1. 100% Export Oriented Unit — DTA sales of non-excisable goods in contravention of EXIM Policy — Levy of customs duty under Customs Act, 1962. (Para 1 , 2 , 3 , 4 )
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2020 Supreme(SC) 517
SUPREME COURT OF INDIA
A.M. Khanwilkar, Dinesh Maheshwari, JJ.
M/s. L. R. Brothers Indo Flora Ltd. – Appellant
Versus
Commissioner of Central Excise – Respondent
Civil Appeal No. 7157 of 2008
Decided on : 01-09-2020
Important Points
IMPORTANT POINTS
(1) An exemption clause ought to be strictly construed according to language employed therein and in case of any ambiguity benefit must go to State.
(2) All laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by the legislature.
(3) DTA sales pertaining to excisable goods made in conformity with conditions of EXIM policy are exigible to excise duty but once there is contravention of condition(s) of EXIM policy, irrespective of goods produced being excisable or non-excisable, benefit under exemption notification is unavailable.
(1) An exemption clause ought to be strictly construed according to language employed therein and in case of any ambiguity benefit must go to State.
(2) All laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by the legislature.
(3) DTA sales pertaining to excisable goods made in conformity with conditions of EXIM policy are exigible to excise duty but once there is contravention of condition(s) of EXIM policy, irrespective of goods produced being excisable or non-excisable, benefit under exemption notification is unavailable.
Subject
Tax Law - Customs and Excise Duty
Act Referred
CUSTOMS ACT: S.28, S.114(a), S.25
Headnote
(A) Customs Act, 1962 – Sections 28, 28AB and 114A – Levy of customs duty upon on sale of cut flowers – In terms of Notification No. 126/94CUS dated 3.6.1994, apart from providing for duty free imports of inputs for an 100% EOU in order to export all goods produced or manufactured by it, in addition, it also gives liberty to the 100% EOUs to clear their goods in DTA to the extent permissible by and in accordance with EXIM policy – Fulfilment of such conditions is a condition precedent to become eligible to make DTA sales – Resultantly, if goods are cleared in DTA sales in breach of such conditions, customs duty would be leviable as if such goods were imported goods – DTA sales pertaining to excisable goods made in conformity with conditions of EXIM policy are exigible to excise duty but once there is contravention of condition(s) of EXIM policy, irrespective of goods produced being excisable or non-excisable, benefit under exemption notification is unavailable – In such a situation, the very goods would become liable to imposition of customs duty as if being imported goods – In present case, notification, having been issued in exercise of delegated legislation under Section 25 of 1962 Act, has to be understood as “any other law” – Appellant, having availed exemption under notification, cannot evade customs duty on imported inputs at rate prescribed by notification – A priori, demand in present case, pertaining to non-excisable goods has rightly been made under 1962 Act upon imported inputs used in production of goods sold in DTA in violation of condition(s) in EXIM Policy – Appellant was obliged to comply with conditions prescribed by EXIM Policy, to avail exemption under stated notification and failure to do so, must denude them of exemption so granted – Since charging rate prescribed under exemption notification is under question, any ambiguity in regard to date of application of amendment thereto would necessarily have to be construed in favour of State, unless shown otherwise by judicially acceptable parameters – CESTAT has rightly upheld levy of customs duty – Appeal dismissed. (Paras 12, 13, 15, 17, 32, 35 and 36 )
(B) Excise and Customs – Anomaly – Import – Unless shown otherwise, it has to be seen as a conscious change in dispensation, particularly concerning fiscal subject matters – In context of subject circular, since it takes note of previous arrangement and distinguishes it from excise notifications, meaning has to be taken as deviation from regular arrangement, which cannot be treated as a mere mistake – To call amendment notification clarificatory or curative in nature, it would require that there had been an error/mistake/omission in the previous notification which is merely sought to be explained. (Paras 26 and 27)
(C) Statute Law – Rule of Prospectivity – All laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by legislature – An essential requirement for application of a legislation retrospectively is to show that previous legislation had any omission or ambiguity or it was intended to explain an earlier act – In absence of such ingredients, legislation cannot be regarded as having retrospective effect. (Paras 24 and 30)
Facts of the case:
Instant appeal takes exception to the Final Order No. C/203/08 dated 17.7.2008 passed by the Customs, Excise & Service Tax Appellate Tribunal1 in Customs Appeal No. 9 of 2008, whereby customs duty levied upon the appellant on the sale of cut flowers within the Domestic Tariff Area had been confirmed by the Tribunal. issues that arise for consideration in this appeal are: (i) Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOU?; and (ii) Whether the amendment in terms of Notification No. 56/01Cus dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application?
Findings of Court:
Appellant was obliged to comply with the conditions prescribed by the EXIM Policy, to avail the exemption under the stated notification; and failure to do so, must denude them of the exemption so granted. Further, since the charging rate prescribed under the exemption notification is under question, any ambiguity in regard to the date of application of the amendment thereto would necessarily have to be construed in favour of the State, unless shown otherwise by judicially acceptable parameters.
