Commr.Of Central Excise,Nagpur vs M/S Universal Ferro & Allied … on 6 March, 2020


Supreme Court of India

Commr.Of Central Excise,Nagpur vs M/S Universal Ferro & Allied … on 6 March, 2020

Author: Hon’Ble The Justice

Bench: Hon’Ble The Justice, B.R. Gavai, Surya Kant

                                                      1


                                                                      REPORTABLE



                                    IN THE SUPREME COURT OF INDIA
                                     CIVIL APPELLATE JURISDICTION

                                   CIVIL APPEAL NOS. 848­852 OF 2009


                         COMMISSIONER OF CENTRAL
                         EXCISE, NAGPUR                            ...APPELLANT(S)

                                                  VERSUS


                         M/S UNIVERSAL FERRO & ALLIED
                         CHEMICALS LTD. & ANR.        .... RESPONDENT(S)



                                              JUDGMENT

1. Being aggrieved by the judgments and orders dated

21.10.2005 and 7.7.2006 passed by the Customs, Excise,

Service Tax Appellate Tribunal, West Zonal Bench at Mumbai

(hereinafter referred to as “CESTAT”) thereby, allowing the

appeals filed by the respondent – Assessee and its Chairman

being Appeal Nos.E­2691­2693/03 arising out of Order­in­
Signature Not Verified

Digitally signed by

Original No.14­20 of 2003 dated 23.6.2003, Order­in­Original
CHARANJEET KAUR
Date: 2020.03.06
17:05:51 IST
Reason:

2

No.21 of 2003 dated 23.6.2003 and Appeal No. E/1976/04

arising out of Order­in­Original Nos.19­20/2004 dated

15.3.2004 and dismissing the appeal filed by the Revenue

being Appeal No. E/1607/06­Mum arising out of order of the

Commissioner (Appeals), Customs & Central Excise, Nagpur

dated 14.2.2006 in Appeal No. SVS/91/NGP­B/2006, the

Revenue is before this Court.

2. The facts in brief giving rise to the present appeals

are as under:

The respondent – Universal Ferro & Allied Chemicals

Ltd., Maneck Nagar, Tumsar (hereinafter referred to as

“UFAC”) is 100% Export Oriented Unit (“EOU” for short)

approved by the Secretariat for Industrial Approvals,

Department of Industrial Development in the Ministry of

Industry, Government of India. UFAC was engaged in the

manufacture/processing and clearance of Ferro Manganese

and Silicon Manganese falling under Chapter 72 of the

Schedule to the Central Excise Tariff Act, 1985. UFAC

cleared these items for export as well as in Domestic Tariff
3

Area (hereinafter referred to as “DTA”) on payment of Central

Excise duty.

3. The Central Intelligence Unit of the Central Excise

Headquarters visited the unit of UFAC on 19.9.2001 on

getting information from the Central Excise Audit party that

UFAC being an EOU was indulging in the job­work activity of

conversion of raw material supplied by M/s Tata Iron & Steel

Company Ltd., Jamshedpur (hereinafter referred to as

“TISCO”). In the view of the Revenue, the same was not

allowed in terms of EXIM Policy of 1997­2002 (hereinafter

referred to as “EXIM Policy”)

4. During the course of scrutiny of the records, the

officers noticed, that UFAC was having a Memorandum of

Agreement dated 28.12.1999 with TISCO for conversion of

Manganese Ore/Coke into prime Silicon Manganese. As per

the agreement, TISCO was to supply Manganese Ore and

Coke/Coal free of cost at its site at Maneck Nagar. Rest of

the raw materials and consumables i.e. Quartzite, Charcoal,

Carbon paste, Dolomite, Fluxes, Refractories and
4

Transformer Oil required for the conversion of Manganese

Ore/Coke into Silicon Manganese for TISCO was to be used

by UFAC from their own purchases obtained under CT­3 as

and where applicable. As per the agreement, UFAC was to

charge job charges to TISCO at the rate of Rs.14,090/­ per

metric tonne (“PMT” for short) which was inclusive of cost of

material added by UFAC. The job work charges were to be

recovered from TISCO on commercial invoices. In the

invoices, Silicon Manganese was to be charged at the rate of

Rs.20,623/­ PMT which also included cost of ingredients

supplied by TISCO. The said invoices were prepared under

erstwhile Rule 100­E of the Central Excise Rules.

5. The activities of the UFAC had come to a standstill

for some period and it re­started its production in August,

1999 and was declared a sick company by the Board for

Industrial and Financial Reconstruction (BIFR) under the

provisions of the Sick Industrial Companies (Special

Provisions) Act, 1985 (SICA). It is not in dispute that the

UFAC carried out conversion of the raw materials supplied by
5

TISCO, on TISCO making the payment of conversion charges

of Rs.14,090/­ PMT of Silicon Manganese. However, while

dispatching the Silicon Manganese to TISCO, excise duty was

paid on the value of Rs.20,623/­ PMT which included cost of

raw materials supplied by TISCO as well as the inputs used

by UFAC from their own purchases.

6. The Commissioner, Central Excise & Customs,

Nagpur, issued a show cause notice to the UFAC dated

9.10.2001 in respect of the Silicon Manganese cleared during

September 2000. It was stated in the said show cause notice,

that the Circular No.67/98­Cus dated 14.9.1998, issued by

the Central Board of Excise & Customs, New Delhi

(hereinafter referred to as “the Board”) had permitted the

EOUs to undertake job­work on behalf of a DTA unit only in

textile, readymade garments, agro­processing and granite

sectors and by another Circular No.74/99 dated 5.11.1999

the said facility was extended to EOUs to undertake job­work

on behalf of a DTA unit in aquaculture, animal husbandry,

electronics hardware and software sectors. The show cause
6

notice therefore stated, that the sector in which respondent –

Assessee had carried out the job­works was not covered by

either of the Circulars and, as such, the said job­works were

in violation of EXIM Policy. The show cause notice called

upon the respondent – Assessee to show cause, as to why the

said Silicon Manganese should not be charged to full Central

Excise duty as per the proviso to Section 3(1) of the Central

Excise Act, 1944 (hereinafter referred to as “the Act”) by

denying the benefit of Notification No.8/97 dated 1.3.1997

(hereinafter referred to as “the said Exemption Notification”).

7. The show cause notice also called upon the UFAC to

show cause, as to why the central excise duty amounting to

Rs.23,08,443/­ short paid on Silicon Manganese cleared in

DTA during September 2000, should not be recovered under

Section 11­A of the Act. It also called upon to show cause, as

to why the goods i.e. 296 MT Silicon Manganese valued at

Rs.61,04,408/­ cleared in DTA during the aforesaid period

(i.e. September 2000) should not be held liable for

confiscation. The said show cause notice also required to
7

show cause, as to why penalty should not be imposed on the

UFAC under Rule 209 of the Central Excise Rules, 1944 read

with Section 38­A of the Act.

8. In all, ten (10) show cause notices of various dates,

last being 2.12.2003 for the identical charges for different

periods (i.e. from March 2000 to May 2003) were issued.

9. In response to the show cause notices, UFAC had

submitted its written replies stating therein, that in the show

cause notices no violation of Central Excise Law has been

alleged. It was submitted, that the removals in the DTA were

in accordance with the permission granted by the

Development Commissioner and, as such, there was no

ground for denial of the concessional rate of duty laid down

in the said Exemption notification. It was further submitted,

that since the issue was based on the interpretation of the

provisions of EXIM Policy, it was necessary to obtain ruling of

the Development Commissioner on the issue. It was

submitted, that since the Development Commissioner had

clarified that the removals made by UFAC to TISCO were in
8

accordance with the permission under the EXIM Policy, there

was no occasion to proceed further.

10. However, the Commissioner while passing the order­

in­original came to a finding that the conversion work

performed by UFAC was nothing but the job work and that

the said job work done by an EOU was governed by para

9.17(b) of the EXIM Policy. He found, that under para 9.17(b)

of the EXIM Policy, an EOU was permitted to do job work for

a DTA unit only for the purposes of exporting the finished

goods directly from EOU. However, since after the job work

the finished goods were not exported by the EOU but cleared

to a DTA unit for home consumption, the UFAC had

contravened the provisions of the EXIM Policy. He also came

to a finding, that the sector in which UFAC had undertaken

the job work was not covered by the Circular dated 14.9.1998

and as extended by another Circular dated 5.11.1999, issued

by the Board. He also came to a conclusion that since there

was no sale of the goods but only return of the goods after job

work, it was not a sale and, as such, contrary to the
9

provisions of the EXIM Policy. He, therefore, vide order

dated 23.6.2003 confirmed the demand for

Rs.11,56,08,497/­ along with interest. He also imposed

penalty of Rs.50 lakhs on UFAC. He further held, that the

goods i.e. 15792.85 MTs of Silicon Manganese valued at

Rs.32,31,30,000/­ were liable for confiscation. However,

since the said goods were not available for confiscation,

redemption fine of Rs.50 lakhs in lieu of confiscation was

imposed. Two more similar orders confirming demand as

raised under subsequent show cause notices were also

passed vide order dated 23.6.2003 and 15.3.2004. In the

second order dated 23.6.2003 being Order­in­Original No.21

of 2003, personal penalty of Rs. 5 lakh was also imposed on

the Chairman of UFAC, Dhunjishaw M. Naterwala.

11. Being aggrieved thereby, the UFAC as well as the

Chairman of UFAC, Dhunjishaw M. Naterwala preferred

appeals before the learned CESTAT.

12. The Commissioner (Appeals) had set aside the

demand raised by the Revenue in respect of duty free carbon
10

paste procured by UFAC under the CT­3 certificate in terms

of Notification No.1/95­CE dated 4.1.1995 for use in the

conversion process of Manganese ore. Being Aggrieved

thereby, the Revenue filed appeal before the CESTAT being

Appeal No.E/1607/2006. By the impugned judgment dated

21.10.2005, the demand orders against UFAC were reversed

by the CESTAT. Also, the CESTAT dismissed the Revenue’s

Appeal No. E/1607/2006 by order dated 7.7.2006, referring

to its order and judgment dated 21.10.2005 in UFAC’s

appeal,
Hence, the present appeals.

13. We have heard Shri K. Radhakrishnan, learned

Senior Counsel appearing for the appellant­ Revenue and

Shri M.H. Patil, learned counsel appearing on behalf of the

respondent – UFAC.

14. The main contention raised by Shri Radhakrishnan,

learned Senior Counsel on behalf of the Revenue is that, in

view of proviso to sub­section (1) of Section 3 of the Act, the

duty which is liable to be levied and collected on any

excisable goods manufactured by a 100% EOU and brought
11

to any other place in India shall be leviable as per the duties

of Customs, which are leviable under the Customs Act, 1962

on like goods produced and manufactured outside India, if

imported into India. It is contended, that the proviso to

Section 5A of the said Act specifically provides, that no

exemption granted under Section 5A shall apply to the

excisable goods which are produced or manufactured by a

100% EOU and brought to any other place in India. He

further submits, that in the transaction between the UFAC

and TISCO, there is no transfer of property in goods to the

UFAC and, as such, it cannot be considered to be a sale

under Section 4 of the Sale of Goods Act, 1930. The learned

Senior Counsel therefore submits, that the order passed by

the CESTAT deserves to be set aside and the orders­in­

original passed by the Commissioner (Appeals) need to be

maintained.

