sc16 LRBrothersvsCCE-CA No. 7157-2008

LRBrothersvsCCE-CA No. 7157-2008

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7157 OF 2008

M/s. L. R. Brothers Indo Flora Ltd.

Versus

Commissioner of Central Excise

J U D G M E N T

… Appellant

…Respondent

A. M. Khanwilkar, J.

1. This appeal takes exception to the Final Order No.

C/203/08 dated 17.7.2008 passed by the Customs, Excise &

Service Tax Appellate Tribunal in Customs Appeal No. 9 of 2008,

whereby the customs duty levied upon the appellant on the sale

of cut flowers within the Domestic Tariff Area had been confirmed by the Tribunal.

2. The factual matrix leading to the present appeal is that the

Signatureappellant M/s. L.R. Brothers Indo Flora Ltd. is a 100% ExportNotVerified Digi tally signed by

DEEPAK SINGH

Date: 2020. 09.01

17:01:04 IST

Reason:

For short, “CESTAT ”
For short, “DTA”


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Oriented Unit and engaged in production of cut flowers and

flower buds of all kinds, suitable for bouquets and for ornamental

purposes. The 100% EOU is required to export all articles

produced by it. As a consequence whereof, it is exempted from

payment of customs duty on the imported inputs used during

production of the exported articles, vide Notification No. 126/94

Cus dated 3.6.1994 . Under the said notification, exemption on

levy of customs duty had been extended even to the inputs used

in production of articles sold in domestic market, in accordance

with the ExportImport (EXIM) Policy and subject to other

conditions specified by the Development Commissioner. To wit,

upon payment of excise duty in case of excisable goods; and in

case of nonexcisable goods, upon payment of customs duty on

the inputs used for production, manufacturing or packaging of

such articles at a rate equivalent to the rate of customs duty that

would have been leviable on such articles, if such articles were

imported. The said notification was amended by Notification No.

56/01Cus dated 18.5.2001 , by which the customs duty in case

of nonexcisable goods became leviable on inputs used for

For short, “EOU”
For short, “the exemption notification”
For short, “the amendment notification”

production, manufacturing or packaging, as if there was no

exemption notification in place. The effect of this amendment was

that the customs duty on inputs which was charged at the rate

equivalent to the duty leviable on final articles under the

exemption notification, was now chargeable at the rate specified

for the inputs.

3. The EXIM Policy 19972002 provided that a 100% EOU in

floriculture sector was permitted to sell 50% of its produce in

DTA, subject to achieving positive net foreign exchange earning of

20% and upon approval of the Development Commissioner. The

appellant, without obtaining the approval of the Development

Commissioner and without maintaining the requisite net foreign

exchange earning, made DTA sales to the extent of

Rs.38,40,537/ during 199899 to 200001 (upto December

2000), in contravention of the provisions of EXIM Policy. Notably,

the appellant subsequently sought expost facto approval from the Development Commissioner vide letter dated 6.2.2001.

4. Meanwhile, the Additional Commissioner, Central Excise,

MeerutI issued a show cause notice dated 16.3.2001 to the

appellant to show cause as to why customs duty, interest and


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penalty should not be imposed for the DTA sales made by the

appellant in contravention of the EXIM Policy, that too after

having availed the exemptions under the exemption notification

on the import of green house equipment, raw materials like Live

Rose Plants and consumables like planting materials and

fertilizers. After according opportunity of being heard, the

Additional Commissioner adjudged the show cause notice and

held that the DTA sales were made without permission of the

Development Commissioner and in contravention of the EXIM

Policy and therefore, customs duty is leviable upon the appellant

for the said sales. It was further held that the appellant had

wilfully suppressed facts and thus Section 28 of the Customs

Act, 1962 was invoked in the present case. The relevant extract

of the OrderinOriginal dated 18.10.2001 passed by the

Additional Commissioner, Central Excise, Meerut – I on the aforesaid findings is reproduced hereunder:

“3.1 I find that the party had imported the capital

goods and also imported raw materials like “Live

Rose Plants” and consumable like “Fertilizer and Planting Materials” during 199697 to 20002001 and

further that they made clearances towards Domestic

Tariff Area sales without obtaining permission from

the Competent Authority in the matter. On scrutiny

of the records, it was observed that before making any

6 For short, “the 1962 Act ”

DTA sales it was required that 20% positive Net Foreign

Exchange Earning (NFEP) should have been achieved i.e.

annual value of export should have been 20% more than Rs.2,42,37,400/= (+) annual value of imports of raw materials and consumables during the respective year and the said noticee had exported the flowers worth Rs.91,92,000/= only which are well below prorata annual value of Import of capital goods.

3.2 I also find that as per condition of the approval

letter No. 119(1994)EOB/34/94 dated 04.5.94, issued by Govt. of India, Ministry of Industries, Department of Industrial Development, Secretarial for Industrial approval, MUCC Section, New Delhi, the bonding period

of M/s. L.R. Brothers Indo Flora Ltd., was fixed for 10 years during which they were required to achieve 62% value addition over and above the imports and other factors contributing towards the foreign exchange gone out of the country. As per the specific condition of the

approval letter, the party was required to export all

of its production out of India subject to permissible limit of Domestic Tariff Area Sales (herein after referred to as DTA Sales) and that, too, after specific permission from Development Commissioner of the EPZ concerned, on payment of applicable Customs &

Central Excise duties. The Export Import Policy 1997

2002 specifies the condition of DTA sales by an EOU.

In this regard, I reproduce below the contents of

the relevant paras of Export Import Policy 19972002…..

3.3 Therefore, in view of the above legal provisions of the Export Import Policy 19972002, it is amply clear that for earning DTA sales entitlement the EOU should

fulfil the export obligations as prescribed in the letter of

approval and also should have a positive NFEP which is

20% in case of floriculture units.

