Customs Act, 1962 – Central Excise Act, 1944 – s.3 – Appellant, a 100% Export Oriented Unit (EOU) was engaged in production of cut flowers and flower buds – The 100% EOU is required to export all articles produced by it and was exempted from payment of customs duty on the imported inputs used during production of the exported articles vide exemption notification dated 03.06.1994 – Under the said notification, exemption on levy of customs duty was extended even to the inputs used in production of articles sold in domestic market – Thereafter, came amended notification dated 18.05.2001, by which the customs duty in case of non-excisable goods became leviable on inputs used for production, manufacturing or packaging, as if there was no exemption notification in place – The EXIM Policy 1997-2002 provided that a 100% EOU in floriculture sector was permitted to sell 50% of its produce in Domestic Tariff Area (DTA), subject to achieving positive net foreign exchange earning of 20% and upon the approval of the Development Commissioner – The appellant without obtaining the approval of the Development Commissioner and without maintaining the requisite net foreign exchange earning made DTA sales during 1998-99 to 2000-01 in contravention of the EXIM Policy – However, the appellant subsequently sought ex-post facto approval from Development Commissioner – The Additional Commissioner, Central Excise issued a show cause notice as to why customs duty, interest and penalty should not be imposed for the DTA sales made by the appellant in contravention of the EXIM Policy, that too after having availed exemptions under the exemption notification – The Additional Commissioner adjudged the show cause notice and held that the DTA sales were made without permission and in contravention of the EXIM Policy and therefore, customs duty is leviable upon the appellant for the said sales – The Appeal before the Commissioner was unsuccessful – In a further appeal before CESTAT, the order of the authorities below were confirmed – The Supreme Court framed two questions: (i) Whether customs duty can be charged on the non-excisable goods produced in India and sold in DTA by an EOU ?; and (ii) Whether the amendment notification dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application ? – Held: The DTA sales pertaining to excisable goods made in conformity with the conditions of the EXIM policy are exigible to excise duty, but once there is contravention of the condition(s) of the EXIM policy, irrespective of the goods produced being excisable or non-excisable, the benefit under the exemption notification is unavailable – In such a situation, the very goods would become liable to imposition of customs duty as if being imported goods – So, the demand in the present case, pertaining to the non-excisable goods (cut flowers) has rightly been made under the 1962 Act upon the imported inputs used in the production of goods sold in DTA in violation of condition(s) in the EXIM Policy – So far as the amendment notification is concerned, it is a settled proposition of law that all laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by the legislature – An essential requirement for application of a legislation retrospectively is to show that the previous legislation had any omission or ambiguity or it was intended to explain an earlier act – In absence of the above ingredients, a legislation cannot be regarded as having retrospective effect – In the instant case, the amendment notification was not in clarificatory nature – Further, any ambiguity in regard to the date of application of the amendment thereto would necessarily have to be construed in favour of the State, unless shown otherwise by judicially acceptable parameters – Therefore, CESTAT has rightly upheld the levy of customs duty.
Dismissing the appeal, the Court
HELD: Whether customs duty can be charged on the nonexcisable goods produced in India and sold in DTA by an EOU?
1. The DTA sales pertaining to excisable goods made in conformity with the conditions of the EXIM policy are exigible to excise duty, but once there is contravention of the condition(s) of the EXIM policy, irrespective of the goods produced being excisable or non-excisable, the benefit under the exemption notification is unavailable. In such a situation, the very goods would become liable to imposition of customs duty as if being imported goods. [Para 15][1062-D]
2. In the present case, the notification provides for exemption on import of inputs and at the same time prescribes for adherence of certain conditions for availing the exemption. The notification further prescribes the rate at which the customs duty on the inputs used in the production of non-excisable goods sold in DTA is to be charged. Thus, the notification, having been issued in exercise of delegated legislation under Section 25 of the 1962 Act, has to be understood as “any other law”. Resultantly, the appellant, having availed exemption under the notification, cannot evade customs duty on the imported inputs at the rate prescribed by the notification. [Para 17][1063-B-C]
3. The show cause notice points out that the appellant imported raw materials like “Live Rose Plants” and consumables like fertilizers and planting materials, however, the appellant advisedly chose to confine its argument to “cut flowers”, which, as contended, were grown on Indian soil and thus not amenable to customs duty. However, the demand made in the show cause notice “treating” cut flowers as deemed to have been imported was only for the purpose of quantification of the customs duty on the imported inputs and not imposition of the customs duty on the domestically grown cut flowers as such. [Para 18][1063-D-E]
4. A priori, the demand in the present case, pertaining to the non-excisable goods has rightly been made under the 1962 Act upon the imported inputs used in the production of goods sold in DTA in violation of condition(s) in the EXIM Policy. [Para 20][1064-C]
5. In case of excisable goods, even the present notification takes resort to Section 3 of the 1944 Act, as can be seen from the notification dated 03.06.1994. Whereas, the provisions of the 1962 Act are invoked only when the goods are non-excisable. In the present case, since the cut flowers are non-excisable goods, the demand for payment of customs duty had rightly been made vide show cause notice under the provisions of the 1962 Act. [Para 22][1064-E-F]
Whether the amendment in terms of amended notification dated 18.05.2001, purporting to amend the criteria for determination of duty on inputs, is prospective or retrospective in its application?
6. The amended notification posits of carrying out amendments and substituting the charging clause of the inputs used in case of non-excisable goods. The language employed in the notification does not offer any guidance on whether the amendments as made were to apply prospectively or retrospectively. It is a settled proposition of law that all laws are deemed to apply prospectively unless either expressly specified to apply retrospectively or intended to have been done so by the legislature. The latter would be a case of necessary implication and it cannot be inferred lightly. [Para 24][1066-A-B]
7. The proviso to the charging section 3 of the 1944 Act provides that an EOU making DTA sales shall be charged duty as if the goods were imported into India and in value equal to the customs duty chargeable thereto. No doubt, the said provision applies only in cases of excisable goods, but the exemption notification providing for similar duty by terms thereunder for non-excisable goods, can be understood to have been made to equate the duty in case of excisable as well as non-excisable goods. Therefore, it must follow that the said provision was not an error that crept in but was intentionally introduced by the Government to determine the charging rate. That being the position prior to amendment, the amendment brought in cannot be said to be clarificatory in nature. [Para 28][1069-C-E]
8. In Vatika Township, Constitution Bench of this Court has analysed the principle concerning retrospectivity. It was made clear that an essential requirement for application of a legislation retrospectively is to show that the previous legislation had any omission or ambiguity or it was intended to explain an earlier act. In absence of the above ingredients, a legislation cannot be regarded as having retrospective effect. [Para 30][1069-G; 1071D]
9. It is relevant here to advert to a decision of Constitution Bench of this Court in Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal & Ors, wherein it has been held that an exemption clause ought to be strictly construed according to the language employed therein and in case of any ambiguity, benefit must go to the State. Applying the aforequoted dictum to the present case, the appellant was obliged to comply with the conditions prescribed by the EXIM Policy, to avail the exemption under the stated notification; and failure to do so, must denude them of the exemption so granted. Further, since the charging rate prescribed under the exemption notification is under question, any ambiguity in regard to the date of application of the amendment thereto would necessarily have to be construed in favour of the State, unless shown otherwise by judicially acceptable parameters. [Para 32][1072-B-C; 1073-B-C]
10. The next contention of the appellant is that Section 28 of the 1962 Act cannot be invoked to extend the limitation as there was no wilful mis-statement or suppression of facts on behalf of the appellant. In the fact situation of the present case, the appellant was issued a show cause notice mentioning that it had suppressed the DTA sales of cut flowers to evade payment of duty. Had the appellant in good faith believed that no duty was payable upon the DTA sales of cut flowers, it would have sought prior approval of the Development Commissioner, which it failed to do. Even in the letter seeking ex-post facto approval, the appellant claimed that they had not used any imported input such as fertilizer, plant growth regulations, etc. in growing flowers sold in DTA, despite having imported green house equipment, raw materials like Live Rose Plants and consumables like planting materials and fertilizers. Therefore, it prima facie appeared that suppression by the appellant was “wilful”. The burden of proving to the contrary rested upon the appellant, which the appellant failed to discharge by failing to establish that the imported inputs were not used in the production of the cut flowers sold in DTA. In view thereof, the authorities below have rightly invoked Section 28 of the 1962 Act and allied provisions. [Paras 33 and 34][1073-D, F-H; 1074-A]
Commissioner of Income Tax (Central) – I, New Delhi v. Vatika Township Private Limited (2015) 1 SCC 1 : [2014] 12 SCR 1037; Commissioner of Central Excise, New Delhi v. Hari Chand Shri Gopal & Ors. (2011) 1 SCC 236 : [2010] 13 SCR 820 – followed.
Union of India & Anr. v. IndusInd Bank Limited & Anr. (2016) 9 SCC 720 : [2016] 11 SCR 700 – relied on. Zile Singh v. State of Haryana & Ors. (2004) 8 SCC 1 : [2004] 3 Suppl. SCR 400 – inapplicable.
Uniworth Textiles Limited v. Commissioner of Central Excise, Raipur (2013) 9 SCC 753 : [2013] 3 SCR 27 – referred to.
Cosco Blossoms Pvt. Ltd v. Commissioner of Customs, Delhi 2004 (164) ELT 423 (Tri.-Del.); Commissioner of Central Excise and Customs v. Suresh Synthetics 2007 (216) ELT 662 (SC) – inapplicable.
Vikram Ispat v. Commissioner of Central Excise, Mumbai-III 2000 (120) ELT 800 (Tribunal-LB) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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