# M/S. L. R. BROTHERS INDO FLORA LTD v. COMMISSIONER OF CENTRAL EXCISE

- **Citation:** [2020] 10 S.C.R. 1043
- **Court:** Supreme Court of India
- **Decided:** 2020-09-01
- **Case number:** Civil Appeal No. 7157 of 2008
- **Bench:** A. M. Khanwilkar, Dinesh Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-l-r-brothers-indo-flora-ltd-v-commissioner-of-central-excise-34154
- **Pages:** 32

## Headnote

Customs Act, 1962 - Central Excise Act, 1944 - s.3 -
Appellant, a 100% Export Oriented Unit (EOU) was engaged in
production of cut flowers and flower buds - The 100% EOU is
required to export all articles produced by it and was exempted
from payment of customs duty on the imported inputs used during
production of the exported articles vide exemption notification dated
03.06.1994 - Under the said notification, exemption on levy of
customs duty was extended even to the inputs used in production of
articles sold in domestic market - Thereafter, came amended
notification dated 18.05.2001, by which the customs duty in case
of non-excisable goods became leviable on inputs used for
production, manufacturing or packaging, as if there was no
exemption notification in place - The EXIM Policy 1997-2002
provided that a 100% EOU in floriculture sector was permitted to
sell 50% of its produce in Domestic Tariff Area (DTA), subject to
achieving positive net foreign exchange earning of 20% and upon
the approval of the Development Commissioner - The appellant
without obtaining the approval of the Development Commissioner
and without maintaining the requisite net foreign exchange earning
made DTA sales during 1998-99 to 2000-01 in contravention of the
EXIM Policy - However, the appellant subsequently sought ex-post
facto approval from Development Commissioner - The Additional
Commissioner, Central Excise issued a show cause notice as to why
customs duty, interest and penalty should not be imposed for the
DTA sales made by the appellant in contravention of the EXIM Policy,
that too after having availed exemptions under the exemption
notification - The Additional Commissioner adjudged the show
cause notice and held that the DTA sales were made without
permission and in contravention of the EXIM Policy and therefore,
customs duty is leviable upon the appellant for the said sales - The
Appeal before the Commissioner was unsuccessful - In a further
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appeal before CESTAT, the order of the authorities below were
confirmed - The Supreme Court framed two questions: (i) Whether
customs duty can be charged on the non-excisable goods produced
in India and sold in DTA by an EOU ?; and (ii) Whether the
amendment notification dated 18.05.2001, purporting to amend the
criteria for determination of duty on inputs, is prospective or
retrospective in its application ? - Held: The DTA sales pertaining
to excisable goods made in conformity with the conditions of the
EXIM policy are exigible to excise duty, but once there is
contravention of the condition(s) of the EXIM policy, irrespective
of the goods produced being excisable or non-excisable, the benefit
under the exemption notification is unavailable - In such a situation,
the very goods would become liable to imposition of customs duty
as if being imported goods - So, the demand in the present case,
pertaining to the non-excisable goods (cut flowers) has rightly been
made under the 1962 Act upon the imported inputs used in the
production of goods sold in DTA in violation of condition(s) in the
EXIM Policy - So far as the amendment notification is concerned,
it is a settled proposition of law that all laws are deemed to apply
prospectively unless either expressly specified to apply
retrospectively or intended to have been done so by the legislature
- An essential requirement for application of a legislation
retrospectively is to show that the previous legislation had any
omission or ambiguity or it was intended to explain an earlier act -
In absence of the above ingredients, a legislation cannot be regarded
as having retrospective effect - In the instant case, the amendment
notification was not in clarificatory nature - Further, any ambiguity
in regard to the date of application of the amendment thereto would
necessarily have to be construed in favour of the State, unless shown
otherwise by judicially acceptable parameters - T

## Text

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M/S. L. R. BROTHERS INDO FLORA LTD.
v.
COMMISSIONER OF CENTRAL EXCISE
(Civil Appeal No. 7157 of 2008)
SEPTEMBER 01, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Customs Act, 1962 - Central Excise Act, 1944 - s.3 -
Appellant, a 100% Export Oriented Unit (EOU) was engaged in
production of cut flowers and flower buds - The 100% EOU is
required to export all articles produced by it and was exempted
from payment of customs duty on the imported inputs used during
production of the exported articles vide exemption notification dated
03.06.1994 - Under the said notification, exemption on levy of
customs duty was extended even to the inputs used in production of
articles sold in domestic market - Thereafter, came amended
notification dated 18.05.2001, by which the customs duty in case
of non-excisable goods became leviable on inputs used for
production, manufacturing or packaging, as if there was no
exemption notification in place - The EXIM Policy 1997-2002
provided that a 100% EOU in floriculture sector was permitted to
sell 50% of its produce in Domestic Tariff Area (DTA), subject to
achieving positive net foreign exchange earning of 20% and upon
the approval of the Development Commissioner - The appellant
without obtaining the approval of the Development Commissioner
and without maintaining the requisite net foreign exchange earning
made DTA sales during 1998-99 to 2000-01 in contravention of the
EXIM Policy - However, the appellant subsequently sought ex-post
facto approval from Development Commissioner - The Additional
Commissioner, Central Excise issued a show cause notice as to why
customs duty, interest and penalty should not be imposed for the
DTA sales made by the appellant in contravention of the EXIM Policy,
that too after having availed exemptions under the exemption
notification - The Additional Commissioner adjudged the show
cause notice and held that the DTA sales were made without
permission and in contravention of the EXIM Policy and therefore,
customs duty is leviable upon the appellant for the said sales - The
Appeal before the Commissioner was unsuccessful - In a further
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appeal before CESTAT, the order of the authorities below were
confirmed - The Supreme Court framed two questions: (i) Whether
customs duty can be charged on the non-excisable goods produced
in India and sold in DTA by an EOU ?; and (ii) Whether the
amendment notification dated 18.05.2001, purporting to amend the
criteria for determination of duty on inputs, is prospective or
retrospective in its application ? - Held: The DTA sales pertaining
to excisable goods made in conformity with the conditions of the
EXIM policy are exigible to excise duty, but once there is
contravention of the condition(s) of the EXIM policy, irrespective
of the goods produced being excisable or non-excisable, the benefit
under the exemption notification is unavailable - In such a situation,
the very goods would become liable to imposition of customs duty
as if being imported goods - So, the demand in the present case,
pertaining to the non-excisable goods (cut flowers) has rightly been
made under the 1962 Act upon the imported inputs used in the
production of goods sold in DTA in violation of condition(s) in the
EXIM Policy - So far as the amendment notification is concerned,
it is a settled proposition of law that all laws are deemed to apply
prospectively unless either expressly specified to apply
retrospectively or intended to have been done so by the legislature
- An essential requirement for application of a legislation
retrospectively is to show that the previous legislation had any
omission or ambiguity or it was intended to explain an earlier act -
In absence of the above ingredients, a legislation cannot be regarded
as having retrospective effect - In the instant case, the amendment
notification was not in clarificatory nature - Further, any ambiguity
in regard to the date of application of the amendment thereto would
necessarily have to be construed in favour of the State, unless shown
otherwise by judicially acceptable parameters - Therefore, CESTAT
has rightly upheld the levy of customs duty.
Dismissing the appeal, the Court
HELD: Whether customs duty can be charged on the nonexcisable goods produced in India and sold in DTA by an EOU?
1. The DTA sales pertaining to excisable goods made in
conformity with the conditions of the EXIM policy are exigible to
excise duty, but once there is contravention of the condition(s)
of the EXIM policy, irrespective of the goods produced being
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excisable or non-excisable, the benefit under the exemption
notification is unavailable. In such a situation, the very goods
would become liable to imposition of customs duty as if being
imported goods. [Para 15][1062-D]
2. In the present case, the notification provides for
exemption on import of inputs and at the same time prescribes
for adherence of certain conditions for availing the exemption.
The notification further prescribes the rate at which the customs
duty on the inputs used in the production of non-excisable goods
sold in DTA is to be charged. Thus, the notification, having been
issued in exercise of delegated legislation under Section 25 of
the 1962 Act, has to be understood as "any other law". Resultantly,
the appellant, having availed exemption under the notification,
cannot evade customs duty on the imported inputs at the rate
prescribed by the notification. [Para 17][1063-B-C]
3. The show cause notice points out that the appellant
imported raw materials like "Live Rose Plants" and consumables
like fertilizers and planting materials, however, the appellant
advisedly chose to confine its argument to "cut flowers", which,
as contended, were grown on Indian soil and thus not amenable
to customs duty. However, the demand made in the show cause
notice "treating" cut flowers as deemed to have been imported
was only for the purpose of quantification of the customs duty on
the imported inputs and not imposition of the customs duty on
the domestically grown cut flowers as such. [Para 18][1063-D-E]
4. A priori, the demand in the present case, pertaining to
the non-excisable goods has rightly been made under the 1962
Act upon the imported inputs used in the production of goods
sold in DTA in violation of condition(s) in the EXIM Policy. [Para
20][1064-C]
5. In case of excisable goods, even the present notification
takes resort to Section 3 of the 1944 Act, as can be seen from the
notification dated 03.06.1994. Whereas, the provisions of the 1962
Act are invoked only when the goods are non-excisable. In the
present case, since the cut flowers are non-excisable goods, the
demand for payment of customs duty had rightly been made vide
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
OF CENTRAL EXCISE
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show cause notice under the provisions of the 1962 Act.
[Para 22][1064-E-F]
Whether the amendment in terms of amended notification
dated 18.05.2001, purporting to amend the criteria for
determination of duty on inputs, is prospective or retrospective
in its application?
6. The amended notification posits of carrying out
amendments and substituting the charging clause of the inputs
used in case of non-excisable goods. The language employed in
the notification does not offer any guidance on whether the
amendments as made were to apply prospectively or
retrospectively. It is a settled proposition of law that all laws are
deemed to apply prospectively unless either expressly specified
to apply retrospectively or intended to have been done so by the
legislature. The latter would be a case of necessary implication
and it cannot be inferred lightly. [Para 24][1066-A-B]
7. The proviso to the charging section 3 of the 1944 Act
provides that an EOU making DTA sales shall be charged duty
as if the goods were imported into India and in value equal to the
customs duty chargeable thereto. No doubt, the said provision
applies only in cases of excisable goods, but the exemption
notification providing for similar duty by terms thereunder for
non-excisable goods, can be understood to have been made to
equate the duty in case of excisable as well as non-excisable goods.
Therefore, it must follow that the said provision was not an error
that crept in but was intentionally introduced by the Government
to determine the charging rate. That being the position prior to
amendment, the amendment brought in cannot be said to be
clarificatory in nature. [Para 28][1069-C-E]
8. In Vatika Township, Constitution Bench of this Court has
analysed the principle concerning retrospectivity. It was made
clear that an essential requirement for application of a legislation
retrospectively is to show that the previous legislation had any
omission or ambiguity or it was intended to explain an earlier
act. In absence of the above ingredients, a legislation cannot be
regarded as having retrospective effect. [Para 30][1069-G; 1071D]
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9. It is relevant here to advert to a decision of Constitution
Bench of this Court in Commissioner of Central Excise, New Delhi
vs. Hari Chand Shri Gopal & Ors, wherein it has been held that
an exemption clause ought to be strictly construed according to
the language employed therein and in case of any ambiguity,
benefit must go to the State. Applying the aforequoted dictum to
the present case, the appellant was obliged to comply with the
conditions prescribed by the EXIM Policy, to avail the exemption
under the stated notification; and failure to do so, must denude
them of the exemption so granted. Further, since the charging
rate prescribed under the exemption notification is under
question, any ambiguity in regard to the date of application of the
amendment thereto would necessarily have to be construed in
favour of the State, unless shown otherwise by judicially acceptable
parameters. [Para 32][1072-B-C; 1073-B-C]
10. The next contention of the appellant is that Section 28
of the 1962 Act cannot be invoked to extend the limitation as
there was no wilful mis-statement or suppression of facts on behalf
of the appellant. In the fact situation of the present case, the
appellant was issued a show cause notice mentioning that it had
suppressed the DTA sales of cut flowers to evade payment of
duty. Had the appellant in good faith believed that no duty was
payable upon the DTA sales of cut flowers, it would have sought
prior approval of the Development Commissioner, which it failed
to do. Even in the letter seeking ex-post facto approval, the
appellant claimed that they had not used any imported input such
as fertilizer, plant growth regulations, etc. in growing flowers sold
in DTA, despite having imported green house equipment, raw
materials like Live Rose Plants and consumables like planting
materials and fertilizers. Therefore, it prima facie appeared that
suppression by the appellant was "wilful". The burden of proving
to the contrary rested upon the appellant, which the appellant
failed to discharge by failing to establish that the imported inputs
were not used in the production of the cut flowers sold in DTA.
In view thereof, the authorities below have rightly invoked
Section 28 of the 1962 Act and allied provisions. [Paras 33 and
34][1073-D, F-H; 1074-A]
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
OF CENTRAL EXCISE
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Commissioner of Income Tax (Central) - I, New Delhi
v. Vatika Township Private Limited (2015) 1 SCC 1 :
[2014] 12 SCR 1037; Commissioner of Central Excise,
New Delhi v. Hari Chand Shri Gopal & Ors. (2011) 1
SCC 236 : [2010] 13 SCR 820 - followed.
Union of India & Anr. v. IndusInd Bank Limited & Anr.
(2016) 9 SCC 720 : [2016] 11 SCR 700 - relied on.
Zile Singh v. State of Haryana & Ors. (2004) 8 SCC 1
: [2004] 3 Suppl. SCR 400 - inapplicable.
Uniworth Textiles Limited v. Commissioner of Central
Excise, Raipur (2013) 9 SCC 753 : [2013] 3 SCR 27 -
referred to.
Cosco Blossoms Pvt. Ltd v. Commissioner of Customs,
Delhi 2004 (164) ELT 423 (Tri.-Del.); Commissioner
of Central Excise and Customs v. Suresh Synthetics
2007 (216) ELT 662 (SC) - inapplicable.
Vikram Ispat v. Commissioner of Central Excise,
Mumbai-III 2000 (120) ELT 800 (Tribunal-LB) -
referred to.
Case Law Reference
[2014] 12 SCR 1037
followed
Para 7
[2004] 3 Suppl. SCR 400
inapplicable
Para 7
2007 (216) ELT 662 (SC)
inapplicable
Para 7
[2013] 3 SCR 27
referred to
Para 7
[2016] 11 SCR 700
relied on
Para 7
[2010] 13 SCR 820
followed
Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7157
of 2008.
From the Judgment and Order dated 17.07.2008 of the Customs,
Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi
in Customs Appeal No. 9 of 2008.
Ashok K. Srivastava, Sr. Adv., Rupesh Kumar, Ms. Pankhuri
Shrivastava, Rajeev Sharma, Ms. Neelam Sharma, Ms. Vasvi Nagar,
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Ms. Rekha Pandey, Ms. Rashmi Malhotra, B. Krishna Prasad, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J.
1. This appeal takes exception to the Final Order No. C/203/08
dated 17.7.2008 passed by the Customs, Excise & Service Tax Appellate
Tribunal1 in Customs Appeal No. 9 of 2008, whereby the customs duty
levied upon the appellant on the sale of cut flowers within the Domestic
Tariff Area2 had been confirmed by the Tribunal.
2. The factual matrix leading to the present appeal is that the
appellant - M/s. L.R. Brothers Indo Flora Ltd. is a 100% Export Oriented
Unit3 and engaged in production of cut flowers and flower buds of all
kinds, suitable for bouquets and for ornamental purposes. The 100%
EOU is required to export all articles produced by it. As a consequence
whereof, it is exempted from payment of customs duty on the imported
inputs used during production of the exported articles, vide Notification
No. 126/94-Cus dated 3.6.19944. Under the said notification, exemption
on levy of customs duty had been extended even to the inputs used in
production of articles sold in domestic market, in accordance with the
Export-Import (EXIM) Policy and subject to other conditions specified
by the Development Commissioner. To wit, upon payment of excise
duty in case of excisable goods; and in case of non-excisable goods,
upon payment of customs duty on the inputs used for production,
manufacturing or packaging of such articles at a rate equivalent to the
rate of customs duty that would have been leviable on such articles, if
such articles were imported. The said notification was amended by
Notification No. 56/01-Cus dated 18.5.20015, by which the customs duty
in case of non-excisable goods became leviable on inputs used for
production, manufacturing or packaging, as if there was no exemption
notification in place. The effect of this amendment was that the customs
duty on inputs which was charged at the rate equivalent to the duty
leviable on final articles under the exemption notification, was now
chargeable at the rate specified for the inputs.
1 For short, "CESTAT"
2 For short, "DTA"
3 For short, "EOU"
4 For short, "the exemption notification"
5 For short, "the amendment notification"
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
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3. The EXIM Policy 1997-2002 provided that a 100% EOU in
floriculture sector was permitted to sell 50% of its produce in DTA,
subject to achieving positive net foreign exchange earning of 20% and
upon approval of the Development Commissioner. The appellant, without
obtaining the approval of the Development Commissioner and without
maintaining the requisite net foreign exchange earning, made DTA sales
to the extent of Rs.38,40,537/- during 1998-99 to 2000-01 (upto December
2000), in contravention of the provisions of EXIM Policy. Notably, the
appellant subsequently sought ex-post facto approval from the
Development Commissioner vide letter dated 6.2.2001.
4. Meanwhile, the Additional Commissioner, Central Excise,
Meerut-I issued a show cause notice dated 16.3.2001 to the appellant
to show cause as to why customs duty, interest and penalty should not
be imposed for the DTA sales made by the appellant in contravention of
the EXIM Policy, that too after having availed the exemptions under the
exemption notification on the import of green house equipment, raw
materials like Live Rose Plants and consumables like planting materials
and fertilizers. After according opportunity of being heard, the Additional
Commissioner adjudged the show cause notice and held that the DTA
sales were made without permission of the Development Commissioner
and in contravention of the EXIM Policy and therefore, customs duty is
leviable upon the appellant for the said sales. It was further held that the
appellant had wilfully suppressed facts and thus Section 28 of the Customs
Act, 19626 was invoked in the present case. The relevant extract of the
Order-in-Original dated 18.10.2001 passed by the Additional
Commissioner, Central Excise, Meerut - I on the aforesaid findings is
reproduced hereunder:
"3.1 I find that the party had imported the capital goods and
also imported raw materials like "Live Rose Plants" and
consumable like "Fertilizer and Planting Materials" during
1996-97 to 2000-2001 and further that they made
clearances towards Domestic Tariff Area sales without
obtaining permission from the Competent Authority in the
matter. On scrutiny of the records, it was observed that before
making any DTA sales it was required that 20% positive Net
Foreign Exchange Earning (NFEP) should have been achieved
i.e. annual value of export should have been 20% more than
6 For short, "the 1962 Act"
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Rs.2,42,37,400/= (+) annual value of imports of raw materials
and consumables during the respective year and the said noticee
had exported the flowers worth Rs.91,92,000/= only which are
well below prorata annual value of Import of capital goods.
3.2 I also find that as per condition of the approval letter No.
119(1994)EOB/34/94 dated 04.5.94, issued by Govt. of India,
Ministry of Industries, Department of Industrial Development,
Secretarial for Industrial approval, MUCC Section, New Delhi,
the bonding period of M/s. L.R. Brothers Indo Flora Ltd., was
fixed for 10 years during which they were required to achieve
62% value addition over and above the imports and other factors
contributing towards the foreign exchange gone out of the country.
As per the specific condition of the approval letter, the party
was required to export all of its production out of India
subject to permissible limit of Domestic Tariff Area Sales
(herein after referred to as DTA Sales) and that, too, after
specific permission from Development Commissioner of
the EPZ concerned, on payment of applicable Customs &
Central Excise duties. The Export Import Policy 1997-2002
specifies the condition of DTA sales by an EOU.
In this regard, I reproduce below the contents of the relevant
paras of Export Import Policy 1997-2002.....
3.3 Therefore, in view of the above legal provisions of the Export
Import Policy 1997-2002, it is amply clear that for earning DTA
sales entitlement the EOU should fulfil the export obligations as
prescribed in the letter of approval and also should have a positive
NFEP which is 20% in case of floriculture units.
3.4 ..... As per Note 3 to paragraph 9.5 of the Export Import
Policy, as discussed above, prorata annual value of imported capital
goods (i.e. 1/5th of the total import of Capital Goods worth
Rs.12,11,87,000/- comes to Rs.2,42,37,400/-. Therefore, before
making any DTA sales it was required that 20% positive NFEP
should have been achieved i.e. the annual value of export should
have been 20% more than Rs.2,42,37,400/- + annual value of
imports of raw materials and consumable during the respective
year, whereas in all the four years since operation, the unit had
exported the flowers worth Rs.91.92 lakhs only which are well
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
OF CENTRAL EXCISE [A. M. KHANWILKAR, J.]
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below the prorata annual value of import of capital goods.
Therefore, in view of the specific provisions of the Export
Import Policy 1997-2002, the unit was not entitled to sell
any goods in DTA.
3.5 Moreover, the guidelines for sale of goods in the DTA by
EOU are prescribed in Appendix 42 of Handbook of Procedure,
Export Import Policy 1997-2002. Para (f) of the said Appendix 42
reads as: "An application for DTA sale shall be accompanied by a
statement indicating the ex-factory value of the goods produced
(excluding rejects) and ex-factory value of goods actually exported.
The statement shall be certified by an independent cost/chartered/
cost and works accountant and endorsed by the Customs/Central
Excise Officer having jurisdiction over the unit. The Development
commissioner of the EPZ concerned will determine the extent of
DTA sale admissible in value terms and issue goods removal
authorization in terms of value and quantity for sale in DTA."
However in the present case as per records, the party failed
to furnish the same application as well as permission, if any
to this department and did not follow the procedure as laid
down in the Hand Book of Procedure, Export Import Policy
1997-2002.
3.6 Apart from the above, the floriculture EOU may Import Capital
Goods and Raw Materials, without payment of Customs duties in
terms of Custom Notification No. 126/94 dated 3.6.94 and
accordingly M/s. L.R. Brother Indo, Flora Ltd., have imported
green house equipment, raw materials like Liver Rose Plants and
Consumable like planting materials and Fertilizers under the said
notification. Para 3 of the said Notification reads as under :- ....
3.7 Therefore, from the above provision, it is clear that the units
working under the said Notification may sell their produced goods
in DTA on payment of excise duty as leviable under Section 3 of
Central Excise Act, 1944 if the goods are excisable and on payment
of full Customs duties leviable on such goods as if imported as
such if the goods are non excisable. Cut Flowers or Flower Buds
are not covered under Central Excise Tariff Act, 1985 as Chapter
6 which covers such types of Flowers in Customs Tariff left blank
in Central Excise Tariff Act and, therefore, such types of Flowers
will be treated as non excisable in view of Section 2 (d) of the
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Central Excise Act, 1944. Therefore, full Customs duties will be
leviable on such Flowers, if sold in DTA treating such flowers as
imported into India, in terms of Notification No. 126/94-Cus dated
03.6.94. Further, M/s. L.R. Brothers Indo Flora Ltd., had made
DTA sales during the year 1998-99 to 2000-01 (upto December
2000) in contravention to the aforesaid provisions. Further, they
failed to show any permission from Development Commissioner
for sale of their goods in DTA. It appears that the Development
Commissioner has granted no such permission to them, as
they have not earned the DTA sale entitlement due to very
low exports in comparison to high quantum of imports. ......
3.8 I have also come to conclusion that M/s. L.R. Brothers Indo
Flora Ltd., Behat Road, Saharanpur have contravened the
provisions of Import & Export Policy 1997-2002 and have not
fulfilled the conditions of Notification No. 126/94 dated 3.6.94.
Hence the party is liable to pay the full customs duty on cut flowers
sold in DTA, treating the flowers imported as such into India.
Further, the said M/s. L.R. Brothers Indo Flora Ltd., have
been indulged in wilful suppression of facts, as aforesaid,
and sold the said goods viz., cut flowers falling under Ch.
S.H. No. 0603.10 of the Customs Tariff, in D.T.A. in
contravention of the provisions of Import Export Policy
1997-2002, without payment of Customs duty, hence
extended period of five years as provided under proviso to
section 28 of the Customs Act 1962 is invokable in the
instant case. Therefore, all obligations were cast on such a large
undertaking to discharge the correct duty liability i.e. Customs
duty amounting to Rs.9,98,177.00. Therefore, demand of Customs
duty stands recoverable from them. They are also liable to pay
interest @ 24% from the 1st day of the month succeeding the
month in which the duty ought to have been paid under Section
28AB of the Customs Act, 1962. ...."
(emphasis supplied)
5. The Additional Commissioner, by way of aforesaid order,
confirmed the demand of customs duty of Rs.9,98,177/- under Section
28, interest at the rate of 24% under Section 28AB and penalty of
Rs.9,98,177/- under Section 114A of the 1962 Act. The appellant
unsuccessfully carried the matter in appeal before the Commissioner
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
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(Appeals), Customs & Central Excise, Meerut-I, wherein the Order-inOriginal came to be confirmed by the Order-in-Appeal dated 29.7.2005
by holding thus:
"5. ....... In the light of the above facts, I find myself in agreement
with the findings of the adjudicating authority that the appellants
have not earned the DTA sale entitlement due to very low exports
in comparison to high quantum of imports. Thus, the alleged
contravention of provisions of Import & Export Policy 1997-2002
and non-fulfilling of the conditions of the Notification 126/94-Cus
ibid is fully established against them. Therefore, the demand of
Customs duty along with interest in this case as per the impugned
order is justified.
As regards the imposition of penalty on the appellants, I
find that the charges of contravention of provisions of Export &
Import Policy 1997-2002 & Notification No. 126/94 Cus dt.
03.06.94 stand proved against the appellants. They were aware
that they were not entitled to make DTA sales of the subjected
goods, even then they made DTA sales of the same to evade
payment of duty. Hon'ble Supreme Court in the case of Gujarat
Travancore Agency vs. Commissioner of Income Tax 1989 (42)
ELT 350 (SC), has held that the penalty under Section 271(1)(a)
of the Income Tax Act is a civil obligation and unless there is
something in language of the statute indicating the need to establish
element of mensrea, it is generally sufficient to prove that a default
in complying with the statute has occurred.
In view of the ratio of the aforesaid judgment of Apex Court,
the penalty has been rightly imposed upon the appellant.
In view of the above, I find no infirmity in the order passed
by the adjudicating authority and therefore disallow the appeal."
6. The matter was further carried in appeal before CESTAT
whereat the impugned order was passed confirming the order of the
authorities below whilst also holding that amendment notification is
prospective and cannot be applied to the present case. The relevant
extract of the impugned order is reproduced below:
"5. We have carefully considered the submissions made from both
the sides. Irrespective of whether the DTA clearances of cutflowers were, in contravention of the EXIM Policy or otherwise,
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the cut-flowers being non-excisable goods, their DTA clearance
would attract, in terms of the provisions of para 3(a) of the
exemption Notification No. 123/94-CUS., only the Custom Duty
involved on the inputs used in the production of the cut-flowers.
The point of dispute is as to whether the Custom Duty payable on
the inputs used in the production of the cut-flowers which had
been cleared to DTA, is to be taken as an amount equal to Custom
Duty chargeable on the import of cut-flowers, as such, or it should
be the actual Custom Duty on the inputs used in the production of
cut-flowers cleared to DTA.
5.1
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5.2 From reading of para 3(a) of the Notification No. 126/94-cus
as it existed during the period of dispute i.e. during the period
prior to 18.5.01 - and as it existed during period w.e.f. 18-5-01, it
is clear that during the period of dispute, the notification contained
a machinery provisions for determining, the Custom Duty
chargeable on the inputs used in the production of non-excisable
goods cleared to DTA and as per this machinery provision, the
duty was to be in an amount equal to the Custom Duty chargeable
on the finished goods, as if imported, as such. However, after the
amendment of this Notification w.e.f. 18.5.01, the duty on the
inputs used in the production of non-excisable goods cleared to
the DTA was to be calculated on actual basis. The amendment to
the Notification No. 126/94-CUS. w.e.f. 18.5.01 by the Notification
No. 56/01 can have only prospective effect and it cannot be given
retrospective effect. In view of this, during the period of dispute,
customs duty on the inputs used in the production of cut-flowers
cleared to DTA has to be calculated as per the provisions of the
Notification, as it existed during that period.
6. The Tribunal's judgment in the case of Vikram Ispat (supra) is
not applicable to the fact of this case, as in the present case what
is being charged in respect of DTA clearances of the cut-flowers
is not the customs duty on the cut-flowers, but the custom duty on
the inputs used in the production of those cut-flowers, which as
per the provisions of Notification, as it existed at that time, was
equal to the Customs Duty chargeable on the import of cut-flowers,
as such. In the Tribunal's judgment in case of Zygo Flowers Ltd.
(supra) and Cosco Blossoms Pvt. Ltd. (supra), the implications
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
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of the wording of para 3(a) of the exemption notification during
the period of dispute - "or where such articles [including rejects,
waste and scrap material] are not excisable, on payment of Custom
Duty on the said goods used for the purpose of production,
manufacture or packaging of such articles in an amount equal to
the Custom Duty leviable on such articles, as if imported, as such"
had not been considered. If the Appellant's view accepted, the
words "in an amount equal to the Custom Duty leviable on such
articles, as if imported, as such" would become redundant. It is
well settled principle of interpretation of statute that a statute has
to be construed without adding any words to it or subtracting any
words from it and an interpretation which makes a part of the
statute redundant has to be avoided.
7. In view of the above discussion, we hold that the custom duty
has been correctly charged in respect of DTA clearances of the
cut-flowers and as such we find no infirmity in the impugned order.
The appeal is accordingly dismissed."
Thus, the levy of customs duty stood confirmed.
7. Being aggrieved, the appellant has approached this Court. The
thrust of the argument of the appellant is that according to Paragraph 3
of the exemption notification, sales made in DTA would attract excise
duty and since the cut flowers sold by the appellant are non-excisable
goods, no excise duty can be levied upon it. Further, according to the
notification, in case of non-excisable goods, the customs duty is leviable
on the imported inputs. In the present case, since the cut flowers are
home grown, customs duty cannot be levied upon them and therefore,
the demand of customs duty cannot be sustained. Reliance is placed on
the decisions of CESTAT in Cosco Blossoms Pvt. Ltd vs. Commissioner
of Customs, Delhi7 and larger bench of Central Excise and Gold
(Control) Appellate Tribunal8 in Vikram Ispat vs. Commissioner of
Central Excise, Mumbai-III9. It is then urged that the exemption
notification predicates levy of customs duty on non-excisable goods sold
in DTA sales to the extent of the value of inputs and not to the extent of
the value of final product. It is further urged that the amendment
notification is merely clarificatory and hence it would apply
7 2004 (164) ELT 423 (Tri.-Del.)
8 For short, "the CEGAT"
9 2000 (120) ELT 800 (Tribunal-LB)
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retrospectively. To buttress this submission, the appellant had placed
reliance on Circular No. 31/2001-Cus dated 24.5.2001 issued by Central
Board of Excise and Customs, New Delhi10, which noted that the charge
of customs duty on the inputs equal to the duty leviable on the import of
final product is putting floriculture EOUs at a disadvantageous position.
The circular further envisages that the central excise notifications
provided for recovery of duty on inputs procured duty free, whereas the
exemption notification provided for recovery on inputs equal to duty on
the final product. That the amendment notification was issued to address
this anomaly and to harmonise the central excise and customs
notifications. The appellant placed reliance on the Constitution Bench
decision of this Court in Commissioner of Income Tax (Central) - I,
New Delhi vs. Vatika Township Private Limited11, wherein it had been
observed that whenever the legislator intends to confer benefit upon a
person, it must be presumed to have retrospective effect. The appellant
relied upon yet another decision of this Court in Zile Singh vs. State of
Haryana & Ors.12 to contend that the substitution of a clause which
clarifies about the intent of the legislature takes effect from the date of
enactment of original provision. The appellant would further urge that
Section 12 of the 1962 Act being the charging section, could only be
applied if the goods are imported into India and since the cut flowers are
not imported, the show cause notice issued under the provisions of the
1962 Act is bad in law. In this regard, the appellant had placed reliance
on Commissioner of Central Excise and Customs vs. Suresh
Synthetics13. The appellant further relied on the exposition of this Court
in Uniworth Textiles Limited vs. Commissioner of Central Excise,
Raipur14 to submit that Section 28 of the 1962 Act, extending limitation,
can be invoked only in the case of deliberate default and urged that it
cannot be invoked in the present case since there was no default.
8. Per contra, the respondent would urge that in the fact situation
of the present case, the department has correctly levied the customs
duty, as the DTA sales made were in contravention of the EXIM policy
and the appellant had no permission from the Development Commissioner
to clear the goods in DTA. The respondent further urged that the
10 For short, the "CBEC Circular"
11 (2015) 1 SCC 1
12 (2004) 8 SCC 1
13 2007 (216) ELT 662 (SC)
14 (2013) 9 SCC 753
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
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amendment seeks to bring about a substantive change, whilst pointing
out that the CBEC Circular in its opening paragraph speaks about
"carrying out" the amendment. Further, the amendment must be applied
prospectively. Reliance is placed upon the decision of this Court in Union
of India & Anr. vs. IndusInd Bank Limited & Anr.15, wherein it has
been held that if the provision is remedial in nature, it cannot be construed
as clarificatory or declaratory and has to be applied prospectively.
9. We have heard Mr. Rupesh Kumar, learned counsel for the
appellant and Mr. Ashok K. Srivastava, learned senior counsel for the
respondent.
10. The issues that arise for consideration in this appeal are: (i)
Whether customs duty can be charged on the non-excisable goods
produced in India and sold in DTA by an EOU?; and (ii) Whether the
amendment in terms of Notification No. 56/01-Cus dated 18.05.2001,
purporting to amend the criteria for determination of duty on inputs, is
prospective or retrospective in its application?
11. At the outset, it is apposite to refer to the stated notification.
The relevant extract thereof reads as under:
"NOTIFICATION NO. 126/94-CUS DATED 3.6.1994
Exemption to import of specified goods for use in manufacture of
export goods by 100% E.O.Us. - In exercise of the powers
conferred by sub-section (1) of section 25 of the Customs Act,
1962 (52 of 1962), the Central Government, being satisfied that it
is necessary in the public interest so to do, hereby exempts goods
specified in Annexure-I to this notification (hereinafter referred
to as the goods), when imported into India, for the production or
manufacture of articles specified in Annexure-II for export out of
India or for being used in connection with the production,
manufacture or packaging of the said articles specified in
Annexure-II for export out of India (hereinafter referred to as
the specified purpose) by hundred per cent Export Oriented
Undertakings approved by the Board of Approval for hundred
per cent Export Oriented Undertakings, appointed by the notification
of Government of India in the former Ministry of Industry and
Civil Supplies, (Department of Industrial Development) No.
S.0.163(E)/RLIU/10(2)76, dated the 3rd March, 1976 or the
15 (2016) 9 SCC 720
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Development Commissioner concerned as the case may be, from
thewhole of the duty of customs leviable thereon under the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975) and
theadditional duty, if any, leviable thereon under section 3 of the
second mentioned Act, subject to the following conditions,
namely :-
(1) the importer has been granted the necessary licence for
the import of the said goods;
(2) the importer, at the time of import of the said goods,
produces to the Assistant Commissioner of Customs a certificate
from the Development Commissioner to the effect that the
importer has executed a bond in such form and for such sum
as may be prescribed binding himself-
(a) to bring the said goods into his unit and to use
them for the specified purpose; and
(b) to dispose of the said goods or the articles
produced, manufactured or packaged in the unit or
the waste, scrap or remanents arising out of such
production, manufacture or packaging in the manner
as may, if any, be prescribed in the Export-Import
Policy and in this notification;.....
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3. Notwithstanding anything contained in this notification, the
exemption contained herein shall also apply to the said goods which
on importation into India are used for the purposes of production,
manufacture or packaging of articles and such articles (including
rejects, waste and scrap material arising in the course of production,
manufacture or packaging of such articles) even if not exported
out of India are allowed to be sold in India under and in accordance
with the Export-Import Policy and in such quantity and subject to
such other limitations and conditions as may be specified in this
behalf by the Development Commissioner, on payment of duty of
excise leviable thereon under section 3 of the Central Excises
and Salt Act, 1944 (1 of 1944) or where such articles (including
rejects, waste and scrap material) are not excisable, on
payment of customs duty on the said goods used for the
purpose of production, manufacture or packaging of such
M/S. L. R. BROTHERS INDO FLORA LTD. v. COMMISSIONER
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articles, in an amount equal to the customs duty leviable
on such articles as if imported as such.)
Explanation.- For the purposes of this notification, "Export-Import
Policy" means Export and Import Policy, 1stApril, 1997 - 31stMarch,
2002, published by the Government of India in the Ministry of
Commerce Notification No. 1/1997-2002, dated 31stMarch, 1997,
as amended from time to time. ....."
(emphasis supplied)
12.