Clearance from EOU to DTA - CVD - Can CE Exemption be availed?
THIS is a very old issue, but recently a Netizen asked us this doubt as his excise authorities were of the view that while calculating the CVD component for domestic clearances from EOUs, Central Excise exemptions issued under Section 5A are not applicable as Section 5A clearly states that unless specifically provided in such notification, no exemption therein shall apply to excisable goods which are produced or manufactured in an EOU and cleared to DTA.
But as per Section 3(1), the excise duty payable by the EOUs shall be an amount equal to the aggregate of the duties of customs which would be leviable under the Customs Act , or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India.
When you allow the excise exemption for imported goods, will you not allow it for clearances from EOUs?
Some officers will not.
The Board had more than 6 years ago clarified this position.
In its clarification issued with the approval of the Member (Customs & EP), CBEC, the DGEP in F. No. DGEP/EOU/03/2007/879 dated 02.04.2008, emphatically declared:
There is no bar in applying an exemption notification issued under section 5A of the Central Excise Act for the purpose of computation of CVD to be paid by EOUs on the goods cleared into DTA. The restriction on EOUs for applying exemptions issued under section 5A of the Central Excise Act is for the purpose that EOUs should not pay excise duty only as in the case of clearances from DTA units, unless so intended. This would render section 3 of the Central Excise Act redundant which require EOUs to pay central excise duty equivalent to the aggregate of customs duties. However, as in the case of import, wherein CVD is paid equal to excise duty as applicable, exemptions of central excise duty shall also be applicable to EOUs for computation of duty on DTA clearances.
It is, thus, viewed that there is no bar under the proviso to Section 5A ibid for considering excise exemption while calculating the additional customs duty component payable by an EOU on DTA clearances.
But the Board's writ always doesn't run in the field as this case would show.
In a rare judicious order, a Commissioner allowed this claim of the assessee and dropped a mischievous Show Cause Notice issued by his office. The Commissioner rightly opined,
"I have gone through the decisions and cases relied and referred in their defence reply. I find that as per proviso to section 3(1) of the Central Excise Act, the duties of excise charged on goods sold in DTA by a 100% EOU is equal to the aggregate of the duties of Customs leviable under the Customs Act, or any other law in force, on like goods produced or manufactured outside India, if imported into the country. In other words, the duty payable shall be determined in exactly the same manner as is done in respect of imported goods. This implies that for determining the duties of excise under proviso to section 3(1) of the Central Excise Act, 1944 on the goods cleared to the DTA by the EOUs, the exemption under the relevant Customs Notifications and Excise Notifications, if any, have to be provided. Therefore, I am of the view that the assessee is liable to pay only the effective rate of Additional Duty of Customs under section 3(1) of the Customs Tariff Act on clearances of the goods into the DTA. This view is supported by the ratio of the decisions referred and relied briefly dealt as under.”
But such rare instances of wisdom and judicial thinking is not easily tolerated in the department. Higher and collective wisdom decided that such traces of right thinking have to be nipped in the bud and Revenue took the matter in appeal to the CESTAT. This was in 2009 - well after the DGEP clarification, which apparently the exalted committee was not aware of or chose to ignore.
The tribunal held that the Commissioner had followed the Law correctly and the Revenue's appeal was devoid of merit and so dismissed it. 2010-TIOL-1494-CESTAT-BANG.
Well, this is not the end of the story. Revenue officers will not allow litigation to end - they took the matter in appeal to the High Court with the following substantial questions of law for consideration:-
1. Whether the Customs, Excise and Service Tax Appellate Tribunal is right in upholding the order in original issued by the Commissioner without examining the provisions of the Act when the language of Section 5 A(1) of the Central Excise Act, 1944 (hereinafter referred to as “the Act”) is clear and unambiguous?
2. Whether the Customs, Excise and Service Tax Appellate Tribunal is right in passing the above order, when Sections 3(1) and 5(1) of the Act are to be read together and interpreted harmoniously in order to avoid negating the specific exclusion clause provided in Section 5(1) of the Act?
This appeal lies in the Telangana and AP High Court as CEA No. 220/2011 and perhaps will come up for hearing some time in 2021 and then the respondent can raise a doubt whether this matter should rightly go to the Supreme Court and not to the High Court.