Case: Sarla Performance Fibers Limited and Ors Vs. Commissioner of Central Excise

1. The appellant is a company registered under the Companies Act, 1956 and is engaged, inter alia, in the manufacture of excisable goods, namely, synthetic yarn and for that purpose it has a factory at Unit-I, Survey No. 59/1/14, Amli, Piparia Industrial Estate, Silvassa (U.T. of D.N.&H). The said factory is a 100% Export Oriented Unit (EOU). Prior to 6th November, 2006, Sarla Performance Fibers Limited was known as Sarla Polyesters Ltd. Shri Madhusudan Jhunjhunwala and Shri Satish Kumar Sharma were the Chairman and the excise in-charge respectively of Sarla Performance Fibers Limited. Shri Dineshchandra Pandey was the dispatch in-charge of M/s. Hindustan Cotton Company, a partnership firm, engaged inter alia, in trading of Polyester Textured/Twisted Dyed Yarn since 1988. Sh. Gopal Bhagwan Dutt Sharma was the Manager of Sarla Performance Fibers Limited at the relevant time. The reference to appellants herein will mean and include all the appellants.2. The appellants had procured partial oriented yarn (POY) falling under Chapter 54 without payment of duty for the manufacture of various types of yarn, namely, polyester texturised yarn, nylon covered yarn and polyester covered yarn. A show cause notice No. V(Ch.54)15-6/OA/2000 dated 16th May, 2001 was issued by the Commissioner of Central Excise, Surat - II requiring the appellant to explain why central excise duty of Rs. 32,92,854/-should not be recovered on the texturised yarn allegedly removed by the appellants without payment of duty. The said show cause notice also required the appellants to explain why penalty should not be imposed under Section 11AC of the Central Excise Act, 1944 (for short, `the Act). That apart, the show cause notice also sought to confiscate the nylon covered yarn valued at Rs. 1,72,186/-and further to recover duty thereon of L 55,202.96.3. After the show cause notice was issued, the appellants made payment aggregating to L 14,89,349.00 as against the duty payable under Section 3(1) of the Act (after taking into account the cum-duty benefit) and Rs. 11,19,775.00 payable in the event the benefit of Notification No. 2/05 was allowed.4. After the reply to the show cause notice was filed, the Commissioner of Central Excise, Surat-II, by his order-in-original no. 11/MP/2002 dated 21st March, 2002 (i) confiscated the seized nylon covered yarn weighing 245.980 kgs. valued at Rs. 1,72,186/- and appropriated a sum of Rs. 86,093/- which was given as bank guarantee; (ii) demanded Rs. 55,202.96 as differential duty on the confiscated goods which were released provisionally before the adjudication; and (iii) confirmed the central excise duty amounting to Rs. 32,92,854/- and ordered recovery of interest under Section 11AB and imposed a penalty of Rs. 33,48,060/- on the appellants. The adjudicating authority also imposed penalties on various persons set out in the impugned order.5. Being aggrieved by the aforesaid order, the appellant preferred appeals before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) (for short, `the tribunal) under Section 35B of the Act to the extent the said order was adverse to it. The revenue also preferred an appeal before the tribunal as certain aspects were adverse to it. The tribunal referred the issue to the Larger Bench of the tribunal for consideration whether the goods cleared by the appellant were eligible for exemption underNotification No. 125/84 dated 26.05.1984. The Larger Bench vide order dated 03.08.2007 held that in case the goods cleared by the 100% EOU and sold in India whether with or without permission, the assessment shall be made under proviso to Section 3(1) of the Act and the exemption under Notification No. 125/84 shall not be applicable. After the matter was placed before the Division Bench of the tribunal vide its order dated 15.11.2007 referred to the Larger Bench decision and reiterated the view of the Full Bench by opining that the goods cleared by the 100% EOU and sold in India whether with or without permission of the Development Commissioner, the assessment shall be made under proviso to Section 3(1) of the Act and exemption under Notification No. 125/84 shall not be applicable but granted some relief as regards the imposition of penalty. Resultantly, the tribunal vide order dated 15.11.2007 disposed of the appeal of the appellants and dismissed the appeal of the revenue.6. As the facts would unfold, the appellants filed an application before the tribunal for recall of order dated 15.11.2007 in terms of judgment in J.K. Synthetics Ltd. v. Collector of Central Excise, 1996 (86) ELT 472 (SC) which was dismissed on the ground that appeals were decided on merits and a detailed order considering all aspects was passed by the tribunal and as such it could not be said that the Bench defaulted in considering the merits of the case.7. The aforesaid orders were assailed before the High Court in Writ Petition No. 4758 of 2008 and the Division Bench of the High Court taking note of the submissions of the learned counsel for the parties, directed asThere were certain Appeals filed by the Petitioners and also there were certain Appeals filed by the Department. Mr. Desai, the learned Senior Counsel for the Respondents, has no objection if all the Appeals are heard together denovo including the Appeals filed by the Department since the Petitioners were not heard in the Appeals. The learned Counsel for the Petitioners also has no objection for the same.4. Under the aforesaid facts and circumstances, both the impugned orders dated 21st April, 2008 and 15th November, 2007 passed by the CESTAT in the aforesaid Appeals are hereby quashed and set aside, and all the aforesaid Appeals stand restored to file. The CESTAT is directed to hear all the Appeals mentioned hereinabove afresh denovo without being influenced by their earlier orders in any manner.After the remit, it was contended before the tribunal that the allegation of clandestine removal was based on a computer sheet and no other records had been recovered; that the reliance by the department to establish clandestine removal were the invoices issued by Hindustan Cotton Company; and that the appellant SPL is a 100% EOU and when case goods were cleared without permission of the Development Commissioner according to the department duty was payable under Section 3(1) of the Act and exemption was available under notification no. 125/84 CE. To sustain the stand, reliance was placed on SIV Industries Ltd. v. CCE & Customs, (2000) 3 SCC 367. Be it stated that the reliance was placed on Larger bench decision of the tribunal in Shrichakra Tyres Ltd. v. CCE Madras, 1999 (108) ELT 61 (Tribunal) and on that base it was contended that the amount utilized by the assessee was to be treated as duty price and no penalty could have been imposed on individuals since no evidence had been brought on record to show that they were aware of the transactions.9. The stand of the assessee was resisted by the revenue contending, inter alia, that the benefit of exemption notification could not be extended since the notification incorporated several conditions to be fulfilled and unless these conditions were fulfilled, exemption could not be allowed; that the benefit of cum-duty price could not be extended and invocation of a wrong section or rule in the show cause notice would not be a bar for imposition of penalty under the correct rule or section, and that appellant was not eligible for treatment of clearances under Section 3(1) of the Act. On behalf of the revenue reliance was placed on Sterlite Optical Technologies Ltd. v. CC&CE Aurangabad, 2005 (188) ELT 201 (Trib.-Mumbai).10. At this juncture, it is relevant to state that Member, Technical came to hold that all the sales to DTA were clandestinely done in contravention of the provisions of the EXIM policy and the appellant-company did not raise any contention that the price charged included the component of excise duty. On the contrary the appellants claimed exemption under notification no. 125/84 and, therefore, the question of SPL having recovered any cum-duty price from the customers in DTA did not arise. Further it was evident that the transactions had been made by SPL in the name of Hindustan Cotton Company and M.M. Sanghavi and the demands had been raised on the invoices raised. The transaction itself was artificial and no justification had been shown to treat the same as cum-duty price and, therefore, the decision of the Commissioner not to treat the price as cum-duty price deserved to be upheld. As regards penalty on the company, the learned member held that it had been rightly imposed under Section 11AC of the Act read with Rule 173Q of the Central Excise Rules. As far as the individuals were concerned, the learned Member opined that the imposition on some was justified and imposition on certain individuals was not warranted. He, however, dismissed the appeal preferred by the department.11. The Member, Judicial concurred with the view of the Member, Technical as regards the clandestine removal and consequent confirmation of demand of duty and imposition of penalty on various appellants but, however, as far as the present appellant was concerned, the learned Member opined that the entire realization made by M/s. Sarla Polyester Ltd. were required to be treated as cum-duty and as such, the benefit had to be extended to the appellant on the above count. She further observedno duty has been recovered by them from their buyers. When the duty is being subsequently demanded from them on the same realization, it is, in my view, required to be treated as cum duty and the assessable value has to be arrived at by deduction of the duty now being confirmed against the assessee. This has been the declaration of law in all the judgments relied upon by the learned Advocate. The fact as to whether the duty is being demanded on clandestine removal or on any other issue, should not make a difference".The learned Member placed reliance on CCE Delhi v. M/s. Maruti Udyog Ltd., 2002 (141) ELT 3 (SC) , reproduced a passage from the same and opined that the entire realization was required to be considered as cum-duty-price and the benefit of the same had to be extended to the assessee and for the said purpose, the matter needed to be remanded for recalculation of the quantum of duty. As far as penalty is concerned, she concurred with the Member, Technical, but also opined that it required to be remanded for imposing penalty equivalent to the duty calculated on the determination of the quantum.13. The two Members noted three points as difference of opinion. For the sake of completeness, we think it appropriate to reproduce theWhether the entire sales value of the goods removed clandestinely is required to be considered as cum-duty and benefit of the same is to be extended to M/s. Sarla Polyester Ltd. (Appellant no.1 herein) or not?b. Whether the ratio of law declared by this Honble Court in the case of CCE Delhi v. M/s. Maruti Udyog Ltd. reported in 2002(141) ELT 3 applies to the facts of the present case or not and as to whether the benefit of the same is to be extended to the said assessee or not?c. Whether the matter is required to be remanded for quantification of the duty by treating entire realization as cum-duty price, as held by the Member (Judicial) or the appellants plea on the above issue is required to be rejected by upholding the decision of the Commissioner not to treat the price as cum-duty price, as observed by learned Member (Technical)?d. Consequent to the re-quantification of duty on the above ground, the penalty imposed upon M/s. Sarla Polyester Ltd. would get reduced to the quantum of duty reconfirmed against the saidIt is necessary to state here that before the pronouncement of Order on 13.10.2010, counsel on behalf of the present assesee mentioned that the controversy was no more res integra in view of the decision rendered in CCE v. NCC Blue Water Products Ltd., (2010) 12 SCC 761 : 2010 (258)_ ELT 161 Thereafter the matter was heard on another day and on behalf of the Bench, the learned Member, Technical passed the order. He took note of the stand of the revenue that ratio of the said decision was not applicable as it was based on the principle stated in earlier decision i.e. SIV Industries Ltd. (supra). The learned Member also took note of the fact that the Larger Bench of the tribunal had distinguished the decision in SIV Industries Ltd. (supra) which was relied upon in NCC Blue Water products Ltd. (supra). At this juncture, we think it appropriate to reproduce a passage from the order passed by the Member, Technical on behalf of theis quite clear that as submitted by learned SDR, the Honble Supreme Court followed the decision in case of SIV Industries and also took note of the Boards circular issued in 2002 and it is quite apparent that circular issued in 2004 was not brought to the notice of learned SDR in Supreme Court. Further, we also note as submitted by the decision of the present case, the Larger Bench had considered the Honble Supreme Court in case of SIV Industries Ltd. and had distinguished the same and reached the conclusion that in case of goods sold by 100% EOU in DTA, the assessment shall be made under proviso to Section 3(1) of the Act.After so stating, the learned Member quoted copiously from the Larger Bench. We think it appropriate to reproduce the relevantWe have considered the submissions. We find that the wordings of proviso to Section 3(1) of the Central Excise Act and Notification 125/84 which we have been called upon to interpret are similar and the basic dispute is as to how the words "allowed to be sold in India" are to be interpreted. After going through the various submissions made by both sides, we find that 100% EOUs were allowed to be established with the sole purchase of exporting 100% of their production as is evident from the words 100% EOUs. However, on account of certain hardship faced in getting export order, sales in DTA up to 25% were permitted from the year 1984 but there was a clear intention to distinguish between such sales by the 100% EOU from the sales by domestic units other than 100% EOU and it was for this purpose that proviso to Section 3(1) and Notification 125/84 was introduced. Since there were only two modes of clearance in which the 100% EOUs could have cleared the goods i.e. one by export and the other by domestic sale after obtaining the permission of the Development Commissioner, in respect of domestic sales the words "allowed to be sold in India" were incorporated in both the provisos.Thereafter, the learned Member proceeded to state certain aspects which are not necessary and then reproduced the followingalso agree with the observation of the Larger Bench that the decision of the Supreme court in SIV Industries case is distinguishable for the reason stated therein, as in that case the main thrust was that whether on the date of removal the 100% EOU ceased to be 100% EOU and therefore the provisions relating to 100% EOU could not have been applied to them. For the same purpose we hold that exemption under Notification 125/84 shall not be applicable in respect of goods manufactured by 100% EOU but sold in India.After reproducing number of passages from the Larger Bench, the learned Member observedIt may be seen that Larger Bench had considered the decision of Honble Supreme Court in case of SIV Industries Ltd., and has agreed with another decision of the Larger Bench in the case of Himalaya International, wherein also the decision of Honble Supreme Court in case of SIV Industries Ltd had been considered; and distinguished.8. To sum up, two decisions of Larger Bench of the Tribunal have considered the issue and distinguished the decision in the case of SIV Industries Ltd. and the decision of Larger Bench in the present case on a reference made in the appellants case itself had considered, all aspects and the history of 100% EOU, statutory provisions and precedent decisions to reach conclusion that duty is chargeable under proviso to Section 3(1) of Central Excise Act, 1944.Being of this view, the Bench reiterated the difference of opinion and the questions framed thereunder. After the judgment was delivered by the tribunal, the appellant preferred W.P. No. 714 of 2011. The High Court noted the submissions of the learned counsel for the writ petitioners and opined that keeping in view the concept of self-restraint and the requirement of judicial propriety, it was desirable for the assessee to prefer an appeal before this Court. Being of this view, the High Court declined to interfere. Hence, the present appeals have been preferred under Section 35L(b) of the Act.

Court's reasoning:
we may refer to the authority in NCC Blue Water Products Ltd. (supra). In the said case, the tribunal has held that the duty of Central excise on shrimps and shrimp seeds produced and removed by the assessee-respondent, a 100% export-oriented unit (EOU), in the Domestic Tariff Area (DTA) without the approval of the Development Commissioner, would be payable under Section 3(1) of the Act and not under the proviso appended thereto. The two-Judge Bench taking note of the fact that during the period 1994-1995 to 1997-1998, the assessee produced and sold 11,15,29,540 number of shrimp seeds and 48,365 kg of shrimps in DTA without obtaining the permission of the Development Commissioner; without issuing proper invoices as mandated under Rule 100-E of the Central Excise Rules, 1944 (for short "the Rules") and without payment of excise duty. Besides, the assessee also undertook certain job-work whereby it processed 864.238 MT of shrimps and 905.580 MT of fish and cleared the said goods in DTA. According to the assessee, these goods were ultimately exported by DTA units. The said action of the assessee compelled the authority to issue a show cause notice requiring the assessee to show cause as to why duty of excise equal to aggregate of the duties of customs should not be levied under Section 3 of the Act read with Rule 9(2) read with proviso to sub-section (1) of Section 11-A of the Act and interest and penalty thereon. The matter was contested by the assessee and eventually the tribunal ruled in favour of the assessee. Before this Court, it was contended that since as per Note 1 of Section I of the First Schedule to the Customs Tariff Act, 1975, any reference in that section "to a particular genus or species of an animal, except where the context otherwise requires, includes a reference to the young of that genus or species" and, therefore, both live shrimps and shrimp seeds are classifiable under Sub-Heading 0306.23 of Chapter 3 of the First Schedule to the Customs Tariff Act, 1975. It was also urged that the tribunal committed an error in relying on the decision of this Court in SIV Industries Ltd. (supra) because unlike in that case the assessee had sought permission of the Development Commissioner, who in turn had advised them to approach the SIA for permission to clear shrimps and shrimp seeds which, in fact, was granted and, therefore, they were required to pay duty under proviso to Section 3(1) of the Act. It was also urged that under the Exim Policy, an EOU is obliged to make exports of the entire production itself and not through any otherCourt posed the followingcore question for our consideration, therefore, is whether the sales of shrimps and shrimp seeds by the assessee in DTA, without requisite permission from the Development Commissioner, are to be assessed to excise duty under Section 3(1) of the Act or under the proviso to the saidTo deal with the said question, the Court referred to Section 3 and it expressed understanding of the provision in the followingis manifest that all excisable goods produced or manufactured in India are exigible to duty of excise under Section 3 of the Act, the charging section, at the rates set forth in the Schedule to the Tariff Act. However, the proviso to the said section provides that the duties of excise on any excisable goods, which are produced or manufactured by a 100% EOU and allowed to be sold in India shall be an amount equal to the aggregate of the duties of customs which would be leviable under Section 12 of the Customs Act, 1962. As aforestated, the controversy at hand is whether in the absence of an order by