- The appellant in case is a 100% Export Oriented Unit(EOU) and is engaged in the production of cut flowers, flower buds of all kinds and suitable for bouquets and ornamental purposes and thus is required to export all its produce.
- Such units are exempted from customs duty on goods imported for the use of production via notification of 03/06/1994, and this exemption is extended to products sold in the domestic market, in accordance to the Export and Import Policy(EXIM) and other conditions.
- This particular unit has sold its product in the domestic market without fulfilling conditions of EXIM policy and even without taking permission from the concerned authority. Still, there are certain amendments in the notification concerning which certain duties are to be paid on produce as if it is imported in case the product is sold in the domestic market.
- Further, they even applied and got an ex-post facto approval from the concerned authority.
- Now a show-cause notice has been issued by the additional commissioner, Central Excise, Meerut-I to the unit as to why penalty should not be imposed on them for selling produce in contravention of EXIM Policy and after giving the opportunity of being heard an order is passed saying that sales were made without permission and in contravention to the EXIM Policy and is liable to pay customs duties. It was also held that the appellant has willfully suppressed facts, therefore Section 28 of the Customs Act, 1962 is invoked in the case. Hence the unit has to pay the decided amount with 28% interest on it.
- The appellant then filed an appeal before Commissioner (Appeals), Custom & Central, Excise, Meerut-I order of which came in affirmation to the order of Additional Commissioner and appeal was rejected.
- Next appeal filed by the appellant is before Customs, Excise & Service Tax Appellate Tribunal, whose order again came as an affirmation to the order of lower authorities and also held that notification is to be applied prospectively and not retrospectively.
- After that appeal before this Court is filed by the appellants challenging the order of the lower authorities.
Submissions by the parties
- Arguments of the appellant were that according to paragraph 3 of notification excise duties are applicable, and the grown flower is out of this ambit, and import duties on non-excisable goods are to applicable on imported goods, but cut flowers are grown here only.
- Next contention is that notification by the government is merely clarificatory and would apply retrospectively. Another thing said based on Circular No. 31/2001-Cus dated 24.5.2001 issued by Central Board of Excise and Customs (CBEC), New Delhi is that in case of non-excisable goods duties in case of domestic sale is to be on the value of inputs and not on the final product.
- Another contention regarding show cause notice under Act of 1962 is that it is bad in law as section 12 is applicable on imported goods only and cut flowers are not imported.
- Next contention based on case Uniworth Textiles Limited v. Commissioner of Central Excise, Raipur is related to Section 28 of the Act of 1962 saying that it can be invoked in case of deliberate default and this case, there is no such deliberate default.
- Arguments by the defendant are that orders passed by the lower authorities are correct and are concerning the provision of various laws as the appellant has made the sale in contravention to the EXIM Policy and also without permission of the concerned authority.
Another contention was that amendment in the notification must be applied prospectively as per the case of Union of India & Anr. v. IndusInd Bank Limited & Anr.
Issues that are to be considered in this case are:
- Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOU?
- Whether the amendment in terms of Notification No. 56/01-Cus dated 18.05.2001, with the purpose to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application?
Observations of Court about show cause notice and provisions related to it are:
- Court has observed that on a bare reading of notification of 03/06/1994, it is clear that 100% EOU in addition to export all its produce is also given liberty to clear its produce by sale in the domestic market after and on a combined reading of notification and EXIM Policy it is clear that there are certain pre-conditions to be fulfilled which if not done then the unit is liable to pay customs duty on such goods.
- About the contention of show cause notice being bad in law court observed that reliance of which particular case laid down is different and is not applicable in this case. Therefore goods that are sold in contravention to the EXIM policy are not exempted from payment of duties.
- Court also observed from the other side in case of sale is not in contravention with EXIM policy then if reliance is placed on Section 12 of the Act of 1962, it is mentioned that rules of Customs Act of 1975 or any other law are to apply which means non-excisable goods are under the ambit and unit is liable to pay customs duties.
- Court also further observed that the unit had availed the benefit of exemption so it could not evade payment. Hence show cause notice and order for payment of duties is in no way bad in law.
Observations of Court about the applicability of notification prospectively or retrospectively are:
- Observation by Court on bare reading and language of notification is that it is related to amendment and substituting certain clauses. According to the language, there is nowhere mention of applicability to be prospective or retrospective one. Court also discussed the general rule of applicability of any notification is that its application must be prospective unless stated otherwise.
- Court further observed that appellant reliance on CEBC circular for retrospective application of the amendment couldn't be affirmed as on bare reading it is nowhere mentioned or inferred to be applied retrospectively. Court also said that any amendment could be applied retrospectively only if there is an error in the previous version. Still, there is no such error, and mere clarification to anomaly can't be applied retrospectively.
- Similarly, appellant reliance on Vartika Township is of no aid as it states the same that unless there is an error in the previous one, an amendment could not be applied retrospectively.
If we see the judgment, it is presented in a very well mannered and is also satisfying all the qualities of a judgment as we can infer everything from it quite easily. Court has tried to deal with every point that has been put forward to it and has given perfect reasoning with the proper inference of notifications and section and has not left any gap as such to ponder upon.
Judgment by A. M. Khanwilkar, J.
While giving the judgment of the case, the Court finds it important to advertise the decision of Commissioner of Central Excise, New Delhi vs Hari Chand Shri Gopal & Ors., where it was stated that an exemption clause has to be interpreted strictly. In case of any ambiguity, the benefit must go to the state. Based on this decision the court has given its decision in favour of the state and firm is liable to pay the duties as they have made sales in contravention to the EXIM policy and without permission of concerned authorities.
Another point the court clarified is about invoking Section 28 of Act of 1962 and said that the unit has willfully suppressed facts and it is clear from its conduct of obtaining ex-post-facto permission for sale of goods. Hence, authorities have rightly invoked Section 28.
Court has dismissed the appeal and upheld the decision of the CESTAT.