COMMR.OF CENTRAL EXCISE,NAGPUR vs. M/S UNIVERSAL FERRO & ALLIED CHEM.LD.&AN

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 848­852 OF 2009 COMMISSIONER OF CENTRAL EXCISE, NAGPUR ...APPELLANT(S) VERSUS M/S UNIVERSAL FERRO & ALLIED CHEMICALS LTD. & ANR. .... RESPONDENT(S) J U D G M E N T 1. Being aggrieved by the judgments and orders dated 21.10.2005  and   7.7.2006   passed  by  the   Customs,   Excise, Service Tax Appellate Tribunal, West Zonal Bench at Mumbai (hereinafter referred to as “CESTAT”) thereby, allowing the appeals filed by the respondent – Assessee and its Chairman being Appeal Nos.E­2691­2693/03 arising out of Order­in­ Original No.14­20 of 2003 dated 23.6.2003, Order­in­Original Digitally signed by CHARANJEET KAUR Date: 2020.03.06 17:05:51 IST Reason: Signature Not Verified

2 No.21 of 2003 dated 23.6.2003 and Appeal No. E/1976/04 arising   out   of   Order­in­Original   Nos.19­20/2004   dated 15.3.2004 and dismissing the appeal filed by the Revenue being Appeal No. E/1607/06­Mum arising out of order of the Commissioner (Appeals), Customs & Central Excise, Nagpur dated   14.2.2006   in   Appeal   No.   SVS/91/NGP­B/2006,   the Revenue is before this Court. 2. The facts in brief giving rise to the present appeals are as under:

The respondent – Universal Ferro & Allied Chemicals Ltd.,   Maneck   Nagar,   Tumsar   (hereinafter   referred   to   as “UFAC”)   is   100%   Export   Oriented   Unit   (“EOU”   for   short) approved   by   the   Secretariat   for   Industrial   Approvals, Department   of   Industrial   Development   in   the   Ministry   of Industry, Government of India.   UFAC was engaged in the manufacture/processing and clearance of Ferro Manganese and   Silicon   Manganese   falling   under   Chapter   72   of   the Schedule   to   the   Central   Excise   Tariff   Act,   1985.     UFAC cleared these items for export as well as in Domestic Tariff

3 Area (hereinafter referred to as “DTA”) on payment of Central Excise duty. 3. The Central Intelligence Unit  of the Central Excise Headquarters   visited   the   unit   of   UFAC   on   19.9.2001   on getting information from the Central Excise Audit party that UFAC being an EOU was indulging in the job­work activity of conversion of raw material supplied by M/s Tata Iron & Steel Company   Ltd.,   Jamshedpur   (hereinafter   referred   to   as “TISCO”).   In the view of the Revenue, the same was not allowed in terms of EXIM Policy of 1997­2002 (hereinafter referred to as “EXIM Policy”) 4. During   the   course   of   scrutiny   of   the   records,   the officers noticed, that UFAC was having a Memorandum of Agreement dated 28.12.1999 with TISCO for conversion of Manganese Ore/Coke into prime Silicon Manganese.  As per the   agreement,   TISCO  was   to  supply   Manganese   Ore   and Coke/Coal free of cost at its site at Maneck Nagar.  Rest of the raw materials and consumables i.e. Quartzite, Charcoal, Carbon   paste,   Dolomite,   Fluxes,   Refractories   and

4 Transformer  Oil  required for  the  conversion  of  Manganese Ore/Coke into Silicon Manganese for TISCO was to be used by UFAC from their own purchases obtained under CT­3 as and where applicable.   As per the agreement, UFAC was to charge job charges to TISCO at the rate of Rs.14,090/­ per metric tonne (“PMT” for short) which was inclusive of cost of material added by UFAC.   The job work charges were to be recovered   from   TISCO   on   commercial   invoices.     In   the invoices, Silicon Manganese was to be charged at the rate of Rs.20,623/­   PMT   which   also   included   cost   of   ingredients supplied by TISCO.   The said invoices were prepared under erstwhile Rule 100­E of the Central Excise Rules. 5. The activities of the UFAC had come to a standstill for some period and it re­started its production in August, 1999 and was declared a sick company by the Board for Industrial   and   Financial   Reconstruction   (BIFR)   under   the provisions   of   the Sick   Industrial   Companies   (Special Provisions) Act, 1985 (SICA).   It is not in dispute that the UFAC carried out conversion of the raw materials supplied by

5 TISCO, on TISCO making the payment of conversion charges of Rs.14,090/­ PMT of Silicon Manganese.   However, while dispatching the Silicon Manganese to TISCO, excise duty was paid on the value of Rs.20,623/­ PMT which included cost of raw materials supplied by TISCO as well as the inputs used by UFAC from their own purchases. 6. The   Commissioner,   Central   Excise   &   Customs, Nagpur,   issued   a   show   cause   notice   to   the   UFAC   dated 9.10.2001 in respect of the Silicon Manganese cleared during September 2000.  It was stated in the said show cause notice, that the  Circular No.67/98­Cus dated 14.9.1998, issued by the  Central   Board   of   Excise   &   Customs,   New   Delhi (hereinafter   referred   to   as   “the   Board”)  had   permitted   the EOUs to undertake job­work on behalf of a DTA unit only in textile,   readymade   garments,   agro­processing   and   granite sectors and by another Circular No.74/99 dated 5.11.1999 the said facility was extended to EOUs to undertake job­work on behalf of a DTA unit in aquaculture, animal husbandry, electronics hardware and software sectors.  The show cause

6 notice therefore stated, that the sector in which respondent – Assessee had carried out the job­works was not covered by either of the Circulars and, as such, the said job­works were in  violation of EXIM Policy.   The show cause notice called upon the respondent – Assessee to show cause, as to why the said Silicon Manganese should not be charged to full Central Excise duty as per the proviso to Section 3(1) of the Central Excise   Act,   1944   (hereinafter   referred   to   as   “the   Act”)   by denying the benefit of Notification No.8/97 dated 1.3.1997 (hereinafter referred to as “the said Exemption Notification”). 7. The show cause notice also called upon the UFAC to show cause, as to why the central excise duty amounting to Rs.23,08,443/­ short paid on  Silicon Manganese cleared in DTA during September 2000, should not be recovered under Section 11­A of the Act.  It also called upon to show cause, as to why the goods i.e. 296 MT  Silicon Manganese  valued at Rs.61,04,408/­ cleared in DTA  during the aforesaid period (i.e.   September   2000)   should   not   be   held   liable   for confiscation.   The said show cause notice also required to

7 show cause, as to why penalty should not be imposed on the UFAC under Rule 209 of the Central Excise Rules, 1944 read with Section 38­A of the Act. 8. In all, ten (10) show cause notices of various dates, last being 2.12.2003 for the identical charges for different periods (i.e. from March 2000 to May 2003) were issued. 9. In response to the show cause notices, UFAC had submitted its written replies stating therein, that in the show cause notices no violation of Central Excise Law has been alleged.  It was submitted, that the removals in the DTA were in   accordance   with   the   permission   granted   by   the Development   Commissioner   and,   as   such,   there   was   no ground for denial of the concessional rate of duty laid down in the said Exemption notification.  It was further submitted, that since the issue was based on the interpretation of the provisions of EXIM Policy, it was necessary to obtain ruling of the   Development   Commissioner   on   the   issue.     It   was submitted,   that   since   the   Development   Commissioner   had clarified that the removals made by UFAC to TISCO were in

8 accordance with the permission under the EXIM Policy, there was no occasion to proceed further. 10. However, the Commissioner while passing the order­ in­original   came   to   a   finding   that   the   conversion   work performed by UFAC was nothing but the job work and that the said job work done by an EOU was governed by para 9.17(b) of the EXIM Policy.  He found, that under para 9.17(b) of the EXIM Policy, an EOU was permitted to do job work for a  DTA unit  only for the purposes of exporting the finished goods directly from EOU.  However, since after the job work the finished goods were not exported by the EOU but cleared to   a   DTA   unit   for   home   consumption,   the   UFAC   had contravened the provisions of the EXIM Policy.  He also came to a finding, that the sector in which UFAC had undertaken the job work was not covered by the Circular dated 14.9.1998 and as extended by another Circular dated 5.11.1999, issued by the Board.   He also came to a conclusion that since there was no sale of the goods but only return of the goods after job work,   it   was   not   a   sale   and,   as   such,   contrary   to   the

9 provisions   of  the   EXIM   Policy.       He,   therefore,   vide   order dated 23.6.2003 confirmed

the

demand

for Rs.11,56,08,497/­  along   with   interest.    He   also   imposed penalty of Rs.50 lakhs on UFAC.   He further held, that the goods   i.e.  15792.85   MTs   of   Silicon   Manganese  valued   at Rs.32,31,30,000/­  were   liable   for   confiscation.     However, since   the   said   goods   were   not   available   for   confiscation, redemption fine of Rs.50 lakhs in lieu of confiscation was imposed.   Two   more   similar   orders   confirming   demand   as raised   under   subsequent   show   cause   notices   were   also passed vide order dated 23.6.2003 and 15.3.2004.   In the second order dated 23.6.2003 being Order­in­Original No.21 of 2003, personal penalty of Rs. 5 lakh was also imposed on the Chairman of UFAC, Dhunjishaw M. Naterwala. 11. Being  aggrieved  thereby,  the  UFAC  as  well  as the Chairman   of  UFAC,   Dhunjishaw   M.   Naterwala   preferred appeals before the learned CESTAT. 12. The   Commissioner   (Appeals)   had   set   aside   the demand raised by the Revenue in respect of duty free carbon

10 paste procured by UFAC under the CT­3 certificate in terms of   Notification   No.1/95­CE   dated   4.1.1995   for   use   in   the conversion   process   of  Manganese  ore.     Being   Aggrieved thereby, the Revenue filed  appeal before the CESTAT being Appeal No.E/1607/2006.  By the impugned judgment dated 21.10.2005, the demand orders against UFAC were reversed by the CESTAT.  Also, the CESTAT dismissed the Revenue’s Appeal No. E/1607/2006 by order dated 7.7.2006, referring to   its   order   and   judgment   dated   21.10.2005   in   UFAC’s appeal, Hence, the present appeals. 13. We   have   heard  Shri   K.   Radhakrishnan,  learned Senior   Counsel   appearing   for   the   appellant­   Revenue   and Shri  M.H. Patil, learned counsel appearing on behalf of the respondent – UFAC. 14. The main contention raised by Shri Radhakrishnan, learned Senior Counsel on behalf of the Revenue is that, in view of proviso to sub­section (1) of Section 3 of the Act, the duty   which   is   liable   to   be   levied   and   collected   on   any excisable goods manufactured by a 100% EOU and brought

11 to any other place in India shall be leviable as per the duties of Customs, which are leviable under the Customs Act, 1962 on like goods produced and manufactured outside India, if imported   into   India.     It   is   contended,   that   the   proviso   to Section   5A   of   the   said   Act   specifically   provides,   that   no exemption   granted   under  Section   5A  shall   apply   to   the excisable goods which are produced or manufactured by a 100% EOU and brought to any other place in India.   He further submits, that in the transaction between the UFAC and TISCO, there is no transfer of property in goods to the UFAC and, as such, it cannot be considered to be a sale under Section 4 of the Sale of Goods Act, 1930.  The learned Senior Counsel therefore submits, that the order passed by the   CESTAT   deserves   to   be   set   aside   and   the   orders­in­ original passed by the Commissioner (Appeals) need to be maintained. 15. It   is   further   contended   by   Shri   Radhakrishnan, learned Senior Counsel, that the words “allowed to be sold in India” in clause (ii) of proviso to sub­section (1) of Section 5A

12 of the Act have been substituted by words “brought to any other place in India” with effect from 11.5.2001.  He therefore submits, that in view of change in law from 11.5.2001, the statutory force of the said Exemption Notification is lost from 11.5.2001.     In   his   submission,   the   said   Exemption Notification would stand impliedly repealed with effect from 11.5.2001.  He relies on the judgments of this Court in the cases of (1) M. Karunanidhi vs. Union of India & Anr.1; (2) Dharangadhra   Chemical   Works vs. Dharangadhar Municipality   and   Anr.2;   and   (3)  Ratan   Lal   Adukia  vs. Union of India3.  He further submits, that the terms “allowed to be sold in India” and “brought to any other place in India” have   been   considered   by   this   Court   in   the   cases   of  Siv Industries   Ltd.  vs.  Commissioner   of   Central   Excise   & Customs4 and Sarla Performance Fibers Limited and ors. vs. Commissioner of Central Excise, Surat­II5 and as such, 1 (1979) 3 SCC 431 2 (1985) 4 SCC 92 3 (1989) 3 SCC 537 4 (2000) 3 SCC 367 5 (2016) 11 SCC 635

13 the UFAC would be liable to pay duty as if the goods were imported into India. 16. Shri M.H. Patil,  on the contrary submits, that the case of the present appellant is covered by paragraph 9.9(b) of the EXIM Policy and not by paragraph 9.17(b) of the EXIM Policy.  He further submits, that all the transactions made by UFAC   were   made   only   after   the   valid   permissions   were granted   by   the  Joint   Development   Commissioner,   SEEPZ. Learned   counsel   further   submits,   though   initially   vide Circular dated 14.9.1998  (No.67/98­Cus) the permission to undertake job work to EOU/EPZ from the DTA units was restricted only to units in textile, readymade garments, agro­ processing   and   granite   sectors   and   subsequently   vide Circular dated 5.11.1999 (No.74/99­Cus)  it was extended to certain   other   units;   by   a   subsequent   Circular   dated 22.5.2000 (No.49/000­Cus), the said facility was extended to all the sectors.  He submits, that this fact has not been taken into consideration by the Authority passing the Orders­in­ Original.   It is submitted that the Sponsoring Authority i.e.

14 the  Development   Commissioner,   SEEPZ  had   clarified   the position that the activity which was carried out by the UFAC was permissible under paragraph 9.9(b) of the EXIM Policy. 17. To counter the submission that there is no transfer of property   in   goods,   Shri   Patil   submits,   that   the   ‘sale’   and ‘purchase’ in the present case will have to be construed with reference to the definition of ‘sale’ and ‘purchase’ under the Central Excise  Act  and   not  under  the   Sale   of  Goods  Act, 1930.   Lastly, Shri Patil submits, that UFAC is entitled to the benefits   of   said   Exemption   Notification   and,   as   such,   the findings   as   recorded   by   the   learned   CESTAT   warrant   no interference. 18. We shall first deal with the submission of Shri K. Radhakrishnan,   learned   Senior   Counsel   appearing   for   the Revenue, to the effect that since in the transaction between UFAC  and  TISCO  there is no transfer of property in goods, the same cannot be termed as ‘sale’ and therefore would not be covered under paragraph 9.9 (b) of the EXIM Policy.  Shri

15 Radhakrishnan, in that respect, would rely on the provisions of the Sale of Goods Act, 1930. 19. We do not find any merit in the submission of Shri Radhakrishnan in this regard.  It will be relevant to note that clause   (h)   of   Section   2   of   the   Central   Excise   Act,   1944 specifically defines the terms ‘sale’ and ‘purchase’.   Section 2(h) of the Act reads thus: “2(h) “sale”   and   “purchase”,   with   their grammatical variations and cognate expressions,   mean   any   transfer   of the   possession   of   goods   by   one person   to   another   in   the   ordinary course of trade or business for cash or   deferred   payment   or   other valuable consideration;” 20. The perusal of the definition makes it clear that when there is a transfer of possession of goods in the  ordinary course of trade or business either for cash or for deferred payment or any other valuable consideration, the same would be   covered   by   the   terms   ‘sale’   and   ‘purchase’   within   the meaning of the Central Excise Act, 1944.   Undisputedly, in the present case, there is a transfer of  Manganese  Ore by

16 TISCO to UFAC for the purposes of processing the same and converting it into Silicon Manganese.  Undisputedly, the same is also for a valuable consideration.

17 have nothing to do with the class of goods which are subject to excise duty under a particular tariff entry under the Tariff Act. These provisions are not a standard for interpreting goods mentioned in the Tariff Act, the purpose and object of which is completely different.” 22. This Court has held, that it is a settled principle in excise classification that the definition of one statute having a different   object,   purpose   and   scheme   cannot   be   applied mechanically to another statute. It has further been held, that   the   conditions   or   restrictions   contemplated   by   one statute having a different object and purpose should not be lightly   and   mechanically   imported   and   applied   to   a   fiscal statute.

18 include   transfer   of   possession   for   valuable   consideration under the definition of the term ‘sale’. 24. The next issue that requires consideration is as to whether under the EXIM Policy, UFAC was entitled to carry out the job­work for TISCO and whether it was entitled to exemption   from   payment   of   duty   under   the   Exemption Notification. 25. It will be relevant to refer to the relevant clauses of Chapter 9 of the EXIM Policy.   As per para 9.1 of the said EXIM   Policy,   units   undertaking   to   export   their   entire production of goods may be set up under the EOU Scheme. As   per   para   9.9,   the   entire   production   of   EOU   units   is required to be exported subject to the following: “(a) Unless specifically prohibited in the LOP/LOI, rejects may be sold in the Domestic Tariff Area (DTA),   on   prior   intimation   to   the   Customs authority.   Such  sales  shall be counted against DTA sale entitlement under paragraph 9.9(b) of the Policy.  Sale of rejects shall be subject to payment of duties as applicable to sale under para 9.9(b). (b) DTA   sale   upto   50%   of   the   FOB   value   of exports   may   be   made   subject   to   payment   of applicable duties and fulfilment of minimum NFEP prescribed in Appendix 1 of the Policy…..”

19 26. It will also be relevant to refer to para 9.17 (b) of the EXIM Policy, which reads thus: “(b) EOU/EPZ units may undertake job­work for export,   on   behalf   of   DTA   units,   with   the permission of Assistant Commissioner of Customs, provided the goods are exported direct from the EOU/EPZ units.  For such exports, the DTA units will   be   entitled   for   refund   of   duty   paid   on   the inputs by way of Brand Rate of duty drawback.” 27. It can therefore be seen, that under para 9.9(a) of the EXIM Policy, EOU is entitled to sell the rejects in the DTA on prior intimation to the Customs authorities.  Such sales are to be counted against DTA sale entitlement under paragraph 9.9(b) of the EXIM Policy.  The sale of rejects shall be subject to payment of duties as applicable to sale under paragraph 9.9(b) of the EXIM Policy. 28. Under paragraph 9.9(b) of the EXIM Policy, DTA sale upto   50%   of   the   FOB   value   of   exports   is   also   permitted subject   to   payment   of   applicable   duties   and   fulfilment   of minimum Net Foreign Exchange earning as a Percentage of exports (NFEP)  as prescribed in Appendix­1 of the Policy.

20 29. Under paragraph 9.17 (b), the EOU/EPZ units are also entitled to undertake job­work for export, on behalf of DTA units, with the permission of Assistant Commissioner of Customs, provided the goods are exported direct from the EOU/EPZ units and for such exports, the DTA units will be entitled for refund of duty paid on the inputs by way of Brand Rate of duty drawback. 30. It can thus clearly be seen, that paragraph 9.9(b) and paragraph   9.17(b)   of   the   EXIM   Policy   operate   in   totally different fields.   Under paragraph 9.9 (b), an EOU is entitled to sell upto 50% of the FOB value of exports to DTA subject to payment   of   applicable   duties   and   fulfilment   of   minimum NFEP   as   prescribed   in   Appendix­I   of   the   Policy,   whereas under paragraph 9.17(b), an EOU is entitled to undertake job­work   for   export,   on   behalf   of   DTA   units,   with   the permission of Assistant Commissioner of Customs, provided the goods are exported direct from the EOU/EPZ units.   In such type of exports, the DTA units would be entitled for

21 refund of duty paid on the inputs by way of Brand Rate of duty drawback. 31. The order­in­original states that since the UFAC has not exported the final product of Manganese raw material received by it from TISCO, it had violated the provisions of paragraph 9.17 (b) and 9.9(b) of the EXIM Policy.   We will have to examine the correctness of the said finding.  For that, it   will   also   be   relevant   to   examine   as   to   whether   under paragraph 9.9 (b) of the EXIM Policy, an EOU is entitled to carry a job­work on behalf of another unit in DTA. 32. The order­in­original refers to Circular No.67/98­cus dated 14.9.1998 and Circular No.74/99­cus dated 5.11.1999. However, the Commissioner, it appears, that while passing the   order   has   not   noticed   the   subsequent   Circular No.49/2000­Cus dated 22.5.2000.  It will be relevant to refer to paragraph 10 and 11 of the said Circular dated 22.5.2000. “10. Under para 9.17(d), the EOU/EPZ units in specific sectors were allowed to undertake job work for export on behalf of DTA units. This paragraph   has   been   amended   to   extend   this facility to all sectors. It has also been provided

22 that DTA units shall be entitled to brand rate of duty draw back. 11.     The   EOU   /EPZ   units   in   textiles,   ready made   garments   and   granite   sectors   were allowed to undertake job work on behalf of DTA units   by   Board’s   Circular   69/98­Cus.,   dated 14th September   1998.   This   facility   was subsequently extended to the EOU/EPZ units in aquaculture, animal husbandry, hardware, software   sector   vide   Board’s   Circular   No. 74/99­Cus., dated 5th Nov., 1999.   Now, it has been decided to extend this facility to EOU/EPZ units   in   all   sectors.   Further,   it   has   been decided that the DTA units shall be entitled to avail of the brand rate of duty drawback for such job­work undertaken by EOUs/EPZ units concerned.   Board’s   Circulars   67/98­Cus., dated 14­9­1998 and 74/99­Cus., dated       5­ 11­1999 stand modified to the above extent.” (emphasis supplied) 33. In   view   of   paragraph   10   of   the   Circular   dated 22.5.2000, the facility of undertaking job­work by EOU/EPZ units   which   was   restricted   to   specific   sectors   has   been amended   and   the   said   facility   has   been   extended   to   all sectors.   It has also been provided, that DTA units shall be entitled   to   brand   rate   of   duty   draw   back.       Similarly, paragraph 11 of the Circular dated 22.5.2000 also provides, that the facility which was given to EOU/EPZ to undertake

23 job­work   on   behalf   of   DTA   units   in   textiles,   readymade garments   and   granite   sectors   which   was   subsequently extended   to   the   EOU/EPZ   units   in   aquaculture,   animal husbandry,   hardware   and   software   sectors   vide   Circular dated   5.11.1999,   was   extended   to   EOU/EPZ   units   in   all sectors.  It has further been provided, that DTA units shall be entitled to avail of the brand rate of duty drawback for such job­work undertaken by EOUs/EPZ units concerned.   It also provides,   that   earlier   circulars   issued   by   the   Board   stood modified to the said extent. 34. We find, that failure on the part of the Commissioner, who passed the order­in­original, to notice the Circular dated 22.5.2000 has resulted in passing an erroneous order.     It also appears, that after the show cause notice was issued to UFAC, the Commissioner had sought a clarification from the Sponsoring   Authority   i.e.   the   Development   Commissioner, SEEPZ   vide   communication   dated   6.11.2001.     It   will   be relevant   to   refer   to   the   communication   dated   28.11.2001 addressed   by   Joint   Development   Commissioner   to   the

24 Additional Commissioner (CIU), Office of the Commissioner of Customs and Central Excise, Nagpur, relevant part of which reads thus:. “Sub: Manufacture of goods of DTA Unit by an EOU on conversion basis – Provisions of Para 9.17(b)   of   the   EXIM   Policy   1997­2002   – Correspondence   regarding.   M/s   Universal Ferro Ltd., Tumsar ********* Kindly

refer

letter

C.No. II(39)/25/CIU/2001,   dated   6th  November,   2001, addressed to Development Commissioner, SEEPZ SEZ.  Ministry of Commerce has clarified that the EXIM Policy permits the kind of operation being undertaken   by   the   unit   and   it   should   be permitted.” 35. UFAC  had also sought a clarification to this effect from the Sponsoring Authority.  It will be relevant to refer to the communication dated 23.10.2001, addressed by the Joint Development Commissioner, SEEPZ, relevant part of which reads as under: “Kindly refer to your query regarding DTA sale. The position clarified to Central Excise, Nagpur, is as follows: ­ ‘The   general   question   raised   was whether   while   selling   in   DTA   under   DTA

25 sale permission issued in terms of Para 9.9 (b)   of   the   EXIM   Policy,   a   unit   can   take supply of raw material from a Company in the DTA and give back the finished product (its approved as per LOP and also covered by the DTA sale permission). The unit is free to procure raw material in   terms   of   Para   9.2   of   Policy.   The   raw material   is   meant   for   production   either export   or   clearance   under   valid   DTA permission. The unit may convert the RM into   its   approved   product   and   clear   the same   against   valid   DTA   sale   permission (under   para   9.9(b)   after   paying   applicable duty   on   assessable   value   of   finished product,   i.e.   value   of   RM   +   conversion charges.   There   is   no   bar   on   this   activity under the EXIM Policy.’” (emphasis supplied) 36. It   is   not   in   dispute   that   all   transactions   between UFAC and TISCO have been entered into after the necessary permission   was   obtained   from   the   Development Commissioner.     As a matter of fact, the order­in­original itself mentions thus: “The M/s. UFAC was a 100% EOU engaged in the manufacture   of   Ferro   Manganese   &   Silico Manganese and clearances thereof for export as well as in DTA on payment of Central Excise duty. The unit   was   also   doing   job   work   for   M/s   TISCO   in respect   of   Silico   Manganese   on   the   basis   of Memorandum of Agreement dated 28.12.99 entered into with M/s. TISCO. These clearances of the goods

26 manufactured on the basis of job work had been effected   on   payment   of   duty   vide   Notification no.8/97­Central   Excise   dated   1.3.97   against permission   for   DTA   sales   granted   by   the Development Commissioner SEEPZ, Mumbai from time to time.” 37. It   could   thus   be   clearly   seen,   that   the   Original Authority   itself   has   found   that   clearance   of   the   goods manufactured on the basis of job­work had been effected on payment of duty vide Exemption Notification of 1997 against permission   for   DTA   sales   granted   by   the   Development Commissioner, SEEPZ, Mumbai from time to time. 38. The   combined   reading   of   paragraph   9.9(b)   of   the EXIM Policy, the Circulars issued by the Board, particularly, the Circular dated 22.5.2000 and reply to the query of the Customs   Authorities   by   the   Development   Commissioner, SEEPZ would clearly show, that the  UFAC  was entitled to carry out the job­work on behalf of TISCO on payment of duty as provided under Exemption Notification of 1997. 39. In this respect, it will also be apposite to refer to the Circular   dated   6.5.2003   (No.38/2003­Cus)   issued   by   the

27 Board which would further clarify the position, relevant part of which reads thus: “I   am   directed   to   say   that   cases   have   been brought to the notice of the Board that in case of stock transfer of goods to a DTA unit, EOUs were not   being   allowed   the   benefit   of   payment   of concessional duty under notification No. 2/95 – Central Excise, dated 4­1­1995 even though the EOU had a valid DTA sale permission and had earned   the   DTA   sale   entitlement   as   provided under paragraph 6.8 of the Exim Policy 2002­ 2007  (Paragraph   9.9   of   the   Exim   Policy  1997­ 2002)   and   fulfil   other   conditions   specified   in aforesaid notification. The benefit of concessional rate of duty was being denied on the ground that stock transfer of goods is not a sale and thus, not eligible for concessional rate of duty in terms of the above notification. 2.   The matter has been examined by the Board. Notification 2/95 – C.E., dated 1­4­1995 provided   for   50%   exemption   on…..   “goods allowed   to   be   sold   in   India   under   and   in accordance   with   the   provisions   of   sub­ paragraphs   (a),   (b),   (d)   and   (h)   of   para   6.8 (earlier para 9.9)  of the Exim  Policy”…. The notification, therefore, allowed concessional duty only   when   goods   were   sold   into   DTA   in accordance with para 6.8 (or 9.9) of the policy. What is covered in para 6.8 (or 9.9) of the policy has been clarified by Ministry of Commerce in Appendix 14­IH of the Handbook of procedures, 2002 – 2007 (Appendix 42 of the Hand Book of Procedures Vol – I – 1997 ­ 2002) that it covers any clearance  to another DTA unit. Thus it is

28 not open to the Department to interpret the Exim Policy in any other manner than what has been mentioned in Appendix 14 – IH (or 42). The word DTA   sale   has   been   loosely   used   in   the   Exim Policy and there is no definition of DTA sale in the Policy. Appendix 14­IH (or 42) clarifies that it not only covers transfers through sales to DTA units but also through other means. It would be illogical   to   contend   that   the   concession   is available if the goods are transferred on sale to an independent unit but it would not be available when   removed   on   stock   transfer   to   another division / unit of the same company.” 40. We will now deal with the next submission made by Shri K. Radhakrishnan, learned Senior Counsel, to the effect that   under   proviso   to   sub­section   (1)   of   Section   3   of   the Central Excise Act, 1944, an EOU is liable to pay duty on the goods brought to a DTA, as if the goods were produced and manufactured outside India and were imported into India as per the provisions of the Customs Act, 1962 and that under Section   5A   of   the   Central   Excise   Act,   1944,   the   Central Government has no power to grant exemption from payment of duty to an EOU.

29 41. To consider the submission, it will be relevant to refer to the relevant part of Sections 3 and 5A of the Central Excise Act, 1944, which read thus: “3. Duty specified in the Fourth Schedule to be   levied.­(1)   There   shall   be   levied   and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added   Tax   (CENVAT)   on   all   excisable   goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the Fourth Schedule: Provided that the duty of excise which shall be levied and collected on any excisable goods which   are   produced   or   manufactured   by   a hundred per cent export­oriented undertaking and brought to any other place in India, shall be   an   amount   equal   to   the   aggregate   of   the duties   of   customs   which   would   be   leviable under the Customs Act, 1962 (52 of 1962) or any other law for the time being in force, on like goods produced or manufactured outside India if   imported   into   India,   and   where   the   said duties of customs are chargeable by reference to their value, the value of such excisable goods shall,   notwithstanding   anything   contained   in any other provision of this Act, be determined in   accordance   with   the   provisions   of   the Customs Act, 1962 and the Customs Tariff Act, 1975 (51 of 1975).” *** 5A.  Power to grant exemption from duty to excise.­(1)   If   the   Central   Government   is

30 satisfied   that   it   is   necessary   in   the   public interest so to do, it may, by notification in the Official   Gazette,   exempt   generally   either absolutely or subject to such conditions (to be fulfilled   before   or   after   removal)   as   may   be specified in the notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon: Provided that, unless specifically provided in such   notification,   no   exemption   therein   shall apply to excisable goods which are produced or manufactured­ (i) In   a   free   trade   zone   or   a   special economic   zone   and   brought   to   any   other place in India; or (ii) by a hundred per cent export­oriented undertaking and brought to any other place in India. Explanation­In this proviso, “free trade zone”, “special economic Zone” and “hundred per cent export­oriented   undertaking”   shall   have   the same   meanings   as   in   Explanation   2   to   sub­ section (1) of Section 3.” 42. A perusal of sub­section (1) of Section 3 of the Act would show, that sub­section (1) of Section 3 provides for levy and collection of duty of excise in such manner as may be prescribed   to   be   called   the   Central   Value   Added   Tax (CENVAT)   on   all   excisable   goods,   which   are   produced   or

31 manufactured in India as, and at the rates, set forth in the Fourth   Schedule.     However,   the   said   sub­section   (1)   of Section   3   excludes   the   applicability   thereof,   to   the   goods produced or manufactured in special economic zones.   The proviso to sub­section (1) of Section 3 of the Act is applicable to the excisable goods, which are produced or manufactured by a 100% export­oriented undertaking when such goods are brought to any other place in India.  It provides, that in such a case, an amount equal to the aggregate of the duties 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   where   the   said   duties   of   customs   are chargeable   by   reference   to   their   value,   the   value   of   such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with   the   provisions   of   the   Customs   Act,   1962   and   the Customs Tariff Act, 1975.

32 43. Relying on the proviso to sub­section (1) of Section 3 of the Act, it is the contention of Shri Radhakrishnan that since  UFAC  has supplied the goods to  TISCO, which is any other place in India, it will be liable to pay the import duty as if the goods were imported in India. 44. However, for considering the said submission, it will also be necessary to refer to Section 5A of the Act, which is already reproduced above.   Sub­Section (1) of Section 5A of the Act provides, that if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions, to be fulfilled before or   after   removal,   as   may   be   specified   in   the   notification, excisable goods of any specified description from the whole or any part of the duty of excise leviable thereon.  The proviso thereto   provides,   that   unless   specifically   provided   in   such notification,   no  exemption   therein   shall  apply   to   excisable goods which are produced or manufactured in a free trade zone or a special economic zone and brought to any other

33 place   in   India;   or   by   a   hundred   per   cent   export­oriented undertaking and brought to any other place in India. 45. It is the submission of Shri Radhakrishnan that a combined reading of proviso to sub­section (1) of Section 3 of the Act and proviso to sub­section (1) of Section 5A of the Act, would   not   entitle   the   Central   Government   to   grant   any exemption to an EOU when it brings the goods to any other place in India (i.e. DTA) and the duty that would be leviable would be as if the said goods were imported in India. 46. We   are   of   the   considered   view,   that   if   such   an interpretation   is   accepted,   the   words   “unless   specifically provided in such notification” in sub­section (1) of Section 5A will have to be ignored and the said words would be rendered otiose.  It is a settled principle of law that while interpreting a provision due weightage will have to be given to each and every word used in the statute. 47. In this respect, we may gainfully refer to the following observations of the Constitution Bench of this Court in the case of Hardeep Singh vs. State of Punjab and others7: 7 (2014) 3 SCC 92

34 “42. To   say   that   powers   under   Section   319 CrPC can be exercised only during trial would be reducing the impact of the word “inquiry” by the court. It is a settled principle of law that an interpretation   which   leads   to   the   conclusion that   a   word   used   by   the   legislature   is redundant,   should   be   avoided   as   the presumption   is   that   the   legislature   has deliberately and consciously used the words for carrying out the purpose of the Act. The legal maxim a verbis legis non est recedendum which means, “from the words of law, there must be no departure” has to be kept in mind. 43. The   court   cannot   proceed   with   an assumption   that   the   legislature   enacting   the statute has committed a mistake and where the language   of   the   statute   is   plain   and unambiguous, the court cannot go behind the language of the statute so as to add or subtract a word playing the role of a political reformer or of a wise counsel to the legislature. The court has   to   proceed   on   the   footing   that   the legislature intended what it has said and even if there is some defect in the phraseology, etc., it is   for   others   than   the   court   to   remedy   that defect.   The   statute   requires   to   be   interpreted without doing any violence to the language used therein.   The   court   cannot   rewrite,   recast   or reframe the legislation for the reason that it has no power to legislate. 44. No word in a statute has to be construed as   surplusage.   No   word   can   be   rendered ineffective or purposeless. Courts are required

35 to   carry   out   the   legislative   intent   fully   and completely.   While   construing   a   provision,   full effect   is   to   be   given   to   the   language   used therein,   giving   reference   to   the   context   and other provisions of the statute. By construction, a provision should not be reduced to a “dead letter”   or   “useless   lumber”.   An   interpretation which   renders   a   provision   otiose   should   be avoided   otherwise   it   would   mean   that   in enacting such a provision, the legislature was involved   in   “an   exercise   in   futility”   and   the product   came   as   a   “purposeless   piece”   of legislation   and   that   the   provision   had   been enacted   without   any   purpose   and   the   entire exercise to enact such a provision was “most unwarranted   besides   being   uncharitable”. (Vide Patel   Chunibhai   Dajibha v. Narayanrao Khanderao

Jambekar [AIR

1965

SC 1457]   , Martin   Burn   Ltd. v. Corpn.   of Calcutta [AIR

1966

529]

, M.V. Elisabeth v. Harwan Investment and Trading (P) Ltd. [1993   Supp   (2)   SCC   433   :   AIR   1993   SC 1014]

, Sultana

Begum v. Prem

Chand Jain [(1997) 1 SCC 373] , State of Bihar v. Bihar Distillery Ltd. [(1997) 2 SCC 453 : AIR 1997 SC 1511]   , Institute   of   Chartered   Accountants   of India v. Price   Waterhouse [(1997)   6   SCC   312] and South   Central   Railway   Employees   Coop. Credit   Society  Employees' Union v. Registrar of Coop. Societies [(1998) 2 SCC 580 : 1998 SCC (L&S) 703 : AIR 1998 SC 703] .)” 48. We therefore find, that the interpretation as sought to be   placed   by   Shri   Radhakrishnan   would   render   the   term

36 “unless   specifically   provided   in   such   notification”   in   sub­ section   (1)   of   Section   5A   otiose   or   useless.     Such   an interpretation would not be permissible.   We find, that the harmonious construction of sub­Section (1) of Section 5A of the Act and the proviso thereto would be, that an EOU which brings the excisable goods to any other place in India would not be entitled for a general exemption notification unless it is so specifically provided in such a notification. 49. In   this   respect,   it   will   be   relevant   to   refer   to Exemption Notification of 1997 as amended by Notification No.21/97­C.E. dated 11.4.1997, relevant part of which reads thus: “Effective   rate   of   duty   on   certain   goods produced in FTZ or EOU.  – In exercise of the powers conferred by sub­section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central   Government,   being   satisfied   that   it   is necessary in the public interest so to do, hereby exempts   the  finished   products,   rejects   and waste or scrap  specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and produced   or   manufactured,   in   a   hundred   per cent export­oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India, and allowed to be sold in India   under   and   in   accordance   with   the

37 provisions of sub­paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the Export and Import Policy, 1st  April, 1997 – 31st March, 2002, from so much of the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), as is in excess of an   amount   equal   to   the   aggregate   of   the duties   of   excise   leviable   under   the   said Section 3 of the Central Excise Act or under any other law for the time being in force  on like goods, produced or manufactured in India other than in a hundred percent export­oriented undertaking or a free trade zone, if sold in India.” 50. The bare reading of the aforesaid Notification would amply make it clear, that the Central Government after being satisfied that it was necessary in the public interest so to do, thereby exempted the finished products, rejects and waste or scrap which was produced or manufactured in a hundred per cent export­oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India and allowed to be sold in India under and in accordance with the provisions of sub­paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the EXIM Policy, from so much of the duty of excise leviable thereon under Section 3   of   the   Central   Excise   Act,   1944,   as   is   in   excess   of   an

38 amount equal to the aggregate of the duties of excise leviable under the said Section 3 of the Central Excise Act or under any   other   law   for   the   time   being   in   force   on   like   goods, produced or manufactured in India other than in a hundred per cent export­oriented undertaking or a free trade zone, if sold in India. 51. It   could   thus   be   seen,   that   the   said   notification specifically provides grant of exemption to the EOUs from the payment of duties, which are in excess of what is leviable under sub­section (1) of Section 3 of the Central Excise Act, 1944 on like goods, produced or manufactured in India.  In our considered view, since the said Exemption Notification specifically   mentions,   that   the   goods   produced   or manufactured by an 100% EOU, which are allowed to be sold in India in accordance with para 9.9(b) of the EXIM Policy, the   proviso   would   be   inapplicable   thereby,   requiring   the duties  to be  paid, as  are  required to be paid  under  sub­ Section (1) of Section 3 of the said Act.  The conditions which

39 can be culled out for enabling to get the benefit of the said Exemption Notification are as under: (i) The   finished   products,   rejects   and   waste   or   scrap specified in the Schedule to the Central Excise Tariff Act, 1985 should be produced or manufactured in the 100% export­oriented undertaking or a free trade zone; (ii) The   said   finished   products   should   be   manufactured wholly   from   the   raw   materials   produced   or manufactured in India; (iii) They   are   allowed   to   be   sold   in   India   under   and   in accordance with the provisions of  sub­paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the EXIM Policy. 52. Undisputedly,  in the  present case,  the  transaction between  UFAC  and  TISCO  satisfies all the three conditions. The   goods   are   produced   and   manufactured   by  UFAC,  an 100%   export­oriented   unit;   they   are   manufactured   wholly from the raw materials produced or manufactured in India and, thirdly, they have been allowed to be sold in India in

40 accordance   with  the   provisions   of   paragraph   9.9(b)  of  the EXIM Policy. 53. We   will   now   consider   the   submission   of   Shri Radhakrishnan,   learned   Senior   Counsel,   that   in   view   of substitution of the words “allowed to be sold in India” by “brought to any other place in India”, the said Exemption Notification shall stand impliedly overruled/repealed. 54. No doubt,  that the  reliance  placed  by the   learned Senior Counsel on the judgments of this Court to the effect that  if  there are  inconsistencies  in  two  statutes, the  later would prevail is well placed.  This Court in Deep Chand vs. State   of   Uttar   Pradesh8  has   laid   down   the   following principles to ascertain whether there is repugnancy or not: “(1) Whether   there   is   direct   conflict between the two provisions; (2) Whether   the   legislature   intended   to lay   down   an   exhaustive   code   in respect   of   the   subject   matter replacing the earlier law; (3) Whether   the   two   laws   occupy   the same field.” 8 AIR 1959 SC 648

41 The said view has been consistently followed by this Court in catena of judgments. 55. We do not find, that there would be any conflict in the amended provisions of clause (ii) of the proviso to sub­ section (1) of Section 5A of the Act and the said Exemption Notification.     In   any   case,   by   the   2001   Amendment,   the legislature has not laid down any exhaustive code in respect of the subject matter in replacing the earlier law.  It appears, that the said Amendment has been incorporated to bring the said clause (ii) of sub­Section (1) of Section 5A in sync with the words used in clause (i) of the proviso to sub­section (1) of Section 5A of the Act and the words used in the proviso to sub­section (1) of Section 3 of the Act.   In that view of the matter,   we   find,   that   the   said   contention   is   without substance. 56. Insofar as the reliance placed by the learned Senior Counsel on the judgment of this Court in the case of  Siv Industries   Ltd.  (supra)   so   as   to   distinguish   the   terms “allowed to be sold in India” and “brought to any other place

42 in India” is concerned, we find, that the said judgment would rather support the case of the respondent – Assessee.   It would   be   relevant   to   refer   to   the   following   observation   in paragraph 18 of the said judgment, which reads thus: “Thus it is apparent that debonding and permission to sell in India are two different things   having   no   connection   with   each other.   It   also   becomes   apparent   that   in view of the EOU Scheme as modified from time   to   time   and   corresponding amendments  to Section 3  of  the  Act the expression “allowed to be sold in India” in the   proviso  to   Section   3(1)   of   the   Act   is applicable only to sales made up to 25% of production by 100% EOU in DTA and with the   permission   of   the   Development Commissioner.  No permission is  required to sell goods manufactured by 100% EOU lying with it at the time approval is granted to debond.” 57. It   is   to   be   noted   that   the   case   that   fell   for consideration before this Court was with regard to debonding. What this Court has held is, that no permission is required to sell goods manufactured by 100% EOU lying with it, at the time approval is granted to debond.   It has been held, that the expression “allowed to be sold in India” in the proviso to

43 Section 3(1) of the Act was applicable only to sales made upto 25%   of   production   by   100%   EOU   in   DTA   and   with   the permission of the Development Commissioner.  Admittedly, in the   present   case,   the   sales   made   by   UFAC   to   TISCO   are within the permissible limits and with the permission of the Development Commissioner. 58. The view taken by this Court in the case of  Sarla Performance Fibers Limited (supra) is a similar view, taken following the decision of this Court in  Siv Industries Ltd. (supra). As such, the said judgment also is of no assistance to the case of the appellant. 59. In that view of the matter, we do not find, that the CESTAT has committed any error in reversing the orders­in­ original   passed   by   the   Commissioner.     The   appeals   are, therefore, dismissed. …....................CJI. [S.A. BOBDE] ......................J. [B.R. GAVAI]

44 ......................J. [SURYA KANT] NEW DELHI; MARCH 06, 2020