Case: M/S.L.R.BROTHERS,INDO FLORA LTD.  Vs. COMMISSIONER OF CENTRAL EXCISE

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 view that both the Single Judge and the Division Bench were 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. 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. (2011) 1 SCC 236 , 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 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 mis-statement 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 non-payment. 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 ex-post 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.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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.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. 2/95-C.E., dated 4-1-95 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 AR-1A 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.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 non-excisable, 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.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 sectionIt 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 non-excisable 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 used in production of the goods cleared in DTA, which supports the case of the respondent.20. A priori, the demand in the present case, pertaining to the non-excisable 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 (For short, the 1944 Act), however, show cause notice was issued under 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 non-excisable. 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.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 non-excisable 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.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 ins 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.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 non-excisable goods, can be understood to have been made to equate the duty in case of excisable as well as non-excisable 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 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.Upon 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 view that both the Single Judge and the Division Bench were 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.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. (2011) 1 SCC 236 , 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 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.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 ex-post 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.