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Section 3 in the Customs Act, 1962
Section 3(1) in the Central Excise Act, 1944
the Customs Act, 1962
The Central Excise Tariff Act, 1985
The Customs Tariff Act, 1975

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Customs, Excise and Gold Tribunal - Delhi
Asian Alloys Limited And Mr. Pawan ... vs Cce on 28 July, 2006
Equivalent citations: 2006 (112) ECC 383, 2006 ECR 383 Tri Delhi, 2006 (203) ELT 252 Tri Del
Bench: R Abichandani, S T T.V.



ORDER
 

R.K. Abichandani, J. (President)
 

1. All the four appeals have been argued together by the parties relying upon the complete record placed in Excise Appeal No. 3742 of 2003 and are therefore disposed off by this common judgment.

Central Excise Appeal Nos. 3741-42 of 2003

2. These two appeals are preferred against the order of the Commissioner dated 09.09.2003, determining that the central excise duty of Rs. 4,21,34,053/- was leviable on the goods removed clandestinely to the Domestic Tariff Area (DTA) as per the ledger account of the appellant unit and ordering the said amount to be paid under Section 11A of the Central Excise Act, 1944, determining that the unit should also pay under the said provision, a further, central excise duty amount of Rs. 1,21,76,522/- on 49275.32 kgs. of hosiery knitted fabrics, which were found short in comparison to the balance recorded in the bond register, determining that the appellant unit should pay central excise duty of Rs. 23,49,22,178/- on the fabrics manufactured by the unit on job work, imposing penalty of Rs. 28,92,32,753/- being the total amount equivalent to the total aforesaid duty amounts, and confirming the interest at the applicable rate was chargeable on the amounts of duty determined to be paid by the appellant M/s Asian Alloys Limited (Excise Appeal No. 3742 of 2003). The other appeal (Excise Appeal No. 3741 of 2003) has been preferred by the Chairman Managing Director of the appellant company against the impugned order imposing penalty of Rs. Seven Crores on him under Rule 209A of the Central Excise Rules 1944 read with Section 38A of the said Act.

3. The case of the Revenue was that the appellant company M/s Asian Alloys Limited was a 100% EOU engaged in the manufacture of Hosiery Knitted Fabrics and knitted garments as per the permission granted by the Government of India under letter No. PER/309/1994/EOB/332/94 dated 5.9.94. The appellant company had undertaken to export the resultant products, namely, knitted fabrics and readymade garments of the FOB value of Rs. 1523/- lacs in the first year, Rs. 3480/- lacs in the second year, Rs. 3915/- lacs in the third year, Rs. 3915/- lacs in the fourth year, and Rs. 3915/- lacs in the fifth year, and undertaken minimum net foreign exchange of US$ 22221 thousand by exporting its entire production (including the sales in the DTA as may be permissible under the policy), for a period of five years beginning from the first day after commencement of commercial production or from the date of agreement. It was stipulated that if the unit was unable to fulfill the export obligation undertaken by it, it would be required to pay the amount of customs duty that would be leviable at the relevant time on the items of plant and machinery and equipment and raw materials, components and consumables allowed for import by the said unit in terms of the licence granted to them, and also the amount of duty leviable on the indigenous plant and machinery and equipment as well as raw materials, components and consumables purchased by the unit during the said period. In Clause (d) of the agreement dated 27.6.1995, it was agreed that under no circumstances the unit will be allowed to dispose off the export product in the domestic market, unless specifically allowed by the Government. Admittedly, the appellant company had executed general bonds (B-17) before the authorities from time to time binding itself with the obligations and undertakings mentioned therein.

3.1 The appellant company commenced its production on 18.5.97 but it made 'nil' export during the year 1997-98 and 1998-99, export valued at Rs. 291 lacs during the year 1999-2000 as against the bonded export obligations noted above. Moreover, in respect of the export made to Nepal and USA, Rs. 59 lacs were not realized till 4.5.2001. The appellant company also failed to meet any export obligation during the year 2000-01.

4. On scrutiny of the relevant records, it transpired that the appellant unit had imported capital goods (plant and machinery) valued at Rs. 9,87,98,082/- and it availed exemption from payment of customs duty to the tune of Rs. 3,90,91,510/- under Notification No. 13/81-Cus dated 9.2.81 and Notification No. 53/97-Cus dated 3.6.97 (as amended). The appellant company also procured indigenous capital goods in the said EOU unit valued at Rs. 40,84,681/- without payment of central excise duty under the provision of Form CT-3 and availed exemption of the duty of Rs. 4,83,115/- under Notification No. 1/95-CE dated 4.1.95 as amended. It had also imported raw materials valued at Rs. 24,87,673/- on which duty of Rs. 15,81,096/- was saved in terms of notification No. 53/97-Cus dated 3.6.97. It had procured indigenous raw materials/consumables like yarn, dyes, chemicals and furnace oil etc. valued at Rs. 2,56,30,952/- without payment of duty of Rs. 44,15,003/- under the provision of Form CT-3 under notification No. 1/95-CE dated 4.1.1995.

4.1 When the excise officers of Anti-Evasion Branch visited the premises of the said 100% EOU unit of the appellant company on 16-17.6.2000 and the physical stock of the finished goods as well as raw material etc. were verified, it was noticed that there was a shortage of 49275.32 kgs. of hosiery knitted fabrics in comparison with the recorded in balance shown in the bond register, and that there was no stock of raw material and consumables in the factory. In the voluntary statement dated 17.6.2000 of the Commercial Manager of the appellant company recorded under Section 14 of the said Act, it was admitted that the goods found short (hosiery knitted fabrics) were sold in the open market from the factory premises through a dummy unit i.e. M/s Asian Alloys Limited (Merchandising Division) B-53, Shivalik, Malviya Nagar, New Delhi (the address of the company's 100% EOU unit) Village Sihi, Sikanderpur, Gurgaon, without payment of duty at odd hours also. This fact was admitted by the Chairman Managing Director in his voluntary statement dated 27.6.2000.

4.2 The scrutiny of records also revealed that the appellant company had manufactured and cleared hosiery knitted fabrics to the tune of Rs. 5,84,77,936/- (as per their ledger account) in the domestic tariff area market clandestinely during the year 1997-98, 1998-99 and 1999-2000, though the said unit was not permitted to sell the goods in the DTA market. These goods were sold without issuing proper invoices as per the mandatory requirement of Rule 100-E of the central excise rules and no duty was paid by the said EOU unit on the clandestine removals. There was, therefore, breach committed of Rules 100-A to 100-F of the said rules as well as the undertaking given by the appellants. According to the Revenue, the entire fabrics sold through the said dummy unit of M/s Asian Alloys Limited (Merchandising Division) were in fact manufactured on the plant and machinery of the 100% EOU of the appellant company because the said dummy unit had no plant and machinery of its own and it was shifted to different places in Delhi from time to time. These facts were admitted by the Chairman Managing Director of the appellant company in his statements dated 27.6.2000, 10.1.2001 and 16.2.2001.

4.3 The scrutiny of record also revealed that the said 100% EOU of the appellant company had undertaken job work relating to knitting, washing, bleaching and dyeing for the domestic parties without proper permission from the Central excise authorities and as per the ledger account, it had charged Rs. 3,94,37,916/- as job work charges from different domestic parties during the year 1997-98 to 1999-2000 for doing such job work. This fact was also admitted in the statement made by the Chairman Managing Director of the appellant company. According to the Revenue, as per Note No. 4 of Chapter 60 of the Central Excise Tariff Act, 1985 in relation to products referred to in Chapter 60, bleaching, mercerizing, dyeing, printing, water proofing, shrink-proofing, tentering, heat setting, crease-resistant, organdie processing, or any other process, or any one or more of these processes shall amount to manufacture.

4.4 On being enquired about the total quantity, value and composition of the hosiery knitted fabrics, which were processed/manufactured on job work basis, the plant and machinery, the appellant company could not submit any particulars, and the Chairman Managing Director stated that the fabrics received by the said unit for job work were of mixed type and he was not aware of the quantity and value thereof and it could not be ascertained, because no such record was ever maintained by the unit.

4.5 The Revenue, therefore, made enquiries from seventeen domestic parties who had purchased the fabrics from the said 100% EOU unit of the appellant company or got their goods processed/manufactured on job work basis. The exact quantity/value and composition of the fabrics processed on job work basis was not disclosed either by the Chairman Managing Director of the appellant unit nor by the domestic parties. However, the details given in the job work challans issued by the 100% EOU unit showed the quantity of fabrics processed and on the basis of such particulars, the details of the job work and the quantity of the fabrics processed by the 100% EOU was worked out with the help of unitary method of calculation, and it was found that the said EOU of the appellant have processed 946506 kgs. of fabrics during the years 1997-98, 1998-99 and 1999-2000 as against the total job work charges of Rs. 3,94,37,916/- received by it during the said period.

4.6 The value of the fabrics processed on job work basis and sold in the DTA market, was arrived at in terms of the proviso to Section 3(1) of the said Act which, inter-alia, provided the measure of excise duty leviable in cases where the excisable goods were produced or manufactured by 100% ECU and allowed to be sold in India. As per the said provision, the central excise duty amount payable in such cases were required to be an amount equal to the aggregate of the duties of customs which would be leviable on the like goods produced or manufactured outside India, if imported into India, and the value of such excisable goods was required to be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. On the basis of the bills of entry of the contemporary period pertaining to another 100% EOU, the value of hosiery knitted fabrics in question was ascertained at Rs. 340/- per kg. during 1997-98 and Rs. 288/- per kg. during 1998-99, Rs. 368/- per kg. during 1999-2000 and accordingly the total value of fabrics processed by the unit, during the said years was worked out at Rs. 32,02,32,192/- on the basis of contemporary import of similar goods, under Rule 8(1) read with Rule 6 of Customs Valuation Rules, 1988 as required in terms of the proviso to Section 3(1) of the Central Excise Act, 1944.

4.7 On the above facts, it was alleged that the unit had suppressed the facts relating to clandestine removal and as regards the job work amounting to manufacture with an intent to evade payment of central excise duty, equal to the customs duties payable thereon as per the proviso to Section 3(1) of the said Act. It was alleged that the appellant company had contravened the provisions of the exemption Notification Nos. 13/81-Cus, 53/95 and 1/95 and had also violated the provisions of Rule 100-A to 100-F as well as the provisions of sub-paragraphs (a)(b)(c)(d) of paragraph 9.9 of the EXIM Policy 1997-2002, and also violated the conditions of the permission as well as the legal undertaking and the bond executed by the appellant company in favour of the department.

5. Initially, the matter came to be decided ex-parte, because the appellants did not respond to the show cause notice. However, on remand from this Tribunal, the matter was re-heard and the appellants filed their reply. It was pleaded by the appellants that right from the beginning they faced serious financial problem and could not stabilize the quality in the beginning. They could start the fabric division only in the year 1997-98 and in the first year they were only manufacturing the un-processed fabric. The facility of dyeing, bleaching etc. could be started only from the financial year 1998-99. The garment unit, however, was not started at all. According to them, due to paucity of funds, they could not import the machinery/capital goods for the manufacture of garment unit. Thus, due to acute financial problems they could not commission the garment unit, and they had to close down the unit indefinitely w.e.f. 2.6.2000. It was also contended that the duty demand was inflated and based on the inflated demand relating to clearances effected by the 100% EOU. It was also contended that since the appellant company was denied the status of 100% EOU by another show cause notice dated 31.7.2001 and since the noticee never achieved the status of 100% EOU because the machinery required for garment manufacturing plant was never imported, they had lost the status of 100% EOU and hence should be treated as normal unit and not as EOU for the purpose of charging excise duty under the main provision of Section 3(1) of the said Act. It was contended that the duty demand by applying the proviso to Section 3(1) of the said Act read with the Customs Tariff Act was totally mis-placed and that the duty could be demanded only under the main provision of Section 3(1) of the Act. It was also contended that no penalty could have been imposed on the Chairman Managing Director under Rule 209A of the Act and that penal action under Section 11AC of the Act and Rule 173Q of the rules was not warranted.

6. The learned Commissioner on the basis of the material on record came to a finding that the 100% EOU of the appellant company procured the capital goods as well as the raw materials by claiming the exemption under the Notification Nos. 13/81-Cus, No. 53/97-Cus and 1/95-CE but had during the period of its operation after 18.5.97 cleared its production namely hosiery knitted fabrics valued at Rs. 5,84,77,936/- into the DTA as per their own ledger account and that there was shortage of hosiery knitted fabrics in the quantity of 49275.32 kgs. as per their account and these goods were clandestinely removed during odd hours in the name of dummy entity, without paying the leviable duty thereon. It was noted that there was no dispute about the facts relating to the removal of fabrics as alleged by the revenue. Even before us the facts about the clandestine removal and shortage have not been disputed. As regards the contention of the appellants that proviso to Section 3(1) of the said Act was not applicable. It was found that the appellant's contention that 100% EOU unit was not permitted either under the EXIM policy then in force, or the provisions of the said Act, to make clearances in the domestic tariff area and that the clearances were made in utter disregard of the applicable laws. It was held that applicability of the proviso to Section 3(1), was fully justified and the unit, in view of the unlawful acts of commission and omission, deserved to be penalized in accordance with the provisions of the applicable laws. As regards the manufacturing processes on job work basis done by the company's EOU, the Commissioner held that the basic facts were not disputed that the fabrics were processed on job work basis and cleared in the manner alleged by the Revenue. It was held that since the unit was established under 100% EOU scheme on obtaining LOP, on execution of requisite undertaking/bond and on procuring the capital goods by claiming the exemption under the notification applicable to 100% EOUs, the premises of the unit was a bonded warehouse and the process undertaken in those premises amounted to manufacture in a bonded warehouse. It was not open to the unit to clear any goods manufactured in those premises under the said scheme. The unit had also procured dyes chemicals and furnace oils etc. valued at Rs. 2,81,18,625/- which were used in the processing work. As regards the contention, that the exact quantum of fabrics should have been ascertained from the customers, it was held that the Chairman Managing Director did not give the exact quantity, value and composition of the fabrics processed on job work basis. The quantity of fabrics processed on job work basis was arrived at on the basis of the challans issued by the EOU in the name of dummy unit. It was found that charges of Rs. 3,94,37,916/- were collected from the different domestic parties as per the ledger account of the appellant company, but the fabric processed on job work was cleared on the challans of the dummy unit created in the name of dummy unit which have no plant and machinery of its own. It was held that method of calculation used by the department was justified and based on the relevant challans and was also corroborated by the ledger account of the said EOU of the appellant company. It was further held that the parties have failed to provide exact value of fabric and therefore, no grievance could be made on the adoption of method of valuation by the department by taking Section 14 of the Customs Act, 1962, and the Valuation Rules framed thereunder. It was further held that the exemption Notification No. 2/95, which was resorted to, can apply only if the goods were sold in India in accordance with the policy. If the goods were not allowed to be sold as per the provisions of the policy, the notification was not attracted. It was observed that the burden to prove that the records were maintained and that the impugned fabrics and parts thereof, were exported, had shifted to the unit and it had not discharge its burden. The contentions raised on behalf of the unit were held to be without any legal basis and substance and it was held that there was sufficient reason to invoke the penal provisions.

7. The learned Counsel appearing for the appellants contented that the proviso to Section 3(1) of the said Act could not be invoked against the appellant company because it could be invoked only where such EOU was allowed to sell the goods produced by it in India. Since in the present case, the appellant company was not allowed to sell the goods in India, the higher rate of excise duty contemplated under the proviso could not be invoked. He further contended that the EOU of the appellant company had cleared hosiery knitted fabrics, which were also processed/manufactured on job work basis out of the yarn received and without ascertaining those particulars, the duty was worked out on an inflated basis. It was argued that if the proviso is held to be applicable to the goods manufactured/produced and removed by the said EOU then the benefit of the Notification Nos. 8/97-CE and 2/95-CE ought to have been extended for the purpose of effective rate of duty. He then argued that the department had relied upon some bills of entries of hosiery knitted fabrics, though the appellant had done the manufacturing process within the meaning of Note 4 of Chapter 60, which may have included only dying and processing the yarn without any further manufacturing process of making fabrics. The learned Counsel further argued that, in any event, the price of goods received by the appellant should be treated as cum-duty price which aspect was not considered by the learned Commissioner. On the aspect of penalty, it was contended that Rule 173Q, which was in Chapter VII-A of the Rules could not be invoked in cases which were covered under Chapter V-A of the rules and therefore, the penalty imposed under Rule 173Q cannot be upheld.

7.1. The learned Counsel for the appellants relied upon the following decisions in support of his contentions:

(i) The decision of the Tribunal in Commissioner of Central Excise, Jaipur-II v. Pratap Singh was cited for the proposition that 100% EOU is liable to pay excise duty under the main provision of Section 3(1) of the Central Excise Act, 1994 and not the proviso to Section 3(1) for having removed the goods in DTA without permission of the competent authority. Reliance was placed on the order of the Hon'ble the Supreme Court dismissing the petition for special leave to appeal (Civil Appeal No. 22584-22586 of 2002) filed by Pratap Singh against this decision. However, since the SLP was summarily dismissed, there was no question of the order of the Tribunal merging in the order of the Hon'ble the Supreme Court on the rejection of the SLP to file an appeal. Moreover, the issue in the context of the proviso to Section 3(1) having been decided by the Tribunal in favour of the assessee, there was no occasion for Hon'ble the Supreme Court to deal with that issue in the appeal which was against the other part of the order which was decided against him.

(ii) The decision of Hon'ble the Supreme Court in Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd., was cited in support of the contention that the value fixed for the goods should be treated as the entire price inclusive of the excise duty because the assessee by necessary implication had taken on the liability to pay all taxes on the goods sold and the purchaser was under no obligation to pay any amount in excess of what had already been paid as the price of the goods. That was a case where the Collector has raised the demand of excise duty on the waste and scrap which was sold. The demand was challenged by the assessee on the ground that excise duty was not payable. The Tribunal considered the price on which the waste and scrap was sold to be cum-duty price and the assessable value was determined after deducting the element of excise duty.

(iii) The decision of the Hon'ble the Supreme Court in Amrit Foods v. Commissioner of Central Excise, U.P. reported in 2005 (190) ELT 433 (SC), was cited to point out that the Hon'ble the Supreme Court had dismissed the Revenue's appeal from the order of the Tribunal setting aside the imposition of penalty under Rule 173Q on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened.

(iv) The decision of the Tribunal in T. Gayathri Reddy v. Commissioner of Customs, Guntur (Tri. Chennai) was cited for the proposition that penalty under Rule 173Q was set aside on the ground that Rule 173A excluded applicability of the provisions of Rule 173Q to 100% EOU.

(v) The decision of the Tribunal in Alsa Marine & Harvests Ltd., v. CC, Visakhapatnam , was cited for the same proposition that penalty and confiscation under the provisions of Rule 173Q cannot be upheld since V-A of the Central Excise Rules, 1944 was applicable to removal from EOU unit. The decision of the Tribunal in LA Mansion Granites Ltd., v. Commissioner of C. Ex, Hyderabad , was also cited for the same proposition.

(vi) The decision of the Tribunal in Modern Denim Ltd., v. Commissioner of Central Excise, Ahmedabad reported in 2005 (191) ELT 1174 (Tri. Mumbai) was cited for pointing out from sub-paragraph (f) to (h) of paragraph 2.1 of the order that the larger bench decision in Himalaya International Ltd. , holding that rates applicable, whether the clearance was made with or without permission obtained would be as per the proviso to Section 3(1) in case of EOU was not applied on the ground that the subsequent decision of the Division Bench was set aside and remitted.

