ORDER
C.N.B. Nair, Member (T)
1. The appellant is an EOU. It produces cut rose flowers for export. It is also entitled to selling part of the produce, as permitted by the Development Commissioner, in the domestic tariff area.
2. The Commissioner of Customs and Central Excise, Central Excise Commissionerate, Delhi-III has demanded a customs duty of about Rs. 88 lakhs from the appellant under Section 28 of the Customs Act, 1962 read with Notification No. 126/94, dated 3-6-1994. There is a demand for interest under Section 28AA of the Customs Act, 1962 and imposition of penalty of Rs. 17 lakhs under Section 114A of the Customs Act, 1962. The duty amount demanded is the customs duty payable on about Rs. 3 crores worth flowers cleared to the domestic area during the period 1997-98 to 2001-2002. The contention of the appellant in the present appeal is that the findings in the order are entirely contrary to the settled law on the issue. It is pointed out that goods produced in an EOU are subject to central excise duty as applicable and not customs duty. The learned Counsel for the appellants also has pointed out that flowers are not excisable under the central excise tariff. Given legal position, it is the submission of the learned Counsel for the appellants that the customs duty demand under the impugned order is not sustainable in law at all. The learned Consultant for the appellant has also pointed out that the impugned order is contrary to the clarification contained in Central Board of Excise and Customs Clarification dated 24th May, 2001, which is stated as under :-
“(xi) Duty on DTA Clearance of Non-Excisable Goods;
25. At present, the EOUs and units operating under EPZ/STP/EHTP Schemes are allowed to sell finished products (including rejects, waste & scrap) in the Domestic Tariff Area (DTA) on payment of applicable excise duty as per proviso to Section 3 of the Central Excise Act, 1944. However, the same is applicable if the goods being cleared into DTA are excisable goods. Under the present dispensation, the notifications providing duty free import of goods under the above said Schemes stipulate that where the finished products (including rejects, wastes & scrap) sought to be cleared in DTA are not excisable, such products are allowed to be cleared on payment of customs duty on the inputs used for the purpose of production, manufacture, processing or packaging such products in an amount equal to the customs duty leviable on such products as if imported as such.
26. It has been brought to notice of the Board that in some Commissionerates, the floriculture units under the EOU Scheme are being asked to pay duty equivalent to the customs duty leviable on finished goods as if imported as such, for clearance of cut-flowers, which is not an excisable commodity. It has also been stated that the DTA units are not required to pay any duty for sale of cut-flowers, as the same are not excisable. This is stated to have placed the floriculture units in EOUs at a serious disadvantageous position vis-a-vis DTA units.
27. The matter has been examined. In the central excise notifications governing duty free procurement by EOUs and units under EPZ/STP/ETHP Schemes, there is a provision to recover duty on the inputs & consumables procured duty free under exemption notification, which have gone into production of non-excisable goods cleared into DTA. In the notifications governing duty free import by EOUs and the EPZ/STP/EHTP units, the anomaly, however, exists inasmuch as the notifications talk about payment of customs duty on the inputs used in the manufacture of articles in an amount equal to the customs duty leviable on such articles as if imported as such. In order to remove this anomaly, all the notifications governing duty free import of goods by STP/EHTP/EPZ units and EOUs including those in Aquaculture and Agriculture sector have been amended so as to bring the provisions of these notifications in harmony with the provisions of corresponding Central Excise notifications. Notification No. 56/2001-Cus, dated 18-5-2001 may be seen for details.”
Thus, according to the learned Consultant, the duty demandable in respect of non-excisable products sold to DTA from an EOU, is the customs duty on the inputs used for the purpose of production/manufacture or packaging such product and not the customs duty leviable on the finished products. It is the submission of the learned Consultant for the appellant that, in the present case as a matter of fact, no imported inputs have been used for the purpose of producing the cut-flowers sold to the domestic area and no duty demand is due under Notification No. 126/94-Cus dated 3-6-1994 relied upon by the learned Commissioner while passing the order.
4. We have perused the records and heard the learned SDR also. The learned SDR has referred to a Circular No. 78/95, dated 3-7-95 of the Central Board of Excise and Customs with regard to Notification No. 114/95 wherein it has been clarified that if the goods cleared from EOU to DTA is not excisable, then full Customs duty will be charged as if the said goods have been imported. Learned Consultant has replied to this by pointing out that this clarification is contrary to the decision of this Tribunal in the case of Vikram Ispat v. Commissioner of Central Excise, Mumbai-III [2000 (120) E.L.T. 800] wherein the Tribunal had held that clearance of the goods by a 100% EOU to the domestic tariff area are not imports under the Customs Act, and being goods manufactured in India, those goods are also liable to central excise duty. The learned SDK also pointed out that the impugned proceedings have not gone into the question as to whether any imported inputs had been used and, therefore, it is not clear whether customs duty on inputs is recoverable from the appellant.
5. It is well settled [2000 (120) E.L.T. 800] that goods produced in an EOU cannot be treated as imported goods and subjected to customs duty. The duty payable in respect of such goods is the duty of excise under Section 3 of the Central Excise Act, 1944. Therefore, the duty demand made in the impugned order under Section 28 of the Customs Act is not sustainable. Accordingly, we set aside the impugned order and allow the present appeal. However, we make it clear that revenue authorities will be at liberty to demand duty on the imported inputs, if any, used in the production of the cut-flowers in question.
The appeal is disposed of as above.