COMMISSIONER OF CENTRAL EXCISE V/S M/S NCC BLUE WATER PRODUCTS LTD CIVIL APPEAL NOS.4608-4609 OF 2005 (SEPTEMBER 24, 2010)

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.4608-4609 OF 2005

COMMISSIONER OF CENTRAL EXCISE, -- APPELLANT (S)
VISAKHAPATNAM-II

VERSUS

M/S NCC BLUE WATER PRODUCTS LTD. -- RESPONDENT (S)

WITH

CIVIL APPEAL NO. 903 OF 2006
CIVIL APPEAL NO. 7590 OF 2005
AND
CIVIL APPEAL NO. 2986 OF 2008


JUDGMENT


D.K. JAIN, J.:


1.Challenge in this batch of appeals filed by the revenue under Section

35(L)(b) of the Central Excise Act, 1944 (for short "the Act") is to the orders

passed by the Customs, Excise and Service Tax Appellate Tribunal, South

Zone (for short "the Tribunal"), inter alia, holding that the duty of Central

Excise on shrimps and shrimp seeds produced and removed by the

respondent (hereinafter referred to as "the assessee"), a 100% Export
Oriented Unit (for short "EOU"), in the Domestic Tariff Area (for short

"DTA") without the approval of the Development Commissioner, would be

payable under Section 3(1) of the Act and not under the proviso appended

thereto.






2.Since the question of law arising for our consideration in all the appeals is

the same, they are disposed of by this common judgment. In order to

comprehend the controversy in these appeals, a brief reference to the facts in

Civil Appeal Nos.4608-4609 of 2005, which was treated as the lead case,

would suffice:


The assessee company is engaged in the production of shrimps and

tiger prawns, falling under Chapter Sub Heading No.0301.00 of the

Schedule to the Central Excise Tariff Act, 1985 (for short "the Tariff Act").

They imported some capital goods, viz. sand blowers and air filters, duty

free under Customs Notification Nos. 188/93 dated 27th December 1993 and

196/94 dated 8th December 1994 for use in their integrated Aquaculture

project. The imports were subject to the condition that the said goods would

be used in the production of aquaculture products and 100% or such other

percentage of the said products, as may be fixed by the Board of Approvals

for 100% EOU, shall be exported out of India for a period of ten years or

such extended period as may be specified by the said Board.

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3.As per the Exim Policy (1st April 1992 to 31st March 1997), an EOU Aqua

culture unit was permitted to sell upto 50% of its production in value terms

in DTA, in accordance with the DTA sales guidelines notified in that behalf

and subject to minimum value addition.


4.The guidelines for sale of goods in the DTA by an EOU were prescribed

under Appendix XXXIII of the Hand Book of procedures for the

aforementioned period. As per the said guidelines, sale of goods in the DTA

was subject to payment of applicable duties as notified from time to time by

the department of revenue; the units could opt for DTA sales on a quarterly,

half yearly or annual basis with an intimation to the Development

Commissioner of the EPZ concerned; application for DTA sales was to be

accompanied by a statement disclosing information regarding ex-factory

value of goods produced and of goods actually exported, and the

Development Commissioner was to determine the extent of DTA sales

admissible and issue goods removal authorisation in terms of value and

quantity for sale in DTA.


5.It appears that during the period 1994-95 to 1997-98, the assessee

produced and sold 11,15,29,540 number of shrimp seeds and 48,365 Kgs. of

shrimps in DTA without obtaining the permission of the Development

Commissioner; without issuing proper invoices as mandated under Rule

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100E of Central Excise Rules, 1944 (for short "the Rules") and without

payment of Excise Duty. Besides, the assessee also undertook certain job

work whereby it processed 864.238 MT of shrimps and 905.580 MT of fish

and cleared the said goods in DTA. According to the assessee, these goods

were ultimately exported by the DTA units.


6.On 2nd September 1998, a notice was issued to the assessee to show cause

as to why duty of excise equal to aggregate of the duties of customs,

amounting to Rs. 7,80,58,074/-, should not be levied in terms of Section 3 of

the Act read with Rule 9(2) read with proviso to sub-section (1) of Section

11A of the Act, and interest at 20% from first day of the month till the date

of payment of duty should not be imposed under Section 11AB of the Act.

An additional penalty of Rs. 7,80,58,074/- for non-payment of duty for the

reason of wilful suppression of facts and contraventions of the provisions of

the Act, together with additional penalty under Rule 173Q(1) for

contravention of Rule 9(1), 100D, 100E and 100F of the Rules for clearing

goods without issuance of a proper invoice was also proposed to be imposed

on the noticee.


