2000 Supreme(SC) 538

2000(2) Supreme 228
SUPRME COURT OF INDIA
(From Central Excise Customs & Gold (Control) Appellate Tribunal, Madras)
D.P. Wadhwa & Ruma Pal, JJ.
M/s. SIV Industries Ltd. - Appellant
versus
Commissioner of Central Excise & Customs -Respondent
Civil Appeal No. 1787 of 1998
Decided on 10-3-2000
Counsel for the Parties :
For the Appellant : V. Sridharan, V. Balachandran, V. Lakshmikumaran, K. Srinivas, Senthil Jagadeesan, A.T. M. Sampath, P.P. Sharma, Advocates.
For the Respondent : A.K. Ganguli, Sr. Advocate, L.K. Gupta, Dileep Tandon, P. Parmeswaran, Rishi Malhotra, M. Gouri Shankar Murthy, Advocates.

IMPORTANT POINT
Once the debonding of the unit is permitted, finished goods earlier manufactured in the 100 EOU could be cleared for Domestic Tariff Area on levy of duty of Central Excise and excise duty is payable on the finished goods under main Section 3(1) of the Central Excise and Salt Act, 1944.

Headnote:Central Excise and Salt Act, 1944 -Section 3(1), proviso-Duties to be levied-100 Export Oriented Unit Scheme-Debonding of the unit-Finished goods earlier manufactured in 100 EOU could be cleared for Domestic Tariff Area on levy of duty of Central Excise-Dispute as to at what rate this duty is to be levied on finished goods manufactured prior to the date of debonding of 100 EOU-Revenue s case that excise duty under proviso to Section 3(1) of the Act is payable on finished goods-Apellant unit claiming that excise duty is payable on finished goods under main Section 3(1) of the Act together with customs duty on imported raw material used in manufacture of finished goods lying in stock-Whether Tribunal was justified in allowing appeal of Revenue and holding that it was the proviso to Section 3(1) of the Act which was applicable-(No)- Order of Collector of Central Excise (Appeal) deciding the issue in favour of appellant unit restored.

       Held : Permission to sell in India by 100 EOU consists of all those factors like value addition, fulfillment of export obligation, sale of a general currency licence holder, item being not mentioned in the negative list and then there being a limit of 25 , etc. When permission to debond is given, none of these criteria or aspects are applied by Board of Approvals (BOA) to the closing stock of finished goods. Board of Approvals is a statutory authority, which permits debonding. Debonding and permission to sell in India are two different things having no connection with each other. It also becomes apparent that in view of the EOU Scheme as modified from time to time and corresponding amendments to Section 3 of the Act the expression "allowed to be sold in India" in proviso to Section 3(1) of the Act is applicable only to sales made up to 25 of production by 100 EOU in DTA and with permission of the Development Commissioner. No permission is required to sell goods manufactured by 100 EOU lying with it at the time approval granted to debond. (Para 18)

       Concept of bonding or debonding is well understood both under the Act and the Customs Act, 1962. The entire operations of an EOU are to be in customs bonded factory, unless otherwise specifically exempted from physical bonding. The approved unit is required to execute a bond/legal undertaking with the Development Commissioner concerned in the form prescribed. Under the conditions laid for EOU, bonding period for units under the EOU Scheme is ten years. This period may be reduced to five years by the Board of Approvals in case of products liable to rapid technological change. On completion of the bonding period it shall be open to the unit to continue under the Scheme or opt out of the Scheme. Such debonding is, however, subject to industrial policy in force at the time of option is exercised. On the satisfaction of the Board of Approvals, EOU may be debonded on its inability to achieve export obligations, value addition or other requirements. Such debonding is subject to such penalty as may be imposed. (Para 23)

       Unless there is a specific prohibition EOU is permitted sale in the DTA all rejects up to 5 production or such percentage as may be fixed by the Board of Approvals subject to payment of applicable duties and other conditions. DTA sale entitlement in 25 . It is to be determined in relation to the ex-factory value of the total production, excluding permissible levels of rejects. DTA sale entitlement may be up to 25 of the total production provided the value of inigenous constituents of the final products excluding water, power, services and spares for capital goods is in excess of 30 of the cost of the product. such entitlement may be up to 15 only if the value of indigenous constituents is less than 30 of the total cost. (Para 24)

       Considering the whole aspect of the matter, we are of the opinion that the Tribunal was not right in holding that duty is to be leviable in terms of the proviso to Section 3(1) of the Central Excise Act, 1944, We, therefore, set aside the impugned judgment of the Tribunal and restore that of the Collector of Central Excise. (Para 26)