15. It is further contended by Shri Radhakrishnan,

learned Senior Counsel, that the words “allowed to be sold in

India” in clause (ii) of proviso to sub­section (1) of Section 5A
12

of the Act have been substituted by words “brought to any

other place in India” with effect from 11.5.2001. He therefore

submits, that in view of change in law from 11.5.2001, the

statutory force of the said Exemption Notification is lost from

11.5.2001. In his submission, the said Exemption

Notification would stand impliedly repealed with effect from

11.5.2001. He relies on the judgments of this Court in the

cases of (1) M. Karunanidhi vs. Union of India & Anr.1; (2)

Dharangadhra Chemical Works vs. Dharangadhar

Municipality and Anr.2; and (3) Ratan Lal Adukia vs.

Union of India3. He further submits, that the terms “allowed

to be sold in India” and “brought to any other place in India”

have been considered by this Court in the cases of Siv

Industries Ltd. vs. Commissioner of Central Excise &

Customs4 and Sarla Performance Fibers Limited and ors.

vs. Commissioner of Central Excise, Surat­II5 and as such,

1 (1979) 3 SCC 431
2 (1985) 4 SCC 92
3 (1989) 3 SCC 537
4 (2000) 3 SCC 367
5 (2016) 11 SCC 635
13

the UFAC would be liable to pay duty as if the goods were

imported into India.

16. Shri M.H. Patil, on the contrary submits, that the

case of the present appellant is covered by paragraph 9.9(b)

of the EXIM Policy and not by paragraph 9.17(b) of the EXIM

Policy. He further submits, that all the transactions made by

UFAC were made only after the valid permissions were

granted by the Joint Development Commissioner, SEEPZ.

Learned counsel further submits, though initially vide

Circular dated 14.9.1998 (No.67/98­Cus) the permission to

undertake job work to EOU/EPZ from the DTA units was

restricted only to units in textile, readymade garments, agro­

processing and granite sectors and subsequently vide

Circular dated 5.11.1999 (No.74/99­Cus) it was extended to

certain other units; by a subsequent Circular dated

22.5.2000 (No.49/000­Cus), the said facility was extended to

all the sectors. He submits, that this fact has not been taken

into consideration by the Authority passing the Orders­in­

Original. It is submitted that the Sponsoring Authority i.e.
14

the Development Commissioner, SEEPZ had clarified the

position that the activity which was carried out by the UFAC

was permissible under paragraph 9.9(b) of the EXIM Policy.

17. To counter the submission that there is no transfer of

property in goods, Shri Patil submits, that the ‘sale’ and

‘purchase’ in the present case will have to be construed with

reference to the definition of ‘sale’ and ‘purchase’ under the

Central Excise Act and not under the Sale of Goods Act,

1930. Lastly, Shri Patil submits, that UFAC is entitled to the

benefits of said Exemption Notification and, as such, the

findings as recorded by the learned CESTAT warrant no

interference.

18. We shall first deal with the submission of Shri K.

Radhakrishnan, learned Senior Counsel appearing for the

Revenue, to the effect that since in the transaction between

UFAC and TISCO there is no transfer of property in goods,

the same cannot be termed as ‘sale’ and therefore would not

be covered under paragraph 9.9 (b) of the EXIM Policy. Shri
15

Radhakrishnan, in that respect, would rely on the provisions

of the Sale of Goods Act, 1930.

19. We do not find any merit in the submission of Shri

Radhakrishnan in this regard. It will be relevant to note that

clause (h) of Section 2 of the Central Excise Act, 1944

specifically defines the terms ‘sale’ and ‘purchase’. Section

2(h) of the Act reads thus:

“2(h) “sale” and “purchase”, with their
grammatical variations and cognate
expressions, mean any transfer of
the possession of goods by one
person to another in the ordinary
course of trade or business for cash
or deferred payment or other
valuable consideration;”

20. The perusal of the definition makes it clear that when

there is a transfer of possession of goods in the ordinary

course of trade or business either for cash or for deferred

payment or any other valuable consideration, the same would

be covered by the terms ‘sale’ and ‘purchase’ within the

meaning of the Central Excise Act, 1944. Undisputedly, in

the present case, there is a transfer of Manganese Ore by
16

TISCO to UFAC for the purposes of processing the same and

converting it into Silicon Manganese. Undisputedly, the same

is also for a valuable consideration.

21. In this respect, it will be apposite to refer to the

judgment of this Court in the case of Commissioner of

Central Excise, New Delhi vs. Connaught Plaza

Restaurant Private Limited, New Delhi6 wherein this Court

observed thus:

“46. We are unable to persuade ourselves to
agree with the submission. It is a settled principle
in excise classification that the definition of one
statute having a different object, purpose and
scheme cannot be applied mechanically to
another statute. As aforesaid, the object of the
Excise Act is to raise revenue for which various
goods are differently classified in the Act. The
conditions or restrictions contemplated by one
statute having a different object and purpose
should not be lightly and mechanically imported
and applied to a fiscal statute for non­levy of
excise duty, thereby causing a loss of revenue.

[See Medley Pharmaceuticals Ltd. v. CCE and
Customs
[(2011) 2 SCC 601] (SCC p. 614, para 31)
and CCE v. Shree Baidyanath Ayurved Bhavan
Ltd
. [(2009) 12 SCC 419] ] The provisions of PFA,
dedicated to food adulteration, would require a
technical and scientific understanding of “ice­
cream” and thus, may require different standards
for a good to be marketed as “ice­cream”. These
provisions are for ensuring quality control and
6 (2012) 13 SCC 639
17

have nothing to do with the class of goods which
are subject to excise duty under a particular tariff
entry under the Tariff Act. These provisions are
not a standard for interpreting goods mentioned
in the Tariff Act, the purpose and object of which
is completely different.”