7.The assessee contested the notice on diverse grounds. On adjudication, the

Commissioner of Central Excise & Customs, Visakhapatnam, vide Order-in-

Original No. 9/99 dated 15th April 1999, demanded a duty of

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Rs.1,83,46,493/- on the shrimp seeds, shrimps and fish, cleared by the

assessee, under proviso to Section 11A of the Act. Interest at 20% was

demanded on Rs.1,13,05,410/- as being the duty evaded on shrimp seeds,

shrimps and fish cleared after 28th September 1996 under Section 11AB of

the Act. Penalty of Rs. 1,13,05,410/- was imposed under Section 11AC of

the Act with respect to duty evaded since 25th September 1996, and of Rs.

8,00,000/- under Rule 173Q(1) of the Rules.


8.The revenue as well as the assessee questioned the correctness of the

adjudication order by preferring appeals before the Tribunal.


9.The Tribunal, vide order dated 27th December 2004, allowed the assessee's

appeal and dismissed the appeal filed by the revenue. Reversing the order of

the Commissioner, the Tribunal observed thus:


"The commissioner, after classifying the shrimp seeds under
chapter 3, has worked out the amount equal to the aggregate of
the Customs duty leviable as per proviso to section 3(1) of the
CE Act, 1944 and demanded the same. It is on record that for
clearing the shrimp seeds, no permission was taken from the
Development Commissioner. When the goods are cleared with
the permission of the Development Commissioner, then only
proviso to section 3(1) of the CE Act, would be applicable. In
Sam Spintex Ltd. Vs. CCE, Indore 2004 (163) ELT 212 (Tri.-
Del.), it has been held that when there is a removal to DTA
without permission of the competent authority, duty is leviable
under main section 3 of the CE Act, 1944 and not its proviso.
While arriving at the above decision, the Hon'ble Tribunal
relied on the decision in the case of CCE Vs. Pratap Singh 2003
(153) ELT 711 (Tribunal) which has been affirmed by the Apex

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Court vide its order reported in 2003 (156) ELT A382. In view
of the above decision, even if the Commissioner's finding on
the classification of Shrimp seeds is upheld, the duty would be
Nil. In that case, the classification issue becomes academic.
However, after going through the HSN Explanatory notes, we
are convinced that Chapter 3 would not cover items unfit for
human consumption. In the present case, the Shrimp seeds are
undoubtedly not fit for human consumption in that stage.
Therefore, it would not be excisable at all. In view of this
finding, the demand of duty on the Shrimp seeds cleared would
be not sustainable."


In relation to the goods cleared on job work basis, the Tribunal held that

since goods were cleared to other exporters, there was no duty liability and

even otherwise, since the permission of the Development Commissioner was

not obtained, its decision in the case of Sam Spintex Ltd. Vs. Commissioner

of C. Ex., Indore1 would be applicable. It also held that there being no

convincing evidence showing suppression of facts, the demand itself was

time barred.


10.Being dissatisfied with the order of the Tribunal, the revenue is before us

in these appeals.


11.Mr. R.P. Bhatt, learned senior counsel appearing for the Revenue

contended that since as per Note 1 of Section 1 of the Customs Tariff Act,

1975, any reference in that Section to a particular genus or species of an

animal, except where the context otherwise requires, includes a reference to

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2004 (163) E.L.T. 212 (Tri.-Del.)
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the young of that genus or species and, therefore, both live shrimps and

shrimp seeds are classifiable under heading 0306.23 of Chapter 3 of the

Customs Tariff Act, 1975. Learned counsel also submitted that the Tribunal

committed an error in relying on the decision of this Court in SIV Industries

Ltd. Vs. Commissioner of Central Excise & Customs2, because unlike in

that case, in the present case, the assessee had sought permission of the

Development Commissioner, who in turn had advised them to approach the

SIA for permission to clear shrimps and shrimp seeds which, in fact, was

granted and, therefore, they were required to pay duty under proviso to

Section 3(1) of the Act. It was argued that under the Exim Policy, an EOU

is obliged to make exports of the entire production itself and not through any

other entity.


12.Per contra, Mr. Joseph Vellapally, learned senior counsel appearing for

the assessee, contended that the DTA sales made by an EOU without

approval of the Development Commissioner are to be assessed to Excise

Duty under Section 3(1) of the Act and not under proviso to the said Section.

In support of the submission, learned counsel placed reliance on the decision

of this Court in SIV Industries (supra) and orders of the Tribunal in

Commissioner of Central Excise, Jaipur-II Vs. Pratap Singh3, Sam

Spintex Ltd. (supra) and Modern Denim Ltd. Vs. Commissioner of Central
2
2000 (117) ELT 281 (SC)
3
2003 (153) E.L.T. 711 (Tri.-Del.)
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Excise, Ahmedabad 4. Learned counsel also submitted that since shrimp

seeds are microscopic post larva of 20 days, which do not contain meat

and as such are not fit for human consumption, on a plain reading of

Chapter Note 1(b) of Chapter 3 of the Tariff Act, these cannot fall within

tariff entry 0301.00. It was argued that for the purpose of the Exim Policy

sale of shrimps by supporting manufacturers carrying out job work and

clearance of the same directly for exports on behalf of other exporters is to

be treated as export sale and therefore, clearance of shrimps by the

assessee on job work basis could not be treated as DTA sales for the

purpose of the Act. It was asserted that since there was regular

correspondence between the department and the assessee in relation to

these sales and invoices and other documents were also submitted, there

was no suppression of DTA sales by the assessee with the intent to evade

payment of duty, particularly when the entire industry as also the

jurisdictional excise authority were under the impression that no duty was

payable on sale of shrimps and shrimp seeds. In support of the

proposition that a mere violation of rule is not sufficient to invoke

extended period of limitation, learned counsel commended us to the

decisions of this Court in M/s Padmini Products Vs. Collector of Central

Excise, Bangalore5; Collector of Central Excise, Hyderabad Vs. M/s

4
2005 (191) E.L.T. 1174 (Tri.-Mumbai)
5
(1989) 4 SCC 275
8
Chemphar Drugs & Liniments, Hyderabad6 and Gopal Zarda Udyog &

Ors. Vs. Commissioner of Central Excise, New Delhi7.


13.The core question for our consideration, therefore, is whether the sales of

shrimps and shrimp seeds by the assessee in DTA, without requisite

permission from the Development Commissioner, are to be assessed to

Excise Duty under Section 3(1) of the Act or under proviso to the said

Section?


14.Before evaluating the rival contentions on the point, we may refer to the

relevant part of Section 3 of the Act, which reads as follows :

"3. Duties specified in the Schedule to the Central Excise
Tariff Act, 1985 to be levied.--(1) There shall be levied
and collected in such manner as may be prescribed duties of
excise on all excisable goods other than salt which are
produced or manufactured in India and a duty on salt
manufactured in, or imported by land into, any part of India
as, and at the rates, set forth in the Schedule to the Central
Excise Tariff Act, 1985 :
Provided that the duties of excise which shall be levied
and collected on any excisable goods which are produced or
manufactured,--

(i) in a free trade zone and brought to any
other place in India; or
(ii) by a hundred per cent export-oriented
undertaking and allowed to be sold in
India,
shall be an amount equal to the aggregate of the duties of
customs which would be leviable under Section 12 of the
Customs Act, 1962 (52 of 1962) on like goods produced or
6
(1989) 2 SCC 127
7
(2005) 8 SCC 157
9
manufactured outside India if imported into India, and where
the said duties of customs are chargeable by reference to
their value, the value of such excisable goods shall,
notwithstanding anything contained in any other provision
of this Act, be determined in accordance with the provisions
of Customs Act, 1962 (52 of 1962) and the Customs Tariff
Act, 1975 (51 of 1975)".


15.It is manifest that all excisable goods produced or manufactured in India

are exigible to duty of Excise under Section 3 of the Act, the charging

Section, at the rates set forth in the Schedule to the Tariff Act. However,

proviso to the said Section provides that the duties of Excise on any

excisable goods, which are produced or manufactured by a 100% EOU and

allowed to be sold in India shall be an amount equal to the aggregate of the

duties of customs which would be leviable under Section 12 of the Customs

Act, 1962. As aforestated, the controversy at hand is whether in the absence

of an order by the competent authority, allowing the assessee to sell the

shrimp seeds and shrimps in India, Excise Duty on such sales could be

levied and collected in terms of the proviso. To put it differently, the issue

relates to the significance of the expression "allowed to be sold in India" as

appearing in clause (ii) to the proviso to sub-section (1) of Section 3 of the

Act.



16.A similar issue fell for consideration of this Court in SIV Industries

(supra). In that case, the assessee was a 100% EOU. Later on they sought
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permission to withdraw from 100% EOU Scheme, for which the Ministry

accorded the necessary permission. However, some of the goods lying in the

unit were removed prior to the debonding. A dispute arose regarding the

rate of duty payable on such sales. The plea taken by the assessee was that

they were liable to pay duty under Section 3(1) of the Act together with

customs duty on the imported raw material used in the manufacture of said

finished goods, lying in the stock whereas the stand of the revenue was that

Excise Duty under the proviso to Section 3(1) of the Act was payable on the

finished goods with no customs duty being leviable on the raw materials

used in the manufacture of finished goods. Thus, the bone of contention in

that case was also with regard to the interpretation of the expression

"allowed to be sold in India" appearing in the said proviso. Interpreting the

said expression, this Court held that the expression "allowed to be sold in

India" used in the proviso to Section 3(1) of the Act is applicable only to

sales made in DTA up to 25% of the production by 100% EOU, which are

allowed to be sold into India as per the provisions of the Exim Policy. No

permission was required to sell the goods manufactured by 100% EOU lying

with it at the time the approval is accorded to debond. The Court opined

that the goods having been sold without permission of the Central

Government to debond the unit, the duty on the goods sold by the assessee

was leviable under main Section 3(1) of the Act.

