufacture of export products. Inputs consumed in excess of SION cannot be taken as duly accounted for and consequential action is to be initiated. To implement this, Notifications Nos. 84/2007-Cus and 29/2007-Cus both dated 06.07.2007 were issued so as to introduce a system of accounting of inputs/ raw materials based on SION.
Thus, from the foregoing, it can be concluded that the EXIM policy juxtaposed with the relevant provisions of Customs and Central Excise, mandated obtaining permission of the Development Commissioner in or avail the benefit of Exemption Notification No. 6/97-CE or 23/2003-CE for effecting sale of waste in DTA. As the assessee failed to obtain the permission from the Development Commissioner for DTA clearances in respect of Cotton Waste, they are not eligible to claim the benefit of Exemption Notification No. 6/97-CE or 23/2003-CE for non-compliance of the conditions of the said notifications.
The assessee has further contested that obtaining of permission is a mere procedural formality and can be condoned. However, they failed to appreciate that any permission sought is granted subject to the fulfilment of certain conditions. Besides, permission cannot be treated as a matter of right as the authorised authority may also refuse to grant the permission, if conditions stipulated in the policy are not followed. In this case as explained above, the assessee has failed to fulfil condition relating to the permitted input output norms.
31.1 If obtaining permission was a mere procedural formality and can be condoned as contended by the assessee, then they would have easily obtained the permission at the relevant time or obtained condonation for the same after the issuance of the first OIO. However, the fact remains that they failed to apply for such permission or apply for condonation with the Development Commissioner despite several OIOs ruling against them.
31.2 It is also important to note that in the judgments concerning the dutiability of Cotton Waste, the issue regarding the requirement of permission has never been disputed. The judgments determine the applicability of main Section 3(1) or use to Section 3(1) for clearances on Cotton Waste in DTA based on whether permission was obtained or otherwise. This sufficiently adds credence to my above stance that permission of Development Commissioner was mandatory.
31.3 The assessee has taken refuge in the judgement pertaining to the case of Mangalore Chemicals and Fertilisers Ltd (supra), however, in the said case, the permission had been sought well before the commencement of respective years but had been withheld by the Sales Tax Department. Whereas, in the instant case, neither the permission has been sought as per the mandatory conditions nor application for condoning the same has been made to the Development Commissioner. Hence the ratio of the said case is not applicable to the instant case. It is settled law that non-fulfilment of the prescribed conditions of a notification shall be fatal for the assessee and they cannot avail the benefit of the exemption thereunder. Reliance is placed on the case of Harichand Shri Gopal 2010 (260) ELT 3 (SC), Eagle flask Industries Limited (2004(09)LCX 0235] in this regard. It is also settled law that the conditions of the notification have to be read strictly according to the language employed therein. Reliance is placed on the case law of H.M.M Ltd Vs .Collector - 1986 (87) ELT 593(SC), Dharmandra Textile PROCESSOIS Vs. Union of India reported in [2008 (231) ELT.3 (S.C.)], Novopan India LACHEESCO (1994(73) ELT.769 (S.C.)], Sunder Steels Ltd., [2005(181) E.L.T. 154 , (SC Rajasthan Spg. & Wvg. Mills vs. CCE [1995 (77) ELT.474 (SC)] in this the latest case of Dilip Kumar & Co. 2018 (361) E.L.T. 577 (SC), Hon'ble Supreme Court has held with regard to interpretation of tax exemption Notification that it is the law that any ambiguity in a taxing statute should ensure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue - and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. It is further affirmed that every taxing statue and exemption clause should be interpreted strictly. I therefore reject the contention of the assessee and hold that they are not eligible to the benefit of the said notifications for non-fulfilment of the conditions prescribed therein.
Now, after establishing that obtaining permission from Development Commissioner was mandatory for DTA sale, the next question that arises is whether duty is to be demanded under the main Section 3(1) or proviso clause to Section 3(1) of Central Excise Act, 1944.
32.1 Section 3 of the Central Excise Act, 1944 is the charging section for levy of Duties specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985. Section 3 provides for levy of Duty on goods produced or manufactured by a 100% Export Oriented Undertaking (EOU). Under this first proviso, the Duties of Excise chargeable shall be an amount equal to the aggregate of the Duties of Customs which would be leviable under the Customs Act, 1962 or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India.
32.2 It is relevant to note that Section 3 amended by Section 120 of Finance Act, 2001 w.e.f. 11.05.2001 by substituting the words brought to any other place in India' in place of "allowed to be sold in India'. Hence, w.e.f. 11.05.2001, all clearances to D.T.A. by an EOU shall be liable to duty in terms of the proviso to Section 3(1) only.
32.3 Accordingly, w.e.f. 11.05.2001, the Duty leviable on the subject Cotton waste/ scrap would be the aggregate of Duties of Customs leviable on the said product in terms of proviso to section 3(1) of CEA, 1944.
32.4 The assessee has contended that the duty has to be levied as per the main section 3 of the Central Excise Act, 1944. They have relied upon several judgments in support of their claim. I observe that in these relied upon judgments, the duty was sought to be levied as per the main section 3 of the Central Excise Act, 1944, the duty is demanded on the clearance of goods (Emphasis laid without obtaining the permission of the Development Commissioner. However, in the instant case, concerning the period from June 2001 onwards, duty is not demanded on the clearance of Cotton waste but is being demanded on the generation of excess waste or ex imported Comber Noil, which was procured duty free, hence ratio of these judgments are not applicable. Further, the period covered in the various judgments relied upon by the assessee is prior to May 2001 amendment of Section 3 of CEA, 1944, hence reliance cannot be placed on these judgments for the demand made for the period post 10.05.2001.
32.5 After the amendment in charging Section, all clearances are to be effected by applying the proviso clause of Section 3(1) of CEA 1944. The Tribunal's Larger Bench decision in case of Kumar Arch Tech Pvt. Ltd. v. CCE Jaipur-II - 2013 (290) E.L.T. 372 (Tri. - LB), especially relevant para-9 thereof is referred to in this regard:
" 9.We also find it difficult to accept the other plea of the appellant that proviso to Section 3(1) is a legal fiction under which the goods manufactured by a 100% EOU and cleared into DTA are to be treated as goods imported into India. On perusal of the proviso, we find that what this proviso provides is a measure of central excise duty leviable on the DTA clearance of 100% EOU and this measure is the aggregate of the duties of customs on the import of like goods into India and if the rate of duty is ad valorem, duty is to be calculated on the value determined under the provisions of Customs Act, 1962 and Customs Tariff Act, 1975. In fact a Larger Bench of the Tribunal in the case of Vikram Ispat reported in 2000 (120) E.L.T. 800 (Tribunal-LB) has held that the duty chargeable on the DTA clearance of a 100% EOU is a central excise duty and the method adopted by the law makers in recovering this duty cannot alter its character and what the proviso to Section 3(1) of Central Excise Act, provides is only the measure of the central excise duty leviable on the DTA clearances of a 100% EOU. Therefore, in our view, it would not be correct to treat the clearance of the goods manufactured by 100% EOU into DTA as deemed imports into India."
The above Kumar Arch Tech decision has been relied / followed in a number of judgments namely 2015 (316) E.L.T. 498 (Tri.-Ahmd.), 2015 (327) E.L.T. 514 (Tri.-Ahmd.), 2015 (328) E.L.T. 620(Tri.:- Del.), 2016 (338) E.L.T. 435 (Tri. - Ahmd.) and Samyu Glass Pvt.Ltd. 2017 (6) G.S.T.L. 330 (Tri. - Hyd.) wherein it has been held that Duty to be paid by EOU on its DTA clearances, is Central Excise Duty in terms of proviso to Section 3(1) of Central Excise Act, 1944.
After having held that the excess cotton waste generated by consuming imported comber noil procured duty free are chargeable to duty under the proviso clause of Section 3(1) of the Central Excise Act, 1944, I now proceed to discuss the other contentions of the assessee.
4.3 From the above observations made by the Commissioner, it appears that he distinguishes the decision of the C T Cotton, holding that the demand for duty is not by holding that the cotton waste is a manufactured product, but he demands duty in respect of the imported inputs namely comber noils received without payment of duty in terms of notification No 53/97-Cus, which do not get duly accounted for as per the para 7 of the said Customs Notification. Thus the Commissioner has proceeded to demand the duty not on the clearance of the cotton waste but on the excess generation of the cotton waste during the period from June 2001 to Jan 2011, as per this notification (refer para 28.3 of impugned order). We do not find much merits in the approach adopted by the Commissioner because the show cause in respect of all the demands made have been issued in terms of section 11A of The Central Excise Act, 1944. For the contravention of provisions of a notification issued under Customs Act, 1962 and provisions of Foreign Trade Policies (issued from time to time) and Handbook of Procedures, the demand should have been made under Section 28 of Customs Act, 1962. Proviso to Section 3, of Central Excise Act, 1944, do not clothe the customs duty as central excise duty but provide a measure for levy of central duty on goods produced or manufactured by a Export Oriented Unit. In case of C T Cotton, tribunal has laid down as follows:
"6. The point of dispute is as to whether DTA clearances of "soft cotton waste" would attract duty in terms of proviso to Section 3(1) of Central Excise Act, 1944, read with exemption Notification No. 2/95-C.E. Under Section 3(1), duty is leviable on all "excisable goods, (excluding goods produced or manufactured in SEZ), produced or manufacture in India, at the rate set-forth in First Schedule to Central Excise Tariff Act, 1985. Under proviso to Section 3(1), duty on DTA clearance of a 100% EOU shall be the aggregate of duties of customs leviable on like goods produced or manufacture outside India, if imported into India and when the rate of customs duty on like goods is ad valorem, the assessable value of the goods produced or manufactured by the 100% EOU and cleared into DTA shall be determined under Section 14 of the Customs Act, 1962. Notification No. 2/95-C.E. provides a concessional rate of duty of 50% of the rate specified in proviso to Section 3(1) in respect of DTA clearances made within the DTA quota as determined by the Development Commissioner. Thus the key points for attracting the provisions of proviso to Section 3(1) are -
(a) the goods cleared into DTA by the 100% EOU are excisable goods and
(b) the goods are the result of a process of manufacture.
5.1 The term "excisable goods" in terms of its definition given in Section 2(d) means goods specified in the First and Second Schedule to the Central Excise Tariff Act, 1985 as being subject to duty of excise. Hon'ble Supreme Court in the cases of CCE v. Indian Aluminium Co. Ltd. reported in 2006 (203) E.L.T. 3 (S.C.) and CCE, Patna v. Tata Iron and Steel Co. Ltd. reported in 2004 (165) E.L.T. 386 (S.C.), has held that the "goods" must be a marketable commodity.
5.2 Thus for deciding the question as to whether the DTA clearances of 'soft cotton waste' would attract duty under proviso to Section 3(1) of Central Excise Act, 1944, three points have to be decided -
(1) whether soft cotton waste has emerged as a result of a manufacturing process ?
(2) whether it is covered by some entry in Central Excise Tariff as being subject to duty ?
(3) whether soft cotton waste is a marketable commodity - know or traded commerce as a commodity which is brought and sold.
5.2.2 During the period of dispute i.e. w.e.f. 16-3-1995 Heading 5202 covered - "cotton waste (including yarn waste and garneted stock)". Heading 5202 of Central Excise Tariff is identical to HSN Heading 5202 and hence HSN explanatory notes would be a good guide in understanding the scope of Heading 5202 of Central Excise Tariff. As per HSN explanatory notes to this heading, the same includes - combing waste, usually referred to as comber noils, strippings recovered from carding or combing cylinders; carding fly, broken fibres detached during drawing process, and fragments of slivers or roving. The 'soft cotton waste' in question, arising during carding and combing of ginned cotton consists of short fibres and other waste (dust etc.). In our view, this waste would be covered by Heading 5202.
Coming to the question, as to whether 'soft cotton waste' is the resultant product of a process of manufacture, i.e. a product with a new and distinct commercial identity with distinct character and usage from that of raw material, we find that it is nothing but short fibres and other waste material obtained in course of carding and combing of ginned cotton. The Department has not produced any evidence to show that 'soft cotton waste' is a product commercially distinct from cotton with different character and usages - the Department's decision to treat the same and excisable is based only on the fact that during the period of dispute, tariff heading 5202 covered "cotton waste", which by itself, in view of Apex Court's judgment in case of CCE, Chandigarh v. Markfed Vanaspati and Allied Industries reported in 2003 (153) E.L.T. 491 (S.C.), would not make this product excisable.
6.1 Hon'ble Supreme Court, in case of Krishi Utpadan Mandi Samiti, Kanpur and Others v. Ganga Dal Mill & Co. and Others reported in (1984) 4 SCC 516, while considering the question whether legume, whole grain, when notified as a "specified agricultural produce" within the meaning of this expression as defined in Section 2(t) of the U.P. Utpadan Mandi Adhiniyam, 1964, would also comprehend its split folds or parts, commercially called Dal, so as to enable Mandi Samiti to levy market fee under Section 17 of the Act on the transaction of sale of Dal of legumes specified in the Schedule to the Act, and whether the whole includes the parts (starting sentence of the judgment), and holding that the legumes specified in the Act comprehend both the whole grain of legumes and it split parts called Dal, has, in para 18 of the judgment relied upon its earlier judgment in case of Modi Spinning & Weaving Mills Co. Ltd. v. State of U.P. reported in 1980 UPTC 1337, wherein in the context of U.P. Krishi Utpadan Mandi Adhiniyam, 1964 it was held that the entry "cotton ginned and unginned" would also cover "cotton waste" which is clippings, stripping and other waste product while ginning cotton. We are of the view that it is this judgment of the Apex Court which is applicable to the facts of this case as it directly answers the question as to whether 'cotton waste' is essentially an inferior quality of cotton or is something totally different from the unprocessed cotton with different character and usages.
6.2 As regards the judgment of Hon'ble Supreme Court in case of Commissioner of Sales Tax, Bombay v. BPLC and Others reported in 1995 (77) E.L.T. 790 (S.C.), Bombay Sales Tax Act, 1959 provided for set-off of the sales tax paid in respect of certain specified goods purchased by a manufacturing dealer and used within the state in the manufacture of taxable goods sold by him. The term "manufacture" was defined in Section 2(17) of the Bombay Sales Tax Act as -
"manufacture with all its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing or otherwise treating or adopting any goods, but does not include such manufactures or manufacturing processes as may be prescribed."
6.2.1 The dispute in case of BPCL was as to whether they would be eligible for set-off of sales tax paid on Sulphuric Acid, used in Acid Sludge emerging in course of refining of crude oil for manufacture of kerosene, for which sulphuric acid had been used. Acid sludge had been sold and sales tax had been paid on that sale. Proportionate set-off was sought to be denied by the sales tax authorities on the ground that what was manufactured was kerosene and not acid sludge.
6.2.2 In the case of Phulgaon Cotton Mills, also decided by the same judgment by the Apex Court, the assessee purchased raw unginned cotton from agriculturists and unregistered dealers which was used in the manufacture of cotton yarn and cotton fabrics in course of which some cotton waste and yarn waste was also generated. On the purchase of raw cotton, purchase tax was paid by the assessee. Cotton waste was sold on which sales tax was paid. Here also, the dispute was as to whether the assessee can be said to have manufactured cotton waste, so as to be eligible for set-off of purchase tax paid on cotton contained in the cotton waste sold.
6.2.3 In this background the Apex Court held that when by-products, residues and waste and scrap arise in course of manufacture of main product regularly and continuously and are also sold regularly from time-to-time, intention can be attributed to manufacturer to manufacture and sell not only the main product but also the subsidiary products.
6.2.4 The above judgment only answers the question that when a manufacture manufactures a product 'A' for sale, and in course of manufacture of product 'A', an inevitable and unavoidable waste product 'B' also arises, which is also sold regularly along with the main product, whether the manufacturer can be said to have intention to manufacture waste product B also. The above question has been answered in the affirmative. But the question as to whether Acid sludge and cotton waste are the resultant products of a process of manufacture was neither raised in this case nor answered - the reason for this may be that these processes would be 'manufacture' within the meaning of this term, as defined in Section 2(17) of the Bombay Sales Tax Act. The definition of manufacture in Section 2(17) of Bombay Sales Tax Act, is totally different from the definition of manufacture as given in Section 2(f) of Central Excise Act, 1944. The definition in Section 2(17) of Bombay Sales Tax Act is a precise and exhaustive definition of manufacture, while the definition of this term in Section 2(f) of Central Excise Act, 1944 is an inclusive definition which without precisely defining the term 'manufacture', simply enumerates the processes which also would be treated as manufacture. The term "manufacture" in Section 2(f), as interpreted by Apex Court in a series of judgment means a process which results in emergence of a commercially new product with distinct identity, usages and character from the raw material. In the present case the question as to whether 'soft cotton waste' obtained in course of carding and combing of ginned cotton is the end product of a process of manufacture has to be answered by applying the above criteria. The judgment of the Apex Court in case of BPCL and Others (supra) is therefore not applicable to this case. The question as to whether 'soft cotton waste' obtained in course of carding and combing of ginned cotton is a commercially new product with character and usages different from ginned cotton, is in our view stands answered by the Apex Court's judgment in case of Modi Spinning and Weaving Mills Co. Ltd. v. State of U.P. (supra) wherein it was held that the entry - "cotton ginned and unginned" in U.P. Krishi Utpadan Mandi Adhiniyam, 1964 would also cover cotton waste which is clippings, stripping and other waste obtained while ginning the cotton. Soft cotton waste which consists of other short length fibres and other waste is nothing but inferior quality of cotton."
4.4 Section 3 of the Central Excise Act, 1944 reads as follows:
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 to be called the Central Value Added Tax (CENVAT) on all excisable goods which are produced or manufactured in India, 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 on any excisable goods which are produced or manufactured, -
(i) in a free trade zone or special economic zone and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and brought to any other place in India,
shall be an amount equal to the aggregate of the duties of customs which would shall be leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, 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 the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).