22. This Court has held, that it is a settled principle in

excise classification that the definition of one statute having a

different object, purpose and scheme cannot be applied

mechanically to another statute. It has further been held,

that the conditions or restrictions contemplated by one

statute having a different object and purpose should not be

lightly and mechanically imported and applied to a fiscal

statute.

23. It is also equally well settled that the first principle of

interpretation of plain and literal interpretation has to be

adhered to. We are therefore of the considered view, that the

narrower scope of the term ‘sale’ as found in the Sale of

Goods Act, 1930 cannot be applied in the present case. The

term ‘sale’ and ‘purchase’ under the Central Excise Act, 1944,

if construed literally, it would give a wider scope and also
18

include transfer of possession for valuable consideration

under the definition of the term ‘sale’.

24. The next issue that requires consideration is as to

whether under the EXIM Policy, UFAC was entitled to carry

out the job­work for TISCO and whether it was entitled to

exemption from payment of duty under the Exemption

Notification.

25. It will be relevant to refer to the relevant clauses of

Chapter 9 of the EXIM Policy. As per para 9.1 of the said

EXIM Policy, units undertaking to export their entire

production of goods may be set up under the EOU Scheme.

As per para 9.9, the entire production of EOU units is

required to be exported subject to the following:

“(a) Unless specifically prohibited in the LOP/LOI,
rejects may be sold in the Domestic Tariff Area
(DTA), on prior intimation to the Customs
authority. Such sales shall be counted against
DTA sale entitlement under paragraph 9.9(b) of the
Policy. Sale of rejects shall be subject to payment
of duties as applicable to sale under para 9.9(b).

(b) DTA sale upto 50% of the FOB value of
exports may be made subject to payment of
applicable duties and fulfilment of minimum NFEP
prescribed in Appendix 1 of the Policy…..”
19

26. It will also be relevant to refer to para 9.17 (b) of the

EXIM Policy, which reads thus:

“(b) EOU/EPZ units may undertake job­work for
export, on behalf of DTA units, with the
permission of Assistant Commissioner of Customs,
provided the goods are exported direct from the
EOU/EPZ units. For such exports, the DTA units
will be entitled for refund of duty paid on the
inputs by way of Brand Rate of duty drawback.”

27. It can therefore be seen, that under para 9.9(a) of the

EXIM Policy, EOU is entitled to sell the rejects in the DTA on

prior intimation to the Customs authorities. Such sales are

to be counted against DTA sale entitlement under paragraph

9.9(b) of the EXIM Policy. The sale of rejects shall be subject

to payment of duties as applicable to sale under paragraph

9.9(b) of the EXIM Policy.

28. Under paragraph 9.9(b) of the EXIM Policy, DTA sale

upto 50% of the FOB value of exports is also permitted

subject to payment of applicable duties and fulfilment of

minimum Net Foreign Exchange earning as a Percentage of

exports (NFEP) as prescribed in Appendix­1 of the Policy.
20

29. Under paragraph 9.17 (b), the EOU/EPZ units are

also entitled to undertake job­work for export, on behalf of

DTA units, with the permission of Assistant Commissioner of

Customs, provided the goods are exported direct from the

EOU/EPZ units and for such exports, the DTA units will be

entitled for refund of duty paid on the inputs by way of Brand

Rate of duty drawback.

30. It can thus clearly be seen, that paragraph 9.9(b) and

paragraph 9.17(b) of the EXIM Policy operate in totally

different fields. Under paragraph 9.9 (b), an EOU is entitled

to sell upto 50% of the FOB value of exports to DTA subject to

payment of applicable duties and fulfilment of minimum

NFEP as prescribed in Appendix­I of the Policy, whereas

under paragraph 9.17(b), an EOU is entitled to undertake

job­work for export, on behalf of DTA units, with the

permission of Assistant Commissioner of Customs, provided

the goods are exported direct from the EOU/EPZ units. In

such type of exports, the DTA units would be entitled for
21

refund of duty paid on the inputs by way of Brand Rate of

duty drawback.

31. The order­in­original states that since the UFAC has

not exported the final product of Manganese raw material

received by it from TISCO, it had violated the provisions of

paragraph 9.17 (b) and 9.9(b) of the EXIM Policy. We will

have to examine the correctness of the said finding. For that,

it will also be relevant to examine as to whether under

paragraph 9.9 (b) of the EXIM Policy, an EOU is entitled to

carry a job­work on behalf of another unit in DTA.

32. The order­in­original refers to Circular No.67/98­cus

dated 14.9.1998 and Circular No.74/99­cus dated 5.11.1999.

However, the Commissioner, it appears, that while passing

the order has not noticed the subsequent Circular

No.49/2000­Cus dated 22.5.2000. It will be relevant to refer

to paragraph 10 and 11 of the said Circular dated 22.5.2000.

“10. Under para 9.17(d), the EOU/EPZ units in
specific sectors were allowed to undertake job
work for export on behalf of DTA units. This
paragraph has been amended to extend this
facility to all sectors. It has also been provided
22

that DTA units shall be entitled to brand rate of
duty draw back.

