Case Note & Summary
The appeal arises from a dispute between M/s. L.R. Brothers Indo Flora Ltd., a 100% Export Oriented Unit (EOU) engaged in floriculture, and the Commissioner of Central Excise regarding customs duty on Domestic Tariff Area (DTA) sales of cut flowers. The appellant imported capital goods, raw materials, and consumables under exemption Notification No. 126/94-Cus, which exempted customs duty on inputs used for production of exported articles and, subject to conditions, for DTA sales. The EXIM Policy 1997-2002 permitted DTA sales up to 50% of produce for floriculture EOUs, conditional on achieving 20% positive net foreign exchange earning (NFEP) and approval from the Development Commissioner. The appellant made DTA sales worth Rs.38,40,537/- during 1998-99 to 2000-01 without obtaining prior approval and without meeting the NFEP requirement, as its exports were only Rs.91.92 lakhs against the prorata annual value of imported capital goods of Rs.2,42,37,400/-. The appellant later sought ex-post facto approval on 6.2.2001. The Additional Commissioner issued a show cause notice on 16.3.2001, invoking the extended period under Section 28 of the Customs Act, 1962 for wilful suppression, and confirmed a demand of customs duty of Rs.9,98,177/-, interest at 24% under Section 28AB, and penalty of equal amount under Section 114A. The Commissioner (Appeals) upheld the order. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) confirmed the levy. The Supreme Court considered the legal issues: whether cut flowers are excisable or non-excisable goods, the applicable rate of duty under the exemption notification as amended, and whether the extended period of limitation was correctly invoked. The court noted that cut flowers fall under Chapter 6 of the Customs Tariff but are not covered under the Central Excise Tariff Act, 1985, making them non-excisable. Under the original Notification No. 126/94-Cus, duty on non-excisable goods was leviable at a rate equivalent to the duty on the final articles if imported. However, the amendment Notification No. 56/01-Cus changed this to levy duty on the inputs at the rate specified for inputs, as if no exemption existed. The court held that the appellant's DTA sales were in clear contravention of the EXIM Policy and conditions of the exemption notification, and the appellant had wilfully suppressed facts by not disclosing the sales or obtaining permission. Therefore, the extended period under Section 28 was rightly invoked. The court upheld the demand of customs duty, interest, and penalty. The appeal was dismissed.
Headnote
A) Customs Law - DTA Sales by 100% EOU - Cut Flowers as Non-Excisable Goods - Notification No. 126/94-Cus dated 3.6.1994 as amended by Notification No. 56/01-Cus dated 18.5.2001 - The appellant, a 100% EOU in floriculture, sold cut flowers in DTA without permission and without achieving positive NFEP. The court examined the levy of customs duty on such sales. Held that cut flowers are non-excisable goods, and under the amended notification, customs duty is leviable on the inputs used for production at the rate specified for inputs, not at the rate equivalent to duty on final articles. (Paras 2-4) B) Customs Law - Extended Period of Limitation - Section 28 of Customs Act, 1962 - Wilful Suppression of Facts - The appellant made DTA sales without permission and without fulfilling conditions of EXIM Policy. The adjudicating authority invoked the extended period of five years under Section 28 on the ground of wilful suppression of facts. The court considered whether the appellant's conduct amounted to suppression. Held that the appellant's failure to disclose DTA sales and obtain permission constituted wilful suppression, justifying invocation of extended period. (Paras 4-5) C) Customs Law - Penalty - Section 114A of Customs Act, 1962 - The appellant was penalized for contravention of EXIM Policy and Notification No. 126/94-Cus. The court examined the imposition of penalty. Held that penalty is leviable for deliberate violation of conditions of exemption and policy. (Para 5)
Issue of Consideration
Whether the appellant, a 100% EOU, is liable to pay customs duty on cut flowers sold in DTA without permission of the Development Commissioner and in contravention of EXIM Policy, and whether the extended period of limitation under Section 28 of the Customs Act, 1962 is invokable.
Final Decision
The Supreme Court dismissed the appeal, upholding the demand of customs duty of Rs.9,98,177/-, interest at 24% under Section 28AB, and penalty of Rs.9,98,177/- under Section 114A of the Customs Act, 1962.
Law Points
- Customs duty on DTA sales by 100% EOU
- Non-excisable goods
- Notification No. 126/94-Cus
- Amendment Notification No. 56/01-Cus
- Section 28 of Customs Act 1962
- Section 28AB of Customs Act 1962
- Section 114A of Customs Act 1962
- EXIM Policy 1997-2002
- DTA sale entitlement
- Positive net foreign exchange earning
- Wilful suppression of facts