Bare reading of proviso indicates that it is applicable, only in respect of the excisable goods which are produced or manufactured in India. In our view if the goods fail to qualify the test of manufacture as per Section 2 (f) and the law as laid down by various courts, then the proviso to section 3 cannot be pressed in to service for the purpose of levy of duty of excise as equivalent to the Customs duty. Further by the amendment made in proviso, to section 3(1), whereby the phrase "allowed to be sold in India" was replaced by the phrase "brought to any other place in India", very clear that in case of manufactured goods by an EOU, the proviso shall apply in all situations. This amendment was made as consequence of the Decision of Hon'ble Apex Court in case of SIV Industries [2000 (117) ELT 281 (SC)]. In case of Sarla Performance Fibre [2016 (336) ELT 577 (SC)], Hon'ble Apex Court considered these amendments along with its earlier order in case of SIV Industries and held as follows:
"23. Having noted the relevant provisions, it is apposite to appreciate what has been held in SIV Industries Ltd. (supra). In the said case, the appeal was preferred challenging the order of the tribunal whereby it had directed that the duty of central excise was not payable under Section 3(1) of the Act but under the proviso to Section 3(1) of the Act. The appellant therein was granted permission to set up a 100% Export Oriented Unit (EOU) for the manufacture of viscose staple fibre at its factory at Sirumugal in Coimbatore District in the State of Tamil Nadu. The letter of intent dated 18-12-1991 was issued to the appellant for the purpose by the Secretariat for Industrial Approvals (SIA), Ministry of Industry, Government of India. On 8-9-1993 the appellant therein made an application to the Secretary, Ministry of Commerce, Government of India and sought debonding of its unit from 100% EOU, i.e., withdrawal from 100% EOU Scheme. By letter dated 18-10-1993 of the Ministry of Commerce it was agreed in principle to allow the appellant to withdraw from the 100% EOU Scheme subject to the conditions on which withdrawal was permitted. Once the debonding of the unit was permitted, finished goods earlier manufactured in the 100% EOU could be cleared for domestic tariff area (DTA) on levy of duty of central excise. The dispute arose as to what rate of duty was to be levied. The contention of the assessee was that excise duty is payable on the finished goods under the main Section 3(1) of the Act together with customs duty on the imported raw material used in the manufacture of the said finished goods lying in the stock. The Revenue on the other hand contended that excise duty under the proviso to Section 3(1) of the Act was payable on the finished goods and with no customs duty being levied on the raw materials gone into the manufacture of finished goods.
The Court encapsulated the issue by stating that the expression "allowed to be sold in India" appearing in the proviso to Section 3(1) of the Act was the bone of contention between the parties. The assessee contended that for the application of the proviso to Section 3(1) two conditions have to be cumulatively and simultaneously satisfied, viz., (1) goods should have been produced or manufactured by an existing 100% EOU, and (2) these goods should have been allowed to be sold in India. After analyzing various aspects and the circulars dated 17-2-1983 clarifying the introduction of the proviso and the circular dated 29-5-1984 explaining further amendment to the proviso to Section 3(1) of the Act, the Court held :-
"The contention of the Revenue is that permission to withdraw from the Scheme is itself a permission to sell in India, i.e., when the unit is permitted to debond, it would be deemed to have been permitted to sell the goods in India. But then permission to sell in India has to be in terms or in accordance with the provisions of the export-import policy. Permission to sell in India by 100% EOU consists of all those factors like value addition, fulfilment of export obligation, sale of a general currency licence-holder, item being not mentioned in the negative list and then there being a limit of 25%, etc. When permission to debond is given, none of these criteria or aspects are applied by the Board of Approvals (BoA) to the closing stock of finished goods. The Board of Approvals is a statutory authority, which permits debonding. It is created under the Industrial (Development and Regulation) Act. On the other hand permission to sell the goods in India under and in accordance with the import policy has to be given by the Development Commissioner in the Ministry of Commerce. The Board of Approvals and the Development Commissioner are two different authorities constituted for two different purposes. Permission to debond is a statutory function exercised by one statutory authority. On the other hand permission to sell in India is to be exercised by a different statutory authority. If reference is made to para 102 of the relevant import-export policy permission of the Development Commissioner is required for selling the goods in India up to a limit of 25% by 100% EOU. Para 117 of the policy deals with debonding of 100% EOU. Thus it is apparent that debonding and permission to sell in India are two different things having no connection with each other. It also becomes apparent that in view of 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 the proviso to Section 3(1) of the Act is applicable only to sales made up to 25% of production by 100% EOU in DTA and with the permission of the Development Commissioner. No permission is required to sell goods manufactured by 100% EOU lying with it at the time approval is granted to debond."