11. The EOU /EPZ units in textiles, ready
made garments and granite sectors were
allowed to undertake job work on behalf of DTA
units by Board’s Circular 69/98­Cus., dated
14th September 1998. This facility was
subsequently extended to the EOU/EPZ units
in aquaculture, animal husbandry, hardware,
software sector vide Board’s Circular No.
74/99­Cus., dated 5th Nov., 1999. Now, it has
been decided to extend this facility to EOU/EPZ
units in all sectors. Further, it has been
decided that the DTA units shall be entitled to
avail of the brand rate of duty drawback for
such job­work undertaken by EOUs/EPZ units
concerned. Board’s Circulars 67/98­Cus.,
dated 14­9­1998 and 74/99­Cus., dated 5­
11­1999 stand modified to the above extent.”
(emphasis supplied)

33. In view of paragraph 10 of the Circular dated

22.5.2000, the facility of undertaking job­work by EOU/EPZ

units which was restricted to specific sectors has been

amended and the said facility has been extended to all

sectors. It has also been provided, that DTA units shall be

entitled to brand rate of duty draw back. Similarly,

paragraph 11 of the Circular dated 22.5.2000 also provides,

that the facility which was given to EOU/EPZ to undertake
23

job­work on behalf of DTA units in textiles, readymade

garments and granite sectors which was subsequently

extended to the EOU/EPZ units in aquaculture, animal

husbandry, hardware and software sectors vide Circular

dated 5.11.1999, was extended to EOU/EPZ units in all

sectors. It has further been provided, that DTA units shall be

entitled to avail of the brand rate of duty drawback for such

job­work undertaken by EOUs/EPZ units concerned. It also

provides, that earlier circulars issued by the Board stood

modified to the said extent.

34. We find, that failure on the part of the Commissioner,

who passed the order­in­original, to notice the Circular dated

22.5.2000 has resulted in passing an erroneous order. It

also appears, that after the show cause notice was issued to

UFAC, the Commissioner had sought a clarification from the

Sponsoring Authority i.e. the Development Commissioner,

SEEPZ vide communication dated 6.11.2001. It will be

relevant to refer to the communication dated 28.11.2001

addressed by Joint Development Commissioner to the
24

Additional Commissioner (CIU), Office of the Commissioner of

Customs and Central Excise, Nagpur, relevant part of which

reads thus:.

“Sub: Manufacture of goods of DTA Unit by an
EOU on conversion basis – Provisions of Para
9.17(b) of the EXIM Policy 1997­2002 –
Correspondence regarding. M/s Universal
Ferro Ltd., Tumsar
*********

Kindly refer to letter C.No.

II(39)/25/CIU/2001, dated 6 November, 2001,
th

addressed to Development Commissioner, SEEPZ
SEZ. Ministry of Commerce has clarified that the
EXIM Policy permits the kind of operation being
undertaken by the unit and it should be
permitted.”

35. UFAC had also sought a clarification to this effect

from the Sponsoring Authority. It will be relevant to refer to

the communication dated 23.10.2001, addressed by the Joint

Development Commissioner, SEEPZ, relevant part of which

reads as under:

“Kindly refer to your query regarding DTA
sale. The position clarified to Central Excise,
Nagpur, is as follows: ­

‘The general question raised was
whether while selling in DTA under DTA
25

sale permission issued in terms of Para 9.9

(b) of the EXIM Policy, a unit can take
supply of raw material from a Company in
the DTA and give back the finished product
(its approved as per LOP and also covered
by the DTA sale permission).

The unit is free to procure raw material
in terms of Para 9.2 of Policy. The raw
material is meant for production either
export or clearance under valid DTA
permission. The unit may convert the RM
into its approved product and clear the
same against valid DTA sale permission
(under para 9.9(b) after paying applicable
duty on assessable value of finished
product, i.e. value of RM + conversion
charges. There is no bar on this activity
under the EXIM Policy.’”
(emphasis supplied)

36. It is not in dispute that all transactions between

UFAC and TISCO have been entered into after the necessary

permission was obtained from the Development

Commissioner. As a matter of fact, the order­in­original

itself mentions thus:

“The M/s. UFAC was a 100% EOU engaged in the
manufacture of Ferro Manganese & Silico
Manganese and clearances thereof for export as well
as in DTA on payment of Central Excise duty. The
unit was also doing job work for M/s TISCO in
respect of Silico Manganese on the basis of
Memorandum of Agreement dated 28.12.99 entered
into with M/s. TISCO. These clearances of the goods
26

manufactured on the basis of job work had been
effected on payment of duty vide Notification
no.8/97­Central Excise dated 1.3.97 against
permission for DTA sales granted by the
Development Commissioner SEEPZ, Mumbai from
time to time.”

37. It could thus be clearly seen, that the Original

Authority itself has found that clearance of the goods

manufactured on the basis of job­work had been effected on

payment of duty vide Exemption Notification of 1997 against

permission for DTA sales granted by the Development

Commissioner, SEEPZ, Mumbai from time to time.

38. The combined reading of paragraph 9.9(b) of the

EXIM Policy, the Circulars issued by the Board, particularly,

the Circular dated 22.5.2000 and reply to the query of the

Customs Authorities by the Development Commissioner,

SEEPZ would clearly show, that the UFAC was entitled to

carry out the job­work on behalf of TISCO on payment of duty

as provided under Exemption Notification of 1997.

39. In this respect, it will also be apposite to refer to the

Circular dated 6.5.2003 (No.38/2003­Cus) issued by the
27

Board which would further clarify the position, relevant part

of which reads thus:

“I am directed to say that cases have been
brought to the notice of the Board that in case of
stock transfer of goods to a DTA unit, EOUs were
not being allowed the benefit of payment of
concessional duty under notification No. 2/95 –
Central Excise, dated 4­1­1995 even though the
EOU had a valid DTA sale permission and had
earned the DTA sale entitlement as provided
under paragraph 6.8 of the Exim Policy 2002­
2007 (Paragraph 9.9 of the Exim Policy 1997­
2002) and fulfil other conditions specified in
aforesaid notification. The benefit of concessional
rate of duty was being denied on the ground that
stock transfer of goods is not a sale and thus, not
eligible for concessional rate of duty in terms of
the above notification.

