DTA sales against foreign exchange by 100% EOU are covered by the proviso to Section 3(1) of the Central Excise Act, 1944, and are entitled to the benefit of partial exemption under Notification No. 2/95 - CE.

Headnote:
Duty Liability - 100% EOU Sales - Section 3(1) of the Central Excise Act, 1944, Notification No. 2/95 - CE - Section 12 of the Customs Act, 1962 - Customs Tariff Act, 1975
Fact of the Case:

The appellant, a 100% export-oriented unit (EOU), was engaged in the manufacture of yarn and sold it in the Domestic Tariff Area (DTA) against foreign exchange. The dispute was regarding the rate of duty applicable to such sales under para 9.10(b) of the Export and Import Policy (Exim Policy), 1997-2002.
Finding of the Court:

The court found that DTA sales against foreign exchange fell under the proviso to Section 3(1) of the Central Excise Act, 1944, and the appellant was entitled to the benefit of partial exemption under Notification No. 2/95 - CE. The Tribunal's decision to limit the exemption to 50% of DTA sales against foreign exchange was erroneous.
Issues: The issues revolved around the interpretation of the duty liability for 100% EOU sales in the DTA against foreign exchange and the applicability of Notification No. 2/95 - CE.
Ratio Decidendi: The court held that DTA sales against foreign exchange were covered by the expression 'allowed to be sold in India' in Section 3(1) and were entitled to the benefit of Notification No. 2/95 - CE. The Tribunal's imposition of a 50% limit on the exemption for such sales was unfounded.
Final Decision: The appeal was allowed, the Tribunal's judgment was set aside, and the matter was remitted to the Commissioner for the calculation of duties payable in terms of Notification No. 2/95 - CE.

JUDGMENT

S.H. KAPADIA, J. -

Civil Appeal No. 570 of 2002

1. The appellant, Mis VirIon Textile Mills Ltd. is a 100% export - oriented unit (EOU) engaged in the manufacture of texturised polyester yarn and dyed polyester yarn. The said yarn is sold against foreign exchange by the appellant in Domestic Tariff Area (DTA) subject to permission given by the competent authority under para 9.10(b) of the Export and Import Policy (Exim Policy), 1997 - 2002. In this civil appeal, the question for consideration is the rate of duty applicable to sales falling under para 9.10(b).

2. On 4 - 11 - 1999 a show - cause notice was issued by the Joint Commissioner of Central Excise, Mumbai to the appellant stating that the appellant was not paying appropriate duties on the goods cleared as per the a permission granted by the Development Commissioner. According to the show - cause notice, the appellant had paid countervailing duty (CVD) @ 30% on texturised polyester yarn plus Rs 9 per kg on dyed polyester yarn cleared under para 9.10(b) of the Exim Policy against foreign exchange. According to the show - cause notice, under the proviso to sub - section (1) of Section 3 of the Central Excise Act, 1944 ("the 1944 Act") duty of excise was leviable on excisable goods produced by 100% EOU and allowed to be sold in India, equal to the aggregate of the duties of customs leviable under Section 12 of the Customs Act, 1962, on like goods produced or manufactured outside India if imported into India, and where the said duty of customs is chargeable by reference to value; the value of such goods shall be determined in accordance with the provisions of the Customs Act, 1962 and the Customs c Tariff Act, 1975. According to the said show - cause notice, in the present matter, on clearance of the said yarns into DTA under para 9.10(b), the appellant, being a 100% EOU, was required to pay duty of excise equal to the aggregate of duties of customs leviable on such yarns falling under Chapter Sub - Heading (CSH) 5402.33 of the Customs Tariff Act, 1975 as follows:

"A. Basic customs duty - @ 35% ad valorem.

B. Additional duty equal to excise duty under Section 3 of the Customs Tariff (also known as countervailing duty or CVD) - 24% + 6%.

C. Special additional duty of customs under Section 3 - A of the Customs Tariff Act, 1975 - @ 4%.

D. Cess @ 0.05% under the Textile Committee Act, 1963."

According to the show - cause notice, the appellant had failed to pay the duty in respect of clearances of the above yarns under para 9.10(b), as indicated hereinabove, and accordingly, it was asked to pay Rs 33.58 lakhs (rounded off figure) on their clearances during the period 8 - 4 - 1999 to 20 - 10 - 1999 falling during the Exim Policy period 1997 - 2002.

3. This demand had been confirmed by all the authorities and the f Tribunal (CEGAT) vide impugned judgment dated 19 - 10 - 2001. In the impugned judgment, the Tribunal took the view that the entire supplies of yarns to DTA against foreign exchange earned by the appellant was liable to duty payment on clearance in accordance with the proviso under sub - section (1) to Section 3 of the 1944 Act equal to the customs duty leviable under Section 12 of the Customs Act, 1962 on like goods produced by a g manufacturer outside India. In other words, the Tribunal has upheld the order

of the Commissioner (A). The Tribunal has also rejected the contention raised on behalf of the appellant saying that even if the supplies of the yarn under para 9.IO(b) was comparable to the DTA sales in para 9.9 of the said Exim Policy, still the appellant was entitled to the benefit of exemption under Notification No. 2/95 - CE dated 4 - 1 - 1995. The Tribunal also rejected the h contention of the appellant that, in any event, it was entitled· to exemption under Notification No. 53/97 - Cus. dated 3 - 6 - 1997. According to the Tribunal, the said Notification No. 53/97 exempted specified goods from customs duty which were imported into India for manu

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