After so stating the Court noted the stand of the revenue that by debonding permission had been granted by BoA for selling the closing stock of finished goods in India. Negativing the said contention, the Court held :-
"By its application dated 8-9-1993 the appellant had only asked the Central Government for permission to debond the unit. Pending formal debonding clearance, the appellant requested the Central Government that it might allow it to sell the goods in India. This request of the appellant was never acceded to by the authority concerned and letter of debonding was issued. This application of the appellant, therefore, could not be treated as an application for permission to sell in India as contended by the Revenue and the debonding letter of BoA cannot be construed as permission to sell in India. The argument of the Revenue that debonding assumes allowing all closing stock of the goods on the date of debonding to be sold in India would be stretching the matter a little too far. Conditions for sale of 25% of the finished products by EOU and sale of finished stock by a debonded 100% EOU on the date of debonding are different."
Eventually, the Court interpreting the provision and notification issued under the relevant Rules held thus :-
"Chapter V-A of the Central Excise Rules contains provisions for removal from a free trade zone or from a 100% EOU of excisable goods for home consumption. This chapter was made applicable to units under the EOU Scheme by Notification No. 130/84-C.E., dated 26-5-1984. This chapter contains Rules 100-A to 100-H. Rule 100-A provides that the provisions of this chapter shall apply to a person permitted under any law for the time being in force to produce or manufacture excisable goods in a 100% export-oriented undertaking and who has been allowed by the proper officer to remove such excisable goods for being sold in India on payment of duty of excise leviable thereon. It will be thus seen that this Chapter V-A would not be applicable where EOU is outside the EOU Scheme after the unit is debonded. Under Rule 100-H, Rule 57-A and other Rules mentioned therein shall not apply to excisable goods produced or manufactured by a 100% export-oriented undertaking. Rule 57-A relates to allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 as may be specified by the Central Government in the notification, paid on the goods used in or in relation to the manufacture of the final products and for utilising the credit so allowed towards payment of duty of excise leviable on the final products."
In view of the aforesaid position, the Court was of the view that the Tribunal was not right in holding that duty was to be leviable in terms of the proviso to Section 3(1) of the Act and, accordingly, it set aside the judgment of the Tribunal and restored that of the adjudicating authority.
The aforesaid judgment of this Court was distinguished by the Larger Bench of the Tribunal in Himalaya International Ltd. (supra). The Larger Bench referred to Circular No. 618/9/2002-CX, dated 13-2-2002 and ruled thus :-
"A reading of the above circular would show that it was issued pursuant to the decision of the Supreme Court in SIV Industries Ltd. (supra), but without understanding the position that the Supreme Court did not deal with a case where clearance was made to DTA by 100% EOU in excess of the permission granted. It is contended on behalf of the assessee that the interpretation given in the circular referred to above is binding on the Revenue and therefore, this Tribunal cannot give a different interpretation to Section 3(1) and the proviso at the instance of the Revenue. In support of the above contention reliance was placed on a decision of the Supreme Court in CCE, Vadodara v. Dhiren Chemicals Industries, 2002 (139) E.L.T. 3 (S.C.). We find no merit in the above contention of the assessee. In CCE, Vadodara v. Dhiren Chemicals Industries the Supreme Court observed that regardless of the interpretation placed by it on the expression in the notification 'on which appropriate duty of excise has already been paid' if there are circulars which have been issued by the Central Board of Excise & Customs placing a different interpretation upon the said phrase that interpretation will be binding upon the Revenue. In the present case, we are not dealing with any circular of Central Board of Revenue interpreting the meaning of the proviso to Section 3(1) and which had been in force. On the other hand, the circular dated 13-2-2002 is one issued giving a wrong interpretation to the decision of the Supreme Court. We have no hesitation to hold that an interpretation thus given by the Board to the decision of the Supreme Court will not be binding."
To appreciate the whole controversy in completeness, we may reproduce the said circular dated 13-2-2002 :-
"Subject: Removal of goods by 100% EOUs to DTA - Non-levy of duty under Section 3(1) of Central Excise Act, 1944.
I am directed to invite reference to Supreme Court's judgment in case of SIV Industries v. CCE [2000 (117) E.L.T. 281 (S.C.)] vide which the Apex Court had held that "proviso to Section 3(1) regarding the duty chargeable on goods cleared by EOUs shall be applicable only to sales made in DTA upto 25% of production which are allowed to be sold into India as per provisions of EXIM Policy". In other words, Hon'ble Court decided that if the goods are "not allowed" to be sold in India, the proviso to Section 3(1) of Central Excise Act, 1944 shall not be applicable. The expression 'allowed to be sold' has since been replaced with 'brought to any other place' w.e.f. 11-5-2001 vide Section 120 of Finance Act, 2001 (14 of 2001).
It has come to the notice of the Board that field formations are interpreting the judgment of Apex Court to the effect that if the goods cleared by EOUs are not allowed to be sold into India, the Section 3(1) of Central Excise Act, 1944 is not applicable and duty can be demanded under the provisions of Customs Act, 1962 only. Board has taken a serious view of this mis-interpretation. The provisions of Central Excise Act, 1944 shall apply to all goods manufactured or produced in India for which Section 3 is the charging section. EOUs are also situated in India and the chargeability under Central Excise Act is never in doubt. Therefore, it is clarified that prior to 11-5-2001, the clearances from EOUs if not allowed to be sold in India, shall continue to be chargeable to duty under main Section 3(1) of Central Excise Act, 1944. Appropriate action may be taken immediately to safeguard revenue and all pending decisions may be settled accordingly."
The said circular, as is perceptible, is in accord with the decision rendered in SIV Industries Ltd. (supra). The said circular while so indicating also clearly lays down the expression "allowed to be sold" has been replaced with "brought to any other place" with effect from 11-5-2001 vide Section 120 of Finance Act, 2001 (14 of 2001). The circular being in consonance with the decision in SIV Industries Ltd. (supra) and rightly so, it was absolute unnecessary on the part of the Larger Bench of the Tribunal to say that this Court in SIV Industries Ltd. (supra) did not deal with the case where clearance was made to DTA by 100% EOU in excess of the permission granted. The attempt to distinguish the circular, in our considered opinion, was not only unnecessary but also absolutely erroneous.
After the judgment of the Larger Bench, the Central Board of Excise and Customs, New Delhi brought out a circular dated 5-1-2004. The relevant part of the said circular reads as follows :-
"Subject : Withdrawal of Board's Circular No. 618/9/2002-CX., dated 13-2-2002 - Removal of goods by 100% EOU to DTA - Clarification regarding levy of duty on removal of goods by 100% EOU to DTA. I am directed to draw your attention to Board's Circular No. 618/9/2002-CX., dated 13-2-2002 [2002 (140) E.L.T. T27] on the above subject wherein it was clarified that prior to 11-5-2001, the clearances from EOUs if not allowed to be sold in India, shall continue to be chargeable to duty under main Section 3(1) of Central Excise Act, 1944.This was based on an interpretation of Apex Court's decision in the case of SIV Industries Ltd. [2000 (117) E.L.T. 281(S.C.)].
However, attention is now invited to the decision of Larger Bench of CESTAT in the case of M/s. Himalaya International Ltd. v. Commissioner of Central Excise, Chandigarh [2003 (154) E.L.T. 580 (Tri.-LB)], wherein it has been held that "Rate of duty as per the proviso to Section 3(1) of the Central Excise Act, 1944 would be applicable for assessing all the excisable goods, which were cleared by 100% EOU to DTA whether in terms of permission granted or in excess of permission granted". In view of the said judgment of the CESTAT, it is now clear that all the goods manufactured by EOU and cleared into DTA before final debonding of the EOU shall be chargeable to duty under proviso to Section 3(1) of the Central Excise Act, 1944 and under no condition, goods produced in 100% EOU can be charged under main Section 3(1) of Central Excise Act, 1944.
In view of the above judgment of the CESTAT, the matter has been re-considered by the Board and it has been decided to withdraw the Board's Circular No. 618/9/2002-CX., dated 13-2-2002. The above-mentioned judgment of CESTAT, which has been accepted by Board, may kindly be taken into consideration in deciding similar pending cases."
Having noted the circular, we may refer to the authority in NCC Blue Water Products Ltd. (supra). In the said case, the Tribunal has held that the duty of Central excise on shrimps and shrimp seeds produced and removed by the assessee-respondent, a 100% export-oriented unit (EOU), in the Domestic Tariff Area (DTA) without the approval of the Development Commissioner, would be payable under Section 3(1) of the Act and not under the proviso appended thereto. The two-Judge Bench taking note of the fact that during the periods 1994-1995 to 1997-1998, the assessee produced and sold 11,15,29,540 number of shrimp seeds and 48,365 kg of shrimps in DTA without obtaining the permission of the Development Commissioner; without issuing proper invoices as mandated under Rule 100-E of the Central Excise Rules, 1944 (for short "the Rules") and without payment of excise duty. Besides, the assessee also undertook certain job work whereby it processed 864.238 MT of shrimps and 905.580 MT of fish and cleared the said goods in DTA. According to the assessee, these goods were ultimately exported by DTA units. The said action of the assessee compelled the authority to issue a show cause notice requiring the assessee to show cause as to why duty of excise equal to aggregate of the duties of customs should not be levied under Section 3 of the Act read with Rule 9(2) read with proviso to sub-section (1) of Section 11-A of the Act and interest and penalty thereon. The matter was contested by the assessee and eventually the Tribunal ruled in favour of the assessee. Before this Court, it was contended that since as per Note 1 of Section I of the First Schedule to the Customs Tariff Act, 1975, any reference in that section "to a particular genus or species of an animal, except where the context otherwise requires, includes a reference to the young of that genus or species" and, therefore, both live shrimps and shrimp seeds are classifiable under Sub-Heading 0306.23 of Chapter 3 of the First Schedule to the Customs Tariff Act, 1975. It was also urged that the Tribunal committed an error in relying on the decision of this Court in SIV Industries Ltd. (supra) because unlike in that case the assessee had sought permission of the Development Commissioner, who in turn had advised them to approach the SIA for permission to clear shrimps and shrimp seeds which, in fact, was granted and, therefore, they were required to pay duty under proviso to Section 3(1) of the Act. It was also urged that under the Exim Policy, an EOU is obliged to make exports of the entire production itself and not through any other entity. The Court posed the following question :-
"The core question for our consideration, therefore, is whether the sales of shrimps and shrimp seeds by the assessee in DTA, without requisite permission from the Development Commissioner, are to be assessed to excise duty under Section 3(1) of the Act or under the proviso to the said section?"
