IMPORTANT POINT
Exemption provisions should be construed strictly.

Judgment :

1. This appeal is directed against the judgment and order passed by the Customs, Excise and Service Tax Appellate Tribunal (for short 'the Tribunal'), Mumbai in Appeal No.E/158/03-Mum. dated 25.07.2003. By the impugned judgment and order, the Tribunal has partly allowed the appeal filed by the respondent-assessee, inter alia, stating that the assessee is entitled to avail the benefit of the Notification No.8/97-CE, dated 1.3.1997. It is the correctness or otherwise of the said finding and conclusion reached by the Tribunal, is the subject matter of this appeal.

2. The core issue that falls for our consideration and decision is: whether the finished goods manufactured by the 100% Export Oriented Unit ('the EOU' for short) out of the raw material supplied by another 100% EOU, and subsequently, cleared in the Domestic Tariff Area (for short "the DTA") in accordance with the EXIM Policy 1997-2002 are entitled to the benefit of the exemption provided under the Notification No.8/97-CE, dated 1.3.1997. In the alternative, whether the adjudicating authority is justified in holding that the assessee cannot take the benefit of the Notification No.8/97-CE, dated 1.3.1997 and the assessee, at the most, can take benefit of the Notification No.2/95-CE, dated 4.1.1995.

3. Brief facts, as noticed by the adjudicating authority may be stated: M/s. Favourite Industries, respondent herein, is engaged in the manufacture of processed Polyester Grey Man Made fabric, falling under chapter sub-heading 5407.51 of the Customs Tariff Act, 1975 and chapter sub-heading 5406.10 of the Central Excise Tariff Act, 1985 (for short "the Tariff Act"), out of raw materials obtained indigenously and/or imported free of Central Excise/Customs duties, as the case may be, under the obligation of export of the final product as well as clearance of final product in the DTA on payment of appropriate duty as applicable from time to time as provided under the EXIM Policy for the period commencing from 1997 to 2002.

4. The respondent-industrial unit of the assessee has been granted licence on 27.6.2000 for Private Bonded Warehouse under 100% Export Oriented Scheme under Section 58 of the Customs Act, 1962.

5. The respondent-industrial unit has also obtained permission for advance DTA sale, vide letter No. KFTWZ/100% EOU/II/765/2000- 01/3381 dated 27.7.2000 which will be valid for a period of three months counted from the date of issuance of permission, that is, upto 26th October, 2000 only.

6. In the Show Cause Notice, it was stated that the respondent-industrial unit had filed the RT-13 returns for the months of August, 2000 to December, 2000. On going through the invoices, in respect of clearance made in the DTA, filed by the respondent-industrial unit along with RT 13 returns for the month of June to October, 2000, it was noticed that the unit had cleared 17,52,421/-Liter Meters Of pro M.M. Fabrics viz. finished goods, rejected and waste worth Rs.1,41,43,082/-during the period commencing from 1.8.2000 to 15.10.2000 in DTA on payment of 8% basic excise duty amounting to Rs.13,53,695/- which, according to the adjudicating authority, is a short payment of duty amounting to Rs.2,19,70,733/-. It is further alleged in the show cause notice that the unit has also cleared 12,78,814 L.Mtrs. of finished goods, rejects and waste worth Rs.1,30,98,643/-during the period starting from 16.10.2000 to 31.12.2000 in DTA on payment of 8% basic excise duty amounting to Rs.13,52,262/-, which, according to the adjudicating authority, is a short payment of duty amounting to Rs. 2,13,30,228/-. According to the adjudicating authority, the respondent has contravened the provisions of EXIM Policy and Rules 100 D and 100 E of the Central Excise Rules, 1944 (for short "the Rules") and also the conditions prescribed under 100% EOU scheme. Further, according to the adjudicating authority, the respondent-industrial unit has contravened the provisions of the Notification No.2/95-CE, dated 4.1