the competent authority, allowing the assessee to sell the shrimp seeds and shrimps in India, excise duty on such sales could be levied and collected in terms of the proviso. To put it differently, the issue relates to the significance of the expression "allowed to be sold in India" as appearing in clause (ii) to the proviso to sub-section (1) of Section 3 of the Act.After so stating the two-Judge Bench referred to the decision in SIV Industries Ltd. (supra) and opinedsimilar issue fell for consideration of this Court in SIV Industries Ltd. (supra) In that case, the assessee was a 100% EOU. Later on, they sought permission to withdraw from 100% EOU Scheme, for which the Ministry accorded the necessary permission. However, some of the goods lying in the unit were removed prior to the debonding. A dispute arose regarding the rate of duty payable on such sales. The plea taken by the assessee was that they were liable to pay duty under Section 3(1) of the Act together with customs duty on the imported raw material used in the manufacture of said finished goods, lying in the stock whereas the stand of the Revenue was that excise duty under the proviso to Section 3(1) of the Act was payable on the finished goods with no customs duty being leviable on the raw materials used in the manufacture of finished goods. Thus, the bone of contention in that case was also with regard to the interpretation of the expression "allowed to be sold in India" appearing in the said proviso. Interpreting the said expression, this Court held that the expression "allowed to be sold in India" used in the proviso to Section 3(1) of the Act is applicable only to sales made in DTA up to 25% of the production by 100% EOUs, which are allowed to be sold into India as per the provisions of the Exim Policy. No permission was required to sell the goods manufactured by 100% EOU lying with it at the time the approval is accorded to debond. The Court opined that the goods having been sold without permission of the Central Government to debond the unit, the duty on the goods sold by the assessee was leviable under main Section 3(1) of the Act.The impugned order, as is manifest, relies on the Larger Bench decision. It is to be noted that after the judgment in NCC Blue Water Products Ltd. (supra) the said decision was brought to the notice of the tribunal but it has opined that parent judgment in SIV Industries Ltd. (supra) was distinguished by the Larger Bench and further the circular dated 05.01.2004 was not taken note of by this Court in the subsequent judgment. On a careful scrutiny of the authority in NCC Blue Water Products Ltd. (supra), we are of the considered opinion that it concurs with the view expressed in SIV Industries Ltd. (supra). The circular dated 05.01.2004 came into existence after the Larger Bench decision in Himalaya International Ltd. (supra). We have already stated that there was no justification for distinguishing the decision in SIV Industries Ltd. (supra). The Technical Member who authored the judgment after the decision in NCC Blue Water Products Ltd. (supra) was brought to the notice of the tribunal has absolutely improperly noted that the circular dated 05.01.2004 was not brought to the notice of this Court. The Court in NCC Blue Water Products Ltd. case had not based its conclusion on the basis of the circular dated 13.02.2002. It is clear as day that it has concurred with the ratio laid down in SIV Industries Ltd. (supra). It has been clearly opined that the expression "allowed to be sold in India" used in proviso to Section 3(1) of the Act would be applicable only to sales made in DTA of the production by 100% EOUs, which are allowed to be sold into India as per the provisions of the Exim Policy.36. The said authority has also made it clear that the circular issued in 2002 is in consonance with the authority in SIV Industries Ltd. (supra). Thus, the view expressed by NCC Blue Water Products Ltd. (supra) has given the stamp of approval to the circular. It is a binding precedent on all the courts and the tribunals under Article 141 of the Constitution of India. The Larger Bench of the Tribunal, as stated earlier, could not have distinguished the judgment in SIV Industries Ltd. (supra). The later circular issued on 05.01.2004 on which reliance was placed by the revenue before the tribunal which has been taken note of in the impugned judgment is clearly indicative of an erroneous approach. The decision in NCC Blue Water Products Ltd. (supra) was bound to be followed and the tribunal could not have stated that 2004 circular was not taken note of. The tribunal should have appropriately appreciated that this Court was interpreting the statutory provision and it is also worthy to note that after the judgment delivered in SIV Industries Ltd. (supra) an amendment was brought into the provision. Therefore, the transaction prior to the date of amendment would be governed by SIV Industries Ltd. (supra) which has been followed in NCC Blue Water Products Ltd. (supra). Be it clarified that we are not concerned with the amended provision in this case.