2. The matter has been examined by the
Board. Notification 2/95 – C.E., dated 1­4­1995
provided for 50% exemption on….. “goods
allowed to be sold in India under and in
accordance with the provisions of sub­
paragraphs (a), (b), (d) and (h) of para 6.8
(earlier para 9.9) of the Exim Policy”…. The
notification, therefore, allowed concessional duty
only when goods were sold into DTA in
accordance with para 6.8 (or 9.9) of the policy.
What is covered in para 6.8 (or 9.9) of the policy
has been clarified by Ministry of Commerce in
Appendix 14­IH of the Handbook of procedures,
2002 – 2007 (Appendix 42 of the Hand Book of
Procedures Vol – I – 1997 ­ 2002) that it covers
any clearance to another DTA unit. Thus it is
28

not open to the Department to interpret the Exim
Policy in any other manner than what has been
mentioned in Appendix 14 – IH (or 42). The word
DTA sale has been loosely used in the Exim
Policy and there is no definition of DTA sale in
the Policy. Appendix 14­IH (or 42) clarifies that it
not only covers transfers through sales to DTA
units but also through other means. It would be
illogical to contend that the concession is
available if the goods are transferred on sale to
an independent unit but it would not be available
when removed on stock transfer to another
division / unit of the same company.”

40. We will now deal with the next submission made by

Shri K. Radhakrishnan, learned Senior Counsel, to the effect

that under proviso to sub­section (1) of Section 3 of the

Central Excise Act, 1944, an EOU is liable to pay duty on the

goods brought to a DTA, as if the goods were produced and

manufactured outside India and were imported into India as

per the provisions of the Customs Act, 1962 and that under

Section 5A of the Central Excise Act, 1944, the Central

Government has no power to grant exemption from payment

of duty to an EOU.

29

41. To consider the submission, it will be relevant to refer

to the relevant part of Sections 3 and 5A of the Central Excise

Act, 1944, which read thus:

“3. Duty specified in the Fourth Schedule to
be levied.­(1) There shall be levied and
collected in such manner as may be prescribed
a duty of excise to be called the Central Value
Added Tax (CENVAT) on all excisable goods
(excluding goods produced or manufactured in
special economic zones) which are produced or
manufactured in India as, and at the rates, set
forth in the Fourth Schedule:

Provided that the duty of excise which shall
be levied and collected on any excisable goods
which are produced or manufactured by a
hundred per cent export­oriented undertaking
and brought to any other place in India, shall
be an amount equal to the aggregate of the
duties of customs which would be leviable
under the Customs Act, 1962 (52 of 1962) or
any other law for the time being in force, on like
goods produced or 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 the
Customs Act, 1962 and the Customs Tariff Act,
1975 (51 of 1975).”

***

5A. Power to grant exemption from duty to
excise.­(1) If the Central Government is
30

satisfied that it is necessary in the public
interest so to do, it may, by notification in the
Official Gazette, exempt generally either
absolutely or subject to such conditions (to be
fulfilled before or after removal) as may be
specified in the notification, excisable goods of
any specified description from the whole or any
part of the duty of excise leviable thereon:

Provided that, unless specifically provided in
such notification, no exemption therein shall
apply to excisable goods which are produced or
manufactured­

(i) In a free trade zone or a special
economic zone and brought to any other
place in India; or

(ii) by a hundred per cent export­oriented
undertaking and brought to any other place
in India.

Explanation­In this proviso, “free trade zone”,
“special economic Zone” and “hundred per cent
export­oriented undertaking” shall have the
same meanings as in Explanation 2 to sub­
section (1) of Section 3.”

42. A perusal of sub­section (1) of Section 3 of the Act

would show, that sub­section (1) of Section 3 provides for levy

and collection of duty of excise in such manner as may be

prescribed to be called the Central Value Added Tax

(CENVAT) on all excisable goods, which are produced or
31

manufactured in India as, and at the rates, set forth in the

Fourth Schedule. However, the said sub­section (1) of

Section 3 excludes the applicability thereof, to the goods

produced or manufactured in special economic zones. The

proviso to sub­section (1) of Section 3 of the Act is applicable

to the excisable goods, which are produced or manufactured

by a 100% export­oriented undertaking when such goods are

brought to any other place in India. It provides, that in such

a case, an amount equal to the aggregate of the duties of

customs which would be leviable under the Customs Act,

1962 or any other law for the time being in force, on like

goods produced or 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 the Customs Act, 1962 and the

Customs Tariff Act, 1975.

32

43. Relying on the proviso to sub­section (1) of Section 3

of the Act, it is the contention of Shri Radhakrishnan that

since UFAC has supplied the goods to TISCO, which is any

other place in India, it will be liable to pay the import duty as

if the goods were imported in India.

44. However, for considering the said submission, it will

also be necessary to refer to Section 5A of the Act, which is

already reproduced above. Sub­Section (1) of Section 5A of

the Act provides, that if the Central Government is satisfied

that it is necessary in the public interest so to do, it may, by

notification in the Official Gazette, exempt generally either

absolutely or subject to such conditions, to be fulfilled before

or after removal, as may be specified in the notification,

excisable goods of any specified description from the whole or

any part of the duty of excise leviable thereon. The proviso

thereto provides, that unless specifically provided in such

notification, no exemption therein shall apply to excisable

goods which are produced or manufactured in a free trade

zone or a special economic zone and brought to any other
33

place in India; or by a hundred per cent export­oriented

undertaking and brought to any other place in India.