3.4 ….. As per Note 3 to paragraph 9.5 of the Export

Import Policy, as discussed above, prorata annual value

of imported capital goods (i.e. 1/5th of the total import of Capital Goods worth Rs.12,11,87,000/ comes to Rs.2,42,37,400/. Therefore, before making any DTA sales it was required that 20% positive NFEP should have been achieved i.e. the annual value of export should have been 20% more than Rs.2,42,37,400/ + annual value of imports of raw materials and consumable during

the respective year, whereas in all the four years since operation, the unit had exported the flowers worth Rs.91.92 lakhs only which are well below the prorata

annual value of import of capital goods. Therefore, in view of the specific provisions of the Export Import Policy 19972002, the unit was not entitled to sell any goods in DTA.

3.5 Moreover, the guidelines for sale of goods in the

DTA by EOU are prescribed in Appendix 42 of Handbook

of Procedure, Export Import Policy 19972002. Para (f) of

the said Appendix 42 reads as: “An application for DTA

sale shall be accompanied by a statement indicating the

exfactory value of the goods produced (excluding rejects) and exfactory value of goods actually exported. The statement shall be certified by an independent cost/chartered/cost and works accountant and endorsed by the Customs/Central Excise Officer having jurisdiction over the unit. The Development commissioner of the EPZ concerned will determine the extent of DTA sale admissible in value terms and issue goods removal authorization in terms of value and quantity for sale in DTA.” However in the present case

as per records, the party failed to furnish the same application as well as permission, if any to this department and did not follow the procedure as laid

down in the Hand Book of Procedure, Export Import

Policy 19972002.

3.6 Apart from the above, the floriculture EOU may Import Capital Goods and Raw Materials, without payment of Customs duties in terms of Custom Notification No. 126/94 dated 3.6.94 and accordingly M/s. L.R. Brother Indo, Flora Ltd., have imported green house equipment, raw materials like Liver Rose Plants and Consumable like planting materials and Fertilizers under the said notification. Para 3 of the said Notification

reads as under : ….

3.7 Therefore, from the above provision, it is clear that the units working under the said Notification may

sell their produced goods in DTA on payment of excise

duty as leviable under Section 3 of Central Excise Act,

1944 if the goods are excisable and on payment of full

Customs duties leviable on such goods as if imported as such if the goods are non excisable. Cut Flowers or Flower Buds are not covered under Central Excise Tariff Act, 1985 as Chapter 6 which covers such types of Flowers in Customs Tariff left blank in Central Excise Tariff Act and, therefore, such types of Flowers will be treated as non excisable in view of Section 2 (d) of the

Central Excise Act, 1944. Therefore, full Customs duties


	st

will be leviable on such Flowers, if sold in DTA treating

such flowers as imported into India, in terms of

Notification No. 126/94Cus dated 03.6.94. Further,

M/s. L.R. Brothers Indo Flora Ltd., had made DTA sales

during the year 199899 to 200001 (upto December

2000) in contravention to the aforesaid provisions.

Further, they failed to show any permission from

Development Commissioner for sale of their goods in

DTA. It appears that the Development Commissioner

has granted no such permission to them, as they

have not earned the DTA sale entitlement due to very

low exports in comparison to high quantum of

imports. ……

3.8 I have also come to conclusion that M/s. L.R. Brothers Indo Flora Ltd., Behat Road, Saharanpur have contravened the provisions of Import & Export Policy 19972002 and have not fulfilled the conditions of Notification No. 126/94 dated 3.6.94. Hence the party is

liable to pay the full customs duty on cut flowers sold in

DTA, treating the flowers imported as such into India. Further, the said M/s. L.R. Brothers Indo Flora Ltd.,

have been indulged in wilful suppression of facts, as

aforesaid, and sold the said goods viz., cut flowers

falling under Ch. S.H. No. 0603.10 of the Customs

Tariff, in D.T.A. in contravention of the provisions of

Import Export Policy 19972002, without payment of

Customs duty, hence extended period of five years as

provided under proviso to section 28 of the Customs

Act 1962 is invokable in the instant case. Therefore,

all obligations were cast on such a large undertaking to

discharge the correct duty liability i.e. Customs duty amounting to Rs.9,98,177.00. Therefore, demand of Customs duty stands recoverable from them. They are also liable to pay interest @ 24% from the 1 day of the

month succeeding the month in which the duty ought to

have been paid under Section 28AB of the Customs Act,

1962. ….”

(emphasis supplied)

5. The Additional Commissioner, by way of aforesaid order,

confirmed the demand of customs duty of Rs.9,98,177/ under

Section 28, interest at the rate of 24% under Section 28AB and

penalty of Rs.9,98,177/ under Section 114A of the 1962 Act.

The appellant unsuccessfully carried the matter in appeal before

the Commissioner (Appeals), Customs & Central Excise, Meerut

I, wherein the OrderinOriginal came to be confirmed by the OrderinAppeal dated 29.7.2005 by holding thus:

“5. ……. In the light of the above facts, I find myself

in agreement with the findings of the adjudicating authority that the appellants have not earned the DTA

sale entitlement due to very low exports in comparison to

high quantum of imports. Thus, the alleged

contravention of provisions of Import & Export Policy 19972002 and nonfulfilling of the conditions of the Notification 126/94Cus ibid is fully established against

them. Therefore, the demand of Customs duty along with interest in this case as per the impugned order is justified.

As regards the imposition of penalty on the

appellants, I find that the charges of contravention of provisions of Export & Import Policy 19972002 & Notification No. 126/94 Cus dt. 03.06.94 stand proved

against the appellants. They were aware that they were

not entitled to make DTA sales of the subjected goods,

even then they made DTA sales of the same to evade

payment of duty. Hon’ble Supreme Court in the case of

Gujarat Travancore Agency vs. Commissioner of Income

Tax 1989 (42) ELT 350 (SC), has held that the penalty

under Section 271(1)(a) of the Income Tax Act is a civil

obligation and unless there is something in language of

the statute indicating the need to establish element of mensrea, it is generally sufficient to prove that a default

in complying with the statute has occurred.

In view of the ratio of the aforesaid judgment of

Apex Court, the penalty has been rightly imposed upon

the appellant.

In view of the above, I find no infirmity in the

order passed by the adjudicating authority and therefore

disallow the appeal.”

6. The matter was further carried in appeal before CESTAT

whereat the impugned order was passed confirming the order of

the authorities below whilst also holding that amendment

notification is prospective and cannot be applied to the present

case. The relevant extract of the impugned order is reproduced

below:

“5. We have carefully considered the submissions

made from both the sides. Irrespective of whether the

DTA clearances of cutflowers were, in contravention of

the EXIM Policy or otherwise, the cutflowers being non

excisable goods, their DTA clearance would attract, in

terms of the provisions of para 3(a) of the exemption

Notification No. 123/94CUS., only the Custom Duty involved on the inputs used in the production of the cut

flowers. The point of dispute is as to whether the Custom

Duty payable on the inputs used in the production of the

cutflowers which had been cleared to DTA, is to be

taken as an amount equal to Custom Duty chargeable on

the import of cutflowers, as such, or it should be the

actual Custom Duty on the inputs used in the production of cutflowers cleared to DTA.

5.1 xxx xxx xxx

5.2 From reading of para 3(a) of the Notification No.

126/94cus as it existed during the period of dispute i.e.

during the period prior to 18.5.01 – and as it existed during period w.e.f. 18501, it is clear that during the

period of dispute, the notification contained a machinery

provisions for determining, the Custom Duty chargeable

on the inputs used in the production of nonexcisable

goods cleared to DTA and as per this machinery

provision, the duty was to be in an amount equal to the Custom Duty chargeable on the finished goods, as if imported, as such. However, after the amendment of this

Notification w.e.f. 18.5.01, the duty on the inputs used in

the production of nonexcisable goods cleared to the DTA

was to be calculated on actual basis. The amendment to

the Notification No. 126/94CUS. w.e.f. 18.5.01 by the Notification No. 56/01 can have only prospective effect and it cannot be given retrospective effect. In view of this,

during the period of dispute, customs duty on the inputs

used in the production of cutflowers cleared to DTA has

to be calculated as per the provisions of the Notification,

as it existed during that period.

6. The Tribunal’s judgment in the case of Vikram

Ispat (supra) is not applicable to the fact of this case, as

in the present case what is being charged in respect of

DTA clearances of the cutflowers is not the customs

duty on the cutflowers, but the custom duty on the inputs used in the production of those cutflowers, which

as per the provisions of Notification, as it existed at that

time, was equal to the Customs Duty chargeable on the

import of cutflowers, as such. In the Tribunal’s judgment in case of Zygo Flowers Ltd. (supra) and Cosco Blossoms Pvt. Ltd. (supra), the implications of the wording of para 3(a) of the exemption notification during

the period of dispute “or where such articles [including

rejects, waste and scrap material] are not excisable, on

payment of Custom Duty on the said goods used for the

purpose of production, manufacture or packaging of

such articles in an amount equal to the Custom Duty

leviable on such articles, as if imported, as such” had not

been considered. If the Appellant’s view accepted, the

words “in an amount equal to the Custom Duty leviable

on such articles, as if imported, as such” would become

redundant. It is well settled principle of interpretation of

statute that a statute has to be construed without adding

any words to it or subtracting any words from it and an interpretation which makes a part of the statute redundant has to be avoided.

7. In view of the above discussion, we hold that the

custom duty has been correctly charged in respect of

DTA clearances of the cutflowers and as such we find no infirmity in the impugned order. The appeal is accordingly dismissed.”

Thus, the levy of customs duty stood confirmed.

7. Being aggrieved, the appellant has approached this Court.

The thrust of the argument of the appellant is that according to

Paragraph 3 of the exemption notification, sales made in DTA

would attract excise duty and since the cut flowers sold by the


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appellant are nonexcisable goods, no excise duty can be levied

upon it. Further, according to the notification, in case of non

excisable goods, the customs duty is leviable on the imported

inputs. In the present case, since the cut flowers are home

grown, customs duty cannot be levied upon them and therefore,

the demand of customs duty cannot be sustained. Reliance is placed on the decisions of CESTAT in Cosco Blossoms Pvt. Ltd

vs. Commissioner of Customs, Delhi and larger bench of Central Excise and Gold (Control) Appellate Tribunal in Vikram

Ispat vs. Commissioner of Central Excise, MumbaiIII . It is

then urged that the exemption notification predicates levy of

customs duty on nonexcisable goods sold in DTA sales to the

extent of the value of inputs and not to the extent of the value of

final product. It is further urged that the amendment notification

is merely clarificatory and hence it would apply retrospectively.

To buttress this submission, the appellant had placed reliance on

Circular No. 31/2001Cus dated 24.5.2001 issued by Central

Board of Excise and Customs, New Delhi , which noted that the

charge of customs duty on the inputs equal to the duty leviable 7 2004 (164) ELT 423 (Tri.-Del.)

8 For short, “the CEGAT ”

9 2000 (120) ELT 800 (Tribunal-LB)

10 For short, the “CBEC Circular”


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on the import of final product is putting floriculture EOUs at a

disadvantageous position. The circular further envisages that the

central excise notifications provided for recovery of duty on

inputs procured duty free, whereas the exemption notification

provided for recovery on inputs equal to duty on the final

product. That the amendment notification was issued to address

this anomaly and to harmonise the central excise and customs

notifications. The appellant placed reliance on the Constitution Bench decision of this Court in Commissioner of Income Tax (Central) – I, New Delhi vs. Vatika Township Private Limited , wherein it had been observed that whenever the

legislator intends to confer benefit upon a person, it must be

presumed to have retrospective effect. The appellant relied upon yet another decision of this Court in Zile Singh vs. State of

Haryana & Ors. to contend that the substitution of a clause

which clarifies about the intent of the legislature takes effect from

the date of enactment of original provision. The appellant would

further urge that Section 12 of the 1962 Act being the charging

section, could only be applied if the goods are imported into India 11 (2015) 1 SCC 1

12 (2004) 8 SCC 1


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and since the cut flowers are not imported, the show cause notice

issued under the provisions of the 1962 Act is bad in law. In this

regard, the appellant had placed reliance on Commissioner of

Central Excise and Customs vs. Suresh Synthetics . The

appellant further relied on the exposition of this Court in Uniworth Textiles Limited vs. Commissioner of Central

Excise, Raipur to submit that Section 28 of the 1962 Act,

extending limitation, can be invoked only in the case of deliberate

default and urged that it cannot be invoked in the present case

since there was no default.

8. Per contra, the respondent would urge that in the fact

situation of the present case, the department has correctly levied

the customs duty, as the DTA sales made were in contravention

of the EXIM policy and the appellant had no permission from the

Development Commissioner to clear the goods in DTA. The

respondent further urged that the amendment seeks to bring

about a substantive change, whilst pointing out that the CBEC

Circular in its opening paragraph speaks about “carrying out” the

amendment. Further, the amendment must be applied 13 2007 (216) ELT 662 (SC)

14 (2013) 9 SCC 753


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prospectively. Reliance is placed upon the decision of this Court

in Union of India & Anr. vs. IndusInd Bank Limited & Anr. ,

wherein it has been held that if the provision is remedial in

nature, it cannot be construed as clarificatory or declaratory and

has to be applied prospectively.

9. We have heard Mr. Rupesh Kumar, learned counsel for the

appellant and Mr. Ashok K. Srivastava, learned senior counsel for

the respondent.

10. The issues that arise for consideration in this appeal are: (i)

Whether customs duty can be charged on the nonexcisable

goods produced in India and sold in DTA by an EOU?; and (ii)

Whether the amendment in terms of Notification No. 56/01Cus

dated 18.05.2001, purporting to amend the criteria for

determination of duty on inputs, is prospective or retrospective in

its application?

11. At the outset, it is apposite to refer to the stated notification.

The relevant extract thereof reads as under:

“NOTIFICATION NO. 126/94CUS DATED 3.6.1994

Exemption to import of specified goods for use in manufacture of export goods by 100% E.O.Us. In exercise of the powers conferred by subsection (1) of section 25 of the Customs Act, 1962 (52 of 1962), the

15 (2016) 9 SCC 720

Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in AnnexureI to this notification (hereinafter referred to as the goods), when imported into India, for the production or manufacture of articles specified in AnnexureII for export out of India or for being used in connection with the production, manufacture or packaging of the said articles specified in AnnexureII for

export out of India (hereinafter referred to as the specified purpose) by hundred per cent Export Oriented Undertakings approved by the Board of Approval for hundred per cent Export Oriented Undertakings, appointed by the notification of Government of India in the former Ministry of Industry and Civil Supplies, (Department of Industrial Development) No. S.0.163(E)/RLIU/10(2)76, dated the 3rd March, 1976 or the Development Commissioner concerned as the case may be, from the whole of the duty of customs leviable

thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and the additional duty, if any, leviable thereon under section 3 of the second mentioned

Act, subject to the following conditions, namely :

the importer has been granted the necessary licence for the import of the said goods;
the importer, at the time of import of the said goods, produces to the Assistant Commissioner of Customs a certificate from the Development Commissioner to the effect that the importer has executed a bond in such form and for such sum as

may be prescribed binding himself

(a) to bring the said goods into his unit and to

use them for the specified purpose; and

(b) to dispose of the said goods or the articles

produced, manufactured or packaged in the

unit or the waste, scrap or remanents arising out of such production, manufacture or packaging in the manner as may, if any, be prescribed in the ExportImport Policy and in

this notification;…..

xxx xxx xxx

3. Notwithstanding anything contained in this notification, the exemption contained herein shall also apply to the said goods which on importation into India

are used for the purposes of production, manufacture or


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packaging of articles and such articles (including rejects,

waste and scrap material arising in the course of

production, manufacture or packaging of such articles)

even if not exported out of India are allowed to be sold in

India under and in accordance with the ExportImport

Policy and in such quantity and subject to such other

limitations and conditions as may be specified in this

behalf by the Development Commissioner, on payment of

duty of excise leviable thereon under section 3 of the Central Excises and Salt Act, 1944 (1 of 1944) or where such articles (including rejects, waste and scrap material) are not excisable, on payment of customs duty on the said goods used for the purpose of production, manufacture or packaging of such articles, in an amount equal to the customs duty leviable on such articles as if imported as such .) Explanation. For the purposes of this notification,

“ExportImport Policy” means Export and Import Policy,

1 April, 1997 31 March, 2002, published by the

Government of India in the Ministry of Commerce Notification No. 1/19972002, dated 31 March, 1997, as

amended from time to time. …..”

(emphasis supplied)

12. A bare perusal of the above notification would evince that

apart from providing for duty free imports of inputs for an 100%

EOU in order to export all the goods produced or manufactured

by it, in addition, it also gives liberty to the 100% EOUs to clear

their goods in DTA to the extent permissible by and in

accordance with the EXIM policy. The EXIM policy, at paragraph

9.9 provided that for earning an entitlement to make sales in

DTA, the unit has to maintain positive net foreign exchange

earning. The calculation of net foreign exchange earning, as

defined at paragraph 9.29, is provided for at paragraph 9.5 of the

Policy, which had to be done as prescribed in Appendix I of the

Policy. In case of cut flowers, it has been fixed at 20% since it

would come within the category of “Products not covered above”.

13. On a combined reading of the notification with the

conditions laid down in the EXIM policy, it is clear that the

fulfilment of the aforesaid conditions is a condition precedent to

become eligible to make DTA sales. Resultantly, if goods are

cleared in DTA sales in breach of the aforesaid conditions,

customs duty would be leviable, as if such goods were imported

goods.

14. Reverting to the first question, the appellant lays emphasis

that the DTA sales made by an 100% EOU can only be amenable

to excise duty and show cause notice under the provisions of the

1962 Act could not have been issued. This ground finds support

in the decision of larger bench of the CEGAT in Vikram Ispat

(supra), which the appellant relies upon. In paragraph 16 of the

said decision, it has been held as under:

“16. Notification No. 2/95C.E., dated 4195

provides that the goods manufactured and cleared by a

100% E.O.U. to DTA will be exempted from so much of

duty of excise as is in excess of the amount calculated at

the rate of 50% of each of duty of customs leviable read

with any other notification for the time being in force on

the like goods produced or manufactured outside India,

if imported into India provided that the amount of duty

payable shall not be less than the duty of excise leviable

on like goods produced or manufactured by the units in

Domestic Tariff Area read with any relevant notification.

It is, thus apparent that notification No. 2/95 provides a

minimum limit of the rate of duty which has to be paid

by the 100% E.O.U. while clearing the goods to DTA and

this limit is provided by the duty of excise leviable on like

good manufactured outside 100% E.O.U. However, if the

aggregate of duty customs leviable on goods cleared by

100% E.O.U. is more than the duty of excise leviable on like goods, a 100% E.O.U. has to pay more duty. The Revenue wants to restrict the availment of Modvat credit to the components of additional duty of customs paid under Section 3 of the Customs Tariff Act by bringing the

fiction that 100% E.O.U. is a place which is not in India

and the sale therefrom within India is akin to import into

India. We do not find any substance in this view of the

Revenue. The clearance of the goods by 100% E.O.U. are not import in the terms in which it has been defined under Section 2 (23) of the Customs Act, according to which import, with its grammatical and

cogent expression means bringing into India from a place outside India. This is also apparent from the fact that when the goods are cleared from 100% E.O.U. to any place in India, central excise duty under Section 3(1) of the Central Excise Act is levied

and not the customs duty under the Customs Act. If

it is to be regarded as import, then the duty has to be

charged under Section 12 of the Customs Act, read with Section 3 of the Customs Tariff Act. The Revenue, it seems is confusing the measure of the tax with the nature of the tax. The nature of the duty

levied on the goods from 100% E.O.U. is excise duty and nothing else, whereas for determining the quantum of duty the measure adopted is duty leviable under Customs Act as held by the Supreme

Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter its character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxiliary duty, additional duty of Customs or any other customs

duty does not arise. The proforma of AR1A on which

the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100%

E.O.U. is a duty of excise and not customs duty.”

(emphasis supplied)

However, this exposition has no application to the fact situation

of the present case, in as much as there had been no

contravention of conditions of EXIM Policy and the issue was only

about the nature of tax, in case of goods otherwise amenable to

excise duty.

15. Concededly, the DTA sales pertaining to excisable goods

made in conformity with the conditions of the EXIM policy are

exigible to excise duty, but once there is contravention of the

condition(s) of the EXIM policy, irrespective of the goods

produced being excisable or nonexcisable, the benefit under the

exemption notification is unavailable. In such a situation, the

very goods would become liable to imposition of customs duty as

if being imported goods.

16. We may now examine as to what would be the position in

case of sale of nonexcisable goods as per conditions specified

under the EXIM policy. Assuming there was no contravention of

the EXIM policy, in case of the goods cleared being non excisable,

the Paragraph 3 of the exemption notification would come into

play and the duty would be leviable on the inputs used in such

goods. It is relevant to bear in mind Section 12 of the 1962 Act

here, being the charging section, as is set out hereunder:

“Section 12 – Dutiable Goods

(1) Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs

shall be levied at such rates as may be specified under

the Customs Tariff Act, 1975 (51 of 1975), or any other

law for the time being in force, on goods imported into, or

exported from, India.

(2) The provisions of subsection (1) shall apply in

respect of all goods belonging to Government as they apply in respect of goods not belonging to Government.”

It is clear from the above provision that the goods which are

imported shall be charged as specified under the Customs Tariff

Act, 1975 or “any other law”, unless exempted under the 1962

Act or by “any other law”.

17. In the present case, the notification provides for exemption

on import of inputs and at the same time prescribes for

adherence of certain conditions for availing the exemption. The

notification further prescribes the rate at which the customs duty

on the inputs used in the production of nonexcisable goods sold

in DTA is to be charged. Thus, the notification, having been

issued in exercise of delegated legislation under Section 25 of the

1962 Act, has to be understood as “any other law”. Resultantly,

the appellant, having availed exemption under the notification,

cannot evade customs duty on the imported inputs at the rate

prescribed by the notification.

18. The show cause notice points out that the appellant

imported raw materials like “Live Rose Plants” and consumables

like fertilizers and planting materials, however, the appellant

advisedly chose to confine its argument to “cut flowers”, which,

as contended, were grown on Indian soil and thus not amenable

to customs duty. However, the demand made in the show cause

notice “treating” cut flowers as deemed to have been imported

was only for the purpose of quantification of the customs duty on

the imported inputs and not imposition of the customs duty on

the domestically grown cut flowers as such.

19. The decision of CESTAT in the case of Cosco Blossoms

(supra) is of no avail to the appellant. In that case, the tribunal had relied upon the decision in Vikram Ispat (supra) and held

that the cut flowers cleared in DTA sales cannot be charged with

customs duty, without considering that the goods were non

excisable. Notably, the Tribunal had granted liberty to the

authorities to charge customs duty upon the imported inputs, if


	16

used in production of the goods cleared in DTA, which supports

the case of the respondent. Paragraph 5 of the aforesaid order

reads as under:

“5. It is well settled [2000 (120) E.L.T. 800] that

goods produced in an EOU cannot be treated as imported goods and subjected to customs duty. The duty payable in respect of such goods is the duty of excise under Section 3 of the Central Excise Act, 1944. Therefore, the duty demand made in the impugned order

under Section 28 of the Customs Act is not sustainable.

Accordingly, we set aside the impugned order and allow

the present appeal. However, we make it clear that

revenue authorities will be at liberty to demand duty

on the imported inputs, if any, used in the production of the cutflowers in question.

The appeal is disposed of as above. ”

(emphasis supplied)

20. A priori, the demand in the present case, pertaining to the

nonexcisable goods has rightly been made under the 1962 Act

upon the imported inputs used in the production of goods sold in

DTA in violation of condition(s) in the EXIM Policy.

21. The decision of CESTAT in Suresh Synthetics (supra) is

not applicable to the present case. The goods in that case were

Polyster Textured Yarn, which are excisable goods. The

investigations were made as per provisions of the Central Excise

Act, 1944 , however, show cause notice was issued under 16 For short, “the 1944 Act ”

provisions of the 1962 Act. Thus, it was held that the demand is

not maintainable as it was made under a defective show cause

notice.

22. In case of excisable goods, even the present notification

takes resort to Section 3 of the 1944 Act, as can be seen from the

Paragraph 3 of the notification extracted above. Whereas, the

provisions of the 1962 Act are invoked only when the goods are

nonexcisable. In the present case, since the cut flowers are non

excisable goods, the demand for payment of customs duty had

rightly been made vide show cause notice under the provisions of

the 1962 Act.

23. Moving to the second question, the show cause notice was

issued to the appellant prior to the issuance of the amendment

notification. In this backdrop, let us now examine the contention

of the appellant that the amendment notification being

retrospective in its application. The relevant portion of the said

notification is reproduced hereunder:

“NOTIFICATION NO. 56 /2001CUS DATED 18.5.2001

In exercise of the powers conferred by subsection (1) of

section 25 of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied that it is necessary

in the public interest so to do, hereby directs that each of

the notifications of the Government of India in the

Ministry of Finance (Department of Revenue), specified in

column (2) of the Table hereto annexed shall be amended

or further amended, as the case may be, in the manner

specified in the corresponding entry in column (3) of the

said Table.

TABLE

Sr.No Notification No.

and Date

(1) (2)

Amendment

(3)

xxx Xxx xxx

8. 126/94Cus dated the 3 June, 1994

In the said notification,

(a) in the first paragraph, in condition (6), after clause (d), the following shall be inserted, namely:

” (e) permit destruction of rejects and waste without payment of duty within the unit, or outside the said unit, where it is not possible or permissible to destroy the same within the said

unit, in the presence of Customs

or Central Excise officer.”;

(b) in paragraph 2, in the proviso, for the words and figures “duty of 15% ad valorem”, the words and figure “duty of 5% ad valorem” shall be

substituted;

(c) in paragraph 3, in clause (a), for the words “on payment of customs duty on the said goods used for the purpose of production, manufacture or packaging of such articles in an amount equal to the customs duty leviable on such articles as if imported as such.”, the following shall be substituted, namely: “customs duty equal in amount to that leviable on

inputs obtained under this notification and used for the purpose of production, manufacture or packaging 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.

…..“

(emphasis supplied)

24. As can be seen, the aforesaid notification posits of carrying

out amendments and substituting the charging clause of the

inputs used in case of nonexcisable goods. The language

employed in the notification does not offer any guidance on

whether the amendments as made were to apply prospectively or

retrospectively. It is a settled proposition of law that all laws are

deemed to apply prospectively unless either expressly specified to

apply retrospectively or intended to have been done so by the

legislature. The latter would be a case of necessary implication

and it cannot be inferred lightly.

25. In this regard, the appellant has heavily relied upon the

CBEC Circular to contend that the Government intended to apply

the notification retrospectively as it was brought in to address an

anomaly, which existed vis a vis central excise notifications. The

relevant portion of the CBEC Circular is extracted hereunder:

“Circular No. 31/2001Cus, dated 2452001

xxx xxx xxx

(xi) Duty on DTA Clearance of NonExcisable Goods;

25. At present, the EOUs and units operating under EPZ/STP/EHTP Schemes are allowed to sell finished products (including rejects, waste & scrap) in the Domestic Tariff Area (DTA) on payment of applicable excise duty as per proviso to Section 3 of the Central Excise Act, 1944. However, the same is applicable if the

goods being cleared into DTA are excisable goods. Under

the present dispensation, the notifications providing duty

free import of goods under the above said Schemes stipulate that where the finished products (including rejects, wastes & scrap) sought to be cleared in DTA are

not excisable, such products are allowed to be cleared on

payment of customs duty on the inputs used for the purpose of production, manufacture, processing or packaging such products in an amount equal to the customs duty leviable on such products as if imported as

such.

26. It has been brought to notice of the Board that

in some Commissionerates, the floriculture units under

the EOU Scheme are being asked to pay duty equivalent

to the customs duty leviable on finished goods as if imported as such, for clearance of cutflowers, which is

not an excisable commodity. It has also been stated that

the DTA units are not required to pay any duty for sale of

cutflowers, as the same are not excisable. This is stated

to have placed the floriculture units in EOUs at a serious

disadvantageous position visavis DTA units.

