Case: COMMISSIONER OF CENTRAL  EXCISE, NAGPUR Vs. M/S UNIVERSAL FERRO &amp; ALLIED CHEMICALS LTD. &amp; ANR.

2. The facts in brief giving rise to the present appeals are as under:The respondent – Universal Ferro & Allied Chemicals Ltd., Maneck Nagar, Tumsar (hereinafter referred to as UFAC) is 100% Export Oriented Unit ( EOU for short) approved by the Secretariat for Industrial Approvals, Department of Industrial Development in the Ministry of Industry, Government of India. UFAC was engaged in the manufacture/processing and clearance of Ferro Manganese and Silicon Manganese falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985. UFAC cleared these items for export as well as in Domestic Tariff Area (hereinafter referred to as DTA) on payment of Central Excise duty3. The Central Intelligence Unit of the Central Excise Headquarters visited the unit of UFAC on 19.9.2001 on getting information from the Central Excise Audit party that UFAC being an EOU was indulging in the job-work activity of conversion of raw material supplied by M/s Tata Iron & Steel Company Ltd., Jamshedpur (hereinafter referred to as TISCO). In the view of the Revenue, the same was not allowed in terms of EXIM Policy of 1997-2002 (hereinafter referred to as EXIM Policy)4. During the course of scrutiny of the records, the officers noticed, that UFAC was having a Memorandum of Agreement dated 28.12.1999 with TISCO for conversion of Manganese Ore/Coke into prime Silicon Manganese. As per the agreement, TISCO was to supply Manganese Ore and Coke/Coal free of cost at its site at Maneck Nagar. Rest of the raw materials and consumables i.e. Quartzite, Charcoal, Carbon paste, Dolomite, Fluxes, Refractories and Transformer Oil required for the conversion of Manganese Ore/Coke into Silicon Manganese for TISCO was to be used by UFAC from their own purchases obtained under CT-3 as and where applicable. As per the agreement, UFAC was to charge job charges to TISCO at the rate of Rs.14,090/- per metric tonne ( PMT for short) which was inclusive of cost of material added by UFAC. The job work charges were to be recovered from TISCO on commercial invoices. In the invoices, Silicon Manganese was to be charged at the rate of Rs.20,623/- PMT which also included cost of ingredients supplied by TISCO. The said invoices were prepared under erstwhile Rule 100-E of the Central Excise Rules5. The activities of the UFAC had come to a standstill for some period and it re-started its production in August, 1999 and was declared a sick company by the Board for Industrial and Financial Reconstruction (BIFR) under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). It is not in dispute that the UFAC carried out conversion of the raw materials supplied by TISCO, on TISCO making the payment of conversion charges of Rs.14,090/- PMT of Silicon Manganese. However, while dispatching the Silicon Manganese to TISCO, excise duty was paid on the value of Rs.20,623/- PMT which included cost of raw materials supplied by TISCO as well as the inputs used by UFAC from their own purchases6. The Commissioner, Central Excise & Customs, Nagpur, issued a show cause notice to the UFAC dated 9.10.2001 in respect of the Silicon Manganese cleared during September 2000. It was stated in the said show cause notice, that the Circular No.67/98-Cus dated 14.9.1998, issued by the Central Board of Excise & Customs, New Delhi (hereinafter referred to as the Board) had permitted the EOUs to undertake job-work on behalf of a DTA unit only in textile, readymade garments, agro-processing and granite sectors and by another Circular No.74/99 dated 5.11.1999 the said facility was extended to EOUs to undertake job-work on behalf of a DTA unit in aquaculture, animal husbandry, electronics hardware and software sectors. The show cause notice therefore stated, that the sector in which respondent – Assessee had carried out the job-works was not covered by either of the Circulars and, as such, the said job-works were in violation of EXIM Policy. The show cause notice called upon the respondent – Assessee to show cause, as to why the said Silicon Manganese should not be charged to full Central Excise duty as per the proviso to Section 3(1) of the Central Excise Act, 1944 (hereinafter referred to as the Act) by denying the benefit of Notification No.8/97 dated 1.3.1997 (hereinafter referred to as the said Exemption Notification)7. The show cause notice also called upon the UFAC to show cause, as to why the central excise duty amounting to Rs.23,08,443/- short paid on Silicon Manganese cleared in DTA during September 2000, should not be recovered under Section 11-A of the Act. It also called upon to show cause, as to why the goods i.e. 296 MT Silicon Manganese valued at Rs.61,04,408/- cleared in DTA during the aforesaid period (i.e. September 2000) should not be held liable for confiscation. The said show cause notice also required to show cause, as to why penalty should not be imposed on the UFAC under Rule 209 of the Central Excise Rules, 1944 read with Section 38-A of the Act8. In all, ten (10) show cause notices of various dates, last being 2.12.2003 for the identical charges for different periods (i.e. from March 2000 to May 2003) were issued9. In response to the show cause notices, UFAC had submitted its written replies stating therein, that in the show cause notices no violation of Central Excise Law has been alleged. It was submitted, that the removals in the DTA were in accordance with the permission granted by the Development Commissioner and, as such, there was no ground for denial of the concessional rate of duty laid down in the said Exemption notification. It was further submitted, that since the issue was based on the interpretation of the provisions of EXIM Policy, it was necessary to obtain ruling of the Development Commissioner on the issue. It was submitted, that since the Development Commissioner had clarified that the removals made by UFAC to TISCO were in accordance with the permission under the EXIM Policy, there was no occasion to proceed further10. However, the Commissioner while passing the order- in-original came to a finding that the conversion work performed by UFAC was nothing but the job work and that the said job work done by an EOU was governed by para 9.17(b) of the EXIM Policy. He found, that under para 9.17(b) of the EXIM Policy, an EOU was permitted to do job work for a DTA unit only for the purposes of exporting the finished goods directly from EOU. However, since after the job work the finished goods were not exported by the EOU but cleared to a DTA unit for home consumption, the UFAC had contravened the provisions of the EXIM Policy. He also came to a finding, that the sector in which UFAC had undertaken the job work was not covered by the Circular dated 14.9.1998 and as extended by another Circular dated 5.11.1999, issued by the Board. He also came to a conclusion that since there was no sale of the goods but only return of the goods after job work, it was not a sale and, as such, contrary to the provisions of the EXIM Policy. He, therefore, vide order dated 23.6.2003 confirmed the demand for Rs.11,56,08,497/- along with interest. He also imposed penalty of Rs.50 lakhs on UFAC. He further held, that the goods i.e. 15792.85 MTs of Silicon Manganese valued at Rs.32,31,30,000/- were liable for confiscation. However, since the said goods were not available for confiscation, redemption fine of Rs.50 lakhs in lieu of confiscation was imposed. Two more similar orders confirming demand as raised under subsequent show cause notices were also passed vide order dated 23.6.2003 and 15.3.2004. In the second order dated 23.6.2003 being Order-in-Original No.21 of 2003, personal penalty of Rs. 5 lakh was also imposed on the Chairman of UFAC, Dhunjishaw M. Naterwala11. Being aggrieved thereby, the UFAC as well as the Chairman of UFAC, Dhunjishaw M. Naterwala preferred appeals before the learned CESTAT12. The Commissioner (Appeals) had set aside the demand raised by the Revenue in respect of duty free carbon paste procured by UFAC under the CT-3 certificate in terms of Notification No.1/95-CE dated 4.1.1995 for use in the conversion process of Manganese ore. Being Aggrieved thereby, the Revenue filed appeal before the CESTAT being Appeal No.E/1607/2006. By the impugned judgment dated 21.10.2005, the demand orders against UFAC were reversed by the CESTAT. Also, the CESTAT dismissed the Revenues Appeal No. E/1607/2006 by order dated 7.7.2006, referring to its order and judgment dated 21.10.2005 in UFACs appeal, Hence, the present appeals.

Court's reasoning:
19. We do not find any merit in the submission of Shri Radhakrishnan in this regard20. The perusal of the definition makes it clear that when there is a transfer of possession of goods in the ordinary course of trade or business either for cash or for deferred payment or any other valuable consideration, the same would be covered by the terms sale and purchase within the meaning of the Central Excise Act, 1944. Undisputedly, in the present case, there is a transfer of Manganese Ore by TISCO to UFAC for the purposes of processing the same and converting it into Silicon Manganese. Undisputedly, the same is also for a valuable consideration23. It is also equally well settled that the first principle of interpretation of plain and literal interpretation has to be adhered to. We are therefore of the considered view, that the narrower scope of the term sale as found in the Sale of Goods Act, 1930 cannot be applied in the present case. The term sale and purchase under the Central Excise Act, 1944, if construed literally, it would give a wider scope and also include transfer of possession for valuable consideration under the definition of the term sale27. It can therefore be seen, that under para 9.9(a) of the EXIM Policy, EOU is entitled to sell the rejects in the DTA on prior intimation to the Customs authorities. Such sales are to be counted against DTA sale entitlement under paragraph 9.9(b) of the EXIM Policy. The sale of rejects shall be subject to payment of duties as applicable to sale under paragraph 9.9(b) of the EXIM Policy30. It can thus clearly be seen, that paragraph 9.9(b) and paragraph 9.17(b) of the EXIM Policy operate in totally different fields. Under paragraph 9.9 (b), an EOU is entitled to sell upto 50% of the FOB value of exports to DTA subject to payment of applicable duties and fulfilment of minimum NFEP as prescribed in Appendix-I of the Policy, whereas under paragraph 9.17(b), an EOU is entitled to undertake job-work for export, on behalf of DTA units, with the permission of Assistant Commissioner of Customs, provided the goods are exported direct from the EOU/EPZ units. In such type of exports, the DTA units would be entitled for refund of duty paid on the inputs by way of Brand Rate of duty drawback34. We find, that failure on the part of the Commissioner, who passed the order-in-original, to notice the Circular dated 22.5.2000 has resulted in passing an erroneous order. It also appears, that after the show cause notice was issued to UFAC, the Commissioner had sought a clarification from the Sponsoring Authority i.e. the Development Commissioner, SEEPZ vide communication dated 6.11.200136. It is not in dispute that all transactions between UFAC and TISCO have been entered into after the necessary permission was obtained from the Development Commissioner37. It could thus be clearly seen, that the Original Authority itself has found that clearance of the goods manufactured on the basis of job-work had been effected on payment of duty vide Exemption Notification of 1997 against permission for DTA sales granted by the Development Commissioner, SEEPZ, Mumbai from time to time38. The combined reading of paragraph 9.9(b) of the EXIM Policy, the Circulars issued by the Board, particularly, the Circular dated 22.5.2000 and reply to the query of the Customs Authorities by the Development Commissioner, SEEPZ would clearly show, that the UFAC was entitled to carry out the job-work on behalf of TISCO on payment of duty as provided under Exemption Notification of 199746. We are of the considered view, that if such an interpretation is accepted, the words unless specifically provided in such notification in sub-section (1) of Section 5A will have to be ignored and the said words would be rendered otiose. It is a settled principle of law that while interpreting a provision due weightage will have to be given to each and every word used in the statute48. We therefore find, that the interpretation as sought to be placed by Shri Radhakrishnan would render the term unless specifically provided in such notificationin sub- section (1) of Section 5A otiose or useless. Such an interpretation would not be permissible. We find, that the harmonious construction of sub-Section (1) of Section 5A of the Act and the proviso thereto would be, that an EOU which brings the excisable goods to any other place in India would not be entitled for a general exemption notification unless it is so specifically provided in such a notification50. The bare reading of the aforesaid Notification would amply make it clear, that the Central Government after being satisfied that it was necessary in the public interest so to do, thereby exempted the finished products, rejects and waste or scrap which was produced or manufactured in a hundred per cent export-oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India and allowed to be sold in India under and in accordance with the provisions of sub-paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the EXIM Policy, from so much of the duty of excise leviable thereon under Section 3 of the Central Excise Act, 1944, as is in excess of an amount equal to the aggregate of the duties of excise leviable under the said Section 3 of the Central Excise Act or under any other law for the time being in force on like goods, produced or manufactured in India other than in a hundred per cent export-oriented undertaking or a free trade zone, if sold in India51. It could thus be seen, that the said notification specifically provides grant of exemption to the EOUs from the payment of duties, which are in excess of what is leviable under sub-section (1) of Section 3 of the Central Excise Act, 1944 on like goods, produced or manufactured in India. In our considered view, since the said Exemption Notification specifically mentions, that the goods produced or manufactured by an 100% EOU, which are allowed to be sold in India in accordance with para 9.9(b) of the EXIM Policy, the proviso would be inapplicable thereby, requiring the duties to be paid, as are required to be paid under sub- Section (1) of Section 3 of the said Act. The conditions which can be culled out for enabling to get the benefit of the said Exemption Notification are as under:(i) The finished products, rejects and waste or scrap specified in the Schedule to the Central Excise Tariff Act, 1985 should be produced or manufactured in the 100% export-oriented undertaking or a free trade zone;(ii) The said finished products should be manufactured wholly from the raw materials produced or manufactured in India;(iii) They are allowed to be sold in India under and in accordance with the provisions of sub-paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the EXIM Policy52. Undisputedly, in the present case, the transaction between UFAC and TISCO satisfies all the three conditions. The goods are produced and manufactured by UFAC, an 100% export-oriented unit; they are manufactured wholly from the raw materials produced or manufactured in India and, thirdly, they have been allowed to be sold in India in accordance with the provisions of paragraph 9.9(b) of the EXIM Policy54. No doubt, that the reliance placed by the learned Senior Counsel on the judgments of this Court to the effect that if there are inconsistencies in two statutes, the later would prevail is well placed55. We do not find, that there would be any conflict in the amended provisions of clause (ii) of the proviso to sub- section (1) of Section 5A of the Act and the said Exemption Notification. In any case, by the 2001 Amendment, the legislature has not laid down any exhaustive code in respect of the subject matter in replacing the earlier law. It appears, that the said Amendment has been incorporated to bring the said clause (ii) of sub-Section (1) of Section 5A in sync with the words used in clause (i) of the proviso to sub-section (1) of Section 5A of the Act and the words used in the proviso to sub-section (1) of Section 3 of the Act. In that view of the matter, we find, that the said contention is without substance56. Insofar as the reliance placed by the learned Senior Counsel on the judgment of this Court in the case of Siv Industries Ltd. (supra) so as to distinguish the terms allowed to be sold in India and brought to any other place in India is concerned, we find, that the said judgment would rather support the case of the respondent – AssesseeAdmittedly, in the present case, the sales made by UFAC to TISCO are within the permissible limits and with the permission of the Development Commissioner58. The view taken by this Court in the case of Sarla Performance Fibers Limited (supra) is a similar view, taken following the decision of this Court in Siv Industries Ltd. (supra). As such, the said judgment also is of no assistance to the case of the appellant.