COMMISSIONER OF CUSTOMS (AIR) Vs. HARMONY MUSICAL INSTRUMENT

JUDGEMENT

(1.) THE respondents are a 100% EOU manufacturing electric guitars, acoustic guitars and parts and accessories thereof, in the Madras Export Processing Zone (MEPZ). In 1996, they had obtained permission from the Development Commissioner for the manufacture and export of the above goods. By letter dated 10.5.2002 of the Development Commissioner, wooden boxes and other wooden articles were also added to the list of goods permitted to be manufactured and exported by the unit. The said letter authorised the respondents to manufacture and export the specified goods (including wooden boxes and other wooden articles) for a value of Rs. 3550 lakhs over the period 2002 -2007. It also required them to achieve the minimum NFEP (Net Foreign Exchange earning expressed as percentage of export) prescribed in Appendix I to the EXIM Policy 2002 -07. Subsequently, in a letter dated 22.5.02, the Development Commissioner permitted the unit to sell their products in Domestic Tariff Area (DTA) to the extent of 50% of the FOB value of the physical exports made during 2000 -01, this fraction amounting to Rs. 477.28 lakhs. This permission was granted in terms of para 6.8(b) of the EXIM Policy 2002 -07 and was subject to the following conditions:

(2.) LD .SDR reiterated the grounds of the appeal and referred to the relevant provisions of the EXIM Policy 2002 -2007 as well as to Notification No. 8/97 ibid. It was submitted that the benefit of exemption under the above Notification was admissible to only those goods which were manufactured in a 100% EOU and allowed to be sold in India in accordance with the provisions of sub -paragraphs (a), (b), (d) and (h) of para 6.8 of the EXIM Policy. The Notification did not anywhere mention para 6.9 of the EXIM Policy. The DTA sales in question were effected in terms of para 6.9 (b) of the EXIM Policy. Hence, Ld. SDR argued, the exemption claimed by the respondents was not admissible to them. In this connection, it was argued that the terms and conditions of an Exemption Notification were to be construed strictly as held by the apex court in the cases of Rajasthan Spinning and Weaving Mills 1994 (77) ELT 474, Navopan India Ltd. and Mangalore Chemicals and Fertilizers Ltd. . Reliance was also placed on the apex court's judgment in the case of Tullow India Operations Ltd. . Ld.SDR ruled out any connection between DTA sales under para 6.8 and those under para 6.9 of the EXIM Policy. The two provisions were independent of each other. The DTA clearances under para 6.9 were not limited to 50% of the FOB value of exports prescribed in para 6.8 and the same were also not subject to the condition of fulfilment of minimum NFEP/EP. Though the Development Commissioner's permission was for clearance of wooden boxes under para 6.8 (b), the respondents chose to clear the goods in terms of para 6.9 (b) for availing deemed export benefits. The EXIM Policy did not envisage such double benefit.

(3.) LD . Counsel for the respondents submitted that the benefit of the Notification was available to the subject goods inasmuch as the goods were approved for manufacture, in the Letter of Approval issued by the Development Commissioner, and were sold in DTA in terms of para 6.8 (b) of the EXIM Policy 2002 -07 as permitted by the Development Commissioner. It was submitted that, in terms of para 6.9 (b) of the EXIM Policy, foreign exchange earned in the transaction could be reckoned towards fulfilment of NFEP/EP and hence there was no question of double benefit. Merely because the respondents obtained permission from the Development Commissioner for treating the DTA sales for purposes of NFEP/EP in terms of para 6.9 (b), such sales, permitted under para 6.8 (b), would not cease to be "DTA sales made in accordance with para 6.8 (b)". CBEC Circular No. 29/2003 -Cus. dated 3.4.2003 referred to in the appeal was wrongly interpreted by the appellant. Counsel submitted that DTA supplies under para 6.9, which were to be treated as deemed exports and to be counted towards fulfilment of NFEP/EP, were held, in the circular, to be chargeable to Central Excise duty in terms of the proviso to Section 3(1) of the Central Excise Act "read with the relevant Exemption Notifications". Thus the circular allowed the benefit of Notification No. 8/97 -CE to goods cleared to DTA by EOU. Ld. Counsel contended that, where DTA sales were made against payment in foreign exchange, the same would be counted as "deemed exports" and any duty could not be demanded thereon. The subject clearances of wooden boxes belonged to this category and, therefore, the demand of duty thereon was not sustainable. In this connection, reliance was placed on the following orders of the Tribunal: