JUDGMENT
Gowri Shankar, Member (T)
1. 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 clearance 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 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 are 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 will 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 rage 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% 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:
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 in foreign exchange shall be counted towards fulfilment of export obligation. Therefore all sales made to the domestic tariff area whether against payment in foreign exchange or payment in India currency will count towards domestic tariff area sales and would be covered by paragraph 9.9 . The benefit of concessional rate of duty applicable in the notification and in the successor notification would be available. Therefore sales to the domestic tariff area against payment in foreign exchange are sales in fulfilment of export performance. The goods which have been sold have been exported in terms of paragraph 9.9. Therefore the notification would be available to these goods.
7. The Commissioner, as we have noted, has held that paragraph 9.9 will not apply to any part of the sales made by the appellant to the domestic tariff area against foreign exchange. He says that such sales have been made, not in terms of paragraph 9.9 but in terms of 9.10 which is not specified in the notification. As we have seen paragraph 9.9 and 9.10 deals with two different issues altogether. Para 9.9 prescribed the mode of disposal of the goods manufactured by a 100% EOU. It lays down that the entire production of such EOU shall be exported and thereafter proceeds to specify exceptions. Among these are, goods sold in the domestic tariff area or up to 50% of the FOB value of the exports. Paragraph 9.10 consists series of deeming provisions holding that the supplies to domestic tariff area of various kinds among which those made against payment in foreign exchange shall be counted towards fulfilment of export performance. Therefore the supplies made by the appellant to the domestic tariff area against payment in foreign exchange will be deemed, for purpose of paragraph 9.9, to have been exported. From this it would follows that up to 50% of the value of such supplies could be sold at the concessional rate of duty available in notification 2/95. Suppose, the appellant had exported, physically, all its goods, to countries out of India, all its goods against payment of foreign exchange it would have got the benefit of the notification 2/95 for 50% of the value of exports. If we accept the appellant’s claim it would mean that the sale of its goods to anybody against foreign exchange itself be entitled to exemption up to 100% of the FOB. That exemption only would be available up to 50% if physically exported. Acceptance of the claim therefore would lead to a conclusion that a premium is placed upon the selling the goods in the domestic tariff area against foreign exchange. Surely that is not what the makers of the notification had in mind. The object behind the provisions of para 9.10 are clear. The object of exporting goods are after all to earn foreign exchange badly needed for financing import of goods and to acquire technical and other knowledge and services for economic development. If that foreign exchange is earned without being the goods physically exported that benefit should not be denied. That, however, earns the foreign exchange without physically being exported. However, not a superior method of earning foreign exchange without physically exporting the goods. We are unable to see anything in the Policy that supplies to domestic tariff area against foreign exchange on a higher level than exports. Therefore supplies to domestic tariff area against foreign exchange would be treated on the same footing as physical exports.
8. We are, however, unable to agree that the entire supplies to the domestic tariff area made by the appellant (we repeat made against foreign exchange) be entitled to the benefit of exemption. Counsel for the appellant was at considerable pain to point out that the object of the notification must be kept in mind while considering its provisions. The object of the notification as of these provisions in the policy is clear, is to promote exports and for earning foreign exchange. It is for this reason raw material and machinery needed in 100% EOU are exempted from duty, incentives by way of concessional rate of duty for goods sold to domestic tariff area are given the benefit. But to accept the appellant’s contention that the entire clearance must get the benefit would in fact would be discriminatory.
9. This also, however, we clarify is subject to fulfilment of the minimum net foreign exchange performance, that is the condition that is contained in Clause (b) of paragraph 9.9. Although it is not specifically mentioned in 9.10 which provides that supplies to domestic tariff area against payment in foreign exchange shall be counted towards fulfilment of export obligation. If it is counted towards fulfilment of export obligation its benefit for calculating the 50% of the FOB value for claiming the benefit of sub-paragraph (b) to paragraph 9.9 would be subject to condition contained in the sub-paragraph of fulfilment of minimum net foreign exchange as a percentage (NFEP).
10. In order to calculate in this manner, the appellant’s entitlement to the benefit of the notification the matter will have to be remanded to the Commissioner. The appellant is given three months from the date of receipt of this order (or having regard to the situation such extended time as the Commissioner may allow) to provide evidence before him certified by the proper authority, which would enable the calculation of fulfilment of minimum MFEP. The Commissioner shall calculate the duty payable by applying the provisions of paragraph 9.9(b) and communicate to the appellant.
11. The Commissioner accepts that there has been no wilful defiance of law by the appellant and that interpretation of the notification is involved, but says that to any prudent person including a layman, it is clear that the exemption is not available to the clearance made by the appellant. We have not found it possible to agree with him fully. That alone should indicate that the issue of interpretation of the provisions of notification were debatable. In the absence of any admitted concealment of facts or wilful defiance of law we do not find that penalty was justified and set it aside.
12. The appeal is accordingly allowed in part.