L.R. BROTHERS, INDO FLORA LTD Vs. CC

JUDGEMENT

(1.) THE appellant is a 100% EOU in Flori Culture Sector and they had started commercial production of cut -flowers for export in February 1996. For production of cut -flowers they had imported a number of items of capital goods, inputs and consumables free of Custom Duty under Notification No. 126/94 - CUS dated 03/06/94 and beside this, had also acquired some indigenously manufacture capital goods/inputs free of Central Excise Duty under Notification No. 136/94 -CE. As per the 1997 -2002 EXIM Policy, the 100% EOU's in floriculture, agriculture, horticulture, pisi -culture, poultry, sericulture etc. can sell upto 50% of their production in value terms to DTA, subject to achieving positive Net Foreign Exchange Earning (NFEP). The Net Foreign Exchange Earning has to be calculated each year for which a formula is prescribed. The required NFEP to be achieved by this unit was 20%. The DTA sales of excisable goods manufactured by a 100% EOU attract Central Excise Duty in terms of the Proviso to Section 3(1) of Central Excise Act 1994. However, when the finished goods, waste and rejects being cleared by a 100% EOU to DTA are not excisable, in terms of the provisions of para 3 (a) of the exemption Notification No. 126/94 -CUS, these clearances of non -excisable goods would attract Customs Duty, on the inputs gone into the manufacture of such finished goods, waste and rejects, in an amount equal to the Custom Duty leviable on such articles, as if imported, as such. By Notification No. 56/01 -CUS dated 18/05/01, para 3 (a) of Notification No. 126/94 -CUS was amended and according to the amended provisions, the DTA clearances of non -excisable goods/reject/waste attract Custom Duty equal in an amount to that leviable on inputs obtained under this notification and used for the purpose of production/manufacture of such articles, which would have been paid but for the exemption under this notification. The entire period of dispute in this case is the period prior to 18/05/01 i.e. from April 1998 to March 2001. During this period, the appellant made DTA clearances of cut -flowers without payment of any duty. While according to the Revenue these clearances would attract Custom Duty chargeable on inputs gone into the production of such flowers, in an amount equal to the Custom Duty chargeable on the import of such flowers. In other words, according to the Revenue, these DTA clearances would attract Custom Duty in an amount equal to the Custom Duty chargeable on the import of such flowers. The Additional Commissioner of Central Excise, Customs, Meerut - I, vide order -in -Original dated 18/10/01 confirmed the duty demand of Rs. 9,98,177/ - against the Appellant under Section 28(2) of Customs Act, 1962 along with interest on this duty @ 24% under Section 28AB of the Act and besides this, also imposed penalty of equal amount under Section 114A of the Act. The Additional Commissioner's order was upheld by the Commissioner of Customs (Appeals) and it is this order which is under challenge in this appeal.

(2.) HEARD both the sides.

(3.) SHRI R.C. Sankhla, the learned Departmental Representative made the following submissions: