# 7 S.C:R. 201 SARLA PERFORMANCE FIBERS LIMITED ETC v. COMMISSIONER OF CENTRAL EXCISE, SURAT -II

- **Citation:** [2016] 7 S.C.R. 201
- **Court:** Supreme Court of India
- **Decided:** 2016-06-03
- **Case number:** Civil Appeal Nos. 3555-3560of2012
- **Bench:** Dipak Misra, Shiva Kirt! Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/7-s-c-r-201-sarla-performance-fibers-limited-etc-v-commissioner-of-central-31598
- **Pages:** 22

## Headnote

Central Excise Act, 1944: s. 3 (1) and its proviso -
Chargeability under s.3(1) or under proviso of 3(1) - Assessee, a
100% Export Oriented Unit - Clearance of goods without
permission of Development Commissioner - Held: Duty is,payable
uls.3(1) of the Act - If goods are not allowed to be sold in India, the
proviso to s.3(1) shall not be applicable.
Allowing the appeals, the Court
B
c
HELD: The expression "allowed to be sold in India" used
D
in proviso to Section 3(1) of the Act would be applicable only to
sales made in DTA of the production by 100% EOUs, which are
allowed to be sold into India as per the provisions of the Exim
Policy. (Para 35] (221-G-H]
SIV Industries Ltd. v. CCE & Customs 2000 (2) SCR
E
231 : (2000) 3 SCC 367; CCE v. NCC Blue Water
Products Ltd. 2010 (11) SCR 741 : 2010 (258) ELT
161 - relied on.
J.K. Synthetics Ltd. v. Collector of Central Excise 1996
(86) ELT 472 (SC); Shrichakra Tyres Ltd. .v. CCE
F
Madras 1999 (108) ELT 61 (T); Sterlite Optical
Technologies Ltd. v. CC&CE Aurangabad 2005 (188)
ELT 201 (T); CCE Delhi v. Mis. Maruti Udyog Ltd.
2002 (141) ELT 3 (SC); Himalaya. International Ltd. v.
Commissioner of C.Ex. Chandigarh (2003) 154 ELT
, 580 - referred to.
G
Case Law Reference
1996 (86) ELT 472 (SC)
2000 (2) SCR 231
referred to
relied on
201
Para6
Para8
H
202
SUPREME COURT REPORTS
[2016] 7 S.C.R.
A
1999 (108) ELT 61 (T)
2005 (188) ELT 201 (T)
2002 (141) ELT 3 (SC)
2010 (11) SCR 741
referred to
referred to
referred to
relied on
referred to
Paras
Para9
Para 12
Para 14
Para 19
B
(2003) 154 ELT 580
c
D
E
F
G
H

## Text

_Characters 0–39,983 of 51,670. This is a partial read: ask again with offset=39983 for what follows._

[2016] 7 S.C:R. 201
SARLA PERFORMANCE FIBERS LIMITED ETC.
A
v.
COMMISSIONER OF CENTRAL EXCISE, SURAT -II
(Civil Appeal Nos. 3555-3560of2012)
JUNE 03, 2016
[DIPAK MISRA AND SHIVA KIRT! SINGH, JJ.]
Central Excise Act, 1944: s. 3 (1) and its proviso -
Chargeability under s.3(1) or under proviso of 3(1) - Assessee, a
100% Export Oriented Unit - Clearance of goods without
permission of Development Commissioner - Held: Duty is,payable
uls.3(1) of the Act - If goods are not allowed to be sold in India, the
proviso to s.3(1) shall not be applicable.
Allowing the appeals, the Court
B
c
HELD: The expression "allowed to be sold in India" used
D
in proviso to Section 3(1) of the Act would be applicable only to
sales made in DTA of the production by 100% EOUs, which are
allowed to be sold into India as per the provisions of the Exim
Policy. (Para 35] (221-G-H]
SIV Industries Ltd. v. CCE & Customs 2000 (2) SCR
E
231 : (2000) 3 SCC 367; CCE v. NCC Blue Water
Products Ltd. 2010 (11) SCR 741 : 2010 (258) ELT
161 - relied on.
J.K. Synthetics Ltd. v. Collector of Central Excise 1996
(86) ELT 472 (SC); Shrichakra Tyres Ltd. .v. CCE
F
Madras 1999 (108) ELT 61 (T); Sterlite Optical
Technologies Ltd. v. CC&CE Aurangabad 2005 (188)
ELT 201 (T); CCE Delhi v. Mis. Maruti Udyog Ltd.
2002 (141) ELT 3 (SC); Himalaya. International Ltd. v.
Commissioner of C.Ex. Chandigarh (2003) 154 ELT
, 580 - referred to.
G
Case Law Reference
1996 (86) ELT 472 (SC)
2000 (2) SCR 231
referred to
relied on
201
Para6
Para8
H
202
SUPREME COURT REPORTS
[2016] 7 S.C.R.
A
1999 (108) ELT 61 (T)
2005 (188) ELT 201 (T)
2002 (141) ELT 3 (SC)
2010 (11) SCR 741
referred to
referred to
referred to
relied on
referred to
Paras
Para9
Para 12
Para 14
Para 19
B
(2003) 154 ELT 580
c
D
E
F
G
H
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 35553560of2012.
From the Judgment and Order Nos. M/2113/WZB/AHD/2010,
M/2114/WZB/ AHD/2010, M/2115/WZB/ AHD/2010, M/2116/WZB/
AHD/2010, M/2117/WZB/AHD/2010, M/2119 /WZB/AHD/2010,
passed in Appeal Nos. E/2806/02, E/2807/02, E/2808/02, E/2809/02,
E/2810 and E/2812/02 dated 16.12.20 I 0 of the Customs, Excise and
Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad.
S. K. Bagaria, Sr. Adv., Rohan P. Shah, Rohit Jain, Alok Yadav,
Dhruv Bhattacharya, UditJain, Praveen Kumar, K. Ajit Singh, V. Lakshmi
Kumaran, Jay Savla, S. Vasudevan, Ms. Renuka Sahu, Advs. for the
Appellant.
K. Radhakrishnan, A. K. Panda, Sr. Advs., Ms. Nisha Bagchi,
Arjit Prasad, Ms. Pooja Sharma, B. Krishna Prasad, Praveen Kumar,
Advs. for the Respondent.
The Judgment of the Court was delivered by
DIPAK MISRA, J. I. The appellant is a company registered
under the Companies Act, 1956 and is engaged, inter alia, in the
manufacture of excisable goods, namely, synthetic yam and for that
purpose it has a factory at Unit-I, Survey No. 59/1/14, Amii, Piparia
Industrial Estate, Silvassa (U.T. ofD.N.&H). The said factory is a I 00%
Export Oriented Unit (EOU). Prior to 61h November, 2006, Sarla
Performance Fibers Limited was known as Sarla Polyesters Ltd. Shri
Madhusudan Jhunjhunwala and Shri Satish Kumar Sharma were the
Chaimlan and the excise in-charge respectively of Sarla Performance
Fibers Limited. Shri Dineshchandra Pandey was the dispatch in-charge
ofM/s. Hindustan Cotton Company, a paitnership firm, engaged inter
alia, in trading of Polyester Textured/Twisted Dyed Yarn since 1988.
Sh. Gopal Bhagwan Dutt Sharma was the Manager of Sarla Performance
Fibers Limited at the relevant time. The reference to appellants herein
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
203
CENTRAL EXCISE, SURAT-II [DIPAK MISRA, J.]
will mean and include all the appellants.
2. The appellants had procured partial oriented yarn (POY) falling
under Chapter 54 without payment of duty for the manufacture of various
types of yam, namely, polyestertexturised yarn, nylon covered yarn and
polyester covered yarn. A show cause notice No. V(Ch.54)15-6/0A/
2000 dated I 61h May, 2001 was issued by the Commissioner of Central
Excise, Surat - II requiring the appellant to explain why central excise
duty of Rs.32,92,854/-should not be recovered on the texturised yarn
allegedly removed by the appellants without payment of duty. The said
show cause notice also required the appellants to explain why penalty
should not be imposed under Section 1 JAC of the Central Excise Act,
1944 (for short, 'tl1e Act'). That apart, the show cause notice also
sought to confiscate the nylon covered yarn valued at Rs.1,72, 186/-and
further to recover duty thereon of Rs.55,202.96.
3. After the show cause notice was issued, the appellants made
payment aggregating to Rs.14,89,349.00 as against the duty payable under
Section 3(1) of the Act (after taking into account the cum-duty benefit)
and Rs. I I, 19,775.00 payable in the event the benefit ofNotification No.
2105 was allowed.
4. After the reply to the show cause notice was filed, the
Commissioner of Central Excise, Surat-II, by his order-in-original no.
l l/MP/2002 dated 21" March, 2002 (i) confiscated the seized nylon
covered yarn weighing 245.980 kgs. valued at Rs.1,72, 186/- and
appropriated a sum of Rs.86,093/- which was given as bank guarantee;
(ii) demanded Rs.55,202.96 as differential duty on the corifiscated goods
which were released provisionally before the adjudication; and (iii)
confirmed the central excise duty amounting to Rs.32,92,854/- and ordered
recovery of interest under Section 11 AB and imposed a penalty of
Rs.33,48,060/- on the appellants. The adjudicating authority also imposed
penalties on various persons set out in the impugned order.
5. Being aggrieved by the aforesaid order, the appellant preferred
appeals before the Customs, Excise and Service Tax Appellate Tribunal
(CESTAT) (for short, 'the tribunal') under Section 35B of the Act to the
extent the said order was adverse to it. The revenue also preferred an
appeal before the tribunal as certain aspects were adverse to it. The
tribunal referred the issue to the Larger Bench of the tribunal for
consideration whether the goods cleared by the appellant were eligible
·for exemption under Notification No. I 25/84 dated 26.05.1984. The
A
B
c
D
E
F
G
H
204
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[20 l 6] 7 S.C.R.
Larger Bench vide order dated 03.08.2007 held that in case the goods
cleared by the 100% EOU and sold in India whether with or without
permission, the assessment shall be made under proviso to Section 3(1)
of the Act and the exemption under Notification No. 125/84 shall not be
applicable. After the matter was placed before the Division Bench of
the tribunal vide its order dated 15.11.2007 referred to the Larger Bench
decision and reiterated the view of the Full Bench by opining that the
goods cleared by the I 00% EOU and sold in India whether with or
without permission of the Development Commissioner, the assessment
shall be made under proviso to Section 3( l) of the Act and exemption
under Notification No. 125/84 shall not be applicable but granted some
reliefas regards the imposition of penalty. Resultantly, the tribunal vide
order dated 15.11.2007 disposed of the appeal of the appellants and
dismissed the appeal of the revenue.
6. As the facts would unfold, the appellants filed an application
before the tribunal for recall of order dated 15 .11.2007 in tenns of judgment
in J.K. Syntlletics Lt<I. v. Collector of Central Excise
1
, which was
dismissed on the ground that appeals were decided on merits and a
detailed order considering all aspects was passed by the tribunal and as
such it could not be said that the Bench defaulted in considering the
merits of the case.
7. The aforesaid orders were assailed before the High Court in
Writ Petition No. 4758 of 2008 and the Division Bench of the High
Court taking note of the submissions of the learned counsel for the
parties, directed as follows:-
"3. There were certain Appeals filed by the Petitioners and also
there were certain Appeals filed by the Department. Mr. Desai,
the learned Senior Counsel for the Respondents, has no objection
if all the Appeals are heard together denovo including the Appeals
filed by the Department since the Petitioners were not heard in
the Appeals. The learned Counsel for the Petitioners also has no
objection for the same.
4. Under the aforesaid facts and circumstances, both the impugned
orders d!lted 21" April, 2008 and J 5th November, 2007 passed by
the CESTAT in the aforesaid Appeals are hereby quashed and
set aside, and all the aforesaid Appeals stand restored to file. The
CESTAT is directed to hear all the Appeals menti.~med hereinabove
I 1996 (86) ELT 472 (SC)
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
205
CENTRAL EXCISE, SURAT -II [DIPAK MISRA, J.]
afresh denovo without being influenced by their earlier orders in
A
any manner."
8. After the remit, it was contended before the tribunal that the
allegation of clandestine removal was based on a computer sheet and no
other records had been recovered; that the reliance by the department
to establish clandestine removal were the invoices issued by Hindustan
Cotton Company; and that the appellant SPL is a I 00% EOU and when
case goods were cleared without permission of the Development
Commissioner according to the department duty was payable under
Section 3( l) of the Act and exemption was available under notification
no. 125/84 CE. To sustain the stand, reliance was placed on SIV
Industries Ltd. v. CCE & Customs=. Be it stated that the reliance was
placed on Larger bench decision of the tribunal in Shriclwkra Tyres
Ltd. v. CCE Madras; and on that base it was contended that the
amount utilized by the assessee was to be treated as duty price and no
penalty could have been imposed on individuals since no evidence had
been brought on record to show that they were aware of the transactions.
9. The stand of the assessee was resisted by the revenue
contending, inter alia, that the benefit of exemption notification could
not be extended since the notification incorporated several conditions to
be fulfilled and unless these conditions were fulfilled, exemption could
not be allowed; that the benefit of cum-duty price could not be extended
and invocation of a wrong section or rule in the show cause notice wou Id
not be a bar for imposition of penalty under the correct rule or section,
and that appellant was not eligible for treatment of clearances under
Section 3( I) of the Act. On behalf of the revenue reliance was placed
on Sterlite Optic"/ Tech110/ogies Ltd. v. CC&CE A11ra11g"bad •.
l 0. At this juncture, it is relevant to state that Member, Technical
came to hold that all the sales to DTA were clandestinely done in
contravention of the provisions of the EXIM policy and the appellantcompany did not raise any contention that the price charged included the
component of excise duty. On the contrary the appellants claimed
exemption under notification no. 125/84 and, therefore, the question of
SPL having recovered any cum-duty price from the customers in DTA
did not arise. Further it was evident that the transactions had been made
' (2000) 3 sec 367
' 1999 (108) ELT 61 (Tribunal)
4 2005 (188) ELT 201 (Trib.-Mumbai)
B
c
D
E
F
G
H
206
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 7 S.C.R.
by SPL in the name of Hindustan Cotton Company and M.M. Sanghavi
and the demands had been raised on the invoices raised. The transaction
itself was artificial and no justification had been shown to treat the same
as cum-duty price and, therefore, the decision of the Commissioner not
to treat the price as cum-duty price deserved .to be upheld. As regards
penalty on the company, the learned member held that it had been rightly
imposed under Section I !AC of the Act read with Rule 1730 of the
Central Excise Rules. As far as the individuals were concerned, the
learned Member opined that the imposition on some was justified and
imposition on certain individuals was not warranted. He, however,
dismissed the appeal preferred by the department.
.11. The Member, Judicial concurred with the view of the Member,
Technical as regards the clandestine removal and consequent
confirmation of demand of duty and imposition of penalty on various
appellants but, however, as far as the present appellant was concerned,
the learned Member opined that the entire realization made by M/s.
Sarla Polyester Ltd. were required to be treated as cum-duty and as
such, the benefit had to be extended to the appellant on the above count.
She further observed that:-
" Admittedly no duty has been recovered by them from their buyers.
When the duty is being subsequently demanded from them on the
same realization, it is, in my view," required to be treated as cum
duty and the assessable value has to be arrived at by deduction of
the duty now being confirmed against the assessee. This has
been the declaration oflaw in all the judgments relied upon by the
learned Advocate. The fact as to whether the duty is being
demanded on clandestine removal or on any other issue. should
not make a difference".
12. The learned Member placed reliance on CCE Delhi v. Mis.
Maruti Udyog Ltd.5, reproduced a passage from the same and opined
that the entire realization was required to be considered as cum-dutyprice and the benefit of the same had to be extended to the assessee and
for the said purpose, the matter needed to be remanded for recalculation
of the quantum of duty. As far as penalty is concerned, she concurred
with the Member, Technical, but also opined that it required to be remanded
for imposing penalty equivalent to the duty calculated on the determination
of the quantum.
'2002 (141) ELT 3 (SC)
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
207
CENTRAL EXCISE, SURAT -II [DIPAK MISRA, J.]
13. The two Members noted three points as difference of opinion.
A
For the sake of completeness, we think it appropriate to reproduce the
same:-
"a. Whether the entire sales value of the goods removed
clandestinely is required to be considered as cum-duty and benefit
·of the same is to be extended to M/s. Sarla Polyester Ltd.
B
(Appellant no. I herein) or not?
b. Whether the ratio of law declared by this Hon'ble Court in the
case of CCE Delhi vs. M/s. Maruti Udyog Ltd. repo11ed in
2002(141) ELT 3 applies to the facts of the present case or not
and as to whether the benefit of the same is to be extended to the
c
said assessee or not?
c. Whether the matter is required to be remanded for quantification
of the duty by treating entire realization as cum-duty price, as
held by the Member (Judicial) or the appellant's plea on the above
issue is required to be rejected by upholding the decision of the
Commissioner not to treat the price as cum-duty price, as observed
by learned Member (Technical)?
d. Consequent to the re-quantification of duty on the above ground,
the penalty imposed upon M/s. Sarla Polyester Ltd. would get
reduced to the quantum of duty reconfirmed against the said
appellant?
14. lt is necessary to state here that before the pronouncement of
Orderon 13.10.2010, counsel on behalfofthe present assesee mentioned
that the controversy was no more res integra in view of the aecision
rendered in CCE v. NCC Blue Water Products Ltd. 6 Thereafter the
matter was heard on another day and on behalf of the Bench, the learned
Member, Technical passed the order. He took note of the stand of the
revenue that ratio cifthe said decision was not applicable as it was based
on the principle stated in earlier decision i.e. SIV Industries Ltd. (supra).
The learned Member also took note of the fact that the Larger Bench of
the tribunal had distinguished the decision in SIV Industries Ltd. (supra)
which was relied upon in NCC Blue Water products Ltd. (supra). At
this juncture, we think it appropriate to reproduce a passage from the
order passed by the Member, Technical on behalf of the Bench:-
' (20IOJ 12 sec 761: 2010 (258)_ ELT 161
D
E
F
G
H
208
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 7 S.C.R.
"It is quite clear that as submitted by learned SDR, the Hon 'hie
Supreme Court followed the decision in case of SN Industries
and also took note of the Board's circular issued in 2002 and it is
quite apparent that circular issued in 2004 was not brought to the
notice of learned SDR in Supreme Court. Further, we also note
as submitted by the decision of the present case, the Larger Bench
had considered the Hon'ble Supreme Court in case of SIV
Industries Ltd. and had distinguished the same and reached the
conclusion that in case of goods sold by I 00% EOU in DTA, the
assessment shall be made under proviso to Section 3( I) of the
Act."