(vii) The decision of the Tribunal in SAM Spintex Ltd., v. Commissioner of C. Ex. Indore, , was cited to point out that the Division Bench of the Tribunal distinguished and had not followed the larger bench judgment in Himalaya International Ltd., on the ground that Division Bench judgment in Pratap Singh was not brought to the notice of the larger bench. It is also observed that Pratap Singh's judgment was affirmed by the Apex Court as noted above. It may be noted that the Apex Court bench had merely dismissed the Special Leave to Appeal petition and therefore it cannot be said that the order in Pratap Singh case was affirmed on the issue on which Pratap Singh had not filed any appeal since that was decided in his favour.

(viii) The decision of the Tribunal in Ramco Granites Ltd., v. Commissioner of Customs, Bangalore, , was cited to point out that in case of a defaulting 100% EOU it was held, in para 5 of the order, that duty should be charged under Section 3(1) of the Act as per the Central Excise Tariff and not the aggregate of the customs duties.

8. The learned Counsel appearing for the Revenue submitted that, as per the proviso to Section 3(1) of the said Act as it existed at the relevant time, the goods manufactured or produced by the EOU when allowed to be removed into the DTA were to be so allowed only on payment of the excise duty, which was to be the amount equal to the aggregate of the duty of customs which would be leviable under the Customs Act, 1962 or any other law for the time being in force, on like goods produced or manufactured outside India if imported into India, and the value was to be determined in accordance with provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. He also submitted that, admittedly, the appellant company did not fulfill the export obligation as contemplated in the policy and the permission granted to the appellant company for its EOU. The learned Counsel submitted that the Division Bench in Himalaya International Ltd., v. CCE, Chandigarh, reported in 2003 (58) RLT 613 (CESTAT-Del.), after the decision of the larger bench on the issue referred to it as to the applicability of the proviso to Section 3(1) to 100% EOUs, had proceeded to decide the matter on the aspect of effective rate of duty under the proviso to Section 3(1) which, according to the assessee in that case, was required to be decided on the basis of Notification No. 13/98-CE dated 2.6.98. The Division Bench upholding this contention held that it did not find any scope for dispute on that point and that duty was leviable at the effective rates of duty and not the tariff rates. It was held that relief was warranted on this score, and therefore ordered that the jurisdictional authority shall work out the duty demand on the goods cleared to the DTA at the effective rates provided under the Notification No. 13/98-CE. The Commissioner had appealed against that decision and Hon'ble the Supreme Court, on 11.10.2004 disposed of the appeal by setting aside the impugned judgment, which obviously means that the decision of the Division Bench to the extent it was challenged by the Commissioner was set aside. The Hon'ble the Supreme Court remitted the matter to the Commissioner for consideration of not only the rate but also to decide the question whether the respondent was entitled to exemption keeping in mind the aspect as to whether the goods had or had not been manufactured from the raw material produced or manufactured in India. It was stated that no appeal was filed by the assessee against the finding given by the larger bench, that proviso to Section 3(1) was attracted, on the basis of which the Division Bench had decided the connected issue regarding the effective rate of duty in view of the said notification. It submitted that the said order of the Hon'ble the Supreme Court cannot be construed as disapproving the finding given by the larger bench on the issue which was decided against the assessee and not challenged by the assessee after the matter was finally decided by the Division bench on the basis of the issue of law answered by the larger bench, on the connected aspect of the matter having bearing on the question of the applicability of the notification providing for the effective rate of duty for the 100% EOUs. It was submitted that the Notification No. 13/98 proceeded on the basis that the proviso to Section 3(1) would apply and if the Supreme Court were of the view that Section 3(1) applied, it would not have ordered the effective rate applicable under the said notification to be considered. It was further submitted that the value of the finished goods was to be worked out as contemplated by the proviso to Section 3(1) of the Central Excise Act, which required applicability of Section 14 of the Customs Act, 1962. Therefore, the local value of the goods purchases at their own cost of manufacture, was not relevant in connection with the proviso to Section 3(1) because it stipulated that the imported value of similar goods be taken into account. It was further argued that the decision of the Hon'ble the Supreme Court in Maruti Udyog Ltd., (supra) was inapplicable to clandestine removal and that the concept of cum-duty price cannot be invoked in the context of the import value which was to be worked out under the proviso to Section 3(1), which has nothing to do with the price actually charged by the appellant from his customer. It was contended that the concept of cum-duty price will not apply in this case because the assessable value was required to be determined on the basis of import price of similar finished goods under the proviso. It was also submitted that for working out the assessable value, CIF value, less import duty was taken into account and therefore, the concept of cum-duty price cannot apply in the instant case. The learned Counsel further contended that since the goods were not allowed to be sold in India as contemplated by the provision of the policy as well as the notification and the rules, there was no question of giving benefit of the notification of effective rate of duty for those EOUs, which are allowed to sell the goods in India. It was submitted that the very fact that the appellant has claimed the benefit of the notification postulates applicability of the proviso to Section 3(1) because, the notification has been issued describing effective rate of duty only in the context of the proviso. It was further contended that though Rule 173Q was mentioned in the show cause notice, it should be read as Rule 209 which was in similar terms and the ingredients of which were set out in the show cause notice and that there has been prejudice caused by mere wrong mention of the provision. It is submitted that the decision, on which reliance was placed, in the context of Rule 173Q did not consider the applicability of Rule 209, since that question was not raised. It is submitted that there could not be estoppel against the applicability of provisions of Rule 209 and mere non-mention of the correct provision of law in the show cause notice or in the impugned order did not vitiate the confiscation or the penalty order passed against the appellants.

8.1 The learned Counsel for the Revenue placed reliance on the following decisions in support of his contentions:

i) The decision of the Hon'ble Supreme Court in Kunhayammed v. State of Kerala, , was cited for the proposition that if SLP is dismissed at the first stage, there is no merger of the order challenged in the order of the Supreme Court.

ii) The decision of the Tribunal in S. Kumar's Ltd., v. Commissioner of Central Excise, Indore , was cited for the proposition that when a civil appeal is dismissed even though without assigning reasons it will have an effect of a binding precedent unlike in the case of dismissal of a special leave to appeal petition without assigning reasons which will not have an effect of a binding precedent.

iii) The decision of the Tribunal in Sterlite Optical Technologies Ltd., v. CC&CE, Aurangabad , was cited to point out that in the context of the similar contentions the division bench of the Bombay High Court held that the contention that the larger bench decision of the Tribunal was set-aside by the Hon'ble the Supreme Court was factually incorrect and that the duty as prescribed in the proviso 3(1) was leviable on all goods manufactured in a 100% EOU whether or not allowed to be sold. The bench also followed the interpretation given to the, expression, "allowed to be sold," by the larger bench and rejected the plea that all the goods removed from a 100% EOU without being sold were exempted from payment of duty under Notification No. 125/84.

iv) The decision of the Hon'ble the Supreme Court in N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd., reported in 1978 ELT (J399), was cited for the proposition that if the authorities have the power to issue notice either under Rule 10A or Rule 9(2) of the Central Excise Rules, 1944, the fact that the notice refers specifically to a particular rule, which may not be applicable, will not make the notice invalid. (See para 14).

v) The decision of the Hon'ble the Supreme Court in P. Balakotaiah v. Union of India and Ors., reported as AIR 1985 (Vol. 45) 232 (SC), was cited to point out from para 10 of the judgment that, when an authority passes an order which is within its competence, it cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within its powers under any other rule, and that the validity of an order should be judged on a consideration of its substance and not its form.

vi) The decision of the larger bench of the Tribunal reported in Himalaya International Ltd., v. CCE, Chandigarh-I, , was cited for the proposition that the rate as per the proviso to Section 3(1) would be applicable for assessing all the excisable goods which were cleared by 100% EOU to DTA whether in terms of permission granted or in excess of the permission granted. It was held that the contrary view in Kuntal Granites (P) Ltd., was not a good law.

9. It is not disputed and as has been amply established from the cogent material on record that the appellant company which was set up as a 100% EOU under the requisite permissions in accordance with the EXIM Policy and had executed requisite legal agreements and bonds, while taking the advantage of the scheme did not at all fulfill its obligations. The advantages it earned under the scheme were meant to be incentives for boosting up exports and in none of the years the exports as scheduled were made by the appellant company. It has not been disputed at all that, instead of exporting the goods as per the commitment of the EOU of the appellant company they were diverted and sold in the domestic tariff area in violation of the terms of the policy and the undertakings given by the appellant company. Since the EOU of the appellant company had procured the capital goods as well as raw material by claiming the exemption under the Notification No. 13/81-Cus, 53/97-Cus and 1/95-CE, the unit was required to export the whole of its production unless otherwise permitted by the competent authority and, admittedly no such permission was ever obtained for diverting the production, which was meant for export into DTA. Admittedly, the EOU of the appellant company had never sought for any such permission at any point of time in respect of the goods diverted by it into the DTA. The goods were hosiery knitted fabrics and as per the ledger accounts of the appellant company, they were valued at Rs. 5,84,77,936/-. The shortage of the hosiery knitted fabrics, as per the books of accounts of the appellant company, which was to the tune of 49275.32 kgs., was also not disputed, and has been rightly held to be proved. The Central Excise duty amount on the goods clandestinely sold as per the ledger account of the appellant company and the goods found short in the balance shown in the record has been assessed in terms of the proviso to Section 3(1) of the said Act. The main dispute raised on behalf of the appellant is against such a course adopted by the Revenue under the impugned order. The provisions of Section 3(1) and its proviso as it existed at the relevant time read as under:

Section 3. Duties specified in the (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 duties of excise on all excisable goods other than salt which are produced or manufactured in (India) and a duty on salt manufactured in, or imported by and into, any part of (India) as, and at the rates, set forth in the (Schedule to the Central Excise Tariff Act, 1985):

Provided that the duties of excise which shall be levied and collected on any {excisable goods which are produced or manufactured,-

(i) in a free 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 which would be leviable under Section 12 of the Customs Act, 1962 (52 of 1962), 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; that 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 (52 of 1962) and the Customs Tariff Act, 1975 (51 of 1975).

10. It will be seen from the above provision of Section 3(1), that it is enacted for the purpose of levy and collection of duties of excise on all the excisable goods at the rates, set-forth in the Central Excise Tariff Act, 1975. However, the proviso adopts a different measure of duty of excise, inter-alia, in respect of the excisable goods which were produced or manufactured by 100% EOU for exports but which are allowed to be sold in India. The goods which are allowed to be sold in India by such EOU are subjected to duties of excise which shall be an amount equal to the aggregate of the duties of customs leviable under Section 12 of Customs Act, 1962 on like goods produced or manufactured outside India if imported in India. In other words, where the goods produced or manufactured by the EOU are allowed to be sold in India, the assessee will have to pay the duties of excise at the rate of the level at which they would be payable in respect of like goods imported into India. Therefore, the goods produced and manufactured by the EOU which are allowed to be removed will be treated as if they are imported, for the purpose of working out the excise duty amount which would be the amount equal to the aggregate of the duties of customs.

10.1 The phrase "allowed to be sold in India", appearing in the proviso has evoked much debate. It is obvious that this phrase cannot be read in isolation and it would mean only such excisable goods produced or manufactured by the 100% EOU which are allowed to be sold in India in accordance with the relevant provisions of the EXIM policy, and any exemption notification issued in this context has also to be read in the context of the relevant provisions of the Act, the rules and the EXIM Policy.

10.2 In this context, we may refer to the relevant rules of V-A of the Central Excise Rules, 1944 in connection with removal from a free trade zone with regard to 100% Export Oriented Undertaking of excisable goods for home consumption. As per Rule 100-A, 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 100% EOU, 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 leviable thereon. On the aspect of removal of goods on payment of duty, Rule 100-D provided that when a manufacturer desires to remove excisable goods from a 100% EOU to any place in India, he was required to make removal of such goods under an invoice signed by the owner of the factory or his authorized agent and it was required that such invoice shall indicate the value of goods and duty involved separately, and also give particulars as may be specified by the CBEC or Commissioner and the triplicate copy of the invoice shall be forwarded to the proper officer within twenty four hours of the removal of the goods. Rule 100-E in terms provided that no excisable goods shall be removed inter-alia from a 100% EOU to any other place in India except on payment of duty of excise leviable on such goods and under an invoice, signed by the manufacturer or his authorized agent. Sub-rule (2)(a) of Rule 100-E provided the manner in which such invoices were prepared and its particulars provided for. These rules and other provisions of Chapter V-A have to be read for giving full meaning to the expression "allowed to be sold in India," occurring in the proviso to Section 3(1) of the Act. Admittedly, none of the provisions of Chapter V-A were observed by the 100% EOU of the appellant company. Therefore, it cannot be said that the goods diverted by the EOU of the appellant company into DTA, were allowed to be sold in India. As noted above, Rule 100-A specifically provides that in such cases a 100% EOU should have been allowed by the proper officer to remove such excisable goods for being sold in India. In the present case, permission was neither sought for nor granted for any of the excisable goods sold by the 100% EOU of the appellant company in the domestic tariff area.

11. The contention that the goods are not allowed to be sold under the proviso to Section 3(1) and therefore the proviso will not apply and Section 3(1) will apply is too naive to be countenanced and proceeds on a misreading of the phrase "allowed to be sold in India" in isolation and de hors the provisions of the policy and the rules. As per paragraph 9.1 of Chapter 9 of the Export Import Policy 1997-2002 which was applicable to the present case, the units undertaking to export their entire production of goods, were to be allowed to be set up under the 100% Export Oriented Unit (EOU) Scheme. Therefore, there was no scope for diverting the production into the DTA. Under paragraph 9.6 such unit was required to execute a legal undertaking to fulfill the obligations stipulated in the letter of approval/intent, and was liable to penalty in or under any other law for the time being in force for the breach. Paragraph 9.9 of the EXIM Policy dealing with DTA sales, inter-alia, provided that the entire production of the EOU unit shall be exported subject to Clauses (a) to (f) thereof Clause (a) provided for approval by the Development Commissioner in consultation with the local customs authority for allowing sales of rejects upto 5% of the value of production, in the DTA. Clause (b) provided that 25% of the production in value terms may be sold in the DTA subject to payment of applicable duties. It was also provided that no DTA sale shall be permissible in respect of certain goods such as motorcars, alcoholic liquors etc. Thus, the goods for which no permission could be given, were the goods, which were not allowed to be sold under the policy itself. Even the sale of 25% of the production in terms of value, which could be sold in the DTA, was required to be dealt with as per the provision of Chapter V-A of the Rules, 1944 which was specifically enacted to deal with such removal for home consumption from 100% EOU. It would appear from the provisions of the EXIM Policy relating to the EOU scheme and the contents of the proviso to Section 3(1) read with chapter V-A of the Rules that, even to the limited extent to which the goods were allowed to be sold in the DTA under the policy itself, the requisite permission from the concerned officer was required in accordance with Chapter V-A for their being treated as "goods allowed to be sold in India," under the proviso to Section 3(1). These concessions of sale of such goods, were subject to the condition that, the excise duty payable thereon would be the amount of customs duties that would be attracted to such like goods when imported. The rationale behind this provision is obviously to prevent the abuse of the concessions given to those who set-up such EOU units. The scheme was intended to boost up exports and the very purpose underlying the scheme would be frustrated if a unit purported to have been set-up for genuine exports is allowed to divert its production to the DTA by simply paying duty under Section 3(1) read with the Schedule to the Central Excise Tariff Act. In fact, the only rate of excise duty payable in respect of such excisable goods produced and manufactured by 100% EOU would be under the proviso to Section 3(1) alone at the rate being the aggregate of the amount of customs duties and there is no scope whatsoever for applying the provision of the main provision of Section 3(1) in respect of the goods manufactured by 100% EOU and diverted to the domestic tariff area. It is precisely for this reason that the notifications were issued with a view to provide a concessional rate of duty in cases where the goods are allowed to be sold in India meaning thereby, their being sold in India in accordance with the provisions of the Rules in Chapter V-A, more particularly Rule 100-A which required permission of the concerned authority for such removal.

12. The contention that the larger bench decision in Himalaya International Ltd., stood over-ruled by the Hon'ble the Supreme Court is not at all borne out from the order of the Supreme Court by which the matter was remitted to the Commissioner as noted above. The Division Bench, had after the issue of the applicability of the proviso to Section 3(1) was answered by the larger bench in favour of the Revenue proceeded to decide the connected issue of the applicability of the Notification No. 13/98 under which the assessee had claimed the benefit of effective rate of duty. The Hon'ble the Supreme Court was entertaining an appeal filed by the Commissioner against the decision of the division bench in Himalaya International Ltd., and had passed the following order as reported in 2005 (179) ELT A100:

Delay condoned.

Appeal admitted.

Heard parties.

Impugned judgment is set aside. The matter is remitted back to the Commissioner for consideration of not only the rate but also to decide the question whether the respondent is entitled to exemption keeping in mind the aspect as to whether the goods have or have not been manufactured from raw material produced or manufactured in India. The appeal stands disposed of accordingly. There will be no order as to costs.

It is obvious that the matter was remitted to the Commissioner on the question as to whether the respondent assessee was entitled to exemption and the rate. There is nothing in this order to indicate that Hon'ble the Supreme Court was dealing with the issue of applicability of the said proviso, much less setting aside the finding given by the larger bench on the issue of law, which was decided in favour of the Revenue and could not have been challenged by the revenue it its appeal.

13. In our opinion, the Tribunal has correctly held in Sterlite Optical Technologies Ltd., v. CC&CE, Aurangabad (supra) that the contention that larger bench decision in Himalaya International Ltd., on the issue of law was set aside by the Hon'ble the Supreme Court was factually not correct. The bench observed that the policy governing the EOU scheme stipulated the extent to which goods could be removed from EOU either under the specific permission or general permission provided under the policy, and rejected the plea that the goods removed without being allowed to be sold were exempt from payment of duty under Notification No. 125/84-CE.

14. According to the learned Counsel for the appellants, if the proviso to Section 3(1) of the said Act is attracted, then the appellant company should be given the benefit of the aforesaid notifications which will have the effect of attracting the normal excise duty as per the provision of Section 3(1) read with the schedule to the Central Excise Tariff Act. This contention cannot be countenanced because under the Notification No. 13/81-Cus dated 9.2.81, it was stipulated in condition No. 5 that the exemption from the customs duty depended upon the unit having been allowed by the Development Commissioner or the Board to clear any of such goods for being taken to any other place in India in accordance with EXIM Policy 1992-97 as amended from time to time. Again in the Notification No. 53/97, the exemption from the duty of customs was made dependent on the Assistant Commissioner of Customs being satisfied that the 100% EOU have been allowed by the Development Commissioner or the Board to clear any of the goods for being taken to any other place in India in accordance with the EXIM Policy. Under condition No. 7 of the notification, it was required that the notification applied to articles, rejections, waste and scrap material arising in the course of manufacture of articles within 100% EOU where they are allowed to be sold in India in accordance with the EXIM Policy on payment of excise duty. It is thus clear that the exemption from payment of excise duty at the rate of the aggregate of the customs duties in respect of the goods produced or manufactured by 100% EOU was attracted only in cases where the "goods are allowed to be sold in India" in accordance with the EXIM Policy. As noted above, the expression goods allowed to be sold in India, in the proviso to Section 3(1) of the Act is to be read in light of the rules contained in Chapter V-A of the Act and the provisions of the EXIM Policy having bearing on the types of goods which are allowed to be sold in India and the restrictions thereon under the policy itself. In the present case, admittedly, no permission as contemplated by Rule 100-A of the said Rules was obtained by the 100% EOU of the appellant company for removing the said goods manufactured by it for sale in the DTA. The appellant company is, therefore, not entitled to the benefit of the exemption under the said notifications, as rightly held by the Commissioner.

15. The contention raised on behalf of the appellant that no confiscation could have been done and penalty imposed under the provision of Section 173Q of the erstwhile rules, because Chapter VII-A of the rules which contained Rule 173Q, did not apply to the matters covered by Chapter V-A overlooks the aspect that mere non-mention of the correct provision will not vitiate the proceedings. There is no dispute about the fact that the ingredients of Rule 173Q(1)(a) and Rule 209(1)(a) are similar and that the provision regarding confiscation and penalty for the breaches dealt with in these two rules are almost identical. Rule 209(1), inter-alia, provides that notwithstanding anything contained in any other provision of these rules save and except Rule 173Q, if any manufacturer, producer, registered person of a warehouse or a registered dealer, removes any excisable goods in contravention of any of the provisions of these rules, then all such goods shall be liable to confiscation, and the manufacturer, producer, registered person of the warehouse or a registered dealer as the case may be, shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in Clause (a) or Clause (b) or Clause (bb) or Clause (c) or Clause (d) has been committed, or five thousand rupees, whichever was greater. Even in Rule 173Q(1)(a), it was provided, in the same vein, that subject to the provisions contained in Section 11AC of the Act and Sub-rule (4) of Rule 57-I and Sub-rule (5) of Rule 57U, if any manufacturer, producer, registered person of a warehouse or a registered dealer removes any excisable goods shall be liable to confiscation and the manufacturer, producer, registered person of a warehouse or a registered dealer as the case may be, shall be liable to a penalty not exceeding three times of the value of the excisable goods, in respect of which any contravention of the nature referred to in Clause (a) or Clause (b) or Clause (bb) or Clause (bbb) or Clause (c) or Clause (d) has been committed, or five thousand rupees, whichever was greater. It is obvious to us on reading the reply to the show cause notice as well as the impugned order that, the ingredients attracting confiscation and penalty were specifically alleged and clearly understood by the noticee and appropriately dealt with by the Commissioner. In this background mere wrong mention of the provision, namely, Rule 173Q instead of Rule 209 was of no consequence, since no prejudice whatsoever has been caused to the noticee by reference to Rule 173Q instead of Rule 209. It is the substance which is important and not the form; and when substance is examined it becomes obvious that there has been no prejudice whatsoever to the noticee by a mere erroneous reference to Rule 173Q in place of Rule 209. Reference to Rule 173Q was an obvious mistake because of the provisions of Rule 173A(2) stating that nothing in this chapter shall apply to a manufacturer or producer who has been allowed to discharge his duty liability in accordance with the provisions contained in Section C-I, E-III, E-VI, or E-IX of Chapter VI, or to whom the provisions of Chapter V-A apply. This provision, however, did not exclude the applicability of Rule 209 which obviously applied in cases of breach of rules contained in Chapter V-A. In this view of the matter, the contention that confiscation and penalty should be set-aside merely on the ground of the wrong mention of Rule 173Q instead of Rule 209, is misconceived and cannot be accepted. The decision on which reliance was sought to be placed cannot, therefore, assist the appellant case. The applicability of Rule 209 was neither argued nor considered in those cases. We, therefore, do not find any justification for interfering with the impugned order in respect of confiscation and penalty. We are in full agreement with the reasoning adopted by the learned Commissioner for confiscating the goods and imposing the penalties on the appellants under the impugned order.

16. The Commissioner took into account the relevant material including the statements of as many as seventeen customers of the 100% EOU to whom the appellant had sold the goods in the DTA through its dummy unit, and also relied upon the other relevant material for working out the value of the goods diverted by the said 100% EOU to the DTA. The contention raised on behalf of the appellant that the Revenue should have enquired about the material which was supplied for job work to the said 100% EOU unit, for working out the correct value of the hosiery knitted fabric goods sold by the said EOU in the DTA has no substance, because as per the proviso to Section 3(1), it is the value of the imported like goods, namely, hosiery knitted fabric imported which was required to be taken into account. As noted above, the proviso to Section 3(1) is only a measure of excise duty attracted in cases when the excisable goods, which are produced or manufactured by 100% EOU are allowed to be sold in India. The amount of excise duty in such cases is to be the aggregate of duties of customs and the value of such excisable goods is to be determined in accordance with the provisions of the Customs Act. The customs duty leviable on like goods produced or manufactured outside India if imported into India is the basis for working out the valuation. Therefore, the particulars of the value of the goods supplied to the 100% EOU for job work was not of any significance. The Revenue had relied upon the bill of entries Nos. 17281 dated 31.3.98 with the relevant invoice dated 5.3.98, bill of entry No. 206168 dated 13.3.99 with the relevant invoice dated 11.3.99 and bill of entry No. 209969 dated 24.4.99 with the relevant invoice dated 20.4.99 of the contemporary period pertaining to another 100% EOU situated at Gurgaon itself showing the imports of hosiery knitted fabrics. In our opinion, these were relevant documents for the purpose of working out the total value of the fabrics processed by the unit during the period in question and the Commissioner has rightly come to the conclusion on the basis of the material on record that, the unit had produced nothing to rebut the said version of the department. The appellant company did not give any information whatsoever on the question of valuation and the Commissioner was, therefore, justified in placing reliance on the statements including the statements of seventeen domestic parties and other material for accepting the figures worked out by the Revenue for showing the value of the imports of like goods. We agree with the reasoning and findings of the learned Commissioner on the aspect of the valuation of the hosiery knitted fabric, which were removed by the appellant in the DTA.

17. The clandestine removal of goods, as well as the shortage of quantity of fabrics manufactured on job work basis were duly established and concluded against the appellants for the valid reasons set-out in the impugned order and we, therefore, do not finding cogent ground for interfering with any of the findings contained in the impugned order.

