Per Gowri Shankar : The appellant is a 100% export oriented unit (EOU) engaged in the manufacture of texturised polyester yarn and dyed polyester yarn. The question for consideration in this appeal is the rate of duty that will apply to that part of the production of these goods that it cleared to the domestic tariff area i.e. the domestic market.

2. In the order impugned in the appeal the Commissioner has held that the duty that should be paid on such clearances would, in accordance with the proviso under sub-section (1) of Section 3 of the Central Excise Act, 1944, be equal to the customs duty which will be leviable under Section 12 of the Customs Act, 1962 on like goods produced by a manufacturer outside India. He has held that the duty that should be paid was to be calculated, and also imposed a penalty on the appellant under Rule 173Q for various contravention. The Commissioner had rejected the contention taken before him that the benefit of Notification 53/97 would be available to these goods.

3. In our opinion he is right. The notification exempts from customs duty goods specified in the table to it imported into India or procured from a bonded warehouse for manufacture of articles for export out of India or for being used in connection with the production or packaging of such goods for export, in a 100% export oriented unit approved by the Board of Approval of the Government of India. Para 7 of this notification, which the counsel for the appellant relies upon, only provides that the exemption contained in notification will apply to goods which were used for the manufacture of articles which are allowed to be sold in India in accordance with the Export Import Policy on payment of duty under Section 3 of the Central Excise Act, 1944. The paragraph does not have slightest application in determining the rate of duty payable on such goods. All it says is that the exemption will be available to the goods that the notification specifies, even if they are used in the manufacture of goods sold in India in accordance with the Policy.

4. The second argument that was advanced before the Commissioner which is now advanced before us is that the benefit of Notification 2/95 would be available. The notification exempts from duty, goods "allowed to be sold in India under and in accordance with the provisions of sub-paragraphs (a), (b), (c) and (d) of paragraph 9.9 or paragraph 9.20 of the Export and Import Policy, 1st April, 1997 - 31st March, 2002. This notification has the effect of fixing a value or amount of which would be 50% of the duty leviable under Section 12 of the Customs Act, 1962 read with any other notification for the time being in force issued under Section 25 (1) of the Act. We have noted that Section 12 of the Customs Act, 1962 applies to goods sold to domestic tariff in India, the rate of duty leviable on like goods when imported into India. In terms of this notification, therefore, the rate of duty that applicable would be 50% of that duty. The reason that the Commissioner has advanced for denying the benefit of this notification is that the goods have not been sold in terms of sub-paragraphs of para 9 that is specified in the notification.

5. Paragraph 9.9 of the Policy, which refers to sales to the domestic tariff area provides in sub-para (b) as follows: (sic).

6. Domestic tariff area sale up to 50% of the FOB value of the exports may be made subject to payment of applicable duties in fulfilment of minimum NFEP (Net Foreign Exchange as a Percentage) prescribed in the Appendix V of the Policy. The notification specifies a percentage of foreign exchange earnings for exports. We are not concerned with it. Sub-para (a) refers to rejects, (c) has been deleted and (d) refers to electronic hardware. Para 9.20 is concerned with the scrap, waste, remnants sold to the domestic tariff area. The appellant's case is that paragraph 9.10 of the Policy provides that the supplies effected to domestic tariff area against payment