REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.4608-4609 OF 2005

COMMISSIONER OF CENTRAL EXCISE,  VISAKHAPATNAM-II

— APPELLANT (S)

VERSUS

M/S NCC BLUE WATER PRODUCTS LTD. — RESPONDENT (S)

WITH

CIVIL APPEAL NO. 903 OF 2006 CIVIL APPEAL NO. 7590 OF 2005  

AND CIVIL APPEAL NO. 2986 OF 2008

J U D G M E N T

D.K. JAIN, J.:

1.Challenge  in  this  batch  of  appeals  filed  by  the  revenue  under  Section  

35(L)(b) of the Central Excise Act, 1944 (for short “the Act”) is to the orders  

passed by the Customs, Excise and Service Tax Appellate Tribunal, South  

Zone (for short “the Tribunal”),  inter alia,  holding that the duty of Central  

Excise  on  shrimps  and  shrimp  seeds  produced  and  removed  by  the  

respondent  (hereinafter  referred  to  as  “the  assessee”),  a  100%  Export  

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Oriented Unit  (for  short  “EOU”),  in  the  Domestic  Tariff  Area (for  short  

“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.

2.Since the question of law arising for our consideration in all the appeals is  

the  same,  they  are  disposed  of  by  this  common  judgment.   In  order  to  

comprehend the controversy in these appeals, a brief reference to the facts in  

Civil Appeal Nos.4608-4609 of 2005, which was treated as the lead case,  

would suffice:

The assessee company is engaged in the production of shrimps and  

tiger  prawns,  falling  under  Chapter  Sub  Heading  No.0301.00  of  the  

Schedule to the Central Excise Tariff Act, 1985 (for short “the Tariff Act”).  

They imported some capital goods, viz. sand blowers and air filters, duty  

free under Customs Notification Nos. 188/93 dated 27th December 1993 and  

196/94  dated  8th December  1994  for  use  in  their  integrated  Aquaculture  

project.  The imports were subject to the condition that the said goods would  

be used in the production of aquaculture products and 100% or such other  

percentage of the said products, as may be fixed by the Board of Approvals  

for 100% EOU, shall be exported out of India for a period of ten years or  

such extended period as may be specified by the said Board.  

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3.As per the Exim Policy (1st April 1992 to 31st March 1997), an EOU Aqua  

culture unit was permitted to sell upto 50% of its production in value terms  

in DTA, in accordance with the DTA sales guidelines notified in that behalf  

and subject to minimum value addition.

4.The guidelines for sale of goods in the DTA by an EOU were prescribed  

under  Appendix  XXXIII  of  the  Hand  Book  of  procedures  for  the  

aforementioned period. As per the said guidelines, sale of goods in the DTA  

was subject to payment of applicable duties as notified from time to time by  

the department of revenue; the units could opt for DTA sales on a quarterly,  

half  yearly  or  annual  basis  with  an  intimation  to  the  Development  

Commissioner of the EPZ concerned; application for DTA sales was to be  

accompanied by a  statement  disclosing information regarding  ex-factory  

value  of  goods  produced  and  of  goods  actually  exported,  and  the  

Development  Commissioner  was  to  determine  the  extent  of  DTA  sales  

admissible  and  issue  goods  removal  authorisation  in  terms  of  value  and  

quantity for sale in DTA.   

5.It  appears  that  during  the  period  1994-95  to  1997-98,  the  assessee  

produced and sold 11,15,29,540 number of shrimp seeds and 48,365 Kgs. of  

shrimps  in  DTA  without  obtaining  the  permission  of  the  Development  

Commissioner;  without  issuing  proper  invoices  as  mandated  under  Rule  

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100E of  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 the DTA units.  

6.On 2nd September 1998, a notice was issued to the assessee to show cause  

as  to  why  duty  of  excise  equal  to  aggregate  of  the  duties  of  customs,  

amounting to Rs. 7,80,58,074/-, should not be levied in terms of Section 3 of  

the Act read with Rule 9(2) read with proviso to sub-section (1) of Section  

11A of the Act, and interest at 20% from first day of the month till the date  

of payment of duty should not be imposed under Section 11AB of the Act.  

An additional penalty of Rs. 7,80,58,074/- for non-payment of duty for the  

reason of wilful suppression of facts and contraventions of the provisions of  

the  Act,  together  with  additional  penalty  under  Rule  173Q(1)  for  

contravention of Rule 9(1), 100D, 100E and 100F of the Rules for clearing  

goods without issuance of a proper invoice was also proposed to be imposed  

on the noticee.  

7.The assessee contested the notice on diverse grounds.  On adjudication, the  

Commissioner of Central Excise & Customs, Visakhapatnam, vide Order-in-

Original  No.  9/99  dated  15th April  1999,  demanded  a  duty  of  

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Rs.1,83,46,493/-  on  the  shrimp  seeds,  shrimps  and  fish,  cleared  by  the  

assessee,  under proviso to Section 11A of the Act.   Interest  at  20% was  

demanded on Rs.1,13,05,410/- as being the duty evaded on shrimp seeds,  

shrimps and fish cleared after 28th September 1996 under Section 11AB of  

the Act. Penalty of Rs. 1,13,05,410/- was imposed under Section 11AC of  

the Act with respect to duty evaded since 25th September 1996, and of Rs.  

8,00,000/- under Rule 173Q(1) of the Rules.  

8.The  revenue  as  well  as  the  assessee  questioned  the  correctness  of  the  

adjudication order by preferring appeals before the Tribunal.

9.The Tribunal, vide order dated 27th December 2004, allowed the assessee’s  

appeal and dismissed the appeal filed by the revenue.  Reversing the order of  

the Commissioner, the Tribunal observed thus:

“The  commissioner,  after  classifying  the  shrimp seeds  under  chapter 3, has worked out the amount equal to the aggregate of  the Customs duty leviable as per proviso to section 3(1) of the  CE Act, 1944 and demanded the same.  It is on record that for  clearing the shrimp seeds,  no permission was taken from the  Development Commissioner.  When the goods are cleared with  the permission of the Development Commissioner,  then only  proviso to section 3(1) of the CE Act, would be applicable.  In  Sam Spintex Ltd. Vs. CCE, Indore 2004 (163) ELT 212 (Tri.- Del.),  it  has been held that when there is a removal to DTA  without permission of the competent authority, duty is leviable  under main section 3 of the CE Act, 1944 and not its proviso.  While  arriving  at  the  above  decision,  the  Hon’ble  Tribunal  relied on the decision in the case of CCE Vs. Pratap Singh 2003  (153) ELT 711 (Tribunal) which has been affirmed by the Apex  

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Court vide its order reported in 2003 (156) ELT A382.  In view  of the above decision, even if the Commissioner’s finding on  the classification of Shrimp seeds is upheld, the duty would be  Nil.  In  that  case,  the  classification  issue  becomes  academic.  However, after going through the HSN Explanatory notes, we  are convinced that Chapter 3 would not cover items unfit for  human consumption. In the present case, the Shrimp seeds are  undoubtedly  not  fit  for  human  consumption  in  that  stage.  Therefore,  it  would  not  be  excisable  at  all.  In  view  of  this  finding, the demand of duty on the Shrimp seeds cleared would  be not sustainable.”

In relation to the goods cleared on job work basis, the Tribunal held that  

since goods were cleared to other exporters, there was no duty liability and  

even otherwise, since the permission of the Development Commissioner was  

not obtained, its decision in the case of Sam Spintex Ltd. Vs. Commissioner  

of C. Ex.,  Indore1 would be applicable.   It  also held that there being no  

convincing evidence showing suppression of facts,  the demand itself  was  

time barred.  

10.Being dissatisfied with the order of the Tribunal, the revenue is before us  

in these appeals.

11.Mr.  R.P.  Bhatt,  learned  senior  counsel  appearing  for  the  Revenue  

contended that since as per Note 1 of Section 1 of 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  

1 2004 (163) E.L.T. 212 (Tri.-Del.)

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the young of  that  genus or  species  and,  therefore,  both live shrimps and  

shrimp seeds  are  classifiable  under  heading 0306.23 of  Chapter  3  of  the  

Customs Tariff Act, 1975.  Learned counsel also submitted that the Tribunal  

committed an error in relying on the decision of this Court in SIV Industries  

Ltd. Vs.  Commissioner of Central Excise & Customs2, because unlike in  

that  case,  in  the  present  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 argued that under the Exim Policy, an EOU  

is obliged to make exports of the entire production itself and not through any  

other entity.  

12.Per contra, Mr. Joseph Vellapally, learned senior counsel appearing for  

the  assessee,  contended  that  the  DTA  sales  made  by  an  EOU  without  

approval  of the Development  Commissioner are to be assessed to Excise  

Duty under Section 3(1) of the Act and not under proviso to the said Section.  

In support of the submission, learned counsel placed reliance on the decision  

of  this  Court  in  SIV  Industries  (supra)  and  orders  of  the  Tribunal  in  

Commissioner  of  Central  Excise,  Jaipur-II  Vs. Pratap  Singh3, Sam  

Spintex Ltd. (supra) and Modern Denim Ltd. Vs. Commissioner of Central   2 2000 (117) ELT 281 (SC) 3 2003 (153) E.L.T. 711 (Tri.-Del.)

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Excise, Ahmedabad 4.  Learned counsel also submitted that since shrimp   

seeds are microscopic post larva of 20 days, which do not contain meat   

and as such are not fit  for human consumption, on a plain reading of   

Chapter Note 1(b) of Chapter 3 of the Tariff Act, these cannot fall within   

tariff entry 0301.00.  It was argued that for the purpose of the Exim Policy   

sale of shrimps by supporting manufacturers carrying out job work and   

clearance of the same directly for exports on behalf of other exporters is to   

be  treated  as  export  sale  and  therefore,  clearance  of  shrimps  by  the   

assessee  on  job  work  basis  could  not  be  treated  as  DTA sales  for  the   

purpose  of  the  Act.  It  was  asserted  that  since  there  was  regular   

correspondence between the department and the assessee in relation to   

these sales and invoices and other documents were also submitted, there   

was no suppression of DTA sales by the assessee with the intent to evade   

payment  of  duty,  particularly  when  the  entire  industry  as  also  the   

jurisdictional excise authority were under the impression that no duty was   

payable  on  sale  of  shrimps  and  shrimp  seeds.   In  support  of  the   

proposition  that  a  mere  violation  of  rule  is  not  sufficient  to  invoke   

extended  period  of  limitation,  learned  counsel  commended  us  to  the   

decisions of this Court in M/s Padmini Products Vs. Collector of Central   

Excise,  Bangalore5; Collector  of  Central  Excise,  Hyderabad  Vs.  M/s  

4 2005 (191) E.L.T. 1174 (Tri.-Mumbai) 5 (1989) 4 SCC 275

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Chemphar Drugs & Liniments,  Hyderabad6 and  Gopal Zarda Udyog &  

Ors. Vs. Commissioner of Central Excise, New Delhi7.   

13.The core 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  proviso  to  the  said  

Section?

14.Before evaluating  the rival contentions on the point, we may refer to the  

relevant part of Section 3 of the Act, which reads as  follows :

“3. Duties specified in the 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 duties of  excise  on  all  excisable  goods  other  than  salt  which  are  produced  or  manufactured  in  India  and  a  duty  on  salt  manufactured in, or imported by land into, any part of India  as, and at the rates, set forth in the Schedule to the Central  Excise Tariff Act, 1985 :      Provided that the duties of excise which shall be levied  and collected on any excisable goods which are produced or  manufactured,--

(i) in a free trade  zone and brought  to  any  other place in India; or  

(ii) by  a  hundred  per  cent  export-oriented  undertaking  and  allowed  to  be  sold  in  India,

shall be an amount equal to the aggregate of the duties of  customs which would be leviable under Section 12 of the  Customs Act, 1962 (52 of 1962) on like goods produced or  

6 (1989) 2 SCC 127 7 (2005) 8 SCC 157

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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 Customs Act, 1962 (52 of 1962) and the Customs Tariff  Act, 1975 (51 of 1975)”.  

15.It is 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,  

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.  

16.A similar  issue  fell  for  consideration  of  this  Court  in  SIV Industries  

(supra).  In that case, the assessee was a 100% EOU. Later on they sought  

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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% EOU, 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.

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17.It  is  pertinent  to  note  that  after  the  decision  in  SIV  Industries’ case  

(supra), a Circular was issued by the Central Board of Excise & Customs,  

New  Delhi  clarifying  that  prior  to  11th May,  2001,  the  clearances  from  

EOUs, if not allowed to be sold in India, shall continue to be chargeable to  

duty under main Section 3(1) of the Act.  For the sake of ready reference  

Circular No. 618/9/2002-CX dated 13th February, 2002 is  extracted below:

“Circular :618/9/2002-CX dated 13-Feb-2002

EOU- Removal of goods by 100% EOU to DTA – Non- levy of duty under Section 3(1) of Central  Excise Act,  1944 –Clarifications  

Circular No. 618/9/2002-CX., dated 13-2-2002

F. No. 268/69/2001-CX.8

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject : Removal of goods by 100% EOUs to DTA –  Non-levy of duty under Section 3(1) of Central Excise  Act, 1944.