18. It was contended that the amounts worked out for the values of job work, clandestine removal, and shortage, totalling Rs. 28,92,32,753/-, even if taken to be true and correct should be considered as the total price received by the said unit of the appellant company inclusive of duty. In other words, the said amount should be considered, as "cum-duty" price and the duty liability should be worked out on that basis. In this context, it appears from the decision of the Mumbai bench of the Tribunal in Nagreeka Exports Ltd., v. Commissioner of Central Excise, Pune, , that in paragraph 11 of the judgment it has been held that if duties and taxes have not been realized separately, the sale price has to be treated as cum-duty price and duties and taxes have to be deducted to arrive at the assessable value in such case. The Tribunal was dealing with the contention that the price which was realized by the appellants on DTA sales be taken as cum-duty price and the assessable value and the duty amount have to be worked out from the same. It however, appears that the issue of clandestine removal and its impact on the claim for treating price as cum-duty was neither raised nor considered by the Tribunal in that order. In the present case, there is absolutely no material on record to indicate that the price charged by the 100% EOU unit of the appellant was a cum-duty price. Even in the decision of the Honble the Supreme Court in Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd., (supra), in paragraph 5 of the judgment the Hon'ble the Supreme Court held as under:

A reading of the aforesaid Section clearly indicates that the wholesale price which is charged is deemed to be the value for the purpose of levy of excise duty, but the element of excise duty, sales tax or other taxes which is included in the wholesale price is to be excluded in arriving at the excisable value. This Section has been so construed by this Court in Asstt. Collector of Central Excise and Ors. v. Bata India Ltd., -, and it is thus clear that when cum-duty price is charged, then in arriving at the excisable value of the goods the element of duty which is payable has to be excluded. The Tribunal has, therefore, rightly proceeded on the basis that the amount realized by the respondent from the sale of scrap has to be regarded as a normal wholesale price and in determining the value on which excise duty is payable the element of excise duty which must be regarded as having been incorporated in the sale price, must be excluded. There is nothing to show that once the demand was raised by the Department, the respondent sought to recover the same from the purchaser of scrap. The facts indicate that after the sale transaction was completed, the purchaser was under no obligation to pay any extra amount to the seller, namely, the respondent. In such a transaction, it is the seller who takes on the obligation of paying all taxes on the goods sold and in such a case the said taxes on the goods sold are to be deducted under Section 4(4)(d)(ii) and this is precisely what has been directed by the Tribunal. There is also nothing to show that the sale price was not cum-duty.

(emphasis added).

18.1. In the present case, all the sales to the DTA were clandestinely done in contravention of the provisions of the EXIM Policy and the rules applicable to such 100% EOU unit. The appellant company adopted a studied course of non-cooperation and did not raise any contention that the price which was charged, included the component of excise duty as contemplated by the proviso to Section 3(1). On the contrary exemption from duty was claimed, meaning thereby whatever price was realized by the said EOU unit was realized on the footing that no duty was payable because of the exemption notification. Obviously, therefore, such a price can never include any duty amount, because when the appellant company had itself proceeded on the footing that no duty was payable, there was no question of its having recovered any "cum-duty" price from these customers in the DTA. Therefore, the facts of the present case fall on totally a different footing than the cases on which reliance was sought to be placed on behalf of the appellant. There is no scope in the present case to treat the sale price worked out for assessment as "cum-duty" price.

19. We do not find any reason to interfere with the quantum of penalties imposed on the respective appellants as, in our opinion, having regard to the magnitude of the violations committed, they are in no way excessive and we find absolutely no warrant for reducing the penalty amounts in any of these appeals.

20. For the foregoing reasons, we do not find any substance in the above contentions raised on behalf of the appellant. Both these appeals are, therefore, required to be dismissed.

Excise Appeal Nos. 3743-3744 of 2003

21. Excise Appeal Nos. 3743 and 3744 of 2003 have been preferred against the impugned order dated 09.09.2003 by which the Commissioner made an order determining and demanding customs duty amounting to Rs. 3,82,62,727/- under Notification No. 13/81-Cus, excise duty amounting to Rs. 4,83,115/-, on indigenously procured capital goods, excise duty of Rs. 4415003/-, being the duty foregone on raw materials and consumables procured duty free indigenously, customs duty amounting to Rs. 15,81,096/-, being the duty foregone on the import of raw materials, under the said two notifications and confiscated the capital imported goods with an option to redeem them on payment of a fine of Rs. 2 crores as well as confiscation of capital goods procured indigenously with an option to redeem them for a fine of Rs. 10 lacs and imposing penalties of Rs. 48,98,118/- and Rs. 3,98,43,823/- on the appellant company and penalties of Rs. 10 lacs and Rs. 1 crore on the appellant Chairman Managing Director of the company.

22. The only contention that raised by the learned Counsel in both these appeals was that, the duty was charged on the machinery without allowing depreciation. Reliance was placed on condition No. 5(a) of Notification No. 53/97-Cus dated 3.6.97 in support of this contention.

23. It is e vident from the said notification that, it is only where it is shown to the satisfaction of the Assistant Commissioner of Customs that the said unit has been allowed by the Development Commissioner or the Board to clear any of the goods manufactured in the EOU for being taken to any other place in India in accordance with the EXIM Policy, that such clearance of capital goods etc. may be allowed on payment of an amount equivalent to the customs duty leviable on such goods on depreciated value thereof at the rate in force on the date of payment of such duty. It is evident from the said condition that it is only when the goods are allowed to be removed by the proper authority that the question about depreciated value can arise. In the present case, admittedly, no such permission was either sought for or given and therefore, there was no question of taking into consideration the depreciated value of the capital goods. In the present case, it is established that the capital goods or raw material procured by the 100% EOU unit were not used for the specified purpose and the goods manufactured were cleared clandestinely into the DTA without being allowed to be sold in such area, through a dummy-trading unit. In our opinion, the Commissioner has therefore validly held that the conditions of Notification No. 53/97-Cus and 1/95-CE were infringed by the appellant companies' 100% EOU. The impugned capital goods were rightly held to be liable to confiscation under Section 111(o) of the Customs Act, and indigenously procured goods liable to confiscation under Rule 173Q which should be read with Rule 209 in view of our reasons given above. It has been rightly held that the appellant's Chairman Managing Director of the unit could not have been ignorant of all the transactions and he knew that the unit had an obligation to export the whole of the goods produced by it and that the impugned capital goods not used for the specified purpose were liable to be confiscated. We do not find any valid reason to interfere with the impugned decision on any of the arguments put forth by the learned Counsel on behalf of the appellant. We are in full agreement with the reasoning and findings given by the Commissioner in both these appeals. Both these appeals are, therefore, liable to be dismissed.

24. We, therefore, pass the following order:

All the four appeals (Excise Appeal Nos. 3741 to 3744 of 2003) are hereby dismissed.

[Dictated & pronounced in the open Court on 28.7.2006].