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CASE NO.: Appeal (civil)  6324-6328 of 2002

PETITIONER: M/s Nahar Industrial Enterprises Ltd. and Ors.

RESPONDENT: Union of India and Ors.

DATE OF JUDGMENT: 10/08/2004

BENCH: S.N. VARIAVA & ARIJIT PASAYAT

JUDGMENT: J U D G M E N T

WITH

(C.A.Nos. 6332/2002, 6329/2002, 6331/2002, 6330/2002, C.A. Nos.5133-34/2004 @  SLP) Nos. 24882-24883/2002, C.A. Nos. 5135-36/2004 @SLP) No.24884- 24885/2002, C.A. Nos.5137-38/2004 @SLP) Nos.1223-1224/2003, C.A. Nos. 423-425/2003, C.A. No. 6989/2003, C.A. No.8018/2003, C.A. 9487/2003, C.A. No. 287/2004 and C.A. No.9694/2003)

ARIJIT PASAYAT, J

       Leave granted in SLP) Nos. 24882-24883/2002, 24884-24885/2002   and 1223-1224/2003.

       All these appeals involve identical issues and are, therefore, disposed  of by this judgment which will cover each of the appeals.          Appellant in each case questions correctness of the view expressed by  Central Board of Excise and Customs, New Delhi  (hereinafter referred to as  the ’Board’) in Circular dated 19.10.2000 purporting to clarify that  Additional Excise Duty (in short ’AED’) under the Additional Duties of  Excise  (Textiles and Textile Articles) Act, 1978 (in short the ’Additional  Excise Act’) would also be leviable on yarns manufactured by 100% Export  Oriented Undertakings (in short ’EOU’) from indigenous raw materials and  cleared into Domestic Tariff  Area (in short ’DTA’), in addition to the Basic  Excise Duty (in short the ’BED’) payable under the Central Excise Act,  1944 (in short the ’Act’). Appellants also questioned legality of the  Notifications issued by the Central Excise authorities for payment of AED  on yarn cleared in DTA.

       The appellants are registered as 100% EOUs engaged in the  manufacture of cotton yarn out of indigenous raw materials attracting BED  leviable under Section 3 of the Act and AED leviable under Section 3 of the  Additional Excise Act. On the basis of exemptions granted by the Central  Government from time to time under Section 5A (1) of the Act,   Notification  No.55/91-CE dated 25.7.1991 was made applicable to their cases for the  purpose of exemption. Subsequently, Notification No. 8/97-CE dated  1.3.1997 was issued where certain manufacturers like the present appellants  were only granted exemption in excess of the amount equal to the duty of  excise leviable under Section 3 of the Act on like goods produced or  manufactured in India other than in 100% EOUs or a free trade zone  if sold  in India. Subsequently, the said Notification was amended by Notifications  Nos. 21/97-CE dated 11.4.1997, 7/98-CE dated 2.6.1998 and 11/2000-CE  dated 1.3.2000. As a result of these amendments what came to be exempted  was the amount in excess of the duties of excise leviable under the Act or  under any other law for the time being in force.

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       The question that arises in these appeals is whether by addition of the  words "or under any other law for the time being in force" producers or  manufacturers other than 100% EOUs incur a liability to pay AED. The  Board issued a Circular dated 19.10.2000 clarifying that it is so payable and  Notification No.55/91-CE is no longer of any assistance to the  manufacturers like the appellants. The view expressed in this circular was  challenged in several Civil Writ petitions before the Punjab and Haryana  High Court. By the impugned judgment the High Court dismissed the writ  petitions holding that introduction of the words "or any other law for the  time being in force" took away exemptions granted to the manufacturers like  the appellants under Notification No.55/91-CE. All the writ petitions were  disposed of by a common judgment which forms the subject matter of  challenge in these appeals.  

       Learned counsel for the appellants submitted that both the Board and  the High Court failed to notice that the introduction of the words "or any  other law for the time being in force" did not in any way affect the  exemption flowing from Notification No.55/91-CE. What the appellants  were required to pay was the basic excise duty and AED as their counter  parts who were not 100% EOUs were required to pay. That had nothing to  do for creating a liability of AED so far as the appellants are concerned.

       In response, learned counsel for the Union of India submitted that the  view expressed in the Circular and endorsed by the High Court does not  suffer from any infirmity. The basic intention which is clear from a bare  reading of a Notification No.8/97-CE as amended by Notification  No.11/2000-CE dated 1.3.2000 is that a manufacturer who is 100% EOU is  not in more advantageous position vis-‘-vis the others.

       The relevant Notifications and the Circular read as follows:

       "Notification No.55/91-CE dated 25.7.1991-   Exemption from additional duty to all excisable goods  produced or manufactured in a 100% Export Oriented  Undertaking- In exercise of the powers conferred by sub- section (1) of Section 5A of the Central Excises and Salt  Act, 1944 (1 of 1944), read with sub-section (3) of  Section 3 of the Additional Duties of Excise (Textiles  and Textile Articles) Act, 1978 (40 of 1978), the Central  Government being satisfied that it is necessary in the  public interest so to do, hereby exempts all excisable  goods produced or manufactured in a hundred per cent  Export Oriented Undertaking from the whole of the duty  of excise leviable under the second mentioned Act.  

       Notification No.8/97 dated 1.3.1997 (before  amendment)- Effective rate of duty on certain goods  produced in FTZ or EOU:                  In exercise of the powers conferred by sub-section  (1) of Section 5A of the Central Excise Act, 1944 (1 of  1944), the Central Government, being satisfied that it is  necessary in the public interest so to do, hereby exempts  the finished products, rejects and waste or scrap specified  in the Schedule to the Central Excise Tariff Act, 1985 (5  of 1986) and 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 Export and Import Policy, Ist April 1997 -  31st  March, 2002, from so much of the duty of excise leviable  thereon under Section 3 of the Central Excise Act, 1944  (1 of 1944), as is in excess of an amount equal to the duty

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of excise leviable under the said section 3 of the Central  Excise Act, 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 India.  

       Provided that nothing contained in this  Notification shall apply where such finished products, if  manufactured and cleared by a unit other than a hundred  per cent export-oriented undertaking or a unit in a free  trade zone, are wholly exempt from the duties of excise  or are chargeable to Nil rate of duty.

Notification 8/97-CE after amendment vide Notification  No.11/2000 dated 1.3.2000:

Effective rate of duty on certain goods produced in FTZ  or EOU \026 In exercise of the powers conferred by sub- section (1) of Section 5A of the Central Excise Act, 1944  (1 of 1944), the Central Government, being satisfied that  it is necessary in the public interest so to do, hereby  exempts the finished products, rejects and waste or scrap  specified in the Schedule of the Central Excise Tariff  Act, 1985 (5 of 1986) and 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 Export and Import Policy, Ist April,  1997 \026 31st March, 2002, from so much of the duty of  excise leviable thereon under section 3 of the Central  Excise Act, 1944 ( 1 of 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 sole in India.                  Provided that nothing contained in this notification  shall apply where such finished products, if  manufactured and cleared by a unit other than a hundred  per cent export-oriented undertaking or a unit in a free  trade zone, are wholly exempt from the duties of excise  or are chargeable to Nil rate of duty.

Circular:554/50/2000-CX dated 19.10.2000

F. No. 268/37/2000-CX. 8

Yarn- Leviability of Additional Duty of Excise in respect  of DTA clearances of yarns made by 100% EOUs

       Government of India         Ministry of Finance (Department of Revenue)         Central Board of Excise & Customs, New Delhi

Subject :- Leviability of Additional Excise Duty (Textile  and Textile Articles) Act, 1970 in respect of DTA  clearances of yarns made by 100% EOUs \026 Reg.

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1.      I am directed to state that representations have  been received in the Board seeking clarifications  as to whether Additional Excise Duty under  Textile and Textile Articles Act, 1978 hereinafter  referred to as AED (T&TA) is leviable or not on  cotton/man made yarns manufactured and cleared  into DTA by a 100% EOU using indigenous raw  materials. It has been represented that some field  formations are demanding additional duty under  the above mentioned Act on goods manufactured  and cleared into DTA though there is specific  exemption for such goods vide Notification No.  55/91-CE, dated 25.7.1991 and hence no  Additional Duty will  be attracted.

2.      The matter has been examined. It is observed that  as per proviso to Section 3 (1) of the Central  Excise Act, 1944 goods produced in a 100% EOU  and allowed to be sold in India are liable to excise  duty which is equal to the aggregate of duties of  customs leviable on like goods when imported into  India. On import of textile yarns, apart from Basic  Customs duty, goods will also be subject to  Additional Duty of Customs (countervailing duty)  which will be equivalent to total duties leviable as  duty of excise on like goods produced in the  country. (This CV duty  will thus include basic  Central Excise Duty under Central Excise Act plus  Additional Duty of Excise under T & TA Act).