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17.It is pertinent to note that after the decision in SIV Industries' case

(supra), a Circular was issued by the Central Board of Excise & Customs,

New Delhi clarifying that prior to 11th May, 2001, the clearances from

EOUs, if not allowed to be sold in India, shall continue to be chargeable to

duty under main Section 3(1) of the Act. For the sake of ready reference

Circular No. 618/9/2002-CX dated 13th February, 2002 is extracted below:


"Circular :618/9/2002-CX dated 13-Feb-2002

EOU- Removal of goods by 100% EOU to DTA - Non-
levy of duty under Section 3(1) of Central Excise Act,
1944 -Clarifications

Circular No. 618/9/2002-CX., dated 13-2-2002
F. No. 268/69/2001-CX.8
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject : Removal of goods by 100% EOUs to DTA -
Non-levy of duty under Section 3(1) of Central Excise
Act, 1944.

I am directed to invite reference to Supreme
Court's judgment in case of SIV Industries v. CCE [2000
(117) E.L.T. 281 (S.C.) vide which the Apex Court had
held that "proviso to Section 3(1) regarding the duty
chargeable on goods cleared by EOUs shall be applicable
only to sales made in DTA upto 25% of production
which are allowed to be sold into India as per provisions
of EXIM Policy". In other words, Hon'ble Court decided
that if the goods are "not allowed" to be sold in India, the
proviso to Section 3(1) of Central Excise Act, 1944 shall
not be applicable. The expression `allowed to be sold'

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has since been replaced with `brought to any other place'
w.e.f. 11-5-2001 vide Section 120 of Finance Act, 2001
[14 of 2001].
2. It has come to the notice of the Board that field
formations are interpreting the judgment of Apex Court
to the effect that if the goods cleared by EOUs are not
allowed to be sold into India, the Section 3(1) of Central
Excise Act, 1944 is not applicable and duty can be
demanded under the provisions of Customs Act, 1962
only. Board has taken a serious view of this mis-
interpretation. The provisions of Central Excise Act,
1944 shall apply to all goods manufactured or produced
in India for which Section 3 is the charging section.
EOUs are also situated in India and the chargeability
under Central Excise Act is never in doubt. Therefore, it
is clarified that prior to 11-5-2001, the clearances from
EOUs if not allowed to be sold in India, shall continue to
be chargeable to duty under main Section 3(1) of Central
Excise Act, 1944. Appropriate action may be taken
immediately to safeguard revenue and all pending
decisions may be settled accordingly."
(Emphasis added by us)


18.As aforesaid, according to the Exim Policy 1992-1997 read with

Appendix XXXIII of the Handbook of Procedures, an EOU may sell 50% of

its production in value terms into a DTA only on issuance of a removal

authorization by the Development Commissioner.


19.In the instant case, admittedly at the time of sales of shrimps and shrimp

seeds by the assessee in DTA, the Development Commissioner had not

issued the requisite removal authorization. Therefore, in view of the dictum

of this Court in SIV Industries (supra), with which we are in respectful

agreement, and the afore-extracted Circular issued by the Board following
1
the said decision, Excise Duty on such sales is chargeable under main

Section 3(1) of the Act.


20.Having come to the aforenoted conclusion, the controversy with regard to

classification of the shrimp seeds is more in the nature of an academic

exercise in as much as even if the finding of the Commissioner on

classification of shrimp seeds is affirmed, still the duty payable on these

goods would be nil. For the sake of ready reference, the relevant entry in

Chapter 3 of the Tariff Act is extracted below:




"Heading Sub-heading Description of goods Rate of
No. No. duty

(1) (2) (3) (4)

03.01 0301.00 Fish and crustaceans, Nil"
molluscs and other
aquatic invertebrates


21. Thus, it is evident that even if the stand of the revenue is accepted and

shrimp seeds are classified under sub-heading 0301.00 of the Tariff Act, the

rate of Excise Duty chargeable would be nil. Similarly, if the Excise Duty

payable is nil, the other question regarding the extended period of limitation

on the alleged ground of suppression of sales also pales into insignificance.




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22.For the foregoing reasons, the impugned orders passed by the Tribunal

cannot be flawed and deserve to be affirmed. Resultantly, these appeals,

being bereft of any merit, are dismissed accordingly. No order as to costs.




...........................................J.
(D.K. JAIN)



............................................J.
(H.L. DATTU)
NEW DELHI;
SEPTEMBER 24, 2010




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