DTA Sale Entitlement of EOUs only against physical exports – DGEP Clarifies
While reporting the case of Virlon Textile Mills Ltd, Vs Commissioner of Central Excise, Mumbai- , we had observed,
IT takes no extraordinary intelligence to understand the maze of the provisions relating to the 100% EOUs . It has a chequered history of judgments by Supreme Court/Tribunal and retrospective amendments. But still there are a few issues waiting to be put to rest finally. One such issue is clearances made by an EOU in DTA against payment in foreign exchange in terms of the erstwhile para 9.10(b) of the Exim Policy (6.9(b) of the existing policy). The revenue insisted that the duty on such clearances should be paid at the rate of aggregate duties of the customs leviable on like goods if imported into India and contested that the exemption of 50% of the duties given under Notification No 2/95 CE ( present notification is 23/2003 CE dated 31.3.2003) is not applicable for such clearances made under para 9.10(b) as the same does not figure in the exemption notification 2/95 CE
When the issue came up before the CESTAT in M/s Virlon Textile Mills Ltd, the Tribunal denied the benefit of Notification 2/95 CE in no ambiguous terms. The CESTAT reasoned that when the direct physical exports would entitle an EOU to be eligible for only 50% of the FOB value to clear the goods in DTA under Notification 2/95, allowing the exemption for deemed exports under para 9.10(b) would place a premium on the selling the goods in the domestic tariff area against foreign exchange than directly exporting. Surely that is not what the makers of the notification had in mind.
The assessee challenged this order in the Supreme Court and Hon'ble Supreme Court found merit in the appeal. It was held
As a rule every 100% EOU was obliged to export its entire production and earn foreign exchange. This was what was called as Physical Exports. However, this rule had certain exceptions. As an exception, there existed two types of DTA sales under the said Policy, namely, DTA sales against rupee and DTA sales against foreign exchange which was similar to physical exports. This latter category was known as "Other Supplies in DTA". Therefore, to put it in brief, "Other Supplies in DTA " was equated with physical exports which, was the general rule for 100% EOU.
According to the Revenue, the expression occurring in the second proviso to Section 3(1), namely, "allowed to be sold in India" was applicable only to DTA sales against rupee and not DTA sale against foreign exchange. In our view, DTA sale against foreign exchange was covered by the expression "allowed to be sold in India" and, therefore, such sale fell under the proviso to Section 3(1) of the 1944 Act. In the circumstances, the duty liability of the assessee was required to be determined after allowing to it the benefit of notification No. 2/95-CE.
That notification granted partial exemption to the assessee from duties in respect of goods manufactured in 100% EOU and allowed to be sold in India under para 9.9 (a), (b), (c) and (d). Once DTA sales against foreign exchange are held to be covered by the proviso to Section 3(1) of the 1944 Act then the whole difference between DTA sales against rupee and DTA sales against foreign exchange, for the purposes of notification No. 2/95-CE would stand eliminated. Therefore, in our view, the Tribunal had erred in relying on para 9.9(b) for limiting the benefits of exemption under notification No. 2/95-CE by imposing a new condition to the effect that the benefits would be admissible only in respect of 50% of such DTA sales against foreign exchange. Secondly, once the permission was granted by the competent authority under the Exim Policy to make DTA sales against foreign exchange, the assessee (appellant herein) was entitled to the benefit of concessional rate of duty under notification no. 2/95-CE. If DTA sales against rupee were allowed the benefit of notification No. 2/95-CE, then DTA supplies against foreign exchange, which were at par with physical exports, cannot be denied the same benefits and they cannot be subjected to a higher duty.
Thirdly, once DTA sales against foreign exchange are covered by the above expression "allowed to be sold in India", all issues relating to calculation of the duty payable in terms of notification No. 2/95-CE will have to be decided afresh by the adjudicating authority and accordingly, the matter is remanded to the Commissioner for calculating the duties payable by the assessee in terms of notification No. 2/95.
Now, an interesting question. The clearances under para 9.10(b) are now eligible for exemption under 2/95 CE. These clearances are considered as deemed exports and are equated with physical exports. Therefore now, can the assessee claim a further DTA entitlement of the 50% of the value of clearances in DTA against foreign exchange?
The question asked by us nearly two years ago had been answered by the Commerce Ministry and DGFT. The Commerce Ministry in consultation with DGEP and DGFT clarified that
Supplies made under Para 6.9 of FTP could not be considered for calculating DTA entitlement because the aforesaid decision has no bearing on the quantum of DTA entitlement which is determined with reference to physical export of the EOU only.
Consequently the DGEP has clarified that, supplies made under para 6.9 of Foreign Trade Policy cannot be considered for calculating DTA entitlement, which is determined with reference to physical export only.