3.      Notification No.8/97-CE dated 1.3.1997, as  amended by Notification No.11/2000-CE dated  1.3.2000 provides that the excise duty payable by a  100% EOU under Central Excise Act in respect of  the finished goods manufactured exclusively from  indigenous raw material and cleared into DTA  would be restricted 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". In other words, such yarns produced and  cleared from 100% EOUs to DTA are required to  suffer under Central Excise Act itself , by virtue of  this exemption, duty which is equal to Basic  Excise Duty on yarn plus AED (T & TA) leviable  on yarn produced.

4.      Since over and above the duty leviable under  Central Excise Act, goods produced in a 100%  EOU and cleared into DTA, would also be leviable  to Additional Excise Duty under Textile & Textile  Articles Act, Notification No.55/91-CE dated  25.7.1991 was issued which exempted all  excisable goods produced or manufactured in a  100% EOU from the whole of duty of excise  leviable thereon under AED (T & TA). Thus,  effect of Notification No.8/97-CE as amended and  55/91-CE is to restrict the yarn stage duty to Basic  Duty under Central Excise Act plus AED leviable  under Textiles and Textile Articles Act.  

5.      The amendment to the Notification No.8/97-CE  dated 1.3.1997, as mentioned in Para 2 above,

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wherein "or under any other law for the time being  in force" has been inserted, is significant and  brings parity in the excise duties payable by a  100% EOU on yarns produced exclusively from  indigenous materials on their domestic clearances  and a domestic manufacturer manufacturing  similar goods from indigenous materials.

6.      Thus, it is clarified that w.e.f. 1.3.2000, AED (T &  TA) would also be leviable on yarns manufactured  by a 100% EOU from indigenous raw materials  and cleared into DTA, in addition to the Basic  duties under Central Excise Act. Wherever, such  AED (T & TA) are not being collected, suitable  steps for recovery may be taken expeditiously."

       Contrary to what has been contended by the Union of India, a bare  reading of the Notification No.8/97-CE dated 1.3.1997 and as amended by  Notification 11/2000-CE dated 1.3.2000 shows that there was clear intention  to rationalize the payment of duty by 100% EOUs and others.  What is  clearly intended relates to the liability of the manufacturer who is 100%  EOU to pay the amount which amounts to aggregate of the duties of excise  leviable under Section 3 of the Act or under any other law for the time being  in force. That clearly indicates that whatever duty of excise was leviable  under the Act and any other statute for the time being in force on the like  goods produced or manufactured in India by the producer or manufacturer  who is not 100% EOU if sold in India. The obvious object was to see that  the manufacturer who is 100% EOU does not steal a march over his counter  part selling like goods in India. The earlier benefit given to the EOUs was  for any duty payable under Section 3 of the Act which is in excess or the  duties paid by its counterparts.  

A perusal of the un-amended notification 8/97-CE and notification  after amendment vide Notification No.11/2000-CE shows that only the  following words were inserted by way of amendment:         (i)     introduction of the words "the aggregate of" after words "equal  to" in the original notification.         (ii)    introduction of the following words after "Section 3 of the  Central Excise Act" in the original notification i.e. "or under any other law  for the time being in force".   

That does not in any way create a liability on the 100% EOUs to pay  AED. Notification No.55/91-CE dated 25.7.1991 is in no way  diluted so far  as the manufacturers like the appellants are concerned, notwithstanding what  has been provided in Notification No.8/97-CE dated 1.3.1997 as amended by  Notification No.11/2000-CE dated 1.3.2000. As stated above, the only  change is that under Notification 8/97-CE dated 1.3.97 the 100% EOUs were  exempt from paying duty in excess of amount of BED paid by the  producer  or manufacturer who is not 100% EOU, whilst after amendment by  Notification 11/2000-CE dated 1.3.2000 the 100% EOU is exempt from  paying duty in excess of amount of BED plus the amount of AED plus any  other duties of excise under any other law for the time being in force, paid  by the producer or manufacturer who is not 100% EOU.  Thus, the view  expressed in the Circular dated 19.12.2000 and view of the High Court are  indefensible. The Circular afore-noted is, therefore, quashed.  

       The High Court’s judgment impugned in these appeals is set aside.                  The appeals are allowed to the extent indicated with no order as to  costs.