27. The matter has been examined. In the central

excise notifications governing duty free procurement by

EOUs and units under EPZ/STP/ETHP Schemes, there

is a provision to recover duty on the inputs & consumables procured duty free under exemption notification, which have gone into production of non excisable goods cleared into DTA. In the notifications governing duty free import by EOUs and the EPZ/STP/EHTP units, the anomaly, however, exists inasmuch as the notifications talk about payment of

customs duty on the inputs used in the manufacture

of articles in an amount equal to the customs duty

leviable on such articles as if imported as such. In

order to remove this anomaly, all the notifications

governing duty free import of goods by STP/EHTP/EPZ

units and EOUs including those in Aquaculture and Agriculture sector have been amended so as to bring the provisions of these notifications in harmony with the provisions of corresponding Central Excise notifications.

Notification No. 56/2001Cus, dated 1852001 may be

seen for details.”

(emphasis supplied)

26. Upon a bare reading of the circular, it can be noted that it

discusses the mechanism in force before the amendment, the

reason for bringing in the change and the changes brought in.

The circular does not mention that the earlier methodology in

force was deficient or devoid of clarity in any manner. It rather

says that the same was being disadvantageous to the EOU units

as compared to the DTA units due to the difference in charging

rates in the respective circulars. Upon considering that, the

amendment has been brought in to establish parity with the

excise notifications and to vindicate the disadvantage that earlier

regime was causing to EOU units. Merely because an anomaly

has been addressed, it cannot be passed off as an error having

been rectified. Unless shown otherwise, it has to be seen as a

conscious change in the dispensation, particularly concerning

the fiscal subject matters. The word “anomaly” has been defined

in Webster’s New Twentieth Century Dictionary to mean

“abnormality; irregularity; deviation from the regular arrangement, general rule or the usual method”.

27. In the context of the subject circular, since it takes note of

the previous arrangement and distinguishes it from the excise notifications, the meaning has to be taken as deviation from the

regular arrangement, which by no stretch of imagination can be

treated as a mere mistake. To call the amendment notification

clarificatory or curative in nature, it would require that there had

been an error/mistake/omission in the previous notification which is merely sought to be explained.

28. To understand if the Government brought in the

amendment notification to clarify that the articles were to be

charged at the rate of duty provided for inputs and not for the

final articles, it would be necessary to analyse the position prior

to the amendment and to see if duty on inputs chargeable at the

rate of final articles was an error that crept in. In this regard, we

may refer to Section 3 of the 1944 Act as it stood during the relevant period, which is set out hereunder:

“Section 3. Duties specified in the First Schedule and

the Second Schedule to the Central Excise Tariff Act, 1985 to be levied

(1) There shall be levied and collected in such manner as

may be prescribed,

(a) a duty of excise on all excisable goods which are

produced or manufactured in India as, and at the

rates, set forth in the First Schedule to the Central

Excise Tariff Act, 1985 (5 of 1986);

(b) a special duty of excise, in addition to the duty of

excise specified in Clause (a) above, on excisable

goods specified in the Second Schedule to the

Central Excise Tariff Act, 1985 (5 of 1986) which are

produced or manufactured in India, as, and at the

rates, set forth in the said Second Schedule.

Provided that the duties of excise which shall be levied and collected 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 exportoriented

undertaking and allowed to be sold in India,

shall be an amount equal to the aggregate of the

duties of customs which would be leviable Under

Section 12 of the Customs Act, 1962 (52 of 1962), on

like goods produced or manufactured outside India if

imported into India, and where the said duties of

customs are chargeable by reference to their value;

the value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs Act, 1962 (52 of

1962) and the Customs Tariff Act, 1975 (51 of 1975).”

(emphasis supplied)

The proviso to the charging section of the 1944 Act provides that

an EOU making DTA sales shall be charged duty as if the goods

were imported into India and in value equal to the customs duty

chargeable thereto. No doubt, the said provision applies only in

cases of excisable goods, but the exemption notification providing

for similar duty by terms thereunder for nonexcisable goods, can

be understood to have been made to equate the duty in case of

excisable as well as nonexcisable goods. Therefore, it must follow

that the said provision was not an error that crept in but was

intentionally introduced by the Government to determine the

charging rate, as discussed above. That being the position prior

to amendment, the amendment brought in cannot be said to be

clarificatory in nature.

29. The decision of this Court in Zile Singh (supra) is of no

avail to the appellant. In as much as it was a case of poor choice

of words by the draftsmen, which led to absurdity in

interpretation and a subsequent substitution of such words to

make the intention clear. In the present case, as discussed

above, there was no error present in the prevailing dispensation

and it was a policy decision to give relief to the EOU units from

the date of its amendment.

30. In Vatika Township (supra), Constitution Bench of this

Court has analysed the principle concerning retrospectivity. The

appellant heavily relies upon the observation made at paragraph

30 of the decision, which reads thus:

“30. … If a legislation confers a benefit on some

persons but without inflicting a corresponding detriment

on some other person or on the public generally, and

where to confer such benefit appears to have been the

legislators’ object, then the presumption would be that

such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. …”.

The appellant clearly misinterprets the context of the above

observation by reading the same in isolation. To have a better

understanding of the said principle, it is relevant to read the

preceding and subsequent paragraphs. We may here refer to Paragraph 32 of the said decision, which is extracted below:

“32. Let us sharpen the discussion a little more. We

may note that under certain circumstances, a particular

amendment can be treated as clarificatory or declaratory

in nature. Such statutory provisions are labelled as

“declaratory statutes”. The circumstances under which provisions can be termed as “declaratory statutes” are explained by Justice G.P. Singh in the following manner:

“Declaratory statutes

The presumption against retrospective operation

is not applicable to declaratory statutes. As stated in

CRAIES and approved by the Supreme Court: ‘For

modern purposes a declaratory Act may be defined as

an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts

are usually held to be retrospective. The usual reason

for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word “declared” as well as the word “enacted”.’ But the use

of the words ‘it is declared’ is not conclusive that the

Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the

latter case will only be amending the law and will not

necessarily be retrospective. In determining, therefore,

the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is ‘to

explain’ an earlier Act, it would be without object unless construed retrospective. An explanatory Act is

generally passed to supply an obvious omission or

to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is

curative or merely declaratory of the previous law

retrospective operation is generally intended. The

language ‘shall be deemed always to have meant’ is

declaratory, and is in plain terms retrospective. In

the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will

have retrospective effect and, therefore, if the principal

Act was existing law which the Constitution came into

force, the amending Act also will be part of the existing

law.”

he above summing up is factually based on the judgments of this Court as well as English decisions.”

pon reading the observations at Paragraph 30 and juxtaposed

with paragraph 32, it is crystal clear that an essential

requirement for application of a legislation retrospectively is to

show that the previous legislation had any omission or ambiguity

or it was intended to explain an earlier act. In absence of the

above ingredients, a legislation cannot be regarded as having retrospective effect.

31. In IndusInd Bank (supra), this Court, while examining

whether the amendment made to Section 28 of the Indian

Contract Act, 1872 was prospective or retrospective, has noted

that the said provision is remedial in nature and not clarificatory,

since prior to the amendment, the rights and liabilities accrued

were sought to be taken away. Paragraph 24 of the said decision

is reproduced below:

“24. On a conspectus of the aforesaid decisions, it

becomes clear that Section 28, being substantive law, operates prospectively, as retrospectivity is not clearly made out by its language. Being remedial in nature, and not clarificatory or declaratory of the law, by making certain agreements covered by Section 28( b) void for the first time, it is clear that rights and liabilities that have already accrued as a result of agreements entered into between parties are sought

to be taken away. This being the case, we are of the

that both the Single Judge and the Division Bench
in error in holding that the amended Section 28 would apply.”

We are in agreement with the respondent that this decision

squarely applies to the present case as prior to the amendment,

the DTA sales made by the appellant have already attracted

liability at the prescribed charging rate, which in facts of the

present case cannot be undone in reference to the subject amendment.


		17

32. It is relevant here to advert to a decision of Constitution Bench of this Court in Commissioner of Central Excise, New

Delhi vs. Hari Chand Shri Gopal & Ors. , wherein it has been

held that an exemption clause ought to be strictly construed

according to the language employed therein and in case of any

ambiguity, benefit must go to the State. It will be useful to

reproduce paragraphs 29 and 30 of the aforesaid decision hereunder:

“29. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as

the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object

and purpose to be achieved. If exemption is available

on complying with certain conditions, the conditions

have to be complied with. The mandatory

requirements of those conditions must be obeyed or

fulfilled exactly, though at times, some latitude can be

shown, if there is a failure to comply with some requirements which are directory in nature, the non compliance of which would not affect the essence or substance of the notification granting exemption.

30. In Novopan India Ltd. this Court held that a

person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State. A Constitution Bench of this Court in Hansraj Gordhandas v. CCE and

17 (2011) 1 SCC 236

Customs held that (Novopan India Ltd. case, SCC p. 614,

para 16)

“16. … such a notification has to be interpreted

in the light of the words employed by it and not

on any other basis. This was so held in the context of the principle that in a taxing statute,

there is no room for any intendment, that regard

must be had to the clear meaning of the words

and that the matter should be governed wholly

by the language of the notification i.e. by the plain terms of the exemption.” ”

Applying the aforequoted dictum to the present case, the

appellant was obliged to comply with the conditions prescribed

by the EXIM Policy, to avail the exemption under the stated

notification; and failure to do so, must denude them of the

exemption so granted. Further, since the charging rate prescribed

under the exemption notification is under question, any

ambiguity in regard to the date of application of the amendment

thereto would necessarily have to be construed in favour of the

State, unless shown otherwise by judicially acceptable parameters.

33. The next contention of the appellant is that Section 28 of

the 1962 Act cannot be invoked to extend the limitation as there

was no wilful misstatement or suppression of facts on behalf of

the appellant. The decision of this Court in Uniworth Textiles

(supra), has been relied upon by the appellant. The same

explains the situations in which Section 28 of the 1962 Act can

be invoked. It had been held in the said decision that the

extension of limitation for a period of five years can be done only

in cases of deliberate default and not inadvertent nonpayment.

It was further held that the burden for proving mala fide conduct

is on the revenue; and specific averments in that regard must find place in the show cause notice.

34. In the fact situation of the present case, the appellant was

issued a show cause notice mentioning that it had suppressed

the DTA sales of cut flowers to evade payment of duty. Had the

appellant in good faith believed that no duty was payable upon

the DTA sales of cut flowers, it would have sought prior approval

of the Development Commissioner, which it failed to do. Even in

the letter seeking expost facto approval, the appellant claimed

that they had not used any imported input such as fertilizer,

plant growth regulations, etc. in growing flowers sold in DTA,

despite having imported green house equipment, raw materials

like Live Rose Plants and consumables like planting materials

and fertilizers. Therefore, it prima facie appeared that

suppression by the appellant was “wilful”. The burden of proving

to the contrary rested upon the appellant, which the appellant

failed to discharge by failing to establish that the imported inputs

were not used in the production of the cut flowers sold in DTA. In

view thereof, the authorities below have rightly invoked Section

28 of the 1962 Act and allied provisions.

35. In light of the foregoing discussion and observations, we are

of the view that CESTAT has rightly upheld the levy of customs

duty.

36. This appeal, therefore, deserves to be dismissed. It is so

ordered. There shall be no order as to costs. Pending

applications, if any, shall stand disposed of.

……………………………, J.

(A.M. Khanwilkar)

……………………………, J.

(Dinesh Maheshwari)

New Delhi;

September 1, 2020.

sc16 LRBrothersvsCCE-CA No. 7157-2008

AUTHOR: admin

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