45. It is the submission of Shri Radhakrishnan that a

combined reading of proviso to sub­section (1) of Section 3 of

the Act and proviso to sub­section (1) of Section 5A of the Act,

would not entitle the Central Government to grant any

exemption to an EOU when it brings the goods to any other

place in India (i.e. DTA) and the duty that would be leviable

would be as if the said goods were imported in India.

46. We are of the considered view, that if such an

interpretation is accepted, the words “unless specifically

provided in such notification” in sub­section (1) of Section 5A

will have to be ignored and the said words would be rendered

otiose. It is a settled principle of law that while interpreting a

provision due weightage will have to be given to each and

every word used in the statute.

47. In this respect, we may gainfully refer to the following

observations of the Constitution Bench of this Court in the

case of Hardeep Singh vs. State of Punjab and others7:

7 (2014) 3 SCC 92
34

“42. To say that powers under Section 319
CrPC can be exercised only during trial would
be reducing the impact of the word “inquiry” by
the court. It is a settled principle of law that an
interpretation which leads to the conclusion
that a word used by the legislature is
redundant, should be avoided as the
presumption is that the legislature has
deliberately and consciously used the words for
carrying out the purpose of the Act. The legal
maxim a verbis legis non est recedendum which
means, “from the words of law, there must be
no departure” has to be kept in mind.

43. The court cannot proceed with an
assumption that the legislature enacting the
statute has committed a mistake and where the
language of the statute is plain and
unambiguous, the court cannot go behind the
language of the statute so as to add or subtract
a word playing the role of a political reformer or
of a wise counsel to the legislature. The court
has to proceed on the footing that the
legislature intended what it has said and even if
there is some defect in the phraseology, etc., it
is for others than the court to remedy that
defect. The statute requires to be interpreted
without doing any violence to the language used
therein. The court cannot rewrite, recast or
reframe the legislation for the reason that it has
no power to legislate.

44. No word in a statute has to be construed
as surplusage. No word can be rendered
ineffective or purposeless. Courts are required
35

to carry out the legislative intent fully and
completely. While construing a provision, full
effect is to be given to the language used
therein, giving reference to the context and
other provisions of the statute. By construction,
a provision should not be reduced to a “dead
letter” or “useless lumber”. An interpretation
which renders a provision otiose should be
avoided otherwise it would mean that in
enacting such a provision, the legislature was
involved in “an exercise in futility” and the
product came as a “purposeless piece” of
legislation and that the provision had been
enacted without any purpose and the entire
exercise to enact such a provision was “most
unwarranted besides being uncharitable”.
(Vide Patel Chunibhai Dajibha v. Narayanrao
Khanderao Jambekar [AIR 1965 SC
1457] , Martin Burn Ltd. v. Corpn. of
Calcutta [AIR 1966 SC 529] , M.V.

Elisabeth v. Harwan Investment and Trading (P)
Ltd
. [1993 Supp (2) SCC 433 : AIR 1993 SC
1014] , Sultana Begum v. Prem Chand
Jain
[(1997) 1 SCC 373] , State of Bihar v. Bihar
Distillery Ltd
. [(1997) 2 SCC 453 : AIR 1997 SC
1511] , Institute of Chartered Accountants of
India v. Price Waterhouse
[(1997) 6 SCC 312]
and South Central Railway Employees Coop.
Credit Society Employees’ Union v. Registrar of
Coop. Societies
[(1998) 2 SCC 580 : 1998 SCC
(L&S) 703 : AIR 1998 SC 703] .)”

48. We therefore find, that the interpretation as sought to

be placed by Shri Radhakrishnan would render the term
36

“unless specifically provided in such notification” in sub­

section (1) of Section 5A otiose or useless. Such an

interpretation would not be permissible. We find, that the

harmonious construction of sub­Section (1) of Section 5A of

the Act and the proviso thereto would be, that an EOU which

brings the excisable goods to any other place in India would

not be entitled for a general exemption notification unless it is

so specifically provided in such a notification.

49. In this respect, it will be relevant to refer to

Exemption Notification of 1997 as amended by Notification

No.21/97­C.E. dated 11.4.1997, relevant part of which reads

thus:

“Effective rate of duty on certain goods
produced in FTZ or EOU. – In exercise of the
powers conferred by sub­section (1) of section 5A
of the Central Excise Act, 1944 (1 of 1944), the
Central Government, being satisfied that it is
necessary in the public interest so to do, hereby
exempts the finished products, rejects and
waste or scrap specified in the Schedule to the
Central Excise Tariff Act, 1985 (5 of 1986) and
produced or manufactured, in a hundred per
cent export­oriented undertaking or a free trade
zone wholly from the raw materials produced or
manufactured in India, and allowed to be sold in
India under and in accordance with the
37

provisions of sub­paragraphs (a), (b), (c), (d) and

(f) of paragraph 9.9 or of paragraph 9.20 of the
Export and Import Policy, 1st April, 1997 – 31st
March, 2002, from so much of the duty of excise
leviable thereon under section 3 of the Central
Excise Act, 1944 (1 of 1944), as is in excess of
an amount equal to the aggregate of the
duties of excise leviable under the said
Section 3 of the Central Excise Act or under
any other law for the time being in force on
like goods, produced or manufactured in India
other than in a hundred percent export­oriented
undertaking or a free trade zone, if sold in India.”