Result : Appeal dismissed
Legal Category Hierarchy
Advocates Appeared:
For the Appellant :Rupesh Kumar, Advocate
For the Respondent:B. Krishna Prasad, Advocate
For the Appellant :Rupesh Kumar, Advocate
For the Respondent:B. Krishna Prasad, Advocate
Table of Contents
2. Whether customs duty applies to non-excisable goods produced in India — Whether amendment notification regarding duty on inputs is retrospective — Validity of Section 28 invocation. (Para 7 , 8 )
3. Breach of EXIM policy conditions renders goods liable for customs duty — Amendment notifications are prospective unless expressly retrospective or curative of a legislative error. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 )
4. Fiscal amendments are prospective unless they are clarificatory or curative of an ambiguity or error in the original provision. (Para 24 , 30 , 31 )
5. Appeal dismissed — Levy of customs duty confirmed. (Para 35 , 36 )
6. Can customs duty be charged on non-excisable goods produced in India and sold in DTA by an EOU?
Yes. If DTA sales are made in breach of EXIM policy conditions, the benefit of the exemption notification is unavailable, and the goods become liable for customs duty as if they were imported goods. (Para 13 , 15 , 17 , 20 , 22 )
7. When is an amendment to a customs notification considered to have retrospective effect?
Amendments are generally prospective unless expressly specified as retrospective or intended to be curative or declaratory, meaning they must supply an obvious omission or clear up doubts regarding the meaning of the previous Act. (Para 24 , 30 )
8. Does the removal of an anomaly in a fiscal notification make the amendment retrospective?
No. Removing a disadvantage or deviation from a regular arrangement is a policy decision and a conscious change in dispensation, not a correction of an error, and thus applies prospectively. (Para 26 , 27 , 28 )
9. Under what circumstances can the extended period of limitation under Section 28 of the Customs Act be invoked?
The extended period of five years can be invoked in cases of deliberate default or wilful suppression of facts to evade duty, rather than in cases of inadvertent non-payment. (Para 33 , 34 )
JUDGMENT
A. M. Khanwilkar, J.
This appeal takes exception to the Final Order No. C/203/08 dated 17.7.2008 passed by the Customs, Excise & Service Tax Appellate Tribunal1 [For short, "CESTAT"] in Customs Appeal No. 9 of 2008, whereby the customs duty levied upon the appellant on the sale of cut flowers within the Domestic Tariff Area2 [For short, "DTA"] had been confirmed by the Tribunal.
2. The factual matrix leading to the present appeal is that the appellant - M/s. L.R. Brothers Indo Flora Ltd. is a 100% Export Oriented Unit3 [For short, "EOU"] and engaged in production of cut flowers and flower buds of all kinds, suitable for bouquets and for ornamental purposes. The 100% EOU is required to export all articles produced by it. As a consequence whereof, it is exempted from payment of customs duty on the imported inputs used during production of the exported articles, vide Notification No. 126/94-Cus dated 3.6.19944[For short, "the exemption notification"]. Under the said notification, exemption on levy of customs duty had been extended even to the inputs used in production of articles sold in domestic market, in accordance with the Export-Import (EXIM) Policy and subject to other conditions specified by the Development Commissioner. To wit, upon payment of excise duty in case of excisable goods; and in case of non-excisable goods, upon payment of customs duty on the inputs used for production, manufacturing or packaging of such articles at a rate equivalent to the rate of customs duty that would have been leviable on such articles, if such articles were imported. The said notification was amended by Notification No. 56/01-Cus dated 18.5.20015[For short, "the amendment notification"], by which the customs duty in case of non-excisable goods became leviable on inputs used for production, manufacturing or packaging, as if there was no exemption notification in place. The effect of this amendment was that the customs duty on inputs which was charged at the rate equivalent to the duty leviable on final articles under the exemption notification, was now chargeable at the rate specified for the inputs.
3. The EXIM Policy 1997-2002 provided that a 100% EOU in floriculture sector was permitted to sell 50% of its produce in DTA, subject to achieving positive net foreign exchange earning of 20% and upon approval of the Development Commissioner. The appellant, without obtaining the approval of the Development Commissioner and without maintaining the requisite net foreign exchange earning, made DTA sales to the extent of Rs.38,40,537/- during 1998-99 to 2000-01 (upto December 2000), in contravention of the provisions of EXIM Policy. Notably, the appellant subsequently sought ex-post facto approval from the Development Commissioner vide letter dated 6.2.2001.
4. Meanwhile, the Additional Commissioner, Central Excise, Meerut-I issued a show cause notice dated 16.3.2001 to the appellant to show cause as to why customs duty, interest and penalty should not be imposed for the DTA sales made by the appellant in contravention of the EXIM Policy, that too after having availed the exemptions under the exemption notification on the import of green house equipment, raw materials like Live Rose Plants and consumables like planting materials and fertilizers. After according opportunity of being heard, the Additional Commissioner adjudged the show cause notice and held that the DTA sales were made without permission of the Development Commissioner and in contravention of the EXIM Policy and therefore, customs duty is leviable upon the appellant for the said sales. It was further held that the appellant had wilfully suppressed facts and thus Section 28 of the Customs Act, 19626 [For short, "the 1962 Act"] was invoked in the present case. The relevant extract of the Order-in-Original dated 18.10.2001 passed by the Additional Commissioner, Central Excise, Meerut - I on the aforesaid findings is reproduced hereunder:
"3.1 I find that the party had imported th