15. After so stating, the learned Member quoted copiously from
the Larger Bench. We think it appropriate to reproduce the relevant
part:-
"14. We have considered the submissions. We find that the
wordings of proviso to Section 3(1) of the Central Excise Act and
Notification 125/84 which we have been called upon to interpret
are similar and the basic dispute is as to how the words "allowed
to be sold in India" are to be interpreted. After going through the
various submissions made by both sides, we find that I 00% EOUs
were allowed to be established with the sole purchase of exporting
100% of their production as is evident from the words I 00% EOUs.
However, on account of certain hardship faced in getting export
order, sales in DTA up to 25% were permitted from the year 1984
but there was a clear intention to distinguish between such sales
by the 100% EOU from the sales by domestic units other than
100% EOU and it was for this purpose that proviso to Section
3( I) and Notification 125/84 was introduced. Since there were
only two modes of clearance in which the I 00% EOUs could
have cleared the goods i.e. one by export and the other by domestic '
sale after obtaining the permission of the Development
Commissioner, in respect of domestic sales the words "allowed to
be sold in India" were incorporated in both the provisos."
16. Thereafter, the learned Member proceeded to state certain
aspects which are not necessary and then reproduced the following
passage:-
"We also agree with the observation of the Larger Bench that the
decision of the Supreme court in SIV Industries case is
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF 209
CENTRAL EXCISE, SURAT-II [DIPAK MISRA, J.)
distinguishable for the reason stated therein, as in that case the
main thrust was that whether on the date of removal the I 00%
EOU ceased to be I 00% EOU and therefore the provisions relating
to I 00% EOU could not have been applied to them. For the same
purpose we hold that exemption under Notification 125/84 shall
not be applicable in respect of goods manufactured by I 00% EOU
but sold in India."
,
17. After reproducing number of passages from the Larger Bench,
the learned Member observed thus:-
"7. It may be seen that Larger Bench had considered the decision
of Hon 'ble Supreme Court in case of SIV Industries Ltd., and
has agreed with another decision of the Larger Bench in the case
of Himalaya International, wherein also the decision ofHon'ble
Supreme Court in case ofSIV Industries Ltd had been considered;
and distinguished.
8. To sum up, two decisions of Larger Bench of the Tribunal
have considered the issue and distinguished the decision in the
case of SIV Industries Ltd. and the decision of Larger Bench in
the present case on a reference made in the appellant's case
itself had considered, all aspects and the history of 100% EOU,
statutory provisions and precedent decisions to reach conclusion
that duty is chargeable under proviso to Section 3( I) of Central
Excise Act, 1944."
18. Being of this view, the Bench reiterated the difference of opinion
and the questions framed thereunder. After the judgment was delivered
by the tribunal, the appellant preferred W.P. No. 714 of201 I. The High
Court noted the submissions of the learned counsel for the writ petitioners
and opined that keeping in view the concept of self-restraint and the
requirement of judicial propriety, it was desirable for the assessee to
prefer an appeal before this Court. Being of this view, the High Court
declined to interfere. Hence, the present appeals have been preferred
under Section 3 5 L(b) of the Act.
19. It is not in dispute that the unit of the assessee-appellant is a
I 00% EOU and under the EOU scheme it was required to export the
goods manufactured by it. The stand of the assessee is that it was
eligible to clear goods up to a certain specified limit after obtaining due
permission from the Development Commissioner in tenns of Export
A
B
c
D
E
F
G
H
210
A
B
c
D
E
F
SUPREME COURT REPORTS
[2016] 7 S.C.R.
Import (EXIM) Policy read with Handbook of Procedure (HBP). It is
the submission of Mr. V. Lakshmi Kumaran, learned counsel for the
appellant that even if it is held that finished goods were removed by the
assessee without requisite permission from the Development
Commissioner, central excise duty is leviable in terms of Section 3( I) of
the Act. It is contended by him thatthe tribunal has erroneously followed
the Larger Bench decision of the tribunal in Himalaya International
Ltd. v. Commissioner of C.Ex. Cltandigarlt 7• Learned counsel would
submit that if the submission of the assessee is accepted, he will be
entitled to refund as it has paid more than the amount than the duty
liability determinable under Section 3(1) of the Act.
20. Mr. K. Radhakrishnan, learned senior counsel appearing for
the revenue, per contra, would contend that the appellant which is a
continuing EOU, was bound to export finished goods and as there has
been non-fulfilment of the obligation and the goods have been cleared
without permission of the competent authority, the appellants are liable
to pay the duty as determined by the tribunal. It is his further argument
that the assessee cannot be assessed under Section 3( I) of the Act but
under the proviso as held by the tribunal. Learned senior counsel would
submit that the decision in SIV Industries Ltd. (supra) and NCC Blue
Water Pnulucts Ltd. (supra) when seemly applied, the 100% EOU
which was cleared in OTA without permission cannot be allowed to pay
duty under Section 3( I) of the Act.
21. To understand the controversy, it is necessary to scrutinize the
relevant provisions, circulars in'the field and the interpretations placed
by this Court on the pertinent provisions. The contentious part of Section
3 of the Act, prior to amendment w.e.f. 11.05.200 I read as follows:-
"Section 3. Duties specified in the First Schedule and the
Second Schedule to the Central Excise Tariff Act, 1985 to
be levied -(I) There shall be levied and collected in such manner
as may be prescribed,-
G
(a) a duty of excise on all excisable goods which are produced or
manufactured in India as, and at the rates, set forth in the First
Schedule to the Central Excise Tariff Act, 1985 ( 5 of 1986);
(b)a special duty of excise, in addition to the duty of excise
specified in clause (a) above, on excisable goods specified in the
H
'(2003) 154 ELT 580
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF 211
CENTRAL EXCISE, SURAT -II [DIPAK MISRA, J.]
Second Schedule to the Central Excise Tariff Act, 1985 (5 of
A
1986) which are produced or manufactured in India, as, and at
the rates, set forth in the said Second Schedule.
Provided that the duties of excise which shall be levied and
collected on any excisable goods which are produced or
manufactured, -
B
(i) in a tree trade zone and brought to any other place in India; or
(ii) by a hundred per cent export-oriented undertaking and allowed
to be sold in India,
shall be an amount equal to the aggregate of the duties of customs c
which would be Ieviable under Section 12 of the Customs Act,
1962 (52of1962), 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
D
provisions of the Customs Act, 1962 (52of1962) and the Customs
Tariff Act, 1975 (51 of 1975)."
22. After the amendment the relevant part of the provision reads
as under:-
"Section 3. Duties specified in the First Schedule and the
Second Schedule to the Central Excise Tariff Act, 1985 to
be levied -(I) There shall be levied and collected in such manner
as may be prescribed,-
(a)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 First
Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);
(b)a special duty of excise, in addition to the duty of excise
specified in clause (a) above, on excisable goods excluding goods
produced ur manufactured in special economic zones specified in
the Serond Schedule to the Central Excise Tariff Act, 1985 (5 of
1986) which are produced or manufactured in India, as, and at
the rates, set forth in the said Second Schedule.
E
F
G
H
212
SUPREME COURT REPORTS
[2016] 7 S.C.R.
A
Provided that the duties of excise which shall be levied and
collected on any excisable goods which are produced or
manufactured, -
B
c
D
E
F
G
H
(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 export-oriented 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 (52of1962) and the Customs Tariff Act, 1975
(51 of 1975)."
23. Having noted the relevant provisions, it is apposite to appreciate
what has been held in SIV Industries Ltd. (supra). In the said case, the
appeal was preferred challenging the order of the tribunal whereby it
had directed that the duty of central excise was not payable under Section
3(1) of the Act but under the proviso to Section 3(1) of the Act. The
appellant therein was granted permission to set up a 100% Export
Oriented Unit (EOU) for the manufacture of Yiscose staple fibre at its
factory at Sirumugal in Coimbatore District in the State of Tamil Nadu.
The Jetter of intent dated 18.12.1991 was issued to the appellant for the
purpose by the Secretariat for Industrial Approvals (SIA), Ministry of
Industry, Government oflndia. On 08.09. I 993 the appellant therein made
an application to the Secretary, Ministry of Commerce, Government of
India and sought debonding of its unit from I 00% EOU, i.e., withdrawal
from I 00% EOU Scheme. By letter dated 18. l 0.1993 of the Ministry of
Commerce it was agreed in principle to allow the appellant to withdraw
from the I 00% EOU Scheme subject to the conditions on which
withdrawal was permitted. Once the debonding of the unit was permitted,
finished goods earlier manufactured in the I 00% EOU could be cleared
for domestic tariff area (DTA) on levy of duty of central excise. The
dispute arose as to what rate of duty was to be levied. The contention of
the assessee was that excise duty is payable on the finished goods under
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
213
CENTRAL EXCISE, SURAT -II [DIPAK MISRA, J.]
the main Section 3(1) of the Act together with customs duty on the
imported raw material used in the manufact9re of the said finished goods
lying in the stock. The Revenue on the other hand contended that excise
duty under the proviso to Section 3( 1) of the Act was payable on the
finished goods and with no customs duty being levied on the raw materials
gone into the manufacture of finished goods. The Court encapsulateq
the issue by stating that the expression "allowed to be sold in India"
appearing in the proviso to Section 3(1) of the Act was the bone of
contention between the parties. The assessee contended that for the
application of the proviso to Section 3(1) two conditions have to be
cumulatively and simultaneously satisfied, viz., (I) goods should have
been produced or manufactured by an existing 100% EOU, and (2)
these goods should have been allowed to be sold in India. After analyzing
various aspects and the circulars dated 17.02.1983 clarifying the
introduction of the proviso and the circular dated 29.05.1984 explaining
further amendment to the proviso to Section 3( I) of the Act, the Court
held:-
"The contention of the Revenue is that permission to withdraw
from the Scheme is itselfa permission to sell in India, i.e., when
the unit is permitted to debond, it would be deemed to have been
permitted to sell the goods in India. But then permission to sell in
India has to be in terms or in accordance with the provisions of
the export-import policy. Permission to sel! in India by 100% EOU
consists of all those factors like value addition, fulfilment of export
obligation, sale of a general currency licence-holder, item being
not mentioned in the negative list and then there being a limit of
25%, etc. When permission to debond is given, none of these
criteria or aspects are applied by the Board of Approvals (BoA)
to the closing stock of finished goods. The Board of Approvals is
a statutory authority, which permits debonding. It is created under
the Industrial (Development and Regulation) Act. On the other
hand permission to sell the goods in India under and in accordance
with the import policy has to be given by the Development
Commissioner in the Ministry of Commerce. The Board of
Approvals and the Development Commissioner are two different
authorities constituted for two different purposes. Permission to
debond is a statutory function exercised by one statutory authority.
On the other hand permission to sell in India is to be exercised by
a different statutory authority. If reference is made to para 102 of
A
B
c
D
E
F
G
H
214
A
B
c
D
E
F
G
SUPREME COURT REPORTS
[2016] 7 S.C.R.
the relevant import-export policy pennission of the Development
Commissioner is required for selling the goods in [ndia up to a
limit of 25% by I 00% EOU. Para 117 of the policy deals with
de bonding of 100% EOU. 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 [ndia" 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 DTAand 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."
24. After so stating the Court noted the stand of the revenue that
by debonding permission had been granted by BoA for selling the closing
stock of finished goods in India. Negativing the said contention, the
Court held:-
"By its application dated 8-9-1993 the appellant had only asked
the Central Government for permission to debond the unit. Pending
formal debonding clearance, the appellant requested the Central
Government that it might allow it to sell the goods in India. This
request of the appellant was never acceded to by the authority
concerned and letter of debonding was issued. This application of
the appellant, therefore, could not be treated as an application for
permission to sell in India as contended by the Revenue and the
debonding letter ofBoA cannot be construed as permission to sell
in India. The argument of the Revenue that debonding assumes
allowing all closing stock of the goods on the date of debond ing to
be sold in lndia would be stretching the matter a little too far.
Conditions for sale of25% of the finished products by EOU and
sale of finished stock by a de bonded I 00% EOU on the date of
debonding are different."
25. Eventually, the Court interpreting the provision and notification
issued under the relevant Rules held thus:-
"Chapter V-A of the Central Excise Rules contains provisions for
removal from a free trade zone or fr0m a 100% EOU of excisable
H
goods for home consumption. This ~hapter was made applicable
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
215
CENTRAL EXCISE, SURAT -II [DIPAK MISRA, J.]
to units under the EOU Scheme by Notification No. 130/84-CE
dated 26-5-1984. This chapter contains Rules 100-A to 100-H.
Rule 100-A provides that the provisions of this chapter shall apply
to a person permitted under any law for the time being in force to
produce or manufacture excisable goods in a l 00% export-oriented
undertaking and who has been allowed by the proper officer to
remove such excisable goods for being sold in India on payment
of duty of excise levi~ble thereon. It will be thus seen that this
Chapter V-A would not be applicable where EOU is outside the
EOU Scheme after the unit is de bonded. Under Rule I 00-H, Rule
57-A and other Rules mentioned therein shall not apply to excisable
goods produced or manufactured by a I 00% export-oriented
undertaking. Rule 57-A relates to allowing credit of any duty of
excise or the additional duty under Section 3 of the Customs Tariff
Act, 1975 as may be specified by the Central Government in the
notification, paid on the goods used in or in relation to the
manufacture of the final products and for utilising the credit so
allowed towards payment of duty of excise leviable on the final
products."
26. In view of the aforesaid position, the Court was of the view
that the tribunal was not right in holding that duty was to be leviable in
terms of the proviso to Section 3(1) of the Act and, accordingly, it set
aside the judgment of the tribunal and restored that of the adjudicating
authority.
27. The aforesaid judgment of this Court was distinguished by the
Larger Bench of the tribunal in Himalaya International Ltd. (supra).
The Larger Bench referred to circular No. 618/9/2002-CX dated
13.02.2002 and ruled thus:-
"A reading of the above circular would show that it was issued
pursuant to the decision of the Supreme Court in SIV Industries
Ltd. (supra), but without understanding the position that the
Supreme Court did not deal with a case where clearance was
made to DI A by 100% EOU in excess of the permission granted.
It is contended on behalf of the assessee that the interpretation
given in the circular referred to above is binding on the Revenue
and therefore, this Tribunal cannot give a different interpretation
to Section 3( 1) and the proviso at the instance of the Revenue. In
suppo11 of the above contention reliance was placed on a decision
A
B
c
D
E
F
G
H
216
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 7 S.C.R.
of the Supreme Court in CCE, Vadodara v. Dhiren Chemicals
Industries, 2002 (139) ELT 3 (S.C.). We find no merit in the above
contention of the assessee. In CCE, Vadodara v. Dhiren Chemicals
Industries the Supreme Court observed that regardless of the
interpretation placed by it on the expression in the notification 'on
which appropriate duty of excise has already been paid' ifthere
are circulars which have been issued by the Central Board of
Excise & Customs placing a different interpretation upon the said
phrase that interpretation will be binding upon the Revenue. In
the present case, we are not dealing with any circular of Central
Board of Revenue interpreting the meaning of the proviso to Section
3(1) and which had been in force. On the other hand, the circular
dated 13 .2.2002 is one issued giving a wrong interpretation to the
decision of the Supreme Court. We have no hesitation to hold
that an interpretation thus given by the Board to the decision of
the Supreme Court will not be binding."
28. To appreciate the whole controversy in completeness, we may
reproduce the said circular dated 13.2.2002:-
"Subject: Removal of goods by I 00% EOUs to DTA- Non-levy
of duty under Section 3( I) of Central Excise Act, 1944.
I am directed to invite reference to Supreme Court's judgment in
case of SIV Industries v. CCE [2000 (117) E.L.T. 281 (S.C.)]
vide which the Apex Court had held that "proviso to Section 3(1)
regarding the duty chargeable on goods cleared by EOUs shall be
applicable only to sales made in DTA upto 25% of production
which are allowed to be sold into India as per provisions ofEXIM
Policy". In other words, Hon'ble Court decided that ifthe goods
are "not allowed" to be sold in India, the proviso to Section 3( I) of
Central Excise Act, 1944 shall not be applicable. The expression
'allowed to be sold' has since been replaced with 'brought to any
other place' w.e.f. 11-5-2001 vide Section 120 of Finance Act,
2001 (14 of2001].
2. It has come to the notice of the Board that field formations are
interpreting the judgment of Apex Court to the effect that ifthe
goods cleared by EOUs are not allowed to be sold into India, the
Section 3(1) of Central Excise Act, 1944 is not applicable and
duty can be demanded under the provisions of Customs Act, 1962
only. Board has taken a serious view of this mis-interpretation.
SARLA PERFORMANCE FIBERS LTD. v. COMMISSIONER OF
217
CENTRAL EXCISE, SURAT-II [DIPAK MISRA, J.]
The provisions of Central Excise Act, 1944 shall apply to all goods
manufactured or produced in India for which Section 3 is the
charging section. EOUs are also situated in India and the
chargeability under Central Excise Act is never in doubt.
Therefore, it is clarified that prior to 11-05-2001, the clearances
from EOUs ifnot allowed to be sold in India, shall continue to be
chargeable to duty under main Section 3(1) of Central Excise
Act, 1944. Appropriate action may be taken immediately to
safeguard revenue and all pending decisions may be settled
accordingly."
29. The said circular, as is perceptible, is in accord with the decision
rendered in SIV Industries Ltd. (supra). The said circular while so
indicating also clearly lays down the expression "allowed to be sold" has
been replaced with "brought to any other place" with effect from
11.05.2001 vide Section 120 of Finance Act, 2001 (14 of2001). The
circular being in consonance with the decision in SIV Industries Ltd.
(supra) and rightly so, it was absolute unnecessary on the part of the
Larger Bench of the tribunal to say that this Court in SIV Industries
Ltd. (supra) did not deal with the case where clearance was made to
OTA by 100% EOU in excess of the permission granted. The attempt
to distinguish the circular, in our considered opinion, was not only
unnecessary but also absolutely erroneous.
30. After the judgment of the Larger Bench, the Central Board of
Excise and Customs, New Delhi brought out a circular dated 05.01.2004.
The relevant part of the said circular reads as follows:-
A
B
c
D
E
"Subject: Withdrawal of Board's Circular No.618/9/2002-CX.,
dated 13-2-2002 - Removal of goods by I 00% EOU to OTA -
F
Clarification regarding levy of duty on removal of goods by I 00%
EOU to OTA.
I am directed to draw your attention to Board's Circular No. 618/
9/2002-CX., dated 13-02-2002 [2002 (140) E.L.T. T27] on the
above subject wherein it was clarified that prior to 11-5-2001, the
G
clearances from EOUs if not allowed to be sold in India, shall
continue to be chargeable to duty under main Section 3(1) of
Central Excise Act, 1944.This was based on an interpretation of
Apex Court's decision in the case of SIV Industries Ltd. [2000
(117) E.L.T. 281(S.C.)].
H
218
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 7 S.C.R.
2. However, attention is now invited to the decision of Larger
Bench of CESTAT in the case of M/s. Himalaya International
Ltd. v. Commissioner of Central Excise, Chandigarh [2003 (154)
E.L.T. 580 (Tri.