50. The bare reading of the aforesaid Notification would

amply make it clear, that the Central Government after being

satisfied that it was necessary in the public interest so to do,

thereby exempted the finished products, rejects and waste or

scrap which was produced or manufactured in a hundred per

cent export­oriented undertaking or a free trade zone wholly

from the raw materials produced or manufactured in India

and allowed to be sold in India under and in accordance with

the provisions of sub­paragraphs (a), (b), (c), (d) and (f) of

paragraph 9.9 or of paragraph 9.20 of the EXIM Policy, from

so much of the duty of excise leviable thereon under Section

3 of the Central Excise Act, 1944, as is in excess of an
38

amount equal to the aggregate of the duties of excise leviable

under the said Section 3 of the Central Excise Act or under

any other law for the time being in force on like goods,

produced or manufactured in India other than in a hundred

per cent export­oriented undertaking or a free trade zone, if

sold in India.

51. It could thus be seen, that the said notification

specifically provides grant of exemption to the EOUs from the

payment of duties, which are in excess of what is leviable

under sub­section (1) of Section 3 of the Central Excise Act,

1944 on like goods, produced or manufactured in India. In

our considered view, since the said Exemption Notification

specifically mentions, that the goods produced or

manufactured by an 100% EOU, which are allowed to be sold

in India in accordance with para 9.9(b) of the EXIM Policy,

the proviso would be inapplicable thereby, requiring the

duties to be paid, as are required to be paid under sub­

Section (1) of Section 3 of the said Act. The conditions which
39

can be culled out for enabling to get the benefit of the said

Exemption Notification are as under:

(i) The finished products, rejects and waste or scrap

specified in the Schedule to the Central Excise Tariff

Act, 1985 should be produced or manufactured in the

100% export­oriented undertaking or a free trade zone;

(ii) The said finished products should be manufactured

wholly from the raw materials produced or

manufactured in India;

(iii) They are allowed to be sold in India under and in

accordance with the provisions of sub­paragraphs (a),

(b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20

of the EXIM Policy.

52. Undisputedly, in the present case, the transaction

between UFAC and TISCO satisfies all the three conditions.

The goods are produced and manufactured by UFAC, an

100% export­oriented unit; they are manufactured wholly

from the raw materials produced or manufactured in India

and, thirdly, they have been allowed to be sold in India in
40

accordance with the provisions of paragraph 9.9(b) of the

EXIM Policy.

53. We will now consider the submission of Shri

Radhakrishnan, learned Senior Counsel, that in view of

substitution of the words “allowed to be sold in India” by

“brought to any other place in India”, the said Exemption

Notification shall stand impliedly overruled/repealed.

54. No doubt, that the reliance placed by the learned

Senior Counsel on the judgments of this Court to the effect

that if there are inconsistencies in two statutes, the later

would prevail is well placed. This Court in Deep Chand vs.

State of Uttar Pradesh8 has laid down the following

principles to ascertain whether there is repugnancy or not:

“(1) Whether there is direct conflict
between the two provisions;

(2) Whether the legislature intended to
lay down an exhaustive code in
respect of the subject matter
replacing the earlier law;

(3) Whether the two laws occupy the
same field.”

8 AIR 1959 SC 648
41

The said view has been consistently followed by this

Court in catena of judgments.

55. We do not find, that there would be any conflict in

the amended provisions of clause (ii) of the proviso to sub­

section (1) of Section 5A of the Act and the said Exemption

Notification. In any case, by the 2001 Amendment, the

legislature has not laid down any exhaustive code in respect

of the subject matter in replacing the earlier law. It appears,

that the said Amendment has been incorporated to bring the

said clause (ii) of sub­Section (1) of Section 5A in sync with

the words used in clause (i) of the proviso to sub­section (1) of

Section 5A of the Act and the words used in the proviso to

sub­section (1) of Section 3 of the Act. In that view of the

matter, we find, that the said contention is without

substance.

56. Insofar as the reliance placed by the learned Senior

Counsel on the judgment of this Court in the case of Siv

Industries Ltd. (supra) so as to distinguish the terms

“allowed to be sold in India” and “brought to any other place
42

in India” is concerned, we find, that the said judgment would

rather support the case of the respondent – Assessee. It

would be relevant to refer to the following observation in

paragraph 18 of the said judgment, which reads thus:

“Thus it is apparent that debonding and
permission to sell in India are two different
things having no connection with each
other. It also becomes apparent that in
view of the EOU Scheme as modified from
time to time and corresponding
amendments to Section 3 of the Act the
expression “allowed to be sold in India” in
the proviso to Section 3(1) of the Act is
applicable only to sales made up to 25% of
production by 100% EOU in DTA and with
the permission of the Development
Commissioner. No permission is required
to sell goods manufactured by 100% EOU
lying with it at the time approval is granted
to debond.”

57. It is to be noted that the case that fell for

consideration before this Court was with regard to debonding.

What this Court has held is, that no permission is required to

sell goods manufactured by 100% EOU lying with it, at the

time approval is granted to debond. It has been held, that

the expression “allowed to be sold in India” in the proviso to
43

Section 3(1) of the Act was applicable only to sales made upto

25% of production by 100% EOU in DTA and with the

permission of the Development Commissioner. Admittedly, in

the present case, the sales made by UFAC to TISCO are

within the permissible limits and with the permission of the

Development Commissioner.

58. The view taken by this Court in the case of Sarla

Performance Fibers Limited (supra) is a similar view, taken

following the decision of this Court in Siv Industries Ltd.

(supra). As such, the said judgment also is of no assistance to

the case of the appellant.

59. In that view of the matter, we do not find, that the

CESTAT has committed any error in reversing the orders­in­

original passed by the Commissioner. The appeals are,

therefore, dismissed.

…………………..CJI.

[S.A. BOBDE]

………………….J.

[B.R. GAVAI]
44

………………….J.

[SURYA KANT]

NEW DELHI;

MARCH 06, 2020



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