To deal with the said question, the Court referred to Section 3 and it expressed understanding of the provision in the following terms :-
"It is manifest that all excisable goods produced or manufactured in India are exigible to duty of excise under Section 3 of the Act, the charging section, at the rates set forth in the Schedule to the Tariff Act. However, the proviso to the said section provides that the duties of excise on any excisable goods, which are produced or manufactured by a 100% EOU 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. As aforestated, the controversy at hand is whether in the absence of an order by the competent authority, allowing the assessee to sell the shrimp seeds and shrimps in India, excise duty on such sales could be levied and collected in terms of the proviso. To put it differently, the issue relates to the significance of the expression "allowed to be sold in India" as appearing in clause (ii) to the proviso to sub-section (1) of Section 3 of the Act."
The decision of the Hon'ble Apex Court thus make it clear that the duty on the finished goods manufactured and cleared by the 100 % EOU, shall be subject to subject to excise duty as determined in terms of Section 3 (1) and its proviso, and duty on the inputs lying in stock at the time of debonding, will be the customs duty leviable under Customs Act, 1962.
4.5 Section 11A (1) as it existed at the relevant time reads as follows:
11A Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. -
(1) "When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words one year, the words "five years" were substituted:"
4.5 Bare reading of the above provisions will make it evident that Section 11A of the Central Excise Act, 1944 can be pressed into service for recovery of "duty of excise" and not for the recovery of any other tax or duty including the Customs Duty leviable under Customs Act, 1962. Hence we do not find merits in the observations made by the Commissioner while distinguishing the decision of C T Cotton. The issue for consideration in the present case is demand of duty on the cotton waste arising during the course of manufacture of finished product exported by the appellants. Once it is held that the cotton waste is not a manufactured goods leviable to excise duty, all the subsequent arguments advanced by the Commissioner vis a vis contravention of the provisions of exemptions issued under Customs Act, 1962 and those of the Foreign Trade Policy, become irrelevant for these proceedings, initiated under provisions of Section 11A of the Central Excise Act, 1944.
4.6 In view of the above we do not find much merits in the impugned order proposing to levy and demand duty of the customs on the excess waste generated, in the unit in terms of show cause notice issued under Central Excise Act, 1944. In view of the view taken by us we are also not inclined to accept the observations made by the Commissioner in para 34 of the impugned order regarding the issue of "cum duty price".
4.7 In para 35 & 36, Commissioner have referred to the first two show cause notices, where in the demand has been made in respect of the "Cotton Waste" cleared clandestinely by the appellant, treating it as the goods produced by the EOU. In view of the decision of the tribunal in case of C T Cotton we are not in position to agree with the said observations. Distinction made by the Commissioner, by stating that C T Cotton was a case in which the Cotton Waste aroused from the indigenous raw material, also lack merits as the source of raw material do not determine whether a process amounts to manufacture or not in terms of Section 2 (f) of the Central Excise Act, 1944.
4.8 Since on the merits of the case we find that the demand of duty cannot survive in view of the decision in case of C T Cotton, for consideration of which the matter was earlier remanded back by the tribunal to original authority, we do not discuss the issue of limitation.
4.9 Since we hold against the demand of duty, the demand for interest and penalty to is set aside.
5.1 In view of the discussions as above the impugned order is set aside and the appeal is allowed.
5.2 While setting aside this order we make it clear that our order may not be taken to grant any immunity to appellant in respect of any demand made against them under the Customs Act, 1962 in respect of the violation of the provisions of the Notification issued under the Customs Act or any provisions of the Foreign Trade Policy etc. Any action for recovery made under the provisions of Custom Act, will have to be considered independent of what has been stated by us in this order.
(Order pronounced in the open court on 15.11.2021)