   I  am directed to invite reference to Supreme  Court’s judgment in case of SIV Industries v. CCE [2000  (117) E.L.T. 281 (S.C.) vide which the Apex Court had  held  that  “proviso  to  Section  3(1)  regarding  the  duty  chargeable on goods cleared by EOUs shall be applicable  only  to  sales  made  in  DTA  upto  25%  of  production  which are allowed to be sold into India as per provisions  of EXIM Policy”.  In other words, Hon’ble Court decided  that if the goods are “not allowed” to be sold in India, the  proviso to Section 3(1) of Central Excise Act, 1944 shall  not be applicable.  The expression ‘allowed to be sold’  

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has since been replaced with ‘brought to any other place’  w.e.f. 11-5-2001 vide Section 120 of Finance Act, 2001  [14 of 2001].

2.  It has come to the notice of the Board that field  formations are interpreting the judgment of Apex Court  to the effect that if the goods cleared by EOUs are not  allowed to be sold into India, the Section 3(1) of Central  Excise  Act,  1944  is  not  applicable  and  duty  can  be  demanded under  the  provisions  of  Customs  Act,  1962  only.  Board  has  taken  a  serious  view  of  this  mis- interpretation.   The  provisions  of  Central  Excise  Act,  1944 shall apply to all goods manufactured or produced  in  India  for  which  Section  3  is  the  charging  section.  EOUs  are  also  situated  in  India  and  the  chargeability  under Central Excise Act is never in doubt. Therefore,  it  is clarified that prior to 11-5-2001, the clearances from  EOUs if not allowed to be sold in India, shall continue to  be chargeable to duty under main Section 3(1) of Central  Excise  Act,  1944.   Appropriate  action  may  be  taken  immediately  to  safeguard  revenue  and  all  pending  decisions may be settled accordingly.”  

      (Emphasis added by us)

18.As  aforesaid,  according  to  the  Exim  Policy  1992-1997  read  with  

Appendix XXXIII of the Handbook of Procedures, an EOU may sell 50% of  

its  production in value terms into a DTA only on issuance of a removal  

authorization by the Development Commissioner.

19.In the instant case, admittedly at the time of sales of shrimps and shrimp  

seeds  by  the  assessee  in  DTA,  the  Development  Commissioner  had  not  

issued the requisite removal authorization. Therefore, in view of the dictum  

of this  Court  in  SIV Industries  (supra),  with which we are in respectful  

agreement, and the afore-extracted Circular issued by the Board following  

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the  said  decision,  Excise  Duty  on  such  sales  is  chargeable  under  main  

Section 3(1) of the Act.  

20.Having come to the aforenoted conclusion, the controversy with regard to  

classification  of  the  shrimp seeds  is  more  in  the  nature  of  an  academic  

exercise  in  as  much  as  even  if  the  finding  of  the  Commissioner  on  

classification of shrimp seeds is  affirmed,  still  the duty payable  on these  

goods would be nil.  For the sake of ready reference, the relevant entry in  

Chapter 3 of the Tariff Act is extracted below:  

“Heading  No.

Sub-heading  No.

Description of goods Rate  of  duty

(1) (2) (3) (4)

03.01 0301.00 Fish and crustaceans,  molluscs and other  aquatic invertebrates

Nil”

21. Thus, it is evident that even if the stand of the revenue is accepted and  

shrimp seeds are classified under sub-heading 0301.00 of the Tariff Act, the  

rate of Excise Duty chargeable would be nil.  Similarly, if the Excise Duty  

payable is nil, the other question regarding the extended period of limitation  

on the alleged ground of suppression of sales also pales into insignificance.

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22.For the foregoing reasons, the impugned orders passed by the Tribunal  

cannot be flawed and deserve to be affirmed.  Resultantly, these appeals,  

being bereft of any merit, are dismissed accordingly.   No order as to costs.   

.……………………………………J.            (D.K. JAIN)  

                             .…………………………………….J.           (H.L. DATTU)

NEW DELHI; SEPTEMBER 24, 2010

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