M-S. VIRLON TEXTILE MILLS LTD. v. COMMISSIONER OF CENTRAL EXCISE, MUMBAI

Citation: [2007] 5 S.C.R. 266

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

M-S. VIRLON TEXTILE MILLS LTD. v. COMMISSIONER OF CENTRAL EXCISE, MUMBAI.pdf

Judgment text

MIS. VIRLON TEXTILE MILLS LTD. f .. _ v. COMMISSIONER OF CENTRAL EXCISE, MUMBAI APRIL 17, 2007 [S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ] }. - Customs TariffAct, 1975; CSH 5402. 33/Customs Act, 1962; S. 12/Central • ' Excise Act, 1944; S. 3(1); Notification No. 2195-CE! Export and Import Policy 1997-2002; Paras 9. 9 and 9. JO(b): Levy ofcustoms duty, excise duty and special additional duty-Texturised Polyester Yarn and Dyed Polyester Yarn-Assessee selling against foreign exchange in Domestic Tariff Area (DTA) in terms ofpara 9. IO(b) of Exim Policy-Applicability ofexemption Notification No. 2195-CE-Held: Jn terms ofExim Policy/rules every 100% Export Oriented Unit manufacturing capital goods/finished products from duty free imported raw materials obliged to export its entire production and earn foreign exchange-However, DTA sales is exempted under the rules-Since in the present appeal, law as stood prior 'to I1. 5.

2001 is concerned, DTA sales against foreign exchange was also covered by the proviso to s. 3(1) of the 1944 Act-Hence the assessee is entitled to benefit ofNotification No. 2195-CE-Tribunal erred in relying on para 9. 9(b) of Exim Policy for limiting the benefits of exemption under the Notification by imposing a new condition to the effect that the benefit woula be admissible only in respect of 50% of such DTA sales-Since the benefit of the Notification allowed to DTA sales against rupees, DTA sales against foreign exchange which are at par with physical exports cannot be denied the same benefit and cannot be subjected to a higher duty-Under the '> ' circumstances, the matter is remanded to the Commissioner, Revenue for calculation of the duty afresh accordingly. Assessee is a 100% Export Oriented Unit (EOU) engaged in the manufacture ofTexturised Polyester Yarn and Dyed Polyester Yarn.

The said yarn is solid against foreign exchange by the assessee in Domestic Tariff Area (OTA) subject tc permission given by the competent authority under para ' ' - 9. lO(b) of Export and Import Policy (Exim Policy) 1997-2002. Ashow cause notice was issued by the Revenue to the assessee demanding differential VIRLONTEXTJLEMILLSLID. '" COMMNR. OFCENTRALEXCISE,MUMBAI 267 ~ amount of duty as it was not paying appropriate duties on the goods cleared . I as per the permission granted by the authorities; that the assessee had paid Countervailing duty (CVD) @30% on Texturised Polyester Yarn plus Rs. 9 per kg. on Dyed Polyester Yarn cleared under para 9. lO(b) of Exim Policy against foreign excbange. In terms of the show cause notice, on clearance of the said yarns into DTA under para 9. lO(b), assessee, being a 100% EOU, was required to pay duty ofexcise equal to the aggregate of duties of customs leviable on such yarns falling under Chapter Sub-Heading (CSH) 5402. 33 of _...

the Customs Tarriff Act 1975. Since the assessee had failed to pay the duty ~ in respect of clearances of the yarns under para 9. 10 (b), it was asked to pay Rs. 33. 38 lacs additional amount of duty for certain period falling during 1997-2002. The demand ofdifferential amount of duty had been confirmed by the Revenue authorities and on appeal by the Tribunal (CECAT) rejecting the contention of the assessee that they were entitled to the benefit of exemption Notification No. 2/95-CE dated 4. 1. 1995. Hence the present appeal filed by the assessee and cross appeal filed by the Revenue. Allowing the appeal filed by the assessee and dismissing the appeal of the Revenue, the Court '. J HELD: 1. 1. The Exim Policy as a rule stated that every 100% EOU was obliged to manufacture or produce from duty free imported raw materials capital goods etc. , finished products/articles and as a rule every 100% EOU was obliged to export its entire production and earn foreign exchange.

This was what was called as Physical Exports. However, this rule had certain exceptions. The appeal in question is concerned with DTA sales. As an exception, there existed two types ofDTA sales under the Policy, namely, DTA sales against rupee and DTA sales against foreign exchange which was similar to physical exports. [Para 7) [276-E-F] , . 1. 2. The general rule was physical exports and other supplies in DTA was equated to physical exports. This equation was necessary because other supplies in DTA gave certain benefits to the economy like preservation of foreign exchange, import substitution, savings of transportation costs and to provide competitiveness and level-playing field for Indian exporters. [Para 7] [276-G-H] - ). 1. 3. In this civil appeal, the law as it stood prior to 11. 5. 2001 is being considered.

DTA sale against foreign exchange was ::overed by the expression "allowed to be sold in India" and, therefore, such sale fell under the proviso to Section 3(1) of the Central Excise Act, 1944. In the circumstances, the duty liability of the assessee was required to be determined after allowing to t: ... it the benefit of notification No. 2/95-CE. That notification granted partial " exemption to the assessee from duties in respect of goods manufactured in 100% EOU and allowed to be sold in India Under para 9. 9(a), (b), (c) and (d) of the Exim Policy. ! Para 71 [277-A-CI 1. 4. Once DTA sales against foreign exchange are held to be covered by the proviso to Section 3(1) of the 1944 Act then the whole difference between OTA sales against rupee and OTA sales against foreign exchange, for the .. _ purpose of notification No. 2/95-CE would stand eliminated. This would be, • however, subject to the compliance of other conditions of notification No. 2/ 95-CE.

Therefore, the Tribunal had erred in relying on para 9. 9(b) ofthe Policy for limiting the benefits of exemption under notification No. 2/95-CE by imposing a new condition to the effect that the benefits would be admissible only in respect of 50% of such DTA sales against foceign exchange. (Para 71 (277-C-D) 1. 5. Once the permission was granted by the competent authority under the Exim Policy to make OTA sales against foreign exchange, the assessee was entitled to the benefit of concessional rate of duty under notification no. 2/95-CE. If OTA sales against rupee were allowed the benefit of notification ... No. 2/95-CE, then OTA supplies against foreign exchange, which were at par with physical exports, cannot be denied the same benefits and they cannot be subjected to a higher duty. [Para 7; 277-D-E) 1. 6. There is no fundamental difference, as far as the exemption notification No. 2/95-CE is concerned, between OTA sales against foreign exchange and DTA sales against rupee.

Once OTA sales against foreign exchange fall within the expression "allowed to be sold in India", the Department cannot deny to such sales the exemption under notification . ,. -- ~ 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 and brought to any other place in India; or (ii) by a hundred per cent export-oriented undertaking and allowed to be sold in India.

shall be an amount equal to the aggregate of the duties of customs which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; the value of such excisable k goods shall, notwithstanding anything contained in any other provisions ofthis Act, be detennined in accordance with the provisions of the Customs Act, 1962 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975). Explanation 1. Where in respect of any such like goods, any duty of customs leviable under the said section 12 is leviable at different rates, then, such duty shall, for the purposes of this proviso, be deemed to be leviable under the said section 12 at the highest of r-· • those rates. Explanation 2.

In this proviso, - (i) "free trade zone" means the Kandla Free Trade Zone and the Santa Cruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify in this behalf; ( - (ii) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf VIRWl f of exports less than ten per cent (b) net foreign exchange Upto thirty per cent of earnings as a percentage the production in of exports of ten per cent value terms of the or more but not exceeding electronic items, twenty five per cent including components manufactured in the .... "> unit. (c) net foreign exchange Upto forty per cent earnings as a percentage of the production of exports exceeding in value terms of twenty five per cent electronic items, including components manufactured in the unit. 3.

Other Units 25 per cent" (emphasis supplied) 7. For the following reasons, we find merit in this civil appeal. Firstly, on examination of the Exim Policy we find that the said Policy as a rule stated that every 100% EOU was obliged to manufacture or produce from duty free imported raw materials capital goods etc. , finished products/ articles and as rule every 100% EOU was obliged to export its entire production and earn foreign exchange. This was what was called as Physical Exports. However, this rule had certain exceptions. In this civil appeal, we are concerned with DT sales. As an exception, there existed two types of DTA sales under the said Policy, namely, DTA sales against rupee and DTA sales against foreign exchange which was similar to physical exports. This latter category was known as "Other Supplies in DTA". Therefore, to put it in brief, "Other Supplies in DTA" was equated with physical exports which, as stated above, was the general rule for 100% EOU.

In other words, the general rule was physical exports and other supplies in DTA was equated to physical exports. This equation was necessary because other supplies in OTA gave certain benefits to the economy like preservation of foreign exchange, import substitution, savings of transportation costs and to provide competitiveness l and level-playing field for Indian exporters. According to the Revenue, the expression occurring in the second proviso to Section 3(1), namely, "allowed to be sold in India" was applicable only to DTA sales against rupee and not VIRLONTEXTILEMILLSLTD. 1•. COMMNR. OFCENTRALEXCISE,MillffiAl[KAPAD! A,J. ) 277 DTA sale against foreign exchange. In this civil appeal, we are concerned with the law as it stood prior to 11. 5. 2001. In our view, DTA sale against foreign exchange was covered by the expression "allowed to be sold in India" and, therefore, such sale fell under the proviso to Section 3(I) of the 1944 Act.

In the circumstances, the duty liability of the assessee (appellant herein) was required to be detennined after allowing to it the benefit of notification No. 2/95-CE. That notification granted partial exemption to the assessee from duties in respect of goods manufactured in 100% EOU and allowed to be sold in India under para 9. 9 (a), (b), (c) and (d). Once DTA sales against foreign - -' exchange are held to be covered by the proviso to Section 3(1) of the 1944 Act then the whole difference between DTA sales against rupee and OTA sales against foreign exchange, for the purposes of notification No. 2/95-CE would stand eliminated. This would be, however, subject to the compliance of other conditions of notifi~ation No. 2/95-CE. Therefore, in our view, the Tribunal had erred in relying on para 9. 9(b) for limiting the benefits ofexemption under notification No.

2/95-CE by imposing a new condition to the effect that the benefits would be admissible only in respect of 50% of such DT sales against foreign exchange. Secondly, once the pennission was granted by the competent authority under the Exim Policy to make DTA sales against foreign exchange, the assessee (appellant herein) was entitled to the benefit of concessional rate ofduty under notification no. 2/95-CE. If OTA sales against rupee were allowed the benefit ofnotification No. 2/95-CE, then DTA supplies against foreign exchange, which were at par with physical exports, cannot be denied the same benefits and they cannot be subjected to a higher duty. Thirdly, once DTA sales against foreign exchange are covered by the above expression "allowed to be sold in India'', all issues relating to calculation of the duty payable in tenns of notification No.

2/95-CE will have to be decided afresh by the adjudicating authority and accordingly, we hereby remand the matter back to the Commissioner for calculating the duties payable by the assessee in tenns ofnotification No. 2/95. The Commissioner will calculate the duties accordingly as hereinabove mentioned. Lastly, we are of the view that there is no fundamental difference, as far as the exemption na~ification No. 2/95-CE is concerned, between DTA sales against foreign exchange and OTA sales against rupee. Once DTA sales against foreign exchange fall within the expression "allowed to be sold in India", the Department cannot deny to such sales the exemption under notification no. 2/95-CE, since OTA sales against foreign exchange will come under para 9. 9. According to the Tribunal, the entire supply to DTA against foreign exchange wa~ not entitled to the benefit · of notification No. 2/95-CE but only 50% of the supply was eligible for the said relief.

We do not see any basis for introduction of this condition in notification No. 2/95-CE. It appears that this condition is brought in on the ground that para 9. 9 (b) refers to OTA sales up to 50% of the FOB value of exports. In our view, the Tribunal had erred in relying on the said para 9. 9 (b) for limiting the benefits ofexemption under notification No. 2/95-CE in respect of 50% of OTA sales (supplies) against foreign exchange. One cannot ignore the fact that OTA sales in foreign exchange provides for better money value as compared to OTA sales in rupee. Therefore, if OTA sales against rupee are allowed the benefits of notification No. 2/95-CE, OTA supplies, which are at par with physical exports, cannot be denied the same benefits. >- - 8. For the above reasons, we do not wish to examine the larger issue canvassed before us on behalf of the assessee (appellant herein). We are confining this judgment to the arguments which were advanced by the .

appellant herein before the Tribunal. 9. Accordingly, the civil appeal filed by the appellant herein stands allowed. The impugned judgment of the Tribunal is set aside and the matter is remitted to the Commissioner for calculation of duties payable in terms of notification no. 2/95-CE, as interpreted hereinabove. I0. The appeal stands allowed with no order as to costs. Civil Appeal No. 3237 of 2002 [Commissioner of Central Excise v. Mis. Virlon Textile Mills. ] 11. In view of our judgment in Civil Appeal No. 570 of2002 (supra), this civil appeal filed by the Department stands dismissed with no order as to costs. S. K. S. C. A. No. 570 of2002 allowed. C. A. No. 3237 of2002 dismissed.